Cineverse Corp. - Quarter Report: 2020 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal period ended: June 30, 2020

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 000-31810

___________________________________

Cinedigm Corp.

(Exact name of registrant as specified in its charter)

___________________________________


Delaware						22-3720962
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

237 West 35th Street, Suite 605, New York, NY						10018
(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 which registered
CLASS A COMMON STOCK, PAR VALUE $0.001 PER SHARE	CIDM	NASDAQ GLOBAL 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 x No o

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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

Smaller reporting company x

Emerging Growth Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes o No x

o 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.

As of August 12, 2020, 111,898,018 shares of Class A Common Stock, $0.001 par value, were outstanding.

CINEDIGM CORP.

TABLE OF CONTENTS


			Page
	PART I - FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets at June 30, 2020 (Unaudited) and March 31, 2020	3
	Unaudited Condensed Consolidated Statements of Operations for the Three Months ended June 30, 2020 and 2019	4
	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three Months ended June 30, 2020 and 2019	5
	Unaudited Condensed Consolidated Statement of Deficit for the Three Months ended June 30, 2020 and 2019	6
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months ended June 30, 2020 and 2019	8
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 4.	Controls and Procedures	41

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	42
Exhibit Index			43
Signatures			44

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

CINEDIGM CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share data)


	June 30, 2020		March 31, 2020
ASSETS	(Unaudited)
Current assets
Cash and cash equivalents	$	16,301	$	14,294
Accounts receivable, net	26,549		34,785
Inventory, net	437		582
Unbilled revenue	1,801		1,992
Prepaid and other current assets	8,345		9,409
Total current assets	53,433		61,062
Restricted cash	1,000		1,000
Equity investment in Starrise, a related party, at fair value	34,963		23,433
Property and equipment, net	6,457		7,967
Right-of-use assets	204		1,210
Intangible assets, net	6,333		6,924
Goodwill	8,701		8,701
Other long-term assets	5		143
Total assets	$	111,096	$	110,440
LIABILITIES AND DEFICIT
Current liabilities
Accounts payable and accrued expenses	$	65,382	$	77,085
Current portion of notes payable, including unamortized debt discount of $347 and $460 respectively (see Note 5)	32,364		37,249
Current portion of notes payable, non-recourse including unamortized debt discount of $563 and $763, respectively (see Note 5)	11,544		11,442
Operating lease liabilities	137		593
Current portion of deferred revenue	1,661		1,645
Total current liabilities	111,088		128,014

Notes payable	2,152		—
Operating lease liabilities, noncurrent	67		684
Deferred revenue, net of current portion	400		919
Other long-term liabilities	8		110
Total liabilities	113,715		129,727
Commitments and contingencies (see Note 7)
Stockholders’ deficit
Preferred stock, 15,000,000 shares authorized; Series A 10% - $0.001 par value per share; 20 shares authorized; and 7 shares issued and outstanding at June 30, 2020 and March 31, 2020. Liquidation preference of $3,648	3,559		3,559
Common stock, $0.001 par value; Class A stock 150,000,000 shares authorized at June 30, 2020 and March 31, 2020; 104,606,655 and 63,251,429 shares issued and 103,292,819 and 61,937,593 shares outstanding at June 30, 2020 and March 31, 2020, respectively	103		62
Additional paid-in capital	437,450		400,784
Treasury stock, at cost; 1,313,836 Class A common shares at June 30, 2020 and March 31, 2020	(11,603)		(11,603)
Accumulated deficit	(430,849)		(410,904)
Accumulated other comprehensive income	12		92
Total stockholders’ deficit of Cinedigm Corp.	(1,328)		(18,010)
Deficit attributable to noncontrolling interest	(1,291)		(1,277)
Total deficit	(2,619)		(19,287)
Total liabilities and deficit	$	111,096	$	110,440

See accompanying Notes to Condensed Consolidated Financial Statements

CINEDIGM CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except for share and per share data)


	Three Months Ended June 30,
	2020		2019
Revenues	$	6,018	$	9,803
Costs and expenses:
Direct operating (excludes depreciation and amortization shown below)	2,679		3,612
Selling, general and administrative	3,840		5,849
Provision for doubtful accounts	—		270

Depreciation and amortization of property and equipment	1,524		1,774
Amortization of intangible assets	590		995
Total operating expenses	8,633		12,500
Loss from operations	(2,615)		(2,697)
Interest expense, net	(1,290)		(2,282)
Gain on extinguishment of notes payable	23		—
Changes in fair value of equity investment in Starrise, a related party	(15,794)		—
Other expense, net	(194)		(13)


Loss from operations before income taxes	(19,870)		(4,992)
Income tax expense	—		(47)
Net loss	(19,870)		(5,039)
Net loss attributable to noncontrolling interest	14		6
Net loss attributable to controlling interests	(19,856)		(5,033)
Preferred stock dividends	(89)		(89)
Net loss attributable to common stockholders	(19,945)		(5,122)
Net loss per Class A common stock attributable to common stockholders - basic and diluted:
Net loss attributable to common stockholders	$	(0.21)	$	(0.13)
Weighted average number of Class A common stock outstanding: basic and diluted	94,416,684		38,351,161

See accompanying Notes to Condensed Consolidated Financial Statements

CINEDIGM CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)


	Three Months Ended June 30,
	2020		2019
Net loss	$	(19,870)	$	(5,039)
Other comprehensive income: foreign exchange translation	(80)		6
Comprehensive loss	(19,950)		(5,033)
Less: comprehensive income attributable to noncontrolling interest	14		6
Comprehensive loss attributable to controlling interests	$	(19,936)	$	(5,027)

See accompanying Notes to Condensed Consolidated Financial Statements

CINEDIGM CORP.

CONSOLIDATED STATEMENTS OF DEFICIT

(Unaudited)

(In thousands, except share data)


	Series A Preferred Stock				Class A Common Stock					Treasury				Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Total Stockholders' Deficit			Non-Controlling Interest	Total Deficit
	Shares	Amount		Shares	Amount		Shares	Amount
Balances as of March 31, 2019	7	$	3,559	35,678,597	$	36	1,313,836	$	(11,603)	$	368,531	$	(395,814)		$	10		$	(35,281)		$	(1,287)		$	(36,568)
Foreign exchange translation	—	—		—	—		—	—		—		—			6			6			—			6
Stock-based compensation	—	—		—	—		—	—		11		—			—			11			—			11
Preferred stock dividends paid with common stock	—	—		45,390	—		—	—		89		(89)			—			—			—			—
Net loss	—	—		—	—		—	—		—		(5,033)			—			(5,033)			(6)			(5,039)
Balances as of June 30, 2019	7	$	3,559	35,723,987	36		1,313,836	(11,603)		368,631		(400,936)			16			(40,297)			(1,293)			(41,590)

See accompanying Notes to Condensed Consolidated Financial Statements

CINEDIGM CORP.

CONSOLIDATED STATEMENTS OF DEFICIT

(Unaudited)

(In thousands, except share data)


	Series A Preferred Stock				Class A Common Stock					Treasury				Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders' Deficit			Non-Controlling Interest	Total Deficit
	Shares	Amount		Shares	Amount		Shares	Amount
Balances as of March 31, 2020	7	$	3,559	61,937,593	$	62	1,313,836	$	(11,603)	$	400,784	$	(410,904)		$	92		$	(18,010)		$	(1,277)		$	(19,287)
Foreign exchange translation	—	—		—	—		—	—		—		—			(80)			(80)			—			(80)

Stock issued in connection with the SPA with certain investors, net	—	—		10,666,666	11		—	—		7,139		—			—			7,150			—			7,150
Issuance of Class A common stock in connection with the Starrise transaction, a related party	—	—		29,855,081	30		—	—		11,016		—			—			11,046			—			11,046
Contributed capital under the Starrise transaction, a related party	—	—		—	—		—	—		17,187		—			—			17,187			—			17,187
Issuance of stock in connection with settlement of second lien loan	—	—		329,501	—		—	—		757		—			—			757			—			757
Exercise of warrants for Class A common stock	—	—		236,899	—		—	—		301		—			—			301			—			301
Stock-based compensation	—	—		—	—		—	—		177		—			—			177			—			177
Preferred stock dividends paid with common stock	—	—		267,079	—		—	—		89		(89)			—			—			—			—
Net loss	—	—		—	—		—	—		—		(19,856)			—			(19,856)			(14)			(19,870)
Balances as of June 30, 2020	7	$	3,559	103,292,819	$	103	1,313,836	$	(11,603)	$	437,450	$	(430,849)		$	12		$	(1,328)		$	(1,291)		$	(2,619)

See accompanying Notes to Condensed Consolidated Financial Statements

CINEDIGM CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Three Months Ended June 30,
	2020		2019
Cash flows from operating activities:
Net loss	$	(19,870)	$	(5,039)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization of property and equipment and amortization of intangible assets	2,114		2,769
Changes in fair value of equity investment in Starrise	15,794		—
Gain on extinguishment of note payable	(23)		—
Gain from sale of property and equipment	(16)		—
Amortization of debt issuance costs included in interest expense	233		523
Provision for doubtful accounts	—		270
Recovery for inventory reserve	(328)		(133)
Stock-based compensation and expenses	177		11

Accretion and PIK interest expense added to note payable	176		395

Changes in operating assets and liabilities;
Accounts receivable	8,236		3,807
Inventory	473		194
Unbilled revenue	191		17
Prepaids and other current assets	1,135		(2,534)
Accounts payable and accrued expenses	(11,527)		4,145
Deferred revenue	(503)		(410)

Net cash (used in) provided by operating activities	(3,738)		4,015
Cash flows from investing activities:
Purchases of property and equipment	(79)		(252)

Sale of equity investment in Starrise	587		—
Net cash provided by (used in) in investing activities	508		(252)
Cash flows from financing activities:
Payment of notes payable	(7,754)		(5,493)
Proceeds under revolving credit agreement, net	3,388		—

Proceeds from PPP Loan	2,152		—
Proceeds from issuance of Class A common stock, net	7,451		—




Net cash provided by (used in) in financing activities	5,237		(5,493)
Net change in cash and cash equivalents	2,007		(1,730)
Cash, cash equivalents, and restricted cash at beginning of period	15,294		18,872
Cash, cash equivalents, and restricted cash at end of period	$	17,301	$	17,142

See accompanying Notes to Condensed Consolidated Financial Statements

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except share information)

1.NATURE OF OPERATIONS AND LIQUIDITY

Cinedigm Corp. ("Cinedigm," the "Company," "we," "us," or similar pronouns) was incorporated in Delaware on March 31, 2000. We are (i) a distributor and aggregator of independent movie, television and other short form content managing a library of distribution rights to thousands of titles and episodes released across digital, physical, theatrical, home and mobile entertainment platforms and (ii) a servicer of digital cinema assets for over 12,000 movie screens in both North America and several international countries.

