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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the fiscal period ended:
For the transition period from _____ to _____
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or Other Jurisdiction of
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(I.R.S. Employer
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(Address of principal executive offices) |
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(Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol |
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Name of each exchange on
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ |
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Accelerated filer ☐ |
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Smaller reporting company
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Emerging Growth Company
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☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
☐
No
As of February 10, 2023,
CINEDIGM CORP
TABLE OF CONTENTS
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Page |
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Item 1. |
1 |
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Condensed Consolidated Balance Sheets at December 31, 2022 (Unaudited) and March 31, 2022 (Audited) |
1 |
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2 |
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3 |
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4 |
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6 |
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Notes to the Condensed Consolidated Financial Statements (Unaudited) |
8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
28 |
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Item 4. |
36 |
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Item 1. |
38 |
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Item 1A. |
38 |
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Item 2. |
38 |
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Item 3. |
38 |
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Item 4. |
38 |
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Item 5. |
38 |
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Item 6. |
38 |
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38 |
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39 |
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CINEDIGM CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
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As of |
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December 31,
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March 31,
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(Unaudited) |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowance of $
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Unbilled revenue |
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Employee retention tax credit |
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— |
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Prepaid and other current assets |
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Total current assets |
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Equity investment in Metaverse, a related party, at fair value |
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Property and equipment, net |
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Intangible assets, net |
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Goodwill |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities |
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Accounts payable and accrued expenses |
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$ |
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$ |
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Line of credit, including unamortized debt issuance costs of $
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— |
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Current portion of deferred consideration on purchase of business |
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Other current liabilities |
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Total current liabilities |
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Deferred consideration on purchase of business – net of current portion |
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Other long-term liabilities |
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Total liabilities |
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Stockholders’ Equity |
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Preferred stock,
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Class A Common stock, $
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Additional paid-in capital |
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Treasury stock, at cost;
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(
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(
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Accumulated deficit |
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(
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) |
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(
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) |
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Accumulated other comprehensive loss |
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(
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) |
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(
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Total stockholders’ equity of Cinedigm Corp. |
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Deficit attributable to noncontrolling interest |
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(
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(
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements
1
CINEDIGM CORP.
CONDENSED CONSOLIDATED STA TEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
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Three Months Ended
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Nine Months Ended
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2022 |
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2021 |
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2022 |
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2021 |
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Revenues |
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$ |
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$ |
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$ |
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$ |
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Costs and expenses: |
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Direct operating |
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Selling, general and administrative |
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Depreciation and amortization |
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Total operating expenses |
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Operating income (loss) |
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(
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(
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Interest expense |
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(
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) |
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(
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(
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(
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Gain on forgiveness of PPP loan |
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— |
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Change in fair value of equity investment in Metaverse, a related party |
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— |
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(
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) |
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Employee retention tax credit |
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— |
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— |
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Other income (expense) |
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(
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) |
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(
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) |
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(
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) |
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Income (loss) before income taxes |
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(
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) |
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(
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) |
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Income tax benefit |
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— |
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— |
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Net income (loss) |
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(
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) |
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(
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Net (income) loss attributable to noncontrolling interest |
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(
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) |
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(
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) |
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Net income (loss) attributable to controlling interests |
|
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(
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) |
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(
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) |
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Preferred stock dividends |
|
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(
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) |
|
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(
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) |
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(
|
) |
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(
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) |
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Net income (loss) attributable to common stockholders |
|
$ |
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$ |
(
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) |
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$ |
(
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) |
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$ |
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||||
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Net income (loss) per share attributable to common stockholders: |
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|||||||||||||||
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Basic |
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$ |
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$ |
(
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) |
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$ |
(
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) |
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$ |
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Diluted |
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$ |
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$ |
(
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) |
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$ |
(
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) |
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$ |
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Weighted average shares of common stock outstanding: |
|
|||||||||||||||
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Basic |
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Diluted |
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See accompanying Notes to Condensed Consolidated Financial Statements
2
CINEDIGM CORP.
CONDENSED CONSOLIDATED STATE MENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
|
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Three Months Ended
|
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Nine Months Ended
|
|
||||||||||
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2022 |
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2021 |
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2022 |
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2021 |
|
||||
|
Net income (loss) |
|
|
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
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|
Other comprehensive income (loss): |
|
|
|
|
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|
|
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|
||||
|
Foreign exchange translation |
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Comprehensive income (loss) attributable to noncontrolling interest |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
See accompanying Notes to Condensed Consolidated Financial Statements
3
CINEDIGM CORP.
CONDENSED CONSOLIDATED ST ATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
|
|
Nine Months Ended
|
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
||
|
Net (loss) income |
|
$ |
(
|
) |
|
$ |
|
|
|
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
||
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
Changes in fair value of equity investment in Metaverse |
|
|
|
|
|
|
(
|
) |
|
Gain from forgiveness of PPP loan |
|
|
— |
|
|
|
(
|
) |
|
Impairment of advances |
|
|
|
|
|
|
|
|
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Provision (benefit) for doubtful accounts |
|
|
|
|
|
|
(
|
) |
|
Amortization of debt issuance costs |
|
|
|
|
|
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— |
|
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Stock-based compensation |
|
|
|
|
|
|
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Interest expense for deferred consideration & earnouts |
|
|
|
|
|
|
|
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Non-monetary sale of content licenses |
|
|
(
|
) |
|
|
— |
|
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Other |
|
|
|
|
|
|
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Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
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|
||
|
Accounts receivable, net |
|
|
|
|
|
|
(
|
) |
|
Unbilled revenue |
|
|
(
|
) |
|
|
(
|
) |
|
Prepaids and other current and long-term assets |
|
|
(
|
) |
|
|
(
|
) |
|
Employee retention tax credit |
|
|
(
|
) |
|
|
— |
|
|
Accounts payable, accrued expenses, and other liabilities |
|
|
(
|
) |
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(
|
) |
|
|
|
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|
Cash flows from investing activities: |
|
|
|
|
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|
||
|
Purchases of property and equipment |
|
|
(
|
) |
|
|
(
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) |
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Purchase of businesses |
|
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— |
|
|
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(
|
) |
|
Sale of investment securities |
|
|
— |
|
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|
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Net cash used in investing activities |
|
|
(
|
) |
|
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(
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) |
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Cash flows from financing activities: |
|
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||
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Payments of notes payable and deferred consideration |
|
|
(
|
) |
|
|
(
|
) |
|
Proceeds from line of credit |
|
|
|
|
|
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— |
|
|
Payments on line of credit |
|
|
(
|
) |
|
|
(
|
) |
|
Debt issuance costs |
|
|
(
|
) |
|
|
— |
|
|
Issuance of common stock |
|
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— |
|
|
|
|
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Net cash provided by financing activities |
|
|
|
|
|
|
|
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|
Net change in cash and cash equivalents |
|
|
(
|
) |
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
See accompanying Notes to Condensed Consolidated Financial Statements
4
CINEDIGM CORP.
