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 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 digital and physical products for major brands such as the Hallmark Channel, Televisa, ITV, Nelvana, ZDF, Konami, NFL, NHL and Aniplex. We collaborate with producers, international and domestic content creators of movies, television series and short form content 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, Amazon Prime, Netflix, Hulu, Xbox, Tubi, Roku, Pluto TV, and cable video-on-demand (“VOD”), and (ii) physical goods, including DVD and Blu-ray Discs, to Walmart, Target, Amazon and others. We report our financial results in two primary segments as follows: (1) cinema equipment business and (2) 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 4,609 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. Cinedigm recognizes revenue once the customer takes possession of the systems and is predicated on Cinedigm’s receipt of sale proceeds. Such sales were 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, 2021, we had no non-recourse outstanding debt principal that relates to, and is serviced by, our cinema equipment business. We had no outstanding debt principal, as of December 31, 2021 that is attributable to our Content & Entertainment segment and Corporate. 30 Risks and Uncertainties The COVID-19 pandemic and related economic repercussions created significant volatility and uncertainty impacting the Company’s results for the period. As part of our Content & Entertainment business, the Company sells DVDs and Blu-ray discs at brick-and-mortar stores. With the closure of non-essential retail stores beginning in the spring of 2020, the sale of physical discs through our retail partners declined although this was partially offset by digital rentals and purchases. As part of our Cinema Equipment business, the Company earns revenue when movies are exhibited in theatres. As vaccines became readily available and COVID-19 cases decreased, major studios continued to release tentpole films in the theatrical markets as box office results steadily showed improvement in the three months ending December 31, 2021. However, the number of wide releases remains below pre-pandemic levels in this quarter as studios continue to shuffle release dates and test theatrical windows. The Canadian government tightened Movie Theatre restrictions amid a Covid surge due to the Omicron variant as well as shuttering all Quebec theatres during this quarter. Movie theatres in the U.S. remained open and continued to follow NATO CinemaSafe protocols in an effort to help reinforce consumer confidence in the safety of the theatrical moviegoing experience Longer term, there may be a shift in consumer preference towards digital consumption over theatrical viewing. Studios may reduce their theatrical slates to tentpoles and certain genres releasing other content directly on their own streaming services first. If fewer movies are released theatrically, this shift to digital viewing reduces revenue opportunities for virtual print fees and sales of digital cinema equipment. While the Company has been encouraged by the pace of mass vaccinations, spikes or the emergence of new variants could require future closures, which impact the Cinema Equipment business. In connection with the CEG business, if larger branded companies choose to make their content available earlier on their own streaming platforms, this could limit our ability to monetize this content on a transactional digital basis, as consumers can access it via the company’s own streaming platform such as Hallmark Movies Now. However, most content suppliers including filmmakers and producers, do not have their own streaming platforms and rely on us for distribution through our digital home entertainment business and OTT digital networks. As a result, this risk is limited, and our digital distribution capabilities and digital networks provide us with the opportunity to take advantage of this consumer shift towards digital consumption. Over the first year and a half of the COVD-19 pandemic, film and TV production slowed-down and independent producers and filmmakers had to either suspend or delay their productions due to rising infection rates and the high costs of appropriate COVID-19 production protocols. As a result, there are fewer available films to acquire, so our pipeline for content from completed films and co-productions has been negatively impacted. In addition, with the rise of new variants, productions may be at risk again of shutting down, being delayed or having prohibitive COVID-compliant costs which would further limit available content to acquire. The COVID-19 pandemic has also resulted in an acceleration of cord-cutting, and, as more consumers move away from cable and satellite, this could lead to a decrease in cable/satellite TV VOD revenues, as well as a decrease in licensing fees as Pay One window budgets shift from licensing and towards originals. However, given the overall shift towards digital consumption, these risks may be offset by increased revenues from transactional, subscription and ad supported/FAST platforms, including our own owned and operated digital network business. 31 Liquidity We have incurred net losses historically and have an accumulated deficit of $469.7 million and our working capital is $2.9 million as of December 31, 2021. We may continue to generate net losses for the foreseeable future. In addition, we have had debt-related contractual obligations. Upon a series of payments between April 30 and July 9, 2021, the Company paid in full the Prospect Loan (as defined below) non-recourse debt amount by paying an aggregate principal amount of $7.8 million. As of December 31, 2021 there was $0 million principal outstanding and there was no availability under the Credit Facility which expired on September 28, 2021. Net cash provided by operating activities for the nine months ended December 31, 2021 was $4.7 million. Based on these conditions and the Company´s financing strategies, the Company entered into the transactions described below: Capital Raises On February 2, 2021, the Company entered into a securities purchase agreement with a single institutional investor for the purchase and sale of 5,600,000 shares of our Class A common stock, par value $0.001 per share (the “Common Stock”) at a purchase price of $1.25 per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3 which was declared effective by the Securities and Exchange Commission on July 10, 2020 (File No. 333-239710) (the “2020 Shelf Registration Statement”) and an applicable prospectus supplement. The closing of the sale occurred on February 5, 2021. The aggregate gross proceeds for the sale were approximately $7.0 million. The net proceeds to the Company from the sale, 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 Nasdaq at the time of the sale of such shares. The Company is not obligated to sell any shares under the ATM Sales Agreement. Any sales of shares made under the ATM Sales Agreement will be made pursuant to the 2020 Shelf Registration Statement for an aggregate offering price of up to $30 million. During the quarter ended December 31, 2021, we did not sell any shares of Common Stock under the ATM Sales Agreement. The 2020 Shelf Registration Statement is unavailable to us, and accordingly we cannot sell any shares of Common Stock under the ATM Sales Agreement, until September 1, 2022. On July 16, 2020, the Company entered into a securities purchase agreement with certain investors for the purchase and sale of 7,213,334 shares of Class A common stock, par value $0.001 per share, at a purchase price of $1.50 per share, in a registered direct offering, pursuant to the 2020 Shelf Registration Statement and an applicable prospectus supplement. The closing of the sale occurred on July 20, 2020. The aggregate gross proceeds for the sale was approximately $10.8 million. The net proceeds to the Company from the sale, after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, is approximately $10.1 million. On May 20, 2020, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain investors (the “Investors”) for the purchase and sale of 10,666,666 shares of the Class A common stock, at a purchase price of $0.75 per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3 which was declared effective by the Securities and Exchange Commission on May 14, 2020 (File No. 333-238183) and an applicable prospectus supplement. The closing of the sale occurred on May 22, 2020. The aggregate gross proceeds for the sale was $8.0 million. The net proceeds to the Company from the sale, after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, were approximately $7.1 million. As of December 31, 2021, there is still approximately $38.0 million remaining unsold under the 2020 Shelf Registration Statement. Sale of Cinematic Equipment On March 17, 2021, the Company entered into two separate agreements for the sale of cinematic equipment to American Multi-Cinema, Inc. (“AMC”), The agreements included the sale in tranches of a total of 2,369 cinematic projectors starting in March 2021 and continuing through January 2023 for total cash consideration of $10.8 million. Through December 31, 2021, the Company recognized aggregate revenue for $9.1 million. A portion of the total proceeds were used to paydown the remaining outstanding balance of the Prospect Loan notes payable. Equity Investment in a Related Party 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”), a related party for accounting purposes of Cinedigm 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 “Starrise 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 Common Stock in consideration therefor. The Starrise shares received were valued at approximately $25 million and the Company issued shares that were valued at approximately $11.2 million. On April 10, 2020, the Company, in accordance with the terms of the Starrise Stock Purchase Agreement, terminated its obligation to purchase Starrise ordinary shares from Aim Right under the Starrise Stock Purchase Agreement. 32 On April 10, 2020, the Company entered into another stock purchase agreement (the “April Starrise 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 – all of which are related parties to the Company, 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 Common Stock as consideration therefor (the “April Starrise Share Acquisition”). On April 15, 2020, the April Starrise Share Acquisition was consummated and this transaction was also recorded as an equity investment in Starrise. 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 0.159 per share on February 11, 2022, calculated at an exchange rate of 7.8 Hong Kong Dollars to 1 US dollar, the market value of Cinedigm’s ownership in Starrise ordinary shares was approximately $7.4 million. Borrowings On June 22, 2021, the maturity date of the East West Credit Facility (as defined in Note 5 - Notes Payable) with East West Bank was extended from June 30, 2021 to September 28, 2021 and was not extended. 