Risks and Uncertainties

The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in certain industries. Closures of certain entertainment facilities and retail locations have significantly impacted consumers’ behaviors as a result of the virus outbreak and corresponding preventative measures taken around the world to mitigate the spread of the virus. As part of our Content & Entertainment business, we sell physical goods, including DVDs and Blu-ray discs, at brick-and-mortar stores. Many of such stores in the United States closed during the spring of 2020 due to COVID-19 restrictions, and many of those have not yet re-opened, or have re-opened on a limited basis. We expect that we will experience a loss of sales of such physical goods due to such closures, and we cannot predict the extent of such losses, or how long the closures or limited openings of the stores may last. As a result of COVID-19, studios have temporarily halted distribution of new content to movie theatres due to mandatory theatre shutdown. Because our digital cinema business earns a Virtual Print Fee when a movie is first played on a system, the temporary theatre closures resulting from the COVID-19 pandemic will result in reduced revenues that service the Prospect Loan. We do not yet know the full impact of such reduced revenues or whether our ability to service the Prospect Loan will be materially affected. We expect the studios to reschedule, once the theatres reopen, the release of those movies originally scheduled during the temporary movie theatre closure. Management believes the cash flows from the Digital Cinema business, including the revenue from the sale of digital cinema projection systems, will be sufficient to pay the Prospect Loan. The Borrower on the Prospect Loan is Cinedigm DC Holdings, LLC and the Prospect Loan is only guaranteed by the digital cinema subsidiaries. Prospect has a security interest in certain digital cinema projection equipment and has no recourse to Cinedigm Corp., Cinedigm Entertainment Corp., Cinedigm Home Entertainment, LLC, OTT Holdings, LLC or any other non-digital cinema legal entity; provided, however, Cinedigm Corp. has provided a limited recourse guaranty pursuant to which it agreed to become a primary obligor of such indebtedness in certain specified circumstances, none of which have occurred as of the date hereof.

These events have negatively affected, and are expected to continue to negatively affect, our business and results of operations. Given the dynamic nature of these events, we cannot reasonably estimate the period of time that the COVID-19 pandemic and related closures and market conditions will persist, or the extent of the impact they will have on our business or results of operations and financial condition.

Liquidity

We have incurred net losses historically and have an accumulated deficit of $430.8 million and negative working capital of $57.7 million as of June 30, 2020. We may continue to generate net losses for the foreseeable future. In addition, we have significant debt-related contractual obligations as of June 30, 2020 and beyond. Based on these conditions, the Company entered into the following transactions described below:

Capital Raise

On May 20, 2020, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain investors (the “Investors”) for the purchase and sale of 10,666,666 shares (the “Shares”) of the Company’s Class A common stock, par value $0.001 per share, (the "Common Stock" or "Class A common stock"), at a purchase price of $0.75 per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3 (Reg. No. 333-238183) which was declared effective by the Securities and Exchange Commission on May 14, 2020 and an applicable prospectus supplement.

The aggregate gross proceeds for the sale of the Shares was $8.0 million. The net proceeds to the Company from the sale of the Shares, after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, were

approximately $7.1 million. The Company intends to use the net proceeds for working capital and other general corporate purposes, which may include, among other things, product development, acquisitions, capital expenditures, and other business opportunities.

On July 16, 2020, the Company entered into a securities purchase agreement (the “July Securities Purchase Agreement” ) with the Investors for the purchase and sale of 7,213,334 shares (the “July Shares”) of Class A common stock at a purchase price of $1.50 per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3 (Reg. No. 333-239710) which was declared effective by the Securities and Exchange Commission on July 10, 2020 and an applicable prospectus supplement. This registration statement covers offerings of up to an aggregate offering price of $75.0 million.

The Company closed the transaction on July 20, 2020. The aggregated gross proceeds from the sale of the July Shares were approximately $10.8 million. The net proceeds to the Company from the sale of the July Shares, after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, was approximately $10.0 million. The Company intends to use the net proceeds from the transaction for working capital and for other general corporate purposes, which may include, among other things, product development, acquisitions, capital expenditures, and other business opportunities.

Equity Investment

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 “Stock Purchase Agreement”) with BeiTai Investment LP (“BeiTai”) and Aim Right Ventures Limited (“Aim Right”), two shareholders of Starrise Media Holdings Limited, a leading Chinese entertainment company (“Starrise”), to buy from them an aggregate of 410,901,000 outstanding Starrise ordinary shares (the “Share Acquisition”). On February 14, 2020, the Company purchased 162,162,162 of the Starrise ordinary shares from BeiTai and issued BeiTai 21,646,604 shares of Class A common stock as consideration.

On April 10, 2020, the Company, in accordance with the terms of the Stock Purchase Agreement, terminated its obligation to purchase Starrise ordinary shares from Aim Right under the December 27, 2019 stock purchase agreement. On April 10, 2020, the Company entered into another stock purchase agreement (the “April Stock Purchase Agreement”) with five (5) shareholders of Starrise-Bison Global Investment SPC - Bison Global No. 1 SP, Huatai Investment LP, Antai Investment LP, Mingtai Investment LP and Shangtai Asset Management LP, to buy an aggregate of 223,380,000 outstanding Starrise ordinary shares from them and for the Company to issue to them an aggregate of 29,855,081 shares of its Class A common stock in consideration therefo (the “April Share Acquisition”). On April 15, 2020, the April Share Acquisition was consummated and recorded as an equity investment in Starrise and is a related party transaction.

Starrise'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 HKD 0.38 per share on August 13, 2020, calculated at an exchange rate of 7.8 Hong Kong Dollars to 1 US dollar, the market value of Cinedigm’s ownership in Starrise ordinary shares was approximately $17.8 million.

Borrowings

On April 15, 2020, the Company received $2.2 million from East West Bank, the Company’s existing lender, pursuant to the Paycheck Protection Program (the “PPP Loan”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 10, 2022 (the “PPN Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are due within the initial six months of the PPP Loan. The interest accrued during the initial six-month period is due and payable, together with the principal, on the PPN Maturity Date. The Company used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts are intended to be eligible for forgiveness, subject to the provisions of the CARES Act and could be subject to repayment.

On June 24, 2020, the Company entered into an exchange agreement (the “Exchange Agreement”) pursuant to which the Company issued 329,501 shares of its Class A common stock, in exchange for $842 thousand principal amount and accrued and unpaid interest of outstanding Second Lien Loans. The surrendered Second Lien Loans were immediately canceled. The exchange was consummated on June 24, 2020.

On June 26, 2020, the Company signed a consent agreement with the holders of the Second Lien loans to extend the maturity

date to September 30, 2020 and grant the Company options to extend further to March 31, 2021 and then to June 30, 2021. A

consent fee of $100,000 was paid in connection with this extension.

On April 15, 2020, the Company executed a letter amendment (the “Letter Amendment”) to the Bison Convertible Note. Among other things, the Letter Amendment amended the Note, effective as of March 4, 2020, to extend the maturity date of the Bison Convertible note to March 4, 2021. The Bison Convertible note due 2021 is also convertible into Common Stock at our election. See Note 5 - Notes Payable.

On October 9, 2019, the Company signed an extension to the Ming Tai Note of $5.0 million for the first of two (2) permitted additional (1) year extensions at the Company’s option from the original maturity date to October 9, 2020. This note will continue in full force and effect in accordance with its terms, including the Company’s reservation of its right to further extend the maturity date of this note, if it so elects.

On June 25, 2020, the Company signed an amendment to extend the maturity date of the East West credit facility from March 30, 2021 to June 30, 2021.

We believe the combination of: (i) our cash and cash equivalent balances as of June 30, 2020, (ii) expected cash flows from operations, (iii) cost cutting measures including payroll expense reduction and real estate occupancy cost reductions, and (iv) the extension of maturity dates of our borrowings, the ability to convert the convertible debt into Class A common stock, the Starrise equity investment, the capital raises during and subsequent to June 30, 2020, and the support or availability of funding from other capital resources and financings will be sufficient to satisfy our contractual obligations, as well as liquidity for our operational and capital requirements, for twelve months from the filing of this document. Our capital requirements will depend on many factors, and we may need to use capital resources and obtain additional capital. Failure to generate additional revenues, obtain additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations and liquidity.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND CONSOLIDATION

The accompanying condensed consolidated financial statements are unaudited and include the accounts of the Company, its wholly owned and majority owned subsidiaries, and reflect all normal and recurring adjustments necessary for the fair presentation of its consolidated financial position, results of operations and cash flows. All material inter-company accounts and transactions have been eliminated in consolidation.

Investments in which we do not have a controlling interest or are not the primary beneficiary but have the ability to exert significant influence are accounted for under the equity method of accounting. Noncontrolling interests for which we have been determined to be the primary beneficiary are consolidated and recorded as net loss attributable to noncontrolling interest.

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 accounts receivable reserves, return reserves, inventory reserves, recovery of advances, assessment of goodwill impairment, intangible asset impairment and estimated amortization lives and valuation allowances for income taxes. Actual results could differ from these estimates.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"), although we believe that the disclosures are adequate to make the information presented not misleading. The results of operations for the respective interim periods are not necessarily indicative of the results expected for the full year. These Condensed Consolidated Financial Statements and accompanying notes should be read in conjunction with our annual consolidated financial statements and the notes thereto, included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2020.

SIGNIFICANT ACCOUNTING POLICES

The significant accounting policies used in the preparation of these condensed consolidated financial statements for the three months ended June 30, 2020 are consistent with those disclosed in Note 2 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended March 31, 2020.

