UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: March 31, 2019
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-31810
Cinedigm Corp.
(Exact name of registrant as specified in its charter)
| Delaware | 22-3720962 | |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
| 10018 | ||
| (Address of principal executive offices) | (Zip Code) |
(212) 206-8600
(Registrant’s telephone number, including area code)
| Securities registered pursuant to Section 12(b) of the Act: | ||
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| CLASS A COMMON STOCK, PAR VALUE $0.001 PER SHARE | CIDM | NASDAQ GLOBAL MARKET | ||
Securities registered pursuant to Section 12(g) of the Act: NONE
| Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. | Yes | ||
| Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. | Yes | ||
| Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | Yes | ||
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). | Yes | ||
| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act | |||
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ | Smaller reporting company ☒ | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). | Yes | ☒ | ||||
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the issuer based on a price of $1.16$2.51 per share, the closing price of such common equity on the Nasdaq Global Market, as of September 30, 2018,2021, was $15,825,633.$326,631,850. For purposes of the foregoing calculation, all directors, officers and shareholders who beneficially own 10% of the shares of such common equity have been deemed to be affiliates, but the Company disclaims that any of such persons are affiliates.
As of July 08, 2019, 35,723,638June 27, 2022, 176,737,459 shares of Class A Common Stock, $0.001 par value were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
CINEDIGM CORP.
TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS
Various statements contained in this report or incorporated by reference into this report constitute “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements are based on current expectations and are indicated by words or phrases such as “believe,” “expect,” “may,” “will,” “should,” “seek,” “plan,” “intend” or “anticipate” or the negative thereof or comparable terminology, or by discussion of strategy. Forward-looking statements represent as of the date of this report our judgment relating to, among other things, future results of operations, growth plans, sales, capital requirements and general industry and business conditions applicable to us. Such forward-looking statements are based largely on our current expectations and are inherently subject to risks and uncertainties. Our actual results could differ materially from those that are anticipated or projected as a result of certain risks and uncertainties, including, but not limited to, a number of factors, such as:
| ● | successful execution of our business strategy, particularly for new endeavors; |
| ● | the performance of our targeted markets; |
| ● | competitive product and pricing pressures; |
| ● | changes in business relationships with our major customers; |
| ● | successful integration of acquired businesses; |
| ● | the content we distribute through our in-theatre, on-line and mobile services may expose us to liability; |
| ● | general economic and market conditions; |
| ● | our financial condition and financial flexibility, including, but not limited to, our ability to obtain necessary financing for our business as and when needed; |
| ● | disruptions to our business due to the COVID-19 pandemic, including workforce inability to perform in the ordinary course due to illness or access restrictions; and |
| ● | the other risks and uncertainties that are set forth in Item 1, “Business”, Item 1A “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. |
These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. Except as otherwise required to be disclosed in periodic reports required to be filed by public companies with the Securities and Exchange Commission (“SEC”) pursuant to the SEC'sSEC’s rules, we have no duty to update these statements, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, we cannot assure you that the forward-looking information contained in this report will in fact transpire.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Cinedigm Corp. was incorporated in Delaware on March 31, 2000 (“Cinedigm”, “us”, “our”, and collectively with“Company” refers to Cinedigm Corp. and its subsidiaries unless the “Company”)context otherwise requires). We areCinedigm is (i) a leading independent distributor and aggregator of independent movie,music, television, and other short form content managing a library of distribution rights to thousands of titles and episodes releaseddistributed across digital, over-the-top (OTT), physical, and home and mobile entertainment platforms as well as (ii) a leading servicer of digital cinema assets on over 12,0002,843 domestic and foreign movie screens.several international countries.
Over the past several years, Cinedigm has transformed itself from being a digital cinema equipment and physical content distributor to a leading independent streaming company with the planned phasing out of its legacy projector division.
Cinedigm is a leading independent streaming entertainment company serving global enthusiast fan bases. Since our inception, we have played a significant role in the digital distribution revolution that continues to transform the media and entertainment landscape. In additionCinedigm delivers high-quality, curated content through subscription video on demand (SVOD) and dedicated ad-supported (AVOD) and free, ad-supported streaming linear (FAST) channels.
Cinedigm’s broad portfolio enables the Company to ourachieve significant market share on every key consumer streaming device and platform. As the Company obtains high-growth distribution territories globally, the Company expects each of these channels to generate high-margin revenues to Cinedigm. As its channel portfolio has grown, the Company’s viewership and subscription metrics have grown significantly. The Company currently reaches over 23.8 million streaming channel monthly active viewers. The Company has rights to a library of over 33,000 film & TV assets, 16 different enthusiast streaming brands across 19 live streaming channels, and over 640,000 subscribers (SVOD) reaching 900 million unique streaming devices globally.
Cinedigm has been a technological pioneer over its history and continues to be one today. Through its world-class, proprietary streaming technology, the Company has become a partner of choice for content producers, rightsholders, and major media companies seeking to monetize their content in the streaming ecosystem. The Company’s streaming technology platform, known as MatchpointTM, is a software-as-a-service platform which automates the distribution of streaming content and OTT channels. The Company has a long legacy in using technology to transform the entertainment industry, and played a pioneering role in transitioning over 12,00011,000 movie screens from traditional analog film prints to digital distribution, we have becomedistribution.
Cinedigm is a leading distributor of independent content, both through organic growthfilm and acquisitions. We distribute productstelevision content. The Company operates a growing portfolio of owned and operated over-the-top (“OTT”) streaming entertainment channels. The Company distributes content for major brands such as Hallmark, Televisa, ITV, Nelvana, ZDF, Shout! Factory,Konami, NFL, NHL and ScholasticNHL as well as leading international and domestic content creators, movie producers, television producers and other short form digital content producers. We collaborateCinedigm collaborates with producers, major brands and other contentIP owners to market, source, curate and distribute quality content to targeted audiences through (i) existing and emerging digital home entertainment platforms, including Apple, Amazon Prime, Netflix, Hulu, Xbox, PlayStation, Walmart NowTubi, PlutoTV, Vudu and cable/satellite video-on-demand ("VOD"(“VOD”) and (ii) packaged distribution of DVD and Blu-ray discs to wholesalers and retailers with sales coverage to over 60,000 brick and mortar48,000 retail storefronts, including Walmart, Target, Best Buy and Amazon.
The Company is well positioned in a changing media and entertainment landscape. Cinedigm is capitalizing on an evolving competitive environment where the top of the streaming industry is consolidating including competitors such as Netflix, Amazon Prime, Hulu and Disney Plus while Cinedigm has a complimentary offering as a leading independent distributor with a focus on the enthusiast segment of the market. The Company believes the enthusiast segment, focusing on audiences and genres underserved by the major streamers, will be a significant opportunity on a global basis. Today, the Company operates channels in numerous specialty sectors, including faith and family, science fiction, horror, kids, and other major segments. Given our extensive experience in operating and distributing enthusiast content, as well as the Company’s significantly improved financial position, the Company has begun executing an M&A roll-up strategy with a focus on enthusiast channels, content, and supporting technology. Over the past two years, the Company has acquired numerous channels and content libraries. The Company is actively focused on integrating the most recent acquisitions, as well as building and launching a variety of associated critical products, including: Fantawild, Fandor, The Film Detective, Screambox, Films Around the World, Bloody Disgusting, DMR, and other initiatives driving major technological changes in the entertainment industry.
The Company will continue to pursue accretive M&A opportunities in order to grow profitably and fortify its competitive advantage. The Company has completed & integrated six accretive acquisitions between October 2020 and March 31, 2022 with ongoing active M&A pipeline. As part of its M&A strategy, the Company is:
| ● | Executing on roll-up by completing several content related acquisitions enabling monetization; | |
| ● | Focused on acquiring higher quality content and streaming channels; | |
| ● | Exploring opportunities for new technology and other revenue channels including NFTs, ecommerce, podcasts and merchandise; and | |
| ● | Leveraging its proprietary tech platform (MatchpointTM), which allows for on-boarding multiple acquisitions concurrently. |
Some of the evolving consumer habits that are driving consumption of streaming and OTT content include:
| ● | Continued “cord-cutting” resulting in an increase in SVOD & AVOD migration, | |
| ● | Consumer preference towards third party channels and content platforms, | |
| ● | The rapid adoption of connected televisions and other dedicated streaming devices, | |
| ● | A rapid rise in consumption of ad-based content, | |
| ● | Increasing demand for underserved content; and | |
| ● | Growth trend in youth (kids) media consumption across multiple devices and brands. |
The Company believes it is positioned to deliver sustained profitable growth in the future by executing on several key initiatives:
| ● | Content: Delivering high-quality, curated content through subscription video on demand (SVOD) and dedicated ad-supported (AVOD) and free, ad-supported streaming (FAST) channels |
| ● | Technology & Distribution: |
| o | Dramatically expanding streaming content business through its Matchpoint™ platform, |
| o | Launching and scaling our channel portfolio – including the building of an umbrella streaming service encompassing all of the Company’s brands. |
| o | Accelerating the Company’s device and platform reach, which has exceeded 700 million consumer devices, and establishing key strategic advantages through partnership deals with connected streaming TV including Samsung, Roku and Vizio, as well as large OEM’s, cable companies and technology platforms including Sinclair Broadcast Group, Samsung, Comcast Xfinity, Roku, Amazon, Vewd and Vizio, and others. |
| o | Licensing film and TV content to every key player in OTT streaming ecosystem with Amazon, Apple, Netflix and Google. |
| ● | Audience: Growing viewership and subscription numbers significantly beyond our current base of more than 23 million viewers to potentially hundreds of millions of global viewers across billions of connected devices. |
| ● | Financial Performance/Metrics: |
| o | Driving EBITDA through incremental revenue growth from new channel launches, expansion of distribution, improved monetization and partnerships, and continuous efforts on cost mitigation. |
The Company announced its acquisition of FoundationTV on March 8, 2021, which acquisition was consummated on June 14, 2021, and the formation of Cinedigm India, its wholly-owned subsidiary formed to house FoundationTV. In addition we operateto powering Cinedigm’s portfolio of streaming channels and digital video distribution business, the new division will allow Cinedigm to expand their global streaming footprint. The Company is developing a growing numberchannel umbrella with global reach, which is expected to further enable growth and profitability.
As previously announced, on December 27, 2019, the Company entered into, and on February 14, 2020 amended, (see Note 2 - Summary of brandedSignificant Accounting Policies), a stock purchase agreement (as so amended, the “Metaverse Stock Purchase Agreement”) with BeiTai Investment LP (“BeiTai”), a related party for accounting purposes of Cinedigm, and curated over-the-top ("OTT"Aim Right Ventures Limited (“Aim Right”), two shareholders of A Metaverse Company, a leading Chinese entertainment company (“Metaverse”), formerly Starrise Media Holdings Limited, and related party, to buy from them an aggregate of 410,901,000 outstanding Metaverse ordinary shares (the “Metaverse Share Acquisition”). On February 14, 2020, the Company purchased 162,162,162 of the Metaverse ordinary shares from BeiTai and issued to BeiTai 21,646,604 shares of its Class A common stock in consideration. On April 10, 2020, the Company, in accordance with the terms of the Metaverse Stock Purchase Agreement, terminated its obligation to purchase Metaverse ordinary shares from Aim Right under the December 27, 2019 stock purchase agreement.
On April 10, 2020, the Company entered into another stock purchase agreement (the “April Metaverse Stock Purchase Agreement”) entertainment channels, including Docurama, CONtvwith five (5) shareholders of Metaverse - Bison Global Investment SPC - Bison Global No. 1 SP, Huatai Investment LP, Antai Investment LP, Mingtai Investment LP and Dove Channel.
As of March 31, 2022, the market value of Cinedigm’s ownership in A Metaverse Company (“Metaverse”) ordinary shares was approximately $7.03 million.
On October 11, 2019, the Company received a letter from the Listing Qualifications staff of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of the Company’s Class A common stock, par value $0.001 per share (the “Common Stock”), for the prior 30 consecutive business days, the Company no longer met the requirement to maintain a minimum bid price of $1 per share (the “Bid Price Rule”), as set forth in Nasdaq Listing Rule 5450(a)(1).
On December 18, 2019, the Company received a letter from Nasdaq indicating that the Company no longer met the requirement to maintain a minimum market value of publicly held shares of $15,000,000 (the “MVPHS Rule”), as set forth in Nasdaq Listing Rule 5450(b)(3)(C).
On April 1, 2018, information17, 2020, the Company received notice from Nasdaq that our Chief Operating Decision Maker ("CODM") regularly reviews, for purposes of evaluating Company performanceit has been aggregatedsuspended, effective April 16, 2020 and until June 30, 2020, relevant grace periods to regain compliance with the Bid Price Rule and the MVPHS Rule due to the winding downglobal market impact caused by COVID-19. Specifically, (x) no delisting would occur until July 1, 2020, and any extension to reach compliance with the Bid Price Rule, if granted by the Panel, would be further extended by the duration of Cinedigm Digital Funding I, LLC ("CDF I"). As a result,the suspension, and (y) the Company reassessednow had until August 29, 2020 to regain compliance with the MVPHS Rule.
On May 7, 2020, the Company was notified by Nasdaq that the previously disclosed MVPHS Rule deficiency had been cured, that the Company was in compliance, and decided to revise its determination ofthat Nasdaq considered the reportable segments. We now present ourmatter closed.
On June 17, 2020, the Company was notified by Nasdaq that the previously disclosed Bid Price Rule had been cured and that the Company was in compliance, and that Nasdaq considered the matter closed.
On October 5, 2020, the Company received a letter from the Nasdaq indicating that the Company no longer met the Bid Price Rule.
On February 2, 2021, the Company was notified by Nasdaq that the previously disclosed Bid Price Rule had been cured and that the Company was in compliance, and that Nasdaq considered the matter closed.
On April 4, 2022, the Company received a letter from the Nasdaq indicating that the Company no longer met the Bid Price Rule.
Risk and Uncertainties
The COVID-19 pandemic and related economic repercussions created significant volatility and uncertainty impacting the Company’s results of operations in two reportable segments as follows: (1) Cinema Equipment Business and (2) Content and Entertainment Business (“Content & Entertainment” or "CEG"). See Note 9 -
Longer term, there had been speculation that is attributablethe future of theatrical release strategies could change as a result of Major Studios being able to our Content & Entertainmentrelease movies simultaneously in theatres and Corporate segments.on streaming platforms during the pandemic. If fewer movies are released theatrically, a shift to digital viewing reduces revenue opportunities for virtual print fees and sales of digital cinema equipment. While Studios are still in an experimentation phase regarding theatrical/streaming strategies we are encouraged by the success of recent exclusive theatrical releases such as Sony’s ‘Spider-Man: No Way Home’, which became the first movie since the pandemic to hit $1 billion globally with no current plans to premiere on any streaming platforms.
CONTENT & ENTERTAINMENT
Content Distribution and our OTT EntertainmentEnthusiast Streaming Channels and Applications
Cinedigm Entertainment Group, or CEG, is a leading independent content distributor in North America as well as an innovator and leader in the quickly evolving OTT digital network business.America. We are unique among most independent distributors because of our direct relationships with thousands of digital as well as physical retail locations, and digital platforms, including Walmart, Target, Apple, Netflix and Amazon, as well as the national Video on Demand platforms. Our library of films and television episodes encompassencompasses award winning documentaries from Docurama Films®, acclaimed independent films, festival picks and a wide range of content from brand name suppliers, including Scholastic, NFL, Shout! FactoryKonami and Hallmark.
Additionally, we are leveraging our infrastructure, technology, content and distribution expertise to rapidly and cost effectively build and expand our OTTstreaming digital network business. businesses, which operates as Cinedigm Networks.
The Company currently operates 16 different enthusiast streaming brands across 19 live streaming channels under a wide array of business models:
Our firstSubscription Video on Demand (SVOD) Services consist of:
| ● | Docurama – a documentary and nonfiction streaming service launched in September 2014; |
| ● | CONtv – a fandom-centric service focused on comics, genre films and geek culture, launched in March 2015; |
| ● | Dove Channel – a faith and family entertainment service launched in August 2015; |
| ● | Viewster Anime – a Japanese Anime streaming service acquired in February, 2018; |
| ● | Fandor – an independent film streaming service, acquired in January 2021; and |
| ● | Screambox – a horror streaming service acquired in February 2021. |
Our Ad-Supported Video on Demand (AVOD) or Free Ad Supported Streaming Television Channels consist of:
| ● | Dove Channel – a faith and family linear channel launched in 2017; |
| ● | Docurama – a documentary and nonfiction linear channel launched in 2018; |
| ● | CONtv – a fandom-centric linear channel launched in 2018; |
| ● | Comedy Dynamics – a comedy linear channel launched in 2019; |
| ● | The Bob Ross Channel, a lifestyle linear channel launched in 2020; |
| ● | MyTime, a women’s entertainment linear channel, launched in 2020; |
| ● | WhistleTV – a sports lifestyle channel launched in 2020, ended December 31, 2021; |
| ● | CONtv Anime, an anime linear channel launched in 2020; |
| ● | Bloody Disgusting TV a horror linear channel launched in 2020; |
| ● | The Film Detective – a classic film linear channel and on demand platform acquired in 2020; and |
| ● | Lone Star – a classic western channel and on demand platform acquired in 2020; | |
| ● | Real Madrid TV – a sports and lifestyle linear channel launched in 2021; | |
| ● | The Only Way is Essex – a British reality and content linear channel launched in 2021; | |
| ● | El Rey – a Latino centric linear channel launched in 2021; | |
| ● | The Country Network – a country music lifestyle linear channel launched in 2021; | |
| ● | So…Real – a reality TV and documentary enthusiast linear channel launched in 2020; | |
| ● | Asian Crush – a pan-Asian culture and lifestyle linear channel acquired in March 2022; | |
| ● | Retro Crush – a classic anime linear channel acquired in March 2022; | |
| ● | Cocoro – a kid and family centric Asian linear channel acquired in March 2022; | |
| ● | KMTV – a Korean-pop linear channel acquired in March 2022; | |
| ● | Yuyu – a general programming adjunct linear channel acquired in March 2022; | |
| ● | Midnight Pulp – a horror, thriller and cult linear channel acquired in March 2022. |
From time to time, the company will announce channel Docurama, launcheddevelopment deals with a variety of media companies. The timeline for planning and launching a channel varies from months to years and is also dependent on carriage conversations with a wide array of platforms and distributors. We announced three channels in May 2014 as an advertising supported video on demand service ("AVOD") across most Internet connected devices and now contains hundreds of documentary films to stream. In December 2015, we successfully transitioned Docurama to a subscription video on demand ("SVOD") service with its launch on Amazon Prime. In March 2015, we launched CONtv2020 that remain in partnership with Wizard World, Inc., a fandom and pop culture entertainment targeted lifestyle channel and "Freemium" service with both AVOD and SVOD components. Our Freemium business model provides users with free content and the ability to upgrade to a selection of premium services by paying subscription fees. CONtv is one of the largest Freemium OTTdevelopment through 2022:
| ● | LIVX, a music and entertainment channel |
| ● | Party Crashers, a political news channel |
| ● | AudPop, a short form entertainment channel |
The digital channels available in terms of hours of content, with over 3,000 hours of film and television episodes, including original programs and live coverage of Comic-Con and pop culture events from around the country. In the fall of 2015, we introduced our third OTT channel, Dove Entertainment Channel, whichmarket is a family entertainment service providing high-quality filmnascent industry, and television programs approved byfrom time to time, the Dove Foundation.Company will cease operating or distributing channels that do not find adequate audiences or meet the needs of platforms or audiences. In April 2018,fiscal year 2021, we launched twoelected to cease operating or distributing the following channels: Wham Network, which is an entertainment, news and lifestyle channel targeting the eSports industry; and COMBAT GO, a 24/7, mixed martial arts, worldwide combat channel. We now have a total of five networks distributed, and four to five more in our development pipeline slated to roll out over the next 12 months.
| ● | Bambu, a Chinese entertainment linear channel owned and operated by Cinedigm; |
| ● | Hallypop, a Korean music and lifestyle linear channel distributed by Cinedigm; and |
| ● | CombatGo, an international combat sports linear channel distributed by Cinedigm; |
We distribute our OTT contentstreaming channels in twoseveral distinct ways: direct to consumer, through major application platforms such as the web, iOS, Android, Roku, AppleTV,Apple TV, Amazon Fire, Vizio, and Samsung; and through third party distributors of content on emerging platforms such as Amazon Prime, Twitch, Xumo and Sling/ Dish.Dish, and a wide variety of Smart TV manufacturers globally. Through our rapidly expanding base of distribution arrangements, Cinedigm has an estimated addressable device footprint of more than 330 million devices in North America and more than 370 million internationally. Our focus in the near term will be to expand our market position in the FAST and AVOD divisions of the streaming industry, taking advantage of the shift of more than $70 billion dollars in television advertising revenue to the OTT market. We believe our scaled channel portfolio, our superior capabilities in launching and managing channels at scale, and our strategic partnerships with key content owners and platforms will provide us a strategic advantage to gain considerable market share in the immediate future.
Our Strategy
The shift from traditional entertainment content, and (2) branded and curated over-the-top OTT digital network business providing entertainment channels and applications. With these complementary entertainment distribution capabilities, we believe that we are capitalizing on the key drivers of value that we believe are criticalconsumption to success in content distribution going forward. Our CEG segment holds direct relationships with physical retail locations and digital platforms, including Walmart, Target, Apple, Netflix and Amazon, as well as the national Video on Demand platforms.
We believe that we are well positioned to succeed in the OTTstreaming channel business for the following key reasons:
| ● | More than 13 years of experience as a primary distributor of content to scale third party OTT platforms such as Netflix, Hulu, Amazon Prime, Apple iTunes and more, and nearly seven years of history operating OTT channels with millions of downloads, hundreds of thousands of registered users, and hundreds of millions of discrete data points on our customer’s behavior and preferences; |
| ● | The depth and breadth of our almost 33,000 title film and television episode library; |
| ● | Our digital assets and deep, long-standing relationships as launch partners that cover the major digital platforms and devices; |
| ● | Our marketing expertise; |
| ● | Our flexible releasing strategies, which differ from larger entertainment companies that need to protect their legacy businesses; |
| ● | Our proprietary streaming technology enabling us to operate at scale and at lower operating costs than our competitors; and |
| ● | Our experienced management team. |
Intellectual Property
We own certain copyrights, trademarks and Internet domain names in connection with the Content & Entertainment business. We view these proprietary rights as valuable assets. We maintain registrations, where appropriate, to protect them and monitor them on an ongoing basis.
Customers
For the fiscal year ended March 31, 2019,2022, two customers, WalmartAmazon and Amazon,Distribution Solutions each represented 10% or more18% and 25% respectively of CEG'sCEG’s revenues and Amazon represented approximately 10%6% and 8%, respectively, of our consolidated revenues. For the fiscal year ended March 31, 2021, Amazon and Distribution Solutions represented 15% and 22% respectively of CEG’s revenues and approximately 9% and 13%, respectively, of our consolidated Revenues.
Competition
Numerous companies are engaged in various forms of producing and distributing independent movies and alternative content. These competitors may have significantly greater financial, marketing and managerial resources than we do, may have generated greater revenue and may be better known than we are at this time.
Competitors to our Content & Entertainment and Digital Networks segment are as follows:Chicken Soup for the Soul Entertainment, Inc. and RLI/American Multi-Cinema, Inc.
CINEMA EQUIPMENT BUSINESS
The Phase I Deployment and Phase II Deployment operations consist of the following:
| Operations of: | Products and services provided: | |
| Cinema Equipment Business | Financing vehicles and administrators for 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. |
PHASE I DEPLOYMENT AND PHASE II DEPLOYMENT
In June 2005, we formed our Phase I Deployment segmentdivision in order to purchase up to 4,000 Systems under an amended framework agreement with Christie Digital Systems USA, Inc. (“Christie”). As of March 31, 2019,2022, Phase I Deployment had 3,480696 Systems installed.
