UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal period ended: September 30, 2021

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to _____

 

Commission File Number: 001-31810

 

Cinedigm Corp.

(Exact name of registrant as specified in its charter)

 

Delaware   22-3720962
(State or Other Jurisdiction of
Incorporation or Organization)
  (I.R.S. Employer
Identification No.)
     
237 West 35th Street, Suite 605, New York, NY   10001
(Address of principal executive offices)   (Zip Code)

 

(212) 206-8600

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol   Name of each exchange on
which registered
CLASS A COMMON STOCK, PAR VALUE $0.001 PER SHARE   CIDM   NASDAQ GLOBAL MARKET

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

  

Large accelerated filer ☐   Accelerated filer ☐   Non-accelerated filer ☒   Smaller reporting company ☒   Emerging Growth Company ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒    

 

☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

As of November 11, 2021, 174,870,953 shares of Class A Common Stock, $0.001 par value, were outstanding.

  

 

 

 

 

   

CINEDIGM CORP.

TABLE OF CONTENTS

 

    Page
  PART I - FINANCIAL INFORMATION  
     
Item 1. Condensed Consolidated Financial Statements (Unaudited) 1
  Condensed Consolidated Balance Sheets at September 30, 2021 (Unaudited) and March 31, 2021 1
  Unaudited Condensed Consolidated Statements of Operations for the Three Months and Six Months ended September 30, 2021 and 2020 2
  Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months and Six Months ended September 30, 2021 and 2020 3
  Unaudited Condensed Consolidated Statements of (Deficit) Equity for the Three Months and Six Months ended September 30, 2021 and 2020 4
  Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended September 30, 2021 and 2020 6
  Notes to the Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31
Item 4. Controls and Procedures 47
     
  PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 49
Item 1A. Risk Factors 49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 49
Item 3. Defaults Upon Senior Securities 49
Item 4. Mine Safety Disclosures 49
Item 5. Other Information 49
Item 6. Exhibits 50
Exhibit Index 50
Signatures 51

 

i

 

  

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

 

CINEDIGM CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share data)

 

    September 30,
2021
    March 31,
2021
 
    (Unaudited)        
ASSETS            
Current assets            
Cash and cash equivalents   $ 12,645     $ 16,849  
Accounts receivable, net     24,151       21,093  
Inventory     122       166  
Unbilled revenue     2,074       1,377  
Prepaid and other current assets     3,610       3,657  
Total current assets     42,602       43,142  
Restricted cash    
-
      1,000  
Equity investment in Starrise, a related party, at fair value     7,443       6,443  
Property and equipment, net     2,546       3,500  
Right-of-use assets     31       100  
Intangible assets, net     16,367       9,860  
Goodwill     13,527       8,701  
Other long-term assets     1,385       2,700  
Total assets   $ 83,901     $ 75,446  
LIABILITIES AND EQUITY                
Current liabilities                
Accounts payable and accrued expenses   $ 52,741     $ 46,627  
Current portion of notes payable (see Note 5)    
-
      1,956  
Current portion of notes payable, non-recourse (see Note 5)    
-
      7,786  
Current portion of deferred consideration on purchase of a business     465      
-
 
Current portion of earnout consideration on purchase of a business     277      
-
 
Operating lease liabilities, current portion     28       87  
Current portion of deferred revenue     167       924  
Total current liabilities     53,678       57,380  
PPP Loan    
-
      2,152  
Deferred consideration on purchase of a business, net of current portion     1,515      
-
 
Earnout consideration on purchase of a business, net of current portion     1,184      
-
 
Operating lease liabilities, net of current portion     3       13  
Other long-term liabilities    
-
      19  
Total liabilities     56,380       59,564  
Commitments and contingencies (see Note 7)    
 
     
 
 
Stockholders’ equity                
Preferred stock, 15,000,000 shares authorized; Series A 10% - $0.001 par value per share; 20 shares authorized; and 7 shares issued and outstanding at September 30, 2021 and March 31, 2021. Liquidation preference of $3,737     3,559       3,559  
Common stock, $0.001 par value; Class A stock 200,000,000 and 200,000,000 shares authorized at September 30, 2021 and March 31, 2021, respectively; 170,426,311 and 167,542,404 shares issued and 169,110,460 and 166,228,568 shares outstanding at September 30, 2021 and March 31, 2021, respectively     167       164  
Additional paid-in capital     506,111       499,272  
Treasury stock, at cost; 1,315,851 and 1,313,836 Class A common shares at September 30, 2021 and March 31, 2021, respectively     (11,608 )     (11,603 )
Accumulated deficit     (469,255 )     (474,080 )
Accumulated other comprehensive loss     (87 )     (68 )
Total stockholders’ equity of Cinedigm Corp.     28,887       17,244  
Deficit attributable to noncontrolling interest     (1,366 )     (1,362 )
Total equity     27,521       15,882  
Total liabilities and equity   $ 83,901     $ 75,446  

  

See accompanying Notes to Condensed Consolidated Financial Statements

  

1

 

 

CINEDIGM CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except for share and per share data)

 

    Three Months Ended
September 30,
    Six Months Ended
September 30,
 
    2021     2020     2021     2020  
Revenues   $ 10,103     $ 7,182     $ 25,118     $ 13,200  
Costs and expenses:                                
Direct operating (excludes depreciation and amortization shown below)     3,333       4,330       7,964       7,009  
Selling, general and administrative     7,159       6,168       13,202       10,008  
Recovery for doubtful accounts     (111 )     (193 )     (40 )     (193 )
Depreciation and amortization of property and equipment     440       1,345       1,089       2,869  
Amortization of intangible assets     696       591       1,543       1,181  
Total operating expenses     11,517       12,241       23,758       20,874  
Income (loss) from operations     (1,414 )     (5,059 )     1,360       (7,674 )
Interest expense, net     (36 )     (1,194 )     (180 )     (2,484 )
Gain (loss) on forgiveness of PPP loan and extinguishment of note payable    
-
      (335 )     2,178       (312 )
Change in fair value of equity investment in Starrise, a related party     666       (19,832 )     1,000       (35,626 )
Other expense, net     102       (327 )     91       (521 )
Income (loss) before income taxes     (682 )     (26,747 )     4,449       (46,617 )
Income tax benefit     487       181       550       181  
Net income (loss)     (195 )     (26,566 )     4,999       (46,436 )
Net income attributable to noncontrolling interest     11       23       4       37  
Net income (loss) attributable to controlling interests     (184 )     (26,543 )     5,003       (46,399 )
Preferred stock dividends     (89 )     (89 )     (178 )     (178 )
Net income (loss) attributable to common stockholders   $ (273 )   $ (26,632 )   $ 4,825     $ (46,577 )
Net income (loss) per Class A common stock attributable to common stockholders - basic:   $
-
    $ (0.23 )   $ 0.03     $ (0.45 )
Weighted average number of Class A common stock outstanding: basic     168,275,139       114,532,217       167,524,744       104,529,411  
Net income (loss) per Class A common stock attributable to common stockholders - diluted:   $
-
    $ (0.23 )   $ 0.03     $ (0.45 )
Weighted average number of Class A common stock outstanding: diluted     168,275,139       114,532,217       170,743,885       104,529,411  

 

See accompanying Notes to Condensed Consolidated Financial Statements

  

2

 

 

CINEDIGM CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands)

 

    Three Months Ended
September 30,
    Six Months Ended
September 30,
 
    2021     2020     2021     2020  
Net income (loss)   $ (195 )   $ (26,566 )   $ 4,999     $ (46,436 )
Other comprehensive (loss) income: foreign exchange translation     35       (30 )     (19 )     (110 )
Comprehensive income (loss)     (160 )     (26,596 )     4,980       (46,546 )
Less: comprehensive income attributable to noncontrolling interest     11       23       4       37  
Comprehensive income (loss) attributable to controlling interests   $ (149 )   $ (26,573 )   $ 4,984     $ (46,509 )

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

3

 

  

CINEDIGM CORP.

CONSDENSED CONSOLIDATED STATEMENTS OF (DEFICIT) EQUITY

(Unaudited)

(In thousands, except share data)

  

    Series A
Preferred Stock
    Class A
Common Stock
    Treasury     Additional
Paid-In
    Accumulated     Accumulated Other Comprehensive     Total Stockholders’     Non-Controlling     Total  
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Loss     Deficit     Interest     Deficit  
Balances as of March 31, 2020     7     $ 3,559       61,937,593     $ 62       1,313,836     $ (11,603 )   $ 400,784     $ (410,904 )   $ 92     $ (18,010 )   $ (1,277 )   $ (19,287 )
Foreign exchange translation          
           
           
     
     
      (80 )     (80 )    
      (80 )
Stock issued in connection with the SPA with certain investors, net          
      10,666,666       11            
      7,139      
     
      7,150      
      7,150  
Issuance of Class A common stock in connection with the Starrise transaction, a related party          
      29,855,081       30            
      11,016      
     
      11,046      
      11,046  
Contributed capital under the Starrise transaction, a related party          
           
           
      17,187      
     
      17,187      
      17,187  
Issuance of stock in connection with settlement of second lien loan          
      329,501      
           
      757      
     
      757      
      757  
Exercise of warrants for Class A common stock          
      236,899      
           
      301      
     
      301      
      301  
Stock-based compensation          
           
           
      177      
     
      177      
      177  
Preferred stock dividends paid with common stock          
      267,079      
           
      89       (89 )    
     
     
     
 
Net loss          
           
           
     
      (19,856 )    
      (19,856 )     (14 )     (19,870 )
Balances as of June 30, 2020     7       3,559       103,292,819       103       1,313,836       (11,603 )     437,450       (430,849 )     12       (1,328 )     (1,291 )     (2,619 )
Foreign exchange translation          
           
           
     
     
      (30 )     (30 )    
      (30 )
July 2020 issuance of Class A common stock, net of $695 in issuance costs          
      7,213,334       7            
      10,118      
              10,125      
      10,125  
Common stock issued in connection with conversion of Convertible Notes          
      10,000,000       10            
      14,990      
     
      15,000      
      15,000  
Issuance of common stock for third party professional service          
      80,000      
           
      71      
     
      71      
      71  
Issuance of Class A common stock to management and employees          
      689,364       1            
      785      
     
      786      
      786  
Issuance of common stock in connection with performance stock units          
      373,647      
           
     
     
     
     
     
     
 
Common stock issued to settle second lien loan          
      33,465                  
      61      
     
      61      
      61  
Stock-based compensation          
           
           
      178      
     
      178      
      178  
Preferred stock dividends paid with common stock          
      44,913      
           
      89       (89 )    
     
     
     
 
Net loss          
           
           
     
      (26,543 )    
      (26,543 )     (23 )     (26,566 )
Balances as of September 30, 2020     7     $ 3,559       121,727,542     $ 121       1,313,836     $ (11,603 )   $ 463,742     $ (457,481 )   $ (18 )   $ (1,680 )   $ (1,314 )   $ (2,994 )

 

See accompanying Notes to Condensed Consolidated Financial Statements

  

4

 

  

CINEDIGM CORP.

CONDENSED CONSOLIDATED STATEMENTS OF (DEFICIT) EQUITY

(Unaudited)

(In thousands, except share data)

 

    Series A
Preferred
Stock
    Class A
Common Stock
    Treasury     Additional
Paid-In
    Accumulated     Accumulated
Other
Comprehensive
    Total
Stockholders’
Equity
    Non-Controlling     Total
Equity
 
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Loss     (Deficit)     Interest     (Deficit)  
Balances as of March 31, 2021     7     $ 3,559       166,228,568     $ 164       1,313,836     $ (11,603 )   $ 499,272     $ (474,080 )   $ (68 )   $ 17,244     $ (1,362 )   $ 15,882  
Foreign exchange translation          
           
           
     
     
      (54 )     (54 )    
      (54 )
Stock-based compensation          
      35,714      
           
      983      
     
      983      
      983  
Issuance of common stock in connection with a business combination          
      1,483,129       2            
      2,504      
     
      2,506      
      2,506  
Preferred stock dividends paid with common stock          
      53,278      
           
      89       (89 )    
     
     
     
 
Net income          
           
           
     
      5,187      
      5,187       7       5,194  
Balances as of June 30, 2021     7       3,559       167,800,689       166       1,313,836       (11,603 )     502,848       (468,982 )     (122 )     25,866       (1,355 )     24,511  
Foreign exchange translation          
           
           
     
     
      35       35      
      35  
Stock-based compensation          
      132,630      
           
      946      
     
      946      
      946  
Issuance of common stock in connection with business combinations          
      1,179,156       1            
      2,317      
     
      2,318      
      2,318  
Treasury stock in connection with taxes withheld from employees          
      (2,015 )    
      2,015       (5 )    
     
     
      (5 )    
      (5 )
Preferred stock dividends          
           
           
     
      (89 )    
      (89 )    
      (89 )
Net loss          
           
           
     
      (184 )    
      (184 )     (11 )     (195 )
Balances as of September 30, 2021     7       3,559       169,110,460       167       1,315,851       (11,608 )     506,111       (469,255 )     (87 )     28,887       (1,366 )     27,521  

 

See accompanying Notes to Condensed Consolidated Financial Statements

  

5

 

 