SUPPLEMENTAL CASH FLOW INFORMATION AND DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY
(Unaudited)
(In thousands)
|
|
|
Nine Months Ended
|
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Cash interest paid |
|
$ |
|
|
|
$ |
|
|
|
Income taxes paid |
|
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— |
|
|
|
|
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|
Noncash investing and financing activities: |
|
|
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|
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||
|
Accrued dividends on preferred stock |
|
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Issuance of Class A common stock for payment of accrued preferred stock dividends |
|
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Issuance of Class A common stock for business combination |
|
|
— |
|
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|
Deferred consideration in purchase of business |
|
|
— |
|
|
|
|
|
|
Earnout consideration in purchase of a business |
|
|
— |
|
|
|
|
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|
Earnout consideration paid with common shares of Company |
|
|
(
|
) |
|
|
— |
|
|
Earnout consideration adjustment |
|
|
|
|
|
|
— |
|
|
Treasury shares acquired for withholding taxes |
|
|
— |
|
|
|
|
|
|
Issuance of common stock for Board of Director compensation |
|
|
|
|
|
|
— |
|
5
CINEDIGM CORP.
CONDENSED CONSOLIDA TED STATEMENTS OF EQUITY
(Unaudited)
(In thousands, except share data)
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Treasury |
|
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Additional
|
|
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Accumulated |
|
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Accumulated
|
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Total
|
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Non
|
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|||||||||||||||||||||
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Shares |
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Amount |
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Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
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|
Capital |
|
|
Deficit |
|
|
Loss |
|
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Equity |
|
|
Interest |
|
|
Total |
|
||||||||||||
|
Balances as of March 31, 2021 (Audited) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Foreign exchange translation |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
Stock-based compensation |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
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|
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|
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|
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|
Issuance of common stock in connection with a business combination |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
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|
|
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|
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|
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|
Preferred stock dividends paid with common stock |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
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|
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|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
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|
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|
|
|
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|
|
Net income |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of June 30, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Foreign exchange translation |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with business combinations |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock in connection with taxes withheld from employees |
|
|
— |
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
Preferred stock dividends |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
Net loss |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Balances as of September 30, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Foreign exchange translation |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
||
|
Stock-based compensation |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with equity line purchase commitment |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with performance stock units |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with equity line, net |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends accrued |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Balances as of December 31, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
See accompanying Notes to Condensed Consolidated Financial Statements
6
CINEDIGM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands, except share data)
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Treasury |
|
|
Additional
|
|
|
Accumulated |
|
|
Accumulated
|
|
|
Total
|
|
|
Non
|
|
|
|
|
|||||||||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Equity |
|
|
Interest |
|
|
Total |
|
||||||||||||
|
Balances as of March 31, 2022 (Audited) |
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Foreign exchange translation |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends paid with common stock |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends accrued |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
Net income (loss) |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
Balances as of June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Foreign exchange translation |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
Stock-based compensation |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends paid with common stock |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with performance stock units and annual incentive awards, net of employee payroll taxes |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for BD Earnout commitment |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends accrued |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
Net income (loss) |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
Balances as of September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Foreign exchange translation |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends paid with common stock |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for Board of Director compensation |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends accrued |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
Net income |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
See accompanying Notes to Condensed Consolidated Financial Statements
7
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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
We report our financial results in two reportable segments as follows: (i) Cinema Equipment Business ("Cinema Equipment") and (ii) Content and Entertainment Business (“Content & Entertainment”). The Cinema Equipment segment consists of the non-recourse, financing vehicles and administrators for our digital cinema equipment (the “Systems”) installed in movie theatres throughout North America. Our Content & Entertainment segment operates in: (i) ancillary market aggregation and distribution of entertainment content and (ii) branded and curated over-the-top (“OTT”) digital network business providing entertainment channels and applications.
Financial Condition and Liquidity
As of December 31, 2022, the Company has an accumulated deficit of
$
The Company is party to a Loan, Guaranty, and Security Agreement with East West Bank (“EWB”) providing for a revolving line of credit (the “Line of Credit Facility”) of $
We believe our cash and cash equivalent balances, and availability under our credit facility, as of December 31, 2022 will be sufficient to support our operations for at least twelve months from the filing of this report. The Company may also undertake equity or debt offerings, if necessary and opportunistically available, for further capital needs.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The accompanying interim Condensed Consolidated Financial Statements of Cinedigm Corp. have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended March 31, 2022 filed with the Securities and Exchange Commission (the “SEC”) on July 1, 2022. These Condensed Consolidated Financial Statements are unaudited and have been prepared by the Company following the rules and regulations of the SEC.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted as permitted by such rules and regulations; however, the Company believes the disclosures are adequate to make the information presented not misleading.
8
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2022. Interim results are not necessarily indicative of the results for a full year.
The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Significant items subject to such estimates and assumptions include revenue recognition, allowance for doubtful accounts, returns and recovery reserves, goodwill and intangible asset impairments, share-based compensation expense, valuation allowance for deferred income taxes and amortization of intangible assets. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On a regular basis, the Company evaluates the assumptions, judgments and estimates. Actual results may differ from these estimates.
We own an
There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended March 31, 2022.
Reclassifications
Certain amounts have been reclassified to conform to the current presentation.
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.
Accounts Receivable, Net
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.
Employee Retention Tax Credit
The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") provided an employee retention credit which was a refundable tax credit against certain employment taxes. The Consolidated Appropriations Act (the "Appropriations Act") extended and expanded the availability of the employee retention credit through December 31, 2021. The Appropriations Act amended the employee retention credit to be equal to
9
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The Company qualified for the employee retention credit beginning in June 2020 for qualified wages through September 2021 and filed a cash refund claim during the three months ended September 30, 2022 and December 31, 2022 for $
Property and Equipment, Net
Property and equipment, net 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 |
|
|
|
|
|
Digital cinema projection systems |
|
|
|
|
|
Machinery and equipment |
|
|
|
|
|
Furniture and fixtures |
|
|
|
|
|
Internal-Use Software |
|
|
|
|
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, net 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. We amortize internal-use software over its estimated useful life on a straight-line basis.
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 nine months ended December 31, 2022 and 2021
,
Intangible Assets, Net
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.
