Cineverse Corp. 10-Q

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) CINEDIGM CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) As of December 31, 2022 March 31, 2022 (Unaudited) ASSETS Current assets Cash and cash equivalents $ 8,796 $ 13,062 Accounts receivable, net of allowance of $ 2,780 and $ 2,921 , respectively 24,993 30,843 Unbilled revenue 2,681 2,349 Employee retention tax credit 2,475 — Prepaid and other current assets 7,303 5,909 Total current assets 46,248 52,163 Equity investment in Metaverse, a related party, at fair value 5,200 7,028 Property and equipment, net 1,695 1,980 Intangible assets, net 18,864 20,034 Goodwill 21,025 21,084 Other long-term assets 1,863 2,347 Total assets $ 94,895 $ 104,636 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued expenses $ 40,719 $ 52,025 Line of credit, including unamortized debt issuance costs of $ 133 and $ 0 , respectively 4,867 — Current portion of deferred consideration on purchase of business 4,694 4,513 Other current liabilities 467 454 Total current liabilities 50,747 56,992 Deferred consideration on purchase of business – net of current portion 5,940 6,203 Other long-term liabilities 564 491 Total liabilities 57,251 63,686 Stockholders’ Equity Preferred stock, 15,000,000 shares authorized; Series A 10 % - $ 0.001 par value per share; 20 shares authorized; 7 shares issued and 7 shares outstanding at December 31, 2022 and March 31, 2022. Liquidation preference of $ 3,648 3,559 3,559 Class A Common stock, $ 0.001 par value; 275,000,000 shares authorized at December 31, 2022 and March 31, 2022, 180,225,330 and 176,629,435 shares issued and 178,909,479 and 175,313,584 shares outstanding at December 31, 2022 and March 31, 2022, respectively 177 174 Additional paid-in capital 526,402 522,601 Treasury stock, at cost; 1,315,851 shares ( 11,608 ) ( 11,608 ) Accumulated deficit ( 479,229 ) ( 472,310 ) Accumulated other comprehensive loss ( 389 ) ( 163 ) Total stockholders’ equity of Cinedigm Corp. 38,912 42,253 Deficit attributable to noncontrolling interest ( 1,268 ) ( 1,303 ) Total equity 37,644 40,950 Total liabilities and equity $ 94,895 $ 104,636 See accompanying Notes to Condensed Consolidated Financial Statements 1 CINEDIGM CORP. CONDENSED CONSOLIDATED STA TEMENTS OF OPERATIONS (Unaudited) (In thousands, except share and per share data) Three Months Ended December 31, Nine Months Ended December 31, 2022 2021 2022 2021 Revenues $ 27,882 $ 14,084 $ 55,478 $ 39,202 Costs and expenses: Direct operating 14,411 6,459 29,859 14,423 Selling, general and administrative 9,107 7,358 29,016 20,520 Depreciation and amortization 924 1,031 2,908 3,663 Total operating expenses 24,442 14,848 61,783 38,606 Operating income (loss) 3,440 ( 764 ) ( 6,305 ) 596 Interest expense ( 367 ) ( 97 ) ( 880 ) ( 277 ) Gain on forgiveness of PPP loan — — — 2,178 Change in fair value of equity investment in Metaverse, a related party — 453 ( 1,828 ) 1,453 Employee retention tax credit 2,025 — 2,475 — Other income (expense) ( 76 ) ( 22 ) ( 82 ) 69 Income (loss) before income taxes 5,022 ( 430 ) ( 6,620 ) 4,019 Income tax benefit — 26 — 576 Net income (loss) 5,022 ( 404 ) ( 6,620 ) 4,595 Net (income) loss attributable to noncontrolling interest ( 8 ) 19 ( 35 ) 23 Net income (loss) attributable to controlling interests 5,014 ( 385 ) ( 6,655 ) 4,618 Preferred stock dividends ( 88 ) ( 89 ) ( 264 ) ( 267 ) Net income (loss) attributable to common stockholders $ 4,926 $ ( 474 ) $ ( 6,919 ) $ 4,351 Net income (loss) per share attributable to common stockholders: Basic $ 0.03 $ ( 0.00 ) $ ( 0.04 ) $ 0.03 Diluted $ 0.03 $ ( 0.00 ) $ ( 0.04 ) $ 0.03 Weighted average shares of common stock outstanding: Basic 178,899,605 173,167,450 177,077,803 169,413,873 Diluted 178,899,605 173,167,450 177,077,803 173,017,364 See accompanying Notes to Condensed Consolidated Financial Statements 2 CINEDIGM CORP. CONDENSED CONSOLIDATED STATE MENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (In thousands) Three Months Ended December 31, Nine Months Ended December 31, 2022 2021 2022 2021 Net income (loss) 5,022 $ ( 404 ) $ ( 6,620 ) $ 4,595 Other comprehensive income (loss): Foreign exchange translation 88 ( 14 ) ( 226 ) ( 33 ) Comprehensive income (loss) attributable to noncontrolling interest ( 8 ) 19 ( 35 ) 23 Comprehensive income (loss) $ 5,102 $ ( 399 ) $ ( 6,881 ) $ 4,585 See accompanying Notes to Condensed Consolidated Financial Statements 3 CINEDIGM CORP. CONDENSED CONSOLIDATED ST ATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended December 31, 2022 2021 Cash flows from operating activities: Net (loss) income $ ( 6,620 ) $ 4,595 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 2,908 3,663 Changes in fair value of equity investment in Metaverse 1,828 ( 1,464 ) Gain from forgiveness of PPP loan — ( 2,178 ) Impairment of advances 1,636 782 Provision (benefit) for doubtful accounts 54 ( 397 ) Amortization of debt issuance costs 138 — Stock-based compensation 3,906 3,278 Interest expense for deferred consideration & earnouts 743 97 Non-monetary sale of content licenses ( 1,022 ) — Other 51 59 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable, net 5,795 ( 8,164 ) Unbilled revenue ( 332 ) ( 1,449 ) Prepaids and other current and long-term assets ( 2,747 ) ( 1,320 ) Employee retention tax credit ( 2,475 ) — Accounts payable, accrued expenses, and other liabilities ( 11,764 ) 7,244 Net cash (used in) provided by operating activities ( 7,901 ) 4,746 Cash flows from investing activities: Purchases of property and equipment ( 429 ) ( 292 ) Purchase of businesses — ( 4,750 ) Sale of investment securities — 11 Net cash used in investing activities ( 429 ) ( 5,031 ) Cash flows from financing activities: Payments of notes payable and deferred consideration ( 665 ) ( 7,786 ) Proceeds from line of credit 19,469 — Payments on line of credit ( 14,469 ) ( 1,956 ) Debt issuance costs ( 271 ) — Issuance of common stock — 12,378 Net cash provided by financing activities 4,064 2,636 Net change in cash and cash equivalents ( 4,266 ) 2,351 Cash and cash equivalents at beginning of period 13,062 17,849 Cash and cash equivalents at end of period $ 8,796 $ 20,200 See accompanying Notes to Condensed Consolidated Financial Statements 4 CINEDIGM CORP. SUPPLEMENTAL CASH FLOW INFORMATION AND DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY (Unaudited) (In thousands) Nine Months Ended December 31, 2022 2021 Cash interest paid $ 58 $ 701 Income taxes paid — 79 Noncash investing and financing activities: Accrued dividends on preferred stock 88 89 Issuance of Class A common stock for payment of accrued preferred stock dividends 264 267 Issuance of Class A common stock for business combination — 4,824 Deferred consideration in purchase of business — 1,980 Earnout consideration in purchase of a business — 1,461 Earnout consideration paid with common shares of Company ( 238 ) — Earnout consideration adjustment 80 — Treasury shares acquired for withholding taxes — 5 Issuance of common stock for Board of Director compensation 3 — 5 CINEDIGM CORP. CONDENSED CONSOLIDA TED STATEMENTS OF EQUITY (Unaudited) (In thousands, except share data) Preferred Stock Common Stock Treasury Additional Paid-In Accumulated Accumulated Other Comprehensive Total Stockholders’ Non Controlling Shares Amount Shares Amount Shares Amount Capital Deficit Loss Equity Interest Total Balances as of March 31, 2021 (Audited) 7 $ 3,559 166,228,568 $ 164 1,313,836 $ ( 11,603 ) $ 499,272 $ ( 474,080 ) $ ( 68 ) $ 17,244 $ ( 1,362 ) $ 15,882 Foreign exchange translation — — — — — — — — ( 54 ) ( 54 ) — ( 54 ) Stock-based compensation — — 35,714 — — — 983 — — 983 — 983 Issuance of common stock in connection with a business combination — — 1,483,129 2 — — 2,504 — — 2,506 — 2,506 Preferred stock dividends paid with common stock — — 53,278 — — — 89 ( 89 ) — — — — Net income — — — — — — — 5,187 — 5,187 7 5,194 Balances as of June 30, 2021 7 $ 3,559 167,800,689 $ 166 1,313,836 $ ( 11,603 ) $ 502,848 $ ( 468,982 ) $ ( 122 ) $ 25,866 $ ( 1,355 ) $ 24,511 Foreign exchange translation — — — — — — — — 35 35 — 35 Stock-based compensation — — 132,630 — — — 946 — — 946 — 946 Issuance of common stock in connection with business combinations — — 1,179,156 1 — — 2,317 — — 2,318 — 2,318 Treasury stock in connection with taxes withheld from employees — — ( 2,015 ) — 2,015 ( 5 ) — — — ( 5 ) — ( 5 ) Preferred stock dividends — — — — — — — ( 89 ) — ( 89 ) — ( 89 ) Net loss — — — — — — — ( 184 ) — ( 184 ) ( 11 ) ( 195 ) Balances as of September 30, 2021 7 $ 3,559 169,110,460 $ 167 1,315,851 $ ( 11,608 ) $ 506,111 $ ( 469,255 ) $ ( 87 ) $ 28,887 $ ( 1,366 ) $ 27,521 Foreign exchange translation — — — — — — ( 14 ) ( 14 ) — ( 14 ) Stock-based compensation — — 147,712 — — — 1,349 — — 1,349 — 1,349 Issuance of common stock in connection with equity line purchase commitment — — 210,084 — — — — — — — — — Preferred stock dividends — — 102,697 — — — 178 — — 178 — 178 Issuance of common stock in connection with performance stock units — — 263 — — — — — — — — — Issuance of common stock in connection with equity line, net — — 5,300,000 7 — — 12,371 — — 12,378 — 12,378 Preferred stock dividends accrued — — — — — — 89 ( 89 ) — — — — Net income (loss) — — — — — — — ( 385 ) — ( 385 ) ( 19 ) ( 404 ) Balances as of December 31, 2021 7 $ 3,559 174,871,216 $ 174 1,315,851 $ ( 11,608 ) $ 520,099 $ ( 469,729 ) $ ( 101 ) $ 42,394 $ ( 1,385 ) $ 41,009 See accompanying Notes to Condensed Consolidated Financial Statements 6 CINEDIGM CORP. CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (In thousands, except share data) Preferred Stock Common Stock Treasury Additional Paid-In Accumulated Accumulated Other Comprehensive Total Stockholders' Non Controlling Shares Amount Shares Amount Shares Amount Capital Deficit Loss Equity Interest Total Balances as of March 31, 2022 (Audited) 7 $ 3,559 175,313,584 $ 174 1,315,851 $ ( 11,608 ) $ 522,601 $ ( 472,310 ) $ ( 163 ) $ 42,253 $ ( 1,303 ) $ 40,950 Foreign exchange translation — — — — — — — — 48 48 — 48 Stock-based compensation — — — — — — 980 — — 980 — 980 Preferred stock dividends paid with common stock — — 108,024 — — — 88 — — 88 — 88 Preferred stock dividends accrued — — — — — — — ( 88 ) — ( 88 ) — ( 88 ) Net income (loss) — — — — — — — ( 6,005 ) — ( 6,005 ) 18 ( 5,987 ) Balances as of June 30, 2022 7 $ 3,559 175,421,608 $ 174 1,315,851 $ ( 11,608 ) $ 523,669 $ ( 478,403 ) $ ( 115 ) $ 37,276 $ ( 1,285 ) $ 35,991 Foreign exchange translation — — — — — — — — ( 362 ) ( 362 ) — ( 362 ) Stock-based compensation — — — — — — 791 — — 791 — 791 Preferred stock dividends paid with common stock — — 178,572 — — — 88 — — 88 — 88 Issuance of common stock in connection with performance stock units and annual incentive awards, net of employee payroll taxes — — 2,066,879 2 — — 871 — — 873 — 873 Issuance of common stock for BD Earnout commitment — — 334,037 — — — 238 — — 238 — 238 Preferred stock dividends accrued — — — — — — ( 88 ) — ( 88 ) — ( 88 ) Net income (loss) — — — — — — — ( 5,664 ) — ( 5,664 ) 9 ( 5,655 ) Balances as of September 