CINEDIGM CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

    Six Months Ended
September 30,
 
    2021     2020  
Cash flows from operating activities:            
Net income (loss)   $ 4,999     $ (46,436 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                
Depreciation and amortization of property and equipment and amortization of intangible assets     2,632       4,050  
Changes in fair value of equity investment in Starrise     (1,000 )     35,626  
(Gain) loss from forgiveness of PPP loan and extinguishment of note payable     (2,178 )     312  
Impairment of advances     399       40  
Loss from sale of property and equipment    
-
      44  
Amortization of debt issuance costs included in interest expense    
-
      139  
Provision for doubtful accounts     (40 )     (193 )
Recovery for inventory reserve     (26 )     (909 )
Stock-based compensation     1,929       1,212  
Accretion and PIK interest expense added to note payable    
-
      199  
Changes in operating assets and liabilities, net of acquisitions:                
Accounts receivable     (2,887 )     11,733  
Inventory     70       1,249  
Unbilled revenue     (697 )     (236 )
Prepaids and other current assets, and other long-term assets     961       60  
Accounts payable, accrued expenses, and other liabilities     5,953       (18,909 )
Deferred revenue     (757 )     (754 )
Net cash provided by (used in) operating activities     9,358       (12,773 )
Cash flows from investing activities:                
Purchases of property and equipment     (81 )     (111 )
Purchase of businesses     (4,750 )    
-
 
Proceeds from the sale of property and equipment     -       91  
Sale of equity investment in Starrise     11       809  
Net cash (used in) provided by investing activities     (4,820 )     789  
Cash flows from financing activities:                
Payments of notes payable     (7,786 )     (14,004 )
(Payments) proceeds under revolving credit agreement, net     (1,956 )     8,469  
Proceeds from PPP Loan    
-
      2,152  
Proceeds from issuance of Class A common stock, net    
-
      17,576  
Net cash (used in) provided by financing activities     (9,742 )     14,193  
Net change in cash, cash equivalents, and restricted cash     (5,204 )     2,209  
Cash, cash equivalents, and restricted cash at beginning of period     17,849       15,294  
Cash, cash equivalents, and restricted cash at end of period   $ 12,645     $ 17,503  

  

See accompanying Notes to Condensed Consolidated Financial Statements

  

6

 

 

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except share information)

 

1. NATURE OF OPERATIONS AND LIQUIDITY

 

Cinedigm Corp. (“Cinedigm,” the “Company,” “we,” “us,” or similar pronouns) was incorporated in Delaware on March 31, 2000. We are (i) a distributor and aggregator of independent movie, television and other short form content managing a library of distribution rights to thousands of titles and episodes released across digital, physical, theatrical, home and mobile entertainment platforms (“Streaming”) and (ii) a servicer of digital cinema assets (“Systems”) for over 4,822 movie screens in both North America and several international countries.

 

We report our financial results in two primary segments as follows: (1) cinema equipment business and (2) media content and entertainment business (“Content & Entertainment” or “CEG”). The cinema equipment business segment consists of the non-recourse, financing vehicles and administrators for our digital cinema equipment (the “Systems”) installed in movie theatres throughout North America and several international countries. It also provides fee-based support to over 4,822 movie screens as well as directly to exhibitors and other third-party customers in the form of monitoring, billing, collection and verification services. Our Content & Entertainment segment operates in: (1) ancillary market aggregation and distribution of entertainment content and (2) branded and curated over-the-top (“OTT”) digital network business providing entertainment channels and applications.

 

Risks and Uncertainties

 

The COVID-19 pandemic and related economic repercussions created significant volatility and uncertainty impacting the Company’s results for the period. As part of our Content & Entertainment business, the Company sells DVDs and Blu-ray discs at brick-and-mortar stores. Due to the lingering effects of the COVID-19 pandemic in the six-month period ended September 30, 2021, the sale of physical discs through our retail partners declined although this was partially offset by digital purchases of physical product and increases in streaming views. As part of our Cinema Equipment business, the Company earns revenue when movies are exhibited in theatres. As vaccines became readily available and COVID-19 cases decreased, major studios began to test consumer confidence by releasing blockbusters in the theatrical venues during the six months ended September 30, 2021. The test period during the prior quarters encouraged theatre re-openings and proved commercial viability for theatrical distribution of tentpole films. Films released during the summer period saw an uptick in box office revenue compared to the previous 12 months; however, box office results remained below pre-COVID expectations due to limited seating capacities and shortened windows for release on streaming platforms such as premium video on demand (“PVOD”) and subscription video on demand (“SVOD”). To the extent films are not shown in theatres, we do not earn revenue.

 

Liquidity

 

We have incurred net losses historically and have an accumulated deficit of $469.3 million and negative working capital of $11.1 million as of September 30, 2021. We may continue to generate net losses for the foreseeable future. In addition, we had debt-related contractual obligations and upon a series of payments between April 30 and July 9, 2021, the Company paid in full the Prospect Loan (as defined below) non-recourse debt amount by paying an aggregate principal amount of $7.8 million. As of September 30, 2021 there was $0 million outstanding and there was no availability under the Credit Facility which expired on September 28, 2021. Net cash provided by operating activities for the six months ended September 30, 2021 was $9.4 million. Based on these conditions, the Company entered into the following transactions described below:

 

Sale of Cinematic Equipment

 

On March 17, 2021, the Company entered into two separate agreements for the sale of cinematic equipment to American Multi-Cinema, Inc. (“AMC”), The agreements included the sale in tranches of a total of 2,369 cinematic projectors starting in March 2021 and continuing through January 2023 for total cash consideration of $10.8 million. Through September 30, 2021, the Company executed the sale of the first two tranches and recognized aggregate revenue for $7.8 million. A portion of the total proceeds were used to paydown the remaining outstanding balance of the Prospect Loan notes payable.

  

7

 

 

Equity Investment in a Related Party

 

On December 27, 2019, the Company entered into, and on February 14, 2020 amended, (see Note 2 - Summary of Significant Accounting Policies), a stock purchase agreement (as so amended, the “Starrise Stock Purchase Agreement”) with BeiTai Investment LP (“BeiTai”), a related party for accounting purposes of Cinedigm and Aim Right Ventures Limited (“Aim Right”), two shareholders of Starrise Media Holdings Limited, a leading Chinese entertainment company (“Starrise”), to buy from them an aggregate of 410,901,000 outstanding Starrise ordinary shares (the “Starrise Share Acquisition”). On February 14, 2020, the Company purchased 162,162,162 of the Starrise ordinary shares from BeiTai and issued BeiTai 21,646,604 shares of its Class A common stock, par value $.001 per share (the “Common Stock”) in consideration therefor. The Starrise shares received were valued at approximately $25 million and the Company issued shares that were valued at approximately $11.2 million. On April 10, 2020, the Company, in accordance with the terms of the Stock Purchase Agreement, terminated its obligation to purchase Starrise ordinary shares from Aim Right under the Starrise Stock Purchase Agreement.

 

On April 10, 2020, the Company entered into another stock purchase agreement (the “April Starrise Stock Purchase Agreement”) with five (5) shareholders of Starrise - Bison Global Investment SPC - Bison Global No. 1 SP, Huatai Investment LP, Antai Investment LP, Mingtai Investment LP and Shangtai Asset Management LP, all of which are related parties to the Company to buy an aggregate of 223,380,000 outstanding Starrise ordinary shares from them and for the Company to issue to them an aggregate of 29,855,081 shares of its Common Stock as consideration therefor (the “April Starrise Share Acquisition”). On April 15, 2020, the April Starrise Share Acquisition was consummated and this transaction was also recorded as an equity investment in Starrise.

 

Starrise’s ordinary shares (HK 1616) are listed on the main board of the Stock Exchange of Hong Kong Limited. Based on the closing price of HKD 0.159 per share on November 11, 2021, calculated at an exchange rate of 7.8 Hong Kong Dollars to 1 US dollar, the market value of Cinedigm’s ownership in Starrise ordinary shares was approximately $7.4 million. 

 

Borrowings

 

On June 22, 2021, the maturity date of the East West Credit Facility (as defined in Note 5 - Notes Payable) with East West Bank was extended from June 30, 2021 to September 28, 2021. The September 28, 2021 expiration date has passed and no amendment has been entered into as of the date of filing of this Quarterly Report on Form 10-Q.

 

On April 15, 2020, the Company received $2.2 million from East West Bank, pursuant to the Paycheck Protection Program (the “PPP Loan”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 10, 2022 (the “PPP Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are due within the initial six months of the PPP Loan. The interest accrued during the initial six-month period is due and payable, together with the principal, on the PPP Maturity Date. The Company used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts were intended to be eligible for forgiveness, subject to the provisions of the CARES Act and could be subject to repayment. On July 7, 2021, the Company received notification from the lender that the U.S. Small Business Administration had approved the Company’s PPP Loan forgiveness application for the entire PPP Loan amount and accrued interest effective as of June 30, 2021. The forgiveness of the PPP Loan was recognized as a gain of $2.2 million during the Company’s fiscal quarter ending June 30, 2021.

 

Upon a series of payments between April 30 and July 9, 2021, the Company paid in full the Prospect loan non-recourse outstanding debt amount by paying an aggregate principal amount of $7.8 million. Pre-payment of the Prospect Loan was permissible without penalty.

 

We believe the combination of: (i) our cash and cash equivalent balances at September 30, 2021, and (ii) expected cash flows from operations as well as liquidity for our operational and capital needs, for twelve months from the filing of this report. Our capital requirements will depend on many factors, and we may need to use capital resources and obtain additional capital. Failure to generate additional revenues, obtain additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations and liquidity.

 

8

 

  

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BASIS OF PRESENTATION AND CONSOLIDATION

 

Our consolidated financial statements include the accounts of Cinedigm and its wholly-owned and majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

 

Investments in which we do not have a controlling interest or are not the primary beneficiary, but have the ability to exert significant influence, are accounted for under the equity method of accounting. Noncontrolling interests for which we have been determined to be the primary beneficiary are consolidated and recorded as net loss attributable to noncontrolling interest. See Note 3 - Other Interests to the Consolidated Financial Statements for a discussion of our noncontrolling interests.

 

USE OF ESTIMATES

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect the assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates include the adequacy of accounts receivable reserves, return reserves, inventory reserves, recovery of advances, assessment of goodwill impairment, long-lived and finite-lived assets impairment and estimated amortization lives, fair value for asset acquisitions and business combinations, valuation allowances for income taxes and stock awards. Actual results could differ from these estimates.

 

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

 

We consider all highly liquid investments with an original maturity of three months or less to be “cash equivalents.” We maintain bank accounts with major banks, which from time to time may exceed the Federal Deposit Insurance Corporation’s insured limits. We periodically assess the financial condition of the institutions and believe that the risk of any loss is minimal. Our Prospect Loan required that we maintain specified cash balances that are restricted to repayment of interest thereunder. See Note 5 - Notes Payable for information about our restricted cash balances.

 

Cash, cash equivalents, and restricted cash consisted of the following:

 

    As of  
(in thousands)   September 30,
2021
    September 30,
2020
 
Cash and Cash Equivalents   $ 12,645     $ 16,503  
Restricted Cash    
-
      1,000  
    $ 12,645     $ 17,503  

 

EQUITY INVESTMENT IN STARRISE, A RELATED PARTY

 

On February 14, 2020, the Company acquired an approximately 11.5% interest in Starrise, a leading publicly traded Chinese entertainment company whose ordinary shares are listed on the Stock Exchange of Hong Kong. The Company acquired such interest as a strategic investment and in a private transaction from a shareholder of Starrise that is related to our major shareholders. When we acquired the Starrise stock, our then-majority affiliated stockholders also maintained a significant beneficial interest in Starrise. Upon consummation of the transaction on February 14, 2020, the Company recorded an initial investment of approximately $25.1 million, which is the fair market value of the Starrise shares on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Company’s common stock of $11.2 million, valued as of the date of the issuance of the Common Stock. The difference in value of shares received in Starrise and shares issued by the Company was deemed as contributed capital and recorded in additional paid-in capital.

 

9

 

  

On April 10, 2020, the Company purchased an additional 15% interest in Starrise in a private transaction from shareholders of Starrise that are affiliated with the then-major shareholder of the Company. The Company recorded an additional equity investment of approximately $28.2 million, which is the fair market value of the Starrise shares on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Common Stock of $11.0 million, valued at the date of the issuance of the Common Stock. The difference in the value of shares received in Starrise and shares issued by the Company was deemed as contributed capital and recorded in additional paid-in capital. This transaction was also recorded as an equity investment in Starrise.

 

The Company has made an irrevocable election to apply the fair value accounting option under ASC 825-10, Financial Instruments, as it relates to its equity investment in Starrise. The Company’s investment in Starrise is marked to market and recorded at fair value.  The stock is traded on the Hong Kong Stock exchange with readily available pricing that is classified as Level 1 in the fair value hierarchy. The Company has established a policy that consistently uses either the closing price of last active trades or the latest bid price when there is no active trades, unadjusted at the last day of each reporting period, as the most relevant and representative input to the Level 1 fair value measures of its investment holdings.

 

As of September 30, 2021 and March 31, 2021, the value of our equity investment in Starrise, using the readily determinable fair value inputs from the market pricing of the Stock Exchange of Hong Kong, was approximately $7.4 million and $6.4 million, respectively, resulting in a change in fair value of approximately $1.0 million and ($35.6) million for the six months ended September 30, 2021 and 2020 respectively, on our consolidated statement of operations. On April 1 and May 5, 2021, the Company sold 80,000 and 600,000 Starrise’s ordinary shares, respectively for a total amount of $11 thousand. At September 30, 2021 and March 31, 2021, the Company owned 362,307,397 and 362,987,397 ordinary shares or 18% and 26% of Starrise, respectively.

 

NON-MONETARY TRANSACTIONS

 

During the three and six months ended September 30, 2020, the Company entered into agreements with certain vendors to transfer 7,116,100 and 16,122,315 Starrise shares to satisfy outstanding liabilities with these vendors. Upon the sale of the Starrise shares by the vendors, with certain restrictions on sales unless the Company gives consent to sell, if the proceeds do not satisfy the amount due to the vendor, the Company is liable for the balance owed. There were no such transactions during the six months ended September 30, 2021.

 

There was no gain or loss resulting from these transactions for the three and six months ended September 30, 2021 and 2020.

 

ACCOUNTS RECEIVABLE

 

We maintain reserves for potential credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.