10
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Amortization lives of intangible assets are as follows:
|
Content Library |
|
|
|
|
|
Advertiser Relationships and Channel |
|
|
|
|
|
Customer Relationships |
|
|
|
|
|
Software |
|
|
|
|
|
Trademarks and Tradenames |
|
|
|
|
|
Supplier Agreements |
|
|
|
|
The Company’s intangible assets included the following (in thousands):
|
As of December 31, 2022 |
|
Cost Basis |
|
|
Accumulated
|
|
|
Impairment |
|
|
Net |
|
||||
|
Content Library |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
|
Advertiser Relationships and Channel |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
Customer Relationships |
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
Software |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
Trademark and Tradenames |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
Total Intangible Assets |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
As of March 31, 2022 |
|
Cost Basis |
|
|
Accumulated
|
|
|
Impairment |
|
|
Net |
|
||||
|
Content Library |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
|
Advertiser Relationships and Channel |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
Customer Relationships |
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
Software |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
Trademark and Tradenames |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
Supplier Agreements |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
Total Intangible Assets |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
During the nine months ended December 31, 2022 and 2021, no impairment charge was recorded for intangible assets. During the three and nine months ended December 31, 2022, the Company had amortization expense of
$
During the three months ended December 31, 2022
, the Company entered into a non-monetary transaction for the purchase and sale of content licenses with an unrelated third-party. The fair value of the content licenses sold was determined to be $
As of December 31, 2022, amortization expense is expected to be (in thousands):
|
|
|
Total |
|
|
|
Remainder of fiscal year 2023 |
|
$ |
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
$ |
|
|
11
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
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.
Fair Value Measurements
The fair value measurement disclosures are grouped into three levels based on valuation factors:
The following tables summarize the levels of fair value measurements of our financial assets and liabilities (in thousands):
|
|
|
As of December 31, 2022 |
|
|||||||||||||
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Equity investment in Metaverse, at fair value |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Current portion of earnout consideration on purchase of a business |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Long-term portion of earnout consideration on purchase of a business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
12
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
|
|
|
As of March 31, 2022 |
|
|||||||||||||
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Equity investment in Metaverse, at fair value |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Current portion of earnout consideration on purchase of a business |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Long-term portion of earnout consideration on purchase of a business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The Company's equity investment in A Metaverse Company ("Metaverse") is in Hong Kong dollars and was translated into US dollars as of December 31, 2022 and March 31, 2022
at an exchange rate of
Our cash and cash equivalents, accounts receivable, unbilled revenue, accounts payable and accrued expenses are financial instruments and are recorded at cost in the Condensed Consolidated Balance Sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature.
Prepaid and Other Current Assets
Prepaid and other current assets consisted of the following (in thousands):
|
|
|
As of |
|
|||||
|
|
|
December 31,
|
|
|
March 31,
|
|
||
|
Advances |
|
$ |
|
|
|
$ |
|
|
|
Due from producers |
|
|
|
|
|
|
|
|
|
Other receivables |
|
|
|
|
|
|
|
|
|
Inventory |
|
|
|
|
|
|
|
|
|
Other prepaid expenses |
|
|
|
|
|
|
|
|
|
Total prepaid and other current assets |
|
$ |
|
|
|
$ |
|
|
Advances 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. Impairments related to advances were
$
13
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following (in thousands):
|
|
|
As of |
|
|||||
|
|
|
December 31,
|
|
|
March 31,
|
|
||
|
Accounts payable |
|
$ |
|
|
|
$ |
|
|
|
Amounts due to producers |
|
|
|
|
|
|
|
|
|
Accrued compensation and benefits |
|
|
|
|
|
|
|
|
|
Accrued other expenses |
|
|
|
|
|
|
|
|
|
Total accounts payable and accrued expenses |
|
$ |
|
|
|
$ |
|
|
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.
The following tables present the Company’s disaggregated revenue by segment and source (in thousands):
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Cinema Equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Deployment |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Services |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Digital system sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cinema Equipment revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Content & Entertainment: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Base distribution business |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
OTT streaming and digital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Content & Entertainment revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Cinema Equipment Segment
Our Cinema Equipment segment 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
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.
14
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The Cinema Equipment segment 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 Deployment's 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 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: (i) return the Systems to us; (ii) renew their license agreement for successive one-year terms; or (iii) 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 receives the sale proceeds. Such sales were originally contemplated as the conclusion of the digital cinema deployment plan.
The Cinema Equipment segment earns an administrative fee of approximately
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.
During the three and nine months ended December 31, 2022,
$
15
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Content & Entertainment Segment
Content & Entertainment segment 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.
Revenue from the sale of physical goods is recognized after deducting reserves for sales returns and other allowances. 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.
The Content & Entertainment segment also has contracts for the theatrical distribution of third-party feature movies and alternative content. The Content & Entertainment segment’s distribution fee revenue participation in box office receipts are recognized at the time a feature movie and alternative content are viewed. The Content & Entertainment segment 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 movie's or alternative content’s theatrical release date.
The Company follows the five-step model established by Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"), Revenue from contracts with customers ("ASC 606") when preparing its assessment of revenue recognition.
Principal Agent Considerations
Revenue earned by our Content & Entertainment segment 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:
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 direct operating expenses 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.
16
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Our Content & Entertainment 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.
During the three and nine months ended December 31, 2022 and 2021, 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 segment includes amounts related to the sale of DVDs with future release dates.
Deferred revenue relating to our Cinema & Equipment segment 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 and December 31, 2022 was
$
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.
Concentrations
For the three months ended December 31, 2022, Iconic, Distribution Solutions, a division of Alliance Entertainment, Amazon.com, Inc., and Tubi represented
For the nine months ended December 31, 2022, Iconic, Distribution Solutions, a division of Alliance Entertainment, Amazon.com, Inc., and Tubi, represented
For the three months ended December 31, 2021, Amazon.com, Inc., Distribution Solutions, a division of Alliance Entertainment and Tubi, represented
17
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
For the nine months ended December 31, 2021, Amazon.com, Inc. Distribution Solutions, a division of Alliance Entertainment and Roku, Inc., represented
Direct Operating Costs
Direct operating costs consist of cost of revenue, fulfillment expenses, shipping costs, property taxes and insurance on systems, royalty expenses, impairments of advances and marketing and direct personnel costs.
Stock-based Compensation
The Company issues stock-based awards to employees and non-employees, generally in the form of restricted stock, restricted stock units, stock appreciation rights ("SARs") and performance stock units ("PSUs"). 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 Condensed Consolidated Statements of Operations and Comprehensive Income (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 SARs 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, risk-free rate 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 December 31, 2022 .
