UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-K

 

(Mark One)

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

 

For the fiscal year ended: March 31, 2022

 

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

 

Commission File Number: 000-31810

 

 

 

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.)
     
264 West 40th Street, New York, NY   10018
(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

 

Securities registered pursuant to Section 12(g) of the Act: NONE

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes ☐  No  ☒
     
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.   Yes ☐  No  ☒
     
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 an 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

 

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. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

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

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the issuer based on a price of $2.51 per share, the closing price of such common equity on the Nasdaq Global Market, as of September 30, 2021, was $326,631,850. For purposes of the foregoing calculation, all directors, officers and shareholders who beneficially own 10% of the shares of such common equity have been deemed to be affiliates, but the Company disclaims that any of such persons are affiliates.

 

As of June 27, 2022, 176,737,459 shares of Class A Common Stock, $0.001 par value were outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

NONE.

 

 

 

 

 

CINEDIGM CORP.

TABLE OF CONTENTS

 

  Page
FORWARD-LOOKING STATEMENTS ii
 
  PART I 1
     
ITEM 1. Business 1
ITEM 1A. Risk Factors 10
ITEM 1B. Unresolved Staff Comments 22
ITEM 2. Properties 22
ITEM 3. Legal Proceedings 22
ITEM 4. Mine Safety Disclosures 22
     
  PART II 23
     
ITEM 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities 23
ITEM 6. [Reserved] 24
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24
ITEM 8. Financial Statements and Supplementary Data 40
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 41
ITEM 9A. Controls and Procedures 41
ITEM 9B. Other Information 42
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. 42
     
  PART III 43
     
ITEM 10. Directors, Executive Officers and Corporate Governance 43
ITEM 11. Executive Compensation 49
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 60
ITEM 13. Certain Relationships and Related Transactions, and Director Independence 61
ITEM 14. Principal Accountant Fees and Services 61
     
  PART IV 63
     
ITEM 15. Exhibits and Financial Statement Schedules 63
   
SIGNATURES 69

 

i

 

 

FORWARD-LOOKING STATEMENTS

 

Various statements contained in this report or incorporated by reference into this report constitute “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements are based on current expectations and are indicated by words or phrases such as “believe,” “expect,” “may,” “will,” “should,” “seek,” “plan,” “intend” or “anticipate” or the negative thereof or comparable terminology, or by discussion of strategy. 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. Such forward-looking statements are based largely on our current expectations and are inherently subject to risks and uncertainties. Our actual results could differ materially from those that are anticipated or projected as a result of certain risks and uncertainties, including, but not limited to, a number of factors, such as:

 

successful execution of our business strategy, particularly for new endeavors;

 

the performance of our targeted markets;

 

competitive product and pricing pressures;

 

changes in business relationships with our major customers;

 

successful integration of acquired businesses;

 

the content we distribute through our in-theatre, on-line and mobile services may expose us to liability;

 

general economic and market conditions;

 

our financial condition and financial flexibility, including, but not limited to, our ability to obtain necessary financing for our business as and when needed;

 

disruptions to our business due to the COVID-19 pandemic, including workforce inability to perform in the ordinary course due to illness or access restrictions; and

 

the other risks and uncertainties that are set forth in Item 1, “Business”, Item 1A “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

 

These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. Except as otherwise required to be disclosed in periodic reports required to be filed by public companies with the Securities and Exchange Commission (“SEC”) pursuant to the SEC’s rules, we have no duty to update these statements, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, we cannot assure you that the forward-looking information contained in this report will in fact transpire.

 

ii

 

 

PART I

 

ITEM 1. BUSINESS

 

OVERVIEW

 

Cinedigm Corp. was incorporated in Delaware on March 31, 2000 (“Cinedigm”, “us”, “our”, and “Company” refers to Cinedigm Corp. and its subsidiaries unless the context otherwise requires). Cinedigm is (i) a leading independent distributor and aggregator of independent music, television, and other short form content rights distributed across digital, over-the-top (OTT), physical, and home and mobile entertainment platforms as well as (ii) a leading servicer of digital cinema assets on over 2,843 domestic and several international countries.

 

Over the past several years, Cinedigm has transformed itself from being a digital cinema equipment and physical content distributor to a leading independent streaming company with the planned phasing out of its legacy projector division.

 

Cinedigm is a leading independent streaming entertainment company serving global enthusiast fan bases. Since our inception, we have played a significant role in the digital distribution revolution that continues to transform the media and entertainment landscape. Cinedigm delivers high-quality, curated content through subscription video on demand (SVOD) and dedicated ad-supported (AVOD) and free, ad-supported streaming linear (FAST) channels.

 

Cinedigm’s broad portfolio enables the Company to achieve significant market share on every key consumer streaming device and platform. As the Company obtains high-growth distribution territories globally, the Company expects each of these channels to generate high-margin revenues to Cinedigm. As its channel portfolio has grown, the Company’s viewership and subscription metrics have grown significantly. The Company currently reaches over 23.8 million streaming channel monthly active viewers. The Company has rights to a library of over 33,000 film & TV assets, 16 different enthusiast streaming brands across 19 live streaming channels, and over 640,000 subscribers (SVOD) reaching 900 million unique streaming devices globally.

 

Cinedigm has been a technological pioneer over its history and continues to be one today. Through its world-class, proprietary streaming technology, the Company has become a partner of choice for content producers, rightsholders, and major media companies seeking to monetize their content in the streaming ecosystem. The Company’s streaming technology platform, known as MatchpointTM, is a software-as-a-service platform which automates the distribution of streaming content and OTT channels. The Company has a long legacy in using technology to transform the entertainment industry, and played a pioneering role in transitioning over 11,000 movie screens from traditional analog film prints to digital distribution.

 

Cinedigm is a leading distributor of independent film and television content. The Company operates a growing portfolio of owned and operated over-the-top (“OTT”) streaming entertainment channels. The Company distributes content for major brands such as Hallmark, Televisa, ITV, Nelvana, ZDF, Konami, NFL, and NHL as well as leading international and domestic content creators, movie producers, television producers and other short form digital content producers. Cinedigm collaborates with producers, major brands and other IP owners to market, source, curate and distribute quality content to targeted audiences through (i) existing and emerging digital home entertainment platforms, including Apple, Amazon Prime, Netflix, Hulu, Xbox, Tubi, PlutoTV, Vudu and cable/satellite video-on-demand (“VOD”) and (ii) packaged distribution of DVD and Blu-ray discs to wholesalers and retailers with sales coverage to over 48,000 retail storefronts, including Walmart, Target, Best Buy and Amazon.

 

The Company is well positioned in a changing media and entertainment landscape. Cinedigm is capitalizing on an evolving competitive environment where the top of the streaming industry is consolidating including competitors such as Netflix, Amazon Prime, Hulu and Disney Plus while Cinedigm has a complimentary offering as a leading independent distributor with a focus on the enthusiast segment of the market. The Company believes the enthusiast segment, focusing on audiences and genres underserved by the major streamers, will be a significant opportunity on a global basis. Today, the Company operates channels in numerous specialty sectors, including faith and family, science fiction, horror, kids, and other major segments. Given our extensive experience in operating and distributing enthusiast content, as well as the Company’s significantly improved financial position, the Company has begun executing an M&A roll-up strategy with a focus on enthusiast channels, content, and supporting technology. Over the past two years, the Company has acquired numerous channels and content libraries. The Company is actively focused on integrating the most recent acquisitions, as well as building and launching a variety of associated critical products, including: Fantawild, Fandor, The Film Detective, Screambox, Films Around the World, Bloody Disgusting, DMR, and other initiatives driving major technological changes in the entertainment industry.

 

1

 

 

The Company will continue to pursue accretive M&A opportunities in order to grow profitably and fortify its competitive advantage. The Company has completed & integrated six accretive acquisitions between October 2020 and March 31, 2022 with ongoing active M&A pipeline. As part of its M&A strategy, the Company is:

 

Executing on roll-up by completing several content related acquisitions enabling monetization;
     
Focused on acquiring higher quality content and streaming channels;
     
Exploring opportunities for new technology and other revenue channels including NFTs, ecommerce, podcasts and merchandise; and
     
Leveraging its proprietary tech platform (MatchpointTM), which allows for on-boarding multiple acquisitions concurrently.

 

Some of the evolving consumer habits that are driving consumption of streaming and OTT content include:

 

Continued “cord-cutting” resulting in an increase in SVOD & AVOD migration,
     
Consumer preference towards third party channels and content platforms,
     
The rapid adoption of connected televisions and other dedicated streaming devices,
     
A rapid rise in consumption of ad-based content,
     
Increasing demand for underserved content; and
     
Growth trend in youth (kids) media consumption across multiple devices and brands.

 

The Company believes it is positioned to deliver sustained profitable growth in the future by executing on several key initiatives:

 

Content: Delivering high-quality, curated content through subscription video on demand (SVOD) and dedicated ad-supported (AVOD) and free, ad-supported streaming (FAST) channels

 

Technology & Distribution:

 

o Dramatically expanding streaming content business through its Matchpoint™ platform,

 

o Launching and scaling our channel portfolio – including the building of an umbrella streaming service encompassing all of the Company’s brands.

 

o

Accelerating the Company’s device and platform reach, which has exceeded 700 million   consumer devices, and establishing key strategic advantages through partnership deals with connected streaming TV including Samsung, Roku and Vizio, as well as large OEM’s, cable companies and technology platforms including Sinclair Broadcast Group, Samsung, Comcast Xfinity, Roku, Amazon, Vewd and Vizio, and others.

 

o Licensing film and TV content to every key player in OTT streaming ecosystem with Amazon, Apple, Netflix and Google.

 

Audience: Growing viewership and subscription numbers significantly beyond our current base of more than 23 million viewers to potentially hundreds of millions of global viewers across billions of connected devices.

 

Financial Performance/Metrics:

 

o Driving EBITDA through incremental revenue growth from new channel launches, expansion of distribution, improved monetization and partnerships, and continuous efforts on cost mitigation.

 

2

 

 

The Company announced its acquisition of FoundationTV on March 8, 2021, which acquisition was consummated on June 14, 2021, and the formation of Cinedigm India, its wholly-owned subsidiary formed to house FoundationTV. In addition to powering Cinedigm’s portfolio of streaming channels and digital video distribution business, the new division will allow Cinedigm to expand their global streaming footprint. The Company is developing a channel umbrella with global reach, which is expected to further enable growth and profitability.

 

As previously announced, 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 “Metaverse 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 A Metaverse Company, a leading Chinese entertainment company (“Metaverse”), formerly Starrise Media Holdings Limited, and related party, to buy from them an aggregate of 410,901,000 outstanding Metaverse ordinary shares (the “Metaverse Share Acquisition”). On February 14, 2020, the Company purchased 162,162,162 of the Metaverse ordinary shares from BeiTai and issued to BeiTai 21,646,604 shares of its Class A common stock in consideration. On April 10, 2020, the Company, in accordance with the terms of the Metaverse Stock Purchase Agreement, terminated its obligation to purchase Metaverse ordinary shares from Aim Right under the December 27, 2019 stock purchase agreement.

 

On April 10, 2020, the Company entered into another stock purchase agreement (the “April Metaverse Stock Purchase Agreement”) with five (5) shareholders of Metaverse - Bison Global Investment SPC - Bison Global No. 1 SP, Huatai Investment LP, Antai Investment LP, Mingtai Investment LP and Shangtai Asset Management LP - to buy an aggregate of 223,380,000 outstanding Metaverse ordinary shares from them and for the Company to issue to them an aggregate of 29,855,081 shares of its Class A common stock in consideration therefor (the “April Metaverse Share Acquisition”). On April 15, 2020, the April Metaverse Share Acquisition was consummated and this transaction was also recorded as an equity investment in Metaverse. Mingtai is indirectly managed by a subsidiary BFGL, which is controlled by Peixin Xu, one of our directors. BFGL’s subsidiary acts as a manager of Bison Global. Shangtai and Hutai are indirectly managed by a subsidiary of BFGL. Peixin Xu controls the manager of the general partner of Antai.

 

As of March 31, 2022, the market value of Cinedigm’s ownership in A Metaverse Company (“Metaverse”) ordinary shares was approximately $7.03 million.

 

On October 11, 2019, the Company received a letter from the Listing Qualifications staff of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of the Company’s Class A common stock, par value $0.001 per share (the “Common Stock”), for the prior 30 consecutive business days, the Company no longer met the requirement to maintain a minimum bid price of $1 per share (the “Bid Price Rule”), as set forth in Nasdaq Listing Rule 5450(a)(1).

 

On December 18, 2019, the Company received a letter from Nasdaq indicating that the Company no longer met the requirement to maintain a minimum market value of publicly held shares of $15,000,000 (the “MVPHS Rule”), as set forth in Nasdaq Listing Rule 5450(b)(3)(C).

 

On April 17, 2020, the Company received notice from Nasdaq that it has suspended, effective April 16, 2020 and until June 30, 2020, relevant grace periods to regain compliance with the Bid Price Rule and the MVPHS Rule due to the global market impact caused by COVID-19. Specifically, (x) no delisting would occur until July 1, 2020, and any extension to reach compliance with the Bid Price Rule, if granted by the Panel, would be further extended by the duration of the suspension, and (y) the Company now had until August 29, 2020 to regain compliance with the MVPHS Rule.

 

On May 7, 2020, the Company was notified by Nasdaq that the previously disclosed MVPHS Rule deficiency had been cured, that the Company was in compliance, and that Nasdaq considered the matter closed.

 

On June 17, 2020, the Company was notified by Nasdaq that the previously disclosed Bid Price Rule had been cured and that the Company was in compliance, and that Nasdaq considered the matter closed.

 

On October 5, 2020, the Company received a letter from the Nasdaq indicating that the Company no longer met the Bid Price Rule.

 

On February 2, 2021, the Company was notified by Nasdaq that the previously disclosed Bid Price Rule had been cured and that the Company was in compliance, and that Nasdaq considered the matter closed.

 

On April 4, 2022, the Company received a letter from the Nasdaq indicating that the Company no longer met the Bid Price Rule.

 

3

 

 

Risk and Uncertainties

 

The COVID-19 pandemic and related economic repercussions created significant volatility and uncertainty impacting the Company’s results for the year. 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 purchases of physical product. As part of our Cinema Equipment business, the Company earns revenue when movies are exhibited in theaters. Many movie theaters in the United States slowly re-opened with limited capacities through March 31, 2022. The majority of major studios resumed blockbuster films releases during the year which showed an encouraging return of consumer confidence for the theatrical experience. As vaccines became readily available and COVID cases decreased, major studios resumed theatrical releases and there was an uptick in box office revenue during the period ending March 31, 2022.

 

Longer term, there had been speculation that the future of theatrical release strategies could change as a result of Major Studios being able to release movies simultaneously in theatres and on streaming platforms during the pandemic. If fewer movies are released theatrically, a shift to digital viewing reduces revenue opportunities for virtual print fees and sales of digital cinema equipment. While Studios are still in an experimentation phase regarding theatrical/streaming strategies we are encouraged by the success of recent exclusive theatrical releases such as Sony’s ‘Spider-Man: No Way Home’, which became the first movie since the pandemic to hit $1 billion globally with no current plans to premiere on any streaming platforms.

 

CONTENT & ENTERTAINMENT

 

Content Distribution and our Enthusiast Streaming Channels

 

Cinedigm Entertainment Group, or CEG, is a leading independent content distributor in North America. We are unique among most independent distributors because of our direct relationships with thousands of digital as well as physical retail locations, including Walmart, Target, Apple, Netflix and Amazon, as well as the national Video on Demand platforms. Our library of films and television episodes encompasses award winning documentaries from Docurama Films®, acclaimed independent films, festival picks and a wide range of content from brand name suppliers, including Scholastic, NFL, Konami and Hallmark.

 

Additionally, we are leveraging our infrastructure, technology, content and distribution expertise to rapidly and cost effectively build and expand our streaming digital network businesses, which operates as Cinedigm Networks.

 

The Company currently operates 16 different enthusiast streaming brands across 19 live streaming channels under a wide array of business models:

 

Our Subscription Video on Demand (SVOD) Services consist of:

 

Docurama – a documentary and nonfiction streaming service launched in September 2014;

 

CONtv – a fandom-centric service focused on comics, genre films and geek culture, launched in March 2015;

 

Dove Channel – a faith and family entertainment service launched in August 2015;

 

Viewster Anime – a Japanese Anime streaming service acquired in February, 2018;

 

Fandor – an independent film streaming service, acquired in January 2021; and

 

Screambox – a horror streaming service acquired in February 2021.

 

Our Ad-Supported Video on Demand (AVOD) or Free Ad Supported Streaming Television Channels consist of:

 

Dove Channel – a faith and family linear channel launched in 2017;

 

Docurama – a documentary and nonfiction linear channel launched in 2018;

 

CONtv – a fandom-centric linear channel launched in 2018;

 

Comedy Dynamics – a comedy linear channel launched in 2019;

 

The Bob Ross Channel, a lifestyle linear channel launched in 2020;

 

MyTime, a women’s entertainment linear channel, launched in 2020;

  

WhistleTV – a sports lifestyle channel launched in 2020, ended December 31, 2021;

 

4

 

 

CONtv Anime, an anime linear channel launched in 2020;

 

Bloody Disgusting TV a horror linear channel launched in 2020;

 

The Film Detective – a classic film linear channel and on demand platform acquired in 2020; and

 

Lone Star – a classic western channel and on demand platform acquired in 2020;
     
  Real Madrid TV – a sports and lifestyle linear channel launched in 2021;
     
  The Only Way is Essex – a British reality and content linear channel launched in 2021;
     
  El Rey – a Latino centric linear channel launched in 2021;
     
  The Country Network – a country music lifestyle linear channel launched in 2021;
     
  So…Real – a reality TV and documentary enthusiast linear channel launched in 2020;
     
 

Asian Crush – a pan-Asian culture and lifestyle linear channel acquired in March 2022;

     
  Retro Crush – a classic anime linear channel acquired in March 2022;
     
  Cocoro – a kid and family centric Asian linear channel acquired in March 2022;
     
  KMTV – a Korean-pop linear channel acquired in March 2022;
     
  Yuyu – a general programming adjunct linear channel acquired in March 2022;
     
  Midnight Pulp – a horror, thriller and cult linear channel acquired in March 2022.

