Cineverse Corp. 10-Q

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) CINEDIGM CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except for share and per share data) September 30, 2022 March 31, 2022 ASSETS Current assets Cash and cash equivalents $ 9,676 $ 13,062 Accounts receivable, net of allowance of $ 2,726 and $ 2,921 , respectively 24,939 30,843 Inventory 157 116 Unbilled revenue 2,647 2,349 Prepaid and other current assets 8,080 5,793 Total current assets 45,499 52,163 Equity investment in A Metaverse Company, a related party, at fair value 5,200 7,028 Property and equipment, net 1,756 1,980 Operating lease right-of use assets, net 612 749 Intangible assets, net 18,554 20,034 Goodwill 21,025 21,084 Other long-term assets 1,610 1,598 Total assets $ 94,256 $ 104,636 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued expenses $ 47,268 $ 52,025 Line of credit, including unamortized debt issuance costs of $ 165 and $ 0 , respectively (see Note 5) 3,622 - Current portion of deferred consideration on purchase of business 3,523 3,432 Current portion of earnout consideration on purchase of business 741 1,081 Operating lease liabilities 127 258 Deferred revenue 270 196 Total current liabilities 55,551 56,992 Deferred consideration on purchase – net of current portion 5,615 5,600 Earnout consideration on purchase – net of current portion 651 603 Operating lease liabilities, net of current portion 489 491 Other long-term liabilities 74 - Total liabilities 62,380 63,686 Commitments and contingencies (see Note 6) Stockholders’ Equity Preferred stock, 15,000,000 shares authorized; Series A 10 % - $ 0.001 par value per share; 20 shares authorized; 7 shares issued and 7 shares outstanding at September 30, 2022 and March 31, 2022. Liquidation preference of $ 3,648 3,559 3,559 Common stock, $ 0.001 par value; Class A stock 275,000,000 and 275,000,000 shares authorized at September 30, 2022 and March 31, 2022, respectively, 179,316,947 and 176,629,435 shares issued and 178,001,096 and 175,313,584 shares outstanding at September 30, 2022 and March 31, 2022, respectively 176 174 Additional paid-in capital 525,657 522,601 Treasury stock, at cost; 1,315,851 and 1,315,851 Class A common shares at September 30, 2022 and March 31, 2022, respectively ( 11,608 ) ( 11,608 ) Accumulated deficit ( 484,155 ) ( 472,310 ) Accumulated other comprehensive loss ( 477 ) ( 163 ) Total stockholders’ equity of Cinedigm Corp. 33,152 42,253 Deficit attributable to noncontrolling interest ( 1,276 ) ( 1,303 ) Total equity 31,876 40,950 Total liabilities and equity $ 94,256 $ 104,636 See accompanying Notes to Condensed Consolidated Financial Statements 1 CINEDIGM CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except for share and per share data) Three Months Ended September 30, Six Months Ended September 30, 2022 2021 2022 2021 Revenues $ 14,006 $ 10,103 $ 27,596 $ 25,118 Costs and expenses: Direct operating (excludes depreciation and amortization shown below) 8,092 3,333 15,448 7,964 Selling, general and administrative 9,597 7,159 19,412 13,202 Provision (recovery) for doubtful accounts 44 ( 111 ) 47 ( 40 ) Depreciation and amortization of property and equipment 248 440 504 1,089 Amortization of intangible assets 736 696 1,480 1,543 Total operating expenses 18,717 11,517 36,891 23,758 Income (loss) from operations ( 4,711 ) ( 1,414 ) ( 9,295 ) 1,360 Interest expense, net ( 380 ) ( 36 ) ( 513 ) ( 180 ) Gain on forgiveness of PPP loan - - 2,178 Change in fair value of equity investment in Metaverse, a related party ( 572 ) 666 ( 1,828 ) 1,000 Other (income) expense, net 8 102 ( 6 ) 91 Income (loss) before income taxes ( 5,655 ) ( 682 ) ( 11,642 ) 4,449 Income tax benefit (expense) - 487 - 550 Net income (loss) ( 5,655 ) ( 195 ) ( 11,642 ) 4,999 Net (income) loss attributable to noncontrolling interest ( 9 ) 11 ( 27 ) 4 Net income (loss) attributable to controlling interests ( 5,664 ) ( 184 ) ( 11,669 ) 5,003 Preferred stock dividends ( 88 ) ( 89 ) ( 176 ) ( 178 ) Net income (loss) attributable to common stockholders $ ( 5,752 ) $ ( 273 ) $ ( 11,845 ) $ 4,825 Net income (loss) per Class A common stock attributable to common stockholders - basic: $ ( 0.03 ) $ ( 0.00 ) $ ( 0.07 ) $ 0.03 Weighted average number of Class A common stock outstanding: basic 176,895,367 168,275,139 176,161,924 167,524,744 Net income (loss) per Class A common stock attributable to common stockholders - diluted: $ ( 0.03 ) $ ( 0.00 ) $ ( 0.07 ) $ 0.03 Weighted average number of Class A common stock outstanding: diluted 176,895,367 168,275,139 176,161,924 170,743,885 See accompanying Notes to Condensed Consolidated Financial Statements 2 CINEDIGM CORP. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (In thousands) Three Months Ended September 30, Six Months Ended September 30, 2022 2021 2022 2021 Net income (loss) $ ( 5,655 ) $ ( 195 ) $ ( 11,642 ) $ 4,999 Other comprehensive (loss) income: foreign exchange translation ( 362 ) 35 ( 314 ) ( 19 ) Comprehensive income (loss) ( 6,017 ) ( 160 ) ( 11,956 ) 4,980 Less: comprehensive income (loss) attributable to noncontrolling interest ( 9 ) 11 ( 27 ) 4 Comprehensive income (loss) attributable to controlling interests $ ( 6,026 ) $ ( 149 ) $ ( 11,983 ) $ 4,984 See accompanying Notes to Condensed Consolidated Financial Statements 3 CINEDIGM CORP. CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (In thousands, except share data) Series A Preferred Stock Class A Common Stock Treasury Additional Paid-In Accumulated Accumulated Other Comprehensive Total Stockholders’ Equity Non-Controlling Total Equity Shares Amount Shares Amount Shares Amount Capital Deficit Loss (Deficit) Interest (Deficit) Balances as of March 31, 2021 7 $ 3,559 166,228,568 $ 164 1,313,836 $ ( 11,603 ) $ 499,272 $ ( 474,080 ) $ ( 68 ) $ 17,244 $ ( 1,362 ) $ 15,882 Foreign exchange translation — — — — — — — — ( 54 ) ( 54 ) — ( 54 ) Stock-based compensation — — 35,714 — — — 983 — — 983 — 983 Issuance of common stock in connection with a business combination — — 1,483,129 2 — — 2,504 — — 2,506 — 2,506 Preferred stock dividends paid with common stock — — 53,278 — — — 89 ( 89 ) — — — — Net income — — — — — — — 5,187 — 5,187 7 5,194 Balances as of June 30, 2021 7 3,559 167,800,689 166 1,313,836 ( 11,603 ) 502,848 ( 468,982 ) ( 122 ) 25,866 ( 1,355 ) 24,511 Foreign exchange translation — — — — — — — — 35 35 — 35 Stock-based compensation — — 132,630 — — — 946 — — 946 — 946 Issuance of common stock in connection with business combinations — — 1,179,156 1 — — 2,317 — — 2,318 — 2,318 Treasury stock in connection with taxes withheld from employees — — ( 2,015 ) — 2,015 ( 5 ) — — — ( 5 ) — ( 5 ) Preferred stock dividends — — — — — — — ( 89 ) — ( 89 ) — ( 89 ) Net loss — — — — — — — ( 184 ) — ( 184 ) ( 11 ) ( 195 ) Balances as of September 30, 2021 7 3,559 169,110,460 167 1,315,851 ( 11,608 ) 506,111 ( 469,255 ) ( 87 ) 28,887 ( 1,366 ) 27,521 See accompanying & Notes to Condensed Consolidated Financial Statements 4 CINEDIGM CORP. CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (In thousands, except share data) Series A Preferred Stock Class A Common Stock Treasury Additional Paid-In Accumulated Accumulated Other Comprehensive Total Stockholders’ Equity Non-Controlling Total Equity Shares Amount Shares Amount Shares Amount Capital Deficit Loss (Deficit) Interest (Deficit) Balances as of March 31, 2022 7 $ 3,559 175,313,584 $ 174 1,315,851 $ ( 11,608 ) $ 522,601 $ ( 472,310 ) $ ( 163 ) $ 42,253 $ ( 1,303 ) $ 40,950 Foreign exchange translation — — — — — — — — 48 48 — 48 Stock-based compensation — — — — — — 980 — — 980 — 980 Preferred stock dividends paid with common stock — — 108,024 — — — 88 — — 88 — 88 Preferred stock dividends accrued — — — — — — — ( 88 ) — ( 88 ) — ( 88 ) Net income (loss) — — — — — — — ( 6,005 ) — ( 6,005 ) 18 ( 5,987 ) Balances as of June 30, 2022 7 $ 3,559 175,421,608 $ 174 1,315,851 $ ( 11,608 ) $ 523,669 $ ( 478,403 ) $ ( 115 ) $ 37,276 $ ( 1,285 ) $ 35,991 Foreign exchange translation — — ( 362 ) ( 362 ) ( 362 ) Stock-based compensation — — 791 791 791 Preferred stock dividends paid with common stock — — 178,572 88 88 88 Issuance of common stock in connection with performance stock units and annual incentive awards, net of employee payroll taxes — — 2,066,879 2 871 873 873 Issuance of common stock for BD Earnout commitment — — 334,037 238 238 238 Preferred stock dividends accrued — — ( 88 ) ( 88 ) ( 88 ) Net income (loss) — — ( 5,664 ) ( 5,664 ) 9 ( 5,655 ) Balances as of September 30, 2022 7 $ 3,559 178,001,096 $ 176 1,315,851 $ ( 11,608 ) $ 525,657 $ ( 484,155 ) $ ( 477 ) $ 33,152 $ ( 1,276 ) $ 31,876 See accompanying Notes to Condensed Consolidated Financial Statements 5 CINEDIGM CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Six Months Ended September 30, 2022 2021 Cash flows from operating activities: Net (loss) income $ ( 11,642 ) $ 4,999 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization of property and equipment and amortization of intangible assets 1,984 2,632 Changes in fair value of equity investment in Metaverse 1,828 ( 1,000 ) Gain from forgiveness of PPP loan - ( 2,178 ) Impairment of advances 614 399 Provision for doubtful accounts 47 ( 40 ) Amortization of debt issuance costs included in interest expense 12 - Stock-based compensation, inclusive of $ 551 withheld for employee payroll taxes for shares not issued 3,198 1,929 Interest expense for deferred consideration 391 - Interest expense for earnout consideration 104 - Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 5,857 ( 2,887 ) Inventory ( 41 ) 44 Unbilled revenue ( 298 ) ( 697 ) Prepaids and other current assets, and other long-term assets ( 2,913 ) 961 Accounts payable, accrued expenses, and other liabilities ( 5,494 ) 5,953 Deferred revenue 74 ( 757 ) Net cash (used in) provided by operating activities ( 6,279 ) 9,358 Cash flows from investing activities: Purchases of property and equipment ( 274 ) ( 81 ) Purchase of businesses - ( 4,750 ) Sale of equity investment in Metaverse - 11 Net cash used in investing activities ( 274 ) ( 4,820 ) Cash flows from financing activities: Payments of notes payable ( 443 ) ( 7,786 ) Proceeds (payments) from line of credit, net of debt issuance cost 3,610 ( 1,956 ) Net cash provided by (used in) financing activities 3,167 ( 9,742 ) Net change in cash and cash equivalents ( 3,386 ) ( 5,204 ) Cash and cash equivalents at beginning of period 13,062 17,849 Cash and cash equivalents at end of period $ 9,676 $ 12,645 See accompanying Notes to Condensed Consolidated Financial Statements 6 CINEDIGM CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND LIQUIDITY Cinedigm Corp. (“Cinedigm,” the “Company,” “we,” “us,” or similar pronouns) was incorporated in Delaware on March 31, 2000. We are (i) a distributor and aggregator of independent movie, television and other short form content managing a library of distribution rights to thousands of titles and episodes released across digital, physical, theatrical, home and mobile entertainment platforms (“Streaming”) and (ii) a servicer of digital cinema assets for movie screens in both North America and several international countries. We report our financial results in two primary segments as follows: (1) cinema equipment business and (2) content and entertainment business (“Content & Entertainment”). 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. It also provides fee-based support to music and movie screens as well as directly to exhibitors and other third-party customers in the form of monitoring, billing, collection and verification services. Our Content & Entertainment segment operates in: (1) ancillary market aggregation and distribution of entertainment content and (2) branded and curated over-the-top (“OTT”) digital network business providing entertainment channels and applications. Risks and Uncertainties The COVID-19 pandemic and related economic repercussions created significant volatility and uncertainty impacting the Company’s results for the period. As part of our Content & Entertainment business, the Company sells DVDs and Blu-ray discs at brick-and-mortar stores. The COVID-19 pandemic and the related economic impact are likely to result in sustained volatility and uncertainty, which could have an adverse effect on our business, financial condition and results of operations. Liquidity We have incurred net losses historically and have net loss of $ 11.6 million for the six months ended September 30, 2022. We also have an accumulated deficit of $ 484.2 million and negative working capital of $ 10.1 million as of September 30, 2022. Net cash used in operating activities for the six months ended September 30, 2022 was $ 6.3 million. We may continue to generate net losses for the foreseeable future. We believe the combination of: (i) our cash and cash equivalent balances at September 30, 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. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION AND CONSOLIDATION Our consolidated financial statements include the accounts of Cinedigm and its wholly-owned and majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Investments in which we do not have a controlling interest or are not the primary beneficiary, but have the ability to exert significant influence, are accounted for under the equity method of accounting. Noncontrolling interests for which we have been determined to be the primary beneficiary are consolidated and recorded as net loss attributable to noncontrolling interest. See Note 3 - Other Interests to the Consolidated Financial Statements for a discussion of our noncontrolling interests. 7 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 accrual of digital revenue, accounts receivable reserves, return reserves, inventory reserves, recovery of advances, assessment of goodwill impairment, intangible asset impairment and estimated amortization lives, fair value for asset acquisitions and business combinations, valuation allowances for income taxes and stock based compensation awards. Actual results could differ from these estimates. CASH AND CASH EQUIVALENTS 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. Cash and cash equivalents consisted of the following: As of (in thousands) September 30, 2022 March 31, 2022 Cash and Cash Equivalents $ 9,676 $ 13,062 EQUITY INVESTMENT IN A METAVERSE COMPANY, A RELATED PARTY On February 14, 2020, the Company acquired an approximately 11.5 % interest in A Metaverse Company (“Metaverse”), a leading publicly traded Chinese entertainment company, formerly Starrise Media Holdings Limited, whose ordinary shares are listed on the Stock Exchange of Hong Kong. The Company acquired such interest as a strategic investment and in a private transaction from a shareholder of Metaverse that is related to our major shareholder. Our major shareholder also maintains a significant beneficial interest ownership in Metaverse. Upon consummation of the transaction on February 14, 2020, the Company recorded an initial investment of approximately $ 25.1 million, which is the fair market value of the Metaverse shares on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Company’s Class A common stock, par value of $ 0.001 per share (the “Common Stock”) of $ 11.2 million, valued as of the date of the issuance of the Common Stock of the Company. The difference in value of shares received in Metaverse and shares issued by the Company is deemed as contributed capital and recorded in additional paid-in capital. On April 10, 2020, the Company purchased an additional 15 % interest in Metaverse in a private transaction from shareholders of Metaverse that are affiliated with the major shareholder of the Company. The Company recorded an additional equity investment of approximately $ 28.2 million, which is the fair market value of the Metaverse shares on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Company’s common stock of $ 11.0 million, valued at the date of the issuance of the Common Stock of the Company. The difference in the value of shares received in Metaverse and shares issued by the Company is deemed as contributed capital and recorded in additional paid-in capital. This transaction was also recorded as an equity investment in Metaverse. The Company has accounted for these investments under the equity method of accounting as the Company can exert significant influence over Metaverse with its direct ownership and affiliation with the Company’s majority shareholders. The Company has made an irrevocable election to apply the fair value option under ASC 825-10, Financial Instruments, as it relates to its equity investment in Metaverse. On April 1, 2022, trading of Metaverse’s ordinary shares was halted on the Hong Kong Stock Exchange. This investment was previously a Level 1 investment as the shares were being actively traded in a marketplace. The investment is recorded at fair value as a Level 3 as there is not an active market or observable inputs. As of September 30, 2022, Metaverse’s stock valuation is based on an independent valuation based on the market approach is categorized as Level 3 based on unobservable inputs. 