18
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Earnings per Share
Basic net income (loss) per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) available to common stockholders by the weighted-average number of common shares outstanding and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include stock options and warrants outstanding during the period, using the treasury stock method. Potentially dilutive common shares are excluded from the computations of diluted income (loss) per share if their effect would be anti-dilutive. A net loss available to common stockholders causes all potentially dilutive securities to be anti-dilutive and are not included.
Basic and diluted net income (loss) per share are computed as follows (in thousands, except share and per share data):
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Basic net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income (loss) attributable to common stockholders |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
|
|
|
|
Shares used in basic computation: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted-average shares of common stock outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Shares used in diluted computation: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted-average shares of common stock outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and SARs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Weighted-average number of shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
The following table summarizes the potential shares of common stock excluded from the diluted calculation (in thousands):
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
||||||
|
SARs |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended December 31, 2021,
Recently Issued Accounting Pronouncements
In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). The amendments in this ASU provide temporary, optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The ASU primarily includes relief related to contract modifications and hedging relationships, as well as providing a one-time election for the sale or transfer of debt securities classified as held-to-maturity. This guidance is effective immediately and the amendments were originally to be applied prospectively through December 31, 2022. However, the FASB issued ASU 2022-06, deferring the sunset date to December 31, 2024. The adoption of this ASU is not expected to have a material impact on the Company's Condensed Consolidated Financial Statements.
19
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815) . The amendments in this ASU clarify the guidance on ASC 815 on fair value hedge accounting of interest rate risk for portfolios and financial assets. Among other things, the amended guidance establishes the "last-of-layer" method for making the fair value hedge accounting for these portfolios more accessible and renames that method the "portfolio layer" method. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We do not expect the amendments to have a material effect on our Condensed Consolidated Financial Statements.
In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) . The amendments in this ASU eliminate the guidance on troubled debt restructurings while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulties. The ASU also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We do not expect the amendments to have a material effect on our Condensed Consolidated Financial Statements.
3. OTHER INTERESTS
Investment in CDF2 Holdings
We indirectly o
wn
CDF2 Holdings is a Variable Interest Entity (“VIE”), as defined in ASC 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.
As of December 31, 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
$
The accompanying Condensed Consolidated Statements of Operations include
$
Total Stockholders’ Deficit of CDF2 Holdings at December 31, 2022 and March 31, 2022 was
$
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
20
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
4. STOCKHOLDERS’ EQUITY
COMMON STOCK
Authorized Common Stock
As of December 31, 2022
, the number of shares of Common Stock authorized for issuance was
During the three months ended December 31, 2022, the Company issued
During the nine months ended December 31, 2022, the Company issued
During the nine months ended December 31, 2021
, we issued
PREFERRED STOCK
Cumulative dividends in arrears on preferred stock were
$
TREASURY STOCK
We have treasury stock, at cost, consisting of
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) SARs; (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
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
21
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Options outstanding and exercisable under the 2000 Plan are as follows:
|
|
|
As of December 31, 2022: |
|
|||||||||||||
|
Range of Prices |
|
Options
|
|
|
Weighted Average
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
||||
|
$
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
As of March 31, 2022: |
|
|||||||||||||
|
Range of Prices |
|
Options
|
|
|
Weighted Average
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
||||
|
$
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
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 provides for the issuance of up to
SARs outstanding under the 2017 Plan are as follows:
|
|
|
As of December 31, 2022: |
|
|||||||||||||
|
Range of Prices |
|
SARs Outstanding |
|
|
Weighted Average
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
||||
|
$
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
||
|
|
|
As of March 31, 2022: |
|
|||||||||||||
|
Range of Prices |
|
SARs Outstanding |
|
|
Weighted Average
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
||||
|
$
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
||
An analysis of all SARs exercisable under the 2017 Plan as of December 31, 2022 is presented below:
|
SARs Exercisable |
|
|
Weighted Average
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
||||
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
22
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Total SARs outstanding are as follows:
|
|
|
Nine Months Ended December 31, 2022 |
|
|
|
SARs Outstanding - March 31, 2022 |
|
|
|
|
|
Issued |
|
|
|
|
|
Forfeited |
|
|
(
|
) |
|
Total SARs Outstanding - December 31, 2022 |
|
|
|
|
The following weighted average assumptions were used to estimate the fair value of SARs granted as follows:
|
|
|
Nine Months Ended December 31, 2022 |
|
|
|
Expected dividend yield |
|
|
— |
|
|
Expected equity volatility |
|
|
|
% |
|
Expected term (years) |
|
|
|
|
|
Risk-free interest rate |
|
|
|
% |
|
Exercise price |
|
$ |
|
|
|
Market price per share |
|
$ |
|
|
|
Weighted average fair value per SAR |
|
$ |
|
|
The risk-free rates are based on the implied yield available on U.S. Treasury constant maturities with remaining terms equivalent to the respective expected terms of the options.
In addition, the Company has granted PSU awards under the 2017 Plan to employees. These awards vest upon certain performance goals being achieved as of March 31, 2022 and 2023 and can be settled in cash or equity upon vesting. During the three and nine months ended December 31, 2022
, the Company issued
Employee and director stock-based compensation expense related to our stock-based awards was as follows (in thousands):
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Selling, general and administrative |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
There was
$
Options Granted Outside Cinedigm's Equity Incentive Plan
As of March 31, 2022
, there were
23
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
5. LINE OF CREDIT FACILITY
On September 15, 2022, the Company entered into a Loan, Guaranty, and Security Agreement with EWB. The agreement provided for a Line of Credit Facility of
$
6. SEGMENT REPORTING
We operate in
24
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
|
Operations of: |
|
Products and services provided: |
|
Cinema Equipment |
|
Financing vehicles and administrators for 343 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 54 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 after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.