 

From time to time, the company will announce channel development deals with a variety of media companies. The timeline for planning and launching a channel varies from months to years and is also dependent on carriage conversations with a wide array of platforms and distributors. We announced three channels in 2020 that remain in development through 2022:

 

LIVX, a music and entertainment channel

 

Party Crashers, a political news channel

 

AudPop, a short form entertainment channel

 

The digital channels market is a nascent industry, and from time to time, the Company will cease operating or distributing channels that do not find adequate audiences or meet the needs of platforms or audiences. In fiscal year 2021, we elected to cease operating or distributing the following channels:

 

Bambu, a Chinese entertainment linear channel owned and operated by Cinedigm;

Hallypop, a Korean music and lifestyle linear channel distributed by Cinedigm; and

CombatGo, an international combat sports linear channel distributed by Cinedigm;

 

We distribute our streaming channels in several distinct ways: direct to consumer, through major application platforms such as the web, iOS, Android, Roku, Apple TV, Amazon Fire, Vizio, and Samsung; and through third party distributors of content on platforms such as Amazon Prime, Twitch, Xumo and Sling/Dish, and a wide variety of Smart TV manufacturers globally. Through our rapidly expanding base of distribution arrangements, Cinedigm has an estimated addressable device footprint of more than 330 million devices in North America and more than 370 million internationally. Our focus in the near term will be to expand our market position in the FAST and AVOD divisions of the streaming industry, taking advantage of the shift of more than $70 billion dollars in television advertising revenue to the OTT market. We believe our scaled channel portfolio, our superior capabilities in launching and managing channels at scale, and our strategic partnerships with key content owners and platforms will provide us a strategic advantage to gain considerable market share in the immediate future.

 

5

 

 

Our Strategy

 

The shift from traditional entertainment consumption to streaming is accelerating. We believe that our large library of film and television episodes, long-standing relationships with digital platforms, state of the art technologies and years of experience operating and growing streaming audiences (collectively, our “Streaming” business) will allow us to continue to build a diversified portfolio of enthusiasts OTT channels that generate recurring revenue streams from advertising, merchandising and subscriptions. We believe that our success, market leadership and scale will continue to attract strong brands and media companies who bring name recognition, high-quality film and television content, and strong marketing support.

 

We believe that we are well positioned to succeed in the streaming channel business for the following key reasons:

 

More than 13 years of experience as a primary distributor of content to scale third party OTT platforms such as Netflix, Hulu, Amazon Prime, Apple iTunes and more, and nearly seven years of history operating OTT channels with millions of downloads, hundreds of thousands of registered users, and hundreds of millions of discrete data points on our customer’s behavior and preferences;

 

The depth and breadth of our almost 33,000 title film and television episode library;

 

Our digital assets and deep, long-standing relationships as launch partners that cover the major digital platforms and devices;

 

Our marketing expertise;

 

Our flexible releasing strategies, which differ from larger entertainment companies that need to protect their legacy businesses;

 

Our proprietary streaming technology enabling us to operate at scale and at lower operating costs than our competitors; and

 

Our experienced management team.

 

Intellectual Property

 

We own certain copyrights, trademarks and Internet domain names in connection with the Content & Entertainment business. We view these proprietary rights as valuable assets. We maintain registrations, where appropriate, to protect them and monitor them on an ongoing basis.

 

Customers

 

For the fiscal year ended March 31, 2022, two customers, Amazon and Distribution Solutions each represented 18% and 25% respectively of CEG’s revenues and approximately 6% and 8%, respectively, of our consolidated revenues. For the fiscal year ended March 31, 2021, Amazon and Distribution Solutions represented 15% and 22% respectively of CEG’s revenues and approximately 9% and 13%, respectively, of our consolidated Revenues.

 

Competition

 

Numerous companies are engaged in various forms of producing and distributing independent movies and alternative content. These competitors may have significantly greater financial, marketing and managerial resources than we do, may have generated greater revenue and may be better known than we are at this time. 

 

Competitors to our Content & Entertainment and Digital Networks segment are Chicken Soup for the Soul Entertainment, Inc. and RLI/American Multi-Cinema, Inc.

 

6

 

 

CINEMA EQUIPMENT BUSINESS

 

The Phase I Deployment and Phase II Deployment operations consist of the following:

 

Operations of:   Products and services provided:
     
Cinema Equipment Business  

Financing vehicles and administrators for 696 Systems (as defined below) installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 2,147 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 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, 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, and distributors and ACFs from alternative content providers, movie exhibitors and theatrical exhibitors (collectively, “Services”).

 

PHASE I DEPLOYMENT AND PHASE II DEPLOYMENT

 

In June 2005, we formed our Phase I Deployment division in order to purchase up to 4,000 Systems under an amended framework agreement with Christie Digital Systems USA, Inc. (“Christie”). As of March 31, 2022, Phase I  Deployment had 696 Systems installed.

 

In October 2007, we formed our Phase II Deployment division for the administration of up to 10,000 additional Systems. As of March 31, 2022, Phase II Deployment had 2,147 of such Systems installed.

 

Our Phase I Deployment and Phase II Deployment divisions own and license Systems to theatrical exhibitors and collect virtual print fees (“VPFs”) from motion picture studios and distributors, as well as alternative content fees (“ACFs”) from alternative content providers and theatrical exhibitors, when content is shown on exhibitors’ screens. We have licensed the necessary software and technology solutions to the exhibitor and have facilitated the industry’s transition from analog (film) to digital cinema. As part of the Phase I Deployment of our Systems, we have agreements with nine motion picture studios and certain smaller independent studios and exhibitors, allowing us to collect VPFs and ACFs when content is shown in theatres, in exchange for having facilitated and financed the deployment of Systems. Phase 1 DC has agreements with 17 theatrical exhibitors that license our Systems in order to show digital content distributed by the motion picture studios and other providers, including Content & Entertainment, which is described below.

 

Beginning in December 2015, certain of our digital cinema equipment began to reach the conclusion of their 10-year deployment payment period with certain distributors and, therefore, 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. As of March 31, 2022, all of our 696 systems from the Phase I Deployment phase of our cinema equipment business segment had ceased to earn a significant portion of VPF revenue from certain major studios, although various other studios, consisting mostly of small independent studios, continued to pay VPFs through March 31, 2022. We expect to continue to earn such ancillary revenue from the cinema equipment segment through December of 2022; however, such amounts are expected to be significantly less material to our consolidated financial statements. 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.

 

7

 

 

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 have begun, and expect to continue, to pursue the sale of the Systems to such exhibitors. Such sales were as originally contemplated as the conclusion of the digital cinema deployment plan. Cinedigm completed the sale of approximately 906 digital projection Systems for an aggregate sales price of approximately $6.1 million during the year ended March 31, 2022.

 

Our Phase II Deployment division has entered into digital cinema deployment agreements with eight motion picture studios, and certain smaller independent studios and exhibitors, to distribute digital movie releases to exhibitors equipped with our Systems, for which we and our wholly owned, non-consolidated subsidiary Cinedigm Digital Funding 2, LLC (“CDF2 Holdings”) earn VPFs. As of March 31, 2022, our Phase II Deployment division has master license agreements with 106 exhibitors covering 2,147 screens, whereby the exhibitors agreed to install our Systems. As of March 31, 2022, we had 2,147 Phase 2 DC Systems installed, including 839 screens under the exhibitor-buyer structure (“Exhibitor-Buyer”), and 1,308 screens covering 23 exhibitors through CDF2.  

 

Exhibitors paid us an installation fee of up to $2.0 thousand per screen out of the VPFs collected by our Services division. We manage the billing and collection of VPFs and remit to exhibitors all VPFs collected, less an administrative fee of approximately 10%. For Phase 2 DC Systems we own and finance on a non-recourse basis, we typically received a similar installation fee of up to $2.0 thousand per screen and an ongoing administrative fee of approximately 10% of VPFs collected. We have recorded no debt, property and equipment, financing costs or depreciation in connection with Systems covered under the Exhibitor-Buyer Structure and CDF2 Holdings.

 

VPFs are earned pursuant to contracts with movie studios and distributors, whereby amounts are payable to our Phase I and Phase II deployment businesses according to fixed fee schedules, when movies distributed by studios are displayed in movie theatres using our installed Systems. One VPF is payable to us upon the initial booking of a movie, for every movie title displayed per System. Therefore, the amount of VPF revenue that we earn depends on the number of unique movie titles released and displayed using our Systems. Our Phase II Deployment division earns VPF revenues only for Systems that it owns.

 

Our Phase II Deployment agreements with distributors require payment of VPFs for ten years from the date that each system is installed; however, we 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 us 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, subject to maximum agreed upon amounts during the four-year roll-out period and thereafter. Furthermore, if cost recoupment occurs before the end of the eighth contract year, a one-time “cost recoupment bonus” is payable to us by the studios. Cash flows, net of expenses, received by our Phase II Deployment business, following the achievement of cost recoupment, must be returned to the distributors on a pro-rata basis.

As of March 31, 2022, the Company has certain booked liabilities in relation to exhibitors that have received payments that were permitted under the Agreements with Exhibitors. The administrative services related to the Company give rise to variable consideration and are constrained until the uncertainty associated with the variable consideration is resolved. As of March 31 2022, most of the Company’s agreements with studios and with exhibitors in relation to VPFs have either reached the end of the term or are close to termination, with some of the agreements reaching the end of any audit rights. 

Customers

 

No single Phase I or Phase II customer comprised more than 10% of our consolidated revenue.

 

Seasonality

 

Revenues earned by our Cinema Equipment Business segment from the collection of VPFs from motion picture studios are seasonal, coinciding with the timing of releases of movies by the motion picture studios. Generally, motion picture studios release the most marketable movies during the summer and the winter holiday season. The unexpected emergence of a hit movie during other periods can alter the traditional trend. The timing of movie releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or any other quarter. The seasonality of the motion picture exhibition industry however, has become less pronounced as the motion picture studios are releasing movies somewhat more evenly throughout the year.

 

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SERVICES

 

Our Services division provides monitoring, billing, collection, verification and other management services to Phase 1 DC and Phase 2 DC as well as to exhibitor-buyers who purchase their own equipment. Our Services division provides such services to the 696 screens in the Phase I Deployment for a monthly service fee equal to 5% of the VPFs earned by Phase 1 DC and an incentive service fee equal to 2.5% of the VPFs earned by Phase 1 DC. The Services division also provides services to the 2,147 Phase II Systems deployed, for which we typically receive a monthly fee of approximately 10% of the VPFs earned by Phase 2 DC. The total Phase II service fees are subject to an annual limitation under the terms of our agreements with motion picture studios and are determined based upon the respective Exhibitor-Buyer Structure, or CDF2 agreements. Unpaid service fees in any period remain an obligation to Phase 2 DC in the cost recoupment framework. Such fees are not recognized as income or accrued as an asset on our balance sheet given the uncertainty of the receipt and the timing thereof as future movie release and bookings are not known. Service fees are accrued and recognized only on deployed Phase II Systems. As a result, the annual service fee limitation is variable until these fees are paid.

 

In February 2013, we (i) assigned to our wholly owned subsidiary, Cinedigm DC Holdings LLC (“DC Holdings “), the right and obligation to service the digital cinema projection systems from the Phase I Deployment and certain systems that were part of the Phase II Deployment, (ii) delegated to DC Holdings the right and obligation to service certain other systems that were part of the Phase II Deployment and (iii) assigned to DC Holdings the right to receive servicing fees from the Phase I and Phase II Deployments. We also transferred to DC Holdings certain of our operational staff whose responsibilities and activities relate solely to the operation of the servicing business and to provide DC Holdings with the right to use the supporting software and other intellectual property associated with the operation of the servicing business.

 

Our Services division also has international servicing partnerships in Australia and New Zealand with the Independent Cinema Association of Australia and as of March 31, 2022, we ceased providing servicing to such parties.

 

Competition

 

Our Services division faces limited competition domestically in its digital cinema services business as the major Hollywood movie studios have only signed digital cinema deployment agreements with five entities, including us, and the deployment period in North America is now complete. Competitors include: Digital Cinema Implementation Partners (“DCIP”), a joint venture of three large exhibitors (Regal Entertainment Group, AMC Entertainment Holdings, Inc. and Cinemark Holdings, Inc.) focused on managing the conversions of those three exhibitors; Sony Digital Cinema, to support the deployment of Sony projection equipment; Christie Digital USA, Inc., to support the deployment of Christie equipment; and GDC, Inc., to support the deployment of GDC equipment. We have a significantly greater market share than all other competitors except for the DCIP consortium, which services approximately 18,000 total screens representing its consortium members.

 

As we expand our servicing platform internationally, additional competitors beyond those listed above consist of Arts Alliance, Inc., a leading digital cinema servicer focused on the European markets, and GDC, as well as other potential local start-ups seeking to service a specific international market. We typically seek to partner with a leading local entity to combine our efficient servicing infrastructure and strong studio relationships with the necessary local market expertise and exhibitor relationships.

 

ENVIRONMENTAL

 

The nature of our business does not subject us to environmental laws in any material manner.

 

EMPLOYEES

 

As of March 31, 2022 we had 146 employees, with 6 part-time, 134 full-time and 6 temporaries, of which 11 are in sales and marketing, 61 are in operations, and 74 are in executive, finance, technology and administrative functions.

 

AVAILABLE INFORMATION

 

Our Internet website address is www.cinedigm.com. We will make available, free of charge at the “Investor Relations - Financial Information” section of our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and all amendments to those reports and statements filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC.

 

In addition, the SEC maintains a website that contains reports, proxy and information statements, and other information regarding companies that file electronically with the Commission. This information is available at www.sec.gov, the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549 or by calling 1-800-SEC-0330.

 

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ITEM 1A. RISK FACTORS

 

An investment in our securities involves a degree of risk. The risks described below are not the only ones facing us. Additional risks not presently known to us or that we currently deem immaterial may also have a material adverse effect on us. If any of the following risks actually occur, our financial condition, results of operations, cash flows or business could be harmed. In that case, the market price of our stock could decline and you could lose part or all of your investment in our stock.

 

Risks Related to our Business

 

We face the risks of doing business in new and rapidly evolving markets and may not be able successfully to address such risks and achieve acceptable levels of success or profits.

 

We have encountered and may continue to encounter the challenges, uncertainties and difficulties frequently experienced in new and rapidly evolving markets, including:

 

limited operating experience;

 

net losses;

 

lack of sufficient customers or loss of significant customers;

 

a changing business focus;

 

the downward trend in sales of physical DVD and Blu-ray discs;

 

rapidly-changing technology for some of the products and services we offer; and

 

difficulties in managing potentially rapid growth.

 

We expect competition to be intense. If we are unable to compete successfully, our business and results of operations will be seriously harmed.

 

The markets for the digital cinema business and the content distribution business are competitive, evolving and subject to rapid technological and other changes. We expect the intensity of competition in each of these areas to increase in the future. Companies willing to expend the necessary capital to create facilities and/or capabilities similar to ours may compete with our business. Increased competition may result in reduced revenues and/or margins and loss of market share, any of which could seriously harm our business. In order to compete effectively in each of these fields, we must differentiate ourselves from competitors.

 

Many of our current and potential competitors have longer operating histories and greater financial, technical, marketing and other resources than we do, which may permit them to adopt aggressive pricing policies. As a result, we may suffer from pricing pressures that could adversely affect our ability to generate revenues and our results of operations. Many of our competitors also have significantly greater name and brand recognition and a larger customer base than us. If we are unable to compete successfully, our business and results of operations will be seriously harmed.

 

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Our plan to acquire additional businesses involves risks, including our inability to complete or integrate an acquisition successfully, our assumption of liabilities, dilution of your investment and significant costs.

 

Strategic and financially appropriate acquisitions are a key component of our growth strategy. Although there are no acquisitions identified by us as probable at this time, we may make acquisitions of similar or complementary businesses or assets. Even if we identify appropriate acquisition candidates, we may be unable to negotiate successfully the terms of the acquisitions, finance them, integrate the acquired business into our then existing business, obtain required regulatory approvals, and/or attract and retain customers. Completing an acquisition and integrating an acquired business may require a significant diversion of management time and resources and may involve assuming new liabilities. Any acquisition also involves the risks that the assets acquired may prove less valuable than expected and/or that we may assume unknown or unexpected liabilities, costs and problems. If we make one or more significant acquisitions in which any of the consideration consists of our capital stock, your equity interest in the Company could be diluted, perhaps significantly. If we were to proceed with one or more significant acquisitions in which the consideration included cash, we could be required to use a substantial portion of our available cash or obtain additional financing to consummate them.

 

Our previous acquisitions involve risks, including our inability to integrate successfully the new businesses and our assumption of certain liabilities.

 

Our previous acquisitions of businesses and their respective assets also involved the risks that the businesses and assets acquired may prove to be less valuable than we expected and/or that we may assume unknown or unexpected liabilities, costs and problems. In addition, we assumed certain liabilities in connection with these acquisitions and we cannot assure you that we will be able to satisfy adequately such assumed liabilities. Other companies that offer similar products and services may be able to market and sell their products and services more cost-effectively than we can.

 

We have recorded goodwill impairment charges in the past and may be required to record additional charges to future earnings if our goodwill becomes further impaired or our intangible assets become impaired.

