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.
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.
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 | |
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.
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.
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 | |
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.
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 | |
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.
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
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.
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.
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.
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 | |
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 | |
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 | ) |
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.
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.
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.
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
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.
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 | |
Total operating lease liabilities | |
| |
$ | 749 | | |
$ | 100 | |
The weighted average life remaining is 35 months and
the weighted average interest rate 3.38%.
Lease Costs
The table below presents certain information related to lease costs
for leases:
| |
Year Ended | | |
Year Ended | |
(In thousands) | |
March 31, 2022 | | |
March 31, 2021 | |
Operating lease cost | |
$ | 125 | | |
$ | 195 | |
Total lease cost | |
$ | 125 | | |
$ | 195 | |
Other Information
The table below presents supplemental cash flow
information related to leases:
| |
Year Ended | | |
Year Ended | |
(In thousands) | |
March 31, 2022 | | |
March 31, 2021 | |
Cash paid for amounts included in the measurement of lease liabilities | |
| 83 | | |
| 197 | |
Operating cash flows used for operating leases | |
$ | 83 | | |
$ | 197 | |
Distribution arrangement minimum guaranty
On September 1, 2021 the Company extended a video
works distribution arrangement providing a non-refundable and fully-recoupable advance minimum participation guaranty for a total amount
of $3.5 million, where $1.5 million is payable no later than November 1, 2021, $1.0 million at the first year anniversary
of the arrangement and $0.9 million on the second-year anniversary of the arrangement. These payments are subject to the selection
of video works released by the Company whose initial commercial date occurs during the arrangement year. The Company paid the first advance
on October 22, 2021.
Hyde Park Agreement
On January 5, 2022, the Company entered into a letter agreement with Hyde
Park Entertainment, Inc. (“Hyde Park”), pursuant to which the Company and Hyde Park are collaborating on the development,
production and/or distribution of a project based on the novel Audition by Ryu Murakami (the “Audition Project”). Each
of the Company and Hyde Park owns 50% of the rights in connection with the Audition Project. The Company paid $100 thousand to Hyde Park
plus $26 thousand in legal fees to counsel for the Audition project. Ashok Amritraj, a director of the Company, is the Chairman and CEO
of Hyde Park and has an interest in 100% of the revenues of Hyde Park. Ashok Amritraj is a current board member and related party to the Company.
8. SUPPLEMENTAL CASH FLOW INFORMATION AND DISCLOSURE OF NON-CASH
INVESTMENTING AN FINANCING ACTIVITY
| |
Year Ended March 31, | |
(In thousands) | |
2022 | | |
2021 | |
Cash interest paid | |
$ | 780 | | |
$ | 4,052 | |
Income taxes paid | |
| 79 | | |
| 232 | |
Accrued dividends on preferred stock | |
| - | | |
| 89 | |
Issuance of Class A common stock for payment of preferred stock dividends | |
| 354 | | |
| 356 | |
Issuance of Class A common stock to Metaverse, a related party | |
| - | | |
| 11,046 | |
Contributed capital under the Metaverse transaction, a related party | |
| - | | |
| 17,187 | |
Settlement of second lien loan with Class A common stock | |
| - | | |
| 6,485 | |
Conversion of note payable | |
| - | | |
| 15,067 | |
Class A common stock to be issued in connection with the asset acquisition | |
| - | | |
| 2,905 | |
Metaverse shares used to pay down vendors | |
| - | | |
| 897 | |
Issuance of Class A common stock for business combination | |
| 4,825 | | |
| - | |
Deferred consideration in purchase of a business | |
| 8,987 | | |
| - | |
Earnout consideration in purchase of a business | |
| 1,461 | | |
| - | |
Treasury shares acquired for withholding taxes | |
| 5 | | |
| - | |
9. SEGMENT INFORMATION
We operate in two reportable segments:
Cinema Equipment Business and Content & Entertainment Business. Our segments were determined based on the economic characteristics
of our products and services, our internal organizational structure, the manner in which our operations are managed and the criteria
used by our CODM to evaluate performance, which is generally the segment’s operating income (loss) before depreciation and amortization.
