What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-08-14 compared with 2020-02-14 · 139 added, 215 removed, 114 unchanged (76% of the section changed)

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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 over 12,000 movie screens from using traditional analog film prints to digital distribution, we have become a leading distributor of independent content, through both organic growth and acquisitions.

We distribute products for major brands such as the Discovery Networks, National Geographic 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, PlayStation, and cable video-on-demand ("VOD"), and (ii) physical goods, including DVD and Blu-ray Discs.

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:

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Furthermore, because the Phase I Deployment installation period ended in November 2007, a majority of the VPF revenue associated with the Phase I Deployment Systems has ended.

As of December 31, 2019 , all

of our 3,384 systems from the Phase I Deployment phase of our cinema equipment business segment had ceased to earn a significant portion of VPF revenue from certain major studios, although various other studios, consisting mostly of small independent studios, will continue to pay VPFs through December 2020.

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

VPF revenue from certain major studios, although various other studios, consisting mostly of small independent studios, will continue to pay VPFs through December 2020.

We expect to continue to earn such ancillary revenue from the cinema equipment segment through December of 2020;

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or (3) purchase the Systems from us at fair market value.

As permitted by these agreements, we have begun, and expect to continue, to pursue the sale of the Systems to such exhibitors.

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 cinema business segment operates independently from our Content & Entertainment business.

As of December 31, 2019 , we had approximately $12.6 million of non-recourse outstanding debt principal that relates to, and is serviced by, our cinema equipment business.

We also have approximately $39.0 million of outstanding debt principal, as of December 31, 2019 , that is attributable to our Content & Entertainment and Corporate segments.

On July 26, 2019, the previously announced Agreement and Plan of Merger, dated as of March 14, 2019, among the Company, C&F Merger Sub, Inc., a wholly-owned subsidiary of the Company, Future Today Inc, Alok Ranjan and Vikrant Mathur (individually and as Stockholder Representative) and the Company Stockholders identified therein, was amended.

Pursuant to the Merger Amendment, among other things, the parties (x) extended the End Date and exclusivity period to July 31, 2019, (y) provided for payment of a non-refundable deposit of $500,000 by the Company, and (z) provided the Company with the unilateral right to extend the End Date and exclusivity period to August 14, 2019 upon making an additional non-refundable deposit of $500,000.

Any non-refundable deposit(s) made prior to closing will be credited against the purchase price at closing.

On July 31, 2019, the Company exercised its right to extend to August 14, 2019.

On January 14, 2020, the Company terminated the Merger Agreement with Future Today.

See Note 10 - Subsequent Events.

Because of the termination of the Merger Agreement, $1.0 million deposit of purchase price was forfeited and written off during the three months ended December 31, 2019.

On January 13, 2020, Bison Entertainment Investment Limited, the Company’s majority stockholder, signed a written consent approving the issuance of 54,850,103 shares of Common Stock in exchange for the acquisition by the Company of 410,901,000 shares of Starrise Media Limited, a leading Chinese entertainment company, from two of Starrise’s stockholders pursuant to a Stock Purchase Agreement dated December 27, 2019 (the "Starrise Agreement").

The Company mailed a definitive information statement to its stockholders in late January.

On February 14, 2020, the parties to the Starrise Agreement amended it to provide for multiple closings.The Company closed on the purchase of 162,162,162 Starrise shares and issued 21,646,604 shares of Common Stock as consideration therefor on February 14, 2020, and expects to close on the remainder of the Starrise shares as soon as practicable.

Results of Operations for the Three Months Ended December 31, 2019 and 2018

Three Months Ended December 31,

($ in thousands)

Cinema Equipment Business

Content & Entertainment Business

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 I and Phase II Deployment Systems.

The Phase I Deployment Systems deployment period ended for major studios during the fiscal year ended March 31, 2018 and Phase II Deployment Systems deployment period for major studios ended in November 2018, which combined, contributed to the decrease in revenues.

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

Direct Operating Expenses

Three Months Ended December 31,

($ in thousands)

Cinema Equipment Business

Content & Entertainment Business

Increase in direct operating expenses in the three months ended December 31, 2019 for the Content & Entertainment Business compared to the prior period was primarily due to an increase in our royalty and freight expenses.