30, 2022 7 $ 3,559 178,001,096 $ 176 1,315,851 $ ( 11,608 ) $ 525,657 $ ( 484,155 ) $ ( 477 ) $ 33,152 $ ( 1,276 ) $ 31,876 Foreign exchange translation — — — — — — — — 88 88 — 88 Stock-based compensation — — — — — — 657 — — 657 — 657 Preferred stock dividends paid with common stock — — 224,359 — — — 88 — — 88 — 88 Issuance of common stock for Board of Director compensation — — 684,024 1 — — — — — 1 — 1 Preferred stock dividends accrued — — — — — — — ( 88 ) — ( 88 ) — ( 88 ) Net income — — — — — — — 5,014 — 5,014 8 5,022 Balances as of December 31, 2022 7 $ 3,559 178,909,479 $ 177 1,315,851 $ ( 11,608 ) $ 526,402 $ ( 479,229 ) $ ( 389 ) $ 38,912 $ ( 1,268 ) $ 37,644 See accompanying Notes to Condensed Consolidated Financial Statements 7 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. NATURE OF OPERATIONS AND LIQUIDITY Cinedigm Corp. (“Cinedigm,” the “Company,” “we,” “us,” or similar pronouns) was incorporated in Delaware on March 31, 2000. We are (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 (“Streaming”) and (ii) a servicer of digital cinema assets for movie screens in both North America and several international countries. We report our financial results in two reportable segments as follows: (i) Cinema Equipment Business ("Cinema Equipment") and (ii) Content and Entertainment Business (“Content & Entertainment”). The Cinema Equipment segment consists of the non-recourse, financing vehicles and administrators for our digital cinema equipment (the “Systems”) installed in movie theatres throughout North America. Our Content & Entertainment segment operates in: (i) ancillary market aggregation and distribution of entertainment content and (ii) branded and curated over-the-top (“OTT”) digital network business providing entertainment channels and applications. Financial Condition and Liquidity As of December 31, 2022, the Company has an accumulated deficit of $ 479.2 million and negative working capital of $ 4.5 million . For the three and nine months ended December 31, 2022, the Company had net income (loss) attributable to common shareholders of $ 4.9 million and ($ 6.9 ) million , respectively. Net cash used in operating activities for the nine months ended December 31, 2022 was $ 7.9 million . We may continue to generate net losses for the foreseeable future. The Company is party to a Loan, Guaranty, and Security Agreement with East West Bank (“EWB”) providing for a revolving line of credit (the “Line of Credit Facility”) of $ 5.0 million, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and such subsidiaries’ assets. The Line of Credit Facility bears interest at a rate equal to 1.5 % above the prime rate, 9.0 % as of December 31, 2022 . The Line of Credit Facility expires on September 15, 2023 with a one-year extension available at EWB’s discretion. As of December 31, 2022 , $ 5.0 million was outstanding on the Line of Credit Facility. We believe our cash and cash equivalent balances, and availability under our credit facility, as of December 31, 2022 will be sufficient to support our operations for at least twelve months from the filing of this report. The Company may also undertake equity or debt offerings, if necessary and opportunistically available, for further capital needs. 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation The accompanying interim Condensed Consolidated Financial Statements of Cinedigm Corp. have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended March 31, 2022 filed with the Securities and Exchange Commission (the “SEC”) on July 1, 2022. These Condensed Consolidated Financial Statements are unaudited and have been prepared by the Company following the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted as permitted by such rules and regulations; however, the Company believes the disclosures are adequate to make the information presented not misleading. 8 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2022. Interim results are not necessarily indicative of the results for a full year. The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Significant items subject to such estimates and assumptions include revenue recognition, allowance for doubtful accounts, returns and recovery reserves, goodwill and intangible asset impairments, share-based compensation expense, valuation allowance for deferred income taxes and amortization of intangible assets. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On a regular basis, the Company evaluates the assumptions, judgments and estimates. Actual results may differ from these estimates. We own an 85 % interest in CON TV, LLC ("CONtv"), a worldwide digital network that creates original content, and sells and distributes on-demand digital content on the internet and other consumer digital distribution platforms, such as gaming consoles, set-top boxes, handsets, and tablets. We evaluated the investment under the voting interest entity model and determined that the entity should be consolidated as we have a controlling financial interest in the entity through our ownership of outstanding voting shares, and that other equity holders do not have substantive voting, participating or liquidation rights. We recorded net loss attributable to noncontrolling interest in our Condensed Consolidated Statements of Operations equal to 11 % of outstanding profit interest units retained by the noncontrolling interests. There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended March 31, 2022. Reclassifications Certain amounts have been reclassified to conform to the current presentation. Cash and Cash Equivalents We consider all highly liquid investments with an original maturity of three months or less to be “cash equivalents.” We maintain bank accounts with major banks, which from time to time may exceed the Federal Deposit Insurance Corporation’s insured limits. We periodically assess the financial condition of the institutions and believe that the risk of any loss is minimal. Accounts Receivable, Net We maintain reserves for potential credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis. Employee Retention Tax Credit The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") provided an employee retention credit which was a refundable tax credit against certain employment taxes. The Consolidated Appropriations Act (the "Appropriations Act") extended and expanded the availability of the employee retention credit through December 31, 2021. The Appropriations Act amended the employee retention credit to be equal to 70 % of qualified wages paid to employees during the 2021 fiscal year. 9 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) The Company qualified for the employee retention credit beginning in June 2020 for qualified wages through September 2021 and filed a cash refund claim during the three months ended September 30, 2022 and December 31, 2022 for $ 0.5 million and $ 2.0 million, respectively. During the three and nine months ended December 31, 2022 , the Company recorded an employee retention credit totaling $ 2.0 million and $ 2.5 million, respectively, in the Employee retention tax credit line on the Company’s Condensed Consolidated Statements of Operations. As of December 31, 2022, the tax credit receivable has been included in the Employee retention tax credit line on the Company's Condensed Consolidated Balance Sheet. Property and Equipment, Net Property and equipment, net are stated at cost, less accumulated depreciation and amortization. Depreciation expense is recorded using the straight-line method over the estimated useful lives of the respective assets as follows: Computer equipment and software 3 - 5 years Digital cinema projection systems 10 years Machinery and equipment 3 - 10 years Furniture and fixtures 3 - 6 years Internal-Use Software 5 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, net and include external direct cost of services procured in developing or obtaining internal-use software and personnel and related expenses for employees who are directly associated with, and who devote time to internal-use software projects. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended use. Once the software is ready for its intended use, the costs are amortized over the useful life of the software. Post-configuration training and maintenance costs are expensed as incurred. We amortize internal-use software over its estimated useful life on a straight-line basis. Impairment of Long-lived and Finite-lived Assets We review the recoverability of our long-lived assets and finite-lived intangible assets, when events or conditions occur that indicate a possible impairment exists. The assessment for recoverability is based primarily on our ability to recover the carrying value of our long-lived and finite-lived assets from expected future undiscounted net cash flows. If the total of expected future undiscounted net cash flows is less than the total carrying value of the asset, the asset is deemed not to be recoverable and possibly impaired. We then estimate the fair value of the asset to determine whether an impairment loss should be recognized. An impairment loss will be recognized if the asset’s fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted cash flows. During the nine months ended December 31, 2022 and 2021 , no impairment charges were recorded from operations for long-lived assets or finite-lived assets. Intangible Assets, Net Intangible assets are stated at cost less accumulated amortization. For intangible assets that have finite lives, the assets are amortized using the straight-line method over the estimated useful lives of the related assets. For intangible assets with indefinite lives, the assets are tested annually for impairment or sooner if a triggering event occurs. 