UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the fiscal period
ended:
For the transition period from _____ to _____
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | Smaller reporting company | Emerging Growth Company |
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act). Yes ☐ No
☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
As of February 11, 2022,
CINEDIGM CORP.
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CINEDIGM CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
| December 31, 2021 | March 31, 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Unbilled revenue | ||||||||
| Prepaid and other current assets | ||||||||
| Total current assets | ||||||||
| Restricted cash | ||||||||
| Equity investment in Starrise, a related party, at fair value | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Other long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Current portion of notes payable (see Note 5) | ||||||||
| Current portion of notes payable, non-recourse (see Note 5) | ||||||||
| Current portion of deferred consideration on purchase of a business | ||||||||
| Current portion of earnout consideration on purchase of a business | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Current portion of deferred revenue | ||||||||
| Total current liabilities | ||||||||
| PPP Loan | ||||||||
| Deferred consideration on purchase of a business, net of current portion | ||||||||
| Earnout consideration on purchase of a business, net of current portion | ||||||||
| Operating lease liabilities, net of current portion | — | |||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (see Note 7) | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, at cost; | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders’ equity of Cinedigm Corp. | ||||||||
| Deficit attributable to noncontrolling interest | ( | ) | ( | ) | ||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements
1
CINEDIGM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except for share and per share data)
| Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Direct operating (excludes depreciation and amortization shown below) | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Bad debt (recovery) | ( | ) | ( | ) | ( | ) | ||||||||||
| Depreciation and amortization of property and equipment | ||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain (loss) on forgiveness of PPP loan and extinguishment of note payable | ( | ) | ( | ) | ||||||||||||
| Change in fair value of equity investment in Starrise, a related party | ( | ) | ( | ) | ||||||||||||
| Other expense, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax benefit | ||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income attributable to noncontrolling interest | ||||||||||||||||
| Net income (loss) attributable to controlling interests | ( | ) | ( | ) | ( | ) | ||||||||||
| Preferred stock dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Net income (loss) per Class A common stock attributable to common stockholders - basic: | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted average number of Class A common stock outstanding: basic | ||||||||||||||||
| Net income (loss) per Class A common stock attributable to common stockholders - diluted: | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted average number of Class A common stock outstanding: diluted | ||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
2
CINEDIGM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
| Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Other comprehensive (loss) income: foreign exchange translation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Less: comprehensive income attributable to noncontrolling interest | ||||||||||||||||
| Comprehensive income (loss) attributable to controlling interests | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements
3
CINEDIGM CORP.
CONSDENSED CONSOLIDATED STATEMENTS OF (DEFICIT) EQUITY
(Unaudited)
(In thousands, except share data)
| Series
A Preferred Stock | Class
A Common Stock | Treasury | Additional Paid-In | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | Non-Controlling | Total | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||||||||
| Balances as of March 31, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Foreign exchange translation | — | — | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Stock issued in connection with the SPA with certain investors, net | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Class A common stock in connection with the Starrise transaction, a related party | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Contributed capital under the Starrise transaction, a related party | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock in connection with settlement of second lien loan | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants for Class A common stock | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends paid with common stock | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balances as of June 30, 2020 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Foreign exchange translation | — | — | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| July 2020 issuance of Class A common stock, net of $ | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued in connection with conversion of Convertible Notes | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for third party professional service | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Class A common stock to management and employees | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with performance stock units | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Common stock issued to settle second lien loan | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends paid with common stock | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balances as of September 30, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Foreign exchange translation | — | — | — | ( | ) | ( | ) | — | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Common stock issued to settle second lien loan | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends paid with common stock | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock compensation and expenses | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Class A common stock to management | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with performance stock units | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with ATM raises, net | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Class A common stock to be issued in connection with asset acquisition | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
See accompanying & Notes to Condensed Consolidated Financial Statements
4
CINEDIGM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF (DEFICIT) EQUITY
(Unaudited)
(In thousands, except share data)
| Series
A Preferred Stock | Class
A Common Stock | Treasury | Additional Paid-In | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ Equity | Non-Controlling | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | (Deficit) | Interest | (Deficit) | |||||||||||||||||||||||||||||||||||||
| Balances as of March 31, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
| Foreign exchange translation | — | — | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with a business combination | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends paid with common stock | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Balances as of June 30, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Foreign exchange translation | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with business combinations | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock in connection with taxes withheld from employees | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | — | — | — | — | — | — | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balances as of September 30, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Foreign exchange translation | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with equity line purchase commitment | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with performance stock units | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with ATM raises, net | ||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends accrued | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balances as of December 31, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
5
CINEDIGM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| Nine Months Ended December 31, |
||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | $ | ( |
) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization of property and equipment and amortization of intangible assets | ||||||||
| Changes in fair value of equity investment in Starrise | ( |
) | ||||||
| (Gain) loss from forgiveness of PPP loan and extinguishment of note payable | ( |
) | ||||||
| Impairment of advances | ||||||||
| Loss from sale of property and equipment | ||||||||
| Amortization of debt issuance costs included in interest expense | ||||||||
| Provision for doubtful accounts | ( |
) | ( |
) | ||||
| Stock-based compensation | ||||||||
| Accretion and PIK interest expense added to note payable | ||||||||
| Interest expense for deferred consideration | ||||||||
| Interest expense for earnout consideration | ||||||||
| Other | ||||||||
| Changes in operating assets and liabilities, net of acquisitions: | ||||||||
| Accounts receivable | ( |
) | ||||||
| Inventory | ||||||||
| Unbilled revenue | ( |
) | ( |
) | ||||
| Prepaids and other current assets, and other long-term assets | ( |
) | ||||||
| Accounts payable, accrued expenses, and other liabilities | ( |
) | ||||||
| Deferred revenue | ( |
) | ( |
) | ||||
| Net cash provided by (used in) operating activities | ( |
) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( |
) | ( |
) | ||||
| Purchase of businesses | ( |
) | ||||||
| Proceeds from the sale of property and equipment | ||||||||
| Sale of equity investment in Starrise | ||||||||
| Purchases of intangible assets | ( |
) | ||||||
| Net cash used in investing activities | ( |
) | ( |
) | ||||
| Cash flows from financing activities: | ||||||||
| Payments of notes payable | ( |
) | ( |
) | ||||
| (Payments) proceeds under revolving credit agreement, net | ( |
) | ||||||
| Proceeds from PPP Loan | ||||||||
| Proceeds from issuance of Class A common stock, net | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash, cash equivalents, and restricted cash | ||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | ||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements
6
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share information)
1. NATURE OF OPERATIONS AND LIQUIDITY
Cinedigm Corp. (“Cinedigm,” the “Company,” “we,” “us,” or similar pronouns) was incorporated in Delaware on March 31, 2000. We are (i) a distributor and aggregator of independent movie, television and other short form content managing a library of distribution rights to thousands of titles and episodes released across digital, physical, theatrical, home and mobile entertainment platforms (“Streaming”) and (ii) a servicer of digital cinema assets (“Systems”) for over 4,609 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 over 4,609 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 nine-month period ended December 31, 2021, the sale of physical discs through our retail partners declined although this was partially offset by digital purchases of physical product and increases in streaming views. As part of our Cinema Equipment business, the Company earns revenue when movies are exhibited in theatres. Major studios continued to release tentpole films in the theatrical markets as box office results steadily showed improvement in the three months ended December 31, 2021. However, the number of wide releases remained below pre-pandemic levels during that quarter as studios continue to shuffle release dates and test theatrical windows. The Canadian government tightened Movie Theatre restrictions amid a Covid surge due to the Omicron variant as well as shuttering all Quebec theatres during that quarter. Movie theatres in the U.S. remained open and continued to follow NATO CinemaSafe protocols in an effort to help reinforce consumer confidence in the safety of the theatrical moviegoing experience.
Liquidity
We have incurred net losses historically and have
an accumulated deficit of $
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
7
Equity Investment in a Related Party
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 $
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 $
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
We believe the combination of: (i) our cash and cash equivalent balances at December 31, 2021 and (ii) expected cash flows from operations, as well as liquidity for our operational and capital needs, for twelve months from the filing of this report will be sufficient to satisfy our contractual obligations, as well as liquidity for our operational and capital needs, for twelve months from the filing of this report. Our capital requirements will depend on many factors, and we may need to use capital resources and obtain additional capital. Failure to generate additional revenues, obtain additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations and liquidity.
8
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
Our consolidated financial statements include the accounts of Cinedigm and its wholly-owned and majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Investments in which we do not have a controlling interest or are not the primary beneficiary, but have the ability to exert significant influence, are accounted for under the equity method of accounting. Noncontrolling interests for which we have been determined to be the primary beneficiary are consolidated and recorded as net loss attributable to noncontrolling interest. See Note 3 - Other Interests to the Consolidated Financial Statements for a discussion of our noncontrolling interests.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect the assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates include the adequacy of accounts receivable reserves, return reserves, inventory reserves, recovery of advances, assessment of goodwill impairment, long-lived and finite-lived assets impairment and estimated amortization lives, fair value for asset acquisitions and business combinations, valuation allowances for income taxes and stock awards. Actual results could differ from these estimates.
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
We consider all highly liquid investments with an original maturity of three months or less to be “cash equivalents.” We maintain bank accounts with major banks, which from time to time may exceed the Federal Deposit Insurance Corporation’s insured limits. We periodically assess the financial condition of the institutions and believe that the risk of any loss is minimal. Our Prospect Loan required that we maintain specified cash balances that are restricted to repayment of interest thereunder. See Note 5 - Notes Payable for information about our restricted cash balances.
Cash, cash equivalents, and restricted cash consisted of the following:
| As of | ||||||||
| (in thousands) | December 31, 2021 | March 31, 2021 | ||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Restricted Cash | ||||||||
| $ | $ | |||||||
EQUITY INVESTMENT IN STARRISE, A RELATED PARTY
On February 14, 2020, the Company acquired an
approximately
9
On April 10, 2020, the Company purchased an additional
The Company has made an irrevocable election to apply the fair value accounting option under ASC 825-10, Financial Instruments, as it relates to its equity investment in Starrise. The Company’s investment in Starrise is marked to market and recorded at fair value. The stock is traded on the Hong Kong Stock exchange with readily available pricing that is classified as Level 1 in the fair value hierarchy. The Company has established a policy that consistently uses either the closing price of last active trades or the latest bid price when there is no active trades, unadjusted at the last day of each reporting period, as the most relevant and representative input to the Level 1 fair value measures of its investment holdings.
As of December 31, 2021 and March 31, 2021, the
value of our equity investment in Starrise, using the readily determinable fair value inputs from the market pricing of the Stock Exchange
of Hong Kong, was approximately $
NON-MONETARY TRANSACTIONS
During the three and nine months ended December
31, 2020, the Company entered into agreements with certain vendors to transfer
There was no gain or loss resulting from these transactions for the three and nine months ended December 31, 2021 and 2020.
ACCOUNTS RECEIVABLE
We maintain reserves for potential credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.
We record accounts receivable, long-term in connection with activation fees that we earn from our digital cinema equipment (the “Systems”) deployments that have extended payment terms. Such accounts receivable are discounted to their present value at prevailing market rate.
ADVANCES
Advances, which are recorded within prepaid and
other current assets on the consolidated balance sheets, represent amounts prepaid to studios or content producers for which we provide
content distribution services. We evaluate advances regularly for recoverability and record impairment charges for amounts that we expect
may not be recoverable as of the consolidated balance sheet date. Impairments and accelerated amortization related to advances were $
10
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 | ||||
| Internal use software | ||||
| Digital cinema projection systems | ||||
| Machinery and equipment | ||||
| Furniture and fixtures |
We capitalize costs associated with software developed or obtained for internal use when the preliminary project stage is completed, and it is determined that the software will provide significantly enhanced capabilities and modifications. These capitalized costs are included in property and equipment and include external direct cost of services procured in developing or obtaining internal-use software and personnel and related expenses for employees who are directly associated with, and who devote time to internal-use software projects. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended use. Once the software is ready for its intended use, the costs are amortized over the useful life of the software. Post-configuration training and maintenance costs are expensed as incurred.
Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the leasehold improvements. Repair and maintenance costs are charged to expense as incurred. Major renewals, improvements and additions are capitalized. Upon the sale or other disposition of any property and equipment, the cost and related accumulated depreciation and amortization are removed from the accounts and the gain or loss on disposal is included in the consolidated statements of operations.
FAIR VALUE MEASUREMENTS
The fair value measurement disclosures are grouped into three levels based on valuation factors:
| ● | Level 1 – quoted prices in active markets for identical investments |
| ● | Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs) |
| ● | Level 3 – significant unobservable inputs (including our own assumptions in determining the fair value of investments) |
Assets and liabilities measured at fair value on a recurring basis use the market approach, where prices and other relevant information are generated by market transactions involving identical or comparable assets or liabilities.
The equity investment in Starrise is in Hong Kong
dollars and was translated into US dollars as of December 31, 2021 and March 31, 2021 at an exchange rate of
The earnout consideration on purchase of Bloody Disgusting business (Note 4) is determined according to the probability-based method to the estimated the value of the earnout based on the premise that there are different probabilities to achieve different forecasts and therefore the defined earnout metric targets. Under this method, weighted-average earnout payments for each earnout period were estimated based on the probability of each forecast scenario. The resultant weighted-average earnout payments are discounted to a present value.
The following tables summarize the levels of fair value measurements of our financial assets and liabilities as of December 31, 2021 and March 31, 2021:
| As of December 31, 2021 | ||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets: | ||||||||||||||||
| Equity investment in Starrise, at fair value | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Liabilities: | ||||||||||||||||
| Current portion of earnout consideration on purchase of a business | $ | $ | ||||||||||||||
| Earnout consideration on purchase of a business, net of current portion | $ | $ | ||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| As of March 31, 2021 | ||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Restricted cash | $ | $ | $ | $ | ||||||||||||
| Equity investment in Starrise, at fair value | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
11
Our cash and cash equivalents, accounts receivable, unbilled revenue and accounts payable and accrued expenses are financial instruments and are recorded at cost in the consolidated balance sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature.
IMPAIRMENT OF LONG-LIVED AND FINITE-LIVED ASSETS
We review the recoverability of our long-lived assets and finite-lived intangible assets, when events or conditions occur that indicate a possible impairment exists. The assessment for recoverability is based primarily on our ability to recover the carrying value of our long-lived and finite-lived assets from expected future undiscounted net cash flows. If the total of expected future undiscounted net cash flows is less than the total carrying value of the asset, the asset is deemed not to be recoverable and possibly impaired. We then estimate the fair value of the asset to determine whether an impairment loss should be recognized. An impairment loss will be recognized if the asset’s fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted cash flows. During the three and nine months ended December 31, 2021 and 2020, no impairment charge was recorded from operations for long-lived assets or finite-lived assets.
GOODWILL
Goodwill is the excess of the purchase price paid over the fair value of the net assets of an acquired business. Goodwill is tested for impairment on an annual basis or more often if warranted by events or changes in circumstances indicating that the carrying value may exceed fair value, also known as impairment indicators.
Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current economic indicators and market conditions, and assumptions about our strategic plans with regard to its operations. To the extent additional information arises, market conditions change, or our strategies change, it is possible that the conclusion regarding whether our remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material effect on our consolidated financial position or results of operations.
The Company has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or to perform the quantitative impairment test.
No goodwill impairment charge was recorded in the nine months ended December 31, 2021 and 2020.
Gross amounts of goodwill and accumulated impairment charges that we have recorded are as follows:
| (In thousands) | ||||
| Goodwill at March 31, 2021 | $ | |||
| Goodwill from business combinations – see Note 4 | ||||
| Goodwill at December 31, 2021 | $ | |||
12
REVENUE RECOGNITION
We determine revenue recognition by:
| ● | identifying the contract, or contracts, with the customer; |
| ● | identifying the performance obligations in the contract; |
| ● | determining the transaction price; |
| ● | allocating the transaction price to performance obligations in the contract; and |
| ● | recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services. |
We recognize revenue in the amount that reflects the consideration we expect to receive in exchange for the services provided, sales of physical products (e.g., DVDs and Blu-ray Discs) or when the content is available for subscription on the digital platform or available on the point-of-sale for transactional and video on demand services which is when the control of the promised products and services is transferred to our customers and our performance obligations under the contract have been satisfied. Revenues that might be subject to various taxes are recorded net of transaction taxes assessed by governmental authorities such as sales value-added taxes and other similar taxes.
Payment terms and conditions vary by customer and typically provide net 30 to 90 day terms. We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and payment for that product or service will be one year or less.
Cinema Equipment Business
Our Cinema Equipment Business consists of financing vehicles and administrators for 1,631 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 2,978 Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”).
We retain ownership of our digital cinema equipment (the “Systems”) and the residual cash flows related to the Systems in Phase I Deployment after the end of the 10-year deployment payment period.
For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.
The Cinema Equipment Business also provides monitoring, data collection, serial data verification and management services to this segment, as well as to exhibitors who purchase their own equipment, in order to collect virtual print fees (“VPFs”) from motion picture studios and distributors and Alternative Content Fees (“ACFs”) from alternative content providers, and to distribute those fees to theatrical exhibitors (collectively, “Services”).
VPFs are earned, net of administrative fees, pursuant to contracts with movie studios and distributors, whereby amounts are payable by a studio to Phase I Deployment and to Phase II Deployment when movies distributed by the studio are displayed on screens utilizing our Systems installed in movie theatres. VPFs are earned and payable to Phase I Deployment based on a defined fee schedule until the end of the VPF term. One VPF is payable for every digital title initially displayed per System. The amount of VPF revenue is dependent on the number of movie titles released and displayed using the Systems in any given accounting period. VPF revenue is recognized in the period the title first plays for general audience viewing in a digital projector equipped movie theatre. The Phase 1 Deployment’s and Phase 2 Deployments performance obligations for revenue recognition are met at this time.
13
Phase II Deployment’s agreements with distributors require the payment of VPFs, according to a defined fee schedule, for ten years from the date each system is installed; however, Phase II Deployment may no longer collect VPFs once “cost recoupment,” as defined in the contracts with movie studios and distributors, is achieved. Cost recoupment will occur once the cumulative VPFs and other cash receipts collected by Phase II Deployment have equaled the total of all cash outflows, including the purchase price of all Systems, all financing costs, all “overhead and ongoing costs”, as defined, and including service fees, subject to maximum agreed upon amounts during the three-year rollout period and thereafter. Further, if cost recoupment occurs before the end of the eighth contract year, the studios will pay us a one-time “cost recoupment bonus.” The Company evaluated the constraining estimates related to the variable consideration, i.e., the one-time bonus and determined that it is not probable to conclude at this point in time that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is subsequently resolved.
Under the terms of our standard cinema equipment
licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement,
after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive one-year terms;
or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we typically pursue the sale of the Systems
to such exhibitors. Cinedigm recognizes revenue once the customer takes possession of the Systems and Cinedigm received the sale proceeds.
Such sales were originally contemplated as the conclusion of the digital cinema deployment plan. Total system sales revenue recognized
was $
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 $
The Cinema Equipment Business earns an administrative
fee of approximately
Content & Entertainment Business
CEG earns fees for the distribution of content in the home entertainment markets via several distribution channels, including digital, video on demand (“VOD” or “OTT Streaming and Digital”), and physical goods (e.g., DVDs and Blu-ray Discs) (“Physical Revenue” or “Base Distribution Business”). Fees earned are typically a percentage based on the net amounts received from our customers. Depending upon the nature of the agreements with the platform and content providers, the fee rate that we earn varies. The Company’s performance obligations include the delivery of content for transactional, subscription and ad supported/free ad-supported streaming TV (“FAST”) on the digital platforms, and shipment of DVDs and Blu-ray Discs. Revenue is recognized at the point in time when the performance obligation is satisfied, which is when the content is available for subscription on the digital platform, at the time of shipment for physical goods, or point-of-sale for transactional and VOD services as the control over the content or the physical title is transferred to the customer. The Company considers the delivery of content through various distribution channels to be a single performance obligation. Physical revenue is recognized after deducting the reserves for sales returns and other allowances, which are accounted for as variable consideration.
14
Physical goods reserved for sales returns and other allowances are recorded based upon historical experience. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.
CEG also has contracts for the theatrical distribution of third party feature movies and alternative content. CEG’s distribution fee revenue and CEG’s participation in box office receipts are recognized at the time a feature movie and alternative content are viewed. CEG has the right to receive or bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded as a receivable at the time of execution, and all related distribution revenue is deferred until the third party feature movies’ or alternative content’s theatrical release date.
Principal Agent Considerations
We determine whether revenue should be reported on a gross or net basis for each revenue stream based on the transfer of control of goods and services. Key indicators that we use in evaluating gross versus net treatment include, but are not limited to, the following:
| ● | which party is primarily responsible for fulfilling the promise to provide the specified good or service; and |
| ● | which party has discretion in establishing the price for the specified good or service. |
Shipping and Handling
Shipping and handling costs are incurred to move physical goods (e.g., DVDs and Blu-ray Discs) to customers. We recognize all shipping and handling costs as an expense in cost of goods sold because we are responsible for delivery of the product to our customers prior to transfer of control to the customer.
Credit Losses
We maintain reserves for potential credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.
Our CEG segment recognizes accounts receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that it recognizes revenue from a sale. Reserves for product returns and other allowances is variable consideration as part of the transaction price. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.
We record accounts receivable, long-term in connection with activation fees that we earn from Systems deployments that have extended payment terms. Such accounts receivable are discounted to their present value at prevailing market rates.
Contract Liabilities
We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability) when cash payments are received or due in advance of our performance, even if amounts are refundable.
Deferred revenue pertaining to our Content & Entertainment Business includes amounts related to the sale of DVDs with future release dates.
Deferred revenue relating to our Cinema Equipment Business pertains to revenues earned in connection with up front exhibitor contributions that are deferred and recognized over the expected cost recoupment period. It also includes unamortized balances in connection with activation fees due from the Systems deployments that have extended payment terms.
15
The ending deferred revenue balance as of December 31, 2021 was $
During the three months ended December 31, 2021
and 2020, $
Participations and royalties payable
When we use third parties to distribute company owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers.
Disaggregation of Revenue
The Company disaggregates revenue into different revenue categories for the Cinema Equipment and CEG Businesses. The Cinema Equipment Business revenue categories are: Phase I Deployment revenue, Phase II Deployment revenue, Services, and Digital System Sales, and the Content & Entertainment Business revenue categories are: Base Distribution Business and OTT Streaming and Digital.
The following tables present the Company’s revenue categories for the three and nine months ended December 31, 2021 and 2020 (in thousands):
| Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Cinema Equipment Business: | ||||||||||||||||
| Phase I Deployment | $ | $ | $ | $ | ||||||||||||
| Phase II Deployment | ||||||||||||||||
| Services | ||||||||||||||||
| Digital System Sales | ||||||||||||||||
| Total Cinema Equipment Business revenue | $ | $ | $ | $ | ||||||||||||
| Content & Entertainment Business: | ||||||||||||||||
| Base Distribution Business | $ | $ | $ | $ | ||||||||||||
| OTT Streaming and Digital | ||||||||||||||||
| Total Content & Entertainment Business revenue | $ | $ | $ | $ | ||||||||||||
DIRECT OPERATING COSTS
Direct operating costs consist of operating costs such as cost of goods sold, fulfillment expenses, shipping costs, property taxes and insurance on Systems, royalty expenses, impairments of advances, and marketing and direct personnel costs.
16
STOCK-BASED COMPENSATION
The Company issues stock-based awards to employees and non-employees, generally in the form of restricted stock, restricted stock units, stock appreciation rights and performance stock units. The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments, including grants of stock options and restricted stock units and modifications to existing stock options, to be recognized in the consolidated statements of operations and comprehensive loss based on their fair values. The Company measures the compensation expense of employee and nonemployee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost is recognized on a straight-line basis over the period during which the employee and nonemployee is required to provide service in exchange for the award. The fair values of options and stock appreciation rights are calculated as of the date of grant using the Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility and expected term. The Company’s estimates of these assumptions are primarily based on the trading price of the Company’s stock, historical data, peer company data and judgment regarding future trends and factors.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and tax credit carryforwards and for differences between the carrying amounts of existing assets and liabilities and their respective tax bases.
Valuation allowances are established when management is unable to conclude that it is more likely than not that some portion, or all, of the deferred tax asset will ultimately be realized. The Company is primarily subject to income taxes in the United States.
The Company
accounts for uncertain tax positions in accordance with an amendment to ASC Topic 740-10, Income Taxes (Accounting
for Uncertainty in Income Taxes), which clarified the accounting for uncertainty in tax positions. This amendment provides that the
tax effects from an uncertain tax position can be recognized in the financial statements only if the position is “more-likely-than-not”
to be sustained were it to be challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits
of the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the “more-likely-than-not”
threshold, the largest amount of tax benefit that is more than
NET INCOME/LOSS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS
Basic and diluted net loss per common share has been calculated as follows:
| Basic and diluted net loss per common share attributable to common stockholders | = | Net loss attributable to common stockholders |
| Weighted average number of common stock outstanding during the period |
Stock issued and treasury stock repurchased during the period are weighted for the portion of the period that they are outstanding. Shares issued and any shares that are reacquired during the period are weighted for the portion of the period that they are outstanding.
We had net income for the nine months ended December 31, 2021, and
therefore the impact of potentially dilutive common shares from outstanding stock options, stock appreciation rights, and warrants, totaling
We incurred net losses for the three and nine
months ended December 31, 2020, and therefore the impact of potentially dilutive common shares from outstanding stock options and warrants,
totaling
17
COMPREHENSIVE INCOME (LOSS)
As of the three and nine months ended December 31, 2021 and 2020, comprehensive income (loss) consisted of net loss and foreign currency translation adjustments.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Adopted
On December 18, 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The update also simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance to improve consistent application. The amendment in this update is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted this guidance on April 1, 2021 and the adoption of this ASU did not have a material impact on our consolidated financial statements.
Not yet adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which provides new guidance regarding the measurement and recognition of credit impairment for certain financial assets. Such guidance will impact how the Company determines its allowance for estimated uncollectible receivables and evaluates its available-for-sale investments for impairment. ASU 2016-13 is effective for the Company in the first quarter of fiscal 2023. The Company is currently evaluating the effect that ASU 2016-13 will have on its consolidated financial statements and related disclosures.
3. OTHER INTERESTS
Investment in CDF2 Holdings
We indirectly own
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 December 31, 2021 and March 31, 2021, our
maximum exposure to loss, as it relates to the non-consolidated CDF2 Holdings entity, represents accounts receivable for service fees
under a master service agreement with CDF2 Holdings. Such accounts receivable was $
The accompanying Consolidated Statements of Operations
include $
Total Stockholders’ Deficit of CDF2 Holdings
at December 31, 2021 and March 31, 2021 was $
18
Majority Interest in CONtv
We own an
4. BUSINESS COMBINATION
FoundationTV, Inc.
| Purchase Price | ||||
| Purchase Price | $ | |||
| Total purchase price | $ | |||
| Allocation of purchase price | ||||
| Developed technology | ||||
| Goodwill | ||||
| Total allocation of purchase price | $ | |||
The developed technology acquired in this transaction
has a useful life of
Below is the amortization expense per year for the developed technology acquired in the business combination:
| 2022 (remaining) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 | ||||
| 2032 | ||||
| Total | $ |
19
Bloody Disgusting, LLC
On September 17, 2021,
| Purchase Price | ||||
| Purchase Price | $ | |||
| Total purchase price | $ | |||
| Allocation of purchase price | ||||
| Current assets | ||||
| Advertiser relationships | ||||
| Trade name | ||||
| Goodwill | ||||
| Total allocation of purchase price | $ | |||
The advertiser relationships acquired in this
transaction has a useful life of
Below is the amortization expense per year for the intangible assets acquired in the business combination:
| Advertiser relationships | Trade name | Total | ||||||||||
| 2022 (remaining) | $ | $ | $ | |||||||||
| 2023 | ||||||||||||
| 2024 | ||||||||||||
| 2025 | ||||||||||||
| 2026 | ||||||||||||
| 2027 | ||||||||||||
| 2028 | ||||||||||||
| 2029 | ||||||||||||
| 2030 | ||||||||||||
| 2031 | ||||||||||||
| 2032 | ||||||||||||
| 2033 | ||||||||||||
| 2034 | ||||||||||||
| Total | $ | |||||||||||
20
5. NOTES PAYABLE
Notes payable consisted of the following:
| December 31, 2021 | March 31, 2021 | |||||||||||||||
| (In thousands) | Current Portion | Long Term Portion | Current Portion | Long Term Portion | ||||||||||||
| Prospect Loan | $ | $ | $ | $ | ||||||||||||
| Total non-recourse notes payable | ||||||||||||||||
| Total non-recourse notes payable, net of unamortized debt issuance costs and debt discounts | $ | $ | $ | $ | ||||||||||||
| Credit Facility | $ | $ | $ | $ | ||||||||||||
| PPP Loan | ||||||||||||||||
| Total recourse notes payable | ||||||||||||||||
| Total recourse notes payable, net of unamortized debt issuance costs and debt discounts | $ | $ | $ | $ | ||||||||||||
| Total notes payable, net of unamortized debt issuance costs | $ | $ | $ | $ | ||||||||||||
Non-recourse debt is generally defined as debt whereby the lenders’ sole recourse with respect to defaults is limited to the value of the asset, which is collateral for the debt. Certain of our subsidiaries are liable with respect to, and their assets serve as collateral for, certain indebtedness for which our assets and the assets of our other subsidiaries that are not parties to the transaction are generally not liable. We have referred to this indebtedness as “non-recourse debt” because the recourse of the lenders is limited to the assets of specific subsidiaries. Such indebtedness includes the Prospect Loan.
Prospect Loan
In February 2013, our Cinedigm DC Holdings, LLC
(“CDCH”), Access Digital Media, Inc (“AccessDM”) and Access Digital Cinema Phase 2, Corp. (“Phase 2 DC”)
subsidiaries entered into a term loan agreement (the “Prospect Loan” or the “Term Loan Agreement”) with Prospect
Capital Corporation (“Prospect”), pursuant to which CDCH borrowed $
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 December 31, 2021, and March 31, 2021, the debt service
fund had a balance of $
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 $
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 $
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 $
21
The following table summarizes the activity related to the Prospect Loan:
| As of | ||||||||
| (In thousands) | December 31, 2021 | March 31, 2021 | ||||||
| Prospect Loan, at issuance | $ | $ | ||||||
| PIK Interest | ||||||||
| Payments to date | ( | ) | ( | ) | ||||
| Prospect Loan, gross | $ | $ | ||||||
| Less unamortized debt issuance costs and debt discounts | ||||||||
| Prospect Loan, net | ||||||||
| Less current portion | ( | ) | ||||||
| Total long term portion | $ | $ | ||||||
Credit Facility and Cinedigm Revolving Loans
On March 30, 2018, the Company entered into the
Loan, Guaranty and Security Agreement, dated as of March 30, 2018, by and between the Company, East West Bank and the Guarantors named
therein (the “Credit Facility”) for a maximum of $
Interest under the Credit Facility is due monthly
at a rate elected by the Company of either
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 $
As of December 31, 2021 and March 31, 2021, there
was $
PPP Loan
On April 15, 2020, the Company received $
22
6. STOCKHOLDERS’ EQUITY
COMMON STOCK
Authorized Class A Common Stock
On October 11, 2021, the Company filed a Certificate
of Amendment to the Fifth Amended and Restated Certificate of Incorporation, pursuant to which the number of shares of Class A common
stock authorized for issuance was increased to
During the nine months ended December 31, 2021, we
issued
PREFERRED STOCK
Cumulative dividends in arrears on preferred stock
were $
TREASURY STOCK
We have treasury stock, at cost, consisting of
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
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
As of December 31, 2021, there were
23
Options outstanding under the 2000 Plan as of December 31, 2021 is as follows:
| As of December 31, 2021 | ||||||||||||||||||
| Range of Prices | Options Outstanding | Weighted Average Remaining Life in Years | Weighted Average Exercise Price | Aggregate Intrinsic Value (In thousands) | ||||||||||||||
| $ | $ | $ | ||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
An analysis of all options exercisable under the 2000 Plan as of December 31, 2021 is presented below:
| Options Exercisable | Weighted Average Remaining Life in Years | Weighted Average Exercise Price | Aggregate Intrinsic Value (In thousands) | |||||||||||
| $ | ||||||||||||||
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
On October 23, 2020, the Company amended its 2017
Plan to increase the number of shares authorized for issuance thereunder from
On October 11, 2021, the Company amended its 2017
Plan to increase the number of shares authorized for issuance thereunder from
During the nine months ended December 31, 2021, the Company granted
Grant Date: May 23, 2021 – November 30, 2021
Maturity Date: May 23, 2031 – November 30, 2031
Exercise price: $
Volatility:
Discount rate:
Expected term:
Stock appreciation rights outstanding under the 2017 Plan as of December 31, 2021 is as follows:
| As of December 31, 2021 | ||||||||||||||||||
| Range of Prices | SAR´s Outstanding | Weighted Average Remaining Life in Years | Weighted Average Exercise Price | Aggregate Intrinsic Value (In thousands) | ||||||||||||||
| $ | $ | $ | ||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
An analysis of all stock appreciation rights exercisable under the 2017 Plan as of December 31, 2021 is presented below:
| Options Exercisable | Weighted Average Remaining Life in Years | Weighted Average Exercise Price | Aggregate Intrinsic Value (In thousands) | |||||||||||
| $ | ||||||||||||||
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Employee and director stock-based compensation expense related to our stock-based awards was as follows:
| Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
| (In thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Selling, general and administrative | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
Total SARs outstanding are as follows:
| Nine Months Ended December 31, 2021 | ||||
| SARs Outstanding March 31, 2021 | ||||
| Issued | ||||
| Forfeited | ( | ) | ||
| Total SARs Outstanding December 31, 2021 | ||||
There was $
There was $
OPTIONS GRANTED OUTSIDE CINEDIGM’S EQUITY INCENTIVE PLAN
In October 2013, we issued options outside of
the 2000 Plan to
WARRANTS
The following table presents information about outstanding warrants to purchase shares of our Class A common stock as of December 31, 2021. All of the outstanding warrants are fully vested and exercisable.
| Recipient | Amount outstanding | Expiration | Exercise price per share | |||||||||
| 5-year Warrant issued to BEMG in connection with a term loan agreement | $ | |||||||||||
Warrants for the purchase of
7. COMMITMENTS AND CONTINGENCIES
From time to time, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities. Although the results of litigation and claims cannot be predicted with certainty, the Company does not believe it is party to any claim or litigation the outcome of which, if determined adversely to the Company, would individually or in the aggregate be reasonably expected to have a material adverse effect on its business. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.
We operate from leased properties under non-cancelable operating lease agreements, certain of which contain escalating lease clauses.
The Company leases office space under operating leases. The Company’s portfolio of leases is primarily related to real estate and since most of our leases do not provide a readily determinable implicit rate, the Company estimated its incremental borrowing rate to discount the lease payments based on information available at either the implementation date of Topic 842 or at lease commencement for leases entered into thereafter.
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The table below presents the lease-related assets and liabilities recorded on the balance sheet as of December 31, 2021 and March 31, 2021:
| (In thousands) | Classification on the Balance Sheet | December 31, 2021 | March 31, 2021 | |||||||
| Assets | ||||||||||
| Noncurrent | Operating lease right-of-use asset | $ | | $ | | |||||
| Liabilities | ||||||||||
| Current | Operating leases – current portion | |||||||||
| Noncurrent | Operating leases – long-term portion | |||||||||
| Total operating lease liabilities | $ | $ | ||||||||
Lease Costs
The table below presents certain information related to lease costs for leases:
| Nine months Ended | Nine months Ended | |||||||
| (In thousands) | December 31, 2021 | December 31, 2020 | ||||||
| Operating lease cost | $ | | $ | | ||||
| Total lease cost | $ | $ | ||||||
Other Information
The table below presents supplemental cash flow information related to leases:
| Nine months Ended | Nine months Ended | |||||||
| (In thousands) | December 31, 2021 | December 31, 2020 | ||||||
| Cash paid for amounts included in the measurement of lease liabilities | | | ||||||
| Operating cash flows used for operating leases | $ | $ | ||||||
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 $
8. SUPPLEMENTAL CASH FLOW INFORMATION
| Nine Months Ended December 31, | ||||||||
| (In thousands) | 2021 | 2020 | ||||||
| Cash interest paid | $ | $ | ||||||
| Income taxes paid | ||||||||
| noncash investing and financing activities: | ||||||||
| Accrued dividends on preferred stock | ||||||||
| Issuance of Class A common stock for payment of accrued preferred stock dividends | ||||||||
| Issuance of Class A common stock to Starrise, a related party | ||||||||
| Contributed capital under the Starrise transaction, a related party | ||||||||
| Settlement of second lien loan with Class A common stock | ||||||||
| Conversion of note payable | ||||||||
| Class A common stock to be issued in connection with the asset acquisition | ||||||||
| Issuance of Class A common stock for business combination | ||||||||
| Starrise shares used to pay down vendors | ||||||||
| Treasury shares acquired for withholding taxes | ||||||||
| Deferred consideration in purchase of a business | ||||||||
| Earnout consideration in purchase of a business | ||||||||
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9. SEGMENT INFORMATION
We operate in
| Operations of: | Products and services provided: | |
| Cinema Equipment Business | Financing vehicles and administrators for
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 December 31, 2021 | ||||||||||||||||||||||||
| (In thousands) | Intangible Assets, net | Goodwill | Total Assets | Notes Payable, Non- Recourse | Notes Payable | Operating lease liabilities | ||||||||||||||||||
| Cinema Equipment Business | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Content & Entertainment Business | — | |||||||||||||||||||||||
| Corporate | — | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Content & Entertainment Business | ||||||||||||||||||||||||
| Corporate | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Statements of Operations | ||||||||||||||||
| Three Months Ended December 31, 2021 | ||||||||||||||||
| (in thousands) | ||||||||||||||||
| Cinema Equipment Business | Content & Entertainment Business | Corporate | Consolidated | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Direct operating (exclusive of depreciation and amortization shown below) | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Allocation of corporate overhead | ( | ) | ||||||||||||||
| Provision for (recovery of) doubtful accounts | ( | ) | ( | ) | ||||||||||||
| Depreciation and amortization of property and equipment | ||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
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The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows:
| (In thousands) | Cinema Equipment Business | Content & Entertainment Business | Corporate | Consolidated | ||||||||||||
| Direct operating | $ | $ | $ | $ | ||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | ||||||||||||
| Statements of Operations | ||||||||||||||||
| Three Months Ended
December 31, 2020 (in thousands) | ||||||||||||||||
| Cinema Equipment Business | Content & Entertainment | Corporate | Consolidated | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Direct operating (exclusive of depreciation and amortization shown below) | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Allocation of corporate overhead | ( | ) | ||||||||||||||
| Provision for doubtful accounts | ||||||||||||||||
| Depreciation and amortization of property and equipment | ||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
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 | ||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | ||||||||||||
| Statements of Operations | ||||||||||||||||
| Nine Months Ended December 31, 2021 | ||||||||||||||||
| (in thousands) | ||||||||||||||||
| Cinema Equipment Business | Content & Entertainment Business | Corporate | Consolidated | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Direct operating (exclusive of depreciation and amortization shown below) | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Allocation of corporate overhead | ( | ) | ||||||||||||||
| (Recovery of) provision for doubtful accounts | ( | ) | ( | ) | ||||||||||||
| Depreciation and amortization of property and equipment | ||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
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The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows:
| (In thousands) | Cinema Equipment Business | Content & Entertainment Business | Corporate | Consolidated | ||||||||||||
| Direct operating | $ | $ | $ | $ | ||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | ||||||||||||
| Statements of Operations | ||||||||||||||||
| Nine Months Ended
December 31, 2020 (in thousands) | ||||||||||||||||
| Cinema Equipment Business | Content & Entertainment | Corporate | Consolidated | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Direct operating (exclusive of depreciation and amortization shown below) | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Allocation of corporate overhead | ( | ) | ||||||||||||||
| Recovery for doubtful accounts | ( | ) | ( | ) | ||||||||||||
| Depreciation and amortization of property and equipment | ||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
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 | ||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | ||||||||||||
10. INCOME TAXES
We calculate income tax expense
based upon an annual effective tax rate forecast, including estimates and assumptions. We recorded an income tax benefit of approximately
$
Our effective
tax rate for the nine months ended December 31, 2021 and 2020 was negative
On March
27, 2020, the
11. SUBSEQUENT EVENTS
Equity purchase announcement
On January 4, 2022,
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our historical consolidated financial statements and the related notes included elsewhere in this report.
This report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which are indicated by words or phrases such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “will,” “estimates,” and similar words. Forward-looking statements represent, as of the date of this report, our judgment relating to, among other things, future results of operations, growth plans, sales, capital requirements and general industry and business conditions applicable to us. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.
OVERVIEW
Since our inception, we have played a significant role in the digital distribution revolution that continues to transform the media landscape. In addition to our pioneering role in transitioning approximately 12,000 movie screens from traditional analog film prints to digital distribution, we have become a leading distributor of independent content, both through organic growth and acquisitions. We distribute digital and physical products for major brands such as the Hallmark Channel, Televisa, ITV, Nelvana, ZDF, Konami, NFL, NHL and Aniplex. We collaborate with producers, international and domestic content creators of movies, television series and short form content to market, source, curate and distribute quality content to targeted audiences through (i) existing and emerging digital home entertainment platforms, including but not limited to, Apple, Amazon Prime, Netflix, Hulu, Xbox, Tubi, Roku, Pluto TV, and cable video-on-demand (“VOD”), and (ii) physical goods, including DVD and Blu-ray Discs, to Walmart, Target, Amazon and others.
We report our financial results in two primary segments as follows: (1) cinema equipment business and (2) content and entertainment business (“Content & Entertainment” or “CEG”). The cinema equipment business segment consists of the non-recourse, financing vehicles and administrators for our digital cinema equipment (the “Systems”) installed in movie theatres throughout North America and several international countries. It also provides fee-based support to over 4,609 movie screens as well as directly to exhibitors and other third-party customers in the form of monitoring, billing, collection and verification services. Our Content & Entertainment segment is a market leader in: (1) ancillary market aggregation and distribution of entertainment content and (2) branded and curated over-the-top (“OTT”) digital network business providing entertainment channels and applications.
Beginning in December 2015, certain of our cinema equipment began to reach the conclusion of their 10-year deployment payment period with certain distributors and, therefore, Virtual Print Fees (“VPF”) revenues ceased to be recognized on such Systems, related to such distributors. Furthermore, because the Phase I Deployment installation period ended in November 2007, a majority of the VPF revenue associated with the Phase I Deployment Systems has ended. The reduction in VPF revenue on cinema equipment business systems approximately coincided with the conclusion of certain of our non-recourse debt obligations and, therefore, the reduced cash outflows related to such non-recourse debt obligations partially offset the reduced VPF revenue since November 2017.
Under the terms of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive one-year terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we typically pursue the sale of the Systems to such exhibitors. Cinedigm recognizes revenue once the customer takes possession of the systems and is predicated on Cinedigm’s receipt of sale proceeds. Such sales were originally contemplated as the conclusion of the digital cinema deployment plan.
We are structured so that our cinema equipment business segment operates independently from our Content & Entertainment business. As of December 31, 2021, we had no non-recourse outstanding debt principal that relates to, and is serviced by, our cinema equipment business. We had no outstanding debt principal, as of December 31, 2021 that is attributable to our Content & Entertainment segment and Corporate.
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Risks and Uncertainties
The COVID-19 pandemic and related economic repercussions created significant volatility and uncertainty impacting the Company’s results for the period. As part of our Content & Entertainment business, the Company sells DVDs and Blu-ray discs at brick-and-mortar stores. With the closure of non-essential retail stores beginning in the spring of 2020, the sale of physical discs through our retail partners declined although this was partially offset by digital rentals and purchases.
As part of our Cinema Equipment business, the Company earns revenue when movies are exhibited in theatres. As vaccines became readily available and COVID-19 cases decreased, major studios continued to release tentpole films in the theatrical markets as box office results steadily showed improvement in the three months ending December 31, 2021. However, the number of wide releases remains below pre-pandemic levels in this quarter as studios continue to shuffle release dates and test theatrical windows. The Canadian government tightened Movie Theatre restrictions amid a Covid surge due to the Omicron variant as well as shuttering all Quebec theatres during this quarter. Movie theatres in the U.S. remained open and continued to follow NATO CinemaSafe protocols in an effort to help reinforce consumer confidence in the safety of the theatrical moviegoing experience
Longer term, there may be a shift in consumer preference towards digital consumption over theatrical viewing. Studios may reduce their theatrical slates to tentpoles and certain genres releasing other content directly on their own streaming services first. If fewer movies are released theatrically, this shift to digital viewing reduces revenue opportunities for virtual print fees and sales of digital cinema equipment. While the Company has been encouraged by the pace of mass vaccinations, spikes or the emergence of new variants could require future closures, which impact the Cinema Equipment business.
In connection with the CEG business, if larger branded companies choose to make their content available earlier on their own streaming platforms, this could limit our ability to monetize this content on a transactional digital basis, as consumers can access it via the company’s own streaming platform such as Hallmark Movies Now. However, most content suppliers including filmmakers and producers, do not have their own streaming platforms and rely on us for distribution through our digital home entertainment business and OTT digital networks. As a result, this risk is limited, and our digital distribution capabilities and digital networks provide us with the opportunity to take advantage of this consumer shift towards digital consumption.
Over the first year and a half of the COVD-19 pandemic, film and TV production slowed-down and independent producers and filmmakers had to either suspend or delay their productions due to rising infection rates and the high costs of appropriate COVID-19 production protocols. As a result, there are fewer available films to acquire, so our pipeline for content from completed films and co-productions has been negatively impacted. In addition, with the rise of new variants, productions may be at risk again of shutting down, being delayed or having prohibitive COVID-compliant costs which would further limit available content to acquire.
The COVID-19 pandemic has also resulted in an acceleration of cord-cutting, and, as more consumers move away from cable and satellite, this could lead to a decrease in cable/satellite TV VOD revenues, as well as a decrease in licensing fees as Pay One window budgets shift from licensing and towards originals. However, given the overall shift towards digital consumption, these risks may be offset by increased revenues from transactional, subscription and ad supported/FAST platforms, including our own owned and operated digital network business.
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Liquidity
We have incurred net losses historically and have an accumulated deficit of $469.7 million and our working capital is $2.9 million as of December 31, 2021. We may continue to generate net losses for the foreseeable future. In addition, we have had debt-related contractual obligations. Upon a series of payments between April 30 and July 9, 2021, the Company paid in full the Prospect Loan (as defined below) non-recourse debt amount by paying an aggregate principal amount of $7.8 million. As of December 31, 2021 there was $0 million principal outstanding and there was no availability under the Credit Facility which expired on September 28, 2021. Net cash provided by operating activities for the nine months ended December 31, 2021 was $4.7 million. Based on these conditions and the Company´s financing strategies, the Company entered into the transactions described below:
Capital Raises
On February 2, 2021, the Company entered into a securities purchase agreement with a single institutional investor for the purchase and sale of 5,600,000 shares of our Class A common stock, par value $0.001 per share (the “Common Stock”) at a purchase price of $1.25 per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3 which was declared effective by the Securities and Exchange Commission on July 10, 2020 (File No. 333-239710) (the “2020 Shelf Registration Statement”) and an applicable prospectus supplement. The closing of the sale occurred on February 5, 2021. The aggregate gross proceeds for the sale were approximately $7.0 million. The net proceeds to the Company from the sale, after deducting the fees of the placement agent but before paying the Company’s estimated offering expenses, was approximately $6.5 million.
In July 2020, we entered into an At-the-Market sales agreement (the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”) and B. Riley FBR, Inc. (“B. Riley” and, together with A.G.P., the “Sales Agents”), pursuant to which the Company may offer and sell, from time to time, through the Sales Agents, shares of Common Stock at the market prices prevailing on Nasdaq at the time of the sale of such shares. The Company is not obligated to sell any shares under the ATM Sales Agreement. Any sales of shares made under the ATM Sales Agreement will be made pursuant to the 2020 Shelf Registration Statement for an aggregate offering price of up to $30 million. During the quarter ended December 31, 2021, we did not sell any shares of Common Stock under the ATM Sales Agreement. The 2020 Shelf Registration Statement is unavailable to us, and accordingly we cannot sell any shares of Common Stock under the ATM Sales Agreement, until September 1, 2022.
On July 16, 2020, the Company entered into a securities purchase agreement with certain investors for the purchase and sale of 7,213,334 shares of Class A common stock, par value $0.001 per share, at a purchase price of $1.50 per share, in a registered direct offering, pursuant to the 2020 Shelf Registration Statement and an applicable prospectus supplement. The closing of the sale occurred on July 20, 2020. The aggregate gross proceeds for the sale was approximately $10.8 million. The net proceeds to the Company from the sale, after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, is approximately $10.1 million.
On May 20, 2020, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain investors (the “Investors”) for the purchase and sale of 10,666,666 shares of the Class A common stock, at a purchase price of $0.75 per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3 which was declared effective by the Securities and Exchange Commission on May 14, 2020 (File No. 333-238183) and an applicable prospectus supplement. The closing of the sale occurred on May 22, 2020. The aggregate gross proceeds for the sale was $8.0 million. The net proceeds to the Company from the sale, after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, were approximately $7.1 million.
As of December 31, 2021, there is still approximately $38.0 million remaining unsold under the 2020 Shelf Registration Statement.
Sale of Cinematic Equipment
On March 17, 2021, the Company entered into two separate agreements for the sale of cinematic equipment to American Multi-Cinema, Inc. (“AMC”), The agreements included the sale in tranches of a total of 2,369 cinematic projectors starting in March 2021 and continuing through January 2023 for total cash consideration of $10.8 million. Through December 31, 2021, the Company recognized aggregate revenue for $9.1 million. A portion of the total proceeds were used to paydown the remaining outstanding balance of the Prospect Loan notes payable.
Equity Investment in a Related Party
On December 27, 2019, the Company entered into, and on February 14, 2020 amended, (see Note 2 – Summary of Significant Accounting Policies), a stock purchase agreement (as so amended, the “Starrise Stock Purchase Agreement”) with BeiTai Investment LP (“BeiTai”), a related party for accounting purposes of Cinedigm and Aim Right Ventures Limited (“Aim Right”), two shareholders of Starrise Media Holdings Limited, a leading Chinese entertainment company (“Starrise”), to buy from them an aggregate of 410,901,000 outstanding Starrise ordinary shares (the “Starrise Share Acquisition”). On February 14, 2020, the Company purchased 162,162,162 of the Starrise ordinary shares from BeiTai and issued BeiTai 21,646,604 shares of Common Stock in consideration therefor. The Starrise shares received were valued at approximately $25 million and the Company issued shares that were valued at approximately $11.2 million. On April 10, 2020, the Company, in accordance with the terms of the Starrise Stock Purchase Agreement, terminated its obligation to purchase Starrise ordinary shares from Aim Right under the Starrise Stock Purchase Agreement.
32
On April 10, 2020, the Company entered into another stock purchase agreement (the “April Starrise Stock Purchase Agreement”) with five (5) shareholders of Starrise – Bison Global Investment SPC – Bison Global No. 1 SP, Huatai Investment LP, Antai Investment LP, Mingtai Investment LP and Shangtai Asset Management LP – all of which are related parties to the Company, to buy an aggregate of 223,380,000 outstanding Starrise ordinary shares from them and for the Company to issue to them an aggregate of 29,855,081 shares of Common Stock as consideration therefor (the “April Starrise Share Acquisition”). On April 15, 2020, the April Starrise Share Acquisition was consummated and this transaction was also recorded as an equity investment in Starrise.
Starrise’s ordinary shares (HK 1616) are listed on the main board of the Stock Exchange of Hong Kong Limited. Based on the closing price of HKD 0.159 per share on February 11, 2022, calculated at an exchange rate of 7.8 Hong Kong Dollars to 1 US dollar, the market value of Cinedigm’s ownership in Starrise ordinary shares was approximately $7.4 million.
Borrowings
On June 22, 2021, the maturity date of the East West Credit Facility (as defined in Note 5 - Notes Payable) with East West Bank was extended from June 30, 2021 to September 28, 2021 and was not extended.
On April 15, 2020, the Company received $2.2 million from East West Bank, the Company’s existing lender, pursuant to the Paycheck Protection Program (the “PPP Loan”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 10, 2022 (the “PPP Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are due within the initial six months of the PPP Loan. The interest accrued during the initial six-month period is due and payable, together with the principal, on the PPP Maturity Date. The Company used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts are intended to be eligible for forgiveness, subject to the provisions of the CARES Act and could be subject to repayment. On July 7, 2021, the Company received notification from the Lender that the U.S. Small Business Administration had approved the Company’s PPP Loan forgiveness application for the entire PPP Loan amount and accrued interest effective as of June 30, 2021. The forgiveness of the PPP Loan was recognized as a gain of $2.2 million during the Company’s fiscal quarter ending June 30, 2021.
Upon a series of payments between April 30 and July 9, 2021, the Company paid in full the Prospect Loan (as defined in Note 5 – Notes Payable) outstanding non-recourse debt amount by paying an aggregate principal amount of $7.8 million. Pre-payment of the Prospect Loan was permissible without penalty.
Common Stock Purchase Agreement
In October 2021, we entered into a Common Stock Purchase Agreement (the “Equity Line Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with B. Riley Principal Capital, LLC (“B. Riley Principal Capital”). Pursuant to the Equity Line Purchase Agreement, the Company has the right to sell to B. Riley Principal Capital up to the lesser of (i) $50,000,000 of newly issued shares of Common Stock and (ii) the Exchange Cap (as defined below) (subject to certain conditions and limitations), from time to time during the 24-month period from and after the October 21, 2021. Sales of Common Stock pursuant to the Equity Line Purchase Agreement, and the timing of any sales, are solely at the option of the Company, and the Company is under no obligation to sell any securities to B. Riley Principal Capital under the Equity Line Purchase Agreement. As consideration for B. Riley Principal Capital’s commitment to purchase shares of Common Stock at the Company’s direction upon the terms and subject to the conditions set forth in the Equity Line Purchase Agreement, upon execution of the Equity Line Purchase Agreement, the Company issued 210,084 shares of Common Stock to B. Riley Principal Capital (the “Commitment Shares”). The purchase price of the shares of Common Stock that we elect to sell to B. Riley Principal Capital pursuant to the Equity Line Purchase Agreement will be determined by reference to the volume weighted average price of the Common Stock (“VWAP”) during the applicable purchase date, less a fixed 5% discount to such VWAP. Pursuant to the Registration Rights Agreement, the Company filed a Registration Statement on Form S-1 that was declared effective by the Securities and Exchange Commission on October 21, 2021 (File No. 333-260210) for the resale by B. Riley Principal Capital of up to 25,210,084 shares of Common Stock (including the Commitment Shares) acquired pursuant to the Equity Line Purchase Agreement. During October and November 2021, we sold 5,300,000 shares of Common Stock under the Equity Line Purchase Agreement. Net proceeds from such sales totaled $12.4 million.
We believe the combination of: (i) our cash and cash equivalent balances at December 31, 2021 and (ii) expected cash flows from operations, as well as liquidity for our operational and capital needs, for twelve months from the filing of this report. Our capital requirements will depend on many factors, and we may need to use capital resources and obtain additional capital. Failure to generate additional revenues, obtain additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations and liquidity.
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Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 2 - Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, Financial Statements and Supplementary Data, of this Quarterly Report on Form 10-Q. Management believes that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our board of directors.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation expense is recorded using the straight-line method over the estimated useful lives of the respective assets as follows:
| Computer equipment and software | 3-5 years | |
| Internal use software | 5 years | |
| Digital cinema projection systems | 10 years | |
| Machinery and equipment | 3-10 years | |
| Furniture and fixtures | 3-6 years |
Leasehold improvements are being amortized over the shorter of the lease term or the estimated useful life of the improvement. Maintenance and repair costs are charged to expense as incurred. Major renewals, improvements and additions are capitalized.
Software developed or purchased for internal use by the Company is capitalized and amortized over its estimated useful life. Changes in these estimates could result in impairment in the value of the asset.
Useful lives are determined based on an estimate of either physical or economic obsolescence, or both. During the three and nine months ended December 31, 2021 and 2020, we have neither made any revisions to estimated useful lives, nor recorded any impairment charges on our property, equipment and internal use software.
FAIR VALUE ESTIMATES
Goodwill, Finite-Lived Assets and Long-Lived Assets
We evaluate our goodwill for impairment in the fourth quarter of each fiscal year (as of March 31), or whenever events or changes in circumstances indicate the fair value of a reporting unit is below its carrying amount. The determination of whether or not goodwill has become impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the value of our reporting units. Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current economic indicators and market conditions, and assumptions about our strategic plans with regard to our operations. To the extent additional information arises, market conditions change or our strategies change, it is possible that the conclusion regarding whether goodwill is impaired could change and result in future goodwill impairment charges that could have a material adverse effect on our consolidated financial position or results of operations.
The Company has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or to perform the quantitative impairment test.
The quantitative test involves comparing the estimated fair value of a reporting unit with its respective book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired. If, however, the fair value of the reporting unit is less than book value, an impairment loss is recognized in an amount equal to the excess.
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During the three and nine months ended December 31, 2021 and 2020, there were no impairment charges recorded on goodwill. In 2021, we elected to conduct a qualitative goodwill assessment and in 2020 we conducted a quantitative goodwill assessment. In determining fair value, we used various assumptions, including expectations of future cash flows based on projections or forecasts derived from analysis of business prospects, economic or market trends and any regulatory changes that may occur. We estimated the fair value of the reporting unit using a net present value methodology, which is dependent on significant assumptions related to estimated future discounted cash flows, discount rates and tax rates. Certain of the estimates and assumptions that we used in determining the value of our CEG reporting unit are discussed in Note 2 - Summary of Significant Accounting Policies.
We review the recoverability of our long-lived assets and finite-lived intangible assets, when events or conditions occur that indicate a possible impairment exists. Determining whether impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the asset’s residual value, if any. The assessment for recoverability is based primarily on our ability to recover the carrying value of its long-lived and finite-lived assets from expected future undiscounted net cash flows. If the total of expected future undiscounted net cash flows is less than the total carrying value of the assets the asset is deemed not to be recoverable and possibly impaired. We then estimate the fair value of the asset to determine whether an impairment loss should be recognized. An impairment loss will be recognized if the asset’s fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted cash flows.
REVENUE RECOGNITION
We determine revenue recognition by:
| ● | identifying the contract, or contracts, with the customer; |
| ● | identifying the performance obligations in the contract; |
| ● | determining the transaction price; |
| ● | allocating the transaction price to performance obligations in the contract; and |
| ● | recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services. |
We recognize revenue in the amount that reflects the consideration we expect to receive in exchange for the services provided, sales of physical products (e.g., DVDs and Blu-ray Discs) or when the content is available for subscription on the digital platform or available on the point-of-sale for transactional and video on demand services which is when the control of the promised products and services is transferred to our customers and our performance obligations under the contract have been satisfied. Revenues that might be subject to various taxes are recorded net of transaction taxes assessed by governmental authorities such as sales value-added taxes and other similar taxes.
Payment terms and conditions vary by customer and typically provide net 30 to 90 day terms. We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and payment for that product or service will be one year or less. We have in the past entered into arrangements in connection with activation fees due from our System deployments that had extended payment terms. The outstanding balances on these arrangements are insignificant and hence the impact of significant financing would be insignificant.
Cinema Equipment Business
Our Cinema Equipment Business consists of financing vehicles and administrators for 1,631 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 2,978 Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”).
We retain ownership of our digital cinema equipment (the “Systems”) and the residual cash flows related to the Systems in Phase I Deployment after the end of the 10-year deployment payment period.
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For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.
The Cinema Equipment Business also provides monitoring, data collection, serial data verification and management services to this segment, as well as to exhibitors who purchase their own equipment, in order to collect virtual print fees (“VPFs”) from motion picture studios and distributors and ACFs from alternative content providers, and to distribute those fees to theatrical exhibitors (collectively, “Services”).
VPFs are earned, net of administrative fees, pursuant to contracts with movie studios and distributors, whereby amounts are payable by a studio to Phase I Deployment and to Phase II Deployment when movies distributed by the studio are displayed on screens utilizing our Systems installed in movie theatres. VPFs are earned and payable to Phase I Deployment based on a defined fee schedule until the end of the VPF term. One VPF is payable for every digital title initially displayed per System. The amount of VPF revenue is dependent on the number of movie titles released and displayed using the Systems in any given accounting period. VPF revenue is recognized in the period in which the digital title first plays on a System for general audience viewing in a digitally equipped movie theatre, as Phase I Deployment’s and Phase II Deployment’s performance obligations have been substantially met at that time.
Phase II Deployment’s agreements with distributors require the payment of VPFs, according to a defined fee schedule, for ten years from the date each system is installed; however, Phase II Deployment may no longer collect VPFs once “cost recoupment,” as defined in the contracts with movie studios and distributors, is achieved. Cost recoupment will occur once the cumulative VPFs and other cash receipts collected by Phase II Deployment have equaled the total of all cash outflows, including the purchase price of all Systems, all financing costs, all “overhead and ongoing costs”, as defined, and including service fees, subject to maximum agreed upon amounts during the three-year rollout period and thereafter. Further, if cost recoupment occurs before the end of the eighth contract year, the studios will pay us a one-time “cost recoupment bonus.” The Company evaluated the constraining estimates related to the variable consideration, i.e., the one-time bonus and determined that it is not probable to conclude at this point in time that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is subsequently resolved.
Under the terms of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive one-year terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we typically pursue the sale of the Systems to such exhibitors. Cinedigm recognizes revenue once the customer takes possession of the systems and is predicated on Cinedigm’s receipt of sale proceeds. Such sales were originally contemplated as the conclusion of the digital cinema deployment plan. Total system sales revenue recognized were $1.3 million and $66 thousand, during the three months ended December 31, 2021 and 2020, respectively. Total system sales revenue recognized were $9.1 million and $157 thousand, during the nine months ended December 31, 2021 and 2020, respectively.
Revenues earned in connection with up front exhibitor contributions are deferred and recognized over the expected cost recoupment period.
Exhibitors who purchased and own Systems using their own financing in 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.
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The Cinema Equipment Business earns an administrative fee of approximately 5% of VPFs collected and, in addition, earns an incentive service fee equal to 2.5% of the VPFs earned by Phase 1 DC. This administrative fee is related to the collection and remittance of the VPF’s and the performance obligation is satisfied at that time the related VPF fees are due which is at the time the movies are displayed on screens utilizing our Systems installed in movie theatres. The service fees are recognized as a point in time revenue when the corresponding VPF fees are due from the movie studios and distributors.
Content & Entertainment Business
CEG earns fees for the distribution of content in the home entertainment markets via several distribution channels, including digital, video on demand (“VOD” or “OTT Streaming and Digital”), and physical goods (e.g., DVDs and Blu-ray Discs) (“Physical Revenue” or “Base Distribution Business”). Fees earned are typically a percentage based on the net amounts received from our customers. Depending upon the nature of the agreements with the platform and content providers, the fee rate that we earn varies. The Company’s performance obligations include the delivery of content for transactional, subscription and ad supported/FAST on the digital platforms, and shipment of DVDs and Blu-ray Discs. Revenue is recognized at the point in time when the performance obligation is satisfied which is when the content is available for subscription on the digital platform, at the time of shipment for physical goods, or point-of-sale for transactional and VOD services as the control over the content or the physical title is transferred to the customer. The Company considers the delivery of content through various distribution channels to be a single performance obligation. Physical Revenue is recognized after deducting the reserves for sales returns and other allowances, which are accounted for as variable consideration.
Physical goods reserves for sales returns and other allowances are recorded based upon historical experience. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.
CEG also has contracts for the theatrical distribution of third party feature movies and alternative content. CEG’s distribution fee revenue and CEG’s participation in box office receipts is recognized at the time a feature movie and alternative content are viewed. CEG has the right to receive or bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded as a receivable at the time of execution, and all related distribution revenue is deferred until the third party feature movies’ or alternative content’s theatrical release date.
Principal Agent Considerations
We determine whether revenue should be reported on a gross or net basis for each revenue stream based on the transfer of control of goods and services. Key indicators that we use in evaluating gross versus net treatment include, but are not limited to, the following:
| ● | which party is primarily responsible for fulfilling the promise to provide the specified good or service; and |
| ● | which party has discretion in establishing the price for the specified good or service. |
Shipping and Handling
Shipping and handling costs are incurred to move physical goods (e.g., DVDs and Blu-ray Discs) to customers. We recognize all shipping and handling costs as an expense in cost of goods sold because we are responsible for delivery of the product to our customers prior to transfer of control to the customer.
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Credit Losses
We maintain reserves for potential credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.
Our CEG segment recognizes accounts receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that it recognizes revenue from a sale. Reserves for product returns and other allowances is variable consideration as part of the transaction price. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.
We record accounts receivable, long-term in connection with activation fees that we earn from Systems deployments that have extended payment terms. Such accounts receivable are discounted to their present value at prevailing market rates. The outstanding balances on these arrangements are insignificant and hence the impact of significant financing would be insignificant.
Contract Liabilities
We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability) when cash payments are received or due in advance of our performance, even if amounts are refundable.
Deferred revenue pertaining to our Content & Entertainment Business includes amounts related to the sale of DVDs with future release dates.
Deferred revenue relating to our Cinema Equipment Business pertains to revenues earned in connection with up front exhibitor contributions that are deferred and recognized over the expected cost recoupment period. It also includes unamortized balances in connection with activation fees due from the Systems deployments that have extended payment terms.
The ending deferred revenue balance as of December 31, 2021 was $0.3 million. For the three and nine months ended December 31, 2021 and 2020, respectively, the additions to our deferred revenue balance were primarily due to cash payments received or due in advance of satisfying performance obligations, while the reductions to our deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.
During the three months ended December 31, 2021 and 2020, $0.3 million and $1.2 million, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. During the nine months ended December 31, 2021 and 2020, $0.6 million and $2.5 million, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. As of December 31, 2021, the aggregate amount of contract revenue allocated to unsatisfied performance obligations was $0.3 million. This amount is to be recognized among January and February of 2022.
Participations and royalties payable
When we use third parties to distribute company owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers.
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BUSINESS COMBINATIONS
A business combination is an acquisition of business. Business combinations are accounted by allocating the fair value of the purchase price of the assets acquired and liabilities assumed.
Results of Operations for the Three Months Ended December 31, 2021 and 2020
Revenues
| For the Three Months Ended December 31, | ||||||||||||||||
| ($ in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||
| Cinema Equipment Business | $ | 2,060 | $ | 910 | $ | 1,150 | 126 | % | ||||||||
| Content & Entertainment | 12,024 | 9,044 | 2,980 | 33 | % | |||||||||||
| $ | 14,084 | $ | 9,954 | $ | 4,130 | 41 | % | |||||||||
The revenues in the Content & Entertainment Business segment increased by 33% for the three months ended December 31, 2021 compared to the three months ended December 31, 2020. The increase is attributed to organic growth and the addition of new streaming channels. In addition, the Company deployed new advertising technology from our streaming partner Amagi, which had a material impact on the Company’s advertising fill and click-per-thousand impression (“CPM”) rates. The revenues in the Cinema Equipment Business segment increased by 126% for the three months ended December 31, 2021 compared to the three months ended December 31, 2020, primarily due to the terms of ongoing digital projector sales to exhibitors in the Cinedigm Equipment Business deployments.
Direct Operating Expenses
| For the Three Months Ended December 31, | ||||||||||||||||
| ($ in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||
| Cinema Equipment Business | $ | 139 | $ | 150 | $ | (11 | ) | (7 | )% | |||||||
| Content & Entertainment | 6,320 | 4,235 | 2,085 | 49 | % | |||||||||||
| $ | 6,459 | $ | 4,385 | $ | 2,074 | 47 | % | |||||||||
The decrease in direct operating expenses in the three months ended December 31, 2021 for the Cinema Equipment Business compared to the prior year period was primarily due to a decrease in property tax liabilities as assets were sold. The increase in direct operating expenses in the three months ended December 31, 2021 for the Content & Entertainment Business compared to the prior year period was primarily due to significant increase in revenue share to the OTT managed channels due to continued growth in revenue and distribution of $1,787 thousand as well as additive owned channel expense for Fandor, Screambox and Bloody Disgusting of $153 thousand.
Selling, General and Administrative Expenses
| For the Three Months Ended December 31, | ||||||||||||||||
| ($ in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||
| Cinema Equipment Business | $ | 496 | $ | 524 | $ | (28 | ) | (5 | )% | |||||||
| Content & Entertainment | 3,701 | 2,244 | 1,457 | 65 | % | |||||||||||
| Corporate | 3,539 | 2,593 | 946 | 36 | % | |||||||||||
| $ | 7,736 | $ | 5,361 | $ | 2,375 | 44 | % | |||||||||
Selling, general and administrative expenses for the three months ended December 31, 2021 increased by $2.4 million primarily due to a $2.5 million increase in bonus incentive expense, additional personnel and stock-based compensation to management and employees, partially offset by $0.1 million less legal expense and $0.1 million less computer expense.
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Bad Debt expense
The bad debt benefit recovery was $378 thousand and $70 thousand for the three months ended December 31, 2021 and 2020, respectively. These amounts are related to Cinema Equipment Business and Content & Entertainment accounts that are deemed uncollectable.
Depreciation and Amortization Expense on Property and Equipment
| For the Three Months Ended December 31, | ||||||||||||||||
| ($ in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||
| Cinema Equipment Business | $ | 196 | 706 | (510 | ) | (72 | )% | |||||||||
| Content & Entertainment | 138 | 108 | 30 | 28 | % | |||||||||||
| Corporate | 2 | 8 | (6 | ) | (75 | )% | ||||||||||
| $ | 336 | $ | 822 | $ | (486 | ) | (59 | )% | ||||||||
Depreciation and amortization expense decreased in our Cinema Equipment Business Segment as the majority of our digital cinema projection systems reached the conclusion of their ten-year useful lives during the year ended March 31, 2021, leading to a lower fixed asset balance to be depreciated in the three months ended December 31, 2021. Content & Entertainment depreciation and amortization expense is higher due to newly developed internal software programs placed in service and an increase in streaming-related content acquisitions.
Interest expense, net
| For the Three Months Ended December 31, | ||||||||||||||||
| ($ in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||
| Cinema Equipment Business | $ | — | $ | 629 | $ | (629 | ) | (100 | )% | |||||||
| Content & Entertainment | — | 9 | (9 | ) | (100 | )% | ||||||||||
| Corporate | 97 | 310 | (213 | ) | (69 | )% | ||||||||||
| $ | 97 | $ | 948 | $ | (851 | ) | (90 | )% | ||||||||
Interest expense in the Cinema Equipment Business segment decreased primarily as a result of satisfying debt balances compared to the prior period on the Prospect Loan. Interest expense in our Corporate segment decreased as a result of eliminating the loan balances from our Credit Facility.
Income Tax Benefit
We recorded income tax benefits of approximately $26 thousand and $0 for the three months ended December 31, 2021 and 2020, respectively.
Our effective tax rate for the three months ended December 31, 2021 and 2020 was 3.8% and 0%, respectively.
Adjusted EBITDA
We define Adjusted EBITDA to be earnings before interest, taxes, depreciation and amortization, other income, net, stock-based compensation and expenses, merger and acquisition costs, restructuring, transition and acquisitions expense, net, goodwill impairment, change in fair value on equity investment in Starrise and certain other items.
Consolidated Adjusted EBITDA (including the results of Cinema Equipment Business segment) for the three months ended December 31, 2021 increased by $434 thousand compared to the three months ended December 31, 2020. Adjusted EBITDA from our Cinema Equipment Business segment increased by $1.2 million primarily due to the terms of ongoing digital projector sales to related exhibitors in the Cinedigm deployments. Adjusted EBITDA from the Content & Entertainment business and Corporate segment decreased by $792 thousand for the three months ended December 31, 2021 compared to the three months ended December 31, 2020, due to the bonus incentive expense and additional headcount.
Adjusted EBITDA is not a measurement of financial performance under GAAP and may not be comparable to other similarly titled measures of other companies. We use Adjusted EBITDA as a financial metric to measure the financial performance of the business because management believes it provides additional information with respect to the performance of its fundamental business activities. For this reason, we believe Adjusted EBITDA will also be useful to others, including its stockholders, as a valuable financial metric.
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We present Adjusted EBITDA because we believe that Adjusted EBITDA is a useful supplement to net loss from continuing operations as an indicator of operating performance. We also believe that Adjusted EBITDA is a financial measure that is useful to both management and investors when evaluating our performance and comparing our performance with that of our competitors. We also use Adjusted EBITDA for planning purposes and to evaluate our financial performance because Adjusted EBITDA excludes certain incremental expenses or non-cash items, such as stock-based compensation charges, that we believe are not indicative of our ongoing operating performance.
We believe that Adjusted EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net loss from continuing operations and Adjusted EBITDA has been provided in the financial results. Adjusted EBITDA should not be considered as an alternative to income from operations or net loss from continuing operations as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, Adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.
Following is the reconciliation of our consolidated net loss to Adjusted EBITDA:
| For the Three Months Ended December 31, | ||||||||
| ($ in thousands) | 2021 | 2020 | ||||||
| Net loss | $ | (404 | ) | $ | (9,667 | ) | ||
| Add Back: | ||||||||
| Income tax expense (benefit) | (26 | ) | — | |||||
| Depreciation and amortization of property and equipment | 336 | 822 | ||||||
| Amortization of intangible assets | 695 | 597 | ||||||
| Loss on extinguishment of note payable | — | 540 | ||||||
| Interest expense, net | 97 | 948 | ||||||
| Change in fair value on equity investment in Starrise | (453 | ) | 6,751 | |||||
| Acquisition, integration and other expense | 107 | (66 | ) | |||||
| Recovery benefit of doubtful accounts | (378 | ) | — | |||||
| Stock-based compensation | 1,349 | 960 | ||||||
| Net income attributable to noncontrolling interest | 19 | 23 | ||||||
| Adjusted EBITDA | $ | 1,342 | $ | 908 | ||||
| Adjustments related to the Cinema Equipment Business | ||||||||
| Depreciation and amortization of property and equipment | $ | (196 | ) | $ | (706 | ) | ||
| Amortization of intangible assets | — | (8 | ) | |||||
| Stock-based compensation and expenses | — | — | ||||||
| Acquisition, integration and other expense | — | — | ||||||
| Provision for doubtful accounts | — | — | ||||||
| Other income | — | (32 | ) | |||||
| Income from operations | (1,483 | ) | 691 | |||||
| Adjusted EBITDA from non-cinema equipment business | $ | (337 | ) | $ | 853 | |||
Results of Operations for the Nine Months Ended December 31, 2021 and 2020
Revenues
| For the Nine Months Ended December 31, | ||||||||||||||||
| ($ in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||
| Cinema Equipment Business | $ | 11,544 | $ | 2,158 | $ | 9,386 | 435 | % | ||||||||
| Content & Entertainment | 27,658 | 20,996 | 6,662 | 32 | % | |||||||||||
| $ | 39,202 | $ | 23,154 | $ | 16,048 | 69 | % | |||||||||
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The revenues in the Content & Entertainment Business segment increased by 32% for the nine months ended December 31, 2021 compared to the nine months ended December 31, 2020. The increase is attributed to the addition of several new streaming channels, organic growth in existing channels, and an expansion of the Company’s distribution with new and existing Smart TV platforms. In addition, the Company deployed new advertising technology from our streaming partner Amagi, which had a material impact on the Company’s advertising fill and click-per-thousand impression (“CPM”) rates. The revenues in the Cinema Equipment Business segment increased by 435% for the nine months ended December 31, 2021 compared to the nine months ended December 31, 2020. Cinema Equipment Business segment increased primarily due to the terms of ongoing digital projector sales to related exhibitors in the Cinedigm deployments.
Direct Operating Expenses
| For the Nine Months Ended December 31, | ||||||||||||||||
| ($ in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||
| Cinema Equipment Business | $ | 560 | $ | 504 | $ | 56 | 11 | % | ||||||||
| Content & Entertainment | 13,863 | 10,890 | 2,973 | 27 | % | |||||||||||
| $ | 14,423 | $ | 11,394 | $ | 3,029 | 27 | % | |||||||||
The increase in direct operating expenses in the nine months ended December 31, 2021 for the Cinema Equipment Business compared to the prior year period was primarily due to an increase in property tax obligations in the beginning of the fiscal year for the Cinedigm owned projector assets. The increase in direct operating expenses in the nine months ended December 31, 2021 for the Content & Entertainment Business compared to the prior year period was primarily due to higher streaming and delivery costs driven by increases in revenue and distribution for managed channels, partially offset by a decrease in manufacturing and fulfillment of physical sales.
Selling, General and Administrative Expenses
| For the Nine Months Ended December 31, | ||||||||||||||||
| ($ in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||
| Cinema Equipment Business | $ | 1,356 | $ | 1,704 | $ | (348 | ) | (20 | )% | |||||||
| Content & Entertainment | 9,999 | 6,667 | 3,332 | 50 | % | |||||||||||
| Corporate | 9,583 | 6,998 | 2,585 | 37 | % | |||||||||||
| $ | 20,938 | $ | 15,369 | $ | 5,569 | 36 | % | |||||||||
Selling, general and administrative expenses for the nine months ended December 31, 2021 increased by $5.6 million primarily due to a $4.9 million increase in bonus incentive expense, additional personnel and stock-based compensation to management and employees, $0.5 million for legal and accounting fees related to securities reporting and consulting, and $0.2 million for remote-working equipment and computer expense.
Bad Debt expense
The bad debt benefit recovery was $418 thousand and $123 thousand for the nine months ended December 31, 2021 and 2020, respectively. These amounts are related to Cinema Equipment Business and Content & Entertainment accounts that are deemed uncollectable.
Depreciation and Amortization Expense on Property and Equipment
| For the Nine Months Ended December 31, | ||||||||||||||||
| ($ in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||
| Cinema Equipment Business | $ | 1,001 | 3,348 | (2,347 | ) | (70 | )% | |||||||||
| Content & Entertainment | 422 | 312 | 110 | 35 | % | |||||||||||
| Corporate | 2 | 31 | (29 | ) | (94 | )% | ||||||||||
| $ | 1,425 | $ | 3,691 | $ | (2,266 | ) | (61 | )% | ||||||||
Depreciation and amortization expense decreased in our Cinema Equipment Business Segment as the majority of our digital cinema projection systems reached the conclusion of their ten-year useful lives during the year ended March 31, 2021 leading to a lower fixed asset balance to be depreciated in the nine months ended December 31, 2021. Content & Entertainment depreciation and amortization expense is higher for the newly developed internal software programs placed in service this year and an increase in streaming-related content acquisitions.
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Interest expense, net
| For the Nine Months Ended December 31, | ||||||||||||||||
| ($ in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||
| Cinema Equipment Business | $ | 138 | $ | 1,830 | $ | (1,692 | ) | (92 | )% | |||||||
| Content & Entertainment | — | 9 | (9 | ) | (100 | )% | ||||||||||
| Corporate | 139 | 1,593 | (1,454 | ) | (91 | )% | ||||||||||
| $ | 277 | $ | 3,432 | $ | (3,155 | ) | (92 | )% | ||||||||
Interest expense in the Cinema Equipment Business segment decreased primarily as a result of eliminating debt balances compared to the prior period on the Prospect Loan. Interest expense in our Corporate segment decreased as a result of eliminating the loan balance from our Credit Facility, and other loans, in addition to the conversion of certain notes into shares of Class A common stock in the prior year period.
Income Tax Benefit
We recorded income tax benefits of approximately $576 thousand and $181 thousand for the nine months ended December 31, 2021 and 2020, respectively.
Our effective tax rate for the nine months ended December 31, 2021 and 2020 was negative 14.0% and 0.3%, respectively.
Adjusted EBITDA
We define Adjusted EBITDA to be earnings before interest, taxes, depreciation and amortization, other income, net, stock-based compensation and expenses, merger and acquisition costs, restructuring, transition and acquisitions expense, net, goodwill impairment, change in fair value on equity investment in Starrise and certain other items.
Consolidated Adjusted EBITDA (including the results of Cinema Equipment Business segment) for the nine months ended December 31, 2021 increased by $7.9 million compared to the nine months ended December 31, 2020. Adjusted EBITDA from our Cinema Equipment Business segment increased primarily due to the terms of ongoing digital projector sales to related exhibitors in the Cinedigm deployments. Adjusted EBITDA from the Content & Entertainment business and Corporate segment decreased by $1.7 million for the nine months ended December 31, 2021 compared to the nine months ended December 31, 2020, due to additional costs associated with the growth of streaming and digital business based on higher volume for streaming due to the pandemic and adding additional channels and content compared to the prior period.
Adjusted EBITDA is not a measurement of financial performance under GAAP and may not be comparable to other similarly titled measures of other companies. We use Adjusted EBITDA as a financial metric to measure the financial performance of the business because management believes it provides additional information with respect to the performance of its fundamental business activities. For this reason, we believe Adjusted EBITDA will also be useful to others, including its stockholders, as a valuable financial metric.
We present Adjusted EBITDA because we believe that Adjusted EBITDA is a useful supplement to net loss from continuing operations as an indicator of operating performance. We also believe that Adjusted EBITDA is a financial measure that is useful both to management and investors when evaluating our performance and comparing our performance with that of our competitors. We also use Adjusted EBITDA for planning purposes and to evaluate our financial performance because Adjusted EBITDA excludes certain incremental expenses or non-cash items, such as stock-based compensation charges, that we believe are not indicative of our ongoing operating performance.
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We believe that Adjusted EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net loss from continuing operations and Adjusted EBITDA has been provided in the financial results. Adjusted EBITDA should not be considered as an alternative to income from operations or net loss from continuing operations as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, Adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.
Following is the reconciliation of our consolidated net loss to Adjusted EBITDA:
| For the Nine Months Ended December 31, | ||||||||
| ($ in thousands) | 2021 | 2020 | ||||||
| Net income (loss) | $ | 4,595 | $ | (56,103 | ) | |||
| Add Back: | ||||||||
| Income tax benefit | (576 | ) | (181 | ) | ||||
| Depreciation and amortization of property and equipment | 1,425 | 3,691 | ||||||
| Amortization of intangible assets | 2,238 | 1,778 | ||||||
| (Gain) loss on forgiveness of PPP loan and extinguishment of note payable | (2,178 | ) | 852 | |||||
| Interest expense, net | 277 | 3,432 | ||||||
| Change in fair value on equity investment in Starrise | (1,453 | ) | 42,377 | |||||
| Acquisition, integration and other expense | 283 | 1,539 | ||||||
| Recovery benefit of doubtful accounts | (418 | ) | — | |||||
| Stock-based compensation | 3,278 | 2,172 | ||||||
| Net income attributable to noncontrolling interest | 23 | 60 | ||||||
| Adjusted EBITDA | $ | 7,494 | $ | (383 | ) | |||
| Adjustments related to the Cinema Equipment Business | ||||||||
| Depreciation and amortization of property and equipment | $ | (1,001 | ) | $ | (3,348 | ) | ||
| Amortization of intangible assets | — | (23 | ) | |||||
| Stock-based compensation and expenses | — | — | ||||||
| Acquisition, integration and other expense | (11 | ) | (32 | ) | ||||
| Provision for doubtful accounts | 500 | — | ||||||
| Income from operations | (8,715 | ) | 3,736 | |||||
| Adjusted EBITDA from non-cinema equipment business | $ | (1,733 | ) | $ | (50 | ) | ||
Recent Accounting Pronouncements
See Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included herein.
Changes in our cash flows were as follows:
| For the Nine Months Ended December 31, | ||||||||
| ($ in thousands) | 2021 | 2020 | ||||||
| Net cash provided (used in) by operating activities | $ | 4,746 | $ | (16,776 | ) | |||
| Net cash (used in) provided by investing activities | (5,031 | ) | (110 | ) | ||||
| Net cash (used in) provided by financing activities | 2,636 | 28,799 | ||||||
| Net change in cash, cash equivalents, and restricted cash | $ | 2,352 | $ | 11,913 | ||||
As of December 31, 2021, we had cash and cash equivalents of $20.2 million.
As of December 31, 2020, we had cash, cash equivalents, and restricted cash balances of $27.2 million.
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For the nine months ended December 31, 2021, net cash provided by operating activities was primarily driven by income from operations, excluding non-cash expenses such as depreciation, amortization, provision for doubtful accounts and stock-based compensation, including other changes in working capital. Additionally, during the nine months ended December 31, 2021, the Company paid down $32.6 million to vendors at both Content & Entertainment and Corporate. Operating cash flows from Content& Entertainment are typically higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season, and lower in the other two quarters as we pay royalties on such revenues. In addition, we make advances on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twenty four months. For the nine months ended December 31, 2021 revenues from the sale of digital projections Systems was $9.1 million.
For the nine months ended December 31, 2020, net cash provided by operating activities was primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, offset by changes in working capital. Additionally, during the nine months ended December 31, 2020, the Company paid down $22.0 million to vendors at both the CEG and Corporate. Cash received from VPFs declined from the previous year period as Phase I Deployment Systems in our Cinema Equipment Business reached the conclusion of their deployment payment period with certain major studios. Changes in accounts receivable from our studio customers largely impact cash flows from operating activities and vary based on the seasonality of movie release schedules by the major studios. Operating cash flows from CEG are typically higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season, and lower in the other two quarters as we pay royalties on such revenues. In addition, we make advances on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twelve months. Cash flows were also impacted as a result of COVID-19, as during the nine months ended December 31, 2020, theatres in many major markets remained closed throughout the third quarter causing the majority of major studios to move wide releases scheduled for the three months ended December 31, 2020 to future dates; however, the theatrical window before the streaming debut was shortened or eliminated to accommodate the lack of theatrical venues. Because our digital cinema business earns a VPF when a movie is first played on a System, the temporary theatre closures resulting from the COVID-19 pandemic resulted in reduced revenues.
For the nine months ended December 31, 2021, cash flows used in investing activities consisted of purchases of property and equipment of $292 thousand and the purchase of two businesses of $4.8 million related to the business combination for FoundationTV and the asset acquisition of Bloody Disgusting (as defined below).
For the nine months ended December 31, 2020, cash flows used in investing activities consisted of proceeds from the sale of Starrise shares of $0.8 million, purchases of property and equipment of $0.3 million, the sale of property and equipment of $0.2 million, and the purchase of intangible assets of $0.7 million related to the asset acquisition.
For the nine months ended December 31, 2021, net cash flows from financing activities consisted $12.4 million received in connection with the issuance of Class A common Stock, and cash flow used for payments of the remaining outstanding balances of approximately $7.8 million in notes payable and $2.0 million in Credit Facility.
For the nine months ended December 31, 2020, cash flows provided by financing activities consisted of payments of approximately $22.4 million in notes payable, offset by $12.8 million from Credit Facility draw, $36.2 million received in connection with the issuance of Class A Common Stock and the exercise of warrants, and $2.2 million received pursuant to the Payment Protection Program of the Coronavirus Aid, Relief and Economic Security Act.
We may continue to generate net losses for the foreseeable future primarily due to depreciation and amortization, marketing and promotional activities and content acquisition and marketing costs. Certain of these costs, including costs of content acquisition, marketing and promotional activities, could be reduced if necessary. We feel we are adequately financed for at least the next twelve months; however, we may need to raise additional capital for working capital as deemed necessary. Failure to generate additional revenues, raise additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations or liquidity.
Seasonality
Revenues from our Cinema Equipment Business segment derived from the collection of VPFs from motion picture studios are seasonal, coinciding with the timing of releases of movies by the motion picture studios. Generally, motion picture studios release the most marketable movies during the summer and the winter holiday season. The unexpected emergence of a hit movie during other periods can alter the traditional trend. The timing of movie releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or any other quarter. While CEG benefits from the winter holiday season, we believe the seasonality of motion picture exhibition is becoming less pronounced as the motion picture studios are releasing movies somewhat more evenly throughout the year.
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Off-balance sheet arrangements
We are not a party to any off-balance sheet arrangements, other than CDF2 Holdings, LLC (“CDF2 Holdings”), our wholly-owned unconsolidated subsidiary. As discussed further in Note 3 - Other Interests to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q, we hold a 100% equity interest in CDF2 Holdings, which is an unconsolidated variable interest entity (“VIE”), which wholly owns Cinedigm Digital Funding 2, LLC; however, we are not the primary beneficiary of the VIE.
Impact of Inflation
The impact of inflation on our operations has not been significant to date. However, there can be no assurance that a high rate of inflation in the future would not have an adverse impact on our operating results.
Item 4. CONTROLS AND PROCEDURES
Definition and Limitations of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
Evaluation of Disclosure Controls and Procedures
The management of the Company, under the supervision and with the participation of our Chief Executive Officer and Chief Operating Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in the Exchange Act), as of December 31, 2021. Based on such evaluation, our principal executive officer and principal financial and accounting officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, on a timely basis, and (ii) accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures due to the material weaknesses identified in our internal control over financial reporting as of December 31, 2021.
Previously Reported Material Weakness on Internal Control Over Financial Reporting
In the 2021 Form 10-K, filed with the SEC on July 30, 2021, management concluded that our internal control over financial reporting was not effective as of March 31, 2021. In the evaluation, management identified material weaknesses in internal controls related to our financial close and reporting process and information and communication controls. Management also concluded that we did not have a sufficient complement of corporate personnel with appropriate levels of accounting and controls knowledge and experience commensurate with our financial reporting requirements to appropriately analyze, record and disclose accounting matters completely and accurately. As a result of this evaluation, management extensively used outside consultants who possessed the appropriate levels of accounting and controls knowledge.
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Remediation. Following identification of this control deficiency, management is implementing modifications to better ensure that the Company has appropriate and timely reviews on all financial reporting analysis. The material weakness in our internal control over financial reporting will not be considered remediated until these modifications are implemented, in operation for a sufficient period of time, tested, and concluded by management to be designed and operating effectively. In addition, as we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to address control deficiencies or determine to modify our remediation plan. Management will test and evaluate the implementation of these modifications to ascertain whether they are designed and operating effectively to provide reasonable assurance that they will prevent or detect a material misstatement in the Company’s financial statements.
The steps we took to address the deficiencies identified included:
| ● | we hired a new Chief Financial Officer; |
| ● | we hired a new Executive Vice-President (“EVP”) Accounting; |
| ● | we have engaged in efforts to restructure accounting processes and revise organizational structures to enhance accurate accounting and appropriate financial reporting; |
| ● | we have hired additional experienced accounting personnel in the corporate office to enhance the application of accounting standards and our financial closing and reporting process; |
| ● | we have engaged external advisors to provide financial accounting and reporting assistance; |
| ● | we will enhance information and communication processes through information technology solutions to ensure that information needed for financial reporting is accurate, complete, relevant and reliable, and communicated in a timely manner; and |
| ● | we have engaged external advisors to evaluate and document the design and operating effectiveness of our internal control over financial reporting and assist with the remediation and implementation of our internal control function. |
As noted above, we believe that, as a result of management’s in-depth review of its accounting processes, and the additional procedures management has implemented, there are no material inaccuracies or omissions of material fact in this Form 10-Q and, to the best of our knowledge, we believe that the consolidated financial statements in this Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows in conformity with GAAP.
We and our Board treat the controls surrounding, and the integrity of, our financial statements with the utmost priority. Management is committed to the planning and implementation of remediation efforts to address control deficiencies and any other identified areas of risk. These remediation efforts are intended to both address the identified material weakness and to enhance our overall financial control environment. We are committed to maintaining a strong internal control environment, and we believe the measures described above will strengthen our internal control over financial reporting and remediate the material weakness we have identified. Our remediation efforts have begun, and we will continue to devote significant time and attention to these remedial efforts. As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to strengthen controls or to modify the remediation plan described above, which may require additional implementation time.
Changes in Internal Control Over Financial Reporting
There have been no changes, other than our remediation efforts discussed above, in the Company’s internal control over financial reporting during the fiscal quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
There have been no material changes to the Risk Factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
EXHIBIT INDEX
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CINEDIGM CORP. | ||
| Date: February 14, 2022 | By: | /s/ Christopher J. McGurk |
| Christopher J. McGurk Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer) | ||
| Date: February 14, 2022 | By: | /s/ John K. Canning |
| John K. Canning Chief Financial Officer (Principal Financial Officer) | ||
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Exhibit 31.1
CINEDIGM CORP.
CERTIFICATION
I, Christopher J. McGurk, certify that:
| 1. | I have reviewed this Form 10-Q of Cinedigm Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: February 14, 2022 | By: | /s/ Christopher J. McGurk |
| Christopher J. McGurk Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer) |
Exhibit 31.2
CINEDIGM CORP.
CERTIFICATION
I, John K. Canning, certify that:
| 1. | I have reviewed this Form 10-Q of Cinedigm Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: February 14, 2022 | By: | /s/ John K. Canning |
| John K. Canning Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CINEDIGM CORP.
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with Form 10-Q of Cinedigm Corp. (the “Company”) for the period ended December 31, 2021 as filed with the SEC (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. |
| Date: February 14, 2022 | By: | /s/ Christopher J. McGurk |
| Christopher J. McGurk Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer) |
Exhibit 32.2
CINEDIGM CORP.
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with Form 10-Q of Cinedigm Corp. (the “Company”) for the period ended December 31, 2021 as filed with the SEC (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. |
| Date: February 14, 2022 | By: | /s/ John K. Canning |
| John K. Canning Chief Financial Officer (Principal Financial Officer) |
Condensed Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands |
Dec. 31, 2021 |
Mar. 31, 2021 |
|---|---|---|
| Preferred stock, shares authorized | 15,000,000 | 15,000,000 |
| Series A preferred stock | ||
| Preferred stock, shares authorized | 20 | 20 |
| Preferred stock, dividend rate | 10.00% | 10.00% |
| Preferred stock, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
| Preferred stock, shares issued | 7 | 7 |
| Preferred stock, shares outstanding | 7 | 7 |
| Preferred stock, Liquidation preference Value (in Dollars) | $ 3,648 | $ 3,648 |
| Class A Common Stock | ||
| Common stock, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 275,000,000 | 200,000,000 |
| Common stock, shares issued | 176,187,067 | 167,542,404 |
| Common stock, shares outstanding | 174,871,216 | 166,228,568 |
| Treasury stock | 1,315,851 | 1,313,836 |
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Statement of Comprehensive Income [Abstract] | ||||
| Net income (loss) | $ (404) | $ (9,667) | $ 4,595 | $ (56,103) |
| Other comprehensive (loss) income: foreign exchange translation | (14) | (76) | (33) | (186) |
| Comprehensive income (loss) | (418) | (9,743) | 4,562 | (56,289) |
| Less: comprehensive income attributable to noncontrolling interest | 19 | 23 | 23 | 60 |
| Comprehensive income (loss) attributable to controlling interests | $ (399) | $ (9,720) | $ 4,585 | $ (56,229) |
Consdensed Consolidated Statements of Changes in Equity (Unaudited) (Parentheticals) $ in Thousands |
3 Months Ended |
|---|---|
|
Sep. 30, 2020
USD ($)
| |
| Statement of Stockholders' Equity [Abstract] | |
| Issuance costs of class A common stock, net | $ 695 |
Nature of Operations and Liquidity |
9 Months Ended |
|---|---|
Dec. 31, 2021 | |
| Disclosure of Nature of Operations and Liquidity [Abstract] | |
| NATURE OF OPERATIONS AND LIQUIDITY | 1. NATURE OF OPERATIONS AND LIQUIDITY
Cinedigm Corp. (“Cinedigm,” the “Company,” “we,” “us,” or similar pronouns) was incorporated in Delaware on March 31, 2000. We are (i) a distributor and aggregator of independent movie, television and other short form content managing a library of distribution rights to thousands of titles and episodes released across digital, physical, theatrical, home and mobile entertainment platforms (“Streaming”) and (ii) a servicer of digital cinema assets (“Systems”) for over 4,609 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 over 4,609 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 nine-month period ended December 31, 2021, the sale of physical discs through our retail partners declined although this was partially offset by digital purchases of physical product and increases in streaming views. As part of our Cinema Equipment business, the Company earns revenue when movies are exhibited in theatres. Major studios continued to release tentpole films in the theatrical markets as box office results steadily showed improvement in the three months ended December 31, 2021. However, the number of wide releases remained below pre-pandemic levels during that quarter as studios continue to shuffle release dates and test theatrical windows. The Canadian government tightened Movie Theatre restrictions amid a Covid surge due to the Omicron variant as well as shuttering all Quebec theatres during that quarter. Movie theatres in the U.S. remained open and continued to follow NATO CinemaSafe protocols in an effort to help reinforce consumer confidence in the safety of the theatrical moviegoing experience.
Liquidity
We have incurred net losses historically and have an accumulated deficit of $469.7 million and our working capital is $2.9 million as of December 31, 2021. We may continue to generate net losses for the foreseeable future. In addition, we have had debt-related contractual obligations. Upon a series of payments between April 30 and July 9, 2021, the Company paid in full the Prospect Loan (as defined below) non-recourse debt amount by paying an aggregate principal amount of $7.8 million. As of December 31, 2021 there was $0 million principal outstanding and there was no availability under the Credit Facility which expired on September 28, 2021. Net cash provided by operating activities for the nine months ended December 31, 2021 was $4.7 million. Based on these conditions and the Company´s financing strategies, the Company entered into the transactions described below:
Sale of Cinematic Equipment
On March 17, 2021, the Company entered into two separate agreements for the sale of cinematic equipment to American Multi-Cinema, Inc. (“AMC”). The agreements included the sale in tranches of a total of 2,369 cinematic projectors starting in March 2021 and continuing through January 2023 for total cash consideration of $10.8 million. Through December 31, 2021, the Company recognized aggregate revenue for $9.1 million. A portion of the total proceeds were used to paydown the remaining outstanding balance of the Prospect Loan notes payable.
Equity Investment in a Related Party
On December 27, 2019, the Company entered into, and on February 14, 2020 amended, (see Note 2 - Summary of Significant Accounting Policies), a stock purchase agreement (as so amended, the “Starrise Stock Purchase Agreement”) with BeiTai Investment LP (“BeiTai”), a related party for accounting purposes of Cinedigm and Aim Right Ventures Limited (“Aim Right”), two shareholders of Starrise Media Holdings Limited, a leading Chinese entertainment company (“Starrise”), to buy from them an aggregate of 410,901,000 outstanding Starrise ordinary shares (the “Starrise Share Acquisition”). On February 14, 2020, the Company purchased 162,162,162 of the Starrise ordinary shares from BeiTai and issued BeiTai 21,646,604 shares of its Class A common stock, par value $.001 per share (the “Common Stock”) in consideration therefor. The Starrise shares received were valued at approximately $25 million and the Company issued shares that were valued at approximately $11.2 million. On April 10, 2020, the Company, in accordance with the terms of the Stock Purchase Agreement, terminated its obligation to purchase Starrise ordinary shares from Aim Right under the Starrise Stock Purchase Agreement.
On April 10, 2020, the Company entered into another stock purchase agreement (the “April Starrise Stock Purchase Agreement”) with five (5) shareholders of Starrise - Bison Global Investment SPC - Bison Global No. 1 SP, Huatai Investment LP, Antai Investment LP, Mingtai Investment LP and Shangtai Asset Management LP - all of which are related parties to the Company to buy an aggregate of 223,380,000 outstanding Starrise ordinary shares from them and for the Company to issue to them an aggregate of 29,855,081 shares of its Common Stock as consideration therefor (the “April Starrise Share Acquisition”). On April 15, 2020, the April Starrise Share Acquisition was consummated and this transaction was also recorded as an equity investment in Starrise.
Starrise’s ordinary shares (HK 1616) are listed on the main board of the Stock Exchange of Hong Kong Limited. Based on the closing price of HKD 0.159 per share on February 11, 2022, calculated at an exchange rate of 7.8 Hong Kong Dollars to 1 US dollar, the market value of Cinedigm’s ownership in Starrise ordinary shares was approximately $7.4 million.
Borrowings
On June 22, 2021, the maturity date of the East West Credit Facility (as defined in Note 5 - Notes Payable) with East West Bank was extended from June 30, 2021 to September 28, 2021 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 below) (subject to certain conditions and limitations), from time to time during the 24-month period from and after the October 21, 2021. Sales of Common Stock pursuant to the Equity Line Purchase Agreement, and the timing of any sales, are solely at the option of the Company, and the Company is under no obligation to sell any securities to B. Riley Principal Capital under the Equity Line Purchase Agreement. As consideration for B. Riley Principal Capital’s commitment to purchase shares of Common Stock at the Company’s direction upon the terms and subject to the conditions set forth in the Equity Line Purchase Agreement, upon execution of the Equity Line Purchase Agreement, the Company issued 210,084 shares of Common Stock to B. Riley Principal Capital (the “Commitment Shares”). The purchase price of the shares of Common Stock that we elect to sell to B. Riley Principal Capital pursuant to the Equity Line Purchase Agreement will be determined by reference to the volume weighted average price of the Common Stock (“VWAP”) during the applicable purchase date, less a fixed 5% discount to such VWAP. Pursuant to the Registration Rights Agreement, the Company filed a Registration Statement on Form S-1 that was declared effective by the Securities and Exchange Commission on October 21, 2021 (File No. 333-260210) for the resale by B. Riley Principal Capital of up to 25,210,084 shares of Common Stock (including the Commitment Shares) acquired pursuant to the Equity Line Purchase Agreement. During October and November 2021, we sold 5,300,000 shares of Common Stock under the Equity Line Purchase Agreement. Net proceeds from such sales totaled $12.4 million.
We believe the combination of: (i) our cash and cash equivalent balances at December 31, 2021 and (ii) expected cash flows from operations, as well as liquidity for our operational and capital needs, for twelve months from the filing of this report will be sufficient to satisfy our contractual obligations, as well as liquidity for our operational and capital needs, for twelve months from the filing of this report. Our capital requirements will depend on many factors, and we may need to use capital resources and obtain additional capital. Failure to generate additional revenues, obtain additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations and liquidity. |
Summary of Significant Accounting Policies |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
Our consolidated financial statements include the accounts of Cinedigm and its wholly-owned and majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Investments in which we do not have a controlling interest or are not the primary beneficiary, but have the ability to exert significant influence, are accounted for under the equity method of accounting. Noncontrolling interests for which we have been determined to be the primary beneficiary are consolidated and recorded as net loss attributable to noncontrolling interest. See Note 3 - Other Interests to the Consolidated Financial Statements for a discussion of our noncontrolling interests.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect the assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates include the adequacy of accounts receivable reserves, return reserves, inventory reserves, recovery of advances, assessment of goodwill impairment, long-lived and finite-lived assets impairment and estimated amortization lives, fair value for asset acquisitions and business combinations, valuation allowances for income taxes and stock awards. Actual results could differ from these estimates.
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
We consider all highly liquid investments with an original maturity of three months or less to be “cash equivalents.” We maintain bank accounts with major banks, which from time to time may exceed the Federal Deposit Insurance Corporation’s insured limits. We periodically assess the financial condition of the institutions and believe that the risk of any loss is minimal. Our Prospect Loan required that we maintain specified cash balances that are restricted to repayment of interest thereunder. See Note 5 - Notes Payable for information about our restricted cash balances.
Cash, cash equivalents, and restricted cash consisted of the following:
EQUITY INVESTMENT IN STARRISE, A RELATED PARTY
On February 14, 2020, the Company acquired an approximately 11.5% interest in Starrise, a leading publicly traded Chinese entertainment company whose ordinary shares are listed on the Stock Exchange of Hong Kong. The Company acquired such interest as a strategic investment and in a private transaction from a shareholder of Starrise that is related to our major shareholders. When we acquired the Starrise stock, our then-majority affiliated stockholders also maintained a significant beneficial interest in Starrise. Upon consummation of the transaction on February 14, 2020, the Company recorded an initial investment of approximately $25 million, which is the fair market value of the Starrise shares on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Company’s common stock of $11.2 million, valued as of the date of the issuance of the Common Stock. The difference in value of shares received in Starrise and shares issued by the Company was deemed as contributed capital and recorded in additional paid-in capital.
On April 10, 2020, the Company purchased an additional 15% interest in Starrise in a private transaction from shareholders of Starrise that are affiliated with the then-major shareholder of the Company. The Company recorded an additional equity investment of approximately $28.2 million, which is the fair market value of the Starrise shares on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Common Stock of $11.0 million, valued at the date of the issuance of the Common Stock. The difference in the value of shares received in Starrise and shares issued by the Company was deemed as contributed capital and recorded in additional paid-in capital. This transaction was also recorded as an equity investment in Starrise.
The Company has made an irrevocable election to apply the fair value accounting option under ASC 825-10, Financial Instruments, as it relates to its equity investment in Starrise. The Company’s investment in Starrise is marked to market and recorded at fair value. The stock is traded on the Hong Kong Stock exchange with readily available pricing that is classified as Level 1 in the fair value hierarchy. The Company has established a policy that consistently uses either the closing price of last active trades or the latest bid price when there is no active trades, unadjusted at the last day of each reporting period, as the most relevant and representative input to the Level 1 fair value measures of its investment holdings.
As of December 31, 2021 and March 31, 2021, the value of our equity investment in Starrise, using the readily determinable fair value inputs from the market pricing of the Stock Exchange of Hong Kong, was approximately $7.9 million and $6.4 million, respectively, resulting in a change in fair value of approximately $1.5 million and ($42.4) million for the nine months ended December 31, 2021 and 2020 respectively, on our consolidated statement of operations. On April 1 and May 5, 2021, the Company sold 80,000 and 600,000 Starrise ordinary shares, respectively for a total amount of $11 thousand. At December 31, 2021 and March 31, 2021, the Company owned 362,307,397 and 362,987,397 ordinary shares or 17% and 26% of Starrise, respectively.
NON-MONETARY TRANSACTIONS
During the three and nine months ended December 31, 2020, the Company entered into agreements with certain vendors to transfer 5,139,762 and 14,184,765 Starrise ordinary shares to satisfy outstanding liabilities with these vendors. Upon the sale of the Starrise shares by the vendors, with certain restrictions on sales unless the Company 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 December 31, 2020. There were no such transactions during the nine months ended December 31, 2021.
There was no gain or loss resulting from these transactions for the three and nine months ended December 31, 2021 and 2020.
ACCOUNTS RECEIVABLE
We maintain reserves for potential credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.
We record accounts receivable, long-term in connection with activation fees that we earn from our digital cinema equipment (the “Systems”) deployments that have extended payment terms. Such accounts receivable are discounted to their present value at prevailing market rate.
ADVANCES
Advances, which are recorded within prepaid and other current assets on the consolidated balance sheets, represent amounts prepaid to studios or content producers for which we provide content distribution services. We evaluate advances regularly for recoverability and record impairment charges for amounts that we expect may not be recoverable as of the consolidated balance sheet date. Impairments and accelerated amortization related to advances were $0.4 million and $0.3 million, respectively, for the three months ended December 31, 2021 and 2020. Impairments and accelerated amortization related to advances were $0.8 million and $0.3 million, respectively, for the nine months ended December 31, 2021 and 2020.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation expense is recorded using the straight-line method over the estimated useful lives of the respective assets as follows:
We capitalize costs associated with software developed or obtained for internal use when the preliminary project stage is completed, and it is determined that the software will provide significantly enhanced capabilities and modifications. These capitalized costs are included in property and equipment and include external direct cost of services procured in developing or obtaining internal-use software and personnel and related expenses for employees who are directly associated with, and who devote time to internal-use software projects. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended use. Once the software is ready for its intended use, the costs are amortized over the useful life of the software. Post-configuration training and maintenance costs are expensed as incurred.
Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the leasehold improvements. Repair and maintenance costs are charged to expense as incurred. Major renewals, improvements and additions are capitalized. Upon the sale or other disposition of any property and equipment, the cost and related accumulated depreciation and amortization are removed from the accounts and the gain or loss on disposal is included in the consolidated statements of operations.
FAIR VALUE MEASUREMENTS
The fair value measurement disclosures are grouped into three levels based on valuation factors:
Assets and liabilities measured at fair value on a recurring basis use the market approach, where prices and other relevant information are generated by market transactions involving identical or comparable assets or liabilities.
The equity investment in Starrise is in Hong Kong dollars and was translated into US dollars as of December 31, 2021 and March 31, 2021 at an exchange rate of 7.8 and 7.8 Hong Kong Dollars to 1 US Dollar, respectively. The fair value of this equity investment is measured by the unadjusted market pricing of Starrise on the Stock Exchange of Hong Kong.
The earnout consideration on purchase of Bloody Disgusting business (Note 4) is determined according to the probability-based method to the estimated the value of the earnout based on the premise that there are different probabilities to achieve different forecasts and therefore the defined earnout metric targets. Under this method, weighted-average earnout payments for each earnout period were estimated based on the probability of each forecast scenario. The resultant weighted-average earnout payments are discounted to a present value.
The following tables summarize the levels of fair value measurements of our financial assets and liabilities as of December 31, 2021 and March 31, 2021:
Our cash and cash equivalents, accounts receivable, unbilled revenue and accounts payable and accrued expenses are financial instruments and are recorded at cost in the consolidated balance sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature.
IMPAIRMENT OF LONG-LIVED AND FINITE-LIVED ASSETS
We review the recoverability of our long-lived assets and finite-lived intangible assets, when events or conditions occur that indicate a possible impairment exists. The assessment for recoverability is based primarily on our ability to recover the carrying value of our long-lived and finite-lived assets from expected future undiscounted net cash flows. If the total of expected future undiscounted net cash flows is less than the total carrying value of the asset, the asset is deemed not to be recoverable and possibly impaired. We then estimate the fair value of the asset to determine whether an impairment loss should be recognized. An impairment loss will be recognized if the asset’s fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted cash flows. During the three and nine months ended December 31, 2021 and 2020, no impairment charge was recorded from operations for long-lived assets or finite-lived assets.
GOODWILL
Goodwill is the excess of the purchase price paid over the fair value of the net assets of an acquired business. Goodwill is tested for impairment on an annual basis or more often if warranted by events or changes in circumstances indicating that the carrying value may exceed fair value, also known as impairment indicators.
Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current economic indicators and market conditions, and assumptions about our strategic plans with regard to its operations. To the extent additional information arises, market conditions change, or our strategies change, it is possible that the conclusion regarding whether our remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material effect on our consolidated financial position or results of operations.
The Company has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or to perform the quantitative impairment test.
No goodwill impairment charge was recorded in the nine months ended December 31, 2021 and 2020.
Gross amounts of goodwill and accumulated impairment charges that we have recorded are as follows:
REVENUE RECOGNITION
We determine revenue recognition by:
We recognize revenue in the amount that reflects the consideration we expect to receive in exchange for the services provided, sales of physical products (e.g., DVDs and Blu-ray Discs) or when the content is available for subscription on the digital platform or available on the point-of-sale for transactional and video on demand services which is when the control of the promised products and services is transferred to our customers and our performance obligations under the contract have been satisfied. Revenues that might be subject to various taxes are recorded net of transaction taxes assessed by governmental authorities such as sales value-added taxes and other similar taxes.
Payment terms and conditions vary by customer and typically provide net 30 to 90 day terms. We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and payment for that product or service will be one year or less.
Cinema Equipment Business
Our Cinema Equipment Business consists of financing vehicles and administrators for 1,631 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 2,978 Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”).
We retain ownership of our digital cinema equipment (the “Systems”) and the residual cash flows related to the Systems in Phase I Deployment after the end of the 10-year deployment payment period.
For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.
The Cinema Equipment Business also provides monitoring, data collection, serial data verification and management services to this segment, as well as to exhibitors who purchase their own equipment, in order to collect virtual print fees (“VPFs”) from motion picture studios and distributors and Alternative Content Fees (“ACFs”) from alternative content providers, and to distribute those fees to theatrical exhibitors (collectively, “Services”).
VPFs are earned, net of administrative fees, pursuant to contracts with movie studios and distributors, whereby amounts are payable by a studio to Phase I Deployment and to Phase II Deployment when movies distributed by the studio are displayed on screens utilizing our Systems installed in movie theatres. VPFs are earned and payable to Phase I Deployment based on a defined fee schedule until the end of the VPF term. One VPF is payable for every digital title initially displayed per System. The amount of VPF revenue is dependent on the number of movie titles released and displayed using the Systems in any given accounting period. VPF revenue is recognized in the period the title first plays for general audience viewing in a digital projector equipped movie theatre. The Phase 1 Deployment’s and Phase 2 Deployments performance obligations for revenue recognition are met at this time.
Phase II Deployment’s agreements with distributors require the payment of VPFs, according to a defined fee schedule, for ten years from the date each system is installed; however, Phase II Deployment may no longer collect VPFs once “cost recoupment,” as defined in the contracts with movie studios and distributors, is achieved. Cost recoupment will occur once the cumulative VPFs and other cash receipts collected by Phase II Deployment have equaled the total of all cash outflows, including the purchase price of all Systems, all financing costs, all “overhead and ongoing costs”, as defined, and including service fees, subject to maximum agreed upon amounts during the three-year rollout period and thereafter. Further, if cost recoupment occurs before the end of the eighth contract year, the studios will pay us a one-time “cost recoupment bonus.” The Company evaluated the constraining estimates related to the variable consideration, i.e., the one-time bonus and determined that it is not probable to conclude at this point in time that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is subsequently resolved.
Under the terms of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive one-year terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we typically pursue the sale of the Systems to such exhibitors. Cinedigm recognizes revenue once the customer takes possession of the Systems and Cinedigm received the sale proceeds. Such sales were originally contemplated as the conclusion of the digital cinema deployment plan. Total system sales revenue recognized was $1.3 million and $66 thousand, during the three months ended December 31, 2021 and 2020, respectively. Total system sales revenue recognized was $9.1 million and $157 thousand, during the nine months ended December 31, 2021 and 2020, respectively. Revenues earned in connection with up front exhibitor contributions are deferred and recognized over the expected cost recoupment period. Exhibitors who purchased and own Systems using their own financing in Phase II of the Cinema Equipment Business paid us an upfront activation fee of approximately $2.0 thousand per screen (the “Exhibitor-Buyer Structure”). Upfront activation fees were recognized in the period in which these Systems were delivered and ready for content, as we had no further obligations to the customer after that time and collection was reasonably assured. In addition, we recognize activation fee revenue of between $1.0 thousand and $2.0 thousand on Phase II Deployment Systems and for Systems installed by CDF2 Holdings, a related party, (See Note 3 - Other Interests) upon installation and such fees are generally collected upfront upon installation. Our services division manages and collects VPFs on behalf of exhibitors, for which it earns an administrative fee equal to 10% of the VPFs collected.
The Cinema Equipment Business earns an administrative fee of approximately 5% of VPFs collected and, in addition, earns an incentive service fee equal to 2.5% of the VPFs earned by Phase 1 DC. This administrative fee is related to the collection and remittance of the VPF’s and the performance obligation is satisfied at that time the related VPF fees are due which is at the time the movies are displayed on screens utilizing our Systems installed in movie theatres. The service fees are recognized as a point in time revenue when the corresponding VPF fees are due from the movie studios and distributors.
Content & Entertainment Business
CEG earns fees for the distribution of content in the home entertainment markets via several distribution channels, including digital, video on demand (“VOD” or “OTT Streaming and Digital”), and physical goods (e.g., DVDs and Blu-ray Discs) (“Physical Revenue” or “Base Distribution Business”). Fees earned are typically a percentage based on the net amounts received from our customers. Depending upon the nature of the agreements with the platform and content providers, the fee rate that we earn varies. The Company’s performance obligations include the delivery of content for transactional, subscription and ad supported/free ad-supported streaming TV (“FAST”) on the digital platforms, and shipment of DVDs and Blu-ray Discs. Revenue is recognized at the point in time when the performance obligation is satisfied, which is when the content is available for subscription on the digital platform, at the time of shipment for physical goods, or point-of-sale for transactional and VOD services as the control over the content or the physical title is transferred to the customer. The Company considers the delivery of content through various distribution channels to be a single performance obligation. Physical revenue is recognized after deducting the reserves for sales returns and other allowances, which are accounted for as variable consideration.
Physical goods reserved for sales returns and other allowances are recorded based upon historical experience. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.
CEG also has contracts for the theatrical distribution of third party feature movies and alternative content. CEG’s distribution fee revenue and CEG’s participation in box office receipts are recognized at the time a feature movie and alternative content are viewed. CEG has the right to receive or bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded as a receivable at the time of execution, and all related distribution revenue is deferred until the third party feature movies’ or alternative content’s theatrical release date.
Principal Agent Considerations
We determine whether revenue should be reported on a gross or net basis for each revenue stream based on the transfer of control of goods and services. Key indicators that we use in evaluating gross versus net treatment include, but are not limited to, the following:
Shipping and Handling
Shipping and handling costs are incurred to move physical goods (e.g., DVDs and Blu-ray Discs) to customers. We recognize all shipping and handling costs as an expense in cost of goods sold because we are responsible for delivery of the product to our customers prior to transfer of control to the customer.
Credit Losses
We maintain reserves for potential credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.
Our CEG segment recognizes accounts receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that it recognizes revenue from a sale. Reserves for product returns and other allowances is variable consideration as part of the transaction price. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.
We record accounts receivable, long-term in connection with activation fees that we earn from Systems deployments that have extended payment terms. Such accounts receivable are discounted to their present value at prevailing market rates.
Contract Liabilities
We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability) when cash payments are received or due in advance of our performance, even if amounts are refundable.
Deferred revenue pertaining to our Content & Entertainment Business includes amounts related to the sale of DVDs with future release dates.
Deferred revenue relating to our Cinema Equipment Business pertains to revenues earned in connection with up front exhibitor contributions that are deferred and recognized over the expected cost recoupment period. It also includes unamortized balances in connection with activation fees due from the Systems deployments that have extended payment terms.
The ending deferred revenue balance as of December 31, 2021 was $0.3 million. For the three and nine months ended December 31, 2021 and 2020, respectively, the additions to our deferred revenue balance were primarily due to cash payments received or due in advance of satisfying performance obligations, while the reductions to our deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.
During the three months ended December 31, 2021 and 2020, $0.3 million and $1.2 million, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. During the nine months ended December 31, 2021 and 2020, $0.6 million and $2.5 million, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. As of December 31, 2021, the aggregate amount of contract revenue allocated to unsatisfied performance obligations was $0.3 million. This amount is to be recognized during January and February of 2022.
Participations and royalties payable
When we use third parties to distribute company owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers.
Disaggregation of Revenue
The Company disaggregates revenue into different revenue categories for the Cinema Equipment and CEG Businesses. The Cinema Equipment Business revenue categories are: Phase I Deployment revenue, Phase II Deployment revenue, Services, and Digital System Sales, and the Content & Entertainment Business revenue categories are: Base Distribution Business and OTT Streaming and Digital.
The following tables present the Company’s revenue categories for the three and nine months ended December 31, 2021 and 2020 (in thousands):
DIRECT OPERATING COSTS
Direct operating costs consist of operating costs such as cost of goods sold, fulfillment expenses, shipping costs, property taxes and insurance on Systems, royalty expenses, impairments of advances, and marketing and direct personnel costs.
STOCK-BASED COMPENSATION
The Company issues stock-based awards to employees and non-employees, generally in the form of restricted stock, restricted stock units, stock appreciation rights and performance stock units. The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments, including grants of stock options and restricted stock units and modifications to existing stock options, to be recognized in the consolidated statements of operations and comprehensive loss based on their fair values. The Company measures the compensation expense of employee and nonemployee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost is recognized on a straight-line basis over the period during which the employee and nonemployee is required to provide service in exchange for the award. The fair values of options and stock appreciation rights are calculated as of the date of grant using the Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility and expected term. The Company’s estimates of these assumptions are primarily based on the trading price of the Company’s stock, historical data, peer company data and judgment regarding future trends and factors.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and tax credit carryforwards and for differences between the carrying amounts of existing assets and liabilities and their respective tax bases.
Valuation allowances are established when management is unable to conclude that it is more likely than not that some portion, or all, of the deferred tax asset will ultimately be realized. The Company is primarily subject to income taxes in the United States.
The Company accounts for uncertain tax positions in accordance with an amendment to ASC Topic 740-10, Income Taxes (Accounting for Uncertainty in Income Taxes), which clarified the accounting for uncertainty in tax positions. This amendment provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is “more-likely-than-not” to be sustained were it to be challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the “more-likely-than-not” threshold, the largest amount of tax benefit that is more than 50% likely to be recognized upon ultimate settlement with the taxing authority is recorded. The Company has no uncertain tax positions.
NET INCOME/LOSS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS
Basic and diluted net loss per common share has been calculated as follows:
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 nine months ended December 31, 2021, and therefore the impact of potentially dilutive common shares from outstanding stock options, stock appreciation rights, and warrants, totaling 3,603,491 shares for the nine months ended December 31, 2021, respectively, was included in the computations of diluted earnings per share. For the three months ended December 31, 2021, 12,088,473 potentially dilutive shares have been excluded from the diluted loss per share as their impact would have been antidilutive. We had a net loss for the three months ended December 31, 2021 and therefore no dilution as basic and diluted loss per share are the same for the period. The calculation of diluted net income per share for the nine months ended December 31, 2021 does not include the impact of 8,484,982 potentially dilutive shares relating to stock options, stock appreciation rights, and warrants as their impact would have been anti-dilutive as their exercise prices are above the Company’s average Common Stock price during the period.
We incurred net losses for the three and nine months ended December 31, 2020, and therefore the impact of potentially dilutive common shares from outstanding stock options and warrants, totaling 9,040,138 shares as of December 31, 2020, were excluded from the computations of loss per share as their impact would have been anti-dilutive.
COMPREHENSIVE INCOME (LOSS)
As of the three and nine months ended December 31, 2021 and 2020, comprehensive income (loss) consisted of net loss and foreign currency translation adjustments.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Adopted
On December 18, 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The update also simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance to improve consistent application. The amendment in this update is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted this guidance on April 1, 2021 and the adoption of this ASU did not have a material impact on our consolidated financial statements.
Not yet adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which provides new guidance regarding the measurement and recognition of credit impairment for certain financial assets. Such guidance will impact how the Company determines its allowance for estimated uncollectible receivables and evaluates its available-for-sale investments for impairment. ASU 2016-13 is effective for the Company in the first quarter of fiscal 2023. The Company is currently evaluating the effect that ASU 2016-13 will have on its consolidated financial statements and related disclosures. |
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Other Interests |
9 Months Ended |
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Dec. 31, 2021 | |
| Disclosure of Other Interests [Abstract] | |
| OTHER INTERESTS | 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 December 31, 2021 and March 31, 2021, our maximum exposure to loss, as it relates to the non-consolidated CDF2 Holdings entity, represents accounts receivable for service fees under a master service agreement with CDF2 Holdings. Such accounts receivable was $0.7 million and $0.3 million as of December 31, 2021 and March 31, 2021, respectively, which are included in accounts receivable, net on the accompanying consolidated balance sheets.
The accompanying Consolidated Statements of Operations include $0.5 million and $83 thousand of digital cinema servicing revenue from CDF2 Holdings for the nine months ended December 31, 2021 and 2020, respectively. The accompanying Consolidated Statements of Operations include $0.2 million and $47 thousand of digital cinema servicing revenue from CDF2 Holdings for the three months ended December 31, 2021 and 2020, respectively.
Total Stockholders’ Deficit of CDF2 Holdings at December 31, 2021 and March 31, 2021 was $52.9 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 December 31, 2021 and March 31, 2021 is carried at $0.
Majority Interest in CONtv
We own an 85% interest in CON TV, LLC, a worldwide digital network that creates original content, and sells and distributes on-demand digital content on the Internet and other consumer digital distribution platforms, such as gaming consoles, set-top boxes, handsets, and tablets. |
Business Combination |
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| Disclosure of Asset Acquistion [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BUSINESS COMBINATION | 4. BUSINESS COMBINATION
FoundationTV, Inc.
On May 12, 2021, the Company entered into a stock purchase agreement (the “Foundation Stock Purchase Agreement”) with FoundationTV, Inc. (“FoundationTV”), to buy all of FoundationTV´s issued and outstanding stock in consideration of an aggregate of $5.2 million, of which $0.7 million was paid in cash and 1,483,129 shares of Common Stock, which were valued at $2.5 million, were issued at closing stock price of $1.69 on the closing date of June 9, 2021, and an additional $2.0 million will be paid in eight equal installments of one installment on each six month anniversary of closing over forty-eight months, and a final lump sum payment of $225 thousand on the four year anniversary of the closing, reduced by $0.2 million settlement of a prior relationship. The Foundation Stock Purchase Agreement contained certain conditions to closing, including that the Company obtain approval of its stockholders, applicable lenders, and regulatory authorities, as applicable, and representations and warranties and covenants as are customary for transactions of this type. On June 9, 2021, the FoundationTV acquisition was consummated. The Company incurred transaction costs of $36 thousand during the nine months ended December 31, 2021. As of December 31, 2021, 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.
The developed technology acquired in this transaction has a useful life of 10 years. During the three and nine months ended December 31, 2021, the Company recorded $80 thousand and $160 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:
Bloody Disgusting, LLC
On September 17, 2021, the Company entered into an asset purchase agreement (the “Bloody Disgusting Asset Purchase Agreement”) with Bloody Disgusting, LLC (“Bloody Disgusting”), to buy substantially all of the assets of Bloody Disgusting, in consideration of an aggregate of $7.8 million, of which $4.0 million was paid in cash and 1,039,501 shares of Common Stock, which were valued at $2.3 million, were issued at closing stock price of $2.23 on the closing date of September 17, 2021, and $1.5 million as of the fair value of the earnout liability, related to earnout targets, as defined, to be met as of March 2022, March 2023 and March 2024. The 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. The Company incurred transaction costs of $40 thousand during the nine months ended December 31, 2021. During the three months ended December 31, 2021, the Company finalized the measurement of the assets acquired.
The advertiser relationships acquired in this transaction has a useful life of 12 years and the trade name acquired has a useful life of 10 years. During the three and nine months ended December 31, 2021, the Company recorded $105 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:
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Notes Payable |
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| NOTES PAYABLE | 5. NOTES PAYABLE
Notes payable consisted of the following:
Non-recourse debt is generally defined as debt whereby the lenders’ sole recourse with respect to defaults is limited to the value of the asset, which is collateral for the debt. Certain of our subsidiaries are liable with respect to, and their assets serve as collateral for, certain indebtedness for which our assets and the assets of our other subsidiaries that are not parties to the transaction are generally not liable. We have referred to this indebtedness as “non-recourse debt” because the recourse of the lenders is limited to the assets of specific subsidiaries. Such indebtedness includes the Prospect Loan.
Prospect Loan
In February 2013, our Cinedigm DC Holdings, LLC (“CDCH”), Access Digital Media, Inc (“AccessDM”) and Access Digital Cinema Phase 2, Corp. (“Phase 2 DC”) subsidiaries entered into a term loan agreement (the “Prospect Loan” or the “Term Loan Agreement”) with Prospect Capital Corporation (“Prospect”), pursuant to which CDCH borrowed $70.0 million. The Prospect Loan included interest at LIBOR plus 9.0% (with a 2.0% LIBOR floor), which was payable in cash, and at an additional 2.50% accrued as an increase to the aggregate principal amount of the Prospect Loan until the Prospect Loan was paid off, at which time all accrued interest became payable in cash.
Collections of CDCH accounts receivable were deposited into accounts designated to pay certain operating expenses, principal, interest, fees, costs and expenses relating to the Prospect Loan. On a quarterly basis, if there was excess cash flow, it was used for prepayment of the Prospect Loan. We also maintained a debt service fund under the Prospect Loan for future principal and interest payments. As of December 31, 2021, 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:
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 December 31, 2021 and March 31, 2021, there was $0 and $2.0 million outstanding, respectively, and there was no availability under the Credit Facility based on the Company’s borrowing base as of December 31, 2021.
PPP Loan
On April 15, 2020, the Company received $2.2 million from East West Bank, the Company’s existing lender, pursuant to the Paycheck Protection Program (the “PPP Loan”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 10, 2022 (the “PPP Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are due within the initial six months of the PPP Loan. The interest accrued during the initial six-month period is due and payable, together with the principal, on the PPP Maturity Date. The Company used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts were intended to be eligible for forgiveness, subject to the provisions of the CARES Act, and could be subject to repayment. On July 7, 2021, the Company received notification from the lender that the U.S. Small Business Administration had approved the Company’s PPP Loan forgiveness application for the entire PPP Loan amount and accrued interest effective June 30, 2021. |
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Stockholders' Equity |
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| Stockholders' Equity Note [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| STOCKHOLDERS’ EQUITY | 6. STOCKHOLDERS’ EQUITY
COMMON STOCK
Authorized Class A Common Stock
On October 11, 2021, the Company filed a Certificate of Amendment to the Fifth Amended and Restated Certificate of Incorporation, pursuant to which the number of shares of Class A common stock authorized for issuance was increased to 275,000,000 shares.
During the nine months ended December 31, 2021, we issued 8,642,648 shares of Common Stock which consist of the sale of shares of our Class A common stock, issuance of Common Stock for business combination, the issuances of Common Stock in payment of preferred stock dividends and in payment of board retainer fees.
PREFERRED STOCK
Cumulative dividends in arrears on preferred stock were $0.1 million and $0.1 million as of December 31, 2021 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 Class A common stock, respectively.
TREASURY STOCK
We have treasury stock, at cost, consisting of 1,315,851 and 1,313,836 shares of Class A common stock at December 31, 2021 and March 31, 2021, respectively.
CINEDIGM’S EQUITY INCENTIVE PLANS
Stock Based Compensation Awards
Awards issued under our 2000 Equity Incentive Plan (the “2000 Plan”) may be in any of the following forms (or a combination thereof) (i) stock option awards; (ii) stock appreciation rights; (iii) stock or restricted stock or restricted stock units; or (iv) performance awards. The 2000 Plan provides for the granting of incentive stock options (“ISOs”) with exercise prices not less than the fair market value of our Common Stock on the date of grant. ISOs granted to shareholders having more than 10% of the total combined voting power of the Company must have exercise prices of at least 110% of the fair market value of our Common Stock on the date of grant. ISOs and non-statutory stock options granted under the 2000 Plan are subject to vesting provisions, and exercise is subject to the continuous service of the participant. The exercise prices and vesting periods (if any) for non-statutory options are set at the discretion of our compensation committee. On November 1, 2017, upon the consummation of the initial equity investment in Cinedigm by Bison, as a result of which there was a change of control of the Company, all stock options (incentive and non-statutory) and shares of restricted stock were vested immediately and the options became fully exercisable.
In connection with the grants of stock options and shares of restricted stock under the 2000 Plan, we and the participants have executed stock option agreements and notices of restricted stock awards setting forth the terms of the grants. The 2000 Plan provided for the issuance of up to 2,380,000 shares of Common Stock to employees, outside directors and consultants.
As of December 31, 2021, there were 217,837 stock options outstanding in the 2000 Plan with weighted average exercise price of $14.49 and a weighted average contract life of 1.42 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 43,500 options expired and 250 options forfeited during the three and nine months ended December 31, 2021.
Options outstanding under the 2000 Plan as of December 31, 2021 is as follows:
An analysis of all options exercisable under the 2000 Plan as of December 31, 2021 is presented below:
In August 2017, the Company adopted the 2017 Equity Incentive Plan (the “2017 Plan). The 2017 Plan replaced the 2000 Plan, and applies to employees and directors of, and consultants to, the Company. The 2017 Plan provided for the issuance of up to 2,108,270 shares of Class A common stock, in the form of various awards, including stock options, stock appreciation rights, stock, restricted stock, restricted stock units, performance awards and cash awards. The Compensation Committee of the Company’s Board of Directors (the “Board”) is authorized to administer the 2017 Plan and make grants thereunder. The approval of the 2017 Plan did not affect awards already granted under the 2000 Plan. On December 4, 2019, upon shareholder approval, the 2017 Plan was amended to increase the maximum number of shares of Class A common stock authorized for issuance thereunder from 2,108,270 shares to 4,098,270.
On October 23, 2020, the Company amended its 2017 Plan to increase the number of shares authorized for issuance thereunder from 4,098,270 to 14,098,270.
On October 11, 2021, the Company amended its 2017 Plan to increase the number of shares authorized for issuance thereunder from 14,098,270 to 18,098,270.
During the nine months ended December 31, 2021, the Company granted 1,807,625 stock appreciation rights (“SARs”). The SARs were granted under the Company’s 2017 Equity Incentive Plan (the “2017 Plan), except for 600,000 SARs granted 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 Class A common stock on the date of grant and a maturity date of 10 years. The SARs were valued on the grant date utilizing an option pricing model, as follows:
Grant Date: May 23, 2021 – November 30, 2021
Maturity Date: May 23, 2031 – November 30, 2031
Exercise price: $1.29 - $2.56
Volatility: 110.32% - 114.42%
Discount rate: 0.96% - 1.50%
Expected term: 6 – 6.5 years
Stock appreciation rights outstanding under the 2017 Plan as of December 31, 2021 is as follows:
An analysis of all stock appreciation rights exercisable under the 2017 Plan as of December 31, 2021 is presented below:
Employee and director stock-based compensation expense related to our stock-based awards was as follows:
Total SARs outstanding are as follows:
There was $1 thousand and $1thousand of stock-based compensation recorded for the nine months ended December 31, 2021 and 2020, respectively, related to employees’ restricted stock awards. There was $0 thousand and $1thousand of stock-based compensation recorded for the three months ended December 31, 2021 and 2020, respectively, related to employees’ restricted stock awards.
There was $290 thousand and $131 thousand of stock-based compensation for the nine months ended December 31, 2021 and 2020, respectively, related to board of directors. There was $107 thousand and $65 thousand of stock-based compensation for the three months ended December 31, 2021 and 2020, respectively, related to board of directors. During the nine months ended December 31, 2021, the Company issued 245,887 shares to the board of directors.
OPTIONS GRANTED OUTSIDE CINEDIGM’S EQUITY INCENTIVE PLAN
In October 2013, we issued options outside of the 2000 Plan to 10 individuals who became employees as a result of a business combination. The employees received options to purchase an aggregate of 62,000 shares of our Class A Common Stock at an exercise price of $17.50 per share. The options were fully vested as of October 2017 and expire 10 years from the date of grant, if unexercised. As of December 31, 2021, 12,500 of such options remained outstanding.
WARRANTS
The following table presents information about outstanding warrants to purchase shares of our Class A common stock as of December 31, 2021. All of the outstanding warrants are fully vested and exercisable.
Warrants for the purchase of 298,519 shares of Common Stock expired unexercised during the nine months ended December 31, 2021. |
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Commitments and Contingencies |
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| Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COMMITMENTS AND CONTINGENCIES | 7. COMMITMENTS AND CONTINGENCIES
From time to time, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities. Although the results of litigation and claims cannot be predicted with certainty, the Company does not believe it is party to any claim or litigation the outcome of which, if determined adversely to the Company, would individually or in the aggregate be reasonably expected to have a material adverse effect on its business. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.
We operate from leased properties under non-cancelable operating lease agreements, certain of which contain escalating lease clauses.
The Company leases office space under operating leases. The Company’s portfolio of leases is primarily related to real estate and since most of our leases do not provide a readily determinable implicit rate, the Company estimated its incremental borrowing rate to discount the lease payments based on information available at either the implementation date of Topic 842 or at lease commencement for leases entered into thereafter.
The table below presents the lease-related assets and liabilities recorded on the balance sheet as of December 31, 2021 and March 31, 2021:
Lease Costs
The table below presents certain information related to lease costs for leases:
Other Information
The table below presents supplemental cash flow information related to leases:
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. |
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Supplemental Cash Flow Information |
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| Supplemental Cash Flow Elements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUPPLEMENTAL CASH FLOW INFORMATION | 8. SUPPLEMENTAL CASH FLOW INFORMATION
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Segment Information |
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEGMENT INFORMATION | 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.
The following tables present certain financial information related to our reportable segments and Corporate:
The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows:
The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows:
The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows:
The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows:
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Income Taxes |
9 Months Ended |
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Dec. 31, 2021 | |
| Income Tax Disclosure [Abstract] | |
| INCOME TAXES | 10. INCOME TAXES
We calculate income tax expense based upon an annual effective tax rate forecast, including estimates and assumptions. We recorded an income tax benefit of approximately $26 thousand and $576 thousand for the three and nine months ended December 31, 2021, respectively. We recorded an income tax benefit of approximately $0 and $181 thousand for the three and nine months ended December 31, 2020, respectively. We have not recorded tax benefits on our loss before income taxes because we have provided for a full valuation allowance that offsets potential deferred tax assets resulting from net operating loss carry forwards, reflecting our inability to use such loss carry forwards.
Our effective tax rate for the nine months ended December 31, 2021 and 2020 was negative 14.0% and 0.3%, respectively.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The Act contains several new or changed income tax provisions, including but not limited to the following: increased limitation threshold for determining deductible interest expense; class life changes to qualified improvements (in general, from 39 years to 15 years); and the ability to carry back net operating losses incurred from tax years 2018 through 2020 up to the five preceding tax years. The Company has evaluated the new tax provisions of the CARES Act and determined the impact to be either immaterial or not applicable. |
Subsequent Events |
9 Months Ended |
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Dec. 31, 2021 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | 11. SUBSEQUENT EVENTS
Equity purchase announcement
On January 4, 2022, 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 “DMR Transaction”). The DMR Transaction is subject to certain closing conditions, including satisfactory financial and legal diligence, and the parties are working toward closing the transaction. |
Accounting Policies, by Policy (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BASIS OF PRESENTATION AND CONSOLIDATION | BASIS OF PRESENTATION AND CONSOLIDATION
Our consolidated financial statements include the accounts of Cinedigm and its wholly-owned and majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Investments in which we do not have a controlling interest or are not the primary beneficiary, but have the ability to exert significant influence, are accounted for under the equity method of accounting. Noncontrolling interests for which we have been determined to be the primary beneficiary are consolidated and recorded as net loss attributable to noncontrolling interest. See Note 3 - Other Interests to the Consolidated Financial Statements for a discussion of our noncontrolling interests.
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| USE OF ESTIMATES | USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect the assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates include the adequacy of accounts receivable reserves, return reserves, inventory reserves, recovery of advances, assessment of goodwill impairment, long-lived and finite-lived assets impairment and estimated amortization lives, fair value for asset acquisitions and business combinations, valuation allowances for income taxes and stock awards. Actual results could differ from these estimates.
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| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | 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:
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| EQUITY INVESTMENT IN STARRISE, A RELATED PARTY | EQUITY INVESTMENT IN STARRISE, A RELATED PARTY
On February 14, 2020, the Company acquired an approximately 11.5% interest in Starrise, a leading publicly traded Chinese entertainment company whose ordinary shares are listed on the Stock Exchange of Hong Kong. The Company acquired such interest as a strategic investment and in a private transaction from a shareholder of Starrise that is related to our major shareholders. When we acquired the Starrise stock, our then-majority affiliated stockholders also maintained a significant beneficial interest in Starrise. Upon consummation of the transaction on February 14, 2020, the Company recorded an initial investment of approximately $25 million, which is the fair market value of the Starrise shares on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Company’s common stock of $11.2 million, valued as of the date of the issuance of the Common Stock. The difference in value of shares received in Starrise and shares issued by the Company was deemed as contributed capital and recorded in additional paid-in capital.
On April 10, 2020, the Company purchased an additional 15% interest in Starrise in a private transaction from shareholders of Starrise that are affiliated with the then-major shareholder of the Company. The Company recorded an additional equity investment of approximately $28.2 million, which is the fair market value of the Starrise shares on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Common Stock of $11.0 million, valued at the date of the issuance of the Common Stock. The difference in the value of shares received in Starrise and shares issued by the Company was deemed as contributed capital and recorded in additional paid-in capital. This transaction was also recorded as an equity investment in Starrise.
The Company has made an irrevocable election to apply the fair value accounting option under ASC 825-10, Financial Instruments, as it relates to its equity investment in Starrise. The Company’s investment in Starrise is marked to market and recorded at fair value. The stock is traded on the Hong Kong Stock exchange with readily available pricing that is classified as Level 1 in the fair value hierarchy. The Company has established a policy that consistently uses either the closing price of last active trades or the latest bid price when there is no active trades, unadjusted at the last day of each reporting period, as the most relevant and representative input to the Level 1 fair value measures of its investment holdings.
As of December 31, 2021 and March 31, 2021, the value of our equity investment in Starrise, using the readily determinable fair value inputs from the market pricing of the Stock Exchange of Hong Kong, was approximately $7.9 million and $6.4 million, respectively, resulting in a change in fair value of approximately $1.5 million and ($42.4) million for the nine months ended December 31, 2021 and 2020 respectively, on our consolidated statement of operations. On April 1 and May 5, 2021, the Company sold 80,000 and 600,000 Starrise ordinary shares, respectively for a total amount of $11 thousand. At December 31, 2021 and March 31, 2021, the Company owned 362,307,397 and 362,987,397 ordinary shares or 17% and 26% of Starrise, respectively.
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| NON-MONETARY TRANSACTIONS | NON-MONETARY TRANSACTIONS
During the three and nine months ended December 31, 2020, the Company entered into agreements with certain vendors to transfer 5,139,762 and 14,184,765 Starrise ordinary shares to satisfy outstanding liabilities with these vendors. Upon the sale of the Starrise shares by the vendors, with certain restrictions on sales unless the Company 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 December 31, 2020. There were no such transactions during the nine months ended December 31, 2021.
There was no gain or loss resulting from these transactions for the three and nine months ended December 31, 2021 and 2020.
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| ACCOUNTS RECEIVABLE | ACCOUNTS RECEIVABLE
We maintain reserves for potential credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.
We record accounts receivable, long-term in connection with activation fees that we earn from our digital cinema equipment (the “Systems”) deployments that have extended payment terms. Such accounts receivable are discounted to their present value at prevailing market rate.
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| ADVANCES | ADVANCES
Advances, which are recorded within prepaid and other current assets on the consolidated balance sheets, represent amounts prepaid to studios or content producers for which we provide content distribution services. We evaluate advances regularly for recoverability and record impairment charges for amounts that we expect may not be recoverable as of the consolidated balance sheet date. Impairments and accelerated amortization related to advances were $0.4 million and $0.3 million, respectively, for the three months ended December 31, 2021 and 2020. Impairments and accelerated amortization related to advances were $0.8 million and $0.3 million, respectively, for the nine months ended December 31, 2021 and 2020.
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| PROPERTY AND EQUIPMENT | 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:
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.
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| FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS
The fair value measurement disclosures are grouped into three levels based on valuation factors:
Assets and liabilities measured at fair value on a recurring basis use the market approach, where prices and other relevant information are generated by market transactions involving identical or comparable assets or liabilities.
The equity investment in Starrise is in Hong Kong dollars and was translated into US dollars as of December 31, 2021 and March 31, 2021 at an exchange rate of 7.8 and 7.8 Hong Kong Dollars to 1 US Dollar, respectively. The fair value of this equity investment is measured by the unadjusted market pricing of Starrise on the Stock Exchange of Hong Kong.
The earnout consideration on purchase of Bloody Disgusting business (Note 4) is determined according to the probability-based method to the estimated the value of the earnout based on the premise that there are different probabilities to achieve different forecasts and therefore the defined earnout metric targets. Under this method, weighted-average earnout payments for each earnout period were estimated based on the probability of each forecast scenario. The resultant weighted-average earnout payments are discounted to a present value.
The following tables summarize the levels of fair value measurements of our financial assets and liabilities as of December 31, 2021 and March 31, 2021:
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.
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| IMPAIRMENT OF LONG-LIVED AND FINITE-LIVED ASSETS | IMPAIRMENT OF LONG-LIVED AND FINITE-LIVED ASSETS
We review the recoverability of our long-lived assets and finite-lived intangible assets, when events or conditions occur that indicate a possible impairment exists. The assessment for recoverability is based primarily on our ability to recover the carrying value of our long-lived and finite-lived assets from expected future undiscounted net cash flows. If the total of expected future undiscounted net cash flows is less than the total carrying value of the asset, the asset is deemed not to be recoverable and possibly impaired. We then estimate the fair value of the asset to determine whether an impairment loss should be recognized. An impairment loss will be recognized if the asset’s fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted cash flows. During the three and nine months ended December 31, 2021 and 2020, no impairment charge was recorded from operations for long-lived assets or finite-lived assets.
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| GOODWILL | GOODWILL
Goodwill is the excess of the purchase price paid over the fair value of the net assets of an acquired business. Goodwill is tested for impairment on an annual basis or more often if warranted by events or changes in circumstances indicating that the carrying value may exceed fair value, also known as impairment indicators.
Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current economic indicators and market conditions, and assumptions about our strategic plans with regard to its operations. To the extent additional information arises, market conditions change, or our strategies change, it is possible that the conclusion regarding whether our remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material effect on our consolidated financial position or results of operations.
The Company has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or to perform the quantitative impairment test.
No goodwill impairment charge was recorded in the nine months ended December 31, 2021 and 2020.
Gross amounts of goodwill and accumulated impairment charges that we have recorded are as follows:
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| REVENUE RECOGNITION | REVENUE RECOGNITION
We determine revenue recognition by:
We recognize revenue in the amount that reflects the consideration we expect to receive in exchange for the services provided, sales of physical products (e.g., DVDs and Blu-ray Discs) or when the content is available for subscription on the digital platform or available on the point-of-sale for transactional and video on demand services which is when the control of the promised products and services is transferred to our customers and our performance obligations under the contract have been satisfied. Revenues that might be subject to various taxes are recorded net of transaction taxes assessed by governmental authorities such as sales value-added taxes and other similar taxes.
Payment terms and conditions vary by customer and typically provide net 30 to 90 day terms. We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and payment for that product or service will be one year or less.
Cinema Equipment Business
Our Cinema Equipment Business consists of financing vehicles and administrators for 1,631 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 2,978 Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”).
We retain ownership of our digital cinema equipment (the “Systems”) and the residual cash flows related to the Systems in Phase I Deployment after the end of the 10-year deployment payment period.
For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.
The Cinema Equipment Business also provides monitoring, data collection, serial data verification and management services to this segment, as well as to exhibitors who purchase their own equipment, in order to collect virtual print fees (“VPFs”) from motion picture studios and distributors and Alternative Content Fees (“ACFs”) from alternative content providers, and to distribute those fees to theatrical exhibitors (collectively, “Services”).
VPFs are earned, net of administrative fees, pursuant to contracts with movie studios and distributors, whereby amounts are payable by a studio to Phase I Deployment and to Phase II Deployment when movies distributed by the studio are displayed on screens utilizing our Systems installed in movie theatres. VPFs are earned and payable to Phase I Deployment based on a defined fee schedule until the end of the VPF term. One VPF is payable for every digital title initially displayed per System. The amount of VPF revenue is dependent on the number of movie titles released and displayed using the Systems in any given accounting period. VPF revenue is recognized in the period the title first plays for general audience viewing in a digital projector equipped movie theatre. The Phase 1 Deployment’s and Phase 2 Deployments performance obligations for revenue recognition are met at this time.
Phase II Deployment’s agreements with distributors require the payment of VPFs, according to a defined fee schedule, for ten years from the date each system is installed; however, Phase II Deployment may no longer collect VPFs once “cost recoupment,” as defined in the contracts with movie studios and distributors, is achieved. Cost recoupment will occur once the cumulative VPFs and other cash receipts collected by Phase II Deployment have equaled the total of all cash outflows, including the purchase price of all Systems, all financing costs, all “overhead and ongoing costs”, as defined, and including service fees, subject to maximum agreed upon amounts during the three-year rollout period and thereafter. Further, if cost recoupment occurs before the end of the eighth contract year, the studios will pay us a one-time “cost recoupment bonus.” The Company evaluated the constraining estimates related to the variable consideration, i.e., the one-time bonus and determined that it is not probable to conclude at this point in time that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is subsequently resolved.
Under the terms of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive one-year terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we typically pursue the sale of the Systems to such exhibitors. Cinedigm recognizes revenue once the customer takes possession of the Systems and Cinedigm received the sale proceeds. Such sales were originally contemplated as the conclusion of the digital cinema deployment plan. Total system sales revenue recognized was $1.3 million and $66 thousand, during the three months ended December 31, 2021 and 2020, respectively. Total system sales revenue recognized was $9.1 million and $157 thousand, during the nine months ended December 31, 2021 and 2020, respectively. Revenues earned in connection with up front exhibitor contributions are deferred and recognized over the expected cost recoupment period. Exhibitors who purchased and own Systems using their own financing in Phase II of the Cinema Equipment Business paid us an upfront activation fee of approximately $2.0 thousand per screen (the “Exhibitor-Buyer Structure”). Upfront activation fees were recognized in the period in which these Systems were delivered and ready for content, as we had no further obligations to the customer after that time and collection was reasonably assured. In addition, we recognize activation fee revenue of between $1.0 thousand and $2.0 thousand on Phase II Deployment Systems and for Systems installed by CDF2 Holdings, a related party, (See Note 3 - Other Interests) upon installation and such fees are generally collected upfront upon installation. Our services division manages and collects VPFs on behalf of exhibitors, for which it earns an administrative fee equal to 10% of the VPFs collected.
The Cinema Equipment Business earns an administrative fee of approximately 5% of VPFs collected and, in addition, earns an incentive service fee equal to 2.5% of the VPFs earned by Phase 1 DC. This administrative fee is related to the collection and remittance of the VPF’s and the performance obligation is satisfied at that time the related VPF fees are due which is at the time the movies are displayed on screens utilizing our Systems installed in movie theatres. The service fees are recognized as a point in time revenue when the corresponding VPF fees are due from the movie studios and distributors.
Content & Entertainment Business
CEG earns fees for the distribution of content in the home entertainment markets via several distribution channels, including digital, video on demand (“VOD” or “OTT Streaming and Digital”), and physical goods (e.g., DVDs and Blu-ray Discs) (“Physical Revenue” or “Base Distribution Business”). Fees earned are typically a percentage based on the net amounts received from our customers. Depending upon the nature of the agreements with the platform and content providers, the fee rate that we earn varies. The Company’s performance obligations include the delivery of content for transactional, subscription and ad supported/free ad-supported streaming TV (“FAST”) on the digital platforms, and shipment of DVDs and Blu-ray Discs. Revenue is recognized at the point in time when the performance obligation is satisfied, which is when the content is available for subscription on the digital platform, at the time of shipment for physical goods, or point-of-sale for transactional and VOD services as the control over the content or the physical title is transferred to the customer. The Company considers the delivery of content through various distribution channels to be a single performance obligation. Physical revenue is recognized after deducting the reserves for sales returns and other allowances, which are accounted for as variable consideration.
Physical goods reserved for sales returns and other allowances are recorded based upon historical experience. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.
CEG also has contracts for the theatrical distribution of third party feature movies and alternative content. CEG’s distribution fee revenue and CEG’s participation in box office receipts are recognized at the time a feature movie and alternative content are viewed. CEG has the right to receive or bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded as a receivable at the time of execution, and all related distribution revenue is deferred until the third party feature movies’ or alternative content’s theatrical release date.
Principal Agent Considerations
We determine whether revenue should be reported on a gross or net basis for each revenue stream based on the transfer of control of goods and services. Key indicators that we use in evaluating gross versus net treatment include, but are not limited to, the following:
Shipping and Handling
Shipping and handling costs are incurred to move physical goods (e.g., DVDs and Blu-ray Discs) to customers. We recognize all shipping and handling costs as an expense in cost of goods sold because we are responsible for delivery of the product to our customers prior to transfer of control to the customer.
Credit Losses
We maintain reserves for potential credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.
Our CEG segment recognizes accounts receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that it recognizes revenue from a sale. Reserves for product returns and other allowances is variable consideration as part of the transaction price. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.
We record accounts receivable, long-term in connection with activation fees that we earn from Systems deployments that have extended payment terms. Such accounts receivable are discounted to their present value at prevailing market rates.
Contract Liabilities
We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability) when cash payments are received or due in advance of our performance, even if amounts are refundable.
Deferred revenue pertaining to our Content & Entertainment Business includes amounts related to the sale of DVDs with future release dates.
Deferred revenue relating to our Cinema Equipment Business pertains to revenues earned in connection with up front exhibitor contributions that are deferred and recognized over the expected cost recoupment period. It also includes unamortized balances in connection with activation fees due from the Systems deployments that have extended payment terms.
The ending deferred revenue balance as of December 31, 2021 was $0.3 million. For the three and nine months ended December 31, 2021 and 2020, respectively, the additions to our deferred revenue balance were primarily due to cash payments received or due in advance of satisfying performance obligations, while the reductions to our deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.
During the three months ended December 31, 2021 and 2020, $0.3 million and $1.2 million, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. During the nine months ended December 31, 2021 and 2020, $0.6 million and $2.5 million, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. As of December 31, 2021, the aggregate amount of contract revenue allocated to unsatisfied performance obligations was $0.3 million. This amount is to be recognized during January and February of 2022.
Participations and royalties payable
When we use third parties to distribute company owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers.
Disaggregation of Revenue
The Company disaggregates revenue into different revenue categories for the Cinema Equipment and CEG Businesses. The Cinema Equipment Business revenue categories are: Phase I Deployment revenue, Phase II Deployment revenue, Services, and Digital System Sales, and the Content & Entertainment Business revenue categories are: Base Distribution Business and OTT Streaming and Digital.
The following tables present the Company’s revenue categories for the three and nine months ended December 31, 2021 and 2020 (in thousands):
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| DIRECT OPERATING COSTS | DIRECT OPERATING COSTS
Direct operating costs consist of operating costs such as cost of goods sold, fulfillment expenses, shipping costs, property taxes and insurance on Systems, royalty expenses, impairments of advances, and marketing and direct personnel costs.
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| STOCK-BASED COMPENSATION | 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.
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| INCOME TAXES | 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.
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| NET INCOME/LOSS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS | NET INCOME/LOSS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS
Basic and diluted net loss per common share has been calculated as follows:
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 nine months ended December 31, 2021, and therefore the impact of potentially dilutive common shares from outstanding stock options, stock appreciation rights, and warrants, totaling 3,603,491 shares for the nine months ended December 31, 2021, respectively, was included in the computations of diluted earnings per share. For the three months ended December 31, 2021, 12,088,473 potentially dilutive shares have been excluded from the diluted loss per share as their impact would have been antidilutive. We had a net loss for the three months ended December 31, 2021 and therefore no dilution as basic and diluted loss per share are the same for the period. The calculation of diluted net income per share for the nine months ended December 31, 2021 does not include the impact of 8,484,982 potentially dilutive shares relating to stock options, stock appreciation rights, and warrants as their impact would have been anti-dilutive as their exercise prices are above the Company’s average Common Stock price during the period.
We incurred net losses for the three and nine months ended December 31, 2020, and therefore the impact of potentially dilutive common shares from outstanding stock options and warrants, totaling 9,040,138 shares as of December 31, 2020, were excluded from the computations of loss per share as their impact would have been anti-dilutive.
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| COMPREHENSIVE INCOME (LOSS) | COMPREHENSIVE INCOME (LOSS)
As of the three and nine months ended December 31, 2021 and 2020, comprehensive income (loss) consisted of net loss and foreign currency translation adjustments.
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| RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS | 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. |
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Summary of Significant Accounting Policies (Tables) |
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Dec. 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of cash, cash equivalents and restricted cash |
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| Schedule of estimated useful lives of property and equipment |
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| Schedule of fair value measurements of financial assets |
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| Schedule of goodwill and accumulated impairment charges |
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| Schedule of revenue categories |
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Business Combination (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of business combination |
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| Schedule of amortization expense per year for the developed technology acquired in the business combination |
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| Schedule of amortization expense per year for the intangible assets acquired in the business combination |
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Notes Payable (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of notes payable |
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| Schedule of debt outstanding |
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Stockholders' Equity (Tables) |
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Dec. 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Equity Note [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of analysis of option activity |
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| Schedule of stock appreciation rights outstanding |
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| Schedule of stock-based compensation expense |
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| Schedule of SARs outstanding |
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| Schedule of warrants |
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Commitments and Contingencies (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of lease-related assets and liabilities |
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| Schedule of lease costs |
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Supplemental Cash Flow Information (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Supplemental Cash Flow Elements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of supplemental cash flows |
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Segment Information (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of segment reporting, assets and debt |
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| Schedule of segment reporting, statement of operations |
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| Schedule of segment reporting, employee stock-based compensation expense |
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Nature of Operations and Liquidity (Details) - USD ($) $ / shares in Units, $ in Millions |
1 Months Ended | 3 Months Ended | 9 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
Apr. 10, 2020 |
Mar. 17, 2021 |
Feb. 14, 2020 |
Dec. 27, 2019 |
Dec. 31, 2021 |
Dec. 31, 2020 |
Dec. 31, 2021 |
Dec. 31, 2020 |
Jul. 09, 2021 |
Jun. 30, 2021 |
Apr. 15, 2020 |
|
| Nature of Operations and Liquidity [Abstract] | |||||||||||
| Accumulated deficit | $ 469.7 | $ 469.7 | |||||||||
| Working capital | 2.9 | 2.9 | |||||||||
| Aggregate principal amount | $ 7.8 | ||||||||||
| Outstanding amount | 0.0 | 0.0 | |||||||||
| Net cash provided by operating activities | 4.7 | ||||||||||
| Agreements included the sale in tranches (in Shares) | 2,369 | ||||||||||
| Cash consideration | $ 10.8 | ||||||||||
| Recognized aggregate revenue | $ 0.3 | $ 1.2 | 9.1 | $ 2.5 | |||||||
| Maturity description | On December 27, 2019, the Company entered into, and on February 14, 2020 amended, (see Note 2 - Summary of Significant Accounting Policies), a stock purchase agreement (as so amended, the “Starrise Stock Purchase Agreement”) with BeiTai Investment LP (“BeiTai”), a related party for accounting purposes of Cinedigm and Aim Right Ventures Limited (“Aim Right”), two shareholders of Starrise Media Holdings Limited, a leading Chinese entertainment company (“Starrise”), to buy from them an aggregate of 410,901,000 outstanding Starrise ordinary shares (the “Starrise Share Acquisition”). | ||||||||||
| Number of shares acquired (in Shares) | 162,162,162 | ||||||||||
| Comon per share (in Dollars per share) | $ 1 | ||||||||||
| Starrise shares issued amount | $ 11.2 | ||||||||||
| Converted aggregate description | On April 10, 2020, the Company entered into another stock purchase agreement (the “April Starrise Stock Purchase Agreement”) with five (5) shareholders of Starrise - Bison Global Investment SPC - Bison Global No. 1 SP, Huatai Investment LP, Antai Investment LP, Mingtai Investment LP and Shangtai Asset Management LP - all of which are related parties to the Company to buy an aggregate of 223,380,000 outstanding Starrise ordinary shares from them and for the Company to issue to them an aggregate of 29,855,081 shares of its Common Stock as consideration therefor (the “April Starrise Share Acquisition”). | ||||||||||
| Stock purchase agreement, description | Starrise’s ordinary shares (HK 1616) are listed on the main board of the Stock Exchange of Hong Kong Limited. Based on the closing price of HKD 0.159 per share on February 11, 2022, calculated at an exchange rate of 7.8 Hong Kong Dollars to 1 US dollar, the market value of Cinedigm’s ownership in Starrise ordinary shares was approximately $7.4 million. | ||||||||||
| Received amount from east west bank | $ 2.2 | ||||||||||
| Interest rate | 1.00% | ||||||||||
| PPP Loan recognized gain | $ 2.2 | ||||||||||
| Equity line purchase agreement, description | (i) $50,000,000 of newly issued shares of Common Stock and (ii) the Exchange Cap (as defined below) (subject to certain conditions and limitations), from time to time during the 24-month period from and after the October 21, 2021. Sales of Common Stock pursuant to the Equity Line Purchase Agreement, and the timing of any sales, are solely at the option of the Company, and the Company is under no obligation to sell any securities to B. Riley Principal Capital under the Equity Line Purchase Agreement. As consideration for B. Riley Principal Capital’s commitment to purchase shares of Common Stock at the Company’s direction upon the terms and subject to the conditions set forth in the Equity Line Purchase Agreement, upon execution of the Equity Line Purchase Agreement, the Company issued 210,084 shares of Common Stock to B. Riley Principal Capital (the “Commitment Shares”). The purchase price of the shares of Common Stock that we elect to sell to B. Riley Principal Capital pursuant to the Equity Line Purchase Agreement will be determined by reference to the volume weighted average price of the Common Stock (“VWAP”) during the applicable purchase date, less a fixed 5% discount to such VWAP. Pursuant to the Registration Rights Agreement, the Company filed a Registration Statement on Form S-1 that was declared effective by the Securities and Exchange Commission on October 21, 2021 (File No. 333-260210) for the resale by B. Riley Principal Capital of up to 25,210,084 shares of Common Stock (including the Commitment Shares) acquired pursuant to the Equity Line Purchase Agreement. During October and November 2021, we sold 5,300,000 shares of Common Stock under the Equity Line Purchase Agreement. Net proceeds from such sales totaled $12.4 million. | ||||||||||
| Borrowings [Member] | |||||||||||
| Nature of Operations and Liquidity [Abstract] | |||||||||||
| Aggregate principal amount | $ 7.8 | ||||||||||
| BeiTai [Member] | |||||||||||
| Nature of Operations and Liquidity [Abstract] | |||||||||||
| Number of shares issued for acquisition (in Shares) | 21,646,604 | ||||||||||
| Starrise shares issued amount | $ 25.0 | ||||||||||
Summary of Significant Accounting Policies (Details) - Schedule of cash, cash equivalents and restricted cash - USD ($) $ in Thousands |
Dec. 31, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Schedule of cash, cash equivalents and restricted cash [Abstract] | ||
| Cash and Cash Equivalents | $ 20,201 | $ 26,207 |
| Restricted Cash | 1,000 | |
| Total | $ 20,201 | $ 27,207 |
Summary of Significant Accounting Policies (Details) - Schedule of goodwill and accumulated impairment charges $ in Thousands |
9 Months Ended |
|---|---|
|
Dec. 31, 2021
USD ($)
| |
| Schedule of goodwill and accumulated impairment charges [Abstract] | |
| Goodwill gross beginning | $ 8,701 |
| Goodwill from business combinations – see Note 4 | 4,958 |
| Goodwill gross ending | $ 13,659 |
Other Interests (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
Dec. 31, 2021 |
Dec. 31, 2020 |
Mar. 31, 2021 |
|
| Other Interests [Abstract] | |||||
| Servicing revenue | $ 500 | $ 83 | |||
| CDF2 Holdings [Member] | |||||
| Other Interests [Abstract] | |||||
| Digital cinema servicing revenue | $ 200 | $ 47 | |||
| CDF2 Holdings [Member] | |||||
| Other Interests [Abstract] | |||||
| Ownership percentage | 100.00% | ||||
| Accounts receivable | 700 | $ 700 | $ 300 | ||
| Total Stockholders’ Deficit | 52,900 | 52,900 | 46,300 | ||
| Initial investment amount | $ 2,000 | $ 2,000 | $ 0 | ||
| CON TV, LLC [Member] | |||||
| Other Interests [Abstract] | |||||
| Majority interest, percentage | 85.00% | 85.00% | |||
Business Combination (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 9 Months Ended | |
|---|---|---|---|---|
May 12, 2021 |
Sep. 17, 2021 |
Dec. 31, 2021 |
Dec. 31, 2021 |
|
| Business Combination (Details) [Line Items] | ||||
| Description of stock purchase agreement | 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. | |||
| Incurred transaction cost | $ 36,000 | |||
| Cash payments discounted | 3.00% | |||
| Short-term payable | $ 500 | $ 500 | ||
| Long-term payable | 1,500 | 1,500 | ||
| Amortization expense | $ 80,000 | $ 160,000 | ||
| Description of business combination | the Company entered into an asset purchase agreement (the “Bloody Disgusting Asset Purchase Agreement”) with Bloody Disgusting, LLC (“Bloody Disgusting”), to buy substantially all of the assets of Bloody Disgusting, in consideration of an aggregate of $7.8 million, of which $4.0 million was paid in cash and 1,039,501 shares of Common Stock, which were valued at $2.3 million, were issued at closing stock price of $2.23 on the closing date of September 17, 2021, and $1.5 million as of the fair value of the earnout liability, related to earnout targets, as defined, to be met as of March 2022, March 2023 and March 2024. The 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. The Company incurred transaction costs of $40 thousand during the nine months ended December 31, 2021. | |||
| Transaction useful life | 12 years | |||
| Trade name acquired usefull life | 10 years | |||
| Amortization intangible assets | $ 105,000 | |||
| Developed Technology Rights [Member] | ||||
| Business Combination (Details) [Line Items] | ||||
| Useful life | 10 years |
Business Combination (Details) - Schedule of business combination $ in Thousands |
Dec. 31, 2021
USD ($)
|
|---|---|
| FoundationTV, Inc. [Member] | |
| Purchase Price | |
| Purchase Price | $ 5,237 |
| Total purchase price | 5,237 |
| Allocation of purchase price | |
| Developed technology | 3,200 |
| Goodwill | 2,037 |
| Total allocation of purchase price | 5,237 |
| Bloody Disgusting, LLC. [Member] | |
| 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 |
Business Combination (Details) - Schedule of amortization expense per year for the developed technology acquired in the business combination $ in Thousands |
Dec. 31, 2021
USD ($)
|
|---|---|
| Schedule of amortization expense per year for the developed technology acquired in the business combination [Abstract] | |
| 2022 (remaining) | $ 80 |
| 2023 | 320 |
| 2024 | 320 |
| 2025 | 320 |
| 2026 | 320 |
| 2027 | 320 |
| 2028 | 320 |
| 2029 | 320 |
| 2030 | 320 |
| 2031 | 320 |
| 2032 | 80 |
| Total | $ 3,040 |
Business Combination (Details) - Schedule of amortization expense per year for the intangible assets acquired in the business combination $ in Thousands |
Dec. 31, 2021
USD ($)
|
|---|---|
| Finite-Lived Intangible Assets [Line Items] | |
| 2022 (remaining) | $ 106 |
| 2023 | 423 |
| 2024 | 423 |
| 2025 | 423 |
| 2026 | 423 |
| 2027 | 423 |
| 2028 | 423 |
| 2029 | 423 |
| 2030 | 423 |
| 2031 | 423 |
| 2032 | 368 |
| 2033 | 313 |
| 2034 | 151 |
| Total | 4,745 |
| Advertiser relationships [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| 2022 (remaining) | 78 |
| 2023 | 313 |
| 2024 | 313 |
| 2025 | 313 |
| 2026 | 313 |
| 2027 | 313 |
| 2028 | 313 |
| 2029 | 313 |
| 2030 | 313 |
| 2031 | 313 |
| 2032 | 313 |
| 2033 | 313 |
| 2034 | 151 |
| Total | 3,672 |
| Trade Name [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| 2022 (remaining) | 28 |
| 2023 | 110 |
| 2024 | 110 |
| 2025 | 110 |
| 2026 | 110 |
| 2027 | 110 |
| 2028 | 110 |
| 2029 | 110 |
| 2030 | 110 |
| 2031 | 110 |
| 2032 | 55 |
| 2033 | |
| 2034 | |
| Total | $ 1,073 |
Notes Payable (Details) - Schedule of debt outstanding - USD ($) $ in Thousands |
Sep. 30, 2021 |
Mar. 31, 2021 |
|---|---|---|
| Schedule of debt outstanding [Abstract] | ||
| 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 |
Stockholders' Equity (Details) - Schedule of stock-based compensation expense - USD ($) $ in Thousands |
6 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Stockholders' Equity (Details) - Schedule of stock-based compensation expense [Line Items] | ||||
| Selling, general and administrative | $ 1,349 | $ 960 | $ 3,278 | $ 2,172 |
| Selling, general and administrative [Member] | ||||
| Stockholders' Equity (Details) - Schedule of stock-based compensation expense [Line Items] | ||||
| Selling, general and administrative | $ 1,349 | $ 960 | $ 3,278 | $ 2,172 |
Stockholders' Equity (Details) - Schedule of SARs outstanding |
9 Months Ended |
|---|---|
|
Dec. 31, 2021
shares
| |
| Schedule of SARs outstanding [Abstract] | |
| SARs Outstanding March 31, 2021 | 9,154,933 |
| Issued | 1,807,625 |
| Forfeited | (286,585) |
| Total SARs Outstanding December 31, 2021 | 10,675,923 |
Stockholders' Equity (Details) - Schedule of warrants - BEMG in connection with a term loan agreement [Member] |
9 Months Ended |
|---|---|
|
Dec. 31, 2021
$ / shares
shares
| |
| Class of Warrant or Right [Line Items] | |
| Amount outstanding | shares | 1,400,000 |
| Expiration | 2022-12 |
| Minimum [Member] | |
| Class of Warrant or Right [Line Items] | |
| Exercise price per share | $ / shares | $ 1.8 |
Commitments and Contingencies (Details) $ in Millions |
Sep. 01, 2021
USD ($)
|
|---|---|
| Commitments and Contingencies Disclosure [Abstract] | |
| Minimum participation guaranty | $ 3.5 |
| Arrangement payable | 1.5 |
| First year anniversary arrangement | 1.0 |
| Second year anniversary arrangement | $ 0.9 |
Commitments and Contingencies (Details) - Schedule of lease-related assets and liabilities - USD ($) $ in Thousands |
Dec. 31, 2021 |
Mar. 31, 2021 |
|---|---|---|
| Assets | ||
| Noncurrent | $ 16 | $ 100 |
| Liabilities | ||
| Current | 16 | 87 |
| Noncurrent | 13 | |
| Total operating lease liabilities | $ 16 | $ 100 |
Commitments and Contingencies (Details) - Schedule of lease costs - USD ($) $ in Thousands |
9 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Schedule of lease costs [Abstract] | ||
| Operating lease cost | $ 90 | $ 160 |
| Total lease cost | 90 | 160 |
| Cash paid for amounts included in the measurement of lease liabilities | 13 | 162 |
| Operating cash flows used for operating leases | $ 13 | $ 162 |
Segment Information (Details) |
9 Months Ended |
|---|---|
Dec. 31, 2021 | |
| Segment Information (Details) [Line Items] | |
| Number of reportable segments | 2 |
| Phase I Deployment [Member] | |
| Segment Information (Details) [Line Items] | |
| Number of systems installed | 1,631 |
| Phase II Deployment [Member] | |
| Segment Information (Details) [Line Items] | |
| Number of systems installed | 2,978 |
Income Taxes (Details) - USD ($) $ in Thousands |
1 Months Ended | 3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|---|
Mar. 27, 2020 |
Dec. 31, 2021 |
Dec. 31, 2020 |
Dec. 31, 2021 |
Dec. 31, 2020 |
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| Income Tax Disclosure [Abstract] | |||||
| Income tax expense benefit | $ 26 | $ 0 | $ 576 | $ 181 | |
| Effective tax rate percentage | 14.00% | 0.30% | |||
| Income tax description | 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. | ||||
Subsequent Events (Details) |
Jan. 04, 2022 |
|---|---|
| Subsequent Events [Abstract] | |
| Description of purchase agreement | 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 “DMR Transaction”). The DMR Transaction is subject to certain closing conditions, including satisfactory financial and legal diligence, and the parties are working toward closing the transaction. |
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M.2+