In October 2007, we formed our Phase II Deployment segmentdivision for the administration of up to 10,000 additional Systems. As of March 31, 2019,2022, Phase II Deployment had 5,8532,147 of such Systems installed.
Our Phase I Deployment and Phase II Deployment segmentsdivisions own and license Systems to theatrical exhibitors and collect VPFsvirtual print fees (“VPFs”) from motion picture studios and distributors, as well as alternative content fees ("ACFs"(“ACFs”) from alternative content providers and theatrical exhibitors, when content is shown on exhibitors'exhibitors’ screens. We have licensed the necessary software and technology solutions to the exhibitor and have facilitated the industry'sindustry’s transition from analog (film) to digital cinema. As part of the Phase I Deployment of our Systems, we have agreements with nine motion picture studios and certain smaller independent studios and exhibitors, allowing us to collect VPFs and ACFs when content is shown in theatres, in exchange for having facilitated and financed the deployment of Systems. Phase 1 DC has agreements with 2017 theatrical exhibitors that license our Systems in order to show digital content distributed by the motion picture studios and other providers, including Content & Entertainment, which is described below.
Beginning in December 2015, certain of our digital cinema equipment began to reach the conclusion of their 10-year deployment payment period with certain distributors and, therefore, Virtual Print Fee ("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. As of March 31, 2019,2022, all of our 3,480696 systems from the Phase I Deployment phase of our cinema equipment business segment had ceased to earn a significant portion of VPF revenue from certain major studios, although various other studios, consisting mostly of small independent studios, will continuecontinued to pay VPFs through December 2020.March 31, 2022. We expect to continue to earn such ancillary revenue from the cinema equipment segment through December of 2020;2022; however, such amounts are expected to be significantly less material to our consolidated financial statements. The reduction in VPF revenue on cinema equipment business systems approximately coincided with the conclusion of certain of our non-recourse debt obligations and, therefore, the reduced cash outflows related to such non-recourse debt obligations partially offset the reduced VPF revenue since November 2017.
Under the terms of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive one-year terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we have begun, and expect to continue, to pursue the sale of the Systems to such exhibitors. Such sales were as originally contemplated as the conclusion of the digital cinema deployment plan. Cinedigm
Our Phase II Deployment segmentdivision has entered into digital cinema deployment agreements with eight motion picture studios, and certain smaller independent studios and exhibitors, to distribute digital movie releases to exhibitors equipped with our Systems, for which we and our wholly owned, non-consolidated subsidiary Cinedigm Digital Funding 2, LLC ("(“CDF2 Holdings"Holdings”) earn VPFs. As of March 31, 2019,2022, our Phase II Deployment segment also entered intodivision has master license agreements with 187106 exhibitors covering 5,0272,147 screens, whereby the exhibitors agreed to install our Systems. As of March 31, 2019,2022, we had 5,0272,147 Phase 2 DC Systems installed, including 3,596839 screens under the exhibitor-buyer structure (“Exhibitor-Buyer”), 1,431and 1,308 screens covering 23 exhibitors through CDF2.
Exhibitors paid us an installation fee of up to $2.0 thousand per screen out of the VPFs collected by our Services segment.division. We manage the billing and collection of VPFs and remit to exhibitors all VPFs collected, less an administrative fee of approximately 10%. For Phase 2 DC Systems we own and finance on a non-recourse basis, we typically received a similar installation fee of up to $2.0 thousand per screen and an ongoing administrative fee of approximately 10% of VPFs collected. We have recorded no debt, property and equipment, financing costs or depreciation in connection with Systems covered under the Exhibitor-Buyer Structure and CDF2 Holdings.
VPFs are earned pursuant to contracts with movie studios and distributors, whereby amounts are payable to our Phase I and Phase II deployment businesses according to fixed fee schedules, when movies distributed by studios are displayed in movie theatres using our installed Systems. One VPF is payable to us upon the initial booking of a movie, for every movie title displayed per System. Therefore, the amount of VPF revenue that we earn depends on the number of unique movie titles released and displayed using our Systems. Our Phase II Deployment segmentdivision earns VPF revenues only for Systems that it owns.
Our Phase II Deployment agreements with distributors require payment of VPFs for ten years from the date that each system is installed; however, we may no longer collect VPFs once “cost recoupment,” as defined in the contracts with movie studios and distributors, is achieved. Cost recoupment will occur once the cumulative VPFs and other cash receipts collected by us have equaled the total of all cash outflows, including the purchase price of all Systems, all financing costs, all “overhead and ongoing costs,” as defined, subject to maximum agreed upon amounts during the four-year roll-out period and thereafter. Furthermore, if cost recoupment occurs before the end of the eighth contract year, a one-time “cost recoupment bonus” is payable to us by the studios. Cash flows, net of expenses, received by our Phase II Deployment business, following the achievement of cost recoupment, must be returned to the distributors on a pro-rata basis. At this time, we cannot estimate
As of March 31, 2022, the timing or probabilityCompany has certain booked liabilities in relation to exhibitors that have received payments that were permitted under the Agreements with Exhibitors. The administrative services related to the Company give rise to variable consideration and are constrained until the uncertainty associated with the variable consideration is resolved. As of March 31 2022, most of the achievementCompany’s agreements with studios and with exhibitors in relation to VPFs have either reached the end of cost recoupment.the term or are close to termination, with some of the agreements reaching the end of any audit rights.
Customers
No single Phase I or Phase II customer comprised more than 10% of our consolidated revenue.
Seasonality
Revenues earned by our Cinema Equipment Business segment from the collection of VPFs from motion picture studios are seasonal, coinciding with the timing of releases of movies by the motion picture studios. Generally, motion picture studios release the most marketable movies during the summer and the winter holiday season. The unexpected emergence of a hit movie during other periods can alter the traditional trend. The timing of movie releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or any other quarter. The seasonality of the motion picture exhibition;exhibition industry however, has become less pronounced as the motion picture studios are releasing movies somewhat more evenly throughout the year.
SERVICES
Our Services segmentdivision provides monitoring, billing, collection, verification and other management services to Phase 1 DC and Phase 2 DC as well as to exhibitor-buyers who purchase their own equipment. Our Services segmentdivision provides such services to the 3,480696 screens in the Phase I Deployment for a monthly service fee equal to 5% of the VPFs earned by Phase 1 DC and an incentive service fee equal to 2.5% of the VPFs earned by Phase 1 DC. The Services segmentdivision also provides services to the 5,8532,147 Phase II Systems deployed, for which we typically receive a monthly fee of approximately 10% of the VPFs earned by Phase 2 DC. The total Phase II service fees are subject to an annual limitation under the terms of our agreements with motion picture studios and are determined based upon the respective Exhibitor-Buyer Structure, KBC or CDF2 agreements. Unpaid service fees in any period remain an obligation to Phase 2 DC in the cost recoupment framework. Such fees are not recognized as income or accrued as an asset on our balance sheet given the uncertainty of the receipt and the timing thereof as future movie release and bookings are not known. Service fees are accrued and recognized only on deployed Phase II Systems. As a result, the annual service fee limitation is variable until these fees are paid.
In February 2013, we (i) assigned to our wholly owned subsidiary, Cinedigm DC Holdings LLC (“DC Holdings ”)“), the right and obligation to service the digital cinema projection systems from the Phase I Deployment and certain systems that were part of the Phase II Deployment, (ii) delegated to DC Holdings the right and obligation to service certain other systems that were part of the Phase II Deployment and (iii) assigned to DC Holdings the right to receive servicing fees from the Phase I and Phase II Deployments. We also transferred to DC Holdings certain of our operational staff whose responsibilities and activities relate solely to the operation of the servicing business and to provide DC Holdings with the right to use the supporting software and other intellectual property associated with the operation of the servicing business.
Our Services segmentdivision also has international servicing partnerships in Australia and New Zealand with the Independent Cinema Association of Australia and is currently servicing 530 screens as of March 31, 2019.2022, we ceased providing servicing to such parties.
Competition
Our Services segmentdivision faces limited competition domestically in its digital cinema services business as the major Hollywood movie studios have only signed digital cinema deployment agreements with five entities, including us, and the deployment period in North America is now complete. Competitors include: Digital Cinema Implementation Partners (“DCIP”), a joint venture of three large exhibitors (Regal Entertainment Group, AMC Entertainment Holdings, Inc. and Cinemark Holdings, Inc.) focused on managing the conversions of those three exhibitors; Sony Digital Cinema, to support the deployment of Sony projection equipment; Christie Digital USA, Inc., to support the deployment of Christie equipment; and GDC, Inc., to support the deployment of GDC equipment. We have a significantly greater market share than all other competitors except for the DCIP consortium, which services approximately 18,000 total screens representing its consortium members.
As we expand our servicing platform internationally, additional competitors beyond those listed above consist of Arts Alliance, Inc., a leading digital cinema servicer focused on the European markets, and GDC, as well as other potential local start-ups seeking to service a specific international market. We typically seek to partner with a leading local entity to combine our efficient servicing infrastructure and strong studio relationships with the necessary local market expertise and exhibitor relationships.
ENVIRONMENTAL
The nature of our business does not subject us to environmental laws in any material manner.
EMPLOYEES
As of March 31, 2019,2022 we had 104146 employees, with 6 part-time, 134 full-time and 98 full-time,6 temporaries, of which 2011 are in sales and marketing, 3761 are in operations, and 4174 are in executive, finance, technology and administrationadministrative functions.
AVAILABLE INFORMATION
Our Internet website address is www.cinedigm.com. We will make available, free of charge at the "Investor“Investor Relations - Financial Information” section of our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and all amendments to those reports and statements filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC.
In addition, the SEC maintains a website that contains reports, proxy and information statements, and other information regarding companies that file electronically with the Commission. This information is available at
www.sec.gov,ITEM 1A. RISK FACTORS
An investment in our securities involves a degree of risk. The risks described below are not the only ones facing us. Additional risks not presently known to us or that we currently deem immaterial may also have a material adverse effect on us. If any of the following risks actually occur, our financial condition, results of operations, cash flows or business could be harmed. In that case, the market price of our stock could decline and you could lose part or all of your investment in our stock.
Risks Related to our Business
We face the risks of doing business in new and rapidly evolving markets and may not be able successfully to address such risks and achieve acceptable levels of success or profits.
We have encountered and may continue to encounter the challenges, uncertainties and difficulties frequently experienced in new and rapidly evolving markets, including:
| ● | limited operating experience; |
| ● | net losses; |
| ● | lack of sufficient customers or loss of significant customers; |
| ● | a changing business focus; |
| ● | the downward trend in sales of physical DVD and Blu-ray discs; |
| ● | rapidly-changing technology for some of the products and services we offer; and |
| ● | difficulties in managing potentially rapid growth. |
We expect competition to be intense. If we are unable to compete successfully, our business and results of operations will be seriously harmed.
The markets for the digital cinema business and the content distribution business are competitive, evolving and subject to rapid technological and other changes. We expect the intensity of competition in each of these areas to increase in the future. Companies willing to expend the necessary capital to create facilities and/or capabilities similar to ours may compete with our business. Increased competition may result in reduced revenues and/or margins and loss of market share, any of which could seriously harm our business. In order to compete effectively in each of these fields, we must differentiate ourselves from competitors.
Many of our current and potential competitors have longer operating histories and greater financial, technical, marketing and other resources than we do, which may permit them to adopt aggressive pricing policies. As a result, we may suffer from pricing pressures that could adversely affect our ability to generate revenues and our results of operations. Many of our competitors also have significantly greater name and brand recognition and a larger customer base than us. If we are unable to compete successfully, our business and results of operations will be seriously harmed.
Our plan to acquire additional businesses involves risks, including our inability to complete or integrate an acquisition successfully, our assumption of liabilities, dilution of your investment and significant costs.
Strategic and financially appropriate acquisitions are a key component of our growth strategy. We are currently in the process
Our previous acquisitions involve risks, including our inability to integrate successfully the new businesses and our assumption of certain liabilities.
Our acquisitionprevious acquisitions of these businesses and their respective assets also involved the risks that the businesses and assets acquired may prove to be less valuable than we expected and/or that we may assume unknown or unexpected liabilities, costs and problems. In addition, we assumed certain liabilities in connection with these acquisitions and we cannot assure you that we will be able to satisfy adequately such assumed liabilities. Other companies that offer similar products and services may be able to market and sell their products and services more cost-effectively than we can.
We have recorded goodwill impairment charges in the past and may be required to record additional charges to future earnings if our goodwill becomes further impaired or our intangible assets become impaired.
We are required under generally accepted accounting principles to review our goodwill and definite-lived intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill must be tested for impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying value of our reporting units and intangible assets may not be recoverable include a decline in stock price and market capitalization, slower growth rates in our industry or our own operations, and/or other materially adverse events that have implications on the profitability of our business. In fiscal year ended March 31, 2016, we recorded a goodwill impairment charge of $18.0 million in our Content & Entertainment operating segment. We may be required to record additional charges to earnings during any period in which a further impairment of our goodwill or other intangible assets is determined which could adversely affect our results of operations.
If we do not manage our growth, our business will be harmed.
We may not be successful in managing our growth. Past growth has placed, and future growth will continue to place, significant challenges on our management and resources, related to the successful integration of the newly acquired businesses. To manage the expected growth of our operations, we will need to improve our existing, and implement new, operational and financial systems, procedures and controls. We may also need to expand our finance, administrative, client services and operations staffs and train and manage our growing employee base effectively. Our current and planned personnel, systems, procedures and controls may not be adequate to support our future operations. Our business, results of operations and financial position will suffer if we do not effectively manage our growth.
If we are not successful in protecting our intellectual property, our business will suffer.
We depend heavily on technology and viewing content to operate our business. Our success depends on protecting our intellectual property, which is one of our most important assets. We have intellectual property consisting of:
| ● | rights to certain domain names; |
| ● | registered service marks on certain names and phrases; |
| ● | various unregistered trademarks and service marks; |
| ● | film, television and other forms of viewing content; |
| ● | know-how; and |
| ● | rights to certain logos. |
If we do not adequately protect our intellectual property, our business, financial position and results of operations would be harmed. Our means of protecting our intellectual property may not be adequate. Unauthorized parties may attempt to copy aspects of our intellectual property or to obtain and use information that we regard as proprietary. In addition, competitors may be able to devise methods of competing with our business that are not covered by our intellectual property. Our competitors may independently develop similar technology, duplicate our technology or design around any intellectual property that we may obtain.
Although we hold rights to various web domain names, regulatory bodies in the United States and abroad could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. The relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. We may be unable to prevent third parties from acquiring domain names that are similar to or diminish the value of our proprietary rights.
Any future debt obligations of ours, and leasedebt obligations of our non-consolidated subsidiaries, could impair our financial flexibility and restrict our business significantly.
We nowdo not currently have and will continue to have, significantdebt obligations. However, if we incur debt obligations. In March 2018, we entered into a Loan, Guaranty and Security agreement, dated as of March 30, 2018, which provides for a Credit Facility with East West Bank (the "Credit Facility") pursuant to which we were able to borrow up to $19.0 million in revolving loans at any time outstanding. The obligations under the Credit Facility are with full recourse to Cinedigm. As of March 31, 2019, the principal amount outstanding under the Credit Facility was $18.6 million. In July, September and October 2016 and January, February and July 2017, we issued $10.4 million aggregate principal amount of 12.75% Second Secured Lien Notes due 2019 (the “Second Secured Lien Notes”), which debt is secured on a second lien basis and is subordinate to the debt under the Credit Facility and senior to the 2018 Notes. Some of the interest paid on the Second Secured Lien Notes is paid in cash and some is paid in kind, resulting in additional principal outstanding. In November 2017, $0.5 million principal amount of Second Secured Lien Notes were canceled in exchange for other securities of the Company, and approximately $11.1 million principal amount of Second Secured Lien Notes is outstanding as of March 31, 2019. In July 2018, we issued $10.0 million principal amount of a 5% loan due in July 2019 and may be extended by mutual agreement of Cinedigm and the lender, which debt is unsecured and subordinate to the debt under the Credit Facility. Separately, in October 2018, we issued $5.0 million principal amount of an 8% convertible note (the “2018 Convertible Note”), which debt is unsecured and subordinate to the debt under the Credit Facility.
| ● | limiting our ability to obtain necessary financing in the future; |
| ● | requiring us to dedicate a substantial portion of our cash flow to payments on our debt obligations, thereby reducing the availability of our cash flow to fund working capital, capital expenditures; and |
| ● | other corporate requirements that may affect or limit our business activities. |
CDF2 and CDF2 Holdings are our indirect wholly owned,wholly-owned, non-consolidated VIEs that are intended to be special purpose, bankruptcy remote entities. CDF2 Holdings has entered into the CHG Leasea lease (the “CHG Lease”) pursuant to which CHGCHG-Meridian U.S. Finance, Ltd. provided sale/leaseback financing for digital cinema projection systems that were partially financed as part of the Phase II deployment of our Digital Equipment segment. The CHG Lease is non-recourse to Cinedigm and our subsidiaries, excluding our VIEs, CDF2 and CDF2 Holdings, as the case may be. Although the Phase II financing arrangements undertaken by CDF2 and CDF2 Holdings are important to us with respect to the success of our Phase II Deployment, our financial exposure related to the debt of CDF2 and CDF2 Holdings is limited to the $2.0 million initial investment we made into CDF2 and CDF2 Holdings. CDF2 Holding’s total stockholder’s deficit at March 31, 20192022 was $28.9$55.6 million. We have no obligation to fund the operating loss or the deficit beyond our initial investment, and accordingly, we carried our investment in CDF2 Holdings at $0 as of March 31, 20192022 and 2018.2021.
The obligations and restrictions under the CHG Lease could have important consequences for CDF2 and CDF2 Holdings, including:
| ● | Limiting our ability to obtain necessary financing in the future; |
| ● | restricting us from incurring liens on the digital cinema projection systems financed and from subleasing, assigning or modifying the digital cinema projection systems financed; and |
| ● | requiring them to dedicate a substantial portion of their cash flow to payments on their debt obligations, thereby reducing the availability of their cash flow for other uses. |
If we are unable to meet our lease and debt obligations, we could be forced to restructure or refinance our obligations, to seek additional equity financing or to sell assets, which we may not be able to do on satisfactory terms or at all. As a result, we could default on those obligations and in the event of such default, our lenders could accelerate our debt or take other actions that could restrict our operations.
The foregoing risks would be intensified to the extent we borrow additional money or incur additional debt.
We may not be able to generate the amount of cash needed to fund our future operations.
Our ability either to make payments on or to refinance our indebtedness, or to fund planned capital expenditures and research and development efforts, will depend on our ability to generate cash in the future. Our ability to generate cash is in part subject to general economic, financial, competitive, regulatory and other factors that are beyond our control.
Based on our current level of operations and in conjunction with the cost reduction measures that we have recently implemented and continue to implement, we believe our cash flow from operations, available borrowings and loan and credit agreement terms will be adequate to meet our future liquidity needs through at least the next twelve months. Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity or capital requirements. If we are unable to service our indebtedness, we will be forced to adopt an alternative strategy that may include actions such as:
| ● | reducing capital expenditures; |
| ● | reducing our overhead costs and/or workforce; |
| ● | reducing research and development efforts; |
| ● | selling assets; |
| ● | restructuring or refinancing our remaining indebtedness; and |
| ● | seeking additional funding. |
We cannot assure you, however, that our business will generate sufficient cash flow from operations, or that we will be able to make future borrowings in amounts sufficient to enable us to pay the principal and interest on our current indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.
We have incurred losses since our inception.long term losses.
We have incurred long term losses since our inception in March 2000 and have financed our operations principally through equity investments and borrowings. As of March 31, 2019,2022, we had negative working capital, defined as current assets less current liabilities, of $48.8$(4.8) million, and cash and cash equivalents totaling $13.1 million, total equity of $41 million, and restricted cash totaling $18.9 million; we have total stockholders' deficit of $36.6 million; however, during the fiscal year ended March 31, 2019, we generated $11.1$4.9 million ofprovided by net cash flows from operating activities.
Our net losses and cash outflows may increase as and to the extent that we increase the size of our business operations, increase our sales and marketing activities, increase our content distribution rights acquisition activities, enlarge our customer support and professional services and acquire additional businesses. These efforts may prove to be more expensive than we currently anticipate which could further increase our losses. We must continue to increase our revenues in order to become profitable. We cannot reliably predict when, or if, we will become profitable. Even if we achieve profitability, we may not be able to sustain it. If we cannot generate operating income or positive cash flows in the future, we will be unable to meet our working capital requirements.
Many of our corp
As of March 31, 2019,2022, our directors, executive officers and principal stockholders, those known by us to beneficially own more than 5% of the outstanding shares of our
We face risks associated with expanding our business in China.
In November 2017, Bison, a Hong Kong-based entity that does business in mainland China as well as other locations, became our majority owner. We anticipate that Bison'sBison’s presence and relationships in China will provide us with assistance in expanding our business to China. In January 2018, we announced a strategic alliance with A Metaverse Company, a leading Chinese entertainment company, formerly Starrise Media Holdings Limited, a leading Chinese entertainment
| ● | the Chinese government exerts substantial influence over the manner in which we must conduct our business activities; |
| ● | restrictions on currency exchange may limit our ability to receive and use our cash effectively; |
| ● | the Chinese government may favor local businesses and make it more difficult for foreign businesses to operate in China on an equal footing, or generally; |
| ● | there are increased uncertainties related to the enforcement of contracts with certain parties; and |
| ● | more restrictive rules on foreign investment could adversely affect our ability to expand our operations in China |
As a result of our growing operations in China, these risks could have a material adverse effect on our business, results of operations and financial condition.
We are subject to risks from our future acquisition activities or investmentsequity investment in Cinedigm.a foreign company.
We own approximately 18% of the majority owneroutstanding ordinary shares of our Class A common stock,Metaverse, a company that operates in China and therefore Cinedigm is considered a "foreign person" underwhose ordinary shares trade on the regulations relatingHong Kong Stock Exchange. We have partnered with Metaverse in the past, and continue to do so, with respect to the Committee on Foreign Investmentrelease of U.S.-sourced content in China and China-sourced content in the U.S. We may experience consequences from economic and regulatory events and requirements outside of the United States (“CFIUS”). Acquisitionsthat affect the value of these shares and their value to us, including changes in regulatory requirements that affect Metaverse, fluctuations in international currency exchange rates, volatility in international political and economic environments, public disclosure requirements, and unforeseen developments and conditions, including terrorism, war, epidemics and international tensions and conflicts. No assurance can be made that, if we were to sell these shares on the Hong Kong Stock Exchange in Hong Kong currency, we would receive the full value in U.S. dollars upon repatriating the proceeds, based on fluctuating currency exchange rates.
While the impact of these factors is difficult to predict, any one or investments that Cinedigm may wish to pursuemore of these factors could adversely affect the value of our investment in the future may be subject to CFIUS review. In such a case, Cinedigm and the other party may determine to submit to CFIUS review on a voluntary basis, or to proceed with the transaction and take a risk that CFIUS may
Our success will significantly depend on our ability to hire and retain key personnel.
Our success will depend in significant part upon the continued performance of our senior management personnel and other key technical, sales and creative personnel. We do not currently have significant “key person” life insurance policies for any of our employees. We currently have employment agreements with our chief executive officer. If we lose one or more of our key employees, we may not be able to find a suitable replacement(s) and our business and results of operations could be adversely affected. In addition, competition for key employees necessary to create and distribute our entertainment content and software products is intense and may grow in the future. Our future success will also depend upon our ability to hire, train, integrate and retain qualified new employees and our inability to do so may have an adverse impact upon our business, financial condition, operating results, liquidity and prospects for growth.