8 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. ADVANCES Advances, which are recorded within prepaid and other current assets on the consolidated balance sheets, represent amounts prepaid to studios or content producers for which we provide content distribution services. We evaluate advances regularly for recoverability and record impairment charges for amounts that we expect may not be recoverable as of the consolidated balance sheet date. Impairments related to advances were $ 0.6 million and $ 0.2 million, for the three months ended September 30, 2022 and 2021, respectively. Impairments related to advances were $ 0.6 million and $ 0.4 million, for the six months ended September 30, 2022 and 2021, respectively. PROPERTY AND EQUIPMENT Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation expense is recorded using the straight-line method over the estimated useful lives of the respective assets as follows: Computer equipment and software 3 - 5 years Internal use software 5 years Digital cinema projection systems 10 years Machinery and equipment 3 - 10 years Furniture and fixtures 3 - 6 years We capitalize costs associated with software developed or obtained for internal use when the preliminary project stage is completed, and it is determined that the software will provide significantly enhanced capabilities and modifications. These capitalized costs are included in property and equipment and include external direct cost of services procured in developing or obtaining internal-use software and personnel and related expenses for employees who are directly associated with, and who devote time to internal-use software projects. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended use. Once the software is ready for its intended use, the costs are amortized over the useful life of the software. Post-configuration training and maintenance costs are expensed as incurred. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the leasehold improvements. Repair and maintenance costs are charged to expense as incurred. Major renewals, improvements and additions are capitalized. Upon the sale or other disposition of any property and equipment, the cost and related accumulated depreciation and amortization are removed from the accounts and the gain or loss on disposal is included in the consolidated statements of operations. IMPAIRMENT OF LONG-LIVED AND FINITE-LIVED ASSETS We review the recoverability of our long-lived assets and finite-lived intangible assets, when events or conditions occur that indicate a possible impairment exists. The assessment for recoverability is based primarily on our ability to recover the carrying value of our long-lived and finite-lived assets from expected future undiscounted net cash flows. If the total of expected future undiscounted net cash flows is less than the total carrying value of the asset, the asset is deemed not to be recoverable and possibly impaired. We then estimate the fair value of the asset to determine whether an impairment loss should be recognized. An impairment loss will be recognized if the asset’s fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted cash flows. During the three and six months ended September 30, 2022 and 2021, no impairment charge was recorded from operations for long-lived assets or finite-lived assets. 9 INTANGIBLE ASSETS Intangible assets are stated at cost less accumulated amortization. For intangible assets that have finite lives, the assets are amortized using the straight-line method over the estimated useful lives of the related assets. For intangible assets with indefinite lives, the assets are tested annually for impairment or sooner if a triggering event occurs. During the three and six months ended September 30, 2022 and 2021, no impairment charge was recorded for intangible assets. During the three months ended September 30, 2022 and 2021, the Company had an amortization expense of $ 0.7 million and $ 0.7 million, respectively. During the six months ended September 30, 2022 and 2021, the Company had an amortization expense of $ 1.5 million and $ 1.5 million, respectively. Amortization lives of the respective assets as follows: Trademark 3 years Content Library 3 – 20 years Customer Relationships 5 – 13 years Tradename 2 – 15 years Supplier Agreements 2 years Advertiser relationships and Channel 3 - 13 years Software 10 years The Company’s intangible assets included the following on September 30, 2022: Cost Basis Accumulated Amortization Impairment Net Trademark $ 1,925 $ ( 1,076 ) $ - $ 849 Content Library 23,685 ( 20,938 ) - 2,747 Customer Relationships 10,658 ( 7,455 ) ( 1,968 ) 1,235 Tradename 2,101 ( 714 ) - 1,387 Theatre Relationship 550 ( 550 ) - - Patents 17 ( 17 ) - - Supplier Agreements 11,430 ( 11,415 ) - 15 Advertiser relationships and Channel 10,081 ( 560 ) - 9,521 Software 3,200 ( 400 ) - 2,800 Total Intangible Assets $ 63,647 $ ( 43,125 ) $ ( 1,968 ) $ 18,554 The Company’s intangible assets included the following on March 31, 2022: Cost Basis Accumulated Amortization Impairment Net Trademark $ 1,925 $ ( 776 ) $ - 1,149 Content Library 23,685 ( 20,665 ) - 3,020 Customer Relationships 10,658 ( 7,327 ) ( 1,968 ) 1,363 Tradename 2,101 ( 525 ) - 1,576 Theatre Relationship 550 ( 550 ) - - Patents 17 ( 17 ) - - Supplier Agreements 11,430 ( 11,384 ) - 46 Advertiser relationships and Channel 10,081 ( 161 ) - 9,920 Software 3,200 ( 240 ) - 2,960 Total Intangible Assets $ 63,647 $ ( 41,645 ) $ ( 1,968 ) 20,034 10 Below is the amortization expense per year for the intangible assets: Total 2023 $ 1,811 2024 3,048 2025 1,796 2026 1,489 2027 1,269 Thereafter 9,141 Total $ 18,554 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) The equity investment in Metaverse is in Hong Kong dollars and was translated into US dollars as of September 30, 2022 and March 31, 2022 at an exchange rate of 7.8 and 7.8 Hong Kong Dollars to 1 US Dollar, respectively. The fair value of this equity investment was measured by the quoted market price of Metaverse on the Stock Exchange of Hong Kong as of March 31, 2022. On April 1, 2022, trading of Metaverse’s ordinary shares was halted on the Hong Kong Stock Exchange and as of September 30, 2022, Metaverse’s stock valuation is based on an independent valuation based on the market approach and is categorized as Level 3 based on unobservable inputs. The Company estimated the fair value based on the market approach based on the last known enterprise value adjusting for trends in value from comparable companies. The adjustment to fair value of this investment resulted in a loss of $ 1.8 million and gain of $ 1.0 million for the six months ended September 30, 2022 and 2021, respectively. As the value of the investment in Metaverse is determined based on unobservable inputs, company and industry fluctuations, as well as general economic, political, regulatory and market conditions such as recessions, interest rate changes or international currency fluctuations, changes to these assumptions may have a significant impact on the fair value of our investment in Metaverse. 11 The following tables summarize the levels of fair value measurements of our financial assets and liabilities as of September 30, 2022 and March 31, 2022: As of September 30, 2022 (in thousands) Level 1 Level 2 Level 3 Total Assets: Equity investment in Metaverse, at fair value $ — $ — $ 5,200 $ 5,200 $ — $ — $ 5,200 $ 5,200 Liabilities: Current portion of earnout consideration on purchase of a business $ — $ — $ 741 $ 741 Long term portion of earnout consideration on purchase of a business — — 651 651 $ — $ — $ 1,392 $ 1,392 As of March 31, 2022 (in thousands) Level 1 Level 2 Level 3 Total Assets: Equity investment in Metaverse, at fair value $ 7,028 $ — $ — $ 7,028 $ 7,028 $ — $ — $ 7,028 Liabilities: Current portion of earnout consideration on purchase of a business $ — $ — $ 1,081 $ 1,081 Long term portion of earnout consideration on purchase of a business — — 603 603 $ — $ — $ 1,684 $ 1,684 Our cash and cash equivalents, accounts receivable, unbilled revenue and accounts payable and accrued expenses are financial instruments and are recorded at cost in the consolidated balance sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature. ASSET ACQUISITIONS An asset acquisition is an acquisition of an asset, or a group of assets, that does not meet the definition of a business. Asset acquisitions are accounted for by using the cost accumulation model whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values. GOODWILL Goodwill is the excess of the purchase price paid over the fair value of the net assets of an acquired business. Goodwill is tested for impairment on an annual basis or more often if warranted by events or changes in circumstances indicating that the carrying value may exceed fair value, also known as impairment indicators. Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current economic indicators and market conditions, and assumptions about our strategic plans with regard to its operations. To the extent additional information arises, market conditions change, or our strategies change, it is possible that the conclusion regarding whether our remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material effect on our consolidated financial position or results of operations. The Company has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or to perform the quantitative impairment test. The Company reassessed goodwill impairment on its annual measurement date of March 31, 2022 by performing a qualitative analysis and determined that it was not more likely than not that the fair value of its reporting unit is less than its carrying amount. 12 No goodwill impairment charge was recorded in the three and six months ended September 30, 2022 and 2021. During the six months ended September 30, 2022, the Company recorded a $ 59 thousand reduction in goodwill as a result from working capital true-up related to DMR. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following: As of (In thousands) September 30, 2022 March 31, 2022 Accounts payable $ 28,262 $ 34,177 Amounts due to producers 9,314 10,430 Accrued compensation and benefits 5,291 3,507 Accrued other expenses 4,401 3,911 Total accounts payable and accrued expenses $ 47,268 $ 52,025 PREPAID AND OTHER CURRENT ASSETS Prepaid and other current assets consisted of the following: As of (In thousands) September 30, 2022 March 31, 2022 Other receivables $ 1,004 $ 826 Advances 3,587 2,117 Due from producers 2,340 1,861 Other prepaid expenses 1,149 989 Total prepaid and other current assets $ 8,080 $ 5,793 Prepaid and other assets increased by $ 2.3 million primarily related to a $ 1.5 million increase in advances paid to Hallmark and digital streaming TV partners and a $ 0.5 increase in distribution related expenses to be reimbursed by the licensors. REVENUE RECOGNITION Payment terms and conditions vary by customer and typically provide net 30 to 90 day terms. We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and payment for that product or service will be one year or less. We have in the past entered into arrangements in connection with activation fees due from our 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. Seasonality Revenues from our Cinema Equipment Business 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 Content Entertainment & Business 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. 13 Cinema Equipment Business Our Cinema Equipment Business consists of financing vehicles and administrators for Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”). We retain ownership of our Systems and the residual cash flows related to the Systems in Phase I Deployment after the end of the 10 -year deployment payment period. For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements. The Cinema Equipment Business also provides monitoring, data collection, serial data verification and management services to this segment, as well as to exhibitors who purchase their own equipment, in order to collect virtual print fees (“VPFs”) from 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 distributors, whereby amounts are payable by a distributor to Phase I Deployment and to Phase II Deployment when distributor's movies are displayed on screens utilizing our Systems installed in movie theatres. VPFs are earned and payable to us with respect to Phase I Deployment based on a defined fee schedule until the end of the VPF term. One VPF is payable for every digital title initially displayed per System. The amount of VPF revenue is dependent on the number of movie titles released and displayed using the Systems in any given accounting period. VPF revenue is recognized in the period the title first plays for general audience viewing in a digital projector equipped movie theatre. The Phase 1 Deployment’s and Phase 2 Deployments performance obligations for revenue recognition are met at this time. Phase II Deployment’s agreements with distributors require the payment of VPFs, according to a defined fee schedule, for ten years from the date each system is installed; however, Phase II Deployment may no longer collect VPFs once “cost recoupment,” as defined in the contracts with 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. The Company evaluated the constraining estimates related to the variable consideration, 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. 14 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 distributors. A limited number of systems from our Phase I deployment remain eligible for VPFs from certain distributors where Phase I exhibitors have renewed their term on an annual basis. We continue to pursue system sales for these remaining exhibitors. Our Phase II deployment currently consists of a limited number of exhibitors who purchased their own systems and have not yet reached recoupment or the end of their contractual term. We continue to administer VPFs for these limited systems from certain distributors. Content & Entertainment Business Content & Entertainment Business 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 content is available for subscription on the digital platform (the company’s digital content is considered functional IP), at the time of shipment for physical goods, or point-of-sale for transactional and VOD services as the control over the content or the physical title is transferred to the customer. The Company considers the delivery of content through various distribution channels to be a single performance obligation. Physical revenue from the sale of physical goods is recognized after deducting the reserves for sales returns and other allowances, which are accounted for as variable consideration. Reserves for potential sales returns of physical goods and other allowances are recorded based upon historical experience. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required. Content & Entertainment Business also has contracts for the theatrical distribution of third party feature movies and alternative content. Content & Entertainment Business’s distribution fee revenue and Content & Entertainment Business’s participation in box office receipts are recognized at the time a feature movie and alternative content are viewed. Content & Entertainment Business has the right to receive or bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded as a receivable at the time of execution, and all related distribution revenue is deferred until the third party feature movies’ or alternative content’s theatrical release date. The Company follows the five-step model established by ASC 606 when preparing its assessment of revenue recognition We have omitted disclosure on the transaction price allocated to remaining performance obligations and estimated timing of revenue recognition as our contracts with customers that have a duration of more than one year are immaterial. Principal Agent Considerations Revenue earned by our Content & Entertainment Business from the delivery of digital content and physical goods may be recognized gross or net depending on the terms of the arrangement. We determine whether revenue should be reported on a gross or net basis based on each revenue stream. Key indicators that we use in evaluating gross versus net treatment include, but are not limited to, the following: ● which party is primarily responsible for fulfilling the promise to provide the specified good or service; and ● which party has discretion in establishing the price for the specified good or service. 15 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 Content & Entertainment Business 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. During the three and six months ended September 30, 2021 and 2022, we did not recognize any credit losses or reversals of previously recorded provisions, and did not have any write-offs charged against the allowance. 