What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-16 compared with 2020-08-14 · 165 added, 99 removed, 154 unchanged (63% of the section changed)

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(1) cinema equipment business and (2) media content and entertainment business (“Content & Entertainment” or "CEG").

The cinema equipment business segment consists of the non-recourse, financing vehicles and administrators for our digital cinema equipment (the “Systems”) installed in movie theatres throughout the United States and Canada and in Australia and New Zealand.

It also provides fee-based support to over 12,000 movie screens as well as directly to exhibitors and other third party customers in the form of monitoring, billing, collection and verification services.

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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 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.

As of June 30, 2020, all of our 3,313 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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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.

As of September 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 $18.8 million of outstanding debt principal, as of September 30, 2020 that is attributable to our Content & Entertainment and Corporate segments.

Risks and Uncertainties

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operations and financial condition.

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

Three Months Ended June 30,

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

Three Months Ended September 30,

($ in thousands) 2020 2019 $ Change % Change

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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.

In addition, as a result of COVID-19, during the six months ended September 30, 2020 studios have temporarily halted distribution of new content to movie theatres due to mandatory theatre shutdowns.

Because our digital cinema business earns a VPF when a movie is first played on a system, the temporary theatre closures resulting from the COVID-19 pandemic resulted in reduced revenues.

The revenues derived from the Content & Entertainment Business segment decreased by 1% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

Direct Operating Expenses

Three Months Ended June 30,

Three Months Ended September 30,

($ in thousands) 2020 2019 $ Change % Change

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$ 4,330 $ 4,087 $ 243 6 %

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.

The increase in direct operating expenses in the three months ended September 30, 2020 for the Content & Entertainment Business compared to the prior period was primarily due to transition expenses related to a new third party DVD distributor.

These costs were mainly fulfillment and freight expenses.

Selling, General and Administrative Expenses

Three Months Ended June 30,

Three Months Ended September 30,

($ in thousands) 2020 2019 $ Change % Change

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$ 6,168 $ 4,988 $ 1,180 24 %

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.

Selling, general and administrative expenses for the three months ended September 30, 2020 increased by $1.2 million, primarily due to a $1.5 million retention bonus expense management and employees received in cash, and an issuance of Class A common stock to employees of $0.8 million, offset by decreases in other general and administrative expenses.

Depreciation and Amortization Expense on Property and Equipment

Three Months Ended June 30,

Three Months Ended September 30,

($ in thousands) 2020 2019 $ Change % Change

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Interest expense, net

Three Months Ended June 30,

Three Months Ended September 30,

($ in thousands) 2020 2019 $ Change % Change

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$ 1,194 $ 1,813 $ (619) (34) %

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 the Cinema Equipment Business segment decreased primarily as a result of reduced note payable balances compared to the prior period, primarily on the Prospect Term Loan.

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

Income Tax Expense

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

We recorded an income tax benefit of approximately $181 thousand for the three months ended September 30, 2020.

We recorded income tax expense of approximately $27 thousand for the three months ended September 30, 2019.

We have not recorded tax benefits on our loss before income taxes because we have provided for a full valuation allowance that offsets potential deferred tax assets resulting from net operating loss carry forwards, reflecting our inability to use such loss carry forwards.

Our effective tax rate for the three months ended September 30, 2020 and 2019 was 0.7% and negative 0.9%, respectively.

Adjusted EBITDA

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

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.

Consolidated Adjusted EBITDA (including the results of Cinema Equipment Business segment) for the three months ended September 30, 2020 decreased by $2.5 million, compared to the three months ended September 30, 2019.

Adjusted EBITDA from our Cinema Equipment Business segment decreased by $2.5 million or 105% compared to the three months ended September 30, 2019 primarily due to state mandated theater closures due to COVID-19, the temporary halt of distribution of major studio releases and the expected decline of the Cinema Equipment Business.

Adjusted EBITDA from our Content & Entertainment Business increased $25 thousand or 2.5% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

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:

Three Months Ended June 30,

Three Months Ended September 30,

($ in thousands) 2020 2019

Net loss $ (26,566) $ (3,088)

Income tax expense

Income tax (benefit) expense (181) 27

Depreciation and amortization of property and equipment

Amortization of intangible assets 591 589

Loss on extinguishment of notes payable 335 —

Interest expense, net 1,194 1,818

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Amortization of intangible assets (7) (12)

Stock-based compensation and expenses — 1

Loss (income) from operations 1,384 (917)

Adjusted EBITDA from Content & Entertainment business and corporate segment $ (963) $ (998)

Results of Operations for the Six Months Ended Months Ended September 30, 2020 and 2019

Six Months Ended September 30,

($ in thousands) 2020 2019 $ Change % Change

Cinema Equipment Business $ 1,248 $ 7,638 $ (6,390) (84) %

Content & Entertainment Business 11,952 12,406 (454) (4) %

$ 13,200 $ 20,044 $ (6,844) (34) %

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

In addition, as a result of COVID-19, during the six months ended September 30, 2020 studios have temporarily halted distribution of new content to movie theatres due to mandatory theatre shutdowns.

Because our digital cinema business earns a VPF when a movie is first played on a System, the temporary theatre closures resulting from the COVID-19 pandemic resulted in reduced revenues.

The revenues derived from the Content & Entertainment Business decreased by 4% for the six months ended September 30, 2020 compared to the six months September 30, 2019, respectively, as a result of the temporary closure of DVD distribution warehouses due to COVID-19.

Direct Operating Expenses

Six Months Ended September 30,

($ in thousands) 2020 2019 $ Change % Change

Cinema Equipment Business $ 354 $ 596 $ (242) (41) %

Content & Entertainment Business 6,655 7,103 (448) (6) %

$ 7,009 $ 7,699 $ (690) (9) %

The decrease in direct operating expenses in the six months ended September 30, 2020 for the Content & Entertainment Business compared to the prior period was primarily due a decrease in overall revenue offset by an increase due to transition expenses related to a new third party DVD distributor.

These costs were mainly fulfillment and freight expenses.

The decrease for the Cinema Equipment business was due to a reduction in property tax payments.

Selling, General and Administrative Expenses

Six Months Ended September 30,

($ in thousands) 2020 2019 $ Change % Change

Cinema Equipment Business $ 1,180 $ 1,100 $ 80 7 %

Content & Entertainment Business 4,423 5,815 (1,392) (24) %

Corporate 4,405 3,922 483 12 %

$ 10,008 $ 10,837 $ (829) (8) %

Selling, general and administrative expenses for the six months ended September 30, 2020 decreased by $0.8 million primarily due to a $1.5 million retention bonus expense management and employees received in cash, and an issuance of Class A common stock to employees of $0.8 million, offset by decreases in other general and administrative expenses.

Depreciation and Amortization Expense on Property and Equipment

Six Months Ended September 30,

($ in thousands) 2020 2019 $ Change % Change

Cinema Equipment Business $ 2,642 $ 3,137 $ (495) (16) %

Content & Entertainment Business 204 162 42 26 %

Corporate 23 84 (61) (73) %

$ 2,869 $ 3,383 $ (514) (15) %

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

Six Months Ended September 30,

($ in thousands) 2020 2019 $ Change % Change

Cinema Equipment Business $ 1,201 $ 1,519 $ (318) (21) %

Corporate 1,283

2,576 (1,293)

$ 2,484 $ 4,095 $ (1,611) (39) %

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

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

Income Tax Expense

We recorded an income tax benefit of approximately $181 thousand for the six months ended September 30, 2020.

We recorded income tax expense of approximately $74 thousand six months ended September 30, 2019.

Adjusted EBITDA

Consolidated Adjusted EBITDA (including the results of Cinema Equipment Business segment) for the six months ended September 30, 2020 decreased by $3.3 million compared to the six months ended September 30, 2019.

Adjusted EBITDA from our Cinema Equipment Business segment decreased by $5.6 million or 107% compared to the six months ended September 30, 2019 primarily due to state mandated theater closures due to COVID-19, the temporary halt of distribution of major studio releases and the expected decline of the Cinema Equipment Business.

Adjusted EBITDA from Content & Entertainment business and corporate segment increased by $2.3 million or 72% for the six months ended September 30, 2020 compared to the six months ended September 30, 2019, due to growth of higher margin OTT Streaming & Digital revenues.