If we do not respond to future changes in technology and customer demands, our financial position, prospects and results of operations may be adversely affected.
The demand for our Systems and other assets in connection with our digital cinema business (collectively, our “Digital Cinema Assets”) may be affected by future advances in technology and changes in customer demands. We cannot assure you that there will be continued demand for our Digital Cinema Assets. Our profitability depends largely upon the continued use of digital presentations at theatres. Although we have entered into long term agreements with major motion picture studios and independent studios (the “Studio Agreements”), there can be no assurance that these studios will continue to distribute digital content to movie theatres. If the development of digital presentations and changes in the way digital files are delivered does not continue or technology is used that is not compatible with our Systems, there may be no viable market for our Systems and related products. Any reduction in the use of our Systems and related products resulting from the development and deployment of new technology may negatively impact our revenues and the value of our Systems.
The demand for DVD products is declining, and we anticipate that this decline will continue. We anticipate, however, that the distribution of DVD products will continue to generate positive cash flows for the Company for the foreseeable future. Should a decline in consumer demand be greater than we anticipate, our business could be adversely affected.
Termination of the MLAs and MLAAs could damage our revenue and profitability.
The master license agreements with each of our licensed exhibitors (the “MLAs”) are critical to our business as are master license administrative agreements (the “MLAAs”). The MLAs have terms, which expire in 2020 through 2022 and provide the exhibitor with an option to purchase our Systems or to renew for successive one-year periods up to ten years thereafter. The MLAs also require our suppliers to upgrade our Systems when technologyTechnology is necessary for compliance with DCI Specification becomes commercially available and we may determine to enhance the Systems, which may require additional capital expenditures. If any one of the MLAs were terminated prior to the end of its term, not renewed at its expiration or found to be unenforceable, or if our Systems are not upgraded or enhanced as necessary, it would have a material adverse effect on our revenue, profitability, financial condition and cash flows. Additionally, termination of MLAAs could adversely impact our servicing business.
An increase in the use of alternative movie distribution channels and other competing forms of entertainment could drive down movie theatre attendance, which, if causing significant theatre closures or a substantial decline in motion picture production, may lead to reductions in our revenues.
Various exhibitor chains, which are our distributors, face competition for patrons from a number of alternative motion picture distribution channels, such as DVD, network and syndicated television, VOD, pay-per-view television and downloading utilizing the Internet. These exhibitor chains also compete with other forms of entertainment competing for patrons’ leisure time and disposable income such as concerts, amusement parks and sporting events. An increase in popularity of these alternative movie distribution channels and competing forms of entertainment could drive down movie theatre attendance and potentially cause certain of our exhibitors to close their theatres for extended periods of time. Significant theatre closures could in turn have a negative impact on the aggregate receipt of our VPF revenues, which in turn may have a material adverse effect on our business and ability to service our debt.
An increase in the use of alternative movie distribution channels could also cause the overall production of motion pictures to decline, which, if substantial, could have an adverse effect on the businesses of the major studios with which we have Studio Agreements. A decline in the businesses of the major studios could in turn force the termination of certain Studio Agreements prior to the end of their terms. The Studio Agreements with each of the major studios are critical to our business, and their early termination may have a material adverse effect on our revenue, profitability, financial condition and cash flows.
Our success depends on external factors in the motion picture and television industry.
Our success depends on the commercial success of movies and television programs, which is unpredictable. Operating in the motion picture and television industry involves a substantial degree of risk. Each movie and television program is an individual artistic work, and inherently unpredictable audience reactions primarily determine commercial success. Generally, the popularity of movies and television programs depends on many factors, including the critical acclaim they receive, the format of their initial release, for example, theatrical or direct-to-video, the actors and other key talent, their genre and their specific subject matter. The commercial success of movies and television programs also depends upon the quality and acceptance of movies or programs that our competitors release into the marketplace at or near the same time, critical reviews, the availability of alternative forms of entertainment and leisure activities, general economic conditions and other tangible and intangible factors, many of which we do not control and all of which may change. We cannot predict the future effects of these factors with certainty, any of which could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects. In addition, because a movie’s or television program’s performance in ancillary markets, such as home video and pay and free television, is often directly related to its box office performance or television ratings, poor box office results or poor television ratings may negatively affect future revenue streams. Our success will depend on the experience and judgment of our management to select and develop new content acquisition and investment opportunities. We cannot make assurances that movies and television programs will obtain favorable reviews or ratings, will perform well at the box office or in ancillary markets or that broadcasters will license the rights to broadcast any of our television programs in development or renew licenses to broadcast programs in our library. The failure to achieve any of the foregoing could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.
In addition, the motion picture industry has been significantly affected by the COVID-19 pandemic in light of mandatory theatre shutdown, changes to the planned production, distribution and release schedules. The industry may continue to be negatively impacted by delays in the production and release schedules of new motion pictures and TV shows, which may negatively affect our business, financial condition, operating results, liquidity and prospects.
Our business involves risks of liability claims for media content, which could adversely affect our business, results of operations and financial condition.
As a distributor of media content, we may face potential liability for:
| ● | defamation; |
| ● | invasion of privacy; |
| ● | negligence; |
| ● | copyright or trademark infringement (as discussed above); and |
| ● | other claims based on the nature and content of the materials distributed. |
These types of claims have been brought, sometimes successfully, against producers and distributors of media content. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.
Our revenues and earnings are subject to market downturns.downturns.
Our revenues and earnings may fluctuate significantly in the future. General economic or other conditions could cause lower than expected revenues and earnings within our digital cinema, technology or content and entertainment businesses. The global economic turmoil of recent years has caused a general tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, an unprecedented level of intervention from the U.S. federal government and other foreign governments, decreased consumer confidence, overall slower economic activity and extreme volatility in credit, equity and fixed income markets. While the ultimate outcome of these events cannot be predicted, a decrease in economic activity in the U.S. or in other regions of the world in which we do business could adversely affect demand for our movies, thus reducing our revenue and earnings. While stabilization has continued, it remains a slow process and the global economy remains subject to volatility. Moreover, financial institution failures may cause us to incur increased expenses or make it more difficult either to financing of any future acquisitions, or financing activities. Any of these factors could have a material adverse effect on our business, results of operations and could result in significant additional dilution to shareholders.
Changes in economic conditions could have a material adverse effect on our business, financial position and results of operations.
Our operations and performance could be influenced by worldwide economic conditions. Uncertainty about current global economic conditions poses a risk as consumers and businesses may postpone spending in response to tighter credit, negative financial news and/or declines in income or asset values, which could have a material negative effect on the demand for our products and services. Other factors that could influence demand include continuing increases in fuel and other energy costs, conditions in the residential real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence, and other macroeconomic factors affecting consumer-spending behavior. These and other economic factors could have a material adverse effect on demand for our products and services and on our financial condition and operating results. Uncertainty about current global economic conditions could also continue to increase the volatility of our stock price.
Changes to existing accounting pronouncements or taxation rules or practices may affect how we conduct our business and affect our reported results of operations.
New accounting pronouncements or tax rules and varying interpretations of accounting pronouncements or taxation practice have occurred and may occur in the future. A change in accounting pronouncements or interpretations or taxation rules or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. Changes to existing rules and pronouncements, future changes, if any, or the questioning of current practices or interpretations may adversely affect our reported financial results or the way we conduct our business.
Our ability to utilize our net operating loss carryforwards in the future is subject to substantial limitations and we may not be able to use some identified net operating loss carryforwards, which could result in increased tax payments in future periods.
Under Section 382 of the Internal Revenue Code, if a corporation undergoes an ownership change (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to use its pre-change net operating loss (“NOL”) carryforwards to offset its post-change income may be limited. Similar rules may apply under state tax laws. On November 1, 2018, we experienced an ownership change with respect to the Bison acquisition.
We may experience unanticipated effects of the COVID-19 pandemic.
Our business could be adversely affected by the effects of a widespread outbreak of contagious disease, including the outbreak of COVID-19. The COVID-19 pandemic and related economic repercussions created significant volatility and uncertainty impacting the Company’s results for the year. As part of our Content & Entertainment business, the Company sells DVDs and Blu-ray discs at brick-and-mortar stores. With the closure of non-essential retail stores beginning in the spring of 2020, the sale of physical discs through our retail partners declined although this was partially offset by digital purchases of physical product. As part of our Cinema Equipment business, the Company earns revenue when movies are exhibited in theaters. Many movie theaters in the United States slowly re-opened with limited capacities through March 31, 2022. The majority of major studios resumed blockbuster films releases during the year which showed an encouraging return of consumer confidence for the theatrical experience. As vaccines became readily available and COVID cases decreased, major studios resumed theatrical releases and there was an uptick in box office revenue during the period ending March 31, 2022.
Longer term, there had been speculation that the future of theatrical release strategies could change as a result of Major Studios being able to release movies simultaneously in theatres and on streaming platforms during the pandemic. If fewer movies are released theatrically, a shift to digital viewing reduces revenue opportunities for virtual print fees and sales of digital cinema equipment. While Studios are still in an experimentation phase regarding theatrical/streaming strategies we are encouraged by the success of recent exclusive theatrical releases such as Sony’s ‘Spider-Man: No Way Home’, which became the first movie since the pandemic to hit $1 billion globally with no current plans to premiere on any streaming platforms.
Risks Related to Class A Common Stock
The liquidity of the Class A common stockCommon Stock is uncertain; the limited trading volume of the Class A common stockCommon Stock may depress the price of such stock or cause it to fluctuate significantly.
Although the Class A common stockCommon Stock is listed on Nasdaq, there has been a limited public market for the Class A common stockCommon Stock and there can be no assurance that a more active trading market for the Common Stock will develop. As a result, you may not be able to sell your shares of Class A common stockCommon Stock in short time periods, or possibly at all. The absence of an active trading market may cause the price per share of the Class A common stockCommon Stock to fluctuate significantly.
Substantial resales or future issuances of our Class A common stockCommon Stock could depress our stock price.
The market price for the Class A common stockCommon Stock could decline, perhaps significantly, as a result of resales or issuances of a large number of shares of the Class A common stockCommon Stock in the public market or even the perception that such resales or issuances could occur. In addition, we have outstanding a substantial number of options and warrants exercisable for shares of Class A common stockCommon Stock that may be exercised or converted in the future. These factors could also make it more difficult for us to raise funds through future offerings of our equity securities.
You will incur substantial dilution as a result of certain future equity issuances.
We have a substantial number of options and warrants currently outstanding which may be immediately exercised for shares of Class A common stock.Common Stock. To the extent that these options or warrants are exercised, or to the extent we issue additional shares of Class A common stockCommon Stock in the future, as the case may be, there will be further dilution to holders of shares of the Class A common stock.Common Stock.
Our issuance of preferred stock could adversely affect holders of Class A common stock
Our board of directors is authorized to issue series of preferred stock without any action on the part of our holders of Class A common stock.Common Stock. Our board of directors also has the power, without stockholder approval, to set the terms of any such series of preferred stock that may be issued, including voting rights, dividend rights, preferences over our Class A common stockCommon Stock with respect to dividends or if we liquidate, dissolve or wind up our business and other terms. If we issue preferred stock in the future that has preference over our Class A common stockCommon Stock with respect to the payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our Class A common stock,Common Stock, the rights of holders of our Class A common stockCommon Stock or the price of our Class A common stockCommon Stock could be adversely affected.
Our stock price has been volatile and may continue to be volatile in the future; this volatility may affect the price at which you could sell our Class A common stock.Common Stock.
The trading price of the Class A common stockCommon Stock has been volatile and may continue to be volatile in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on an investment in our securities:
| ● | actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us; |
| ● | changes in the market’s expectations about our operating results; |
| ● | success of competitors; |
| ● | our operating results failing to meet the expectation of securities analysts or investors in a particular period; |
| ● | changes in financial estimates and recommendations by securities analysts concerning us, the market for digital and physical content, content distribution and entertainment in general; |
| ● | operating and stock price performance of other companies that investors deem comparable to us; |
| ● | our ability to market new and enhanced products on a timely basis; |
| ● | changes in laws and regulations affecting our business or our industry; |
| ● | commencement of, or involvement in, litigation involving us; |
| ● | changes in our capital structure, such as future issuances of securities or the incurrence of debt; |
| ● | the volume of shares of the Common Stock available for public sale; |
| ● | any major change in our board of directors or management; |
| ● | sales of substantial amounts of Common Stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and |
| ● | general economic and political conditions such as recessions, interest rates, international currency fluctuations and acts of war or terrorism. |
Broad market and industry factors may materially harm the market price of the Class A common stockCommon Stock irrespective of our operating performance. The stock market in general, and Nasdaq in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of the Class A common stock,Common Stock, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies that investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of the Class A common stockCommon Stock also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Our fifth amended and restated certificate of incorporation and bylaws, as amended, contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors.
These provisions include:
| ● | no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; |
| ● | the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; |
| ● | the ability of our board of directors to determine to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; |
| ● | the requirement that an annual meeting of stockholders may be called only by the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; |
| ● | limiting the liability of, and providing indemnification to, our directors and officers; |
| ● | controlling the procedures for the conduct and scheduling of stockholder meetings; and |
| ● | providing that directors may be removed prior to the expiration of their terms by the Board of Directors only for cause. |
In addition, our certificate of incorporation authorizes the issuance of 15,000,000 shares of preferred stock. The terms of our preferred stock may be fixed by the company’s board of directors without further stockholder action. The terms of any outstanding series or class of preferred stock may include priority claims to assets and dividends and special voting rights, which could adversely affect the rights of holders of Class A common stock.Common Stock. Any future issuance(s) of preferred stock could make the takeover of the company more difficult, discourage unsolicited bids for control of the company in which our stockholders could receive premiums for their shares, dilute or subordinate the rights of holders of Class A common stockCommon Stock and adversely affect the trading price of the Class A common stock.Common Stock.
These provisions, alone or together, could delay hostile takeovers and changes in control of the Company or changes in our management.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the DGCL, which prevents some stockholders holding more
than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock. Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our securities.We may not be able to maintain the listing of our listingCommon Stock on the Nasdaq, Global Market, which may impair our financial flexibility and restrict our business significantly.
The Class A common stockCommon Stock is presently listed on Nasdaq. We cannot assure youOn April 4, 2022, we received a letter (the “Notice”) from the Listing Qualifications staff of Nasdaq indicating that the Company no longer meets the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5450(a)(1). The Notice did not result in the immediate delisting of the Common Stock from Nasdaq. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided a period of 180 calendar days, or until October 3, 2022, in which to regain compliance. There can be no assurance that we regain compliance within such period, or will be granted an extension of time to cure the deficiency. If the Company is unable to meet the criteria for continued listing criteria of Nasdaq and the Common Stock became delisted, trading of the Common Stock could thereafter be conducted in which case the Class A common stock could become delisted.over-the-counter markets in the OTC Pink, also known as “pink sheets” or, if available, on another OTC trading platform. Any such delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the loss of confidence in our financial stability by suppliers, customers and employees. Investors would likely find it more difficult to dispose of, or to obtain accurate market quotations for, the Class A common stock,Common Stock, as the liquidity that Nasdaq provides would no longer be available to investors. In addition, the failure of our Class A common stockCommon Stock to continue to be listed on the Nasdaq could adversely impact the market price for the Class A common stockCommon Stock and our other securities, and we could face a lengthy process to re-list the Class A common stock,Common Stock, if we are able to re-list the Class A common stock.Common Stock.
We have no present intention of paying dividends on our Class A common stock.Common Stock.
We have never paid any cash dividends on our Class A common stockCommon Stock and have no present plans to do so. In addition, certain of our credit facilities restrict our ability to pay dividends on the Class A common stock.Common Stock. As a result, you may not receive any return on an investment in our Class A common stockCommon Stock unless you sell theany shares you hold for a price greater than that which you paid for them.
Our ability to raise capital in the future may be limited, which could make us unable to fund our capital requirements.
Our business and operations may consume resources faster than we anticipate, or we may require additional funds to pursue acquisition or expansion opportunities. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both. Additional financing may not be available on favorable terms or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements. If we issue new debt securities, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our Class A common stock.Common Stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our Class A common stock,Common Stock, diluting their interest or being subject to rights and preferences senior to their own.
We identified material weaknesses in our internal control over financial reporting, and we may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remediate any material weaknesses or if we otherwise fail to establish and maintain effective control over financial reporting, our ability to accurately and timely report our financial results could be adversely affected.
We identified deficiencies in our internal control that we consider to be material weaknesses in our internal control over financial reporting which existed as of March 31, 2021 and 2022. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis.
In the evaluation, management identified material weaknesses in internal controls related to our financial close and reporting process and information and communication controls. Management also concluded that we did not have a sufficient complement of corporate personnel with appropriate levels of accounting and controls knowledge and experience commensurate with our financial reporting requirements to appropriately analyze, record and disclose accounting matters completely and accurately. As a result of this evaluation, management extensively used outside consultants who possessed the appropriate levels of accounting and controls knowledge.
Following identification of this control deficiency, management is implementing modifications to better ensure that the Company has appropriate and timely reviews on all financial reporting analysis. The material weakness in our internal control over financial reporting will not be considered remediated until these modifications are implemented, in operation for a sufficient period of time, tested, and concluded by management to be designed and operating effectively. In addition, as we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to address control deficiencies or determine to modify our remediation plan. Management will test and evaluate the implementation of these modifications to ascertain whether they are designed and operating effectively to provide reasonable assurance that they will prevent or detect a material misstatement in the Company’s financial statements.
By taking the remediation steps described in Item 9A, we believe that, as a result of management’s in-depth review of its accounting processes, and the additional procedures management has implemented, there are no material inaccuracies or omissions of material fact in this Form 10-K and, to the best of our knowledge, we believe that the consolidated financial statements in this Form 10-K fairly present in all material respects our financial condition, results of operations and cash flows in conformity with GAAP.
We may identify future material weaknesses in our internal controls over financial reporting and we may be unable to accurately report our financial results, or report them within the timeframes required by law or stock exchange regulations. We cannot assure that our existing material weakness will be remediated or that additional material weaknesses will not exist or otherwise be discovered, any of which could adversely affect our reputation, financial condition and results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We operated from the following leased properties at March 31, 2019.
| Location | ||||||
| Square Feet (Approx.) | Lease Expiration Date | Primary Use | ||||
We do not own any real estate or invest in real estate or related investments.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'SREGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
COMMON STOCK
Our Class A Common Stock trades publicly on theThe Nasdaq Global Market (“Nasdaq”), under the trading symbol “CIDM”. The following table shows the high and low sales prices per share of our Class A Common Stock as reported by Nasdaq for the periods indicated:
| For the Fiscal Year Ended March 31, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| HIGH | LOW | HIGH | LOW | |||||||||||||
| April 1 – June 30 | $ | 1.71 | $ | 1.14 | $ | 3.20 | $ | 0.32 | ||||||||
| July 1 – September 30 | $ | 2.63 | $ | 1.08 | $ | 2.49 | $ | 0.55 | ||||||||
| October 1 – December 31 | $ | 2.84 | $ | 1.16 | $ | 1.09 | $ | 0.45 | ||||||||
| January 1 – March 31 | $ | 1.25 | $ | 0.64 | $ | 2.33 | $ | 0.69 | ||||||||
| For the Fiscal Year Ended March 31, | ||||||||
| 2019 | 2018 | |||||||
| HIGH | LOW | HIGH | LOW | |||||
| April 1 – June 30 | $1.81 | $1.31 | $2.26 | $1.38 | ||||
| July 1 – September 30 | $1.62 | $0.98 | $1.75 | $1.41 | ||||
| October 1 – December 31 | $1.40 | $0.48 | $1.64 | $1.21 | ||||
| January 1 – March 31 | $2.05 | $0.53 | $1.51 | $1.21 | ||||
The last reported closing price per share of our Class A Common Stock as reported by Nasdaq on July 08, 2019June 29, 2022 was $1.31$0.53 per share. As of July10, 2019,June 29, 2022, there were 9359 holders of record of our Class A Common Stock, not including beneficial owners of our Class A Common Stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.
CLASS B COMMON STOCK
On October 31, 2017, we filed our Fifth Amended and Restated Certificate of Incorporation which, in addition to other things, eliminated the Class B Common Stock. Accordingly, no further Class B Common Stock will be issued.
DIVIDEND POLICY
We have never paid any cash dividends on our Class A Common Stock or Class B Common Stock and do not anticipate paying any on our Class A Common Stock in the foreseeable future. Any future payment of dividends on our Class A Common Stock will be in the sole discretion of our board of directors.
The holders of our Series A 10% Non-Voting Cumulative Preferred Stock are entitled to receive dividends. There were $89 thousand of cumulative dividends in arrears on the Preferred Stock at March 31, 2019.2022.
SALES OF UNREGISTERED SECURITIES
None.
PURCHASE OF EQUITY SECURITIES
There were no purchases of shares of our Class A Common Stock made by us or on our behalf during the twelve monthsyear ended March 31, 20192022 and 2018.2021.
| For the Fiscal Years Ended March 31, | |||||||||||||||||||
| Statement of Operations Data | (In thousands, except for share and per share data) | ||||||||||||||||||
| Related to Continuing Operations: | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||
| Revenues | $ | 53,534 | $ | 67,683 | $ | 90,394 | $ | 104,449 | $ | 105,484 | |||||||||
| Direct operating (exclusive of depreciation and amortization shown below) | 16,120 | 19,523 | 25,121 | 31,341 | 30,109 | ||||||||||||||
| Selling, general and administrative | 27,661 | 28,454 | 23,776 | 33,367 | 31,120 | ||||||||||||||
| Provision (benefit) for doubtful accounts | 1,620 | 991 | 1,213 | 789 | (206 | ) | |||||||||||||
| Restructuring, transition and acquisitions expenses, net | — | — | 87 | 1,130 | 2,638 | ||||||||||||||
| Goodwill impairment | — | — | — | 18,000 | 6,000 | ||||||||||||||
| Litigation and related, net of recovery in 2016 | — | — | — | (2,228 | ) | 1,282 | |||||||||||||
| Depreciation and amortization of property and equipment | 8,124 | 12,412 | 27,722 | 37,344 | 37,519 | ||||||||||||||
| Amortization of intangible assets | 5,627 | 5,580 | 5,718 | 5,852 | 5,864 | ||||||||||||||
| Total operating expenses | 59,152 | 66,960 | 83,637 | 125,595 | 114,326 | ||||||||||||||
| (Loss) income from operations | (5,618 | ) | 723 | 6,757 | (21,146 | ) | (8,842 | ) | |||||||||||
| Interest income | 36 | 57 | 73 | 82 | 101 | ||||||||||||||
| Interest expense | (10,292 | ) | (14,250 | ) | (19,068 | ) | (20,642 | ) | (19,899 | ) | |||||||||
| Debt conversion expense and loss on extinguishment of notes payable | — | (4,504 | ) | (5,415 | ) | (931 | ) | — | |||||||||||
| Gain on termination of capital lease | — | — | 2,535 | — | — | ||||||||||||||
| Other (expense) income, net | (96 | ) | (277 | ) | 31 | 513 | 105 | ||||||||||||
| Change in fair value of interest rate derivatives | — | 157 | 142 | (40 | ) | (441 | ) | ||||||||||||
| Loss from operations before income taxes | (15,970 | ) | (18,094 | ) | (14,945 | ) | (42,164 | ) | (28,976 | ) | |||||||||
| Income tax expense | (295 | ) | (401 | ) | (252 | ) | (345 | ) | — | ||||||||||
| Loss from continuing operations | (16,265 | ) | (18,495 | ) | (15,197 | ) | (42,509 | ) | (28,976 | ) | |||||||||
| Income (loss) from discontinued operations | — | — | — | — | 100 | ||||||||||||||
| Loss on sale of discontinued operations | — | — | — | — | (3,293 | ) | |||||||||||||
| Net loss | (16,265 | ) | (18,495 | ) | (15,197 | ) | (42,509 | ) | (32,169 | ) | |||||||||
| Net loss attributable to noncontrolling interest | 32 | 41 | 68 | 767 | 861 | ||||||||||||||
| Net loss attributable to Cinedigm Corp. | (16,233 | ) | (18,454 | ) | (15,129 | ) | (41,742 | ) | (31,308 | ) | |||||||||
| Preferred stock dividends | (356 | ) | (356 | ) | (356 | ) | (356 | ) | (356 | ) | |||||||||
| Net loss attributable to common shareholders | $ | (16,589 | ) | $ | (18,810 | ) | $ | (15,485 | ) | $ | (42,098 | ) | $ | (31,664 | ) | ||||
| Basic and diluted net loss per share from continuing operations | $ | (0.44 | ) | $ | (0.81 | ) | $ | (1.92 | ) | $ | (6.51 | ) | $ | (3.71 | ) | ||||
Shares used in computing basic and diluted net loss per share (1) | 37,919,754 | 23,104,811 | 8,049,160 | 6,467,978 | 7,678,535 | ||||||||||||||
| For the Fiscal Years Ended March 31, | |||||||||||||||||||
| (In thousands) | |||||||||||||||||||
| Balance Sheet Data (At Period End): | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||
| Cash, cash equivalents and restricted cash | $ | 18,872 | $ | 18,952 | $ | 13,566 | $ | 34,464 | $ | 25,750 | |||||||||
| Working capital (deficit) | (48,834 | ) | (2,165 | ) | (15,411 | ) | 1,012 | (30,871 | ) | ||||||||||
| Total assets | 98,839 | 121,182 | 151,334 | 209,398 | 273,017 | ||||||||||||||
| Notes payable, non-recourse | 19,132 | 38,082 | 61,104 | 112,312 | 151,360 | ||||||||||||||
| Total stockholders' deficit of Cinedigm Corp. | (35,281 | ) | (21,049 | ) | (69,489 | ) | (71,842 | ) | (18,959 | ) | |||||||||
| Other Financial Data: | |||||||||||||||||||
| Net cash provided by operating activities | 11,088 | 22,397 | 31,699 | 25,504 | 9,211 | ||||||||||||||
| Net cash (used in) provided by investing activities | (1,970 | ) | (931 | ) | (486 | ) | (1,389 | ) | 1,197 | ||||||||||
| Net cash used in financing activities | (9,198 | ) | (16,080 | ) | (44,128 | ) | (17,633 | ) | (41,624 | ) | |||||||||
ITEM 6. [Reserved]
ITEM 7. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our historical consolidated financial statements and the related notes included elsewhere in this report.
This report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which are indicated by words or phrases such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “will,” “estimates,"” and similar words. Forward-looking statements represent, as of the date of this report, our judgment relating to, among other things, future results of operations, growth plans, sales, capital requirements and general industry and business conditions applicable to us. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.
OVERVIEW
Since our inception, we have played a significant role in the digital distribution revolution that continues to transform the media landscape. In addition to our pioneering role in transitioning approximately 12,000 movie screens from traditional analog film prints to digital distribution, we have become a leading distributor of independent content, both through organic growth and acquisitions. We distribute products for major brands such as the Discovery Networks, National GeographicHallmark, Televisa, ITV, Nelvana, ZDF, Konami, NFL, and Scholastic, as well as leading international and domestic content creators, movie producers, television producers and other short formshort-form digital content producers. We collaborate with producers, major brands and other content owners to market, source, curate and distribute quality content to targeted audiences through (i) existing and emerging digital home entertainment platforms, including but not limited to Apple iTunes, Amazon Prime, Netflix, Hulu, Xbox, PlayStation,Pluto, Tubi and cablemost video-on-demand ("VOD"(“VOD”), and free ad-supported television (“FAST”) streaming platforms, as well as (ii) physical goods, including DVD and Blu-ray Discs.
We report our financial results in two primary segments as follows: (1) cinema equipment business and (2) media content and entertainment business (“Content & Entertainment” or "CEG"“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 the United StatesNorth America and Canada and in Australia and New Zealand.Australia. It also provides fee-based support to over 12,0002,843 movie screens as well as directly to exhibitors and other third partythird-party customers in the form of monitoring, billing, collection and verification services. Our Content & Entertainment segment is a market leaderoperates in: (1) ancillary market aggregation and distribution of entertainment content and;and (2) branded and curated over-the-top ("OTT"(“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"(“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. As of March 31, 2019, all of our 3,480 systems from the Phase I Deployment phase of our cinema equipment business segment had ceased to earn a significant portion of VPF revenue from certain major studios, although various other studios, consisting mostly of small independent studios, will continue to pay VPFs through December 2020. We expect to continue to earn such ancillary revenue from the cinema equipment segment through December of 2020; however, such amounts are expected to be significantly less material to our consolidated financial statements. The reduction in VPF revenue on cinema equipment business systems approximately coincided with the conclusion of certain of our non-recourse debt obligations and, therefore, the reduced cash outflows related to such non-recourse debt obligations partially offset the reduced VPF revenue since November 2017.
Under the terms of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive one-year terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we have begun, and expect to continue, totypically pursue the sale of the Systems to such exhibitors. Such sales were as originally contemplated as the conclusion of the digital cinema deployment plan.
We are structured so that our cinema equipment business segment operates independently from our contentContent & entertainmentEntertainment business. As of March 31, 2019,2022, we had approximately $20.6$0.0 million of non-recourse outstanding debt principal that relates to, and is serviced by, our cinema equipment business. We also have approximately $44.8$0.0 million of outstanding debt principal, as of March 31, 20192022 that is attributable to our Content & Entertainment and Corporate segments.
Risks and Uncertainties
The COVID-19 pandemic and related economic repercussions created significant volatility and uncertainty impacting the Company’s results for the year. As part of our Content & Entertainment business, the Company sells DVDs and Blu-ray discs at brick-and-mortar stores. With the closure of non-essential retail stores beginning in the spring of 2020, the sale of physical discs through our retail partners declined although this was partially offset by digital purchases of physical product. As part of our Cinema Equipment business, the Company earns revenue when movies are exhibited in theaters. Many movie theaters in the United States slowly re-opened with limited capacities through March 31, 2021, and have since reopened as of March 31, 2022. The majority of major studios resumed blockbuster films releases during the year which showed an encouraging return of consumer confidence for the theatrical experience. As vaccines became readily available and COVID cases decreased, major studios resumed theatrical releases and there was an uptick in box office revenue during the year ending March 31, 2022.
Longer term, there had been speculation that the future of theatrical release strategies could change as a result of Major Studios being able to release movies simultaneously in theatres and on streaming platforms during the pandemic. If fewer movies are released theatrically, a shift to digital viewing reduces revenue opportunities for virtual print fees and sales of digital cinema equipment. While Studios are still in an experimentation phase regarding theatrical/streaming strategies we are encouraged by the success of recent exclusive theatrical releases such as Sony’s ’Spider-Man: No Way Home’, which became the first movie since the pandemic to hit $1 billion globally with no current plans to release on any streaming platforms.
Liquidity
We have incurred consolidated net losses of $16.3 millionhistorically and $18.5 millionnet income for the yearsyear ended March 31, 2019 and 2018, respectively. We have2022 of $2.3 million. As of March 31, 2022, we had an accumulated deficit of $395.8$472.3 million and negative working capital of $4.8 million as of March 31, 2019. In addition, we have significant debt related contractual obligations2022. Net cash provided by operating activities for the fiscal year ended March 31, 20192022 was $4.9 million. Based on these conditions, the Company entered into the following transactions described below.
Capital Raises
On February 2, 2021, the Company entered into a Securities Purchase Agreement with a single institutional investor for the purchase and beyond. sale of 5,600,000 shares of Common Stock at a purchase price of $1.25 per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3 which was declared effective by the Securities and Exchange Commission on July 10, 2020 (File No. 333-239710) (the “2020 Shelf Registration Statement”) and an applicable prospectus supplement. The closing of the sale occurred on February 5, 2021. The aggregate gross proceeds for the sale was approximately $7.0 million. The net proceeds to the Company from the sale, after deducting the fees of the placement agent but before paying the Company’s estimated offering expenses, was approximately $6.5 million.
In July 2020, we entered into an At-the-Market sales agreement (the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”) and B. Riley FBR, Inc. (“B. Riley” and, together with A.G.P., the “Sales Agents”), pursuant to which the Company may offer and sell, from time to time, through the Sales Agents, shares of Common Stock at the market prices prevailing on Nasdaq at the time of the sale of such shares. The Company is not obligated to sell any shares under the ATM Sales Agreement. Any sales of shares made under the ATM Sales Agreement will be made pursuant the 2020 Shelf Registration Statement, for an aggregate offering price of up to $30 million. During the year ended March 31, 2021, we sold 28,405,840 shares of Common Stock under the ATM Sales Agreement. Net proceeds from such sales totaled $18.6 million. No sales under the ATM Sales Agreement were made during the year ended March 31, 2022.
On July 16, 2020, the Company entered into a securities purchase agreement with certain investors for the purchase and sale of 7,213,334 shares of Common Stock, par value $0.001 per share, at a purchase price of $1.50 per share, in a registered direct offering, pursuant to the 2020 Shelf Registration Statement and an applicable prospectus supplement. The closing of the sale occurred on July 20, 2020. The aggregate gross proceeds for the sale was approximately $10.8 million. The net proceeds to the Company from the sale, after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, is approximately $10.1 million.
On May 20, 2020, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain investors (the “Investors”) for the purchase and sale of 10,666,666 shares of the Common Stock, at a purchase price of $0.75 per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3 which was declared effective by the Securities and Exchange Commission on May 14, 2020 (File No. 333-238183) and an applicable prospectus supplement. The closing of the sale occurred on May 22, 2020. The aggregate gross proceeds for the sale was $8.0 million. The net proceeds to the Company from the sale, after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, were approximately $7.1 million.
In October 2021, we entered into a Common Stock Purchase Agreement (the “Equity Line Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with B. Riley Principal Capital, LLC (“B. Riley Principal Capital”). Pursuant to the Equity Line Purchase Agreement, the Company has the right to sell to B. Riley Principal Capital up to the lesser of (i) $50,000,000 of newly issued shares of Common Stock and (ii) the Exchange Cap (as defined in the Equity Line Purchase Agreement), from time to time during the 24-month period from and after the October 21, 2021. Sales of Common Stock pursuant to the Equity Line Purchase Agreement, and the timing of any sales, are solely at the option of the Company, and the Company is under no obligation to sell any securities to B. Riley Principal Capital under the Equity Line Purchase Agreement. As consideration for B. Riley Principal Capital’s commitment to purchase shares of Common Stock at the Company’s direction upon the terms and subject to the conditions set forth in the Equity Line Purchase Agreement, upon execution of the Equity Line Purchase Agreement, the Company issued 210,084 shares of Common Stock to B. Riley Principal Capital (the “Commitment Shares”). The purchase price of the shares of Common Stock that we elect to sell to B. Riley Principal Capital pursuant to the Equity Line Purchase Agreement will be determined by reference to the volume weighted average price of the Common Stock (“VWAP”) during the applicable purchase date, less a fixed 5% discount to such VWAP. Pursuant to the Registration Rights Agreement, the Company filed a Registration Statement on Form S-1 that was declared effective by the Securities and Exchange Commission on October 21, 2021 (File No. 333-260210) for the resale by B. Riley Principal Capital of up to 25,210,084 shares of Common Stock (including the Commitment Shares) acquired pursuant to the Equity Line Purchase Agreement. During the year ended March 31, 2022, we sold 5,300,000 shares of Common Stock under the Equity Line Purchase Agreement. Net proceeds from such sales totaled $12.4 million.
As of March 31, 2022, there is still approximately $38.0 million available under the 2020 Shelf Registration Statement, and $37.6 million available under the Equity Line Purchase Agreement, to raise additional capital.
Sale of Cinematic Equipment
On March 17, 2021, the Company entered into two separate agreements for the sale of cinematic equipment to American Multi-Cinema, Inc. (“AMC”). The agreement included the sale in tranches of a total of 2,369 cinematic projectors starting in March 2021 throughout January 2023 for a total cash consideration of $10.8 million. For the year ended March 31, 2022, the Company recognized revenue for $9.6 million. A portion of the total proceeds was utilized to pay off the remaining Prospect note payable.
Equity Investment in a Related Party
On December 27, 2019, we have debtthe Company entered into, and on February 14, 2020 amended, (see Note 2 – Summary of Significant Accounting Policies), a stock purchase agreement (as so amended, the “Metaverse Stock Purchase Agreement”) with BeiTai Investment LP (“BeiTai”), a related party for accounting purposes of Cinedigm and Aim Right Ventures Limited (“Aim Right”), two shareholders of A Metaverse Company, a leading Chinese entertainment company (“Metaverse”), formerly Starrise Media Holdings Limited, to buy from them an aggregate of 410,901,000 outstanding Metaverse ordinary shares (the “Metaverse Share Acquisition”). On February 14, 2020, the Company purchased 162,162,162 of the Metaverse ordinary shares from BeiTai and issued BeiTai 21,646,604 shares of its Common Stock in consideration. The Metaverse shares received were valued at approximately $25 million and the Company issued shares that were valued at approximately $11.2 million. On April 10, 2020, the Company, in accordance with the terms of the Metaverse Stock Purchase Agreement, terminated its obligation of $43.3 million that is current and negative working capital of $48.8 million.to purchase Metaverse ordinary shares from Aim Right under the December 27, 2019 stock purchase agreement.
On April 10, 2020, the Company entered into another stock purchase agreement (the “April Metaverse Stock Purchase Agreement”) with five (5) shareholders of Metaverse – Bison Global Investment SPC – Bison Global No. 1 SP, Huatai Investment LP, Antai Investment LP, Mingtai Investment LP and Shangtai Asset Management LP, all of which are related parties to the Company to buy an aggregate of 223,380,000 outstanding Metaverse ordinary shares from them and for the Company to issue to them an aggregate of 29,855,081 shares of its Common Stock as consideration therefor (the “April Metaverse Share Acquisition”). On April 15, 2020, the April Metaverse Share Acquisition was consummated and this transaction was also recorded as an equity investment in Metaverse.
Metaverse’s ordinary shares (HK 1616) are listed on the main board of the Stock Exchange of Hong Kong Limited. Based on the closing price of .152 per share on March 31, 2022, calculated at an exchange rate of 7.85 Hong Kong Dollars to 1 US dollar, the market value of Cinedigm’s ownership in Metaverse ordinary shares was approximately $7.03 million. Subsequent to the period, trading of Metaverse’s ordinary shares was halted. (See Note 11)
Borrowings
On June 22, 2021, the maturity date of the East West Credit Facility (as defined in Note 5 -– Notes Payable) of $5.0 million were paid in full by October 18, 2018 prior to their
On July 3, 2019, the Company entered into an amendment (the “EWB Amendment”) to the Loan, Guaranty and Security Agreement, dated as of March 30, 2018, by and between the Company, East West Bank and the Guarantors named therein (the “EWB Credit Agreement”). The EWB Amendment reduced the size of the facility to $18.0 million, required certain prepayments and daily cash sweeps from collections of receivables to be made, changed in certain respects how the borrowing base is calculated, and extended the maturity date to June 30, 2020 and excluded Future Today Inc and any of its future subsidiaries (in connection with the previously announced agreement to acquire Future Today Inc) from requirements to become Guarantors.2020. In connection with the EWB Amendment, three of our subsidiaries became additional Guarantors under the EWB Credit Agreement. On June 26, 2020, the Company signed another amendment and extended the maturity date to June 30, 2021 and on June 22, 2021, the maturity date was extended to September 28, 2021. See Note 5 – Notes Payable.
On April 15, 2020, the Company received $2.2 million from East West Bank, the Company’s existing lender, pursuant to the Paycheck Protection Program (the “PPP Loan”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 10, 2022 (the “Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are due within the initial six months of the PPP Loan. The interest accrued during the initial six-month period is due and payable, together with the principal, on the Maturity Date. The Company used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts are intended to be eligible for forgiveness, subject to the provisions of the CARES Act and could be subject to repayment. On January 5, 2021, the Company submitted its application for forgiveness and, as of June 30, 2021, obtained forgiveness for the full amount.
On June 24, 2020, the Company entered into an exchange agreement pursuant to which the Company issued 329,501 shares of its Common Stock, in exchange for $842,000, the’ principal amount and accrued and unpaid interest of outstanding Second Lien Loans (as defined in Note 5 – Notes Payable). The surrendered Second Lien Loans were immediately canceled. The exchange was consummated on June 24, 2020.
On June 26, 2020, the Company signed a consent agreement with the holders of the Second Lien loans to extend the maturity date to September 30, 2020 and grant the Company options to extend further to March 31, 2021 and then to June 30, 2021. A consent fee of $100,000 was paid in connection with this extension.
In a separate exchange with another holder of Second Lien Notes, on November 19, 2020, the Company issued 452,499 shares of Common Stock in exchange for $247,108 principal amount of Second Lien Notes. The exchanged Second Lien Notes were immediately cancelled.
On December 4, 2020, the Company entered into exchange agreements (the “December Exchange Agreements”) with certain holders of Second Lien Notes. Pursuant to the December Exchange Agreements, the Company issued an aggregate of 2,776,284 shares of its Common Stock, par value $0.001 per share Common Stock in exchange for an aggregate of $1,386,106 of principal amount of Second Lien Notes. The exchanged Second Lien Notes were immediately cancelled.
On January 21, 2021, the Company entered into an exchange agreement (the “January Exchange Agreement”) with a holder of notes under its Second Lien Loan Agreement dated as of July 14, 2016 among the Company, the lenders party thereto, and Cortland Capital Market Services LLC, as Agent (“Second Lien Notes”). Pursuant to the January Exchange Agreement, the Company issued an aggregate of 1,247,626 shares of Common Stock, in exchange for an aggregate of $1,289,650 of principal amount of Second Lien Notes. The exchanged Second Lien Notes were immediately cancelled.
In three separate exchanges with another holder of Second Lien Notes, on January 14, 2021 and January 21, 2021, the Company issued 689,500 shares, 580,448 shares and 1,247,626 (an aggregate of 2,517,574 shares) of Common Stock in exchange for $500,000, $600,000 and $1,289,650 (an aggregate of $2,389,650) principal amount of Second Lien Notes. The exchanged Second Lien Notes were immediately cancelled.
On February 2, 2021, the Company issued 425,290 shares of Common Stock in exchange for $500,000 principal amount of Second Lien Notes. The exchanged Second Lien Notes were immediately cancelled.
The Second Lien Loans (as defined in Note 5 – Notes Payable) were to mature on June 16, 2020. On June 26, 2020, the Company entered into a consent agreement with the lenders of the Second Lien Loans to an extension of the Second Lien Loans pursuant to which (i) the Company paid down a portion of the outstanding principal amount plus accrued interest to date, and 47 (ii) the maturity date of the remaining outstanding principal amount of the Second Lien Loans was extended to September 30, 2019. On July 30, 2019, one of the lenders, signed a waiver to defer the receipt of the portion of the outstanding principal amount on the Second Lien Loans agreed to be paid no later than September 30, 2019.The Company paid $3.4 million of the outstanding Second Lien Loans and expects to obtain additional capital from or through Bison Capital Holding Company Limited or an affiliate thereof (“Bison”) for final payment of the remaining outstanding balances. The Second Lien Loans were to mature on June February 16, 2020. On June 26, 2020, the Company entered into a consent agreement with the lenders to extend the maturity date to September 30, 2020 and grant the Company options to extend further to March 31, 2021 and then to June 30, 2021. There was a consent fee of $100,000 for this extension.
On February 9, 2021, the Company prepaid all of the outstanding obligations in respect of principal, interest, fees and expenses under the Second Lien Loan Agreement, among the Company, certain lenders and Cortland Capital Market Services LLC. The payoff amount of approximately $3.18 million was comprised of (i) $3.1 million of principal, (2) accrued payment-in-kind interest of $.018 million, (3) accrued current interest of $0.007 million, and (4) fees and expenses of $0.004 million. Upon such prepayment, the Second Lien Loan Agreement was terminated effective February 9, 2021.
The $10.0 million note payable (“2018 Loan”) to Bison Global Investment SPC for and on behalf of Global Investment SPC-Bison Global No. 1, another affiliate of Bison (“Bison Global”), due July 20, 2019 is guaranteed by Bison Entertainment and Media Group (“BEMG”). On July 20, 2018, the Company also entered into a side letter (the “Letter”) with BEMG, where BEMG agreed to guarantee the payment directly to Bison Global of any amount due if (i) the 2018 Loan matures prior to June 28, 2021 or (ii) Bison Global demands payment of the 2018 Loan, in whole or in part, prior to maturity.
On July 12, 2019, the Company and Bison Global entered into a termination agreement (the “Termination Agreement”) with respect to the $10.0 million 2018 Loan. Contemporaneously with the Termination Agreement, the Company entered into a convertible promissory note (“Bison Convertible Note”) with Bison Global for $10.0 million.
The Bison Convertible Note has a term ending on March 4, 2020, and had an interest rate of 5% per annum. The principal was payable upon maturity, in cash or in shares of our Common Stock, par value $0.001 per share (the “Common Stock”), or a combination of cash and Common Stock, at the Company’s option. The Bison Convertible Note was unsecured and may be prepaid without premium or penalty, and contains customary covenants, representations and warranties. The proceeds of the Bison Convertible Note were used to repay the 2018 Loan. On April 15, 2020, the Company executed a letter amendment (the “Letter Amendment”) to the Bison Convertible Note. Among other things, the Letter Amendment amended the Bison Convertible Note, effective as of March 4, 2020, to change the maturity date of the Bison Convertible Note to March 4, 2021. The Bison Convertible Note due 2021 was converted to Common Stock in March 2021. See Note 5 – Notes Payable.
On October 9, 2018, the Company issued a subordinated convertible note (the “Convertible Note”) to MingTai Investment LP (the “Lender”) for $5.0 million. All proceeds from the Convertible Note were used to pay the $5.0 million 2013 Notes. See Note 5 – Notes Payable. The Convertible Note bears interest at 8% and matured on October 9, 2019. The principal is payable upon maturity, in cash or in shares of our Common Stock, or a combination of cash and Common Stock, at the Company’s option. On October 9, 2019, the Company signed an extension to the Ming Tai Note of $5.0 million for the first of two (2) permitted additional (1) year extensions at the Company’s option from the original maturity date to October 9, 2020.
On April 15, 2020, the Company executed a letter amendment (the “Letter Amendment”) to the Bison Convertible Note (as defined in Note 5 – Notes Payable). Among other things, the Letter Amendment amended the Note, effective as of March 4, 2020, to extend the maturity date of the Bison Convertible note to March 4, 2021.
On October 9, 2019, the Company signed an extension to the Ming Tai Note of $5.0 million for the first of two (2) permitted additional (1) year extensions at the Company’s option from the original maturity date to October 9, 2020. This note will continue in full force and effect in accordance with its terms, including the Company’s reservation of its right to further extend the maturity date of this note, if it so elects.
On September 11, 2020, the Bison and Mingtai Notes, having an aggregate of $15 million principal amount (the “Notes”) were converted in full into an aggregate of 10,000,000 shares of Common Stock at a conversion price of $1.50 per share in accordance with the terms of the Notes. Accordingly, the Notes have been extinguished. The Notes were held by Bison Global and, both of which are affiliates of Peixin Xu, the Chairman of Bison Capital Holding Company Limited, which is indirectly Cinedigm’s largest stockholder.