Royalty-based deals performed better than in the prior period which increased the royalty expense.

Freight expense increased as we had an increase in liquidation sales compared to prior period.

In addition, real estate taxes for the equipment in the Cinema Equipment Business went down, approximately $0.2 million, as a result of lower depreciated assets which resulted in lower direct operating costs.

Selling, General and Administrative Expenses

Three Months Ended December 31,

($ in thousands)

Cinema Equipment Business

Content & Entertainment Business

Selling, general and administrative expenses for the three months ended December 31, 2019 decreased primarily due to a $0.8 million decrease in personnel related expenses, as a result of our cost cutting initiatives, a decrease of $1.1 million due to reversal of the bonus accrual, a decrease of $0.8 million in legal and consulting services as a result of cost cutting initiatives, and a decrease of $0.2 million each of stock based compensation and travel related expenses.

Depreciation and Amortization Expense on Property and Equipment

Three Months Ended December 31,

($ in thousands)

Cinema Equipment Business

Content & Entertainment Business

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 fiscal years 2019 and 2018.

Interest expense, net

Three Months Ended December 31,

($ in thousands)

Cinema Equipment Business

Interest expense in the Cinema Equipment Business segment decreased primarily as a result of reduced debt balances compared to the prior period, primarily due to the payoff of our KBC facilities, P2 Vendor Note, and the reduction of the Prospect Term

Interest expense in our Corporate Segment decreased as a result of lower loan balances from our Credit Facility and Second Lien Loans.

Income Tax Expense

We recorded income tax expense of approximately $0.1 million for each of the three months ended December 31, 2019 and 2018 in our Cinema Equipment Business and Corporate segments for state income taxes.

Adjusted EBITDA

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

Adjusted EBITDA (including the results of Cinema Equipment Business segment) for the three months ended December 31, 2019 decreased by $0.9 million , or 24% , compared to the three months ended December 31, 2018 .

Adjusted EBITDA loss from our non-cinema equipment business was $0.6 million for the three months ended December 31, 2019 compared to negative $0.3 million for the three months ended December 31, 2018 .

The decrease in Adjusted EBITDA compared to the prior period primarily reflects lower revenue in our cinema equipment business, offset by decrease in selling, general and administrative expense.

Adjusted EBITDA is not a measurement of financial performance under GAAP and may not be comparable to other similarly titled measures of other companies.

We use Adjusted EBITDA as a financial metric to measure the financial performance of the business because management believes it provides additional information with respect to the performance of its fundamental business activities.

For this reason, we believe Adjusted EBITDA will also be useful to others, including its stockholders, as a valuable financial metric.

We present Adjusted EBITDA because we believe that Adjusted EBITDA is a useful supplement to net loss from continuing operations as an indicator of operating performance.

We also believe that Adjusted EBITDA is a financial measure that is useful both to management and investors when evaluating our performance and comparing our performance with that of our competitors.

We also use Adjusted EBITDA for planning purposes and to evaluate our financial performance because Adjusted EBITDA excludes certain incremental expenses or non-cash items, such as stock-based compensation charges, that we believe are not indicative of our ongoing operating performance.

We believe that Adjusted EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net loss from continuing operations and Adjusted EBITDA has been provided in the financial results.

Adjusted EBITDA should not be considered as an alternative to income from operations or net loss from continuing operations as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity.

In addition, Adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows.

We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP.

These non-GAAP measures should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.

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

Three Months Ended December 31,

($ in thousands)

Income tax expense

Depreciation and amortization of property and equipment

Amortization of intangible assets

Interest expense, net

Other expense, net

Stock-based compensation and expenses

Net loss attributable to noncontrolling interest

Adjusted EBITDA

Adjustments related to the Cinema Equipment Business

Depreciation and amortization of property and equipment

Amortization of intangible assets

Stock-based compensation and expenses

Income from operations

Adjusted EBITDA from non-cinema equipment business

Results of Operations for the Nine Months Ended December 31, 2019 and 2018

Nine Months Ended December 31,

($ in thousands)

We are structured so that our cinema equipment business segment operates independently from our Content & Entertainment business.

As of June 30, 2020, we had approximately $12.1 million of non-recourse outstanding debt principal that relates to, and is serviced by, our cinema equipment business.