 

We are required under generally accepted accounting principles to review our goodwill and definite-lived intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill must be tested for impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying value of our reporting units and intangible assets may not be recoverable include a decline in stock price and market capitalization, slower growth rates in our industry or our own operations, and/or other materially adverse events that have implications on the profitability of our business. We may be required to record additional charges to earnings during any period in which a further impairment of our goodwill or other intangible assets is determined which could adversely affect our results of operations.

 

If we do not manage our growth, our business will be harmed.

 

We may not be successful in managing our growth. Past growth has placed, and future growth will continue to place, significant challenges on our management and resources, related to the successful integration of the newly acquired businesses. To manage the expected growth of our operations, we will need to improve our existing, and implement new, operational and financial systems, procedures and controls. We may also need to expand our finance, administrative, client services and operations staffs and train and manage our growing employee base effectively. Our current and planned personnel, systems, procedures and controls may not be adequate to support our future operations. Our business, results of operations and financial position will suffer if we do not effectively manage our growth.

 

If we are not successful in protecting our intellectual property, our business will suffer.

 

We depend heavily on technology and viewing content to operate our business. Our success depends on protecting our intellectual property, which is one of our most important assets. We have intellectual property consisting of:

 

rights to certain domain names;

 

registered service marks on certain names and phrases;

 

various unregistered trademarks and service marks;

 

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film, television and other forms of viewing content;

 

know-how; and

 

rights to certain logos.

 

If we do not adequately protect our intellectual property, our business, financial position and results of operations would be harmed. Our means of protecting our intellectual property may not be adequate. Unauthorized parties may attempt to copy aspects of our intellectual property or to obtain and use information that we regard as proprietary. In addition, competitors may be able to devise methods of competing with our business that are not covered by our intellectual property. Our competitors may independently develop similar technology, duplicate our technology or design around any intellectual property that we may obtain.

 

Although we hold rights to various web domain names, regulatory bodies in the United States and abroad could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. The relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. We may be unable to prevent third parties from acquiring domain names that are similar to or diminish the value of our proprietary rights.

 

Any future debt obligations of ours, and debt obligations of our non-consolidated subsidiaries, could impair our financial flexibility and restrict our business significantly.

 

We do not currently have debt obligations. However, if we incur debt obligations in the future, such debt obligations could have important consequences for us, including:

 

limiting our ability to obtain necessary financing in the future;

 

requiring us to dedicate a substantial portion of our cash flow to payments on our debt obligations, thereby reducing the availability of our cash flow to fund working capital, capital expenditures; and

 

other corporate requirements that may affect or limit our business activities.

 

CDF2 and CDF2 Holdings are our indirect wholly-owned, non-consolidated VIEs that are intended to be special purpose, bankruptcy remote entities. CDF2 Holdings has entered into the a lease (the “CHG Lease”) pursuant to which CHG-Meridian U.S. Finance, Ltd. provided sale/leaseback financing for digital cinema projection systems that were partially financed as part of the Phase II deployment of our Digital Equipment segment. The CHG Lease is non-recourse to Cinedigm and our subsidiaries, excluding our VIEs, CDF2 and CDF2 Holdings, as the case may be. Although the Phase II financing arrangements undertaken by CDF2 and CDF2 Holdings are important to us with respect to the success of our Phase II Deployment, our financial exposure related to the debt of CDF2 and CDF2 Holdings is limited to the $2.0 million initial investment we made into CDF2 and CDF2 Holdings. CDF2 Holding’s total stockholder’s deficit at March 31, 2022 was $55.6 million. We have no obligation to fund the operating loss or the deficit beyond our initial investment, and accordingly, we carried our investment in CDF2 Holdings at $0 as of March 31, 2022 and 2021.

 

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The obligations and restrictions under the CHG Lease could have important consequences for CDF2 and CDF2 Holdings, including:

 

Limiting our ability to obtain necessary financing in the future;

 

restricting us from incurring liens on the digital cinema projection systems financed and from subleasing, assigning or modifying the digital cinema projection systems financed; and

 

requiring them to dedicate a substantial portion of their cash flow to payments on their debt obligations, thereby reducing the availability of their cash flow for other uses.

 

If we are unable to meet our debt obligations, we could be forced to restructure or refinance our obligations, to seek additional equity financing or to sell assets, which we may not be able to do on satisfactory terms or at all. As a result, we could default on those obligations and in the event of such default, our lenders could accelerate our debt or take other actions that could restrict our operations.

 

The foregoing risks would be intensified to the extent we borrow additional money or incur additional debt.

 

We may not be able to generate the amount of cash needed to fund our future operations.

 

Our ability either to make payments on or to refinance our indebtedness, or to fund planned capital expenditures and research and development efforts, will depend on our ability to generate cash in the future. Our ability to generate cash is in part subject to general economic, financial, competitive, regulatory and other factors that are beyond our control.

 

Based on our current level of operations and in conjunction with the cost reduction measures that we have recently implemented and continue to implement, we believe our cash flow from operations, available borrowings and loan and credit agreement terms will be adequate to meet our future liquidity needs through at least the next twelve months. Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity or capital requirements. If we are unable to service our indebtedness, we will be forced to adopt an alternative strategy that may include actions such as:

 

reducing capital expenditures;

 

reducing our overhead costs and/or workforce;

 

reducing research and development efforts;

 

selling assets;

 

restructuring or refinancing our remaining indebtedness; and

 

seeking additional funding.

 

We cannot assure you, however, that our business will generate sufficient cash flow from operations, or that we will be able to make future borrowings in amounts sufficient to enable us to pay the principal and interest on our current indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

 

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We have incurred long term losses.

 

We have incurred long term losses and have financed our operations principally through equity investments and borrowings. As of March 31, 2022, we had negative working capital, defined as current assets less current liabilities, of $(4.8) million, and cash and cash equivalents totaling $13.1 million, total equity of $41 million, and $4.9 million provided by net cash flows from operating activities.

 

Our net losses and cash outflows may increase as and to the extent that we increase the size of our business operations, increase our sales and marketing activities, increase our content distribution rights acquisition activities, enlarge our customer support and professional services and acquire additional businesses. These efforts may prove to be more expensive than we currently anticipate which could further increase our losses. We must continue to increase our revenues in order to become profitable. We cannot reliably predict when, or if, we will become profitable. Even if we achieve profitability, we may not be able to sustain it. If we cannot generate operating income or positive cash flows in the future, we will be unable to meet our working capital requirements.

 

Many of our corporate actions may be controlled by our officers, directors and principal stockholders; these actions may benefit these principal stockholders more than our other stockholders.

 

As of March 31, 2022, our directors, executive officers and principal stockholders, those known by us to beneficially own more than 5% of the outstanding shares of our Common Stock, beneficially own, directly or indirectly, in the aggregate, approximately 23.9% of our outstanding Common Stock. Certain of these stockholders are under the common control of one of our directors. These stockholders, as a group, may have significant influence over our business affairs, with the ability to control matters requiring approval by our security holders, including elections of directors and approvals of mergers or other business combinations. In addition, certain corporate actions directed by our officers may not necessarily inure to the proportional benefit of our other stockholders.

 

We face risks associated with our business in China.

 

In November 2017, Bison, a Hong Kong-based entity that does business in mainland China as well as other locations, became our majority owner. We anticipate that Bison’s presence and relationships in China will provide us with assistance in expanding our business to China. In January 2018, we announced a strategic alliance with A Metaverse Company, a leading Chinese entertainment company, formerly Starrise Media Holdings Limited, whose ordinary shares are listed on the Hong Kong Stock Exchange (“Metaverse”), to release films in China theatrically and to digital platforms, and to evaluate opportunities to jointly produce Chinese/American film co-productions, and in February and April 2020, we acquired approximately 26% of the outstanding ordinary shares of Metaverse. Accordingly, we are exposed to risks of doing business in China. As a result, the economic, political, legal and social conditions in China could have a material adverse effect on our business. In addition, the legal system in China has inherent uncertainties that may limit the legal protections available in the event of any claims or disputes that we may have with third parties, including our ability to protect the intellectual property we use in China. As China’s legal system is still evolving, the interpretation of many laws, regulations and rules is not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit the remedies available in the event of any claims or disputes with third parties. Some of the other risks related to doing business in China include:

 

the Chinese government exerts substantial influence over the manner in which we must conduct our business activities;

 

restrictions on currency exchange may limit our ability to receive and use our cash effectively;

 

the Chinese government may favor local businesses and make it more difficult for foreign businesses to operate in China on an equal footing, or generally;

 

there are increased uncertainties related to the enforcement of contracts with certain parties; and

 

more restrictive rules on foreign investment could adversely affect our ability to expand our operations in China

 

As a result of our growing operations in China, these risks could have a material adverse effect on our business, results of operations and financial condition.

 

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We are subject to risks from our equity investment in a foreign company.

 

We own approximately 18% of the outstanding ordinary shares of Metaverse, a company that operates in China and whose ordinary shares trade on the Hong Kong Stock Exchange. We have partnered with Metaverse in the past, and continue to do so, with respect to the release of U.S.-sourced content in China and China-sourced content in the U.S. We may experience consequences from economic and regulatory events and requirements outside of the United States that affect the value of these shares and their value to us, including changes in regulatory requirements that affect Metaverse, fluctuations in international currency exchange rates, volatility in international political and economic environments, public disclosure requirements, and unforeseen developments and conditions, including terrorism, war, epidemics and international tensions and conflicts. No assurance can be made that, if we were to sell these shares on the Hong Kong Stock Exchange in Hong Kong currency, we would receive the full value in U.S. dollars upon repatriating the proceeds, based on fluctuating currency exchange rates.

 

While the impact of these factors is difficult to predict, any one or more of these factors could adversely affect the value of our investment in the Metaverse shares.

 

Our success will significantly depend on our ability to hire and retain key personnel.

 

Our success will depend in significant part upon the continued performance of our senior management personnel and other key technical, sales and creative personnel. We do not currently have significant “key person” life insurance policies for any of our employees. We currently have employment agreements with our chief executive officer. If we lose one or more of our key employees, we may not be able to find a suitable replacement(s) and our business and results of operations could be adversely affected. In addition, competition for key employees necessary to create and distribute our entertainment content and software products is intense and may grow in the future. Our future success will also depend upon our ability to hire, train, integrate and retain qualified new employees and our inability to do so may have an adverse impact upon our business, financial condition, operating results, liquidity and prospects for growth.

 

If we do not respond to future changes in technology and customer demands, our financial position, prospects and results of operations may be adversely affected.

 

The demand for our Systems and other assets in connection with our digital cinema business (collectively, our “Digital Cinema Assets”) may be affected by future advances in technology and changes in customer demands. We cannot assure you that there will be continued demand for our Digital Cinema Assets. Our profitability depends largely upon the continued use of digital presentations at theatres. Although we have entered into long term agreements with major motion picture studios and independent studios (the “Studio Agreements”), there can be no assurance that these studios will continue to distribute digital content to movie theatres. If the development of digital presentations and changes in the way digital files are delivered does not continue or technology is used that is not compatible with our Systems, there may be no viable market for our Systems and related products. Any reduction in the use of our Systems and related products resulting from the development and deployment of new technology may negatively impact our revenues and the value of our Systems.

 

The demand for DVD products is declining, and we anticipate that this decline will continue. We anticipate, however, that the distribution of DVD products will continue to generate positive cash flows for the Company for the foreseeable future. Should a decline in consumer demand be greater than we anticipate, our business could be adversely affected.

Termination of the MLAs and MLAAs could damage our revenue and profitability.

 

The master license agreements with each of our licensed exhibitors (the “MLAs”) are critical to our business as are master license administrative agreements (the “MLAAs”). The MLAs have terms, which expire in 2020 through 2022 and provide the exhibitor with an option to purchase our Systems or to renew for successive one-year periods up to ten years thereafter. The MLAs also require our suppliers to upgrade our Systems when Technology is necessary for compliance with DCI Specification becomes commercially available and we may determine to enhance the Systems, which may require additional capital expenditures. If any one of the MLAs were terminated prior to the end of its term, not renewed at its expiration or found to be unenforceable, or if our Systems are not upgraded or enhanced as necessary, it would have a material adverse effect on our revenue, profitability, financial condition and cash flows. Additionally, termination of MLAAs could adversely impact our servicing business.

 

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An increase in the use of alternative movie distribution channels and other competing forms of entertainment could drive down movie theatre attendance, which, if causing significant theatre closures or a substantial decline in motion picture production, may lead to reductions in our revenues.

 

Various exhibitor chains, which are our distributors, face competition for patrons from a number of alternative motion picture distribution channels, such as DVD, network and syndicated television, VOD, pay-per-view television and downloading utilizing the Internet. These exhibitor chains also compete with other forms of entertainment competing for patrons’ leisure time and disposable income such as concerts, amusement parks and sporting events. An increase in popularity of these alternative movie distribution channels and competing forms of entertainment could drive down movie theatre attendance and potentially cause certain of our exhibitors to close their theatres for extended periods of time. Significant theatre closures could in turn have a negative impact on the aggregate receipt of our VPF revenues, which in turn may have a material adverse effect on our business and ability to service our debt.

 

An increase in the use of alternative movie distribution channels could also cause the overall production of motion pictures to decline, which, if substantial, could have an adverse effect on the businesses of the major studios with which we have Studio Agreements. A decline in the businesses of the major studios could in turn force the termination of certain Studio Agreements prior to the end of their terms. The Studio Agreements with each of the major studios are critical to our business, and their early termination may have a material adverse effect on our revenue, profitability, financial condition and cash flows.

 

Our success depends on external factors in the motion picture and television industry.

 

Our success depends on the commercial success of movies and television programs, which is unpredictable. Operating in the motion picture and television industry involves a substantial degree of risk. Each movie and television program is an individual artistic work, and inherently unpredictable audience reactions primarily determine commercial success. Generally, the popularity of movies and television programs depends on many factors, including the critical acclaim they receive, the format of their initial release, for example, theatrical or direct-to-video, the actors and other key talent, their genre and their specific subject matter. The commercial success of movies and television programs also depends upon the quality and acceptance of movies or programs that our competitors release into the marketplace at or near the same time, critical reviews, the availability of alternative forms of entertainment and leisure activities, general economic conditions and other tangible and intangible factors, many of which we do not control and all of which may change. We cannot predict the future effects of these factors with certainty, any of which could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects. In addition, because a movie’s or television program’s performance in ancillary markets, such as home video and pay and free television, is often directly related to its box office performance or television ratings, poor box office results or poor television ratings may negatively affect future revenue streams. Our success will depend on the experience and judgment of our management to select and develop new content acquisition and investment opportunities. We cannot make assurances that movies and television programs will obtain favorable reviews or ratings, will perform well at the box office or in ancillary markets or that broadcasters will license the rights to broadcast any of our television programs in development or renew licenses to broadcast programs in our library. The failure to achieve any of the foregoing could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.

 

In addition, the motion picture industry has been significantly affected by the COVID-19 pandemic in light of mandatory theatre shutdown, changes to the planned production, distribution and release schedules. The industry may continue to be negatively impacted by delays in the production and release schedules of new motion pictures and TV shows, which may negatively affect our business, financial condition, operating results, liquidity and prospects.

 

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Our business involves risks of liability claims for media content, which could adversely affect our business, results of operations and financial condition.

 

As a distributor of media content, we may face potential liability for:

 

defamation;

 

invasion of privacy;

 

negligence;

 

copyright or trademark infringement (as discussed above); and

 

other claims based on the nature and content of the materials distributed.

 

These types of claims have been brought, sometimes successfully, against producers and distributors of media content. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.

 

Our revenues and earnings are subject to market downturns.

 

Our revenues and earnings may fluctuate significantly in the future. General economic or other conditions could cause lower than expected revenues and earnings within our digital cinema, technology or content and entertainment businesses. The global economic turmoil of recent years has caused a general tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, an unprecedented level of intervention from the U.S. federal government and other foreign governments, decreased consumer confidence, overall slower economic activity and extreme volatility in credit, equity and fixed income markets. While the ultimate outcome of these events cannot be predicted, a decrease in economic activity in the U.S. or in other regions of the world in which we do business could adversely affect demand for our movies, thus reducing our revenue and earnings. While stabilization has continued, it remains a slow process and the global economy remains subject to volatility. Moreover, financial institution failures may cause us to incur increased expenses or make it more difficult either to financing of any future acquisitions, or financing activities. Any of these factors could have a material adverse effect on our business, results of operations and could result in significant additional dilution to shareholders.

 

Changes in economic conditions could have a material adverse effect on our business, financial position and results of operations.

 

Our operations and performance could be influenced by worldwide economic conditions. Uncertainty about current global economic conditions poses a risk as consumers and businesses may postpone spending in response to tighter credit, negative financial news and/or declines in income or asset values, which could have a material negative effect on the demand for our products and services. Other factors that could influence demand include continuing increases in fuel and other energy costs, conditions in the residential real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence, and other macroeconomic factors affecting consumer-spending behavior. These and other economic factors could have a material adverse effect on demand for our products and services and on our financial condition and operating results. Uncertainty about current global economic conditions could also continue to increase the volatility of our stock price.

 

Changes to existing accounting pronouncements or taxation rules or practices may affect how we conduct our business and affect our reported results of operations.

 

New accounting pronouncements or tax rules and varying interpretations of accounting pronouncements or taxation practice have occurred and may occur in the future. A change in accounting pronouncements or interpretations or taxation rules or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. Changes to existing rules and pronouncements, future changes, if any, or the questioning of current practices or interpretations may adversely affect our reported financial results or the way we conduct our business.

 

17

 

 

Our ability to utilize our net operating loss carryforwards in the future is subject to substantial limitations and we may not be able to use some identified net operating loss carryforwards, which could result in increased tax payments in future periods.

