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Summary of Significant Accounting Policies | 12 Months Ended
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Mar. 31, 2022
Accounting Policies [Abstract] |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION AND CONSOLIDATION Our consolidated financial statements include the accounts of Cinedigm and its wholly owned and majority owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Investments in which we do not have a controlling interest or are not the primary beneficiary, but have the ability to exert significant influence, are accounted for under the equity method at fair value where we have elected the fair value option. Noncontrolling interests for which we have been determined to be the primary beneficiary are consolidated and recorded as net loss attributable to noncontrolling interest. See Note 3 - Other Interests to the Consolidated Financial Statements for a discussion of our noncontrolling interests. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect the assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates include the adequacy of digital revenue, accounts receivable reserves, return reserves, inventory reserves, recovery of advances, assessment of goodwill impairment, intangible asset impairment and estimated amortization lives, fair value for asset acquisitions and business combinations, valuation allowances for income taxes and stock awards. Actual results could differ from these estimates. CASH, CASH EQUIVALENTS, AND RESTRICTED CASH We consider all highly liquid investments with an original maturity of three months or less to be “cash equivalents.” We maintain bank accounts with major banks, which from time to time may exceed the Federal Deposit Insurance Corporation’s insured limits. We periodically assess the financial condition of the institutions and believe that the risk of any loss is minimal. Our Prospect Loan required that we maintain specified cash balances that are restricted to repayment of interest thereunder. See Note 5- Notes Payable for information about our restricted cash balances. Cash, cash equivalents, and restricted cash consisted of the following:
|  | As of |
(in thousands) |  | March 31, 2022 |  |  | March 31, 2021 |
Cash and Cash Equivalents |  | $ | 13,062 |  |  | $ | 16,849 |
Restricted Cash |  |  | - |  |  |  | 1,000 |
|  | $ | 13,062 |  |  | $ | 17,849 |
EQUITY INVESTMENT IN A METAVERSE COMPANY, A RELATED PARTY On February 14, 2020, the Company acquired an approximately 11.5% interest in A Metaverse Company (“Metaverse”), a leading publicly traded Chinese entertainment company, formerly Starrise Media Holdings Limited, whose ordinary shares are listed on the Stock Exchange of Hong Kong. The Company acquired such interest as a strategic investment and in a private transaction from a shareholder of Metaverse that is related to our major shareholders. Our major shareholders also maintain a significant beneficial interest ownership in Metaverse. Upon consummation of the transaction on February 14, 2020, the Company recorded an initial investment of approximately $25.1 million, which is the fair market value of the Metaverse shares on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Company’s common stock of $11.2 million, valued as of the date of the issuance of the Common Stock of the Company. The difference in value of shares received in Metaverse and shares issued by the Company is deemed as contributed capital and recorded in additional paid-in capital. On April 10, 2020, the Company purchased an additional 15% interest in Metaverse in a private transaction from shareholders of Metaverse that are affiliated with the major shareholder of the Company. The Company recorded an additional equity investment of approximately $28.2 million, which is the fair market value of the Metaverse shares on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Company’s common stock of $11.0 million, valued at the date of the issuance of the Common Stock of the Company. The difference in the value of shares received in Metaverse and shares issued by the Company is deemed as contributed capital and recorded in additional paid-in capital. This transaction was also recorded as an equity investment in Metaverse. The Company has accounted for these investments under the equity method of accounting as the Company can exert significant influence over Metaverse with its direct ownership and affiliation with the Company’s majority shareholders. The Company has made an irrevocable election to apply the fair value option under ASC 825-10, Financial Instruments, as it relates to its equity investment in Metaverse. During the years ended March 31, 2022 and March 31, 2021, the Company sold 680,000 shares of Metaverse shares for net proceeds of approximately $12.3 thousand and 8,370,000 of Metaverse shares for net proceeds of approximately $0.8 million, respectively, which resulted in a loss on sale of approximately $1 thousand and $73 thousand, respectively. As of March, 31, 2022 and 2021, the value of our equity investment in Metaverse, using the readily determinable fair value method from the quoted trading price of the Stock Exchange of Hong Kong, was approximately $7.03 million and $6.44 million, respectively, resulting in a change in fair value of approximately $0.59 million for the year ended March 31, 2022. At March 31, 2022, the Company owned 362,307,397 shares or 17% of Metaverse. Equity Investment in Metaverse, a related party transaction On December 27, 2019, the Company entered into, and on February 14, 2020 amended, (see Note 2 - Summary of Significant Accounting Policies), a stock purchase agreement (as so amended, the “Metaverse Stock Purchase Agreement”) with BeiTai Investment LP (“BeiTai”), a related party for accounting purposes of Cinedigm and Aim Right Ventures Limited (“Aim Right”), two shareholders of A Metaverse Company, a leading Chinese entertainment company (“Metaverse”), formerly Starrise Media Holdings Limited, to buy from them an aggregate of 410,901,000 outstanding Metaverse ordinary shares (the “Metaverse Share Acquisition”). On February 14, 2020, the Company purchased 162,162,162 of the Metaverse ordinary shares from BeiTai and issued BeiTai 21,646,604 shares of its Class A common stock, par value $.001 per share (the “Common Stock”) in consideration therefor. The Metaverse shares received were valued at approximately $25 million and the Company issued shares that were valued at approximately $11.2 million. On April 10, 2020, the Company, in accordance with the terms of the Stock Purchase Agreement, terminated its obligation to purchase Metaverse ordinary shares from Aim Right under the Metaverse Stock Purchase Agreement. On April 10, 2020, the Company entered into another stock purchase agreement (the “April Metaverse Stock Purchase Agreement”) with five (5) shareholders of Metaverse - Bison Global Investment SPC - Bison Global No. 1 SP, Huatai Investment LP, Antai Investment LP, Mingtai Investment LP and Shangtai Asset Management LP, all of which are related parties to the Company to buy - an aggregate of 223,380,000 outstanding Metaverse ordinary shares from them and for the Company to issue to them an aggregate of 29,855,081 shares of its Common Stock as consideration therefor (the “April Metaverse Share Acquisition”). On April 15, 2020, the April Metaverse Share Acquisition was consummated and this transaction was also recorded as an equity investment in Metaverse. Metaverse’s ordinary shares (HK 1616) are listed on the main board of the Stock Exchange of Hong Kong Limited. Based on the closing price of .152 per share on March 31, 2022, calculated at an exchange rate of 7.83 Hong Kong Dollars to 1 US dollar, the market value of Cinedigm’s ownership in Metaverse ordinary shares was approximately $7.03 million. On April 1, 2022, trading of Metaverse’s ordinary shares was halted. (See Note 11) NON-MONETARY TRANSACTIONS During the year ended March 31, 2020, the Company entered into agreements with certain vendors to transfer 5,139,762 and 14,184,765 Metaverse ordinary shares to satisfy outstanding liabilities with these vendors. Upon the sale of the Metaverse shares by the vendors, with certain restrictions on sales unless the Company gave consent to sell, if the proceeds did not satisfy the amount due to the vendor, the Company was liable for the balance owed. Pursuant to such agreements, the Company reduced the amount payable to its vendors by $0.8 million as of March 31, 2021. There were no such transactions during the year ended March 31, 2022. There was no gain or loss resulting from these transactions for the year ended March 31, 2022 and 2021. ACCOUNTS RECEIVABLE We maintain reserves for potential credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis. We record accounts receivable, long-term in connection with activation fees that we earn from our Systems deployments that have extended payment terms. Such accounts receivable are discounted to their present value at prevailing market rate. ADVANCES Advances, which are recorded within prepaid and other current assets on the consolidated balance sheets, represent amounts prepaid to studios or content producers for which we provide content distribution services. We evaluate advances regularly for recoverability and record impairment charges for amounts that we expect may not be recoverable as of the consolidated balance sheet date. Impairments and accelerated amortization related to advances were $1.2 million and $0.3 million, for the years ended March 31, 2022 and 2021, respectively. PROPERTY AND EQUIPMENT Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation expense is recorded using the straight-line method over the estimated useful lives of the respective assets as follows:
