Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be
read in conjunction with our historical consolidated financial statements and the related notes included elsewhere in this report.
This report contains forward-looking statements
within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies
for the future, which are indicated by words or phrases such as “believes,” “anticipates,” “expects,”
“intends,” “plans,” “will,” “estimates,” and similar words. Forward-looking statements
represent, as of the date of this report, our judgment relating to, among other things, future results of operations, growth plans, sales,
capital requirements and general industry and business conditions applicable to us. These forward-looking statements are not guarantees
of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control that
could cause actual results to differ materially from those expressed or implied by such forward-looking statements.
OVERVIEW
Since our inception, we have played a significant
role in the digital distribution revolution that continues to transform the media landscape. In addition to our pioneering role in transitioning
approximately 12,000 movie screens from traditional analog film prints to digital distribution, we have become a leading distributor of
independent content, both through organic growth and acquisitions. We distribute products for major brands such as Hallmark, Televisa,
ITV, Nelvana, ZDF, Konami, NFL, and Scholastic, as well as leading international and domestic content creators, movie producers, television
producers and other short-form digital content producers. We collaborate with producers, major brands and other content owners to market,
source, curate and distribute quality content to targeted audiences through (i) existing and emerging digital home entertainment platforms,
including but not limited to Apple iTunes, Amazon Prime, Netflix, Hulu, Xbox, Pluto, Tubi and most video-on-demand (“VOD”)
and free ad-supported television (“FAST”) streaming platforms, as well as (ii) physical goods, including DVD and Blu-ray Discs.
We report our financial results
in two primary segments as follows: (1) cinema equipment business and (2) content and entertainment business (“Content & Entertainment”
or “CEG”). The cinema equipment business segment consists of the non-recourse, financing vehicles and administrators for our
digital cinema equipment (the “Systems”) installed in movie theatres throughout North America and Australia. It also provides
fee-based support to over 2,843 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.
Beginning in December 2015, certain of our cinema
equipment began to reach the conclusion of their 10-year deployment payment period with certain distributors and, therefore, Virtual Print
Fees (“VPF”) revenues ceased to be recognized on such Systems, related to such distributors. Furthermore, because the Phase
I Deployment installation period ended in November 2007, a majority of the VPF revenue associated with the Phase I Deployment Systems
has ended. The reduction in VPF revenue on cinema equipment business systems approximately coincided with the conclusion of certain of
our non-recourse debt obligations and, therefore, the reduced cash outflows related to such non-recourse debt obligations partially offset
the reduced VPF revenue since November 2017.
Under the terms of our standard cinema equipment
licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement,
after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive one-year terms;
or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we typically pursue the sale of the Systems
to such exhibitors. Such sales were as originally contemplated as the conclusion of the digital cinema deployment plan.
We are structured so that our cinema equipment
business segment operates independently from our Content & Entertainment business. As of March 31, 2022, we had approximately $0.0
million of non-recourse outstanding debt principal that relates to, and is serviced by, our cinema equipment business. We have approximately
$0.0 million of outstanding debt principal, as of March 31, 2022 that is attributable to our Content & Entertainment and Corporate
segments.
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Risks and Uncertainties
The COVID-19 pandemic and related economic repercussions created significant
volatility and uncertainty impacting the Company’s results for the year. As part of our Content & Entertainment business, the
Company sells DVDs and Blu-ray discs at brick-and-mortar stores. With the closure of non-essential retail stores beginning in the spring
of 2020, the sale of physical discs through our retail partners declined although this was partially offset by digital purchases of physical
product. As part of our Cinema Equipment business, the Company earns revenue when movies are exhibited in theaters. Many movie theaters
in the United States slowly re-opened with limited capacities through March 31, 2021, and have since reopened as of March 31, 2022. The
majority of major studios resumed blockbuster films releases during the year which showed an encouraging return of consumer confidence
for the theatrical experience. As vaccines became readily available and COVID cases decreased, major studios resumed theatrical
releases and there was an uptick in box office revenue during the year ending March 31, 2022.
Longer term, there had been speculation that the
future of theatrical release strategies could change as a result of Major Studios being able to release movies simultaneously in theatres
and on streaming platforms during the pandemic. If fewer movies are released theatrically, a shift to digital viewing reduces revenue
opportunities for virtual print fees and sales of digital cinema equipment. While Studios are still in an experimentation phase regarding
theatrical/streaming strategies we are encouraged by the success of recent exclusive theatrical releases such as Sony’s ’Spider-Man:
No Way Home’, which became the first movie since the pandemic to hit $1 billion globally with no current plans to release on any
streaming platforms.
Liquidity
We have incurred net losses historically and net income for the year
ended March 31, 2022 of $2.3 million. As of March 31, 2022, we had an accumulated deficit of $472.3 million and negative working
capital of $4.8 million as of March 31, 2022. Net cash provided by operating activities for the fiscal year ended March 31, 2022 was $4.9
million. Based on these conditions, the Company entered into the following transactions described below.
Capital Raises
On February 2, 2021, the Company entered into
a Securities Purchase Agreement with a single institutional investor for the purchase and sale of 5,600,000 shares of Common Stock at
a purchase price of $1.25 per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3
which was declared effective by the Securities and Exchange Commission on July 10, 2020 (File No. 333-239710) (the “2020 Shelf Registration
Statement”) and an applicable prospectus supplement. The closing of the sale occurred on February 5, 2021. The aggregate gross proceeds
for the sale was approximately $7.0 million. The net proceeds to the Company from the sale, after deducting the fees of the placement
agent but before paying the Company’s estimated offering expenses, was approximately $6.5 million.
In July 2020, we entered into an At-the-Market
sales agreement (the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”) and B. Riley FBR,
Inc. (“B. Riley” and, together with A.G.P., the “Sales Agents”), pursuant to which the Company may offer and sell,
from time to time, through the Sales Agents, shares of Common Stock at the market prices prevailing on Nasdaq at the time of the sale
of such shares. The Company is not obligated to sell any shares under the ATM Sales Agreement. Any sales of shares made under the ATM
Sales Agreement will be made pursuant the 2020 Shelf Registration Statement, for an aggregate offering price of up to $30 million. During
the year ended March 31, 2021, we sold 28,405,840 shares of Common Stock under the ATM Sales Agreement. Net proceeds from such sales totaled
$18.6 million. No sales under the ATM Sales Agreement were made during the year ended March 31, 2022.