We also have approximately $34.9 million of outstanding debt principal, as of June 30, 2020 that is attributable to our Content & Entertainment and Corporate segments.

Risks and Uncertainties

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.

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.

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

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

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

operations and financial condition.

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

Three Months Ended June 30,

($ in thousands) 2020 2019 $ Change % Change

Cinema Equipment Business $ 605 $ 3,993 $ (3,388) (85) %

Content & Entertainment Business 5,413 5,810 (397) (7) %

$ 6,018 $ 9,803 $ (3,785) (39) %

Revenues generated by our Cinema Equipment Business segment decreased primarily as a result of the reduced number of Systems earning VPF revenue and commissions for Phase II Deployment Systems.

Phase II Deployment Systems deployment period for major studios ended in November 2018, which combined, contributed to the decrease in revenues.

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

Direct Operating Expenses

Nine Months Ended December 31,

($ in thousands)

Three Months Ended June 30,

($ in thousands) 2020 2019 $ Change % Change

Cinema Equipment Business $ 182 $ 234 $ (52) (22) %

Content & Entertainment Business 2,497 3,378 (881) (26) %

Increase in direct operating expenses in the nine months ended December 31, 2019 compared to the prior period was mainly due to an increase in royalty and freight expenses of approximately 1.1 million.

Royalty-based deals performed better than the

prior period which increased the royalty expense.

Freight expense increased as we had an increase in liquidation sales compared to prior period.

In addition, real estate taxes for the equipment in the Cinema Equipment Business went down, approximately $0.3 million, as a result of lower depreciated assets which resulted in lower direct operating costs.

$ 2,679 $ 3,612 $ (933) (26) %

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

Selling, General and Administrative Expenses

Nine Months Ended December 31,

($ in thousands)

Three Months Ended June 30,

($ in thousands) 2020 2019 $ Change % Change

Cinema Equipment Business $ 549 $ 496 $ 53 11 %

Content & Entertainment Business 1,895 3,224 (1,329) (41) %

Selling, general and administrative expenses for the nine months ended December 31, 2019 decreased primarily due to a $2.0 million decrease in personnel related expenses, as a result of our cost cutting initiatives, a decrease of $1.0 million due to a reversal of bonus accrual, a decrease of $0.7 million in legal and consulting services as a result of our cost cutting initiatives, a decrease of approximately $0.8 million in marketing spend in our OTT business, a decrease of $0.2 million in travel related expenses, and a decrease of $0.4 million in stock-based compensation.

Corporate 1,396 2,129 (733) (34) %

$ 3,840 $ 5,849 $ (2,009) (34) %

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

Depreciation and Amortization Expense on Property and Equipment

Nine Months Ended December 31,

($ in thousands)

Three Months Ended June 30,

($ in thousands) 2020 2019 $ Change % Change

Cinema Equipment Business $ 1,403 $ 1,646 $ (243) (15) %

Content & Entertainment Business 103 86 17 20 %

Corporate 18 42 (24) (57) %

$ 1,524 $ 1,774 $ (250) (14) %

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

Interest expense, net

Nine Months Ended December 31,

($ in thousands)

Three Months Ended June 30,

($ in thousands) 2020 2019 $ Change % Change

Cinema Equipment Business $ 578 $ 828 $ (250) (30) %

Corporate 712 1,454 (742) (51) %

$ 1,290 $ 2,282 $ (992) (43) %

Interest expense in the Cinema Equipment Business segment decreased primarily as a result of reduced debt balances compared to the prior period, primarily on the Prospect Term Loan.

Interest expense in our Corporate Segment decreased as a result of lower loan balances from our Credit Facility and Second Lien Loans.

Income Tax Expense

We recorded less than $0.2 million of income tax expense for the nine months ended December 31, 2019 and 2018 in our Cinema Equipment Business and Corporate segments for state income taxes.

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

Adjusted EBITDA

Adjusted EBITDA (including the results of Cinema Equipment Business segment) for the nine months ended December 31, 2019 decreased by $4.9 million , or 51% , compared to the nine months ended December 31, 2018 .

Adjusted EBITDA loss from our non-cinema equipment business was negative $2.6 million for the nine months ended December 31, 2019 compared to negative $5.1 million for the nine months ended December 31, 2018 .