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 (as defined below) requires 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)	June 30, 2020		March 31, 2020
Cash and Cash Equivalents	$	16,301	$	14,294
Restricted Cash	1,000		1,000
	$	17,301	$	15,294

EQUITY INVESTMENT IN STARRISE, A RELATED PARTY

On February 14, 2020, the Company acquired an approximately 11.5% interest in Starrise Media Holdings Limited (“Starrise”) a leading Chinese entertainment publicly traded company 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 Starrise that is related to our major shareholders. Our major shareholders also maintain a significant beneficial interest ownership in Starrise. 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 Starrise 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 Class A common stock of the Company. The difference in value of shares received in Starrise 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 interest of 15% in Starrise in a private transaction from shareholders of Starrise 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 Starrise 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 Class A common stock of the Company. The difference in the value of shares received in Starrise 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 Starrise.

The Company has accounted for these investments under the equity method of accounting as the Company can exert significant influence over Starrise 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 Starrise.

During the three months ended June 30, 2020, the Company sold 5,384,000 of Starrise shares for net proceeds of approximately $0.6 million which resulted in a loss on sale of approximately $50 thousand.

As of June 30, 2020 and March, 31, 2020, the value of our equity investment in Starrise, using the readily determinable fair value method from the quoted trading price of the Stock Exchange of Hong Kong, was approximately $35.0 million and $23.4 million, respectively, resulting in an unrealized loss for the change in fair value of approximately $15.8 million for the three months ended June 30, 2020, on our consolidated statement of operations.

NON-MONETARY TRANSACTIONS

During the three months ended June 30, 2020, the Company entered in agreements with certain vendors to transfer 9,006,215 Starrise shares to satisfy outstanding liabilities with these vendors. Upon the sale of the Starrise shares by the vendors, with certain restrictions on sales unless the Company gives consent to sell, if the proceeds do not satisfy the amount due to the vendor, the Company is liable for the balance owed. Pursuant to such agreements, the Company reduced the amount payable to its vendors by $0.3 million for the three months ended June 30, 2020 or 3,408,000 Starrise shares. Subsequent to June 30, 2020, the Company transferred 2,010,000 shares in Starrise amounting to approximately $0.1 million related to such vendor liabilities.

There was no gain or loss resulting from these transactions.

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 digital cinema equipment

(the “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 condensed 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 was $0.2 million, for each of the three months ended June 30, 2020 and 2019.

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 condensed consolidated statements of operations.

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 Starrise is in Hong Kong dollars and was translated into US dollars as of June 30, 2020 and March 31, 2020 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 Starrise on the Stock Exchange of Hong Kong.

The following tables summarize the levels of fair value measurements of our financial assets and liabilities as of June 30, 2020 and March 31, 2020:


As of June 30, 2020
(in thousands)	Level 1		Level 2			Level 3		Total
Restricted cash	$	1,000	$	—		$	—	$	1,000
Equity investment in Starrise, at fair value	34,963		—			—		34,963
	$	35,963	$	—	—	$	—	$	35,963


As of March 31, 2020
(in thousands)	Level 1		Level 2			Level 3		Total
Restricted cash	$	1,000	$	—		$	—	$	1,000
Equity investment in Starrise, at fair value	23,433		—			—		23,433
	$	24,433	$	—	—	$	—	$	24,433

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 condensed consolidated balance sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature. At June 30, 2020 and March 31, 2020, the estimated fair value of our fixed rate debt approximated its carrying amounts. We estimated the fair value of debt based upon current interest rates available to us at the respective balance sheet dates for arrangements with similar terms and conditions. Based on borrowing rates currently available to us for loans with similar terms, the fair value of the variable rate debt is $11.8 million and lease obligations approximates fair value.

IMPAIRMENT OF LONG-LIVED AND FINITE-LIVED ASSETS

We review the recoverability of our long-lived assets and finite-lived intangible assets, when events or conditions occur that indicate a possible impairment exists. The assessment for recoverability is based primarily on our ability to recover the carrying value of our long-lived and finite-lived assets from expected future undiscounted net cash flows. If the total of expected future undiscounted net cash flows is less than the total carrying value of the asset, the asset is deemed not to be recoverable and possibly impaired. We then estimate the fair value of the asset to determine whether an impairment loss should be recognized. An impairment loss will be recognized if the asset's fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted cash flows. During the three months June 30, 2020 and 2019 no impairment charge was recorded from operations for long-lived assets or finite-lived assets.

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.

No goodwill impairment charge was recorded in the three months ended June 30, 2020 and 2019.

Gross amounts of goodwill and accumulated impairment charges that we have recorded are as follows:


(In thousands)
Goodwill	$	32,701
Accumulated impairment charges	(24,000)
Goodwill at June 30, 2020 and March 31, 2020	$	8,701

REVENUE RECOGNITION

We determine revenue recognition by:

•identifying the contract, or contracts, with the customer;

•identifying the performance obligations in the contract;

•determining the transaction price;

•allocating the transaction price to performance obligations in the contract; and

•recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services.

We recognize revenue in the amount that reflects the consideration we expect to receive in exchange for the services provided, sales of physical products (DVDs and Blu-ray Discs) or when the content is available for subscription on the digital platform or available on the point-of-sale for transactional and video on demand services which is when the control of the promised products and services is transferred to our customers and our performance obligations under the contract have been satisfied. Revenues that might be subject to various taxes are recorded net of transaction taxes assessed by governmental authorities such as sales value-added taxes and other similar taxes.

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

Virtual print fees (“VPFs”) are earned, net of administrative fees, pursuant to contracts with movie studios and distributors, whereby amounts are payable by a studio to Cinedigm Digital Funding I, LLC. ("Phase 1 DC") and to Access Digital Cinema Phase 2 Corp. (“Phase 2 DC”) when movies distributed by the studio are displayed on screens utilizing our Systems installed in movie theatres. VPFs are earned and payable to Phase 1 DC 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 in which the digital title first plays on a System for general audience viewing in a digitally equipped movie theatre, as Phase 1 DC’s and Phase 2 DC’s performance obligations have been substantially met at that time.

Phase 2 DC’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 2 DC 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 2 DC 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, i.e. the one-time bonus and determined that it is not probable to conclude at this point in time, that a significant reversal in the amount of cumulative revenue recognized will not 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. Such sales were as originally contemplated as the conclusion of the digital cinema deployment plan. Cinedigm completed the sale of 30 and 35 digital projection Systems, respectively, for an aggregate sales price of approximately $195.0 thousand and $0.4 million, and recognized revenue of $76.2 thousand and $0.4 million, during the three months ended June 30, 2020 and 2019, 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 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 2 DC Systems and for Systems installed by CDF2 Holdings, a related party, (See Note 4 - Other Interests) upon installation and such fees are generally collected upfront upon installation. Our services segment 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"), and physical goods (e.g. DVD and Blu-ray Discs). Fees earned are typically based on the gross amounts billed to our customers less the amounts owed to the media studios or content producers under distribution agreements, and gross media sales of owned or licensed content. 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 subscription on the digital platform, shipment of DVD and Blu-ray Discs, or make available at point-of-sale for transactional and VOD services. Revenue is recognized at the point in time when the performance obligation is satisfied which is when the content is available for subscription on the digital platform, 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 is recognized after deducting the reserves for product returns and other allowances, which are accounted for as variable consideration.

Reserves for product returns 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 is 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.

Principal Agent Considerations

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.

Based on our evaluation of the above indicators, we concluded that there were no changes to our gross versus net reporting from legacy GAAP.

Shipping and Handling

Shipping and handling costs are incurred to move physical goods (e.g. DVD 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.

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.

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. The outstanding balances on these arrangements are insignificant and hence the impact of significant financing would be insignificant.

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 June 30, 2020 was $2.1 million. For the three months ended June 30, 2020, 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.

During the three months ended June 30, 2020 and 2019, $0.6 million and $0.8 million, respectively of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. As of June 30, 2020, the aggregate amount of contract revenue allocated to unsatisfied performance obligations was $2.1 million. We expect to recognize approximately $1.7 million of this balance over the next 12 months, and the remainder thereafter.

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, Digital System Sales, and the Content & Entertainment Business revenue categories are: Base Distribution Business and OTT Streaming and Digital.

The following tables present the Company's revenue categories for the three months ended June 30, 2020:

(in thousands):



	Three Months Ended June 30,
	2020		2019
Cinema Equipment Business:
Phase I Deployment	$	31	$	1,854
Phase II Deployment	398		459
Services	100		1,330
Digital System Sales	76		350
Total Cinema Equipment Business revenue	$	605	$	3,993

Content & Entertainment Business:
Base Distribution Business	$	2,157	$	3,135
OTT Streaming and Digital	3,256		2,675
Total Content & Entertainment Business revenue	$	5,413	$	5,810

STOCK-BASED COMPENSATION

Employee and director stock-based compensation expense related to our stock-based awards was as follows:


	Three Months Ended June 30,
(In thousands)	2020		2019

Selling, general and administrative	$	177	$	11
	$	177	$	11

During the three months ended June 30, 2020 and 2019, the Company did not grant stock appreciation rights ("SARs").The SARs were granted under the Company's 2017 Equity Incentive Plan (the "2017 Plan"). There was $110 thousand, of stock-based compensation recorded for the three months ended June 30, 2020 and 2019, respectively relating to these SARs.

Total SARs outstanding are as follows:


						Three Months Ended June 30, 2020
SARs Outstanding March 31, 2020						1,462,610
Issued						—
Forfeited						—
Total SARs Outstanding June 30, 2020						1,462,610

There are 696,050 units of performance stock units ("PSU") which were granted on July 26, 2018 fully vested but not paid yet. There was no stock-based compensation recorded related to these units for the three months ended June 30, 2020 and there was a cumulative adjustment of $166 thousand of stock-based compensation recorded for the three months ended June 30, 2019.

There was $1 thousand of stock-based compensation recorded in the three months ended June 30, 2020 and 2019, respectively, related to employees' restricted stock awards.

There was $66 thousand of stock-based compensation recorded for the three months ended June 30, 2020 and 2019 respectively, related to board of directors.

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 and diluted net loss per common share attributable to common stockholders =	Net loss attributable to common stockholders
		Weighted average number of common stock outstanding during the period

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 incurred net losses for the three months ended June 30, 2020 and 2019, and therefore the impact of potentially dilutive common shares from outstanding stock options and warrants, totaling 3,940,138 shares and 4,155,921 shares as of June 30, 2020 and 2019, respectively, and 9,999,999 shares from the convertible notes issued on October 9, 2018 and on July 12, 2019, were excluded from the computations of loss per share, as their impact would have been anti-dilutive.

COMPREHENSIVE LOSS

As of the three months ended June 30, 2020 and 2019, comprehensive loss consisted of net loss and foreign currency translation adjustments.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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 2023. The Company is currently evaluating the effect that ASU 2016-13 will have on its consolidated financial statements and related disclosures.

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. We are currently assessing the impact this pronouncement may have on our consolidated financial 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 Accounting Standards Codification Topic 810 ("ASC 810"), “Consolidation." ASC 810 requires the consolidation of VIEs by an entity that has a controlling financial interest in the VIE which entity is thereby defined as the primary beneficiary of the VIE. To be a primary beneficiary, an entity must have the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, among other factors. Although we indirectly, wholly own CDF2 Holdings, we, a third party that also has a variable interest in CDF2 Holdings, and an independent third party manager must mutually approve all business activities and transactions that significantly impact CDF2 Holdings' economic performance. We have therefore assessed our variable interests in CDF2 Holdings and determined that we are not the primary beneficiary of CDF2 Holdings. As a result, CDF2 Holdings' financial position and results of operations are not consolidated in our financial position and results of operations. In completing our assessment, we identified the activities that we consider most significant to the economic performance of CDF2 Holdings and determined that we do not have the power to direct those activities, and therefore we account for our investment in CDF2 Holdings under the equity method of accounting.

As of June 30, 2020 and March 31, 2020, our maximum exposure to loss, as it relates to the non-consolidated CDF2 Holdings entity, represents accounts receivable for service fees under a master service agreement with CDF2 Holdings. Such accounts receivable was $0.2 million and $0.4 million as of June 30, 2020 and March 31, 2020 which are included in accounts receivable, net on the accompanying condensed consolidated balance sheets.

The accompanying Condensed Consolidated Statements of Operations include $9 thousand and $0.3 million of digital cinema servicing revenue from CDF2 Holdings for each of the three months ended June 30, 2020 and 2019, respectively.

Total Stockholders' Deficit of CDF2 Holdings at June 30, 2020 and March 31, 2020 was $35.9 million and $31.8 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 June 30, 2020 and March 31, 2020 is carried at $0.

Majority Interest in CONtv

We own an 85% interest in CON TV, LLC, a worldwide digital network that creates original content, and sells and distributes on-demand digital content on the Internet and other consumer digital distribution platforms, such as gaming consoles, set-top boxes, handsets, and tablets.

4. INCOME TAXES

We calculate income tax expense based upon an annual effective tax rate forecast, including estimates and assumptions. For each of the three months ended June 30, 2020 and June 30, 2019, we recorded income tax expense of approximately zero and $47 thousand, 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 June 30, 2020 and 2019 was zero and negative 0.9%, respectively.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The Act contains several new or changed income tax provisions, including but not limited to the following: increased limitation threshold for determining deductible interest expense; class life changes to qualified improvements (in general, from 39 years to 15 years); and the ability to carry back net operating losses incurred from tax years 2018 through 2020 up to the five preceding tax years. The Company has evaluated the new tax provisions of the CARES Act and determined the impact to be either immaterial or not applicable.

5. NOTES PAYABLE

Notes payable consisted of the following:


	June 30, 2020						March 31, 2020
(In thousands)	Current Portion		Long Term Portion		Current Portion		Long Term Portion

Prospect Loan	$	12,107	$	—	$	12,205	$	—



Total non-recourse notes payable	12,107		—		12,205		—
Less: Unamortized debt issuance costs and debt discounts	(563)		—		(763)		—
Total non-recourse notes payable, net of unamortized debt issuance costs and debt discounts	$	11,544	$	—	$	11,442	$	—

Bison Note Payable	$	10,000	$	—	$	10,000	$	—

Second Lien Loans	7,493		—		8,222		—
Credit Facility	10,218		—		14,487		—
MingTai Convertible Note	5,000		—		5,000		—
PPP Loan	—		2,152		—		—
Total recourse notes payable	32,711		2,152		37,709		—
Less: Unamortized debt issuance costs and debt discounts	(347)		—		(460)		—
Total recourse notes payable, net of unamortized debt issuance costs and debt discounts	$	32,364	$	2,152	$	37,249	$	—
Total notes payable, net of unamortized debt issuance costs	$	43,908	$	2,152	$	48,691	$	—

Non-recourse debt is generally defined as debt whereby the lenders’ sole recourse with respect to defaults, is limited to the value of the asset, which is collateral for the debt. Certain of our subsidiaries are liable with respect to, and their assets serve as collateral for, certain indebtedness for which our assets and the assets of our other subsidiaries that are not parties to the transaction are generally not liable. We have referred to this indebtedness as "non-recourse debt" because the recourse of the lenders is limited to the assets of specific subsidiaries. Such indebtedness includes the Prospect Loan.

Prospect Loan

In February 2013, our DC Holdings, AccessDM and Phase 2 DC subsidiaries entered into a term loan agreement (the “Prospect Loan”) with Prospect Capital Corporation (“Prospect”), pursuant to which DC Holdings borrowed $70.0 million. The Prospect Loan bears interest at LIBOR plus 9.0% (with a 2.0% LIBOR floor), which is payable in cash, and at an additional 2.50% to be accrued as an increase to the aggregate principal amount of the Prospect Loan until the 2013 Credit Agreement is paid off, at which time all accrued interest will be payable in cash.

Collections of DC Holdings accounts receivable are deposited into accounts designated to pay certain operating expenses, principal, interest, fees, costs and expenses relating to the Prospect Loan. On a quarterly basis, if there is excess cash flow, it is used for prepayment of the Prospect Loan. We also maintain a debt service fund under the Prospect Loan for future principal and interest payments. As of June 30, 2020, and March 31, 2020, the debt service fund had a balance of $1.0 million, which is classified as part of restricted cash on our Condensed Consolidated Balance Sheets.

The Prospect Loan matures on March 31, 2021 and may be accelerated upon a change in control (as defined in the agreement) or other events of default as set forth therein and would be subject to mandatory acceleration upon insolvency of DC Holdings. We are permitted to pay the full outstanding balance of the Prospect Loan at any time after the second anniversary of the initial borrowing, subject to the following prepayment penalties:

•5.0% of the principal amount prepaid between the second and third anniversaries of issuance;

•4.0% of the principal amount prepaid between the third and fourth anniversaries of issuance;

•3.0% of the principal amount prepaid between the fourth and fifth anniversaries of issuance;

•2.0% of the principal amount prepaid between the fifth and sixth anniversary of issuance;

•1.0% of the principal amount prepaid between the sixth and seventh anniversaries of issuance; and

•No penalty if the balance of the Prospect Loan, including accrued interest, is prepaid thereafter.

The Prospect Loan is secured by, among other things, a first priority pledge of the stock of CDF2 Holdings, our wholly owned unconsolidated subsidiary, the stock of AccessDM, owned by DC Holdings, and the stock of our Phase 2 DC subsidiary, and is also guaranteed by AccessDM and Phase 2 DC. We provide limited financial support to the Prospect Loan not to exceed $1.5 million per year in the event financial performance does not meet certain defined benchmarks.

The Prospect Loan contains customary representations, warranties, affirmative covenants, negative covenants and events of default.

The following table summarizes the activity related to the Prospect Loan:


	As of
(In thousands)	June 30, 2020		March 31, 2020
Prospect Loan, at issuance	$	70,000	$	70,000
PIK Interest	4,778		4,778
Payments to date	(62,671)		(62,573)
Prospect Loan, net	12,107		12,205
Less current portion	12,107		12,205
Total long term portion	$	—	$	—

Bison Note Payable

The Company entered into a loan with Bison for $10.0 million and issued Warrants to purchase 1,400,000 shares of the Company's Class A common stock. See Note 6 - Stockholders' Deficit for further discussion of the warrants.

The loan was made in accordance with the Stock Purchase Agreement between the Company and Bison Entertainment Investment Limited, another affiliate of Bison, entered into on June 29, 2017.

On July 20, 2018, the Company entered into a term loan agreement (the “2018 Loan Agreement”) with Bison Global, pursuant to which the Company borrowed from Bison Global $10.0 million (the “2018 Loan”). The 2018 Loan has a one (1) year term that may be extended by mutual agreement of Bison Global and the Company and bears interest at 5% per annum, payable quarterly in cash. On July 12, 2019, we entered into a Termination Agreement for the 2018 Loan and at the same time entered into a $10.0 million Bison Convertible Note with Bison Global.

Bison Convertible Note

The Bison Convertible Note has a term ending on March 4, 2021, and bears interest at 5% per annum. The principal is due on March 4, 2021, in cash or in shares of Common Stock, or a combination of cash and Common Stock, at the Company’s option. The Bison Convertible Note is convertible at the Company's option, at any time prior to payment in full of the principal balance

and all accrued interest of the note, to convert this note in whole or in part, into fully paid and nonassessable shares of the Company's Class A common stock. The Bison Convertible Note is Convertible into 6,666,666 shares of Company's Class A common stock, based on initial conversion price of $1.50 per share.

The Bison Convertible Note is unsecured and may be prepaid without premium or penalty, and contains customary covenants, representations and warranties. The proceeds of the Bison Convertible Note were used to repay the 2018 Loan.

The Bison Convertible Note, offset by the concurrent payoff and termination of the 2018 Loan, did not result in any increase to the Company’s outstanding debt balance.