On July 16, 2020, the Company entered into a securities
purchase agreement with certain investors for the purchase and sale of 7,213,334 shares of Common Stock, par value $0.001 per share, at
a purchase price of $1.50 per share, in a registered direct offering, pursuant to the 2020 Shelf Registration Statement and an applicable
prospectus supplement. The closing of the sale occurred on July 20, 2020. The aggregate gross proceeds for the sale was approximately
$10.8 million. The net proceeds to the Company from the sale, after deducting the fees of the placement agents but before paying the Company’s
estimated offering expenses, is approximately $10.1 million.
25
On
May 20, 2020, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain
investors (the “Investors”) for the purchase and sale of 10,666,666 shares of the Common Stock, at a purchase price of $0.75
per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3 which was declared effective
by the Securities and Exchange Commission on May 14, 2020 ( File
No. 333-238183) and an applicable prospectus supplement. The closing of the sale occurred on May 22, 2020. The aggregate gross proceeds
for the sale was $8.0 million. The net proceeds to the Company from the sale, after deducting the fees of the placement agents but before
paying the Company’s estimated offering expenses, were approximately $7.1 million.
In October 2021, we entered into a Common Stock
Purchase Agreement (the “Equity Line Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights
Agreement”) with B. Riley Principal Capital, LLC (“B. Riley Principal Capital”). Pursuant to the Equity Line Purchase
Agreement, the Company has the right to sell to B. Riley Principal Capital up to the lesser of (i) $50,000,000 of newly issued shares
of Common Stock and (ii) the Exchange Cap (as defined in the Equity Line Purchase Agreement), from time to time during the 24-month period
from and after the October 21, 2021. Sales of Common Stock pursuant to the Equity Line Purchase Agreement, and the timing of any sales,
are solely at the option of the Company, and the Company is under no obligation to sell any securities to B. Riley Principal Capital under
the Equity Line Purchase Agreement. As consideration for B. Riley Principal Capital’s commitment to purchase shares of Common Stock
at the Company’s direction upon the terms and subject to the conditions set forth in the Equity Line Purchase Agreement, upon execution
of the Equity Line Purchase Agreement, the Company issued 210,084 shares of Common Stock to B. Riley Principal Capital (the “Commitment
Shares”). The purchase price of the shares of Common Stock that we elect to sell to B. Riley Principal Capital pursuant to the Equity
Line Purchase Agreement will be determined by reference to the volume weighted average price of the Common Stock (“VWAP”)
during the applicable purchase date, less a fixed 5% discount to such VWAP. Pursuant to the Registration Rights Agreement, the Company
filed a Registration Statement on Form S-1 that was declared effective by the Securities and Exchange Commission on October 21, 2021 (File
No. 333-260210) for the resale by B. Riley Principal Capital of up to 25,210,084 shares of Common Stock (including the Commitment Shares)
acquired pursuant to the Equity Line Purchase Agreement. During the year ended March 31, 2022, we sold 5,300,000 shares of Common Stock
under the Equity Line Purchase Agreement. Net proceeds from such sales totaled $12.4 million.
As of March 31, 2022, there is still approximately
$38.0 million available under the 2020 Shelf Registration Statement, and $37.6 million available under the Equity Line Purchase Agreement,
to raise additional capital.
Sale of Cinematic Equipment
On March 17, 2021, the Company entered into two separate agreements
for the sale of cinematic equipment to American Multi-Cinema, Inc. (“AMC”). The agreement included the sale in tranches of
a total of 2,369 cinematic projectors starting in March 2021 throughout January 2023 for a total cash consideration of $10.8 million.
For the year ended March 31, 2022, the Company recognized revenue for $9.6 million. A portion of the total proceeds was utilized to pay
off the remaining Prospect note payable.
Equity Investment in a Related Party
On December 27, 2019, the Company entered into, and on February 14,
2020 amended, (see Note 2 – Summary of Significant Accounting Policies ), a stock purchase agreement (as so amended, the “Metaverse
Stock Purchase Agreement”) with BeiTai Investment LP (“BeiTai”), a related party for accounting purposes of Cinedigm
and Aim Right Ventures Limited (“Aim Right”), two shareholders of A Metaverse Company, a leading Chinese entertainment company
(“Metaverse”), formerly Starrise Media Holdings Limited, to buy from them an
aggregate of 410,901,000 outstanding Metaverse ordinary shares (the “Metaverse Share Acquisition”). On February 14, 2020,
the Company purchased 162,162,162 of the Metaverse ordinary shares from BeiTai and issued BeiTai 21,646,604 shares of its Common Stock
in consideration. The Metaverse shares received were valued at approximately $25 million and the Company issued shares that were valued
at approximately $11.2 million. On April 10, 2020, the Company, in accordance with the terms of the Metaverse Stock Purchase Agreement,
terminated its obligation to purchase Metaverse ordinary shares from Aim Right under the December 27, 2019 stock purchase agreement.
26
On April 10, 2020, the Company entered into another stock purchase
agreement (the “April Metaverse Stock Purchase Agreement”) with five (5) shareholders of Metaverse – Bison Global Investment
SPC – Bison Global No. 1 SP, Huatai Investment LP, Antai Investment LP, Mingtai Investment LP and Shangtai Asset Management LP,
all of which are related parties to the Company to buy an aggregate of 223,380,000 outstanding Metaverse ordinary shares from them and
for the Company to issue to them an aggregate of 29,855,081 shares of its Common Stock as consideration therefor (the “April Metaverse
Share Acquisition”). On April 15, 2020, the April Metaverse Share Acquisition was consummated and this transaction was also recorded
as an equity investment in Metaverse.
Metaverse’s ordinary shares
(HK 1616) are listed on the main board of the Stock Exchange of Hong Kong Limited. Based on the closing price of .152 per share on March
31, 2022, calculated at an exchange rate of 7.85 Hong Kong Dollars to 1 US dollar, the market value of Cinedigm’s ownership in Metaverse
ordinary shares was approximately $7.03 million. Subsequent to the period, trading of Metaverse’s ordinary shares was halted.
(See Note 11)
Borrowings
On June 22, 2021, the maturity date of the East West Credit Facility
(as defined in Note 5 – Notes Payable) with East West Bank was extended from June 30, 2021 to September 28, 2021 and was not extended.