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 July 7, 2021, the Company received notification from the Lender that the U.S. Small Business Administration had approved the Company’s PPP Loan forgiveness application for the entire PPP Loan amount and accrued interest effective as of June 30, 2021. The forgiveness of the PPP Loan was recognized as a gain of $2.2 million during the Company’s fiscal quarter ending June 30, 2021. Upon a series of payments between April 30 and July 9, 2021, the Company paid in full the Prospect Loan (as defined in Note 5 – Notes Payable ) outstanding non-recourse debt amount by paying an aggregate principal amount of $7.8 million. Pre-payment of the Prospect Loan was permissible without penalty. Common Stock Purchase Agreement In October 2021, we entered into a Common Stock Purchase Agreement (the “Equity Line Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with B. Riley Principal Capital, LLC (“B. Riley Principal Capital”). Pursuant to the Equity Line Purchase Agreement, the Company has the right to sell to B. Riley Principal Capital up to the lesser of (i) $50,000,000 of newly issued shares of Common Stock and (ii) the Exchange Cap (as defined below) (subject to certain conditions and limitations), from time to time during the 24-month period from and after the October 21, 2021. Sales of Common Stock pursuant to the Equity Line Purchase Agreement, and the timing of any sales, are solely at the option of the Company, and the Company is under no obligation to sell any securities to B. Riley Principal Capital under the Equity Line Purchase Agreement. As consideration for B. Riley Principal Capital’s commitment to purchase shares of Common Stock at the Company’s direction upon the terms and subject to the conditions set forth in the Equity Line Purchase Agreement, upon execution of the Equity Line Purchase Agreement, the Company issued 210,084 shares of Common Stock to B. Riley Principal Capital (the “Commitment Shares”). The purchase price of the shares of Common Stock that we elect to sell to B. Riley Principal Capital pursuant to the Equity Line Purchase Agreement will be determined by reference to the volume weighted average price of the Common Stock (“VWAP”) during the applicable purchase date, less a fixed 5% discount to such VWAP. Pursuant to the Registration Rights Agreement, the Company filed a Registration Statement on Form S-1 that was declared effective by the Securities and Exchange Commission on October 21, 2021 (File No. 333-260210) for the resale by B. Riley Principal Capital of up to 25,210,084 shares of Common Stock (including the Commitment Shares) acquired pursuant to the Equity Line Purchase Agreement. During October and November 2021, we sold 5,300,000 shares of Common Stock under the Equity Line Purchase Agreement. Net proceeds from such sales totaled $12.4 million. We believe the combination of: (i) our cash and cash equivalent balances at December 31, 2021 and (ii) expected cash flows from operations, as well as liquidity for our operational and capital needs, for twelve months from the filing of this report. 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. 33 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 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. Our significant accounting policies are discussed in Note 2 - Summary of Significant Accounting Policies , of the Notes to Consolidated Financial Statements, Financial Statements and Supplementary Data , of this Quarterly Report on Form 10-Q. Management believes that the following accounting policies 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. PROPERTY AND EQUIPMENT Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation expense is recorded using the straight-line method over the estimated useful lives of the respective assets as follows: Computer equipment and software 3-5 years Internal use software 5 years Digital cinema projection systems 10 years Machinery and equipment 3-10 years Furniture and fixtures 3-6 years Leasehold improvements are being amortized over the shorter of the lease term or the estimated useful life of the improvement. Maintenance and repair costs are charged to expense as incurred. Major renewals, improvements and additions are capitalized. Software developed or purchased for internal use by the Company is capitalized and amortized over its estimated useful life. Changes in these estimates could result in impairment in the value of the asset. Useful lives are determined based on an estimate of either physical or economic obsolescence, or both. During the three and nine months ended December 31, 2021 and 2020, we have neither made any revisions to estimated useful lives, nor recorded any impairment charges on our property, equipment and internal use software. FAIR VALUE ESTIMATES Goodwill, Finite-Lived Assets and Long-Lived Assets We evaluate our goodwill for impairment in the fourth quarter of each fiscal year (as of March 31), or whenever events or changes in circumstances indicate the fair value of a reporting unit is below its carrying amount. The determination of whether or not goodwill has become impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the value of our reporting units. 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 our operations. To the extent additional information arises, market conditions change or our strategies change, it is possible that the conclusion regarding whether goodwill is impaired could change and result in future goodwill impairment charges that could have a material adverse 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 quantitative test involves comparing the estimated fair value of a reporting unit with its respective book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired. If, however, the fair value of the reporting unit is less than book value, an impairment loss is recognized in an amount equal to the excess. 34 During the three and nine months ended December 31, 2021 and 2020, there were no impairment charges recorded on goodwill. In 2021, we elected to conduct a qualitative goodwill assessment and in 2020 we conducted a quantitative goodwill assessment. In determining fair value, we used various assumptions, including expectations of future cash flows based on projections or forecasts derived from analysis of business prospects, economic or market trends and any regulatory changes that may occur. We estimated the fair value of the reporting unit using a net present value methodology, which is dependent on significant assumptions related to estimated future discounted cash flows, discount rates and tax rates. Certain of the estimates and assumptions that we used in determining the value of our CEG reporting unit are discussed in Note 2 - Summary of Significant Accounting Policies . 