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:

Six Months Ended September 30,

($ in thousands) 2020 2019

Net loss (46,436) (8,127)

Income tax (benefit) expense (181) 74

Depreciation and amortization of property and equipment 2,869 3,383

Amortization of intangible assets 1,181 1,589

Loss on extinguishment of notes payable 312 —

Interest expense, net 2,484 4,095

Changes in fair value on equity investment in Starrise 35,626 —

Other expense, net 1,590 759

Stock-based compensation 1,212 189

Net loss attributable to noncontrolling interest 37 (1)

Adjusted EBITDA $ (1,306) $ 1,961

Adjustments related to the Cinema Equipment Business

Depreciation and amortization of property and equipment (2,642) (3,137)

Amortization of intangible assets (15) (23)

Stock-based compensation and expenses — 7

Income (loss) from operations 3,045 (2,050)

Adjusted EBITDA from Content & Entertainment business and corporate segment $ (918) $ (3,242)

Critical Accounting Policies and Estimates

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Liquidity and Capital Resources

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

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

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

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

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

We may continue to generate net losses in the future primarily due to depreciation and amortization, interest on notes payable, marketing and promotional activities and content acquisition and marketing costs.

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

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

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

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

While such restrictions may reduce the availability of our cash flow to fund working capital, capital expenditures and other corporate requirements, we do not have similar restrictions imposed upon our CEG business.

We may seek to raise additional capital as necessary.

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

Bison Note Payable

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

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

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

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

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

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

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

Bison Convertible Note

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

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

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

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

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

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

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

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

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

The Bison Convertible Note 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

Our Cinema Equipment Business has historically been financed through a series of non-recourse loans.

Certain of the subsidiaries that make up the Cinema Equipment Business have pledged their assets as collateral for, and are liable with respect to, certain indebtedness for which our other subsidiaries and their assets generally are not.

We have referred to this indebtedness as "non-recourse debt" because the recourse of the lenders is limited to the assets of specific subsidiaries.

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

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

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

Revolving Credit Agreements

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

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

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

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

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

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

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

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

Other Indebtedness

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

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

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

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

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

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

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

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

common stock, cash or a combination thereof.

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

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

As a result of our cash conversion

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

paid-in capital) of $270 thousand.

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

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

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

term of the Mingtai Convertible Note.

We incurred consolidated net loss of $46.6 million and $8.1 million for the six months ended September 30, 2020 and 2019, respectively.

We have incurred net losses historically and have an accumulated deficit of $457.5 million, and negative working capital of $35.9 million as of September 30, 2020.

We may continue to generate net losses for the foreseeable future.

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

Based on these conditions, the Company entered into the following transactions described below:

Capital Raise

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.

Riley” and, together with A.G.P., the “Sales Agents”), pursuant to which the Company may offer and sell, from time to time, through the Sales Agents, shares of Common Stock at the market prices prevailing on The Nasdaq Global Market at the time of the sale of such shares.

The Company is not obligated to sell any shares under the Sales Agreement.

Any sales of shares made under the Sales Agreement will be made pursuant to an effective registration statement on Form S-3 filed by the Company with the SEC on July 6, 2020, for an aggregate offering price of up to $30 million.

During the quarter ended September 30, 2020, we did not sell any shares of Common Stock under the ATM Sales Agreement.

On July 16, 2020, the Company entered into a securities purchase agreement (the “July Securities Purchase Agreement” for the sale of 7,213,334 shares (the “July Shares”) of Class A common stock at a purchase price of $1.50 per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3 (Reg.

333-239710) which was declared effective by the Securities and Exchange Commission on July 10, 2020 and an applicable prospectus supplement.

This registration statement covers offerings of up to an aggregate offering price of $75.0 million.

The Company closed the transaction on July 20, 2020.

The aggregated gross proceeds from the sale of the July Shares were approximately $10.8 million.

The net proceeds to the Company from the sale of the July Shares, after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, was approximately $10.1 million.

On May 20, 2020, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain investors (the “Investors”) for the purchase and sale of 10,666,666 shares (the “Shares”) of the Company’s Class A common stock, par value $0.001 per share, (the "Common Stock" or "Class A common stock"), at a purchase price of $0.75 per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3 (Reg.

333-238183) which was declared effective by the Securities and Exchange Commission on May 14, 2020 and an applicable prospectus supplement.

The aggregate gross proceeds for the sale of the Shares was $8.0 million.

The net proceeds to the Company from the sale of the Shares, after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, were approximately $7.1 million.