On March 4, 2021, Cinedigm DC Holdings, LLC (“CDCH”), Access Digital Media, Inc., Access Digital Cinema Phase 2, Corp., Christie/AIX, Inc., Cinedigm Digital Funding I, LLC, certain Lenders, and Prospect Capital Corporation, as administrative agent and collateral agent (“Prospect”), entered into Amendment No. 3 (the “Amendment”) to the Term Loan Agreement dated February 28, 2013 (the “Term Loan Agreement”). Under the Amendment, the maturity date of the loan under the Term Loan Agreement (the “Loan”) was extended to March 31, 2022. Upon a series of payments between April 30 and July 9, 2021, the Company paid in full the Prospect loan non-recourse outstanding debt amount by paying an aggregate principal amount of $7.8 million.
We believe the combination of: (i) our cash and cash equivalent balances at March 31, 2019,2022 and (ii) expected cash flowsflow from operations, and (iii) the support or availability of funding from Bison and other parties (iv) and the financing transactions that occurred in July, 2019, will be sufficient to satisfyfor our liquidityoperations and capital requirementsneeds, for at least one yeartwelve months from the issuance datefiling of the March 31, 2019 Consolidated Financial Statements.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
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"(“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 -
FAIR VALUE ESTIMATES
Goodwill, Intangible and Long-Lived Assets
Goodwill is the excess of the purchase price paid over the fair value of the net assets of an acquired business. Goodwill is tested for impairment in the fourth quarter of each fiscal year (as of March 31),on an annual basis or whenevermore often if warranted by events or changes in circumstances indicateindicating that the carrying value may exceed 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. 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'smanagement’s interpretation of current economic indicators and market conditions, and assumptions about our strategic plans with regard to ourits 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 couldwill have a material adverse effect on our consolidated financial position or results of operations.
The Company has the option to make a qualitative assessment of whetherassess goodwill is impaired, or opt to bypass the qualitative assessment, and proceed directly tofor possible impairment by performing a qualitative impairment test, wherebyanalysis to determine if it is more likely than not that the fair value of a reporting unit is compared withless than its carrying amount and anor to perform the quantitative impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value.test.
We review the recoverability of our long-lived assets and finite-lived intangible assets, when events or conditions occur that indicate a possible impairment exists. Determining whether impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the asset'sasset’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'sasset’s fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted cash flows.
During the years ended March 31, 2022 and 2021, an impairment charge of $2.0 million and $0 was recorded to intangible assets.
REVENUE RECOGNITION
Adoption of ASU Topic 606, "Revenue“Revenue from Contracts with Customers"Customers”
We determine revenue recognition by:
| ● | identifying the contract, or contracts, with the customer; |
| ● | identifying the performance obligations in the contract; |
| ● | determining the transaction price; |
| ● | allocating the transaction price to performance obligations in the contract; and |
| ● | recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services. |
We recognize revenue in the amount that reflects the consideration we expect to receive in exchange for the services provided, sales of physical products (DVD’s and Blu-ray)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 VODvideo 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 isare 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 digital cinema equipment (the “Systems”)System deployments that had extended payment terms. The outstanding balances on these arrangements are insignificant and hence the impact of significant financing would be insignificant.
Cinema Equipment Business
Our Cinema Equipment Business consists of financing vehicles and administrators for 696 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 2,147 Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”).
We retain ownership of our Systems and the residual cash flows related to the Systems in Phase I Deployment after the end of the 10-year deployment payment period.
For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.
The Cinema Equipment Business also provides monitoring, data collection, serial data verification and management services to this segment, as well as to exhibitors who purchase their own equipment, in order to collect virtual print fees (“VPFs”) from motion picture studios and distributors and Alternative Content Fees (“ACFs”) from alternative content providers, and to distribute those fees to theatrical exhibitors (collectively, “Services”).
VPFs are earned, net of administrative fees, pursuant to contracts with movie studios and distributors, whereby amounts are payable by a studio to Cinedigm Digital FundingPhase I LLC. ("Phase 1 DC")Deployment and to Access Digital Cinema Phase 2 Corp. (“Phase 2 DC”)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 1 DCI 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 digitallydigital projector equipped movie theatre, astheatre. The Phase 1 DC’sDeployment’s and Phase 2 DC’sDeployments performance obligations have been substantiallyfor revenue recognition are met at thatthis time.
Phase 2 DC’sII 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 2 DCII 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 2 DCII 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 not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Under the terms of our standard Cinema Equipmentcinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive one-year terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we have begun, and expect to continue, totypically 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 as originally contemplated as the conclusion of the digital cinema deployment plan.
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 2 DCII 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 segmentdivision 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"(“VOD” or “OTT Streaming and Digital”), and physical goods (e.g. DVD, DVDs and Blu-ray Discs) (“Physical Revenue” or “Base Distribution Business”). Fees earned are typically a percentage based on the grossnet amounts billed toreceived from our customers less the amounts owed to the media studios or content producers under distribution agreements, and gross media sales of owned or licensed content.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 platform,platforms, and shipment of DVDDVDs and Blu-ray Discs, or make available at point-of-sale for transactional and VOD services.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. RevenuePhysical 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'sCEG’s participation in box office receipts isare 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 based on each revenue stream. Key indicators that we use in evaluating gross versus net treatment include, but are not limited to, the following:
| ● | which party is primarily responsible for fulfilling the promise to provide the specified good or service; and |
| ● | which party has discretion in establishing the price for the specified good or service. |
Shipping and Handling
Shipping and handling costs are incurred to move physical goods (e.g. DVD, 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 are recorded based upon historical experience.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. Sales returns and allowances are reported as a reduction of revenues.
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
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 insignificant and hence the impactreceived or due in advance of significant financing would be insignificant.our performance, even if amounts are refundable.
Deferred revenue pertaining to our Content & Entertainment Business includes amounts related to the sale of DVD’sDVDs 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 opening balance and ending balance of deferred revenue balance, including current and non-current balances, as of April 1, 2018 and March 31, 2019 were $5.7 million and $4.0 million, respectively.2022 was $0.2 million. For the twelve monthsyear ended March 31, 2019,2022, the additions to our deferred revenue balance were primarily due to cash payments received or due in advance of satisfying performance obligations, while the reductions to our deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.
During the twelve monthsyear ended March 31, 2019, $4.1 million2022, $813 thousand of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. As of March 31, 2019, the aggregate amount of contract revenue allocated to unsatisfied performance obligations is $4.0 million. We expect to recognize approximately $1.7 million of this balance over the next 12 months, and the remainder thereafter.year.
Participations and royalties payable
When we use third parties to distribute company owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers.
ASSET ACQUISITIONS
An asset acquisition is an acquisition of an asset, or a group of assets, that does not meet the definition of a business as substantially all of the fair value of the gross assets acquired are concentrated in a single or group of similar, identifiable assets. Asset acquisitions are accounted for by using the cost accumulation model whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on a relative fair value basis. Determining and valuing intangible assets requires judgment.
BUSINESS COMBINATIONS
The Company accounts for acquisitions in accordance with FASB ASC 805, “Business Combinations” (“ASC 805”), and goodwill in accordance with ASC 350, “Intangibles — Goodwill and Other” (“ASC 350”). The excess of the purchase price over the estimated fair value of net assets acquired in a business combination is recorded as goodwill. ASC 805 specifies criteria to be used in determining whether intangible assets acquired in a business combination must be recognized and reported separately from goodwill. Amounts assigned to goodwill and other identifiable intangible assets are based on independent appraisals or internal estimates.
ASC 805 defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date the acquirer achieves control. ASC 805 requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquirer (if any) at the acquisition date, measured at their fair values as of that date. ASC 805 also requires the acquirer to recognize contingent consideration (if any) at the acquisition date, measured at its fair value at that date.
Results of Operations for the Fiscal Years Ended March 31, 20192022 and 2018
Revenues
| For the Fiscal Year Ended March 31, | ||||||||||||||
| ($ in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||
| Cinema Equipment Business | $ | 26,199 | $ | 37,577 | $ | (11,378 | ) | (30.3 | )% | |||||
| Content & Entertainment | 27,335 | 30,106 | (2,771 | ) | (9.2 | )% | ||||||||
| $ | 53,534 | $ | 67,683 | $ | (14,149 | ) | (20.9 | )% | ||||||
| For the Fiscal Year Ended March 31, | ||||||||||||||||
| ($ in thousands) | 2022 | 2021 | $ Change | % Change | ||||||||||||
| Cinema Equipment Business | $ | 18,159 | $ | 3,222 | $ | 14,937 | 464 | % | ||||||||
| Content & Entertainment | 37,895 | 28,197 | 9,698 | 34 | % | |||||||||||
| $ | 56,054 | $ | 31,419 | $ | 24,635 | 78 | % | |||||||||
Revenues generated by our Cinema Equipment Business segment decreased primarilyincreased as a result of the reduced numberrevenue recognition for the AMC Equipment Purchase Agreements, and the recognition of systems earning VPF revenuevariable considerations and Service Fees. The Phase I Systems Deployment period ended forthe reopening of theatres showing major studios duringstudio new content. During the fiscal year ended March 31, 2018.2021, theatres re-opened with limited capacities as vaccines became readily available and as fully reopened as of March 31, 2022. Total system sales revenue recognized was $11.3 million and $0.6 million, during the years ended March 31, 2022 and 2021, respectively. Blockbuster content released during the period ending March 31, 2022 showed an uptick in VPF revenue but fell shy of pre-pandemic levels. The decreaserevenues in Revenues was offset by revenues generated from the sale of 321 digital projection systems for approximately $2.8 million. Content & Entertainment revenue decreasedBusiness segment increased by $2.8 million34% for the year ended March 31, 2022 compared to the year ended March 31, 2021. The increase is consistent with the addition of five new streaming channels related to Screambox, Bloody Disgusting and DMR business acquisitions as a result of a decline in DVD business and licensing revenue offset bywell as an increase in the number of advertising partners and stay at home orders increased in home digital transactional revenues in our distributed business.viewing.
Direct Operating Expenses
| For the Fiscal Year Ended March 31, | ||||||||||||||||
| ($ in thousands) | 2022 | 2021 | $ Change | % Change | ||||||||||||
| Cinema Equipment Business | $ | 687 | $ | 683 | $ | 4 | 1 | % | ||||||||
| Content & Entertainment | 20,207 | 15,420 | 4,787 | 31 | % | |||||||||||
| $ | 20,894 | $ | 16,103 | $ | 4,791 | 30 | % | |||||||||
| For the Fiscal Year Ended March 31, | ||||||||||||||
| ($ in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||
| Cinema Equipment Business | $ | 1,401 | $ | 1,526 | $ | (125 | ) | (8.2 | )% | |||||
| Content & Entertainment | 14,719 | 17,997 | (3,278 | ) | (18.2 | )% | ||||||||
| $ | 16,120 | $ | 19,523 | $ | (3,403 | ) | (17.4 | )% | ||||||
The increase in direct operating expenses decreased in the year ended March 31, 20192022 for the Cinema Equipment Business compared to the prior year,period was primarily due to a slight increase in asset storage costs. The increase in direct operating expenses in the year ended March 31, 2022 for the Content & Entertainment Business compared to the prior period was primarily due to $3.3 million higher content and production costs related to continued growth in revenue and distribution, and expenses for newly acquired channels. Software as a service (“SaaS”) costs increased $2.4 million on Cinedigm owned and managed channels from higher transactions and revenue. Other direct operating expenses, including licensing, participations fees and website content costs were $0.8 million higher. However, direct operating costs were partially offset by $2.5 million lower content & entertainment business revenues resultingfreight and fulfillment due to lower physical sales in lower royalty expense combined with significant reduction in impairment costs drove operating expense decreases.the year ended March 31, 2022.
Selling, General and Administrative Expenses
| For the Fiscal Year Ended March 31, | ||||||||||||||||
| ($ in thousands) | 2022 | 2021 | $ Change | % Change | ||||||||||||
| Cinema Equipment Business | $ | 1,405 | $ | 2,155 | $ | (750 | ) | (35 | )% | |||||||
| Content & Entertainment | 13,935 | 9,798 | 4,137 | 42 | % | |||||||||||
| Corporate | 14,211 | 9,917 | 4,294 | 43 | % | |||||||||||
| $ | 29,551 | $ | 21,870 | $ | 7,681 | 35 | % | |||||||||
| For the Fiscal Year Ended March 31, | ||||||||||||||
| ($ in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||
| Cinema Equipment Business | $ | 1,960 | $ | 1,755 | $ | 205 | 11.7 | % | ||||||
| Content & Entertainment | 15,322 | 16,715 | (1,393 | ) | (8.3 | )% | ||||||||
| Corporate | 10,379 | 9,984 | 395 | 4.0 | % | |||||||||
| $ | 27,661 | $ | 28,454 | $ | (793 | ) | (2.8 | )% | ||||||
Selling, general and administrative expenses for the year ended March 31, 2019 compared to prior year decreased2022 increased by $0.8$8 million mainlyprimarily due to a decreasethe acquisitions of $1.2Screambox, DMR and Bloody Disguising. $2.4 million increase in personnel costs, $2.2 million in marketing spend in our OTT business, a decrease of $0.7long term incentive plan stock appreciation rights, $0.4 million in stock based compensation compared to higher stock-based compensation in the prior year resulting from the accelerated vesting of all our equity from the change of control of the Company from the Bison transaction,computer related expenses and a decrease of $0.7$0.4 million in bonus expenses relating to that transaction. These decreases were offset by an increase of $1.2 million in professional consulting expenses relating to a potential acquisition and an increase of $0.6 million in severance expense resulting from our cost cutting initiation.public relations expenses.
Recovery of Doubtful Accounts
Recovery of doubtful accounts was $1.6$(0.5) million and $1.0$(0.1) million for the fiscal years ended March 31, 20192022 and 2018,2021, respectively.
Depreciation and Amortization Expense on Property and Equipment
| For the Fiscal Year Ended March 31, | ||||||||||||||||
| ($ in thousands) | 2022 | 2021 | $ Change | % Change | ||||||||||||
| Cinema Equipment Business | $ | 1,160 | 3,916 | (2,756 | ) | (70 | )% | |||||||||
| Content & Entertainment | 571 | 461 | 110 | 24 | % | |||||||||||
| Corporate | 3 | 27 | (24 | ) | (89 | )% | ||||||||||
| $ | 1,734 | $ | 4,404 | $ | (2,670 | ) | (61 | )% | ||||||||
| For the Fiscal Year Ended March 31, | ||||||||||||||
| ($ in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||
| Cinema Equipment Business | $ | 7,599 | 11,690 | (4,091 | ) | (35.0 | )% | |||||||
| Content & Entertainment | 343 | 443 | (100 | ) | (22.6 | )% | ||||||||
| Corporate | 182 | 279 | (97 | ) | (34.8 | )% | ||||||||
| $ | 8,124 | $ | 12,412 | $ | (4,288 | ) | (34.5 | )% | ||||||
Depreciation and amortization expense decreased for the year ended March 31, 2019, compared to the prior year; predominantly due to a $4.1 million decrease in theour Cinema Equipment Business segmentSegment as the majority of our digital cinema projection systems reached the conclusion of their ten-year useful lives during fiscal year 2018. Remaining projectorsyears 2022 and 2021. Corporate and Content & Entertainment depreciation and amortization expense on property and equipment is $0.1 million higher due to the addition of software placed into service and amortization related to the business acquisition intangibles.
Amortization of intangible assets
| For the Fiscal Year Ended March 31, | ||||||||||||||||
| ($ in thousands) | 2022 | 2021 | $ Change | % Change | ||||||||||||
| Cinema Equipment Business | $ | - | 23 | (23 | ) | (100 | )% | |||||||||
| Content & Entertainment | 2,830 | 2,488 | 342 | 14 | % | |||||||||||
| Corporate | 2 | 4 | (2 | ) | (50 | )% | ||||||||||
| $ | 2,832 | $ | 2,515 | $ | 317 | 13 | % | |||||||||
Amortization of intangible assets decrease in our Cinema Equipment Business Segment as the Ph2 KBC deployment will continueintangibles held by that segment were fully amortized during the 2021 year. Corporate and Content & Entertainment amortization expense on intangible assets is $342 thousand higher due to depreciate through their ten-year useful life.the addition of intangible assets from our acquisitions during the 2022 fiscal year.
Impairment of intangible assets
During the years ended March 31, 2022 and 2021, we recorded an impairment of $2.0 million and $0 for our customer relationships, respectively, related to our Content & Entertainment Segment.
Interest expense, net
| For the Fiscal Year Ended March 31, | ||||||||||||||||
| ($ in thousands) | 2022 | 2021 | $ Change | % Change | ||||||||||||
| Cinema Equipment Business | $ | 138 | $ | 2,346 | $ | (2,208 | ) | (94 | )% | |||||||
| Content & Entertainment | - | 9 | (9 | ) | (100 | )% | ||||||||||
| Corporate | 217 | 1,695 | (1,478 | ) | (87 | )% | ||||||||||
| $ | 355 | $ | 4,050 | $ | (3,695 | ) | (91 | )% | ||||||||
| For the Fiscal Year Ended March 31, | ||||||||||||||
| ($ in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||
| Cinema Equipment Business | $ | 4,741 | $ | 7,200 | $ | (2,459 | ) | (34.2 | )% | |||||
| Corporate | 5,515 | 6,993 | (1,478 | ) | (21.1 | )% | ||||||||
| $ | 10,256 | $ | 14,193 | $ | (3,937 | ) | (27.7 | )% | ||||||
Interest expense in the Cinema Equipment Business segment decreased primarily as a result of reduced debt balances compared to the prior year, due to the payoff of our KBC facilities, vendor notes and reduction ofsatisfying the Prospect Term Loan.Loan in during the quarter ended June 30, 2021. Interest expense in our Corporate segment decreased as a result of lower loan balances from our Credit Facility, the payoffforgiveness of the remaining $46.3 millionPPP Loan, reduction in Second Lien Loans due to exchange for Common Stock and the conversion of the convertible debt that was exchanged on November 1, 2017, offset by an increase in interest expense forBison Convertible Note and the Bison note which began December 29, 2017.Mingtai Convertible Note into shares of Common Stock.
Changes in fair value in Metaverse
During the years ended March 31, 2022 and March 31, 2021, we sold 680,000 shares of Metaverse shares for net proceeds of approximately $12.3 thousand and 8,370,000 of Metaverse shares for net proceeds of approximately $0.8 million, respectively, which resulted in a loss on sale of approximately $1 thousand and $73 thousand, respectively.
As of March, 31, 2022 and 2021, the value of our equity investment in Metaverse, using the readily determinable fair value method from operationsthe quoted trading price of $0.3the Stock Exchange of Hong Kong, was approximately $7.03 million and $0.4$6.44 million, respectively, resulting in a change in fair value of approximately $0.59 million and $(43.5) million for the years ended March 31, 20192022 and 2018, respectively, primarily2021 respectively.
Extinguishment of PPP Loan
For the year ended March 31, 2022, we recognized a gain on extinguishment of note payable of $2.2 million for statethe forgiveness of PPP loan principal and interest due the approval of our PPP Loan forgiveness application by the U.S. Small Business Administration. This amount represents the entirety of our PPP loan and interest balance.
Income Tax Expense
For the year ended March 31, 2022, the income tax (benefit) of $(0.8) million represents a $(0.9) tax benefit mainly related to the releases of valuation allowance for a net change of the deferred taxes, in our Cinema Equipment Business and Corporate segments. Incomeresulting from acquisition of Foundation TV. We also recorded income tax expense of $0.1 which was mainly related to taxable income at the state level and timing differences related to fixed asset depreciation.
Net Income/Loss attributable to common shareholders
| For the Fiscal Year Ended March 31, | ||||||||||||||||
| ($ in thousands) | 2022 | 2021 | $ Change | % Change | ||||||||||||
| Cinema Equipment Business | $ | 14,192 | $ | (6,904 | ) | $ | 21,096 | 306 | % | |||||||
| Content & Entertainment | (5,369 | ) | (3,767 | ) | (1,602 | ) | (43 | )% | ||||||||
| Corporate | (7,053 | ) | (52,505 | ) | 45,452 | 87 | % | |||||||||
| $ | 1,770 | $ | (63,176 | ) | $ | 64,946 | 103 | % | ||||||||
Adjusted EBITDA
We define Adjusted EBITDA to be earnings before interest, taxes, depreciation and amortization, other income, net, stock-based compensation and other expenses, merger and acquisition costs, restructuring, transition and acquisitions expense, net, goodwill impairment and certain other items.
Consolidated Adjusted EBITDA (including the results of Cinema Equipment Business segment) for the year ended March 31, 2019 decreased,2022 increased by $11.4 million or 49%,$13.9 compared to the year ended March 31, 2018.2021. Adjusted EBITDA loss from our non-cinemaCinema Equipment Business segment increased primarily due to the increase in sales of equipment in the current year, and lower revenue in the prior year due to state mandated theater closures due to COVID-19, the temporary halt of distribution of major studio releases and the expected decline of the Cinema Equipment Business. Adjusted EBITDA from the Content & Entertainment business was negative $7.9and Corporate decreased by $1.4 million for the year ended March 31, 2019,2022 compared to an Adjusted EBITDA of negative $2.7 million for the year ended March 31, 2018. The decrease2021, due to an increase of $4.8 million in Adjusted EBITDA compared to the prior period primarily reflects lowerdirect operating expense and increase of $8.4 million in selling, general and administrative, higher stock-based compensation, and other costs versus previous year despite a $9.7 million increase in Streaming digital revenue, in all of our business segments.adding channels, and acquisitions.
Adjusted EBITDA is not a measurement of financial performance under GAAP and may not be comparable to other similarly titled measures of other companies. We use Adjusted EBITDA as a financial metric to measure the financial performance of the business because management believes it provides additional information with respect to the performance of its fundamental business activities. For this reason, we believe Adjusted EBITDA will also be useful to others, including its stockholders, as a valuable financial metric.
We present Adjusted EBITDA because we believe that Adjusted EBITDA is a useful supplement to net lossincome (loss) from continuing operations as an indicator of operating performance. We also believe that Adjusted EBITDA is a financial measure that is useful both to management and investors when evaluating our performance and comparing our performance with that of our competitors. We also use Adjusted EBITDA for planning purposes and to evaluate our financial performance because Adjusted EBITDA excludes certain incremental expenses or non-cash items, such as stock-based compensation charges, that we believe are not indicative of our ongoing operating performance.
We believe that Adjusted EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net loss from continuing operations and Adjusted EBITDA has been provided below.in the financial results. Adjusted EBITDA should not be considered as an alternative to income from operations or net loss from continuing operations as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, Adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.