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 September 30, 2022 was $ 0.3 million. For the three and six months ended September 30, 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. Revenue recognized as of the six months ended September 30, 2022 and 2021 that was included in deferred revenue at the beginning of the year was $ 0.2 million and $ 0.8 million, respectively. Revenue recognized as of the three months ended September 30, 2022 and 2021 that was included in deferred revenue at the beginning of the quarter was $ 0.4 million and $ 0.3 million, respectively. We expect to recognize substantially all of the deferred revenue as of September 30, 2022 as revenue in the next three months ending December 31, 2022. During the quarter ended September 30, 2022, $ 1.7 million of revenue was recognized that was included in the accounts payable balance as constrained variable consideration at the beginning of the year. The Company recognized the revenue related once the uncertainty associated with the variable consideration was resolved . 16 Participations and royalties payable When we use third parties to distribute company owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers. Disaggregation of Revenue The Company disaggregates revenue into different revenue categories for the Cinema Equipment and Content & Entertainment 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 six months ended September 30, 2022 and 2021 (in thousands): Three Months Ended September 30, Six Months Ended September 30, 2022 2021 2022 2021 Cinema Equipment Business: Phase I Deployment $ 59 $ 148 $ 172 $ 239 Phase II Deployment 1,710 375 1,710 761 Services 108 486 228 665 Digital System Sales 728 2,244 1,922 7,819 Total Cinema Equipment Business revenue $ 2,605 $ 3,253 $ 4,032 $ 9,484 Content & Entertainment Business: Base Distribution Business $ 820 $ 922 $ 3,024 $ 2,700 OTT Streaming and Digital 10,581 5,928 20,540 12,934 Total Content & Entertainment Business revenue $ 11,401 $ 6,850 $ 23,564 $ 15,634 Concentrations For the three months ended September 30, 2022, three customers, Amazon.com, Inc., Distribution Solutions, a division of Alliance Entertainment, and Tubi, represented 35 % and 11 %, and 10 % respectively, of Content & Entertainment Business revenues, and approximately 19 %, and 2 % and 11 %, respectively, of our consolidated revenues. For the six months ended September 30, 2022, three customers, Amazon.com, Inc., Distribution Solutions, a division of Alliance Entertainment, and Tubi, represented 35 % and 20 %, and 16 % respectively, of Content & Entertainment Business revenues, and approximately 15 %, and 5 % and 9 %, respectively, of our consolidated revenues. For the three months ended September 30, 2021, Amazon.com, Inc. Distribution Solutions, a division of Alliance Entertainment and Tubi, represented 39 %, 5 % and 12 %, respectively, of Content & Entertainment Business revenues and approximately 26 %, 3 % and 8 %, respectively, of our consolidated revenues. For the six months ended September 30, 2021, Amazon.com, Inc. Distribution Solutions, a division of Alliance Entertainment and Roku, Inc., represented 30 %, 8 % and 12 %, respectively, of Content & Entertainment Business revenues and approximately 19 %, 5 % and 7 %, respectively, of our consolidated revenues. DIRECT OPERATING COSTS Direct operating costs consist of operating costs such as cost of revenue, fulfillment expenses, shipping costs, property taxes and insurance on Systems, royalty expenses, impairments of advances, and marketing and direct personnel costs. 17 STOCK-BASED COMPENSATION The Company issues stock-based awards to employees and non-employees, generally in the form of restricted stock, restricted stock units, stock appreciation rights and performance stock units. The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments, including grants of stock options and restricted stock units and modifications to existing stock options, to be recognized in the consolidated statements of operations and comprehensive loss based on their fair values. The Company measures the compensation expense of employee and nonemployee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost is recognized on a straight-line basis over the period during which the employee and nonemployee is required to provide service in exchange for the award. The fair values of options and stock appreciation rights are calculated as of the date of grant using the Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility and expected term. The Company’s estimates of these assumptions are primarily based on the trading price of the Company’s stock, historical data, peer company data and judgment regarding future trends and factors. Forfeitures are recognized as they occur. INCOME TAXES The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and tax credit carryforwards and for differences between the carrying amounts of existing assets and liabilities and their respective tax bases. Valuation allowances are established when management is unable to conclude that it is more likely than not that some portion, or all, of the deferred tax asset will ultimately be realized. The Company is primarily subject to income taxes in the United States. The Company accounts for uncertain tax positions in accordance with an amendment to ASC Topic 740-10, Income Taxes (Accounting for Uncertainty in Income Taxes) , which clarified the accounting for uncertainty in tax positions. This amendment provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is “more-likely-than-not” to be sustained were it to be challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the “more-likely-than-not” threshold, the largest amount of tax benefit that is more than 50 % likely to be recognized upon ultimate settlement with the taxing authority is recorded. The Company has no uncertain tax positions as of September 30, 2022. NET LOSS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS Basic and diluted net loss per common share has been calculated as follows: Basic net income (loss) per common share attributable to common stockholders = Net loss attributable to common stockholders Weighted average number of common stock outstanding during the period Diluted net income (loss) per common share attributable to common stockholders = Net loss attributable to common stockholders Weighted average number of common stock outstanding during the period plus potential dilutive shares Stock issued and treasury stock repurchased or reacquired during the period are weighted for the portion of the period that they are outstanding. We incurred net loss for the three and six months ended September 30, 2022, and therefore the impact of potentially dilutive common shares from outstanding stock options and warrants, totaling 9,664,050 shares as of September 30, 2022, was excluded from the computations of loss per share as their impact would have been anti-dilutive. 18 We had net income for the six months ended September 30, 2021, and therefore the impact of potentially dilutive common shares from outstanding stock options, stock appreciation rights, and warrants, totaling 3,219,141 shares for the six months ended September 30, 2021, respectively, was included in the computations of diluted earnings per share. For the three months ended September 30, 2021, 11,937,243 potentially dilutive shares have been excluded from the diluted loss per share as their impact would have been antidilutive. We had a net loss for the three months ended September 30, 2021 and therefore no dilution as basic and diluted loss per share are the same for the period. The calculation of diluted net income per share for the six months ended September 30, 2021 does not include the impact of 8,718,102 potentially dilutive shares relating to stock options, stock appreciation rights, and warrants as their impact would have been anti-dilutive as their exercise prices are above the Company’s average Common Stock price during the period. COMPREHENSIVE LOSS For the three and six months ended September 30, 2022 and 2021, comprehensive loss consisted of net loss and foreign currency translation adjustments. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which provides new guidance regarding the measurement and recognition of credit impairment for certain financial assets. Such guidance will impact how the Company determines its allowance for estimated uncollectible receivables and evaluates its available-for-sale investments for impairment. ASU 2016-13 is effective for the Company in the first quarter of fiscal 2023. The Company is currently evaluating the effect that ASU 2016-13 will have on its consolidated financial statements and related disclosures. 