UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-31810001-31810
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.) | |||||||
237 West 35th Street, Suite 605, New York, NY | 10001 | |||||||
(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 | ||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or 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 ☐ | ||||||||||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
o ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
As of November 12, 2020, 129,833,69511, 2021, 174,870,953 shares of Class A Common Stock, $0.001 par value, were outstanding.
CINEDIGM CORP.
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CINEDIGM CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
September 30, 2020 | March 31, 2020 | ||||||||||
ASSETS | (Unaudited) | ||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | 16,503 | $ | 14,294 | |||||||
Accounts receivable, net | 23,245 | 34,785 | |||||||||
Inventory, net | 242 | 582 | |||||||||
Unbilled revenue | 2,228 | 1,992 | |||||||||
Prepaid and other current assets | 9,380 | 9,409 | |||||||||
Total current assets | 51,598 | 61,062 | |||||||||
Restricted cash | 1,000 | 1,000 | |||||||||
Equity investment in Starrise, a related party, at fair value | 14,468 | 23,433 | |||||||||
Property and equipment, net | 5,118 | 7,967 | |||||||||
Right-of-use assets | 169 | 1,210 | |||||||||
Intangible assets, net | 5,743 | 6,924 | |||||||||
Goodwill | 8,701 | 8,701 | |||||||||
Other long-term assets | 5 | 143 | |||||||||
Total assets | $ | 86,802 | $ | 110,440 | |||||||
LIABILITIES AND DEFICIT | |||||||||||
Current liabilities | |||||||||||
Accounts payable and accrued expenses | $ | 57,265 | $ | 77,085 | |||||||
Current portion of notes payable, including unamortized debt discount of $0 and $460 respectively (see Note 5) | 16,643 | 37,249 | |||||||||
Current portion of notes payable, non-recourse including unamortized debt discount of $358 and $763, respectively (see Note 5) | 11,749 | 11,442 | |||||||||
Operating lease liabilities | 135 | 593 | |||||||||
Current portion of deferred revenue | 1,750 | 1,645 | |||||||||
Total current liabilities | 87,542 | 128,014 | |||||||||
Notes payable | 2,152 | 0 | |||||||||
Operating lease liabilities, noncurrent | 34 | 684 | |||||||||
Deferred revenue, net of current portion | 60 | 919 | |||||||||
Other long-term liabilities | 8 | 110 | |||||||||
Total liabilities | 89,796 | 129,727 | |||||||||
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; and 7 shares issued and outstanding at September 30, 2020 and March 31, 2020. Liquidation preference of $3,648 | 3,559 | 3,559 | |||||||||
Common stock, $0.001 par value; Class A stock 200,000,000 shares authorized at September 30, 2020 and March 31, 2020; 123,041,378 and 63,251,429 shares issued and 121,727,542 and 61,937,593 shares outstanding at September 30, 2020 and March 31, 2020, respectively | 122 | 62 | |||||||||
Additional paid-in capital | 463,741 | 400,784 | |||||||||
Treasury stock, at cost; 1,313,836 Class A common shares at September 30, 2020 and March 31, 2020 | (11,603) | (11,603) | |||||||||
Accumulated deficit | (457,481) | (410,904) | |||||||||
Accumulated other comprehensive (loss) income | (18) | 92 | |||||||||
Total stockholders’ deficit of Cinedigm Corp. | (1,680) | (18,010) | |||||||||
Deficit attributable to noncontrolling interest | (1,314) | (1,277) | |||||||||
Total deficit | (2,994) | (19,287) | |||||||||
Total liabilities and deficit | $ | 86,802 | $ | 110,440 |
September 30, 2021 | March 31, 2021 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 12,645 | $ | 16,849 | ||||
Accounts receivable, net | 24,151 | 21,093 | ||||||
Inventory | 122 | 166 | ||||||
Unbilled revenue | 2,074 | 1,377 | ||||||
Prepaid and other current assets | 3,610 | 3,657 | ||||||
Total current assets | 42,602 | 43,142 | ||||||
Restricted cash | - | 1,000 | ||||||
Equity investment in Starrise, a related party, at fair value | 7,443 | 6,443 | ||||||
Property and equipment, net | 2,546 | 3,500 | ||||||
Right-of-use assets | 31 | 100 | ||||||
Intangible assets, net | 16,367 | 9,860 | ||||||
Goodwill | 13,527 | 8,701 | ||||||
Other long-term assets | 1,385 | 2,700 | ||||||
Total assets | $ | 83,901 | $ | 75,446 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued expenses | $ | 52,741 | $ | 46,627 | ||||
Current portion of notes payable (see Note 5) | - | 1,956 | ||||||
Current portion of notes payable, non-recourse (see Note 5) | - | 7,786 | ||||||
Current portion of deferred consideration on purchase of a business | 465 | - | ||||||
Current portion of earnout consideration on purchase of a business | 277 | - | ||||||
Operating lease liabilities, current portion | 28 | 87 | ||||||
Current portion of deferred revenue | 167 | 924 | ||||||
Total current liabilities | 53,678 | 57,380 | ||||||
PPP Loan | - | 2,152 | ||||||
Deferred consideration on purchase of a business, net of current portion | 1,515 | - | ||||||
Earnout consideration on purchase of a business, net of current portion | 1,184 | - | ||||||
Operating lease liabilities, net of current portion | 3 | 13 | ||||||
Other long-term liabilities | - | 19 | ||||||
Total liabilities | 56,380 | 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; and 7 shares issued and outstanding at September 30, 2021 and March 31, 2021. Liquidation preference of $3,737 | 3,559 | 3,559 | ||||||
Common stock, $0.001 par value; Class A stock 200,000,000 and 200,000,000 shares authorized at September 30, 2021 and March 31, 2021, respectively; 170,426,311 and 167,542,404 shares issued and 169,110,460 and 166,228,568 shares outstanding at September 30, 2021 and March 31, 2021, respectively | 167 | 164 | ||||||
Additional paid-in capital | 506,111 | 499,272 | ||||||
Treasury stock, at cost; 1,315,851 and 1,313,836 Class A common shares at September 30, 2021 and March 31, 2021, respectively | (11,608 | ) | (11,603 | ) | ||||
Accumulated deficit | (469,255 | ) | (474,080 | ) | ||||
Accumulated other comprehensive loss | (87 | ) | (68 | ) | ||||
Total stockholders’ equity of Cinedigm Corp. | 28,887 | 17,244 | ||||||
Deficit attributable to noncontrolling interest | (1,366 | ) | (1,362 | ) | ||||
Total equity | 27,521 | 15,882 | ||||||
Total liabilities and equity | $ | 83,901 | $ | 75,446 |
See accompanying Notes to Condensed Consolidated Financial Statements
CINEDIGM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except for share and per share data)
Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Revenues | $ | 7,182 | $ | 10,241 | $ | 13,200 | $ | 20,044 | |||||||||||||||
Costs and expenses: | |||||||||||||||||||||||
Direct operating (excludes depreciation and amortization shown below) | 4,330 | 4,087 | 7,009 | 7,699 | |||||||||||||||||||
Selling, general and administrative | 6,168 | 4,988 | 10,008 | 10,837 | |||||||||||||||||||
(Recovery) provision for doubtful accounts | (193) | 56 | (193) | 326 | |||||||||||||||||||
Depreciation and amortization of property and equipment | 1,345 | 1,609 | 2,869 | 3,383 | |||||||||||||||||||
Amortization of intangible assets | 591 | 594 | 1,181 | 1,589 | |||||||||||||||||||
Total operating expenses | 12,241 | 11,334 | 20,874 | 23,834 | |||||||||||||||||||
Loss from operations | (5,059) | (1,093) | (7,674) | (3,790) | |||||||||||||||||||
Interest expense, net | (1,194) | (1,813) | (2,484) | (4,095) | |||||||||||||||||||
Loss on extinguishment of notes payable | (335) | 0 | (312) | 0 | |||||||||||||||||||
Changes in fair value of equity investment in Starrise, a related party | (19,832) | 0 | (35,626) | 0 | |||||||||||||||||||
Other expense, net | (327) | (155) | (521) | (168) | |||||||||||||||||||
Loss from operations before income taxes | (26,747) | (3,061) | (46,617) | (8,053) | |||||||||||||||||||
Income tax benefit (expense) | 181 | (27) | 181 | (74) | |||||||||||||||||||
Net loss | (26,566) | (3,088) | (46,436) | (8,127) | |||||||||||||||||||
Net income (loss) attributable to noncontrolling interest | 23 | (7) | 37 | (1) | |||||||||||||||||||
Net loss attributable to controlling interests | (26,543) | (3,095) | (46,399) | (8,128) | |||||||||||||||||||
Preferred stock dividends | (89) | (89) | (178) | (178) | |||||||||||||||||||
Net loss attributable to common stockholders | $ | (26,632) | $ | (3,184) | $ | (46,577) | $ | (8,306) | |||||||||||||||
Net loss per Class A common stock attributable to common stockholders - basic and diluted: | |||||||||||||||||||||||
Net loss attributable to common stockholders | $ | (0.23) | $ | (0.08) | $ | (0.45) | $ | (0.21) | |||||||||||||||
Weighted average number of Class A common stock outstanding: basic and diluted | 114,532,217 | 41,439,520 | 104,529,411 | 39,903,778 |
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenues | $ | 10,103 | $ | 7,182 | $ | 25,118 | $ | 13,200 | ||||||||
Costs and expenses: | ||||||||||||||||
Direct operating (excludes depreciation and amortization shown below) | 3,333 | 4,330 | 7,964 | 7,009 | ||||||||||||
Selling, general and administrative | 7,159 | 6,168 | 13,202 | 10,008 | ||||||||||||
Recovery for doubtful accounts | (111 | ) | (193 | ) | (40 | ) | (193 | ) | ||||||||
Depreciation and amortization of property and equipment | 440 | 1,345 | 1,089 | 2,869 | ||||||||||||
Amortization of intangible assets | 696 | 591 | 1,543 | 1,181 | ||||||||||||
Total operating expenses | 11,517 | 12,241 | 23,758 | 20,874 | ||||||||||||
Income (loss) from operations | (1,414 | ) | (5,059 | ) | 1,360 | (7,674 | ) | |||||||||
Interest expense, net | (36 | ) | (1,194 | ) | (180 | ) | (2,484 | ) | ||||||||
Gain (loss) on forgiveness of PPP loan and extinguishment of note payable | - | (335 | ) | 2,178 | (312 | ) | ||||||||||
Change in fair value of equity investment in Starrise, a related party | 666 | (19,832 | ) | 1,000 | (35,626 | ) | ||||||||||
Other expense, net | 102 | (327 | ) | 91 | (521 | ) | ||||||||||
Income (loss) before income taxes | (682 | ) | (26,747 | ) | 4,449 | (46,617 | ) | |||||||||
Income tax benefit | 487 | 181 | 550 | 181 | ||||||||||||
Net income (loss) | (195 | ) | (26,566 | ) | 4,999 | (46,436 | ) | |||||||||
Net income attributable to noncontrolling interest | 11 | 23 | 4 | 37 | ||||||||||||
Net income (loss) attributable to controlling interests | (184 | ) | (26,543 | ) | 5,003 | (46,399 | ) | |||||||||
Preferred stock dividends | (89 | ) | (89 | ) | (178 | ) | (178 | ) | ||||||||
Net income (loss) attributable to common stockholders | $ | (273 | ) | $ | (26,632 | ) | $ | 4,825 | $ | (46,577 | ) | |||||
Net income (loss) per Class A common stock attributable to common stockholders - basic: | $ | - | $ | (0.23 | ) | $ | 0.03 | $ | (0.45 | ) | ||||||
Weighted average number of Class A common stock outstanding: basic | 168,275,139 | 114,532,217 | 167,524,744 | 104,529,411 | ||||||||||||
Net income (loss) per Class A common stock attributable to common stockholders - diluted: | $ | - | $ | (0.23 | ) | $ | 0.03 | $ | (0.45 | ) | ||||||
Weighted average number of Class A common stock outstanding: diluted | 168,275,139 | 114,532,217 | 170,743,885 | 104,529,411 |
See accompanying Notes to Condensed Consolidated Financial Statements
CINEDIGM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)
(Unaudited)
(In thousands)
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||
Net loss | $ | (26,566) | $ | (3,088) | $ | (46,436) | $ | (8,127) | ||||||||||||||||||
Other comprehensive (loss) income: foreign exchange translation | (30) | 22 | (110) | 28 | ||||||||||||||||||||||
Comprehensive loss | (26,596) | (3,066) | (46,546) | (8,099) | ||||||||||||||||||||||
Less: comprehensive income (loss) attributable to noncontrolling interest | 23 | (7) | 37 | (1) | ||||||||||||||||||||||
Comprehensive loss attributable to controlling interests | $ | (26,573) | $ | (3,073) | $ | (46,509) | $ | (8,100) |
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net income (loss) | $ | (195 | ) | $ | (26,566 | ) | $ | 4,999 | $ | (46,436 | ) | |||||
Other comprehensive (loss) income: foreign exchange translation | 35 | (30 | ) | (19 | ) | (110 | ) | |||||||||
Comprehensive income (loss) | (160 | ) | (26,596 | ) | 4,980 | (46,546 | ) | |||||||||
Less: comprehensive income attributable to noncontrolling interest | 11 | 23 | 4 | 37 | ||||||||||||
Comprehensive income (loss) attributable to controlling interests | $ | (149 | ) | $ | (26,573 | ) | $ | 4,984 | $ | (46,509 | ) |
See accompanying Notes to Condensed Consolidated Financial Statements
CONSDENSED CONSOLIDATED STATEMENTS OF DEFICIT(DEFICIT) EQUITY
(Unaudited)
(In thousands, except share data)
Series A Preferred Stock | Class A Common Stock | Treasury | Additional Paid-In | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | Non-Controlling | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A Preferred Stock | Class A Common Stock | Treasury | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Total Stockholders' Deficit | Non-Controlling Interest | Total Deficit | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | Foreign exchange translation | — | — | — | — | — | — | — | — | 6 | 6 | — | 6 | — | — | — | — | — | — | — | — | (80 | ) | (80 | ) | — | (80 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock issued in connection with the SPA with certain investors, net | — | — | 10,666,666 | 11 | — | — | 7,139 | — | — | 7,150 | — | 7,150 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Class A common stock in connection with the Starrise transaction, a related party | — | — | 29,855,081 | 30 | — | — | 11,016 | — | — | 11,046 | — | 11,046 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contributed capital under the Starrise transaction, a related party | — | — | — | — | — | — | 17,187 | — | — | 17,187 | — | 17,187 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of stock in connection with settlement of second lien loan | — | — | 329,501 | — | — | — | 757 | — | — | 757 | — | 757 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of warrants for Class A common stock | — | — | 236,899 | — | — | — | 301 | — | — | 301 | — | 301 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | Stock-based compensation | — | — | — | — | — | — | 11 | — | — | 11 | — | 11 | — | — | — | — | — | — | 177 | — | — | 177 | — | 177 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends paid with common stock | Preferred stock dividends paid with common stock | — | — | 45,390 | — | — | — | 89 | (89) | — | — | — | — | — | — | 267,079 | — | — | — | 89 | (89 | ) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | Net loss | — | — | — | — | — | — | — | (5,033) | — | (5,033) | (6) | (5,039) | — | — | — | — | — | — | — | (19,856 | ) | — | (19,856 | ) | (14 | ) | (19,870 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances as of June 30, 2019 | 7 | 3,559 | 35,723,987 | 36 | 1,313,836 | (11,603) | 368,631 | (400,936) | 16 | (40,297) | (1,293) | (41,590) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances as of June 30, 2020 | 7 | 3,559 | 103,292,819 | 103 | 1,313,836 | (11,603 | ) | 437,450 | (430,849 | ) | 12 | (1,328 | ) | (1,291 | ) | (2,619 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange translation | Foreign exchange translation | — | — | — | — | — | — | — | — | 22 | 22 | — | 22 | — | — | — | — | — | — | — | — | (30 | ) | (30 | ) | — | (30 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
July 2020 issuance of Class A common stock, net of $695 in issuance costs | — | — | 7,213,334 | 7 | — | — | 10,118 | — | 10,125 | — | 10,125 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued in connection with conversion of Convertible Notes | — | — | 10,000,000 | 10 | — | — | 14,990 | — | — | 15,000 | — | 15,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for third party professional service | — | — | 80,000 | — | — | — | 71 | — | — | 71 | — | 71 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Class A common stock to management and employees | — | — | 689,364 | 1 | — | — | 785 | — | — | 786 | — | 786 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with performance stock units | — | — | 373,647 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued to settle second lien loan | — | — | 33,465 | — | — | — | 61 | — | — | 61 | — | 61 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | Stock-based compensation | — | — | — | — | — | — | 178 | — | — | 178 | — | 178 | — | — | — | — | — | — | 178 | — | — | 178 | — | 178 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Class A common stock | — | — | 3,900,000 | 4 | — | — | 5,846 | — | — | 5,850 | — | 5,850 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends paid with common stock | Preferred stock dividends paid with common stock | — | — | 65,749 | — | — | — | 89 | (89) | — | — | — | — | — | — | 44,913 | — | — | — | 89 | (89 | ) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value of conversion feature in connection with convertible note | — | — | — | — | — | — | 478 | — | — | 478 | — | 478 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net (loss) income | — | — | — | — | — | — | — | (3,095) | — | (3,095) | 7 | (3,088) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances as of September 30, 2019 | 7 | $ | 3,559 | 39,689,736 | $ | 40 | 1,313,836 | $ | (11,603) | $ | 375,222 | $ | (404,120) | $ | 38 | $ | (36,864) | $ | (1,286) | $ | (38,150) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (26,543 | ) | — | (26,543 | ) | (23 | ) | (26,566 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances as of September 30, 2020 | 7 | $ | 3,559 | 121,727,542 | $ | 121 | 1,313,836 | $ | (11,603 | ) | $ | 463,742 | $ | (457,481 | ) | $ | (18 | ) | $ | (1,680 | ) | $ | (1,314 | ) | $ | (2,994 | ) |