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. Determining whether impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the asset’s residual value, if any. The assessment for recoverability is based primarily on our ability to recover the carrying value of its 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 assets 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. REVENUE RECOGNITION We determine revenue recognition by: ● identifying the contract, or contracts, with the customer; ● identifying the performance obligations in the contract; ● determining the transaction price; ● allocating the transaction price to performance obligations in the contract; and ● recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services. We recognize revenue in the amount that reflects the consideration we expect to receive in exchange for the services provided, sales of physical products (e.g., DVDs and Blu-ray Discs) or when the content is available for subscription on the digital platform or available on the point-of-sale for transactional and video on demand services which is when the control of the promised products and services is transferred to our customers and our performance obligations under the contract have been satisfied. Revenues that might be subject to various taxes are recorded net of transaction taxes assessed by governmental authorities such as sales value-added taxes and other similar taxes. Payment terms and conditions vary by customer and typically provide net 30 to 90 day terms. We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and payment for that product or service will be one year or less. We have in the past entered into arrangements in connection with activation fees due from our System deployments that had extended payment terms. The outstanding balances on these arrangements are insignificant and hence the impact of significant financing would be insignificant. Cinema Equipment Business Our Cinema Equipment Business consists of financing vehicles and administrators for 1,631 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 2,978 Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”). We retain ownership of our digital cinema equipment (the “Systems”) and the residual cash flows related to the Systems in Phase I Deployment after the end of the 10-year deployment payment period. 35 For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements. The Cinema Equipment Business also provides monitoring, data collection, serial data verification and management services to this segment, as well as to exhibitors who purchase their own equipment, in order to collect virtual print fees (“VPFs”) from motion picture studios and distributors and ACFs from alternative content providers, and to distribute those fees to theatrical exhibitors (collectively, “Services”). VPFs are earned, net of administrative fees, pursuant to contracts with movie studios and distributors, whereby amounts are payable by a studio to Phase I Deployment and to Phase II Deployment when movies distributed by the studio are displayed on screens utilizing our Systems installed in movie theatres. VPFs are earned and payable to Phase I Deployment based on a defined fee schedule until the end of the VPF term. One VPF is payable for every digital title initially displayed per System. The amount of VPF revenue is dependent on the number of movie titles released and displayed using the Systems in any given accounting period. VPF revenue is recognized in the period in which the digital title first plays on a System for general audience viewing in a digitally equipped movie theatre, as Phase I Deployment’s and Phase II Deployment’s performance obligations have been substantially met at that time. Phase II Deployment’s agreements with distributors require the payment of VPFs, according to a defined fee schedule, for ten years from the date each system is installed; however, Phase II Deployment may no longer collect VPFs once “cost recoupment,” as defined in the contracts with movie studios and distributors, is achieved. Cost recoupment will occur once the cumulative VPFs and other cash receipts collected by Phase II Deployment have equaled the total of all cash outflows, including the purchase price of all Systems, all financing costs, all “overhead and ongoing costs”, as defined, and including service fees, subject to maximum agreed upon amounts during the three-year rollout period and thereafter. Further, if cost recoupment occurs before the end of the eighth contract year, the studios will pay us a one-time “cost recoupment bonus.” The Company evaluated the constraining estimates related to the variable consideration, i.e., the one-time bonus and determined that it is not probable to conclude at this point in time that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is subsequently resolved. Under the terms of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive one-year terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we typically pursue the sale of the Systems to such exhibitors. Cinedigm recognizes revenue once the customer takes possession of the systems and is predicated on Cinedigm’s receipt of sale proceeds. Such sales were originally contemplated as the conclusion of the digital cinema deployment plan. Total system sales revenue recognized were $1.3 million and $66 thousand, during the three months ended December 31, 2021 and 2020, respectively. Total system sales revenue recognized were $9.1 million and $157 thousand, during the nine months ended December 31, 2021 and 2020, respectively. Revenues earned in connection with up front exhibitor contributions are deferred and recognized over the expected cost recoupment period. Exhibitors who purchased and own Systems using their own financing in Phase II of the Cinema Equipment Business paid us an upfront activation fee of approximately $2.0 thousand per screen (the “Exhibitor-Buyer Structure”). Upfront activation fees were recognized in the period in which these Systems were delivered and ready for content, as we had no further obligations to the customer after that time and collection was reasonably assured. In addition, we recognize activation fee revenue of between $1.0 thousand and $2.0 thousand on Phase II Deployment Systems and for Systems installed by CDF2 Holdings, a related party, (See Note 3 - Other Interests ) upon installation and such fees are generally collected upfront upon installation. Our services division manages and collects VPFs on behalf of exhibitors, for which it earns an administrative fee equal to 10% of the VPFs collected. 36 The Cinema Equipment Business earns an administrative fee of approximately 5% of VPFs collected and, in addition, earns an incentive service fee equal to 2.5% of the VPFs earned by Phase 1 DC. This administrative fee is related to the collection and remittance of the VPF’s and the performance obligation is satisfied at that time the related VPF fees are due which is at the time the movies are displayed on screens utilizing our Systems installed in movie theatres. The service fees are recognized as a point in time revenue when the corresponding VPF fees are due from the movie studios and distributors. Content & Entertainment Business CEG earns fees for the distribution of content in the home entertainment markets via several distribution channels, including digital, video on demand (“VOD” or “OTT Streaming and Digital”), and physical goods (e.g., DVDs and Blu-ray Discs) (“Physical Revenue” or “Base Distribution Business”). Fees earned are typically a percentage based on the net amounts received from our customers. Depending upon the nature of the agreements with the platform and content providers, the fee rate that we earn varies. The Company’s performance obligations include the delivery of content for transactional, subscription and ad supported/FAST on the digital platforms, and shipment of DVDs and Blu-ray Discs. Revenue is recognized at the point in time when the performance obligation is satisfied which is when the content is available for subscription on the digital platform, at the time of shipment for physical goods, or point-of-sale for transactional and VOD services as the control over the content or the physical title is transferred to the customer. The Company considers the delivery of content through various distribution channels to be a single performance obligation. Physical Revenue is recognized after deducting the reserves for sales returns and other allowances, which are accounted for as variable consideration. Physical goods reserves for sales returns and other allowances are recorded based upon historical experience. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required. CEG also has contracts for the theatrical distribution of third party feature movies and alternative content. CEG’s distribution fee revenue and CEG’s participation in box office receipts is recognized at the time a feature movie and alternative content are viewed. CEG has the right to receive or bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded as a receivable at the time of execution, and all related distribution revenue is deferred until the third party feature movies’ or alternative content’s theatrical release date. Principal Agent Considerations We determine whether revenue should be reported on a gross or net basis for each revenue stream based on the transfer of control of goods and services. Key indicators that we use in evaluating gross versus net treatment include, but are not limited to, the following: ● which party is primarily responsible for fulfilling the promise to provide the specified good or service; and ● which party has discretion in establishing the price for the specified good or service. Shipping and Handling Shipping and handling costs are incurred to move physical goods (e.g., DVDs and Blu-ray Discs) to customers. We recognize all shipping and handling costs as an expense in cost of goods sold because we are responsible for delivery of the product to our customers prior to transfer of control to the customer. 37 Credit Losses We maintain reserves for potential credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis. Our CEG segment recognizes accounts receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that it recognizes revenue from a sale. Reserves for product returns and other allowances is variable consideration as part of the transaction price. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required. We record accounts receivable, long-term in connection with activation fees that we earn from Systems deployments that have extended payment terms. Such accounts receivable are discounted to their present value at prevailing market rates. The outstanding balances on these arrangements are insignificant and hence the impact of significant financing would be insignificant. Contract Liabilities We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability) when cash payments are received or due in advance of our performance, even if amounts are refundable. Deferred revenue pertaining to our Content & Entertainment Business includes amounts related to the sale of DVDs with future release dates. Deferred revenue relating to our Cinema Equipment Business pertains to revenues earned in connection with up front exhibitor contributions that are deferred and recognized over the expected cost recoupment period. It also includes unamortized balances in connection with activation fees due from the Systems deployments that have extended payment terms. The ending deferred revenue balance as of December 31, 2021 was $0.3 million. For the three and nine months ended December 31, 2021 and 2020, respectively, the additions to our deferred revenue balance were primarily due to cash payments received or due in advance of satisfying performance obligations, while the reductions to our deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business. During