Second Secured Lien Loans

On July 14, 2016, we entered into a Second Lien Loan Agreement (the “Second Lien Loan Agreement”), under which we may borrow up to $15.0 million (the “Second Lien Loans”), subject to certain limitations imposed on us regarding the number of shares that we may issue in connection with the loans. As of June 30, 2020 we have an outstanding balance of $7.5 million which includes $4.0 million borrowed from Ronald L. Chez, at that time a member of the Board of Directors. Mr. Chez resigned from the Board of Directors in April 2017, and became a strategic advisor to the Company. The Second Lien Loans bear interest at 12.75%, payable 7.5% in cash and 5.25% in cash or in kind at our option. Before the June 30, 2019 maturity date, on June 28, 2019, the Company entered into a consent agreement with lenders of the Second Lien Loans to an extension of the Second Lien Loans pursuant to which (i) the Company paid down a portion of the outstanding principal amount plus accrued interest to date, and (ii) the maturity date of the remaining outstanding principal amount of the Second Lien Loans was extended to September 30, 2019.

In addition, under the terms of the Second Lien Loan Agreement, we are required to issue 98,000 shares of our Class A common stock for every $1.0 million borrowed, subject to pro rata adjustments. As of June 30, 2020, we have issued 906,450 shares of Class A common stock cumulatively under the Second Lien Loan Agreement. There were no shares issued in the three months ended June 30, 2020. The Second Lien Loans may be prepaid without premium or penalty and contain customary covenants, representations and warranties. The obligations under the Second Lien Loans are guaranteed by certain of our existing and future subsidiaries. We have pledged substantially all of our assets, except those assets related to our digital cinema deployment business, to secure payment on the Second Lien Loans.

On June 24, 2020, the Company entered into an exchange agreement (the “Exchange Agreement”) pursuant to which the Company issued 329,501 shares of its Class A common stock in exchange for $842 thousand principal amount and accrued and unpaid interest of Second Lien Loans with the holders of such notes. The surrendered notes were immediately canceled and the Company recognized a gain on extinguishment of $23 thousand.

On June 26, 2020, the Company entered into a consent agreement to extend the maturity date to September 30, 2020 and grant the Company options to extend further to March 31, 2021 and then to June 30, 2021. There was a consent fee of $100,000 paid in connection with this extension.

Credit Facility and Cinedigm Revolving Loans

On March 30, 2018, the Company entered into the Loan, Guaranty and Security Agreement, dated as of March 30, 2018, by and between the Company, East West Bank and the Guarantors named therein (the “Credit Facility”) for a maximum of $19.0 million in revolving loans outstanding at any one time with a maturity date of March 31, 2020, which may be extended for two successive one-year periods at the sole discretion of the lender, subject to certain conditions.

Interest under the Credit Facility is due monthly at a rate elected by the Company of either 0.5% plus Prime Rate or 3.25% above LIBOR Rate established by the lender.

As of June 30, 2020 and March 31, 2020, there was $10.2 million and $14.5 million outstanding, respectively, and there was $0.8 million available, under the Credit Facility based on the Company's borrowing base as of June 30, 2020. On July 3, 2019, the Company entered into the EWB Amendment to the Credit Facility. The EWB Amendment reduced the size of the facility to $18.0 million, required certain prepayments and daily cash sweeps from collections of receivables to be made, changed in certain respects how the borrowing base is calculated, and extended the maturity date to June 30, 2020. In connection with the EWB Amendment, three of our subsidiaries became Guarantors under the Credit Facility. On June 25, 2020, the Company signed amendment No. 4 with East West Bank to extend the maturity of the Credit Facility to June 30, 2021 and waive events of default provisions. This amendment also includes a financial covenant that begins on August 31, 2020.

MingTai Convertible Note

On October 9, 2018, the Company issued a subordinated convertible note (the “Mingtai Convertible Note”) to MingTai for $5.0 million. All proceeds from the Mingtai Convertible Note were used to pay the then-outstanding $5.0 million 2013 Notes. The $5.0 million in aggregate principal bears interest at 8% maturing on October 9, 2019 with two one year extensions at the Company's option. The Mingtai Convertible Note is convertible into 3,333,333 shares of the Company's Class A common stock, based on initial conversion price of $1.50 per share. On October 9, 2019, the Company signed an extension, for one additional year from the original maturity date to be due on October 9, 2020. The Mingtai Convertible Note will continue in full force and effect in accordance with its terms, including Company’s right to further extend the maturity date of this note, if it so elects.

The Mingtai Convertible Note is convertible at the option of the Lender, or the Company, at any time prior to payment in full of the principal balance, and all accrued interest of this Convertible Note in whole, or in part, into fully paid and non-assessable shares of Company’s Class A common stock at the conversion rate of $1.50.

Upon conversion prior to maturity by Mingtai, or the Company, we may elect to settle such conversion in shares of our Class A

common stock, cash or a combination thereof. Upon the maturity date, the Company has the option to pay in Class A common

shares convertible at the greater of the closing price of the Class A common stock or $1.10. As a result of our cash conversion

option, we separately accounted for the value of the embedded conversion option as a debt discount (with an offset to additional

paid-in capital) of $270 thousand. The value of the embedded conversion option was determined based on the estimated fair value of the debt without the conversion feature, which was determined using market comparables to estimate the fair value similar nonconvertible debt; the debt discount is being amortized to interest expense using the effective interest method over the one year term of the Mingtai Convertible Note.

PPP Loan

On April 15, 2020, the Company received $2.2 million from East West Bank, the Company’s existing lender. The PPP Loan matures on April 10, 2022 (the “PPN Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are due within the initial six months of the PPP Loan. The interest accrued during the initial six-month period is due and payable, together with the principal, on the PPN Maturity Date. The Company used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts are intended to be eligible for forgiveness, subject to the provisions of the CARES Act and could be subject to repayment.

6. STOCKHOLDERS’ DEFICIT

COMMON STOCK

During the three months ended June 30, 2020, we issued 41,355,226 shares of Class A common stock in connection with the sale of 10,666,666 shares of our Class A common stock, 29,855,081 in connection with the Starrise transaction, settlement of a portion of the outstanding second lien loan, and the issuances of Class A common stock for warrants exercised and preferred stock dividends. See Note - 8 Supplemental Cash Flow Disclosure.

PREFERRED STOCK

Cumulative dividends in arrears on preferred stock were $0.1 million as of June 30, 2020 and 2019. In July 2020, we paid the preferred stock dividends in arrears in the form of 44,913 shares of Class A common stock.

TREASURY STOCK

We have treasury stock, at a cost, consisting of 1,313,836 shares of Class A common stock at June 30, 2020 and March 31, 2020.

CINEDIGM’S EQUITY INCENTIVE PLANS

Stock Based Compensation Awards

Awards issued under our 2000 Equity Incentive Plan (the "2000 Plan") may be in any of the following forms (or a combination thereof) (i) stock option awards; (ii) stock appreciation rights; (iii) stock or restricted stock or restricted stock units; or (iv)

performance awards. The 2000 Plan provides for the granting of incentive stock options (“ISOs”) with exercise prices not less than the fair market value of our Class A 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 Class A Common Stock on the date of grant. ISOs and non-statutory stock options granted under the 2000 Plan are subject to vesting provisions, and exercise is subject to the continuous service of the participant. The exercise prices and vesting periods (if any) for non-statutory options are set at the discretion of our compensation committee. On November 1, 2017, upon the consummation of the initial equity investment in Cinedigm by Bison, as a result of which there was a change of control of the Company, all stock options (incentive and non-statutory) and shares of restricted stock were vested immediately and the options became fully exercisable.

In connection with the grants of stock options and shares of restricted stock under the 2000 Plan, we and the participants have executed stock option agreements and notices of restricted stock awards setting forth the terms of the grants. The 2000 Plan provided for the issuance of up to 2,380,000 shares of Class A Common Stock to employees, outside directors and consultants.

As of June 30, 2020, there were 265,887 stock options outstanding in the Plan with weighted average exercise price of $15.02 and a weighted average contract life of 2.86 years. As of March 31, 2020, there were 272,766 shares outstanding in the Plan with weighted average exercise price of $15.00 and a weighted average contract life of 3.11 years.

In August 2017, the Company adopted the 2017 Plan. The 2017 Plan replaced the 2000 Plan, and applies to employees and directors of, and consultants to, the Company. The 2017 Plan provided for the issuance of up to 2,108,270 shares of Class A common stock, in the form of various awards, including stock options, stock appreciation rights, stock, restricted stock, restricted stock units, performance awards and cash awards. The Compensation Committee of the Company’s Board of Directors (the “Board”) is authorized to administer the 2017 Plan and make grants thereunder. The approval of the 2017 Plan does not affect awards already granted under the 2000 Plan. On December 4, 2019, upon shareholder approval, the 2017 Plan was amended to increase the maximum number of shares of Class A common stock authorized for issuance thereunder from 2,108,270 shares to 4,098,270.

The analysis of all options outstanding under the 2000 Plan as of June 30, 2020 is as follows:


As of June 30, 2020
Range of Prices	Options Outstanding	Weighted Average Remaining Life in Years	Weighted Average Exercise Price		Aggregate Intrinsic Value (In thousands)
$1.16 - $7.40	5,000	5.00	$	7.40	$	—
$13.70 - $24.40	253,387	2.87	14.72		—
$30.00 - $ 50.00	7,500	1.13	30.00		—


	265,887				$	—

OPTIONS GRANTED OUTSIDE CINEDIGM’S EQUITY INCENTIVE PLAN

In October 2013, we issued options outside of the 2000 Plan to 10 individuals who became employees as a result of a business combination. The employees received options to purchase an aggregate of 62,000 shares of our Class A Common Stock at an exercise price of $17.50 per share. The options were fully vested as of October 2017 and expire 10 years from the date of grant, if unexercised. As of June 30, 2020, 12,500 of such options remained outstanding.

In December 2010, we issued options to purchase 450,000 shares of Class A Common Stock outside of the 2000 Plan as part of our Chief Executive Officer's initial employment agreement with the Company. Such options have exercise prices per share between $15.00 and $50.00, were vested as of December 2013 and will expire in December 2020. As of June 30, 2020, all such options remained outstanding.

WARRANTS

The following table presents information about outstanding warrants to purchase shares of our Class A common stock as of June 30, 2020. All of the outstanding warrants are fully vested and exercisable.