 

Under Section 382 of the Internal Revenue Code, if a corporation undergoes an ownership change (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to use its pre-change net operating loss (“NOL”) carryforwards to offset its post-change income may be limited. Similar rules may apply under state tax laws. On November 1, 2018, we experienced an ownership change with respect to the Bison acquisition. Accordingly, our ability to utilize our NOL carryforwards attributable to periods prior to November 1, 2018 is subject to substantial limitations. These limitations could result in increased future tax payments, which could be material.

 

We may experience unanticipated effects of the COVID-19 pandemic.

 

Our business could be adversely affected by the effects of a widespread outbreak of contagious disease, including the outbreak of COVID-19. The COVID-19 pandemic and related economic repercussions created significant volatility and uncertainty impacting the Company’s results for the year. 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 purchases of physical product. As part of our Cinema Equipment business, the Company earns revenue when movies are exhibited in theaters. Many movie theaters in the United States slowly re-opened with limited capacities through March 31, 2022. The majority of major studios resumed blockbuster films releases during the year which showed an encouraging return of consumer confidence for the theatrical experience. As vaccines became readily available and COVID cases decreased, major studios resumed theatrical releases and there was an uptick in box office revenue during the period ending March 31, 2022.

 

Longer term, there had been speculation that the future of theatrical release strategies could change as a result of Major Studios being able to release movies simultaneously in theatres and on streaming platforms during the pandemic. If fewer movies are released theatrically, a shift to digital viewing reduces revenue opportunities for virtual print fees and sales of digital cinema equipment. While Studios are still in an experimentation phase regarding theatrical/streaming strategies we are encouraged by the success of recent exclusive theatrical releases such as Sony’s ‘Spider-Man: No Way Home’, which became the first movie since the pandemic to hit $1 billion globally with no current plans to premiere on any streaming platforms.

 

Risks Related to Common Stock

 

The liquidity of the Common Stock is uncertain; the limited trading volume of the Common Stock may depress the price of such stock or cause it to fluctuate significantly.

 

Although the Common Stock is listed on Nasdaq, there has been a limited public market for the Common Stock and there can be no assurance that a more active trading market for the Common Stock will develop. As a result, you may not be able to sell your shares of Common Stock in short time periods, or possibly at all. The absence of an active trading market may cause the price per share of the Common Stock to fluctuate significantly.

 

Substantial resales or future issuances of our Common Stock could depress our stock price.

 

The market price for the Common Stock could decline, perhaps significantly, as a result of resales or issuances of a large number of shares of the Common Stock in the public market or even the perception that such resales or issuances could occur. In addition, we have outstanding a substantial number of options and warrants exercisable for shares of Common Stock that may be exercised in the future. These factors could also make it more difficult for us to raise funds through future offerings of our equity securities.

 

18

 

 

You will incur substantial dilution as a result of certain future equity issuances.

 

We have a substantial number of options and warrants currently outstanding which may be immediately exercised for shares of Common Stock. To the extent that these options or warrants are exercised, or to the extent we issue additional shares of Common Stock in the future, as the case may be, there will be further dilution to holders of shares of the Common Stock.

 

Our issuance of preferred stock could adversely affect holders of Common Stock.

 

Our board of directors is authorized to issue series of preferred stock without any action on the part of our holders of Common Stock. Our board of directors also has the power, without stockholder approval, to set the terms of any such series of preferred stock that may be issued, including voting rights, dividend rights, preferences over our Common Stock with respect to dividends or if we liquidate, dissolve or wind up our business and other terms. If we issue preferred stock in the future that has preference over our Common Stock with respect to the payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our Common Stock, the rights of holders of our Common Stock or the price of our Common Stock could be adversely affected.

 

Our stock price has been volatile and may continue to be volatile in the future; this volatility may affect the price at which you could sell our Common Stock.

 

The trading price of the Common Stock has been volatile and may continue to be volatile in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on an investment in our securities:

 

actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

 

changes in the market’s expectations about our operating results;

 

success of competitors;

 

our operating results failing to meet the expectation of securities analysts or investors in a particular period;

 

changes in financial estimates and recommendations by securities analysts concerning us, the market for digital and physical content, content distribution and entertainment in general;

 

operating and stock price performance of other companies that investors deem comparable to us;

 

our ability to market new and enhanced products on a timely basis;

 

changes in laws and regulations affecting our business or our industry;

 

commencement of, or involvement in, litigation involving us;

 

changes in our capital structure, such as future issuances of securities or the incurrence of debt;

 

the volume of shares of the Common Stock available for public sale;

 

any major change in our board of directors or management;

 

sales of substantial amounts of Common Stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and

 

general economic and political conditions such as recessions, interest rates, international currency fluctuations and acts of war or terrorism.

 

Broad market and industry factors may materially harm the market price of the Common Stock irrespective of our operating performance. The stock market in general, and Nasdaq in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of the Common Stock, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies that investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of the Common Stock also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.

 

19

 

 

Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

 

Our fifth amended and restated certificate of incorporation and bylaws, as amended, contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors.

 

These provisions include:

 

no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

 

the ability of our board of directors to determine to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

 

the requirement that an annual meeting of stockholders may be called only by the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

 

limiting the liability of, and providing indemnification to, our directors and officers;

 

controlling the procedures for the conduct and scheduling of stockholder meetings; and

 

providing that directors may be removed prior to the expiration of their terms by the Board of Directors only for cause.

 

In addition, our certificate of incorporation authorizes the issuance of 15,000,000 shares of preferred stock. The terms of our preferred stock may be fixed by the company’s board of directors without further stockholder action. The terms of any outstanding series or class of preferred stock may include priority claims to assets and dividends and special voting rights, which could adversely affect the rights of holders of Common Stock. Any future issuance(s) of preferred stock could make the takeover of the company more difficult, discourage unsolicited bids for control of the company in which our stockholders could receive premiums for their shares, dilute or subordinate the rights of holders of Common Stock and adversely affect the trading price of the Common Stock.

 

These provisions, alone or together, could delay hostile takeovers and changes in control of the Company or changes in our management.

 

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the DGCL, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock. Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our securities.

 

20

 

 

We may not be able to maintain the listing of our Common Stock on Nasdaq, which may adversely affect the flexibility of holders of Common Stock to resell their securities in the secondary market.

 

The Common Stock is presently listed on Nasdaq. On April 4, 2022, we received a letter (the “Notice”) from the Listing Qualifications staff of Nasdaq indicating that the Company no longer meets the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5450(a)(1). The Notice did not result in the immediate delisting of the Common Stock from Nasdaq. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided a period of 180 calendar days, or until October 3, 2022, in which to regain compliance. There can be no assurance that we regain compliance within such period, or will be granted an extension of time to cure the deficiency. If the Company is unable to meet the continued listing criteria of Nasdaq and the Common Stock became delisted, trading of the Common Stock could thereafter be conducted in the over-the-counter markets in the OTC Pink, also known as “pink sheets” or, if available, on another OTC trading platform. Any such delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the loss of confidence in our financial stability by suppliers, customers and employees. Investors would likely find it more difficult to dispose of, or to obtain accurate market quotations for, the Common Stock, as the liquidity that Nasdaq provides would no longer be available to investors. In addition, the failure of our Common Stock to continue to be listed on the Nasdaq could adversely impact the market price for the Common Stock and our other securities, and we could face a lengthy process to re-list the Common Stock, if we are able to re-list the Common Stock.

 

We have no present intention of paying dividends on our Common Stock.

 

We have never paid any cash dividends on our Common Stock and have no present plans to do so. In addition, certain of our credit facilities restrict our ability to pay dividends on the Common Stock. As a result, you may not receive any return on an investment in our Common Stock unless you sell any shares you hold for a price greater than that which you paid for them.

 

Our ability to raise capital in the future may be limited, which could make us unable to fund our capital requirements.

 

Our business and operations may consume resources faster than we anticipate, or we may require additional funds to pursue acquisition or expansion opportunities. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both. Additional financing may not be available on favorable terms or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements. If we issue new debt securities, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our Common Stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our Common Stock, diluting their interest or being subject to rights and preferences senior to their own.

 

We identified material weaknesses in our internal control over financial reporting, and we may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remediate any material weaknesses or if we otherwise fail to establish and maintain effective control over financial reporting, our ability to accurately and timely report our financial results could be adversely affected.

 

We identified deficiencies in our internal control that we consider to be material weaknesses in our internal control over financial reporting which existed as of March 31, 2021 and 2022. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis.

 

21

 

 

In the evaluation, management identified material weaknesses in internal controls related to our financial close and reporting process and information and communication controls. Management also concluded that we did not have a sufficient complement of corporate personnel with appropriate levels of accounting and controls knowledge and experience commensurate with our financial reporting requirements to appropriately analyze, record and disclose accounting matters completely and accurately. As a result of this evaluation, management extensively used outside consultants who possessed the appropriate levels of accounting and controls knowledge.

 

Following identification of this control deficiency, management is implementing modifications to better ensure that the Company has appropriate and timely reviews on all financial reporting analysis. The material weakness in our internal control over financial reporting will not be considered remediated until these modifications are implemented, in operation for a sufficient period of time, tested, and concluded by management to be designed and operating effectively. In addition, as we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to address control deficiencies or determine to modify our remediation plan. Management will test and evaluate the implementation of these modifications to ascertain whether they are designed and operating effectively to provide reasonable assurance that they will prevent or detect a material misstatement in the Company’s financial statements.

 

By taking the remediation steps described in Item 9A, we believe that, as a result of management’s in-depth review of its accounting processes, and the additional procedures management has implemented, there are no material inaccuracies or omissions of material fact in this Form 10-K and, to the best of our knowledge, we believe that the consolidated financial statements in this Form 10-K fairly present in all material respects our financial condition, results of operations and cash flows in conformity with GAAP.

 

We may identify future material weaknesses in our internal controls over financial reporting and we may be unable to accurately report our financial results, or report them within the timeframes required by law or stock exchange regulations. We cannot assure that our existing material weakness will be remediated or that additional material weaknesses will not exist or otherwise be discovered, any of which could adversely affect our reputation, financial condition and results of operations.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

We operated from the following leased properties at March 31, 2022.

 

Location   Square Feet (Approx.)   Lease Expiration Date   Primary Use
264 W. 40th St. 15th Floor, New York City,  NY 10018   5,363   Jan 31, 2025   Office space

 

We do not own any real estate or invest in real estate or related investments.

 

ITEM 3. LEGAL PROCEEDINGS

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

22

 

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

COMMON STOCK

 

Our Common Stock trades publicly on The Nasdaq Global Market (“Nasdaq”), under the trading symbol “CIDM”. The following table shows the high and low sales prices per share of our Common Stock as reported by Nasdaq for the periods indicated:

 

    For the Fiscal Year Ended March 31,  
    2022     2021  
    HIGH     LOW     HIGH     LOW  
April 1 – June 30   $ 1.71     $ 1.14     $ 3.20     $ 0.32  
July 1 – September 30   $ 2.63     $ 1.08     $ 2.49     $ 0.55  
October 1 – December 31   $ 2.84     $ 1.16     $ 1.09     $ 0.45  
January 1 – March 31   $ 1.25     $ 0.64     $ 2.33     $ 0.69  

 

The last reported closing price per share of our Common Stock as reported by Nasdaq on June 29, 2022 was $0.53 per share. As of June 29, 2022, there were 59 holders of record of our Common Stock, not including beneficial owners of our Common Stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.

 

CLASS B COMMON STOCK

 

On October 31, 2017, we filed our Fifth Amended and Restated Certificate of Incorporation which, in addition to other things, eliminated the Class B Common Stock. Accordingly, no further Class B Common Stock will be issued.

 

DIVIDEND POLICY

 

We have never paid any cash dividends on our Common Stock or Class B Common Stock and do not anticipate paying any on our Common Stock in the foreseeable future. Any future payment of dividends on our Common Stock will be in the sole discretion of our board of directors. 

 

The holders of our Series A 10% Non-Voting Cumulative Preferred Stock are entitled to receive dividends. There were $89 thousand of cumulative dividends in arrears on the Preferred Stock at March 31, 2022.

 

SALES OF UNREGISTERED SECURITIES

 

None.

 

PURCHASE OF EQUITY SECURITIES

 

There were no purchases of shares of our Common Stock made by us or on our behalf during the year ended March 31, 2022 and 2021.

 

23

 

 

ITEM 6. [Reserved]

 

ITEM 7. 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 products for major brands such as Hallmark, Televisa, ITV, Nelvana, ZDF, Konami, NFL, and Scholastic, as well as leading international and domestic content creators, movie producers, television producers and other short-form digital content producers. We collaborate with producers, major brands and other content owners 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 iTunes, Amazon Prime, Netflix, Hulu, Xbox, Pluto, Tubi and most video-on-demand (“VOD”) and free ad-supported television (“FAST”) streaming platforms, as well as (ii) physical goods, including DVD and Blu-ray Discs.

 

We report our financial results in two primary segments as follows: (1) cinema equipment business and (2) 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 Australia. It also provides fee-based support to over 2,843 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.

 

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. 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 March 31, 2022, we had approximately $0.0 million of non-recourse outstanding debt principal that relates to, and is serviced by, our cinema equipment business. We have approximately $0.0 million of outstanding debt principal, as of March 31, 2022 that is attributable to our Content & Entertainment and Corporate segments.

 

24

 

 

Risks and Uncertainties

 

The COVID-19 pandemic and related economic repercussions created significant volatility and uncertainty impacting the Company’s results for the year. 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 purchases of physical product. As part of our Cinema Equipment business, the Company earns revenue when movies are exhibited in theaters. Many movie theaters in the United States slowly re-opened with limited capacities through March 31, 2021, and have since reopened as of March 31, 2022. The majority of major studios resumed blockbuster films releases during the year which showed an encouraging return of consumer confidence for the theatrical experience. As vaccines became readily available and COVID cases decreased, major studios resumed theatrical releases and there was an uptick in box office revenue during the year ending March 31, 2022.

 

Longer term, there had been speculation that the future of theatrical release strategies could change as a result of Major Studios being able to release movies simultaneously in theatres and on streaming platforms during the pandemic.  If fewer movies are released theatrically, a shift to digital viewing reduces revenue opportunities for virtual print fees and sales of digital cinema equipment. While Studios are still in an experimentation phase regarding theatrical/streaming strategies we are encouraged by the success of recent exclusive theatrical releases such as Sony’s ’Spider-Man: No Way Home’, which became the first movie since the pandemic to hit $1 billion globally with no current plans to release on any streaming platforms.

 

Liquidity

 

We have incurred net losses historically and net income for the year ended March 31, 2022 of $2.3 million. As of March 31, 2022, we had an accumulated deficit of $472.3 million and negative working capital of $4.8 million as of March 31, 2022. Net cash provided by operating activities for the fiscal year ended March 31, 2022 was $4.9 million. Based on these conditions, the Company entered into the following transactions described below.

 

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 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 the 2020 Shelf Registration Statement, for an aggregate offering price of up to $30 million. During the year ended March 31, 2021, we sold 28,405,840 shares of Common Stock under the ATM Sales Agreement. Net proceeds from such sales totaled $18.6 million. No sales under the ATM Sales Agreement were made during the year ended March 31, 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 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.

 

25

 

 

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 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.

 

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 in the Equity Line Purchase Agreement), 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 the year ended March 31, 2022, we sold 5,300,000 shares of Common Stock under the Equity Line Purchase Agreement. Net proceeds from such sales totaled $12.4 million.

 

As of March 31, 2022, there is still approximately $38.0 million available under the 2020 Shelf Registration Statement, and $37.6 million available under the Equity Line Purchase Agreement, to raise additional capital.

 

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 agreement included the sale in tranches of a total of 2,369 cinematic projectors starting in March 2021 throughout January 2023 for a total cash consideration of $10.8 million. For the year ended March 31, 2022, the Company recognized revenue for $9.6 million. A portion of the total proceeds was utilized to pay off the remaining Prospect note 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 “Metaverse 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 A Metaverse Company, a leading Chinese entertainment company (“Metaverse”), formerly Starrise Media Holdings Limited, to buy from them an aggregate of 410,901,000 outstanding Metaverse ordinary shares (the “Metaverse Share Acquisition”). On February 14, 2020, the Company purchased 162,162,162 of the Metaverse ordinary shares from BeiTai and issued BeiTai 21,646,604 shares of its Common Stock in consideration. The Metaverse 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 Metaverse Stock Purchase Agreement, terminated its obligation to purchase Metaverse ordinary shares from Aim Right under the December 27, 2019 stock purchase agreement.

 

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On April 10, 2020, the Company entered into another stock purchase agreement (the “April Metaverse Stock Purchase Agreement”) with five (5) shareholders of Metaverse – 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 Metaverse 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 Metaverse Share Acquisition”). On April 15, 2020, the April Metaverse Share Acquisition was consummated and this transaction was also recorded as an equity investment in Metaverse.

 

Metaverse’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 .152 per share on March 31, 2022, calculated at an exchange rate of 7.85 Hong Kong Dollars to 1 US dollar, the market value of Cinedigm’s ownership in Metaverse ordinary shares was approximately $7.03 million. Subsequent to the period, trading of Metaverse’s ordinary shares was halted. (See Note 11)

 

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 and was not extended.

 

On July 3, 2019, the Company entered into an amendment (the “EWB Amendment”) to 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 “EWB Credit Agreement”). 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 additional Guarantors under the EWB Credit Agreement. On June 26, 2020, the Company signed another amendment and extended the maturity date to June 30, 2021 and on June 22, 2021, the maturity date was extended to September 28, 2021. See Note 5 – Notes Payable.

 

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 “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 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 January 5, 2021, the Company submitted its application for forgiveness and, as of June 30, 2021, obtained forgiveness for the full amount.