the three months ended December 31, 2021 and 2020, $0.3 million and $1.2 million, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. During the nine months ended December 31, 2021 and 2020, $0.6 million and $2.5 million, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. As of December 31, 2021, the aggregate amount of contract revenue allocated to unsatisfied performance obligations was $0.3 million. This amount is to be recognized among January and February of 2022. Participations and royalties payable When we use third parties to distribute company owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers. 38 BUSINESS COMBINATIONS A business combination is an acquisition of business. Business combinations are accounted by allocating the fair value of the purchase price of the assets acquired and liabilities assumed. Results of Operations for the Three Months Ended December 31, 2021 and 2020 Revenues For the Three Months Ended December 31, ($ in thousands) 2021 2020 $ Change % Change Cinema Equipment Business $ 2,060 $ 910 $ 1,150 126 % Content & Entertainment 12,024 9,044 2,980 33 % $ 14,084 $ 9,954 $ 4,130 41 % The revenues in the Content & Entertainment Business segment increased by 33% for the three months ended December 31, 2021 compared to the three months ended December 31, 2020. The increase is attributed to organic growth and the addition of new streaming channels. In addition, the Company deployed new advertising technology from our streaming partner Amagi, which had a material impact on the Company’s advertising fill and click-per-thousand impression (“CPM”) rates. The revenues in the Cinema Equipment Business segment increased by 126% for the three months ended December 31, 2021 compared to the three months ended December 31, 2020, primarily due to the terms of ongoing digital projector sales to exhibitors in the Cinedigm Equipment Business deployments. Direct Operating Expenses For the Three Months Ended December 31, ($ in thousands) 2021 2020 $ Change % Change Cinema Equipment Business $ 139 $ 150 $ (11 ) (7 )% Content & Entertainment 6,320 4,235 2,085 49 % $ 6,459 $ 4,385 $ 2,074 47 % The decrease in direct operating expenses in the three months ended December 31, 2021 for the Cinema Equipment Business compared to the prior year period was primarily due to a decrease in property tax liabilities as assets were sold. The increase in direct operating expenses in the three months ended December 31, 2021 for the Content & Entertainment Business compared to the prior year period was primarily due to significant increase in revenue share to the OTT managed channels due to continued growth in revenue and distribution of $1,787 thousand as well as additive owned channel expense for Fandor, Screambox and Bloody Disgusting of $153 thousand. Selling, General and Administrative Expenses For the Three Months Ended December 31, ($ in thousands) 2021 2020 $ Change % Change Cinema Equipment Business $ 496 $ 524 $ (28 ) (5 )% Content & Entertainment 3,701 2,244 1,457 65 % Corporate 3,539 2,593 946 36 % $ 7,736 $ 5,361 $ 2,375 44 % Selling, general and administrative expenses for the three months ended December 31, 2021 increased by $2.4 million primarily due to a $2.5 million increase in bonus incentive expense, additional personnel and stock-based compensation to management and employees, partially offset by $0.1 million less legal expense and $0.1 million less computer expense. 39 Bad Debt expense The bad debt benefit recovery was $378 thousand and $70 thousand for the three months ended December 31, 2021 and 2020, respectively. These amounts are related to Cinema Equipment Business and Content & Entertainment accounts that are deemed uncollectable. Depreciation and Amortization Expense on Property and Equipment For the Three Months Ended December 31, ($ in thousands) 2021 2020 $ Change % Change Cinema Equipment Business $ 196 706 (510 ) (72 )% Content & Entertainment 138 108 30 28 % Corporate 2 8 (6 ) (75 )% $ 336 $ 822 $ (486 ) (59 )% Depreciation and amortization expense decreased in our Cinema Equipment Business Segment as the majority of our digital cinema projection systems reached the conclusion of their ten-year useful lives during the year ended March 31, 2021, leading to a lower fixed asset balance to be depreciated in the three months ended December 31, 2021. Content & Entertainment depreciation and amortization expense is higher due to newly developed internal software programs placed in service and an increase in streaming-related content acquisitions. Interest expense, net For the Three Months Ended December 31, ($ in thousands) 2021 2020 $ Change % Change Cinema Equipment Business $ — $ 629 $ (629 ) (100 )% Content & Entertainment — 9 (9 ) (100 )% Corporate 97 310 (213 ) (69 )% $ 97 $ 948 $ (851 ) (90 )% Interest expense in the Cinema Equipment Business segment decreased primarily as a result of satisfying debt balances compared to the prior period on the Prospect Loan. Interest expense in our Corporate segment decreased as a result of eliminating the loan balances from our Credit Facility. Income Tax Benefit We recorded income tax benefits of approximately $26 thousand and $0 for the three months ended December 31, 2021 and 2020, respectively. Our effective tax rate for the three months ended December 31, 2021 and 2020 was 3.8% and 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, change in fair value on equity investment in Starrise and certain other items. Consolidated Adjusted EBITDA (including the results of Cinema Equipment Business segment) for the three months ended December 31, 2021 increased by $434 thousand compared to the three months ended December 31, 2020. Adjusted EBITDA from our Cinema Equipment Business segment increased by $1.2 million primarily due to the terms of ongoing digital projector sales to related exhibitors in the Cinedigm deployments. Adjusted EBITDA from the Content & Entertainment business and Corporate segment decreased by $792 thousand for the three months ended December 31, 2021 compared to the three months ended December 31, 2020, due to the bonus incentive expense and additional headcount. 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. 40 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 to both 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: For the Three Months Ended December 31, ($ in thousands) 2021 2020 Net loss $ (404 ) $ (9,667 ) Add Back: Income tax expense (benefit) (26 ) — Depreciation and amortization of property and equipment 336 822 Amortization of intangible assets 695 597 Loss on extinguishment of note payable — 540 Interest expense, net 97 948 Change in fair value on equity investment in Starrise (453 ) 6,751 Acquisition, integration and other expense 107 (66 ) Recovery benefit of doubtful accounts (378 ) — Stock-based compensation 1,349 960 Net income attributable to noncontrolling interest 19 23 Adjusted EBITDA $ 1,342 $ 908 Adjustments related to the Cinema Equipment Business Depreciation and amortization of property and equipment $ (196 ) $ (706 ) Amortization of intangible assets — (8 ) Stock-based compensation and expenses — — Acquisition, integration and other expense — — Provision for doubtful accounts — — Other income — (32 ) Income from operations (1,483 ) 691 Adjusted EBITDA from non-cinema equipment business $ (337 ) $ 853 Results of Operations for the Nine Months Ended December 31, 2021 and 2020 Revenues For the Nine Months Ended December 31, ($ in thousands) 2021 2020 $ Change % Change Cinema Equipment Business $ 11,544 $ 2,158 $ 9,386 435 % Content & Entertainment 27,658 20,996 6,662 32 % $ 39,202 $ 23,154 $ 16,048 69 % 41 The revenues in the Content & Entertainment Business segment increased by 32% for the nine months ended December 31, 2021 compared to the nine months ended December 31, 2020. The increase is attributed to the addition of several new streaming channels, organic growth in existing channels, and an expansion of the Company’s distribution with new and existing Smart TV platforms. In addition, the Company deployed new advertising technology from our streaming partner Amagi, which had a material impact on the Company’s advertising fill and click-per-thousand impression (“CPM”) rates. The revenues in the Cinema Equipment Business segment increased by 435% for the nine months ended December 31, 2021 compared to the nine months ended December 31, 2020. Cinema Equipment Business segment increased primarily due to the terms of ongoing digital projector sales to related exhibitors in the Cinedigm deployments. Direct Operating Expenses For the Nine Months Ended December 31, ($ in thousands) 2021 2020 $ Change % Change Cinema Equipment Business $ 560 $ 504 $ 56 11 % Content & Entertainment 13,863 10,890 2,973 27 % $ 14,423 $ 11,394 $ 3,029 27 % The increase in direct operating expenses in the nine months ended December 31, 2021 for the Cinema Equipment Business compared to the prior year period was primarily due to an increase in property tax obligations in the beginning of the fiscal year for the Cinedigm owned projector assets. The increase in direct operating expenses in the nine months ended December 31, 2021 for the Content & Entertainment Business compared to the prior year period was primarily due to higher streaming and delivery costs driven by increases in revenue and distribution for managed channels, partially offset by a decrease in manufacturing and fulfillment of physical sales. Selling, General and Administrative Expenses For the Nine Months Ended December 31, ($ in thousands) 2021 2020 $ Change % Change Cinema Equipment Business $ 1,356 $ 1,704 $ (348 ) (20 )% Content & Entertainment 9,999 6,667 3,332 50 % Corporate 9,583 6,998 2,585 37 % $ 20,938 $ 15,369 $ 5,569 36 % Selling, general and administrative expenses for the nine months ended December 31, 2021 increased by $5.6 million primarily due to a $4.9 million increase in bonus incentive expense, additional personnel and stock-based compensation to management and employees, $0.5 million for legal and accounting fees related to securities reporting and consulting, and $0.2 million for remote-working equipment and computer expense. Bad Debt expense The bad debt benefit recovery was $418 thousand and $123 thousand for the nine months ended December 31, 2021 and 2020, respectively. These amounts are related to Cinema Equipment Business and Content & Entertainment accounts that are deemed uncollectable. Depreciation and Amortization Expense on Property and Equipment For the Nine Months Ended December 31, ($ in thousands) 2021 2020 $ Change % Change Cinema Equipment Business $ 1,001 3,348 (2,347 ) (70 )% Content & Entertainment 422 312 110 35 % Corporate 2 31 (29 ) (94 )% $ 1,425 $ 3,691 $ (2,266 ) (61 )% Depreciation and amortization expense decreased in our Cinema Equipment Business Segment as the majority of our digital cinema projection systems reached the conclusion of their ten-year useful lives during the year ended March 31, 2021 leading to a lower fixed asset balance to be depreciated in the nine months ended December 31, 2021. Content & Entertainment depreciation and amortization expense is higher for the newly developed internal software programs placed in service this year and an increase in streaming-related content acquisitions. 