Provides monitoring, collection, verification and management services 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 |
|
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 (in thousands):
|
|
|
As of December 31, 2022 |
|
|||||||||||||
|
|
|
Intangible
|
|
|
Goodwill |
|
|
Total
|
|
|
Line
|
|
||||
|
Cinema Equipment |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Content & Entertainment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
As of March 31, 2022 |
|
|||||||||||||
|
|
|
Intangible
|
|
|
Goodwill |
|
|
Total
|
|
|
Line
|
|
||||
|
Cinema Equipment |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Content & Entertainment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Condensed Consolidated Statement of Operations |
|
|||||||||||||
|
|
|
Three Months Ended December 31, 2022 |
|
|||||||||||||
|
|
|
Cinema
|
|
|
Content & Entertainment |
|
|
Corporate |
|
|
Consolidated |
|
||||
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Direct operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of corporate overhead |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
— |
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
25
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
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):
|
|
|
Three Months Ended December 31, 2022 |
|
|||||||||||||
|
|
|
Cinema
|
|
|
Content & Entertainment |
|
|
Corporate |
|
|
Consolidated |
|
||||
|
Direct operating |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Condensed Consolidated Statement of Operations |
|
|||||||||||||
|
|
|
Three Months Ended December 31, 2021 |
|
|||||||||||||
|
|
|
Cinema
|
|
|
Content & Entertainment |
|
|
Corporate |
|
|
Consolidated |
|
||||
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Direct operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of corporate overhead |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
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):
|
|
|
Three Months Ended December 31, 2021 |
|
|||||||||||||
|
|
|
Cinema
|
|
|
Content & Entertainment |
|
|
Corporate |
|
|
Consolidated |
|
||||
|
Direct operating |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Condensed Consolidated Statement of Operations |
|
|||||||||||||
|
|
|
Nine Months Ended December 31, 2022 |
|
|||||||||||||
|
|
|
Cinema
|
|
|
Content & Entertainment |
|
|
Corporate |
|
|
Consolidated |
|
||||
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Direct operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of corporate overhead |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
— |
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
26
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
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):
|
|
|
Nine Months Ended December 31, 2022 |
|
|||||||||||||
|
|
|
Cinema
|
|
|
Content & Entertainment |
|
|
Corporate |
|
|
Consolidated |
|
||||
|
Direct operating |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Condensed Consolidated Statement of Operations |
|
|||||||||||||
|
|
|
Nine Months Ended December 31, 2021 |
|
|||||||||||||
|
|
|
Cinema
|
|
|
Content & Entertainment |
|
|
Corporate |
|
|
Consolidated |
|
||||
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Direct operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of corporate overhead |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
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):
|
|
|
Nine Months Ended December 31, 2021 |
|
|||||||||||||
|
|
|
Cinema
|
|
|
Content & Entertainment |
|
|
Corporate |
|
|
Consolidated |
|
||||
|
Direct operating |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
7. INCOME TAXES
We calculate income tax expense upon an annual effective tax rate forecast, including estimates and assumptions. We recorded an income tax benefit (expense) of $
Our effective tax rate for the three months ended December 31, 2022 and 2021 was
27
ITEM 2. 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 Condensed 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 reportable segments as follows: (i) Cinema Equipment Business ("Cinema Equipment") and (ii) Content and Entertainment Business (“Content & Entertainment”). The Cinema Equipment 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 over 465 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: (i) ancillary market aggregation and distribution of entertainment content and (ii) 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 Fee (“VPF”) revenues ceased to be recognized on such Systems, related to such distributors. Furthermore, because the Phase I Deployment installation period ended in November 2007, a majority of the VPF revenue associated with the Phase I Deployment Systems has ended. The reduction in VPF revenue on Cinema Equipment 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: (i) return the Systems to us; (ii) renew their license agreement for successive one-year terms; or (iii) 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 segment operates independently from our Content & Entertainment segment.
28
Financial Condition and Liquidity
As of December 31, 2022, the Company has an accumulated deficit of $479.2 million and negative working capital of $4.5 million. For the three and nine months ended December 31, 2022, the Company had net income (loss) attributable to common shareholders of $4.9 million and ($6.9) million, respectively. Net cash used in operating activities for the nine months ended December 31, 2022 was $7.9 million. We may continue to generate net losses for the foreseeable future.
The Company is party to a Loan, Guaranty, and Security Agreement with East West Bank (“EWB”) providing 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 December 31, 2022, $5.0 million was outstanding on the Line of Credit Facility. 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.
We believe our cash and cash equivalent balances, and availability under our credit facility, as of December 31, 2022 will be sufficient to support our operations for at least twelve months from the filing of this report. The Company may also undertake equity or debt offerings, if necessary and opportunistically available, for further capital needs.
Critical Accounting Estimates
Our 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 Condensed 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 the Condensed Consolidated Financial Statements, included in Item 1, Condensed Consolidated Financial Statements (Unaudited) , of this Quarterly Report on Form 10-Q. Management believes that fair value estimates, revenue recognition, asset acquisitions and business combinations 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.
Results of Operations for the Three Months Ended December 31, 2022 and 2021 (in thousands):
Revenues
|
|
|
For the Three Months Ended December 31, |
|
|
Change Period over Period |
|
||||||||||||||||||
|
|
|
2022 |
|
|
% of Revenue |
|
|
2021 |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
Content & Entertainment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Streaming and Digital |
|
$ |
12,576 |
|
|
|
45 |
% |
|
$ |
8,357 |
|
|
|
59 |
% |
|
$ |
4,219 |
|
|
|
50 |
% |
|
Base Distribution |
|
|
8,120 |
|
|
|
29 |
% |
|
|
3,667 |
|
|
|
26 |
% |
|
|
4,453 |
|
|
|
121 |
% |
|
Cinema Equipment |
|
|
7,186 |
|
|
|
26 |
% |
|
|
2,060 |
|
|
|
15 |
% |
|
|
5,126 |
|
|
|
249 |
% |
|
|
|
$ |
27,882 |
|
|
|
100 |
% |
|
$ |
14,084 |
|
|
|
100 |
% |
|
$ |
13,798 |
|
|
|
98 |
% |
29
Streaming and Digital experienced 79% growth in “FAST” and TV-VOD revenue due to the addition of six new streaming channels related to the Asian Media Rights, LLC d/b/a Digital Media Rights ("DMR") business acquisition and five managed channel additions of The Country Network, Real Madrid TV, El Rey, The Elvis Presley Channel and The Only Way is Essex. Additionally, Subscription revenue grew 38% primarily due to the Screambox platform performance driven by strong content acquisition strategies driving increasing subscriptions and the aforementioned DMR business acquisition. New releases such as Terrifier 2, MK Ultra, Chesapeake Shores, and continued success of Demon Slayer, Highlander and Short Circuit added to overall performance.
Revenue in Base Distribution increased by 121% for the three months ended December 31, 2022 compared to the three months ended December 31, 2021. The increase is driven by significant growth in box office theatrical performance bolstered by the Terrifier 2 release during the three months ended December 31, 2022.
Revenues generated by the Cinema Equipment business increased as a result of an increase in Phase II variable consideration of $7.4 million during the period offset by lower system revenue and eligible VPF systems. Total system revenue recognized was ($0.3) million and $1.3 million, during the three months ended December 31, 2022 and 2021, respectively. Blockbuster content released during the period ending December 31, 2022 was consistent with Studio output from the prior period, however VPF eligible theatres decreased significantly for the same period last year.
