Cineverse Corp. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our historical consolidated financial statements and the related notes included elsewhere in this document. This report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which are indicated by words or phrases such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “will,” “estimates,” and similar words. Forward-looking statements represent, as of the date of this report, our judgment relating to, among other things, future results of operations, growth plans, sales, capital requirements and general industry and business conditions applicable to us. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. OVERVIEW Since our inception, we have played a significant role in the digital distribution revolution that continues to transform the media landscape. In addition to our pioneering role in transitioning approximately 12,000 movie screens from traditional analog film prints to digital distribution, we have become a leading distributor of independent content, both through organic growth and acquisitions. We distribute products for major brands such as the NFL, Hallmark and Scholastic, as well as leading international and domestic content creators, movie producers, television producers and other short form digital content producers. We collaborate with producers, major brands and other content owners to market, source, curate and distribute quality content to targeted audiences through (i) existing and emerging digital home entertainment platforms, including but not limited to, iTunes, Amazon Prime, Netflix, Hulu, Xbox, Sony PlayStation, Tubi and cable video-on-demand (“VOD”), and (ii) physical goods, including DVD and Blu-ray Discs. We report our financial results in two primary segments as follows: (1) cinema equipment business and (2) media content and entertainment business (“Content & Entertainment” or “CEG”). The cinema equipment business segment consists of the non-recourse, financing vehicles and administrators for our digital cinema equipment (the “Systems”) installed in movie theatres throughout North America and several international countries. It also provides fee-based support to over 12,000 movie screens as well as directly to exhibitors and other third party customers in the form of monitoring, billing, collection and verification services. Our Content & Entertainment segment is a market leader in: (1) ancillary market aggregation and distribution of entertainment content and; (2) branded and curated over-the-top (“OTT”) digital network business providing entertainment channels and applications. Beginning in December 2015, certain of our cinema equipment began to reach the conclusion of their 10-year deployment payment period with certain distributors and, therefore, Virtual Print Fees (“VPF”) revenues ceased to be recognized on such Systems, related to such distributors. Furthermore, because the Phase I Deployment installation period ended in November 2007, a majority of the VPF revenue associated with the Phase I Deployment Systems has ended. The reduction in VPF revenue on cinema equipment business systems approximately coincided with the conclusion of certain of our non-recourse debt obligations and, therefore, the reduced cash outflows related to such non-recourse debt obligations partially offset the reduced VPF revenue since November 2017. Under the terms of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive one-year terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we typically pursue the sale of the Systems to such exhibitors. Such sales were as originally contemplated as the conclusion of the digital cinema deployment plan. We are structured so that our cinema equipment business segment operates independently from our Content & Entertainment business. As of December 31, 2020, we had approximately $11.9 million of non-recourse outstanding debt principal that relates to, and is serviced by, our cinema equipment business. We also have approximately $13.3 million of outstanding debt principal, as of December 31, 2020 that is attributable to our Content & Entertainment and Corporate segments. Risks and Uncertainties The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in certain industries. Closures of certain entertainment facilities and retail locations have significantly impacted consumers’ behaviors as a result of the virus outbreak and corresponding preventative measures taken around the world to mitigate the spread of the virus. As part of our Content & Entertainment business, we sell physical goods, including DVDs and Blu-ray discs, at brick-and-mortar stores. Many of such stores in the United States closed during the spring of 2020 due to COVID-19 restrictions, and many of those have not yet re-opened, or have re-opened on a limited basis. We expect that we will experience a loss of sales of such physical goods due to such closures, and we cannot predict the extent of such losses, or how long the closures or limited openings of the stores may last. As part of our Cinema Equipment business, we earn revenues that are generated when movies are exhibited by theatres. Many movie theatres in the United States closed during the spring of 2020 due to COVID-19 restrictions and many of those have not yet re-opened, or have re-opened on a limited basis. The majority of major studios moved releases originally scheduled for the three months ended December 31, 2020 to future dates with the exception of two Studios that had theatrical releases that opened in theatres on the same day as becoming available on a streaming channel. To the extent movies are not shown in movie theatres due to the closures, we have not received, and will not receive, related revenue. The studios that produce movies may elect to delay the release of movies until theatres re-open, or to bypass exhibiting movies in theatres at all and distribute the movies through other means, such as on streaming platforms, in which case we would not earn revenues at all from such movies. 