 

We record accounts receivable, long-term in connection with activation fees that we earn from our digital cinema equipment (the “Systems”) deployments that have extended payment terms. Such accounts receivable are discounted to their present value at prevailing market rate.

 

ADVANCES

 

Advances, which are recorded within prepaid and other current assets on the consolidated balance sheets, represent amounts prepaid to studios or content producers for which we provide content distribution services. We evaluate advances regularly for recoverability and record impairment charges for amounts that we expect may not be recoverable as of the consolidated balance sheet date. Impairments and accelerated amortization related to advances were $0.2 million and $0 million, respectively, for the three months ended September 30, 2021 and 2020. Impairments and accelerated amortization related to advances were $0.4 million and $0.04 million, respectively, for the six months ended September 30, 2021 and 2020.

 

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PROPERTY AND EQUIPMENT

 

Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation expense is recorded using the straight-line method over the estimated useful lives of the respective assets as follows:

 

Computer equipment and software     3 - 5 years  
Internal use software     5 years  
Digital cinema projection systems     10 years  
Machinery and equipment     3 - 10 years  
Furniture and fixtures     3 - 6 years  

 

We capitalize costs associated with software developed or obtained for internal use when the preliminary project stage is completed, and it is determined that the software will provide significantly enhanced capabilities and modifications. These capitalized costs are included in property and equipment and include external direct cost of services procured in developing or obtaining internal-use software and personnel and related expenses for employees who are directly associated with, and who devote time to internal-use software projects. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended use. Once the software is ready for its intended use, the costs are amortized over the useful life of the software. Post-configuration training and maintenance costs are expensed as incurred.

 

Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the leasehold improvements. Repair and maintenance costs are charged to expense as incurred. Major renewals, improvements and additions are capitalized. Upon the sale or other disposition of any property and equipment, the cost and related accumulated depreciation and amortization are removed from the accounts and the gain or loss on disposal is included in the consolidated statements of operations.

 

FAIR VALUE MEASUREMENTS

 

The fair value measurement disclosures are grouped into three levels based on valuation factors:

 

  Level 1 – quoted prices in active markets for identical investments

 

  Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs)

 

  Level 3 – significant unobservable inputs (including our own assumptions in determining the fair value of investments)

 

Assets and liabilities measured at fair value on a recurring basis use the market approach, where prices and other relevant information are generated by market transactions involving identical or comparable assets or liabilities.

 

The equity investment in Starrise is in Hong Kong dollars and was translated into US dollars as of September 30, 2021 and March 31, 2021 at an exchange rate of 7.8 and 7.8 Hong Kong Dollars to 1 US Dollar, respectively. The fair value of this equity investment is measured by the unadjusted market pricing of Starrise on the Stock Exchange of Hong Kong.

 

The following tables summarize the levels of fair value measurements of our financial assets and liabilities as of September 30, 2021 and March 31, 2021:

 

As of September 30, 2021                        
                         
(in thousands)   Level 1     Level 2     Level 3     Total  
Equity investment in Starrise, at fair value   $ 7,443     $
    $
    $ 7,443  
    $ 7,443     $
     
    $ 7,443  

 

As of March 31, 2021                        
                         
(in thousands)   Level 1     Level 2     Level 3     Total  
Restricted cash   $ 1,000     $
    $
    $ 1,000  
Equity investment in Starrise, at fair value     6,443      
     
      6,443  
    $ 7,443     $
    $
    $ 7,443  

 

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Our cash and cash equivalents, accounts receivable, unbilled revenue and accounts payable and accrued expenses are financial instruments and are recorded at cost in the consolidated balance sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature.

 

IMPAIRMENT OF LONG-LIVED AND FINITE-LIVED ASSETS

 

We review the recoverability of our long-lived assets and finite-lived intangible assets, when events or conditions occur that indicate a possible impairment exists. The assessment for recoverability is based primarily on our ability to recover the carrying value of our long-lived and finite-lived assets from expected future undiscounted net cash flows. If the total of expected future undiscounted net cash flows is less than the total carrying value of the asset, the asset is deemed not to be recoverable and possibly impaired. We then estimate the fair value of the asset to determine whether an impairment loss should be recognized. An impairment loss will be recognized if the asset’s fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted cash flows. During the three and six months ended September 30, 2021 and 2020, no impairment charge was recorded from operations for long-lived assets or finite-lived assets.

 

GOODWILL

 

Goodwill is the excess of the purchase price paid over the fair value of the net assets of an acquired business. Goodwill is tested for impairment on an annual basis or more often if warranted by events or changes in circumstances indicating that the carrying value may exceed fair value, also known as impairment indicators.

 

Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current economic indicators and market conditions, and assumptions about our strategic plans with regard to its operations. To the extent additional information arises, market conditions change, or our strategies change, it is possible that the conclusion regarding whether our remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material effect on our consolidated financial position or results of operations.

 

The Company has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or to perform the quantitative impairment test.

 

No goodwill impairment charge was recorded in the six months ended September 30, 2021 and 2020.

 

Gross amounts of goodwill and accumulated impairment charges that we have recorded are as follows:

 

(In thousands)      
Goodwill at March 31, 2021   $ 8,701  
Goodwill from business combinations – see Note 4     4,826  
Goodwill at September 30, 2021   $ 13,527  

 

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REVENUE RECOGNITION

 

We determine revenue recognition by:

 

  identifying the contract, or contracts, with the customer;

 

  identifying the performance obligations in the contract;

 

  determining the transaction price;

 

  allocating the transaction price to performance obligations in the contract; and

 

  recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services.

 

We recognize revenue in the amount that reflects the consideration we expect to receive in exchange for the services provided, sales of physical products (e.g., DVDs and Blu-ray Discs) or when the content is available for subscription on the digital platform or available on the point-of-sale for transactional and video on demand services which is when the control of the promised products and services is transferred to our customers and our performance obligations under the contract have been satisfied. Revenues that might be subject to various taxes are recorded net of transaction taxes assessed by governmental authorities such as sales value-added taxes and other similar taxes.

 

Payment terms and conditions vary by customer and typically provide net 30 to 90 day terms. We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and payment for that product or service will be one year or less.

 

Cinema Equipment Business

 

Our Cinema Equipment Business consists of financing vehicles and administrators for 1,813 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 3,009 Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”).

 

We retain ownership of our digital cinema equipment (the “Systems”) and the residual cash flows related to the Systems in Phase I Deployment after the end of the 10-year deployment payment period.

 

For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.

 

The Cinema Equipment Business also provides monitoring, data collection, serial data verification and management services to this segment, as well as to exhibitors who purchase their own equipment, in order to collect virtual print fees (“VPFs”) from motion picture studios and distributors and Alternative Content Fees (“ACFs”) from alternative content providers, and to distribute those fees to theatrical exhibitors (collectively, “Services”).

 

VPFs are earned, net of administrative fees, pursuant to contracts with movie studios and distributors, whereby amounts are payable by a studio to Phase I Deployment and to Phase II Deployment when movies distributed by the studio are displayed on screens utilizing our Systems installed in movie theatres. VPFs are earned and payable to Phase I Deployment based on a defined fee schedule until the end of the VPF term. One VPF is payable for every digital title initially displayed per System. The amount of VPF revenue is dependent on the number of movie titles released and displayed using the Systems in any given accounting period. VPF revenue is recognized in the period the title first plays for general audience viewing in a digital projector equipped movie theatre. The Phase 1 Deployment’s and Phase 2 Deployments performance obligations for revenue recognition are met at this time. 

  

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Phase II Deployment’s agreements with distributors require the payment of VPFs, according to a defined fee schedule, for ten years from the date each system is installed; however, Phase II Deployment may no longer collect VPFs once “cost recoupment,” as defined in the contracts with movie studios and distributors, is achieved. Cost recoupment will occur once the cumulative VPFs and other cash receipts collected by Phase II Deployment have equaled the total of all cash outflows, including the purchase price of all Systems, all financing costs, all “overhead and ongoing costs”, as defined, and including service fees, subject to maximum agreed upon amounts during the three-year rollout period and thereafter. Further, if cost recoupment occurs before the end of the eighth contract year, the studios will pay us a one-time “cost recoupment bonus.” The Company evaluated the constraining estimates related to the variable consideration, i.e., the one-time bonus and determined that it is not probable to conclude at this point in time that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is subsequently resolved.

 

Under the terms of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive one-year terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we typically pursue the sale of the Systems to such exhibitors. Cinedigm recognizes revenue once the customer takes possession of the systems and is predicated on Cinedigm’s receipt of sale proceeds. Such sales were as originally contemplated as the conclusion of the digital cinema deployment plan.  Total system sales revenue recognized were $2.2 million and $15 thousand, during the three months ended September 30, 2021 and 2020, respectively. Total system sales revenue recognized were $7.8 million and $91 thousand, during the six months ended September 30, 2021 and 2020, respectively. Revenues earned in connection with up front exhibitor contributions are deferred and recognized over the expected cost recoupment period.

 

Exhibitors who purchased and own Systems using their own financing in the Cinema Equipment Business paid us an upfront activation fee of approximately $2.0 thousand per screen (the “Exhibitor-Buyer Structure”). Upfront activation fees were recognized in the period in which these Systems were delivered and ready for content, as we had no further obligations to the customer after that time and collection was reasonably assured. In addition, we recognize activation fee revenue of between $1.0 thousand and $2.0 thousand on Phase II Deployment Systems and for Systems installed by CDF2 Holdings, a related party, (See Note 3 - Other Interests) upon installation and such fees are generally collected upfront upon installation. Our services division manages and collects VPFs on behalf of exhibitors, for which it earns an administrative fee equal to 10% of the VPFs collected.

 

The Cinema Equipment Business earns an administrative fee of approximately 5% of VPFs collected and, in addition, earns an incentive service fee equal to 2.5% of the VPFs earned by Phase 1 DC. This administrative fee is related to the collection and remittance of the VPF’s and the performance obligation is satisfied at that time the related VPF fees are due which is at the time the movies are displayed on screens utilizing our Systems installed in movie theatres. The service fees are recognized as a point in time revenue when the corresponding VPF fees are due from the movie studios and distributors.

 

Content& Entertainment Business

 

CEG earns fees for the distribution of content in the home entertainment markets via several distribution channels, including digital, video on demand (“VOD” or “OTT Streaming and Digital”), and physical goods (e.g., DVDs and Blu-ray Discs) (“Physical Revenue” or “Base Distribution Business”). Fees earned are typically a percentage based on the net amounts received from our customers. Depending upon the nature of the agreements with the platform and content providers, the fee rate that we earn varies. The Company’s performance obligations include the delivery of content for transactional, subscription and ad supported/free ad-supported streaming TV (“FAST”)   on the digital platforms, and shipment of DVDs and Blu-ray Discs. Revenue is recognized at the point in time when the performance obligation is satisfied which is when the content is available for subscription on the digital platform, at the time of shipment for physical goods, or point-of-sale for transactional and VOD services as the control over the content or the physical title is transferred to the customer. The Company considers the delivery of content through various distribution channels to be a single performance obligation. Physical revenue is recognized after deducting the reserves for sales returns and other allowances, which are accounted for as variable consideration.

  

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Physical goods reserved for sales returns and other allowances are recorded based upon historical experience. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.

 

CEG also has contracts for the theatrical distribution of third party feature movies and alternative content. CEG’s distribution fee revenue and CEG’s participation in box office receipts is recognized at the time a feature movie and alternative content are viewed. CEG has the right to receive or bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded as a receivable at the time of execution, and all related distribution revenue is deferred until the third party feature movies’ or alternative content’s theatrical release date.

 

Principal Agent Considerations

 

We determine whether revenue should be reported on a gross or net basis for each revenue stream based on the transfer of control of goods and services. Key indicators that we use in evaluating gross versus net treatment include, but are not limited to, the following:

 

  which party is primarily responsible for fulfilling the promise to provide the specified good or service; and

 

  which party has discretion in establishing the price for the specified good or service.

 

Shipping and Handling

 

Shipping and handling costs are incurred to move physical goods (e.g., DVDs and Blu-ray Discs) to customers. We recognize all shipping and handling costs as an expense in cost of goods sold because we are responsible for delivery of the product to our customers prior to transfer of control to the customer.

 

Credit Losses

 

We maintain reserves for potential credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.

 

Our CEG segment recognizes accounts receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that it recognizes revenue from a sale. Reserves for product returns and other allowances is variable consideration as part of the transaction price. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.

 

We record accounts receivable, long-term in connection with activation fees that we earn from Systems deployments that have extended payment terms. Such accounts receivable are discounted to their present value at prevailing market rates.

 

Contract Liabilities

 

We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability) when cash payments are received or due in advance of our performance, even if amounts are refundable.

 

Deferred revenue pertaining to our Content & Entertainment Business includes amounts related to the sale of DVDs with future release dates.

 

Deferred revenue relating to our Cinema Equipment Business pertains to revenues earned in connection with up front exhibitor contributions that are deferred and recognized over the expected cost recoupment period. It also includes unamortized balances in connection with activation fees due from the Systems deployments that have extended payment terms.

 

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The ending deferred revenue balance as of September 30, 2021 was $0.2 million. For the three and six months ended September 30, 2021 and 2020, respectively, the additions  to our deferred revenue balance were primarily due to cash payments received or due in advance of satisfying performance obligations, while the reductions to our deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.

 

During the three months ended September 30, 2021 and 2020, $0.3 million and $0.7 million, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. During the six months ended September 30, 2021 and 2020, $0.8 million and $1.3 million, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. As of September 30, 2021, the aggregate amount of contract revenue allocated to unsatisfied performance obligations was $0.2 million. We recognized this balance in full by October 31, 2021.

 

Participations and royalties payable

 

When we use third parties to distribute company owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers.