On July 3, 2019, the Company entered into an amendment (the “EWB
Amendment”) to the Loan, Guaranty and Security Agreement, dated as of March 30, 2018, by and between the Company, East West Bank
and the Guarantors named therein (the “EWB Credit Agreement”). The EWB Amendment reduced the size of the facility to $18.0
million, required certain prepayments and daily cash sweeps from collections of receivables to be made, changed in certain respects how
the borrowing base is calculated, and extended the maturity date to June 30, 2020. In connection with the EWB Amendment, three of our
subsidiaries became additional Guarantors under the EWB Credit Agreement. On June 26, 2020, the Company signed another amendment and extended
the maturity date to June 30, 2021 and on June 22, 2021, the maturity date was extended to September 28, 2021. See Note 5 – Notes
Payable.
On April 15, 2020, the Company received $2.2 million
from East West Bank, the Company’s existing lender, pursuant to the Paycheck Protection Program (the “PPP Loan”) of
the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 10, 2022 (the “Maturity
Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are due within
the initial six months of the PPP Loan. The interest accrued during the initial six-month period is due and payable, together with the
principal, on the Maturity Date. The Company used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease
and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts are intended to be eligible for forgiveness,
subject to the provisions of the CARES Act and could be subject to repayment. On January 5, 2021, the Company submitted its application
for forgiveness and, as of June 30, 2021, obtained forgiveness for the full amount.
On June 24, 2020, the Company entered into an exchange agreement pursuant
to which the Company issued 329,501 shares of its Common Stock, in exchange for $842,000, the’ principal amount and accrued and
unpaid interest of outstanding Second Lien Loans (as defined in Note 5 – Notes Payable). The surrendered Second Lien Loans were
immediately canceled. The exchange was consummated on June 24, 2020.
On June 26, 2020, the Company signed a consent
agreement with the holders of the Second Lien loans to extend the maturity date to September 30, 2020 and grant the Company options to
extend further to March 31, 2021 and then to June 30, 2021. A consent fee of $100,000 was paid in connection with this extension.
In a separate exchange with another holder of
Second Lien Notes, on November 19, 2020, the Company issued 452,499 shares of Common Stock in exchange for $247,108 principal amount of
Second Lien Notes. The exchanged Second Lien Notes were immediately cancelled.
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On December 4, 2020, the Company entered into
exchange agreements (the “December Exchange Agreements”) with certain holders of Second Lien Notes. Pursuant to the December
Exchange Agreements, the Company issued an aggregate of 2,776,284 shares of its Common Stock, par value $0.001 per share Common Stock
in exchange for an aggregate of $1,386,106 of principal amount of Second Lien Notes. The exchanged Second Lien Notes were immediately
cancelled.
On January 21, 2021, the Company entered
into an exchange agreement (the “January Exchange Agreement”) with a holder of notes under its Second Lien Loan Agreement
dated as of July 14, 2016 among the Company, the lenders party thereto, and Cortland Capital Market Services LLC, as Agent (“Second
Lien Notes”). Pursuant to the January Exchange Agreement, the Company issued an aggregate of 1,247,626 shares of Common Stock, in
exchange for an aggregate of $1,289,650 of principal amount of Second Lien Notes. The exchanged Second Lien Notes were immediately cancelled.
In three separate exchanges with another holder
of Second Lien Notes, on January 14, 2021 and January 21, 2021, the Company issued 689,500 shares, 580,448 shares and 1,247,626 (an aggregate
of 2,517,574 shares) of Common Stock in exchange for $500,000, $600,000 and $1,289,650 (an aggregate of $2,389,650) principal amount of
Second Lien Notes. The exchanged Second Lien Notes were immediately cancelled.
On February 2, 2021, the Company issued 425,290
shares of Common Stock in exchange for $500,000 principal amount of Second Lien Notes. The exchanged Second Lien Notes were immediately
cancelled.
The Second Lien Loans (as defined in Note 5 – Notes Payable)
were to mature on June 16, 2020. On June 26, 2020, the Company entered into a consent agreement with the lenders of the Second Lien Loans
to an extension of the Second Lien Loans pursuant to which (i) the Company paid down a portion of the outstanding principal amount plus
accrued interest to date, and 47 (ii) the maturity date of the remaining outstanding principal amount of the Second Lien Loans was extended
to September 30, 2019. On July 30, 2019, one of the lenders, signed a waiver to defer the receipt of the portion of the outstanding principal
amount on the Second Lien Loans agreed to be paid no later than September 30, 2019.The Company paid $3.4 million of the outstanding Second
Lien Loans and expects to obtain additional capital from or through Bison Capital Holding Company Limited or an affiliate thereof (“Bison”)
for final payment of the remaining outstanding balances. The Second Lien Loans were to mature on June February 16, 2020. On June 26, 2020,
the Company entered into a consent agreement with the lenders to extend the maturity date to September 30, 2020 and grant the Company
options to extend further to March 31, 2021 and then to June 30, 2021. There was a consent fee of $100,000 for this extension.
On February 9, 2021, the Company prepaid all of
the outstanding obligations in respect of principal, interest, fees and expenses under the Second Lien Loan Agreement, among the Company,
certain lenders and Cortland Capital Market Services LLC. The payoff amount of approximately $3.18 million was comprised of (i) $3.1 million
of principal, (2) accrued payment-in-kind interest of $.018 million, (3) accrued current interest of $0.007 million, and (4) fees and
expenses of $0.004 million. Upon such prepayment, the Second Lien Loan Agreement was terminated effective February 9, 2021.
The $10.0 million note payable (“2018 Loan”) to Bison Global
Investment SPC for and on behalf of Global Investment SPC-Bison Global No. 1, another affiliate of Bison (“Bison Global”),
due July 20, 2019 is guaranteed by Bison Entertainment and Media Group (“BEMG”). On July 20, 2018, the Company also entered
into a side letter (the “Letter”) with BEMG, where BEMG agreed to guarantee the payment directly to Bison Global of any amount
due if (i) the 2018 Loan matures prior to June 28, 2021 or (ii) Bison Global demands payment of the 2018 Loan, in whole or in part, prior
to maturity.
On July 12, 2019, the Company and Bison Global
entered into a termination agreement (the “Termination Agreement”) with respect to the $10.0 million 2018 Loan. Contemporaneously
with the Termination Agreement, the Company entered into a convertible promissory note (“Bison Convertible Note”) with Bison
Global for $10.0 million.