Direct Operating Expenses
|
|
|
For the Three Months Ended December 31, |
|
|
Change Period over Period |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Content & Entertainment |
|
$ |
14,322 |
|
|
$ |
6,320 |
|
|
$ |
8,002 |
|
|
|
127 |
% |
|
Cinema Equipment |
|
|
89 |
|
|
|
139 |
|
|
|
(50 |
) |
|
|
36 |
% |
|
|
|
$ |
14,411 |
|
|
$ |
6,459 |
|
|
$ |
7,952 |
|
|
|
123 |
% |
The increase in direct operating expenses for the three months ended December 31, 2022 for the Content & Entertainment segment compared to the prior year was primarily due to $6.6 million higher content and licensing costs including royalties and distribution expenses related to the continued growth in revenue noted above, coupled with a $1.2 million increase related to DVD manufacturing and fulfillment.
Selling, General and Administrative Expenses
|
|
|
For the Three Months Ended December 31, |
|
|
Change Period over Period |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Compensation expense |
|
$ |
5,135 |
|
|
$ |
3,881 |
|
|
$ |
1,254 |
|
|
|
32 |
% |
|
Public company expenses |
|
|
1,780 |
|
|
|
1,560 |
|
|
|
220 |
|
|
|
14 |
% |
|
Share-based compensation |
|
|
709 |
|
|
|
1,349 |
|
|
|
(640 |
) |
|
|
(47 |
)% |
|
Insurance expense |
|
|
625 |
|
|
|
391 |
|
|
|
234 |
|
|
|
60 |
% |
|
Other operating expenses |
|
|
858 |
|
|
|
177 |
|
|
|
681 |
|
|
|
385 |
% |
|
|
|
$ |
9,107 |
|
|
$ |
7,358 |
|
|
$ |
1,749 |
|
|
|
24 |
% |
Selling, general and administrative expenses for the three months ended December 31, 2022 increased by $1.7 million primarily due to a $1.3 million increase in compensation expense primarily from the acquisition of DMR partially offset by a reduction in payroll taxes in the prior year as a result of the CARES Act and $0.7 million increase in other operating expenses primarily from rent, direct marketing and subscriptions, offset by $0.6 million decrease related to stock-based compensation to management and employees.
Public company expenses include accounting, legal, audit, investor relations and other related public company costs.
30
Depreciation and Amortization Expense
|
|
|
For the Three Months Ended December 31, |
|
|
Change Period over Period |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Amortization of Intangible Assets |
|
$ |
713 |
|
|
$ |
695 |
|
|
$ |
18 |
|
|
|
3 |
% |
|
Depreciation of Property and Equipment |
|
|
211 |
|
|
|
336 |
|
|
|
(125 |
) |
|
|
(37 |
)% |
|
|
|
$ |
924 |
|
|
$ |
1,031 |
|
|
$ |
(107 |
) |
|
|
(10 |
)% |
Depreciation expense decreased primarily due to the majority of our digital cinema projection systems reaching the conclusion of their ten-year useful lives during the three months ended December 31, 2022.
Interest expense, net
Interest expense, net increased by $0.3 million from $0.1 million for the three months ended December 31, 2021 to $0.4 million for the December 31, 2022 as a result of deferred and earnout consideration accretion related to the acquisitions of Bloody Disgusting, FoundationTV and DMR and interest expense associated with our new Line of Credit facility obtained in September 2022.
Employee retention tax credit
Employee retention tax credit was $2.0 million for the three months ended December 31, 2022 compared to no employee retention credit for the three months ended December 31, 2021. The employee retention tax credits were filed pursuant to the CARES Act.
Results of Operations for the Nine Months Ended December 31, 2022 and 2021
Revenues
|
|
|
For the Nine Months Ended December 31, |
|
|
Change Period over Period |
|
|||||||||||||||||||
|
|
|
2022 |
|
|
% of Revenue |
|
|
|
2021 |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
Content & Entertainment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Streaming and Digital |
|
$ |
33,115 |
|
|
|
60 |
% |
|
|
$ |
21,292 |
|
|
|
54 |
% |
|
$ |
11,823 |
|
|
|
56 |
% |
|
Base Distribution |
|
|
11,145 |
|
|
|
20 |
% |
|
|
|
6,366 |
|
|
|
16 |
% |
|
|
4,779 |
|
|
|
75 |
% |
|
Cinema Equipment |
|
|
11,218 |
|
|
|
20 |
% |
|
|
|
11,544 |
|
|
|
30 |
% |
|
|
(326 |
) |
|
|
(3 |
)% |
|
|
|
$ |
55,478 |
|
|
|
100 |
% |
|
|
$ |
39,202 |
|
|
|
100 |
% |
|
$ |
16,276 |
|
|
|
42 |
% |
Streaming and Digital experienced 102% growth in “FAST” and TV-VOD revenue due to the addition of six new streaming channels related to the DMR business acquisition and five managed channel additions of The Country Network, Real Madrid TV, El Rey, The Elvis Presley Channel and The Only Way is Essex. Additionally, Subscription revenue grew 39% primarily due to the Screambox platform performance driven by strong content acquisition strategies driving increasing subscriptions and the aforementioned DMR business acquisition. Top performing titles, including new releases, such as the Terrifier 2, Demon Slayer, Boon, The Ravine, The Mulligan, Incarnation, 7 Days, Chesapeake Shores, When Calls the Heart and the classics, Short Circuit and Highlander added to overall performance.
Revenue in Base Distribution increased by 75% for the nine months ended December 31, 2022 compared to the nine months ended December 31, 2021. The increase is driven by significant growth in box office theatrical performance bolstered by the Terrifier 2 release during the nine months ended December 31, 2022.
31
Revenues generated by our Cinema Equipment business decreased slightly despite an increase in Phase II variable consideration of $9.1 million during the period. Total system revenue recognized was $2.0 million and $9.1 million during the nine months ended December 31, 2022 and 2021, respectively. Blockbuster content released during the period ending December 31, 2022 was consistent with Studio output from the prior period, however VPF eligible theatres decreased significantly for the same period last year.
Direct Operating Expenses
|
|
|
For the Nine Months Ended December 31, |
|
|
Change Period over Period |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Content & Entertainment |
|
$ |
29,500 |
|
|
$ |
13,863 |
|
|
$ |
15,637 |
|
|
|
113 |
% |
|
Cinema Equipment |
|
|
359 |
|
|
|
560 |
|
|
|
(201 |
) |
|
|
(36 |
)% |
|
|
|
$ |
29,859 |
|
|
$ |
14,423 |
|
|
$ |
15,436 |
|
|
|
107 |
% |
The increase in direct operating expenses in the nine months ended December 31, 2022 for the Content & Entertainment segment was primarily due to $11.0 million higher content and licensing costs including royalties and distribution expenses related to the continued growth in revenue noted above, coupled with a $2.4 million increase related to DVD manufacturing and fulfillment, a $1.2 million increase in delivery, platform and Software as a service (“SaaS”) and platform expenses, primarily due to the additive DMR acquisition, $0.7 million related to film restoration and conversion and website content production costs.
The decrease in direct operating expenses in the nine months ended December 31, 2022 for the Equipment business compared to the prior period was primarily due to a decrease in property taxes as a result of system sales.
Selling, General and Administrative Expenses
|
|
|
For the Nine Months Ended December 31, |
|
|
Change Period over Period |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Compensation expense |
|
$ |
14,864 |
|
|
$ |
10,369 |
|
|
$ |
4,495 |
|
|
|
43 |
% |
|
Public company expenses |
|
|
5,193 |
|
|
|
4,214 |
|
|
|
979 |
|
|
|
23 |
% |
|
Share-based compensation |
|
|
3,906 |
|
|
|
3,277 |
|
|
|
629 |
|
|
|
19 |
% |
|
Insurance expense |
|
|
2,048 |
|
|
|
1,181 |
|
|
|
867 |
|
|
|
73 |
% |
|
Other operating expenses |
|
|
3,005 |
|
|
|
1,479 |
|
|
|
1,526 |
|
|
|
103 |
% |
|
|
|
$ |
29,016 |
|
|
$ |
20,520 |
|
|
$ |
8,496 |
|
|
|
41 |
% |
Selling, general and administrative expenses for the nine months ended December 31, 2022 increased by $8.5 million primarily due to $2.2 million increase in compensation expense from the acquisitions of Fandor, DMR, and Bloody Disgusting, $1.6 million increase in bonus, severance and insurance expense related to management and employees, $1.0 million increase related to legal expense and $1.1 million increase in other operating expenses primarily from rent, direct marketing and subscriptions.
Public company expenses include accounting, legal, audit, investor relations and other related public company costs.
Depreciation and Amortization Expense
|
|
|
For the Nine Months Ended December 31, |
|
|
Change Period over Period |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Amortization of Intangible Assets |
|
|
2,193 |
|
|
|
2,238 |
|
|
|
(45 |
) |
|
|
(2 |
)% |
|
Depreciation of Property and Equipment |
|
|
715 |
|
|
|
1,425 |
|
|
|
(710 |
) |
|
|
(50 |
)% |
|
|
|
$ |
2,908 |
|
|
$ |
3,663 |
|
|
$ |
(755 |
) |
|
|
(21 |
)% |
32
Depreciation expense decreased primarily due to the majority of our digital cinema projection systems reaching the conclusion of their ten-year useful lives during the nine months ended December 31, 2022.
Interest expense, net
Interest expense, net increased by $0.6 million to $0.9 million for the nine months ended December 31, 2022 as a result of deferred and earnout consideration accretion related to the acquisitions of Bloody Disgusting, FoundationTV and DMR and interest expense associated with our new Line of Credit facility obtained in September 2022.
Employee retention tax credit
Employee retention tax credit was $2.5 million for the nine months ended December 31, 2022 compared to no employee retention credit for the nine months ended December 31, 2021. The employee retention tax credits were filed pursuant to the CARES Act.
Changes in fair value 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, but with the trading of the shares being halted the Company needed to reassess the fair value level of the investment. Without an active market where the shares are being traded, the investment no longer qualifies as a level 1. The changes in the valuation resulted in a decrease in fair value of $1.8 million during the nine months ended December 31, 2022.
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.
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 our stockholders, as a valuable financial metric.
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 income (loss) from continuing operations and Adjusted EBITDA has been provided in the financial results. Adjusted EBITDA should not be considered as an alternative to net income (loss) from 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 Condensed Consolidated Financial Statements prepared in accordance with GAAP.
33
Following is the reconciliation of our consolidated net loss to Adjusted EBITDA:
|
|
|
For the Three Months Ended
|
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Net income (loss) |
|
$ |
5,022 |
|
|
$ |
(404 |
) |
|
Add Back: |
|
|
|
|
|
|
||
|
Income tax benefit |
|
|
— |
|
|
|
(26 |
) |
|
Depreciation and amortization |
|
|
924 |
|
|
|
1,031 |
|
|
Interest expense |
|
|
367 |
|
|
|
97 |
|
|
Change in fair value on equity investment in Metaverse |
|
|
— |
|
|
|
(453 |
) |
|
Other expense |
|
|
91 |
|
|
|
107 |
|
|
Provision (recovery) for doubtful accounts |
|
|
7 |
|
|
|
(378 |
) |
|
Stock-based compensation |
|
|
708 |
|
|
|
1,349 |
|
|
Employee retention tax credit |
|
|
(2,025 |
) |
|
|
— |
|
|
Net (income) loss attributable to noncontrolling interest |
|
|
(8 |
) |
|
|
19 |
|
|
Adjusted EBITDA |
|
$ |
5,086 |
|
|
$ |
1,342 |
|
|
|
|
|
|
|
|
|
||
|
Adjustments related to Cinema Equipment |
|
|
|
|
|
|
||
|
Depreciation and amortization |
|
$ |
(82 |
) |
|
$ |
(196 |
) |
|
Provision for doubtful accounts |
|
|
(7 |
) |
|
|
— |
|
|
Income from operations |
|
|
(5,948 |
) |
|
|
(1,483 |
) |
|
Adjusted EBITDA from non-Cinema Equipment |
|
$ |
(951 |
) |
|
$ |
(337 |
) |
|
|
|
For the Nine Months Ended
|
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Net income (loss) |
|
$ |
(6,620 |
) |
|
$ |
4,595 |
|
|
Add Back: |
|
|
|
|
|
|
||
|
Income tax benefit |
|
|
— |
|
|
|
(576 |
) |
|
Depreciation and amortization |
|
|
2,908 |
|
|
|
3,663 |
|
|
Gain on forgiveness of PPP loan |
|
|
— |
|
|
|
(2,178 |
) |
|
Interest expense |
|
|
880 |
|
|
|
277 |
|
|
Change in fair value on equity investment in Metaverse |
|
|
1,828 |
|
|
|
(1,453 |
) |
|
Other expense |
|
|
661 |
|
|
|
283 |
|
|
Provision (recovery) for doubtful accounts |
|
|
54 |
|
|
|
(418 |
) |
|
Stock-based compensation |
|
|
3,906 |
|
|
|
3,278 |
|
|
Employee retention tax credit |
|
|
(2,475 |
) |
|
|
— |
|
|
Net (income) loss attributable to noncontrolling interest |
|
|
(35 |
) |
|
|
23 |
|
|
Adjusted EBITDA |
|
$ |
1,107 |
|
|
$ |
7,494 |
|
|
|
|
|
|
|
|
|
||
|
Adjustments related to Cinema Equipment |
|
|
|
|
|
|
||
|
Depreciation and amortization |
|
$ |
(303 |
) |
|
$ |
(1,001 |
) |
|
Acquisition, integration and other expense |
|
|
— |
|
|
|
(11 |
) |
|
Provision (recovery) for doubtful accounts |
|
|
(54 |
) |
|
|
500 |
|
|
Income from operations |
|
|
(7,720 |
) |
|
|
(8,715 |
) |
|
Adjusted EBITDA from non-Cinema Equipment |
|
$ |
(6,970 |
) |
|
$ |
(1,733 |
) |
Recent Accounting Pronouncements
See Note 2 - Summary of Significant Accounting Policies to our Condensed Consolidated Financial Statements included herein.
34
Cash Flow
Changes in our cash flows were as follows:
|
|
|
For the Nine Months Ended
|
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Net cash (used in) provided by operating activities |
|
$ |
(7,901 |
) |
|
$ |
4,746 |
|
|
Net cash used in investing activities |
|
|
(429 |
) |
|
|
(5,031 |
) |
|
Net cash provided by financing activities |
|
|
4,064 |
|
|
|
2,636 |
|
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
(4,266 |
) |
|
$ |
2,351 |
|
For the nine months ended December 31, 2022, 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 nine months ended December 31, 2022, the Company decreased accounts payable by $11.8 million to vendors. Cash received from VPFs decreased from the previous period in alignment with the decrease in eligible VPF systems. Prepaid and other current assets increased by $2.7 million. Operating cash flows from the Content & Entertainment segment are typically seasonally lower during the first two fiscal quarters and higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season. In addition, we made $1.1 million in advances for the nine months ended December 31, 2022, we make advances on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twelve months.
For the nine months ended December 31, 2021, net cash provided by operating activities was primarily driven by income from operations, excluding non-cash expenses such as depreciation, amortization, provision for doubtful accounts and stock-based compensation, gain on extinguishment of note payable, including other changes in working capital. Additionally, during the nine months ended December 31, 2021, the Company paid down $32.6 million to vendors at both the Content & Entertainment segment and Corporate. Operating cash flows from the Content & Entertainment segment 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 twenty four months. For the nine months ended December 31, 2021 revenues from the sale of digital projections Systems was $9.1 million.
Off-balance sheet arrangements
We are not a party to any off-balance sheet arrangements other than as discussed in Note 2 – Summary of Significant Accounting Policies, Basis of Presentation and Consolidation and Note 3 - Other Interests to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q, 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.
35
Item 4. CONTROLS AND PROCEDURES
Definition and Limitations of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
Evaluation of Disclosure Controls and Procedures
The management of the Company, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in the Exchange Act), as of December 31, 2022. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, on a timely basis, and (ii) accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures due to the material weaknesses identified in our internal control over financial reporting as of December 31, 2022.
Previously Reported Material Weakness on Internal Control Over Financial Reporting
In the Annual Report Form 10-K for the fiscal year ended March 31, 2022 filed with the SEC on July 1, 2022, management concluded that our internal control over financial reporting was not effective as of March 31, 2022. In the evaluation, management identified material weaknesses in the following:
a) Internal controls related to our financial close and reporting process;
b) Information and communication controls; and
c) Insufficient complement of corporate personnel with appropriate levels of accounting and controls knowledge and experience commensurate with our financial reporting requirements to appropriately analyze, record and disclose accounting matters completely and accurately.
As a result of this evaluation, management extensively used outside consultants who possessed the appropriate levels of accounting and controls knowledge.
Remediation . Following identification of this control deficiency, management has implemented modifications to better ensure that the Company has appropriate and timely reviews on all financial reporting analysis. In addition, as we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to address control deficiencies or determine to modify our remediation plan. Management will test and evaluate the implementation of these modifications to ascertain whether they are designed and operating effectively to provide reasonable assurance that they will prevent or detect a material misstatement in the Company’s financial statements.
36
The steps we took to address the deficiencies identified included:
|
|
● |
we hired a new Chief Financial Officer; |
|
|
● |
we hired a new Executive Vice President (“EVP”) Finance & Accounting; |
|
|
● |
we have restructured accounting processes and revised organizational structures to enhance accurate accounting and appropriate financial reporting; |
|
|
● |
we have hired additional experienced accounting personnel in the corporate office to enhance the application of accounting standards and our financial closing and reporting process; |
|
|
● |
we have engaged external advisors to provide financial accounting and reporting assistance; |
|
|
● |
we have enhanced information and communication processes through information technology solutions to ensure that information needed for financial reporting is accurate, complete, relevant and reliable, and communicated in a timely manner; and |
|
|
● |
we have engaged external advisors to evaluate and document the design and operating effectiveness of our internal control over financial reporting and assist with the remediation and implementation of our internal control function. |
As noted above, we believe that, as a result of management’s in-depth review of its accounting processes, and the additional procedures management has implemented, there are no material inaccuracies or omissions of material fact in this Form 10-Q and, to the best of our knowledge, we believe that the Condensed Consolidated Financial Statements in this Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows in conformity with GAAP.
We and our Board treat the controls surrounding, and the integrity of, our financial statements with the utmost priority. Management is committed to the planning and implementation of remediation efforts to address control deficiencies and any other identified areas of risk. These remediation efforts are intended to both address the identified material weakness and to enhance our overall financial control environment. We are committed to maintaining a strong internal control environment, and we believe the measures described above will strengthen our internal control over financial reporting and remediate the material weakness we have identified. Our remediation efforts have begun, and we will continue to devote significant time and attention to these remedial efforts. As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to strengthen controls or to modify the remediation plan described above, which may require additional implementation time.
Changes in Internal Control Over Financial Reporting
There have been no changes, other than our remediation efforts discussed above, in the Company’s internal control over financial reporting during the three months ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
37
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
There have been no material changes to the Risk Factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022 and Item 1A of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
EXHIBIT INDEX
|
Exhibit
|
|
Description of Document |
|
4.1 |
|
|
|
4.2 |
|
|
|
10.1 |
|
|
|
31.1 |
|
|
|
31.2 |
|
|
|
32.1 |
|
|
|
32.2 |
|
|
|
101.INS |
|
Inline XBRL Instance Document. |
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document. |
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
CINEDIGM CORP. |
|
|
|
|
|
|
Date: February 14, 2023 |
By: |
/s/ Christopher J. McGurk |
|
|
|
Christopher J. McGurk
|
|
|
|
|
|
Date: February 14, 2023 |
By: |
/s/ John K. Canning |
|
|
|
John K. Canning
|
39