 

Disaggregation of Revenue

 

The Company disaggregates revenue into different revenue categories for the Cinema Equipment and CEG Businesses. The Cinema Equipment Business revenue categories are: Phase I Deployment revenue, Phase II Deployment revenue, Services, and Digital System Sales, and the Content & Entertainment Business revenue categories are: Base Distribution Business and OTT Streaming and Digital.

 

The following tables present the Company’s revenue categories for the three and six months ended September 30, 2021 and 2020 (in thousands):

 

    Three Months Ended
September 30,
    Six Months Ended
September 30,
 
    2021     2020     2021     2020  
Cinema Equipment Business:                        
Phase I Deployment   $ 148     $ 112     $ 239     $ 143  
Phase II Deployment     375       351       761       749  
Services     486       165       665       265  
Digital System Sales     2,244       15       7,819       91  
Total Cinema Equipment Business revenue   $ 3,253     $ 643     $ 9,484     $ 1,248  
                                 
Content & Entertainment Business:                                
Base Distribution Business   $ 922     $ 2,931     $ 2,700     $ 5,088  
OTT Streaming and Digital     5,928       3,608       12,934       6,864  
Total Content & Entertainment Business revenue   $ 6,850     $ 6,536     $ 15,634     $ 11,952  

 

DIRECT OPERATING COSTS

 

Direct operating costs consist of operating costs such as cost of goods sold, fulfillment expenses, shipping costs, property taxes and insurance on Systems, royalty expenses, impairments of advances, and marketing and direct personnel costs.

 

16

 

 

STOCK-BASED COMPENSATION

 

The Company issues stock-based awards to employees and non-employees, generally in the form of restricted stock, restricted stock units, stock appreciation rights and performance stock units. The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments, including grants of stock options and restricted stock units and modifications to existing stock options, to be recognized in the consolidated statements of operations and comprehensive loss based on their fair values. The Company measures the compensation expense of employee and nonemployee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost is recognized on a straight-line basis over the period during which the employee and nonemployee is required to provide service in exchange for the award. The fair values of options and stock appreciation rights are calculated as of the date of grant using the Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility and expected term. The Company’s estimates of these assumptions are primarily based on the trading price of the Company’s stock, historical data, peer company data and judgment regarding future trends and factors.

 

INCOME TAXES

 

The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and tax credit carryforwards and for differences between the carrying amounts of existing assets and liabilities and their respective tax bases.

 

Valuation allowances are established when management is unable to conclude that it is more likely than not that some portion, or all, of the deferred tax asset will ultimately be realized. The Company is primarily subject to income taxes in the United States.

 

The Company accounts for uncertain tax positions in accordance with an amendment to ASC Topic 740-10, Income Taxes (Accounting for Uncertainty in Income Taxes), which clarified the accounting for uncertainty in tax positions. This amendment provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is “more-likely-than-not” to be sustained were it to be challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the “more-likely-than-not” threshold, the largest amount of tax benefit that is more than 50% likely to be recognized upon ultimate settlement with the taxing authority is recorded. The Company has no uncertain tax positions.

 

NET INCOME/LOSS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS

 

Basic and diluted net loss per common share has been calculated as follows:

 

Basic and diluted net loss per common share attributable to common stockholders =   Net loss attributable to common stockholders
  Weighted average number of common stock outstanding during the period

 

Stock issued and treasury stock repurchased during the period are weighted for the portion of the period that they are outstanding. Shares issued and any shares that are reacquired during the period are weighted for the portion of the period that they are outstanding.

 

We had a net income for the six months ended September 30, 2021, and therefore the impact of potentially dilutive common shares from outstanding stock options, stock appreciation rights, and warrants, totaling 3,219,141 shares for the six months ended September 30, 2021, respectively, were included in the computations of diluted earnings per share. For the three months ended September 30, 2021, 11,937,243 potentially dilutive shares have been excluded from the diluted loss per share as their impact would have been antidilutive. We had a net loss for the three months ended September 30, 2021 and therefore no dilution as basic and diluted loss per share are the same for the period. The calculation of diluted net income per share for the six months ended September 30, 2021 does not include the impact of 8,718,102  potentially dilutive shares relating to stock options, stock appreciation rights, and warrants as their impact would have been anti-dilutive as their exercise prices are above the Company’s average Common Stock price during the period.

 

We incurred net losses for the three and six months ended September 30, 2020, and therefore the impact of potentially dilutive common shares from outstanding stock options and warrants, totaling 3,940,138 shares as of September 30, 2020, respectively, were excluded from the computations of loss per share as their impact would have been anti-dilutive.

 

17

 

 

COMPREHENSIVE INCOME (LOSS)

 

As of the three and six months ended September 30, 2021 and 2020, comprehensive income (loss) consisted of net loss and foreign currency translation adjustments.

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

Adopted

 

On December 18, 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The update also simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance to improve consistent application. The amendment in this update is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted this guidance on April 1, 2021 and the adoption of this ASU did not have a material impact on our consolidated financial statements.

 

Not yet adopted

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which provides new guidance regarding the measurement and recognition of credit impairment for certain financial assets. Such guidance will impact how the Company determines its allowance for estimated uncollectible receivables and evaluates its available-for-sale investments for impairment. ASU 2016-13 is effective for the Company in the first quarter of fiscal 2023. The Company is currently evaluating the effect that ASU 2016-13 will have on its consolidated financial statements and related disclosures.

 

3. OTHER INTERESTS

 

Investment in CDF2 Holdings

 

We indirectly own 100% of the common equity of CDF2 Holdings, LLC (“CDF2 Holdings”), which was created for the purpose of capitalizing on the conversion of the exhibition industry from film to digital technology. CDF2 Holdings assists its customers in procuring the equipment necessary to convert their systems to digital technology by providing financing, equipment, installation and related ongoing services.

 

CDF2 Holdings is a Variable Interest Entity (“VIE”), as defined in Accounting Standards Codification Topic 810 (“ASC 810”), “Consolidation.” ASC 810 requires the consolidation of VIEs by an entity that has a controlling financial interest in the VIE which entity is thereby defined as the primary beneficiary of the VIE. To be a primary beneficiary, an entity must have the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, among other factors. Although we indirectly, wholly own CDF2 Holdings, we, a third party that also has a variable interest in CDF2 Holdings, and an independent third party manager must mutually approve all business activities and transactions that significantly impact CDF2 Holdings’ economic performance. We have therefore assessed our variable interests in CDF2 Holdings and determined that we are not the primary beneficiary of CDF2 Holdings. As a result, CDF2 Holdings’ financial position and results of operations are not consolidated in our financial position and results of operations. In completing our assessment, we identified the activities that we consider most significant to the economic performance of CDF2 Holdings and determined that we do not have the power to direct those activities, and therefore we account for our investment in CDF2 Holdings under the equity method of accounting.

 

As of September 30, 2021 and March 31, 2021, our maximum exposure to loss, as it relates to the non-consolidated CDF2 Holdings entity, represents accounts receivable for service fees under a master service agreement with CDF2 Holdings. Such accounts receivable was $0.5 million and $0.3 million as of September 30, 2021 and March 31, 2021, respectively, which are included in accounts receivable, net on the accompanying consolidated balance sheets.

 

The accompanying Consolidated Statements of Operations include $0.3 million and $36 thousand of digital cinema servicing revenue from CDF2 Holdings for the six months ended September 30, 2021 and 2020, respectively. The accompanying Consolidated Statements of Operations include $0.2 million and $27 thousand of digital cinema servicing revenue from CDF2 Holdings for the three months ended September 30, 2021 and 2020, respectively.

 

Total Stockholders’ Deficit of CDF2 Holdings at September 30, 2021 and March 31, 2021 was $51.5 million and $46.3 million, respectively. We have no obligation to fund the operating loss or the stockholders’ deficit beyond our initial investment of $2.0 million and, accordingly, our investment in CDF2 Holdings as of September 30, 2021 and March 31, 2021 is carried at $0.

 

18

 

 

Majority Interest in CONtv

 

We own an 85% interest in CON TV, LLC, a worldwide digital network that creates original content, and sells and distributes on-demand digital content on the Internet and other consumer digital distribution platforms, such as gaming consoles, set-top boxes, handsets, and tablets.

 

4. BUSINESS COMBINATION

 

FoundationTV, Inc.

 

On May 12, 2021, the Company entered into a stock purchase agreement (the “Foundation Stock Purchase Agreement”) with FoundationTV, Inc. (“FoundationTV”), to buy all of FoundationTV´s issued and outstanding stock in consideration of an aggregate of $5.2 million, of which $0.7 million was paid in cash and 1,483,129 shares of Common Stock, which were valued at $2.5 million, were issued at closing stock price of $1.69 on the closing date of June 9, 2021, and an additional $2.0 million will be paid in eight equal installments of one installment on each six month anniversary of closing over forty-eight months, and a final lump sum payment of $225 thousand on the four year anniversary of the closing; reduced by $0.2 million settlement of a prior relationship. The Foundation Stock Purchase Agreement contained certain conditions to closing, including that the Company obtain approval of its stockholders, applicable lenders, and regulatory authorities, as applicable, and representations and warranties and covenants as are customary for transactions of this type. On June 9, 2021, the FoundationTV acquisition was consummated. The Company incurred transaction cost $36 thousand during the six months ended September 30, 2021. As of September 30, 2021, the deferred consideration is presented according to the agreed-upon cash payments, including a $0.5 million short-term payable and a long-term payable for $1.5 million.

 

Purchase Price      
Purchase Price   $ 5,237  
Total purchase price   $ 5,237  
         
Allocation of purchase price        
Developed technology     3,200  
Goodwill     2,037  
Total allocation of purchase price   $ 5,237  

 

The developed technology acquired in this transaction has a useful life of 10 years. During the three and six months ended September 30, 2021, the Company recorded $80 thousand in amortization expense related to the developed technology acquired in the acquisition.

 

Below is the amortization expense per year for the developed technology acquired in the business combination:

 

2022 (remaining)   $ 160  
2023     320  
2024     320  
2025     320  
2026     320  
2027     320  
2028     320  
2029     320  
2030     320  
2031     320  
2032     80  
Total   $ 3,120  

 

19

 

 

Bloody Disgusting, LLC.

 

On September 17, 2021, the Company entered into an asset purchase agreement (the “Bloody Disgusting Asset Purchase Agreement”) with Bloody Disgusting, LLC (“Bloody Disgusting”), to buy substantially all of the assets of Bloody Disgusting, in consideration of an aggregate of $7.8 million, of which $4.0 million was paid in cash and 1,039,501 shares of Common Stock, which were valued at $2.3 million, were issued at closing stock price of $2.23 on the closing date of September 17, 2021, and $1.5 million as of the fair value of the earnout liability, related to earnout targets, as defined, to be met as of March 2022, March 2023 and March 2024. The Bloody Disgusting Asset Purchase Agreement contained certain conditions to closing and representations and warranties and covenants as are customary for transactions of this type. On September 17, 2021, the Bloody Disgusting acquisition was consummated. The Company incurred transaction cost $40 thousand during the six months ended September 30, 2021.

 

Purchase Price      
Purchase Price   $ 7,780  
Total purchase price   $ 7,780  
         
Provisional allocation of purchase price        
Current assets     141  
Advertiser relationships     3,750  
Trade name     1,100  
Goodwill     2,789  
Total allocation of purchase price   $ 7,780  

 

The advertiser relationships acquired in this transaction has a useful life of 12 years and the trade name acquired has a useful life of 10 years. During the three and six months ended September 30, 2021, the Company recorded $0 in amortization expense related to the intangible assets acquired. Due to proximately of the closing date to the end of the quarter, the Company did not record any amortization expense during the three months ended September 30, 2021 related to the advertiser relationships and trade name acquired in the business combination.

 

Below is the amortization expense per year for the intangible assets acquired in the business combination:

 

    Advertiser relationships     Trade name     Total  
2022 (remaining)   $ 156     $ 55     $ 211  
2023     313       110       423  
2024     313       110       423  
2025     313       110       423  
2026     313       110       423  
2027     313       110       423  
2028     313       110       423  
2029     313       110       423  
2030     313       110       423  
2031     313       110       423  
2032     313       55       368  
2033     313      
-
      313  
2034     151      
-
      151  
Total     3,750       1,100     $ 4,850  

 

20

 

 

5. NOTES PAYABLE

 

Notes payable consisted of the following:

 

    September 30,
2021
    March 31,
2021
 
(In thousands)   Current
Portion
    Long Term
Portion
    Current
Portion
    Long Term
Portion
 
Prospect Loan   $
        —
    $
       —
    $ 7,786     $
 
Total non-recourse notes payable    
     
      7,786      
 
Total non-recourse notes payable, net of unamortized debt issuance costs and debt discounts   $
    $
    $ 7,786     $
 
Credit Facility   $
    $
    $ 1,956     $
 
PPP Loan    
     
     
      2,152  
Total recourse notes payable    
     
      1,956       2,152  
Total recourse notes payable, net of unamortized debt issuance costs and debt discounts   $
    $
    $ 1,956     $ 2,152  
Total notes payable, net of unamortized debt issuance costs   $
    $
    $ 9,742     $ 2,152  

 

Non-recourse debt is generally defined as debt whereby the lenders’ sole recourse with respect to defaults, is limited to the value of the asset, which is collateral for the debt. Certain of our subsidiaries are liable with respect to, and their assets serve as collateral for, certain indebtedness for which our assets and the assets of our other subsidiaries that are not parties to the transaction are generally not liable. We have referred to this indebtedness as “non-recourse debt” because the recourse of the lenders is limited to the assets of specific subsidiaries. Such indebtedness includes the Prospect Loan.