The Bison Convertible Note has a term ending on March 4, 2020, and
had an interest rate of 5% per annum. The principal was payable upon maturity, in cash or in shares of our Common Stock, par value $0.001
per share (the “Common Stock”), or a combination of cash and Common Stock, at the Company’s option. The Bison Convertible
Note was unsecured and may be prepaid without premium or penalty, and contains customary covenants, representations and warranties. The
proceeds of the Bison Convertible Note were used to repay the 2018 Loan. On April 15, 2020, the Company executed a letter amendment (the
“Letter Amendment”) to the Bison Convertible Note. Among other things, the Letter Amendment amended the Bison Convertible
Note, effective as of March 4, 2020, to change the maturity date of the Bison Convertible Note to March 4, 2021. The Bison Convertible
Note due 2021 was converted to Common Stock in March 2021. See Note 5 – Notes Payable.
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On October 9, 2018, the Company issued a subordinated convertible
note (the “Convertible Note”) to MingTai Investment LP (the “Lender”) for $5.0 million. All proceeds from
the Convertible Note were used to pay the $5.0 million 2013 Notes. See Note 5 – Notes Payable. The Convertible Note bears
interest at 8% and matured on October 9, 2019. The principal is payable upon maturity, in cash or in shares of our Common Stock, or
a combination of cash and Common Stock, at the Company’s option. On October 9, 2019, the Company signed an extension to the
Ming Tai Note of $5.0 million for the first of two (2) permitted additional (1) year extensions at the Company’s option from
the original maturity date to October 9, 2020.
On April 15, 2020, the Company executed a letter amendment (the
“Letter Amendment”) to the Bison Convertible Note (as defined in Note 5 – Notes Payable). Among other things, the
Letter Amendment amended the Note, effective as of March 4, 2020, to extend the maturity date of the Bison Convertible note to March
4, 2021.
On October 9, 2019, the Company signed an extension
to the Ming Tai Note of $5.0 million for the first of two (2) permitted additional (1) year extensions at the Company’s option
from the original maturity date to October 9, 2020. This note will continue in full force and effect in accordance with its terms, including
the Company’s reservation of its right to further extend the maturity date of this note, if it so elects.
On September 11, 2020, the Bison and Mingtai Notes,
having an aggregate of $15 million principal amount (the “Notes”) were converted in full into an aggregate of 10,000,000
shares of Common Stock at a conversion price of $1.50 per share in accordance with the terms of the Notes. Accordingly, the Notes have
been extinguished. The Notes were held by Bison Global and, both of which are affiliates of Peixin Xu, the Chairman of Bison Capital Holding
Company Limited, which is indirectly Cinedigm’s largest stockholder.
On March 4, 2021, Cinedigm DC Holdings, LLC (“CDCH”),
Access Digital Media, Inc., Access Digital Cinema Phase 2, Corp., Christie/AIX, Inc., Cinedigm Digital Funding I, LLC, certain Lenders,
and Prospect Capital Corporation, as administrative agent and collateral agent (“Prospect”), entered into Amendment No. 3
(the “Amendment”) to the Term Loan Agreement dated February 28, 2013 (the “Term Loan Agreement”). Under the Amendment,
the maturity date of the loan under the Term Loan Agreement (the “Loan”) was extended to March 31, 2022. Upon a series of
payments between April 30 and July 9, 2021, the Company paid in full the Prospect loan non-recourse outstanding debt amount by paying
an aggregate principal amount of $7.8 million.
We believe the combination of:
(i) our cash and cash equivalent balances at March 31, 2022 and (ii) expected cash flow from operations, will be sufficient for our operations
and capital needs, for at least twelve months from the filing of this report. Our capital requirements will depend on many factors, and
we may need to use capital resources and obtain additional capital. Failure to generate additional revenues, obtain additional capital
or manage discretionary spending could have an adverse effect on our financial position, results of operations and liquidity.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared
in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In connection with the
preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that
affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates
and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated
financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments
to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects
cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 2
– Summary of Significant Accounting Policies , of the Notes to Consolidated Financial Statements, included in Item 8, Financial
Statements and Supplementary Data , of this Annual Report on Form 10-K. 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.
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FAIR VALUE ESTIMATES
Goodwill, Intangible and Long-Lived Assets
Goodwill is the excess of the
purchase price paid over the fair value of the net assets of an acquired business. Goodwill is tested for impairment on an annual basis
or more often if warranted by events or changes in circumstances indicating that the carrying value may exceed fair value, also known
as impairment indicators.
Inherent in the fair value determination
for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation
of current economic indicators and market conditions, and assumptions about our strategic plans with regard to its operations. To the
extent additional information arises, market conditions change, or our strategies change, it is possible that the conclusion regarding
whether our remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material effect
on our consolidated financial position or results of operations.
The Company
has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than
not that the fair value of a reporting unit is less than its carrying amount or to perform the quantitative impairment test.
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.
During the years ended March 31, 2022 and 2021, an impairment charge
of $2.0 million and $0 was recorded to intangible assets.
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REVENUE RECOGNITION
Adoption of ASU Topic 606, “Revenue
from Contracts with Customers”
We determine revenue recognition by:
●
identifying the contract, or contracts, with the customer;
●
identifying the performance obligations in the contract;
●
determining the transaction price;
●
allocating the transaction price to performance obligations in the contract; and
●
recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services.
We recognize revenue in the amount that reflects the consideration
we expect to receive in exchange for the services provided, sales of physical products (DVD’s and Blu-ray 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 696 Systems installed nationwide in our first deployment
phase (“Phase I Deployment”) to theatrical exhibitors and for 2,147 Systems installed domestically and internationally in
our second deployment phase (“Phase II Deployment”).
We retain ownership of our Systems
and the residual cash flows related to the Systems in Phase I Deployment after the end of the 10-year deployment payment period.
For certain Phase II Deployment
Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion
of cost recoupment and at the expiration of the exhibitor master license agreements.
The Cinema Equipment Business
also provides monitoring, data collection, serial data verification and management services to this segment, as well as to exhibitors
who purchase their own equipment, in order to collect virtual print fees (“VPFs”) from motion picture studios and distributors
and Alternative Content Fees (“ACFs”) from alternative content providers, and to distribute those fees to theatrical exhibitors
(collectively, “Services”).
VPFs are earned, net of administrative
fees, pursuant to contracts with movie studios and distributors, whereby amounts are payable by a studio to Phase I Deployment and to
Phase II Deployment when movies distributed by the studio are displayed on screens utilizing our Systems installed in movie theatres.