 

On June 24, 2020, the Company entered into an exchange agreement pursuant to which the Company issued 329,501 shares of its Common Stock, in exchange for $842,000, the’ principal amount and accrued and unpaid interest of outstanding Second Lien Loans (as defined in Note 5 – Notes Payable). The surrendered Second Lien Loans were immediately canceled. The exchange was consummated on June 24, 2020.

 

On June 26, 2020, the Company signed a consent agreement with the holders of the Second Lien loans to extend the maturity date to September 30, 2020 and grant the Company options to extend further to March 31, 2021 and then to June 30, 2021. A consent fee of $100,000 was paid in connection with this extension.

 

In a separate exchange with another holder of Second Lien Notes, on November 19, 2020, the Company issued 452,499 shares of Common Stock in exchange for $247,108 principal amount of Second Lien Notes. The exchanged Second Lien Notes were immediately cancelled.

 

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On December 4, 2020, the Company entered into exchange agreements (the “December Exchange Agreements”) with certain holders of Second Lien Notes. Pursuant to the December Exchange Agreements, the Company issued an aggregate of 2,776,284 shares of its Common Stock, par value $0.001 per share Common Stock in exchange for an aggregate of $1,386,106 of principal amount of Second Lien Notes. The exchanged Second Lien Notes were immediately cancelled.

 

On January 21, 2021, the Company entered into an exchange agreement (the “January Exchange Agreement”) with a holder of notes under its Second Lien Loan Agreement dated as of July 14, 2016 among the Company, the lenders party thereto, and Cortland Capital Market Services LLC, as Agent (“Second Lien Notes”). Pursuant to the January Exchange Agreement, the Company issued an aggregate of 1,247,626 shares of Common Stock, in exchange for an aggregate of $1,289,650 of principal amount of Second Lien Notes. The exchanged Second Lien Notes were immediately cancelled.

 

In three separate exchanges with another holder of Second Lien Notes, on January 14, 2021 and January 21, 2021, the Company issued 689,500 shares, 580,448 shares and 1,247,626 (an aggregate of 2,517,574 shares) of Common Stock in exchange for $500,000, $600,000 and $1,289,650 (an aggregate of $2,389,650) principal amount of Second Lien Notes. The exchanged Second Lien Notes were immediately cancelled.

 

On February 2, 2021, the Company issued 425,290 shares of Common Stock in exchange for $500,000 principal amount of Second Lien Notes. The exchanged Second Lien Notes were immediately cancelled.

 

The Second Lien Loans (as defined in Note 5 – Notes Payable) were to mature on June 16, 2020. On June 26, 2020, the Company entered into a consent agreement with the lenders of the Second Lien Loans to an extension of the Second Lien Loans pursuant to which (i) the Company paid down a portion of the outstanding principal amount plus accrued interest to date, and 47 (ii) the maturity date of the remaining outstanding principal amount of the Second Lien Loans was extended to September 30, 2019. On July 30, 2019, one of the lenders, signed a waiver to defer the receipt of the portion of the outstanding principal amount on the Second Lien Loans agreed to be paid no later than September 30, 2019.The Company paid $3.4 million of the outstanding Second Lien Loans and expects to obtain additional capital from or through Bison Capital Holding Company Limited or an affiliate thereof (“Bison”) for final payment of the remaining outstanding balances. The Second Lien Loans were to mature on June February 16, 2020. On June 26, 2020, the Company entered into a consent agreement with the lenders to extend the maturity date to September 30, 2020 and grant the Company options to extend further to March 31, 2021 and then to June 30, 2021. There was a consent fee of $100,000 for this extension.

 

On February 9, 2021, the Company prepaid all of the outstanding obligations in respect of principal, interest, fees and expenses under the Second Lien Loan Agreement, among the Company, certain lenders and Cortland Capital Market Services LLC. The payoff amount of approximately $3.18 million was comprised of (i) $3.1 million of principal, (2) accrued payment-in-kind interest of $.018 million, (3) accrued current interest of $0.007 million, and (4) fees and expenses of $0.004 million. Upon such prepayment, the Second Lien Loan Agreement was terminated effective February 9, 2021.

 

The $10.0 million note payable (“2018 Loan”) to Bison Global Investment SPC for and on behalf of Global Investment SPC-Bison Global No. 1, another affiliate of Bison (“Bison Global”), due July 20, 2019 is guaranteed by Bison Entertainment and Media Group (“BEMG”). On July 20, 2018, the Company also entered into a side letter (the “Letter”) with BEMG, where BEMG agreed to guarantee the payment directly to Bison Global of any amount due if (i) the 2018 Loan matures prior to June 28, 2021 or (ii) Bison Global demands payment of the 2018 Loan, in whole or in part, prior to maturity.

 

On July 12, 2019, the Company and Bison Global entered into a termination agreement (the “Termination Agreement”) with respect to the $10.0 million 2018 Loan. Contemporaneously with the Termination Agreement, the Company entered into a convertible promissory note (“Bison Convertible Note”) with Bison Global for $10.0 million.

 

The Bison Convertible Note has a term ending on March 4, 2020, and had an interest rate of 5% per annum. The principal was payable upon maturity, in cash or in shares of our Common Stock, par value $0.001 per share (the “Common Stock”), or a combination of cash and Common Stock, at the Company’s option. The Bison Convertible Note was unsecured and may be prepaid without premium or penalty, and contains customary covenants, representations and warranties. The proceeds of the Bison Convertible Note were used to repay the 2018 Loan. On April 15, 2020, the Company executed a letter amendment (the “Letter Amendment”) to the Bison Convertible Note. Among other things, the Letter Amendment amended the Bison Convertible Note, effective as of March 4, 2020, to change the maturity date of the Bison Convertible Note to March 4, 2021. The Bison Convertible Note due 2021 was converted to Common Stock in March 2021. See Note 5 – Notes Payable.

 

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On October 9, 2018, the Company issued a subordinated convertible note (the “Convertible Note”) to MingTai Investment LP (the “Lender”) for $5.0 million. All proceeds from the Convertible Note were used to pay the $5.0 million 2013 Notes. See Note 5 – Notes Payable. The Convertible Note bears interest at 8% and matured on October 9, 2019. The principal is payable upon maturity, in cash or in shares of our Common Stock, or a combination of cash and Common Stock, at the Company’s option. On October 9, 2019, the Company signed an extension to the Ming Tai Note of $5.0 million for the first of two (2) permitted additional (1) year extensions at the Company’s option from the original maturity date to October 9, 2020.

 

On April 15, 2020, the Company executed a letter amendment (the “Letter Amendment”) to the Bison Convertible Note (as defined in Note 5 – Notes Payable). Among other things, the Letter Amendment amended the Note, effective as of March 4, 2020, to extend the maturity date of the Bison Convertible note to March 4, 2021.

 

On October 9, 2019, the Company signed an extension to the Ming Tai Note of $5.0 million for the first of two (2) permitted additional (1) year extensions at the Company’s option from the original maturity date to October 9, 2020. This note will continue in full force and effect in accordance with its terms, including the Company’s reservation of its right to further extend the maturity date of this note, if it so elects.

 

On September 11, 2020, the Bison and Mingtai Notes, having an aggregate of $15 million principal amount (the “Notes”) were converted in full into an aggregate of 10,000,000 shares of Common Stock at a conversion price of $1.50 per share in accordance with the terms of the Notes. Accordingly, the Notes have been extinguished. The Notes were held by Bison Global and, both of which are affiliates of Peixin Xu, the Chairman of Bison Capital Holding Company Limited, which is indirectly Cinedigm’s largest stockholder.

 

On March 4, 2021, Cinedigm DC Holdings, LLC (“CDCH”), Access Digital Media, Inc., Access Digital Cinema Phase 2, Corp., Christie/AIX, Inc., Cinedigm Digital Funding I, LLC, certain Lenders, and Prospect Capital Corporation, as administrative agent and collateral agent (“Prospect”), entered into Amendment No. 3 (the “Amendment”) to the Term Loan Agreement dated February 28, 2013 (the “Term Loan Agreement”). Under the Amendment, the maturity date of the loan under the Term Loan Agreement (the “Loan”) was extended to March 31, 2022. 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.

 

We believe the combination of: (i) our cash and cash equivalent balances at March 31, 2022 and (ii) expected cash flow from operations, will be sufficient for our operations and capital needs, for at least 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.

 

Our significant accounting policies are discussed in Note 2 – Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. 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.

 

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FAIR VALUE ESTIMATES

 

Goodwill, Intangible and Long-Lived Assets

 

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.

 

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.

 

During the years ended March 31, 2022 and 2021, an impairment charge of $2.0 million and $0 was recorded to intangible assets.

 

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REVENUE RECOGNITION

 

Adoption of ASU Topic 606, “Revenue from Contracts with Customers”

 

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 (DVD’s 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 696 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 2,147 Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”).

 

We retain ownership of our 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 Cinedigm received the sale proceeds. Such sales were originally contemplated as the conclusion of the digital cinema deployment plan. Total system sales executed was $6.1 million and $6.7 million, during the year ended March 31, 2022 and 2021, 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 Phase II of 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 are 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.

 

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Principal Agent Considerations

 

We determine whether revenue should be reported on a gross or net basis based on each revenue stream. 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, including current and non-current balances, as of March 31, 2022 was $0.2 million. For the year ended March 31, 2022, 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 year ended March 31, 2022, $813 thousand of revenue was recognized that was included in the deferred revenue balance at the beginning of the year.

 

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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ASSET ACQUISITIONS

 

An asset acquisition is an acquisition of an asset, or a group of assets, that does not meet the definition of a business as substantially all of the fair value of the gross assets acquired are concentrated in a single or group of similar, identifiable assets. Asset acquisitions are accounted for by using the cost accumulation model whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on a relative fair value basis. Determining and valuing intangible assets requires judgment.

 

BUSINESS COMBINATIONS

 

The Company accounts for acquisitions in accordance with FASB ASC 805, “Business Combinations” (“ASC 805”), and goodwill in accordance with ASC 350, “Intangibles — Goodwill and Other” (“ASC 350”). The excess of the purchase price over the estimated fair value of net assets acquired in a business combination is recorded as goodwill. ASC 805 specifies criteria to be used in determining whether intangible assets acquired in a business combination must be recognized and reported separately from goodwill. Amounts assigned to goodwill and other identifiable intangible assets are based on independent appraisals or internal estimates.

 

ASC 805 defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date the acquirer achieves control. ASC 805 requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquirer (if any) at the acquisition date, measured at their fair values as of that date. ASC 805 also requires the acquirer to recognize contingent consideration (if any) at the acquisition date, measured at its fair value at that date.

 

Results of Operations for the Fiscal Years Ended March 31, 2022 and 2021

 

Revenues

 

    For the Fiscal Year Ended March 31,  
($ in thousands)   2022     2021     $ Change     % Change  
Cinema Equipment Business   $ 18,159     $ 3,222     $ 14,937       464 %
Content & Entertainment     37,895       28,197       9,698       34 %
    $ 56,054     $ 31,419     $ 24,635       78 %

 

Revenues generated by our Cinema Equipment Business segment increased as a result of the revenue recognition for the AMC Equipment Purchase Agreements, and the recognition of variable considerations and the reopening of theatres showing major studio new content. During the year ended March 31, 2021, theatres re-opened with limited capacities as vaccines became readily available and as fully reopened as of March 31, 2022. Total system sales revenue recognized was $11.3 million and $0.6 million, during the years ended March 31, 2022 and 2021, respectively.    Blockbuster content released during the period ending March 31, 2022 showed an uptick in VPF revenue but fell shy of pre-pandemic levels.   The revenues in the Content & Entertainment Business segment increased by 34% for the year ended March 31, 2022 compared to the year ended March 31, 2021. The increase is consistent with the addition of five new streaming channels related to Screambox, Bloody Disgusting and DMR business acquisitions as well as an increase in the number of advertising partners and stay at home orders increased in home digital viewing. 

 

Direct Operating Expenses

 

    For the Fiscal Year Ended March 31,  
($ in thousands)   2022     2021     $ Change     % Change  
Cinema Equipment Business   $ 687     $ 683     $ 4       1 %
Content & Entertainment     20,207       15,420       4,787       31 %
    $ 20,894     $ 16,103     $ 4,791       30 %

 

The increase in direct operating expenses in the year ended March 31, 2022 for the Cinema Equipment Business compared to the prior period was primarily due to a slight increase in asset storage costs. The increase in direct operating expenses in the year ended March 31, 2022 for the Content & Entertainment Business compared to the prior period was primarily due to $3.3 million higher content and production costs related to continued growth in revenue and distribution, and expenses for newly acquired channels. Software as a service (“SaaS”) costs increased $2.4 million on Cinedigm owned and managed channels from higher transactions and revenue. Other direct operating expenses, including licensing, participations fees and website content costs were $0.8 million higher. However, direct operating costs were partially offset by $2.5 million lower freight and fulfillment due to lower physical sales in the year ended March 31, 2022.

 

Selling, General and Administrative Expenses

 

    For the Fiscal Year Ended March 31,  
($ in thousands)   2022     2021     $ Change     % Change  
Cinema Equipment Business   $ 1,405     $ 2,155     $ (750 )     (35 )%
Content & Entertainment     13,935       9,798       4,137       42 %
Corporate     14,211       9,917       4,294       43 %
    $ 29,551     $ 21,870     $ 7,681       35 %

 

 

Selling, general and administrative expenses for the year ended March 31, 2022 increased by $8 million primarily due to the acquisitions of Screambox, DMR and Bloody Disguising. $2.4 million increase in personnel costs, $2.2 million in long term incentive plan stock appreciation rights, $0.4 million in computer related expenses and $0.4 million in public relations expenses.

 

34

 

 

Recovery of Doubtful Accounts

 

Recovery of doubtful accounts was $(0.5) million and $(0.1) million for the fiscal years ended March 31, 2022 and 2021, respectively.

 

Depreciation and Amortization Expense on Property and Equipment

 

    For the Fiscal Year Ended March 31,  
($ in thousands)   2022     2021     $ Change     % Change  
Cinema Equipment Business   $ 1,160       3,916       (2,756 )     (70 )%
Content & Entertainment     571       461       110       24 %
Corporate     3       27       (24 )     (89 )%
    $ 1,734     $ 4,404     $ (2,670 )     (61 )%

 

Depreciation and amortization expense decreased in our Cinema Equipment Business Segment as the majority of our digital cinema projection systems reached the conclusion of their ten-year useful lives during fiscal years 2022 and 2021. Corporate and Content & Entertainment depreciation and amortization expense on property and equipment is $0.1 million higher due to the addition of software placed into service and amortization related to the business acquisition intangibles.

 

 Amortization of intangible assets

 

    For the Fiscal Year Ended March 31,  
($ in thousands)   2022     2021     $ Change     % Change  
Cinema Equipment Business   $ -       23       (23 )     (100 )%
Content & Entertainment     2,830       2,488       342       14 %
Corporate     2       4       (2 )     (50 )%
    $ 2,832     $ 2,515     $ 317       13 %

 

Amortization of intangible assets decrease in our Cinema Equipment Business Segment as the intangibles held by that segment were fully amortized during the 2021 year. Corporate and Content & Entertainment amortization expense on intangible assets is $342 thousand higher due to the addition of intangible assets from our acquisitions during the 2022 fiscal year.

 

Impairment of intangible assets

 

During the years ended March 31, 2022 and 2021, we recorded an impairment of $2.0 million and $0 for our customer relationships, respectively, related to our Content & Entertainment Segment.

 

Interest expense, net

 

    For the Fiscal Year Ended March 31,  
($ in thousands)   2022     2021     $ Change     % Change  
Cinema Equipment Business   $ 138     $ 2,346     $ (2,208 )     (94 )%
Content & Entertainment     -       9       (9 )     (100 )%
Corporate     217       1,695       (1,478 )     (87 )%
    $ 355     $ 4,050     $ (3,695 )     (91 )%

 

Interest expense in the Cinema Equipment Business segment decreased primarily as a result of satisfying the Prospect Term Loan in during the quarter ended June 30, 2021. Interest expense in our Corporate segment decreased as a result of lower loan balances from our Credit Facility, the forgiveness of the PPP Loan, reduction in Second Lien Loans due to exchange for Common Stock and the conversion of the Bison Convertible Note and the Mingtai Convertible Note into shares of Common Stock.

 

35

 

 

Changes in fair value in Metaverse

 

During the years ended March 31, 2022 and March 31, 2021, we sold 680,000 shares of Metaverse shares for net proceeds of approximately $12.3 thousand and 8,370,000 of Metaverse shares for net proceeds of approximately $0.8 million, respectively, which resulted in a loss on sale of approximately $1 thousand and $73 thousand, respectively.

 

As of March, 31, 2022 and 2021, the value of our equity investment in Metaverse, using the readily determinable fair value method from the quoted trading price of the Stock Exchange of Hong Kong, was approximately $7.03 million and $6.44 million, respectively, resulting in a change in fair value of approximately $0.59 million and $(43.5) million for the years ended March 31, 2022 and 2021 respectively.

 

Extinguishment of PPP Loan

 

For the year ended March 31, 2022, we recognized a gain on extinguishment of note payable of $2.2 million for the forgiveness of PPP loan principal and interest due the approval of our PPP Loan forgiveness application by the U.S. Small Business Administration. This amount represents the entirety of our PPP loan and interest balance.

 

Income Tax Expense

 

For the year ended March 31, 2022, the income tax (benefit) of $(0.8) million represents a $(0.9) tax benefit mainly related to the releases of valuation allowance for a net change of the deferred taxes, resulting from acquisition of Foundation TV.  We also recorded income tax expense of $0.1 which was mainly related to taxable income at the state level and timing differences related to fixed asset depreciation.  We recorded an income tax (benefit) of approximately $(0.3) million for year ended March 31, 2021, mainly related to minor changes in estimates between the State tax income tax provision and tax filings.