 

Prospect Loan

 

In February 2013, our Cinedigm DC Holdings, LLC (“CDCH”), Access Digital Media, Inc (“AccessDM”) and Access Digital Cinema Phase 2, Corp. (“Phase 2 DC”) subsidiaries entered into a term loan agreement (the “Prospect Loan” or the “Term Loan Agreement”) with Prospect Capital Corporation (“Prospect”), pursuant to which CDCH borrowed $70.0 million. The Prospect Loan included interest at LIBOR plus 9.0% (with a 2.0% LIBOR floor), which was payable in cash, and at an additional 2.50% accrued as an increase to the aggregate principal amount of the Prospect Loan until the Prospect Loan was paid off, at which time all accrued interest became payable in cash.

 

Collections of CDCH accounts receivable were deposited into accounts designated to pay certain operating expenses, principal, interest, fees, costs and expenses relating to the Prospect Loan. On a quarterly basis, if there was excess cash flow, it was used for prepayment of the Prospect Loan. We also maintained a debt service fund under the Prospect Loan for future principal and interest payments. As of September 30, 2021, and March 31, 2021, the debt service fund had a balance of $0 and $1.0 million, which was classified as part of restricted cash on our Consolidated Balance Sheets.

 

On March 4, 2021, CDCH, AccessDM, Phase 2 DC, Christie/AIX, Inc., Cinedigm Digital Funding I, LLC, certain Lenders, and Prospect Capital Corporation, as administrative agent and collateral agent, entered into Amendment No. 3 (the “Amendment”) to the Term Loan Agreement dated February 28, 2013. Under the Amendment, the maturity date of the loan under the Term Loan Agreement was extended to March 31, 2022. As a condition to the effectiveness of the Amendment, CDCH paid $3,500,000 to Prospect to reduce the outstanding principal amount of the Loan.

 

21

 

 

The Prospect Loan was secured by, among other things, a first priority pledge of the stock of CDF2 Holdings, our wholly-owned unconsolidated subsidiary, the stock of AccessDM, owned by DC Holdings, and the stock of our Phase 2 DC subsidiary, and was also guaranteed by AccessDM and Phase 2 DC. We provided limited financial support to the Prospect Loan not to exceed $1.5 million per year in the event financial performance did not meet certain defined benchmarks.

 

The Prospect Loan contained customary representations, warranties, affirmative covenants, negative covenants and events of default.

 

Upon a series of payments between April 30 and July 9, 2021, the Company paid in full the Prospect Loan outstanding non-recourse debt amount by paying an aggregate principal amount of $7.8 million. Pre-payment of the Prospect Loan was permissible without penalty.

 

The following table summarizes the activity related to the Prospect Loan:

 

    As of  
(In thousands)   September 30,
2021
    March 31,
2021
 
Prospect Loan, at issuance   $ 70,000     $ 70,000  
PIK Interest     8,016       6,397  
Payments to date     (78,016 )     (68,611 )
Prospect Loan, gross   $
    $ 7,786  
Less unamortized debt issuance costs and debt discounts    
     
 
Prospect Loan, net    
      7,786  
Less current portion    
      (7,786 )
Total long term portion   $
    $
 

 

Credit Facility and Cinedigm Revolving Loans

 

On March 30, 2018, the Company entered into the Loan, Guaranty and Security Agreement, dated as of March 30, 2018, by and between the Company, East West Bank and the Guarantors named therein (the “Credit Facility”) for a maximum of $19.0 million in revolving loans outstanding at any one time with a maturity date of March 31, 2020, which may be extended for two successive one-year periods at the sole discretion of the lender, subject to certain conditions.

 

Interest under the Credit Facility is due monthly at a rate elected by the Company of either 0.5% plus Prime Rate or 3.25% above LIBOR Rate established by the lender.

 

22

 

 

On July 3, 2019, the Company entered into the EWB Amendment to the Credit Facility. The EWB Amendment reduced the size of the facility to $18.0 million, required certain prepayments and daily cash sweeps from collections of receivables to be made, changed in certain respects how the borrowing base is calculated, and extended the maturity date to June 30, 2020. In connection with the EWB Amendment, three of our subsidiaries became Guarantors under the Credit Facility. On June 25, 2020, the Company signed amendment No. 4 with East West Bank to extend the maturity of the Credit Facility to June 30, 2021 and waive events of default provisions. On June 22, 2021, the maturity date of the Credit Facility was extended to September 28, 2021. During this extension period, until an amendment is entered into, we are not able to access any additional borrowings under the Credit Facility. The September 28, 2021 expiration date has passed and no amendment has been entered into as of the date of filing of this Quarterly Report on Form 10-Q.

 

As of September 30, 2021 and March 31, 2021, there was $0 and $2.0 million outstanding, respectively, and there was no availability under the Credit Facility based on the Company’s borrowing base as of September 30, 2021.

 

PPP Loan

 

On April 15, 2020, the Company received $2.2 million from East West Bank, the Company’s existing lender pursuant to the Paycheck Protection Program (the “PPP Loan”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 10, 2022 (the “PPP Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are due within the initial six months of the PPP Loan. The interest accrued during the initial six-month period is due and payable, together with the principal, on the PPP Maturity Date. The Company used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts were intended to be eligible for forgiveness, subject to the provisions of the CARES Act and could be subject to repayment. On July 7, 2021, the Company received notification from the lender that the U.S. Small Business Administration had approved the Company’s PPP Loan forgiveness application for the entire PPP Loan amount and accrued interest effective June 30, 2021.

 

6. STOCKHOLDERS’ EQUITY

 

COMMON STOCK

 

During the six months ended September 30, 2021, we issued 2,883,907 shares of Common Stock which consists of the issuance of Common Stock for business combination, the issuances of Common Stock in payment of preferred stock dividends and in payment of board retainer fees.

 

PREFERRED STOCK

 

Cumulative dividends in arrears on preferred stock were $0.2 million and $0.1 million as of September 30, 2021 and March 31, 2021. In May 2021, we paid the preferred stock dividends in arrears in the form of 53,278 shares of Class A common stock.

 

TREASURY STOCK

 

We have treasury stock, at cost, consisting of 1,315,851 and 1,313,836 shares of Class A common stock at September 30, 2021 and March 31, 2021, respectively.

 

CINEDIGM’S EQUITY INCENTIVE PLANS

 

Stock Based Compensation Awards

 

Awards issued under our 2000 Equity Incentive Plan (the “2000 Plan”) may be in any of the following forms (or a combination thereof) (i) stock option awards; (ii) stock appreciation rights; (iii) stock or restricted stock or restricted stock units; or (iv) performance awards. The 2000 Plan provides for the granting of incentive stock options (“ISOs”) with exercise prices not less than the fair market value of our Common Stock on the date of grant. ISOs granted to shareholders having more than 10% of the total combined voting power of the Company must have exercise prices of at least 110% of the fair market value of our Common Stock on the date of grant. ISOs and non-statutory stock options granted under the 2000 Plan are subject to vesting provisions, and exercise is subject to the continuous service of the participant. The exercise prices and vesting periods (if any) for non-statutory options are set at the discretion of our compensation committee. On November 1, 2017, upon the consummation of the initial equity investment in Cinedigm by Bison, as a result of which there was a change of control of the Company, all stock options (incentive and non-statutory) and shares of restricted stock were vested immediately and the options became fully exercisable.

 

In connection with the grants of stock options and shares of restricted stock under the 2000 Plan, we and the participants have executed stock option agreements and notices of restricted stock awards setting forth the terms of the grants. The 2000 Plan provided for the issuance of up to 2,380,000 shares of Common Stock to employees, outside directors and consultants.

 

As of September 30, 2021, there were 218,837 stock options outstanding in the 2000 Plan with weighted average exercise price of $14.48 and a weighted average contract life of 1.67 years. As of March 31, 2021, there were 261,587 shares pursuant to stock options outstanding in the Plan with weighted average exercise price of $14.99 and a weighted average contract life of 2.11 years. A total of 42,500 options expired and 250 options forfeited during the three and six months ended September 30, 2021.

 

23

 

 

Options outstanding under the 2000 Plan as of September 30, 2021 is as follows:

 

As of September 30, 2021
Range of Prices   Options Outstanding     Weighted Average Remaining Life in Years     Weighted Average Exercise Price     Aggregate Intrinsic Value
(In thousands)
 
$7.40 - $13.69     5,000       3.75     $ 7.40     $
        —
 
$13.70 - $24.40     213,837       1.62       14.65      
 
      218,837                     $
 

 

An analysis of all options exercisable under the 2000 Plan as of September 30, 2021 is presented below:

 

Options Exercisable     Weighted Average
Remaining Life in Years
    Weighted Average
Exercise Price
    Aggregate Intrinsic Value
(In thousands)
 
  218,837       1.67     $ 14.48      
 

 

In August 2017, the Company adopted the 2017 Equity Incentive Plan (the “2017 Plan). The 2017 Plan replaced the 2000 Plan, and applies to employees and directors of, and consultants to, the Company. The 2017 Plan provided for the issuance of up to 2,108,270 shares of Class A common stock, in the form of various awards, including stock options, stock appreciation rights, stock, restricted stock, restricted stock units, performance awards and cash awards. The Compensation Committee of the Company’s Board of Directors (the “Board”) is authorized to administer the 2017 Plan and make grants thereunder. The approval of the 2017 Plan did not affect awards already granted under the 2000 Plan. On December 4, 2019, upon shareholder approval, the 2017 Plan was amended to increase the maximum number of shares of Class A common stock authorized for issuance thereunder from 2,108,270 shares to 4,098,270.

 

On October 23, 2020, the Company amended its 2017 Plan to increase the number of shares authorized for issuance thereunder from 4,098,270 to 14,098,270.

 

On October 11, 2021, the Company amended its 2017 Plan to increase the number of shares authorized for issuance thereunder from 14,098,270 to 18,098,270.

 

During the six months ended September 30, 2021, the Company granted 1,409,000 stock appreciation rights (“SARs”). The SARs were granted under the Company’s 2017 Equity Incentive Plan (the “2017 Plan), except for 600,000 SARs granted an officer of the Company as an inducement grant. All SARs issued have an exercise price equal to the fair value of the Company’s Class A common stock on the date of grant and a maturity date of 10 years. The SARs were valued on the grant date utilizing an option pricing model, as follows:

 

Grant Date: May 23, 2021 – September 13, 2021

 

Maturity Date: May 23, 2031 – March 31, 2034

 

Exercise price: $1.29 - $2.10

 

Volatility: 110.32% - 114.42%

 

Discount rate: 0.96% - 1.08%

 

Expected term: 6 – 6.5 years

 

Stock appreciation rights outstanding under the 2017 Plan as of September 30, 2021 is as follows:

 

As of September 30, 2021  
Range of Prices     SAR´s Outstanding     Weighted Average Remaining Life in Years     Weighted Average Exercise Price     Aggregate Intrinsic Value
(In thousands)
 
  $0.54 - $0.74       5,550,000       9.23     $ 0.66     $ 10,624  
  $1.16 - $1.47       2,046,610       8.05       1.35       2,304  
  $1.71 - $2.10       2,682,114       9.40       1.97       1,429  
          10,278,724                     $ 14,357  

 

An analysis of all stock appreciation rights exercisable under the 2017 Plan as of September 30, 2021 is presented below:

 

Options Exercisable     Weighted Average
Remaining Life in Years
    Weighted Average
Exercise Price
    Aggregate Intrinsic Value
(In thousands)
 
  2,576,740       7.51     $ 1.16       3,952  

 

24

 

   

Employee and director stock-based compensation expense related to our stock-based awards was as follows:

 

    Three Months Ended
September 30,
    Six Months Ended
September 30,
 
(In thousands)   2021     2020     2021     2020  
Selling, general and administrative   $ 946     $ 1,035     $ 1,929     $ 1,212  
  $ 946     $ 1,035     $ 1,929     $ 1,212  

 

Total SARs outstanding are as follows:

 

    Six Months
Ended
September 30,
2021
 
SARs Outstanding March 31, 2021     9,154,933  
Issued     1,409,000  
Forfeited     (285,209 )
Total SARs Outstanding September 30, 2021     10,278,724  

  

There was $1 thousand and $1 thousand of stock-based compensation recorded for the six months ended September 30, 2021 and 2020, respectively, related to employees’ restricted stock awards. There was $0 thousand and $1 thousand of stock-based compensation recorded for the three months ended September 30, 2021 and 2020, respectively, related to employees’ restricted stock awards.

 

There was $193  thousand and $131 thousand of stock-based compensation for the six months ended September 30, 2021 and 2020, respectively, related to board of directors. There was $71 thousand and $65 thousand of stock-based compensation for the three months ended September 30, 2021 and 2020, respectively, related to board of directors. During the six months ended September 30, 2021, the Company issued 35,714 shares to the board of directors.

 

OPTIONS GRANTED OUTSIDE CINEDIGM’S EQUITY INCENTIVE PLAN

 

In October 2013, we issued options outside of the 2000 Plan to 10 individuals who became employees as a result of a business combination. The employees received options to purchase an aggregate of 62,000 shares of our Class A Common Stock at an exercise price of $17.50 per share. The options were fully vested as of October 2017 and expire 10 years from the date of grant, if unexercised. As of September 30, 2021, 12,500 of such options remained outstanding.

  

WARRANTS

 

The following table presents information about outstanding warrants to purchase shares of our Class A common stock as of September 30, 2021. All of the outstanding warrants are fully vested and exercisable.

 

Recipient   Amount
outstanding
    Expiration   Exercise price
per share
 
Warrants issued in connection with Convertible Notes exchange transaction     246,019     December 2021   $ 1.30  
5-year Warrant issued to BEMG in connection with a term loan agreement     1,400,000     December 2022   $ 1.80  

 

Warrants for the purchase of 52,500 shares of Common Stock expired unexercised during the three months ended September 30, 2021.

 

7. COMMITMENTS AND CONTINGENCIES

 

From time to time, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities. Although the results of litigation and claims cannot be predicted with certainty, the Company does not believe it is party to any other claim or litigation the outcome of which, if determined adversely to the Company, would individually or in the aggregate be reasonably expected to have a material adverse effect on its business. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. 