Computer equipment and software |  |  | 3 - 5 years |
Internal use software |  |  | 5 years |
Digital cinema projection systems |  |  | 10 years |
Machinery and equipment |  |  | 3 - 10 years |
Furniture and fixtures |  |  | 3 - 6 years |
We capitalize costs associated with software developed or obtained for internal use when the preliminary project stage is completed, and it is determined that the software will provide significantly enhanced capabilities and modifications. These capitalized costs are included in property and equipment and include external direct cost of services procured in developing or obtaining internal-use software and personnel and related expenses for employees who are directly associated with, and who devote time to internal-use software projects. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended use. Once the software is ready for its intended use, the costs are amortized over the useful life of the software. Post-configuration training and maintenance costs are expensed as incurred. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the leasehold improvements. Repair and maintenance costs are charged to expense as incurred. Major renewals, improvements and additions are capitalized. Upon the sale or other disposition of any property and equipment, the cost and related accumulated depreciation and amortization are removed from the accounts and the gain or loss on disposal is included in the consolidated statements of operations. IMPAIRMENT OF LONG-LIVED AND FINITE-LIVED ASSETS We review the recoverability of our long-lived assets and finite-lived intangible assets, when events or conditions occur that indicate a possible impairment exists. The assessment for recoverability is based primarily on our ability to recover the carrying value of our long-lived and finite-lived assets from expected future undiscounted net cash flows. If the total of expected future undiscounted net cash flows is less than the total carrying value of the asset, the asset is deemed not to be recoverable and possibly impaired. We then estimate the fair value of the asset to determine whether an impairment loss should be recognized. An impairment loss will be recognized if the asset’s fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted cash flows. During the years ended March 31, 2022 and 2021, the Company assessed the future performance of titles included in the customer list intangible asset, which resulted in an impairment charge of $2.0 million and $0 was recorded from operations for long-lived assets or finite-lived assets. INTANGIBLE ASSETS Intangible assets are stated at cost less accumulated amortization. For intangible assets that have finite lives, the assets are amortized using the straight-line method over the estimated useful lives of the related assets. For intangible assets with indefinite lives, the assets are tested annually for impairment or sooner if a triggering event occurs. During the years ended March 31, 2022 and 2021, we recorded an impairment of $2.0 million and $0 for our customer relationships, respectively. Amortization expense is recorded using the straight-line method over the estimated useful lives of the respective assets as follows:
Trademark |  |  | 3 years |
Content Library |  |  | 3 – 20 years |
Customer Relationships |  |  | 5 – 13 years |
Tradename |  |  | 2 – 15 years |
Theatre Relationship |  |  | 12 years |
Patents |  |  | 3 years |
Supplier Agreements |  |  | 2 years |
Intangible Assets |  |  | 3-4 years |
Software |  |  | 10 years |
The Company’s intangible assets include the following on March 31, 2022:
|  | Cost Basis |  |  | Accumulated Amortization |  |  | Impairment |  |  | Net |
Trademark |  | $ | 1,925 |  |  | $ | (776 | ) |  | $ | - |  |  |  | 1,149 |
Content Library |  |  | 23,685 |  |  |  | (20,665 | ) |  |  | - |  |  |  | 3,020 |
Customer Relationships |  |  | 10,658 |  |  |  | (7,327 | ) |  |  | (1,968 | ) |  |  | 1,363 |
Tradename |  |  | 2,101 |  |  |  | (525 | ) |  |  | - |  |  |  | 1,576 |
Theatre Relationship |  |  | 550 |  |  |  | (550 | ) |  |  | - |  |  |  | - |
Patents |  |  | 17 |  |  |  | (17 | ) |  |  | - |  |  |  | - |
Supplier Agreements |  |  | 11,430 |  |  |  | (11,384 | ) |  |  | - |  |  |  | 46 |
Intangible Assets |  |  | 10,081 |  |  |  | (161 | ) |  |  | - |  |  |  | 9,920 |
Software |  |  | 3,200 |  |  |  | (240 | ) |  |  | - |  |  |  | 2,960 |
Total Intangible Assets |  | $ | 63,647 |  |  | $ | (41,645 | ) |  | $ | (1,968 | ) |  |  | 20,034 |
The Company’s intangible assets include the following on March 31, 2021:
|  | Cost Basis |  |  | Accumulated Amortization |  |  | Impairment |  |  | Net |
Trademark |  | $ | 2,839 |  |  | $ | (382 | ) |  | $ | - |  |  |  | 2,457 |
Content Library |  |  | 23,148 |  |  |  | (20,272 | ) |  |  | - |  |  |  | 2,876 |
Customer Relationships |  |  | 22,137 |  |  |  | (17,610 | ) |  |  | - |  |  |  | 4,527 |
Theatre Relationship |  |  | 550 |  |  |  | (550 | ) |  |  | - |  |  |  | - |
Total Intangible Assets |  | $ | 48,674 |  |  | $ | (38,814 | ) |  | $ | - |  |  |  | 9,860 |
Below is the amortization expense per year for the intangible assets:
|  | Total |
2023 |  | $ | 2,734 |
2024 |  |  | 2,562 |
2025 |  |  | 1,730 |
2026 |  |  | 1,651 |
2027 |  |  | 1,651 |
Thereafter |  |  | 9,706 |
Total |  | $ | 20,034 |
FAIR VALUE MEASUREMENTS The fair value measurement disclosures are grouped into three levels based on valuation factors:
| ● | Level 1 – quoted prices in active markets for identical investments
| ● | Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs)
| ● | Level 3 – significant unobservable inputs (including our own assumptions in determining the fair value of investments)
Assets and liabilities measured at fair value on a recurring basis use the market approach, where prices and other relevant information are generated by market transactions involving identical or comparable assets or liabilities. The equity investment in Metaverse is in Hong Kong dollars and was translated into US dollars as of March 31, 2022 and 2021 at an exchange rate of 7.8 and 7.8 Hong Kong Dollars to 1 US Dollar, respectively. The fair value of this equity investment is measured by the quoted market price of Metaverse on the Stock Exchange of Hong Kong. The adjustment to fair value of this investment resulted in a gain of $585 and loss of $4,518 for the years ended March 31, 2022 and 2021, respectively. The following tables summarize the levels of fair value measurements of our financial assets and liabilities as of March 31, 2022 and, 2021: As of March 31, 2022
(in thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Equity investment in Metaverse, at fair value |  | $ | 7,028 |  |  | $ | — |  |  | $ | — |  |  | $ | 7,028 |
|  | $ | 7,028 |  |  | $ | — |  |  | $ | — |  |  | $ | 7,028 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current portion of earnout consideration on purchase of a business |  | $ | — |  |  | $ | — |  |  | $ | 1,081 |  |  | $ | 1,081 |
Long term portion of earnout consideration on purchase of a business |  |  | — |  |  |  | — |  |  |  | 603 |  |  |  | 603 |
|  | $ | — |  |  | $ | — |  |  | $ | 1,684 |  |  | $ | 1,684 |
As of March 31, 2021
(in thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Restricted cash |  | $ | 1,000 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,000 |
Equity investment in Metaverse, at fair value |  |  | 6,443 |  |  |  | — |  |  |  | — |  |  |  | 6,443 |
|  | $ | 7,443 |  |  | $ | — |  |  | $ | — |  |  | $ | 7,443 |
Our cash and cash equivalents, accounts receivable, unbilled revenue and accounts payable and accrued expenses are financial instruments and are recorded at cost in the consolidated balance sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature. ASSET ACQUISITIONS An asset acquisition is an acquisition of an asset, or a group of assets, that does not meet the definition of a business. Asset acquisitions are accounted for by using the cost accumulation model whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values. GOODWILL Goodwill is the excess of the purchase price paid over the fair value of the net assets of an acquired business. Goodwill is tested for impairment on an annual basis or more often if warranted by events or changes in circumstances indicating that the carrying value may exceed fair value, also known as impairment indicators. Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current economic indicators and market conditions, and assumptions about our strategic plans with regard to its operations. To the extent additional information arises, market conditions change, or our strategies change, it is possible that the conclusion regarding whether our remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material effect on our consolidated financial position or results of operations. The Company has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or to perform the quantitative impairment test. The Company reassessed goodwill impairment on its annual measurement date of March 31, 2022 by performing a qualitative analysis and determined that it was not more likely than not that the fair value of its reporting unit is less than its carrying amount. No goodwill impairment charge was recorded in the years ended March 31, 2022 and 2021. Gross amounts of goodwill and accumulated impairment charges that we have recorded are as follows:
(In thousands) |  |  |
Goodwill at March 31, 2021 |  | $ | 8,701 |
Goodwill from business combinations – see Note 4 |  |  | 12,383 |
Goodwill at March 31, 2022 |  | $ | 21,084 |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following:
|  | As of |
(In thousands) |  | March 31, 2022 |  |  | March 31, 2021 |
Accounts payable |  | $ | 34,177 |  |  | $ | 30,111 |
Amounts due to producers, net |  |  | 10,430 |  |  |  | 10,557 |
Accrued compensation and benefits |  |  | 3,507 |  |  |  | 2,995 |
Accrued taxes (refund) payable |  |  | (78 | ) |  |  | (99 | )
Interest payable |  |  | - |  |  |  | 10 |
Accrued other expenses |  |  | 3,989 |  |  |  | 3,053 |
Total accounts payable and accrued expenses |  | $ | 52,025 |  |  | $ | 46,627 |
PREPAID AND OTHER CURRENT ASSETS Prepaid and other current assets consisted of the following:
|  | As of |
(In thousands) |  | March 31, 2022 |  |  | March 31, 2021 |
Non-trade accounts receivable |  | $ | 826 |  |  | $ | 413 |
Advances |  |  | 2,117 |  |  |  | 1,841 |
Due from producers |  |  | 1,861 |  |  |  | 589 |
Prepaid insurance |  |  | 169 |  |  |  | 409 |
Other prepaid expenses |  |  | 820 |  |  |  | 405 |
Total prepaid and other current assets |  | $ | 5,793 |  |  | $ | 3,657 |
Impairments and accelerated amortization related to advances were $1.2 million and $0.3 million, for the years ended March 31, 2022 and 2021, respectively. 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. Cinema Equipment Business Our Cinema Equipment Business consists of financing vehicles and administrators for Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”). We retain ownership of our Systems and the residual cash flows related to the Systems in Phase I Deployment after the end of the 10-year deployment payment period. For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements. The Cinema Equipment Business also provides monitoring, data collection, serial data verification and management services to this segment, as well as to exhibitors who purchase their own equipment, in order to collect virtual print fees (“VPFs”) from motion picture studios and distributors and Alternative Content Fees (“ACFs”) from alternative content providers, and to distribute those fees to theatrical exhibitors (collectively, “Services”). VPFs are earned, net of administrative fees, pursuant to contracts with movie studios and distributors, whereby amounts are payable by a studio to Phase I Deployment and to Phase II Deployment when movies distributed by the studio are displayed on screens utilizing our Systems installed in movie theatres. VPFs are earned and payable to Phase I Deployment based on a defined fee schedule until the end of the VPF term. One VPF is payable for every digital title initially displayed per System. The amount of VPF revenue is dependent on the number of movie titles released and displayed using the Systems in any given accounting period. VPF revenue is recognized in the period the title first plays for general audience viewing in a digital projector equipped movie theatre. The Phase 1 Deployment’s and Phase 2 Deployments performance obligations for revenue recognition are met at this time. Phase II Deployment’s agreements with distributors require the payment of VPFs, according to a defined fee schedule, for ten years from the date each system is installed; however, Phase II Deployment may no longer collect VPFs once “cost recoupment,” as defined in the contracts with movie studios and distributors, is achieved. Cost recoupment will occur once the cumulative VPFs and other cash receipts collected by Phase II Deployment have equaled the total of all cash outflows, including the purchase price of all Systems, all financing costs, all “overhead and ongoing costs”, as defined, and including service fees, subject to maximum agreed upon amounts during the three-year rollout period and thereafter. Further, if cost recoupment occurs before the end of the eighth contract year, the studios will pay us a one-time “cost recoupment bonus.” The Company evaluated the constraining estimates related to the variable consideration, that it is not probable to conclude at this point in time that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is subsequently resolved. Under the terms of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive one-year terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we typically pursue the sale of the Systems to such exhibitors. Cinedigm recognizes revenue once the customer takes possession of the Systems and Cinedigm received the sale proceeds. Such sales were originally contemplated as the conclusion of the digital cinema deployment plan. Total system sales executed was $6.1 million and $6.7 million, during the year ended March 31, 2022 and 2021, respectively. Revenues earned in connection with up front exhibitor contributions are deferred and recognized over the expected cost recoupment period. Exhibitors who purchased and own Systems using their own financing in Phase II of the Cinema Equipment Business paid us an upfront activation fee of approximately $2.0 thousand per screen (the “Exhibitor-Buyer Structure”). Upfront activation fees were recognized in the period in which these Systems were delivered and ready for content, as we had no further obligations to the customer after that time and collection was reasonably assured. In addition, we recognize activation fee revenue of between $1.0 thousand and $2.0 thousand on Phase II Deployment Systems and for Systems installed by CDF2 Holdings, a related party, (See Note 3 - Other Interests) upon installation and such fees are generally collected upfront upon installation. Our services division manages and collects VPFs on behalf of exhibitors, for which it earns an administrative fee equal to 10% of the VPFs collected. The Cinema Equipment Business earns an administrative fee of approximately 5% of VPFs collected and, in addition, earns an incentive service fee equal to 2.5% of the VPFs earned by Phase 1 DC. This administrative fee is related to the collection and remittance of the VPF’s and the performance obligation is satisfied at that time the related VPF fees are due which is at the time the movies are displayed on screens utilizing our Systems installed in movie theatres. The service fees are recognized as a point in time revenue when the corresponding VPF fees are due from the movie studios and distributors. Content & Entertainment Business CEG earns fees for the distribution of content in the home entertainment markets via several distribution channels, including digital, video on demand (“VOD” or “OTT Streaming and Digital”), and physical goods (e.g., DVDs and Blu-ray Discs) (“Physical Revenue” or “Base Distribution Business”). Fees earned are typically a percentage based on the net amounts received from our customers. Depending upon the nature of the agreements with the platform and content providers, the fee rate that we earn varies. The Company’s performance obligations include the delivery of content for transactional, subscription and ad supported/free ad-supported streaming TV (“FAST”) on the digital platforms, and shipment of DVDs and Blu-ray Discs. Revenue is recognized at the point in time when the content is available for subscription on the digital platform (the company’s digital content is considered functional IP), at the time of shipment for physical goods, or point-of-sale for transactional and VOD services as the control over the content or the physical title is transferred to the customer. The Company considers the delivery of content through various distribution channels to be a single performance obligation. Physical revenue from the sale of physical goods is recognized after deducting the reserves for sales returns and other allowances, which are accounted for as variable consideration. Reserves for potential sales returns of physical goods and other allowances are recorded based upon historical experience. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required. CEG also has contracts for the theatrical distribution of third party feature movies and alternative content. CEG’s distribution fee revenue and CEG’s participation in box office receipts are recognized at the time a feature movie and alternative content are viewed. CEG has the right to receive or bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded as a receivable at the time of execution, and all related distribution revenue is deferred until the third party feature movies’ or alternative content’s theatrical release date. The Company follows the five-step model established by ASC 606 when preparing its assessment of revenue recognition Principal Agent Considerations Revenue earned by our CEG business from the delivery of digital content and physical goods may be recognized gross or net depending on the terms of the arrangement. We determine whether revenue should be reported on a gross or net basis based on each revenue stream. Key indicators that we use in evaluating gross versus net treatment include, but are not limited to, the following:
| ● | which party is primarily responsible for fulfilling the promise to provide the specified good or service; and
| ● | which party has discretion in establishing the price for the specified good or service.
Shipping and Handling Shipping and handling costs are incurred to move physical goods (e.g., DVDs and Blu-ray Discs) to customers. We recognize all shipping and handling costs as an expense in cost of goods sold because we are responsible for delivery of the product to our customers prior to transfer of control to the customer. Credit Losses We maintain reserves for potential credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis. Our CEG segment recognizes accounts receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that it recognizes revenue from a sale. Reserves for product returns and other allowances is variable consideration as part of the transaction price. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required. We record accounts receivable, long-term in connection with activation fees that we earn from Systems deployments that have extended payment terms. Such accounts receivable are discounted to their present value at prevailing market rates. Contract Liabilities We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability) when cash payments are received or due in advance of our performance, even if amounts are refundable. Deferred revenue pertaining to our Content & Entertainment Business includes amounts related to the sale of DVDs with future release dates. Deferred revenue relating to our Cinema Equipment Business pertains to revenues earned in connection with up front exhibitor contributions that are deferred and recognized over the expected cost recoupment period. It also includes unamortized balances in connection with activation fees due from the Systems deployments that have extended payment terms. The ending deferred revenue balance, including current and non-current balances, as of March 31, 2022 was $0.2 million. For the year ended March 31, 2022, the additions to our deferred revenue balance were primarily due to cash payments received or due in advance of satisfying performance obligations, while the reductions to our deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business. For year ended March 31, 2022 and March 31, 2021, there was $11,792,210 and $14,433,054, respectively, included in accounts payable that represents a refund liability, a portion or all of which may be recognized as revenue upon completion of audit periods. During the year ended March 31, 2022, $813 thousand of revenue was recognized that was included in the deferred revenue balance at the beginning of the year. During the year ended March 31, 2022, $3.9 million of revenue was recognized that was included in the accounts payable balance as constrained variable consideration at the beginning of the year. The Company recognized the revenue related once the uncertainty associated with the variable consideration was resolved. Participations and royalties payable When we use third parties to distribute company owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers. Disaggregation of Revenue The Company disaggregates revenue into different revenue categories for the Cinema Equipment and CEG Businesses. The Cinema Equipment Business revenue categories are: Phase I Deployment revenue, Phase II Deployment revenue, Services, and Digital System Sales, and the Content & Entertainment Business revenue categories are: Base Distribution Business and OTT Streaming and Digital. The following tables present the Company’s revenue categories for the years ended March 31, 2022 and 2021 (in thousands):
|  | Year Ended March 31, |
|  | 2022 |  |  | 2021 |
Cinema Equipment Business: |  |  |  |  |  |
Phase I Deployment |  | $ | 654 |  |  | $ | 552 |
Phase II Deployment |  |  | 4,810 |  |  |  | 1,531 |
Services |  |  | 1,428 |  |  |  | 539 |
Digital System Sales |  |  | 11,267 |  |  |  | 600 |
Total Cinema Equipment Business revenue |  | $ | 18,159 |  |  | $ | 3,222 |
Content & Entertainment Business: |  |  |  |  |  |  |  |
Physical Goods |  | $ | 10,447 |  |  | $ | 10,230 |
OTT Streaming and Digital |  |  | 27,448 |  |  |  | 17,967 |
Total Content & Entertainment Business revenue |  | $ | 37,895 |  |  | $ | 28,197 |
Concentrations For the fiscal year ended March 31, 2022, two customers, Amazon and Distribution Solutions each represented 18% and 25% respectively of CEG’s revenues and approximately 6% and 8%, respectively, of our consolidated revenues. For the fiscal year ended March 31, 2021, Amazon and Distribution Solutions represented 15% and 22% respectively of CEG’s revenues and approximately 9% and 13%, respectively, of our consolidated Revenues. DIRECT OPERATING COSTS Direct operating costs consist of operating costs such as cost of revenue, fulfillment expenses, shipping costs, property taxes and insurance on Systems, royalty expenses, impairments of advances, and marketing and direct personnel costs. STOCK-BASED COMPENSATION The Company issues stock-based awards to employees and non-employees, generally in the form of restricted stock, restricted stock units, stock appreciation rights and performance stock units. The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments, including grants of stock options and restricted stock units and modifications to existing stock options, to be recognized in the consolidated statements of operations and comprehensive loss based on their fair values. The Company measures the compensation expense of employee and nonemployee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost is recognized on a straight-line basis over the period during which the employee and nonemployee is required to provide service in exchange for the award. The fair values of options and stock appreciation rights are calculated as of the date of grant using the Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility and expected term. The Company’s estimates of these assumptions are primarily based on the trading price of the Company’s stock, historical data, peer company data and judgment regarding future trends and factors. INCOME TAXES The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and tax credit carryforwards and for differences between the carrying amounts of existing assets and liabilities and their respective tax bases. Valuation allowances are established when management is unable to conclude that it is more likely than not that some portion, or all, of the deferred tax asset will ultimately be realized. The Company is primarily subject to income taxes in the United States. The Company accounts for uncertain tax positions in accordance with an amendment to ASC Topic 740-10, Income Taxes (Accounting for Uncertainty in Income Taxes), which clarified the accounting for uncertainty in tax positions. This amendment provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is “more-likely-than-not” to be sustained were it to be challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the “more-likely-than-not” threshold, the largest amount of tax benefit that is more than 50% likely to be recognized upon ultimate settlement with the taxing authority is recorded. The Company has no uncertain tax positions. NET LOSS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS Basic and diluted net loss per common share has been calculated as follows:
Basic net income (loss) per common share attributable to common stockholders | = | Net loss attributable to common stockholders
Weighted average number of common stock outstanding during the period
Diluted net income (loss) per common share attributable to common stockholders | = | Net loss attributable to common stockholders
Weighted average number of common stock outstanding during the period plus potential dilutive shares
Stock issued and treasury stock repurchased during the period are weighted for the portion of the period that they are outstanding. Shares issued and any shares that are reacquired during the period are weighted for the portion of the period that they are outstanding. We had net income for the year ended March 31, 2022, and therefore the impact of potentially dilutive common shares from outstanding stock options, stock appreciation rights, and warrants, totaling 3,184,247 shares for the year ended March 31, 2022, respectively, was included in the computations of diluted earnings per share. The calculation of diluted net income per share for the year ended March 31, 2022 does not include the impact of 6,156,432 potentially dilutive shares relating to stock options, stock appreciation rights, and warrants as their impact would have been anti-dilutive as their exercise prices are above the Company’s average Common Stock price during the period. We incurred a net loss for the year ended March 31, 2021, and therefore the impact of potentially dilutive common shares from outstanding stock options and warrants, totaling 11,127,539 shares as of March 31, 2021, were excluded from the computations of loss per share as their impact would have been anti-dilutive. COMPREHENSIVE LOSS For the year ended March 31, 2022 and 2021, comprehensive loss consisted of net loss and foreign currency translation adjustments. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Adopted On December 18, 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The update also simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance to improve consistent application. The amendment in this update is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted this guidance on April 1, 2021 and the adoption of this ASU did not have a material impact on our consolidated financial statements. Not yet adopted In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which provides new guidance regarding the measurement and recognition of credit impairment for certain financial assets. Such guidance will impact how the Company determines its allowance for estimated uncollectible receivables and evaluates its available-for-sale investments for impairment. ASU 2016-13 is effective for the Company in the first quarter of fiscal 2023. The Company is currently evaluating the effect that ASU 2016-13 will have on its consolidated financial statements and related disclosures.

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