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.
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.
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.
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.
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
|
|
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
|
|
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.
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.
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.
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.
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.
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.
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
|
|
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
|
|
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.
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.
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.
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
|
|
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.
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
|
|
|
|
—
|
|
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
|
)
|
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
|
|
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
|
|
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.