35 These events have negatively affected, and are expected to continue to negatively affect, our business and results of operations. Given the dynamic nature of these events, we cannot reasonably estimate the period of time that the COVID-19 pandemic and related closures and market conditions will persist, or the extent of the impact they will have on our business or results of operations and financial condition. Results of Operations for the Three Months Ended December 31, 2020 and 2019 Revenues Three Months Ended December 31, ($ in thousands) 2020 2019 $ Change % Change Cinema Equipment Business $ 910 $ 3,129 $ (2,219 ) (71 )% Content & Entertainment Business 9,044 8,383 661 8 % $ 9,954 $ 11,512 $ (1,558 ) (14 )% Revenues generated by our Cinema Equipment Business segment decreased primarily as a result of the reduced number of Systems earning VPF revenue and commissions for Phase II Deployment Systems. In addition, as a result of COVID-19, during the three months ended December 31, 2020, theatres in many major markets remained closed throughout the third quarter causing the majority of major studios to move wide releases scheduled for the three months ended December 31, 2020 to future dates. Only two major studios had wide theatrical releases in November/December, however, the theatrical window before the streaming debut was shortened or eliminated to accommodate the lack of theatrical venues. Because our digital cinema business earns a VPF when a movie is first played on a system, the temporary theatre closures resulting from the COVID-19 pandemic resulted in reduced revenues. The revenues in the Content & Entertainment Business segment increased by 8% for the three months ended December 31, 2020 compared to the three months ended December 31, 2019. The increase is due to the addition of five new third-party OTT channels and an increase in the number of advertising partners. Direct Operating Expenses Three Months Ended December 31, ($ in thousands) 2020 2019 $ Change % Change Cinema Equipment Business $ 150 $ 312 $ (162 ) (52 )% Content & Entertainment Business 4,235 5,414 (1,179 ) (22 )% $ 4,385 $ 5,726 $ (1,341 ) (23 )% The decrease in direct operating expenses in the three months ended December 31, 2020 for the Content & Entertainment Business compared to the prior period was primarily due to transition credits received related to a new third-party DVD distributor. These credits mainly offset fulfillment and freight expenses. In addition, there was a significant decrease in manufacturing costs between the distributor in place in the prior period and the inventory reserve has decreased. The decrease in direct operating expenses in the three months ended December 31, 2020 for the Cinema Equipment Business compared to the prior period was primarily due to a reduction in head count and shifting of certain employees from full time to part time as a result of the negative impact of the Covid 19 pandemic. Selling, General and Administrative Expenses Three Months Ended December 31, ($ in thousands) 2020 2019 $ Change % Change Cinema Equipment Business $ 524 $ 536 $ (12 ) (2 )% Content & Entertainment Business 2,244 2,294 (50 ) (2 )% Corporate 2,593 167 2,426 1453 % $ 5,361 $ 2,997 $ 2,364 79 % 36 Selling, general and administrative expenses for the three month ended December 31, 2020 increase by $2.4 million, primarily due to increase in share based compensation expense of $0.8 million and a bonus expense of $1.4 million. Depreciation and Amortization Expense on Property and Equipment Three Months Ended December 31, ($ in thousands) 2020 2019 $ Change % Change Cinema Equipment Business $ 706 $ 1,475 $ (769 ) (52 )% Content & Entertainment Business 108 77 31 40 % Corporate 8 42 (34 ) (81 )% $ 822 $ 1,594 $ (772 ) (48 )% Depreciation and amortization expense decreased in our Cinema Equipment Business segment as additional digital cinema projection Systems reached the conclusion of their ten-year useful lives during fiscal year 2020. Interest expense, net Three Months Ended December 31, ($ in thousands) 2020 2019 $ Change % Change Cinema Equipment Business $ 629 $ 640 $ (11 ) (2 )% Content & Entertainment Business 9 - 9 - % Corporate 310 $ 978 $ (668 ) (68 )% $ 948 $ 1,618 $ (670 ) (41 )% Interest expense in the Cinema Equipment Business segment decreased primarily as a result of reduced note payable balances compared to the prior period, solely on the Prospect Term Loan. Interest expense in our Corporate Segment decreased as a result of lower loan balances from our Credit Facility and Second Lien Loans settled with Class A common stock and the conversion of the Bison Convertible Note and the Mingtai Convertible Note into shares of Class A Common Stock. Change in fair value of equity investment in Starrise, a related party Our investment in Starrise is accounted for at fair value with changes in fair value recognized in the statement of operations. The loss of $6.8 million during the three months ended December 31, 2020 reflects the decrease during the period in the market price of Starrise’s stock. Income Tax Expense We recorded an income tax benefit of $0 for the three months ended December 31, 2020. We recorded income tax expense of approximately $0.1 million for the three months ended December 31, 2019. Our effective tax rate for the three months ended December 31, 2020 and 2019 was 0% and negative 2.0%, respectively. 