10 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) Amortization lives of intangible assets are as follows: Content Library 3 – 20 years Advertiser Relationships and Channel 3 – 13 years Customer Relationships 5 – 13 years Software 10 years Trademarks and Tradenames 2 – 15 years Supplier Agreements 2 years The Company’s intangible assets included the following (in thousands): As of December 31, 2022 Cost Basis Accumulated Amortization Impairment Net Content Library $ 23,685 $ ( 21,038 ) $ — $ 2,647 Advertiser Relationships and Channel 11,104 ( 759 ) — 10,345 Customer Relationships 10,658 ( 7,531 ) ( 1,968 ) 1,159 Software 3,200 ( 480 ) — 2,720 Trademark and Tradenames 4,026 ( 2,033 ) — 1,993 Total Intangible Assets $ 52,673 $ ( 31,841 ) $ ( 1,968 ) $ 18,864 As of March 31, 2022 Cost Basis Accumulated Amortization Impairment Net Content Library $ 23,685 $ ( 20,665 ) $ — $ 3,020 Advertiser Relationships and Channel 10,081 ( 161 ) — 9,920 Customer Relationships 10,658 ( 7,327 ) ( 1,968 ) 1,363 Software 3,200 ( 240 ) — 2,960 Trademark and Tradenames 4,026 ( 1,301 ) — 2,725 Supplier Agreements 11,430 ( 11,384 ) — 46 Total Intangible Assets $ 63,080 $ ( 41,078 ) $ ( 1,968 ) $ 20,034 During the nine months ended December 31, 2022 and 2021, no impairment charge was recorded for intangible assets. During the three and nine months ended December 31, 2022, the Company had amortization expense of $ 0.7 million and $ 2.2 million , respectively. During the three and nine months ended December 31, 2021, the Company had amortization expense of $ 0.7 million and $ 2.2 million , respectively. During the three months ended December 31, 2022 , the Company entered into a non-monetary transaction for the purchase and sale of content licenses with an unrelated third-party. The fair value of the content licenses sold was determined to be $ 1.0 million which is included in Revenues in our Condensed Consolidated Statement of Operations for the three months ended December 31, 2022 . The fair value of the content licenses purchased was determined to be $ 1.0 million and is recognized in Intangible Assets, Net on our Condensed Consolidated Balance Sheet as of December 31, 2022. As of December 31, 2022, amortization expense is expected to be (in thousands): Total Remainder of fiscal year 2023 $ 1,252 2024 3,343 2025 2,137 2026 1,745 2027 1,269 Thereafter 9,118 $ 18,864 11 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) Goodwill Goodwill is the excess of the purchase price paid over the fair value of the net assets of an acquired business. Goodwill is tested for impairment on an annual basis or more often if warranted by events or changes in circumstances indicating that the carrying value may exceed fair value, also known as impairment indicators. Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current economic indicators and market conditions, and assumptions about our strategic plans with regard to its operations. To the extent additional information arises, market conditions change, or our strategies change, it is possible that the conclusion regarding whether our remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material effect on our consolidated financial position or results of operations. The Company has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or to perform the quantitative impairment test. The Company reassessed goodwill impairment on its annual measurement date of March 31, 2022 by performing a qualitative analysis and determined that it was not more likely than not that the fair value of its reporting unit is less than its carrying amount. No goodwill impairment charge was recorded in the three and nine months ended December 31, 2022 and 2021 . 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) The following tables summarize the levels of fair value measurements of our financial assets and liabilities (in thousands): As of December 31, 2022 Level 1 Level 2 Level 3 Total Assets: Equity investment in Metaverse, at fair value $ — $ — $ 5,200 $ 5,200 $ — $ — $ 5,200 $ 5,200 Liabilities: Current portion of earnout consideration on purchase of a business $ — $ — $ 768 $ 768 Long-term portion of earnout consideration on purchase of a business — — 676 676 $ — $ — $ 1,444 $ 1,444 12 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) As of March 31, 2022 Level 1 Level 2 Level 3 Total Assets: Equity investment in Metaverse, at fair value $ 7,028 $ — $ — $ 7,028 $ 7,028 $ — $ — $ 7,028 Liabilities: Current portion of earnout consideration on purchase of a business $ — $ — $ 1,081 $ 1,081 Long-term portion of earnout consideration on purchase of a business — — 603 603 $ — $ — $ 1,684 $ 1,684 The Company's equity investment in A Metaverse Company ("Metaverse") is in Hong Kong dollars and was translated into US dollars as of December 31, 2022 and March 31, 2022 at an exchange rate of 7.8 Hong Kong Dollars to 1 US Dollar. The fair value of this equity investment was measured by the quoted market price of Metaverse on the Stock Exchange of Hong Kong (SEHK: 1616) as of March 31, 2022. On April 1, 2022, trading of Metaverse’s ordinary shares was halted on the Hong Kong Stock Exchange. As of December 31, 2022, Metaverse’s stock valuation is based on an independent valuation based on the market approach and is categorized as Level 3 based on unobservable inputs. The Company estimated the fair value based on the market approach based on the last known enterprise value adjusting for trends in value from comparable companies. The adjustment to fair value of this investment resulted in a loss of $ 1.8 million and gain of $ 1.5 million for the nine months ended December 31, 2022 and 2021, respectively. As the value of the investment in Metaverse is determined based on unobservable inputs, company and industry fluctuations, as well as general economic, political, regulatory and market conditions such as recessions, interest rate changes or international currency fluctuations, changes to these assumptions may have a significant impact on the fair value of our investment in Metaverse. Our cash and cash equivalents, accounts receivable, unbilled revenue, accounts payable and accrued expenses are financial instruments and are recorded at cost in the Condensed Consolidated Balance Sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature. Prepaid and Other Current Assets Prepaid and other current assets consisted of the following (in thousands): As of December 31, 2022 March 31, 2022 Advances $ 3,244 $ 2,117 Due from producers 1,549 1,861 Other receivables 1,134 826 Inventory 209 116 Other prepaid expenses 1,167 989 Total prepaid and other current assets $ 7,303 $ 5,909 Advances represent amounts prepaid to studios or content producers for which we provide content distribution services. We evaluate advances regularly for recoverability and record impairment charges for amounts that we expect may not be recoverable. Impairments related to advances were $ 1.0 million and $ 0.4 million for the three months ended December 31, 2022 and 2021, respectively. Impairments related to advances were $ 1.6 million and $ 0.8 million for the nine months ended December 31, 2022 and 2021 , respectively. 13 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consisted of the following (in thousands): As of December 31, 2022 March 31, 2022 Accounts payable $ 17,720 $ 34,177 Amounts due to producers 15,967 10,430 Accrued compensation and benefits 3,390 3,507 Accrued other expenses 3,642 3,911 Total accounts payable and accrued expenses $ 40,719 $ 52,025 Revenue Recognition Payment terms and conditions vary by customer and typically provide net 30 to 90 day terms. We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and payment for that product or service will be one year or less. We have in the past entered into arrangements in connection with activation fees due from our System deployments that had extended payment terms. The outstanding balances on these arrangements are insignificant and hence the impact of significant financing would be insignificant. The following tables present the Company’s disaggregated revenue by segment and source (in thousands): Three Months Ended December 31, Nine Months Ended December 31, 2022 2021 2022 2021 Cinema Equipment: Deployment $ 7,458 $ 220 $ 9,340 $ 1,263 Services ( 316 ) 506 ( 88 ) 1,171 Digital system sales 44 1,334 1,966 9,110 Total Cinema Equipment revenue $ 7,186 $ 2,060 $ 11,218 $ 11,544 Content & Entertainment: Base distribution business $ 8,121 $ 3,668 $ 11,145 $ 6,368 OTT streaming and digital 12,575 8,356 33,115 21,290 Total Content & Entertainment revenue $ 20,696 $ 12,024 $ 44,260 $ 27,658 Total revenue $ 27,882 $ 14,084 $ 55,478 $ 39,202 Cinema Equipment Segment Our Cinema Equipment segment consists of financing vehicles and administrators for Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”). We retain ownership of our Systems and the residual cash flows related to the Systems in Phase I Deployment after the end of the 10-year deployment payment period. For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements. 14 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) The Cinema Equipment segment also provides monitoring, data collection, serial data verification and management services to this segment, as well as to exhibitors who purchase their own equipment, in order to collect Virtual Print Fees (“VPFs”) from distributors and Alternative Content Fees (“ACFs”) from alternative content providers, and to distribute those fees to theatrical exhibitors (collectively, “Services”). VPFs are earned, net of administrative fees, pursuant to contracts with distributors, whereby amounts are payable by a distributor to Phase I Deployment and to Phase II Deployment when distributor's movies are displayed on screens utilizing our Systems installed in movie theatres. VPFs are earned and payable to us with respect to Phase I Deployment based on a defined fee schedule until the end of the VPF term. One VPF is payable for every digital title initially displayed per System. The amount of VPF revenue is dependent on the number of movie titles released and displayed using the Systems in any given accounting period. VPF revenue is recognized in the period the title first plays for general audience viewing in a digital projector equipped movie theatre. The Phase 1 Deployment’s and Phase 2 Deployment's performance obligations for revenue recognition are met at this time. Phase II Deployment’s agreements with distributors require the payment of VPFs, according to a defined fee schedule, for ten years from the date each system is installed; however, Phase II Deployment may no longer collect VPFs once “cost recoupment,” as defined in the contracts with distributors, is achieved. Cost recoupment will occur once the cumulative VPFs and other cash receipts collected by Phase II Deployment have equaled the total of all cash outflows, including the purchase price of all Systems, all financing costs, all “overhead and ongoing costs”, as defined, and including service fees, subject to maximum agreed upon amounts during the three-year rollout period and thereafter. The Company evaluated the constraining estimates related to the variable consideration and determined that it is not probable to conclude at this point in time that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is subsequently resolved. Under the terms of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time, they have the option to: (i) return the Systems to us; (ii) renew their license agreement for successive one-year terms; or (iii) purchase the Systems from us at fair market value. As permitted by these agreements, we typically pursue the sale of the Systems to such exhibitors. Cinedigm recognizes revenue once the customer takes possession of the Systems and Cinedigm receives the sale proceeds. Such sales were originally contemplated as the conclusion of the digital cinema deployment plan. The Cinema Equipment segment earns an administrative fee of approximately 5 % of VPFs collected and, in addition, earns an incentive service fee equal to 2.5 % of the VPFs earned by Phase 1 Deployment. This administrative fee is related to the collection and remittance of the VPF’s and the performance obligation is satisfied at the time the related VPF fees are due which is at the time the movies are displayed on screens utilizing our Systems installed in movie theatres. The service fees are recognized as a point in time revenue when the corresponding VPF fees are due from the distributors. A limited number of systems from our Phase I deployment remain eligible for VPFs from certain distributors where Phase I exhibitors have renewed their term on an annual basis. We continue to pursue system sales for these remaining exhibitors. Our Phase II deployment currently consists of a limited number of exhibitors who purchased their own systems and have not yet reached recoupment or the end of their contractual term. We continue to administer VPFs for these limited systems from certain distributors. During the three and nine months ended December 31, 2022, $ 7.4 million and $ 9.1 million of revenue was recognized that was included in the accounts payable balance as constrained variable consideration at the beginning of the year. The Company recognized the revenue once the uncertainty associated with the variable consideration was resolved. As of December 31, 2022 , approximately $ 1.0 million remains on our balance sheet in accounts payable as constrained variable consideration. 