VPFs are earned and payable to Phase I Deployment based on a defined fee schedule until the end of the VPF term. One VPF is payable for
every digital title initially displayed per System. The amount of VPF revenue is dependent on the number of movie titles released and
displayed using the Systems in any given accounting period. VPF revenue is recognized in the period the title first plays for general
audience viewing in a digital projector equipped movie theatre. The Phase 1 Deployment’s and Phase 2 Deployments performance obligations
for revenue recognition are met at this time.
31
Phase II Deployment’s agreements
with distributors require the payment of VPFs, according to a defined fee schedule, for ten years from the date each system is installed;
however, Phase II Deployment may no longer collect VPFs once “cost recoupment,” as defined in the contracts with movie studios
and distributors, is achieved. Cost recoupment will occur once the cumulative VPFs and other cash receipts collected by Phase II Deployment
have equaled the total of all cash outflows, including the purchase price of all Systems, all financing costs, all “overhead and
ongoing costs”, as defined, and including service fees, subject to maximum agreed upon amounts during the three-year rollout period
and thereafter. Further, if cost recoupment occurs before the end of the eighth contract year, the studios will pay us a one-time “cost
recoupment bonus.” The Company evaluated the constraining estimates related to the variable consideration, i.e., the one-time bonus
and determined that it is not probable to conclude at this point in time that a significant reversal in the amount of cumulative revenue
recognized will occur when the uncertainty associated with the variable consideration is subsequently resolved.
Under the terms of our standard
cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the
licensing agreement, after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive
one-year terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we typically pursue the sale
of the Systems to such exhibitors. Cinedigm recognizes revenue once the customer takes possession of the Systems and Cinedigm received
the sale proceeds. Such sales were originally contemplated as the conclusion of the digital cinema deployment plan. Total system sales
executed was $6.1 million and $6.7 million, during the year ended March 31, 2022 and 2021, respectively. Revenues earned in
connection with up front exhibitor contributions are deferred and recognized over the expected cost recoupment period.
Exhibitors who purchased and
own Systems using their own financing in Phase II of the Cinema Equipment Business paid us an upfront activation fee of approximately
$2.0 thousand per screen (the “Exhibitor-Buyer Structure”). Upfront activation fees were recognized in the period in
which these Systems were delivered and ready for content, as we had no further obligations to the customer after that time and collection
was reasonably assured. In addition, we recognize activation fee revenue of between $1.0 thousand and $2.0 thousand on Phase
II Deployment Systems and for Systems installed by CDF2 Holdings, a related party, (See Note 3 – Other Interests ) upon
installation and such fees are generally collected upfront upon installation. Our services division manages and collects VPFs on behalf
of exhibitors, for which it earns an administrative fee equal to 10% of the VPFs collected.
The Cinema Equipment Business
earns an administrative fee of approximately 5% of VPFs collected and, in addition, earns an incentive service fee equal to 2.5%
of the VPFs earned by Phase 1 DC. This administrative fee is related to the collection and remittance of the VPF’s and the performance
obligation is satisfied at that time the related VPF fees are due which is at the time the movies are displayed on screens utilizing our
Systems installed in movie theatres. The service fees are recognized as a point in time revenue when the corresponding VPF fees are due
from the movie studios and distributors.
Content & Entertainment Business
CEG earns fees for the distribution
of content in the home entertainment markets via several distribution channels, including digital, video on demand (“VOD”
or “OTT Streaming and Digital”), and physical goods (e.g., DVDs and Blu-ray Discs) (“Physical Revenue” or “Base
Distribution Business”). Fees earned are typically a percentage based on the net amounts received from our customers. Depending
upon the nature of the agreements with the platform and content providers, the fee rate that we earn varies. The Company’s performance
obligations include the delivery of content for transactional, subscription and ad supported/free ad-supported streaming TV (“FAST”)
on the digital platforms, and shipment of DVDs and Blu-ray Discs. Revenue is recognized at the point in time when the performance obligation
is satisfied, which is when the content is available for subscription on the digital platform, at the time of shipment for physical goods,
or point-of-sale for transactional and VOD services as the control over the content or the physical title is transferred to the customer.
The Company considers the delivery of content through various distribution channels to be a single performance obligation. Physical revenue
is recognized after deducting the reserves for sales returns and other allowances, which are accounted for as variable consideration.
Physical goods reserved for sales
returns and other allowances are recorded based upon historical experience. If actual future returns and allowances differ from past experience,
adjustments to our allowances may be required.
CEG also has contracts for the
theatrical distribution of third party feature movies and alternative content. CEG’s distribution fee revenue and CEG’s participation
in box office receipts are recognized at the time a feature movie and alternative content are viewed. CEG has the right to receive or
bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded as a receivable
at the time of execution, and all related distribution revenue is deferred until the third party feature movies’ or alternative
content’s theatrical release date.
32
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.,
DVDs and Blu-ray Discs) to customers. We recognize all shipping and handling costs as an expense in cost of goods sold because we are
responsible for delivery of the product to our customers prior to transfer of control to the customer.
Credit Losses
We maintain reserves for potential
credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations,
customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.
Reserves are recorded primarily on a specific identification basis.
Our CEG segment recognizes accounts
receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that it recognizes revenue from a
sale. Reserves for product returns and other allowances is variable consideration as part of the transaction price. If actual future returns
and allowances differ from past experience, adjustments to our allowances may be required.
We record accounts receivable,
long-term in connection with activation fees that we earn from Systems deployments that have extended payment terms. Such accounts receivable
are discounted to their present value at prevailing market rates.
Contract Liabilities
We generally record a receivable
related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability)
when cash payments are received or due in advance of our performance, even if amounts are refundable.
Deferred revenue pertaining to
our Content & Entertainment Business includes amounts related to the sale of DVDs with future release dates.
Deferred revenue relating to
our Cinema Equipment Business pertains to revenues earned in connection with up front exhibitor contributions that are deferred and recognized
over the expected cost recoupment period. It also includes unamortized balances in connection with activation fees due from the Systems
deployments that have extended payment terms.
The ending deferred revenue balance, including current and non-current
balances, as of March 31, 2022 was $0.2 million. For the year ended March 31, 2022, the additions to our deferred revenue balance were
primarily due to cash payments received or due in advance of satisfying performance obligations, while the reductions to our deferred
revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in
the ordinary course of business.
During the year ended March 31, 2022, $813 thousand of revenue was
recognized that was included in the deferred revenue balance at the beginning of the year.
Participations and royalties
payable
When we use third parties to
distribute company owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing
arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers
for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed
to us by such studios or content producers.