 

We operate from leased properties under non-cancelable operating lease agreements, certain of which contain escalating lease clauses.

 

The Company leases office space under operating leases. The Company’s portfolio of leases is primarily related to real estate and since most of our leases do not provide a readily determinable implicit rate, the Company estimated its incremental borrowing rate to discount the lease payments based on information available at either the implementation date of Topic 842 or at lease commencement for leases entered into thereafter.

 

25

 

  

The table below presents the lease-related assets and liabilities recorded on the balance sheet as of September 30, 2021:

 

(In thousands)   Classification on the Balance Sheet   September 30,
2021
 
Assets          
Noncurrent   Operating lease right-of-use asset   $ 31  
Liabilities            
Current   Operating leases - current portion     28  
Noncurrent   Operating leases - long-term portion     3  
Total operating lease liabilities       $ 31  

 

Lease Costs

 

The table below presents certain information related to lease costs for leases:

 

    Six months Ended  
(In thousands)   September 30,
2021
 
Operating lease cost   $ 45  
Total lease cost   $ 45  

 

Other Information

 

The table below presents supplemental cash flow information related to leases:

 

    Six months Ended  
(In thousands)   September 30,
2021
 
Cash paid for amounts included in the measurement of lease liabilities     10  
Operating cash flows used for operating leases   $ 10  

 

Distribution arrangement minimum guaranty

 

On September 1, 2021 the Company extended a video works distribution arrangement providing a non-refundable and fully-recoupable advance minimum participation guaranty for a total amount of $3.5 million, where $1.5 million is payable no later than November 1, 2021, $1.0 million at the first year anniversary of the arrangement and $0.9 million on the second-year anniversary of the arrangement. These payments are subject to the selection of video works released by the Company whose initial commercial date occurs during the arrangement year. The Company paid the first advance on October 22, 2021.

 

8. SUPPLEMENTAL CASH FLOW INFORMATION

 

    Six Months Ended
September 30,
 
(In thousands)   2021     2020  
Cash interest paid   $ 612     $ 1,635  
Income taxes paid     45      
 
noncash investing and financing activities:                
Accrued dividends on preferred stock     178       89  
Issuance of Class A common stock for payment of accrued preferred stock dividends     89       178  
Issuance of Class A common stock to Starrise, a related party    
      11,046  
Contributed capital under the Starrise transaction, a related party    
      17,187  
Settlement of second lien loan with Class A common stock    
      818  
Conversion of note payable    
      15,000  
Amounts accrued in connection with addition of property and equipment    
      34  
Issuance of Class A common stock for business combination     4,824      
 
Starrise shares used to pay down vendors    
      744  
Treasury shares acquired for withholding taxes     5      
 
Deferred consideration in purchase of a business     3,441      
 

 

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9. SEGMENT INFORMATION

 

We operate in two reportable segments: Cinema Equipment Business and Content & Entertainment Business. Our segments were determined based on the economic characteristics of our products and services, our internal organizational structure, the manner in which our operations are managed and the criteria used by our CODM to evaluate performance, which is generally the segment’s operating income (loss) before depreciation and amortization.

 

Operations of:   Products and services provided:
Cinema Equipment Business  

Financing vehicles and administrators for 1,813 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 3,009 Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”).

 

We retain ownership of the Systems and the residual cash flows related to the Systems in Phase I Deployment after the repayment of all non-recourse debt at the expiration of exhibitor master license agreements. For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.

 

The Cinema Equipment Business segment also provides monitoring, collection, verification and management services to this segment, as well as to exhibitors who purchase their own equipment, and also collects and disburses VPFs from motion picture studios, distributors and ACFs from alternative content providers, movie exhibitors and theatrical exhibitors (collectively, “Services”).

     
Content & Entertainment Business   Leading independent streaming company of content and channels. We collaborate with producers and other content owners to market, source, curate and distribute independent content to targeted and under-served audiences in theatres and homes, and via mobile and emerging platforms.

 

The following tables present certain financial information related to our reportable segments and Corporate:

 

    As of September 30,
2021
 
(In thousands)   Intangible
Assets, net
    Goodwill     Total
Assets
    Notes
Payable,
Non-
Recourse
    Notes
Payable
    Operating
lease
liabilities
 
Cinema Equipment Business   $
    $
    $ 17,367     $
     —
    $
       —
    $
 
Content & Entertainment Business     16,366       13,527       51,964      
     
      10  
Corporate     1      
      14,570      
     
      21  
Total   $ 16,367     $ 13,527     $ 83,901     $
    $
    $ 31  

 

    As of March 31, 2021  
(In thousands)   Intangible
Assets, net
    Goodwill     Total
Assets
    Notes
Payable,
Non-
Recourse
    Notes
Payable
    Operating
lease
liabilities
 
Cinema Equipment Business   $
    $
    $ 13,169     $ 7,786     $
    $ 1  
Content & Entertainment Business     9,858       8,701       42,733      
     
      69  
Corporate     2      
      19,544      
      4,108       30  
Total   $ 9,860     $ 8,701     $ 75,446     $ 7,786     $ 4,108     $ 100  

 

    Statements of Operations  
    Three Months Ended
September 30,
2021
 
    (in thousands)  
    Cinema
Equipment
Business
    Content & Entertainment
Business
    Corporate     Consolidated  
Revenues   $ 3,253     $ 6,850     $
    $ 10,103  
Direct operating (exclusive of depreciation and amortization shown below)     164       3,169      
      3,333  
Selling, general and administrative     431       3,480       3,248       7,159  
Allocation of corporate overhead     170       1,139       (1,309 )    
 
Provision for (recovery of) doubtful accounts     (130 )     19      
      (111 )
Depreciation and amortization of property and equipment     300       140      
      440  
Amortization  of intangible assets    
      696      
      696  
Total operating expenses     935       8,643       1,939       11,517  
Income (loss) from operations   $ 2,318     $ (1,793 )   $ (1,939 )   $ (1,414 )

 

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The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows:

 

(In thousands)  

Cinema

Equipment

Business

    Content & Entertainment
Business
    Corporate     Consolidated  
Direct operating   $
        —
    $
    —
    $
  —
    $
         —
 
Selling, general and administrative    
      345       601       946  
Total stock-based compensation   $
    $ 345     $ 601     $ 946  

 

    Statements of Operations  
    Three Months Ended September 30,
2020
(in thousands)
 
    Cinema
Equipment
Business
    Content & Entertainment     Corporate     Consolidated  
Revenues   $ 643     $ 6,539     $
    $ 7,182  
Direct operating (exclusive of depreciation and amortization shown below)     172       4,158      
      4,330  
Selling, general and administrative     631       2,528       3,009       6,168  
Allocation of corporate overhead     171       1,135       (1,306 )    
 
Recovery of doubtful accounts     (193 )    
     
      (193 )
Depreciation and amortization of property and equipment     1,239       101       5       1,345  
Amortization of intangible assets     7       582       2       591  
Total operating expenses     2,027       8,504       1,710       12,241  
Loss from operations   $ (1,384 )   $ (1,965 )   $ (1,710 )   $ (5,059 )

 

The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows:

 

    Cinema
Equipment
Business
    Content & Entertainment     Corporate     Consolidated  
Direct operating   $
     —
    $
       —
    $
    $
 
Selling, general and administrative    
      26       1,009       1,035  
Total stock-based compensation   $
    $ 26     $ 1,009     $ 1,035  

 

    Statements of Operations  
    Six Months Ended September 30,
2021
 
    (in thousands)  
    Cinema
Equipment
Business
    Content & Entertainment
Business
    Corporate     Consolidated  
Revenues   $ 9,484     $ 15,634     $
    $ 25,118  
Direct operating (exclusive of depreciation and amortization shown below)     421       7,543      
      7,964  
Selling, general and administrative     860       6,298       6,044       13,202  
Allocation of corporate overhead     269       1,799       (2,068 )    
 
(Recovery of) provision for doubtful accounts     (103 )     63      
      (40 )
Depreciation and amortization of property and equipment     805       284      
      1,089  
Amortization of intangible assets    
      1,543      
      1,543  
Total operating expenses     2,252       17,530       3,976       23,758  
Income (loss) from operations   $ 7,232     $ (1,896 )   $ (3,976 )   $ 1,360  

 

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The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows:

 

(In thousands)  

Cinema

Equipment

Business

    Content & Entertainment
Business
    Corporate     Consolidated  
Direct operating   $
         —
    $
         —
    $
    $
 
Selling, general and administrative    
      511       1,418       1,929  
Total stock-based compensation   $
    $ 511     $ 1,418     $ 1,929  

 

    Statements of Operations  
    Six Months Ended September 30,
2020
(in thousands)
 
    Cinema
Equipment
Business
    Content & Entertainment     Corporate     Consolidated  
Revenues   $ 1,248     $ 11,952     $
    $ 13,200  
Direct operating (exclusive of depreciation and amortization shown below)     354       6,655      
      7,009  
Selling, general and administrative     1,180       4,423       4,405       10,008  
Allocation of corporate overhead     295       1,919       (2,214 )    
 
Recovery for doubtful accounts     (193 )    
     
      (193 )
Depreciation and amortization of property and equipment     2,642       204       23       2,869  
Amortization of intangible assets     15       1,164       2       1,181  
Total operating expenses     4,293       14,365       2,216       20,874  
Income (loss) from operations   $ (3,045 )   $ (2,413 )   $ (2,216 )   $ (7,674 )

  

The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows:

 

    Cinema
Equipment
Business
    Content & Entertainment     Corporate     Consolidated  
Direct operating   $
     —
    $
       —
    $
    $
 
Selling, general and administrative    
      52       1,160       1,212  
Total stock-based compensation   $
    $ 52     $ 1,160     $ 1,212  

 

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10. INCOME TAXES

 

We calculate income tax expense based upon an annual effective tax rate forecast, including estimates and assumptions. We recorded an income tax benefit of approximately $487 thousand and $550 thousand for the three and six months ended September 30, 2021. We recorded an income tax benefit of approximately $181 thousand for the three and six months ended September 30, 2020. We have not recorded tax benefits on our loss before income taxes because we have provided for a full valuation allowance that offsets potential deferred tax assets resulting from net operating loss carry forwards, reflecting our inability to use such loss carry forwards.

 

Our effective tax rate for the six months ended September 30, 2021 and 2020 was negative 12.4% and 0.4%, respectively.

 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The Act contains several new or changed income tax provisions, including but not limited to the following: increased limitation threshold for determining deductible interest expense; class life changes to qualified improvements (in general, from 39 years to 15 years); and the ability to carry back net operating losses incurred from tax years 2018 through 2020 up to the five preceding tax years. The Company has evaluated the new tax provisions of the CARES Act and determined the impact to be either immaterial or not applicable. 

 

11. SUBSEQUENT EVENTS

 

Authorized Class A Common Stock 

 

On October 11, 2021, the Company filed a Certificate of Amendment to the Fifth Amended and Restated Certificate of Incorporation, pursuant to which the number of shares of Class A common stock authorized for issuance was increased to 275,000,000 shares.

 

Equity Incentive Plan

 

On October 11, 2021, the Company amended its 2017 Equity Incentive plan to increase the number of shares authorized for issuance thereunder from 14,098,270 to 18,098,270.

 

Common Stock Purchase Agreement

 

In October 2021, we entered into a Common Stock Purchase Agreement (the “Equity Line Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with B. Riley Principal Capital, LLC (“B. Riley Principal Capital”). Pursuant to the Equity Line Purchase Agreement, the Company has the right to sell to B. Riley Principal Capital up to the lesser of (i) $50,000,000 of newly issued shares of Common Stock and (ii) the Exchange Cap (as defined below) (subject to certain conditions and limitations), from time to time during the 24-month period from and after the October 21, 2021. Sales of Common Stock pursuant to the Equity Line Purchase Agreement, and the timing of any sales, are solely at the option of the Company, and the Company is under no obligation to sell any securities to B. Riley Principal Capital under the Equity Line Purchase Agreement. As consideration for B. Riley Principal Capital’s commitment to purchase shares of Common Stock at the Company’s direction upon the terms and subject to the conditions set forth in the Equity Line Purchase Agreement, upon execution of the Equity Line Purchase Agreement, the Company issued 210,084 shares of Common Stock to B. Riley Principal Capital (the “Commitment Shares”). The purchase price of the shares of Common Stock that we elect to sell to B. Riley Principal Capital pursuant to the Equity Line Purchase Agreement will be determined by reference to the volume weighted average price of the Common Stock (“VWAP”) during the applicable purchase date, less a fixed 5% discount to such VWAP. Pursuant to the Registration Rights Agreement, the Company filed a Registration Statement on Form S-1 that was declared effective by the Securities and Exchange Commission on October 21, 2021 (File No. 333-260210) for the resale by B. Riley Principal Capital of up to 25,210,084 shares of Common Stock (including the Commitment Shares) acquired pursuant to the Equity Line Purchase Agreement. During October and November 2021, we sold 5,300,000 shares of Common Stock under the Equity Line Purchase Agreement. Net proceeds from such sales totaled $12.4 million.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with our historical consolidated financial statements and the related notes included elsewhere in this report.

 

This report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which are indicated by words or phrases such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “will,” “estimates,” and similar words. Forward-looking statements represent, as of the date of this report, our judgment relating to, among other things, future results of operations, growth plans, sales, capital requirements and general industry and business conditions applicable to us. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

 

OVERVIEW

 

Since our inception, we have played a significant role in the digital distribution revolution that continues to transform the media landscape. In addition to our pioneering role in transitioning approximately 12,000 movie screens from traditional analog film prints to digital distribution, we have become a leading distributor of independent content, both through organic growth and acquisitions. We distribute digital and physical products for major brands such as the Hallmark Channel, Televisa, ITV, Nelvana, ZDF, Konami, NFL, NHL and Aniplex., We collaborate with producers, international and domestic content creators of movies, television series and short form content to market, source, curate and distribute quality content to targeted audiences through (i) existing and emerging digital home entertainment platforms, including but not limited to, Apple, Amazon Prime, Netflix, Hulu, Xbox, Tubi, Roku, Pluto TV, and cable video-on-demand (“VOD”), and (ii) physical goods, including DVD and Blu-ray Discs to Walmart, Target, Amazon and others.