3. OTHER INTERESTS Investment in CDF2 Holdings We indirectly own 100 % of the common equity of CDF2 Holdings, LLC (“CDF2 Holdings”), which was created for the purpose of capitalizing on the conversion of the exhibition industry from film to digital technology. CDF2 Holdings assists its customers in procuring the equipment necessary to convert their systems to digital technology by providing financing, equipment, installation and related ongoing services. CDF2 Holdings is a Variable Interest Entity (“VIE”), as defined in Accounting Standards Codification Topic 810 (“ASC 810”), “Consolidation.” ASC 810 requires the consolidation of VIEs by an entity that has a controlling financial interest in the VIE which entity is thereby defined as the primary beneficiary of the VIE. To be a primary beneficiary, an entity must have the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, among other factors. Although we indirectly, wholly own CDF2 Holdings, we, a third party that also has a variable interest in CDF2 Holdings, and an independent third party manager must mutually approve all business activities and transactions that significantly impact CDF2 Holdings’ economic performance. We have therefore assessed our variable interests in CDF2 Holdings and determined that we are not the primary beneficiary of CDF2 Holdings. As a result, CDF2 Holdings’ financial position and results of operations are not consolidated in our financial position and results of operations. In completing our assessment, we identified the activities that we consider most significant to the economic performance of CDF2 Holdings and determined that we do not have the power to direct those activities, and therefore we account for our investment in CDF2 Holdings under the equity method of accounting. As of September 30, 2022 and March 31, 2022, our maximum exposure to loss, as it relates to the non-consolidated CDF2 Holdings entity, represents accounts receivable for service fees under a master service agreement with CDF2 Holdings. Such accounts receivable was $ 0.4 million and $ 0.8 million as of September 30, 2022 and March 31, 2022, respectively, which are included in accounts receivable, net on the accompanying consolidated balance sheets. The accompanying Consolidated Statements of Operations include $ 0.0 million and $ 0.3 million of digital cinema servicing revenue from CDF2 Holdings for the three months ended September 30, 2022 and 2021, respectively. The accompanying Consolidated Statements of Operations include($ 104 ) thousand and $ 0.2 million of digital cinema servicing revenue from CDF2 Holdings for the six months ended September 30, 2022 and 2021, respectively. 19 Total Stockholders’ Deficit of CDF2 Holdings at September 30, 2022 and March 31, 2022 was $ 57.5 million and $ 55.6 million, respectively. We have no obligation to fund the operating loss or the stockholders’ deficit beyond our initial investment of $ 2.0 million and, accordingly, our investment in CDF2 Holdings as of September 30, 2022 and March 31, 2022 is carried at $ 0 . Majority Interest in CONtv We own an 85 % interest in CON TV, LLC, a worldwide digital network that creates original content, and sells and distributes on-demand digital content on the Internet and other consumer digital distribution platforms, such as gaming consoles, set-top boxes, handsets, and tablets. We evaluated the investment under the voting interest entity (“VOE”) model and determined that the entity should be consolidated as we have a controlling financial interest in the entity through our ownership of outstanding voting shares, and that other equity holders do not have substantive voting, participating or liquidation rights. We recorded net loss attributable to noncontrolling interest in our condensed consolidated statement of operations equal to 11 % of outstanding profit interest units retained by the noncontrolling interests. Investment in Roundtable On March 15, 2022, the Company entered into a stock purchase agreement with Roundtable Entertainment Holdings, Inc. (“Roundtable”) pursuant to which the Company purchased  500  shares of Roundtable Series A Preferred Stock and warrants to purchase  100  shares of Roundtable Common Stock (together, the “Roundtable Securities”). The Company paid the purchase price for the Roundtable Securities by issuing to Roundtable  316,937  shares of Common Stock is based on the closing price of the Company on the date of the purchase. The Company recorded $ 0.2  million for the purchase of the Roundtable Securities which is included in other long-term assets on the consolidated balance sheet. The investment in the Roundtable Securities was made in connection with a proposed collaboration with Roundtable regarding production and distribution of streaming content including the launch of high profile branded enthusiast streaming channels. The Roundtable investment was accounted for using the cost method and is included within other long term assets. 4. STOCKHOLDERS’ EQUITY COMMON STOCK Authorized Common Stock As of September 30, 2022 the number of shares of Common Stock authorized for issuance was 275,000,000 shares. During the three months ended September 30, 2022, the Company issued 2,579,488 shares of Common Stock . This is comprised of 178,572 shares in payment of preferred stock dividends, 2,066,879 shares issued on August 18,2022 in connection with the vesting of grants pursuant to the 2017 Equity Incentive Plan, and 334,037 shares issued in payment of the Bloody Disgusting earnout commitment. During the six months ended September 30, 2022, the Company issued 2,687,512 shares of Common Stock . This is comprised of 286,596 shares in payment of preferred stock dividends, 2,066,879 shares issued on August 18, 2022 in connection with the vesting of grants pursuant to the 2017 Equity Incentive Plan, and 334,037 shares issued in payment of the Bloody Disgusting earnout commitment. PREFERRED STOCK Cumulative dividends in arrears on preferred stock were $ 0.1 million and $ 0.2 million as of September 30, 2022 and 2021, respectively. In May and July 2022 and 2021, we paid preferred stock dividends in arrears in the form of 286,596 and 53,278 shares of Common Stock, respectively. TREASURY STOCK We have treasury stock, at cost, consisting of 1,315,851 and 1,315,851 shares of Common Stock at September 30, 2022 and March 31, 2022, respectively. 20 CINEDIGM’S EQUITY INCENTIVE PLANS Stock Based Compensation Awards Awards issued under our 2000 Equity Incentive Plan (the “2000 Plan”) may be in any of the following forms (or a combination thereof) (i) stock option awards; (ii) stock appreciation rights; (iii) stock or restricted stock or restricted stock units; or (iv) performance awards. The 2000 Plan provides for the granting of incentive stock options (“ISOs”) with exercise prices not less than the fair market value of our Common Stock on the date of grant. ISOs granted to shareholders having more than 10 % of the total combined voting power of the Company must have exercise prices of at least 110 % of the fair market value of our Common Stock on the date of grant. ISOs and non-statutory stock options granted under the 2000 Plan are subject to vesting provisions, and exercise is subject to the continuous service of the participant. The exercise prices and vesting periods (if any) for non-statutory options are set at the discretion of our compensation committee. On November 1, 2017, upon the consummation of the initial equity investment in Cinedigm by Bison, as a result of which there was a change of control of the Company, all stock options (incentive and non-statutory) and shares of restricted stock were vested immediately and the options became fully exercisable. In connection with the grants of stock options and shares of restricted stock under the 2000 Plan, we and the participants have executed stock option agreements and notices of restricted stock awards setting forth the terms of the grants. The 2000 Plan provided for the issuance of up to 2,380,000 shares of Common Stock to employees, outside directors and consultants. As of September 30, 2022, there were 212,037 stock options outstanding in the 2000 Plan with weighted average exercise price of $ 14.46 and a weighted average contract life of 1.07 years. As of March 31, 2022, there were 217,337 shares pursuant to stock options outstanding in the Plan with weighted average exercise price of $ 14.49 and a weighted average contract life of 1.54 years. A total of 5,300 options expired during the six months ended September 30, 2022. Options outstanding under the 2000 Plan as of September 30, 2022 is as follows: As of September 30, 2022 Range of Prices Options Outstanding Weighted Average Remaining Life in Years Weighted Average Exercise Price Aggregate Intrinsic Value (In thousands) $ 1.16 - $ 7.40 5,000 2.75 $ 7.40 $ — $ 13.70 - $ 24.40 207,037 1.03 14.63 — 212,037 $ — An analysis of all options exercisable under the 2000 Plan as of September 30, 2022 is presented below: Options Exercisable Weighted Average Remaining Life in Years Weighted Average Exercise Price Aggregate Intrinsic Value (In thousands) 212,037 1.07 $ 14.46 — In August 2017, the Company adopted the 2017 Equity Incentive Plan (the “2017 Plan). The 2017 Plan replaced the 2000 Plan, and applies to employees and directors of, and consultants to, the Company. The 2017 Plan provided for the issuance of up to 2,108,270 shares of Common Stock, in the form of various awards, including stock options, stock appreciation rights (“SARs”), stock, restricted stock, restricted stock units, performance awards and cash awards. The Compensation Committee of the Company’s Board of Directors (the “Board”) is authorized to administer the 2017 Plan and make grants thereunder. The approval of the 2017 Plan did not affect awards already granted under the 2000 Plan. On December 4, 2019, upon shareholder approval, the 2017 Plan was amended to increase the maximum number of shares of Common Stock authorized for issuance thereunder from 2,108,270 shares to 4,098,270 . 21 On October 23, 2020, the Company amended its 2017 Plan to increase the number of shares authorized for issuance thereunder from 4,098,270 to 14,098,270 . On October 11, 2021, the Company amended its 2017 Plan to increase the number of shares authorized for issuance thereunder from 14,098,270 to 18,098,270 . Stock appreciation rights outstanding under the 2017 Plan as of September 30, 2022 is as follows: As of September 30, 2022 Range of Prices SARs Outstanding Weighted Average Remaining Life in Years Weighted Average Exercise Price Aggregate Intrinsic Value (In thousands) $ 0.54 - $ 0.74 5,550,000 8.19 $ 0.60 $ — $ 1.16 - $ 1.47 2,283,610 6.06 1.39 — $ 1.71 - $ 2.10 2,452,940 6.34 1.92 — $ 2.23 - $ 2.56 515,000 9.05 2.28 — 10,801,550 $ — An analysis of all stock appreciation rights exercisable under the 2017 Plan as of September 30, 2022 is presented below: SAR Exercisable Weighted Average Remaining Life in Years Weighted Average Exercise Price Aggregate Intrinsic Value (In thousands) 4,575,590 7.61 $ 1.20 - Total SARs outstanding are as follows: Six Months Ended September 30, 2022 SARs Outstanding March 31, 2022 10,893,598 Issued - Forfeited ( 92,048 ) Total SARs Outstanding September 30, 2022 10,801,550 Total performance stock units (“PSUs”) outstanding are as follows: Six Months Ended September 30, 2022 PSUs Outstanding March 31, 2022 696,280 Issued - Forfeited - Total PSUs Outstanding September 30, 2022 696,280 Following is the activity for performance stock unit awards: Shares Weighted Average Grant Date Fair Value Unvested balance at March 31, 2022 696,280 $ 1.25 Granted - - Vested - - Unvested balance at September 30, 2022 696,280 $ 1.25 During the six months ended September 30, 2022, zero shares were issued for vested awards and 696,280 shares are to be issued as of September 30, 2022. 22 Employee and director stock-based compensation expense related to our stock-based awards was as follows: Three Months Ended September 30, Six Months Ended September 30, (In thousands) 2022 2021 2022 2021 Selling, general and administrative $ 2,218 $ 946 $ 3,198 $ 1,929 $ 2,218 $ 946 $ 3,198 $ 1,929 There was $ 2.1 million and $ 0.8 million of stock-based compensation recorded for the three months ended September 30, 2022 and 2021, respectively, related to employees’ restricted stock awards inclusive of $ 551 thousand employee payroll taxes withheld for shares not issued. There was $ 3.0 million and $ 1.7 million of stock-based compensation recorded for the six months ended September 30, 2022 and 2021, respectively, related to employees’ restricted stock awards inclusive of $ 551 employee payroll taxes withheld for shares not issued. There was $ 0.1 million and $ 0.1 million of stock-based compensation for the three months ended September 30, 2022 and 2021, respectively, related to board of directors. There was $0.2 million and $ 0.2 million of stock-based compensation for the six months ended September 30, 2022 and 2021, respectively, related to board of directors. During the six months ended September 30, 2022, the Company issued zero restricted shares to non-employee directors. OPTIONS GRANTED OUTSIDE CINEDIGM’S EQUITY INCENTIVE PLAN In October 2013, we issued options outside of the 2000 Plan to 10 individuals who became employees as a result of a business combination. The employees received options to purchase an aggregate of 62,000 shares of our Common Stock at an exercise price of $ 17.50 per share. The options were fully vested as of October 2017 and expire 10 years from the date of grant, if unexercised. As of September 30, 2022, 12,500 of such options remained outstanding. During the year ended March 31, 2022, the Company granted 2,025,250 stock appreciation rights (“SARs”). The SARs were granted under the 2017 Plan, except for 600,000 SARs granted to an officer of the Company as an inducement grant. All SARs issued have an exercise price equal to the fair value of the Company’s Common Stock on the date of grant and a maturity date of 10 years. WARRANTS The following table presents information about outstanding warrants to purchase shares of our Common Stock as of September 30, 2022. All of the outstanding warrants are fully vested and exercisable. Recipient Amount outstanding Expiration Exercise price per share 5-year Warrant issued to Bison Entertainment and Media Group(“ BEMG”) in connection with a term loan agreement 1,400,000 December 2022 $ 1.80 5. NOTES PAYABLE On September 15, 2022, the Company entered into a Loan, Guaranty, and Security Agreement with East West Bank (“EWB”). The agreement provided for a revolving line of credit (“the Line of Credit Facility”) of $ 5.0 million, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and such subsidiaries’ assets. The Line of Credit Facility bears interest at a rate equal to 1.5 % above the prime rate. The Line of Credit Facility expires on September 15, 2023 with a one-year extension available at EWB’s discretion. As of September 30, 2022, $ 3.8 million remained outstanding on this line of credit. The interest rates as of September 30, 2022 were approximately 7.75 %. Under the Line of Credit Facility, The Company is subject to certain financial and nonfinancial covenants including terms which require the Company to maintain certain metrics and ratios, maintain certain minimum cash on hand, and to report financial information to our lender on a periodic basis. During the three months and six months ended September 30, 2022 the company had interest expense of $ 19 thousand related to this note. 6. COMMITMENTS AND CONTINGENCIES We operate from leased properties under non-cancelable operating lease agreements, certain of which contain escalating lease clauses. 23 The Company leases office space under an operating lease. The Company’s portfolio of leases is primarily related to real estate and since most of our leases do not provide a readily determinable implicit rate, the Company estimated its incremental borrowing rate to discount the lease payments based on information available at either the implementation date of Topic 842 or at lease commencement for leases entered into thereafter. The table below presents the lease-related assets and liabilities recorded on the balance sheet as of September 30, 2022 and March 31, 2022: (In thousands) Classification on the Balance Sheet September 30, 2022 March 31, 2022 Assets Noncurrent Operating lease right-of-use asset, net $ 612 $ 749 Liabilities Current Operating leases – current portion 127 258 Noncurrent Operating leases – long-term portion 489 491 Total operating lease liabilities $ 616 $ 749 Lease Costs The table below presents certain information related to lease costs for leases: Three Months Ended Three Months Ended (In thousands) September 30, 2022 September 30, 2021 Operating lease cost $ 111 $ 23 Total lease cost $ 111 $ 23 Six Months Ended Six Months Ended (In thousands) September 30, 2022 September 30, 2021 Operating lease cost $ 196 $ 45 Total lease cost $ 196 $ 45 Other Information The table below presents supplemental cash flow information related to leases: Six Months Ended Six Months Ended (In thousands) September 30, 2022 September 30, 2021 Cash paid for amounts included in the measurement of lease liabilities - 10 Operating cash flows used for operating leases Hyde Park Agreement $ - $ 10 On January 5, 2022, the Company entered into a letter agreement with Hyde Park Entertainment, Inc. (“Hyde Park”), pursuant to which the Company and Hyde Park are collaborating on the development, production and/or distribution of a project based on the novel Audition by Ryu Murakami (the “Audition Project”). Each of the Company and Hyde Park owns 50 % of the rights in connection with the Audition Project. The Company paid $ 100 thousand to Hyde Park plus $ 26 thousand in legal fees to counsel for the Audition project. Ashok Amritraj, a director of the Company, is the Chairman and CEO of Hyde Park and has an interest in 100 % of the revenues of Hyde Park. Ashok Amritraj is a current board member and related party to the Company. 24 7. SUPPLEMENTAL CASH FLOW INFORMATION AND DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY Six Months Ended September 30, (In thousands) 2022 2021 Cash interest paid $ 380 $ 612 Income taxes paid — 45 Noncash investing and financing activities: Accrued dividends on preferred stock 88 178 Issuance of Class A common stock for payment of accrued preferred stock dividends 175 89 Issuance of Class A common stock for business combination — 4,824 Earnout consideration paid with common shares of Company ( 238 ) — Earnout consideration adjustment 80 — Treasury shares acquired for withholding taxes — 5 Deferred consideration in purchase of a business — 3,441 8. SEGMENT INFORMATION We operate in two reportable segments: Cinema Equipment Business and Content & Entertainment Business. Our segments were determined based on the economic characteristics of our products and services, our internal organizational structure, the manner in which our operations are managed and the criteria used by our CODM to evaluate performance, which is generally the segment’s operating income (loss) before depreciation and amortization. Operations of: Products and services provided: Cinema Equipment Business Financing vehicles and administrators for 355 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 320 Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”). We retain ownership of the Systems and the residual cash flows related to the Systems in Phase I Deployment after the repayment of all non-recourse debt at the expiration of exhibitor master license agreements. For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements. The Cinema Equipment Business segment also provides monitoring, collection, verification and management services to this segment, as well as to exhibitors who purchase their own equipment, and also collects and disburses VPFs from motion picture studios, distributors and ACFs from alternative content providers, movie exhibitors and theatrical exhibitors (collectively, “Services”). Content & Entertainment Business Leading independent streaming company of content and channels. We collaborate with producers and other content owners to market, source, curate and distribute independent content to targeted and under-served audiences in theatres and homes, and via mobile and emerging platforms. The following tables present certain financial information related to our reportable segments and Corporate: As of September 30, 2022 (In thousands) Intangible Assets, net Goodwill Total Assets Notes Payable, Non- Recourse Notes Payable Operating lease liabilities Cinema Equipment Business $ - $ - $ 13,553 $ - $ - $ - Content & Entertainment Business 18,466 21,025 70,250 - - 614 Corporate 88 - 10,453 - 3,622 2 Total $ 18,554 $ 21,025 $ 94,256 $ - $ 3,622 $ 616 25 As of March 31, 2022 (In thousands) Intangible Assets, net Goodwill Total Assets Notes Payable, Non- Recourse Notes Payable Operating lease liabilities Cinema Equipment Business $ — $ — $ 24,445 $ — $ — $ — Content & Entertainment Business 19,946 21,084 68,873 — — — Corporate 88 — 11,318 — — 749 Total $ 20,034 $ 21,084 $ 104,636 $ — $ — $ 749 Statements of Operations Three Months Ended September 30, 2022 (in thousands) Cinema Equipment Business Content & Entertainment Business Corporate Consolidated Revenues $ 2,605 $ 11,401 $ - $ 14,006 Direct operating (exclusive of depreciation and amortization shown below) 126 7,966 - 8,092 Selling, general and administrative 455 3,562 5,580 9,597 Allocation of corporate overhead 93 2,492 ( 2,585 ) - Provision of doubtful accounts 44 - - 44 Depreciation and amortization of property and equipment 104 144 - 248 Amortization of intangible assets - 629 107 736 Total operating expenses 822 14,793 3,102 18,717 Income (loss) from operations $ 1,783 $ ( 3,392 ) $ ( 3,102 ) $ ( 4,711 ) The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows: (In thousands) Cinema Equipment Business Content & Entertainment Business Corporate Consolidated Direct operating $ - $ - $ - $ - Selling, general and administrative - - 2,218 2,218 Total stock-based compensation $ - $ - $ 2,218 $ 2,218 Statements of Operations Three Months Ended September 30, 2021 (in thousands) Cinema Equipment Business Content & Entertainment Business Corporate Consolidated Revenues $ 3,253 $ 6,850 $ — $ 10,103 Direct operating (exclusive of depreciation and amortization shown below) 164 3,169 — 3,333 Selling, general and administrative 431 3,480 3,248 7,159 Allocation of corporate overhead 170 1,139 ( 1,309 ) — Provision for (recovery of) doubtful accounts ( 130 ) 19 — ( 111 ) Depreciation and amortization of property and equipment 300 140 — 440 Amortization of intangible assets — 696 — 696 Total operating expenses 935 8,643 1,939 11,517 Income (loss) from operations $ 2,318 $ ( 1,793 ) $ ( 1,939 ) $ ( 1,414 ) 26 The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows: (In thousands) Cinema Equipment Business Content & Entertainment Business Corporate Consolidated Direct operating $ — $ — $ — $ — Selling, general and administrative — 345 601 946 Total stock-based compensation $ — $ 345 $ 601 $ 946 Statements of Operations Six Months Ended September 30, 2022 (in thousands) Cinema Equipment Business Content & Entertainment Business Corporate Consolidated Revenues $ 4,032 $ 23,564 $ - $ 27,596 Direct operating (exclusive of depreciation and amortization shown below) 270 15,178 - 15,448 Selling, general and administrative 1,526 7,345 10,541 19,412 Allocation of corporate overhead 196 5,244 ( 5,440 ) - Provision for (recovery of) doubtful accounts 47 - - 47 Depreciation and amortization of property and equipment 221 282 1 504 Amortization of intangible assets - 1,266 214 1,480 Total operating expenses 2,260 29,315 5,316 36,891 Income (loss) from operations $ 1,772 $ ( 5,751 ) $ ( 5,316 ) $ ( 9,295 ) The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows: (In thousands) Cinema Equipment Business Content & Entertainment Business Corporate Consolidated Direct operating $ - $ - $ - $ - Selling, general and administrative - - 3,198 3,198 Total stock-based compensation $ - $ - $ 3,198 $ 3,198 27 Statements of Operations Six Months Ended September 30, 2021 (in thousands) Cinema Equipment Business Content & Entertainment Business Corporate Consolidated Revenues $ 9,484 $ 15,634 $ — $ 25,118 Direct operating (exclusive of depreciation and amortization shown below) 421 7,543 — 7,964 Selling, general and administrative 860 6,298 6,044 13,202 Allocation of corporate overhead 269 1,799 ( 2,068 ) — (Recovery of) provision for doubtful accounts ( 103 ) 63 — ( 40 ) Depreciation and amortization of property and equipment 805 284 — 1,089 Amortization of intangible assets — 1,543 — 1,543 Total operating expenses 2,252 17,530 3,976 23,758 Income (loss) from operations $ 7,232 $ ( 1,896 ) $ ( 3,976 ) $ 1,360 The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows: (In thousands) Cinema Equipment Business Content & Entertainment Business Corporate Consolidated Direct operating $ — $ — $ — $ — Selling, general and administrative — 511 1,418 1,929 Total stock-based compensation $ — $ 511 $ 1,418 $ 1,929 9. INCOME TAXES We calculate income tax expense based upon an annual effective tax rate forecast, including estimates and assumptions. We recorded an income tax benefit (expense) of zero for the three and six months ended September 30, 2022. We recorded an income tax benefit of approximately $ 487 thousand and $ 550 thousand for the three and six months ended September 30, 2021. We have not recorded tax benefits on our loss before income taxes because we have provided for a full valuation allowance that offsets potential deferred tax assets resulting from net operating loss carry forwards, reflecting our inability to use such loss carry forwards. Our effective tax rate for the six months ended September 30, 2022 and 2021 was zero and negative 12.4 %, respectively. 28