42 Interest expense, net For the Nine Months Ended December 31, ($ in thousands) 2021 2020 $ Change % Change Cinema Equipment Business $ 138 $ 1,830 $ (1,692 ) (92 )% Content & Entertainment — 9 (9 ) (100 )% Corporate 139 1,593 (1,454 ) (91 )% $ 277 $ 3,432 $ (3,155 ) (92 )% Interest expense in the Cinema Equipment Business segment decreased primarily as a result of eliminating debt balances compared to the prior period on the Prospect Loan. Interest expense in our Corporate segment decreased as a result of eliminating the loan balance from our Credit Facility, and other loans, in addition to the conversion of certain notes into shares of Class A common stock in the prior year period. Income Tax Benefit We recorded income tax benefits of approximately $576 thousand and $181 thousand for the nine months ended December 31, 2021 and 2020, respectively. Our effective tax rate for the nine months ended December 31, 2021 and 2020 was negative 14.0% and 0.3%, 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, change in fair value on equity investment in Starrise and certain other items. Consolidated Adjusted EBITDA (including the results of Cinema Equipment Business segment) for the nine months ended December 31, 2021 increased by $7.9 million compared to the nine months ended December 31, 2020. Adjusted EBITDA from our Cinema Equipment Business segment increased primarily due to the terms of ongoing digital projector sales to related exhibitors in the Cinedigm deployments. Adjusted EBITDA from the Content & Entertainment business and Corporate segment decreased by $1.7 million for the nine months ended December 31, 2021 compared to the nine months ended December 31, 2020, due to additional costs associated with the growth of streaming and digital business 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. 43 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: For the Nine Months Ended December 31, ($ in thousands) 2021 2020 Net income (loss) $ 4,595 $ (56,103 ) Add Back: Income tax benefit (576 ) (181 ) Depreciation and amortization of property and equipment 1,425 3,691 Amortization of intangible assets 2,238 1,778 (Gain) loss on forgiveness of PPP loan and extinguishment of note payable (2,178 ) 852 Interest expense, net 277 3,432 Change in fair value on equity investment in Starrise (1,453 ) 42,377 Acquisition, integration and other expense 283 1,539 Recovery benefit of doubtful accounts (418 ) — Stock-based compensation 3,278 2,172 Net income attributable to noncontrolling interest 23 60 Adjusted EBITDA $ 7,494 $ (383 ) Adjustments related to the Cinema Equipment Business Depreciation and amortization of property and equipment $ (1,001 ) $ (3,348 ) Amortization of intangible assets — (23 ) Stock-based compensation and expenses — — Acquisition, integration and other expense (11 ) (32 ) Provision for doubtful accounts 500 — Income from operations (8,715 ) 3,736 Adjusted EBITDA from non-cinema equipment business $ (1,733 ) $ (50 ) Recent Accounting Pronouncements See Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included herein. Changes in our cash flows were as follows: For the Nine Months Ended December 31, ($ in thousands) 2021 2020 Net cash provided (used in) by operating activities $ 4,746 $ (16,776 ) Net cash (used in) provided by investing activities (5,031 ) (110 ) Net cash (used in) provided by financing activities 2,636 28,799 Net change in cash, cash equivalents, and restricted cash $ 2,352 $ 11,913 As of December 31, 2021, we had cash and cash equivalents of $20.2 million. As of December 31, 2020, we had cash, cash equivalents, and restricted cash balances of $27.2 million. 44 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, 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 Content & Entertainment and Corporate. Operating cash flows from Content& Entertainment 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. For the nine months ended December 31, 2020, net cash provided by operating activities was 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 the CEG and Corporate. Cash received from VPFs declined from the previous year 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, as 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; 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, 2021, cash flows used in investing activities consisted of purchases of property and equipment of $292 thousand and the purchase of two businesses of $4.8 million related to the business combination for FoundationTV and the asset acquisition of Bloody Disgusting (as defined below). 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, 2021, net cash flows from financing activities consisted $12.4 million received in connection with the issuance of Class A common Stock, and cash flow used for payments of the remaining outstanding balances of approximately $7.8 million in notes payable and $2.0 million in Credit Facility. 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 draw, $36.2 million received in connection with the issuance of 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. We may continue to generate net losses for the foreseeable future primarily due to depreciation and amortization, 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. We feel we are adequately financed for at least the next twelve months; however, we may need to raise additional capital for working capital as deemed necessary. Failure to generate additional revenues, raise additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations or liquidity. Seasonality Revenues from our Cinema Equipment Business segment derived from the collection of VPFs from motion picture studios are seasonal, coinciding with the timing of releases of movies by the motion picture studios. Generally, motion picture studios release the most marketable movies during the summer and the winter holiday season. The unexpected emergence of a hit movie during other periods can alter the traditional trend. The timing of movie releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or any other quarter. While CEG benefits from the winter holiday season, we believe the seasonality of motion picture exhibition is becoming less pronounced as the motion picture studios are releasing movies somewhat more evenly throughout the year. 45 Off-balance sheet arrangements We are not a party to any off-balance sheet arrangements, other than 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 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. 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.