Equity Investment in Starrise, a related party transaction

On December 27, 2019, the Company entered into, and on February 14, 2020 amended, (see Note 2 - Summary of Significant Accounting Policies), a stock purchase agreement (as so amended, the “ Starrise Stock Purchase Agreement”) with BeiTai Investment LP (“BeiTai”) and Aim Right Ventures Limited (“Aim Right”), two shareholders of Starrise Media Holdings Limited, a leading Chinese entertainment company (“Starrise”), to buy from them an aggregate of 410,901,000 outstanding Starrise ordinary shares (the “Share Acquisition”).

On February 14, 2020, the Company purchased 162,162,162 of the Starrise ordinary shares from BeiTai and issued BeiTai 21,646,604 shares of Class A common stock as consideration.

On April 10, 2020, the Company, in accordance with the terms of the Starrise Stock Purchase Agreement, terminated its obligation to purchase Starrise ordinary shares from Aim Right under the December 27, 2019 stock purchase agreement.

On April 10, 2020, the Company entered into another stock purchase agreement (the “April Stock Purchase Agreement”) with five (5) shareholders of Starrise-Bison Global Investment SPC - Bison Global No.

1 SP, Huatai Investment LP, Antai Investment LP, Mingtai Investment LP and Shangtai Asset Management LP, to buy an aggregate of 223,380,000 outstanding Starrise ordinary shares from them and for the Company to issue to them an aggregate of 29,855,081 shares of its Class A common stock in consideration therefore (the “April Share Acquisition”).

On April 15, 2020, the April Share Acquisition was consummated and recorded as an equity investment in Starrise and is a related party transaction.

Starrise's ordinary shares (HK 1616) are listed on the main board of the Stock Exchange of Hong Kong Limited.

Based on the closing price of HKD 0.16 per share on November 13, 2020, calculated at an exchange rate of $7.75 Hong Kong Dollars to 1 US dollar, the market value of Cinedigm’s ownership in Starrise ordinary shares was approximately $7.3 million.

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”).

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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.

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

On June 24, 2020, the Company entered into an exchange agreement (the “Exchange Agreement”) pursuant to which the Company issued 329,501 shares of its Class A common stock, in exchange for $842 thousand principal amount and accrued and unpaid interest of outstanding Second Lien Loans (as defined in Note 5 - Notes Payable ).

The surrendered Second Lien Loans were immediately canceled.

The exchange was consummated on June 24, 2020.

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

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

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

On April 15, 2020, the Company executed a letter amendment (the “Letter Amendment”) to the Bison Convertible Note (as defined in Note 5 - Notes Payable ).

Among other things, the Letter Amendment amended the Note, effective as of March 4, 2020, to extend the maturity date of the Bison Convertible note to March 4, 2021.

On October 9, 2019, the Company signed an extension to the Ming Tai Note of $5.0 million for the first of two (2) permitted additional (1) year extensions at the Company’s option from the original maturity date to October 9, 2020.

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

On June 25, 2020, the Company signed an amendment to extend the maturity date of the East West Credit Facility (as defined in Note 5 - Notes Payable) with East West Bank from March 30, 2021 to June 30, 2021.

On September 11.

2020, the Bison and Ming Tai Notes, having an aggregate of $15 million principal amount (the "Notes") were converted in full into an aggregate of 10,000,000 shares of Common Stock at a conversion price of $1.50 per share in accordance with the terms of the Notes.

Accordingly, the Notes have been extinguished.

The Notes were held by Global Investment SPC-Bison Global No.

1 SP and Mingtai Investment LP, both of which are affiliates of Peixin Xu, the Chairman of Bison Capital Holding Company Limited, which is indirectly Cinedigm's largest stockholder.

Changes in our cash flows were as follows:

For the Three Months Ended June 30,

Six Months Ended September 30,

($ in thousands) 2020 2019

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Net change in cash and cash equivalents $ 2,209 $ (4,207)

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

As of September 30, 2020, we had cash and restricted cash balances of $17.5 million.

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

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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.

Cash flows used in investing activities consisted of proceeds from the sale of Starrise shares of $1.2 million and purchases of property and equipment.

For the six months ended September 30, 2020, cash flows used in financing activities reflects payments of approximately $14.0 million for the Credit Facility and Prospect Loan, offset by $8.5 million from Credit Facility draw, $17.6 million received in connection with the sale of 18,116,899 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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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.

(i) our cash and cash equivalent balances as of September 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 Starrise equity investment, the capital raises during and the support or availability of funding from other capital resources and financings will be sufficient to satisfy our contractual obligations, as well as liquidity for our operational and capital requirements, for twelve months from the filing of this document.

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

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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