Recipient

Amount outstanding

Expiration

Exercise price per share

Strategic management service provider

52,500

July 2021

$17.20 - $30.00

Warrants issued in connection with Convertible Notes exchange transaction

244,141

December 2021

$1.31

5-year Warrant issued to BEMG in connection with a term loan agreement

1,400,000

December 2022

$1.80

The warrants issued in connection with the Second Lien Loans (See Note 5 - Notes Payable) to Ronald L. Chez, at the time a member of our Board of Directors, contain a cashless exercise provision and customary anti-dilution rights. On June 4, 2020, Ronald L. Chez exercised warrants to purchase 236,899 shares of Class A common stock in connection with the Second Lien Loans, resulting in gross proceeds of $301 thousand.

7. COMMITMENTS AND CONTINGENCIES

We operate from leased properties under non-cancelable operating lease agreements, certain of which contain escalating lease clauses.

During the first quarter of 2019, the Company adopted ASU No. 2016-02, “Leases (Topic 842),” which requires leases with durations greater than twelve months to be recognized on the balance sheet. The Company adopted the standard using the modified retrospective approach with an effective date as of April 1, 2019. The Company did not apply the new standard to comparative periods and therefore, those amounts are not presented below.

The Company elected the package of three practical expedients. As such, the Company did not reassess whether expired or existing contracts are or contain a lease and did not need to reassess the lease classifications or reassess the initial direct costs associated with expired or existing leases. The Company did not elect the hindsight practical expedient. The land easement practical expedient was not applicable to the Company. Also, the Company has elected to take the practical expedient to not separate lease and non-lease components for all asset classes. The Company made an accounting policy election to continue not to recognize leases with durations of twelve months or less on the consolidated balance sheet.

The Company leases office space under operating leases. The Company’s portfolio of leases is primarily related to real estate and since most of our leases do not provide a readily determinable implicit rate, the Company estimated its incremental borrowing rate to discount the lease payments based on information available at either the implementation date of Topic 842 or at lease commencement for leases entered into thereafter.

The table below presents the lease-related assets and liabilities recorded on the balance sheet as of June 30, 2020

(In thousands)

Classification on the Balance Sheet

June 30, 2020

Assets

Noncurrent

Operating lease right-of-use asset

$204

Liabilities

Current

Operating leases - current portion

$137

Noncurrent

Operating leases - long -term portion

Total operating lease liabilities

204

Weighted-average discount rate (1)

(1) Upon adoption of the new lease standard, discount rates used for existing leases were established at April 1, 2019.

Lease Costs

The table below presents certain information related to lease costs for leases:

Three Months Ended

(In thousands)

June 30, 2020

Operating lease cost

Total lease cost

Other Information

The table below presents supplemental cash flow information related to leases:

Three Months Ended

(In thousands)

June 30, 2020

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows used for operating leases

The Company terminated an office lease in Los Angeles in April 2020 and a lease for office equipment was terminated in June 2020. The Company removed the right-of-use assets of $927 thousand and the lease liabilities of $1.0 million as of June 30, 2020 The estimated future lease liabilities are not expected to be material for the remaining outstanding office and equipment leases.

8. SUPPLEMENTAL CASH FLOW INFORMATION


	Three Months Ended June 30,
(In thousands)	2020			2019
Cash interest paid	$	25		$	1,716

Accrued dividends on preferred stock	89			89
Issuance of Class A common stock for payment of preferred stock dividends	89			89
Issuance of Class A common stock to Starrise, a related party	11,046			106
Contributed capital under the Starrise transaction, a related party	17,187			—
Right-of-use assets and operating lease liability recorded upon adoption of ASU 842, net	—			90

Settlement of second lien loan with Class A common stock	757			—
Starrise shares used to pay down vendors	335		—	—

9. SEGMENT INFORMATION

We operate in two reportable segments: Cinema Equipment Business and Content & Entertainment Business. Our segments were determined based on the economic characteristics of our products and services, our internal organizational structure, the manner in which our operations are managed and the criteria used by our CODM to evaluate performance, which is generally the segment's operating income (loss) before depreciation and amortization.


Operations of:			Products and services provided:
Cinema Equipment Business			Financing vehicles and administrators for 3,328 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 3,164 Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”). We retain ownership of the Systems and the residual cash flows related to the Systems in Phase I Deployment after the repayment of all non-recourse debt at the expiration of exhibitor master license agreements. For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements. The Cinema Equipment Business also provides monitoring, collection, verification and management services to this segment, as well as to exhibitors who purchase their own equipment, and also collects and disburses VPFs from motion picture studios, distributors and ACFs from alternative content providers, movie exhibitors and theatrical exhibitors (collectively, “Services”).


Content & Entertainment Business			Leading distributor of independent content, and collaborates with producers and other content owners to market, source, curate and distribute independent content to targeted and profitable audiences in theatres and homes, and via mobile and emerging platforms.

The following tables present certain financial information related to our reportable segments and Corporate:


	As of June 30, 2020
(In thousands)	Intangible Assets, net		Goodwill		Total Assets		Notes Payable, Non-Recourse		Notes Payable		Operating lease liabilities
Cinema Equipment Business	$	15	$	—	$	24,001	$	11,544	$	—	$	137
Content & Entertainment Business	6,313		8,701		45,674		—		—		41
Corporate	5		—		41,421		—		34,516		26
Total	$	6,333	$	8,701	$	111,096	$	11,544	$	34,516	$	204



	As of March 31, 2020
(In thousands)	Intangible Assets, net		Goodwill		Total Assets		Notes Payable, Non-Recourse		Notes Payable		Operating lease liabilities
Cinema Equipment Business	$	23	$	—	$	34,465	$	11,442	$	—	$	594
Content & Entertainment Business	6,895		8,701		49,923		—		—		73
Corporate	6		—		26,052		—		37,249		610
Total	$	6,924	$	8,701	$	110,440	$	11,442	$	37,249	$	1,277


	Statements of Operations
	Three Months Ended June 30, 2020
	(Unaudited, in thousands)
	Cinema Equipment Business		Content & Entertainment Business		Corporate		Consolidated
Revenues	$	605	$	5,413	$	—	$	6,018
Direct operating (exclusive of depreciation and amortization shown below)	182		2,497		—		2,679
Selling, general and administrative	549		1,895		1,396		3,840
Allocation of corporate overhead	124		784		(908)		—


Depreciation and amortization of property and equipment	1,403		103		18		1,524
Amortization of intangible assets	8		582		—		590
Total operating expenses	2,266		5,861		506		8,633
Loss from operations	$	(1,661)	$	(448)	$	(506)	$	(2,615)

Employee and director stock-based compensation expense related to the Company’s stock-based awards was $0.2 million for the three months ended June 30, 2020.


(In thousands)	Cinema Equipment Business		Content & Entertainment Business		Corporate		Consolidated
Direct operating	$	—	$	—	$	—	$	—
Selling, general and administrative	—		26		151		177
Total stock-based compensation	$	—	$	26	$	151	$	177


	Statements of Operations
	Three Months Ended June 30, 2019
	(Unaudited, in thousands)
	Cinema Equipment Business		Content & Entertainment Business		Corporate		Consolidated
Revenues	$	3,993	$	5,810	$	—	$	9,803
Direct operating (exclusive of depreciation and amortization shown below)	234		3,378		—		3,612
Selling, general and administrative	496		3,224		2,129		5,849
Allocation of Corporate overhead	202		1,270		(1,472)		—
Provision (recovery) for doubtful accounts	271		(1)		—		270
Depreciation and amortization of property and equipment	1,646		86		42		1,774
Amortization of intangible assets	11		983		1		995

Total operating expenses	2,860		8,940		700		12,500
Income (loss) from operations	$	1,133	$	(3,130)	$	(700)	$	(2,697)

Employee and director stock-based compensation expense related to the Company’s stock-based awards was $11.0 thousand for the three months ended June 30, 2019.


(In thousands)	Cinema Equipment Business		Content & Entertainment Business		Corporate		Consolidated
Direct operating	$	—	$	—	$	—	$	—
Selling, general and administrative	2		4		5		11
Total stock-based compensation	$	2	$	4	$	5	$	11

10. SUBSEQUENT EVENTS

Registered Direct Offering

On July 16, 2020, the Company entered into another securities purchase agreement (the “July Securities Purchase Agreement” ) with the Investors for the purchase and sale of 7,213,334 shares (the “July Shares”) of the Company’s Class A common stock, at a purchase price of $1.50 per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3 (Reg. No. 333-239710) which was declared effective by the Securities and Exchange Commission on July 10, 2020 and an applicable prospectus supplement. This registration statement covers offerings of up to an aggregate offering price of $75.0 million.

The Company closed the transaction on July 20, 2020. The aggregated gross proceeds from the sale of the July Shares were approximately $10.8 million. The net proceeds to the Company from the sale of the July Shares, after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, was approximately $10.0 million. The Company intends to use the net proceeds from the transaction for working capital and for the other general corporate purposes, which may include, among other things, product development, acquisitions, capital expenditures, and other business opportunities.

Transfer of Starrise Shares

Subsequent to June 30, 2020, the Company transferred 2,010,000 Starrise ordinary shares amounting to approximately $0.1 million related to certain vendor liabilities.

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 consolidated financial statements and the related notes included elsewhere in this document.

This report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which are indicated by words or phrases such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “will,” “estimates," and similar words. Forward-looking statements represent, as of the date of this report, our judgment relating to, among other things, future results of operations, growth plans, sales, capital requirements and general industry and business conditions applicable to us. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

OVERVIEW

Since our inception, we have played a significant role in the digital distribution revolution that continues to transform the media landscape. In addition to our pioneering role in transitioning approximately 12,000 movie screens from traditional analog film prints to digital distribution, we have become a leading distributor of independent content, both through organic growth and acquisitions. We distribute products for major brands such as the NFL, Hallmark 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, iTunes, Amazon Prime, Netflix, Hulu, Xbox, Sony PlayStation, Tubi and cable video-on-demand ("VOD"), and (ii) physical goods, including DVD and Blu-ray Discs.