 

We report our financial results in two primary segments as follows: (1) cinema equipment business and (2) media content and entertainment business (“Content & Entertainment” or “CEG”). The cinema equipment business segment consists of the non-recourse, financing vehicles and administrators for our digital cinema equipment (the “Systems”) installed in movie theatres throughout North America and several international countries. It also provides fee-based support to over 4,822 movie screens as well as directly to exhibitors and other third-party customers in the form of monitoring, billing, collection and verification services. Our Content & Entertainment segment is a market leader in: (1) ancillary market aggregation and distribution of entertainment content and (2) branded and curated over-the-top (“OTT”) digital network business providing entertainment channels and applications.

 

Beginning in December 2015, certain of our cinema equipment began to reach the conclusion of their 10-year deployment payment period with certain distributors and, therefore, Virtual Print Fees (“VPF”) revenues ceased to be recognized on such Systems, related to such distributors. Furthermore, because the Phase I Deployment installation period ended in November 2007, a majority of the VPF revenue associated with the Phase I Deployment Systems has ended. The reduction in VPF revenue on cinema equipment business systems approximately coincided with the conclusion of certain of our non-recourse debt obligations and, therefore, the reduced cash outflows related to such non-recourse debt obligations partially offset the reduced VPF revenue since November 2017.

 

Under the terms of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive one-year terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we typically pursue the sale of the Systems to such exhibitors. Cinedigm recognizes revenue once the customer takes possession of the systems and is predicated on Cinedigm’s receipt of sale proceeds. Such sales were as originally contemplated as the conclusion of the digital cinema deployment plan.

 

We are structured so that our cinema equipment business segment operates independently from our Content & Entertainment business. As of September 30, 2021, we had no non-recourse outstanding debt principal that relates to, and is serviced by, our cinema equipment business. We had no outstanding debt principal, as of September 30, 2021 that is attributable to our Content & Entertainment and Corporate segments.

 

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Risks and Uncertainties

 

The COVID-19 pandemic and related economic repercussions created significant volatility and uncertainty impacting the Company’s results for the period. As part of our Content & Entertainment business, the Company sells DVDs and Blu-ray discs at brick-and-mortar stores. With the closure of non-essential retail stores beginning in the spring of 2020, the sale of physical discs through our retail partners declined although this was partially offset by digital rentals and purchases.

 

As part of our Cinema Equipment business, the Company earns revenue when movies are exhibited in theatres. As vaccines became readily available and COVID-19 cases decreased, major studios resumed releasing blockbusters in the theatrical venues during the quarter ended June 30, 2021. Films released during the summer period saw an uptick in box office revenue compared to the previous 12 months; however, box office results remained below pre-COVID expectations due to limited seating capacities and shortened windows for release on streaming platforms such as premium video on demand (“PVOD”) and subscription video on demand (“SVOD”). To the extent films are not shown in theatres, we do not earn revenue.

 

Longer term, there may be a shift in consumer preference towards digital consumption over theatrical viewing. Studios may reduce their theatrical slates to tentpoles and certain genres releasing other content directly on their own streaming services. If fewer movies are released theatrically, this shift to digital viewing reduces revenue opportunities for virtual print fees and sales of digital cinema equipment. While the Company has been encouraged by the pace of mass vaccinations, spikes or the emergence of new variants could require future closures, which impact the Cinema Equipment business.

 

In connection to the CEG business, if larger branded companies choose to make their content available earlier on their own streaming platforms, this could limit our ability monetize this content on a transactional digital basis, as consumers can access it via the company’s own streaming platform such as Hallmark Movie Now. However, most content suppliers including filmmakers and producers, do not have their own streaming platforms and rely on us for distribution through our digital home entertainment business and OTT digital networks.  As a result, this risk is limited, and our digital distribution capabilities and digital networks provide us with the opportunity to take advantage of this consumer shift towards digital consumption.

 

Over the first year and a half of the COVD-19 pandemic, film and TV production slowed-down and independent producers and filmmakers had to either suspend or delay their productions due to rising infection rates and the high costs of appropriate COVID-19 production protocols. As a result, there are fewer available films to acquire, so our pipeline for content from completed films and co-productions has been negatively impacted. As well, with the rise of new variants, productions may be at risk again of shutting down, being delayed or having prohibitive COVID-compliant costs which would further limit available content to acquire.     

 

The COVID-19 pandemic has also resulted in an acceleration of cord-cutting, and, as more consumers move away from cable, this could lead to a decrease in cable TV VOD revenues, as well as a decrease in licensing fees as Pay One window budgets get shifted from licensing and towards originals.  However, given the overall shift towards digital consumption, these risks may be offset by increased revenues from transactional, subscription and ad supported/FAST platforms, including our own owned and operated digital network business.  

 

Liquidity

 

We have incurred net losses historically and have an accumulated deficit of $469.3 million and negative working capital of $11.1 million as of September 30, 2021. We may continue to generate net losses for the foreseeable future. In addition, we have contractual obligations related to our business acquisitions as of September 30, 2021 and beyond. Based on these conditions, the Company entered into the following transactions:

 

32

 

  

Capital Raises

 

On February 2, 2021, the Company entered into a securities purchase agreement with a single institutional investor for the purchase and sale of 5,600,000 shares of our Class A common stock, par value $0.001 per share (the “Common Stock”) at a purchase price of $1.25 per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3 which was declared effective by the Securities and Exchange Commission on July 10, 2020 (File No. 333-239710) (the “2020 Shelf Registration Statement”) and an applicable prospectus supplement. The closing of the sale occurred on February 5, 2021. The aggregate gross proceeds for the sale was approximately $7.0 million. The net proceeds to the Company from the sale, after deducting the fees of the placement agent but before paying the Company’s estimated offering expenses, was approximately $6.5 million.

 

In July 2020, we entered into an At-the-Market sales agreement (the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”) and B. Riley FBR, Inc. (“B. Riley” and, together with A.G.P., the “Sales Agents”), pursuant to which the Company may offer and sell, from time to time, through the Sales Agents, shares of Common Stock at the market prices prevailing on Nasdaq at the time of the sale of such shares. The Company is not obligated to sell any shares under the ATM Sales Agreement. Any sales of shares made under the ATM Sales Agreement will be made pursuant to an effective registration statement on Form S-3 which was declared effective by the Securities and Exchange Commission on July 10, 2020 (File No. 333-239710), the 2020 Shelf Registration Statement for an aggregate offering price of up to $30 million. During the quarter ended September 30, 2021, we did not sell any shares of Common Stock under the ATM Sales Agreement. The 2020 Shelf Registration Statement is unavailable to us, and accordingly we cannot sell any shares of Common Stock under the ATM Sales Agreement, until September 1, 2022.

 

On July 16, 2020, the Company entered into a securities purchase agreement with certain investors for the purchase and sale of 7,213,334 shares of Class A common stock, par value $0.001 per share, at a purchase price of $1.50 per share, in a registered direct offering, pursuant to the 2020 Shelf Registration Statement and an applicable prospectus supplement. The closing of the sale occurred on July 20, 2020. The aggregate gross proceeds for the sale was approximately $10.8 million. The net proceeds to the Company from the sale, after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, is approximately $10.1 million.

 

On May 20, 2020, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain investors (the “Investors”) for the purchase and sale of 10,666,666 shares of the Class A common stock, at a purchase price of $0.75 per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3 which was declared effective by the Securities and Exchange Commission on May 14, 2020 (File No. 333-238183) and an applicable prospectus supplement. The closing of the sale occurred on May 22, 2020. The aggregate gross proceeds for the sale was $8.0 million. The net proceeds to the Company from the sale, after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, were approximately $7.1 million.

 

As of September 30, 2021, there is still approximately $38.0 million remaining unsold under the 2020 Shelf Registration Statement.

 

Sale of Cinematic Equipment

 

On March 17, 2021, the Company entered into two separate agreements for the sale of cinematic equipment to American Multi-Cinema, Inc. (“AMC”). The agreements included the sale in tranches of a total of 2,369 cinematic projectors starting in March 2021 and continuing through January 2023 for total cash consideration of $10.8 million. As of September 30, 2021, the Company executed the sale of the first two tranches and recognized aggregate revenue for $7.8 million. A portion of the total proceeds has been utilized to eliminate the remaining Prospect Loan notes payable balance.

 

Equity Investment in a Related Party

 

On December 27, 2019, the Company entered into, and on February 14, 2020 amended, (see Note 2 - Summary of Significant Accounting Policies), a stock purchase agreement (as so amended, the “Starrise Stock Purchase Agreement”) with BeiTai Investment LP (“BeiTai”), a related party for accounting purposes of Cinedigm and Aim Right Ventures Limited (“Aim Right”), two shareholders of Starrise Media Holdings Limited, a leading Chinese entertainment company (“Starrise”), to buy from them an aggregate of 410,901,000 outstanding Starrise ordinary shares (the “Starrise Share Acquisition”). On February 14, 2020, the Company purchased 162,162,162 of the Starrise ordinary shares from BeiTai and issued BeiTai 21,646,604 shares of Common Stock in consideration. The Starrise shares received were valued at approximately $25 million and the Company issued shares that were valued at approximately $11.2 million. On April 10, 2020, the Company, in accordance with the terms of the Starrise Stock Purchase Agreement, terminated its obligation to purchase Starrise ordinary shares from Aim Right under the Starrise Stock Purchase Agreement.

 

33

 

 

On April 10, 2020, the Company entered into another stock purchase agreement (the “April Starrise Stock Purchase Agreement”) with five (5) shareholders of Starrise - Bison Global Investment SPC - Bison Global No. 1 SP, Huatai Investment LP, Antai Investment LP, Mingtai Investment LP and Shangtai Asset Management LP, all of which are related parties to the Company to buy an aggregate of 223,380,000 outstanding Starrise ordinary shares from them and for the Company to issue to them an aggregate of 29,855,081 shares of Common Stock as consideration therefor (the “April Starrise Share Acquisition”). On April 15, 2020, the April Starrise Share Acquisition was consummated and this transaction was also recorded as an equity investment in Starrise.

 

Starrise’s ordinary shares (HK 1616) are listed on the main board of the Stock Exchange of Hong Kong Limited. Based on the closing price of HKD 0.159 per share on November 11, 2021, calculated at an exchange rate of 7.8 Hong Kong Dollars to 1 US dollar, the market value of Cinedigm’s ownership in Starrise ordinary shares was approximately $7.4 million. 

 

Borrowings

 

On June 22, 2021, the maturity date of the East West Credit Facility (as defined in Note 5 - Notes Payable) with East West Bank was extended from June 30, 2021 to September 28, 2021. The September 28, 2021 expiration date has passed and no amendment has been entered into as of the date of filing of this Quarterly Report on Form 10-Q.

 

On April 15, 2020, the Company received $2.2 million from East West Bank, the Company’s existing lender, pursuant to the Paycheck Protection Program (the “PPP Loan”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 10, 2022 (the “PPP Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are due within the initial six months of the PPP Loan. The interest accrued during the initial six-month period is due and payable, together with the principal, on the PPP Maturity Date. The Company used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts are intended to be eligible for forgiveness, subject to the provisions of the CARES Act and could be subject to repayment. On July 7, 2021, the Company received notification from the Lender that the U.S. Small Business Administration had approved the Company’s PPP Loan forgiveness application for the entire PPP Loan amount and accrued interest effective as of June 30, 2021. The forgiveness of the PPP Loan was recognized as a gain of $2.2 million during the Company’s fiscal quarter ending June 30, 2021.

 

Upon a series of payments between April 30 and July 9, 2021, the Company paid in full the Prospect Loan (as defined in Note 5 – Notes Payable) outstanding non-recourse debt amount by paying an aggregate principal amount of $7.8 million. Pre-payment of the Prospect Loan was permissible without penalty.

 

We believe the combination of: (i) our cash and cash equivalent balances at September 30, 2021, and (ii) expected cash flows from operations  will be sufficient to satisfy our contractual obligations, as well as liquidity for our operational and capital needs, for twelve months from the filing of this report. Our capital requirements will depend on many factors, and we may need to use capital resources and obtain additional capital. Failure to generate additional revenues, obtain additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations and liquidity.

 

Critical Accounting Policies and Estimates

 

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

 

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Our significant accounting policies are discussed in Note 2 - Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, Financial Statements and Supplementary Data, of this Quarterly Report on Form 10-Q. Management believes that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our board of directors.

 

PROPERTY AND EQUIPMENT

 

Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation expense is recorded using the straight-line method over the estimated useful lives of the respective assets as follows:

 

Computer equipment and software   3-5 years
Internal use software   5 years
Digital cinema projection systems   10 years
Machinery and equipment   3-10 years
Furniture and fixtures   3-6 years

 

Leasehold improvements are being amortized over the shorter of the lease term or the estimated useful life of the improvement. Maintenance and repair costs are charged to expense as incurred. Major renewals, improvements and additions are capitalized.

 

Software developed or purchased for internal use by the Company is capitalized and amortized over its estimated useful life. Changes in these estimates could result in impairment in the value of the asset. 

 

Useful lives are determined based on an estimate of either physical or economic obsolescence, or both. During the three and six months ended September 30, 2021 and 2020, we have neither made any revisions to estimated useful lives, nor recorded any impairment charges on our property, equipment and internal use software.

 

FAIR VALUE ESTIMATES

 

Goodwill, Finite-Lived Assets and Long-Lived Assets

 

We evaluate our goodwill for impairment in the fourth quarter of each fiscal year (as of March 31), or whenever events or changes in circumstances indicate the fair value of a reporting unit is below its carrying amount. The determination of whether or not goodwill has become impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the value of our reporting units. Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current economic indicators and market conditions, and assumptions about our strategic plans with regard to our operations. To the extent additional information arises, market conditions change or our strategies change, it is possible that the conclusion regarding whether goodwill is impaired could change and result in future goodwill impairment charges that could have a material adverse effect on our consolidated financial position or results of operations.

 

The Company has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or to perform the quantitative impairment test.

 

The quantitative test involves comparing the estimated fair value of a reporting unit with its respective book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired. If, however, the fair value of the reporting unit is less than book value, an impairment loss is recognized in an amount equal to the excess.

 

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During the three and six months ended September 30, 2021 and 2020, there were no impairment charges recorded on goodwill. In 2021, we elected to conduct a qualitative goodwill assessment and in 2020 we conducted a quantitative goodwill assessment. In determining fair value, we used various assumptions, including expectations of future cash flows based on projections or forecasts derived from analysis of business prospects, economic or market trends and any regulatory changes that may occur. We estimated the fair value of the reporting unit using a net present value methodology, which is dependent on significant assumptions related to estimated future discounted cash flows, discount rates and tax rates. Certain of the estimates and assumptions that we used in determining the value of our CEG reporting unit are discussed in Note 2 - Summary of Significant Accounting Policies.

 

We review the recoverability of our long-lived assets and finite-lived intangible assets, when events or conditions occur that indicate a possible impairment exists. Determining whether impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the asset’s residual value, if any. The assessment for recoverability is based primarily on our ability to recover the carrying value of its long-lived and finite-lived assets from expected future undiscounted net cash flows. If the total of expected future undiscounted net cash flows is less than the total carrying value of the assets the asset is deemed not to be recoverable and possibly impaired. We then estimate the fair value of the asset to determine whether an impairment loss should be recognized. An impairment loss will be recognized if the asset’s fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted cash flows.

  

REVENUE RECOGNITION

 

We determine revenue recognition by:

 

  identifying the contract, or contracts, with the customer;

 

  identifying the performance obligations in the contract;

 

  determining the transaction price;

 

  allocating the transaction price to performance obligations in the contract; and

 

  recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services.

 

We recognize revenue in the amount that reflects the consideration we expect to receive in exchange for the services provided, sales of physical products (e.g., DVDs and Blu-ray Discs) or when the content is available for subscription on the digital platform or available on the point-of-sale for transactional and video on demand services which is when the control of the promised products and services is transferred to our customers and our performance obligations under the contract have been satisfied. Revenues that might be subject to various taxes are recorded net of transaction taxes assessed by governmental authorities such as sales value-added taxes and other similar taxes.

 

Payment terms and conditions vary by customer and typically provide net 30 to 90 day terms. We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and payment for that product or service will be one year or less. We have in the past entered into arrangements in connection with activation fees due from our System deployments that had extended payment terms. The outstanding balances on these arrangements are insignificant and hence the impact of significant financing would be insignificant.

 

Cinema Equipment Business

 

Our Cinema Equipment Business consists of financing vehicles and administrators for 1,813 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 3,009 Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”).

 

We retain ownership of our digital cinema equipment (the “Systems”) and the residual cash flows related to the Systems in Phase I Deployment after the end of the 10-year deployment payment period.

 

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For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.

 

The Cinema Equipment Business also provides monitoring, data collection, serial data verification and management services to this segment, as well as to exhibitors who purchase their own equipment, in order to collect virtual print fees (“VPFs”) from motion picture studios and distributors and ACFs from alternative content providers, and to distribute those fees to theatrical exhibitors (collectively, “Services”).

 

VPFs are earned, net of administrative fees, pursuant to contracts with movie studios and distributors, whereby amounts are payable by a studio to Phase I Deployment and to Phase II Deployment when movies distributed by the studio are displayed on screens utilizing our Systems installed in movie theatres. VPFs are earned and payable to Phase I Deployment based on a defined fee schedule until the end of the VPF term. One VPF is payable for every digital title initially displayed per System. The amount of VPF revenue is dependent on the number of movie titles released and displayed using the Systems in any given accounting period. VPF revenue is recognized in the period in which the digital title first plays on a System for general audience viewing in a digitally equipped movie theatre, as Phase I Deployment’s and Phase II Deployment’s performance obligations have been substantially met at that time.

 

Phase II Deployment’s agreements with distributors require the payment of VPFs, according to a defined fee schedule, for ten years from the date each system is installed; however, Phase II Deployment may no longer collect VPFs once “cost recoupment,” as defined in the contracts with movie studios and distributors, is achieved. Cost recoupment will occur once the cumulative VPFs and other cash receipts collected by Phase II Deployment have equaled the total of all cash outflows, including the purchase price of all Systems, all financing costs, all “overhead and ongoing costs”, as defined, and including service fees, subject to maximum agreed upon amounts during the three-year rollout period and thereafter. Further, if cost recoupment occurs before the end of the eighth contract year, the studios will pay us a one-time “cost recoupment bonus.” The Company evaluated the constraining estimates related to the variable consideration, i.e., the one-time bonus and determined that it is not probable to conclude at this point in time that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is subsequently resolved.

 

Under the terms of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive one-year terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we typically pursue the sale of the Systems to such exhibitors. Cinedigm recognizes revenue once the customer takes possession of the systems and is predicated on Cinedigm’s receipt of sale proceeds. Such sales were as originally contemplated as the conclusion of the digital cinema deployment plan. Total system sales revenue recognized were $2.2 million and $15 thousand, during the three months ended September 30, 2021 and 2020, respectively. Total system sales revenue recognized were $7.8 million and $91 thousand, during the six months ended September 30, 2021 and 2020, respectively.

 

Revenues earned in connection with up front exhibitor contributions are deferred and recognized over the expected cost recoupment period.

 

Exhibitors who purchased and own Systems using their own financing in the Cinema Equipment Business paid us an upfront activation fee of approximately $2.0 thousand per screen (the “Exhibitor-Buyer Structure”). Upfront activation fees were recognized in the period in which these Systems were delivered and ready for content, as we had no further obligations to the customer after that time and collection was reasonably assured. In addition, we recognize activation fee revenue of between $1.0 thousand and $2.0 thousand on Phase II Deployment Systems and for Systems installed by CDF2 Holdings, a related party, (See Note 3 - Other Interests) upon installation and such fees are generally collected upfront upon installation. Our services division manages and collects VPFs on behalf of exhibitors, for which it earns an administrative fee equal to 10% of the VPFs collected.

 

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The Cinema Equipment Business earns an administrative fee of approximately 5% of VPFs collected and, in addition, earns an incentive service fee equal to 2.5% of the VPFs earned by Phase 1 DC. This administrative fee is related to the collection and remittance of the VPF’s and the performance obligation is satisfied at that time the related VPF fees are due which is at the time the movies are displayed on screens utilizing our Systems installed in movie theatres. The service fees are recognized as a point in time revenue when the corresponding VPF fees are due from the movie studios and distributors.

 

Content & Entertainment Business

 

CEG earns fees for the distribution of content in the home entertainment markets via several distribution channels, including digital, video on demand (“VOD” or “OTT Streaming and Digital”), and physical goods (e.g., DVDs and Blu-ray Discs) (“Physical Revenue” or “Base Distribution Business”). Fees earned are typically a percentage based on the net amounts received from our customers. Depending upon the nature of the agreements with the platform and content providers, the fee rate that we earn varies. The Company’s performance obligations include the delivery of content for transactional, subscription and ad supported/FAST on the digital platforms, and shipment of DVDs and Blu-ray Discs. Revenue is recognized at the point in time when the performance obligation is satisfied which is when the content is available for subscription on the digital platform, at the time of shipment for physical goods, or point-of-sale for transactional and VOD services as the control over the content or the physical title is transferred to the customer. The Company considers the delivery of content through various distribution channels to be a single performance obligation. Physical Revenue is recognized after deducting the reserves for sales returns and other allowances, which are accounted for as variable consideration.

 

Physical goods reserves for sales returns and other allowances are recorded based upon historical experience. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.

 

CEG also has contracts for the theatrical distribution of third party feature movies and alternative content. CEG’s distribution fee revenue and CEG’s participation in box office receipts is recognized at the time a feature movie and alternative content are viewed. CEG has the right to receive or bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded as a receivable at the time of execution, and all related distribution revenue is deferred until the third party feature movies’ or alternative content’s theatrical release date.

 

Principal Agent Considerations

 

We determine whether revenue should be reported on a gross or net basis for each revenue stream based on the transfer of control of goods and services. Key indicators that we use in evaluating gross versus net treatment include, but are not limited to, the following:

 

  which party is primarily responsible for fulfilling the promise to provide the specified good or service; and

 

  which party has discretion in establishing the price for the specified good or service.

 

Shipping and Handling

 

Shipping and handling costs are incurred to move physical goods (e.g., DVDs and Blu-ray Discs) to customers. We recognize all shipping and handling costs as an expense in cost of goods sold because we are responsible for delivery of the product to our customers prior to transfer of control to the customer.

 

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Credit Losses

 

We maintain reserves for potential credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.

 

Our CEG segment recognizes accounts receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that it recognizes revenue from a sale. Reserves for product returns and other allowances is variable consideration as part of the transaction price. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.

 

We record accounts receivable, long-term in connection with activation fees that we earn from Systems deployments that have extended payment terms. Such accounts receivable are discounted to their present value at prevailing market rates. The outstanding balances on these arrangements are insignificant and hence the impact of significant financing would be insignificant.

 

Contract Liabilities

 

We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability) when cash payments are received or due in advance of our performance, even if amounts are refundable.

 

Deferred revenue pertaining to our Content & Entertainment Business includes amounts related to the sale of DVDs with future release dates.

 

Deferred revenue relating to our Cinema Equipment Business pertains to revenues earned in connection with up front exhibitor contributions that are deferred and recognized over the expected cost recoupment period. It also includes unamortized balances in connection with activation fees due from the Systems deployments that have extended payment terms.

 

The ending deferred revenue balance, as of September 30, 2021 was $0.2 million. For the three and six months ended September 30, 2021 and 2020, respectively, the additions to our deferred revenue balance were primarily due to cash payments received or due in advance of satisfying performance obligations, while the reductions to our deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.

 

During the three months ended September 30, 2021 and 2020, $0.3 million and $0.7 million, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. During the six months ended September 30, 2021 and 2020, $0.8 million and $1.3 million, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. As of September 30, 2021, the aggregate amount of contract revenue allocated to unsatisfied performance obligations was $0.2 million. We recognized this balance in full by October 31, 2021.

 

Participations and royalties payable

 

When we use third parties to distribute company owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers.

 

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BUSINESS COMBINATIONS

 

A business combination is an acquisition of business. Business combinations are accounted by allocating the fair value of the purchase price of the assets acquired and liabilities assumed.

 

Results of Operations for the Three Months Ended September 30, 2021 and 2020

 

Revenues

 

    For the Three Months Ended September 30,  
($ in thousands)   2021     2020     $ Change     % Change  
Cinema Equipment Business   $ 3,253     $ 643     $ 2,610       406 %
Content & Entertainment     6,850       6,539       311       5 %
    $ 10,103     $ 7,182     $ 2,921       41 %

 

The revenues in the Content & Entertainment Business segment increased by 5% for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase is attributed to continued growth in new release transactional sales, the addition of new streaming channels, and an expansion of the Company’s distribution with new and existing Smart TV platforms. In addition, the Company deployed new advertising technology from our streaming partner Amagi, which had a material impact on the Company’s advertising fill and click-per-thousand impression (“CPM”) rates. The revenues in the Cinema Equipment Business segment increased by 406% for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Cinema Equipment Business segment increased primarily due to contractually standard terms of digital projector sales to exhibitors in the Cinedigm Equipment Business deployments.

 

Direct Operating Expenses

 

    For the Three Months Ended September 30,  
($ in thousands)   2021     2020     $ Change     % Change  
Cinema Equipment Business   $ 164     $ 172     $ (8 )     (5 )%
Content & Entertainment     3,169       4,158       (989 )     (24 )%
    $ 3,333     $ 4,330     $ (997 )     (23 )%

 

The decrease in direct operating expenses in the three months ended September 30, 2021 for the Cinema Equipment Business compared to the prior period was primarily due to a decrease in headcount. The decrease in direct operating expenses in the three months ended September 30, 2021 for the Content & Entertainment Business compared to the prior period was primarily due to lower freight and fulfillment costs related to the decrease in physical DVD sales replaced by digital distribution sales, and a slight decrease in royalty expense and streaming delivery and personnel costs.

 

Selling, General and Administrative Expenses

 

    For the Three Months Ended September 30,  
($ in thousands)   2021     2020     $ Change     % Change  
Cinema Equipment Business   $ 431     $ 631     $ (200 )     (32 )%
Content & Entertainment     3,480       2,528       952       38 %
Corporate     3,248       3,009       239       8 %
    $ 7,159     $ 6,168     $ 991       16 %

 

Selling, general and administrative expenses for the three months ended September 30, 2021 increased by $1.0 million primarily due to a $1.2 million increase in bonus incentive expense, additional personnel and stock-based compensation to management and employees, partially offset by $0.1 million less legal expense and $0.1 million less computer expense.

 

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Bad Debt expense

 

The bad debt benefit recovery was $111 thousand and $193 thousand for the three months ended September 30, 2021 and 2020, respectively. These amounts are related to Cinema Equipment Business and Content & Entertainment accounts that are uncollectable.

 

Depreciation and Amortization Expense on Property and Equipment

 

    For the Three Months Ended September 30,  
($ in thousands)   2021     2020     $ Change     % Change  
Cinema Equipment Business   $

298

      1,239       (939 )     (76 )%
Content & Entertainment     142       101       39       39 %
Corporate     -