15 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) Content & Entertainment Segment Content & Entertainment segment earns fees for the distribution of content in the home entertainment markets via several distribution channels, including digital, video on demand (“VOD” or “OTT Streaming and Digital”), and physical goods (e.g., DVDs and Blu-ray Discs) (“Physical Revenue” or “Base Distribution Business”). Fees earned are typically a percentage based on the net amounts received from our customers. Depending upon the nature of the agreements with the platform and content providers, the fee rate that we earn varies. The Company’s performance obligations include the delivery of content for transactional, subscription and ad supported/free ad-supported streaming TV (“FAST”) on the digital platforms, and shipment of DVDs and Blu-ray Discs. Revenue is recognized at the point in time when the content is available for subscription on the digital platform (the Company’s digital content is considered functional IP), at the time of shipment for physical goods, or point-of-sale for transactional and VOD services as the control over the content or the physical title is transferred to the customer. The Company considers the delivery of content through various distribution channels to be a single performance obligation. Revenue from the sale of physical goods is recognized after deducting reserves for sales returns and other allowances. Reserves for potential sales returns of physical goods and other allowances are recorded based upon historical experience. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required. The Content & Entertainment segment also has contracts for the theatrical distribution of third-party feature movies and alternative content. The Content & Entertainment segment’s distribution fee revenue participation in box office receipts are recognized at the time a feature movie and alternative content are viewed. The Content & Entertainment segment has the right to receive or bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded as a receivable at the time of execution, and all related distribution revenue is deferred until the third-party feature movie's or alternative content’s theatrical release date. The Company follows the five-step model established by Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"), Revenue from contracts with customers ("ASC 606") when preparing its assessment of revenue recognition. Principal Agent Considerations Revenue earned by our Content & Entertainment segment from the delivery of digital content and physical goods may be recognized gross or net depending on the terms of the arrangement. We determine whether revenue should be reported on a gross or net basis based on each revenue stream. Key indicators that we use in evaluating gross versus net treatment include, but are not limited to, the following: • which party is primarily responsible for fulfilling the promise to provide the specified good or service; and • which party has discretion in establishing the price for the specified good or service. Shipping and Handling Shipping and handling costs are incurred to move physical goods (e.g., DVDs and Blu-ray Discs) to customers. We recognize all shipping and handling costs as an expense in direct operating expenses because we are responsible for delivery of the product to our customers prior to transfer of control to the customer. Credit Losses We maintain reserves for potential credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis. 16 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) Our Content & Entertainment segment recognizes accounts receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that it recognizes revenue from a sale. Reserves for product returns and other allowances is variable consideration as part of the transaction price. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required. During the three and nine months ended December 31, 2022 and 2021, we did not recognize any credit losses or reversals of previously recorded provisions, and did not have any write-offs charged against the allowance. Contract Liabilities We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability) when cash payments are received or due in advance of our performance, even if amounts are refundable. Deferred revenue pertaining to our Content & Entertainment segment includes amounts related to the sale of DVDs with future release dates. Deferred revenue relating to our Cinema & Equipment segment pertains to revenues earned in connection with up front exhibitor contributions that are deferred and recognized over the expected cost recoupment period. It also includes unamortized balances in connection with activation fees due from the Systems deployments that have extended payment terms. The ending deferred revenue balance, including current and non-current balances as of March 31, 2022 and December 31, 2022 was $ 0.2 million and $ 0.4 million , respectively. For the three and nine months ended December 31, 2022, the additions to our deferred revenue balance were primarily due to cash payments received or due in advance of satisfying performance obligations, while the reductions to our deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business. Participations and royalties payable When we use third-parties to distribute company owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers. Concentrations For the three months ended December 31, 2022, Iconic, Distribution Solutions, a division of Alliance Entertainment, Amazon.com, Inc., and Tubi represented 35 % , 16 % , 14 % and 5 % , respectively, of Content & Entertainment segment revenues, and approximately 16 % , 7 % , 14 % and 6 % , respectively, of our consolidated revenues. For the nine months ended December 31, 2022, Iconic, Distribution Solutions, a division of Alliance Entertainment, Amazon.com, Inc., and Tubi, represented 27 % , 19 % , 25 % and 10 % respectively, of Content & Entertainment segment revenues, and approximately 8 % , 5 % , 11 % and 5 % , respectively, of our consolidated revenues. For the three months ended December 31, 2021, Amazon.com, Inc., Distribution Solutions, a division of Alliance Entertainment and Tubi, represented 15 % , 11 % and 7 % , respectively, of Content & Entertainment segment revenues and approximately 13 % , 9 % and 6 % , respectively, of our consolidated revenues. 17 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) For the nine months ended December 31, 2021, Amazon.com, Inc. Distribution Solutions, a division of Alliance Entertainment and Roku, Inc., represented 24 % , 9 % and 10 % , respectively, of Content & Entertainment segment revenues and approximately 17 % , 6 % and 7 % , respectively, of our consolidated revenues. Direct Operating Costs Direct operating costs consist of cost of revenue, fulfillment expenses, shipping costs, property taxes and insurance on systems, royalty expenses, impairments of advances and marketing and direct personnel costs. Stock-based Compensation The Company issues stock-based awards to employees and non-employees, generally in the form of restricted stock, restricted stock units, stock appreciation rights ("SARs") and performance stock units ("PSUs"). The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments, including grants of stock options and restricted stock units and modifications to existing stock options, to be recognized in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) based on their fair values. The Company measures the compensation expense of employee and nonemployee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost is recognized on a straight-line basis over the period during which the employee and nonemployee is required to provide service in exchange for the award. The fair values of options and SARs are calculated as of the date of grant using the Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility, risk-free rate and expected term. The Company’s estimates of these assumptions are primarily based on the trading price of the Company’s stock, historical data, peer company data and judgment regarding future trends and factors. Forfeitures are recognized as they occur. Income Taxes The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and tax credit carryforwards and for differences between the carrying amounts of existing assets and liabilities and their respective tax bases. Valuation allowances are established when management is unable to conclude that it is more likely than not that some portion, or all, of the deferred tax asset will ultimately be realized. The Company is primarily subject to income taxes in the United States. The Company accounts for uncertain tax positions in accordance with an amendment to ASC Topic 740-10, Income Taxes (Accounting for Uncertainty in Income Taxes) , which clarified the accounting for uncertainty in tax positions. This amendment provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is “more-likely-than-not” to be sustained were it to be challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the “more-likely-than-not” threshold, the largest amount of tax benefit that is more than 50% likely to be recognized upon ultimate settlement with the taxing authority is recorded. The Company has no uncertain tax positions as of December 31, 2022 . 