We report our financial results in two primary segments as follows: (1) cinema equipment business and (2) media content and entertainment business (“Content & Entertainment” or "CEG"). The cinema equipment business segment consists of the non-recourse, financing vehicles and administrators for our digital cinema equipment (the “Systems”) installed in movie theatres throughout the United States and Canada and in Australia and New Zealand. It also provides fee-based support to over 12,000 movie screens as well as directly to exhibitors and other third party customers in the form of monitoring, billing, collection and verification services. Our Content & Entertainment segment is a market leader in: (1) ancillary market aggregation and distribution of entertainment content and; (2) branded and curated over-the-top ("OTT") digital network business providing entertainment channels and applications.

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 Fees ("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. As of June 30, 2020, all of our 3,328 systems from the Phase I Deployment phase of our cinema equipment business segment had ceased to earn a significant portion of

VPF revenue from certain major studios, although various other studios, consisting mostly of small independent studios, will continue to pay VPFs through December 2020. We expect to continue to earn such ancillary revenue from the cinema equipment segment through December of 2020; however, such amounts are expected to be significantly less material to our consolidated financial statements. The reduction in VPF revenue on cinema equipment business 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.

We are structured so that our cinema equipment business segment operates independently from our Content & Entertainment business. As of June 30, 2020, we had approximately $12.1 million of non-recourse outstanding debt principal that relates to, and is serviced by, our cinema equipment business. We also have approximately $34.9 million of outstanding debt principal, as of June 30, 2020 that is attributable to our Content & Entertainment and Corporate segments.

Risks and Uncertainties

These events have negatively affected, and are expected to continue to negatively affect, our business and results of operations.

Given the dynamic nature of these events, we cannot reasonably estimate the period of time that the COVID-19 pandemic and

related closures and market conditions will persist, or the extent of the impact they will have on our business or results of

operations and financial condition.

Results of Operations for the Three Months Ended June 30, 2020 and 2019

Revenues


	Three Months Ended June 30,
($ in thousands)	2020		2019		$ Change		% Change
Cinema Equipment Business	$	605	$	3,993	$	(3,388)	(85)	%
Content & Entertainment Business	5,413		5,810		(397)		(7)	%
	$	6,018	$	9,803	$	(3,785)	(39)	%

Revenues generated by our Cinema Equipment Business segment decreased primarily as a result of the reduced number of Systems earning VPF revenue and commissions for Phase II Deployment Systems. Phase II Deployment Systems deployment period for major studios ended in November 2018, which combined, contributed to the decrease in revenues.

Revenues in the Content & Entertainment Business segment decreased mainly due to lower sales volume of owned and licensed products offset by higher distributed fees.

Direct Operating Expenses


	Three Months Ended June 30,
($ in thousands)	2020		2019		$ Change		% Change
Cinema Equipment Business	$	182	$	234	$	(52)	(22)	%
Content & Entertainment Business	2,497		3,378		(881)		(26)	%
	$	2,679	$	3,612	$	(933)	(26)	%

Decrease in direct operating expenses in the three months ended June 30, 2020 for the Content & Entertainment Business compared to the prior period was primarily due to a decrease in revenue.

Selling, General and Administrative Expenses


	Three Months Ended June 30,
($ in thousands)	2020		2019		$ Change		% Change
Cinema Equipment Business	$	549	$	496	$	53	11	%
Content & Entertainment Business	1,895		3,224		(1,329)		(41)	%
Corporate	1,396		2,129		(733)		(34)	%
	$	3,840	$	5,849	$	(2,009)	(34)	%

Selling, general and administrative expenses for the three months ended June 30, 2020 decreased, by $2.0 million, primarily due to a $1.0 million decrease in personnel related expenses and $0.3 million in real estate and occupancy expenses, as a result of our cost cutting initiatives, a decrease of $0.5 million in professional consulting services and a decrease of $0.1 million in travel related expenses.

Depreciation and Amortization Expense on Property and Equipment


	Three Months Ended June 30,
($ in thousands)	2020		2019		$ Change		% Change
Cinema Equipment Business	$	1,403	$	1,646	$	(243)	(15)	%
Content & Entertainment Business	103		86		17		20	%
Corporate	18		42		(24)		(57)	%
	$	1,524	$	1,774	$	(250)	(14)	%

Depreciation and amortization expense decreased in our Cinema Equipment Business segment as additional digital cinema projection Systems reached the conclusion of their ten-year useful lives during fiscal year 2020.

Interest expense, net


	Three Months Ended June 30,
($ in thousands)	2020		2019		$ Change		% Change
Cinema Equipment Business	$	578	$	828	$	(250)	(30)	%
Corporate	712		1,454		(742)		(51)	%
	$	1,290	$	2,282	$	(992)	(43)	%

Interest expense in the Cinema Equipment Business segment decreased primarily as a result of reduced debt balances compared to the prior period, primarily on the Prospect Term Loan. Interest expense in our Corporate Segment decreased as a result of lower loan balances from our Credit Facility and Second Lien Loans.

Income Tax Expense

We recorded income tax expense of approximately zero and $0.1 million of income tax expense for the three months ended June 30, 2020 and 2019, respectively, in our Cinema Equipment Business and Corporate segments for state and federal income taxes.

Adjusted EBITDA

We define Adjusted EBITDA to be earnings before interest, taxes, depreciation and amortization, other income, net, stock-based compensation and expenses, merger and acquisition costs, restructuring, transition and acquisitions expense, net, goodwill impairment and certain other items.

Adjusted EBITDA (including the results of Cinema Equipment Business segment) for the three months ended June 30, 2020 decreased by $0.7 million, or 134%, compared to the three months ended June 30, 2019. Adjusted EBITDA income from our Content & Entertainment business and corporate segment was $0.1 million for the three months ended June 30, 2020 compared to negative $2.3 million for the three months ended June 30, 2019. The increase in Adjusted EBITDA compared to the prior period is primarily due to a decrease in selling, general and administrative expense.

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 its stockholders, as a valuable financial metric.

We present Adjusted EBITDA because we believe that Adjusted EBITDA is a useful supplement to net 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 loss from continuing operations and Adjusted EBITDA has been provided in the financial results. Adjusted EBITDA should not be considered as an alternative to income from operations or net loss from continuing 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 consolidated financial statements prepared in accordance with GAAP.

Following is the reconciliation of our consolidated net loss to Adjusted EBITDA:


	Three Months Ended June 30,
($ in thousands)	2020		2019
Net loss	$	(19,870)	$	(5,039)
Add Back:
Income tax expense	—		47
Depreciation and amortization of property and equipment	1,524		1,774
Amortization of intangible assets	590		995
Interest expense, net	1,290		2,282
Changes in fair value on equity investment in Starrise	15,794		—
Other expense, net	299		463


Stock-based compensation and expenses	177		11
Net income attributable to noncontrolling interest	14		6
Adjusted EBITDA	$	(182)	$	539

Adjustments related to the Cinema Equipment Business
Depreciation and amortization of property and equipment	$	(1,403)	$	(1,646)
Amortization of intangible assets	(8)		(11)

Stock-based compensation and expenses	—		1

Loss (income) from operations	1,661		(1,133)
Adjusted EBITDA from Content & Entertainment business and corporate segment	$	68	$	(2,250)

Critical Accounting Policies and Estimates

Our consolidated 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 consolidated 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 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.

There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K, filed with the SEC on July 6, 2020.

Recent Accounting Pronouncements

See Note 2 - Summary of Significant Accounting Policies to our condensed consolidated financial statements included herein.

Liquidity and Capital Resources

We incurred consolidated net loss of $19.9 and $5.0 for the three months ended June 30, 2020 and 2019, respectively. We have an accumulated deficit of $430.8 million, and negative working capital of $57.7 million, as of June 30, 2020. In addition, we have significant debt-related contractual obligations as of June 30, 2020 and beyond.

We have incurred net losses each year since we commenced our operations. Since our inception, we have financed our operations substantially through the private placement of shares of our common and preferred stock, the issuance of promissory notes, our initial public offering and subsequent private and public offerings, notes payable and common stock used to fund various acquisitions.

We may continue to generate net losses in the future primarily due to depreciation and amortization, interest on notes payable, marketing and promotional activities and content acquisition and marketing costs. Certain of these costs, including costs of content acquisition, marketing and promotional activities, could be reduced if necessary. The restrictions imposed by our debt agreements may limit our ability to obtain financing, make it more difficult to satisfy our debt obligations or require us to

dedicate a substantial portion of our cash flow to payments on our existing debt obligations. The Prospect Loan requires certain screen turn performance from certain of our Cinema Equipment Business subsidiaries. While such restrictions may reduce the availability of our cash flow to fund working capital, capital expenditures and other corporate requirements, we do not have similar restrictions imposed upon our CEG business. We may seek to raise additional capital as necessary. Failure to generate additional revenues, raise additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations or liquidity.

Bison Note Payable

As discussed in Note 1 - Nature of Operations and Liquidity, the Company entered into a loan with Bison for $10.0 million and issued Warrants to purchase 1,400,000 shares of the Company's Class A Common Stock. See Note 6 - Stockholders' Deficit for further discussion of the warrants.

The loan was made in accordance with the Stock Purchase Agreement between the Company and Bison Entertainment Investment Limited, another affiliate of Bison, entered into on June 29, 2017 (the "Stock Purchase Agreement").

On July 20, 2018, the Company entered into a term loan agreement (the “2018 Loan Agreement”) with Bison Global, pursuant to which the Company borrowed from Bison Global $10.0 million (the “2018 Loan”). The 2018 Loan has a one (1) year term that may be extended by mutual agreement of Bison Global and the Company and bears interest at 5% per annum, payable quarterly in cash. At the same time, the 2017 Loan was terminated and the proceeds of the 2018 Loan were used to pay off the 2017 Loan. On July 12, 2019, we entered into a Termination Agreement for the 2018 Loan and at the same time entered into a $10.0 million Bison Convertible Note with Bison Global.

Bison Convertible Note

The Bison Convertible Note has a term ending on March 4, 2020, and bears interest at 5% per annum. The principal is due on March 4, 2020, in cash or in shares of Common Stock, or a combination of cash and Common Stock, at the Company’s option. The Bison Convertible Note is convertible at the Company's option, at any time prior to payment in full of the principal balance and all accrued interest of the note, to convert this note in whole or in part, into fully paid and nonassessable shares of the Company's Class A common stock. The Bison Convertible Note is Convertible into 6,666,666 shares of Company's Class A common stock, based on initial conversion price of $1.50 per share. On April 15, 2020, the Company signed an amendment to this note, effective as of March 4, 2020, to extend the maturity date of the note to March 4, 2021.

As a result of our cash conversion option, we separately accounted for the value of the embedded conversion option as a debt discount (with an offset to additional paid-in-capital) of $478 thousand. The value of the embedded conversion option was determined based on the estimated fair value of the debt without the conversion feature, which was determined using market comparables to estimate the fair value of similar non-convertible debt; the debt is being amortized to interest expense using the effective interest method over the term of the note. The embedded conversion feature was fully amortized as of March 31, 2020.

The Bison Convertible Note, offset by the concurrent payoff and termination of the 2018 Loan, did not result in any increase to the Company’s outstanding debt balance.

Non-Recourse Indebtedness

Our Cinema Equipment Business has historically been financed through a series of non-recourse loans. Certain of the subsidiaries that make up the Cinema Equipment Business have pledged their assets as collateral for, and are liable with respect to, certain indebtedness for which our other subsidiaries and their assets generally are not. We have referred to this indebtedness as "non-recourse debt" because the recourse of the lenders is limited to the assets of specific subsidiaries. Such indebtedness includes the Prospect Loan, the KBC Facilities, the 2013 Term Loans, the P2 Vendor Note and the P2 Exhibitor Notes. The balance of our non-recourse debt, net of related debt issuance costs, as of June 30, 2020 was $11.5 million for our Cinema Equipment Business segment. We continue to expect cash flows from our Cinema Equipment Business operations will be sufficient to satisfy our liquidity and contractual requirements that are linked to these operations.

Revolving Credit Agreements

On March 30, 2018, the Company entered into a Credit Facility with East West Bank for a maximum of $19.0 million in revolving loans outstanding at any one time with a maturity date of March 31, 2020, which may be extended for two successive one-year periods at the sole discretion of the lender, subject to certain conditions.

Interest under the Credit Facility is due monthly at a rate elected by the Company of either 0.5% plus Prime Rate or 3.25% above LIBOR Rate established by the lender.

As of June 30, 2020 and March 31, 2020, respectively, there was $10.2 million and $14.5 million outstanding, respectively, and there was $0.8 million available, under the Credit Facility based on the Company's borrowing base as of June 30, 2020. On July 3, 2019, the Company entered into the EWB Amendment to the Credit Facility. The EWB Amendment reduced the size of the facility to $18.0 million, required certain prepayments and daily cash sweeps from collections of receivables to be made, changed in certain respects how the borrowing base is calculated, and extended the maturity date to June 30, 2020. In connection with the EWB Amendment, three of our subsidiaries became additional Guarantors under the EWB Credit Agreement. On June 25, 2020, the Company signed amendment, No. 4 to extend the maturity date to June 30, 2021 and to waive certain event of default provisions.

Other Indebtedness

On October 9, 2018, the Company issued the Mingtai Convertible Note for $5.0 million. All proceeds from the Mingtai Convertible Note were used to pay the then-outstanding $5.0 million 2013 Notes. The $5.0 million in aggregate principal bears interest at 8% maturing on October 9, 2019 with two one-year extensions at the Company's option. The Mingtai Convertible Note is convertible into 3,333,333 shares of the Company's Class A common stock, based on initial conversion price of $1.50 per share. On October 9, 2019, the Company signed an extension, for one additional year from the original maturity date to be due on October 9, 2020. This note will continue in full force and effect in accordance with its terms, including Company’s reservation of its right to further extend the maturity date of this note, if it so elects.

The Mingtai Convertible Note is convertible at the option of the Lender, or the Company, at any time prior to payment in full of the principal balance, and all accrued interest of this Mingtai Convertible Note in whole, or in part, into fully paid and non-assessable shares of Company’s Class A common stock at the conversion rate of $1.50.

Upon conversion prior to maturity by Mingtai, or the Company, we may elect to settle such conversion in shares of our Class A

common stock, cash or a combination thereof. Upon the maturity date, the Company has the option to pay in Class A common

shares convertible at the greater of the closing price of the Class A common stock or $1.10. As a result of our cash conversion

option, we separately accounted for the value of the embedded conversion option as a debt discount (with an offset to additional

paid-in capital) of $270 thousand. The value of the embedded conversion option was determined based on the estimated fair value

of the debt without the conversion feature, which was determined using market comparables to estimate the fair value similar nonconvertible debt; the debt discount is being amortized to interest expense using the effective interest method over the one year

term of the Mingtai Convertible Note.

On April 15, 2020, the Company received $2.2 million from East West Bank, the Company’s existing lender, pursuant to the Paycheck Protection Program (the “PPP Loan”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 10, 2022 (the “PPN Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are due within the initial six months of the PPP Loan. The interest accrued during the initial six-month period is due and payable, together with the principal, on the PPN Maturity Date. The Company intends to use all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts are intended to be eligible for forgiveness, subject to the provisions of the CARES Act and could be subject to repayment.

In addition, as discussed in more detail in Note 5 - Notes Payable, our debt obligations have instituted certain financial and liquidity covenants and capital requirements, and from time to time, we may need to use available capital resources and raise additional capital to satisfy these covenants and requirements.

Changes in our cash flows were as follows:

Cash Flows


	For the Three Months Ended June 30,
($ in thousands)	2020		2019
Net cash (used) provided by operating activities	$	(3,738)	$	4,015
Net cash provided (used) in investing activities	508		(252)
Net cash provided (used) in financing activities	5,237		(5,493)
Net change in cash and cash equivalents	$	2,007	$	(1,730)

As of June 30, 2020, we had cash and restricted cash balances of $17.3 million.

Net cash provided by operating activities is primarily driven by loss from operations, excluding non-cash expenses such as

depreciation, amortization, provision for doubtful accounts and stock-based compensation, offset by changes in working capital. Cash received from VPFs declined from the previous period as Phase I Deployment Systems in our Cinema Equipment

Business reached the conclusion of their deployment payment period with certain major studios. Changes in accounts receivable from our studio customers largely impact cash flows from operating activities and vary based on the seasonality of

movie release schedules by the major studios. Operating cash flows from CEG 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 twelve months.

Cash flows used in investing activities consisted of proceeds from the sale of Starrise shares of $0.6 million and purchases of property, equipment and internal use software.

For the three months ended June 30, 2020, cash flows used in financing activities reflects payments of approximately $7.8 million for the Credit Facility and Prospect Loan, offset by $3.4 million from Credit Facility draw, $7.5 million received in connection with the sale of 10,666,666 shares of Class A common stock and exercise of warrants, and $2.2 million received pursuant to the Payment Protection Program of the Coronavirus Aid, Relief and Economic Security Act.

We have contractual obligations that primarily consist of term notes payable, credit facilities, and non-cancelable operating leases related to office space.

We may continue to generate net losses for the foreseeable future primarily due to depreciation and amortization, interest on our debt obligations, marketing and promotional activities and content acquisition and marketing costs. Certain of these costs, including costs of content acquisition, marketing and promotional activities, could be reduced if necessary. The restrictions imposed by the terms of our debt obligations may limit our ability to obtain financing, make it more difficult to satisfy our debt obligations or require us to dedicate a substantial portion of our cash flow to payments on our existing debt obligations. We feel we are adequately financed for at least the next twelve months; however we may need to raise additional capital for working capital as deemed necessary. Failure to generate additional revenues, raise additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations or liquidity.

Seasonality

Revenues from our Cinema Equipment Business segment derived from the collection of VPFs from motion picture studios are seasonal, coinciding with the timing of releases of movies by the motion picture studios. Generally, motion picture studios release the most marketable movies during the summer and the winter holiday season. The unexpected emergence of a hit movie during other periods can alter the traditional trend. The timing of movie releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or any other quarter. Our CEG segment benefits from the winter holiday season, and as a result, revenues in the segment are typically highest in our fiscal third quarter; however, we believe the seasonality of motion picture exhibition is becoming less pronounced as the motion picture studios are releasing movies more evenly throughout the year.

Off-balance sheet arrangements

We are not a party to any off-balance sheet arrangements, other than operating leases in the ordinary course of business, which are disclosed above in the table of our significant contractual obligations, and CDF2 Holdings, LLC ("CDF2 Holdings"), our wholly-owned unconsolidated subsidiary. As discussed further in Note 3 - Other Interests to the Condensed Consolidated Financial Statements included in Item 1 of this 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.

Impact of Inflation

The impact of inflation on our operations has not been significant to date. However, there can be no assurance that a high rate of inflation in the future would not have an adverse impact on our operating results.

Item 4. CONTROLS AND PROCEDURES

A control system, no matter how well conceived and operated, can provide only reasonable assurance, not absolute assurance, that the objective of the control system will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. Because of the inherent limitations in a cost-effective control system, misstatement due to error or fraud may occur and not be detected. However, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.

The management of the Company, under the supervision and with the participation of our Chief Executive Officer and principal financial officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of June 30, 2020. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting during this fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

There have been no material changes to the Risk Factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2020.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On July 2, 2020, the Company issued an additional 33,465 shares of Class A common stock as an adjustment in accordance with terms of the Exchange Agreement. These shares were issued pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The exhibits are listed in the Exhibit Index on page 43 herein.

EXHIBIT INDEX


Exhibit Number						Description of Document
4.1						Promissory Note dated April 10 , 2020
31.1						Officer's Certificate Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Officer's Certificate Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1						Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2						Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						XBRL Instance Document.
101.SCH						XBRL Taxonomy Extension Schema.
101.CAL						XBRL Taxonomy Extension Calculation.
101.DEF						XBRL Taxonomy Extension Definition.
101.LAB						XBRL Taxonomy Extension Label.
101.PRE						XBRL Taxonomy Extension Presentation.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CINEDIGM CORP.



Date:	August 14, 2020	By:	/s/ Christopher J. McGurk
			Christopher J. McGurk Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer)

Date:	August 14, 2020	By:	/s/ Gary S. Loffredo
			Gary S. Loffredo Chief Operating Officer, President Digital Cinema, General Counsel and Secretary (Principal Financial Officer)