UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal period ended: December 31, 2022June 30, 2023
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 001-31810
CinedigmCineverse Corp.
(Exact name of registrant as specified in its charter)
Delaware | 22-3720962 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
244 Fifth Avenue, Suite M289, New York, N.Y. | 10001 | |
(Address of principal executive offices) | (Zip Code) |
(212) 206-8600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on | ||
CLASS A COMMON STOCK, PAR VALUE $0.001 PER SHARE |
| NASDAQ CAPITAL MARKET |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ | Smaller reporting company ☒ | Emerging Growth Company ☐ |
☐ 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,August 7, 2023, 179,092,44112,286,417 shares of Class A Common Stock, $0.001 par value, were outstanding.
CINEDIGM CORPCineverse Corp.
TABLE OF CONTENTS
Page | ||
Item 1. | 1 | |
1 | ||
2 | ||
3 | ||
| 4 | |
6 | ||
Notes to the Condensed Consolidated Financial Statements (Unaudited) | 8 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 4. |
| |
Item 1. |
| |
Item 1A. |
| |
Item 2. |
| |
Item 3. |
| |
Item 4. |
| |
Item 5. |
| |
Item 6. |
| |
| ||
|
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CINEDIGM CORP.Cineverse Corp.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
|
| As of |
|
| As of |
| ||||||||||
|
| December 31, |
|
| March 31, |
|
| June 30, |
|
| March 31, |
| ||||
|
| (Unaudited) |
|
|
|
| (Unaudited) |
|
|
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current assets |
|
|
|
|
|
| ||||||||||
Current Assets |
|
|
|
|
|
| ||||||||||
Cash and cash equivalents |
| $ | 8,796 |
|
| $ | 13,062 |
|
| $ | 12,129 |
|
| $ | 7,152 |
|
Accounts receivable, net of allowance of $2,780 and $2,921, respectively |
|
| 24,993 |
|
|
| 30,843 |
| ||||||||
Accounts receivable |
|
| 14,711 |
|
|
| 20,846 |
| ||||||||
Unbilled revenue |
|
| 2,681 |
|
|
| 2,349 |
|
|
| 2,247 |
|
|
| 2,036 |
|
Employee retention tax credit |
|
| 2,475 |
|
|
| — |
|
|
| 1,773 |
|
|
| 2,085 |
|
Prepaid and other current assets |
|
| 7,303 |
|
|
| 5,909 |
|
|
| 7,637 |
|
|
| 5,458 |
|
Total current assets |
|
| 46,248 |
|
|
| 52,163 |
|
|
| 38,497 |
|
|
| 37,577 |
|
Equity investment in Metaverse, a related party, at fair value |
|
| 5,200 |
|
|
| 7,028 |
|
|
| 5,200 |
|
|
| 5,200 |
|
Property and equipment, net |
|
| 1,695 |
|
|
| 1,980 |
|
|
| 2,075 |
|
|
| 1,833 |
|
Intangible assets, net |
|
| 18,864 |
|
|
| 20,034 |
|
|
| 19,188 |
|
|
| 19,868 |
|
Goodwill |
|
| 21,025 |
|
|
| 21,084 |
|
|
| 20,824 |
|
|
| 20,824 |
|
Other long-term assets |
|
| 1,863 |
|
|
| 2,347 |
|
|
| 2,862 |
|
|
| 2,686 |
|
Total assets |
| $ | 94,895 |
|
| $ | 104,636 |
| ||||||||
Total Assets |
| $ | 88,646 |
|
| $ | 87,988 |
| ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current liabilities |
|
|
|
|
|
| ||||||||||
Current Liabilities |
|
|
|
|
|
| ||||||||||
Accounts payable and accrued expenses |
| $ | 40,719 |
|
| $ | 52,025 |
|
| $ | 29,867 |
|
| $ | 34,531 |
|
Line of credit, including unamortized debt issuance costs of $133 and $0, respectively |
|
| 4,867 |
|
|
| — |
| ||||||||
Line of credit, including unamortized debt issuance costs of $32 and $76, respectively |
|
| 4,968 |
|
|
| 4,924 |
| ||||||||
Current portion of deferred consideration on purchase of business |
|
| 4,694 |
|
|
| 4,513 |
|
|
| 3,615 |
|
|
| 3,788 |
|
Other current liabilities |
|
| 467 |
|
|
| 454 |
| ||||||||
Current portion of earnout consideration on purchase of business |
|
| 1,526 |
|
|
| 1,444 |
| ||||||||
Operating lease liabilities |
|
| 418 |
|
|
| 418 |
| ||||||||
Current portion of deferred revenue |
|
| 221 |
|
|
| 226 |
| ||||||||
Total current liabilities |
|
| 50,747 |
|
|
| 56,992 |
|
|
| 40,615 |
|
|
| 45,331 |
|
Deferred consideration on purchase of business – net of current portion |
|
| 5,940 |
|
|
| 6,203 |
|
|
| 2,868 |
|
|
| 2,647 |
|
Operating lease liabilities - net of current portion |
|
| 728 |
|
|
| 863 |
| ||||||||
Other long-term liabilities |
|
| 564 |
|
|
| 491 |
|
|
| 59 |
|
|
| 74 |
|
Total liabilities |
|
| 57,251 |
|
|
| 63,686 |
| ||||||||
Total Liabilities |
|
| 44,270 |
|
|
| 48,915 |
| ||||||||
Commitments and contingencies (see Note 6) |
|
|
|
|
|
| ||||||||||
Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Preferred stock, 15,000,000 shares authorized; Series A 10% - $0.001 par value per share; 20 shares authorized; 7 shares issued and 7 shares outstanding at December 31, 2022 and March 31, 2022. Liquidation preference of $3,648 |
|
| 3,559 |
|
|
| 3,559 |
| ||||||||
Class A Common stock, $0.001 par value; 275,000,000 shares authorized at December 31, 2022 and March 31, 2022, 180,225,330 and 176,629,435 shares issued and 178,909,479 and 175,313,584 shares outstanding at December 31, 2022 and March 31, 2022, respectively |
|
| 177 |
|
|
| 174 |
| ||||||||
Preferred stock, 15,000,000 shares authorized; Series A 10% - $0.001 par value per share; 20 shares authorized; 7 shares issued and outstanding, respectively, at June 30, 2023 and March 31, 2023. |
|
| 3,559 |
|
|
| 3,559 |
| ||||||||
Common stock, $0.001 par value; Class A stock 275,000,000 shares authorized at June 30, 2023 and March 31, 2023, 11,750,765 and 9,413,597 shares issued and 11,684,973 and 9,347,805 shares outstanding at June 30, 2023 and March 31, 2023, respectively. |
|
| 191 |
|
|
| 185 |
| ||||||||
Additional paid-in capital |
|
| 526,402 |
|
|
| 522,601 |
|
|
| 539,997 |
|
|
| 530,998 |
|
Treasury stock, at cost; 1,315,851 shares |
|
| (11,608 | ) |
|
| (11,608 | ) | ||||||||
Treasury stock, at cost; 65,792 shares |
|
| (11,608 | ) |
|
| (11,608 | ) | ||||||||
Accumulated deficit |
|
| (479,229 | ) |
|
| (472,310 | ) |
|
| (486,033 | ) |
|
| (482,395 | ) |
Accumulated other comprehensive loss |
|
| (389 | ) |
|
| (163 | ) |
|
| (480 | ) |
|
| (402 | ) |
Total stockholders’ equity of Cinedigm Corp. |
|
| 38,912 |
|
|
| 42,253 |
| ||||||||
Total stockholders’ equity of Cineverse Corp. |
|
| 45,626 |
|
|
| 40,337 |
| ||||||||
Deficit attributable to noncontrolling interest |
|
| (1,268 | ) |
|
| (1,303 | ) |
|
| (1,250 | ) |
|
| (1,264 | ) |
Total equity |
|
| 37,644 |
|
|
| 40,950 |
|
|
| 44,376 |
|
|
| 39,073 |
|
Total liabilities and equity |
| $ | 94,895 |
|
| $ | 104,636 |
| ||||||||
Total Liabilities and Equity |
| $ | 88,646 |
|
| $ | 87,988 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
1
CINEDIGM CORP.Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||||
Revenues |
| $ | 27,882 |
|
| $ | 14,084 |
|
| $ | 55,478 |
|
| $ | 39,202 |
|
| $ | 12,980 |
|
| $ | 13,590 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Direct operating |
|
| 14,411 |
|
|
| 6,459 |
|
|
| 29,859 |
|
|
| 14,423 |
|
|
| 6,987 |
|
|
| 7,356 |
|
Selling, general and administrative |
|
| 9,107 |
|
|
| 7,358 |
|
|
| 29,016 |
|
|
| 20,520 |
|
|
| 7,888 |
|
|
| 9,818 |
|
Depreciation and amortization |
|
| 924 |
|
|
| 1,031 |
|
|
| 2,908 |
|
|
| 3,663 |
|
|
| 822 |
|
|
| 1,000 |
|
Total operating expenses |
|
| 24,442 |
|
|
| 14,848 |
|
|
| 61,783 |
|
|
| 38,606 |
|
|
| 15,697 |
|
|
| 18,174 |
|
Operating income (loss) |
|
| 3,440 |
|
|
| (764 | ) |
|
| (6,305 | ) |
|
| 596 |
| ||||||||
Operating loss |
|
| (2,717 | ) |
|
| (4,584 | ) | ||||||||||||||||
Interest expense |
|
| (367 | ) |
|
| (97 | ) |
|
| (880 | ) |
|
| (277 | ) |
|
| (295 | ) |
|
| (133 | ) |
Gain on forgiveness of PPP loan |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,178 |
| ||||||||
Change in fair value of equity investment in Metaverse, a related party |
|
| — |
|
|
| 453 |
|
|
| (1,828 | ) |
|
| 1,453 |
| ||||||||
Employee retention tax credit |
|
| 2,025 |
|
|
| — |
|
|
| 2,475 |
|
|
| — |
| ||||||||
Other income (expense) |
|
| (76 | ) |
|
| (22 | ) |
|
| (82 | ) |
|
| 69 |
| ||||||||
Income (loss) before income taxes |
|
| 5,022 |
|
|
| (430 | ) |
|
| (6,620 | ) |
|
| 4,019 |
| ||||||||
Income tax benefit |
|
| — |
|
|
| 26 |
|
|
| — |
|
|
| 576 |
| ||||||||
Net income (loss) |
|
| 5,022 |
|
|
| (404 | ) |
|
| (6,620 | ) |
|
| 4,595 |
| ||||||||
Net (income) loss attributable to noncontrolling interest |
|
| (8 | ) |
|
| 19 |
|
|
| (35 | ) |
|
| 23 |
| ||||||||
Net income (loss) attributable to controlling interests |
|
| 5,014 |
|
|
| (385 | ) |
|
| (6,655 | ) |
|
| 4,618 |
| ||||||||
Decrease in fair value of equity investment in Metaverse, a related party |
|
| — |
|
|
| (1,256 | ) | ||||||||||||||||
Other expense, net |
|
| (504 | ) |
|
| (14 | ) | ||||||||||||||||
Net loss before income taxes |
|
| (3,516 | ) |
|
| (5,987 | ) | ||||||||||||||||
Income tax expense |
|
| (20 | ) |
|
| — |
| ||||||||||||||||
Net loss |
|
| (3,536 | ) |
|
| (5,987 | ) | ||||||||||||||||
Net income attributable to noncontrolling interest |
|
| (14 | ) |
|
| (18 | ) | ||||||||||||||||
Net loss attributable to controlling interests |
|
| (3,550 | ) |
|
| (6,005 | ) | ||||||||||||||||
Preferred stock dividends |
|
| (88 | ) |
|
| (89 | ) |
|
| (264 | ) |
|
| (267 | ) |
|
| (88 | ) |
|
| (88 | ) |
Net income (loss) attributable to common stockholders |
| $ | 4,926 |
|
| $ | (474 | ) |
| $ | (6,919 | ) |
| $ | 4,351 |
| ||||||||
Net loss attributable to common stockholders |
| $ | (3,638 | ) |
| $ | (6,093 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income (loss) per share attributable to common stockholders: |
| |||||||||||||||||||||||
Net loss per share attributable to common stockholders: |
|
|
|
|
| |||||||||||||||||||
Basic |
| $ | 0.03 |
|
| $ | (0.00 | ) |
| $ | (0.04 | ) |
| $ | 0.03 |
|
| $ | (0.37 | ) |
| $ | (0.69 | ) |
Diluted |
| $ | 0.03 |
|
| $ | (0.00 | ) |
| $ | (0.04 | ) |
| $ | 0.03 |
|
| $ | (0.37 | ) |
| $ | (0.69 | ) |
Weighted average shares of common stock outstanding: | Weighted average shares of common stock outstanding: |
|
|
|
|
|
| |||||||||||||||||
Basic |
|
| 178,899,605 |
|
|
| 173,167,450 |
|
|
| 177,077,803 |
|
|
| 169,413,873 |
|
|
| 9,879 |
|
|
| 8,771 |
|
Diluted |
|
| 178,899,605 |
|
|
| 173,167,450 |
|
|
| 177,077,803 |
|
|
| 173,017,364 |
|
|
| 9,879 |
|
|
| 8,771 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
2
CINEDIGM CORP.Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)LOSS
(Unaudited)
(In thousands)
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net income (loss) |
|
| 5,022 |
|
| $ | (404 | ) |
| $ | (6,620 | ) |
| $ | 4,595 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign exchange translation |
|
| 88 |
|
|
| (14 | ) |
|
| (226 | ) |
|
| (33 | ) |
Comprehensive income (loss) attributable to noncontrolling interest |
|
| (8 | ) |
|
| 19 |
|
|
| (35 | ) |
|
| 23 |
|
Comprehensive income (loss) |
| $ | 5,102 |
|
| $ | (399 | ) |
| $ | (6,881 | ) |
| $ | 4,585 |
|
|
|
| Three Months Ended |
| ||||||||
|
|
|
|
| 2023 |
|
| 2022 |
| |||
Net loss |
|
|
|
|
| $ | (3,536 | ) |
| $ | (5,987 | ) |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
| ||
Foreign exchange translation |
|
|
|
|
|
| (78 | ) |
|
| 48 |
|
Comprehensive income attributable to noncontrolling interest |
|
|
|
|
|
| (14 | ) |
|
| (18 | ) |
Comprehensive loss |
|
|
|
|
| $ | (3,628 | ) |
| $ | (5,957 | ) |
See accompanying Notes to Condensed Consolidated Financial Statements
3
CINEDIGM CORP.Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
| Nine Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net (loss) income |
| $ | (6,620 | ) |
| $ | 4,595 |
| ||||||||
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |
|
|
|
|
|
| ||||||||||
Net loss |
| $ | (3,536 | ) |
| $ | (5,987 | ) | ||||||||
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
| ||||||||||
Depreciation and amortization |
|
| 2,908 |
|
|
| 3,663 |
|
|
| 822 |
|
|
| 1,000 |
|
Allowance for prepaid advances |
|
| 173 |
|
|
| 32 |
| ||||||||
Changes in fair value of equity investment in Metaverse |
|
| 1,828 |
|
|
| (1,464 | ) |
|
| — |
|
|
| 1,256 |
|
Gain from forgiveness of PPP loan |
|
| — |
|
|
| (2,178 | ) | ||||||||
Impairment of advances |
|
| 1,636 |
|
|
| 782 |
| ||||||||
Provision (benefit) for doubtful accounts |
|
| 54 |
|
|
| (397 | ) | ||||||||
Amortization of debt issuance costs |
|
| 138 |
|
|
| — |
|
|
| 44 |
|
|
| — |
|
Stock-based compensation |
|
| 3,906 |
|
|
| 3,278 |
|
|
| 409 |
|
|
| 980 |
|
Interest expense for deferred consideration & earnouts |
|
| 743 |
|
|
| 97 |
| ||||||||
Non-monetary sale of content licenses |
|
| (1,022 | ) |
|
| — |
| ||||||||
Interest expense for deferred consideration and earnouts |
|
| 181 |
|
|
| 133 |
| ||||||||
Other |
|
| 51 |
|
|
| 59 |
|
|
| 263 |
|
|
| 3 |
|
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts receivable, net |
|
| 5,795 |
|
|
| (8,164 | ) | ||||||||
Accounts receivable |
|
| 5,656 |
|
|
| 5,625 |
| ||||||||
Unbilled revenue |
|
| (332 | ) |
|
| (1,449 | ) |
|
| (211 | ) |
|
| (248 | ) |
Prepaids and other current and long-term assets |
|
| (2,747 | ) |
|
| (1,320 | ) |
|
| (2,688 | ) |
|
| 1,274 |
|
Employee retention tax credit |
|
| (2,475 | ) |
|
| — |
|
|
| 312 |
|
|
| — |
|
Accounts payable, accrued expenses, and other liabilities |
|
| (11,764 | ) |
|
| 7,244 |
|
|
| (4,685 | ) |
|
| (5,266 | ) |
Net cash (used in) provided by operating activities |
|
| (7,901 | ) |
|
| 4,746 |
| ||||||||
Net cash used in operating activities |
| $ | (3,260 | ) |
|
| (1,198 | ) | ||||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Purchases of property and equipment |
|
| (429 | ) |
|
| (292 | ) | ||||||||
Expenditures for long-lived assets |
|
| (272 | ) |
|
| (141 | ) | ||||||||
Purchase of businesses |
|
| — |
|
|
| (4,750 | ) |
|
| — |
|
|
| 80 |
|
Sale of investment securities |
|
| — |
|
|
| 11 |
| ||||||||
Net cash used in investing activities |
|
| (429 | ) |
|
| (5,031 | ) |
| $ | (272 | ) |
|
| (61 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Payments of notes payable and deferred consideration |
|
| (665 | ) |
|
| (7,786 | ) | ||||||||
Payments of notes payable |
|
| — |
|
|
| (284 | ) | ||||||||
Proceeds from line of credit |
|
| 19,469 |
|
|
| — |
|
|
| 8,761 |
|
|
| — |
|
Payments on line of credit |
|
| (14,469 | ) |
|
| (1,956 | ) |
|
| (8,761 | ) |
|
| — |
|
Debt issuance costs |
|
| (271 | ) |
|
| — |
| ||||||||
Issuance of common stock |
|
| — |
|
|
| 12,378 |
| ||||||||
Net cash provided by financing activities |
|
| 4,064 |
|
|
| 2,636 |
| ||||||||
Issuance of common stock, net of issuance costs |
|
| 8,509 |
|
|
| — |
| ||||||||
Net cash provided by (used in) financing activities |
| $ | 8,509 |
|
|
| (284 | ) | ||||||||
Net change in cash and cash equivalents |
|
| (4,266 | ) |
|
| 2,351 |
|
|
| 4,977 |
|
|
| (1,543 | ) |
Cash and cash equivalents at beginning of period |
|
| 13,062 |
|
|
| 17,849 |
|
|
| 7,152 |
|
|
| 13,062 |
|
Cash and cash equivalents at end of period |
| $ | 8,796 |
|
| $ | 20,200 |
|
| $ | 12,129 |
|
| $ | 11,519 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
4
CINEDIGM CORP.Cineverse Corp.
SUPPLEMENTAL CASH FLOW INFORMATION AND DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY
(Unaudited)
(In thousands)
|
| Nine Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Cash interest paid |
| $ | 58 |
|
| $ | 701 |
|
| $ | 121 |
|
| $ | - |
|
Income taxes paid |
|
| — |
|
|
| 79 |
|
| $ | 12 |
|
| $ | - |
|
Lease liability related payments |
| $ | 109 |
|
| $ | - |
| ||||||||
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accrued dividends on preferred stock |
|
| 88 |
|
|
| 89 |
|
| $ | 88 |
|
| $ | 88 |
|
Issuance of Class A common stock for payment of accrued preferred stock dividends |
|
| 264 |
|
|
| 267 |
|
| $ | 88 |
|
| $ | 88 |
|
Issuance of Class A common stock for business combination |
|
| — |
|
|
| 4,824 |
| ||||||||
Deferred consideration in purchase of business |
|
| — |
|
|
| 1,980 |
| ||||||||
Earnout consideration in purchase of a business |
|
| — |
|
|
| 1,461 |
|
| $ | - |
|
| $ | 80 |
|
Earnout consideration paid with common shares of Company |
|
| (238 | ) |
|
| — |
| ||||||||
Earnout consideration adjustment |
|
| 80 |
|
|
| — |
| ||||||||
Treasury shares acquired for withholding taxes |
|
| — |
|
|
| 5 |
| ||||||||
Issuance of common stock for Board of Director compensation |
|
| 3 |
|
|
| — |
|
5
CINEDIGM CORP.Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands, except share data)thousands)
|
| 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, 2021 (Audited) |
|
| 7 |
|
| $ | 3,559 |
|
|
| 166,228,568 |
|
| $ | 164 |
|
|
| 1,313,836 |
|
| $ | (11,603 | ) |
| $ | 499,272 |
|
| $ | (474,080 | ) |
| $ | (68 | ) |
| $ | 17,244 |
|
| $ | (1,362 | ) |
| $ | 15,882 |
|
Foreign exchange translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (54 | ) |
|
| (54 | ) |
|
| — |
|
|
| (54 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 35,714 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 983 |
|
|
| — |
|
|
| — |
|
|
| 983 |
|
|
| — |
|
|
| 983 |
|
Issuance of common stock in connection with a business combination |
|
| — |
|
|
| — |
|
|
| 1,483,129 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 2,504 |
|
|
| — |
|
|
| — |
|
|
| 2,506 |
|
|
| — |
|
|
| 2,506 |
|
Preferred stock dividends paid with common stock |
|
| — |
|
|
| — |
|
|
| 53,278 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 89 |
|
|
| (89 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,187 |
|
|
| — |
|
|
| 5,187 |
|
|
| 7 |
|
|
| 5,194 |
|
Balances as of June 30, 2021 |
|
| 7 |
|
| $ | 3,559 |
|
|
| 167,800,689 |
|
| $ | 166 |
|
|
| 1,313,836 |
|
| $ | (11,603 | ) |
| $ | 502,848 |
|
| $ | (468,982 | ) |
| $ | (122 | ) |
| $ | 25,866 |
|
| $ | (1,355 | ) |
| $ | 24,511 |
|
Foreign exchange translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 35 |
|
|
| 35 |
|
|
| — |
|
|
| 35 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 132,630 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 946 |
|
|
| — |
|
|
| — |
|
|
| 946 |
|
|
| — |
|
|
| 946 |
|
Issuance of common stock in connection with business combinations |
|
| — |
|
|
| — |
|
|
| 1,179,156 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 2,317 |
|
|
| — |
|
|
| — |
|
|
| 2,318 |
|
|
| — |
|
|
| 2,318 |
|
Treasury stock in connection with taxes withheld from employees |
|
| — |
|
|
| — |
|
|
| (2,015 | ) |
|
| — |
|
|
| 2,015 |
|
|
| (5 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| — |
|
|
| (5 | ) |
Preferred stock dividends |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (89 | ) |
|
| — |
|
|
| (89 | ) |
|
| — |
|
|
| (89 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (184 | ) |
|
| — |
|
|
| (184 | ) |
|
| (11 | ) |
|
| (195 | ) |
Balances as of September 30, 2021 |
|
| 7 |
|
| $ | 3,559 |
|
|
| 169,110,460 |
|
| $ | 167 |
|
|
| 1,315,851 |
|
| $ | (11,608 | ) |
| $ | 506,111 |
|
| $ | (469,255 | ) |
| $ | (87 | ) |
| $ | 28,887 |
|
| $ | (1,366 | ) |
| $ | 27,521 |
|
Foreign exchange translation |
|
| — |
|
|
| — |
|
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
| — |
|
|
| (14 | ) |
|
| (14 | ) |
|
| — |
|
|
| (14 | ) | ||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 147,712 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,349 |
|
|
| — |
|
|
| — |
|
|
| 1,349 |
|
|
| — |
|
|
| 1,349 |
|
Issuance of common stock in connection with equity line purchase commitment |
|
| — |
|
|
| — |
|
|
| 210,084 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Preferred stock dividends |
|
| — |
|
|
| — |
|
|
| 102,697 |
|
|
| — |
|
|
| — |
|
|
| — |
|
| 178 |
|
|
| — |
|
|
| — |
|
|
| 178 |
|
|
| — |
|
|
| 178 |
| |
Issuance of common stock in connection with performance stock units |
|
| — |
|
|
| — |
|
| 263 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |
Issuance of common stock in connection with equity line, net |
|
| — |
|
|
| — |
|
|
| 5,300,000 |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 12,371 |
|
|
| — |
|
|
| — |
|
|
| 12,378 |
|
|
| — |
|
|
| 12,378 |
|
Preferred stock dividends accrued |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| 89 |
|
|
| (89 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (385 | ) |
|
| — |
|
|
| (385 | ) |
|
| (19 | ) |
|
| (404 | ) |
Balances as of December 31, 2021 |
|
| 7 |
|
| $ | 3,559 |
|
|
| 174,871,216 |
|
| $ | 174 |
|
|
| 1,315,851 |
|
| $ | (11,608 | ) |
| $ | 520,099 |
|
| $ | (469,729 | ) |
| $ | (101 | ) |
| $ | 42,394 |
|
| $ | (1,385 | ) |
| $ | 41,009 |
|
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, 2023 (Audited) |
| 1 |
|
| $ | 3,559 |
|
|
| 9,348 |
|
| $ | 185 |
|
|
| 66 |
|
| $ | (11,608 | ) |
| $ | 530,998 |
|
| $ | (482,395 | ) |
| $ | (402 | ) |
| $ | 40,337 |
|
| $ | (1,264 | ) |
| $ | 39,073 |
|
Foreign exchange translation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (78 | ) |
|
| (78 | ) |
|
| — |
|
|
| (78 | ) |
Stock-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 409 |
|
|
| — |
|
|
| — |
|
|
| 409 |
|
|
| — |
|
|
| 409 |
|
Issuance of common stock in connection with ATM raises, net |
| — |
|
|
| — |
|
|
| 177 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 1,065 |
|
|
| — |
|
|
| — |
|
|
| 1,069 |
|
|
| — |
|
|
| 1,069 |
|
Issuance of common stock in connection with direct equity offering |
| — |
|
|
| — |
|
|
| 2,150 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 7,437 |
|
|
| — |
|
|
| — |
|
|
| 7,439 |
|
|
| — |
|
|
| 7,439 |
|
Preferred stock dividends paid in stock |
| — |
|
|
| — |
|
|
| 10 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| 88 |
|
Preferred stock dividends accrued |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| (88 | ) |
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,550 | ) |
|
| — |
|
|
| (3,550 | ) |
|
| 14 |
|
|
| (3,536 | ) |
Balances as of June 30, 2023 |
| 1 |
|
| $ | 3,559 |
|
|
| 11,685 |
|
| $ | 191 |
|
|
| 66 |
|
| $ | (11,608 | ) |
| $ | 539,997 |
|
| $ | (486,033 | ) |
| $ | (480 | ) |
| $ | 45,626 |
|
| $ | (1,250 | ) |
| $ | 44,376 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
6
CINEDIGM CORP.Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands, except share data)thousands)
| Preferred Stock |
|
| Common Stock |
|
| Treasury |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Total |
|
| Non |
|
|
|
|
| Preferred Stock |
|
| Common Stock |
|
| Treasury |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Total |
|
| Non |
|
| Total |
| ||||||||||||||||||||||||||||||||||||||||||
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Equity |
|
| Interest |
|
| Total |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Equity |
|
| Interest |
|
| Equity |
| ||||||||||||||||||||||||
Balances as of March 31, 2022 (Audited) |
| 7 |
|
| $ | 3,559 |
|
|
| 175,313,584 |
|
| $ | 174 |
|
|
| 1,315,851 |
|
| $ | (11,608 | ) |
| $ | 522,601 |
|
| $ | (472,310 | ) |
| $ | (163 | ) |
| $ | 42,253 |
|
| $ | (1,303 | ) |
| $ | 40,950 |
|
|
| 1 |
|
| $ | 3,559 |
|
|
| 8,766 |
|
| $ | 174 |
|
|
| 66 |
|
| $ | (11,608 | ) |
| $ | 522,601 |
|
| $ | (472,310 | ) |
| $ | (163 | ) |
| $ | 42,253 |
|
| $ | (1,303 | ) |
| $ | 40,950 |
|
Foreign exchange translation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 48 |
|
|
| 48 |
|
|
| — |
|
|
| 48 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 48 |
|
|
| 48 |
|
|
| — |
|
|
| 48 |
|
Stock-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 980 |
|
|
| — |
|
|
| — |
|
|
| 980 |
|
|
| — |
|
|
| 980 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 980 |
|
|
| — |
|
|
| — |
|
|
| 980 |
|
|
| — |
|
|
| 980 |
|
Preferred stock dividends paid with common stock |
| — |
|
|
| — |
|
|
| 108,024 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| 88 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends paid in stock |
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| 88 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends accrued |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| (88 | ) |
Net income (loss) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,005 | ) |
|
| — |
|
|
| (6,005 | ) |
|
| 18 |
|
|
| (5,987 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,005 | ) |
|
| — |
|
|
| (6,005 | ) |
|
| 18 |
|
|
| (5,987 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Balances as of June 30, 2022 |
| 7 |
|
| $ | 3,559 |
|
|
| 175,421,608 |
|
| $ | 174 |
|
|
| 1,315,851 |
|
| $ | (11,608 | ) |
| $ | 523,669 |
|
| $ | (478,403 | ) |
| $ | (115 | ) |
| $ | 37,276 |
|
| $ | (1,285 | ) |
| $ | 35,991 |
|
|
| 1 |
|
| $ | 3,559 |
|
|
| 8,771 |
|
| $ | 174 |
|
|
| 66 |
|
| $ | (11,608 | ) |
| $ | 523,669 |
|
| $ | (478,403 | ) |
| $ | (115 | ) |
| $ | 37,276 |
|
| $ | (1,285 | ) |
| $ | 35,991 |
|
Foreign exchange translation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (362 | ) |
|
| (362 | ) |
|
| — |
|
|
| (362 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 791 |
|
|
| — |
|
|
| — |
|
|
| 791 |
|
|
| — |
|
|
| 791 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends paid with common stock |
| — |
|
|
| — |
|
|
| 178,572 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| 88 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with performance stock units and annual incentive awards, net of employee payroll taxes |
| — |
|
|
| — |
|
|
| 2,066,879 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 871 |
|
|
| — |
|
|
| — |
|
|
| 873 |
|
|
| — |
|
|
| 873 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for BD Earnout commitment |
| — |
|
|
| — |
|
|
| 334,037 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 238 |
|
|
| — |
|
|
| — |
|
|
| 238 |
|
|
| — |
|
|
| 238 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends accrued |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
| (88 | ) |
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| (88 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,664 | ) |
|
| — |
|
|
| (5,664 | ) |
|
| 9 |
|
|
| (5,655 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balances as of September 30, 2022 |
| 7 |
|
| $ | 3,559 |
|
|
| 178,001,096 |
|
| $ | 176 |
|
|
| 1,315,851 |
|
| $ | (11,608 | ) |
| $ | 525,657 |
|
| $ | (484,155 | ) |
| $ | (477 | ) |
| $ | 33,152 |
|
| $ | (1,276 | ) |
| $ | 31,876 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange translation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| 88 |
|
|
| — |
|
|
| 88 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 657 |
|
|
| — |
|
|
| — |
|
|
| 657 |
|
|
| — |
|
|
| 657 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends paid with common stock |
| — |
|
|
| — |
|
|
| 224,359 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| 88 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for Board of Director compensation |
| — |
|
|
| — |
|
|
| 684,024 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends accrued |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| (88 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,014 |
|
|
| — |
|
|
| 5,014 |
|
|
| 8 |
|
|
| 5,022 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Balances as of December 31, 2022 |
| 7 |
|
| $ | 3,559 |
|
|
| 178,909,479 |
|
| $ | 177 |
|
|
| 1,315,851 |
|
| $ | (11,608 | ) |
| $ | 526,402 |
|
| $ | (479,229 | ) |
| $ | (389 | ) |
| $ | 38,912 |
|
| $ | (1,268 | ) |
| $ | 37,644 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
7
CINEDIGMCINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF OPERATIONS AND LIQUIDITY
CinedigmCineverse Corp. (“Cinedigm,”Cineverse”, “us”, “our”, and “Company” refers to Cineverse Corp. and its subsidiaries unless the “Company,” “we,” “us,” or similar pronouns)context otherwise requires) was incorporated in Delaware on March 31, 2000. We are (i)On May 22, 2023, the Company changed its corporate name to Cineverse Corp. Since our inception, we have played a distributorsignificant role in the digital distribution revolution that continues to transform the media and aggregator of independent movie, television and other short form content managing a library of distribution rights to thousands of titles and episodes released across digital, physical, theatrical, home and mobile entertainment platforms (“Streaming”) and (ii) a servicer of digital cinema assets for movie screens in both North America and several international countries.landscape.
We report our financial results in two reportable segmentsCineverse is a premier streaming technology and entertainment company with its core business (i) across a portfolio of owned and operated enthusiast streaming channels with enthusiast fan bases; (ii) as follows: (i) Cinema Equipment Business ("Cinema Equipment")a large-scale global aggregator and (ii) Contentfull-service distributor of feature films and Entertainment Business (“Content & Entertainment”). The Cinema Equipment segment consists of the non-recourse, financing vehiclestelevision programs; and administrators(iii) as a proprietary technology software-as-a-service platform 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”) app development and content distribution through subscription video on demand ("SVOD"), dedicated ad-supported ("AVOD"), ad-supported streaming linear ("FAST") channels, social video streaming services, and audio podcasts. 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 networkcontent 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, and Tubi, as well as (ii) physical goods, including DVD and Blu-ray Discs.
We played a significant role in the digital distribution revolution that continues to transform the media landscape, playing a pioneering role in transitioning approximately 12,000 movie screens from traditional analog film prints to digital distribution, and at the end of our fiscal year 2023, the Company's cinema equipment business providing entertainment channelsconcluded its active operations, as its contracts reached maturity. The Company no longer separately manages cinema equipment separately, and applications.with the run-off of its operations, no longer presents this part of the business as a separate segment. All prior period reporting within this report reflect this change.
Our Class A common stock, par value $0.001 per share (the "Common Stock") is listed on the Nasdaq Capital Market (“Nasdaq”) under the symbol “CNVS.” On April 4, 2022, the Company received a letter from the Nasdaq indicating that the Company no longer met the Bid Price Rule.
On June 7, 2023, Cineverse Corp. filed with the Secretary of State of the State of Delaware a Certificate of Amendment to the Company's Fifth Amended and Restated Certificate of Incorporation (the "Reverse Split Charter Amendment"), pursuant to which the Company effected a 1-for-20 reverse stock split of the Class A common stock. The reverse stock split became effective as of 12:01 a.m. Eastern Time on June 9, 2023. All share and price amounts in this report reflect the 1-for-20 reverse stock split effected on June 9, 2023.
On June 30, 2023, Cineverse Corp. was notified by Nasdaq that the Company has regained compliance with the $1.00 bid price requirement for continued listing on The Nasdaq Capital Market. The Company remains subject to a one-year “Panel Monitor” as that term is defined by Nasdaq Listing Rule 5815(d)(4)(A).
Financial Condition and Liquidity
AsWe have a history of December 31, 2022,net losses, and for the Company has an accumulated deficit of $479.2 million and negative working capital of $4.5 million. For the three and nine monthsquarter ended December 31, 2022, the CompanyJune 30, 2023, we had a net income (loss)loss attributable to common shareholdersstockholders in the amount of $$(4.9 million and ($6.93.6) 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. As of June 30, 2023, the Company has an accumulated deficit of $486.0 million and negative working capital of $2.1 million. Net cash used in operating activities for the three months ended June 30, 2023 was $3.3 million.
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, 9.09.75% as of December 31, 2022.June 30, 2023. 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,June 30, 2023, $5.0 million was outstanding on the Line of Credit Facility. On August 11, 2023, the maturity date of the Line of Credit Facility was extended one year to September 15, 2024. The outstanding principal balance on the Line of Credit Facility as of August 7, 2023 was $0.
8
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In July 2020, we entered into an At-the-Market sales agreement (the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”) and B. Riley FBR, Inc. (“B. Riley” and, together with A.G.P., the “Sales Agents”), pursuant to which the Company may offer and sell, from time to time, through the Sales Agents, shares of Common Stock at the market prices prevailing on Nasdaq at the time of the sale of such shares. The Company is not obligated to sell any shares under the ATM Sales Agreement. Any sales of shares made under the ATM Sales Agreement will be made pursuant the an effective shelf registration statement, for an aggregate offering price of up to $30 million. During the quarter ended June 30, 2023, the Company sold 177 thousand shares for $1.1 million in net proceeds, after deduction of commissions and fees.
On June 16, 2023, the Company closed on the sale of 2,150 thousand shares of common stock, 517 thousand pre-funded warrants, and warrants to purchase up to 2,667 thousand shares of common stock at a combined public offering price of $3.00 per share and accompanying warrant for aggregate gross proceeds of approximately $7.4 million, after deducting placement agent fees and other offering expenses in the amount of $0.6 million. The warrants had an exercise price of $3.00 per share, were exercisable immediately and will expire five years from the issuance. The Company received $2.999 per share for the pre-funded warrants, with the remaining $0.001 due at the time of exercise. All 516,667 pre-funded warrants were subsequently exercised in July 2023 for total proceeds of $0.5 thousand.
In addition, the Company remains authorized to purchase up to an aggregate of 500 thousand shares of its outstanding Common Stock, following the announcement of a stock repurchase program on March 1, 2023.
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 CinedigmCineverse 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, 20222023 filed with the Securities and Exchange Commission (the “SEC”) on July 1, 2022.June 29, 2023. 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, 2022.2023. 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.
9
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We own an 85% interest in CON TV, LLC ("CONtv"), a worldwide digital network that creates original content, and sells and distributes on-demand digital content on the internet and other consumer digital distribution platforms, such as gaming consoles, set-top boxes, handsets, and tablets. We evaluated the investment under the voting interest entity model and determined that the entity should be consolidated as we have a controlling financial interest in the entity through our ownership of outstanding voting shares, and that other equity holders do not have substantive voting, participating or liquidation rights. We recorded net lossincome attributable to noncontrolling interest in our Condensed Consolidated Statements of Operations equal to 11% of outstanding profit interest units retained by the noncontrolling interests.
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, 2022.2023.
Segment Reporting
Beginning in fiscal year 2024, following the run-off of the Company's digital cinema operations, the Company now manages its operations and manages its business in one reporting segment. Earlier periods presented herein have been presented to conform to this reportable segment composition.
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 70% of qualified wages paid to employees during the 2021 fiscal year.
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 monthsfiscal year ended September 30, 2022 and DecemberMarch 31, 2022 for $0.5 million and $2.0 million, respectively. During2023 in the three and nine months ended December 31, 2022, the Company recorded an employee retention credit totaling $2.0 million andamount of $2.5 million respectively, in the Employee retention tax credit line on the Company’s Condensed Consolidated Statements of Operations. As of December 31, 2022,June 30, 2023, the tax credit receivable of $1.8 million has been included in the Employee retention tax credit line on the Company's Condensed Consolidated Balance Sheet.
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 |
| 3 -5 | years | |
| Internal use software |
|
| |
Machinery and equipment |
| 3 - 10 years | ||
Furniture and fixtures |
| 3 - | ||
|
|
10
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
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.
Amortization lives of intangible assets are as follows:
Content Library | 3 – 20 years | |||
Advertiser Relationships and Channel | 3 – 13 years | |||
Customer Relationships | 5 – 13 years | |||
Software | 10 years | |||
Trademarks and Tradenames | 2 – 15 years | |||
Supplier Agreements | 2 years |
The Company’s intangible assets included the following (in thousands):
|
| As of June 30, 2023 |
| |||||||||
|
| Cost Basis |
|
| Accumulated |
|
| Net |
| |||
Content Library |
| $ | 24,073 |
|
| $ | (21,176 | ) |
| $ | 2,897 |
|
Advertiser Relationships and Channel |
|
| 12,604 |
|
|
| (1,348 | ) |
|
| 11,256 |
|
Supplier Agreements |
|
| 11,430 |
|
|
| (11,430 | ) |
|
| - |
|
Customer Relationships |
|
| 8,690 |
|
|
| (7,668 | ) |
|
| 1,022 |
|
Software |
|
| 3,200 |
|
|
| (640 | ) |
|
| 2,560 |
|
Trademark and Tradenames |
|
| 4,026 |
|
|
| (2,573 | ) |
|
| 1,453 |
|
Total Intangible Assets |
| $ | 64,023 |
|
| $ | (44,835 | ) |
| $ | 19,188 |
|
|
| As of March 31, 2023 |
| |||||||||
|
| Cost Basis |
|
| Accumulated |
|
| Net |
| |||
Content Library |
| $ | 23,970 |
|
| $ | (21,126 | ) |
| $ | 2,844 |
|
Advertiser Relationships and Channel |
|
| 12,604 |
|
|
| (1,062 | ) |
|
| 11,542 |
|
Supplier Agreements |
|
| 11,430 |
|
|
| (11,430 | ) |
|
| — |
|
Customer Relationships |
|
| 8,690 |
|
|
| (7,600 | ) |
|
| 1,090 |
|
Trademark and Tradenames |
|
| 4,026 |
|
|
| (2,274 | ) |
|
| 1,752 |
|
Software |
|
| 3,200 |
|
|
| (560 | ) |
|
| 2,640 |
|
Total Intangible Assets |
| $ | 63,920 |
|
| $ | (44,052 | ) |
| $ | 19,868 |
|
11
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During the three months ended June 30, 2023 and 2022, the Company had amortization expense of $0.7 million, respectively.
As of June 30, 2023, amortization expense is expected to be (in thousands):
| Total |
| ||
In-process intangible assets |
| $ | 1,888 |
|
Remainder of fiscal year 2024 |
|
| 2,404 |
|
2025 |
|
| 2,307 |
|
2026 |
|
| 2,040 |
|
2027 |
|
| 1,521 |
|
2028 |
|
| 1,246 |
|
Thereafter |
|
| 7,782 |
|
|
| $ | 19,188 |
|
Content Assets
The Company capitalizes direct costs incurred in the production of content from which it expects to generate a return over the anticipated useful life and the Company’s predominant monetization strategy informs the method of amortizing these deferred costs. The determination of the predominant monetization strategy is made at commencement of the production or license period and the classification of the monetization strategy as individual or group only changes if there is a significant change to the title’s monetization strategy relative to its initial assessment. The costs are presently capitalized within construction-in-process and will be amortized as a group are included within Depreciation and Amortization within the Condensed Consolidated Statements of Operations.
Impairment of Long-lived and Finite-lived Intangible 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,There were no impairment charges were recorded from operations for long-lived assets orand finite-lived assets.
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:
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
|
The Company’s intangible assets included the following (in thousands):
As of December 31, 2022 |
| Cost Basis |
|
| Accumulated |
|
| Impairment |
|
| Net |
| ||||
Content Library |
| $ | 23,685 |
|
| $ | (21,038 | ) |
| $ | — |
|
| $ | 2,647 |
|
Advertiser Relationships and Channel |
|
| 11,104 |
|
|
| (759 | ) |
|
| — |
|
|
| 10,345 |
|
Customer Relationships |
|
| 10,658 |
|
|
| (7,531 | ) |
|
| (1,968 | ) |
|
| 1,159 |
|
Software |
|
| 3,200 |
|
|
| (480 | ) |
|
| — |
|
|
| 2,720 |
|
Trademark and Tradenames |
|
| 4,026 |
|
|
| (2,033 | ) |
|
| — |
|
|
| 1,993 |
|
Total Intangible Assets |
| $ | 52,673 |
|
| $ | (31,841 | ) |
| $ | (1,968 | ) |
| $ | 18,864 |
|
As of March 31, 2022 |
| Cost Basis |
|
| Accumulated |
|
| Impairment |
|
| Net |
| ||||
Content Library |
| $ | 23,685 |
|
| $ | (20,665 | ) |
| $ | — |
|
| $ | 3,020 |
|
Advertiser Relationships and Channel |
|
| 10,081 |
|
|
| (161 | ) |
|
| — |
|
|
| 9,920 |
|
Customer Relationships |
|
| 10,658 |
|
|
| (7,327 | ) |
|
| (1,968 | ) |
|
| 1,363 |
|
Software |
|
| 3,200 |
|
|
| (240 | ) |
|
| — |
|
|
| 2,960 |
|
Trademark and Tradenames |
|
| 4,026 |
|
|
| (1,301 | ) |
|
| — |
|
|
| 2,725 |
|
Supplier Agreements |
|
| 11,430 |
|
|
| (11,384 | ) |
|
| — |
|
|
| 46 |
|
Total Intangible Assets |
| $ | 63,080 |
|
| $ | (41,078 | ) |
| $ | (1,968 | ) |
| $ | 20,034 |
|
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 $0.7 million and $2.2 million, respectively. During the three and nine months ended December 31, 2021, the Company had amortization expense of $0.7 million and $2.2 million, respectively.
Duringduring the three months ended December 31, 2022, the Company entered into a non-monetary transaction for the purchaseJune 30, 2023 and sale of content licenses with an unrelated third-party. The fair value of the content licenses sold was determined to be $1.0 million which is included in Revenues in our Condensed Consolidated Statement of Operations for the three months ended December 31, 2022. The fair value of the content licenses purchased was determined to be $1.0 million and is recognized in Intangible Assets, Net on our Condensed Consolidated Balance Sheet as of December 31, 2022.
As of December 31, 2022, amortization expense is expected to be (in thousands):
|
| Total |
| |
Remainder of fiscal year 2023 |
| $ | 1,252 |
|
2024 |
|
| 3,343 |
|
2025 |
|
| 2,137 |
|
2026 |
|
| 1,745 |
|
2027 |
|
| 1,269 |
|
Thereafter |
|
| 9,118 |
|
|
| $ | 18,864 |
|
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
12
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
date of March 31, 20222023 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.
No goodwill impairment charge was recorded in the three and nine months ended December 31, 2022June 30, 2023 and 2021.2022.
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 |
|
| As of June 30, 2023 |
| ||||||||||||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Equity investment in Metaverse, at fair value |
| $ | — |
|
| $ | — |
|
| $ | 5,200 |
|
| $ | 5,200 |
|
| $ | — |
|
| $ | — |
|
| $ | 5,200 |
|
| $ | 5,200 |
|
|
| $ | — |
|
| $ | — |
|
| $ | 5,200 |
|
| $ | 5,200 |
|
| $ | — |
|
| $ | — |
|
| $ | 5,200 |
|
| $ | 5,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Current portion of earnout consideration on purchase of a business |
| $ | — |
|
| $ | — |
|
| $ | 768 |
|
| $ | 768 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,526 |
|
| $ | 1,526 |
|
Long-term portion of earnout consideration on purchase of a business |
|
| — |
|
|
| — |
|
|
| 676 |
|
|
| 676 |
| ||||||||||||||||
|
| $ | — |
|
| $ | — |
|
| $ | 1,444 |
|
| $ | 1,444 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,526 |
|
| $ | 1,526 |
|
|
| As of March 31, 2023 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equity investment in Metaverse, at fair value |
|
|
|
| $ | — |
|
| $ | 5,200 |
|
| $ | 5,200 |
| |
| $ | — |
|
| $ | — |
|
| $ | 5,200 |
|
| $ | 5,200 |
| |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current portion of earnout consideration on purchase of a business |
| $ | — |
|
| $ | — |
|
| $ | 1,444 |
|
| $ | 1,444 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,444 |
|
| $ | 1,444 |
|
12The Company has accounted for its investment in A Metaverse Company ("Metaverse") (SEHK: 1616) under the equity method of accounting as the Company can exert significant influence over Metaverse with its direct ownership and affiliation with the Company’s majority shareholders. The Company has also made an irrevocable election to apply the fair value option under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 825-10, Financial Instruments, as it relates to its equity investment in Metaverse.
The Company previously used quoted trading price of the Stock Exchange of Hong Kong to measure the investment's fair value. Following the halting of Metaverse stock trading on the Stock Exchange of Hong Kong on April 1, 2022, the Company valued our equity investment in Metaverse using a market approach and the investment is categorized as a Level 3 valuation based on unobservable inputs.
13
CINEDIGMCINEVERSE 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 |
| $ | 7,028 |
|
| $ | — |
|
| $ | — |
|
| $ | 7,028 |
|
|
| $ | 7,028 |
|
| $ | — |
|
| $ | — |
|
| $ | 7,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current portion of earnout consideration on purchase of a business |
| $ | — |
|
| $ | — |
|
| $ | 1,081 |
|
| $ | 1,081 |
|
Long-term portion of earnout consideration on purchase of a business |
|
| — |
|
|
| — |
|
|
| 603 |
|
|
| 603 |
|
|
| $ | — |
|
| $ | — |
|
| $ | 1,684 |
|
| $ | 1,684 |
|
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 7.8 Hong Kong Dollars to 1 US Dollar. The fair value of this equity investment was measured by the quoted market price of Metaverse on the Stock Exchange of Hong Kong (SEHK: 1616) as of March 31, 2022. On April 1, 2022, trading of Metaverse’s ordinary shares was halted on the Hong Kong Stock Exchange. As of December 31, 2022, Metaverse’s stock valuation is based on an independent valuation based on the market approach and is categorized as Level 3 based on unobservable inputs. The Company estimated the fair value based on the market approachof Metaverse based on the last known enterprise value, adjusting for trends in value fromenterprise valuations and market capitalization for comparable companies. The adjustment toAs of June 30, 2023 and March 31, 2023, the fair value of this investment resulted in a loss ofwas $1.85.2 million and gain of $million.1.5
million for the nine months ended December 31, 2022 and 2021, respectively. As the value of the investment in Metaverse is determined based on unobservable inputs, company and industry fluctuations, as well as general economic, political, regulatory and market conditions such as recessions, interest rate changes or international currency fluctuations, changes to these assumptions may have a significant impact on
The Company estimated the fair value of our investmentits earnout consideration using contractual inputs from the related business combination, which established specific fiscal year revenue growth, profitability and EBITDA targets. The Company utilizes the most up to date forecast to estimate the outcome against these targets to determine the ultimate estimated payout. During the quarter ended June 30, 2023, the Company accrued interest of $30 thousand and an increase in Metaverse.the estimated earnout payments by $52 thousand based on fiscal year 2024 estimated performance.
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 |
|
| As of |
| ||||||||||
|
| December 31, |
|
| March 31, |
|
| June 30, |
|
| March 31, |
| ||||
Advances |
| $ | 3,244 |
|
| $ | 2,117 |
| ||||||||
Due from producers |
|
| 1,549 |
|
|
| 1,861 |
| ||||||||
Amounts due from producers |
| $ | 5,878 |
|
| $ | 3,724 |
| ||||||||
Other receivables |
|
| 1,134 |
|
|
| 826 |
|
|
| 125 |
|
|
| 420 |
|
Inventory |
|
| 209 |
|
|
| 116 |
|
|
| 165 |
|
|
| 207 |
|
Other prepaid expenses |
|
| 1,167 |
|
|
| 989 |
| ||||||||
Other prepayments |
|
| 1,469 |
|
|
| 1,107 |
| ||||||||
Total prepaid and other current assets |
| $ | 7,303 |
|
| $ | 5,909 |
|
| $ | 7,637 |
|
| $ | 5,458 |
|
Advances representAmounts due from producers represents amounts prepaid to studios or content producers for which we provide content distribution services. We evaluate advances regularly for recoverability and record impairment chargesa provision for amounts that we expect may not be recoverable. Impairments related toThe provision for advances were $1.00.2 million and $0.40.03 million for the three months ended December 31,June 30, 2023 and 2022, and 2021, respectively. Impairments related to advances were $1.6 million and $0.8 million for the nine months ended December 31, 2022 and 2021, respectively.
13Other prepayments generally relate to prepaid operating expenses, short term deposits and prepaid taxes.
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 |
|
| As of |
| ||||||||||
|
| December 31, |
|
| March 31, |
|
| June 30, |
|
| March 31, |
| ||||
Accounts payable |
| $ | 17,720 |
|
| $ | 34,177 |
|
| $ | 10,291 |
|
| $ | 15,042 |
|
Amounts due to producers |
|
| 15,967 |
|
|
| 10,430 |
|
|
| 14,112 |
|
|
| 13,114 |
|
Accrued compensation and benefits |
|
| 3,390 |
|
|
| 3,507 |
|
|
| 2,330 |
|
|
| 2,532 |
|
Accrued other expenses |
|
| 3,642 |
|
|
| 3,911 |
|
|
| 3,134 |
|
|
| 3,843 |
|
Total accounts payable and accrued expenses |
| $ | 40,719 |
|
| $ | 52,025 |
|
| $ | 29,867 |
|
| $ | 34,531 |
|
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.
14
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 |
| $ | 7,458 |
|
| $ | 220 |
|
| $ | 9,340 |
|
| $ | 1,263 |
|
Services |
|
| (316 | ) |
|
| 506 |
|
|
| (88 | ) |
|
| 1,171 |
|
Digital system sales |
|
| 44 |
|
|
| 1,334 |
|
|
| 1,966 |
|
|
| 9,110 |
|
Total Cinema Equipment revenue |
| $ | 7,186 |
|
| $ | 2,060 |
|
| $ | 11,218 |
|
| $ | 11,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Content & Entertainment: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Base distribution business |
| $ | 8,121 |
|
| $ | 3,668 |
|
| $ | 11,145 |
|
| $ | 6,368 |
|
OTT streaming and digital |
|
| 12,575 |
|
|
| 8,356 |
|
|
| 33,115 |
|
|
| 21,290 |
|
Total Content & Entertainment revenue |
| $ | 20,696 |
|
| $ | 12,024 |
|
| $ | 44,260 |
|
| $ | 27,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total revenue |
| $ | 27,882 |
|
| $ | 14,084 |
|
| $ | 55,478 |
|
| $ | 39,202 |
|
|
| Three Months Ended |
| ||||||
|
| 2023 |
|
| 2022 |
| |||
Streaming and digital |
|
| $ | 10,114 |
|
| $ | 9,503 |
|
Base distribution |
|
|
| 1,158 |
|
|
| 2,205 |
|
Podcast and other |
|
|
| 429 |
|
|
| 455 |
|
Other non-recurring |
|
|
| 1,279 |
|
|
| 1,427 |
|
Total revenue |
|
| $ | 12,980 |
|
| $ | 13,590 |
|
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 10-year deployment payment period.
For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.
14
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The Cinema Equipment segment also provides monitoring, data collection, serial data verificationCompany's Streaming and management servicesdigital revenue pertains 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,its OTT business, including the purchase price of all Systems, all financing costs, all “overheadlicensing, service, advertising, 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 estimatessubscription revenue related to the Company's streaming business and partnerships. Base distribution revenue relates to non-streaming revenue, including Theatrical revenue and the sale of DVD's. Podcast and other revenue primarily relates to the Company's Bloody Disgusting Podcast Network. Other non-recurring revenue relates to the Company's legacy digital cinema operations, whose operations have run-off, still may generate non-recurring revenue from the sale of cinema assets or the recognition of variable consideration and determined that it is not probable to conclude at this point in time that a significant reversal inas the amount of cumulative revenue recognized will occur when theassociated 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 5% of VPFs collected and, in addition, earns an incentive service fee equal to 2.5% of the VPFs earned by Phase 1 Deployment. This administrative fee is related to the collection and remittance of the VPF’s and the performance obligation is satisfied at the time the related VPF fees are due which is at the time the movies are displayed on screens utilizing our Systems installed in movie theatres. The service fees are recognized as a point in time revenue when the corresponding VPF fees are due from the distributors.
A limited number of systems from our Phase I deployment remain eligible for VPFs from certain distributors where Phase I exhibitors have renewed their term on an annual basis. We continue to pursue system sales for these remaining exhibitors. Our Phase II deployment currently consists of a limited number of exhibitors who purchased their own systems and have not yet reached recoupment or the end of their contractual term. We continue to administer VPFs for these limited systems from certain distributors.
During the three and nine months ended December 31, 2022, $7.4 million and $9.1 million of revenue was recognized that was included in the accounts payable balance as constrained variable consideration at the beginning of the year. The Company recognized the revenue once the uncertainty associated with the variable consideration was resolved. As of December 31, 2022, approximately $1.0 million remains on our balance sheet in accounts payable as constrained variable consideration.
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.resolved.
The Company follows the five-step model established by Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"),ASC 606, 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 segmentWe 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,June 30, 2023 and 2022, and 2021, we did not recognize any credit losses as part of its ongoing operations or reversals of previously recorded provisions, and did not have any write-offs charged against the allowance.
15
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 tosuch as the sale of DVDs with future release dates.
Deferred revenue relating to our Cinema & Equipment segment pertains to revenues earneddates, even if amounts are refundable. Amounts recorded as contract liabilities are generally not long-term 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.nature.
The ending deferred revenue balance, including current and non-current balances as of June 30, 2023 and March 31, 20222023, was and December 31, 2022 was $0.2 million and $0.40.2 million respectively. For the three and nine months ended December 31, 2022,June 30, 2023, the additions to our deferred revenue balance were primarily due to cash payments received or due in advance of satisfying performance obligations, while the reductions of $0.2 million to our deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.
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 TubiJune 30, 2023, one customer represented 35%, 16%, 1428% and 5%, respectively, of Content & Entertainment segment revenues, and approximately 16%, 7%, 14% and 6%, respectively, of our consolidated revenues.
For the nine months ended December 31, 2022, Iconic, Distribution Solutions, a division of Alliance Entertainment, Amazon.com, Inc., and Tubi, represented 27%, 19%, 25% and 10% respectively, of Content & Entertainment segment revenues, and approximately 8%, 5%, 11% and 5%, respectively, of our consolidated revenues.
For the three months ended December 31, 2021, Amazon.com, Inc., Distribution Solutions, a division of Alliance Entertainment and Tubi,June 30, 2022, one customer represented approximately 15%, 1119% and 7%, respectively, of Content & Entertainment segment revenues andanother customer represented approximately 13%, 9% and 6%, respectively, of our consolidated revenues.
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 24%, 9% and 10%, respectively, of Content & Entertainment segment revenues and approximately 17%, 6% and 7%, respectively, of our consolidated revenues.
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 andor 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
16
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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%50% likely to be recognized upon ultimate settlement with the taxing authority is recorded. The Company hashad no uncertain tax positions as of DecemberJune 30, 2023 and March 31, 2022.2023.
18
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Earnings per Share ("EPS")
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)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 |
| $ | 4,926 |
|
| $ | (474 | ) |
| $ | (6,919 | ) |
|
| 4,351 |
|
Shares used in basic computation: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted-average shares of common stock outstanding |
|
| 178,899,605 |
|
|
| 173,167,450 |
|
|
| 177,077,803 |
|
|
| 169,413,873 |
|
Basic net income (loss) per share |
| $ | 0.03 |
|
| $ | (0.00 | ) |
| $ | (0.04 | ) |
| $ | 0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shares used in diluted computation: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted-average shares of common stock outstanding |
|
| 178,899,605 |
|
|
| 173,167,450 |
|
|
| 177,077,803 |
|
|
| 169,413,873 |
|
Stock options and SARs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,603,491 |
|
Weighted-average number of shares |
|
| 178,899,605 |
|
|
| 173,167,450 |
|
|
| 177,077,803 |
|
|
| 173,017,364 |
|
Diluted net income (loss) per share |
| $ | 0.03 |
|
| $ | (0.00 | ) |
| $ | (0.04 | ) |
| $ | 0.03 |
|
The following table summarizes the potential shares of common stock excluded from the diluted calculation (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||
SARs |
|
|
|
| 13,471,351 |
|
|
|
|
| 12,787,403 |
|
Stock options |
|
|
|
| 12,500 |
|
|
|
|
| 12,500 |
|
|
|
|
|
| 13,483,851 |
|
|
|
|
| 12,799,903 |
|
| Three Months Ended |
| ||||||
| 2023 |
|
| 2022 |
| |||
Basic net loss per share: |
|
|
|
|
|
| ||
Net loss attributable to common stockholders |
| $ | (3,638 | ) |
|
| (6,093 | ) |
Shares used in basic computation: |
|
|
|
|
|
| ||
Weighted-average shares of common stock outstanding |
|
| 9,879 |
|
|
| 8,771 |
|
Basic net loss per share |
| $ | (0.37 | ) |
| $ | (0.69 | ) |
|
|
|
|
|
|
| ||
Shares used in diluted computation: |
|
|
|
|
|
| ||
Weighted-average shares of common stock outstanding |
|
| 9,879 |
|
|
| 8,771 |
|
Stock options and SARs |
|
| — |
|
|
| — |
|
Weighted-average number of shares |
|
| 9,879 |
|
|
| 8,771 |
|
Diluted net loss per share |
| $ | (0.37 | ) |
| $ | (0.69 | ) |
ForIncluded in the threecomputation of basic EPS are the 516,667 pre-funded warrants which were issued and nine monthssold on June 16, 2023.
The calculation of diluted net loss per share for the quarters ended December 31, 2021,June 30, 2023 and 2022 does not include the impact of 12,088,4732,666,667 and 8,484,9820, warrants, respectively, as well as 934 thousand and 425 thousand potentially dilutive shares, have been excluded from the diluted loss per sharerespectively, relating to equity-based awards, as their impact would have been antidilutive.anti-dilutive due to the respective period's net loss.
17
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recently Issued Accounting Pronouncements
The Company evaluates all Accounting Standard Updates ("ASUs") issued but not yet effective by FASB for consideration of their applicability. ASU's not included in the Company's disclosures were assessed and determined to be not applicable and material to the Company's consolidated financial statements or disclosures.
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,July 2023, the FASB issued ASU 2022-06, deferringNo 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718)” pursuant to SEC Staff Accounting Bulletin No. 120, which adds interpretive guidance for public companies to consider when entering into share-based payment transactions while in possession of material non-public information. This update is reflected in the sunset date to December 31, 2024.Accounting Standard Codification upon issuance and will be effective in the Company's second quarter of fiscal year 2024, beginning July 1, 2023. The adoption of this ASU isCompany does not expectedexpect the adoption 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 andour consolidated 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.statements.
3. OTHER INTERESTS
Investment in CDF2 Holdings
We indirectly own 100% of the common equity of CDF2 Holdings, LLC (“CDF2 Holdings”), which was created for the purpose of capitalizing on the conversion of the exhibition industry from film to digital technology. CDF2 Holdings assists its customers in procuring the equipment necessary to convert their systems to digital technology by providing financing, equipment, installation and related ongoing services.
CDF2 Holdings is a Variable Interest Entity (“VIE”), as defined in 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, 2022June 30, 2023 and March 31, 2022,2023, 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 $2.10.0 million and $0.80.5 million as of December 31, 2022June 30, 2023 and March 31, 2022,2023, respectively, which are included in accounts receivable, net on the accompanying Condensed Consolidated Balance Sheets.
The accompanying Condensed Consolidated Statements of Operations include $0.10.0 million and $($0.20.1) million of digital cinema servicing revenue from CDF2 Holdings for the three months ended December 31,June 30, 2023 and 2022, and 2021, respectively. The accompanying Condensed Consolidated Statements of Operations include $0.2 million and $0.5 million of digital cinema servicing revenue from CDF2 Holdings for the nine months ended December 31, 2022 and 2021, respectively.
Total Stockholders’ Deficit of CDF2 Holdings at December 31, 2022June 30, 2023 and March 31, 20222023 was $59.2 million and $55.659.2 million, respectively. We have no obligation to fund the operating loss or the stockholders’ deficit beyond our initial investment of $2.0 million and, accordingly, our investment in CDF2 Holdings as of December 31, 2022June 30, 2023 and March 31, 20222023 is carried at $0.
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 5000.5 thousand shares of Roundtable Series A Preferred Stock and warrants to purchase 1000.1 thousand shares of Roundtable Common Stock (together, the “Roundtable Securities”). The Company fundedpaid the purchase ofprice for the Roundtable Securities by issuing 316,93716 thousand shares of Common Stock to Roundtable. The Company recorded $0.2 million for the purchase of the Roundtable Securities which is included in other long-term assets on the Condensedaccompanying Consolidated Balance Sheets. The investment in the Roundtable Securities was made in connection with a proposed collaboration with Roundtable regarding production and distribution of streaming content including the launch of high profile branded
18
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
enthusiast streaming channels. The Roundtable investment was accounted for using the cost method of accounting as we own less than 20% of Roundtable and do not exert a significant influence over their operations. Our President and Chief Strategy Officer is included within other long-term assets.on the Roundtable Board of Directors.
20
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
4. STOCKHOLDERS’ EQUITY
COMMON STOCK
AuthorizedOn June 7, 2023, the Company amended its Certificate of Incorporation to implement a 1:20 reverse stock split, which became effective on June 9, 2023 (the "Reverse Stock Split"). Proportionate adjustments were made to the exercise prices and the number of shares underlying the Company’s outstanding equity awards, as applicable, as well as to the number of shares issuable under the Company’s equity incentive plans. The Reverse Stock Split did not affect the number of authorized shares of Common Stock or the par value of the Common Stock nor did it change the authorized shares of preferred stock or the relative voting power of such holders of our outstanding Common Stock and preferred stock. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who would have otherwise been entitled to receive fractional shares as a result of the Reverse Stock Split were entitled to a cash payment in lieu thereof after the sale on the open market of the aggregated fractional shares by the exchange agent for the Reverse Stock Split. All share and per share amounts discussed in these condensed consolidated financial statements have been retrospectively adjusted for the Reverse Stock Split. The effects of the Reverse Stock Split have been retrospectively effected throughout this document, including but not limited to earnings per share.
As of December 31, 2022,June 30, 2023, the number of shares of Common Stock authorized for issuance was 275,000,000 shares.
During the three months ended December 31, 2022,June 30, 2023, the Company issued 908,3832,337 shares of Common Stock. This is comprised of 224,3592,150 thousand shares issued through a direct offering, 177 thousand issued in connection with ATM sales, and 10 thousand issued in payment of preferred stock dividends and 684,024 restricted shares issued in connection with Board of Director compensation.dividends.
In addition, the Company sold 517 thousand pre-funded warrants, and issued common warrants to purchase up to 2,667 thousand shares of common stock. All pre-funded and common warrants were issued as immediately exercisable and remained outstanding as of June 30, 2023. All pre-funded warrants were subsequently exercised in July 2023 for total proceeds of $0.5 thousand. See Note 1 for further discussion.
During the ninethree months ended December 31,June 30, 2022, the Company issued 3,595,8955 shares of Common Stock. This is comprised of 510,955 shares in payment of preferred stock dividends, 2,750,903 shares issued on August 18, 2022 in connection with the vesting of grants pursuant to the 2017 Equity Incentive Plan, and 334,037 shares issued in payment of the Bloody Disgusting earnout commitment.
During the nine months ended December 31, 2021, we issued 8,642,648thousand shares of Common Stock which consistconsists of the sale of shares of our Class A common stock, issuance of Common Stock for business combination, the issuances of Common Stock in payment of preferred stock dividends and in payment of Board of Director retainer fees.dividends.
PREFERRED STOCK
Cumulative dividends in arrears on preferred stockSeries A Preferred Stock were $0.188 millionthousand as of December 31,June 30, 2023 and 2022. In the first quarter of fiscal year 2023 and 2022, and 2021. In May, June and November 2022, wethe Company paid preferred stock dividends in arrears for the same amount in the form of shares of Common Stock. The Company also has 510,9551 share of Series B Preferred Stock with no shares of Class A Common Stock.outstanding.
TREASURY STOCK
We have treasury stock, at cost, consisting of 1,315,85166 thousand shares of Common Stock at December 31, 2022June 30, 2023 and March 31, 2022.2023.
EQUITY INCENTIVE PLANS
Stock Based Compensation Awards
The Company has issued awards under two plans, the 2000 Equity Incentive Plan (the “2000 Plan”) and the 2017 Equity Incentive Plan (the “2017 Plan).
19
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Awards issued under our 2000 Equity Incentive Plan (the “2000 Plan”) maywere permitted to be issued to employees, outside directors or consultants 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 providesprovided for the granting of incentive stock options (“ISOs”) with exercise prices not less than the fair market value of our Common Stock on the date of grant. ISOs granted to shareholders having more than 10% of the total combined voting power of the Company must have exercise prices of at least 110% of the fair market value of our Common Stock on the date of grant. ISOs and non-statutory stock options granted under the 2000 Plan arewere subject to vesting provisions, and exercise is subject to the continuous service of the participant. The exercise prices and vesting periods (if any) for non-statutory options arewere set at the discretion of our compensation committee. On November 1, 2017, upon the consummation of the initial equity investment in CinedigmCineverse by Bison, as a result of which there was a change of control of the Company, all stock options (incentive and non-statutory) and shares of restricted stock were vested immediately and the options became fully exercisable.
In connection with the grants of stock options and shares of restricted stock under the 2000 Plan, we and the participants have executed stock option agreements and notices of restricted stock awards setting forth the terms of the grants. The 2000 Plan provided for the issuance of up to 2,380,000 shares of Common Stock to employees, outside directors and consultants.
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 |
| ||||
$1.16 - $7.40 |
|
| 5,000 |
|
|
| 2.50 |
|
| $ | 7.40 |
|
| $ | — |
|
$13.70 - $24.40 |
|
| 207,037 |
|
|
| 0.78 |
|
|
| 14.63 |
|
|
| — |
|
|
|
| 212,037 |
|
|
| 0.82 |
|
| $ | 14.46 |
|
| $ | — |
|
|
| As of March 31, 2022: |
| |||||||||||||
Range of Prices |
| Options |
|
| Weighted Average |
|
| Weighted Average |
|
| Aggregate |
| ||||
$7.40 |
|
| 5,000 |
|
|
| 3.25 |
|
| $ | 7.40 |
|
| $ | — |
|
$14.00 - $24.40 |
|
| 212,337 |
|
|
| 1.50 |
|
|
| 14.65 |
|
|
| — |
|
|
|
| 217,337 |
|
|
| 1.54 |
|
| $ | 14.49 |
|
| $ | — |
|
In August 2017, the Company adopted the 2017 Equity Incentive Plan (the “2017 Plan).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 18,098,270905 thousand shares of Common Stock, in the form of various awards, including stock options, SARs, restricted stock, restricted stock units, PSUs and cash awards.
SARs outstanding under the 2017 Plan are as follows:
|
| As of December 31, 2022: |
| |||||||||||||
Range of Prices |
| SARs Outstanding |
|
| Weighted Average |
|
| Weighted Average |
|
| Aggregate |
| ||||
$0.33 - $0.74 |
|
| 8,650,000 |
|
|
| 8.61 |
|
| $ | 0.56 |
|
| $ | — |
|
$1.16 - $1.47 |
|
| 2,128,277 |
|
|
| 6.55 |
|
|
| 1.39 |
|
|
| — |
|
$1.71 - $2.10 |
|
| 2,237,493 |
|
|
| 8.36 |
|
|
| 1.92 |
|
|
| — |
|
$2.23 - $2.56 |
|
| 455,583 |
|
|
| 8.81 |
|
|
| 2.28 |
|
|
| — |
|
|
|
| 13,471,353 |
|
|
|
|
|
|
|
| $ | — |
|
|
| As of March 31, 2022: |
| |||||||||||||
Range of Prices |
| SARs Outstanding |
|
| Weighted Average |
|
| Weighted Average |
|
| Aggregate |
| ||||
$0.54 - $0.74 |
|
| 5,550,000 |
|
|
| 8.74 |
|
| $ | 0.62 |
|
| $ | 1,208 |
|
$1.16 - $1.47 |
|
| 2,283,610 |
|
|
| 7.90 |
|
|
| 1.37 |
|
|
| — |
|
$1.71 - $2.10 |
|
| 2,455,738 |
|
|
| 8.91 |
|
|
| 1.97 |
|
|
| — |
|
$2.23 - $2.56 |
|
| 604,250 |
|
|
| 9.60 |
|
|
| 2.32 |
|
|
| — |
|
|
|
| 10,893,598 |
|
|
|
|
|
|
|
| $ | 1,208 |
|
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 |
| ||||
| 5,448,345 |
|
|
| 7.75 |
|
| $ | 1.13 |
|
| $ | — |
|
22
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Total SARs outstanding are as follows:
| ||||
|
| |||
|
| |||
|
|
| ||
|
|
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 |
|
| 111.89 | % |
Expected term (years) |
|
| 6.50 |
|
Risk-free interest rate |
|
| 4.49 | % |
Exercise price |
| $ | 0.49 |
|
Market price per share |
| $ | 0.49 |
|
Weighted average fair value per SAR |
| $ | 0.43 |
|
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 482,628 shares of common stock, net of 199,498 shares withheld to pay taxes, related to the vesting of 682,126 of PSU awards. As of December 31, 2022, there were 696,280 of PSU awards outstanding that vest as of March 31, 2023 subject to achieving certain performance goals. No additional PSU awards were granted during the three and nine months ended December 31, 2022. During the nine months ended December 31, 2022, 482,628 shares were issued for vested awards.
Employee and director stock-based compensation expense related to our stock-based awards was as follows (in thousands):of $410 thousand and $980 thousand, for the quarters ended June 30, 2023 and 2022, respectively, were recorded to Selling, General and Administrative expenses.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Selling, general and administrative |
| $ | 708 |
|
| $ | 1,349 |
|
| $ | 3,906 |
|
| $ | 3,278 |
|
There was $0.1 million of stock-based compensation expense for the three months ended December 31,June 30, 2023 and 2022 and 2021, respectively, related to the Board. There was $0.3 million and $0.3 million of stock-based compensation for the nine months ended December 31, 2022 and 2021, respectively, related to Board of Directors compensation. During the nine months ended December 31, 2022, the Company issued 684,024 restricted shares to non-employee directors.
Options Granted Outside Cinedigm'sCineverse's Equity Incentive Plan
In October 2013, we issued options outside of the 2000 Plan to 10 individuals who became employees as a result of a business combination. The employees received options to purchase an aggregate of 3 thousand shares of our Common Stock at an exercise price of $350 per share. The options were fully vested as of October 2017 and expire 10 years from the date of grant, if unexercised. As of March 31, 2022, there wereJune 30, 2023, 12,5000.6 thousand of such options and 600,000 SARs granted to employees outside of Cinedigm's Equity Incentive Plan. During the three months ended December 31, 2022,100,000 SARs were granted as an inducement to a new employee.remained outstanding.
23
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
5. LINE OF CREDIT FACILITY
On September 15, 2022, theThe Company entered intois party to a Loan, Guaranty, and Security Agreement with EWB. The agreement providedEast West Bank ("EWB") providing for a Linerevolving line of credit (the "Line of Credit FacilityFacility") of $5.0 million, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and such subsidiaries’subsidiaries' assets. The Line of Credit Facility bears an interest at a rate equal to 1.5% above the prime rate, and was 9.09.75% as of December 31, 2022. The Line of Credit Facility expires on September 15, 2023 with a one-year extension available at EWB’s discretion.June 30, 2023. As of DecemberJune 30, 2023 and March 31, 2022,2023, a balance of $5.0 million was outstanding on the Lineline of the 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. During the three and nine months ended December 31,June 30, 2023 and 2022, the Company had interest expense of $0.1 million and $0related to the Line of Credit Facility.Facility, respectively. The outstanding principal balance on the Line of Credit Facility as of August 7, 2023 was $0. On August 11, 2023, EWB extended the maturity date of the Line of Credit Facility one year to September 15, 2024.
6. SEGMENT REPORTINGCOMMITMENTS AND CONTINGENCIES
We operate in two reportable segments: Cinema Equipment and Content & Entertainment. Our segments were determined based on the economic characteristics of our products and services, our internal organizational structure, the manner in which our operations are managed and the criteria used by our Chief Operating Decision Maker ("CODM") to evaluate performance, which is generally the segment’s operating income (loss) before depreciation and amortization.LEASES
Cineverse is a virtual company with one domestic operating lease, acquired through the acquisition of Digital Media Rights ("DMR") which is subleased to a third party. The Company has not been relieved of the original lease obligation and therefore recognizes both a lease liability and right-of-use asset as part of the arrangement. The end
2420
CINEDIGMCINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
of both the original lease and sublease's term is January 2025. In addition, the Company has two operating leases related to its Cineverse India operations, with expiration dates in July 2027. Expenses related to these leases were $115 thousand and $84 thousand during the three months ended June 30, 2023 and 2022, respectively. |
| |
|
|
The Company has recognized $44 thousand of sublease income related to its subleasing arrangement during the three months ended, June 30, 2023. |
|
The following tables present certain financial information related totable below presents the lease-related assets and liabilities recorded on our reportable segments and CorporateConsolidated Balance Sheets (in thousands):
|
| As of December 31, 2022 |
| |||||||||||||
|
| Intangible |
|
| Goodwill |
|
| Total |
|
| Line |
| ||||
Cinema Equipment |
| $ | — |
|
| $ | — |
|
| $ | 7,977 |
|
| $ | — |
|
Content & Entertainment |
|
| 18,638 |
|
|
| 21,025 |
|
|
| 77,118 |
|
|
| — |
|
Corporate |
|
| 226 |
|
|
| — |
|
|
| 9,800 |
|
|
| 4,867 |
|
Total |
| $ | 18,864 |
|
| $ | 21,025 |
|
| $ | 94,895 |
|
| $ | 4,867 |
|
|
| As of March 31, 2022 |
| |||||||||||||
|
| Intangible |
|
| Goodwill |
|
| Total |
|
| Line |
| ||||
Cinema Equipment |
| $ | — |
|
| $ | — |
|
| $ | 24,445 |
|
| $ | — |
|
Content & Entertainment |
|
| 19,946 |
|
|
| 21,084 |
|
|
| 68,873 |
|
|
| — |
|
Corporate |
|
| 88 |
|
|
| — |
|
|
| 11,318 |
|
|
| — |
|
Total |
| $ | 20,034 |
|
| $ | 21,084 |
|
| $ | 104,636 |
|
| $ | — |
|
|
| Classification on the Balance Sheet |
| June 30, |
|
| March 31, |
| ||
Assets |
|
|
|
|
|
|
|
| ||
Noncurrent |
| Other long-term assets |
| $ | 1,125 |
|
| $ | 1,265 |
|
Liabilities |
|
|
|
|
|
|
|
| ||
Current |
| Operating leases – current portion |
|
| 418 |
|
|
| 418 |
|
Noncurrent |
| Operating leases – long-term portion |
|
| 728 |
|
|
| 863 |
|
Total operating lease liabilities |
|
|
| $ | 1,146 |
|
| $ | 1,281 |
|
|
| Condensed Consolidated Statement of Operations |
| |||||||||||||
|
| Three Months Ended December 31, 2022 |
| |||||||||||||
|
| Cinema |
|
| Content & Entertainment |
|
| Corporate |
|
| Consolidated |
| ||||
Revenues |
| $ | 7,186 |
|
| $ | 20,696 |
|
| $ | — |
|
| $ | 27,882 |
|
Direct operating |
|
| 89 |
|
|
| 14,322 |
|
|
| — |
|
|
| 14,411 |
|
Selling, general and administrative |
|
| 912 |
|
|
| 3,794 |
|
|
| 4,401 |
|
|
| 9,107 |
|
Allocation of corporate overhead |
|
| 88 |
|
|
| 2,407 |
|
|
| (2,495 | ) |
|
| — |
|
Depreciation and amortization |
|
| 82 |
|
|
| 734 |
|
|
| 108 |
|
|
| 924 |
|
Total operating expenses |
|
| 1,171 |
|
|
| 21,257 |
|
|
| 2,014 |
|
|
| 24,442 |
|
Operating income (loss) |
| $ | 6,015 |
|
| $ | (561 | ) |
| $ | (2,014 | ) |
| $ | 3,440 |
|
25
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The following employee and director stock-based compensation expensetable below presents the annual gross undiscounted cash flows related to our stock-based awards is included in the above amounts as followsCompany's operating lease commitments and subleasing arrangements (in thousands):
|
| Three Months Ended December 31, 2022 |
| |||||||||||||
|
| Cinema |
|
| Content & Entertainment |
|
| Corporate |
|
| Consolidated |
| ||||
Direct operating |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Selling, general and administrative |
|
| — |
|
|
| — |
|
|
| 708 |
|
|
| 708 |
|
Total stock-based compensation |
| $ | — |
|
| $ | — |
|
| $ | 708 |
|
| $ | 708 |
|
Fiscal year ending March 31, |
| Operating Lease Commitments |
|
| Sublease Payments |
| ||
2024 |
| $ | 337 |
|
| $ | 136 |
|
2025 |
|
| 415 |
|
|
| 154 |
|
2026 |
|
| 191 |
|
|
| — |
|
2027 |
|
| 201 |
|
|
| — |
|
2028 |
|
| 68 |
|
|
| — |
|
Thereafter |
|
| — |
|
|
| — |
|
|
| Condensed Consolidated Statement of Operations |
| |||||||||||||
|
| Three Months Ended December 31, 2021 |
| |||||||||||||
|
| Cinema |
|
| Content & Entertainment |
|
| Corporate |
|
| Consolidated |
| ||||
Revenues |
| $ | 2,060 |
|
| $ | 12,024 |
|
| $ | — |
|
| $ | 14,084 |
|
Direct operating |
|
| 139 |
|
|
| 6,320 |
|
|
| — |
|
|
| 6,459 |
|
Selling, general and administrative |
|
| 99 |
|
|
| 3,720 |
|
|
| 3,539 |
|
|
| 7,358 |
|
Allocation of corporate overhead |
|
| 143 |
|
|
| 964 |
|
|
| (1,107 | ) |
|
| — |
|
Depreciation and amortization |
|
| 196 |
|
|
| 831 |
|
|
| 4 |
|
|
| 1,031 |
|
Total operating expenses |
|
| 577 |
|
|
| 11,835 |
|
|
| 2,436 |
|
|
| 14,848 |
|
Operating income (loss) |
| $ | 1,483 |
|
| $ | 189 |
|
| $ | (2,436 | ) |
| $ | (764 | ) |
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 |
|
| — |
|
|
| 552 |
|
|
| 797 |
|
|
| 1,349 |
|
Total stock-based compensation |
| $ | — |
|
| $ | 552 |
|
| $ | 797 |
|
| $ | 1,349 |
|
|
| Condensed Consolidated Statement of Operations |
| |||||||||||||
|
| Nine Months Ended December 31, 2022 |
| |||||||||||||
|
| Cinema |
|
| Content & Entertainment |
|
| Corporate |
|
| Consolidated |
| ||||
Revenues |
| $ | 11,218 |
|
| $ | 44,260 |
|
| $ | — |
|
| $ | 55,478 |
|
Direct operating |
|
| 359 |
|
|
| 29,500 |
|
|
| — |
|
|
| 29,859 |
|
Selling, general and administrative |
|
| 2,553 |
|
|
| 11,452 |
|
|
| 15,011 |
|
|
| 29,016 |
|
Allocation of corporate overhead |
|
| 284 |
|
|
| 7,651 |
|
|
| (7,935 | ) |
|
| — |
|
Depreciation and amortization |
|
| 303 |
|
|
| 2,282 |
|
|
| 323 |
|
|
| 2,908 |
|
Total operating expenses |
|
| 3,499 |
|
|
| 50,885 |
|
|
| 7,399 |
|
|
| 61,783 |
|
Operating income (loss) |
| $ | 7,719 |
|
| $ | (6,625 | ) |
| $ | (7,399 | ) |
| $ | (6,305 | ) |
267.
CINEDIGM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
INCOME TAXES
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 |
|
| — |
|
|
| — |
|
|
| 3,906 |
|
|
| 3,906 |
|
Total stock-based compensation |
| $ | — |
|
| $ | — |
|
| $ | 3,906 |
|
| $ | 3,906 |
|
|
| Condensed Consolidated Statement of Operations |
| |||||||||||||
|
| Nine Months Ended December 31, 2021 |
| |||||||||||||
|
| Cinema |
|
| Content & Entertainment |
|
| Corporate |
|
| Consolidated |
| ||||
Revenues |
| $ | 11,544 |
|
| $ | 27,658 |
|
| $ | — |
|
| $ | 39,202 |
|
Direct operating |
|
| 560 |
|
|
| 13,863 |
|
|
| — |
|
|
| 14,423 |
|
Selling, general and administrative |
|
| 856 |
|
|
| 10,081 |
|
|
| 9,583 |
|
|
| 20,520 |
|
Allocation of corporate overhead |
|
| 412 |
|
|
| 2,763 |
|
|
| (3,175 | ) |
|
| — |
|
Depreciation and amortization |
|
| 1,001 |
|
|
| 2,658 |
|
|
| 4 |
|
|
| 3,663 |
|
Total operating expenses |
|
| 2,829 |
|
|
| 29,365 |
|
|
| 6,412 |
|
|
| 38,606 |
|
Operating income (loss) |
| $ | 8,715 |
|
| $ | (1,707 | ) |
| $ | (6,412 | ) |
| $ | 596 |
|
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 |
|
| — |
|
|
| 1,063 |
|
|
| 2,215 |
|
|
| 3,278 |
|
Total stock-based compensation |
| $ | — |
|
| $ | 1,063 |
|
| $ | 2,215 |
|
| $ | 3,278 |
|
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)expense of approximately $0.020 millionthousand and $0 for the three and nine months ended December 31, 2022. We recorded anJune 30, 2023 and 2022, respectively. Income tax expense is attributable to taxable income tax benefit of approximately $earned in India relating to transfer pricing.0.0
million and $
0.6 million for the three and nine months ended December 31, 2021, respectively. We have not recorded tax benefits on our loss before income taxes because we have provided for a full valuation allowance that offsets potential deferred tax assets resulting from net operating loss carry forwards, reflecting our inability to use such loss carry forwards.
Our effective tax rate for the three months ended December 31,June 30, 2023 and 2022 was (0.6%) and 2021 was 0% and 4%, respectively. Our effective tax rate for the nine months ended December 31, 2022 and 2021 was 0% and (14%), respectively.
2721
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.
OVERVIEWBusiness Overview
Since our inception, we have playedCineverse is 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 becomepremier streaming technology and entertainment company with its core business (i) across a leadingportfolio of owned and operated enthusiast streaming channels with enthusiast fan bases; (ii) as a large-scale global aggregator and full-service distributor of independentfeature films and television programs; and (iii) as a proprietary technology software-as-a-service platform for over-the-top (“OTT”) app development and content bothdistribution through organic growthsubscription video on demand ("SVOD"), dedicated ad-supported ("AVOD"), ad-supported streaming linear ("FAST") channels, social video streaming services, and acquisitions.audio podcasts. 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,Tubi, as well as (ii) physical goods, including DVD and Blu-ray Discs.
We report our financial resultsplayed a significant role 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”) installeddistribution revolution that continues to transform the media landscape, playing a pioneering role in movie theatres throughout North America. It also provides fee-based support to over 465transitioning approximately 12,000 movie screens as well as directlyfrom traditional analog film prints to exhibitorsdigital distribution, 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 throughat the end of our fiscal year 2023, the termCompany's cinema equipment business concluded its active operations, as its contracts reached maturity. The Company no longer separately manages cinema equipment separately, and with the run-off of its operations, no longer presents this part 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 werebusiness as originally contemplated as the conclusion of the digital cinema deployment plan.a separate segment. All prior period reporting within this report reflect this change.
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,June 30, 2023, the Company has an accumulated deficit of $479.2$486.0 million and negative working capital of $4.5$2.1 million. For the three and nine months ended December 31, 2022,June 30, 2023, the Company had a net income (loss)loss attributable to common shareholdersstockholders of $4.9 million and ($6.9) million, respectively.3.6) million. Net cash used in operating activities for the ninethree months ended December 31, 2022June 30, 2023 was $7.9$3.3 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 Linerate, 9.75% as of Credit Facility expires on September 15, 2023 with a one-year extension available at EWB’s discretion.June 30, 2023. As of December 31, 2022,June 30, 2023, $5.0 million was outstanding on the Line of Credit Facility. UnderThe outstanding principal balance on the Line of Credit Facility as of August 7, 2023 was $0. On August 11, 2023, EWB extended the maturity date of the Line of Credit Facility one year to September 15, 2024.
In July 2020, we entered into an At-the-Market sales agreement (the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”) and B. Riley FBR, Inc. (“B. Riley” and, together with A.G.P., the “Sales Agents”), pursuant to which the Company may offer and sell, from time to time, through the Sales Agents, shares of Common Stock at the market prices prevailing on Nasdaq at the time of the sale of such shares. The Company is subject not obligated
22
to certain financial and nonfinancial covenants including terms which requiresell any shares under the ATM Sales Agreement. Any sales of shares made under the ATM Sales Agreement will be made pursuant to an effective shelf registration statement, for an aggregate offering price of up to $30 million. During the quarter ended June 30, 2023, the Company sold 177 thousand shares for $1.1 million in net proceeds, after deduction of commissions and fees.
On June 16, 2023, the Company closed on the sale of 2,150,000 shares of common stock, 516,667 pre-funded warrants, and warrants to maintain certain metricspurchase up to 2,666,667 shares of common stock at a combined public offering price of $3.00 per share and ratios, maintain certain minimum cash on hand,accompanying warrant for aggregate gross proceeds of approximately $7.4 million, after deducting placement agent fees and to report financial information to our lender on a periodic basis.other offering expenses in the amount of $0.6 million. The warrants had an exercise price of $3.00 per share, were exercisable immediately and will expire five years from the issuance. The Company received $2.9990 per share for the pre-funded warrants, with the remaining $0.001 due at the time of exercise. All 516,667 pre-funded warrants were subsequently exercised in July 2023 for total proceeds of $0.5 thousand dollars.
We believe our cash and cash equivalent balances, and availability under our credit facility, as of December 31, 2022June 30, 2023 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 – Basis of Presentation and 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 combinationsthese policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.
Results of Operations for the Three Months Ended December 31,June 30, 2023 and 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 | % |
| For the Three Months Ended June 30, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Streaming and digital |
| $ | 10,114 |
|
| $ | 9,503 |
|
| $ | 611 |
|
|
| 6 | % |
Base distribution |
|
| 1,158 |
|
|
| 2,205 |
|
|
| (1,047 | ) |
|
| (47 | )% |
Podcast and other |
|
| 429 |
|
|
| 455 |
|
|
| (26 | ) |
|
| (6 | )% |
Other non-recurring |
|
| 1,279 |
|
|
| 1,427 |
|
|
| (148 | ) |
|
| (10 | )% |
Total Revenue |
| $ | 12,980 |
|
| $ | 13,590 |
|
| $ | (610 | ) |
|
| (4 | )% |
29
The Company's 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, 2022June 30, 2023 increased by 6% as compared to the three months ended December 31, 2021. The increase is drivenJune 30, 2022, as the Company continues to see the benefits from its acquisitions which have contributed value-accretive libraries, distribution platforms and technologies, such as Screambox, whose performance in the first quarter of fiscal 2024 exceeded the first quarter of fiscal 2023 by significant growth in box office theatrical performance bolstered byapproximately $1.0 million, as it continued to benefit from the success of Terrifier 2 release during the three months ended December 31, 2022.2.
Revenues generated23
The Company's $1.0 million decline in Base Distribution revenue for the quarter ended June 30, 2023 as compared to the quarter ended June 30, 2022 was primarily driven by a decline in DVD-related sales.
Other non-recurring revenue relating to the Cinema Equipment business increasedCompany's cinema equipment have materially concluded in line with the design of its underlying contracts. Following the completion of cost recoupment and the expiration of the exhibitor master license agreements applicable to this line of revenue, the digital system sales have continued its anticipated decrease in the amount of $0.9 million 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, duringcompared to the three months ended December 31,June 30, 2022, and 2021, respectively. Blockbuster content released duringfrom $1.2 million in the period ending December 31, 2022 was consistentfirst quarter of fiscal 2023 to $0.3 million in the first quarter of fiscal 2024. During the quarter ended June 30, 2023, the Company also recognized $1 million of variable consideration following the resolution of uncertainty associated with Studio output from the prior period, however VPF eligible theatres decreased significantly forunderlying revenue related to its cinema equipment, as compared to $0 variable consideration recognized in the same period last year.first quarter of fiscal year 2023.
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 | % |
| For the Three Months Ended June 30, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Direct operating expenses |
| $ | 6,987 |
|
| $ | 7,356 |
|
| $ | (369 | ) |
|
| (5 | )% |
The increasedecrease in direct operating expensesDirect Operating Expenses for the three months ended December 31, 2022 forJune 30, 2023 was indicative of the Content & Entertainment segment comparedcontinued integration efforts with respect to the priorCompany's acquisitions during fiscal year was primarily due to $6.6 million higher content2022, such as DMR, FoundationTV, 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.Bloody Disgusting.
Selling, General and Administrative Expenses
|
| For the Three Months Ended December 31, |
|
| Change Period over Period |
|
| For the Three Months Ended June 30, |
| |||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||||||
Compensation expense |
| $ | 5,135 |
|
| $ | 3,881 |
|
| $ | 1,254 |
|
|
| 32 | % |
| $ | 4,406 |
|
| $ | 5,515 |
|
| $ | (1,109 | ) |
|
| (20 | )% |
Public company expenses |
|
| 1,780 |
|
|
| 1,560 |
|
|
| 220 |
|
|
| 14 | % | ||||||||||||||||
Corporate expenses |
|
| 1,701 |
|
|
| 2,329 |
|
|
| (628 | ) |
|
| (27 | )% | ||||||||||||||||
Share-based compensation |
|
| 709 |
|
|
| 1,349 |
|
|
| (640 | ) |
|
| (47 | )% |
|
| 409 |
|
|
| 980 |
|
|
| (571 | ) |
|
| (58 | )% |
Insurance expense |
|
| 625 |
|
|
| 391 |
|
|
| 234 |
|
|
| 60 | % | ||||||||||||||||
Other operating expenses |
|
| 858 |
|
|
| 177 |
|
|
| 681 |
|
|
| 385 | % |
|
| 1,372 |
|
|
| 994 |
|
|
| 378 |
|
|
| 38 | % |
|
| $ | 9,107 |
|
| $ | 7,358 |
|
| $ | 1,749 |
|
|
| 24 | % | ||||||||||||||||
Selling, General and Administrative |
| $ | 7,888 |
|
| $ | 9,818 |
|
| $ | (1,930 | ) |
|
| (20 | )% |
Selling, general and administrative expenses for the three months ended December 31, 2022 increasedJune 30, 2023 decreased by $1.7$1.9 million.
Compensation expenses decreased by $1.1 million primarily due tofrom a $1.3 million increase in compensation expense primarily from the acquisition of DMR partially offset by a26% reduction in payroll taxesthe number of US-based workforce and an 11% reduction to the Company-wide workforce. Corporate expenses decreased by $0.6 million primarily as a result of cost savings and a decline in the prior yearlegal expenses. Share-based compensation has decreased by $0.5 million, as a result of the CARES Act and $0.7US-based workforce reduction. Other operating expenses increased by $0.4 million, primarily as a result of an increase in other operating expenses primarily from rent, directadvertising, marketing and subscriptions, offset by $0.6 million decreaserent expense related to stock-based compensation to management and employees.Cineverse India operations.
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 |
|
| For the Three Months Ended June 30, |
| |||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||||||
Amortization of Intangible Assets |
| $ | 713 |
|
| $ | 695 |
|
| $ | 18 |
|
|
| 3 | % |
| $ | 698 |
|
| $ | 744 |
|
| $ | (46 | ) |
|
| (6 | )% |
Depreciation of Property and Equipment |
|
| 211 |
|
|
| 336 |
|
|
| (125 | ) |
|
| (37 | )% |
|
| 124 |
|
|
| 256 |
|
|
| (132 | ) |
|
| (52 | )% |
|
| $ | 924 |
|
| $ | 1,031 |
|
| $ | (107 | ) |
|
| (10 | )% | ||||||||||||||||
Depreciation and Amortization |
| $ | 822 |
|
| $ | 1,000 |
|
| $ | (178 | ) |
|
| (18 | )% |
Depreciation expense decreased primarily due to substantially the majorityremainder of our digital cinema projection systems reaching the conclusion of their ten-year useful lives during the three monthsfiscal year ended DecemberMarch 31, 2022.2023.
24
Interest expense, net
Interest expense, net increased by $0.3$0.2 million from $0.1 million for the three months ended December 31, 2021June 30, 2022 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$0.3 million for the three months ended December 31, 2022 compared to no employee retention credit forJune 30, 2023 as a result of a higher outstanding debt balance and higher interest rates during the three months ended December 31, 2021. The employee retention tax credits were filed pursuantJune 30, 2023 as compared to the CARES Act.prior period.
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 operatingOther 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 forDuring the ninethree months ended December 31, 2022 as a resultJune 30, 2023, the Company recognized $0.5 million of deferredother expenses, net, primarily from credit and earnout consideration accretionother run-off related to the acquisitions of Bloody Disgusting, FoundationTV and DMR and interest expensecharges associated with our new Linethe wind-down of Credit facility obtained in September 2022.its legacy digital cinema segment.
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,expense, 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.
3325
Following is the reconciliation of our consolidated net loss to Adjusted EBITDA:EBITDA (in thousands):
| For the Three Months Ended |
| ||||||
|
| 2023 |
|
| 2022 |
| ||
Net Loss |
| $ | (3,536 | ) |
| $ | (5,987 | ) |
Add Back: |
|
|
|
|
|
| ||
Income tax expense |
|
| 20 |
|
|
| — |
|
Depreciation and amortization |
|
| 822 |
|
|
| 1,000 |
|
Interest expense |
|
| 295 |
|
|
| 133 |
|
Stock-based compensation |
|
| 409 |
|
|
| 980 |
|
Provision for doubtful accounts |
|
| — |
|
|
| 3 |
|
Change in fair value on equity investment in Metaverse |
|
| — |
|
|
| 1,256 |
|
Other expense, net |
|
| 36 |
|
|
| 14 |
|
Net income attributable to noncontrolling interest |
|
| (14 | ) |
|
| (18 | ) |
Adjustments: |
|
|
|
|
|
| ||
Transition-related costs |
|
| 468 |
|
|
| 175 |
|
Mergers and acquisition costs |
|
| — |
|
|
| 207 |
|
Adjusted EBITDA |
| $ | (1,500 | ) |
| $ | (2,237 | ) |
|
| 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:follows (in thousands):
|
| 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 Three Months Ended |
| ||||||
|
| 2023 |
|
| 2022 |
| ||
Net used in provided by operating activities |
| $ | (3,260 | ) |
| $ | (1,198 | ) |
Net cash used in investing activities |
|
| (272 | ) |
|
| (61 | ) |
Net cash provided by (used in) financing activities |
|
| 8,509 |
|
|
| (284 | ) |
Net change in cash and cash equivalents |
| $ | 4,977 |
|
| $ | (1,543 | ) |
For the ninethree months ended December 31, 2022,June 30, 2023, 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 capitalized content spend and other changes in working capital. Additionally, during the ninethree months ended December 31, 2022,June 30, 2023, the Company decreased accounts payable by $11.8$4.7 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 $1.1net advances of $2.2 million in advances for the ninethree months ended December 31, 2022,June 30, 2023, as part of the advances 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 ninethree months ended December 31, 2021,June 30, 2022, net cash provided byused in operating activities was primarily driven by income from operations, excludinga net loss, after taking into account the exclusion of non-cash expenses such as depreciation, amortization, provisionrecovery for doubtful accounts and stock-based compensation, gain on extinguishment of note payable, including other changes in working capital. Additionally, during the ninethree months ended December 31, 2021,June 30, 2022, the Company paid down $32.6increased accounts payable by $5.6 million to vendors at bothvendors. Accounts receivable decreased due to a decrease in revenue as a result of 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.cinema amounts due.
26
Off-balance sheet arrangements
We are not a party to any off-balance sheet arrangements other than as discussed in Note 2 – Basis of Presentation and 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.June 30, 2023. Based on such evaluation, our principal executive officer and principal financial and accounting officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.June 30, 2023.
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, 2022June 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
3727
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
There have been no material changes toThe following risk factor supplements the Risk Factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 20222023.
The Company's share price has decreased since the end of its fiscal year ending March 31, 2023. If this share price decline is sustained, the Company may be required to test for goodwill impairment before the performance of its required annual testing and Item 1Aif so, may be at risk of our Quarterly Reportrecognizing expenses related to goodwill impairment.
On March 31, 2023, the Company's share price was $8.40 and since has declined to a share price of $1.38 as of August 7, 2023. Under the accounting standard, ASC 350-20,Goodwill a Company is required to test for impairment on Form 10-Qan annual basis, but in the presence of a triggering event, may need to test during an interim period. Under ASC 350, Goodwill, a sustained decline in share price represents a triggering event which would require the Company to test for impairment. If the quarter ended September 30, 2022.Company is required to perform this analysis, there may be a risk that the Company incurs expenses related to goodwill impairment.
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
28
EXHIBIT INDEX
Exhibit | Description of Document | |
| ||
| ||
| ||
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). |
3829
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.
| ||
Date: | By: | /s/ Christopher J. McGurk |
Christopher J. McGurk | ||
Date: | By: | /s/ John K. Canning |
John K. Canning |
3930