18 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) Earnings per Share Basic net income (loss) per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) available to common stockholders by the weighted-average number of common shares outstanding and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include stock options and warrants outstanding during the period, using the treasury stock method. Potentially dilutive common shares are excluded from the computations of diluted income (loss) per share if their effect would be anti-dilutive. A net loss available to common stockholders causes all potentially dilutive securities to be anti-dilutive and are not included. Basic and diluted net income (loss) per share are computed as follows (in thousands, except share and per share data): Three Months Ended December 31, Nine Months Ended December 31, 2022 2021 2022 2021 Basic net income (loss) per share: Net income (loss) attributable to common stockholders $ 4,926 $ ( 474 ) $ ( 6,919 ) 4,351 Shares used in basic computation: Weighted-average shares of common stock outstanding 178,899,605 173,167,450 177,077,803 169,413,873 Basic net income (loss) per share $ 0.03 $ ( 0.00 ) $ ( 0.04 ) $ 0.03 Shares used in diluted computation: Weighted-average shares of common stock outstanding 178,899,605 173,167,450 177,077,803 169,413,873 Stock options and SARs — — — 3,603,491 Weighted-average number of shares 178,899,605 173,167,450 177,077,803 173,017,364 Diluted net income (loss) per share $ 0.03 $ ( 0.00 ) $ ( 0.04 ) $ 0.03 The following table summarizes the potential shares of common stock excluded from the diluted calculation (in thousands): Three Months Ended December 31, 2022 Nine Months Ended December 31, 2022 SARs 13,471,351 12,787,403 Stock options 12,500 12,500 13,483,851 12,799,903 For the three and nine months ended December 31, 2021, 12,088,473 and 8,484,982 , respectively, potentially dilutive shares have been excluded from the diluted loss per share as their impact would have been antidilutive. Recently Issued Accounting Pronouncements In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). The amendments in this ASU provide temporary, optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The ASU primarily includes relief related to contract modifications and hedging relationships, as well as providing a one-time election for the sale or transfer of debt securities classified as held-to-maturity. This guidance is effective immediately and the amendments were originally to be applied prospectively through December 31, 2022. However, the FASB issued ASU 2022-06, deferring the sunset date to December 31, 2024. The adoption of this ASU is not expected to have a material impact on the Company's Condensed Consolidated Financial Statements. 19 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815) . The amendments in this ASU clarify the guidance on ASC 815 on fair value hedge accounting of interest rate risk for portfolios and financial assets. Among other things, the amended guidance establishes the "last-of-layer" method for making the fair value hedge accounting for these portfolios more accessible and renames that method the "portfolio layer" method. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We do not expect the amendments to have a material effect on our Condensed Consolidated Financial Statements. In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) . The amendments in this ASU eliminate the guidance on troubled debt restructurings while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulties. The ASU also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We do not expect the amendments to have a material effect on our Condensed Consolidated Financial Statements. 3. OTHER INTERESTS Investment in CDF2 Holdings We indirectly o wn 100 % of the common equity of CDF2 Holdings, LLC (“CDF2 Holdings”), which was created for the purpose of capitalizing on the conversion of the exhibition industry from film to digital technology. CDF2 Holdings assists its customers in procuring the equipment necessary to convert their systems to digital technology by providing financing, equipment, installation and related ongoing services. CDF2 Holdings is a Variable Interest Entity (“VIE”), as defined in ASC Topic 810 (“ASC 810”), Consolidation . ASC 810 requires the consolidation of VIEs by an entity that has a controlling financial interest in the VIE which entity is thereby defined as the primary beneficiary of the VIE. As of December 31, 2022 and March 31, 2022, our maximum exposure to loss, as it relates to the non-consolidated CDF2 Holdings entity, represents accounts receivable for service fees under a master service agreement with CDF2 Holdings. Such accounts receivable was $ 2.1 million and $ 0.8 million as of December 31, 2022 and March 31, 2022, respectively, which are included in accounts receivable, net on the accompanying Condensed Consolidated Balance Sheets. The accompanying Condensed Consolidated Statements of Operations include $ 0.1 million and $ 0.2 million of digital cinema servicing revenue from CDF2 Holdings for the three months ended December 31, 2022 and 2021, respectively. The accompanying Condensed Consolidated Statements of Operations include $ 0.2 million and $ 0.5 million of digital cinema servicing revenue from CDF2 Holdings for the nine months ended December 31, 2022 and 2021, respectively. Total Stockholders’ Deficit of CDF2 Holdings at December 31, 2022 and March 31, 2022 was $ 59.2 million and $ 55.6 million , respectively. We have no obligation to fund the operating loss or the stockholders’ deficit beyond our initial investment of $ 2.0 million and, accordingly, our investment in CDF2 Holdings as of December 31, 2022 and March 31, 2022 is carried at $ 0 . Investment in Roundtable On March 15, 2022, the Company entered into a stock purchase agreement with Roundtable Entertainment Holdings, Inc. (“Roundtable”) pursuant to which the Company purchased  500  shares of Roundtable Series A Preferred Stock and warrants to purchase  100  shares of Roundtable Common Stock (together, the “Roundtable Securities”). The Company funded the purchase of the Roundtable Securities by issuing  316,937  share s of Common Stock to Roundtable. T he Company recorded $ 0.2  million for the purchase of the Securities which is included in other long-term assets on the Condensed Consolidated Balance Sheets. The Roundtable investment was accounted for using the cost method and is included within other long-term assets. 20 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) 4. STOCKHOLDERS’ EQUITY COMMON STOCK Authorized Common Stock As of December 31, 2022 , the number of shares of Common Stock authorized for issuance was 275,000,000 shares. During the three months ended December 31, 2022, the Company issued 908,383 shares of Common Stock. This is comprised of 224,359 shares in payment of preferred stock dividends and 684,024 restricted shares issued in connection with Board of Director compensation. During the nine months ended December 31, 2022, the Company issued 3,595,895 shares of Common Stock. This is comprised of 510,955 shares in payment of preferred stock dividends, 2,750,903 shares issued on August 18, 2022 in connection with the vesting of grants pursuant to the 2017 Equity Incentive Plan, and 334,037 shares issued in payment of the Bloody Disgusting earnout commitment. During the nine months ended December 31, 2021 , we issued 8,642,648 shares of Common Stock which consist of the sale of shares of our Class A common stock, issuance of Common Stock for business combination, the issuances of Common Stock in payment of preferred stock dividends and in payment of Board of Director retainer fees. PREFERRED STOCK Cumulative dividends in arrears on preferred stock were $ 0.1 million as of December 31, 2022 and 2021. In May, June and November 2022, we paid preferred stock dividends in arrears in the form of 510,955 shares of Class A Common Stock. TREASURY STOCK We have treasury stock, at cost, consisting of 1,315,851 shares of Common Stock at December 31, 2022 and March 31, 2022. EQUITY INCENTIVE PLANS Stock Based Compensation Awards Awards issued under our 2000 Equity Incentive Plan (the “2000 Plan”) may be in any of the following forms (or a combination thereof) (i) stock option awards; (ii) SARs; (iii) stock or restricted stock or restricted stock units; or (iv) performance awards. The 2000 Plan provides for the granting of incentive stock options (“ISOs”) with exercise prices not less than the fair market value of our Common Stock on the date of grant. ISOs granted to shareholders having more than 10 % of the total combined voting power of the Company must have exercise prices of at least 110 % of the fair market value of our Common Stock on the date of grant. ISOs and non-statutory stock options granted under the 2000 Plan 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 Common Stock to employees, outside directors and consultants. 21 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) Options outstanding and exercisable under the 2000 Plan are as follows: As of December 31, 2022: Range of Prices Options Outstanding and Exercisable Weighted Average Remaining Life in Years Weighted Average Exercise Price Aggregate Intrinsic Value (In thousands) $ 1.16 - $ 7.40 5,000 2.50 $ 7.40 $ — $ 13.70 - $ 24.40 207,037 0.78 14.63 — 212,037 0.82 $ 14.46 $ — As of March 31, 2022: Range of Prices Options Outstanding and Exercisable Weighted Average Remaining Life in Years Weighted Average Exercise Price Aggregate Intrinsic Value (In thousands) $ 7.40 5,000 3.25 $ 7.40 $ — $ 14.00 - $ 24.40 212,337 1.50 14.65 — 217,337 1.54 $ 14.49 $ — In August 2017, the Company adopted the 2017 Equity Incentive Plan (the “2017 Plan). The 2017 Plan replaced the 2000 Plan, and applies to employees and directors of, and consultants to, the Company. The 2017 Plan provides for the issuance of up to 18,098,270 shares of Common Stock, in the form of various awards, including stock options, SARs, restricted stock, restricted stock units, PSUs and cash awards. SARs outstanding under the 2017 Plan are as follows: As of December 31, 2022: Range of Prices SARs Outstanding Weighted Average Remaining Life in Years Weighted Average Exercise Price Aggregate Intrinsic Value (In thousands) $ 0.33 - $ 0.74 8,650,000 8.61 $ 0.56 $ — $ 1.16 - $ 1.47 2,128,277 6.55 1.39 — $ 1.71 - $ 2.10 2,237,493 8.36 1.92 — $ 2.23 - $ 2.56 455,583 8.81 2.28 — 13,471,353 $ — As of March 31, 2022: Range of Prices SARs Outstanding Weighted Average Remaining Life in Years Weighted Average Exercise Price Aggregate Intrinsic Value (In thousands) $ 0.54 - $ 0.74 5,550,000 8.74 $ 0.62 $ 1,208 $ 1.16 - $ 1.47 2,283,610 7.90 1.37 — $ 1.71 - $ 2.10 2,455,738 8.91 1.97 — $ 2.23 - $ 2.56 604,250 9.60 2.32 — 10,893,598 $ 1,208 An analysis of all SARs exercisable under the 2017 Plan as of December 31, 2022 is presented below: SARs Exercisable Weighted Average Remaining Life in Years Weighted Average Exercise Price Aggregate Intrinsic Value (In thousands) 5,448,345 7.75 $ 1.13 $ — 22 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) Total SARs outstanding are as follows: Nine Months Ended December 31, 2022 SARs Outstanding - March 31, 2022 10,893,598 Issued 3,100,000 Forfeited ( 522,245 ) Total SARs Outstanding - December 31, 2022 13,471,353 The following weighted average assumptions were used to estimate the fair value of SARs granted as follows: Nine Months Ended December 31, 2022 Expected dividend yield — Expected equity volatility 111.89 % Expected term (years) 6.50 Risk-free interest rate 4.49 % Exercise price $ 0.49 Market price per share $ 0.49 Weighted average fair value per SAR $ 0.43 The risk-free rates are based on the implied yield available on U.S. Treasury constant maturities with remaining terms equivalent to the respective expected terms of the options. In addition, the Company has granted PSU awards under the 2017 Plan to employees. These awards vest upon certain performance goals being achieved as of March 31, 2022 and 2023 and can be settled in cash or equity upon vesting. During the three and nine months ended December 31, 2022 , the Company issued 482,628 shares of common stock, net of 199,498 shares withheld to pay taxes, related to the vesting of 682,126 of PSU awards. As of December 31, 2022 , there were 696,280 of PSU awards outstanding that vest as of March 31, 2023 subject to achieving certain performance goals. No additional PSU awards were granted during the three and nine months ended December 31, 2022. During the nine months ended December 31, 2022 , 482,628 shares were issued for vested awards. Employee and director stock-based compensation expense related to our stock-based awards was as follows (in thousands): Three Months Ended December 31, Nine Months Ended December 31, 2022 2021 2022 2021 Selling, general and administrative $ 708 $ 1,349 $ 3,906 $ 3,278 There was $ 0.1 million of stock-based compensation expense for the three months ended December 31, 2022 and 2021, respectively, related to the Board. There was $ 0.3 million and $ 0.3 million of stock-based compensation for the nine months ended December 31, 2022 and 2021, respectively, related to Board of Directors compensation. During the nine months ended December 31, 2022, the Company issued 684,024 restricted shares to non-employee directors. Options Granted Outside Cinedigm's Equity Incentive Plan As of March 31, 2022 , there were 12,500 options and 600,000 SARs granted to employees outside of Cinedigm's Equity Incentive Plan. During the three months ended December 31, 2022 , 100,000 SARs were granted as an inducement to a new employee. 23 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) 5. LINE OF CREDIT FACILITY On September 15, 2022, the Company entered into a Loan, Guaranty, and Security Agreement with EWB. The agreement provided for a Line of Credit Facility of $ 5.0 million , guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and such subsidiaries’ assets. The Line of Credit Facility bears interest at a rate equal to 1.5 % above the prime rate, 9.0 % as of December 31, 2022 . The Line of Credit Facility expires on September 15, 2023 with a one-year extension available at EWB’s discretion. As of December 31, 2022, $ 5.0 million was outstanding on the Line of Credit Facility. Under the Line of Credit Facility, the Company is subject to certain financial and nonfinancial covenants including terms which require the Company to maintain certain metrics and ratios, maintain certain minimum cash on hand, and to report financial information to our lender on a periodic basis. During the three and nine months ended December 31, 2022 the Company had interest expense of $ 0.1 million related to the Line of Credit Facility. 6. SEGMENT REPORTING We operate in two reportable segments: Cinema Equipment and Content & Entertainment. Our segments were determined based on the economic characteristics of our products and services, our internal organizational structure, the manner in which our operations are managed and the criteria used by our Chief Operating Decision Maker ("CODM") to evaluate performance, which is generally the segment’s operating income (loss) before depreciation and amortization. 24 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) Operations of: Products and services provided: Cinema Equipment Financing vehicles and administrators for 343 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 54 Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”). We retain ownership of the Systems and the residual cash flows related to the Systems in Phase I Deployment after the repayment of all non-recourse debt at the expiration of exhibitor master license agreements. For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements. Provides monitoring, collection, verification and management services as well as to exhibitors who purchase their own equipment, and also collects and disburses VPFs from motion picture studios, distributors and ACFs from alternative content providers, movie exhibitors and theatrical exhibitors (collectively, “Services”). Content & Entertainment Leading independent streaming company of content and channels. We collaborate with producers and other content owners to market, source, curate and distribute independent content to targeted and under-served audiences in theatres and homes, and via mobile and emerging platforms. The following tables present certain financial information related to our reportable segments and Corporate (in thousands): As of December 31, 2022 Intangible Assets, Net Goodwill Total Assets Line of Credit, Net Cinema Equipment $ — $ — $ 7,977 $ — Content & Entertainment 18,638 21,025 77,118 — Corporate 226 — 9,800 4,867 Total $ 18,864 $ 21,025 $ 94,895 $ 4,867 As of March 31, 2022 Intangible Assets, Net Goodwill Total Assets Line of Credit, Net Cinema Equipment $ — $ — $ 24,445 $ — Content & Entertainment 19,946 21,084 68,873 — Corporate 88 — 11,318 — Total $ 20,034 $ 21,084 $ 104,636 $ — Condensed Consolidated Statement of Operations Three Months Ended December 31, 2022 Cinema Equipment Content & Entertainment Corporate Consolidated Revenues $ 7,186 $ 20,696 $ — $ 27,882 Direct operating 89 14,322 — 14,411 Selling, general and administrative 912 3,794 4,401 9,107 Allocation of corporate overhead 88 2,407 ( 2,495 ) — Depreciation and amortization 82 734 108 924 Total operating expenses 1,171 21,257 2,014 24,442 Operating income (loss) $ 6,015 $ ( 561 ) $ ( 2,014 ) $ 3,440 25 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows (in thousands): Three Months Ended December 31, 2022 Cinema Equipment Content & Entertainment Corporate Consolidated Direct operating $ — $ — $ — $ — Selling, general and administrative — — 708 708 Total stock-based compensation $ — $ — $ 708 $ 708 Condensed Consolidated Statement of Operations Three Months Ended December 31, 2021 Cinema Equipment Content & Entertainment Corporate Consolidated Revenues $ 2,060 $ 12,024 $ — $ 14,084 Direct operating 139 6,320 — 6,459 Selling, general and administrative 99 3,720 3,539 7,358 Allocation of corporate overhead 143 964 ( 1,107 ) — Depreciation and amortization 196 831 4 1,031 Total operating expenses 577 11,835 2,436 14,848 Operating income (loss) $ 1,483 $ 189 $ ( 2,436 ) $ ( 764 ) The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows (in thousands): Three Months Ended December 31, 2021 Cinema Equipment Content & Entertainment Corporate Consolidated Direct operating $ — $ — $ — $ — Selling, general and administrative — 552 797 1,349 Total stock-based compensation $ — $ 552 $ 797 $ 1,349 Condensed Consolidated Statement of Operations Nine Months Ended December 31, 2022 Cinema Equipment Content & Entertainment Corporate Consolidated Revenues $ 11,218 $ 44,260 $ — $ 55,478 Direct operating 359 29,500 — 29,859 Selling, general and administrative 2,553 11,452 15,011 29,016 Allocation of corporate overhead 284 7,651 ( 7,935 ) — Depreciation and amortization 303 2,282 323 2,908 Total operating expenses 3,499 50,885 7,399 61,783 Operating income (loss) $ 7,719 $ ( 6,625 ) $ ( 7,399 ) $ ( 6,305 ) 26 CINEDIGM CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows (in thousands): Nine Months Ended December 31, 2022 Cinema Equipment Content & Entertainment Corporate Consolidated Direct operating $ — $ — $ — $ — Selling, general and administrative — — 3,906 3,906 Total stock-based compensation $ — $ — $ 3,906 $ 3,906 Condensed Consolidated Statement of Operations Nine Months Ended December 31, 2021 Cinema Equipment Content & Entertainment Corporate Consolidated Revenues $ 11,544 $ 27,658 $ — $ 39,202 Direct operating 560 13,863 — 14,423 Selling, general and administrative 856 10,081 9,583 20,520 Allocation of corporate overhead 412 2,763 ( 3,175 ) — Depreciation and amortization 1,001 2,658 4 3,663 Total operating expenses 2,829 29,365 6,412 38,606 Operating income (loss) $ 8,715 $ ( 1,707 ) $ ( 6,412 ) $ 596 The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows (in thousands): Nine Months Ended December 31, 2021 Cinema Equipment Content & Entertainment Corporate Consolidated Direct operating $ — $ — $ — $ — Selling, general and administrative — 1,063 2,215 3,278 Total stock-based compensation $ — $ 1,063 $ 2,215 $ 3,278 7. INCOME TAXES We calculate income tax expense upon an annual effective tax rate forecast, including estimates and assumptions. We recorded an income tax benefit (expense) of $ 0.0 million for the three and nine months ended December 31, 2022. We recorded an income tax benefit of approximately $ 0.0 million and $ 0.6 million for the three and nine months ended December 31, 2021, respectively. We have not recorded tax benefits on our loss before income taxes because we have provided for a full valuation allowance that offsets potential deferred tax assets resulting from net operating loss carry forwards, reflecting our inability to use such loss carry forwards. Our effective tax rate for the three months ended December 31, 2022 and 2021 was 0 % and 4 %, respectively. Our effective tax rate for the nine months ended December 31, 2022 and 2021 was 0 % and ( 14 %) , respectively. 27 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our historical Condensed Consolidated Financial Statements and the related notes included elsewhere in this report. This report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which are indicated by words or phrases such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “will,” “estimates,” and similar words. Forward-looking statements represent, as of the date of this report, our judgment relating to, among other things, future results of operations, growth plans, sales, capital requirements and general industry and business conditions applicable to us. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. OVERVIEW Since our inception, we have played a significant role in the digital distribution revolution that continues to transform the media landscape. In addition to our pioneering role in transitioning approximately 12,000 movie screens from traditional analog film prints to digital distribution, we have become a leading distributor of independent content, both through organic growth and acquisitions. We distribute products for major brands such as Hallmark, Televisa, ITV, Nelvana, ZDF, Konami, NFL and Scholastic, as well as leading international and domestic content creators, movie producers, television producers and other short-form digital content producers. We collaborate with producers, major brands and other content owners to market, source, curate and distribute quality content to targeted audiences through (i) existing and emerging digital home entertainment platforms, including but not limited to Apple iTunes, Amazon Prime, Netflix, Hulu, Xbox, Pluto, Tubi and most video-on-demand (“VOD”) and free ad-supported television (“FAST”) streaming platforms, as well as (ii) physical goods, including DVD and Blu-ray Discs. We report our financial results in two reportable segments as follows: (i) Cinema Equipment Business ("Cinema Equipment") and (ii) Content and Entertainment Business (“Content & Entertainment”). The Cinema Equipment segment consists of the non-recourse, financing vehicles and administrators for our digital cinema equipment (the “Systems”) installed in movie theatres throughout North America. It also provides fee-based support to over 465 movie screens as well as directly to exhibitors and other third-party customers in the form of monitoring, billing, collection and verification services. Our Content & Entertainment segment operates in: (i) ancillary market aggregation and distribution of entertainment content and (ii) branded and curated over-the-top (“OTT”) digital network business providing entertainment channels and applications. Beginning in December 2015, certain of our cinema equipment began to reach the conclusion of their 10-year deployment payment period with certain distributors and, therefore, Virtual Print Fee (“VPF”) revenues ceased to be recognized on such Systems, related to such distributors. Furthermore, because the Phase I Deployment installation period ended in November 2007, a majority of the VPF revenue associated with the Phase I Deployment Systems has ended. The reduction in VPF revenue on Cinema Equipment systems approximately coincided with the conclusion of certain of our non-recourse debt obligations and, therefore, the reduced cash outflows related to such non-recourse debt obligations partially offset the reduced VPF revenue since November 2017. Under the terms of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time they have the option to: (i) return the Systems to us; (ii) renew their license agreement for successive one-year terms; or (iii) purchase the Systems from us at fair market value. As permitted by these agreements, we typically pursue the sale of the Systems to such exhibitors. Such sales were as originally contemplated as the conclusion of the digital cinema deployment plan. We are structured so that our Cinema Equipment segment operates independently from our Content & Entertainment segment. 28 Financial Condition and Liquidity As of December 31, 2022, the Company has an accumulated deficit of $479.2 million and negative working capital of $4.5 million. For the three and nine months ended December 31, 2022, the Company had net income (loss) attributable to common shareholders of $4.9 million and ($6.9) million, respectively. Net cash used in operating activities for the nine months ended December 31, 2022 was $7.9 million. We may continue to generate net losses for the foreseeable future. The Company is party to a Loan, Guaranty, and Security Agreement with East West Bank (“EWB”) providing for a revolving line of credit (the “Line of Credit Facility”) of $5.0 million, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and such subsidiaries’ assets. The Line of Credit Facility bears interest at a rate equal to 1.5% above the prime rate. The Line of Credit Facility expires on September 15, 2023 with a one-year extension available at EWB’s discretion. As of December 31, 2022, $5.0 million was outstanding on the Line of Credit Facility. Under the Line of Credit Facility, the Company is subject to certain financial and nonfinancial covenants including terms which require the Company to maintain certain metrics and ratios, maintain certain minimum cash on hand, and to report financial information to our lender on a periodic basis. We believe our cash and cash equivalent balances, and availability under our credit facility, as of December 31, 2022 will be sufficient to support our operations for at least twelve months from the filing of this report. The Company may also undertake equity or debt offerings, if necessary and opportunistically available, for further capital needs. Critical Accounting Estimates Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our Condensed Consolidated Financial Statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Our significant accounting policies are discussed in Note 2 – Summary of Significant Accounting Policies , of the Notes to the Condensed Consolidated Financial Statements, included in Item 1, Condensed Consolidated Financial Statements (Unaudited) , of this Quarterly Report on Form 10-Q. Management believes that fair value estimates, revenue recognition, asset acquisitions and business combinations are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors. Results of Operations for the Three Months Ended December 31, 2022 and 2021 (in thousands): Revenues For the Three Months Ended December 31, Change Period over Period 2022 % of Revenue 2021 % of Revenue $ Change % Change Content & Entertainment Streaming and Digital $ 12,576 45 % $ 8,357 59 % $ 4,219 50 % Base Distribution 8,120 29 % 3,667 26 % 4,453 121 % Cinema Equipment 7,186 26 % 2,060 15 % 5,126 249 % $ 27,882 100 % $ 14,084 100 % $ 13,798 98 % 29 Streaming and Digital experienced 79% growth in “FAST” and TV-VOD revenue due to the addition of six new streaming channels related to the Asian Media Rights, LLC d/b/a Digital Media Rights ("DMR") business acquisition and five managed channel additions of The Country Network, Real Madrid TV, El Rey, The Elvis Presley Channel and The Only Way is Essex. Additionally, Subscription revenue grew 38% primarily due to the Screambox platform performance driven by strong content acquisition strategies driving increasing subscriptions and the aforementioned DMR business acquisition. New releases such as Terrifier 2, MK Ultra, Chesapeake Shores, and continued success of Demon Slayer, Highlander and Short Circuit added to overall performance. Revenue in Base Distribution increased by 121% for the three months ended December 31, 2022 compared to the three months ended December 31, 2021. The increase is driven by significant growth in box office theatrical performance bolstered by the Terrifier 2 release during the three months ended December 31, 2022. Revenues generated by the Cinema Equipment business increased as a result of an increase in Phase II variable consideration of $7.4 million during the period offset by lower system revenue and eligible VPF systems. Total system revenue recognized was ($0.3) million and $1.3 million, during the three months ended December 31, 2022 and 2021, respectively. Blockbuster content released during the period ending December 31, 2022 was consistent with Studio output from the prior period, however VPF eligible theatres decreased significantly for the same period last year. Direct Operating Expenses For the Three Months Ended December 31, Change Period over Period 2022 2021 $ Change % Change Content & Entertainment $ 14,322 $ 6,320 $ 8,002 127 % Cinema Equipment 89 139 (50 ) 36 % $ 14,411 $ 6,459 $ 7,952 123 % The increase in direct operating expenses for the three months ended December 31, 2022 for the Content & Entertainment segment compared to the prior year was primarily due to $6.6 million higher content and licensing costs including royalties and distribution expenses related to the continued growth in revenue noted above, coupled with a $1.2 million increase related to DVD manufacturing and fulfillment. Selling, General and Administrative Expenses For the Three Months Ended December 31, Change Period over Period 2022 2021 $ Change % Change Compensation expense $ 5,135 $ 3,881 $ 1,254 32 % Public company expenses 1,780 1,560 220 14 % Share-based compensation 709 1,349 (640 ) (47 )% Insurance expense 625 391 234 60 % Other operating expenses 858 177 681 385 % $ 9,107 $ 7,358 $ 1,749 24 % Selling, general and administrative expenses for the three months ended December 31, 2022 increased by $1.7 million primarily due to a $1.3 million increase in compensation expense primarily from the acquisition of DMR partially offset by a reduction in payroll taxes in the prior year as a result of the CARES Act and $0.7 million increase in other operating expenses primarily from rent, direct marketing and subscriptions, offset by $0.6 million decrease related to stock-based compensation to management and employees. Public company expenses include accounting, legal, audit, investor relations and other related public company costs. 30 Depreciation and Amortization Expense For the Three Months Ended December 31, Change Period over Period 2022 2021 $ Change % Change Amortization of Intangible Assets $ 713 $ 695 $ 18 3 % Depreciation of Property and Equipment 211 336 (125 ) (37 )% $ 924 $ 1,031 $ (107 ) (10 )% Depreciation expense decreased primarily due to the majority of our digital cinema projection systems reaching the conclusion of their ten-year useful lives during the three months ended December 31, 2022. Interest expense, net Interest expense, net increased by $0.3 million from $0.1 million for the three months ended December 31, 2021 to $0.4 million for the December 31, 2022 as a result of deferred and earnout consideration accretion related to the acquisitions of Bloody Disgusting, FoundationTV and DMR and interest expense associated with our new Line of Credit facility obtained in September 2022. Employee retention tax credit Employee retention tax credit was $2.0 million for the three months ended December 31, 2022 compared to no employee retention credit for the three months ended December 31, 2021. The employee retention tax credits were filed pursuant to the CARES Act. Results of Operations for the Nine Months Ended December 31, 2022 and 2021 Revenues For the Nine Months Ended December 31, Change Period over Period 2022 % of Revenue 2021 % of Revenue $ Change % Change Content & Entertainment Streaming and Digital $ 33,115 60 % $ 21,292 54 % $ 11,823 56 % Base Distribution 11,145 20 % 6,366 16 % 4,779 75 % Cinema Equipment 11,218 20 % 11,544 30 % (326 ) (3 )% $ 55,478 100 % $ 39,202 100 % $ 16,276 42 % Streaming and Digital experienced 102% growth in “FAST” and TV-VOD revenue due to the addition of six new streaming channels related to the DMR business acquisition and five managed channel additions of The Country Network, Real Madrid TV, El Rey, The Elvis Presley Channel and The Only Way is Essex. Additionally, Subscription revenue grew 39% primarily due to the Screambox platform performance driven by strong content acquisition strategies driving increasing subscriptions and the aforementioned DMR business acquisition. Top performing titles, including new releases, such as the Terrifier 2, Demon Slayer, Boon, The Ravine, The Mulligan, Incarnation, 7 Days, Chesapeake Shores, When Calls the Heart and the classics, Short Circuit and Highlander added to overall performance. Revenue in Base Distribution increased by 75% for the nine months ended December 31, 2022 compared to the nine months ended December 31, 2021. The increase is driven by significant growth in box office theatrical performance bolstered by the Terrifier 2 release during the nine months ended December 31, 2022. 31 Revenues generated by our Cinema Equipment business decreased slightly despite an increase in Phase II variable consideration of $9.1 million during the period. Total system revenue recognized was $2.0 million and $9.1 million during the nine months ended December 31, 2022 and 2021, respectively. Blockbuster content released during the period ending December 31, 2022 was consistent with Studio output from the prior period, however VPF eligible theatres decreased significantly for the same period last year. Direct Operating Expenses For the Nine Months Ended December 31, Change Period over Period 2022 2021 $ Change % Change Content & Entertainment $ 29,500 $ 13,863 $ 15,637 113 % Cinema Equipment 359 560 (201 ) (36 )% $ 29,859 $ 14,423 $ 15,436 107 % The increase in direct operating expenses in the nine months ended December 31, 2022 for the Content & Entertainment segment was primarily due to $11.0 million higher content and licensing costs including royalties and distribution expenses related to the continued growth in revenue noted above, coupled with a $2.4 million increase related to DVD manufacturing and fulfillment, a $1.2 million increase in delivery, platform and Software as a service (“SaaS”) and platform expenses, primarily due to the additive DMR acquisition, $0.7 million related to film restoration and conversion and website content production costs. The decrease in direct operating expenses in the nine months ended December 31, 2022 for the Equipment business compared to the prior period was primarily due to a decrease in property taxes as a result of system sales. Selling, General and Administrative Expenses For the Nine Months Ended December 31, Change Period over Period 2022 2021 $ Change % Change Compensation expense $ 14,864 $ 10,369 $ 4,495 43 % Public company expenses 5,193 4,214 979 23 % Share-based compensation 3,906 3,277 629 19 % Insurance expense 2,048 1,181 867 73 % Other operating expenses 3,005 1,479 1,526 103 % $ 29,016 $ 20,520 $ 8,496 41 % Selling, general and administrative expenses for the nine months ended December 31, 2022 increased by $8.5 million primarily due to $2.2 million increase in compensation expense from the acquisitions of Fandor, DMR, and Bloody Disgusting, $1.6 million increase in bonus, severance and insurance expense related to management and employees, $1.0 million increase related to legal expense and $1.1 million increase in other operating expenses primarily from rent, direct marketing and subscriptions. Public company expenses include accounting, legal, audit, investor relations and other related public company costs. Depreciation and Amortization Expense For the Nine Months Ended December 31, Change Period over Period 2022 2021 $ Change % Change Amortization of Intangible Assets 2,193 2,238 (45 ) (2 )% Depreciation of Property and Equipment 715 1,425 (710 ) (50 )% $ 2,908 $ 3,663 $ (755 ) (21 )% 32 Depreciation expense decreased primarily due to the majority of our digital cinema projection systems reaching the conclusion of their ten-year useful lives during the nine months ended December 31, 2022. Interest expense, net Interest expense, net increased by $0.6 million to $0.9 million for the nine months ended December 31, 2022 as a result of deferred and earnout consideration accretion related to the acquisitions of Bloody Disgusting, FoundationTV and DMR and interest expense associated with our new Line of Credit facility obtained in September 2022. Employee retention tax credit Employee retention tax credit was $2.5 million for the nine months ended December 31, 2022 compared to no employee retention credit for the nine months ended December 31, 2021. The employee retention tax credits were filed pursuant to the CARES Act. Changes in fair value in Metaverse On April 1, 2022, trading of Metaverse’s ordinary shares was halted on the Hong Kong Stock Exchange. This investment was previously a level 1 investment as the shares were being actively traded in a marketplace, but with the trading of the shares being halted the Company needed to reassess the fair value level of the investment. Without an active market where the shares are being traded, the investment no longer qualifies as a level 1. The changes in the valuation resulted in a decrease in fair value of $1.8 million during the nine months ended December 31, 2022. Adjusted EBITDA We define Adjusted EBITDA to be earnings before interest, taxes, depreciation and amortization, other income, net, stock-based compensation and expenses, merger and acquisition costs, restructuring, transition and acquisitions expense, net, goodwill impairment and certain other items. Adjusted EBITDA is not a measurement of financial performance under GAAP and may not be comparable to other similarly titled measures of other companies. We use Adjusted EBITDA as a financial metric to measure the financial performance of the business because management believes it provides additional information with respect to the performance of its fundamental business activities. For this reason, we believe Adjusted EBITDA will also be useful to others, including our stockholders, as a valuable financial metric. We present Adjusted EBITDA because we believe that Adjusted EBITDA is a useful supplement to net income (loss) from continuing operations as an indicator of operating performance. We also believe that Adjusted EBITDA is a financial measure that is useful both to management and investors when evaluating our performance and comparing our performance with that of our competitors. We also use Adjusted EBITDA for planning purposes and to evaluate our financial performance because Adjusted EBITDA excludes certain incremental expenses or non-cash items, such as stock-based compensation charges, that we believe are not indicative of our ongoing operating performance. We believe that Adjusted EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net income (loss) from continuing operations and Adjusted EBITDA has been provided in the financial results. Adjusted EBITDA should not be considered as an alternative to net income (loss) from operations as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, Adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our Condensed Consolidated Financial Statements prepared in accordance with GAAP. 33 Following is the reconciliation of our consolidated net loss to Adjusted EBITDA: For the Three Months Ended December 31, 2022 2021 Net income (loss) $ 5,022 $ (404 ) Add Back: Income tax benefit — (26 ) Depreciation and amortization 924 1,031 Interest expense 367 97 Change in fair value on equity investment in Metaverse — (453 ) Other expense 91 107 Provision (recovery) for doubtful accounts 7 (378 ) Stock-based compensation 708 1,349 Employee retention tax credit (2,025 ) — Net (income) loss attributable to noncontrolling interest (8 ) 19 Adjusted EBITDA $ 5,086 $ 1,342 Adjustments related to Cinema Equipment Depreciation and amortization $ (82 ) $ (196 ) Provision for doubtful accounts (7 ) — Income from operations (5,948 ) (1,483 ) Adjusted EBITDA from non-Cinema Equipment $ (951 ) $ (337 ) For the Nine Months Ended December 31, 2022 2021 Net income (loss) $ (6,620 ) $ 4,595 Add Back: Income tax benefit — (576 ) Depreciation and amortization 2,908 3,663 Gain on forgiveness of PPP loan — (2,178 ) Interest expense 880 277 Change in fair value on equity investment in Metaverse 1,828 (1,453 ) Other expense 661 283 Provision (recovery) for doubtful accounts 54 (418 ) Stock-based compensation 3,906 3,278 Employee retention tax credit (2,475 ) — Net (income) loss attributable to noncontrolling interest (35 ) 23 Adjusted EBITDA $ 1,107 $ 7,494 Adjustments related to Cinema Equipment Depreciation and amortization $ (303 ) $ (1,001 ) Acquisition, integration and other expense — (11 ) Provision (recovery) for doubtful accounts (54 ) 500 Income from operations (7,720 ) (8,715 ) Adjusted EBITDA from non-Cinema Equipment $ (6,970 ) $ (1,733 ) Recent Accounting Pronouncements See Note 2 - Summary of Significant Accounting Policies to our Condensed Consolidated Financial Statements included herein. 34 Cash Flow Changes in our cash flows were as follows: For the Nine Months Ended December 31, 2022 2021 Net cash (used in) provided by operating activities $ (7,901 ) $ 4,746 Net cash used in investing activities (429 ) (5,031 ) Net cash provided by financing activities 4,064 2,636 Net increase (decrease) in cash and cash equivalents $ (4,266 ) $ 2,351 For the nine months ended December 31, 2022, net cash used in operating activities is primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, including other changes in working capital. Additionally, during the nine months ended December 31, 2022, the Company decreased accounts payable by $11.8 million to vendors. Cash received from VPFs decreased from the previous period in alignment with the decrease in eligible VPF systems. Prepaid and other current assets increased by $2.7 million. Operating cash flows from the Content & Entertainment segment are typically seasonally lower during the first two fiscal quarters and higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season. In addition, we made $1.1 million in advances for the nine months ended December 31, 2022, we make advances on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twelve months. For the nine months ended December 31, 2021, net cash provided by operating activities was primarily driven by income from operations, excluding non-cash expenses such as depreciation, amortization, provision for doubtful accounts and stock-based compensation, gain on extinguishment of note payable, including other changes in working capital. Additionally, during the nine months ended December 31, 2021, the Company paid down $32.6 million to vendors at both the Content & Entertainment segment and Corporate. Operating cash flows from the Content & Entertainment segment are typically higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season, and lower in the other two quarters as we pay royalties on such revenues. In addition, we make advances on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twenty four months. For the nine months ended December 31, 2021 revenues from the sale of digital projections Systems was $9.1 million. Off-balance sheet arrangements We are not a party to any off-balance sheet arrangements other than as discussed in Note 2 – Summary of Significant Accounting Policies, Basis of Presentation and Consolidation and Note 3 - Other Interests to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q, we hold a 100% equity interest in CDF2 Holdings, which is an unconsolidated variable interest entity (“VIE”), which wholly owns Cinedigm Digital Funding 2, LLC; however, we are not the primary beneficiary of the VIE. 35