 

Net Income/Loss attributable to common shareholders

 

    For the Fiscal Year Ended March 31,  
($ in thousands)   2022     2021     $ Change     % Change  
Cinema Equipment Business   $ 14,192     $ (6,904 )   $ 21,096       306 %
Content & Entertainment     (5,369 )     (3,767 )     (1,602 )     (43 )%
Corporate     (7,053 )     (52,505 )     45,452       87 %
    $ 1,770     $ (63,176 )   $ 64,946       103 %

 

Adjusted EBITDA

 

We define Adjusted EBITDA to be earnings before interest, taxes, depreciation and amortization, other income, net, stock-based compensation and expenses, merger and acquisition costs, restructuring, transition and acquisitions expense, net, goodwill impairment and certain other items.

 

Consolidated Adjusted EBITDA (including the results of Cinema Equipment Business segment) for the year ended March 31, 2022 increased by $13.9 compared to the year ended March 31, 2021. Adjusted EBITDA from our Cinema Equipment Business segment increased primarily due to the increase in sales of equipment in the current year, and lower revenue in the prior year due to state mandated theater closures due to COVID-19, the temporary halt of distribution of major studio releases and the expected decline of the Cinema Equipment Business. Adjusted EBITDA from the Content & Entertainment business and Corporate decreased by $1.4 million for the year ended March 31, 2022 compared to the year ended March 31, 2021, due to an increase of $4.8 million in direct operating expense and increase of $8.4 million in selling, general and administrative, higher stock-based compensation, and other costs versus previous year despite a $9.7 million increase in Streaming digital revenue, adding channels, and acquisitions.

 

Adjusted EBITDA is not a measurement of financial performance under GAAP and may not be comparable to other similarly titled measures of other companies. We use Adjusted EBITDA as a financial metric to measure the financial performance of the business because management believes it provides additional information with respect to the performance of its fundamental business activities. For this reason, we believe Adjusted EBITDA will also be useful to others, including its stockholders, as a valuable financial metric.

 

36

 

 

We present Adjusted EBITDA because we believe that Adjusted EBITDA is a useful supplement to net income (loss) from continuing operations as an indicator of operating performance. We also believe that Adjusted EBITDA is a financial measure that is useful both to management and investors when evaluating our performance and comparing our performance with that of our competitors. We also use Adjusted EBITDA for planning purposes and to evaluate our financial performance because Adjusted EBITDA excludes certain incremental expenses or non-cash items, such as stock-based compensation charges, that we believe are not indicative of our ongoing operating performance.

 

We believe that Adjusted EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net loss from continuing operations and Adjusted EBITDA has been provided in the financial results. Adjusted EBITDA should not be considered as an alternative to income from operations or net loss from continuing operations as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, Adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.

 

Following is the reconciliation of our consolidated net loss to Adjusted EBITDA:

 

    For the Fiscal Year Ended
March 31,
 
($ in thousands)   2022     2021  
Net income (loss)   $ 2,271     $ (62,905 )
Add Back:                
Income tax (income) expense     (788 )     (315 )
Depreciation and amortization of property and equipment     1,734       4,404  
Amortization of intangible assets     2,832       2,515  
(Gain) Loss on extinguishment of note payable     (2,178 )     1,498  
Interest expense, net     355       4,050  
Intangible impairment     1,968       -    
Change in fair value on equity investment in Metaverse     (585 )     43,518  
Other expense, net     471       1,475  
Recovery of doubtful accounts     (485 )     (122 )
Stock-based compensation and expenses     5,487       2,892  
Net income (loss) attributable to noncontrolling interest     (59 )     85  
Adjusted EBITDA   $ 11,023     $ (2,905 )
                 
Adjustments related to the Cinema Equipment Business                
Depreciation and amortization of property and equipment     (1,160 )   $ (3,916 )
Amortization of intangible assets     -         (23 )
Stock-based compensation and expenses     -         73  
Other expense     (11 )     -    
Recovery of doubtful accounts     485       -    
Income from operations     (14,347 )     4,142  
Adjusted negative EBITDA from Content and Entertainment business   $ (4,010 )   $ (2,629 )

 

Recent Accounting Pronouncements

 

See Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included herein.

 

Cash flow

 

Changes in our cash flows were as follows:

 

    For the Fiscal Years Ended
March 31,
 
($ in thousands)   2022     2021  
Net cash provided (used in) by operating activities   $ 4,879     $ (20,007 )
Net cash used in investing activities     (12,302 )     (1,710 )
Net cash provided by financing activities     2,636       24,272  
Net increase (decrease) in cash and cash equivalents   $ (4,787 )   $ 2,555  

 

37

 

 

As of March 31, 2022, we had cash balances of $13.1 million.

 

As of March 31, 2021, we had cash and restricted cash balances of $17.8 million. 

 

For the year ended March 31, 2022, net cash provided by operating activities is primarily driven by income from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, gain on extinguishment of note payable, including other changes in working capital. Additionally, during the year ended March 31, 2022, the Company increased accounts payable by $5.4 million to vendors.   Accounts receivable increased due to growth in streaming and acquisitions of Bloody Disgusting, Screambox and DMR. Cash received from VPFs increased from the previous period as theatres reopened and major studios resumed blockbuster releases in the theatrical market.   Changes in accounts receivable from our studio customers largely impact cash flows from operating activities and vary based on the seasonality of movie release schedules by the major studios. Operating cash flows from CEG are typically higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season, and lower in the other two quarters as we pay royalties on such revenues. In addition, we make advances on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twelve months. Cash flows were also impacted as a result of COVID-19, as during the year ended March 31, 2022, theatres began reopening in many major markets with limited capacities and discounts remained in place through the first quarter. When the majority of major studios began releasing blockbuster content to the theatrical markets and attendance improved the discounts were no longer applicable for the last three quarters in the year ended March 31, 2022. Because our digital cinema business earns a VPF when a movie is first plays on a system, the business was able to resume earning VPF revenue.

 

For the year ended March 31, 2021, net cash used in operating activities is primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, including other changes in working capital. Additionally, during the year ended March 31, 2021, the Company paid down $29.8 million to vendors at both CEG and Corporate. Cash received from VPFs declined from the previous period as Phase I Deployment Systems in our Cinema Equipment Business reached the conclusion of their deployment payment periods with certain major studios. Changes in accounts receivable from our studio customers largely impact cash flows from operating activities and vary based on the seasonality of movie release schedules by the major studios. Operating cash flows from CEG are typically higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season, and lower in the other two quarters as we pay royalties on such revenues. In addition, we make advances on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twelve months. Cash flows were also impacted as a result of COVID-19, as during the year ended March 31, 2021, theatres in many major markets remained closed throughout the fourth quarter causing the majority of major studios to move wide releases scheduled for the year ended March 31, 2021 to future dates. Only two major studios had wide theatrical releases in the last part of the year, however, the theatrical window before the streaming debut was shortened or eliminated to accommodate the lack of theatrical venues. Because our digital cinema business earns a VPF when a movie is first played on a system, the temporary theatre closures resulting from the COVID-19 pandemic resulted in reduced revenues.

 

For the year ended March 31, 2022, cash flows used in investing activities consisted of proceeds from the sale of investment securities of $0.01 million, purchases of property and equipment of $0.6 million, and $11.7 million related to the purchase of a business.

 

For the year ended March 31, 2021, cash flows used in investing activities consisted of proceeds from the sale of Metaverse shares of $0.8 million, purchases of property and equipment of $0.06 million, the sale of property and equipment of $0.08 million, and the purchase of intangible assets of $2.5 million related to the asset acquisition.

 

For the year ended March 31, 2022, cash flows provided by financing activities consisted of payments of approximately $7.8 million in notes payable, $2.0 million in Credit Facility repayments, and $12.4 million received in connection with the issuance Common Stock.

 

For the year ended March 31, 2021, cash flows provided by financing activities consisted of payments of approximately $7.7 million in notes payable, $12.8 million in Credit Facility repayments, $42.7 million received in connection with the issuance Common Stock, and $2.2 million received pursuant to the Payment Protection Program of the Coronavirus Aid, Relief and Economic Security Act.

 

38

 

 

Contractual Obligations

 

The following table summarizes our significant contractual obligations as of March 31, 2022:

 

    Payments Due  
Contractual Obligations (in thousands)   Total     2023     2024 &
2025
    2026 &
2027
    Thereafter  
Operating lease obligations   $ 749     $ 258     $ 491     $     $  

 

We may continue to generate net losses for the foreseeable future primarily due to depreciation and amortization, interest on our debt obligations, marketing and promotional activities and content acquisition and marketing costs. Certain of these costs, including costs of content acquisition, marketing and promotional activities, could be reduced if necessary. We feel we are adequately financed for at least the next twelve months; however, we may need to raise additional capital for working capital as deemed necessary. Failure to generate additional revenues, raise additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations or liquidity.

  

Seasonality

 

Revenues from our Cinema Equipment segment derived from the collection of VPFs from motion picture studios are seasonal, coinciding with the timing of releases of movies by the motion picture studios. Generally, motion picture studios release the most marketable movies during the summer and the winter holiday season. The unexpected emergence of a hit movie during other periods can alter the traditional trend. The timing of movie releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or any other quarter. While CEG benefits from the winter holiday season, we believe the seasonality of motion picture exhibition, is becoming less pronounced as the motion picture studios are releasing movies somewhat more evenly throughout the year.

 

Off-balance sheet arrangements

 

We are not a party to any off-balance sheet arrangements. In addition, as discussed further in Note 2 - Basis of Presentation and Consolidation and Note - Other Interests to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, we hold a 100% equity interest in CDF2 Holdings, which is an unconsolidated variable interest entity (“VIE”), which wholly owns Cinedigm Digital Funding 2, LLC; however, we are not the primary beneficiary of the VIE.

 

Impact of Inflation

 

The impact of inflation on our operations has not been significant to date. However, there can be no assurance that a high rate of inflation in the future would not have an adverse impact on our operating results.

 

39

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

CINEDIGM CORP.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm (PCAOB ID# 274) F-1
Consolidated Balance Sheets at March 31, 2022 and 2021 F-3
Consolidated Statements of Operations for the fiscal years ended March 31, 2022 and 2021 F-4
Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended March 31, 2022 and 2021 F-5
Consolidated Statements of Equity (Deficit) for the fiscal years ended March 31, 2022 and 2021 F-6
Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2022 and 2021 F-8
Notes to Consolidated Financial Statements F-9

 

40

 

  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Cinedigm Corp.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Cinedigm Corp. (the “Company”) as of March 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity (deficit), and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2022 and 2021, and the results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Revenue recognition – Content & Entertainment Business segment.

 

As disclosed in Note 2 to the consolidated financial statements, the Company’s Content & Entertainment business segment (“CEG”) earns fees for the distribution of content in the home entertainment markets via several distribution channels, including digital, video on demand (“VOD”) and physical goods. Fees earned are a based on a percentage of the net amounts received from customers, when the Company is an agent in the transaction and represents the entire amount received from the customer when the Company is considered the principal. The Company’s performance obligations include the delivery of content for transactional, subscription and ad supported streaming on the digital platforms, and shipment of DVDS and Blu-Ray disks. Revenue is recognized when the content is available for subscription on the digital platform, at the time of shipment of physical goods, or point-of-sale for transactional and VOD services as the control over the content or the physical titles is transferred to the customer. Physical revenue is recognized after deducting the reserves for sales returns and revenue reductions, which are accounted for as variable consideration. Total CEG revenues for the year ended March 31, 2022 $37.9 million.

 

F-1

 

 

We identified revenue recognition for CEG as a critical audit matter due the level of judgement and estimation required by management in the recognition of fees earned from customers and estimation of revenues accrued at period end; this in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s determination of management’s revenue recognition for CEG.

 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. We obtained an understanding and evaluated the design of the Company’s controls over the revenue recognition of CEG, including obtaining and evaluating the service auditor’s report relating to controls over the third party information used by management in estimating digital revenue. We gained an understanding of the Company’s role as either principal or agent in the revenue streams and management’s determination of revenue streams as either gross or net based on the transfer of control for the good and service. Our audit procedures included, among others, comparing the revenue recognized to third party statements/reports, which can include sales, cash receipts, returns, revenue deductions, advance payments, advance recoupments, expenses, and other information, to reconcile to the revenue recognized or the net amounts in which fees are calculated on, as determined by the underlying contracts or third party statements for a sample of transactions. We also tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the financial statements, as well as the Company’s estimation process, on a sample basis, for revenues accrued at period end.

 

Valuation of Intangible Assets Acquired in Business Combinations

 

As disclosed in Note 4, the Company completed three business combinations during the year ended March 31, 2022. The business combinations were accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. Accordingly, the purchase prices of each acquisition were allocated to the assets acquired and liabilities assumed based on their respective fair values, including intangible assets aggregating to $14.9 million.

 

The Company valued the acquired intangible assets, comprised of developed technology, advertiser relationships, and channels and platform, at fair value on the date of the acquisitions using income approaches. The methods used to estimate fair value required management to make significant estimates and assumptions related to the forecasts of future cash flows, customer attrition rates, discount rates, and royalty rates.

 

Auditing the accounting for acquisitions was complex due to the significant estimation uncertainty in determining the fair values of identified intangible assets. The significant estimation uncertainty was primarily due to the sensitivity of the respective fair values to underlying assumptions about future performance of the acquired businesses and due to the limited historical data on which to base these assumptions.

 

Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained. We obtained an understanding and evaluated the design of the Company’s controls over its accounting for acquisitions.

 

Our audit procedures also included evaluating the appropriateness of the valuation models, and testing the completeness, accuracy and relevance of the underlying data used in the models, and testing the reasonableness of the forecasts of future cash flows, attrition rates, discount rates, and royalty rates for the intangible assets acquired. We assessed the reasonableness of management’s forecasts of future cash flows by comparing the projections to historical results. We also evaluated whether the estimated future cash flows were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of the valuation models and significant assumptions, including the discount and royalty rates that were independently developed using publicly available market data for comparable companies.

 

/s/ EisnerAmper LLP

 

We have served as the Company’s auditor since 2004

 

EISNERAMPER LLP

Iselin, New Jersey

July 1, 2022

 

F-2

 

 

CINEDIGM CORP.

CONSOLIDATED BALANCE SHEETS

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

 

    March 31,  
    2022     2021  
ASSETS            
Current assets                
Cash and cash equivalents   $ 13,062     $ 16,849  
Accounts receivable, net of allowance of $2,921 and $2,876, respectively     30,843       21,093  
Inventory     116       166  
Unbilled revenue     2,349       1,377  
Prepaid and other current assets       5,793       3,657  
Total current assets     52,163       43,142  
Restricted cash     -       1,000  
Equity investment in A Metaverse Company, a related party, at fair value     7,028       6,443  
Property and equipment, net     1,980       3,500  
Operating lease right-of use assets, net     749       100  
Intangible assets, net     20,034       9,860  
Goodwill     21,084       8,701  
Other long-term assets     1,598       2,700  
Total assets   $ 104,636     $ 75,446  
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities                
Accounts payable and accrued expenses   $ 52,025     $ 46,627  
Current portion of notes payable, including unamortized debt discount and debt issuance costs of $0 and $460, respectively (see Note 5)     -       1,956  
Current portion of notes payable, non-recourse including unamortized debt discount of $0 and $763, respectively (see Note 5)     -       7,786  
Current portion of deferred consideration on purchase of business     3,432       -  
Current portion of earnout consideration on purchase of business     1,081       -  
Operating lease liabilities     258       87  
Current portion of deferred revenue     196       924  
Total current liabilities     56,992       57,380  
Note payable     -       2,152  
Deferred consideration on purchase – net of current portion     5,600       -  
Earnout consideration on purchase – net of current portion     603       -  
Operating lease liabilities, net of current portion     491       13  
Other long-term liabilities     -       19  
Total liabilities     63,686       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; 7 shares issued and outstanding at March 31, 2022 and 2021. Liquidation preference of $3,648     3,559       3,559  
Common stock, $0.001 par value; Class A stock 275,000,000 and 200,000,000 shares authorized at March 31, 2022 and 2021, respectively, 176,629,435 and 167,542,404 shares issued and 175,313,584 and 166,228,568 shares outstanding at March 31, 2022 and 2021, respectively.     174       164  
Additional paid-in capital     522,601       499,272  
Treasury stock, at cost; 1,315,851 and 1,313,836 Class A common shares at March 31, 2022 and 2021, respectively.     (11,608 )     (11,603 )
Accumulated deficit     (472,310 )     (474,080 )
Accumulated other comprehensive loss     (163 )     (68 )
Total stockholders’ equity of Cinedigm Corp.     42,253       17,244  
Deficit attributable to noncontrolling interest     (1,303 )     (1,362 )
Total equity     40,950       15,882  
Total liabilities and equity   $ 104,636     $ 75,446  

  

See accompanying Notes to Consolidated Financial Statements

 

F-3

 

 

CINEDIGM CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

    For the Fiscal Year Ended
March 31,
 
    2022     2021  
Revenues   $ 56,054     $ 31,419  
Costs and expenses:                
Direct operating (excludes depreciation and amortization shown below)     20,894       16,103  
Selling, general and administrative     29,551       21,870  
Depreciation and amortization of property and equipment     1,734       4,404  
Amortization of intangible assets     2,832       2,515  
Intangible impairment     1,968      
-
 
Total operating expenses     56,979       44,892  
Loss from operations     (925 )     (13,473 )
Interest income, net     1       37  
Interest expense     (356 )     (4,087 )
Changes in fair value of equity investment in Metaverse, a related party     585       (43,518 )
Income (loss) on extinguishment of note payable     2,178       (1,498 )
Other expense, net    
-
      (681 )
Net income (loss) from operations before income taxes     1,483       (63,220 )
Income tax benefit     788       315  
Net income (loss)     2,271       (62,905 )
Net (loss) income attributable to noncontrolling interest     (59 )     85  
Net income (loss) attributable to controlling interests     2,212       (62,820 )
Preferred stock dividends     (442 )     (356 )
Net income (loss) attributable to common stockholders   $ 1,770     $ (63,176 )
                 
Net income (loss) per Class A common stock attributable to common stockholders - basic:   $ 0.01     $ (0.49 )
Weighted average number of Class A common stock outstanding: basic     170,643,623       127,787,379  
Net income (loss) per Class A common stock attributable to common stockholders - diluted:   $ 0.01     $ (0.49 )
Weighted average number of Class A common stock outstanding: diluted     173,827,870       127,787,379  

 

See accompanying Notes to Consolidated Financial Statements

 

F-4

 

 

CINEDIGM CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

 

    For the Fiscal Year Ended
March 31,
 
    2022     2021  
Net income (loss)   $ 2,271     $ (62,905 )
Other comprehensive loss: foreign exchange translation     (95 )     (160 )
Comprehensive income (loss)     2,176       (63,065 )
Less: comprehensive (loss) income attributable to noncontrolling interest     (59 )     85  
Comprehensive income (loss) attributable to controlling interests   $ 2,117     $ (62,980 )

  

See accompanying Notes to Consolidated Financial Statements

 

F-5

 

 

CINEDIGM CORP.

CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)

(In thousands, except share data)

 

    Series A
Preferred Stock
    Class A
Common Stock
    Treasury
Stock
    Additional
Paid-In
    Accumulated     Accumulated
Other
Comprehensive
(Loss)
    Total
Stockholders’
    Non-
Controlling
   

Total

Equity

 
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Income     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                                  
 
                  (160 )     (160 )           (160 )
Issuance of Class A common stock in connection with public offerings                 51,885,840       52            
 
      42,299                   42,351             42,351  
Issuance of Class A common stock in connection with the Metaverse transaction, a related party                 29,855,081       30            
 
      11,016                   11,046             11,046  
Contributed capital under the Metaverse transaction, a related party                                  
 
      17,187                   17,187             17,187  
Common stock issued in connection with conversion of Convertible Notes and second lien loans                 16,534,613       16            
 
      21,536                   21,552             21,552  
Stock-based compensation                 1,860,554       1                   2,891                   2,892             2,892  
Exercise of warrants for Class A common stock                 236,899      
 
                  301                   301             301  
Class A common stock to be issued in connection with asset acquisitions                 3,098,126       3                   2,902                   2,905             2,905  
Issuance of f Class A common stock for third party professional services                 196,914      
 
                                                     
Preferred stock dividends paid with common stock                 622,948      
 
             
 
      356       (356 )                          
Net loss                      
 
                        (62,820 )           (62,820 )     (85 )     (62,905 )
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  

 

See accompanying Notes to Consolidated Financial Statements

 

F-6

 

 

CINEDIGM CORP.

CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)

(In thousands, except share data)

 

    Series A
Preferred Stock
    Class A
Common Stock
    Treasury
Stock
    Additional
Paid-In
    Accumulated     Accumulated
Other
Comprehensive
(Loss)
    Total
Stockholders’
Equity
    Non-
Controlling
    Total  
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Income     (Deficit)     Interest     Equity  
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  
Foreing exchange translation                                                     (95 )     (95 )           (95 )
Stock compensation and expenses                 366,056                         5,487                   5,487             5,487  
Issuance of common stock in connection with business combinations                 2,662,285       3                   4,822                   4,825             4,825  
Preferred stock dividends paid in stock                 231,406                         354       (89 )           265             265  
Treasury stock in connection with taxes withheld from employees                 (2,015 )           2,015       (5 )                       (5 )           (5 )
Preferred stock dividends accrued                                         89       (353 )           (264 )           (264 )
Issuance of common stock for third party equity purchase commitment                 527,021                         206                   206             206  
Issuance of common stock in connection with performance stock units                 263                                                        
Issuance of common stock in connection with ATM raises, net                 5,300,000       7                   12,371                   12,378      
 
      12,378  
Net Income                                               2,212             2,212       59       2,271  
Balances as of March 31, 2022     7     $ 3,559       175,313,584     $ 174       1,315,851     $ (11,608 )   $ 522,601     $ (472,310 )   $ (163 )   $ 42,253     $ (1,303 )   $ 40,950  

  

See accompanying Notes to Consolidated Financial Statements

 

F-7

 

 

CINEDIGM CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

    For the Fiscal Year Ended
March 31,
 
    2022     2021  
Cash flows from operating activities:            
Net income (loss)   $ 2,271     $ (62,905 )
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:                
Depreciation and amortization of property and equipment and amortization of intangible assets     4,566       6,919  
Deferred income tax     (888 )     -  
Impairment of prepaid advances     1,164      
-
 
Impairment of intangibles     1,968      
-
 
Changes in fair value of equity investment in Metaverse     (585 )     43,518  
Loss from sale of property and equipment    
-
      44  
Amortization of debt issuance costs included in interest expense    
-
      1,223  
Stock-based compensation and expenses     5,487       2,892  
Interest expense for deferred consideration     44      
-
 

Change in fair value of earnout for earnout consideration

    222      
-
 
(Gain) loss on extinguishment of note payable     (2,178 )     1,498  
Accretion and PIK interest expense added to note payable    
-
      302  
Other     26      
-
 
Changes in operating assets and liabilities, net of acquisitions:                
     Accounts receivable     (8,088 )     13,692  
Inventory     50       406  
    Unbilled revenue     (972 )     615  
    Prepaid and other current assets     (1,580 )     3,195  
    Accounts payable and accrued expenses     4,100       (29,766 )
    Deferred revenue     (728 )     (1,640 )
Net cash provided (used in) by operating activities     4,879       (20,007 )
Cash flows from investing activities:                
Purchases of property and equipment     (316 )     (64 )
Purchase of intangible assets     (325 )     (2,545 )
Purchase of business, net of cash acquired     (11,672 )     -  
Proceeds from the sale of property and equipment    
-
      84  
Sale of equity investment securities     11       815  
Net cash used in investing activities     (12,302 )     (1,710 )
Cash flows from financing activities:                
Payments of notes payable     (7,786 )     (7,703 )
Repayments under revolving credit agreement, net     (1,956 )     (12,829 )
Proceeds from PPP Loan    
-
      2,152  
Net proceeds from issuance of Class A common stock     12,378       42,652  
Net cash provided by financing activities     2,636       24,272  
Net change in cash, cash equivalents and restricted cash     (4,787 )     2,555  
Cash, cash equivalents and restricted cash at beginning of year     17,849       15,294  
Cash, cash equivalents and restricted cash at end of year   $ 13,062     $ 17,849  

 

See accompanying Notes to Consolidated Financial Statements

 

F-8

 

 

CINEDIGM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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 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) 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 Australia. It also provides fee-based support to music and 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 year ended March 31, 2022, 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. Many movie theaters in the United States slowly re-opened with limited capacities through March 31, 2022. The majority of major studios resumed blockbuster films releases during the year which showed an encouraging return of consumer confidence for the theatrical experience. As vaccines became readily available and COVID cases decreased, major studios resumed theatrical releases and there was an uptick in box-office revenue during the period ending March 31, 2022.

 

Liquidity

 

We have incurred net losses historically and have net income of $2.3 million for the year ended March 31, 2022. We also have an accumulated deficit of $472.3 million and negative working capital of $4.8 million as of March 31, 2022. Net cash provided by operating activities for the fiscal year ended March 31, 2022 was $4.9 million. We may continue to generate net losses for the foreseeable future. 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. For the year ended March 31, 2022, the Company recognized aggregate revenue for $9.9 million. A portion of the total proceeds were used to pay down the remaining outstanding balance of the Prospect Loan notes payable.

 

F-9

 

 

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 and was not extended.

 

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 ended 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.

 

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 in the Equity Line Purchase Agreement), 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.

 

F-10

 

 

We believe the combination of: (i) our cash and cash equivalent balances at March 31, 2022 and (ii) expected cash flow from operations, will be sufficient for our operations and capital needs, for at least 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 at fair value where we have elected the fair value option. 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 digital revenue, accounts receivable reserves, return reserves, inventory reserves, recovery of advances, assessment of goodwill impairment, intangible asset 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)   March 31,
2022
    March 31,
2021
 
Cash and Cash Equivalents   $ 13,062     $ 16,849  
Restricted Cash    
-
      1,000  
    $ 13,062     $ 17,849  

 

F-11

 

 

EQUITY INVESTMENT IN A METAVERSE COMPANY, A RELATED PARTY

 

On February 14, 2020, the Company acquired an approximately 11.5% interest in A Metaverse Company (“Metaverse”), a leading publicly traded Chinese entertainment company, formerly Starrise Media Holdings Limited, 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 Metaverse that is related to our major shareholders. Our major shareholders also maintain a significant beneficial interest ownership in Metaverse. 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 Metaverse 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 of the Company. The difference in value of shares received in Metaverse and shares issued by the Company is deemed as contributed capital and recorded in additional paid-in capital.

 

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

 

The Company has accounted for these investments under the equity method of accounting as the Company can exert significant influence over Metaverse with its direct ownership and affiliation with the Company’s majority shareholders. The Company has made an irrevocable election to apply the fair value option under ASC 825-10, Financial Instruments, as it relates to its equity investment in Metaverse.

 

During the years ended March 31, 2022 and March 31, 2021, the Company sold 680,000 shares of Metaverse shares for net proceeds of approximately $12.3 thousand and 8,370,000 of Metaverse shares for net proceeds of approximately $0.8 million, respectively, which resulted in a loss on sale of approximately $1 thousand and $73 thousand, respectively.

 

As of March, 31, 2022 and 2021, the value of our equity investment in Metaverse, using the readily determinable fair value method from the quoted trading price of the Stock Exchange of Hong Kong, was approximately $7.03 million and $6.44 million, respectively, resulting in a change in fair value of approximately $0.59 million for the year ended March 31, 2022. At March 31, 2022, the Company owned 362,307,397 shares or 17% of Metaverse.

 

Equity Investment in Metaverse, a related party transaction

 

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 “Metaverse 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 A Metaverse Company, a leading Chinese entertainment company (“Metaverse”), formerly Starrise Media Holdings Limited, to buy from them an aggregate of 410,901,000 outstanding Metaverse ordinary shares (the “Metaverse Share Acquisition”). On February 14, 2020, the Company purchased 162,162,162 of the Metaverse 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 Metaverse 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 Metaverse ordinary shares from Aim Right under the Metaverse Stock Purchase Agreement.

 

On April 10, 2020, the Company entered into another stock purchase agreement (the “April Metaverse Stock Purchase Agreement”) with five (5) shareholders of Metaverse - 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 Metaverse 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 Metaverse Share Acquisition”). On April 15, 2020, the April Metaverse Share Acquisition was consummated and this transaction was also recorded as an equity investment in Metaverse.

 

Metaverse’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 .152 per share on March 31, 2022, calculated at an exchange rate of 7.83 Hong Kong Dollars to 1 US dollar, the market value of Cinedigm’s ownership in Metaverse ordinary shares was approximately $7.03 million. On April 1, 2022, trading of Metaverse’s ordinary shares was halted. (See Note 11)

 

NON-MONETARY TRANSACTIONS

 

During the year ended March 31, 2020, the Company entered into agreements with certain vendors to transfer 5,139,762 and 14,184,765 Metaverse ordinary shares to satisfy outstanding liabilities with these vendors. Upon the sale of the Metaverse shares by the vendors, with certain restrictions on sales unless the Company gave consent to sell, if the proceeds did not satisfy the amount due to the vendor, the Company was liable for the balance owed. Pursuant to such agreements, the Company reduced the amount payable to its vendors by $0.8 million as of March 31, 2021. There were no such transactions during the year ended March 31, 2022.

 

There was no gain or loss resulting from these transactions for the year ended March 31, 2022 and 2021.

 

F-12

 

 

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 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 $1.2 million and $0.3 million, for the years ended March 31, 2022 and 2021, respectively.

 

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.

 

F-13

 

 

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 years ended March 31, 2022 and 2021, the Company assessed the future performance of titles included in the customer list intangible asset, which resulted in an impairment charge of $2.0 million and $0 was recorded from operations for long-lived assets or finite-lived assets.

 

INTANGIBLE ASSETS

 

Intangible assets are stated at cost less accumulated amortization. For intangible assets that have finite lives, the assets are amortized using the straight-line method over the estimated useful lives of the related assets. For intangible assets with indefinite lives, the assets are tested annually for impairment or sooner if a triggering event occurs. During the years ended March 31, 2022 and 2021, we recorded an impairment of $2.0 million and $0 for our customer relationships, respectively.

 

Amortization expense is recorded using the straight-line method over the estimated useful lives of the respective assets as follows:

 

Trademark     3 years  
Content Library     3 – 20 years  
Customer Relationships     5 – 13 years  
Tradename     2 – 15 years  
Theatre Relationship     12 years  
Patents     3 years  
Supplier Agreements     2 years  
Intangible Assets     3-4 years  
Software       10 years  

 

The Company’s intangible assets include the following on March 31, 2022:

 

    Cost Basis     Accumulated
Amortization
   

 

Impairment

    Net  
Trademark   $ 1,925     $ (776 )   $
-
      1,149  
Content Library     23,685       (20,665 )    
-
      3,020  
Customer Relationships     10,658       (7,327 )     (1,968 )     1,363  
Tradename     2,101       (525 )    
-
      1,576  
Theatre Relationship     550       (550 )    
-
     
-
 
Patents     17       (17 )    
-
     
-
 
Supplier Agreements     11,430       (11,384 )    
-
      46  
Intangible Assets     10,081       (161 )    
-
      9,920  
Software     3,200       (240 )    
-
      2,960  
Total Intangible Assets   $ 63,647     $ (41,645 )   $ (1,968 )     20,034  

F-14

 

 

The Company’s intangible assets include the following on March 31, 2021:

 

    Cost Basis     Accumulated
Amortization
   

 

Impairment

    Net  
Trademark   $ 2,839     $ (382 )   $
         -
      2,457  
Content Library     23,148       (20,272 )    
-
      2,876  
Customer Relationships     22,137       (17,610 )    
-
      4,527  
Theatre Relationship     550       (550 )    
-
     
-
 
Total Intangible Assets   $ 48,674     $ (38,814 )   $
-
      9,860  

 

Below is the amortization expense per year for the intangible assets:

 

    Total  
2023   $ 2,734  
2024     2,562  
2025     1,730  
2026     1,651  
2027     1,651  
Thereafter     9,706  
Total   $ 20,034  

 

  

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 Metaverse is in Hong Kong dollars and was translated into US dollars as of March 31, 2022 and 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 quoted market price of Metaverse on the Stock Exchange of Hong Kong. The adjustment to fair value of this investment resulted in a gain of $585 and loss of $4,518 for the years ended March 31, 2022 and 2021, respectively.

 

The following tables summarize the levels of fair value measurements of our financial assets and liabilities as of March 31, 2022 and, 2021:

 

As of March 31, 2022

 

(in thousands)   Level 1     Level 2     Level 3     Total  
Assets:                        
Equity investment in Metaverse, at fair value   $ 7,028     $
    $
    $ 7,028  
    $ 7,028     $
    $
    $ 7,028  
                                 
Liabilities:                                
Current portion of earnout consideration on purchase of a business   $
    $
    $ 1,081     $ 1,081  
Long term portion of earnout consideration on purchase of a business                 603       603  
    $
    $
    $ 1,684     $ 1,684  

 

As of March 31, 2021

 

(in thousands)   Level 1     Level 2     Level 3     Total  
Restricted cash   $ 1,000     $
    —
    $
    —
    $ 1,000  
Equity investment in Metaverse, 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.  

F-15

 

 

ASSET ACQUISITIONS

 

An asset acquisition is an acquisition of an asset, or a group of assets, that does not meet the definition of a business. Asset acquisitions are accounted for by using the cost accumulation model whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values.

 

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. The Company reassessed goodwill impairment on its annual measurement date of March 31, 2022 by performing a qualitative analysis and determined that it was not more likely than not that the fair value of its reporting unit is less than its carrying amount.  

 

No goodwill impairment charge was recorded in the years ended March 31, 2022 and 2021.

 

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     12,383  
Goodwill at March 31, 2022   $ 21,084  

 

F-16

 

 

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consisted of the following:

 

    As of  
(In thousands)   March 31,
2022
    March 31,
2021
 
Accounts payable   $ 34,177     $ 30,111  
Amounts due to producers, net     10,430       10,557  
Accrued compensation and benefits     3,507       2,995  
Accrued taxes (refund) payable     (78 )     (99 )
Interest payable    
-
      10  
Accrued other expenses     3,989       3,053  
Total accounts payable and accrued expenses   $ 52,025     $ 46,627  

 

PREPAID AND OTHER CURRENT ASSETS

 

Prepaid and other current assets consisted of the following:

 

    As of  
(In thousands)   March 31,
2022
    March 31,
2021
 
Non-trade accounts receivable   $ 826     $ 413  
Advances     2,117       1,841  
Due from producers     1,861       589  
Prepaid insurance     169       409  
Other prepaid expenses     820       405  
Total prepaid and other current assets   $ 5,793     $ 3,657  

 

Impairments and accelerated amortization related to advances were $1.2 million and $0.3 million, for the years ended March 31, 2022 and 2021, respectively.

 

REVENUE RECOGNITION

 

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 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”).

 

We retain ownership of our 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.