33
ASSET ACQUISITIONS
An asset acquisition is an acquisition of an asset,
or a group of assets, that does not meet the definition of a business as substantially all of the fair value of the gross assets acquired
are concentrated in a single or group of similar, identifiable assets. Asset acquisitions are accounted for by using the cost accumulation
model whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on a relative fair
value basis. Determining and valuing intangible assets requires judgment.
BUSINESS COMBINATIONS
The Company accounts for acquisitions in accordance with FASB ASC 805,
“Business Combinations” (“ASC 805”), and goodwill in accordance with ASC 350, “ Intangibles — Goodwill
and Other” (“ASC 350”). The excess of the purchase price over the estimated fair value of net assets acquired
in a business combination is recorded as goodwill. ASC 805 specifies criteria to be used in determining whether intangible assets acquired
in a business combination must be recognized and reported separately from goodwill. Amounts assigned to goodwill and other identifiable
intangible assets are based on independent appraisals or internal estimates.
ASC 805 defines the acquirer in a business combination as the entity
that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date the acquirer
achieves control. ASC 805 requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest
in the acquirer (if any) at the acquisition date, measured at their fair values as of that date. ASC 805 also requires the acquirer to
recognize contingent consideration (if any) at the acquisition date, measured at its fair value at that date.
Results of Operations for the Fiscal Years Ended March 31,
2022 and 2021
Revenues
For the Fiscal Year Ended March 31,
($ in thousands)
2022
2021
$ Change
% Change
Cinema Equipment Business
$ 18,159
$ 3,222
$ 14,937
464 %
Content & Entertainment
37,895
28,197
9,698
34 %
$ 56,054
$ 31,419
$ 24,635
78 %
Revenues generated by our Cinema Equipment Business segment increased
as a result of the revenue recognition for the AMC Equipment Purchase Agreements, and the recognition of variable considerations and
the reopening of theatres showing major studio new content. During the year ended March 31, 2021, theatres re-opened with limited capacities
as vaccines became readily available and as fully reopened as of March 31, 2022. Total system sales
revenue recognized was $11.3 million and $0.6 million, during the years ended March 31, 2022 and 2021, respectively.
Blockbuster content released during the period ending March 31, 2022 showed an uptick in VPF revenue but fell shy of
pre-pandemic levels. The revenues in the Content & Entertainment Business segment increased by 34% for the year ended
March 31, 2022 compared to the year ended March 31, 2021. The increase is consistent with the addition of five new streaming channels
related to Screambox, Bloody Disgusting and DMR business acquisitions as well as an increase in the number of advertising partners and
stay at home orders increased in home digital viewing.
Direct Operating Expenses
For the Fiscal Year Ended March 31,
($ in thousands)
2022
2021
$ Change
% Change
Cinema Equipment Business
$ 687
$ 683
$ 4
1 %
Content & Entertainment
20,207
15,420
4,787
31 %
$ 20,894
$ 16,103
$ 4,791
30 %
The increase in direct operating expenses in the year ended March 31,
2022 for the Cinema Equipment Business compared to the prior period was primarily due to a slight increase in asset storage costs. The
increase in direct operating expenses in the year ended March 31, 2022 for the Content & Entertainment Business compared to the prior
period was primarily due to $3.3 million higher content and production costs related to continued growth in revenue and distribution,
and expenses for newly acquired channels. Software as a service (“SaaS”) costs increased $2.4 million on Cinedigm owned and
managed channels from higher transactions and revenue. Other direct operating expenses, including licensing, participations fees and website
content costs were $0.8 million higher. However, direct operating costs were partially offset by $2.5 million lower freight and fulfillment
due to lower physical sales in the year ended March 31, 2022.
Selling, General and Administrative Expenses
For the Fiscal Year Ended March 31,
($ in thousands)
2022
2021
$ Change
% Change
Cinema Equipment Business
$
1,405
$
2,155
$
(750
)
(35
)%
Content & Entertainment
13,935
9,798
4,137
42
%
Corporate
14,211
9,917
4,294
43
%
$
29,551
$
21,870
$
7,681
35
%
Selling, general and administrative expenses for the year ended March
31, 2022 increased by $8 million primarily due to the acquisitions of Screambox, DMR and Bloody Disguising. $2.4 million increase in personnel
costs, $2.2 million in long term incentive plan stock appreciation rights, $0.4 million in computer related expenses and $0.4 million
in public relations expenses.
34
Recovery of Doubtful Accounts
Recovery of doubtful accounts was $(0.5) million and $(0.1) million
for the fiscal years ended March 31, 2022 and 2021, respectively.
Depreciation and Amortization Expense on Property and Equipment
For the Fiscal Year Ended March 31,
($ in thousands)
2022
2021
$ Change
% Change
Cinema Equipment Business
$ 1,160
3,916
(2,756 )
(70 )%
Content & Entertainment
571
461
110
24 %
Corporate
3
27
(24 )
(89 )%
$ 1,734
$ 4,404
$ (2,670 )
(61 )%
Depreciation and amortization expense decreased in our Cinema Equipment
Business Segment as the majority of our digital cinema projection systems reached the conclusion of their ten-year useful lives during
fiscal years 2022 and 2021. Corporate and Content & Entertainment depreciation and amortization expense on property and equipment
is $0.1 million higher due to the addition of software placed into service and amortization related to the business acquisition intangibles.
Amortization of intangible assets
For the Fiscal Year Ended March 31,
($ in thousands)
2022
2021
$ Change
% Change
Cinema Equipment Business
$ -
23
(23 )
(100 )%
Content & Entertainment
2,830
2,488
342
14 %
Corporate
2
4
(2 )
(50 )%
$ 2,832
$ 2,515
$ 317
13 %
Amortization of intangible assets decrease in our Cinema Equipment Business
Segment as the intangibles held by that segment were fully amortized during the 2021 year. Corporate and Content & Entertainment amortization
expense on intangible assets is $342 thousand higher due to the addition of intangible assets from our acquisitions during the 2022 fiscal
year.
Impairment of intangible assets
During the years ended March 31, 2022 and 2021, we recorded an impairment
of $2.0 million and $0 for our customer relationships, respectively, related to our Content & Entertainment Segment.