CONDENSED CONSOLIDATED STATEMENTS OF DEFICIT(DEFICIT) EQUITY
(Unaudited)
(In thousands, except share data)
Series A Preferred Stock | Class A Common Stock | Treasury | 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, 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 | — | — | — | — | — | — | — | — | (80) | (80) | — | (80) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock issued in connection with the SPA with certain investors, net | — | — | 10,666,666 | 11 | — | — | 7,139 | — | — | 7,150 | — | 7,150 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Class A common stock in connection with the Starrise transaction, a related party | — | — | 29,855,081 | 30 | — | — | 11,016 | — | — | 11,046 | — | 11,046 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Contributed capital under the Starrise transaction, a related party | — | — | — | — | — | — | 17,187 | — | — | 17,187 | — | 17,187 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of stock in connection with settlement of second lien loan | — | — | 329,501 | — | — | — | 757 | — | — | 757 | — | 757 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of warrants for Class A common stock | — | — | 236,899 | — | — | — | 301 | — | — | 301 | — | 301 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 177 | — | — | 177 | — | 177 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends paid with common stock | — | — | 267,079 | — | — | — | 89 | (89) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (19,856) | — | (19,856) | (14) | (19,870) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances as of June 30, 2020 | 7 | 3,559 | 103,292,819 | 103 | 1,313,836 | (11,603) | 437,450 | (430,849) | 12 | (1,328) | (1,291) | (2,619) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange translation | — | — | — | — | — | — | — | — | (30) | (30) | — | (30) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
July 2020 issuance of Class A common stock, net of $695 in issuance costs | — | — | 7,213,334 | 7 | — | — | 10,118 | — | 10,125 | — | 10,125 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued in connection with conversion of Convertible Notes | — | — | 10,000,000 | 10 | — | — | 14,990 | — | — | 15,000 | — | 15,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for third party professional service | — | — | 80,000 | — | — | — | 71 | — | — | 71 | — | 71 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Class A common stock to management and employees | — | — | 689,364 | 1 | — | — | 785 | — | — | 786 | — | 786 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with performance stock units | — | — | 373,647 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued to settle second lien loan | — | — | 33,465 | — | — | — | 61 | — | — | 61 | — | 61 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 178 | — | — | 178 | — | 178 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends paid with common stock | — | — | 44,913 | — | — | — | 89 | (89) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (26,543) | — | (26,543) | (23) | (26,566) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances as of September 30, 2020 | 7 | $ | 3,559 | 121,727,542 | $ | 121 | 1,313,836 | $ | (11,603) | $ | 463,742 | $ | (457,481) | $ | (18) | $ | (1,680) | $ | (1,314) | $ | (2,994) | ||||||||||||||||||||||||||||||||||||||||||||
Series A Preferred Stock | Class A Common Stock | Treasury | Additional Paid-In | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ Equity | Non-Controlling | Total Equity | ||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | (Deficit) | Interest | (Deficit) | |||||||||||||||||||||||||||||||||||||
Balances as of March 31, 2021 | 7 | $ | 3,559 | 166,228,568 | $ | 164 | 1,313,836 | $ | (11,603 | ) | $ | 499,272 | $ | (474,080 | ) | $ | (68 | ) | $ | 17,244 | $ | (1,362 | ) | $ | 15,882 | |||||||||||||||||||||||
Foreign exchange translation | — | — | — | — | — | — | — | — | (54 | ) | (54 | ) | — | (54 | ) | |||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 35,714 | — | — | — | 983 | — | — | 983 | — | 983 | ||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with a business combination | — | — | 1,483,129 | 2 | — | — | 2,504 | — | — | 2,506 | — | 2,506 | ||||||||||||||||||||||||||||||||||||
Preferred stock dividends paid with common stock | — | — | 53,278 | — | — | — | 89 | (89 | ) | — | — | — | — | |||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 5,187 | — | 5,187 | 7 | 5,194 | ||||||||||||||||||||||||||||||||||||
Balances as of June 30, 2021 | 7 | 3,559 | 167,800,689 | 166 | 1,313,836 | (11,603 | ) | 502,848 | (468,982 | ) | (122 | ) | 25,866 | (1,355 | ) | 24,511 | ||||||||||||||||||||||||||||||||
Foreign exchange translation | — | — | — | — | — | — | — | — | 35 | 35 | — | 35 | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 132,630 | — | — | — | 946 | — | — | 946 | — | 946 | ||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with business combinations | — | — | 1,179,156 | 1 | — | — | 2,317 | — | — | 2,318 | — | 2,318 | ||||||||||||||||||||||||||||||||||||
Treasury stock in connection with taxes withheld from employees | — | — | (2,015 | ) | — | 2,015 | (5 | ) | — | — | — | (5 | ) | — | (5 | ) | ||||||||||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | — | — | (89 | ) | — | (89 | ) | — | (89 | ) | |||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (184 | ) | — | (184 | ) | (11 | ) | (195 | ) | ||||||||||||||||||||||||||||||||
Balances as of September 30, 2021 | 7 | 3,559 | 169,110,460 | 167 | 1,315,851 | (11,608 | ) | 506,111 | (469,255 | ) | (87 | ) | 28,887 | (1,366 | ) | 27,521 |
See accompanying Notes to Condensed Consolidated Financial Statements
CINEDIGM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended September 30, | ||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||
Net loss | $ | (46,436) | $ | (8,127) | ||||||||||||||||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||||||||||||||
Depreciation and amortization of property and equipment and amortization of intangible assets | 4,050 | 4,972 | ||||||||||||||||||
Changes in fair value of equity investment in Starrise | 35,626 | 0 | ||||||||||||||||||
Loss on extinguishment of notes payable | 312 | 0 | ||||||||||||||||||
Loss from sale of property and equipment | 44 | 0 | ||||||||||||||||||
Amortization of debt issuance costs included in interest expense | 139 | 772 | ||||||||||||||||||
(Recovery) provision for doubtful accounts | (193) | 326 | ||||||||||||||||||
Recovery for inventory reserve | (909) | (434) | ||||||||||||||||||
Stock-based compensation | 1,212 | 189 | ||||||||||||||||||
Issuance of common stock for third party professional service | 0 | 0 | ||||||||||||||||||
Accretion and PIK interest expense added to note payable | 199 | 827 | ||||||||||||||||||
Changes in operating assets and liabilities; | ||||||||||||||||||||
Accounts receivable | 11,733 | 4,518 | ||||||||||||||||||
Inventory | 1,249 | 500 | ||||||||||||||||||
Unbilled revenue | (236) | 356 | ||||||||||||||||||
Prepaids and other current assets | 100 | (2,623) | ||||||||||||||||||
Accounts payable and accrued expenses | (18,909) | 2,998 | ||||||||||||||||||
Deferred revenue | (754) | (475) | ||||||||||||||||||
Net cash (used in) provided by operating activities | (12,773) | 3,799 | ||||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Purchases of property and equipment | (111) | 0 | ||||||||||||||||||
Sale of equipment | 91 | 0 | ||||||||||||||||||
Sale of equity investment in Starrise | 809 | 0 | ||||||||||||||||||
Net cash provided by investing activities | 789 | 0 | ||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Payment of notes payable | (14,004) | (13,856) | ||||||||||||||||||
Proceeds under revolving credit agreement, net | 8,469 | 0 | ||||||||||||||||||
Proceeds from PPP Loan | 2,152 | 0 | ||||||||||||||||||
Proceeds from issuance of Class A common stock, net | 17,576 | 5,850 | ||||||||||||||||||
Net cash provided by (used in) in financing activities | 14,193 | (8,006) | ||||||||||||||||||
Net change in cash and cash equivalents | 2,209 | (4,207) | ||||||||||||||||||
Cash, cash equivalents, and restricted cash at beginning of period | 15,294 | 18,872 | ||||||||||||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | 17,503 | $ | 14,665 |
Six Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 4,999 | $ | (46,436 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization of property and equipment and amortization of intangible assets | 2,632 | 4,050 | ||||||
Changes in fair value of equity investment in Starrise | (1,000 | ) | 35,626 | |||||
(Gain) loss from forgiveness of PPP loan and extinguishment of note payable | (2,178 | ) | 312 | |||||
Impairment of advances | 399 | 40 | ||||||
Loss from sale of property and equipment | - | 44 | ||||||
Amortization of debt issuance costs included in interest expense | - | 139 | ||||||
Provision for doubtful accounts | (40 | ) | (193 | ) | ||||
Recovery for inventory reserve | (26 | ) | (909 | ) | ||||
Stock-based compensation | 1,929 | 1,212 | ||||||
Accretion and PIK interest expense added to note payable | - | 199 | ||||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||
Accounts receivable | (2,887 | ) | 11,733 | |||||
Inventory | 70 | 1,249 | ||||||
Unbilled revenue | (697 | ) | (236 | ) | ||||
Prepaids and other current assets, and other long-term assets | 961 | 60 | ||||||
Accounts payable, accrued expenses, and other liabilities | 5,953 | (18,909 | ) | |||||
Deferred revenue | (757 | ) | (754 | ) | ||||
Net cash provided by (used in) operating activities | 9,358 | (12,773 | ) | |||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (81 | ) | (111 | ) | ||||
Purchase of businesses | (4,750 | ) | - | |||||
Proceeds from the sale of property and equipment | - | 91 | ||||||
Sale of equity investment in Starrise | 11 | 809 | ||||||
Net cash (used in) provided by investing activities | (4,820 | ) | 789 | |||||
Cash flows from financing activities: | ||||||||
Payments of notes payable | (7,786 | ) | (14,004 | ) | ||||
(Payments) proceeds under revolving credit agreement, net | (1,956 | ) | 8,469 | |||||
Proceeds from PPP Loan | - | 2,152 | ||||||
Proceeds from issuance of Class A common stock, net | - | 17,576 | ||||||
Net cash (used in) provided by financing activities | (9,742 | ) | 14,193 | |||||
Net change in cash, cash equivalents, and restricted cash | (5,204 | ) | 2,209 | |||||
Cash, cash equivalents, and restricted cash at beginning of period | 17,849 | 15,294 | ||||||
Cash, cash equivalents, and restricted cash at end of period | $ | 12,645 | $ | 17,503 |
See accompanying Notes to Condensed Consolidated Financial Statements
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share information)
1.NATURE OF OPERATIONS AND LIQUIDITY
We report our financial results in two primary segments as follows: (1) cinema equipment business and (2) media content and entertainment business (“Content & Entertainment” or “CEG”). The cinema equipment business segment consists of the non-recourse, financing vehicles and administrators for our digital cinema equipment (the “Systems”) installed in movie theatres throughout North America and several international countries. It also provides fee-based support to over 4,822 movie screens as well as directly to exhibitors and other third-party customers in the form of monitoring, billing, collection and verification services. Our Content & Entertainment segment operates in: (1) ancillary market aggregation and distribution of entertainment content and (2) branded and curated over-the-top (“OTT”) digital network business providing entertainment channels and applications.
Risks and Uncertainties
Liquidity
Sale of Cinematic Equipment
On April 10, 2020, the Company entered into another stock purchase agreement (the “April Starrise Stock Purchase Agreement”) with five (5) shareholders of Starrise-BisonStarrise - Bison Global Investment SPC - Bison Global No. 1 SP, Huatai Investment LP, Antai Investment LP, Mingtai Investment LP and Shangtai Asset Management LP, all of which are related parties to the Company to buy an aggregate of 223,380,000 outstanding Starrise ordinary shares from them and for the Company to issue to them an aggregate of 29,855,081 shares of its Class A common stock inCommon Stock as consideration thereforetherefor (the “April Starrise Share Acquisition”). On April 15, 2020, the April Starrise Share Acquisition was consummated and this transaction was also recorded as an equity investment in Starrise and is a related party transaction.Starrise.
Starrise’s ordinary shares (HK 1616) are listed on the main board of the Stock Exchange of Hong Kong Limited. Based on the closing price of HKD 0.160.159 per share on November 13, 2020,11, 2021, calculated at an exchange rate of $7.757.8 Hong Kong Dollars to 1 US dollar, the market value of Cinedigm’s ownership in Starrise ordinary shares was approximately $7.3$7.4 million.
Borrowings
On June 22, 2021, the maturity date of the East West Credit Facility (as defined in Note 5 - Notes Payable) with East West Bank was extended from June 30, 2021 to September 28, 2021. The September 28, 2021 expiration date has passed and no amendment has been entered into as of the date of filing of this Quarterly Report on Form 10-Q.
On April 15, 2020, the Company received $2.2 million from East West Bank, 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 “PPN“PPP Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are due within the initial six months of the PPP Loan. The interest accrued during the initial six-month period is due and payable, together with the principal, on the PPNPPP 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 arewere intended to be eligible for forgiveness, subject to the provisions of the CARES Act and could be subject to repayment.
Notes Payable.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
We consider all highly liquid investments with an original maturity of three months or less to be "cash“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 - Notes Payablefor information about our restricted cash balances.
As of | |||||||||||||||||||
As of | |||||||||||||||||||
(in thousands) | September 30, 2020 | March 31, 2020 | |||||||||||||||||
(in thousands) | September 30, 2021 | September 30, 2020 | |||||||||||||||||
Cash and Cash Equivalents | Cash and Cash Equivalents | $ | 16,503 | $ | 14,294 | $ | 12,645 | $ | 16,503 | ||||||||||
Restricted Cash | Restricted Cash | 1,000 | 1,000 | - | 1,000 | ||||||||||||||
$ | 17,503 | $ | 15,294 | $ | 12,645 | $ | 17,503 |
On April 10, 2020, the Company purchased an additional 15% interest of 15% in Starrise in a private transaction from shareholders of Starrise that are affiliated with the majorthen-major shareholder of the Company. The Company recorded an additional equity investment of approximately $28.2 million, which is the fair market value of the Starrise shares on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Company's common stockCommon Stock of $11.0 million, valued at the date of the issuance of the Class A common stock of the Company.Common Stock. The difference in the value of shares received in Starrise and shares issued by the Company iswas deemed as contributed capital and recorded in additional paid-in capital. This transaction was also recorded as an equity investment in Starrise.
As of September 30, 20202021 and March 31, 2020,2021, the value of our equity investment in Starrise, using the readily determinable fair value methodinputs from the quoted trading pricemarket pricing of the Stock Exchange of Hong Kong, was approximately $14.5$7.4 million and $23.4$6.4 million, respectively, resulting in an unrealized loss for thea change in fair value of approximately $19.7$1.0 million and ($35.6) million for the six months ended September 30, 2021 and 2020 respectively, on our consolidated statement of operations. On April 1 and May 5, 2021, the Company sold 80,000 and 600,000 Starrise’s ordinary shares, respectively for a total amount of $11 thousand. At September 30, 2021 and March 31, 2021, the Company owned 362,307,397 and 362,987,397 ordinary shares or 18% and 26% of Starrise, respectively.
ADVANCES
Advances, which are recorded within prepaid and other current assets on the condensed consolidated balance sheets, represent amounts prepaid to studios or content producers for which we provide content distribution services. We evaluate advances regularly for recoverability and record impairment charges for amounts that we expect may not be recoverable as of the consolidated balance sheet date. Impairments and accelerated amortization related to advances were $0.2 million and $0 million, and $0.2 million,respectively, for the three months ended September 30, 20202021 and 2019.2020. Impairments and accelerated amortization related to advances were $0.04$0.4 million and $0.4$0.04 million, respectively, for the six months ended September 30, 20202021 and 2019.2020.
PROPERTY AND EQUIPMENT
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.