The increase in Adjusted EBITDA compared to the prior period primarily reflects lower Selling, General and Administrative Expenses.

Adjusted EBITDA (including the results of Cinema Equipment Business segment) for the three months ended June 30, 2020 decreased by $0.7 million, or 134%, compared to the three months ended June 30, 2019.

Adjusted EBITDA income from our Content & Entertainment business and corporate segment was $0.1 million for the three months ended June 30, 2020 compared to negative $2.3 million for the three months ended June 30, 2019.

The increase in Adjusted EBITDA compared to the prior period is primarily due to a decrease in selling, general and administrative expense.

Adjusted EBITDA is not a measurement of financial performance under GAAP and may not be comparable to other similarly titled measures of other companies.

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

Nine Months Ended December 31,

Three Months Ended June 30,

($ in thousands) 2020 2019

Net loss $ (19,870) $ (5,039)

Income tax expense

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Interest expense, net 1,290 2,282

Changes in fair value on equity investment in Starrise 15,794 —

Other expense, net 299 463

Stock-based compensation and expenses 177 11

Net loss attributable to noncontrolling interest

Net income attributable to noncontrolling interest 14 6

Adjusted EBITDA $ (182) $ 539

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Stock-based compensation and expenses — 1

Income from operations

Adjusted EBITDA from non-cinema equipment business

Loss (income) from operations 1,661 (1,133)

Adjusted EBITDA from Content & Entertainment business and corporate segment $ 68 $ (2,250)

Critical Accounting Policies and Estimates

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However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K, filed with the SEC on July 16, 2019, except the accounting policy changes detailed in Note 2 of our condensed consolidated financial statements as a result of the adoption of the new leasing standard.

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

Recent Accounting Pronouncements

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Liquidity and Capital Resources

We incurred consolidated net loss of $ 10.3 million and $ 10.0 million for the nine months ended December 31, 2019 and 2018, respectively.

We have an accumulated deficit of $406.4 million , and negative working capital of $54.7 million , as of December 31, 2019 .

In addition, we have significant debt-related contractual obligations as of December 31, 2019 and beyond.

We incurred consolidated net loss of $19.9 and $5.0 for the three months ended June 30, 2020 and 2019, respectively.

We have an accumulated deficit of $430.8 million, and negative working capital of $57.7 million, as of June 30, 2020.

In addition, we have significant debt-related contractual obligations as of June 30, 2020 and beyond.

We have incurred net losses each year since we commenced our operations.

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Certain of these costs, including costs of content acquisition, marketing and promotional activities, could be reduced if necessary.

The restrictions imposed by our debt agreements may limit our ability to obtain financing, make it more difficult to satisfy our debt obligations or require us to dedicate a substantial portion of our cash flow to payments on our existing debt obligations.

The restrictions imposed by our debt agreements may limit our ability to obtain financing, make it more difficult to satisfy our debt obligations or require us to

dedicate a substantial portion of our cash flow to payments on our existing debt obligations.

The Prospect Loan requires certain screen turn performance from certain of our Cinema Equipment Business subsidiaries.

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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.

In accordance with the Stock Purchase Agreement, on December 29, 2017, the Company entered into a loan agreement with BEMG, pursuant to which the Company borrowed $10.0 million (the “2017 Loan”).

The maturity date was June 28, 2021 with interest at 5% per annum, payable quarterly in cash.

The 2017 Loan is unsecured and may be prepaid without premium or penalty, and contains customary covenants, representations and warranties.

The proceeds of the 2017 Loan were used for working capital and general corporate purposes.

As part of this 2017 Loan, the Company also issued warrants to BEMG to purchase 1,400,000 shares of the Company’s Class A common stock (the “Warrants”).

The 2017 Loan was paid in full on July

On July 20, 2018, we entered into the 2018 Loan.

Bison Note Payable

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

See Note 6 - Stockholders' Deficit for further discussion of the warrants.

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

On July 20, 2018, the Company entered into a term loan agreement (the “2018 Loan Agreement”) with Bison Global, pursuant to which the Company borrowed from Bison Global $10.0 million (the “2018 Loan”).

The 2018 Loan has a one (1) year term that may be extended by mutual agreement of Bison Global and the Company and bears interest at 5% per annum, payable quarterly in cash.

On July 12, 2019, we entered into a Termination Agreement for the 2018 Loan and at the same time entered into a $10.0 million Convertible Promissory Note.

See Note 5 - Notes Payable.

On October 9, 2018, the Company issued a subordinated convertible note (the “Convertible Note”) to MingTai Investment LP (the “Lender”) for $5.0 million from the Lender.

All proceeds from the Convertible Note was used to pay the $5.0 million 2013 Notes described in Note 5 - Notes Payable .

On July 9, 2019, the Company entered into the July Stock Purchase Agreement with BEMG, an affiliate of Bison Capital Holding Company Limited, which, through an affiliate, is the majority holder of our Class A common stock, pursuant to which the Company agreed to sell to BEMG a total of 2,000,000 July SPA Shares, for an aggregate purchase price in cash of $3.0 million priced at $1.50 per share.

The sale of the July SPA Shares was consummated on July 9, 2019.

The July SPA Shares are subject to certain transfer restrictions.

The proceeds of the sale of the July SPA Shares sold were used for working capital, including the repayment of Second Lien Loans (as defined in Note 5 - Notes Payable ).

In addition, the Company has agreed to enter into a registration rights agreement for the resale of the July SPA Shares.

On August 2, 2019, the Company entered into the August Stock Purchase Agreement with BEMG, pursuant to which the Company agreed to sell to BEMG a total of 1,900,000 August SPA Shares, for an aggregate purchase price in cash of $2.9 million priced at $1.50 per share.

The sale of the August SPA Shares was consummated on August 2, 2019.

The August SPA Shares are subject to certain transfer restrictions.

The proceeds of the sale of the August SPA Shares sold were used for working capital.

In addition, the Company has agreed to enter into a registration rights agreement for the resale of the August SPA Shares.

The Second Lien Loans (as defined in Note 5 - Notes Payable ) were to mature on June 30, 2019.

On June 28, 2019, the Company entered into a consent agreement with lenders of the Second Lien Loans to an extension of the Second Lien Loans pursuant to which (i) the Company paid down a portion of the outstanding principal amount plus accrued interest to date, and (ii) the maturity date of the remaining outstanding principal amount of the Second Lien Loans was extended to September 30, 2019.

The Company paid a consent fee in total of $56 thousand to the lenders in connection with the consent.

On July 30, 2019, Ronald L.

Chez, one of the lenders, signed a waiver to defer the receipt of the portion of his outstanding amount and agreed to be paid no later than September 30, 2019.

The company paid him a consent fee of $80 thousand for this waiver.

During the nine months ended December 31, 2019 , the Company paid $3.4 million of the outstanding Second Lien Loans and expects to obtain additional capital from or through Bison Capital Holding Limited or an affiliate thereof ("Bison") for final payment of the remaining outstanding balances of the Second Lien Loans.

On October 24, 2019, the Company entered into a consent agreement to extend the maturity date to November 30, 2019.

On January 8, 2020, the Company entered into another

consent agreement to extend the maturity date to February 17, 2020.

There were no consent fees paid for these consent agreements.

At the same time, the 2017 Loan was terminated and the proceeds of the 2018 Loan were used to pay off the 2017 Loan.

On July 12, 2019, we entered into a Termination Agreement for the 2018 Loan and at the same time entered into a $10.0 million Bison Convertible Note with Bison Global.

Bison Convertible Note

The Bison Convertible Note has a term ending on March 4, 2020, and bears interest at 5% per annum.

The principal is due on March 4, 2020, in cash or in shares of Common Stock, or a combination of cash and Common Stock, at the Company’s option.

The Bison Convertible Note is convertible at the Company's option, at any time prior to payment in full of the principal balance and all accrued interest of the note, to convert this note in whole or in part, into fully paid and nonassessable shares of the Company's Class A common stock.

The Bison Convertible Note is Convertible into 6,666,666 shares of Company's Class A common stock, based on initial conversion price of $1.50 per share.

On April 15, 2020, the Company signed an amendment to this note, effective as of March 4, 2020, to extend the maturity date of the note to March 4, 2021.

As a result of our cash conversion option, we separately accounted for the value of the embedded conversion option as a debt discount (with an offset to additional paid-in-capital) of $478 thousand.

The value of the embedded conversion option was determined based on the estimated fair value of the debt without the conversion feature, which was determined using market comparables to estimate the fair value of similar non-convertible debt;

the debt is being amortized to interest expense using the effective interest method over the term of the note.

The embedded conversion feature was fully amortized as of March 31, 2020.

The Bison Convertible Note is unsecured and may be prepaid without premium or penalty, and contains customary covenants, representations and warranties.

The proceeds of the Bison Convertible Note were used to repay the 2018 Loan.

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

Non-Recourse Indebtedness

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Such indebtedness includes the Prospect Loan, the KBC Facilities, the 2013 Term Loans, the P2 Vendor Note and the P2 Exhibitor Notes.

The balance of our non-recourse debt, net of related debt issuance costs, as of December 31, 2019 was $ 11.6 million for our Cinema Equipment Business segment, which mature as presented in the Contractual Obligations table below.

The balance of our non-recourse debt, net of related debt issuance costs, as of June 30, 2020 was $11.5 million for our Cinema Equipment Business segment.

We continue to expect cash flows from our Cinema Equipment Business operations will be sufficient to satisfy our liquidity and contractual requirements that are linked to these operations.

Cash flows from our Cinema Equipment Business segment are primarily used for repayment of debt in that segment, and are not readily available to the Company otherwise.

Revolving Credit Agreements

On March 30, 2018, the Company entered into a new Loan, Guaranty and Security Agreement, dated as of March 30, 2018, by and between the Company, East West Bank ("EWB") and the Guarantors named therein, which are certain subsidiaries of the Company (the "Loan Agreement").

The Loan Agreement provides for a credit facility (the “Credit Facility”) consisting of a maximum of $19.0 million in revolving loans at any one time outstanding and having a maturity date of March 31, 2020, which may be extended for two successive periods of one year each at the sole discretion of the lender so long as certain conditions are met.

Interest is due monthly on the last day of the month based on the rate determined by the Company in prior month of either 0.5% plus Prime Rate or 3.25% above LIBOR Rate established by EWB.

On March 30, 2018, the Company borrowed $8.2 million under the Credit Facility.

The proceeds from the Credit Facility were used to pay the $7.8 million outstanding principal and accrued interest under the prior credit agreement.

During the year ended March 31, 2019, the Company borrowed an additional $10.4 million under the Credit Facility.

As of December 31, 2019 , there was $14.7 million outstanding and there was no additional availability under the Credit Facility based on the Company's borrowing base.

On July 3, 2019, the Company entered into the EWB Amendment to the Loan, Guaranty and Security Agreement, dated as of March 30, 2018, by and between the Company, East West Bank and the Guarantors named therein.

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

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

As of June 30, 2020 and March 31, 2020, respectively, there was $10.2 million and $14.5 million outstanding, respectively, and there was $0.8 million available, under the Credit Facility based on the Company's borrowing base as of June 30, 2020.

On July 3, 2019, the Company entered into the EWB Amendment to the Credit Facility.

The EWB Amendment reduced the size of the facility to $18.0 million, required certain prepayments and daily cash sweeps from collections of receivables to be made, changed in certain respects how the borrowing base is calculated, and extended the maturity date to June 30, 2020.

In connection with the EWB Amendment, three of our subsidiaries became Guarantors under the EWB Credit Agreement.

In connection with the EWB Amendment, three of our subsidiaries became additional Guarantors under the EWB Credit Agreement.

On June 25, 2020, the Company signed amendment, No.

4 to extend the maturity date to June 30, 2021 and to waive certain event of default provisions.

Other Indebtedness

In October 2013, we issued notes to certain investors in the aggregate principal amount of $5.0 million (the "2013 Notes") and warrants to purchase 150,000 shares of Class A Common Stock to such investors.

The principal amount outstanding under the 2013 Notes is due on October 21, 2018 and the notes bore interest at 9.0% per annum, payable in quarterly installments.

The 2013 Notes were paid in full on October 18, 2018, prior to their maturity date of October 21, 2018.

On October 9, 2018, the Company issued a subordinated convertible note (the “Convertible Note”) to MingTai Investment LP (the “Lender”) for $5.0 million.

All proceeds from the Convertible Note were used to pay the $5.0 million 2013 Notes described above.

See Note 5 - Notes Payable.

The Convertible Note bears interest at 8% and matures on October 9, 20219 with one remaining year extension at the Company's option.

On October 9, 2019, the Company extended the note for one additional year and the new maturity date of the Convertible Note is October 9, 2020.

The Convertible Note is convertible into 3,333,333 shares of the Company's Class A common stock, based on initial conversion price of $1.50 per share.

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

Upon conversion by the Lender, we may elect to settle such conversion in shares of our Class A common stock, cash or a combination thereof.

As a result of our cash conversion option, we separately accounted for the value of the embedded conversion option as a debt discount (with an offset to APIC) of $270 thousand.

the debt discount is being amortized as additional non-cash interest expense using the effective interest method over the term of the Note.

The $10.0 million note payable to Bison Global Investment SPC due July 20, 2019 is guaranteed by Bison Entertainment and Media Group ("BEMG").

On July 20, 2018, the Company also entered into a side letter (the “Letter”) with BEMG, where BEMG agreed to guarantee the payment directly to Bison Global of any amount due if (i) the 2018 Loan matures prior to June 28, 2021 or (ii) Bison Global demands payment of the 2018 Loan, in whole or in part, prior to maturity.

On October 11, 2019, we received a notice (the “Bid Price Notice”) from the Staff indicating that, based upon the closing bid price of the Company’s Class A common stock for the last 30 consecutive business days, the Company no longer met the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5450(a)(1).

The Bid Price Notice did not result in the immediate delisting of the Common Stock from the Nasdaq Global Market.

The Company actively monitors the price of the Common Stock and will consider all available options to regain compliance with the continued listing standards.

The Company may elect to address the deficiency by implementing a reverse stock split if the Board of Directors determines that is the proper course of action.

No decision has been made at this time.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been provided a period of 180 calendar days, or until April 8, 2020, in which to regain compliance with the deficiency.

In order to regain compliance with the minimum bid price requirement, the closing bid price of the Common Stock must be at least $1 per share for a minimum of ten consecutive business days during this 180-day period.

If the Company does not regain compliance with this requirement by April 8, 2020, the Company may be eligible for an additional 180 calendar day compliance period provided that it meets certain continued listing standards, and provides the Staff with written notice of its intention to cure the deficiency.

On December 18, 2019, we received a Notice from the Listing Qualifications staff of Nasdaq (the “Staff”) indicating that, the Company no longer meets the requirement to maintain a minimum market value of publicly held shares ("MVPHS") of $15.0 million, as set forth in Nasdaq Listing Rule 5450(b)(3)(C).

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided a period of 180 calendar days, or until June 15, 2020, in which to regain compliance.

In order to regain compliance with the MVPHS, requirement, our MVPHS must be at least $15.0 million for a minimum of ten consecutive business days during this 180-day period.

If we do not regain compliance with the bid price requirement by June 15, 2020, we may be eligible for an additional 180 calendar day compliance period.

If we do not regain compliance by June 15, 2020, or the termination of any subsequent compliance period, if applicable, the Staff will provide written notification that its common stock may be delisted.

At such time, we would be afforded the opportunity for a hearing before a Nasdaq Listing Qualifications Panel (the “Panel”).

A request for a hearing would stay any suspension or delisting action pending the issuance of a decision by the Panel following the hearing and the expiration of any extension period granted by the Panel.

In that regard, the Panel would have the authority to grant us up to an additional 180-day period in which to regain compliance.

We intend to monitor the MVPHS for our common stock between now and June 15, 2020 and will consider the various available options if its common stock does not trade at a level that is likely to regain compliance.

On January 13, 2020, Bison Entertainment Investment Limited, the Company’s majority stockholder, signed a written consent approving the issuance of shares of Common Stock in exchange for the acquisition by the Company of shares of Starrise Media Limited, a leading Chinese entertainment company, from two of Starrise’s stockholders.

The Company mailed a definitive information statement to its stockholders in late January.