Interest expense, net
For the Fiscal Year Ended March 31,
($ in thousands)
2022
2021
$ Change
% Change
Cinema Equipment Business
$ 138
$ 2,346
$ (2,208 )
(94 )%
Content & Entertainment
-
9
(9 )
(100 )%
Corporate
217
1,695
(1,478 )
(87 )%
$ 355
$ 4,050
$ (3,695 )
(91 )%
Interest expense in the Cinema Equipment Business segment decreased
primarily as a result of satisfying the Prospect Term Loan in during the quarter ended June 30, 2021. Interest expense in our Corporate
segment decreased as a result of lower loan balances from our Credit Facility, the forgiveness of the PPP Loan, reduction in Second Lien
Loans due to exchange for Common Stock and the conversion of the Bison Convertible Note and the Mingtai Convertible Note into shares of
Common Stock.
35
Changes in fair value in Metaverse
During the years ended March 31, 2022 and March 31, 2021, we sold 680,000
shares of Metaverse shares for net proceeds of approximately $12.3 thousand and 8,370,000 of Metaverse shares for net proceeds of approximately
$0.8 million, respectively, which resulted in a loss on sale of approximately $1 thousand and $73 thousand, respectively.
As of March, 31, 2022 and 2021, the value of our equity
investment in Metaverse, using the readily determinable fair value method from the quoted trading price of the Stock Exchange of
Hong Kong, was approximately $7.03 million and $6.44 million, respectively, resulting in a change in fair value of approximately
$0.59 million and $(43.5) million for the years ended March 31, 2022 and 2021 respectively.
Extinguishment of PPP Loan
For the year ended March 31,
2022, we recognized a gain on extinguishment of note payable of $2.2 million for the forgiveness of PPP loan principal and interest due
the approval of our PPP Loan forgiveness application by the U.S. Small Business Administration. This amount represents the entirety of
our PPP loan and interest balance.
Income Tax Expense
For the year ended March 31, 2022, the income
tax (benefit) of $(0.8) million represents a $(0.9) tax benefit mainly related to the releases of valuation allowance for a net change
of the deferred taxes, resulting from acquisition of Foundation TV. We also recorded income tax expense of $0.1 which was mainly
related to taxable income at the state level and timing differences related to fixed asset depreciation .
We recorded an income tax (benefit) of approximately $(0.3) million for year ended March 31, 2021, mainly related to minor changes in
estimates between the State tax income tax provision and tax filings.
Net Income/Loss attributable
to common shareholders
For the Fiscal Year Ended March 31,
($ in thousands)
2022
2021
$ Change
% Change
Cinema Equipment Business
$ 14,192
$ (6,904 )
$ 21,096
306 %
Content & Entertainment
(5,369 )
(3,767 )
(1,602 )
(43 )%
Corporate
(7,053 )
(52,505 )
45,452
87 %
$ 1,770
$ (63,176 )
$ 64,946
103 %
Adjusted EBITDA
We define Adjusted EBITDA to be earnings before interest, taxes, depreciation
and amortization, other income, net, stock-based compensation and expenses, merger and acquisition costs, restructuring, transition and
acquisitions expense, net, goodwill impairment and certain other items.
Consolidated
Adjusted EBITDA (including the results of Cinema Equipment Business segment) for the year ended March 31, 2022 increased by $13.9
compared to the year ended March 31, 2021. Adjusted EBITDA from our Cinema Equipment Business segment increased primarily due to the
increase in sales of equipment in the current year, and lower revenue in the prior year due to state mandated theater closures due
to COVID-19, the temporary halt of distribution of major studio releases and the expected decline of the Cinema Equipment Business.
Adjusted EBITDA from the Content & Entertainment business and Corporate decreased by $1.4 million for the year ended March 31,
2022 compared to the year ended March 31, 2021, due to an increase of $4.8 million in direct operating expense and increase
of $8.4 million in selling, general and administrative, higher stock-based
compensation, and other costs versus previous year despite a $9.7 million increase in Streaming digital revenue, adding channels,
and acquisitions.
Adjusted EBITDA is not a measurement of financial performance under
GAAP and may not be comparable to other similarly titled measures of other companies. We use Adjusted EBITDA as a financial metric to
measure the financial performance of the business because management believes it provides additional information with respect to the performance
of its fundamental business activities. For this reason, we believe Adjusted EBITDA will also be useful to others, including its stockholders,
as a valuable financial metric.
36
We present Adjusted EBITDA because we believe that Adjusted EBITDA
is a useful supplement to net income (loss) from continuing operations as an indicator of operating performance. We also believe that
Adjusted EBITDA is a financial measure that is useful both to management and investors when evaluating our performance and comparing our
performance with that of our competitors. We also use Adjusted EBITDA for planning purposes and to evaluate our financial performance
because Adjusted EBITDA excludes certain incremental expenses or non-cash items, such as stock-based compensation charges, that we believe
are not indicative of our ongoing operating performance.
We believe that Adjusted EBITDA is a performance measure and not a
liquidity measure, and therefore a reconciliation between net loss from continuing operations and Adjusted EBITDA has been provided in
the financial results. Adjusted EBITDA should not be considered as an alternative to income from operations or net loss from continuing
operations as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows,
in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, Adjusted EBITDA does not take into account
changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation
of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP
measures should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.
Following is the reconciliation of our consolidated
net loss to Adjusted EBITDA:
For the Fiscal Year Ended
March 31,
($ in thousands)
2022
2021
Net income (loss)
$ 2,271
$ (62,905 )
Add Back:
Income tax (income) expense
(788 )
(315 )
Depreciation and amortization of property and equipment
1,734
4,404
Amortization of intangible assets
2,832
2,515
(Gain) Loss on extinguishment of note payable
(2,178 )
1,498
Interest expense, net
355
4,050
Intangible impairment
1,968
-
Change in fair value on equity investment in Metaverse
(585 )
43,518
Other expense, net
471
1,475
Recovery of doubtful accounts
(485 )
(122 )
Stock-based compensation and expenses
5,487
2,892
Net income (loss) attributable to noncontrolling interest
(59 )
85
Adjusted EBITDA
$ 11,023
$ (2,905 )
Adjustments related to the Cinema Equipment Business
Depreciation and amortization of property and equipment
(1,160 )
$ (3,916 )
Amortization of intangible assets
-
(23 )
Stock-based compensation and expenses
-
73
Other expense
(11 )
-
Recovery of doubtful accounts
485
-
Income from operations
(14,347 )
4,142
Adjusted negative EBITDA from Content and Entertainment business
$ (4,010 )
$ (2,629 )
Recent Accounting Pronouncements
See Note 2 - Summary of Significant Accounting Policies to our
consolidated financial statements included herein.
Cash flow
Changes in our cash flows were as follows:
For the Fiscal Years Ended
March 31,
($ in thousands)
2022
2021
Net cash provided (used in) by operating activities
$ 4,879
$ (20,007 )
Net cash used in investing activities
(12,302 )
(1,710 )
Net cash provided by financing activities
2,636
24,272
Net increase (decrease) in cash and cash equivalents
$ (4,787 )
$ 2,555
37
As of March 31, 2022, we had cash balances of $13.1 million.
As of March 31, 2021, we had cash and restricted cash balances of $17.8
million.
For the year ended March 31, 2022, net cash provided by operating activities
is primarily driven by income from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts
and stock-based compensation, gain on extinguishment of note payable, including other changes in working capital. Additionally, during
the year ended March 31, 2022, the Company increased accounts payable by $5.4 million to vendors. Accounts receivable increased
due to growth in streaming and acquisitions of Bloody Disgusting, Screambox and DMR. Cash received from VPFs increased from the previous
period as theatres reopened and major studios resumed blockbuster releases in the theatrical market. Changes in accounts receivable
from our studio customers largely impact cash flows from operating activities and vary based on the seasonality of movie release schedules
by the major studios. Operating cash flows from CEG are typically higher during our fiscal third and fourth quarters, resulting from revenues
earned during the holiday season, and lower in the other two quarters as we pay royalties on such revenues. In addition, we make advances
on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within
six to twelve months. Cash flows were also impacted as a result of COVID-19, as during the year ended March 31, 2022, theatres began reopening
in many major markets with limited capacities and discounts remained in place through the first quarter. When the majority of major studios
began releasing blockbuster content to the theatrical markets and attendance improved the discounts were no longer applicable for the
last three quarters in the year ended March 31, 2022. Because our digital cinema business earns a VPF when a movie is first plays on a
system, the business was able to resume earning VPF revenue.
For the year ended March 31, 2021, net cash used
in operating activities is primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization, recovery
for doubtful accounts and stock-based compensation, including other changes in working capital. Additionally, during the year ended March
31, 2021, the Company paid down $29.8 million to vendors at both CEG and Corporate. Cash received from VPFs declined from the previous
period as Phase I Deployment Systems in our Cinema Equipment Business reached the conclusion of their deployment payment periods with
certain major studios. Changes in accounts receivable from our studio customers largely impact cash flows from operating activities and
vary based on the seasonality of movie release schedules by the major studios. Operating cash flows from CEG are typically higher during
our fiscal third and fourth quarters, resulting from revenues earned during the holiday season, and lower in the other two quarters as
we pay royalties on such revenues. In addition, we make advances on theatrical releases and to certain home entertainment distribution
clients for which initial expenditures are generally recovered within six to twelve months. Cash flows were also impacted as a result
of COVID-19, as during the year ended March 31, 2021, theatres in many major markets remained closed throughout the fourth quarter causing
the majority of major studios to move wide releases scheduled for the year ended March 31, 2021 to future dates. Only two major studios
had wide theatrical releases in the last part of the year, however, the theatrical window before the streaming debut was shortened or
eliminated to accommodate the lack of theatrical venues. Because our digital cinema business earns a VPF when a movie is first played
on a system, the temporary theatre closures resulting from the COVID-19 pandemic resulted in reduced revenues.
For the year ended March 31, 2022, cash flows
used in investing activities consisted of proceeds from the sale of investment securities of $0.01 million, purchases of property and
equipment of $0.6 million, and $11.7 million related to the purchase of a business.
For the year ended March 31, 2021, cash flows
used in investing activities consisted of proceeds from the sale of Metaverse shares of $0.8 million, purchases of property and equipment
of $0.06 million, the sale of property and equipment of $0.08 million, and the purchase of intangible assets of $2.5 million related to
the asset acquisition.
For the year ended March 31, 2022, cash flows
provided by financing activities consisted of payments of approximately $7.8 million in notes payable, $2.0 million in Credit Facility
repayments, and $12.4 million received in connection with the issuance Common Stock.
For the year ended March 31, 2021, cash flows provided by financing
activities consisted of payments of approximately $7.7 million in notes payable, $12.8 million in Credit Facility repayments, $42.7 million
received in connection with the issuance Common Stock, and $2.2 million received pursuant to the Payment Protection Program of the Coronavirus
Aid, Relief and Economic Security Act.
38
Contractual Obligations
The following table summarizes our significant contractual obligations
as of March 31, 2022:
Payments Due
Contractual Obligations (in thousands)
Total
2023
2024 &
2025
2026 &
2027
Thereafter
Operating lease obligations
$ 749
$ 258
$ 491
$ —
$ —
We may continue to generate net losses for the
foreseeable future primarily due to depreciation and amortization, interest on our debt obligations, marketing and promotional activities
and content acquisition and marketing costs. Certain of these costs, including costs of content acquisition, marketing and promotional
activities, could be reduced if necessary. We feel we are adequately financed for at least the next twelve months; however, we may need
to raise additional capital for working capital as deemed necessary. Failure to generate additional revenues, raise additional capital
or manage discretionary spending could have an adverse effect on our financial position, results of operations or liquidity.
Seasonality
Revenues from our Cinema Equipment segment derived
from the collection of VPFs from motion picture studios are seasonal, coinciding with the timing of releases of movies by the motion picture
studios. Generally, motion picture studios release the most marketable movies during the summer and the winter holiday season. The unexpected
emergence of a hit movie during other periods can alter the traditional trend. The timing of movie releases can have a significant effect
on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or any other
quarter. While CEG benefits from the winter holiday season, we believe the seasonality of motion picture exhibition, is becoming less
pronounced as the motion picture studios are releasing movies somewhat more evenly throughout the year.
Off-balance sheet arrangements
We are not a party to any off-balance sheet arrangements. In addition,
as discussed further in Note 2 - Basis of Presentation and Consolidation and Note - Other Interests to the Consolidated
Financial Statements included in Item 8 of this Annual Report on Form 10-K, we hold a 100% equity interest in CDF2 Holdings, which is
an unconsolidated variable interest entity (“VIE”), which wholly owns Cinedigm Digital Funding 2, LLC; however, we are not
the primary beneficiary of the VIE.
Impact of Inflation
The impact of inflation on our operations has
not been significant to date. However, there can be no assurance that a high rate of inflation in the future would not have an adverse
impact on our operating results.
39