● | 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 1 – quoted prices in active markets for identical investments
● | Level 3 – significant unobservable inputs (including our own assumptions in determining the fair value of 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)
As of September 30, 2021 | ||||||||||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity investment in Starrise, at fair value | $ | 7,443 | $ | — | $ | — | $ | 7,443 | ||||||||
$ | 7,443 | $ | — | — | $ | 7,443 |
As of March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||
As of September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||
(in thousands) | (in thousands) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||||||
Restricted cash | Restricted cash | $ | 1,000 | $ | 0 | $ | 0 | $ | 1,000 | $ | 1,000 | $ | — | $ | — | $ | 1,000 | |||||||||||||||||||||||||
Equity investment in Starrise, at fair value | Equity investment in Starrise, at fair value | 14,468 | 0 | 0 | 14,468 | 6,443 | — | — | 6,443 | |||||||||||||||||||||||||||||||||
$ | 15,468 | $ | 0 | — | $ | 0 | $ | 15,468 | $ | 7,443 | $ | — | $ | — | $ | 7,443 |
As of March 31, 2020 | ||||||||||||||||||||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
Restricted cash | $ | 1,000 | $ | 0 | $ | 0 | $ | 1,000 | ||||||||||||||||||
Equity investment in Starrise, at fair value | 23,433 | 0 | 0 | 23,433 | ||||||||||||||||||||||
$ | 24,433 | $ | 0 | — | $ | 0 | $ | 24,433 |
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 condensed consolidated balance sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature. At September 30, 2020 and March 31, 2020, the estimated fair value of our fixed rate debt approximated its carrying amounts. We estimated the fair value of debt based upon current interest rates available to us at the respective balance sheet dates for arrangements with similar terms and conditions. Based on borrowing rates currently available to us for loans with similar terms, the fair value of the variable rate debt is $11.8 million and lease obligations approximates fair value.
GOODWILL
The Company has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or to perform the quantitative impairment test.
No goodwill impairment charge was recorded in the three and six months ended September 30, 20202021 and 2019.2020.
(In thousands) | ||||
Goodwill at March 31, 2021 | $ | 8,701 | ||
Goodwill from business combinations – see Note 4 | 4,826 | |||
Goodwill at September 30, 2021 | $ | 13,527 |
REVENUE RECOGNITION
● | identifying the contract, or contracts, with the customer; |
● | identifying the performance obligations in the contract; |
•identifying the contract, or contracts, with the customer;
● | determining the transaction price; |
•identifying the performance obligations in the contract;
● | allocating the transaction price to performance obligations in the contract; and |
•determining the transaction price;
● | recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services. |
•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.
Our Cinema Equipment Business consists of financing vehicles and administrators for 1,813 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 3,009 Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”).
We retain ownership of our digital cinema equipment (the “Systems”) and the residual cash flows related to the Systems in Phase I Deployment after the end of the 10-year deployment payment period.
For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.
The Cinema Equipment Business also provides monitoring, data collection, serial data verification and management services to this segment, as well as to exhibitors who purchase their own equipment, in order to collect virtual print fees (“VPFs”) from motion picture studios and distributors and Alternative Content Fees (“ACFs”) from alternative content providers, and to distribute those fees to theatrical exhibitors (collectively, “Services”).
VPFs are earned, net of administrative fees, pursuant to contracts with movie studios and distributors, whereby amounts are payable by a studio to 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.
Exhibitors who purchased and own Systems using their own financing in the Cinema Equipment Business paid us an upfront activation fee of approximately $2.0 thousand per screen (the “Exhibitor-Buyer Structure”). Upfront activation fees were recognized in the period in which these Systems were delivered and ready for content, as we had no further obligations to the customer after that time and collection was reasonably assured. In addition, we recognize activation fee revenue of between $1.0 thousand and $2.0 thousand on Phase 2 DCII Deployment Systems and for Systems installed by CDF2 Holdings, a related party, (See Note 43 - 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.
Physical goods reserved for productsales 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.
● | 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. |
•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.
Credit Losses
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.
The ending deferred revenue balance including current and non-current balances, as of September 30, 20202021 was $1.8$0.2 million. For the three and six months ended September 30, 2021 and 2020, respectively, the additions to our deferred revenue balance were primarily due to cash payments received or due in advance of satisfying performance obligations, while the reductions to our deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.
During the three months ended September 30, 2021 and 2020, $0.3 million and $0.7 million, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. During the six months ended September 30, 2021 and 2020, $0.7$0.8 million and $1.3 million, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. As of September 30, 2020,2021, the aggregate amount of contract revenue allocated to unsatisfied performance obligations was $1.8$0.2 million. We expect to recognize approximately $1.8 million ofrecognized this balance overin full by October 31, 2021.
Participations and royalties payable
When we use third parties to distribute company owned content, we record participations payable, which represent amounts owed to the next 12 months,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 remainder thereafter.liability any expenses that are to be reimbursed to us by such studios or content producers.
Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Cinema Equipment Business: | |||||||||||||||||||||||
Phase I Deployment | $ | 112 | $ | 1,541 | $ | 143 | $ | 3,394 | |||||||||||||||
Phase II Deployment | 351 | 423 | 749 | 882 | |||||||||||||||||||
Services | 165 | 1,005 | 265 | 2,336 | |||||||||||||||||||
Digital System Sales | 15 | 676 | 91 | 1,026 | |||||||||||||||||||
Total Cinema Equipment Business revenue | $ | 643 | $ | 3,645 | $ | 1,248 | $ | 7,638 | |||||||||||||||
Content & Entertainment Business: | |||||||||||||||||||||||
Base Distribution Business | $ | 2,931 | $ | 3,523 | $ | 5,088 | $ | 6,658 | |||||||||||||||
OTT Streaming and Digital | 3,608 | 3,073 | 6,864 | 5,748 | |||||||||||||||||||
Total Content & Entertainment Business revenue | $ | 6,539 | $ | 6,596 | $ | 11,952 | $ | 12,406 |
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Cinema Equipment Business: | ||||||||||||||||
Phase I Deployment | $ | 148 | $ | 112 | $ | 239 | $ | 143 | ||||||||
Phase II Deployment | 375 | 351 | 761 | 749 | ||||||||||||
Services | 486 | 165 | 665 | 265 | ||||||||||||
Digital System Sales | 2,244 | 15 | 7,819 | 91 | ||||||||||||
Total Cinema Equipment Business revenue | $ | 3,253 | $ | 643 | $ | 9,484 | $ | 1,248 | ||||||||
Content & Entertainment Business: | ||||||||||||||||
Base Distribution Business | $ | 922 | $ | 2,931 | $ | 2,700 | $ | 5,088 | ||||||||
OTT Streaming and Digital | 5,928 | 3,608 | 12,934 | 6,864 | ||||||||||||
Total Content & Entertainment Business revenue | $ | 6,850 | $ | 6,536 | $ | 15,634 | $ | 11,952 |
DIRECT OPERATING COSTS
Direct operating costs consist of operating costs such as cost of goods sold, fulfillment expenses, shipping costs, property taxes and insurance on Systems, royalty expenses, impairments of advances, and marketing and direct personnel costs.
STOCK-BASED COMPENSATION
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||
(In thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
Selling, general and administrative | $ | 1,035 | $ | 178 | $ | 1,212 | $ | 189 | ||||||||||||||||||
$ | 1,035 | $ | 178 | $ | 1,212 | $ | 189 |
INCOME TAXES
The Company accounts for uncertain tax positions in accordance with an amendment to ASC Topic 740-10, Income Taxes(Accounting for Uncertainty in Income Taxes), which clarified the accounting for uncertainty in tax positions. This amendment provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is "more-likely-than-not"“more-likely-than-not” to be sustained were it to be challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the "more-likely-than-not"“more-likely-than-not” threshold, the largest amount of tax benefit that is more than 50% likely to be recognized upon ultimate settlement with the taxing authority is recorded. The Company has no uncertain tax positions.
Basic and diluted net loss per common share attributable to common stockholders | = | Net loss attributable to common stockholders | |||
Weighted average number of common stock |
Stock issued and treasury stock repurchased during the period are weighted for the portion of the period that they are outstanding. Shares issued and any shares that are reacquired during the period are weighted for the portion of the period that they are outstanding.
We had a net income for the six months ended September 30, 2021, and therefore the impact of potentially dilutive common shares from outstanding stock options, stock appreciation rights, and warrants, totaling 3,219,141 shares for the six months ended September 30, 2021, respectively, were included in the computations of diluted earnings per share. For the three months ended September 30, 2021, 11,937,243 potentially dilutive shares have been excluded from the diluted loss per share as their impact would have been antidilutive. We had a net loss for the three months ended September 30, 2021 and therefore no dilution as basic and diluted loss per share are the same for the period. The calculation of diluted net income per share for the six months ended September 30, 2021 does not include the impact of 8,718,102 potentially dilutive shares relating to stock options, stock appreciation rights, and warrants as their impact would have been anti-dilutive as their exercise prices are above the Company’s average Common Stock price during the period.
We incurred net losses for the three and six months ended September 30, 2020, and 2019, and therefore the impact of potentially dilutive common shares from outstanding stock options and warrants, totaling 3,940,138 shares and 4,076,921 shares as of September 30, 2020, and 2019, respectively, were excluded from the computations of loss per share as their impact would have been anti-dilutive.
COMPREHENSIVE LOSSINCOME (LOSS)
Adopted
On December 18, 2019, the FASB issued ASU 2019-12, "“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,"” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The update also simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance to improve consistent application. The amendment in this update is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. We are currently assessingThe Company adopted this guidance on April 1, 2021 and the impactadoption of this pronouncement mayASU did not have a material impact on our consolidated financial statements.
Not yet adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which provides new guidance regarding the measurement and recognition of credit impairment for certain financial assets. Such guidance will impact how the Company determines its allowance for estimated uncollectible receivables and evaluates its available-for-sale investments for impairment. ASU 2016-13 is effective for the Company in the first quarter of fiscal 2023. The Company is currently evaluating the effect that ASU 2016-13 will have on its consolidated financial statements and related disclosures.
3. OTHER INTERESTS
We indirectly own 100% of the common equity of CDF2 Holdings, LLC ("(“CDF2 Holdings"Holdings”), which was created for the purpose of capitalizing on the conversion of the exhibition industry from film to digital technology. CDF2 Holdings assists its customers in procuring the equipment necessary to convert their systems to digital technology by providing financing, equipment, installation and related ongoing services.
Majority Interest in CONtv
4. BUSINESS COMBINATION
FoundationTV, Inc.
On May 12, 2021, the Company entered into a stock purchase agreement (the “Foundation Stock Purchase Agreement”) with FoundationTV, Inc. (“FoundationTV”), to buy all of FoundationTV´s issued and outstanding stock in consideration of an aggregate of $5.2 million, of which $0.7 million was paid in cash and 1,483,129 shares of Common Stock, which were valued at $2.5 million, were issued at closing stock price of $1.69 on the closing date of June 9, 2021, and an additional $2.0 million will be paid in eight equal installments of one installment on each six month anniversary of closing over forty-eight months, and a final lump sum payment of $225 thousand on the four year anniversary of the closing; reduced by $0.2 million settlement of a prior relationship. The Foundation Stock Purchase Agreement contained certain conditions to closing, including that the Company obtain approval of its stockholders, applicable lenders, and regulatory authorities, as applicable, and representations and warranties and covenants as are customary for transactions of this type. On June 9, 2021, the FoundationTV acquisition was consummated. The Company incurred transaction cost $36 thousand during the six months ended September 30, 2021. As of September 30, 2021, the deferred consideration is presented according to the agreed-upon cash payments, including a $0.5 million short-term payable and a long-term payable for $1.5 million.
Purchase Price | ||||
Purchase Price | $ | 5,237 | ||
Total purchase price | $ | 5,237 | ||
Allocation of purchase price | ||||
Developed technology | 3,200 | |||
Goodwill | 2,037 | |||
Total allocation of purchase price | $ | 5,237 |
The developed technology acquired in this transaction has a useful life of approximately $181 thousand for10 years. During the three and six months ended September 30, 2020. We2021, the Company recorded income tax$80 thousand in amortization expense related to the developed technology acquired in the acquisition.
Below is the amortization expense per year for the developed technology acquired in the business combination:
2022 (remaining) | $ | 160 | ||
2023 | 320 | |||
2024 | 320 | |||
2025 | 320 | |||
2026 | 320 | |||
2027 | 320 | |||
2028 | 320 | |||
2029 | 320 | |||
2030 | 320 | |||
2031 | 320 | |||
2032 | 80 | |||
Total | $ | 3,120 |
Bloody Disgusting, LLC.
On September 17, 2021, the Company entered into an asset purchase agreement (the “Bloody Disgusting Asset Purchase Agreement”) with Bloody Disgusting, LLC (“Bloody Disgusting”), to buy substantially all of approximately $27the assets of Bloody Disgusting, in consideration of an aggregate of $7.8 million, of which $4.0 million was paid in cash and 1,039,501 shares of Common Stock, which were valued at $2.3 million, were issued at closing stock price of $2.23 on the closing date of September 17, 2021, and $1.5 million as of the fair value of the earnout liability, related to earnout targets, as defined, to be met as of March 2022, March 2023 and March 2024. The Bloody Disgusting Asset Purchase Agreement contained certain conditions to closing and representations and warranties and covenants as are customary for transactions of this type. On September 17, 2021, the Bloody Disgusting acquisition was consummated. The Company incurred transaction cost $40 thousand during the six months ended September 30, 2021.
Purchase Price | ||||
Purchase Price | $ | 7,780 | ||
Total purchase price | $ | 7,780 | ||
Provisional allocation of purchase price | ||||
Current assets | 141 | |||
Advertiser relationships | 3,750 | |||
Trade name | 1,100 | |||
Goodwill | 2,789 | |||
Total allocation of purchase price | $ | 7,780 |
The advertiser relationships acquired in this transaction has a useful life of 12 years and $74 thousand, respectively, forthe trade name acquired has a useful life of 10 years. During the three and six months ended September 30, 2019.
Below is the amortization expense per year for determining deductible interest expense; class life changes to qualified improvements (in general, from 39 years to 15 years); and the ability to carry back net operating losses incurred from tax years 2018 through 2020 up tointangible assets acquired in the five preceding tax years. The Company has evaluated the new tax provisions of the CARES Act and determined the impact to be either immaterial or not applicable.business combination:
Advertiser relationships | Trade name | Total | ||||||||||
2022 (remaining) | $ | 156 | $ | 55 | $ | 211 | ||||||
2023 | 313 | 110 | 423 | |||||||||
2024 | 313 | 110 | 423 | |||||||||
2025 | 313 | 110 | 423 | |||||||||
2026 | 313 | 110 | 423 | |||||||||
2027 | 313 | 110 | 423 | |||||||||
2028 | 313 | 110 | 423 | |||||||||
2029 | 313 | 110 | 423 | |||||||||
2030 | 313 | 110 | 423 | |||||||||
2031 | 313 | 110 | 423 | |||||||||
2032 | 313 | 55 | 368 | |||||||||
2033 | 313 | - | 313 | |||||||||
2034 | 151 | - | 151 | |||||||||
Total | 3,750 | 1,100 | $ | 4,850 |
5. NOTES PAYABLE
September 30, 2020 | March 31, 2020 | September 30, 2021 | March 31, 2021 | |||||||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | Current Portion | Long Term Portion | Current Portion | Long Term Portion | Current Portion | Long Term Portion | Current Portion | Long Term Portion | |||||||||||||||||||||||||||||||||
Prospect Loan | Prospect Loan | $ | 12,107 | $ | 0 | $ | 12,205 | $ | 0 | $ | — | $ | — | $ | 7,786 | $ | — | |||||||||||||||||||||||||
Total non-recourse notes payable | Total non-recourse notes payable | 12,107 | 0 | 12,205 | 0 | — | — | 7,786 | — | |||||||||||||||||||||||||||||||||
Less: Unamortized debt issuance costs and debt discounts | (358) | 0 | (763) | 0 | ||||||||||||||||||||||||||||||||||||||
Total non-recourse notes payable, net of unamortized debt issuance costs and debt discounts | Total non-recourse notes payable, net of unamortized debt issuance costs and debt discounts | $ | 11,749 | $ | 0 | $ | 11,442 | $ | 0 | $ | — | $ | — | $ | 7,786 | $ | — | |||||||||||||||||||||||||
Bison Note Payable | $ | 0 | 0 | $ | 10,000 | $ | 0 | |||||||||||||||||||||||||||||||||||
Second Lien Loans | 7,593 | 0 | 8,222 | 0 | ||||||||||||||||||||||||||||||||||||||
Credit Facility | Credit Facility | 9,050 | 0 | 14,487 | 0 | $ | — | $ | — | $ | 1,956 | $ | — | |||||||||||||||||||||||||||||
Mingtai Convertible Note | 0 | 0 | 5,000 | 0 | ||||||||||||||||||||||||||||||||||||||
PPP Loan | PPP Loan | 0 | 2,152 | 0 | 0 | — | — | — | 2,152 | |||||||||||||||||||||||||||||||||
Total recourse notes payable | Total recourse notes payable | 16,643 | 2,152 | 37,709 | 0 | — | — | 1,956 | 2,152 | |||||||||||||||||||||||||||||||||
Less: Unamortized debt issuance costs and debt discounts | 0 | 0 | (460) | 0 | ||||||||||||||||||||||||||||||||||||||
Total recourse notes payable, net of unamortized debt issuance costs and debt discounts | Total recourse notes payable, net of unamortized debt issuance costs and debt discounts | $ | 16,643 | $ | 2,152 | $ | 37,249 | $ | 0 | $ | — | $ | — | $ | 1,956 | $ | 2,152 | |||||||||||||||||||||||||
Total notes payable, net of unamortized debt issuance costs | Total notes payable, net of unamortized debt issuance costs | $ | 28,392 | $ | 2,152 | $ | 48,691 | $ | 0 | $ | — | $ | — | $ | 9,742 | $ | 2,152 |
On March 4, 2021, CDCH, AccessDM, Phase 2 DC, Christie/AIX, Inc., Cinedigm Digital Funding I, LLC, certain Lenders, and Prospect Capital Corporation, as administrative agent and collateral agent, entered into Amendment No. 3 (the “Amendment”) to the Term Loan Agreement dated February 28, 2013. Under the Amendment, the maturity date of the loan under the Term Loan Agreement was extended to March 31, 2022. As a condition to the effectiveness of the Amendment, CDCH paid $3,500,000 to Prospect to reduce the outstanding principal amount of the Loan.