 

F-17

 

 

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, 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 Cinedigm received the sale proceeds. Such sales were originally contemplated as the conclusion of the digital cinema deployment plan. Total system sales executed was $6.1   million and $6.7 million, during the year ended March 31, 2022 and 2021, 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 Phase II of 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 content is available for subscription on the digital platform (the company’s digital content is considered functional IP), 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 from the sale of physical goods is recognized after deducting the reserves for sales returns and other allowances, which are accounted for as variable consideration.

 

Reserves for potential sales returns of physical goods 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 are 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.

 

The Company follows the five-step model established by ASC 606 when preparing its assessment of revenue recognition

 

F-18

 

 

Principal Agent Considerations

 

Revenue earned by our CEG business from the delivery of digital content and physical goods may be recognized gross or net depending on the terms of the arrangement. We determine whether revenue should be reported on a gross or net basis based on each revenue stream. 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, including current and non-current balances, as of March 31, 2022 was $0.2 million. For the year ended March 31, 2022, 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. For year ended March 31, 2022 and March 31, 2021, there was $11,792,210 and $14,433,054,   respectively, included in accounts payable that represents a refund liability, a portion or all of which may be recognized as revenue upon completion of audit periods.

 

During the year ended March 31, 2022, $813 thousand of revenue was recognized that was included in the deferred revenue balance at the beginning of the year. During the year ended March 31, 2022, $3.9 million of revenue was recognized that was included in the accounts payable balance as constrained variable consideration at the beginning of the year. The Company recognized the revenue related once the uncertainty associated with the variable consideration was resolved.

 

F-19

 

 

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 years ended March 31, 2022 and 2021 (in thousands):

 

    Year Ended
March 31,
 
    2022     2021  
Cinema Equipment Business:            
Phase I Deployment   $ 654     $ 552  
Phase II Deployment     4,810       1,531  
Services     1,428       539  
Digital System Sales     11,267       600  
Total Cinema Equipment Business revenue   $ 18,159     $ 3,222  
                 
Content & Entertainment Business:                
Physical Goods   $ 10,447     $ 10,230  
OTT Streaming and Digital     27,448       17,967  
Total Content & Entertainment Business revenue   $ 37,895     $ 28,197  

 

Concentrations

 

For the fiscal year ended March 31, 2022, two customers, Amazon and Distribution Solutions each represented 18% and 25% respectively of CEG’s revenues and approximately 6% and 8%, respectively, of our consolidated revenues. For the fiscal year ended March 31, 2021, Amazon and Distribution Solutions represented 15% and 22% respectively of CEG’s revenues and approximately 9% and 13%, respectively, of our consolidated Revenues.

 

DIRECT OPERATING COSTS

 

Direct operating costs consist of operating costs such as cost of revenue, 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.

 

F-20

 

 

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 LOSS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS

 

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

 

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

 

Diluted net income (loss) per common share attributable to common stockholders = Net loss attributable to common stockholders
Weighted average number of common stock outstanding during the period plus potential dilutive shares

 

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 net income for the year ended March 31, 2022, and therefore the impact of potentially dilutive common shares from outstanding stock options, stock appreciation rights, and warrants, totaling 3,184,247 shares for the year ended March 31, 2022, respectively, was included in the computations of diluted earnings per share. The calculation of diluted net income per share for the year ended March 31, 2022 does not include the impact of 6,156,432 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 a net loss for the year ended March 31, 2021, and therefore the impact of potentially dilutive common shares from outstanding stock options and warrants, totaling 11,127,539 shares as of March 31, 2021, were excluded from the computations of loss per share as their impact would have been anti-dilutive.

 

COMPREHENSIVE LOSS

 

For the year ended March 31, 2022 and 2021, comprehensive 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.

 

F-21

 

 

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 March 31, 2022 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 $0.8 million and $0.3 million as of March 31, 2022 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 $0.8 million and $128 thousand of digital cinema servicing revenue from CDF2 Holdings for the year ended March 31, 2022 and 2021, respectively.

 

Total Stockholders’ Deficit of CDF2 Holdings at March 31, 2022 and March 31, 2021 was $55.6 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 March 31, 2022 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.

 

Investment in Roundtable

 

On March 15, 2022, the Company entered into a stock purchase agreement with Roundtable Entertainment Holdings, Inc. (“Roundtable”) pursuant to which the Company purchased 500 shares of Roundtable Series A Preferred Stock and warrants to purchase 100 shares of Roundtable Common Stock (together, the “Roundtable Securities”). The Company paid the purchase price for the Roundtable Securities by issuing to Roundtable 316,937 shares of Common Stock is based on the closing price of the company on the date of the purchase. The Company recorded $0.2 million for the purchase of the Roundtable Securities which is included in other long-term assets on the consolidated balance sheet. The investment in the Roundtable Securities was made in connection with a proposed collaboration with Roundtable regarding production and distribution of streaming content including the launch of high profile branded enthusiast streaming channels. The Roundatble investment was accounted for using the cost method.

 

4. BUSINESS COMBINATIONS

 

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 costs of $36 thousand during the year ended March 31, 2022. As of March 31, 2022, the deferred consideration initially measured by bringing to present value the agreed-upon cash payments discounted by a 3% rate, includes a $0.5 million short-term payable and a long-term payable for $1.5 million. FoundationTV is included as a part of the Content & Entertainment segment.

 

Purchase Price      
Purchase Price   $ 5,237  
Total purchase price   $ 5,237  
         
Allocation of purchase price        
Developed technology     3,200  
Deferred tax liability     (888 )
Goodwill     2,925  
Total allocation of purchase price   $ 5,237  

 

F-22

 

 

The developed technology acquired in this transaction has a useful life of 10 years. During the year ended March 31, 2022, the Company recorded $240 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:

 

2023   $ 320  
2024     320  
2025     320  
2026     320  
2027     320  
2028     320  
2029     320  
2030     320  
2031     320  
2032     80  
Total   $ 2,960  

 

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 $1.7 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 fair value of the earnout liability was estimated considering the weighted probability of scenarios on the earnout metrics possible outcomes during the earnout period. 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. Bloody Disgusting, LLC is included as a part of the Content & Entertainment segment.

 

Purchase Price      
Purchase Price   $ 7,780  
Total purchase price   $ 7,780  
         
Allocation of purchase price        
Current assets     9  
Advertiser relationships     3,750  
Trade name     1,100  
Goodwill     2,921  
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 year months ended March 31, 2022, the Company recorded $211 thousand in amortization expense related to the intangible assets acquired.

 

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

 

    Advertiser
relationships
    Trade
name
    Total  
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     3,594       1,045     $ 4,639  

 

F-23

 

 

DMR

 

The Company entered into an Equity Purchase Agreement among the Company, and David Chu, Augustine Hong, Helen Hong, Michael Hong, Justin Lee, Steven Park, and Kingsoon Ong (collectively, the “Sellers”) and David Chu as representative of the Sellers (the “DMR Agreement”) to acquire all of the outstanding membership interests of Asian Media Rights, LLC d/b/a Digital Media Rights (“DMR”), a diversified specialty streaming, advertising, and content distribution company with significant expertise in building audiences for global content in North America (the “Transaction”).

 

On March 25, 2022, the Company executed the Amended and Restated Equity Purchase Agreement (the “A&R DMR Agreement”) among the Company, the Sellers and David Chu as representative of the Sellers that amended and restated the DMR Agreement. Pursuant to the A&R DMR Agreement, the purchase price for the Transaction is $14,794,000  , subject to working capital and other adjustments, consisting of (1) $8,000,000 in cash paid at the closing of the Transaction and (ii) $8,400,000 paid, at the Company’s option, in either cash or Common Stock at its then market value, as follows: (a) $3,000,000 on the first anniversary of the closing of the Transaction, (b) $3,000,000 on the second anniversary of the closing of the Transaction, and (c) $2,400,000 on the third anniversary of the closing of the Transaction. DMR is included as a part of the Content & Entertainment segment.

 

Purchase Price      
Purchase Price   $ 14,794  
Total purchase price   $ 14,794  
         
Allocation of purchase price        
Cash and cash equivalents     862  
Accounts receivable     1,531  
Prepaid expense     55  
Other receivables     3  
Right of use asset - operating     841  
Furniture & fixtures     6  
Computers and related equipment     28  
Deposits     43  
Channel & platform     6,300  
Content rights     299  
Investment in Kor TV     300  
Goodwill     6,537  
Short term liabilities     (1,450 )
Long term liabilities     (561 )
Total allocation of purchase price   $ 14,794  

 

The content library acquired in this transaction has a useful life of 13 years and channel acquired has a useful life of 13 years. During the year ended March 31, 2022, the Company recorded $0 in amortization expense related to the intangible assets acquired.

 

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

 

    Content Library     Channel     Total  
2023   $ 23     $ 485     $ 508  
2024     23       485       508  
2025     23       485       508  
2026     23       485       508  
2027     23       485       508  
2028     23       485       508  
2029     23       485       508  
2030     23       485       508  
2031     23       485       508  
2032     23       485       508  
2033     23       485       508  
2034     23       485       508  
2035     23       480       503  
Total   $ 299     $ 6,300     $ 6,599  

 

Combined

 

The amounts of revenue and net loss for the acquired companies included in the Company's consolidated statement of operations for the period ending in March 31, 2022 are as follows:

 

(In thousands)   Total  
    2022  
Revenue   $ 1,319  
Net Loss   $ (133 )

 

F-24

 

 

Proforma Information (Unaudited)

 

The unaudited proforma information in the table below summarizes the combined results of operations for the Company and its acquisitions of Foundation TV, Inc., Bloody Disgusting, LLC and DMR as if these acquisitions had been included in the consolidated results of the Company since April 1, 2020 for the each of the two entire years ended March 31, 2022 and 2021:

 

(In thousands)   Proforma  
    2022     2021  
Revenue   $ 64,158     $ 39,513  
Net Income (Loss)   $ 945     $ (53,570 )

 

5. NOTES PAYABLE

 

Notes payable consisted of the following:

 

    March 31, 2022     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  
Less: Unamortized debt issuance costs and debt discounts    
     
     
     
 
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 subsidiaries Cinedigm DC Holdings, LLC (“CDCH”), Access Digital Media, Inc (“AccessDM”) and Access Digital Cinema Phase 2, Corp. (“Phase 2 DC”) 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 March 31, 2022, and March 31, 2021, the debt service fund had a balance of $0 and $1.0 million, respectively, 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 “Prospect Amendment”) to the Term Loan Agreement. Under the Prospect 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.

 

F-25

 

 

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

 

    As of  
(In thousands)   March 31, 2022     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   $
    $
 

 

Bison Convertible Note

 

The Bison Convertible Note had a term ending on March 4, 2021, and bears interest at 5% per annum. The principal was due on March 4, 2021, in cash or in shares of Common Stock, or a combination of cash and Common Stock, at the Company’s option. The Bison Convertible Note was convertible at the Company’s option, at any time prior to payment in full of the principal balance and all accrued interest of the note, to convert this note in whole or in part, into fully paid and nonassessable shares of the Company’s Class A common stock.

  

On September 11, 2020, Bison Global converted the Bison Convertible Note in full into an aggregate of 6,666,667 shares of Common Stock at a conversion price of $1.50 per share. Accordingly, the Bison Convertible Note has been extinguished. In accordance with ASC 470, the Company recognized a loss on extinguishment of $285 thousand related to unamortized debt issuance costs for the nine months ended December 31, 2020.

 

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 an amendment to the Credit Facility (the “EWB Amendment”). 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 and East West Bank amended the Credit Facility 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, unless an amendment had been entered into, we were not able to access any additional borrowings under the Credit Facility. The September 28, 2021 expiration date has passed and the agreement was not extended.

 

As of March 31, 2022 and March 31, 2021, there was $0 and $2.0 million outstanding, respectively.

 

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. For the year ended March 31, 2022, the Company recognized a gain on extinguishment of note payable of $2,178 in the statement of operations for the forgiveness of PPP loan principal and interest.

 

F-26

 

 

6. STOCKHOLDERS’ EQUITY (DEFICIT)

 

COMMON STOCK

 

Authorized 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 Common Stock authorized for issuance was increased to 275,000,000 shares.

 

During the year ended March 31, 2022, the Company issued 9,085,016 shares of Common Stock which consist of the sale of shares of our Common Stock, issuance of Common Stock for business combinations, the issuances of Common Stock in payment of preferred stock dividends and in payment of board retainer fees, and the issuance of Common Stock as payment pursuant to a Stock Purchase Agreement (See Note 3).

  

PREFERRED STOCK

 

Cumulative dividends in arrears on preferred stock were $0.1 million and $0.1 million as of March 31, 2022 and March 31, 2021, respectively. In May 2021 and October 2021, we paid preferred stock dividends in arrears in the form of 53,278 and 102,697 shares of Common Stock, respectively.

 

TREASURY STOCK

 

We have treasury stock, at cost, consisting of 1,315,851 and 1,313,836 shares of Common Stock at March 31, 2022 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.

 

F-27

 

 

As of March 31, 2022, there were 217,337 stock options outstanding in the 2000 Plan with weighted average exercise price of $14.49 and a weighted average contract life of 1.54 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 44,000 options expired and 250 options forfeited during the year ended March 31, 2022.

 

Options outstanding under the 2000 Plan as of March 31, 2022 is as follows:

 

As of March 31, 2022
Range of Prices   Options Outstanding     Weighted Average Remaining Life in Years     Weighted Average Exercise Price     Aggregate Intrinsic Value
(In thousands)
 
$7.40      5,000       3.25     $  7.40     $            —  
$14.00 - $24.40     212,337       1.50       14.65        
 
 
  217,337                     $  

 

An analysis of all options exercisable under the 2000 Plan as of March 31, 2022 is presented below:

 

Options Exercisable     Weighted Average
Remaining Life in Years
    Weighted Average
Exercise Price
    Aggregate Intrinsic Value
(In thousands)
 
  217,337       1.54     $ 14.49        

 

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 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 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 year ended March 31, 2022, the Company granted 2,025,250 stock appreciation rights (“SARs”). The SARs were granted under the 2017 Plan, except for 600,000 SARs granted to 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 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 – November 30, 2021

 

Maturity Date: May 23, 2031 – November 30, 2031

 

Exercise price: $1.29 - $2.56

 

Volatility: 94.56% - 114.42%

 

Discount rate: 0.96% - 1.63%

 

Expected term: 6 – 6.5 years

 

F-28

 

 

Stock appreciation rights outstanding under the 2017 Plan as of March 31, 2022 is as follows:

 

As of March 31, 2022  
Range of Prices     SARs Outstanding     Weighted Average Remaining Life in Years     Weighted Average Exercise Price     Aggregate Intrinsic Value
(In thousands)
 
  $0.54 - $0.74       5,550,000       8.74     $ 0.62     $ 1,208  
  $1.16 - $1.47       2,283,610       7.90       1.37        
  $1.71 - $2.10       2,455,738       8.91       1.97        
  $2.23 - $2.56       604,250       9.60       2.32        
          10,893,598                     $ 1,208  

 

An analysis of all stock appreciation rights exercisable under the 2017 Plan as of March 31, 2022 is presented below:

 

SAR Exercisable     Weighted Average
Remaining Life in Years
    Weighted Average
Exercise Price
    Aggregate Intrinsic Value
(In thousands)
 
  2,521,323       7.01     $ 1.14       158  

 

Total SARs outstanding are as follows:

 

    Year
Ended
March 31,
2022
 
SARs Outstanding March 31, 2021     9,154,933  
Issued     2,025,250  
Forfeited     (286,585 )
Total SARs Outstanding March 31, 2022     10,893,598  

 

In addition, in during the year ended March 31, 2022, the Company granted performance stock unit awards under the 2017 Plan to employees of the Company that vest upon certain performance goals being achieved. Upon vesting the award shares are issued to the employee. Following is the activity for performance stock unit awards:

 

    Shares     Weighted Average Grant Date Fair Value  
Unvested balance at April 1, 2021    
-
    $
 
 
Granted     1,317,554     $ 1.25  
Vested     (621,275 )   $ 1.25  
Unvested balance at March 31, 2022     696,280     $ 1.25  

 

During the year ended March 31, 2022, 366,056 shares were issued for vested awards and 255,219 are to be issued as of March 31, 2022.

 

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

 

    Year Ended
March 31,
 
(In thousands)   2022     2021  
Selling, general and administrative   $ 5,487     $ 2,892  
    $ 5,487     $ 2,892  

 

There was $1 and $5 thousand of stock-based compensation recorded for the year ended March 31, 2022 and 2021, respectively, related to employees’ restricted stock awards.

 

There was $386 thousand and $293 thousand of stock-based compensation for the year ended March 31, 2022 and 2021, respectively, related to board of directors. During the year ended March 31, 2022, the Company issued 280,690 restricted shares to non-employee 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 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 March 31, 2022, 12,500 of such options remained outstanding.

 

F-29

 

  

WARRANTS

 

The following table presents information about outstanding warrants to purchase shares of our Common Stock as of March 31, 2022. All of the outstanding warrants are fully vested and exercisable.

 

Recipient   Amount
outstanding
    Expiration     Exercise price
per share
 
5-year Warrant issued to Bison Entertainment and Media Group(“ BEMG”) in connection with a term loan agreement     1,400,000       December 2022     $ 1.80  

 

Warrants for the purchase of 298,519 shares of Common Stock expired unexercised during the year ended March 31, 2022.

 

7. COMMITMENTS AND CONTINGENCIES

 

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

  

The Company leases office space under an operating lease. 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 March 31, 2022 and March 31, 2021:

 

(In thousands)   Classification on the Balance Sheet   March 31, 2022     March 31,
2021
 
Assets                
Noncurrent   Operating lease right-of-use asset   $ 749     $ 100  
Liabilities                    
Current   Operating leases – current portion     258       87  
Noncurrent   Operating leases – long-term portion     491       13