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Fresh Start Accounting
 12 Months Ended
Dec. 31, 2021
Fresh Start Accounting [Abstract]  
FRESH START ACCOUNTING
4.FRESH START ACCOUNTING

 

In connection with our emergence from bankruptcy and in accordance with ASC Topic 852, we qualified for and adopted fresh start accounting on the Effective Date. We were required to adopt fresh start accounting because (i) the holders of existing voting shares of the Predecessor received less than 50% of the voting shares of the Successor, and (ii) the reorganization value of our assets immediately prior to confirmation of the Plan was less than the post-petition liabilities and allowed claims.

 

The adoption of fresh start accounting resulted in a new reporting entity for financial reporting purposes with no beginning retained earnings or deficit. The issuance of new shares of common stock of the Successor caused a related change of control of the Company under ASC 852.

 

Upon the application of fresh start accounting, the Company allocated the reorganization value to its individual assets based on their estimated fair values. Each asset and liability existing as of the Effective Date, other than deferred taxes, have been stated at the fair value, and determined at appropriate risk-adjusted interest rates. Deferred taxes were determined in conformity with applicable accounting standards.

 

Reorganization value represents the fair value of the Successor’s assets before considering liabilities. Our reorganization value is derived from an estimate of enterprise value. Enterprise value represents the estimated fair value of an entity’s long-term debt and shareholders’ equity. In support of the Plan, the enterprise value of the Successor was estimated to be approximately $18.9 million. The valuation analysis was prepared using financial information and financial projections and applying standard valuation techniques, including a risked net asset value analysis.

 

The Effective Date estimated fair values of certain of the Company’s assets and liabilities differed materially from their recorded values as reflected on the historical balance sheets. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, the Company’s consolidated financial statements on or after September 30, 2021 are not comparable to the Company’s consolidated financial statements as of or prior to that date.

 

Reorganization Value

 

The enterprise value of the Successor Company was estimated to be between $18.0 million and $20.0 million. Based on the estimates and assumptions discussed below, the Company estimated the enterprise value to be $18.9 million as of the Effective Date.

 

Management, with the assistance of its valuation advisors, estimated the enterprise value (“EV”) of the Successor Company, using various valuation methodologies, including a Discounted Cash Flow analysis (DCF), the Guideline Public Company Method (GPCM), and the Guideline Transaction Method (GTM). Under the DCF analysis, the enterprise value was estimated by discounting the projections’ unlevered free cash flow by the Weighted Average Cost of Capital (WACC), the Company’s estimated rate of return. A terminal value was estimated by applying a Gordon Growth Model to the normalized level of cash flows in the terminal period. The Gordon Growth Model was based on the WACC and the perpetual growth rate, and the terminal value was added back to the discounted cash flows.

 

Under the GPCM, the Company’s enterprise value was estimated by performing an analysis of publicly traded companies that operate in a similar industry. A range of Enterprise Value / EBITDA (EV/EBITDA) multiples were selected based on the financial and operating attributes of the Company relative to the comparable publicly traded companies. The selected range of multiples were applied to the Company’s forecasted EBITDA to estimate the enterprise value of the Company.

 

The GTM approach is similar to the GPCM, in that it relies on EV/EBITDA multiples but rather than of publicly traded companies, the multiples are based on precedent transactions. A range of multiples was derived by analyzing the operating and financial attributes of the acquired companies and the implied EV/EBITDA multiples. This range of multiples were then applied to the forecasted EBITDA of the Company to arrive an enterprise value.

 

The following table reconciles the enterprise value to the estimated fair value of the Successor common stock as of the Effective Date:

 

Enterprise value  $18,883,100 
Less: Fair value of accounts payable and accrued expenses   (1,512,100)
Less: Accrued payroll   (232,100)
Less: Income tax payable   (19,600)
Less: Deferred tax liabilities   (114,500)
Fair value of successor shareholders’ equity  $17,004,800 
Shares issued and outstanding upon emergence*   22,084,055 
Per share value*  $0.77 

 

*Retrospectively restated to give effect to five for one forward stock split effective December 30, 2021.

 

The adjustments set forth in the following Consolidated Balance Sheet reflect the consummation of the transactions contemplated by the Plan (reflected in the column “Reorganization Adjustments”) as well as fair value adjustments as a result of the adoption of fresh start accounting (reflected in the column “Fresh Start Adjustments”).

 

   Predecessor             Successor 
   September 29,
2021		   Reorganization
adjustments		    Fresh start
adjustments		    September 30,
2021		 
Assets:                  
Cash and cash equivalents  $10,527,200   $98,400 a   
-
     10,625,600 
Accounts receivable   
-
    
-
     
-
     
-
 
Finance leases receivable, net   450,000    
-
     
-
     450,000 
Taxes receivable   1,234,500    
-
     
-
     1,234,500 
Prepaid expenses and other assets   1,884,400    
-
     
-
     1,884,400 
Goodwill   
-
    
-
     4,688,600 a   4,688,600 
Assets held for sale   31,149,300    
(31,149,300
 )b   
-
     
-
 
Total assets  $45,245,400   $(31,050,900 )  $4,688,600    $18,883,100 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                      
Liabilities:                      
Accounts payable and accrued expenses  $1,513,700   $
(1,600
 )a  $
-
    $1,512,100 
Accrued payroll   232,100    
-
     
-
     232,100 
Notes payable and accrued interest, net   38,675,300    
(38,675,300
 )b   
-
     
-
 
Lease liability   780,500    
(780,500
 )b   
-
     
-
 
Maintenance reserves   2,061,200    
(2,061,200
 )b   
-
     
-
 
Accrued maintenance costs   46,100    
(46,100
 )b   
-
     
-
 
Security deposits   466,000    
(466,000
 )b   
-
     
-
 
Unearned revenues   
-
    
-
     
-
     
-
 
Income taxes payable   19,600    
-
     
-
     19,600 
Deferred tax liabilities   114,500    
-
     
-
     114,500 
Subscription fee advanced from the Plan Sponsor   10,953,100    
(10,953,100
 )c   
-
     
-
 
Total liabilities   54,862,100    (52,983,800 )   
-
     1,878,300 
                       
Equity (Deficit):                      
Preferred stock   
-
    
-
     
-
     
-
 
Common stock   7,700    14,400 c   
-
     22,100 
Paid-in capital   16,811,900    170,800 cd   
-
     16,982,700 
Accumulated deficit   (23,399,000)   18,710,400 e   4,688,600 a   
-
 
    (6,579,400)   18,895,600     4,688,600     17,004,800 
Treasury stock   (3,037,300)   3,037,300 d   
-
     
-
 
Total Mega Matrix Corp. (formerly “AeroCentury Corp.”) stockholders’ equity (deficit)   (9,616,700)   21,932,900     4,688,600     17,004,800 
Total liabilities and Equity (Deficit)  $45,245,400   $(31,050,900 )  $4,688,600    $18,883,100 

 

Reorganization adjustment

 

In accordance with the Plan of Reorganization, the following adjustments were made:

 

(a) Reflects final instalment of subscription fees of $100,000 for 14,354,635 common stocks (given effect to five for one forward stock split) paid by the Plan Sponsor, against the bank charges of $1,600

 

(b) Reflects settlement of liabilities subject to compromise by the assets held for sale.

 

As part of the Plan of Reorganization, the Bankruptcy Court approved the settlement of claims reported within Liabilities subject to compromise in the Company’s Consolidated balance sheet at their respective allowed claim amounts. The table below indicates the disposition of Liabilities subject to compromise:

 

Liabilities subject to compromise pre-emergence    
Accrued maintenance costs  $46,100 
Lease liability   780,500 
Maintenance reserves   2,061,200 
Security deposits   466,000 
Drake Indebtedness   38,675,300 
    42,029,100 
Less: Amounts settled per the Plan of Reorganization     
Aircraft included in the assets held for sale   (31,149,300)
Reorganization gain per the Plan of Reorganization  $10,879,800 
Add: Gain on settlement of liabilities subject to compromise before Plan of Reorganization*   19,296,100 
Reorganization gain  $30,175,900 

 

*

The predecessor of the Company started to sell its aircraft before it filed Petitions under Chapter 11 in March 2021, and continued the sales of aircraft through the receipt of the Plan of the Reorganization. As of September 29, 2021, the Company closed sales of five aircraft with carrying amount of $22.3 million, and the proceeds from the sales were settled against the liabilities subject to compromise of $41.6 million, and the Company recognized reorganization gains of $19.3 million.

 

(c) Reflects issuance of 14,354,635 common stocks (given effect to five for one forward stock split) to the Plan Sponsor, at per share of $0.77 (given effect to five for one forward stock split), with total subscription fee of $11,053,100, among which $10,953,100 was paid before September 29, 2021 and $100,000 was paid on September 30, 2021.

 

(d) Reflects cancellation of paid-in capital of $10,867,900 and treasury stock of $3,037,300 attributable to predecessor shareholders

 

(e) Reflects the cumulative impacts of reorganization adjustments.

 

Reorganization gain per the Plan of Reorganization  $10,879,800 
Cancellation of paid in capital and treasury stock   7,830,600 
   $18,710,400 

 

Fresh start adjustment

 

  (a) Reflects the excess of enterprise value over the fair value of total assets. On the effective date, the carrying amount of total assets approximated the fair value.

 

Enterprise value  $18,883,100 
Less: Fair value of total assets   (14,194,500)
Goodwill  $4,688,600