The Prospect Loan matures on March 31, 2021 and may be accelerated upon a change in control (as defined in the agreement) or other events of default as set forth therein and would be subject to mandatory acceleration upon insolvency of DC Holdings. We are permitted to pay the full outstanding balance of the Prospect Loan at any time after the second anniversary of the initial borrowing, subject to the following prepayment penalties:
Upon a series of payments between April 30 and July 9, 2021, the Company paid in full the Prospect Loan outstanding non-recourse debt amount by paying an aggregate principal amount of $7.8 million. Pre-payment of the Prospect Loan was permissible without penalty.
The following table summarizes the activity related to the Prospect Loan:
As of | ||||||||||||||
(In thousands) | September 30, 2020 | March 31, 2020 | ||||||||||||
Prospect Loan, at issuance | $ | 70,000 | $ | 70,000 | ||||||||||
PIK Interest | 4,778 | 4,778 | ||||||||||||
Payments to date | (62,671) | (62,573) | ||||||||||||
Prospect Loan, gross | $ | 12,107 | $ | 12,205 | ||||||||||
Less unamortized debt issuance costs and debt discounts | (358) | (763) | ||||||||||||
Prospect Loan, net | 11,749 | 11,442 | ||||||||||||
Less current portion | (11,749) | (11,442) | ||||||||||||
Total long term portion | $ | 0 | $ | 0 |
The Company recognized a loss on extinguishment of $50 thousand during the three months ended September 30, 2020. The Company recorded a loss on extinguishment of $27 thousand for the six months ended September 30, 2020.
As of | ||||||||
(In thousands) | September 30, 2021 | March 31, 2021 | ||||||
Prospect Loan, at issuance | $ | 70,000 | $ | 70,000 | ||||
PIK Interest | 8,016 | 6,397 | ||||||
Payments to date | (78,016 | ) | (68,611 | ) | ||||
Prospect Loan, gross | $ | — | $ | 7,786 | ||||
Less unamortized debt issuance costs and debt discounts | — | — | ||||||
Prospect Loan, net | — | 7,786 | ||||||
Less current portion | — | (7,786 | ) | |||||
Total long term portion | $ | — | $ | — |
the Company options to extend further to March 31, 2021 and then to June 30, 2021.There was a consent fee of $100,000 paid in connection with this extension. On September 21, 2020, the Company extended the maturity date to March 31, 2021 upon payment of a fee of $50,000.
On July 3, 2019, the Company entered into the EWB Amendment to the Credit Facility. The EWB Amendment reduced the size of the facility to $18.0 million, required certain prepayments and daily cash sweeps from collections of receivables to be made, changed in certain respects how the borrowing base is calculated, and extended the maturity date to June 30, 2020. In connection with the EWB Amendment, three of our subsidiaries became Guarantors under the Credit Facility. On June 25, 2020, the Company signed amendment No. 4 with East West Bank to extend the maturity of the Credit Facility to June 30, 2021 and waive events of default provisions. This amendment also includes a financial covenant that began on August 31, 2020. For the three months ended September 30, 2020, the Company was in compliance with this financial covenant.
As a result of our cash conversion
6. STOCKHOLDERS’ DEFICITEQUITY
During the six months ended September 30, 2020,2021, we issued 59,789,9492,883,907 shares of Class A common stockCommon Stock which consists of the sale of 17,880,000 shares of our Class A common stock, 29,855,081 in connection with the Starrise transaction, settlement of a portion of the outstanding second lien loan, issuance of restricted shares to employees and consultants, andCommon Stock for business combination, the issuances of Class A common stock for warrants exercised andCommon Stock in payment of preferred stock dividends. See Note - 8 dividends and in payment of board retainer fees.
Supplemental Cash Flow Disclosure.
Options outstanding under the 2000 Plan as of September 30, 2021 is as follows:
As of September 30, 2021 | ||||||||||||||||
Range of Prices | Options Outstanding | Weighted Average Remaining Life in Years | Weighted Average Exercise Price | Aggregate Intrinsic Value (In thousands) | ||||||||||||
$7.40 - $13.69 | 5,000 | 3.75 | $ | 7.40 | $ | — | ||||||||||
$13.70 - $24.40 | 213,837 | 1.62 | 14.65 | — | ||||||||||||
218,837 | $ | — |
An analysis of all options exercisable under the 2000 Plan as of September 30, 2021 is presented below:
Options Exercisable | Weighted Average Remaining Life in Years | Weighted Average Exercise Price | Aggregate Intrinsic Value (In thousands) | |||||||||||
218,837 | 1.67 | $ | 14.48 | — |
In August 2017, the Company adopted the 2017 Plan.Equity Incentive Plan (the “2017 Plan). The 2017 Plan replaced the 2000 Plan, and applies to employees and directors of, and consultants to, the Company. The 2017 Plan provided for the issuance of up to 2,108,270 shares of Class A
On October 23, 2020, the Company amended its 2017 Plan to increase the number of shares authorized for issuance thereunder from 4,098,270 to 14,098,270.
On October 11, 2021, the Company amended its 2017 Plan to increase the number of shares authorized for issuance thereunder from 14,098,270 to 18,098,270.
During the six months ended September 30, 2021, the Company granted 1,409,000 stock appreciation rights (“SARs”). The SARs were granted under the Company’s 2017 Equity Incentive Plan (the “2017 Plan), except for 600,000 SARs granted an officer of the Company as an inducement grant. All SARs issued have an exercise price equal to the fair value of the Company’s Class A common stock on the date of grant and a maturity date of 10 years. The SARs were valued on the grant date utilizing an option pricing model, as follows:
Grant Date: May 23, 2021 – September 13, 2021
Maturity Date: May 23, 2031 – March 31, 2034
Exercise price: $1.29 - $2.10
Subsequent Events.
Volatility: 110.32% - 114.42%
Discount rate: 0.96% - 1.08%
Expected term: 6 – 6.5 years
Stock appreciation rights outstanding under the 20002017 Plan as of September 30, 20202021 is as follows:
As of September 30, 2020 | ||||||||||||||||||||||||||
Range of Prices | Options Outstanding | Weighted Average Remaining Life in Years | Weighted Average Exercise Price | Aggregate Intrinsic Value (In thousands) | ||||||||||||||||||||||
$1.16 - $7.40 | 5,000 | 4.75 | $ | 7.40 | $ | 0 | ||||||||||||||||||||
$13.70 - $24.40 | 253,387 | 2.62 | 14.75 | 0 | ||||||||||||||||||||||
$30.00 - $ 50.00 | 7,500 | 0.88 | 30.00 | 0 | ||||||||||||||||||||||
265,887 | $ | 0 |
As of September 30, 2021 | ||||||||||||||||||
Range of Prices | SAR´s Outstanding | Weighted Average Remaining Life in Years | Weighted Average Exercise Price | Aggregate Intrinsic Value (In thousands) | ||||||||||||||
$0.54 - $0.74 | 5,550,000 | 9.23 | $ | 0.66 | $ | 10,624 | ||||||||||||
$1.16 - $1.47 | 2,046,610 | 8.05 | 1.35 | 2,304 | ||||||||||||||
$1.71 - $2.10 | 2,682,114 | 9.40 | 1.97 | 1,429 | ||||||||||||||
10,278,724 | $ | 14,357 |
An analysis of all stock appreciation rights exercisable under the 2017 Plan as of September 30, 2021 is presented below:
Options Exercisable | Weighted Average Remaining Life in Years | Weighted Average Exercise Price | Aggregate Intrinsic Value (In thousands) | |||||||||||
2,576,740 | 7.51 | $ | 1.16 | 3,952 |
Employee and director stock-based compensation expense related to our stock-based awards was as follows:
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
(In thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Selling, general and administrative | $ | 946 | $ | 1,035 | $ | 1,929 | $ | 1,212 | ||||||||
$ | 946 | $ | 1,035 | $ | 1,929 | $ | 1,212 |
Total SARs outstanding are as follows:
Six Months Ended September 30, 2021 | ||||||||||||||||||||||||
SARs Outstanding March 31, 2021 | 9,154,933 | |||||||||||||||||||||||
Issued | 1,409,000 | |||||||||||||||||||||||
Forfeited | (285,209 | ) | ||||||||||||||||||||||
Total SARs Outstanding September 30, 2021 | 10,278,724 | |||||||||||||||||||||||
There was $1 thousand and $1 thousand of stock-based compensation recorded for the six months ended September 30, 2021 and 2020, respectively, related to employees’ restricted stock awards. There was $0 thousand and $1 thousand of stock-based compensation recorded for the three months ended September 30, 2021 and 2020, respectively, related to employees’ restricted stock awards.
There was $193 thousand and $131 thousand of stock-based compensation for the six months ended September 30, 2021 and 2020, respectively, related to board of directors. There was $71 thousand and $65 thousand of stock-based compensation for the three months ended September 30, 2021 and 2020, respectively, related to board of directors. During the six months ended September 30, 2021, the Company issued 35,714 shares to the board of directors.
OPTIONS GRANTED OUTSIDE CINEDIGM’S EQUITY INCENTIVE PLAN
WARRANTS
Recipient | Recipient | Amount outstanding | Expiration | Exercise price per share | Amount outstanding | Expiration | Exercise price per share | ||||||||||||||||||||||||||
Strategic management service provider | 52,500 | July 2021 | $17.20 - $30.00 | ||||||||||||||||||||||||||||||
Warrants issued in connection with Convertible Notes exchange transaction | Warrants issued in connection with Convertible Notes exchange transaction | 244,141 | December 2021 | $1.31 | 246,019 | December 2021 | $ | 1.30 | |||||||||||||||||||||||||
5-year Warrant issued to BEMG in connection with a term loan agreement | 5-year Warrant issued to BEMG in connection with a term loan agreement | 1,400,000 | December 2022 | $1.80 | 1,400,000 | December 2022 | $ | 1.80 |
7. COMMITMENTS AND CONTINGENCIES
From time to time, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities. Although the results of litigation and claims cannot be predicted with certainty, the Company does not believe it is party to any other claim or litigation the outcome of which, if determined adversely to the Company, would individually or in the aggregate be reasonably expected to have a material adverse effect on its business. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.
We operate from leased properties under non-cancelable operating lease agreements, certain of which contain escalating lease clauses.
The table below presents the lease-related assets and liabilities recorded on the balance sheet as of September 30, 20202021:
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Lease Costs | ||||||||||||||
The table below presents certain information related to lease costs for leases: | ||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||
(In thousands) | September 30, 2020 | |||||||||||||
Operating lease cost | $ | 37 | $ | 123 | ||||||||||
Total lease cost | $ | 37 | $ | 123 | ||||||||||
Lease Costs
Other Information | |||||||||||
The table below presents supplemental cash flow information related to leases: | |||||||||||
Three Months Ended | Six Months Ended | ||||||||||
(In thousands) | September 30, 2020 | ||||||||||
Cash paid for amounts included in the measurement of lease liabilities | |||||||||||
Operating cash flows used for operating leases | $ | 37 | $ | 125 |
The table below presents certain information related to lease costs for leases:
Six months Ended | ||||
(In thousands) | September 30, 2021 | |||
Operating lease cost | $ | 45 | ||
Total lease cost | $ | 45 |
Other Information
The table below presents supplemental cash flow information related to leases:
Six months Ended | ||||
(In thousands) | September 30, 2021 | |||
Cash paid for amounts included in the measurement of lease liabilities | 10 | |||
Operating cash flows used for operating leases | $ | 10 |
Distribution arrangement minimum guaranty
On September 1, 2021 the Company extended a video works distribution arrangement providing a non-refundable and fully-recoupable advance minimum participation guaranty for a total amount of $3.5 million, where $1.5 million is payable no later than November 1, 2021, $1.0 million at the first year anniversary of the arrangement and $0.9 million on the second-year anniversary of the arrangement. These payments are subject to the selection of video works released by the Company whose initial commercial date occurs during the arrangement year. The Company terminated an office lease in Los Angeles in April 2020 and a lease for office equipment was terminated in June 2020. The Company removedpaid the right-of-use assets of $927 thousand and the lease liabilities of $1.0 million as of June 30, 2020 The estimated future lease liabilities are not expected to be material for the remaining outstanding office and equipment leases.
Six Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||
(In thousands) | (In thousands) | 2020 | 2019 | 2021 | 2020 | |||||||||||||||||
Cash interest paid | Cash interest paid | $ | 1,635 | $ | 2,782 | $ | 612 | $ | 1,635 | |||||||||||||
Income taxes paid | 45 | — | ||||||||||||||||||||
noncash investing and financing activities: | ||||||||||||||||||||||
Accrued dividends on preferred stock | Accrued dividends on preferred stock | 89 | 89 | 178 | 89 | |||||||||||||||||
Issuance of Class A common stock for payment of preferred stock dividends | 178 | 178 | ||||||||||||||||||||
Issuance of Class A common stock for payment of accrued preferred stock dividends | 89 | 178 | ||||||||||||||||||||
Issuance of Class A common stock to Starrise, a related party | Issuance of Class A common stock to Starrise, a related party | 11,046 | 0 | — | 11,046 | |||||||||||||||||
Contributed capital under the Starrise transaction, a related party | Contributed capital under the Starrise transaction, a related party | 17,187 | 0 | — | 17,187 | |||||||||||||||||
Settlement of second lien loan with Class A common stock | Settlement of second lien loan with Class A common stock | 818 | 0 | — | 818 | |||||||||||||||||
Conversion of note payable | Conversion of note payable | 15,000 | 0 | — | 15,000 | |||||||||||||||||
Right-of-use assets and operating lease liability recorded upon adoption of ASU 842, net | 0 | 90 | ||||||||||||||||||||
Amounts accrued in connection with addition of property and equipment | Amounts accrued in connection with addition of property and equipment | 34 | 46 | — | 34 | |||||||||||||||||
Issuance of Class A common stock for business combination | 4,824 | — | ||||||||||||||||||||
Starrise shares used to pay down vendors | Starrise shares used to pay down vendors | 744 | — | 0 | — | 744 | ||||||||||||||||
Treasury shares acquired for withholding taxes | 5 | — | ||||||||||||||||||||
Deferred consideration in purchase of a business | 3,441 | — |
9. SEGMENT INFORMATION
Operations of: | Products and services provided: | ||||
Cinema Equipment Business | Financing vehicles and administrators for We retain ownership of the Systems and the residual cash flows related to the Systems in Phase I Deployment after the repayment of all non-recourse debt at the expiration of exhibitor master license agreements. For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements. The Cinema Equipment Business segment also provides monitoring, collection, verification and management services to this segment, as well as to exhibitors who purchase their own equipment, and also collects and disburses VPFs from motion picture studios, distributors and ACFs from alternative content providers, movie exhibitors and theatrical exhibitors (collectively, “Services”). | ||||
Content & Entertainment Business | Leading |
As of September 30, 2020 | As of September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | Intangible Assets, net | Goodwill | Total Assets | Notes Payable, Non-Recourse | Notes Payable | Operating lease liabilities | Intangible Assets, net | Goodwill | Total Assets | Notes Payable, Non- Recourse | Notes Payable | Operating lease liabilities | ||||||||||||||||||||||||||||||||||||||||||||||
Cinema Equipment Business | Cinema Equipment Business | $ | 8 | $ | 0 | $ | 22,376 | $ | 11,749 | $ | 0 | $ | 135 | $ | — | $ | — | $ | 17,367 | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
Content & Entertainment Business | Content & Entertainment Business | 5,731 | 8,701 | 43,547 | 0 | 0 | 12 | 16,366 | 13,527 | 51,964 | — | — | 10 | ||||||||||||||||||||||||||||||||||||||||||||||
Corporate | Corporate | 4 | 0 | 20,879 | 0 | 18,795 | 22 | 1 | — | 14,570 | — | — | 21 | ||||||||||||||||||||||||||||||||||||||||||||||
Total | Total | $ | 5,743 | $ | 8,701 | $ | 86,802 | $ | 11,749 | $ | 18,795 | $ | 169 | $ | 16,367 | $ | 13,527 | $ | 83,901 | $ | — | $ | — | $ | 31 |
As of March 31, 2021 | ||||||||||||||||||||||||
(In thousands) | Intangible Assets, net | Goodwill | Total Assets | Notes Payable, Non- Recourse | Notes Payable | Operating lease liabilities | ||||||||||||||||||
Cinema Equipment Business | $ | — | $ | — | $ | 13,169 | $ | 7,786 | $ | — | $ | 1 | ||||||||||||
Content & Entertainment Business | 9,858 | 8,701 | 42,733 | — | — | 69 | ||||||||||||||||||
Corporate | 2 | — | 19,544 | — | 4,108 | 30 | ||||||||||||||||||
Total | $ | 9,860 | $ | 8,701 | $ | 75,446 | $ | 7,786 | $ | 4,108 | $ | 100 |
As of March 31, 2020 | |||||||||||||||||||||||||||||||||||
(In thousands) | Intangible Assets, net | Goodwill | Total Assets | Notes Payable, Non-Recourse | Notes Payable | Operating lease liabilities | |||||||||||||||||||||||||||||
Cinema Equipment Business | $ | 23 | $ | 0 | $ | 34,465 | $ | 11,442 | $ | 0 | $ | 594 | |||||||||||||||||||||||
Content & Entertainment Business | 6,895 | 8,701 | 49,923 | 0 | 0 | 73 | |||||||||||||||||||||||||||||
Corporate | 6 | 0 | 26,052 | 0 | 37,249 | 610 | |||||||||||||||||||||||||||||
Total | $ | 6,924 | $ | 8,701 | $ | 110,440 | $ | 11,442 | $ | 37,249 | $ | 1,277 |
Statements of Operations | ||||||||||||||||
Three Months Ended September 30, 2021 | ||||||||||||||||
(in thousands) | ||||||||||||||||
Cinema Equipment Business | Content & Entertainment Business | Corporate | Consolidated | |||||||||||||
Revenues | $ | 3,253 | $ | 6,850 | $ | — | $ | 10,103 | ||||||||
Direct operating (exclusive of depreciation and amortization shown below) | 164 | 3,169 | — | 3,333 | ||||||||||||
Selling, general and administrative | 431 | 3,480 | 3,248 | 7,159 | ||||||||||||
Allocation of corporate overhead | 170 | 1,139 | (1,309 | ) | — | |||||||||||
Provision for (recovery of) doubtful accounts | (130 | ) | 19 | — | (111 | ) | ||||||||||
Depreciation and amortization of property and equipment | 300 | 140 | — | 440 | ||||||||||||
Amortization of intangible assets | — | 696 | — | 696 | ||||||||||||
Total operating expenses | 935 | 8,643 | 1,939 | 11,517 | ||||||||||||
Income (loss) from operations | $ | 2,318 | $ | (1,793 | ) | $ | (1,939 | ) | $ | (1,414 | ) |
Statements of Operations | ||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||||
(Unaudited, in thousands) | ||||||||||||||||||||||||||||||||||||||
Cinema Equipment Business | Content & Entertainment Business | Corporate | Consolidated | |||||||||||||||||||||||||||||||||||
Revenues | $ | 643 | $ | 6,539 | $ | 0 | $ | 7,182 | ||||||||||||||||||||||||||||||
Direct operating (exclusive of depreciation and amortization shown below) | 172 | 4,158 | 0 | 4,330 | ||||||||||||||||||||||||||||||||||
Selling, general and administrative | 631 | 2,528 | 3,009 | 6,168 | ||||||||||||||||||||||||||||||||||
Allocation of corporate overhead | 171 | 1,135 | (1,306) | 0 | ||||||||||||||||||||||||||||||||||
Recovery for doubtful accounts | (193) | 0 | 0 | (193) | ||||||||||||||||||||||||||||||||||
Depreciation and amortization of property and equipment | 1,239 | 101 | 5 | 1,345 | ||||||||||||||||||||||||||||||||||
Amortization of intangible assets | 7 | 582 | 2 | 591 | ||||||||||||||||||||||||||||||||||
Total operating expenses | 2,027 | 8,504 | 1,710 | 12,241 | ||||||||||||||||||||||||||||||||||
Loss from operations | $ | (1,384) | $ | (1,965) | $ | (1,710) | $ | (5,059) |
The following employee and director stock-based compensation expense related to the Company’sour stock-based awards was $1.0 million foris included in the three months ended September 30, 2020.above amounts as follows:
(In thousands) | (In thousands) | Cinema Equipment Business | Content & Entertainment Business | Corporate | Consolidated | Cinema Equipment Business | Content & Entertainment Business | Corporate | Consolidated | ||||||||||||||||||||||||||||||||||||
Direct operating | Direct operating | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||
Selling, general and administrative | Selling, general and administrative | 0 | 26 | 1,009 | 1,035 | — | 345 | 601 | 946 | ||||||||||||||||||||||||||||||||||||
Total stock-based compensation | Total stock-based compensation | $ | 0 | $ | 26 | $ | 1,009 | $ | 1,035 | $ | — | $ | 345 | $ | 601 | $ | 946 |
Statements of Operations | ||||||||||||||||
Three Months Ended September 30, 2020 (in thousands) | ||||||||||||||||
Cinema Equipment Business | Content & Entertainment | Corporate | Consolidated | |||||||||||||
Revenues | $ | 643 | $ | 6,539 | $ | — | $ | 7,182 | ||||||||
Direct operating (exclusive of depreciation and amortization shown below) | 172 | 4,158 | — | 4,330 | ||||||||||||
Selling, general and administrative | 631 | 2,528 | 3,009 | 6,168 | ||||||||||||
Allocation of corporate overhead | 171 | 1,135 | (1,306 | ) | — | |||||||||||
Recovery of doubtful accounts | (193 | ) | — | — | (193 | ) | ||||||||||
Depreciation and amortization of property and equipment | 1,239 | 101 | 5 | 1,345 | ||||||||||||
Amortization of intangible assets | 7 | 582 | 2 | 591 | ||||||||||||
Total operating expenses | 2,027 | 8,504 | 1,710 | 12,241 | ||||||||||||
Loss from operations | $ | (1,384 | ) | $ | (1,965 | ) | $ | (1,710 | ) | $ | (5,059 | ) |
Statements of Operations | ||||||||||||||||||||||||||
Three Months Ended September 30, 2019 | ||||||||||||||||||||||||||
(Unaudited, in thousands) | ||||||||||||||||||||||||||
Cinema Equipment Business | Content & Entertainment Business | Corporate | Consolidated | |||||||||||||||||||||||
Revenues | $ | 3,645 | $ | 6,596 | $ | 0 | $ | 10,241 | ||||||||||||||||||
Direct operating (exclusive of depreciation and amortization shown below) | 362 | 3,725 | 0 | 4,087 | ||||||||||||||||||||||
Selling, general and administrative | 604 | 2,591 | 1,793 | 4,988 | ||||||||||||||||||||||
Allocation of Corporate overhead | 203 | 1,266 | (1,469) | 0 | ||||||||||||||||||||||
Provision (recovery) for doubtful accounts | 56 | 0 | 0 | 56 | ||||||||||||||||||||||
Depreciation and amortization of property and equipment | 1,491 | 76 | 42 | 1,609 | ||||||||||||||||||||||
Amortization of intangible assets | 12 | 581 | 1 | 594 | ||||||||||||||||||||||
Total operating expenses | 2,728 | 8,239 | 367 | 11,334 | ||||||||||||||||||||||
Income (loss) from operations | $ | 917 | $ | (1,643) | $ | (367) | $ | (1,093) |
Cinema Equipment Business | Content & Entertainment | Corporate | Consolidated | ||||||||||||||||||||||||||||||||||||||||||
(In thousands) | Cinema Equipment Business | Content & Entertainment Business | Corporate | Consolidated | |||||||||||||||||||||||||||||||||||||||||
Direct operating | Direct operating | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||
Selling, general and administrative | Selling, general and administrative | 0 | 26 | 152 | 178 | — | 26 | 1,009 | 1,035 | ||||||||||||||||||||||||||||||||||||
Total stock-based compensation | Total stock-based compensation | $ | 0 | $ | 26 | $ | 152 | $ | 178 | $ | — | $ | 26 | $ | 1,009 | $ | 1,035 |
Statements of Operations | ||||||||||||||||
Six Months Ended September 30, 2021 | ||||||||||||||||
(in thousands) | ||||||||||||||||
Cinema Equipment Business | Content & Entertainment Business | Corporate | Consolidated | |||||||||||||
Revenues | $ | 9,484 | $ | 15,634 | $ | — | $ | 25,118 | ||||||||
Direct operating (exclusive of depreciation and amortization shown below) | 421 | 7,543 | — | 7,964 | ||||||||||||
Selling, general and administrative | 860 | 6,298 | 6,044 | 13,202 | ||||||||||||
Allocation of corporate overhead | 269 | 1,799 | (2,068 | ) | — | |||||||||||
(Recovery of) provision for doubtful accounts | (103 | ) | 63 | — | (40 | ) | ||||||||||
Depreciation and amortization of property and equipment | 805 | 284 | — | 1,089 | ||||||||||||
Amortization of intangible assets | — | 1,543 | — | 1,543 | ||||||||||||
Total operating expenses | 2,252 | 17,530 | 3,976 | 23,758 | ||||||||||||
Income (loss) from operations | $ | 7,232 | $ | (1,896 | ) | $ | (3,976 | ) | $ | 1,360 |
Statements of Operations | ||||||||||||||||||||||||||||||||||||||
Six Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||||
(Unaudited, in thousands) | ||||||||||||||||||||||||||||||||||||||
Cinema Equipment Business | Content & Entertainment Business | Corporate | Consolidated | |||||||||||||||||||||||||||||||||||
Revenues | $ | 1,248 | $ | 11,952 | $ | 0 | $ | 13,200 | ||||||||||||||||||||||||||||||
Direct operating (exclusive of depreciation and amortization shown below) | 354 | 6,655 | 0 | 7,009 | ||||||||||||||||||||||||||||||||||
Selling, general and administrative | 1,180 | 4,423 | 4,405 | 10,008 | ||||||||||||||||||||||||||||||||||
Allocation of corporate overhead | 295 | 1,919 | (2,214) | 0 | ||||||||||||||||||||||||||||||||||
Recovery for doubtful accounts | (193) | 0 | 0 | (193) | ||||||||||||||||||||||||||||||||||
Depreciation and amortization of property and equipment | 2,642 | 204 | 23 | 2,869 | ||||||||||||||||||||||||||||||||||
Amortization of intangible assets | 15 | 1,164 | 2 | 1,181 | ||||||||||||||||||||||||||||||||||
Total operating expenses | 4,293 | 14,365 | 2,216 | 20,874 | ||||||||||||||||||||||||||||||||||
Loss from operations | $ | (3,045) | $ | (2,413) | $ | (2,216) | $ | (7,674) |
The following employee and director stock-based compensation expense related to the Company’sour stock-based awards was $1.2 millionis included in the above amounts as follows:
(In thousands) | Cinema Equipment Business | Content & Entertainment Business | Corporate | Consolidated | ||||||||||||
Direct operating | $ | — | $ | — | $ | — | $ | — | ||||||||
Selling, general and administrative | — | 511 | 1,418 | 1,929 | ||||||||||||
Total stock-based compensation | $ | — | $ | 511 | $ | 1,418 | $ | 1,929 |
Statements of Operations | ||||||||||||||||
Six Months Ended September 30, 2020 (in thousands) | ||||||||||||||||
Cinema Equipment Business | Content & Entertainment | Corporate | Consolidated | |||||||||||||
Revenues | $ | 1,248 | $ | 11,952 | $ | — | $ | 13,200 | ||||||||
Direct operating (exclusive of depreciation and amortization shown below) | 354 | 6,655 | — | 7,009 | ||||||||||||
Selling, general and administrative | 1,180 | 4,423 | 4,405 | 10,008 | ||||||||||||
Allocation of corporate overhead | 295 | 1,919 | (2,214 | ) | — | |||||||||||
Recovery for doubtful accounts | (193 | ) | — | — | (193 | ) | ||||||||||
Depreciation and amortization of property and equipment | 2,642 | 204 | 23 | 2,869 | ||||||||||||
Amortization of intangible assets | 15 | 1,164 | 2 | 1,181 | ||||||||||||
Total operating expenses | 4,293 | 14,365 | 2,216 | 20,874 | ||||||||||||
Income (loss) from operations | $ | (3,045 | ) | $ | (2,413 | ) | $ | (2,216 | ) | $ | (7,674 | ) |
The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows:
Cinema Equipment Business | Content & Entertainment | Corporate | Consolidated | |||||||||||||
Direct operating | $ | — | $ | — | $ | — | $ | — | ||||||||
Selling, general and administrative | — | 52 | 1,160 | 1,212 | ||||||||||||
Total stock-based compensation | $ | — | $ | 52 | $ | 1,160 | $ | 1,212 |
10. INCOME TAXES
We calculate income tax expense based upon an annual effective tax rate forecast, including estimates and assumptions. We recorded an income tax benefit of approximately $487 thousand and $550 thousand for the three and six months ended September 30, 2021. We recorded an income tax benefit of approximately $181 thousand for the three and six months ended September 30, 2020. We have not recorded tax benefits on our loss before income taxes because we have provided for a full valuation allowance that offsets potential deferred tax assets resulting from net operating loss carry forwards, reflecting our inability to use such loss carry forwards.
Our effective tax rate for the six months ended September 30, 2020.2021 and 2020 was negative 12.4% and 0.4%, respectively.
(In thousands) | Cinema Equipment Business | Content & Entertainment Business | Corporate | Consolidated | |||||||||||||||||||||||||
Direct operating | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||||||||
Selling, general and administrative | 0 | 52 | 1,160 | 1,212 | |||||||||||||||||||||||||
Total stock-based compensation | $ | 0 | 52 | 1,160 | $ | 1,212 |
Statements of Operations | ||||||||||||||||||||||||||||||||||||||
Six Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||||||||||
(Unaudited, in thousands) | ||||||||||||||||||||||||||||||||||||||
Cinema Equipment Business | Content & Entertainment Business | Corporate | Consolidated | |||||||||||||||||||||||||||||||||||
Revenues | $ | 7,638 | $ | 12,406 | $ | 0 | $ | 20,044 | ||||||||||||||||||||||||||||||
Direct operating (exclusive of depreciation and amortization shown below) | 596 | 7,103 | 0 | 7,699 | ||||||||||||||||||||||||||||||||||
Selling, general and administrative | 1,100 | 5,815 | 3,922 | 10,837 | ||||||||||||||||||||||||||||||||||
Allocation of corporate overhead | 405 | 2,536 | (2,941) | 0 | ||||||||||||||||||||||||||||||||||
Provision (recovery) for doubtful accounts | 327 | (1) | 0 | 326 | ||||||||||||||||||||||||||||||||||
Depreciation and amortization of property and equipment | 3,137 | 162 | 84 | 3,383 | ||||||||||||||||||||||||||||||||||
Amortization of intangible assets | 23 | 1,564 | 2 | 1,589 | ||||||||||||||||||||||||||||||||||
Total operating expenses | 5,588 | 17,179 | 1,067 | 23,834 | ||||||||||||||||||||||||||||||||||
Loss from operations | $ | 2,050 | $ | (4,773) | $ | (1,067) | $ | (3,790) |
(In thousands) | Cinema Equipment Business | Content & Entertainment Business | Corporate | Consolidated | |||||||||||||||||||||||||
Direct operating | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||||||||
Selling, general and administrative | (6) | 3 | 192 | 189 | |||||||||||||||||||||||||
Total stock-based compensation | $ | (6) | $ | 3 | $ | 192 | $ | 189 |
11. SUBSEQUENT EVENTS
Common Stock Purchase Agreement
In October 2021, we entered into a Common Stock Purchase Agreement (the “Equity Line Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with B. Riley Principal Capital, LLC (“B. Riley Principal Capital”). Pursuant to the Equity Line Purchase Agreement, the Company has the right to sell to B. Riley Principal Capital up to the lesser of (i) $50,000,000 of newly issued shares of Common Stock and (ii) the Exchange Cap (as defined below) (subject to certain conditions and limitations), from time to time during the 24-month period from and after the October 21, 2021. Sales of Common Stock pursuant to the Equity Line Purchase Agreement, and the timing of any sales, are solely at the option of the Company, and the Company is under no obligation to sell any securities to B. Riley Principal Capital under the Equity Line Purchase Agreement. As consideration for B. Riley Principal Capital’s commitment to purchase shares of Common Stock at the Company’s direction upon the terms and subject to the conditions set forth in the Equity Line Purchase Agreement, upon execution of the Equity Line Purchase Agreement, the Company issued 210,084 shares of Common Stock to B. Riley Principal Capital (the “Commitment Shares”). The purchase price of the shares of Common Stock that we elect to sell to B. Riley Principal Capital pursuant to the Equity Line Purchase Agreement will be determined by reference to the volume weighted average price of the Common Stock (“VWAP”) during the applicable purchase date, less a fixed 5% discount to such VWAP. Pursuant to the Registration Rights Agreement, the Company filed a Registration Statement on Form S-1 that was declared effective by the Securities and Exchange Commission on October 21, 2021 (File No. 333-260210) for the resale by B. Riley Principal Capital of up to 25,210,084 shares of Common Stock (including the Commitment Shares) acquired pursuant to the Equity Line Purchase Agreement. During October and November 2021, we sold 5,300,000 shares of Common Stock under the Equity Line Purchase Agreement. Net proceeds from such sales totaled $12.4 million.
ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Risks and Uncertainties
As part of our Cinema Equipment business, we earn revenues that are generatedthe Company earns revenue when movies are exhibited in theatres. As vaccines became readily available and COVID-19 cases decreased, major studios resumed releasing blockbusters in the theatrical venues during the quarter ended June 30, 2021. Films released during the summer period saw an uptick in box office revenue compared to the previous 12 months; however, box office results remained below pre-COVID expectations due to limited seating capacities and shortened windows for release on streaming platforms such as premium video on demand (“PVOD”) and subscription video on demand (“SVOD”). To the extent films are not shown in theatres, we do not earn revenue.
Longer term, there may be a shift in consumer preference towards digital consumption over theatrical viewing. Studios may reduce their theatrical slates to tentpoles and certain genres releasing other content directly on their own streaming services. If fewer movies are released theatrically, this shift to digital viewing reduces revenue opportunities for virtual print fees and sales of digital cinema equipment. While the Company has been encouraged by theatres. Many movie theatresthe pace of mass vaccinations, spikes or the emergence of new variants could require future closures, which impact the Cinema Equipment business.
In connection to the CEG business, if larger branded companies choose to make their content available earlier on their own streaming platforms, this could limit our ability monetize this content on a transactional digital basis, as consumers can access it via the company’s own streaming platform such as Hallmark Movie Now. However, most content suppliers including filmmakers and producers, do not have their own streaming platforms and rely on us for distribution through our digital home entertainment business and OTT digital networks. As a result, this risk is limited, and our digital distribution capabilities and digital networks provide us with the opportunity to take advantage of this consumer shift towards digital consumption.
Over the first year and a half of the COVD-19 pandemic, film and TV production slowed-down and independent producers and filmmakers had to either suspend or delay their productions due to rising infection rates and the high costs of appropriate COVID-19 production protocols. As a result, there are fewer available films to acquire, so our pipeline for content from completed films and co-productions has been negatively impacted. As well, with the rise of new variants, productions may be at risk again of shutting down, being delayed or having prohibitive COVID-compliant costs which would further limit available content to acquire.
The COVID-19 pandemic has also resulted in an acceleration of cord-cutting, and, as more consumers move away from cable, this could lead to a decrease in cable TV VOD revenues, as well as a decrease in licensing fees as Pay One window budgets get shifted from licensing and towards originals. However, given the overall shift towards digital consumption, these risks may be offset by increased revenues from transactional, subscription and ad supported/FAST platforms, including our own owned and operated digital network business.
Liquidity
We have incurred net losses historically and have an accumulated deficit of $469.3 million and negative working capital of $11.1 million as of September 30, 2021. We may continue to generate net losses for the foreseeable future. In addition, we have contractual obligations related to our business acquisitions as of September 30, 2021 and beyond. Based on these conditions, the Company entered into the following transactions:
Capital Raises
On February 2, 2021, the Company entered into a securities purchase agreement with a single institutional investor for the purchase and sale of 5,600,000 shares of our Class A common stock, par value $0.001 per share (the “Common Stock”) at a purchase price of $1.25 per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3 which was declared effective by the Securities and Exchange Commission on July 10, 2020 (File No. 333-239710) (the “2020 Shelf Registration Statement”) and an applicable prospectus supplement. The closing of the sale occurred on February 5, 2021. The aggregate gross proceeds for the sale 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 to an effective 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 for an aggregate offering price of up to $30 million. During the quarter ended September 30, 2021, we did not sell any shares of Common Stock under the ATM Sales Agreement. The 2020 Shelf Registration Statement is unavailable to us, and accordingly we cannot sell any shares of Common Stock under the ATM Sales Agreement, until September 1, 2022.
On July 16, 2020, the Company entered into a securities purchase agreement with certain investors for the purchase and sale of 7,213,334 shares of Class A common stock, par value $0.001 per share, at a purchase price of $1.50 per share, in a registered direct offering, pursuant to the 2020 Shelf Registration Statement and an applicable prospectus supplement. The closing of the sale occurred on July 20, 2020. The aggregate gross proceeds for the sale was approximately $10.8 million. The net proceeds to the Company from the sale, after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, is approximately $10.1 million.
On May 20, 2020, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain investors (the “Investors”) for the purchase and sale of 10,666,666 shares of the Class A common stock, at a purchase price of $0.75 per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3 which was declared effective by the Securities and Exchange Commission on May 14, 2020 (File No. 333-238183) and an applicable prospectus supplement. The closing of the sale occurred on May 22, 2020. The aggregate gross proceeds for the sale was $8.0 million. The net proceeds to the Company from the sale, after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, were approximately $7.1 million.
As of September 30, 2021, there is still approximately $38.0 million remaining unsold under the 2020 Shelf Registration Statement.
Sale of Cinematic Equipment
On March 17, 2021, the Company entered into two separate agreements for the sale of cinematic equipment to American Multi-Cinema, Inc. (“AMC”). The agreements included the sale in tranches of a total of 2,369 cinematic projectors starting in March 2021 and continuing through January 2023 for total cash consideration of $10.8 million. As of September 30, 2021, the Company executed the sale of the first two tranches and recognized aggregate revenue for $7.8 million. A portion of the total proceeds has been utilized to eliminate the remaining Prospect Loan notes payable balance.
Equity Investment in a Related Party
On December 27, 2019, the Company entered into, and on February 14, 2020 amended, (see Note 2 - Summary of Significant Accounting Policies), a stock purchase agreement (as so amended, the “Starrise Stock Purchase Agreement”) with BeiTai Investment LP (“BeiTai”), a related party for accounting purposes of Cinedigm and Aim Right Ventures Limited (“Aim Right”), two shareholders of Starrise Media Holdings Limited, a leading Chinese entertainment company (“Starrise”), to buy from them an aggregate of 410,901,000 outstanding Starrise ordinary shares (the “Starrise Share Acquisition”). On February 14, 2020, the Company purchased 162,162,162 of the Starrise ordinary shares from BeiTai and issued BeiTai 21,646,604 shares of Common Stock in consideration. The Starrise shares received were valued at approximately $25 million and the Company issued shares that were valued at approximately $11.2 million. On April 10, 2020, the Company, in accordance with the terms of the Starrise Stock Purchase Agreement, terminated its obligation to purchase Starrise ordinary shares from Aim Right under the Starrise Stock Purchase Agreement.
On April 10, 2020, the Company entered into another stock purchase agreement (the “April Starrise Stock Purchase Agreement”) with five (5) shareholders of Starrise - Bison Global Investment SPC - Bison Global No. 1 SP, Huatai Investment LP, Antai Investment LP, Mingtai Investment LP and Shangtai Asset Management LP, all of which are related parties to the Company to buy an aggregate of 223,380,000 outstanding Starrise ordinary shares from them and for the Company to issue to them an aggregate of 29,855,081 shares of Common Stock as consideration therefor (the “April Starrise Share Acquisition”). On April 15, 2020, the April Starrise Share Acquisition was consummated and this transaction was also recorded as an equity investment in Starrise.
Starrise’s ordinary shares (HK 1616) are listed on the main board of the Stock Exchange of Hong Kong Limited. Based on the closing price of HKD 0.159 per share on November 11, 2021, calculated at an exchange rate of 7.8 Hong Kong Dollars to 1 US dollar, the market value of Cinedigm’s ownership in Starrise ordinary shares was approximately $7.4 million.
Borrowings
On June 22, 2021, the maturity date of the East West Credit Facility (as defined in Note 5 - Notes Payable) with East West Bank was extended from June 30, 2021 to September 28, 2021. The September 28, 2021 expiration date has passed and no amendment has been entered into as of the date of filing of this Quarterly Report on Form 10-Q.
On April 15, 2020, the Company received $2.2 million from East West Bank, the Company’s existing lender, pursuant to the Paycheck Protection Program (the “PPP Loan”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 10, 2022 (the “PPP Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are due within the initial six months of the PPP Loan. The interest accrued during the initial six-month period is due and payable, together with the principal, on the PPP Maturity Date. The Company used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts are intended to be eligible for forgiveness, subject to the provisions of the CARES Act and could be subject to repayment. On July 7, 2021, the Company received notification from the Lender that the U.S. Small Business Administration had approved the Company’s PPP Loan forgiveness application for the entire PPP Loan amount and accrued interest effective as of June 30, 2021. The forgiveness of the PPP Loan was recognized as a gain of $2.2 million during the Company’s fiscal quarter ending June 30, 2021.
Upon a series of payments between April 30 and July 9, 2021, the Company paid in full the Prospect Loan (as defined in Note 5 – Notes Payable) outstanding non-recourse debt amount by paying an aggregate principal amount of $7.8 million. Pre-payment of the Prospect Loan was permissible without penalty.
We believe the combination of: (i) our cash and cash equivalent balances at September 30, 2021, and (ii) expected cash flows from operations will be sufficient to satisfy our contractual obligations, as well as liquidity for our operational and capital needs, for twelve months from the filing of this report. Our capital requirements will depend on many factors, and we may need to use capital resources and obtain additional capital. Failure to generate additional revenues, obtain additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations and liquidity.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States closed duringof America (“GAAP”). In connection with the springpreparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 2 - Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, Financial Statements and Supplementary Data, of this Quarterly Report on Form 10-Q. Management believes that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our board of directors.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation expense is recorded using the straight-line method over the estimated useful lives of the respective assets as follows:
Computer equipment and software | 3-5 years | |
Internal use software | 5 years | |
Digital cinema projection systems | 10 years | |
Machinery and equipment | 3-10 years | |
Furniture and fixtures | 3-6 years |
Leasehold improvements are being amortized over the shorter of the lease term or the estimated useful life of the improvement. Maintenance and repair costs are charged to expense as incurred. Major renewals, improvements and additions are capitalized.
Software developed or purchased for internal use by the Company is capitalized and amortized over its estimated useful life. Changes in these estimates could result in impairment in the value of the asset.
Useful lives are determined based on an estimate of either physical or economic obsolescence, or both. During the three and six months ended September 30, 2021 and 2020, duewe have neither made any revisions to COVID-19 restrictionsestimated useful lives, nor recorded any impairment charges on our property, equipment and manyinternal use software.
FAIR VALUE ESTIMATES
Goodwill, Finite-Lived Assets and Long-Lived Assets
We evaluate our goodwill for impairment in the fourth quarter of those haveeach fiscal year (as of March 31), or whenever events or changes in circumstances indicate the fair value of a reporting unit is below its carrying amount. The determination of whether or not yet re-opened, or have re-opened ongoodwill has become impaired involves a limited basis.significant level of judgment in the assumptions underlying the approach used to determine the value of our reporting units. Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current economic indicators and market conditions, and assumptions about our strategic plans with regard to our operations. To the extent additional information arises, market conditions change or our strategies change, it is possible that the conclusion regarding whether goodwill is impaired could change and result in future goodwill impairment charges that could have a material adverse effect on our consolidated financial position or results of operations.
The Company has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or to perform the quantitative impairment test.
The quantitative test involves comparing the estimated fair value of a reporting unit with its respective book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired. If, however, the fair value of the reporting unit is less than book value, an impairment loss is recognized in an amount equal to the excess.
During the three and six months ended September 30, 2021 and 2020, there were no impairment charges recorded on goodwill. In 2021, we elected to conduct a qualitative goodwill assessment and in 2020 we conducted a quantitative goodwill assessment. In determining fair value, we used various assumptions, including expectations of future cash flows based on projections or forecasts derived from analysis of business prospects, economic or market trends and any regulatory changes that may occur. We estimated the fair value of the reporting unit using a net present value methodology, which is dependent on significant assumptions related to estimated future discounted cash flows, discount rates and tax rates. Certain of the estimates and assumptions that we used in determining the value of our CEG reporting unit are discussed in Note 2 - Summary of Significant Accounting Policies.
We review the recoverability of our long-lived assets and finite-lived intangible assets, when events or conditions occur that indicate a possible impairment exists. Determining whether impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the asset’s residual value, if any. The assessment for recoverability is based primarily on our ability to recover the carrying value of its long-lived and finite-lived assets from expected future undiscounted net cash flows. If the total of expected future undiscounted net cash flows is less than the total carrying value of the assets the asset is deemed not to be recoverable and possibly impaired. We then estimate the fair value of the asset to determine whether an impairment loss should be recognized. An impairment loss will be recognized if the asset’s fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted cash flows.
REVENUE RECOGNITION
We determine revenue recognition by:
● | identifying the contract, or contracts, with the customer; |
● | identifying the performance obligations in the contract; |
● | determining the transaction price; |
● | allocating the transaction price to performance obligations in the contract; and |
● | recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services. |
We recognize revenue in the amount that reflects the consideration we expect to receive in exchange for the services provided, sales of physical products (e.g., DVDs and Blu-ray Discs) or when the content is available for subscription on the digital platform or available on the point-of-sale for transactional and video on demand services which is when the control of the promised products and services is transferred to our customers and our performance obligations under the contract have been satisfied. Revenues that might be subject to various taxes are recorded net of transaction taxes assessed by governmental authorities such as sales value-added taxes and other similar taxes.
Payment terms and conditions vary by customer and typically provide net 30 to 90 day terms. We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and payment for that product or service will be one year or less. We have in the past entered into arrangements in connection with activation fees due from our System deployments that had extended payment terms. The outstanding balances on these arrangements are insignificant and hence the impact of significant financing would be insignificant.
Cinema Equipment Business
Our Cinema Equipment Business consists of financing vehicles and administrators for 1,813 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 3,009 Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”).
We retain ownership of our digital cinema equipment (the “Systems”) and the residual cash flows related to the Systems in Phase I Deployment after the end of the 10-year deployment payment period.
For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.
The Cinema Equipment Business also provides monitoring, data collection, serial data verification and management services to this segment, as well as to exhibitors who purchase their own equipment, in order to collect virtual print fees (“VPFs”) from motion picture studios and distributors and ACFs from alternative content providers, and to distribute those fees to theatrical exhibitors (collectively, “Services”).
VPFs are earned, net of administrative fees, pursuant to contracts with movie studios and distributors, whereby amounts are payable by a studio to Phase I Deployment and to Phase II Deployment when movies distributed by the studio are displayed on screens utilizing our Systems installed in movie theatres. VPFs are earned and payable to Phase I Deployment based on a defined fee schedule until the end of the VPF term. One VPF is payable for every digital title initially displayed per System. The amount of VPF revenue is dependent on the number of movie titles released and displayed using the Systems in any given accounting period. VPF revenue is recognized in the period in which the digital title first plays on a System for general audience viewing in a digitally equipped movie theatre, as Phase I Deployment’s and Phase II Deployment’s performance obligations have been substantially met at that time.
Phase II Deployment’s agreements with distributors require the payment of VPFs, according to a defined fee schedule, for ten years from the date each system is installed; however, Phase II Deployment may no longer collect VPFs once “cost recoupment,” as defined in the contracts with movie studios and distributors, is achieved. Cost recoupment will occur once the cumulative VPFs and other cash receipts collected by Phase II Deployment have equaled the total of all cash outflows, including the purchase price of all Systems, all financing costs, all “overhead and ongoing costs”, as defined, and including service fees, subject to maximum agreed upon amounts during the three-year rollout period and thereafter. Further, if cost recoupment occurs before the end of the eighth contract year, the studios will pay us a one-time “cost recoupment bonus.” The Company evaluated the constraining estimates related to the variable consideration, i.e., the one-time bonus and determined that it is not probable to conclude at this point in time that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is subsequently resolved.
Under the terms of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive one-year terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we typically pursue the sale of the Systems to such exhibitors. Cinedigm recognizes revenue once the customer takes possession of the systems and is predicated on Cinedigm’s receipt of sale proceeds. Such sales were as originally contemplated as the conclusion of the digital cinema deployment plan. Total system sales revenue recognized were $2.2 million and $15 thousand, during the three months ended September 30, 2021 and 2020, respectively. Total system sales revenue recognized were $7.8 million and $91 thousand, during the six months ended September 30, 2021 and 2020, respectively.
Revenues earned in connection with up front exhibitor contributions are deferred and recognized over the expected cost recoupment period.
Exhibitors who purchased and own Systems using their own financing in the Cinema Equipment Business paid us an upfront activation fee of approximately $2.0 thousand per screen (the “Exhibitor-Buyer Structure”). Upfront activation fees were recognized in the period in which these Systems were delivered and ready for content, as we had no further obligations to the customer after that time and collection was reasonably assured. In addition, we recognize activation fee revenue of between $1.0 thousand and $2.0 thousand on Phase II Deployment Systems and for Systems installed by CDF2 Holdings, a related party, (See Note 3 - Other Interests) upon installation and such fees are generally collected upfront upon installation. Our services division manages and collects VPFs on behalf of exhibitors, for which it earns an administrative fee equal to 10% of the VPFs collected.
The Cinema Equipment Business earns an administrative fee of approximately 5% of VPFs collected and, in addition, earns an incentive service fee equal to 2.5% of the VPFs earned by Phase 1 DC. This administrative fee is related to the collection and remittance of the VPF’s and the performance obligation is satisfied at that time the related VPF fees are due which is at the time the movies are not showndisplayed on screens utilizing our Systems installed in movie theatrestheatres. The service fees are recognized as a point in time revenue when the corresponding VPF fees are due from the movie studios and distributors.
Content & Entertainment Business
CEG earns fees for the distribution of content in the home entertainment markets via several distribution channels, including digital, video on demand (“VOD” or “OTT Streaming and Digital”), and physical goods (e.g., DVDs and Blu-ray Discs) (“Physical Revenue” or “Base Distribution Business”). Fees earned are typically a percentage based on the net amounts received from our customers. Depending upon the nature of the agreements with the platform and content providers, the fee rate that we earn varies. The Company’s performance obligations include the delivery of content for transactional, subscription and ad supported/FAST on the digital platforms, and shipment of DVDs and Blu-ray Discs. Revenue is recognized at the point in time when the performance obligation is satisfied which is when the content is available for subscription on the digital platform, at the time of shipment for physical goods, or point-of-sale for transactional and VOD services as the control over the content or the physical title is transferred to the customer. The Company considers the delivery of content through various distribution channels to be a single performance obligation. Physical Revenue is recognized after deducting the reserves for sales returns and other allowances, which are accounted for as variable consideration.
Physical goods reserves for sales returns and other allowances are recorded based upon historical experience. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.
CEG also has contracts for the theatrical distribution of third party feature movies and alternative content. CEG’s distribution fee revenue and CEG’s participation in box office receipts is recognized at the time a feature movie and alternative content are viewed. CEG has the right to receive or bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded as a receivable at the time of execution, and all related distribution revenue is deferred until the third party feature movies’ or alternative content’s theatrical release date.
Principal Agent Considerations
We determine whether revenue should be reported on a gross or net basis for each revenue stream based on the transfer of control of goods and services. Key indicators that we use in evaluating gross versus net treatment include, but are not limited to, the following:
● | which party is primarily responsible for fulfilling the promise to provide the specified good or service; and |
● | which party has discretion in establishing the price for the specified good or service. |
Shipping and Handling
Shipping and handling costs are incurred to move physical goods (e.g., DVDs and Blu-ray Discs) to customers. We recognize all shipping and handling costs as an expense in cost of goods sold because we are responsible for delivery of the product to our customers prior to transfer of control to the customer.
Credit Losses
We maintain reserves for potential credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.
Our CEG segment recognizes accounts receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that it recognizes revenue from a sale. Reserves for product returns and other allowances is variable consideration as part of the transaction price. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.
We record accounts receivable, long-term in connection with activation fees that we earn from Systems deployments that have extended payment terms. Such accounts receivable are discounted to their present value at prevailing market rates. The outstanding balances on these arrangements are insignificant and hence the impact of significant financing would be insignificant.
Contract Liabilities
We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability) when cash payments are received or due in advance of our performance, even if amounts are refundable.
Deferred revenue pertaining to our Content & Entertainment Business includes amounts related to the sale of DVDs with future release dates.
Deferred revenue relating to our Cinema Equipment Business pertains to revenues earned in connection with up front exhibitor contributions that are deferred and recognized over the expected cost recoupment period. It also includes unamortized balances in connection with activation fees due from the Systems deployments that have extended payment terms.
The ending deferred revenue balance, as of September 30, 2021 was $0.2 million. For the three and six months ended September 30, 2021 and 2020, respectively, the additions to our deferred revenue balance were primarily due to cash payments received or due in advance of satisfying performance obligations, while the reductions to our deferred revenue balance were primarily due to the closures, we have not received,recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.
During the three months ended September 30, 2021 and will not receive, related revenue. The studios2020, $0.3 million and $0.7 million, respectively, of revenue was recognized that produce movies may elect to delaywas included in the release of movies until theatres re-open, or to bypass exhibiting movies in theatresdeferred revenue balance at all and distribute the movies through other means, such as on streaming platforms, in which case we would not earn revenues at all from such movies.
Participations and royalties payable
When we use third parties to distribute company owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or results ofcontent producers for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers.
BUSINESS COMBINATIONS
A business combination is an acquisition of business. Business combinations are accounted by allocating the fair value of the purchase price of the assets acquired and liabilities assumed.
Results of Operations for the Three Months Ended September 30, 20202021 and 20192020
Revenues
For the Three Months Ended September 30, | ||||||||||||||||
($ in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||
Cinema Equipment Business | $ | 3,253 | $ | 643 | $ | 2,610 | 406 | % | ||||||||
Content & Entertainment | 6,850 | 6,539 | 311 | 5 | % | |||||||||||
$ | 10,103 | $ | 7,182 | $ | 2,921 | 41 | % |
Three Months Ended September 30, | |||||||||||||||||||||||
($ in thousands) | 2020 | 2019 | $ Change | % Change | |||||||||||||||||||
Cinema Equipment Business | $ | 643 | $ | 3,645 | $ | (3,002) | (82) | % | |||||||||||||||
Content & Entertainment Business | 6,539 | 6,596 | (57) | (1) | % | ||||||||||||||||||
$ | 7,182 | $ | 10,241 | $ | (3,059) | (30) | % |
The revenues derived fromin the Content & Entertainment Business segment decreasedincreased by 1%5% for the three months ended September 30, 20202021 compared to the three months ended September 30, 2019.
Direct Operating Expenses
Three Months Ended September 30, | For the Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
($ in thousands) | ($ in thousands) | 2020 | 2019 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||||||||||
Cinema Equipment Business | Cinema Equipment Business | $ | 172 | $ | 362 | $ | (190) | (52) | % | $ | 164 | $ | 172 | $ | (8 | ) | (5 | )% | |||||||||||||||||||||
Content & Entertainment Business | 4,158 | 3,725 | 433 | 12 | % | ||||||||||||||||||||||||||||||||||
Content & Entertainment | 3,169 | 4,158 | (989 | ) | (24 | )% | |||||||||||||||||||||||||||||||||
$ | 4,330 | $ | 4,087 | $ | 243 | 6 | % | $ | 3,333 | $ | 4,330 | $ | (997 | ) | (23 | )% |
The increasedecrease in direct operating expenses in the three months ended September 30, 20202021 for the Cinema Equipment Business compared to the prior period was primarily due to a decrease in headcount. The decrease in direct operating expenses in the three months ended September 30, 2021 for the Content & Entertainment Business compared to the prior period was primarily due to transition expenseslower freight and fulfillment costs related to the decrease in physical DVD sales replaced by digital distribution sales, and a new third party DVD distributor.
Three Months Ended September 30, | For the Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
($ in thousands) | ($ in thousands) | 2020 | 2019 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||||||||||
Cinema Equipment Business | Cinema Equipment Business | $ | 631 | $ | 604 | $ | 27 | 4 | % | $ | 431 | $ | 631 | $ | (200 | ) | (32 | )% | |||||||||||||||||||||
Content & Entertainment Business | 2,528 | 2,591 | (63) | (2) | % | ||||||||||||||||||||||||||||||||||
Content & Entertainment | 3,480 | 2,528 | 952 | 38 | % | ||||||||||||||||||||||||||||||||||
Corporate | Corporate | 3,009 | 1,793 | 1,216 | 68 | % | 3,248 | 3,009 | 239 | 8 | % | ||||||||||||||||||||||||||||
$ | 6,168 | $ | 4,988 | $ | 1,180 | 24 | % | $ | 7,159 | $ | 6,168 | $ | 991 | 16 | % |
Selling, general and administrative expenses for the three months ended September 30, 20202021 increased by $1.2$1.0 million primarily due to a $1.5$1.2 million retentionincrease in bonus incentive expense, additional personnel and stock-based compensation to management and employees, received in cash, and an issuance of Class A common stock to employees of $0.8 million,partially offset by decreases in other general$0.1 million less legal expense and administrative expenses.$0.1 million less computer expense.
Bad Debt expense
The bad debt benefit recovery was $111 thousand and $193 thousand for the three months ended September 30, 2021 and 2020, respectively. These amounts are related to Cinema Equipment Business and Content & Entertainment accounts that are uncollectable.
Depreciation and Amortization Expense on Property and Equipment
Three Months Ended September 30, | For the Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
($ in thousands) | ($ in thousands) | 2020 | 2019 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||||||||||
Cinema Equipment Business | Cinema Equipment Business | $ | 1,239 | $ | 1,491 | $ | (252) | (17) | % | $ | 298 | 1,239 | (939 | ) | (76 | )% | |||||||||||||||||||||||
Content & Entertainment Business | 101 | 76 | 25 | 33 | % | ||||||||||||||||||||||||||||||||||
Content & Entertainment | 142 | 101 | 39 | 39 | % | ||||||||||||||||||||||||||||||||||
Corporate | Corporate | 5 | 42 | (37) | (88) | % | - | 5 | (5 | ) | (100 | )% | |||||||||||||||||||||||||||
$ | 1,345 | $ | 1,609 | $ | (264) | (16) | % | $ | 440 | $ | 1,345 | $ | (905 | ) | (67 | )% |
Depreciation and amortization expense decreased in our Cinema Equipment Business segmentSegment as additionalthe majority of our digital cinema projection Systemssystems reached the conclusion of their ten-year useful lives during fiscalthe year 2020.
Interest expense, net
Three Months Ended September 30, | For the Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
($ in thousands) | ($ in thousands) | 2020 | 2019 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||||||||||
Cinema Equipment Business | Cinema Equipment Business | $ | 623 | $ | 691 | $ | (68) | (10) | % | $ | 5 | $ | 623 | $ | (618 | ) | (99 | )% | |||||||||||||||||||||
Content & Entertainment | - | - | - | - | % | ||||||||||||||||||||||||||||||||||
Corporate | Corporate | 571 | 1,122 | (551) | (49) | % | 31 | 571 | (540 | ) | (95 | )% | |||||||||||||||||||||||||||
$ | 1,194 | $ | 1,813 | $ | (619) | (34) | % | $ | 36 | $ | 1,194 | $ | (1,158 | ) | (97 | )% |
Interest expense in the Cinema Equipment Business segment decreased primarily as a result of reduced note payablesatisfying debt balances compared to the prior period primarily on the Prospect Term Loan. Interest expense in our Corporate Segmentsegment decreased as a result of lowersatisfying the loan balances from our Credit Facility and Second Lien Loans.
Income Tax (Benefit) Expense
We recorded an income tax benefit of $487 thousand for the three months ended September 30, 2021. We recorded income tax benefit of approximately $181 thousand for the three months ended September 30, 2020.
Our effective tax rate for the three months ended September 30, 2021 and 2020 was negative 71.4% and 2019 was 0.7% and negative 0.9%, respectively.
Consolidated Adjusted EBITDA (including the results of Cinema Equipment Business segment) for the three months ended September 30, 2020 decreased2021 increased by $2.5$1.8 million compared to the three months ended September 30, 2019.2020. Adjusted EBITDA from our Cinema Equipment Business segment increased primarily due to contractually standard terms of digital projector sales to related exhibitors in the Cinedigm deployments. Adjusted EBITDA from the Content & Entertainment business and Corporate segment decreased by $2.5 million or 105%$879 thousand for the three months ended September 30, 2021 compared to the three months ended September 30, 2019 primarily2020, 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 our Content & Entertainment Business increased $25 thousand or 2.5% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.bonus incentive expense.
We present Adjusted EBITDA because we believe that Adjusted EBITDA is a useful supplement to net loss from continuing operations as an indicator of operating performance. We also believe that Adjusted EBITDA is a financial measure that is useful both to management and investors when evaluating our performance and comparing our performance with that of our competitors. We also use Adjusted EBITDA for planning purposes and to evaluate our financial performance because Adjusted EBITDA excludes certain incremental expenses or non-cash items, such as stock-based compensation charges, that we believe are not indicative of our ongoing operating performance.
Three Months Ended September 30, | ||||||||||||||
($ in thousands) | 2020 | 2019 | ||||||||||||
Net loss | $ | (26,566) | $ | (3,088) | ||||||||||
Add Back: | ||||||||||||||
Income tax (benefit) expense | (181) | 27 | ||||||||||||
Depreciation and amortization of property and equipment | 1,345 | 1,609 | ||||||||||||
Amortization of intangible assets | 591 | 589 | ||||||||||||
Loss on extinguishment of notes payable | 335 | — | ||||||||||||
Interest expense, net | 1,194 | 1,818 | ||||||||||||
Changes in fair value on equity investment in Starrise | 19,832 | — | ||||||||||||
Other expense, net | 1,291 | 296 | ||||||||||||
Stock-based compensation and expenses | 1,035 | 178 | ||||||||||||
Net income attributable to noncontrolling interest | 23 | (7) | ||||||||||||
Adjusted EBITDA | $ | (1,101) | $ | 1,422 | ||||||||||
Adjustments related to the Cinema Equipment Business | ||||||||||||||
Depreciation and amortization of property and equipment | $ | (1,239) | $ | (1,491) | ||||||||||
Amortization of intangible assets | (7) | (12) | ||||||||||||
Loss (income) from operations | 1,384 | (917) | ||||||||||||
Adjusted EBITDA from Content & Entertainment business and corporate segment | $ | (963) | $ | (998) |
For the Three Months Ended September 30, | ||||||||
($ in thousands) | 2021 | 2020 | ||||||
Net loss | $ | (195 | ) | $ | (26,566 | ) | ||
Add Back: | ||||||||
Income tax expense (benefit) | (487 | ) | (181 | ) | ||||
Depreciation and amortization of property and equipment | 440 | 1,345 | ||||||
Amortization of intangible assets | 696 | 591 | ||||||
Loss on extinguishment of note payable | - | 335 | ||||||
Interest expense, net | 36 | 1,194 | ||||||
Change in fair value on equity investment in Starrise | (666 | ) | 19,832 | |||||
Acquisition, integration and other expense | 2 | 1,291 | ||||||
Recovery benefit of doubtful accounts | (111 | ) | - | |||||
Stock-based compensation | 946 | 1,035 | ||||||
Net income attributable to noncontrolling interest | 11 | 23 | ||||||
Adjusted EBITDA | $ | 672 | $ | (1,101 | ) | |||
Adjustments related to the Cinema Equipment Business | ||||||||
Depreciation and amortization of property and equipment | $ | (298 | ) | $ | (1,239 | ) | ||
Amortization of intangible assets | - | (7 | ) | |||||
Stock-based compensation and expenses | - | - | ||||||
Acquisition, integration and other expense | (60 | ) | - | |||||
Provision for doubtful accounts | - | - | ||||||
Income from operations | (2,320 | ) | 1,384 | |||||
Adjusted EBITDA from non-cinema equipment business | $ | (2,006 | ) | $ | (963 | ) |
Results of Operations for the Six Months Ended Months Ended September 30, 20202021 and 20192020
Revenues
For the Six Months Ended September 30, | ||||||||||||||||
($ in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||
Cinema Equipment Business | $ | 9,484 | $ | 1,248 | $ | 8,236 | 660 | % | ||||||||
Content & Entertainment | 15,634 | 11,952 | 3,682 | 31 | % | |||||||||||
$ | 25,118 | $ | 13,200 | $ | 11,918 | 90 | % |
Six Months Ended September 30, | |||||||||||||||||||||||
($ in thousands) | 2020 | 2019 | $ Change | % Change | |||||||||||||||||||
Cinema Equipment Business | $ | 1,248 | $ | 7,638 | $ | (6,390) | (84) | % | |||||||||||||||
Content & Entertainment Business | 11,952 | 12,406 | (454) | (4) | % | ||||||||||||||||||
$ | 13,200 | $ | 20,044 | $ | (6,844) | (34) | % | ||||||||||||||||
The revenues derived fromin the Content & Entertainment Business decreasedsegment increased by 4%31% for the six months ended September 30, 20202021 compared to the six months ended September 30, 2019, respectively, as a result2020. The increase is attributed to continued growth in new release transactional sales, the addition of several new streaming channels, and an expansion of the temporary closure of DVDCompany’s distribution warehouseswith new and existing Smart TV platforms. In addition, the Company deployed new advertising technology from our streaming partner Amagi, which had a material impact on the Company’s advertising fill and click-per-thousand impression (“CPM”) rates. The revenues in the Cinema Equipment Business segment increased by 660% for the six months ended September 30, 2021 compared to the six months ended September 30, 2020. Cinema Equipment Business segment increased primarily due to COVID-19.
Direct Operating Expenses
Six Months Ended September 30, | For the Six Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
($ in thousands) | ($ in thousands) | 2020 | 2019 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||||||||||
Cinema Equipment Business | Cinema Equipment Business | $ | 354 | $ | 596 | $ | (242) | (41) | % | $ | 421 | $ | 354 | $ | 67 | 19 | % | ||||||||||||||||||||||
Content & Entertainment Business | 6,655 | 7,103 | (448) | (6) | % | ||||||||||||||||||||||||||||||||||
Content & Entertainment | 7,543 | 6,655 | 888 | 13 | % | ||||||||||||||||||||||||||||||||||
$ | 7,009 | $ | 7,699 | $ | (690) | (9) | % | $ | 7,964 | $ | 7,009 | $ | 955 | 14 | % |
Selling, General and Administrative Expenses
Six Months Ended September 30, | For the Six Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
($ in thousands) | ($ in thousands) | 2020 | 2019 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||||||||||
Cinema Equipment Business | Cinema Equipment Business | $ | 1,180 | $ | 1,100 | $ | 80 | 7 | % | $ | 860 | $ | 1,180 | $ | (320 | ) | (27 | )% | |||||||||||||||||||||
Content & Entertainment Business | 4,423 | 5,815 | (1,392) | (24) | % | ||||||||||||||||||||||||||||||||||
Content & Entertainment | 6,298 | 4,423 | 1,875 | 42 | % | ||||||||||||||||||||||||||||||||||
Corporate | Corporate | 4,405 | 3,922 | 483 | 12 | % | 6,044 | 4,405 | 1,639 | 37 | % | ||||||||||||||||||||||||||||
$ | 10,008 | $ | 10,837 | $ | (829) | (8) | % | $ | 13,202 | $ | 10,008 | $ | 3,194 | 32 | % |
Selling, general and administrative expenses for the six months ended September 30, 2020 decreased2021 increased by $0.8$3.2 million primarily due to a $1.5$2.4 million retentionincrease in bonus incentive expense, additional personnel and stock-based compensation to management and employees, received in cash,$0.5 million for legal and an issuance of Class A common stockaccounting fees related to employees of $0.8securities reporting and consulting, and $0.2 million offset by decreases in other generalfor remote-working equipment and administrative expenses.
Bad Debt expense
The bad debt benefit recovery was $40 thousand and $193 thousand for the six months ended September 30, 2021 and 2020, respectively. These amounts are related to Cinema Equipment Business and Content & Entertainment accounts that are deemed uncollectable.
Depreciation and Amortization Expense on Property and Equipment
For the Six Months Ended September 30, | ||||||||||||||||
($ in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||
Cinema Equipment Business | $ | 805 | 2,642 | (1,837 | ) | (70 | )% | |||||||||
Content & Entertainment | 284 | 204 | 80 | 39 | % | |||||||||||
Corporate | - | 23 | (23 | ) | (100 | )% | ||||||||||
$ | 1,089 | $ | 2,869 | $ | (1,780 | ) | (62 | )% |
Six Months Ended September 30, | |||||||||||||||||||||||
($ in thousands) | 2020 | 2019 | $ Change | % Change | |||||||||||||||||||
Cinema Equipment Business | $ | 2,642 | $ | 3,137 | $ | (495) | (16) | % | |||||||||||||||
Content & Entertainment Business | 204 | 162 | 42 | 26 | % | ||||||||||||||||||
Corporate | 23 | 84 | (61) | (73) | % | ||||||||||||||||||
$ | 2,869 | $ | 3,383 | $ | (514) | (15) | % |
Depreciation and amortization expense decreased in our Cinema Equipment Business segmentSegment as additionalthe majority of our digital cinema projection Systemssystems reached the conclusion of their ten-year useful lives during fiscalthe year 2020.
Interest expense, net
Six Months Ended September 30, | For the Six Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
($ in thousands) | ($ in thousands) | 2020 | 2019 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||||||||||
Cinema Equipment Business | Cinema Equipment Business | $ | 1,201 | $ | 1,519 | $ | (318) | (21) | % | $ | 138 | $ | 1,201 | $ | (1,063 | ) | (89 | )% | |||||||||||||||||||||
Content & Entertainment | - | - | - | - | % | ||||||||||||||||||||||||||||||||||
Corporate | Corporate | 1,283 | 2,576 | (1,293) | (50) | % | 42 | 1,283 | (1,241 | ) | (97 | )% | |||||||||||||||||||||||||||
$ | 2,484 | $ | 4,095 | $ | (1,611) | (39) | % | $ | 180 | $ | 2,484 | $ | (2,304 | ) | (93 | )% |
Interest expense in the Cinema Equipment Business segment decreased primarily as a result of reducedsatisfying debt balances compared to the prior period on the Prospect Term Loan. Interest expense in our Corporate Segmentsegment decreased as a result of lowersatisfying the loan balancesbalance from our Credit Facility, and Second Lien Loans.
Income Tax Expense
We recorded an income tax benefitbenefits of approximately$550 thousand and $181 thousand for the six months ended September 30, 2020.2021 and 2020, respectively.
Our effective tax expense of approximately $74 thousandrate for the six months ended September 30, 2019. We have not recorded tax benefits on our loss before income taxes because we have provided for a full valuation allowance that offsets potential deferred tax assets resulting from net operating loss carry forwards, reflecting our inability to use such loss carry forwards.
Consolidated Adjusted EBITDA (including the results of Cinema Equipment Business segment) for the six months ended September 30, 2020 decreased2021 increased by $3.3$7.5 million compared to the six months ended September 30, 2019.2020. Adjusted EBITDA from our Cinema Equipment Business segment decreasedincreased primarily due to contractually standard terms of digital projector sales to related exhibitors in the Cinedigm deployments. Adjusted EBITDA from the Content & Entertainment business and Corporate segment increased by $5.6 million or 107%$554 thousand for the six months ended September 30, 2021 compared to the six months ended September 30, 2019 primarily2020, due to state mandated theater closuresthe growth of Streaming & Digital business based on higher volume for streaming due to COVID-19, the temporary halt of distribution of major studio releasespandemic and the expected decline of the Cinema Equipment Business. Adjusted EBITDA from Content & Entertainment businessadding additional channels and corporate segment increased by $2.3 million or 72% for the six months ended September 30, 2020content compared to the six months ended September 30, 2019, due to growth of higher margin OTT Streaming & Digital revenues.prior period.
We believe that Adjusted EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net loss from continuing operations and Adjusted EBITDA has been provided in the financial results. Adjusted EBITDA should not be considered as an alternative to income from operations or net loss from continuing operations as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, Adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.
Six Months Ended September 30, | ||||||||||||||
($ in thousands) | 2020 | 2019 | ||||||||||||
Net loss | (46,436) | (8,127) | ||||||||||||
Add Back: | ||||||||||||||
Income tax (benefit) expense | (181) | 74 | ||||||||||||
Depreciation and amortization of property and equipment | 2,869 | 3,383 | ||||||||||||
Amortization of intangible assets | 1,181 | 1,589 | ||||||||||||
Loss on extinguishment of notes payable | 312 | — | ||||||||||||
Interest expense, net | 2,484 | 4,095 | ||||||||||||
Changes in fair value on equity investment in Starrise | 35,626 | — | ||||||||||||
Other expense, net | 1,590 | 759 | ||||||||||||
Stock-based compensation | 1,212 | 189 | ||||||||||||
Net loss attributable to noncontrolling interest | 37 | (1) | ||||||||||||
Adjusted EBITDA | $ | (1,306) | $ | 1,961 | ||||||||||
Adjustments related to the Cinema Equipment Business | ||||||||||||||
Depreciation and amortization of property and equipment | (2,642) | (3,137) | ||||||||||||
Amortization of intangible assets | (15) | (23) | ||||||||||||
Stock-based compensation and expenses | — | 7 | ||||||||||||
Income (loss) from operations | 3,045 | (2,050) | ||||||||||||
Adjusted EBITDA from Content & Entertainment business and corporate segment | $ | (918) | $ | (3,242) |
For the Six Months Ended September 30, | ||||||||
($ in thousands) | 2021 | 2020 | ||||||
Net income (loss) | $ | 4,999 | $ | (46,436 | ) | |||
Add Back: | ||||||||
Income tax benefit | (550 | ) | (181 | ) | ||||
Depreciation and amortization of property and equipment | 1,089 | 2,869 | ||||||
Amortization of intangible assets | 1,543 | 1,181 | ||||||
(Gain) loss on forgiveness of PPP loan and extinguishment of note payable | (2,178 | ) | 312 | |||||
Interest expense, net | 180 | 2,484 | ||||||
Change in fair value on equity investment in Starrise | (1,000 | ) | 35,626 | |||||
Acquisition, integration and other expense | 176 | 1,590 | ||||||
Recovery benefit of doubtful accounts | (40 | ) | - | |||||
Stock-based compensation | 1,929 | 1,212 | ||||||
Net income attributable to noncontrolling interest | 4 | 37 | ||||||
Adjusted EBITDA | $ | 6,152 | $ | (1,306 | ) | |||
Adjustments related to the Cinema Equipment Business | ||||||||
Depreciation and amortization of property and equipment | $ | (805 | ) | $ | (2,642 | ) | ||
Amortization of intangible assets | - | (15 | ) | |||||
Stock-based compensation and expenses | - | - | ||||||
Acquisition, integration and other expense | (11 | ) | - | |||||
Provision for doubtful accounts | 103 | - | ||||||
Income from operations | (7,232 | ) | 3,045 | |||||
Adjusted EBITDA from non-cinema equipment business | $ | (1,793 | ) | $ | (918 | ) |
Recent Accounting Pronouncements
See Note 2 - Summary of Significant Accounting Policies to our condensed consolidated financial statements included herein.
$457.5 million, and negative working capital of $35.9 million as of September 30, 2020. We may continue to generate net losses for the foreseeable future. In addition, we have significant debt-related contractual obligations as of September 30, 2020 and beyond. Based on these conditions, the Company entered into the following transactions described below:
For the Six Months Ended September 30, | ||||||||
($ in thousands) | 2021 | 2020 | ||||||
Net cash provided (used in) by operating activities | $ | 9,358 | $ | (12,773 | ) | |||
Net cash (used in) provided by investing activities | (4,820 | ) | 789 | |||||
Net cash (used in) provided by financing activities | (9,742 | ) | 14,193 | |||||
Net change in cash, cash equivalents, and restricted cash | $ | (5,204 | ) | $ | 2,209 |
As of September 30, 2021, we had cash and cash equivalents of $12.6 million.
Six Months Ended September 30, | ||||||||||||||
($ in thousands) | 2020 | 2019 | ||||||||||||
Net cash (used) provided by operating activities | $ | (12,773) | $ | 3,799 | ||||||||||
Net cash provided (used) in investing activities | 789 | — | ||||||||||||
Net cash provided (used) in financing activities | 14,193 | (8,006) | ||||||||||||
Net change in cash and cash equivalents | $ | 2,209 | $ | (4,207) |
As of September 30, 2020, we had cash, cash equivalents, and restricted cash balances of $17.5 million.
For the six months ended September 30, 2021, net cash provided by operating activities iswas primarily driven by lossincome from operations, excluding non-cash expenses such as
For the six months ended September 30, 2020, net cash provided by operating activities was primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization, provision for doubtful accounts and stock-based compensation, offset by changes in working capital. 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.
For the six months ended September 30, 2020, cash flows provided by investing activities consisted of proceeds from the sale of Starrise shares of $1.2$0.8 million.
For the six months ended September 30, 2021, cash flows used in financing activities consisted of payments of the remaining outstanding balances of approximately $7.8 million in notes payable and purchases of property and equipment.$2.0 million in Credit Facility.
For the six months ended September 30, 2020, cash flows used inprovided by financing activities reflects payments of approximately $14.0 million for the Credit Facility and Prospect Loan, offset by $8.5$17.6 million from Credit Facility draw, $17.6$8.5 million received in connection with the sale of 18,116,89910,666,666 shares of Class A common stockCommon Stock and exercise of warrants, and $2.2 million received pursuant to the Payment Protection Program of the Coronavirus Aid, Relief and Economic Security Act.
Seasonality
Off-balance sheet arrangements
Item 4. CONTROLS AND PROCEDURES
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to provide reasonable assurancereasonably ensure that information required to be disclosed in our reports filed under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
Evaluation of achieving their objectives.Disclosure Controls and Procedures
The management of the Company, under the supervision and with the participation of our Chief Executive Officer and principal financial officer,Chief Operating Officer, has evaluated the effectiveness of the Company'sCompany’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))Act), as of September 30, 2020.2021. Based on such evaluation, our principal executive officer and principal financial and accounting officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures arewere not effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuringprovide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, on a timely basis, and (ii) accumulated and communicated to the Company’s management, including the Company’s principal executive officerChief Executive Officer and principal financial officer,Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.disclosures due to the material weaknesses identified in our internal control over financial reporting as of September 30, 2021.
Previously Reported Material Weakness on Internal Control Over Financial Reporting
In the 2021 Form 10-K, filed with the SEC on July 30, 2021, management concluded that our internal control over financial reporting was not effective as of March 31, 2021. In the evaluation, management identified material weaknesses in internal controls related to our financial close and reporting process and information and communication controls. Management also concluded that we did not have a sufficient complement of corporate personnel with appropriate levels of accounting and controls knowledge and experience commensurate with our financial reporting requirements to appropriately analyze, record and disclose accounting matters completely and accurately. As a result of this evaluation, management extensively used outside consultants who possessed the appropriate levels of accounting and controls knowledge.
Remediation. Following identification of this control deficiency, management is implementing modifications to better ensure that the Company has appropriate and timely reviews on all financial reporting analysis. The material weakness in our internal control over financial reporting will not be considered remediated until these modifications are implemented, in operation for a sufficient period of time, tested, and concluded by management to be designed and operating effectively. In addition, as we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to address control deficiencies or determine to modify our remediation plan. Management will test and evaluate the implementation of these modifications to ascertain whether they are designed and operating effectively to provide reasonable assurance that they will prevent or detect a material misstatement in the Company’s financial statements.
The steps we took to address the deficiencies identified included:
● | we hired a new Chief Financial Officer; |
● | we hired a new Executive Vice-President (“EVP”) Accounting; |
● | we have engaged in efforts to restructure accounting processes and revise organizational structures to enhance accurate accounting and appropriate financial reporting; |
● | we have hired additional experienced accounting personnel in the corporate office to enhance the application of accounting standards and our financial closing and reporting process; |
● | we have engaged external advisors to provide financial accounting and reporting assistance; |
● | we will enhance information and communication processes through information technology solutions to ensure that information needed for financial reporting is accurate, complete, relevant and reliable, and communicated in a timely manner; and |
● | we have engaged external advisors to evaluate and document the design and operating effectiveness of our internal control over financial reporting and assist with the remediation and implementation of our internal control function. |
As noted above, we believe that, as a result of management’s in-depth review of its accounting processes, and the additional procedures management has implemented, there are no material inaccuracies or omissions of material fact in this Form 10-Q and, to the best of our knowledge, we believe that the consolidated financial statements in this Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows in conformity with GAAP.
We and our Board treat the controls surrounding, and the integrity of, our financial statements with the utmost priority. Management is committed to the planning and implementation of remediation efforts to address control deficiencies and any other identified areas of risk. These remediation efforts are intended to both address the identified material weakness and to enhance our overall financial control environment. We are committed to maintaining a strong internal control environment, and we believe the measures described above will strengthen our internal control over financial reporting and remediate the material weakness we have identified. Our remediation efforts have begun, and we will continue to devote significant time and attention to these remedial efforts. As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to strengthen controls or to modify the remediation plan described above, which may require additional implementation time.
Changes in Internal Control Over Financial Reporting
There have been no changes, other than our remediation efforts discussed above, in the Company’s internal control over financial reporting during thisthe fiscal quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On September 17, 2021, the Company acquired substantially all of the assets of Bloody Disgusting, LLC (“Bloody Disgusting”). As part of the purchase price for the acquisition of the assets of Bloody Disgusting, the Company issued 1,039,501 shares of Common Stock pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
On September 20, 2021, the Company issued 139,655 shares of Common Stock as a deferred payment of consideration for the acquisition of substantially all of the assets of Scream Entertainment, LLC, consummated on February 11, 2021, pursuant to Section 4(a)(2) of the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
Exhibit Number | Description of Document | |||||||
3.1 | ||||||||
31.1 | ||||||||
31.2 | Officer’s Certificate Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||||
32.1 | ||||||||
32.2 | ||||||||
101.INS | Inline XBRL Instance Document. | |||||||
101.SCH | Inline XBRL Taxonomy Extension | |||||||
101.CAL | Inline XBRL Taxonomy Extension | |||||||
101.DEF | Inline XBRL Taxonomy Extension | |||||||
101.LAB | Inline XBRL Taxonomy Extension | |||||||
101.PRE | Inline XBRL Taxonomy Extension | |||||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
SIGNATURES
CINEDIGM CORP. | ||||||||||||
Date: | November | By: | /s/ Christopher J. McGurk | |||||||||
Christopher J. McGurk Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer) | ||||||||||||
Date: | November | By: | /s/ | |||||||||
John K. Canning Chief | ||||||||||||
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