Operations of: | | Products and services provided: |
Cinema Equipment Business | | Financing vehicles and administrators for 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 the Systems and the residual cash flows related to the Systems in Phase I Deployment after the repayment of all non-recourse debt at the expiration of exhibitor master license agreements. For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements. The Cinema Equipment Business segment also provides monitoring, collection, verification and management services to this segment, as well as to exhibitors who purchase their own equipment, and also collects and disburses VPFs from motion picture studios, distributors and ACFs from alternative content providers, movie exhibitors and theatrical exhibitors (collectively, “Services”). |
| | |
Content & Entertainment Business | | Leading independent streaming company of content and channels. We collaborate with producers and other content owners to market, source, curate and distribute independent content to targeted and under-served audiences in theatres and homes, and via mobile and emerging platforms. |
The following tables present certain financial
information related to our reportable segments and Corporate:
|
|
As of March 31, 2022 |
|
(In thousands) |
|
Intangible
Assets, net |
|
|
Goodwill |
|
|
Total
Assets |
|
|
Notes
Payable,
Non-
Recourse |
|
|
Notes
Payable |
|
|
Operating
lease
liabilities |
|
Cinema Equipment Business |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
24,445 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Content & Entertainment Business |
|
|
19,946 |
|
|
|
21,084 |
|
|
|
68,873 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Corporate |
|
|
88 |
|
|
|
- |
|
|
|
11,318 |
|
|
|
— |
|
|
|
— |
|
|
|
749 |
|
Total |
|
$ |
20,034 |
|
|
$ |
21,084 |
|
|
$ |
104,636 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
749 |
|
| |
As of March 31, 2021 | |
(In thousands) | |
Intangible Assets, net | | |
Goodwill | | |
Total Assets | | |
Notes Payable, Non- Recourse | | |
Notes Payable | | |
Operating lease liabilities | |
Cinema Equipment Business | |
$ | — | | |
$ | — | | |
$ | 13,169 | | |
$ | 7,786 | | |
$ | — | | |
$ | 1 | |
Content & Entertainment Business | |
| 9,858 | | |
| 8,701 | | |
| 42,733 | | |
| — | | |
| — | | |
| 69 | |
Corporate | |
| 2 | | |
| — | | |
| 19,544 | | |
| — | | |
| 4,108 | | |
| 30 | |
Total | |
$ | 9,860 | | |
$ | 8,701 | | |
$ | 75,446 | | |
$ | 7,786 | | |
$ | 4,108 | | |
$ | 100 | |
|
|
Statements of Operations |
|
|
|
Year Ended March 31, 2022 |
|
|
|
(in thousands) |
|
|
|
Cinema
Equipment
Business |
|
|
Content & Entertainment
Business |
|
|
Corporate |
|
|
Consolidated |
|
Revenues |
|
$ |
18,159 |
|
|
$ |
37,895 |
|
|
$ |
- |
|
|
$ |
56,054 |
|
Direct operating (exclusive of depreciation and amortization shown below) |
|
|
687 |
|
|
|
20,207 |
|
|
|
- |
|
|
|
20,894 |
|
Selling, general and administrative |
|
|
1,890 |
|
|
|
13,935 |
|
|
|
14,211 |
|
|
|
30,036 |
|
Allocation of corporate overhead |
|
|
560 |
|
|
|
3,752 |
|
|
|
(4,312 |
) |
|
|
- |
|
Provision for (recovery of) doubtful accounts |
|
|
(485 |
) |
|
|
- |
|
|
|
- |
|
|
|
(485 |
) |
Intangible Impairment |
|
|
- |
|
|
|
1,968 |
|
|
|
- |
|
|
|
1,968 |
|
Depreciation and amortization of property and equipment |
|
|
1,160 |
|
|
|
571 |
|
|
|
3 |
|
|
|
1,734 |
|
Amortization of intangible assets |
|
|
- |
|
|
|
2,830 |
|
|
|
2 |
|
|
|
2,832 |
|
Total operating expenses |
|
|
3,812 |
|
|
|
43,263 |
|
|
|
9,904 |
|
|
|
56,979 |
|
Income (loss) from operations |
|
$ |
14,347 |
|
|
$ |
(5,368 |
) |
|
$ |
(9,904 |
) |
|
$ |
(925 |
) |
The following employee and director stock-based
compensation expense related to our stock-based awards is included in the above amounts as follows:
(In thousands) | |
Cinema Equipment Business | | |
Content & Entertainment Business | | |
Corporate | | |
Consolidated | |
Direct operating | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Selling, general and administrative | |
| — | | |
| 1,034 | | |
| 4,453 | | |
| 5,487 | |
Total stock-based compensation | |
$ | — | | |
$ | 1,034 | | |
$ | 4,453 | | |
$ | 5,487 | |
| |
Statements of Operations | |
| |
Year Ended March 31, 2021 | |
| |
(in thousands) | |
| |
Cinema Equipment Business | | |
Content & Entertainment Business | | |
Corporate | | |
Consolidated | |
Revenues | |
$ | 3,222 | | |
$ | 28,197 | | |
$ | — | | |
$ | 31,419 | |
Direct operating (exclusive of depreciation and amortization shown below) | |
| 683 | | |
| 15,420 | | |
| — | | |
| 16,103 | |
Selling, general and administrative | |
| 2,277 | | |
| 9,798 | | |
| 9,917 | | |
| 21,992 | |
Allocation of corporate overhead | |
| 586 | | |
| 3,872 | | |
| (4,458 | ) | |
| — | |
Provision for (recovery of) doubtful accounts | |
| (121 | ) | |
| (1 | ) | |
| — | | |
| (122 | ) |
Depreciation and amortization of property and equipment | |
| 3,916 | | |
| 461 | | |
| 27 | | |
| 4,404 | |
Amortization and impairment of intangible assets | |
| 23 | | |
| 2,488 | | |
| 4 | | |
| 2,515 | |
Total operating expenses | |
| 7,364 | | |
| 32,038 | | |
| 5,490 | | |
| 44,892 | |
Income (loss) from operations | |
$ | (4,142 | ) | |
$ | (3,841 | ) | |
$ | (5,490 | ) | |
$ | (13,473 | ) |
The following employee and director stock-based compensation expense
related to our stock-based awards is included in the above amounts as follows:
| |
Cinema Equipment Business | | |
Content &
Entertainment | | |
Corporate | | |
Consolidated | |
Direct operating | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Selling, general and administrative | |
| — | | |
| 264 | | |
| 2,628 | | |
| 2,892 | |
Total stock-based compensation | |
$ | — | | |
$ | 264 | | |
$ | 2,628 | | |
$ | 2,892 | |
11. INCOME
TAXES
We recorded income tax (benefit)
of $(0.8) million from operations and an income tax (benefit) of $(0.3) million for the years ended March 31,
2022 and 2021, respectively. For the year ended March 31, 2022, the $(0.8) income tax benefit primarily related to a net change of deferred
tax liability resulted from the finalization of the acquisition of Foundation TV. The deferred tax liability was offset by a release of
the Company’s valuation allowance. The Company 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. The income tax benefit for the year ended March 31, 2021
was mainly related to changes in estimates from the timing of the income tax provision to the income tax return filings, related to state
income tax expense.
The following table presents
the components of income tax benefit (expense):
| |
For the Fiscal Year Ended March 31, | |
(In thousands) | |
2022 | | |
2021 | |
Federal: | |
| | |
| |
Current | |
$ | — | | |
$ | — | |
Deferred | |
| 672 | | |
| — | |
Total federal | |
| 672 | | |
| — | |
State: | |
| | | |
| | |
Current | |
| (100 | ) | |
| 315 | |
Deferred | |
| 216 | | |
| — | |
Total State | |
| 116 | | |
| 315 | |
Income tax benefit (expense) | |
$ | 788 | | |
$ | 315 | |
Net deferred
taxes consisted of the following:
| |
As of March 31, | |
(In thousands) | |
2022 | | |
2021 | |
Deferred tax assets: | |
| | |
| |
Net operating loss carryforwards | |
$ | 15,853 | | |
$ | 15,019 | |
Stock-based compensation | |
| 2,391 | | |
| 934 | |
Intangibles | |
| 5,247 | | |
| 5,879 | |
Accrued liabilities | |
| 1,216 | | |
| 1,054 | |
Allowance for doubtful accounts | |
| 865 | | |
| 845 | |
Investments | |
| 3,797 | | |
| 3,857 | |
Nondeductible interest expense | |
| 3,654 | | |
| 3,693 | |
Other | |
| 326 | | |
| 113 | |
Total deferred tax assets before valuation allowance | |
| 33,349 | | |
| 31,394 | |
Less: Valuation allowance | |
| (33,212 | ) | |
| (30,969 | ) |
Total deferred tax assets after valuation allowance | |
$ | 137 | | |
$ | 425 | |
Deferred tax liabilities: | |
| | | |
| | |
Depreciation and amortization | |
$ | (137 | ) | |
$ | (425 | ) |
Total deferred tax liabilities | |
| (137 | ) | |
| (425 | ) |
Net deferred tax | |
$ | — | | |
$ | — | |
We have provided a valuation
allowance equal to our net deferred tax assets for the years ended March 31, 2022 and 2021. We are required to recognize
all or a portion of our deferred tax assets if we believe that it is more likely than not that such assets will be realized, given the
weight of all available evidence. We assess the realizability of the deferred tax assets at each interim and annual balance sheet date.
In assessing the need for a valuation allowance, we considered both positive and negative evidence, including recent financial performance,
projections of future taxable income and scheduled reversals of deferred tax liabilities. The net change in the valuation allowance of
$2.2 million during the fiscal year ended March 31, 2022 was mainly due to increases in the deferred tax asset related to the net operating
loss carryfoward and other timing differences. The net change in the valuation allowance of $13.4 million during the fiscal
year ended March 31, 2021 was mainly due to increases in the deferred tax asset related to our investment in Starrise, a related
party, and increases in the net operating loss carryforward. We will continue to assess the realizability of the deferred tax assets at
each interim and annual balance sheet date based upon actual and forecasted operating results.
As of March 31, 2022,
we had federal and state net operating loss carryforwards of approximately $55.2 million available in the United States
of America (“U.S.”) to reduce future taxable income. U.S. federal and state net operating loss carryforwards of approximately
$22.6 and $55.2 million, respectively, generally begin to expire in 2026. U.S. federal net operating loss carryforwards that
were generated during the years ended March 31, 2020, 2021, and 2022 of approximately $32.6 million, do not expire.
Under the provisions of the Internal
Revenue Code, certain substantial changes in our ownership may result in a limitation on the amount of net operating losses that may be
utilized in future years. During the year ended March 31, 2018, approximately $233.5 million of our net operating losses
became subject to limitation under Internal Revenue Code Section 382 in connection with the consummation in November 2017 of the transactions
under the Stock Purchase Agreement with Bison. Approximately $209.0 million of our net operating losses will not be able
to be utilized because of the ownership change. Future significant ownership changes could cause a portion or all of our remaining net
operating losses to expire before utilization.
On March 27, 2020, the Coronavirus
Aid, Relief, and Economic Security (CARES) Act was signed into law. The Act contains several new or changed income tax provisions, including
but not limited to the following: increased limitation threshold for determining deductible interest expense; class life changes to qualified
improvements (in general, from 39 years to 15 years); and the ability to carry back net operating losses incurred from tax years 2018
through 2020 up to the five preceding tax years. The Company has evaluated the new tax provisions of the CARES Act and determined the
impact to be either immaterial or not applicable.
The differences between the United
States statutory federal tax rate and our effective tax rate are as follows:
| |
For the fiscal years ended March 31, | |
| |
2022 | | |
2021 | |
Provision at the U.S. statutory federal tax rate | |
| 21.0 | % | |
| 21.0 | % |
State income taxes, net of federal benefit | |
| (83.7 | )% | |
| 5.7 | % |
Change in valuation allowance | |
| 137.0 | % | |
| (26.7 | )% |
Non-deductible expenses | |
| 31.5 | % | |
| (3.4 | )% |
Executive officer compensation limitation – Section 162(m) | |
| 2.8 | % | |
| -- | |
PPP loan forgiveness | |
| (30.9 | )% | |
| -- | |
Losses from non-consolidated entities | |
| (131.1 | )% | |
| 3.8 | % |
Other | |
| 0.2 | % | |
| 0.1 | % |
Income tax benefit /(expense) | |
| (53.2 | )% | |
| 0.5 | % |
We file income tax returns in
the U.S. federal jurisdiction, various U.S. states, and Australia. For federal income tax purposes, our fiscal 2019 through 2022 tax years
remain open for examination by the tax authorities under the normal three-year statute of limitations. For U.S. state and Australian
tax purposes, our fiscal 2018 through 2022 tax years generally remain open for examination by most of the tax authorities under a four-year
statute of limitations.
12.
SUBSEQUENT EVENTS
On April 1, 2022, trading of Metaverse’s ordinary shares was
halted on the Hong Kong Stock Exchange. Unless and until trading is reinstated, the Company will not be able to obtain any readily available
information or observable inputs on the quoted market prices of Metaverse’s stock and therefore will need to change the valuation
methodology of its investments in Metaverse.
PART II. OTHER INFORMATION