The Company closed on the purchase of 162,162,162 Starrise shares and issued 21,646,604 shares of Common Stock as consideration therefor on February 14, 2020, and expects to close on the remainder of the Starrise shares as soon as practicable.

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

For the Nine Months Ended December 31,

On October 9, 2018, the Company issued the Mingtai Convertible Note for $5.0 million.

All proceeds from the Mingtai Convertible Note were used to pay the then-outstanding $5.0 million 2013 Notes.

The $5.0 million in aggregate principal bears interest at 8% maturing on October 9, 2019 with two one-year extensions at the Company's option.

The Mingtai Convertible Note is convertible into 3,333,333 shares of the Company's Class A common stock, based on initial conversion price of $1.50 per share.

On October 9, 2019, the Company signed an extension, for one additional year from the original maturity date to be due on October 9, 2020.

This note will continue in full force and effect in accordance with its terms, including Company’s reservation of its right to further extend the maturity date of this note, if it so elects.

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

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

common stock, cash or a combination thereof.

Upon the maturity date, the Company has the option to pay in Class A common

shares convertible at the greater of the closing price of the Class A common stock or $1.10.

As a result of our cash conversion

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

paid-in capital) of $270 thousand.

The value of the embedded conversion option was determined based on the estimated fair value

of the debt without the conversion feature, which was determined using market comparables to estimate the fair value similar nonconvertible debt;

the debt discount is being amortized to interest expense using the effective interest method over the one year

term of the Mingtai Convertible Note.

On April 15, 2020, the Company received $2.2 million from East West Bank, the Company’s existing lender, pursuant to the Paycheck Protection Program (the “PPP Loan”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The PPP Loan matures on April 10, 2022 (the “PPN Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty.

No interest payments are due within the initial six months of the PPP Loan.

The interest accrued during the initial six-month period is due and payable, together with the principal, on the PPN Maturity Date.

The Company intends to use all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts are intended to be eligible for forgiveness, subject to the provisions of the CARES Act and could be subject to repayment.

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

Changes in our cash flows were as follows:

For the Three Months Ended June 30,

($ in thousands) 2020 2019

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash (used) provided by operating activities $ (3,738) $ 4,015

Net cash provided (used) in investing activities 508 (252)

Net cash provided (used) in financing activities 5,237 (5,493)

Net change in cash and cash equivalents $ 2,007 $ (1,730)

As of December 31, 2019 , we had cash and restricted cash balances of $15.5 million .

Net cash provided by operating activities is primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization, provision for doubtful accounts and stock-based compensation, offset by changes in working capital.

Cash received from VPFs declined from the previous period as Phase I 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.

Cash flows used in investing activities mainly consisted of purchases of property and equipment.

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.

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

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

depreciation, amortization, provision for doubtful accounts and stock-based compensation, offset by changes in working capital.

Cash received from VPFs declined from the previous period as Phase I Deployment Systems in our Cinema Equipment

Business reached the conclusion of their deployment payment period with certain major studios.

Changes in accounts receivable from our studio customers largely impact cash flows from operating activities and vary based on the seasonality of

movie release schedules by the major studios.

Operating cash flows from CEG are typically higher during our fiscal third and

fourth quarters, resulting from revenues earned during the holiday season, and lower in the other two quarters as we pay royalties on such revenues.

In addition, we make advances on theatrical releases and to certain home entertainment distribution

clients for which initial expenditures are generally recovered within six to twelve months.

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

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

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

We may continue to generate net losses for the foreseeable future primarily due to depreciation and amortization, interest on our debt obligations, marketing and promotional activities and content acquisition and marketing costs.

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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 June 30, 2020, (ii) expected cash flows from operations, (iii) cost cutting measures including payroll expense reduction and real estate occupancy cost reductions, and (iv) the extension of maturity dates of our borrowings, the ability to convert the convertible debt into Class A common stock, the Starrise equity investment, the capital raises during and subsequent to June 30, 2020, and the support or availability of funding from other capital resources and financings will be sufficient to satisfy our contractual obligations, as well as liquidity for our operational and capital requirements, for twelve months from the filing of this document.

Our capital requirements will depend on many factors, and we may need to use capital resources and obtain additional capital.

Failure to generate additional revenues, obtain additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations and liquidity.

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.

12 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis