| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES BASIS OF PRESENTATION AND CONSOLIDATION The accompanying condensed consolidated financial statements
are unaudited and include the accounts of the Company, its wholly owned and majority owned subsidiaries, and reflect all normal
and recurring adjustments necessary for the fair presentation of its consolidated financial position, results of operations and
cash flows. All material inter-company accounts and transactions have been eliminated in consolidation. Investments in which we do not have a controlling
interest or are not the primary beneficiary but have the ability to exert significant influence are accounted for under the equity
method of accounting. Noncontrolling interests for which we have been determined to be the primary beneficiary are consolidated
and recorded as net loss attributable to noncontrolling interest. USE OF ESTIMATES The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates
and assumptions that affect the assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates include the
adequacy of accounts receivable reserves, return reserves, inventory reserves, recovery of advances, assessment of goodwill impairment,
intangible asset impairment, fair value for asset acquisition, and estimated amortization lives and valuation allowances for income
taxes. Actual results could differ from these estimates. Certain information and footnote disclosures
normally included in consolidated financial statements prepared in accordance with GAAP have been omitted pursuant to the rules
and regulations of the Securities and Exchange Commission (“SEC”), although we believe that the disclosures are adequate
to make the information presented not misleading. The results of operations for the respective interim periods are not necessarily
indicative of the results expected for the full year. These Condensed Consolidated Financial Statements and accompanying notes
should be read in conjunction with our annual consolidated financial statements and the notes thereto, included in our Annual
Report on Form 10-K for the fiscal year ended March 31, 2020. SIGNIFICANT ACCOUNTING POLICES The significant accounting policies used
in the preparation of these condensed consolidated financial statements for the three and nine months ended December 31, 2020
are consistent with those disclosed in Note 2 to the consolidated financial statements in the Company’s Annual Report on
Form 10-K for the year ended March 31, 2020. CASH, CASH EQUIVALENTS, AND RESTRICTED CASH We consider all highly liquid investments with an original
maturity of three months or less to be “cash equivalents.” We maintain bank accounts with major banks, which from
time to time may exceed the Federal Deposit Insurance Corporation’s insured limits. We periodically assess the financial
condition of the institutions and believe that the risk of any loss is minimal. Our Prospect Loan (as defined below) requires
that we maintain specified cash balances that are restricted to repayment of interest thereunder. See Note 6 - Notes Payable
Cash, cash equivalents, and restricted cash consisted of the
following:
As of
(in thousands) December 31, March 31,
Cash and Cash Equivalents $ 26,207 $ 14,294
Restricted Cash 1,000 1,000
$ 27,207 $ 15,294 EQUITY INVESTMENT IN STARRISE, A RELATED
PARTY On February 14, 2020, the Company acquired an approximately
11.5% interest in Starrise Media Holdings Limited (“Starrise”), a leading publicly traded Chinese entertainment company
whose ordinary shares are listed on the Stock Exchange of Hong Kong. The Company acquired such interest as a strategic investment
and in a private transaction from a shareholder of Starrise that is related to our major shareholders. Our major shareholders
also maintain a significant beneficial interest ownership in Starrise. Upon consummation of the transaction on February 14, 2020,
the Company recorded an initial investment of approximately $25.1 million, which is the fair market value of the Starrise shares
on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Company’s common stock of $11.2 million,
valued as of the date of the issuance of the Class A common stock of the Company. The difference in value of shares received in
Starrise and shares issued by the Company is deemed as contributed capital and recorded in additional paid-in capital. On April 10, 2020, the Company purchased an additional 15%
interest in Starrise in a private transaction from shareholders of Starrise that are affiliated with the major shareholder of
the Company. The Company recorded an additional equity investment of approximately $28.2 million, which is the fair market
value of the Starrise shares on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Company’s common
stock of $11.0 million, valued at the date of the issuance of the Class A common stock of the Company. The difference in
the value of shares received in Starrise and shares issued by the Company is deemed as contributed capital and recorded in additional
paid-in capital. This transaction was also recorded as an equity investment in Starrise. The Company has accounted for these investments under the equity
method of accounting as the Company can exert significant influence over Starrise with its direct ownership and affiliation with
the Company’s majority shareholders. The Company has made an irrevocable election to apply the fair value option under ASC
825-10, Financial Instruments During the nine months ended December 31, 2020, the Company
sold 8,370,000 of Starrise shares for net proceeds of approximately $0.8 million which resulted in a loss on sale of approximately
$73 thousand. As of December 31, 2020 and March, 31, 2020, the value of our
equity investment in Starrise, using the readily determinable fair value method from the quoted trading price of the Stock Exchange
of Hong Kong, was approximately $7.6 million and $23.4 million, respectively, resulting in a change in fair value of approximately
$42.4 million for the nine months ended December 31, 2020, on our condensed consolidated statement of operations. NON-MONETARY TRANSACTIONS During the three and nine months ended December 31, 2020, respectively,
the Company entered into agreements with certain vendors to transfer 5,139,762 and 14,184,765 Starrise shares to satisfy outstanding
liabilities with these vendors. Upon the sale of the Starrise shares by the vendors, with certain restrictions on sales unless
the Company gives consent to sell, if the proceeds do not satisfy the amount due to the vendor, the Company is liable for the
balance owed. Pursuant to such agreements, the Company reduced the amount payable to its vendors by $0.8 million as of December
31, 2020. There was no gain or loss resulting from
these transactions for the three and nine months ended December 31, 2020. ACCOUNTS RECEIVABLE We maintain reserves for potential credit
losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations,
customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these
reserves. Reserves are recorded primarily on a specific identification basis. We record accounts receivable, long-term in connection with
activation fees that we earn from our digital cinema equipment (the “Systems”) deployments that have extended payment
terms. Such accounts receivable are discounted to their present value at prevailing market rate. ADVANCES Advances, which are recorded within prepaid and other current
assets on the 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 $0.3 million and $0.3 million, for the three months ended December 31, 2020 and 2019. Impairments and
accelerated amortization related to advances were $0.3 million and $0.7 million, respectively, for nine months ended
December 31, 2020 and 2019. PROPERTY AND EQUIPMENT Property and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation expense is recorded using the straight-line method over the estimated useful lives
of the respective assets as follows:
Computer equipment and software 3 - 5 years
Internal use software 5 years
Digital cinema projection systems 10 years
Machinery and equipment 3 - 10 years
Furniture and fixtures 3 - 6 years We capitalize costs associated with software developed or obtained
for internal use when the preliminary project stage is completed, and it is determined that the software will provide significantly
enhanced capabilities and modifications. These capitalized costs are included in property and equipment and include external direct
cost of services procured in developing or obtaining internal-use software and personnel and related expenses for employees who
are directly associated with, and who devote time to internal-use software projects. Capitalization of these costs ceases once
the project is substantially complete and the software is ready for its intended use. Once the software is ready for its intended
use, the costs are amortized over the useful life of the software. Post-configuration training and maintenance costs are expensed
as incurred. Leasehold improvements are amortized over
the shorter of the lease term or the estimated useful life of the leasehold improvements. Repair and maintenance costs are charged
to expense as incurred. Major renewals, improvements and additions are capitalized. Upon the sale or other disposition of any
property and equipment, the cost and related accumulated depreciation and amortization are removed from the accounts and the gain
or loss on disposal is included in the condensed consolidated statements of operations. FAIR VALUE MEASUREMENTS The fair value measurement disclosures
are grouped into three levels based on valuation factors:
● Level
1 – quoted prices in active markets for identical investments
● Level
2 – other significant observable inputs (including quoted prices for similar investments
and market corroborated inputs)
● Level
3 – significant unobservable inputs (including our own assumptions in determining
the fair value of investments) Assets and liabilities measured at fair value on a recurring
basis use the market approach, where prices and other relevant information are generated by market transactions involving identical
or comparable assets or liabilities. The equity investment in Starrise is in Hong
Kong dollars and was translated into US dollars as of December 31, 2020 and March 31, 2020 at an exchange rate of 7.75 and 7.8
Hong Kong Dollars to 1 US Dollar, respectively. The fair value of this equity investment is measured by the quoted market price
of Starrise on the Stock Exchange of Hong Kong. The following tables summarize the levels
of fair value measurements of our financial assets and liabilities as of December 31, 2020 and March 31, 2020:
As of December 31, 2020
(in thousands) Level 1 Level 2 Level 3 Total
Restricted cash $ 1,000 $ — $ — $ 1,000
Equity investment in Starrise, at fair value 7,584 — — 7,584
$ 8,584 $ — — $ 8,584
As of March 31, 2020
(in thousands) Level 1 Level 2 Level 3 Total
Restricted cash $ 1,000 $ — $ — $ 1,000
Equity investment in Starrise, at fair value 23,433 — — 23,433
$ 24,433 $ — $ — $ 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 December 31, 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. IMPAIRMENT OF LONG-LIVED AND FINITE-LIVED ASSETS We review the recoverability of our long-lived assets and finite-lived
intangible assets, when events or conditions occur that indicate a possible impairment exists. The assessment for recoverability
is based primarily on our ability to recover the carrying value of our long-lived and finite-lived assets from expected future
undiscounted net cash flows. If the total of expected future undiscounted net cash flows is less than the total carrying value
of the asset, the asset is deemed not to be recoverable and possibly impaired. We then estimate the fair value of the asset
to determine whether an impairment loss should be recognized. An impairment loss will be recognized if the asset’s
fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted
cash flows. During the three months and nine months ended December 31, 2020 and 2019, no impairment charge was recorded from
operations for long-lived assets or finite-lived assets. ASSET ACQUISITIONS An asset acquisition is an acquisition
of an asset, or a group of assets, that does not meet the definition of a business. Asset acquisitions are accounted for by using
the cost accumulation model whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets
acquired on the basis of relative fair values. GOODWILL Goodwill is the excess of the purchase price paid over the
fair value of the net assets of an acquired business. Goodwill is tested for impairment on an annual basis or more often if warranted
by events or changes in circumstances indicating that the carrying value may exceed fair value, also known as impairment indicators. Inherent in the fair value determination for each reporting
unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current
economic indicators and market conditions, and assumptions about our strategic plans with regard to its operations. To the extent
additional information arises, market conditions change, or our strategies change, it is possible that the conclusion regarding
whether our remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material
effect on our consolidated financial position or results of operations. No goodwill impairment charge was recorded in the three and
nine months ended December 31, 2020 and 2019. Gross amounts of goodwill and accumulated impairment charges
that we have recorded are as follows:
(In thousands)
Goodwill $ 32,701
Accumulated impairment charges (24,000 )
Goodwill at December 31, 2020 and March 31, 2020 $ 8,701 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 (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 Virtual print fees (“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 Funding I, LLC. (“Phase 1 DC”) and to Access Digital Cinema Phase 2 Corp. (“Phase 2 DC”) 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 DC 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 1 DC’s and Phase 2 DC’s performance
obligations have been substantially met at that time. Phase 2 DC’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 DC
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 DC 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. Such sales were as originally contemplated as the conclusion of the digital cinema deployment
plan. Cinedigm completed the sale of 15 and 24 digital projection Systems, respectively, for an aggregate sales price of approximately
$150 thousand and $240 thousand, and recognized revenue of $66 thousand and $240 thousand, during the three months ended
December 31, 2020 and 2019, respectively. Cinedigm completed the sale of 45 and 136 digital projection Systems, respectively,
for an aggregate sales price of approximately $345 thousand and $1.5 million, and recognized revenue of $157 thousand
and $1.3 million, during the nine months ended December 31, 2020 and 2019, 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 2 DC Systems and for Systems installed by CDF2 Holdings,
a related party, (See Note 3 - Other Interests The Cinema Equipment Business earns an administrative fee of
approximately 5% of VPFs collected and, in addition, earns an incentive service fee equal to 2.5% of the VPFs earned by Phase
1 DC. This administrative fee is related to the collection and remittance of the VPF’s and the performance obligation is
satisfied at that time the related VPF fees are due which is at the time the movies are displayed on screens utilizing our Systems
installed in movie theatres. The service fees are recognized as a point in time revenue when the corresponding VPF fees are due
from the movie studios and distributors. Content & Entertainment Business CEG earns fees for the distribution of content in the home
entertainment markets via several distribution channels, including digital, video on demand (“VOD”), and physical
goods (e.g., DVD and Blu-ray Discs). Fees earned are typically based on the gross amounts billed to our customers less the amounts
owed to the media studios or content producers under distribution agreements, and gross media sales of owned or licensed content.
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 subscription on the digital platform, shipment of DVD and Blu-ray
Discs, or make available at point-of-sale for transactional and VOD services. 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. Revenue is recognized after deducting the reserves for product returns and other allowances,
which are accounted for as variable consideration. Reserves for product 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 based on each revenue stream. Key indicators that we use in evaluating gross versus net treatment include, but are
not limited to, the following:
● which party is primarily responsible for
fulfilling the promise to provide the specified good or service; and
● which party has discretion in establishing
the price for the specified good or service. Shipping and Handling Shipping and handling costs are incurred to move physical goods
(e.g., DVD 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. 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. 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. Deferred revenue pertaining to our Content & Entertainment
Business includes amounts related to the sale of DVDs with future release dates. Deferred revenue relating to our Cinema Equipment Business
pertains to revenues earned in connection with up front exhibitor contributions that are deferred and recognized over the expected
cost recoupment period. It also includes unamortized balances in connection with activation fees due from the Systems deployments
that have extended payment terms. The ending deferred revenue balance, including current and
non-current balances, as of December 31, 2020 was $1.3 million. For the three months ended December 31, 2020, 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 and nine months ended December 31, 2020, $1.2
million and $2.5 million, respectively of revenue was recognized that was included in the deferred revenue balance at the beginning
of the period. As of December 31, 2020, the aggregate amount of contract revenue allocated to unsatisfied performance obligations
was $0.1 million. We expect to recognize approximately $1.3 million of this balance over the next 12 months, and the remainder
thereafter. Disaggregation of Revenue The Company disaggregates revenue into different revenue categories
for the Cinema Equipment and CEG Businesses. The Cinema Equipment Business revenue categories are: Phase I Deployment revenue,
Phase II Deployment revenue, Services, and Digital System Sales, and the Content & Entertainment Business revenue categories
are: Base Distribution Business and OTT Streaming and Digital. The following tables present the Company’s revenue categories
for the three and nine months ended December 31, 2020 and 2019: (in thousands):
Three Months Ended Nine Months Ended
2020 2019 2020 2019
Cinema Equipment Business:
Phase I Deployment $ 281 $ 1,402 $ 424 $ 4,797
Phase II Deployment 367 444 1,067 1,326
Services 196 1,043 481 3,378
Digital System Sales 66 240 186 1,266
Total Cinema Equipment Business revenue $ 910 $ 3,129 $ 2,158 $ 10,767
Content & Entertainment Business:
Base Distribution Business $ 4,152 $ 5,286 $ 9,218 $ 11,944
OTT Streaming and Digital 4,892 3,097 11,778 8,845
Total Content & Entertainment Business revenue $ 9,044 $ 8,383 $ 20,996 $ 20,789 STOCK-BASED COMPENSATION Employee and director stock-based compensation
expense related to our stock-based awards was as follows:
Three Months Ended Nine Months Ended
(In thousands) 2020 2019 2020 2019
Selling, general and administrative $ 960 $ 178 $ 2,172 $ 367
$ 960 $ 178 $ 2,172 $ 367 During the three and nine months ended December 31, 2020 and
2019, the Company granted 5,550,000 stock appreciation rights (“SARs”). The SARs were granted under the Company’s
2017 Equity Incentive Plan (the “2017 Plan. All SARs issued have an exercise price equal to the fair value of the Company’s
common stock on the date of grant and a maturity date of 10 years. The SARs were valued on the grant date utilizing an option
pricing model, as follows: Grant Date: November 19, 2020 – December 23, 2020 Maturity Date: November 19, 2030 – December 31, 2030 Fair value of class A common stock on grant date: $0.54 - $0.74 Volatility: 91.05% - 91.71% Discount rate: 0.88% - 0.96% There was $739 thousand and $111 thousand, of stock-based
compensation recorded for the three months ended December 31, 2020 and 2019, respectively and $961 thousand and $332 thousand
for the nine months ended December 31, 2020 and 2019 respectively, relating to these SARs. Total SARs outstanding are as follows:
Nine
Months Ended December 31,
SARs Outstanding March 31, 2020 1,462,610
Issued 5,550,000
Forfeited —
Total SARs Outstanding December 31, 2020 7,012,610 There are 696,050 units of performance stock units (“PSU”)
which were granted on July 26, 2018 fully vested but not paid yet. There was no stock-based compensation recorded related to these
units for the nine months ended December 31, 2020 and there was a cumulative adjustment of $166 thousand of stock-based compensation
recorded for the nine months ended December 31, 2019. During the nine months ended December 31, 2020, the vested PSU’s were
settled for 693,647 shares of Class A Common Stock. In addition, the Company issued 689,364 shares of Class A Common Stock as
a bonus to employees. The Company recorded $786 thousand as stock compensation expense related to the bonus awards based
on the $1.14 Class A common share value on the date of grant during the nine months ended December 31, 2020. In addition, during the three months ended December 31, 2020,
the Company granted and issued 320,000 shares of Class A common stock to the Company’s Chief Executive Officer as a compensatory
bonus. The shares were valued on the date of grant utilizing the fair value of the Company’s class A common stock. The Company
recognized stock compensation of $166 thousand for the issuance. There was $1 thousand and $4 thousand of stock-based
compensation recorded for both the three and nine months ended December 31, 2020 and 2019, respectively, related to employees’
restricted stock awards. There was $54 thousand and $0 of stock-based compensation recorded
for the three months ended December 31, 2020 and 2019 respectively related to the board of directors. There was $188 thousand
and $0 of stock-based compensation for the nine months ended December 31, 2020 and 2019 related to board of directors. On September 1, 2020, we issued 80,000
shares of Class A common stock to Ronald L. Chez as a bonus payable to him under the Strategic Investor Agreement between the
Company and him dated as of April 3, 2017. During the nine months ended December 31, 2020, we recognized an expense of $71 thousand
based on the stock price of the Class A common stock on the date of grant. INCOME TAXES The Company accounts for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to
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