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. Consolidated Adjusted EBITDA (including the results of Cinema Equipment Business segment) for the three months ended December 31, 2020 decreased by $1.8 million compared to the three months ended December 31, 2019. Adjusted EBITDA from our Cinema Equipment Business segment decreased primarily due to state mandated theater closures due to COVID-19, the temporary halt of distribution of major studio releases and the expected decline of the Cinema Equipment Business. Adjusted EBITDA from our Content & Entertainment Business and corporate increased for the three months ended December 31, 2020 compared to the three months ended December 31, 2019 by $0.2 million due to the addition of five new third-party OTT channels and an increase in the number of advertising partners. 37 Adjusted EBITDA is not a measurement of financial performance under GAAP and may not be comparable to other similarly titled measures of other companies. We use Adjusted EBITDA as a financial metric to measure the financial performance of the business because management believes it provides additional information with respect to the performance of its fundamental business activities. For this reason, we believe Adjusted EBITDA will also be useful to others, including its stockholders, as a valuable financial metric. We present Adjusted EBITDA because we believe that Adjusted EBITDA is a useful supplement to net loss from continuing operations as an indicator of operating performance. We also believe that Adjusted EBITDA is a financial measure that is useful both to management and investors when evaluating our performance and comparing our performance with that of our competitors. We also use Adjusted EBITDA for planning purposes and to evaluate our financial performance because Adjusted EBITDA excludes certain incremental expenses or non-cash items, such as stock-based compensation charges, that we believe are not indicative of our ongoing operating performance. We believe that Adjusted EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net loss from continuing operations and Adjusted EBITDA has been provided in the financial results. Adjusted EBITDA should not be considered as an alternative to income from operations or net loss from continuing operations as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, Adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Following is the reconciliation of our consolidated net loss to Adjusted EBITDA: Three Months Ended December 31, ($ in thousands) 2020 2019 Net loss $ (9,667 ) $ (2,162 ) Add Back: Income tax expense — 136 Depreciation and amortization of property and equipment 822 1,594 Amortization of intangible assets 597 589 Loss on extinguishment of notes payable 540 — Interest expense, net 948 1,618 Changes in fair value on equity investment in Starrise 6,751 — Other (income) expense, net (66 ) 777 Stock-based compensation and expenses 960 178 Net income (loss) attributable to noncontrolling interest 23 (7 ) Adjusted EBITDA $ 908 $ 2,723 Adjustments related to the Cinema Equipment Business Depreciation and amortization of property and equipment $ (706 ) $ (1,475 ) Amortization of intangible assets (8 ) (11 ) Other income and expense (32 ) — Income (loss) from operations 691 (600 ) Adjusted EBITDA from Content & Entertainment business and corporate segment $ 885 $ 637 38 Results of Operations for the Nine Months Ended Months Ended December 31, 2020 and 2019 Revenues Nine Months Ended December 31, ($ in thousands) 2020 2019 $ Change % Change Cinema Equipment Business $ 2,158 $ 10,767 $ (8,609 ) (80 )% Content & Entertainment Business 20,996 20,789 207 1 % $ 23,154 $ 31,556 $ (8,402 ) (27 )% Revenues generated by our Cinema Equipment Business segment decreased primarily as a result of the reduced number of Systems earning VPF revenue and commissions for Phase II Deployment Systems. In addition, as a result of COVID-19, during the nine months ended December 31, 2020, theatres in many major markets remained closed throughout the third quarter causing the majority of major studios to move wide releases scheduled for the three months ended December 31, 2020 to future dates. Only two major studios had wide theatrical releases in November/December, however, the theatrical window before the streaming debut was shortened or eliminated to accommodate the lack of theatrical venues. Because our digital cinema business earns a VPF when a movie is first played on a system, the temporary theatre closures resulting from the COVID-19 pandemic resulted in reduced revenues. The revenues in the Content & Entertainment Business segment increased by 1% for the nine months ended December 31, 2020 compared to the nine months ended December 31, 2019. The increase is due to the addition of five new OTT third-party channels and an increase in the number of advertising partners. Direct Operating Expenses Nine Months Ended December 31, ($ in thousands) 2020 2019 $ Change % Change Cinema Equipment Business $ 504 $ 908 $ (404 ) (44 )% Content & Entertainment Business 10,890 12,517 (1,627 ) (13 )% $ 11,394 $ 13,425 $ (2,031 ) (15 )% The decrease in direct operating expenses in the nine months ended December 31, 2020 for the Content & Entertainment Business compared to the prior period was primarily due to a decrease in overall revenue partially offset by an increase due to transition expenses related to a new third party DVD distributor. These costs were mainly fulfillment and freight expenses. The decrease in direct operating expenses in the nine months ended December 31, 2020 for the Cinema Equipment Business compared to the prior period was primarily due to a reduction in head count and shifting of certain employees from full time to part time as a result of the negative impact of the Covid 19 pandemic. Selling, General and Administrative Expenses Nine Months Ended December 31, ($ in thousands) 2020 2019 $ Change % Change Cinema Equipment Business $ 1,704 $ 1,636 $ 68 4 % Content & Entertainment Business 6,667 8,108 (1,441 ) (18 )% Corporate 6,998 4,090 2,908 71 % $ 15,369 $ 13,834 $ 1,535 11 % 39 Selling, general and administrative expenses for the nine months ended December 31, 2020 increased by $1.5 million primarily due to a $1.2 million increase in bonus expense and a $1.7 million increase in stock based compensation, for Corporate, partially offset by decreases of $650 thousand related to personnel expenses as a result of the company-wide downsizing program and $660 thousand related to occupancy costs as a result of the company-wide program to downsize office space and move to a more remote workforce, in the Content & Entertainment Business segment. Depreciation and Amortization Expense on Property and Equipment Nine Months Ended December 31, ($ in thousands) 2020 2019 $ Change % Change Cinema Equipment Business $ 3,348 $ 4,612 $ (1,264 ) (27 )% Content & Entertainment Business 312 239 73 31 % Corporate 31 126 (95 ) (75 )% $ 3,691 $ 4,977 $ (1,286 ) (26 )% Depreciation and amortization expense decreased in our Cinema Equipment Business segment as additional digital cinema projection Systems reached the conclusion of their ten-year useful lives during the nine months ended December 31, 2020. Interest expense, net Nine Months Ended December 31, ($ in thousands) 2020 2019 $ Change % Change Cinema Equipment Business $ 1,830 $ 2,159 $ (329 ) (15 )% Content & Entertainment Business 9 — 9 — Corporate 1,593 3,554 (1,961 ) (55 )% $ 3,432 $ 5,713 $ (2,281 ) (40 )% Interest expense in the Cinema Equipment Business segment decreased primarily as a result of reduced debt balances compared to the prior period on the Prospect Term Loan. Interest expense in our Corporate Segment decreased as a result of lower loan balances from our Credit Facility and Second Lien Loans settled for Class A common stock and the conversion of the Bison Convertible Note and the Mingtai Convertible Note into shares of Class A Common Stock. Change in fair value of equity investment in Starrise, a related party Our investment in Starrise is accounted for at fair value with changes in fair value recognized in the statement of operations. The loss of $42.4 million during the nine months ended December 31, 2020 reflects the decrease during the period in the market price of Starrise’s stock. Income Tax Expense We recorded an income tax benefit of approximately $181 thousand for the nine months ended December 31, 2020. We recorded income tax expense of approximately $0.2 million nine months ended December 31, 2019. 40 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. Consolidated Adjusted EBITDA (including the results of Cinema Equipment Business segment) for the nine months ended December 31, 2020 decreased by $5.1 million compared to the nine months ended December 31, 2019. Adjusted EBITDA from our Cinema Equipment Business segment decreased primarily due to state mandated theater closures due to COVID-19, the temporary halt of distribution of major studio releases and the expected decline of the Cinema Equipment Business. Negative Adjusted EBITDA from the Content & Entertainment business and corporate segment increased by $2.6 million for the nine months ended December 31, 2020 compared to the nine months ended December 31, 2019, due to growth of OTT Streaming & Digital revenues based on higher volume for streaming due to the pandemic and adding additional channels and content compared to the prior period. Adjusted EBITDA is not a measurement of financial performance under GAAP and may not be comparable to other similarly titled measures of other companies. We use Adjusted EBITDA as a financial metric to measure the financial performance of the business because management believes it provides additional information with respect to the performance of its fundamental business activities. For this reason, we believe Adjusted EBITDA will also be useful to others, including its stockholders, as a valuable financial metric. We present Adjusted EBITDA because we believe that Adjusted EBITDA is a useful supplement to net loss from continuing operations as an indicator of operating performance. We also believe that Adjusted EBITDA is a financial measure that is useful both to management and investors when evaluating our performance and comparing our performance with that of our competitors. We also use Adjusted EBITDA for planning purposes and to evaluate our financial performance because Adjusted EBITDA excludes certain incremental expenses or non-cash items, such as stock-based compensation charges, that we believe are not indicative of our ongoing operating performance. We believe that Adjusted EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net loss from continuing operations and Adjusted EBITDA has been provided in the financial results. Adjusted EBITDA should not be considered as an alternative to income from operations or net loss from continuing operations as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, Adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Following is the reconciliation of our consolidated net loss to Adjusted EBITDA: Nine Months Ended December 31, ($ in thousands) 2020 2019 Net loss (56,103 ) (10,289 ) Add Back: Income tax (benefit) expense (181 ) 210 Depreciation and amortization of property and equipment 3,691 4,977 Amortization of intangible assets 1,778 2,178 Loss on extinguishment of notes payable 852 — Interest expense, net 3,432 5,713 Changes in fair value on equity investment in Starrise 42,377 — Other expense, net 1,539 1,536 Stock-based compensation 2,172 367 Net loss (income) attributable to noncontrolling interest 60 (8 ) Adjusted EBITDA $ (383 ) $ 4,684 Adjustments related to the Cinema Equipment Business Depreciation and amortization of property and equipment (3,348 ) (4,612 ) Amortization of intangible assets (23 ) (34 ) Stock-based compensation and expenses — 7 Other income and expense (32 ) — Income (loss) from operations 3,736 (2,650 ) Adjusted EBITDA from Content & Entertainment business and corporate segment $ (50 ) $ (2,605 ) 41 Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2020, filed with the SEC on July 6, 2020. Recent Accounting Pronouncements See Note 2 - Summary of Significant Accounting Policies to our condensed consolidated financial statements included herein. Liquidity and Capital Resources We incurred consolidated net loss of $56.3 million and $10.3 million for the nine months ended December 31, 2020 and 2019, respectively. We have incurred net losses historically and have an accumulated deficit of $467.2 million, and negative working capital of $16.6 million as of December 31, 2020. We may continue to generate net losses for the foreseeable future. In addition, we have significant debt-related contractual obligations as of December 31, 2020 and beyond. Based on these conditions, the Company entered into the following transactions described below: The East West Bank (“EWB”) credit facility has a maturity date of June 30, 2021. The Company intends to negotiate another extension of the EWB maturity date but in the event it is unable to do so successfully, the Company has the funds to pay the debt in full when due. The Prospect Loan matures on March 31, 2021. The Company and Prospect are negotiating to extend the maturity date to March 31, 2022 which may include a prepayment amount on the principal upon execution of an amendment. Capital Raise On February 2, 2021, the Company entered into a securities purchase agreement (the “Securities Purchase Agreements”) with a single institutional investor for the purchase and sale of 5,600,000 shares (the “February Shares”) of the Company’s Class A common stock. (see Note 11 – Subsequent events ). The closing of the sale of the February Shares under the Securities Purchase Agreement occurred on February 5, 2021. The aggregate gross proceeds for the sale of the February Shares was approximately $7.0 million. The net proceeds to the Company from the sale of the Shares, after deducting the fees of the placement agent but before paying the Company’s estimated offering expenses, was approximately $6.5 million. In July 2020, we entered into an At-the-Market sales agreement (the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”) and B. Riley FBR, Inc. (“B. Riley” and, together with A.G.P., the “Sales Agents”), pursuant to which the Company may offer and sell, from time to time, through the Sales Agents, shares of Common Stock at the market prices prevailing on The Nasdaq Global Market at the time of the sale of such shares. The Company is not obligated to sell any shares under the Sales Agreement. Any sales of shares made under the Sales Agreement will be made pursuant to an effective registration statement on Form S-3 filed by the Company with the SEC on July 6, 2020, for an aggregate offering price of up to $30 million. During the quarter ended December, 2020, we sold 28,405,840 shares of Common Stock under the ATM Sales Agreement. Net proceeds from such sales totaled $18.6 million. 42 On July 16, 2020, the Company entered into a securities purchase agreement (the “July Securities Purchase Agreement” for the sale of 7,213,334 shares (the “July Shares”) of Class A common stock at a purchase price of $1.50 per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3 (Reg. No. 333-239710) which was declared effective by the Securities and Exchange Commission on July 10, 2020 and an applicable prospectus supplement. This registration statement covers offerings of up to an aggregate offering price of $75.0 million. The Company closed the transaction on July 20, 2020. The aggregated gross proceeds from the sale of the July Shares were approximately $10.8 million. The net proceeds to the Company from the sale of the July Shares, after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, was approximately $10.1 million. On May 20, 2020, the Company entered into a securities purchase agreement (the “May Securities Purchase Agreement”) with certain investors for the purchase and sale of 10,666,666 shares (the “May Shares”) of Common Stock, at a purchase price of $0.75 per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3 (Reg. No. 333-238183) which was declared effective by the Securities and Exchange Commission on May 14, 2020 and an applicable prospectus supplement. The aggregate gross proceeds for the sale of the May Shares was $8.0 million. The net proceeds to the Company from the sale of the May Shares, after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, were approximately $7.1 million. Equity Investment in Starrise, a related party transaction On December 27, 2019, the Company entered into, and on February 14, 2020 amended, (see Note 2 - Summary of Significant Accounting Policies), a stock purchase agreement (as so amended, the “Starrise Stock Purchase Agreement”) with BeiTai Investment LP (“BeiTai”) and Aim Right Ventures Limited (“Aim Right”), two shareholders of Starrise Media Holdings Limited, a leading Chinese entertainment company (“Starrise”), to buy from them an aggregate of 410,901,000 outstanding Starrise ordinary shares (the “Share Acquisition”). On February 14, 2020, the Company purchased 162,162,162 of the Starrise ordinary shares from BeiTai and issued BeiTai 21,646,604 shares of Class A common stock as consideration. On April 10, 2020, the Company, in accordance with the terms of the Starrise Stock Purchase Agreement, terminated its obligation to purchase Starrise ordinary shares from Aim Right under the December 27, 2019 stock purchase agreement. On April 10, 2020, the Company entered into another stock purchase agreement (the “April Stock Purchase Agreement”) with five (5) shareholders of Starrise-Bison Global Investment SPC - Bison Global No. 1 SP, Huatai Investment LP, Antai Investment LP, Mingtai Investment LP and Shangtai Asset Management LP, to buy an aggregate of 223,380,000 outstanding Starrise ordinary shares from them and for the Company to issue to them an aggregate of 29,855,081 shares of its Class A common stock in consideration therefore (the “April Share Acquisition”). On April 15, 2020, the April Share Acquisition was consummated and recorded as an equity investment in Starrise and is a related party transaction. Starrise’s ordinary shares (HK 1616) are listed on the main board of the Stock Exchange of Hong Kong Limited. Based on the closing price of HKD 0.163 per share on February 19, 2021, calculated at an exchange rate of $7.75 Hong Kong Dollars to 1 US dollar, the market value of Cinedigm’s ownership in Starrise ordinary shares was approximately $7.6 million. Borrowings On April 15, 2020, the Company received $2.2 million from East West Bank, the Company’s existing lender, pursuant to the Paycheck Protection Program (the “PPP Loan”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 10, 2022 (the “PPP Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are due within the initial six months of the PPP Loan. The interest accrued during the initial six-month period is due and payable, together with the principal, on the PPP Maturity Date. The Company used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts are intended to be eligible for forgiveness, subject to the provisions of the CARES Act and could be subject to repayment. On June 24, 2020, the Company entered into an exchange agreement (the “Exchange Agreement”) pursuant to which the Company issued 329,501 shares of its Class A common stock, in exchange for $842 thousand principal amount and accrued and unpaid interest of outstanding Second Lien Loans (as defined in Note 6 - Notes Payable ). The surrendered Second Lien Loans were immediately canceled. The exchange was consummated on June 24, 2020. On June 26, 2020, the Company signed a consent agreement with the holders of the Second Lien loans to extend the maturity date to September 30, 2020 and grant the Company options to extend further to March 31, 2021 and then to June 30, 2021. A consent fee of $100,000 was paid in connection with this extension. On September 21, 2020, the Company extended the maturity date to March 31, 2021 upon payment of a fee of $50,000. In a separate exchange with another holder of Second Lien Notes, on November 19, 2020, the Company issued 452,499 shares of Common Stock in exchange for $247,108 principal amount of Second Lien Notes. The exchanged Second Lien Notes were immediately cancelled. 43 On December 4, 2020, the Company entered into exchange agreements (the “December Exchange Agreements”) with certain holders of notes under its Second Lien Loan Agreement dated as of July 14, 2016 among the Company, the lenders party thereto, and Cortland Capital Market Services LLC, as Agent (“Second Lien Notes”). Pursuant to the December Exchange Agreements, the Company issued an aggregate of 2,776,284 shares of its Class A common stock, par value $0.001 per share Common Stock in exchange for an aggregate of $1,386,106 of principal amount of Second Lien Notes. The exchanged Second Lien Notes were immediately cancelled. The exchange was consummated on December 4, 2020. On January 21, 2021, the Company entered into an exchange agreement (the “Exchange Agreement”) with a holder of notes under its Second Lien Loan Agreement dated as of July 14, 2016. (see Note 11 – Subsequent events ) In two separate exchanges with another holder of Second Lien Notes, on January 14, 2021 and January 21, 2021, the Company issued 689,500 shares and 580,448 shares of Common Stock in exchange for $500,000 and $600,000 principal amount, respectively, of Second Lien Notes. The exchanged Second Lien Notes were immediately cancelled. On February 9, 2021, the Company prepaid substantially all of the outstanding obligations in respect of principal, interest, fees and expenses under the Second Lien Loan Agreement, dated as of July 14, 2016 (as amended, amended and restated, supplemented or otherwise modified, the “Second Lien Loan Agreement”), among the Company, certain lenders and Cortland Capital Market Services LLC. The payoff amount of approximately $3.18 million was comprised of (i) $3.1 million of principal, (2) accrued payment-in-kind interest of $.018 million, (3) accrued current interest of $0.007 million, and (4) fees and expenses of $0.004 million. Upon such prepayment, the Second Lien Loan Agreement was terminated effective February 9, 2021. On April 15, 2020, the Company executed a letter amendment to the Bison Convertible Note (as defined in Note 6 - Notes Payable ), which amended the Note, effective as of March 4, 2020, to extend the maturity date of the Bison Convertible note to March 4, 2021. On October 9, 2019, the Company signed an extension to the Ming Tai Note of $5.0 million for the first of two (2) permitted additional (1) year extensions at the Company’s option from the original maturity date to October 9, 2020. This note will continue in full force and effect in accordance with its terms, including the Company’s reservation of its right to further extend the maturity date of this note, if it so elects. On June 25, 2020, the Company signed an amendment to extend the maturity date of the East West Credit Facility (as defined in Note 6 - Notes Payable) with East West Bank from March 30, 2021 to June 30, 2021. On September 11. 2020, the Bison and Ming Tai Notes, having an aggregate of $15 million principal amount (the “Notes”) were converted in full into an aggregate of 10,000,000 shares of Common Stock at a conversion price of $1.50 per share in accordance with the terms of the Notes. Accordingly, the Notes have been extinguished. The Notes were held by Bison Global and Mingtai, both of which are affiliates of Peixin Xu, the Chairman of Bison Capital Holding Company Limited, which is indirectly Cinedigm’s largest stockholder. Changes in our cash flows were as follows: Cash Flows Nine Months Ended December 31, ($ in thousands) 2020 2019 Net cash (used) provided by operating activities $ (16,776 ) $ 5,318 Net cash used in investing activities (110 ) (377 ) Net cash provided (used) in financing activities 28,799 (8,339 ) Net change in cash, cash equivalents and restricted cash $ 11,913 $ (3,398 ) As of December 31, 2020, we had cash and restricted cash balances of $27.2 million. As of December 31, 2019, we had cash and restricted cash balances of $15.5 million. 44 For the nine months ended December 31, 2020, net cash provided by 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, offset by changes in working capital. Additionally, during the nine months ended December 31, 2020, the Company paid down $22.0 million to vendors at both CEG and Corporate. Cash received from VPFs declined from the previous period as Phase I Deployment Systems in our Cinema Equipment Business reached the conclusion of their deployment payment period with certain major studios. Changes in accounts receivable from our studio customers largely impact cash flows from operating activities and vary based on the seasonality of movie release schedules by the major studios. Operating cash flows from CEG are typically higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season, and lower in the other two quarters as we pay royalties on such revenues. In addition, we make advances on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twelve months. Cash flows were also impacted as a result of COVID-19, during the nine months ended December 31, 2020, theatres in many major markets remained closed throughout the third quarter causing the majority of major studios to move wide releases scheduled for the three months ended December 31, 2020 to future dates. Only two major studios had wide theatrical releases in November/December, however, the theatrical window before the streaming debut was shortened or eliminated to accommodate the lack of theatrical venues. Because our digital cinema business earns a VPF when a movie is first played on a system, the temporary theatre closures resulting from the COVID-19 pandemic resulted in reduced revenues. For the nine months ended December 31, 2019, net cash provided by operating activities is primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization, provision for doubtful accounts and stock-based compensation, offset by changes in working capital. Cash received from VPFs declined from the previous period as Phase I and Phase II Deployment Systems in our Cinema Equipment Business reached the conclusion of their deployment payment period with certain major studios. Changes in accounts receivable from our studio customers largely impact cash flows from operating activities and vary based on the seasonality of movie release schedules by the major studios. Operating cash flows from CEG are typically higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season, and lower in the other two quarters as we pay royalties on such revenues. In addition, we make advances on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twelve months. For the nine months ended December 31, 2020, cash flows used in investing activities consisted of proceeds from the sale of Starrise shares of $0.8 million, purchases of property and equipment of $0.3 million, the sale of property and equipment of $0.2 million, and the purchase of intangible assets of $0.7 million related to the asset acquisition. For the nine months ended December 31, 2019, cash flows used in investing activities mainly consisted of purchases of property and equipment of $0.3 million. For the nine months ended December 31, 2020, cash flows provided by financing activities consisted of payments of approximately $22.4 million in notes payable, offset by $12.8 million from Credit Facility draws, $36.2 million received in connection with the issuance Class A common stock and the exercise of warrants, and $2.2 million received pursuant to the Payment Protection Program of the Coronavirus Aid, Relief and Economic Security Act. For the nine months ended December 31, 2019, cash flows used in financing activities reflects payments of $8.1 million for the 2013 Prospect Loan, net payments of approximately $2.7 million for the Credit Facility, and $3.3 million for the Second Lien Loans offset by $5.8 million received in connection with the sale of 3,900,000 shares of our Common Stock. We have contractual obligations that primarily consist of term notes payable, credit facilities, and non-cancelable operating leases related to office space. We may continue to generate net losses for the foreseeable future primarily due to depreciation and amortization, interest on our debt obligations, marketing and promotional activities and content acquisition and marketing costs. Certain of these costs, including costs of content acquisition, marketing and promotional activities, could be reduced if necessary. The restrictions imposed by the terms of our debt obligations may limit our ability to obtain financing, make it more difficult to satisfy our debt obligations or require us to dedicate a substantial portion of our cash flow to payments on our existing debt obligations. We feel we are adequately financed for at least the next twelve months; however, we may need to raise additional capital for working capital as deemed necessary. Failure to generate additional revenues, raise additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations or liquidity. We believe the combination of: (i) our cash and cash equivalent balances as of December 31, 2020, (ii) expected cash flows from operations, (iii) cost cutting measures including payroll expense reduction and real estate occupancy cost reductions, and (iv) the extension of maturity dates or extinguishment of our borrowings, the Starrise equity investment, the capital raises during and the support or availability of funding from other capital resources and financings will be sufficient to satisfy our contractual obligations, as well as liquidity for our operational and capital requirements, for twelve months from the filing of this document. Our capital requirements will depend on many factors, and we may need to use capital resources and obtain additional capital. Failure to generate additional revenues, obtain additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations and liquidity. 45 Seasonality Revenues from our Cinema Equipment Business segment derived from the collection of VPFs from motion picture studios are seasonal, coinciding with the timing of releases of movies by the motion picture studios. Generally, motion picture studios release the most marketable movies during the summer and the winter holiday season. The unexpected emergence of a hit movie during other periods can alter the traditional trend. The timing of movie releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or any other quarter. Our CEG segment benefits from the winter holiday season, and as a result, revenues in the segment are typically highest in our fiscal third quarter; however, we believe the seasonality of motion picture exhibition is becoming less pronounced as the motion picture studios are releasing movies more evenly throughout the year. For the nine months ended December 31, 2020, the pandemic caused theaters to close and distributors to move their theatrical releases to future dates or release their content on streaming platforms. Therefore, the normal seasonality for the Cinema Equipment Business was not an impact for this period. Off-balance sheet arrangements We are not a party to any off-balance sheet arrangements, other than operating leases in the ordinary course of business, which are disclosed above in the table of our significant contractual obligations, and CDF2 Holdings, LLC (“CDF2 Holdings”), our wholly-owned unconsolidated subsidiary. As discussed further in Note 3 - Other Interests to the Condensed Consolidated Financial Statements included in Item 1 of this Report on Form 10-Q, we hold a 100% equity interest in CDF2 Holdings, which is an unconsolidated variable interest entity (“VIE”), which wholly owns Cinedigm Digital Funding 2, LLC; however, we are not the primary beneficiary of the VIE. Impact of Inflation The impact of inflation on our operations has not been significant to date. However, there can be no assurance that a high rate of inflation in the future would not have an adverse impact on our operating results.