Following is the reconciliation of our consolidated net loss to Adjusted EBITDA:
| For the Fiscal Year Ended March 31, | ||||||||
| ($ in thousands) | 2022 | 2021 | ||||||
| Net income (loss) | $ | 2,271 | $ | (62,905 | ) | |||
| Add Back: | ||||||||
| Income tax (income) expense | (788 | ) | (315 | ) | ||||
| Depreciation and amortization of property and equipment | 1,734 | 4,404 | ||||||
| Amortization of intangible assets | 2,832 | 2,515 | ||||||
| (Gain) Loss on extinguishment of note payable | (2,178 | ) | 1,498 | |||||
| Interest expense, net | 355 | 4,050 | ||||||
| Intangible impairment | 1,968 | - | ||||||
| Change in fair value on equity investment in Metaverse | (585 | ) | 43,518 | |||||
| Other expense, net | 471 | 1,475 | ||||||
| Recovery of doubtful accounts | (485 | ) | (122 | ) | ||||
| Stock-based compensation and expenses | 5,487 | 2,892 | ||||||
| Net income (loss) attributable to noncontrolling interest | (59 | ) | 85 | |||||
| Adjusted EBITDA | $ | 11,023 | $ | (2,905 | ) | |||
| Adjustments related to the Cinema Equipment Business | ||||||||
| Depreciation and amortization of property and equipment | (1,160 | ) | $ | (3,916 | ) | |||
| Amortization of intangible assets | - | (23 | ) | |||||
| Stock-based compensation and expenses | - | 73 | ||||||
| Other expense | (11 | ) | - | |||||
| Recovery of doubtful accounts | 485 | - | ||||||
| Income from operations | (14,347 | ) | 4,142 | |||||
| Adjusted negative EBITDA from Content and Entertainment business | $ | (4,010 | ) | $ | (2,629 | ) | ||
| For the Fiscal Year Ended March 31, | ||||||||
| ($ in thousands) | 2019 | 2018 | ||||||
| Net loss | $ | (16,265 | ) | $ | (18,495 | ) | ||
Add Back: | ||||||||
| Income tax expense | 295 | 401 | ||||||
| Depreciation and amortization of property and equipment | 8,124 | 12,412 | ||||||
| Amortization of intangible assets | 5,627 | 5,580 | ||||||
| Interest expense, net | 10,256 | 14,193 | ||||||
| Debt conversion expense and loss on extinguishment of notes payable | — | 4,504 | ||||||
| Other expense, net | 2,019 | 2,028 | ||||||
| Change in fair value of interest rate derivatives | — | (157 | ) | |||||
| Provision for doubtful accounts | — | 253 | ||||||
| Stock-based compensation and expenses | 1,576 | 2,279 | ||||||
| Net loss attributable to noncontrolling interest | 32 | 41 | ||||||
| Adjusted EBITDA | $ | 11,664 | $ | 23,039 | ||||
| Adjustments related to the Cinema Equipment Business | ||||||||
| Depreciation and amortization of property and equipment | $ | (7,599 | ) | $ | (11,690 | ) | ||
| Amortization of intangible assets | (46 | ) | (46 | ) | ||||
| Provision for doubtful accounts | — | (253 | ) | |||||
| Bonuses | — | (59 | ) | |||||
| Stock-based compensation and expenses | (26 | ) | — | |||||
| Income from operations | (11,884 | ) | (13,683 | ) | ||||
| Adjusted EBITDA from non-cinema equipment business | $ | (7,891 | ) | $ | (2,692 | ) | ||
Recent Accounting Pronouncements
See Note 2 - Summary of Significant Accounting Policies to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted for all entities. The Company expects to adopt the provisions of this guidance on April 1, 2019 using an optional transition method with a cumulative effect adjustment to accumulated deficit and not restatement comparative periods presented.
Cash flow
Changes in our cash flows were as follows:
| For the Fiscal Years Ended March 31, | ||||||||
| ($ in thousands) | 2022 | 2021 | ||||||
| Net cash provided (used in) by operating activities | $ | 4,879 | $ | (20,007 | ) | |||
| Net cash used in investing activities | (12,302 | ) | (1,710 | ) | ||||
| Net cash provided by financing activities | 2,636 | 24,272 | ||||||
| Net increase (decrease) in cash and cash equivalents | $ | (4,787 | ) | $ | 2,555 | |||
| For the Fiscal Years Ended March 31, | |||||||
| ($ in thousands) | 2019 | 2018 | |||||
| Net cash provided by operating activities | $ | 11,088 | $ | 22,397 | |||
| Net cash used in investing activities | (1,970 | ) | (931 | ) | |||
| Net cash used in financing activities | (9,198 | ) | (16,080 | ) | |||
| Net (decrease) increase in cash and cash equivalents | $ | (80 | ) | $ | 5,386 | ||
As of March 31, 2019,2022, we had cash balances of $13.1 million.
As of March 31, 2021, we had cash equivalents and restricted cash balances of $18.9$17.8 million.
For the year ended March 31, 2022, net cash provided by operating activities is primarily driven by lossincome from operations, excluding non-cash expenses such as
For the year ended March 31, 2021, net cash used in operating activities is primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, including other changes in working capital. Additionally, during the year ended March 31, 2021, the Company paid down $29.8 million to vendors at both CEG and Corporate. Cash received from VPFs declined from the previous period as Phase I Deployment Systems in our Cinema Equipment Business reached the conclusion of their deployment payment periods with certain major studios. Changes in accounts receivable from our studio customers largely impact cash flows from operating activities and vary based on the seasonality of movie release schedules by the major studios. Operating cash flows from CEG are typically higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season, and lower in the other two quarters as we pay royalties on such revenues. In addition, we make advances on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twelve months. Cash flows were also impacted as a result of COVID-19, as during the year ended March 31, 2021, theatres in many major markets remained closed throughout the fourth quarter causing the majority of major studios to move wide releases scheduled for the year ended March 31, 2021 to future dates. Only two major studios had wide theatrical releases in the last part of the year, however, the theatrical window before the streaming debut was shortened or eliminated to accommodate the lack of theatrical venues. Because our digital cinema business earns a VPF when a movie is first played on a system, the temporary theatre closures resulting from the COVID-19 pandemic resulted in reduced revenues.
For the year ended March 31, 2022, cash flows used in investing activities consisted of proceeds from the sale of investment securities of $0.01 million, purchases of property and equipment.equipment of $0.6 million, and $11.7 million related to the purchase of a business.
For the year ended March 31, 2019,2021, cash flows used in financinginvesting activities reflects paymentsconsisted of $19.1 million for the 2013 Prospect Loan, $5.0 million for the 2013 Notes, $0.3 million for P2 Vendor Note, and $0.2 million for the KBC Note, offset by$10.4 million drawn from the Credit Facility and $5.0 million proceeds from the $5.0sale of Metaverse shares of $0.8 million, Convertible Note.purchases of property and equipment of $0.06 million, the sale of property and equipment of $0.08 million, and the purchase of intangible assets of $2.5 million related to the asset acquisition.
For the year ended March 31, 2022, cash flows provided by financing activities consisted of payments of approximately $7.8 million in notes payable, $2.0 million in Credit Facility repayments, and $12.4 million received in connection with the issuance Common Stock.
For the year ended March 31, 2021, cash flows provided by financing activities consisted of payments of approximately $7.7 million in notes payable, $12.8 million in Credit Facility repayments, $42.7 million received in connection with the issuance Common Stock, and $2.2 million received pursuant to the Payment Protection Program of the Coronavirus Aid, Relief and Economic Security Act.
Contractual Obligations
The following table summarizes our significant contractual obligations as of March 31, 2019:
| Payments Due | ||||||||||||||||||||
| Contractual Obligations (in thousands) | Total | 2023 | 2024 & 2025 | 2026 & 2027 | Thereafter | |||||||||||||||
| Operating lease obligations | $ | 749 | $ | 258 | $ | 491 | $ | — | $ | — | ||||||||||
| Payments Due | |||||||||||||||||||
| Contractual Obligations (in thousands) | Total | 2020 | 2021 & 2022 | 2023 & 2024 | Thereafter | ||||||||||||||
| Long-term recourse debt | $ | 44,755 | $ | 44,755 | $ | — | $ | — | $ | — | |||||||||
Long-term non-recourse debt (1) | 20,627 | — | 20,627 | — | — | ||||||||||||||
| Debt-related obligations, principal | $ | 65,382 | $ | 44,755 | $ | 20,627 | $ | — | $ | — | |||||||||
| Interest on recourse debt | $ | 7,885 | $ | 6,828 | $ | 1,057 | $ | — | $ | — | |||||||||
Interest on non-recourse debt (1) | 5,654 | 2,831 | 2,823 | — | — | ||||||||||||||
| Total interest | $ | 13,539 | $ | 9,659 | $ | 3,880 | $ | — | $ | — | |||||||||
| Total debt-related obligations | $ | 78,921 | $ | 54,414 | $ | 24,507 | $ | — | $ | — | |||||||||
| Total non-recourse debt including interest | $ | 26,281 | $ | 2,831 | $ | 23,450 | $ | — | $ | — | |||||||||
| Operating lease obligations | $ | 2,925 | $ | 1,109 | $ | 1,816 | $ | — | $ | — | |||||||||
We may continue to generate net losses for the foreseeable future primarily due to depreciation and amortization, interest on our debt obligations, marketing and promotional activities and content acquisition and marketing costs. Certain of these costs, including costs of content acquisition, marketing and promotional activities, could be reduced if necessary. The restrictions imposed by the terms of our debt obligations may limit our ability to obtain financing, make it more difficult to satisfy our debt obligations or require us to dedicate a substantial portion of our cash flow to payments on our existing debt obligations. We feel we are adequately financed for at least the next twelve months; however, we may need to raise additional capital for working capital as deemed necessary. Failure to generate additional revenues, raise additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations or liquidity.
Seasonality
Revenues from our Cinema Equipment segment derived from the collection of VPFs from motion picture studios are seasonal, coinciding with the timing of releases of movies by the motion picture studios. Generally, motion picture studios release the most marketable movies during the summer and the winter holiday season. The unexpected emergence of a hit movie during other periods can alter the traditional trend. The timing of movie releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or any other quarter. While CEG benefits from the winter holiday season, we believe the seasonality of motion picture exhibition, is becoming less pronounced as the motion picture studios are releasing movies somewhat more evenly throughout the year.
Off-balance sheet arrangements
We are not a party to any off-balance sheet arrangements, other than operating leases in the ordinary course of business, which are disclosed above in the table of our significant contractual obligations, and CDF2 Holdings.arrangements. In addition, as discussed further in Note 2 -
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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CINEDIGM CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Cinedigm Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cinedigm Corp. (the “Company"“Company”) as of March 31, 20192022 and 20182021, and the related consolidated statements of operations, comprehensive loss, deficit,income (loss), stockholders’ equity (deficit), and cash flows for each of the years in the two-year periodthen ended, March 31, 2019, and the related notes.notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 20192022 and 2018,2021, and the consolidated results of itstheir operations and itstheir cash flows for each of the years in the two-year periodthen ended, March 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB"(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company'sCompany’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue recognition – Content & Entertainment Business segment.
As disclosed in Note 2 to the consolidated financial statements, the Company’s Content & Entertainment business segment (“CEG”) earns fees for the distribution of content in the home entertainment markets via several distribution channels, including digital, video on demand (“VOD”) and physical goods. Fees earned are a based on a percentage of the net amounts received from customers, when the Company is an agent in the transaction and represents the entire amount received from the customer when the Company is considered the principal. The Company’s performance obligations include the delivery of content for transactional, subscription and ad supported streaming on the digital platforms, and shipment of DVDS and Blu-Ray disks. Revenue is recognized when the content is available for subscription on the digital platform, at the time of shipment of physical goods, or point-of-sale for transactional and VOD services as the control over the content or the physical titles is transferred to the customer. Physical revenue is recognized after deducting the reserves for sales returns and revenue reductions, which are accounted for as variable consideration. Total CEG revenues for the year ended March 31, 2022 $37.9 million.
We identified revenue recognition for CEG as a critical audit matter due the level of judgement and estimation required by management in the recognition of fees earned from customers and estimation of revenues accrued at period end; this in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s determination of management’s revenue recognition for CEG.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. We obtained an understanding and evaluated the design of the Company’s controls over the revenue recognition of CEG, including obtaining and evaluating the service auditor’s report relating to controls over the third party information used by management in estimating digital revenue. We gained an understanding of the Company’s role as either principal or agent in the revenue streams and management’s determination of revenue streams as either gross or net based on the transfer of control for the good and service. Our audit procedures included, among others, comparing the revenue recognized to third party statements/reports, which can include sales, cash receipts, returns, revenue deductions, advance payments, advance recoupments, expenses, and other information, to reconcile to the revenue recognized or the net amounts in which fees are calculated on, as determined by the underlying contracts or third party statements for a sample of transactions. We also tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the financial statements, as well as the Company’s estimation process, on a sample basis, for revenues accrued at period end.
Valuation of Intangible Assets Acquired in Business Combinations
As disclosed in Note 4, the Company completed three business combinations during the year ended March 31, 2022. The business combinations were accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. Accordingly, the purchase prices of each acquisition were allocated to the assets acquired and liabilities assumed based on their respective fair values, including intangible assets aggregating to $14.9 million.
The Company valued the acquired intangible assets, comprised of developed technology, advertiser relationships, and channels and platform, at fair value on the date of the acquisitions using income approaches. The methods used to estimate fair value required management to make significant estimates and assumptions related to the forecasts of future cash flows, customer attrition rates, discount rates, and royalty rates.
Auditing the accounting for acquisitions was complex due to the significant estimation uncertainty in determining the fair values of identified intangible assets. The significant estimation uncertainty was primarily due to the sensitivity of the respective fair values to underlying assumptions about future performance of the acquired businesses and due to the limited historical data on which to base these assumptions.
Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained. We obtained an understanding and evaluated the design of the Company’s controls over its accounting for acquisitions.
Our audit procedures also included evaluating the appropriateness of the valuation models, and testing the completeness, accuracy and relevance of the underlying data used in the models, and testing the reasonableness of the forecasts of future cash flows, attrition rates, discount rates, and royalty rates for the intangible assets acquired. We assessed the reasonableness of management’s forecasts of future cash flows by comparing the projections to historical results. We also evaluated whether the estimated future cash flows were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of the valuation models and significant assumptions, including the discount and royalty rates that were independently developed using publicly available market data for comparable companies.
/s/ EisnerAmper LLP
We have served as the Company’s auditor since 2004.2004
EISNERAMPER LLP
Iselin, New Jersey
July 1, 2022
CINEDIGM CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 13,062 | $ | 16,849 | ||||
| Accounts receivable, net of allowance of $2,921 and $2,876, respectively | 30,843 | 21,093 | ||||||
| Inventory | 116 | 166 | ||||||
| Unbilled revenue | 2,349 | 1,377 | ||||||
| Prepaid and other current assets | 5,793 | 3,657 | ||||||
| Total current assets | 52,163 | 43,142 | ||||||
| Restricted cash | - | 1,000 | ||||||
| Equity investment in A Metaverse Company, a related party, at fair value | 7,028 | 6,443 | ||||||
| Property and equipment, net | 1,980 | 3,500 | ||||||
| Operating lease right-of use assets, net | 749 | 100 | ||||||
| Intangible assets, net | 20,034 | 9,860 | ||||||
| Goodwill | 21,084 | 8,701 | ||||||
| Other long-term assets | 1,598 | 2,700 | ||||||
| Total assets | $ | 104,636 | $ | 75,446 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 52,025 | $ | 46,627 | ||||
| Current portion of notes payable, including unamortized debt discount and debt issuance costs of $0 and $460, respectively (see Note 5) | - | 1,956 | ||||||
| Current portion of notes payable, non-recourse including unamortized debt discount of $0 and $763, respectively (see Note 5) | - | 7,786 | ||||||
| Current portion of deferred consideration on purchase of business | 3,432 | - | ||||||
| Current portion of earnout consideration on purchase of business | 1,081 | - | ||||||
| Operating lease liabilities | 258 | 87 | ||||||
| Current portion of deferred revenue | 196 | 924 | ||||||
| Total current liabilities | 56,992 | 57,380 | ||||||
| Note payable | - | 2,152 | ||||||
| Deferred consideration on purchase – net of current portion | 5,600 | - | ||||||
| Earnout consideration on purchase – net of current portion | 603 | - | ||||||
| Operating lease liabilities, net of current portion | 491 | 13 | ||||||
| Other long-term liabilities | - | 19 | ||||||
| Total liabilities | 63,686 | 59,564 | ||||||
| Commitments and contingencies (see Note 7) | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, 15,000,000 shares authorized; Series A 10% - $0.001 par value per share; 20 shares authorized; 7 shares issued and outstanding at March 31, 2022 and 2021. Liquidation preference of $3,648 | 3,559 | 3,559 | ||||||
| Common stock, $0.001 par value; Class A stock 275,000,000 and 200,000,000 shares authorized at March 31, 2022 and 2021, respectively, 176,629,435 and 167,542,404 shares issued and 175,313,584 and 166,228,568 shares outstanding at March 31, 2022 and 2021, respectively. | 174 | 164 | ||||||
| Additional paid-in capital | 522,601 | 499,272 | ||||||
| Treasury stock, at cost; 1,315,851 and 1,313,836 Class A common shares at March 31, 2022 and 2021, respectively. | (11,608 | ) | (11,603 | ) | ||||
| Accumulated deficit | (472,310 | ) | (474,080 | ) | ||||
| Accumulated other comprehensive loss | (163 | ) | (68 | ) | ||||
| Total stockholders’ equity of Cinedigm Corp. | 42,253 | 17,244 | ||||||
| Deficit attributable to noncontrolling interest | (1,303 | ) | (1,362 | ) | ||||
| Total equity | 40,950 | 15,882 | ||||||
| Total liabilities and equity | $ | 104,636 | $ | 75,446 | ||||
| March 31, | |||||||
| 2019 | 2018 | ||||||
| ASSETS | |||||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 17,872 | $ | 17,952 | |||
| Accounts receivable, net | 35,510 | 38,128 | |||||
| Inventory, net | 673 | 792 | |||||
| Unbilled revenue | 2,336 | 6,799 | |||||
| Prepaid and other current assets | 8,488 | 10,497 | |||||
| Total current assets | 64,879 | 74,168 | |||||
| Restricted cash | 1,000 | 1,000 | |||||
| Property and equipment, net | 14,047 | 21,483 | |||||
| Intangible assets, net | 9,686 | 14,653 | |||||
| Goodwill | 8,701 | 8,701 | |||||
| Other long-term assets | 526 | 1,177 | |||||
| Total assets | $ | 98,839 | $ | 121,182 | |||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||
| Current liabilities | |||||||
| Accounts payable and accrued expenses | $ | 68,707 | $ | 69,225 | |||
| Current portion of notes payable, including unamortized debt discount of $1,436 and $225, respectively (see Note 5) | 43,319 | 4,775 | |||||
| Current portion of notes payable, non-recourse (see Note 5) | — | 512 | |||||
| Current portion of deferred revenue | 1,687 | 1,821 | |||||
| Total current liabilities | 113,713 | 76,333 | |||||
| Notes payable, non-recourse, net of current portion and unamortized debt issuance costs of $1,495 and $2,140 respectively (see Note 5) | 19,132 | 37,570 | |||||
| Notes payable, net of current portion and unamortized debt issuance costs of $0 and $3,352, respectively (see Note 5) | — | 25,435 | |||||
| Deferred revenue, net of current portion | 2,357 | 3,842 | |||||
| Other long-term liabilities | 205 | 306 | |||||
| Total liabilities | 135,407 | 143,486 | |||||
| Commitments and contingencies (see Note 7) | |||||||
| Stockholders’ Deficit | |||||||
| Preferred stock, 15,000,000 shares authorized; Series A 10% - $0.001 par value per share; 20 shares authorized; 7 shares issued and outstanding at March 31, 2019 and 2018. Liquidation preference of $3,648 | 3,559 | 3,559 | |||||
| Common stock, $0.001 par value; Class A stock 60,000,000 shares authorized at March 31, 2019 and 2018; 36,992,433 and 36,261,975 shares issued and 35,678,597 and 34,948,139 shares outstanding at March 31, 2019 and 2018, respectively. | 36 | 35 | |||||
| Additional paid-in capital | 368,531 | 366,223 | |||||
| Treasury stock, at cost; 1,313,836 Class A common shares at March 31, 2019 and 2018. | (11,603 | ) | (11,603 | ) | |||
| Accumulated deficit | (395,814 | ) | (379,225 | ) | |||
| Accumulated other comprehensive income (loss) | 10 | (38 | ) | ||||
| Total stockholders’ deficit of Cinedigm Corp. | (35,281 | ) | (21,049 | ) | |||
| Deficit attributable to noncontrolling interest | (1,287 | ) | (1,255 | ) | |||
| Total deficit | (36,568 | ) | (22,304 | ) | |||
| Total liabilities and deficit | $ | 98,839 | $ | 121,182 | |||
See accompanying Notes to Consolidated Financial Statements
CINEDIGM CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for share and per share data)
| For the Fiscal Year Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | $ | 56,054 | $ | 31,419 | ||||
| Costs and expenses: | ||||||||
| Direct operating (excludes depreciation and amortization shown below) | 20,894 | 16,103 | ||||||
| Selling, general and administrative | 29,551 | 21,870 | ||||||
| Depreciation and amortization of property and equipment | 1,734 | 4,404 | ||||||
| Amortization of intangible assets | 2,832 | 2,515 | ||||||
| Intangible impairment | 1,968 | - | ||||||
| Total operating expenses | 56,979 | 44,892 | ||||||
| Loss from operations | (925 | ) | (13,473 | ) | ||||
| Interest income, net | 1 | 37 | ||||||
| Interest expense | (356 | ) | (4,087 | ) | ||||
| Changes in fair value of equity investment in Metaverse, a related party | 585 | (43,518 | ) | |||||
| Income (loss) on extinguishment of note payable | 2,178 | (1,498 | ) | |||||
| Other expense, net | - | (681 | ) | |||||
| Net income (loss) from operations before income taxes | 1,483 | (63,220 | ) | |||||
| Income tax benefit | 788 | 315 | ||||||
| Net income (loss) | 2,271 | (62,905 | ) | |||||
| Net (loss) income attributable to noncontrolling interest | (59 | ) | 85 | |||||
| Net income (loss) attributable to controlling interests | 2,212 | (62,820 | ) | |||||
| Preferred stock dividends | (442 | ) | (356 | ) | ||||
| Net income (loss) attributable to common stockholders | $ | 1,770 | $ | (63,176 | ) | |||
| Net income (loss) per Class A common stock attributable to common stockholders - basic: | $ | 0.01 | $ | (0.49 | ) | |||
| Weighted average number of Class A common stock outstanding: basic | 170,643,623 | 127,787,379 | ||||||
| Net income (loss) per Class A common stock attributable to common stockholders - diluted: | $ | 0.01 | $ | (0.49 | ) | |||
| Weighted average number of Class A common stock outstanding: diluted | 173,827,870 | 127,787,379 | ||||||
| For the Fiscal Year Ended March 31, | |||||||
| 2019 | 2018 | ||||||
| Revenues | $ | 53,534 | $ | 67,683 | |||
| Costs and expenses: | |||||||
| Direct operating (excludes depreciation and amortization shown below) | 16,120 | 19,523 | |||||
| Selling, general and administrative | 27,661 | 28,454 | |||||
| Provision for doubtful accounts | 1,620 | 991 | |||||
| Depreciation and amortization of property and equipment | 8,124 | 12,412 | |||||
| Amortization of intangible assets | 5,627 | 5,580 | |||||
| Total operating expenses | 59,152 | 66,960 | |||||
| (Loss) income from operations | (5,618 | ) | 723 | ||||
| Interest income | 36 | 57 | |||||
| Interest expense | (10,292 | ) | (14,250 | ) | |||
| Debt conversion expense and loss on extinguishment of notes payable | — | (4,504 | ) | ||||
| Other expense | (96 | ) | (277 | ) | |||
| Change in fair value of interest rate derivatives | — | 157 | |||||
| Loss from operations before income taxes | (15,970 | ) | (18,094 | ) | |||
| Income tax expense | (295 | ) | (401 | ) | |||
| Net loss | (16,265 | ) | (18,495 | ) | |||
| Net loss attributable to noncontrolling interest | 32 | 41 | |||||
| Net loss attributable to controlling interests | (16,233 | ) | (18,454 | ) | |||
| Preferred stock dividends | (356 | ) | (356 | ) | |||
| Net loss attributable to common stockholders | $ | (16,589 | ) | $ | (18,810 | ) | |
| Net loss per Class A common stock attributable to common stockholders - basic and diluted: | |||||||
| Net loss attributable to common stockholders | $ | (0.44 | ) | $ | (0.81 | ) | |
| Weighted average number of Class A common stock outstanding: basic and diluted | 37,919,754 | 23,104,811 | |||||
See accompanying Notes to Consolidated Financial Statements
CINEDIGM CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)
(In thousands)
| For the Fiscal Year Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net income (loss) | $ | 2,271 | $ | (62,905 | ) | |||
| Other comprehensive loss: foreign exchange translation | (95 | ) | (160 | ) | ||||
| Comprehensive income (loss) | 2,176 | (63,065 | ) | |||||
| Less: comprehensive (loss) income attributable to noncontrolling interest | (59 | ) | 85 | |||||
| Comprehensive income (loss) attributable to controlling interests | $ | 2,117 | $ | (62,980 | ) | |||
| For the Fiscal Year Ended March 31, | ||||||||
| 2019 | 2018 | |||||||
| Net loss | $ | (16,265 | ) | $ | (18,495 | ) | ||
| Other comprehensive income: foreign exchange translation | 48 | — | ||||||
| Comprehensive loss | (16,217 | ) | (18,495 | ) | ||||
| Less: comprehensive loss attributable to noncontrolling interest | 32 | 41 | ||||||
| Comprehensive loss attributable to controlling interests | $ | (16,185 | ) | $ | (18,454 | ) | ||
See accompanying Notes to Consolidated Financial Statements
CINEDIGM CORP.
CONSOLIDATED STATEMENTS OF DEFICITEQUITY (DEFICIT)
(In thousands, except share data)
| Series A Preferred Stock | Class A Common Stock | Treasury Stock | Additional Paid-In | Accumulated | Accumulated Other Comprehensive (Loss) | Total Stockholders’ | Non- Controlling | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Income | Deficit | Interest | (Deficit) | |||||||||||||||||||||||||||||||||||||
| Balances as of March 31, 2020 | 7 | $ | 3,559 | 61,937,593 | $ | 62 | 1,313,836 | $ | (11,603 | ) | $ | 400,784 | $ | (410,904 | ) | $ | 92 | $ | (18,010 | ) | $ | (1,277 | ) | $ | (19,287 | ) | ||||||||||||||||||||||
| Foreign exchange translation | — | — | — | — | — | — | — | (160 | ) | (160 | ) | — | (160 | ) | ||||||||||||||||||||||||||||||||||
| Issuance of Class A common stock in connection with public offerings | — | — | 51,885,840 | 52 | — | 42,299 | — | — | 42,351 | — | 42,351 | |||||||||||||||||||||||||||||||||||||
| Issuance of Class A common stock in connection with the Metaverse transaction, a related party | — | — | 29,855,081 | 30 | — | 11,016 | — | — | 11,046 | — | 11,046 | |||||||||||||||||||||||||||||||||||||
| Contributed capital under the Metaverse transaction, a related party | — | — | — | — | — | 17,187 | — | — | 17,187 | — | 17,187 | |||||||||||||||||||||||||||||||||||||
| Common stock issued in connection with conversion of Convertible Notes and second lien loans | — | — | 16,534,613 | 16 | — | 21,536 | — | — | 21,552 | — | 21,552 | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 1,860,554 | 1 | — | — | 2,891 | — | — | 2,892 | — | 2,892 | ||||||||||||||||||||||||||||||||||||
| Exercise of warrants for Class A common stock | — | — | 236,899 | — | — | 301 | — | — | 301 | — | 301 | |||||||||||||||||||||||||||||||||||||
| Class A common stock to be issued in connection with asset acquisitions | — | — | 3,098,126 | 3 | — | — | 2,902 | — | — | 2,905 | — | 2,905 | ||||||||||||||||||||||||||||||||||||
| Issuance of f Class A common stock for third party professional services | — | — | 196,914 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends paid with common stock | — | — | 622,948 | 356 | (356 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (62,820 | ) | — | (62,820 | ) | (85 | ) | (62,905 | ) | |||||||||||||||||||||||||||||||||
| Balances as of March 31, 2021 | 7 | $ | 3,559 | 166,228,568 | $ | 164 | 1,313,836 | $ | (11,603 | ) | $ | 499,272 | $ | (474,080 | ) | $ | (68 | ) | $ | 17,244 | $ | (1,362 | ) | $ | 15,882 | |||||||||||||||||||||||
Series A Preferred Stock | Class A and Class B Common Stock | Treasury Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders' Deficit | Non-Controlling Interest | Total Deficit | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||
| Balances as of March 31, 2017 | 7 | $ | 3,559 | 11,841,983 | $ | 12 | — | $ | — | $ | 287,393 | $ | (360,415 | ) | $ | (38 | ) | $ | (69,489 | ) | $ | (1,214 | ) | $ | (70,703 | ) | |||||||||||||||
| Issuance of common stock for third-party professional services | — | — | 686,641 | 1 | — | — | 875 | — | — | 876 | — | 876 | |||||||||||||||||||||||||||||
| Common stock issued in connection with conversion of Convertible Notes | — | — | 3,536,783 | 3 | — | — | 34,285 | — | — | 34,288 | — | 34,288 | |||||||||||||||||||||||||||||
| Forfeitures of restricted stock awards, net of issuances | — | — | (27,673 | ) | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
| Issuance of common stock in connection with the stock purchase agreement with Bison, net | — | — | 19,666,667 | 20 | — | — | 28,011 | — | — | 28,031 | — | 28,031 | |||||||||||||||||||||||||||||
| Issuance of common stock in connection with debt instruments | — | — | 333,333 | — | — | — | 500 | — | — | 500 | — | 500 | |||||||||||||||||||||||||||||
| Issuance of warrants in connection with Bison, net | — | — | — | — | — | — | 1,084 | — | — | 1,084 | — | 1,084 | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | 2,279 | — | — | 2,279 | — | 2,279 | |||||||||||||||||||||||||||||
| Preferred stock dividends paid with common stock | — | — | 224,241 | — | — | — | 356 | (356 | ) | — | — | — | — | ||||||||||||||||||||||||||||
| Treasury stock in connection with taxes withheld from employees | — | — | (134,698 | ) | — | 134,698 | (163 | ) | — | — | — | (163 | ) | — | (163 | ) | |||||||||||||||||||||||||
| Treasury stock in connection with settlement of structured stock repurchase | — | — | (1,179,138 | ) | (1 | ) | 1,179,138 | (11,440 | ) | 11,440 | — | — | (1 | ) | — | (1 | ) | ||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | (18,454 | ) | — | (18,454 | ) | (41 | ) | (18,495 | ) | |||||||||||||||||||||||||
| Balances as of March 31, 2018 | 7 | $ | 3,559 | 34,948,139 | $ | 35 | 1,313,836 | $ | (11,603 | ) | $ | 366,223 | $ | (379,225 | ) | $ | (38 | ) | $ | (21,049 | ) | $ | (1,255 | ) | $ | (22,304 | ) | ||||||||||||||
See accompanying Notes to Consolidated Financial Statements
CINEDIGM CORP.
CONSOLIDATED STATEMENTS OF DEFICITEQUITY (DEFICIT)
(In thousands, except share data)
| Series A Preferred Stock | Class A Common Stock | Treasury Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders' Deficit | Non-Controlling Interest | Total Deficit | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||
| Balances as of March 31, 2018 | 7 | $ | 3,559 | 34,948,139 | $ | 35 | 1,313,836 | $ | (11,603 | ) | $ | 366,223 | $ | (379,225 | ) | $ | (38 | ) | $ | (21,049 | ) | $ | (1,255 | ) | $ | (22,304 | ) | ||||||||||||||
| Foreign exchange translation | — | — | — | — | — | — | — | — | 48 | 48 | — | 48 | |||||||||||||||||||||||||||||
| Issuance of shares for asset acquisition | — | — | 137,667 | — | — | — | 106 | — | — | 106 | — | 106 | |||||||||||||||||||||||||||||
Issuance of common stock for third party professional services | — | — | 225,862 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Fair value of conversion feature in connection with convertible note | — | — | — | — | — | — | 270 | — | — | 270 | — | 270 | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | 1,576 | — | — | 1,576 | — | 1,576 | |||||||||||||||||||||||||||||
Issuance of restricted stock to employees | — | — | 10,000 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Preferred stock dividends paid with common stock | — | — | 356,929 | 1 | — | — | 356 | (356 | ) | — | 1 | — | 1 | ||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | (16,233 | ) | — | (16,233 | ) | (32 | ) | (16,265 | ) | |||||||||||||||||||||||||
| Balances as of March 31, 2019 | 7 | $ | 3,559 | 35,678,597 | $ | 36 | 1,313,836 | $ | (11,603 | ) | $ | 368,531 | $ | (395,814 | ) | $ | 10 | $ | (35,281 | ) | $ | (1,287 | ) | $ | (36,568 | ) | |||||||||||||||
| Series A Preferred Stock | Class A Common Stock | Treasury Stock | Additional Paid-In | Accumulated | Accumulated Other Comprehensive (Loss) | Total Stockholders’ Equity | Non- Controlling | Total | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Income | (Deficit) | Interest | Equity | |||||||||||||||||||||||||||||||||||||
| Balances as of March 31, 2021 | 7 | $ | 3,559 | 166,228,568 | $ | 164 | 1,313,836 | $ | (11,603 | ) | $ | 499,272 | $ | (474,080 | ) | $ | (68 | ) | $ | 17,244 | $ | (1,362 | ) | $ | 15,882 | |||||||||||||||||||||||
| Foreing exchange translation | — | — | — | — | — | — | — | — | (95 | ) | (95 | ) | — | (95 | ) | |||||||||||||||||||||||||||||||||
| Stock compensation and expenses | — | — | 366,056 | — | — | — | 5,487 | — | — | 5,487 | — | 5,487 | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with business combinations | — | — | 2,662,285 | 3 | — | — | 4,822 | — | — | 4,825 | — | 4,825 | ||||||||||||||||||||||||||||||||||||
| Preferred stock dividends paid in stock | — | — | 231,406 | — | — | — | 354 | (89 | ) | — | 265 | — | 265 | |||||||||||||||||||||||||||||||||||
| Treasury stock in connection with taxes withheld from employees | — | — | (2,015 | ) | — | 2,015 | (5 | ) | — | — | — | (5 | ) | — | (5 | ) | ||||||||||||||||||||||||||||||||
| Preferred stock dividends accrued | — | — | — | — | — | — | 89 | (353 | ) | — | (264 | ) | — | (264 | ) | |||||||||||||||||||||||||||||||||
| Issuance of common stock for third party equity purchase commitment | — | — | 527,021 | — | — | — | 206 | — | — | 206 | — | 206 | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with performance stock units | — | — | 263 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with ATM raises, net | — | — | 5,300,000 | 7 | — | — | 12,371 | — | — | 12,378 | 12,378 | |||||||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | — | — | — | 2,212 | — | 2,212 | 59 | 2,271 | ||||||||||||||||||||||||||||||||||||
| Balances as of March 31, 2022 | 7 | $ | 3,559 | 175,313,584 | $ | 174 | 1,315,851 | $ | (11,608 | ) | $ | 522,601 | $ | (472,310 | ) | $ | (163 | ) | $ | 42,253 | $ | (1,303 | ) | $ | 40,950 | |||||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements
CINEDIGM CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| For the Fiscal Year Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | 2,271 | $ | (62,905 | ) | |||
| Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization of property and equipment and amortization of intangible assets | 4,566 | 6,919 | ||||||
| Deferred income tax | (888 | ) | - | |||||
| Impairment of prepaid advances | 1,164 | - | ||||||
| Impairment of intangibles | 1,968 | - | ||||||
| Changes in fair value of equity investment in Metaverse | (585 | ) | 43,518 | |||||
| Loss from sale of property and equipment | - | 44 | ||||||
| Amortization of debt issuance costs included in interest expense | - | 1,223 | ||||||
| Stock-based compensation and expenses | 5,487 | 2,892 | ||||||
| Interest expense for deferred consideration | 44 | - | ||||||
Change in fair value of earnout for earnout consideration | 222 | - | ||||||
| (Gain) loss on extinguishment of note payable | (2,178 | ) | 1,498 | |||||
| Accretion and PIK interest expense added to note payable | - | 302 | ||||||
| Other | 26 | - | ||||||
| Changes in operating assets and liabilities, net of acquisitions: | �� | |||||||
| Accounts receivable | (8,088 | ) | 13,692 | |||||
| Inventory | 50 | 406 | ||||||
| Unbilled revenue | (972 | ) | 615 | |||||
| Prepaid and other current assets | (1,580 | ) | 3,195 | |||||
| Accounts payable and accrued expenses | 4,100 | (29,766 | ) | |||||
| Deferred revenue | (728 | ) | (1,640 | ) | ||||
| Net cash provided (used in) by operating activities | 4,879 | (20,007 | ) | |||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | (316 | ) | (64 | ) | ||||
| Purchase of intangible assets | (325 | ) | (2,545 | ) | ||||
| Purchase of business, net of cash acquired | (11,672 | ) | - | |||||
| Proceeds from the sale of property and equipment | - | 84 | ||||||
| Sale of equity investment securities | 11 | 815 | ||||||
| Net cash used in investing activities | (12,302 | ) | (1,710 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Payments of notes payable | (7,786 | ) | (7,703 | ) | ||||
| Repayments under revolving credit agreement, net | (1,956 | ) | (12,829 | ) | ||||
| Proceeds from PPP Loan | - | 2,152 | ||||||
| Net proceeds from issuance of Class A common stock | 12,378 | 42,652 | ||||||
| Net cash provided by financing activities | 2,636 | 24,272 | ||||||
| Net change in cash, cash equivalents and restricted cash | (4,787 | ) | 2,555 | |||||
| Cash, cash equivalents and restricted cash at beginning of year | 17,849 | 15,294 | ||||||
| Cash, cash equivalents and restricted cash at end of year | $ | 13,062 | $ | 17,849 | ||||
| For the Fiscal Year Ended March 31, | |||||||
| 2019 | 2018 | ||||||
| Cash flows from operating activities: | |||||||
| Net loss | $ | (16,265 | ) | $ | (18,495 | ) | |
| Adjustments to reconcile net loss to cash provided by operating activities: | |||||||
| Depreciation and amortization of property and equipment and amortization of intangible assets | 13,751 | 17,992 | |||||
| Loss from sale of property and equipment | 729 | 64 | |||||
| Amortization of debt issuance costs included in interest expense | 1,888 | 2,035 | |||||
| Provision for doubtful accounts | 1,469 | 991 | |||||
| Recovery for inventory reserve | (92 | ) | (392 | ) | |||
| Stock-based compensation and expenses | 1,576 | 2,279 | |||||
| Change in fair value of interest rate derivatives | — | 157 | |||||
| Accretion and PIK interest expense added to note payable | 1,708 | 1,303 | |||||
| Debt conversion expense and loss on extinguishment of notes payable | — | 4,504 | |||||
| Changes in operating assets and liabilities: | |||||||
| Accounts receivable | 1,149 | 14,870 | |||||
| Inventory | 211 | 737 | |||||
| Unbilled revenue | 4,463 | (1,144 | ) | ||||
| Prepaid and other assets | 2,660 | 2,934 | |||||
| Accounts payable and accrued expenses | (540 | ) | (3,316 | ) | |||
| Deferred revenue | (1,619 | ) | (2,122 | ) | |||
| Net cash provided by operating activities | 11,088 | 22,397 | |||||
| Cash flows from investing activities: | |||||||
| Purchases of property and equipment | (1,417 | ) | (925 | ) | |||
| Purchases of intangible assets | (553 | ) | (6 | ) | |||
| Net cash used in investing activities | (1,970 | ) | (931 | ) | |||
| Cash flows from financing activities: | |||||||
| Payments of notes payable | (24,594 | ) | (41,729 | ) | |||
| Proceeds (repayments) under revolving credit agreement, net | 10,396 | (11,372 | ) | ||||
| Proceeds from issuance of convertible note and notes payable | 5,000 | 10,000 | |||||
| Repurchase of Class A common stock | — | (163 | ) | ||||
| Net proceeds from issuance of common stock | — | 28,031 | |||||
| Principal payments on capital leases | — | (66 | ) | ||||
| Payments of debt issuance costs | — | (781 | ) | ||||
| Net cash used in financing activities | (9,198 | ) | (16,080 | ) | |||
| Net change in cash and cash equivalents | (80 | ) | 5,386 | ||||
| Cash and cash equivalents at beginning of year | 18,952 | 13,566 | |||||
| Cash and cash equivalents at end of year | $ | 18,872 | $ | 18,952 | |||
See accompanying Notes to Consolidated Financial Statements
CINEDIGM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND LIQUIDITY
Cinedigm Corp. ("(“Cinedigm,"” the "Company," "we," "us,"“Company,” “we,” “us,” or similar pronouns) was incorporated in Delaware on March 31, 2000. We are (i) a leading 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 leading servicer of digital cinema assets in over 12,000(“Systems”) for movie screens in both North America and several international countries.
We previously had four reportable segments. As of April 1, 2018, information thatreport our Chief Operating Decision Maker ("CODM") regularly reviews, for purposes of evaluating Company performance has been aggregated due to the winding down of Cinedigm Digital Funding I, LLC ("CDF I"). As a result, the Company reassessed and decided to revise its determination of
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 segments. We have retrospectively recastContent & Entertainment business, the resultsCompany sells DVDs and Blu-ray discs at brick-and-mortar stores. Due to the lingering effects of operationsthe COVID-19 pandemic in the year ended March 31, 2022, the sale of physical discs through our retail partners declined although this was partially offset by digital purchases of physical product and increases in streaming views. As part of our Cinema Equipment business, the Company earns revenue when movies are exhibited in theatres. Many movie theaters in the United States slowly re-opened with limited capacities through March 31, 2022. The majority of major studios resumed blockbuster films releases during the year which showed an encouraging return of consumer confidence for the reportable segments for all periods presented.
Liquidity
We have incurred consolidated net losses historically and have net income of $16.3$2.3 million and $18.5 million for the years ended March 31, 2019 and 2018, respectively. We have an accumulated deficit of $395.8 million as of March 31, 2019. In addition, we have significant debt related contractual obligations for the year ended March 31, 2019 and beyond. As2022. We also have an accumulated deficit of March 31, 2019 we have net debt obligations of $43.3$472.3 million that is current and negative working capital of $48.8$4.8 million as of March 31, 2022. Net cash provided by operating activities for the fiscal year ended March 31, 2022 was $4.9 million. We may continue to generate net losses for the foreseeable future. Based on these conditions, the Company entered into the following transactions described below:
Sale of Cinematic Equipment
On March 17, 2021, the Company entered into two separate agreements for the sale of cinematic equipment to American Multi-Cinema, Inc. (“AMC”). The agreements included the sale in tranches of a total of 2,369 cinematic projectors starting in March 2021 and continuing through January 2023 for total cash consideration of $10.8 million. For the year ended March 31, 2022, the Company recognized aggregate revenue for $9.9 million. A portion of the total proceeds were used to pay down the remaining outstanding balance of the Prospect Loan notes payable.
Borrowings
On June 22, 2021, the maturity date of the East West Credit Facility (as defined in Note 5 - Notes PayablePayable) 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 $5.0 million were paid in full by October 18, 2018 prior to their maturity date of October 21, 2018.
Upon a series of payments between April 30 and July 9, 2021, the Company paid in full the Prospect loan non-recourse outstanding debt amount by paying an aggregate principal amount of $7.8 million. Pre-payment of the Prospect Loan was permissible without penalty.
Common Stock Purchase Agreement
In October 2021, we entered into a Common Stock Purchase Agreement (the “Equity Line Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with B. Riley Principal Capital, LLC (“B. Riley Principal Capital”). Pursuant to the Equity Line Purchase Agreement, the Company has the right to sell to B. Riley Principal Capital up to the lesser of (i) $50,000,000 of newly issued shares of Common Stock and (ii) the Exchange Cap (as defined in the Equity Line Purchase Agreement), from time to time during the 24-month period from and after the October 21, 2021. Sales of Common Stock pursuant to the Equity Line Purchase Agreement, and the timing of any sales, are solely at the option of the Company, and Bison Global Investment SPC for and on behalf of Global Investment SPC-Bison Global No. 1, another affiliate of Bison (“Bison Global”), entered into a termination agreement (the “Termination Agreement”) with respect to the $10.0 million 2018 Loan. Pursuant to the Termination Agreement, the accrued and unpaid interest on such outstanding principal amount will be paid in cash to Bison Global no later than September 30, 2019. Contemporaneously with the Termination Agreement, the Company entered into a convertible promissory note (“Bison Convertible Note”) with Bison Globalis under no obligation to sell any securities to B. Riley Principal Capital under the Equity Line Purchase Agreement. As consideration for $10.0 million.
We believe the combination of: (i) our cash and cash equivalent balances at March 31, 2019,2022 and (ii) expected cash flowsflow from operations, and (iii) the support or availability of funding from Bison and other parties (iv) and the financing transactions that occurred in July, 2019, will be sufficient to satisfyfor our liquidityoperations and capital requirementsneeds, for at least one yeartwelve months from the issuance datefiling of the March 31, 2019 Consolidated Financial Statements.this report. Our capital requirements will depend on many factors, and we may need to use capital resources and obtain additional capital. Failure to generate additional revenues, obtain additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations and liquidity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
Our consolidated financial statements include the accounts of Cinedigm and its wholly owned and majority owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Investments in which we do not have a controlling interest or are not the primary beneficiary, but have the ability to exert significant influence, are accounted for under the equity method of accounting.at fair value where we have elected the fair value option. Noncontrolling interests for which we have been determined to be the primary beneficiary are consolidated and recorded as net loss attributable to noncontrolling interest. See Note 4
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"(“GAAP”) requires us to make estimates and assumptions that affect the assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates include the adequacy of digital revenue, accounts receivable reserves, return reserves, inventory reserves, recovery of advances, assessment of goodwill impairment, intangible asset impairment and estimated amortization lives, fair value for asset acquisitions and business combinations, valuation allowances for income taxes.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 (as defined below) requiresrequired that we maintain specified cash balances that are restricted to repayment of interest thereunder. See Note 5 -
Cash, cash equivalents, and restricted cash consisted of the following:
| As of | ||||||||
| (in thousands) | March 31, 2022 | March 31, 2021 | ||||||
| Cash and Cash Equivalents | $ | 13,062 | $ | 16,849 | ||||
| Restricted Cash | - | 1,000 | ||||||
| $ | 13,062 | $ | 17,849 | |||||
EQUITY INVESTMENT IN A METAVERSE COMPANY, A RELATED PARTY
| As of | |||||||
| (in thousands) | March 31, 2019 | March 31, 2018 | |||||
| Cash and Cash Equivalents | $ | 17,872 | $ | 17,952 | |||
| Restricted Cash | 1,000 | 1,000 | |||||
| $ | 18,872 | $ | 18,952 | ||||
On February 14, 2020, the Company acquired an approximately 11.5% interest in A Metaverse Company (“Metaverse”), a leading publicly traded Chinese entertainment company, formerly Starrise Media Holdings Limited, whose ordinary shares are listed on the Stock Exchange of Hong Kong. The Company acquired such interest as a strategic investment and in a private transaction from a shareholder of Metaverse that is related to our major shareholders. Our major shareholders also maintain a significant beneficial interest ownership in Metaverse. Upon consummation of the transaction on February 14, 2020, the Company recorded an initial investment of approximately $25.1 million, which is the fair market value of the Metaverse shares on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Company’s common stock of $11.2 million, valued as of the date of the issuance of the Common Stock of the Company. The difference in value of shares received in Metaverse and shares issued by the Company is deemed as contributed capital and recorded in additional paid-in capital.
On April 10, 2020, the Company purchased an additional 15% interest in Metaverse in a private transaction from shareholders of Metaverse that are affiliated with the major shareholder of the Company. The Company recorded an additional equity investment of approximately $28.2 million, which is the fair market value of the Metaverse shares on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Company’s common stock of $11.0 million, valued at the date of the issuance of the Common Stock of the Company. The difference in the value of shares received in Metaverse and shares issued by the Company is deemed as contributed capital and recorded in additional paid-in capital. This transaction was also recorded as an equity investment in Metaverse.
The Company has accounted for these investments under the equity method of accounting as the Company can exert significant influence over Metaverse with its direct ownership and affiliation with the Company’s majority shareholders. The Company has made an irrevocable election to apply the fair value option under ASC 825-10, Financial Instruments, as it relates to its equity investment in Metaverse.
During the years ended March 31, 2022 and March 31, 2021, the Company sold 680,000 shares of Metaverse shares for net proceeds of approximately $12.3 thousand and 8,370,000 of Metaverse shares for net proceeds of approximately $0.8 million, respectively, which resulted in a loss on sale of approximately $1 thousand and $73 thousand, respectively.
As of March, 31, 2022 and 2021, the value of our equity investment in Metaverse, using the readily determinable fair value method from the quoted trading price of the Stock Exchange of Hong Kong, was approximately $7.03 million and $6.44 million, respectively, resulting in a change in fair value of approximately $0.59 million for the year ended March 31, 2022. At March 31, 2022, the Company owned 362,307,397 shares or 17% of Metaverse.
Equity Investment in Metaverse, a related party transaction
On December 27, 2019, the Company entered into, and on February 14, 2020 amended, (see Note 2 - Summary of Significant Accounting Policies), a stock purchase agreement (as so amended, the “Metaverse Stock Purchase Agreement”) with BeiTai Investment LP (“BeiTai”), a related party for accounting purposes of Cinedigm and Aim Right Ventures Limited (“Aim Right”), two shareholders of A Metaverse Company, a leading Chinese entertainment company (“Metaverse”), formerly Starrise Media Holdings Limited, to buy from them an aggregate of 410,901,000 outstanding Metaverse ordinary shares (the “Metaverse Share Acquisition”). On February 14, 2020, the Company purchased 162,162,162 of the Metaverse ordinary shares from BeiTai and issued BeiTai 21,646,604 shares of its Class A common stock, par value $.001 per share (the “Common Stock”) in consideration therefor. The Metaverse shares received were valued at approximately $25 million and the Company issued shares that were valued at approximately $11.2 million. On April 10, 2020, the Company, in accordance with the terms of the Stock Purchase Agreement, terminated its obligation to purchase Metaverse ordinary shares from Aim Right under the Metaverse Stock Purchase Agreement.
On April 10, 2020, the Company entered into another stock purchase agreement (the “April Metaverse Stock Purchase Agreement”) with five (5) shareholders of Metaverse - Bison Global Investment SPC - Bison Global No. 1 SP, Huatai Investment LP, Antai Investment LP, Mingtai Investment LP and Shangtai Asset Management LP, all of which are related parties to the Company to buy - an aggregate of 223,380,000 outstanding Metaverse ordinary shares from them and for the Company to issue to them an aggregate of 29,855,081 shares of its Common Stock as consideration therefor (the “April Metaverse Share Acquisition”). On April 15, 2020, the April Metaverse Share Acquisition was consummated and this transaction was also recorded as an equity investment in Metaverse.
Metaverse’s ordinary shares (HK 1616) are listed on the main board of the Stock Exchange of Hong Kong Limited. Based on the closing price of .152 per share on March 31, 2022, calculated at an exchange rate of 7.83 Hong Kong Dollars to 1 US dollar, the market value of Cinedigm’s ownership in Metaverse ordinary shares was approximately $7.03 million. On April 1, 2022, trading of Metaverse’s ordinary shares was halted. (See Note 11)
NON-MONETARY TRANSACTIONS
During the year ended March 31, 2020, the Company entered into agreements with certain vendors to transfer 5,139,762 and 14,184,765 Metaverse ordinary shares to satisfy outstanding liabilities with these vendors. Upon the sale of the Metaverse shares by the vendors, with certain restrictions on sales unless the Company gave consent to sell, if the proceeds did not satisfy the amount due to the vendor, the Company was liable for the balance owed. Pursuant to such agreements, the Company reduced the amount payable to its vendors by $0.8 million as of March 31, 2021. There were no such transactions during the year ended March 31, 2022.
There was no gain or loss resulting from these transactions for the year ended March 31, 2022 and 2021.
ACCOUNTS RECEIVABLE
We maintain reserves for potential credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.
We record accounts receivable, long-term in connection with activation fees that we earn from our Systems deployments that have extended payment terms. Such accounts receivable are discounted to their present value at prevailing market rates.rate.
ADVANCES
Advances, which are recorded within prepaid and other current assets withinon 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 was $1.3were $1.2 million and $3.6$0.3 million, for the years ended March 31, 20192022 and 2018,2021, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation expense is recorded using the straight-line method over the estimated useful lives of the respective assets as follows:
| Computer equipment and software | 3 - 5 years | |||
| Internal use software | 5 years | |||
| Digital cinema projection systems | 10 years | |||
| Machinery and equipment | 3 - 10 years | |||
| Furniture and fixtures | 3 - 6 years | |||
We capitalize costs associated with software developed or obtained for internal use when the preliminary project stage is completed, and it is determined that the software will provide significantly enhanced capabilities and modifications. These capitalized costs are included in property and equipment and include external direct cost of services procured in developing or obtaining internal-use software and personnel and related expenses for employees who are directly associated with, and who devote time to internal-use software projects. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended use. Once the software is ready for its intended use, the costs are amortized over the useful life of the software. Post-configuration training and maintenance costs are expensed as incurred.
Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the leasehold improvements. MaintenanceRepair and repairmaintenance 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.
| (In thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Restricted cash | $ | 1,000 | $ | — | $ | — | $ | 1,000 | ||||||||
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'sasset’s fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted cash flows. During the years ended March 31, 20192022 and 2018, no2021, the Company assessed the future performance of titles included in the customer list intangible asset, which resulted in an impairment charge of $2.0 million and $0 was recorded infrom operations for long-lived assets or finite-lived assets.
INTANGIBLE ASSETS
Intangible assets are stated at cost less accumulated amortization. For intangible assets that have finite lives, the assets are amortized using the straight-line method over the estimated useful lives of the related assets. For intangible assets with indefinite lives, the assets are tested annually for impairment or sooner if a triggering event occurs. During the years ended March 31, 2022 and 2021, we recorded an impairment of $2.0 million and $0 for our customer relationships, respectively.
Amortization expense is recorded using the straight-line method over the estimated useful lives of the respective assets as follows:
| Trademark | 3 years | |||
| Content Library | 3 – 20 years | |||
| Customer Relationships | 5 – 13 years | |||
| Tradename | 2 – 15 years | |||
| Theatre Relationship | 12 years | |||
| Patents | 3 years | |||
| Supplier Agreements | 2 years | |||
| Intangible Assets | 3-4 years | |||
| Software | 10 years |
The Company’s intangible assets include the following on March 31, 2022:
| Cost Basis | Accumulated Amortization |
Impairment | Net | |||||||||||||
| Trademark | $ | 1,925 | $ | (776 | ) | $ | - | 1,149 | ||||||||
| Content Library | 23,685 | (20,665 | ) | - | 3,020 | |||||||||||
| Customer Relationships | 10,658 | (7,327 | ) | (1,968 | ) | 1,363 | ||||||||||
| Tradename | 2,101 | (525 | ) | - | 1,576 | |||||||||||
| Theatre Relationship | 550 | (550 | ) | - | - | |||||||||||
| Patents | 17 | (17 | ) | - | - | |||||||||||
| Supplier Agreements | 11,430 | (11,384 | ) | - | 46 | |||||||||||
| Intangible Assets | 10,081 | (161 | ) | - | 9,920 | |||||||||||
| Software | 3,200 | (240 | ) | - | 2,960 | |||||||||||
| Total Intangible Assets | $ | 63,647 | $ | (41,645 | ) | $ | (1,968 | ) | 20,034 | |||||||
The Company’s intangible assets include the following on March 31, 2021:
| Cost Basis | Accumulated Amortization |
Impairment | Net | |||||||||||||
| Trademark | $ | 2,839 | $ | (382 | ) | $ | - | 2,457 | ||||||||
| Content Library | 23,148 | (20,272 | ) | - | 2,876 | |||||||||||
| Customer Relationships | 22,137 | (17,610 | ) | - | 4,527 | |||||||||||
| Theatre Relationship | 550 | (550 | ) | - | - | |||||||||||
| Total Intangible Assets | $ | 48,674 | $ | (38,814 | ) | $ | - | 9,860 | ||||||||
Below is the amortization expense per year for the intangible assets:
| Total | ||||
| 2023 | $ | 2,734 | ||
| 2024 | 2,562 | |||
| 2025 | 1,730 | |||
| 2026 | 1,651 | |||
| 2027 | 1,651 | |||
| Thereafter | 9,706 | |||
| Total | $ | 20,034 | ||
FAIR VALUE MEASUREMENTS
The fair value measurement disclosures are grouped into three levels based on valuation factors:
| ● | Level 1 – quoted prices in active markets for identical investments |
| ● | Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs) |
| ● | Level 3 – significant unobservable inputs (including our own assumptions in determining the fair value of investments) |
Assets and liabilities measured at fair value on a recurring basis use the market approach, where prices and other relevant information are generated by market transactions involving identical or comparable assets or liabilities.
The equity investment in Metaverse is in Hong Kong dollars and was translated into US dollars as of March 31, 2022 and 2021 at an exchange rate of 7.8 and 7.8 Hong Kong Dollars to 1 US Dollar, respectively. The fair value of this equity investment is measured by the quoted market price of Metaverse on the Stock Exchange of Hong Kong. The adjustment to fair value of this investment resulted in a gain of $585 and loss of $4,518 for the years ended March 31, 2022 and 2021, respectively.
The following tables summarize the levels of fair value measurements of our financial assets and liabilities as of March 31, 2022 and, 2021:
As of March 31, 2022
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets: | ||||||||||||||||
| Equity investment in Metaverse, at fair value | $ | 7,028 | $ | — | $ | — | $ | 7,028 | ||||||||
| $ | 7,028 | $ | — | $ | — | $ | 7,028 | |||||||||
| Liabilities: | ||||||||||||||||
| Current portion of earnout consideration on purchase of a business | $ | — | $ | — | $ | 1,081 | $ | 1,081 | ||||||||
| Long term portion of earnout consideration on purchase of a business | — | — | 603 | 603 | ||||||||||||
| $ | — | $ | — | $ | 1,684 | $ | 1,684 | |||||||||
As of March 31, 2021
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Restricted cash | $ | 1,000 | $ | — | $ | — | $ | 1,000 | ||||||||
| Equity investment in Metaverse, at fair value | 6,443 | — | — | 6,443 | ||||||||||||
| $ | 7,443 | $ | — | $ | — | $ | 7,443 | |||||||||
Our cash and cash equivalents, accounts receivable, unbilled revenue and accounts payable and accrued expenses are financial instruments and are recorded at cost in the consolidated balance sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature.
ASSET ACQUISITIONS
An asset acquisition is an acquisition of an asset, or a group of assets, that does not meet the definition of a business. Asset acquisitions are accounted for by using the cost accumulation model whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values.
GOODWILL
Goodwill is the excess of the purchase price paid over the fair value of the net assets of an acquired business. Goodwill is tested for impairment on an annual basis or more often if warranted by events or changes in circumstances indicating that the carrying value may exceed fair value, also known as impairment indicators.
Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current economic indicators and market conditions, and assumptions about our strategic plans with regard to its operations. To the extent additional information arises, market conditions change, or our strategies change, it is possible that the conclusion regarding whether our remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material effect on our consolidated financial position or results of operations.
The Company has the option to makeassess goodwill for possible impairment by performing a qualitative assessment of whether goodwillanalysis to determine if it is impaired, or opt to bypass the qualitative assessment, and proceed directly to performing a quantitative impairment test, wherebymore likely than not that the fair value of a reporting unit is compared withless than its carrying amount and an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value.
No goodwill impairment test should not be construed as earnings guidance or long-term projections. Our cash flow assumptions are based on internal projections of adjusted EBITDA for the CEG reporting unit. For the year ended March 31, 2019 and 2018, we assumed a market-based weighted average cost of capital of 17% and 19%, respectively, to discount cash flows for our CEG segment and used a blended federal and state tax rate of approximately 20% as of March 31, 2019 and 2018, respectively. Based on such assumptions, the estimated fair value of the CEG reporting unit as
Gross amounts of goodwill and accumulated impairment charges that we have recorded are as follows:
| (In thousands) | ||||
| Goodwill at March 31, 2021 | $ | 8,701 | ||
| Goodwill from business combinations – see Note 4 | 12,383 | |||
| Goodwill at March 31, 2022 | $ | 21,084 | ||
| (In thousands) | ||||
| Goodwill | $ | 32,701 | ||
| Accumulated impairment charges | (24,000 | ) | ||
| Net Goodwill at March 31, 2019 and 2018 | $ | 8,701 | ||
ACCOUNTS PAYABLE AND ROYALTIES PAYABLEACCRUED EXPENSES
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. See Note 3 -
| As of | ||||||||
| (In thousands) | March 31, 2022 | March 31, 2021 | ||||||
| Accounts payable | $ | 34,177 | $ | 30,111 | ||||
| Amounts due to producers, net | 10,430 | 10,557 | ||||||
| Accrued compensation and benefits | 3,507 | 2,995 | ||||||
| Accrued taxes (refund) payable | (78 | ) | (99 | ) | ||||
| Interest payable | - | 10 | ||||||
| Accrued other expenses | 3,989 | 3,053 | ||||||
| Total accounts payable and accrued expenses | $ | 52,025 | $ | 46,627 | ||||
PREPAID AND OTHER CURRENT ASSETS
Prepaid and other current assets on the consolidated balance sheets and are amortized over the termconsisted of the revolving debt agreements using the effective interest rate method.following:
| As of | ||||||||
| (In thousands) | March 31, 2022 | March 31, 2021 | ||||||
| Non-trade accounts receivable | $ | 826 | $ | 413 | ||||
| Advances | 2,117 | 1,841 | ||||||
| Due from producers | 1,861 | 589 | ||||||
| Prepaid insurance | 169 | 409 | ||||||
| Other prepaid expenses | 820 | 405 | ||||||
| Total prepaid and other current assets | $ | 5,793 | $ | 3,657 | ||||
Impairments and accelerated amortization related to the opening balance of deficit at April 1, 2018. Therefore, the comparative informationadvances were $1.2 million and $0.3 million, for the years ended prior to April 1, 2018 were not restated to comply with ASC 606. We applied the practical expedient and did not capitalize the incremental costs to obtain a contract if the amortization period for the asset is one year or less. The impact of adopting Topic 606 did not result in a change in accounting treatment for any of the Company’s revenue streams. Refer to Note 2 to our Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2018 for our revenue recognition accounting policy as it relates to revenue transactions prior to April 1, 2018. The revenue recognition accounting policy described below relates to revenue transactions from April 1, 20182022 and thereafter, which are accounted for in accordance with Topic 606.2021, respectively.
REVENUE RECOGNITION
Payment terms and conditions vary by customer and typically provide net 30 to 90 day terms. We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and payment for that product or service will be one year or less. We have in the past entered into arrangements in connection with activation fees due from our digital cinema equipment (the “Systems”)System deployments that had extended payment terms. The outstanding balances on these arrangements are insignificant and hence the impact of significant financing would be insignificant.
Cinema Equipment Business
Our Cinema Equipment Business consists of financing vehicles and administrators for Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”).
We retain ownership of our Systems and the residual cash flows related to the Systems in Phase I Deployment after the end of the 10-year deployment payment period.
For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.
The Cinema Equipment Business also provides monitoring, data collection, serial data verification and management services to this segment, as well as to exhibitors who purchase their own equipment, in order to collect virtual print fees (“VPFs”) from motion picture studios and distributors and Alternative Content Fees (“ACFs”) from alternative content providers, and to distribute those fees to theatrical exhibitors (collectively, “Services”).
VPFs are earned, net of administrative fees, pursuant to contracts with movie studios and distributors, whereby amounts are payable by a studio to Cinedigm Digital FundingPhase I LLC. ("Phase 1 DC")Deployment and to Access Digital Cinema Phase 2 Corp. (“Phase 2 DC”)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 1 DCI 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 digitallydigital projector equipped movie theatre, astheatre. The Phase 1 DC’sDeployment’s and Phase 2 DC’sDeployments performance obligations have been substantiallyfor revenue recognition are met at thatthis time.
Phase 2 DC’sII 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 2 DCII 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
Under the terms of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive one-year terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we have begun, and expect to continue, totypically 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 as originally contemplated as the conclusion of the digital cinema deployment plan. Cinedigm completed the sale of 321 digital projection Systems for an aggregateTotal system sales price of approximately $3.7executed was $6.1 million and recognized revenue of $2.8$6.7 million, during the year ended March 31, 2019.
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 2 DCII Deployment Systems and for Systems installed by CDF2 Holdings, a related party, (See Note 3 -
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"(“VOD” or “OTT Streaming and Digital”), and physical goods (e.g. DVD, DVDs and Blu-ray Discs) (“Physical Revenue” or “Base Distribution Business”). Fees earned are typically a percentage based on the grossnet amounts billed toreceived from our customers less the amounts owed to the media studios or content producers under distribution agreements, and gross media sales of owned or licensed content.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 platform,platforms, and shipment of DVDDVDs and Blu-ray Discs, or make available at point-of-sale for transactional and VOD services.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 (the company’s digital content is considered functional IP), at the time of shipment for physical goods, or point-of-sale for transactional and VOD services as the control over the content or the physical title is transferred to the customer. The Company considers the delivery of content through various distribution channels to be a single performance obligation. RevenuePhysical revenue from the sale of physical goods is recognized after deducting the reserves for productsales returns and other allowances, which are accounted for as variable consideration.
Reserves for productpotential sales returns of physical goods and other allowances are recorded based upon historical experience. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.
CEG also has contracts for the theatrical distribution of third party feature movies and alternative content. CEG’s distribution fee revenue and CEG'sCEG’s participation in box office receipts isare recognized at the time a feature movie and alternative content are viewed. CEG has the right to receive or bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded as a receivable at the time of execution, and all related distribution revenue is deferred until the third party feature movies’ or alternative content’s theatrical release date.
The Company follows the five-step model established by ASC 606 when preparing its assessment of revenue recognition
Principal Agent Considerations
Revenue earned by our CEG business from the delivery of digital content and physical goods may be recognized gross or net depending on the terms of the arrangement. We determine whether revenue should be reported on a gross or net basis based on each revenue stream. Key indicators that we use in evaluating gross versus net treatment include, but are not limited to, the following:
| ● | which party is primarily responsible for fulfilling the promise to provide the specified good or service; and |
| ● | which party has discretion in establishing the price for the specified good or service. |
Shipping and Handling
Shipping and handling costs are incurred to move physical goods (e.g. DVD, 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 are recorded based upon historical experience.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. Sales returns and allowances are reported as a reduction of revenues.
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
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 insignificant and hence the impactreceived or due in advance of significant financing would be insignificant.our performance, even if amounts are refundable.
Deferred revenue pertaining to CEGour Content & Entertainment Business includes amounts related to the sale of DVD’sDVDs 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 opening balance and ending balance of deferred revenue balance, including current and non-current balances, as of April 1, 2018 and March 31, 2019 were $5.7 million and $4.0 million, respectively.2022 was $0.2 million. For the twelve monthsyear ended March 31, 2019,2022, the additions to our deferred revenue balance were primarily due to cash payments received or due in advance of satisfying performance obligations, while the reductions to our deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business. For year ended March 31, 2022 and March 31, 2021, there was $11,792,210 and $14,433,054, respectively, included in accounts payable that represents a refund liability, a portion or all of which may be recognized as revenue upon completion of audit periods.
During the year ended March 31, 2019, $4.1 million2022, $813 thousand of revenue was recognized that was included in the deferred revenue balance at the beginning of the year. As ofDuring the year ended March 31, 2019, the aggregate amount of contract revenue allocated to unsatisfied performance obligations is $4.0 million. We expect to recognize approximately $1.72022, $3.9 million of thisrevenue was recognized that was included in the accounts payable balance overas constrained variable consideration at the next 12 months, andbeginning of the remainder thereafter.year. The Company recognized the revenue related once the uncertainty associated with the variable consideration was resolved.
Participations and royalties payable
When we use third parties to distribute company owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers.
Disaggregation of Revenue
The Company disaggregates revenue into different revenue categories for the Cinema Equipment and CEG Businesses. The Cinema Equipment Business revenue categories are: Phase I Deployment revenue, Phase II Deployment revenue, and Services, and Digital System Sales, and the CEGContent & Entertainment Business revenue categories are: Base Distribution Business and OTT Streaming and Digital.
The following tables present the Company'sCompany’s revenue categories for the twelve monthsyears ended March 31, 20192022 and 2021 (in thousands):
| Year Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cinema Equipment Business: | ||||||||
| Phase I Deployment | $ | 654 | $ | 552 | ||||
| Phase II Deployment | 4,810 | 1,531 | ||||||
| Services | 1,428 | 539 | ||||||
| Digital System Sales | 11,267 | 600 | ||||||
| Total Cinema Equipment Business revenue | $ | 18,159 | $ | 3,222 | ||||
| Content & Entertainment Business: | ||||||||
| Physical Goods | $ | 10,447 | $ | 10,230 | ||||
| OTT Streaming and Digital | 27,448 | 17,967 | ||||||
| Total Content & Entertainment Business revenue | $ | 37,895 | $ | 28,197 | ||||
Concentrations
| Twelve Months Ended March 31, 2019 | ||||
| Cinema Equipment Business: | ||||
| Phase I Deployment | 9,302 | |||
| Phase II Deployment | 8,651 | |||
| Services | 5,487 | |||
| Digital System Sales | 2,759 | |||
| Total Cinema Equipment Business revenue | $ | 26,199 | ||
| Content & Entertainment Business: | ||||
| Base Distribution Business | $ | 17,639 | ||
| OTT Streaming and Digital | 9,696 | |||
| Total Content & Entertainment Business revenue | $ | 27,335 | ||
For the fiscal year ended March 31, 2022, 2 customers, Amazon and Distribution Solutions each represented 18% and 25% respectively of CEG’s revenues and approximately 6% and 8%, respectively, of our consolidated revenues. For the fiscal year ended March 31, 2021, Amazon and Distribution Solutions represented 15% and 22% respectively of CEG’s revenues and approximately 9% and 13%, respectively, of our consolidated Revenues.
DIRECT OPERATING COSTS
Direct operating costs consist of operating costs such as cost of goods sold,revenue, fulfillment expenses, shipping costs, property taxes and insurance on Systems, royalty expenses, impairments of advances, and marketing and direct personnel costs.
STOCK-BASED COMPENSATION
The Company issues stock-based awards was as follows:
| For the Fiscal Year Ended March 31, | ||||||||
| (In thousands) | 2019 | 2018 | ||||||
| Direct operating | $ | — | $ | 60 | ||||
| Selling, general and administrative | 1,576 | 2,219 | ||||||
| Total stock-based compensation expense | $ | 1,576 | $ | 2,279 | ||||
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 isNET LOSS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS
Basic and diluted net loss per common share has been calculated as follows: