CINEDIGM CORP. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

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The following discussion and analysis should be read in conjunction with our historical consolidated financial statements and related notes included elsewhere in this report.



This report contains forward-looking statements within the meaning of the
federal securities laws. These include statements about our expectations,
beliefs, intentions or strategies for the future, which are indicated by words
or phrases such as "believes," "anticipates," "expects," "intends," "plans,"
"will," "estimates," and similar words. Forward-looking statements represent, as
of the date of this report, our judgment relating to, among other things, future
results of operations, growth plans, sales, capital requirements and general
industry and business conditions applicable to us. These forward-looking
statements are not guarantees of future performance and are subject to risks,
uncertainties, assumptions and other factors, some of which are beyond our
control that could cause actual results to differ materially from those
expressed or implied by such forward-looking statements.



OVERVIEW



Since our inception, we have played a significant role in the digital
distribution revolution that continues to transform the media landscape. In
addition to our pioneering role in transitioning approximately 12,000 movie
screens from traditional analog film prints to digital distribution, we have
become a leading distributor of independent content, both through organic growth
and acquisitions. We distribute products for major brands such as Hallmark,
Televisa, ITV, Nelvana, ZDF, Konami, NFL, and Scholastic, as well as leading
international and domestic content creators, movie producers, television
producers and other short-form digital content producers. We collaborate with
producers, major brands and other content owners to market, source, curate and
distribute quality content to targeted audiences through (i) existing and
emerging digital home entertainment platforms, including but not limited to
Apple iTunes, Amazon Prime, Netflix, Hulu, Xbox, Pluto, Tubi and most
video-on-demand ("VOD") and free ad-supported television ("FAST") streaming
platforms, as well as (ii) physical goods, including DVD and Blu-ray Discs.



We report our financial results in two primary segments as follows: (1) cinema
equipment business and (2) content and entertainment business ("Content &
Entertainment" or "CEG"). The cinema equipment business segment consists of the
non-recourse, financing vehicles and administrators for our digital cinema
equipment (the "Systems") installed in movie theatres throughout North America
and Australia. It also provides fee-based support to over 1,082 movie screens as
well as directly to exhibitors and other third-party customers in the form of
monitoring, billing, collection and verification services. Our Content &
Entertainment segment operates in: (1) ancillary market aggregation and
distribution of entertainment content and (2) branded and curated over-the-top
("OTT") digital network business providing entertainment channels and
applications.



Beginning in December 2015, certain of our cinema equipment began to reach the
conclusion of their 10-year deployment payment period with certain distributors
and, therefore, Virtual Print Fee ("VPF") revenues ceased to be recognized on
such Systems, related to such distributors. Furthermore, because the Phase I
Deployment installation period ended in November 2007, a majority of the VPF
revenue associated with the Phase I Deployment Systems has ended. The reduction
in VPF revenue on cinema equipment business systems approximately coincided with
the conclusion of certain of our non-recourse debt obligations and, therefore,
the reduced cash outflows related to such non-recourse debt obligations
partially offset the reduced VPF revenue since November 2017.



Under the terms of our standard cinema equipment licensing agreements,
exhibitors will continue to have the right to use our Systems through the end of
the term of the licensing agreement, after which time they have the option to:
(1) return the Systems to us; (2) renew their license agreement for successive
one-year terms; or (3) purchase the Systems from us at fair market value. As
permitted by these agreements, we typically pursue the sale of the Systems to
such exhibitors. Such sales were as originally contemplated as the conclusion of
the digital cinema deployment plan.



We are structured so that our cinema equipment business segment operates
independently from our Content & Entertainment business. As of June 30, 2022, we
had approximately $0.0 million of non-recourse outstanding debt principal that
relates to, and is serviced by, our cinema equipment business. We have
approximately $0.0 million of outstanding debt principal, as of June 30, 2022
that is attributable to our Content & Entertainment and Corporate segments.

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Risks and Uncertainties



The COVID-19 pandemic and related economic repercussions created significant
volatility and uncertainty impacting the Company's results for the period. As
part of our Content & Entertainment business, the Company sells DVDs and Blu-ray
discs at brick-and-mortar stores.



Liquidity


We have incurred net losses historically and net loss for the three months ended
June 30, 2022 of $6.0 million. As of June 30, 2022, we had an accumulated
deficit of $478.4 million and negative working capital of $7.6 million. Net cash
used in operating activities for the three months ended June 30, 2022 was $1.2
million. Based on these and prior conditions, the Company entered into the
following transactions described below.



Capital Raises



On May 20, 2020, the Company entered into a securities purchase agreement (the
"Securities Purchase Agreement") with certain investors (the "Investors") for
the purchase and sale of 10,666,666 shares of the Common Stock, at a purchase
price of $0.75 per share, in a registered direct offering, pursuant to an
effective shelf registration statement on Form S-3 which was declared effective
by the Securities and Exchange Commission on May 14, 2020 (File No. 333-238183)
and an applicable prospectus supplement. The closing of the sale occurred on May
22, 2020. The aggregate gross proceeds for the sale was $8.0 million. The net
proceeds to the Company from the sale, after deducting the fees of the placement
agents but before paying the Company's estimated offering expenses, were
approximately $7.1 million.



In July 2020, we entered into an At-the-Market sales agreement (the "ATM Sales
Agreement") with A.G.P./Alliance Global Partners ("A.G.P.") and B. Riley FBR,
Inc. ("B. Riley" and, together with A.G.P., the "Sales Agents"), pursuant to
which the Company may offer and sell, from time to time, through the Sales
Agents, shares of Common Stock at the market prices prevailing on Nasdaq at the
time of the sale of such shares. The Company is not obligated to sell any shares
under the ATM Sales Agreement. Any sales of shares made under the ATM Sales
Agreement will be made pursuant the 2020 Shelf Registration Statement, for an
aggregate offering price of up to $30 million. Net proceeds from such sales
totaled $18.6 million. No sales under the ATM Sales Agreement were made during
the three months ended June 30, 2022.



On July 16, 2020, the Company entered into a securities purchase agreement with
certain investors for the purchase and sale of 7,213,334 shares of Common Stock,
par value $0.001 per share, at a purchase price of $1.50 per share, in a
registered direct offering, pursuant to the 2020 Shelf Registration Statement
and an applicable prospectus supplement. The closing of the sale occurred on
July 20, 2020. The aggregate gross proceeds for the sale was approximately $10.8
million. The net proceeds to the Company from the sale, after deducting the fees
of the placement agents but before paying the Company's estimated offering
expenses, is approximately $10.1 million.



On February 2, 2021, the Company entered into a Securities Purchase Agreement
with a single institutional investor for the purchase and sale of 5,600,000
shares of Common Stock at a purchase price of $1.25 per share, in a registered
direct offering, pursuant to an effective shelf registration statement on Form
S-3 which was declared effective by the Securities and Exchange Commission on
July 10, 2020 (File No. 333-239710) (the "2020 Shelf Registration Statement")
and an applicable prospectus supplement. The closing of the sale occurred on
February 5, 2021. The aggregate gross proceeds for the sale was approximately
$7.0 million. The net proceeds to the Company from the sale, after deducting the
fees of the placement agent but before paying the Company's estimated offering
expenses, was approximately $6.5 million.



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In October 2021, we entered into a Common Stock Purchase Agreement (the "Equity
Line Purchase Agreement") and a Registration Rights Agreement (the "Registration
Rights Agreement") with B. Riley Principal Capital, LLC ("B. Riley Principal
Capital"). Pursuant to the Equity Line Purchase Agreement, the Company has the
right to sell to B. Riley Principal Capital up to the lesser of (i) $50,000,000
of newly issued shares of Common Stock and (ii) the Exchange Cap (as defined in
the Equity Line Purchase Agreement), from time to time during the 24-month
period from and after the October 21, 2021. Sales of Common Stock pursuant to
the Equity Line Purchase Agreement, and the timing of any sales, are solely at
the option of the Company, and the Company is under no obligation to sell any
securities to B. Riley Principal Capital under the Equity Line Purchase
Agreement. As consideration for B. Riley Principal Capital's commitment to
purchase shares of Common Stock at the Company's direction upon the terms and
subject to the conditions set forth in the Equity Line Purchase Agreement, upon
execution of the Equity Line Purchase Agreement, the Company issued 210,084
shares of Common Stock to B. Riley Principal Capital (the "Commitment Shares").
The purchase price of the shares of Common Stock that we elect to sell to B.
Riley Principal Capital pursuant to the Equity Line Purchase Agreement will be
determined by reference to the volume weighted average price of the Common Stock
("VWAP") during the applicable purchase date, less a fixed 5% discount to such
VWAP. Pursuant to the Registration Rights Agreement, the Company filed a
Registration Statement on Form S-1 that was declared effective by the Securities
and Exchange Commission on October 21, 2021 (File No. 333-260210) for the resale
by B. Riley Principal Capital of up to 25,210,084 shares of Common Stock
(including the Commitment Shares) acquired pursuant to the Equity Line Purchase
Agreement. During the year ended March 31, 2022, we sold 5,300,000 shares of
Common Stock under the Equity Line Purchase Agreement. Net proceeds from such
sales totaled $12.4 million. No sales under the Equity Line Purchase Agreement
were made during the three months ended June 30, 2022.



As of June 30, 2022, there is still approximately $38.0 million available under
the 2020 Shelf Registration Statement, and $37.6 million available under the
Equity Line Purchase Agreement, to raise additional capital.



Sale of Cinematic Equipment



On March 17, 2021, the Company entered into two separate agreements (the "AMC
Equipment Purcahse Agreements") for the sale of cinematic equipment to American
Multi-Cinema, Inc. ("AMC"). The agreement included the sale in tranches of a
total of 2,369 cinematic projectors starting in March 2021 throughout January
2023 for a total cash consideration of $10.8 million. As of June 30, 2022, the
Company recognized revenue for $10.3 million. A portion of the total proceeds
was utilized to pay off the remaining Prospect note payable.



A fair investment in a Related party

On February 14, 2020, the Company acquired an approximately 11.5% interest in A
Metaverse Company ("Metaverse"), a leading publicly traded Chinese entertainment
company, formerly Starrise Media Holdings Limited, whose ordinary shares are
listed on the Stock Exchange of Hong Kong. The Company acquired such interest as
a strategic investment and in a private transaction from a shareholder of
Metaverse that is related to our major shareholder. Our major shareholder also
maintains a significant beneficial interest ownership in Metaverse. Upon
consummation of the transaction on February 14, 2020, the Company recorded an
initial investment of approximately $25.1 million, which is the fair market
value of the Metaverse shares on the transaction date on the Stock Exchange of
Hong Kong, in exchange for the Company's common stock of $11.2 million, valued
as of the date of the issuance of the Common Stock of the Company. The
difference in value of shares received in Metaverse and shares issued by the
Company is deemed as contributed capital and recorded in additional paid-in
capital.



On April 10, 2020, the Company purchased an additional 15% interest in Metaverse
in a private transaction from shareholders of Metaverse that are affiliated with
the major shareholder of the Company. The Company recorded an additional equity
investment of approximately $28.2 million, which is the fair market value of the
Metaverse shares on the transaction date on the Stock Exchange of Hong Kong, in
exchange for the Company's common stock of $11.0 million, valued at the date of
the issuance of the Common Stock of the Company. The difference in the value of
shares received in Metaverse and shares issued by the Company is deemed as
contributed capital and recorded in additional paid-in capital. This transaction
was also recorded as an equity investment in Metaverse.



The Company has accounted for these investments under the equity method of
accounting as the Company can exert significant influence over Metaverse with
its direct ownership and affiliation with the Company's majority shareholders.
The Company has made an irrevocable election to apply the fair value option
under ASC 825-10, Financial Instruments, as it relates to its equity investment
in Metaverse.



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On April 1, 2022, trading of Metaverse's ordinary shares was halted on the Hong
Kong Stock Exchange. This investment was previously a level 1 investment as the
shares were being actively traded in a marketplace, but with the trading of the
shares being halted the Company needed to reassess the fair value level of the
investment. Without an active market where the shares are being traded, the
investment no longer qualifies as a level 1. As of June 30, 2022, Metaverse's
stock valuation is based on a evaluated offer received from an independent third
party to purchase our shares and trending assessment of market pricing and is
categorized as Level 3 based on unobservable inputs. As the value of the
investment in Metaverse is being determined by an offer to purchase the shares
from an independent third party, the value of the investment may need to be
reduced or fully written off should the offer be rescinded.



We believe the combination of: (i) our cash and cash equivalent balances at June
30, 2022 and (ii) expected cash flow from operations will be sufficient for our
operations and capital needs, for at least twelve months from the filing of this
report. Our capital requirements will depend on many factors, and we may need to
use capital resources and obtain additional capital. Failure to generate
additional revenues, obtain additional capital or manage discretionary spending
could have an adverse effect on our financial position, results of operations
and liquidity.


Significant Accounting Policies and Estimates



Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP"). In
connection with the preparation of our financial statements, we are required to
make assumptions and estimates about future events and apply judgments that
affect the reported amounts of assets, liabilities, revenue, expenses and the
related disclosures. We base our assumptions, estimates and judgments on
historical experience, current trends and other factors that management believes
to be relevant at the time our consolidated financial statements are prepared.
On a regular basis, management reviews the accounting policies, assumptions,
estimates and judgments to ensure that our financial statements are presented
fairly and in accordance with GAAP. However, because future events and their
effects cannot be determined with certainty, actual results could differ from
our assumptions and estimates, and such differences could be material.



Our significant accounting policies are discussed in Note 2 - Summary of
Significant Accounting Policies, of the Notes to Consolidated Financial
Statements, included in Item 1, Condensed Consolidated Financial Statements
(Unaudited), of this Quarterly Report on Form 10-Q. Management believes that the
following accounting policies are the most critical to aid in fully
understanding and evaluating our reported financial results, and they require
management's most difficult, subjective or complex judgments, resulting from the
need to make estimates about the effect of matters that are inherently
uncertain. Management has reviewed these critical accounting estimates and
related disclosures with the Audit Committee of our board of directors.



FAIR VALUE ESTIMATES


Good willIntangible and long-lived assets



Goodwill is the excess of the purchase price paid over the fair value of the net
assets of an acquired business. Goodwill is tested for impairment on an annual
basis or more often if warranted by events or changes in circumstances
indicating that the carrying value may exceed fair value, also known as
impairment indicators.



Inherent in the fair value determination for each reporting unit are certain
judgments and estimates relating to future cash flows, including management's
interpretation of current economic indicators and market conditions, and
assumptions about our strategic plans with regard to its operations. To the
extent additional information arises, market conditions change, or our
strategies change, it is possible that the conclusion regarding whether our
remaining goodwill is impaired could change and result in future goodwill
impairment charges that will have a material effect on our consolidated
financial position or results of operations.



The Company has the option to assess goodwill for possible impairment by
performing a qualitative analysis to determine if it is more likely than not
that the fair value of a reporting unit is less than its carrying amount or to
perform the quantitative impairment test.



We review the recoverability of our long-lived assets and finite-lived
intangible assets, when events or conditions occur that indicate a possible
impairment exists. Determining whether impairment has occurred typically
requires various estimates and assumptions, including determining which cash
flows are directly related to the potentially impaired asset, the useful life
over which cash flows will occur, their amount and the asset's residual value,
if any. The assessment for recoverability is based primarily on our ability to
recover the carrying value of its long-lived and finite-lived assets from
expected future undiscounted net cash flows. If the total of expected future
undiscounted net cash flows is less than the total carrying value of the assets
the asset is deemed not to be recoverable and possibly impaired. We then
estimate the fair value of the asset to determine whether an impairment loss
should be recognized. An impairment loss will be recognized if the asset's fair
value is determined to be less than its carrying value. Fair value is determined
by computing the expected future discounted cash flows.



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In the three months ended June 30, 2022 and 2021, no impairment was recorded on intangible assets.


Investment in Metaverse


Fair value measurement information is grouped into three levels based on valuation factors:

? Level 1 – quoted prices in active markets for identical investments

? Level 2 – other significant observable inputs (including quoted prices for

similar investments and data corroborated by the market)

? Level 3 – significant unobservable inputs (including our own assumptions in

   determining the fair value of investments)



Assets and liabilities measured at fair value on a recurring basis use the market approach, where prices and other relevant information are generated by market transactions relating to identical or comparable assets or liabilities.

In the three months ended June 30, 2022 and 2021, the company recorded an expense of $1,256 and ($334) in the company’s investment in Metaverse.


REVENUE RECOGNITION


Adoption of ASU Topic 606, “Customer Contract Revenue”

We determine revenue recognition by:

? identify the contract(s) with the customer;

? identify performance obligations in the contract;

? determine the price of the transaction;

? allocate the transaction price to the performance obligations in the contract;

   and



? recognize revenue when, or over time, we meet performance obligations in respect of

transfer the promised goods or services.




We recognize revenue in the amount that reflects the consideration we expect to
receive in exchange for the services provided, sales of physical products (DVD's
and Blu-ray Discs) or when the content is available for subscription on the
digital platform or available on the point-of-sale for transactional and video
on demand services which is when the control of the promised products and
services is transferred to our customers and our performance obligations under
the contract have been satisfied. Revenues that might be subject to various
taxes are recorded net of transaction taxes assessed by governmental authorities
such as sales value-added taxes and other similar taxes.



Payment terms and conditions vary by customer and typically provide net 30 to 90
day terms. We do not adjust the promised amount of consideration for the effects
of a significant financing component when we expect, at contract inception, that
the period between our transfer of a promised product or service to our customer
and payment for that product or service will be one year or less. We have in the
past entered into arrangements in connection with activation fees due from our
System deployments that had extended payment terms. The outstanding balances on
these arrangements are insignificant and hence the impact of significant
financing would be insignificant.



Cinema Equipment Business



Our Cinema Equipment Business consists of financing vehicles and administrators
for 434 Systems installed nationwide in our first deployment phase ("Phase I
Deployment") to theatrical exhibitors and for 648 Systems installed domestically
and internationally in our second deployment phase ("Phase II Deployment").



We retain ownership of our Systems and the residual cash flows related to the
Systems in Phase I Deployment after the end of the 10-year deployment payment
period.



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For certain Phase II Deployment Systems, we do not retain ownership of the
residual cash flows and digital cinema equipment in Phase II Deployment after
the completion of cost recoupment and at the expiration of the exhibitor master
license agreements.



The Cinema Equipment Business also provides monitoring, data collection, serial
data verification and management services to this segment, as well as to
exhibitors who purchase their own equipment, in order to collect virtual print
fees ("VPFs") from motion picture studios and distributors and Alternative
Content Fees ("ACFs") from alternative content providers, and to distribute
those fees to theatrical exhibitors (collectively, "Services").



VPFs are earned, net of administrative fees, pursuant to contracts with movie
studios and distributors, whereby amounts are payable by a studio to Phase I
Deployment and to Phase II Deployment when movies distributed by the studio are
displayed on screens utilizing our Systems installed in movie theatres. VPFs are
earned and payable to Phase I Deployment based on a defined fee schedule until
the end of the VPF term. One VPF is payable for every digital title initially
displayed per System. The amount of VPF revenue is dependent on the number of
movie titles released and displayed using the Systems in any given accounting
period. VPF revenue is recognized in the period the title first plays for
general audience viewing in a digital projector equipped movie theatre. The
Phase 1 Deployment's and Phase 2 Deployments performance obligations for revenue
recognition are met at this time.



Phase II Deployment's agreements with distributors require the payment of VPFs,
according to a defined fee schedule, for ten years from the date each system is
installed; however, Phase II Deployment may no longer collect VPFs once "cost
recoupment," as defined in the contracts with movie studios and distributors, is
achieved. Cost recoupment will occur once the cumulative VPFs and other cash
receipts collected by Phase II Deployment have equaled the total of all cash
outflows, including the purchase price of all Systems, all financing costs, all
"overhead and ongoing costs", as defined, and including service fees, subject to
maximum agreed upon amounts during the three-year rollout period and thereafter.
Further, if cost recoupment occurs before the end of the eighth contract year,
the studios will pay us a one-time "cost recoupment bonus." The Company
evaluated the constraining estimates related to the variable consideration,
i.e., the one-time bonus and determined that it is not probable to conclude at
this point in time that a significant reversal in the amount of cumulative
revenue recognized will occur when the uncertainty associated with the variable
consideration is subsequently resolved.



Under the terms of our standard cinema equipment licensing agreements,
exhibitors will continue to have the right to use our Systems through the end of
the term of the licensing agreement, after which time, they have the option to:
(1) return the Systems to us; (2) renew their license agreement for successive
one-year terms; or (3) purchase the Systems from us at fair market value. As
permitted by these agreements, we typically pursue the sale of the Systems to
such exhibitors. Cinedigm recognizes revenue once the customer takes possession
of the Systems and Cinedigm received the sale proceeds. Such sales were
originally contemplated as the conclusion of the digital cinema deployment plan.
Total system revenue was $1.2 million and $5.6 million, during the three months
ended June 30, 2022 and 2021, respectively. Revenues earned in connection with
up front exhibitor contributions are deferred and recognized over the expected
cost recoupment period.


Exhibitors who purchased and own Systems using their own financing in Phase II
of the Cinema Equipment Business paid us an upfront activation fee of
approximately $2.0 thousand per screen (the "Exhibitor-Buyer Structure").
Upfront activation fees were recognized in the period in which these Systems
were delivered and ready for content, as we had no further obligations to the
customer after that time and collection was reasonably assured. In addition, we
recognize activation fee revenue of between $1.0 thousand and $2.0 thousand on
Phase II Deployment Systems and for Systems installed by CDF2 Holdings, a
related party, (See Note 3 - Other Interests) upon installation and such fees
are generally collected upfront upon installation. Our services division manages
and collects VPFs on behalf of exhibitors, for which it earns an administrative
fee equal to 10% of the VPFs collected.



The Cinema Equipment Business earns an administrative fee of approximately 5% of
VPFs collected and, in addition, earns an incentive service fee equal to 2.5% of
the VPFs earned by Phase 1 DC. This administrative fee is related to the
collection and remittance of the VPFs and the performance obligation is
satisfied at that time the related VPF fees are due which is at the time the
movies are displayed on screens utilizing our Systems installed in movie
theatres. The service fees are recognized as a point in time revenue when the
corresponding VPF fees are due from the movie studios and distributors.



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Content and entertainment company



CEG earns fees for the distribution of content in the home entertainment markets
via several distribution channels, including digital, video on demand ("VOD" or
"OTT Streaming and Digital"), and physical goods (e.g., DVDs and Blu-ray Discs)
("Physical Revenue" or "Base Distribution Business"). Fees earned are typically
a percentage based on the net amounts received from our customers. Depending
upon the nature of the agreements with the platform and content providers, the
fee rate that we earn varies. The Company's performance obligations include the
delivery of content for transactional, subscription and ad supported/free
ad-supported streaming TV ("FAST") on the digital platforms, and shipment of
DVDs and Blu-ray Discs. Revenue is recognized at the point in time when the
performance obligation is satisfied, which is when the content is available for
subscription on the digital platform, at the time of shipment for physical
goods, or point-of-sale for transactional and VOD services as the control over
the content or the physical title is transferred to the customer. The Company
considers the delivery of content through various distribution channels to be a
single performance obligation. Physical revenue is recognized after deducting
the reserves for sales returns and other allowances, which are accounted for as
variable consideration.


Material assets reserved for sales returns and other allowances are recorded based on historical experience. If actual future returns and allocations differ from past experience, adjustments to our allocations may be necessary.



CEG also has contracts for the theatrical distribution of third party feature
movies and alternative content. CEG's distribution fee revenue and CEG's
participation in box office receipts are recognized at the time a feature movie
and alternative content are viewed. CEG has the right to receive or bill a
portion of the theatrical distribution fee in advance of the exhibition date,
and therefore such amount is recorded as a receivable at the time of execution,
and all related distribution revenue is deferred until the third party feature
movies' or alternative content's theatrical release date.



Principal Agent Considerations



We determine whether revenue should be reported on a gross or net basis based on
each revenue stream. Key indicators that we use in evaluating gross versus net
treatment include, but are not limited to, the following:



? which party is primarily responsible for fulfilling the promise to provide the

specified good or service; and

? which party has the discretion to establish the price of the good or

   service.




Shipping and Handling



Shipping and handling costs are incurred to move physical goods (e.g., DVDs and
Blu-ray Discs) to customers. We recognize all shipping and handling costs as an
expense in cost of goods sold because we are responsible for delivery of the
product to our customers prior to transfer of control to the customer.



Credit Losses


We maintain reserves for potential credit losses on accounts receivable. We
review the composition of accounts receivable and analyze historical bad debts,
customer concentrations, customer credit worthiness, current economic trends and
changes in customer payment patterns to evaluate the adequacy of these reserves.
Reserves are recorded primarily on a specific identification basis.



Our CEG segment recognizes accounts receivable, net of an estimated allowance
for product returns and customer chargebacks, at the time that it recognizes
revenue from a sale. Reserves for product returns and other allowances is
variable consideration as part of the transaction price. If actual future
returns and allowances differ from past experience, adjustments to our
allowances may be required.



We record accounts receivable, long-term in connection with activation fees that
we earn from Systems deployments that have extended payment terms. Such accounts
receivable are discounted to their present value at prevailing market rates.



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Contract Liabilities


We generally record a revenue-related receivable when we have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability) when cash payments are received or due before our performance, even if the amounts are refundable.

Deferred revenue related to our content and entertainment business includes amounts related to the sale of DVDs with future release dates.



Deferred revenue relating to our Cinema Equipment Business pertains to revenues
earned in connection with up front exhibitor contributions that are deferred and
recognized over the expected cost recoupment period. It also includes
unamortized balances in connection with activation fees due from the Systems
deployments that have extended payment terms.



The ending deferred revenue balance, including current and non-current balances,
as of June 30, 2022 was $0.4 million. For the three months ended June 30, 2022,
the additions to our deferred revenue balance were primarily due to cash
payments received or due in advance of satisfying performance obligations, while
the reductions to our deferred revenue balance were primarily due to the
recognition of revenue upon fulfillment of our performance obligations, both of
which were in the ordinary course of business.



Contributions and royalties to be paid



When we use third parties to distribute company owned content, we record
participations payable, which represent amounts owed to the distributor under
revenue-sharing arrangements. When we provide content distribution services, we
record accounts payable and accrued expenses to studios or content producers for
royalties owed under licensing arrangements. We identify and record as a
reduction to the liability any expenses that are to be reimbursed to us by such
studios or content producers.



ASSET ACQUISITIONS



An asset acquisition is an acquisition of an asset, or a group of assets, that
does not meet the definition of a business as substantially all of the fair
value of the gross assets acquired are concentrated in a single or group of
similar, identifiable assets. Asset acquisitions are accounted for by using the
cost accumulation model whereby the cost of the acquisition, including certain
transaction costs, is allocated to the assets acquired on a relative fair value
basis. Determining and valuing intangible assets requires judgment.



BUSINESS COMBINATIONS



The Company accounts for acquisitions in accordance with FASB ASC 805, "Business
Combinations" ("ASC 805"), and goodwill in accordance with ASC 350, "Intangibles
- Goodwill and Other" ("ASC 350"). The excess of the purchase price over the
estimated fair value of net assets acquired in a business combination is
recorded as goodwill. ASC 805 specifies criteria to be used in determining
whether intangible assets acquired in a business combination must be recognized
and reported separately from goodwill. Amounts assigned to goodwill and other
identifiable intangible assets are based on independent appraisals or internal
estimates.



ASC 805 defines the acquirer in a business combination as the entity that
obtains control of one or more businesses in a business combination and
establishes the acquisition date as the date the acquirer achieves control. ASC
805 requires an acquirer to recognize the assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquirer (if any) at the
acquisition date, measured at their fair values as of that date. ASC 805 also
requires the acquirer to recognize contingent consideration (if any) at the
acquisition date, measured at its fair value at that date.



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Results of Operations for the Fiscal Three Months Ended June 30, 2022 and 2021



Revenues



                                            For the Three Months Ended June 30,
($ in thousands)                      2022            2021       $ Change      % Change
Cinema Equipment Business          $    1,427       $  6,231     $  (4,804 )         (77 )%
Content & Entertainment Business       12,163          8,784         3,379 
          38 %
                                   $   13,590       $ 15,015     $  (1,425 )          (9 )%



Revenues generated by our Cinema Equipment Business segment decreased as a
result of the lower system revenue and eligible VPF systems. Total system
revenue recognized was $1.2 million and $5.6 million, during the quarter ended
June 30, 2022 and 2021, respectively. An increase in Blockbuster content
released during the period ending June 30, 2022 showed a return to pre-pandemic
results; however, this was offset by an 80%  decrease in eligible VPF systems
for the same period last year. Revenue in the Content & Entertainment Business
segment increased by 38% for the quarter ended June 30, 2022 compared to the
quarter ended June 30, 2021. The increase is consistent with the addition of
seven new streaming channels related to Bloody Disgusting and DMR business
acquisitions and four managed channel additions of The Country Network, Real
Madrid TV, El Rey and The Only Way is Essex as well as an increase in the number
of advertising partners



Direct Operating Expenses



                                             For the Three Months Ended June 30,
($ in thousands)                      2022             2021         $ Change      % Change
Cinema Equipment Business          $      144       $      257     $     (113 )         (44 )%
Content & Entertainment Business        7,212            4,374          2,838            65 %
                                   $    7,356       $    4,631     $    2,725            59 %




The decrease in direct operating expenses in the quarter ended June 30, 2022 for
the Cinema Equipment Business compared to the prior period was primarily due to
a decrease in property taxes as a result of system sales. The increase in direct
operating expenses in the three months ended June 30, 2022 for the Content &
Entertainment Business compared to the prior year was primarily due to $0.2
 million higher license and royalty costs, $0.3 million increase related to DVD
manufacturing and fulfillment, $0.7  million higher content and production costs
related to continued growth in revenue and distribution, $0.3  million higher
personnel and contractors, and $0.2  million related to the film restoration,
conversion and website content production costs. Additionally, $0.8  million in
Software as a service ("SaaS") expense resulted from the DMR acquisition was
realized during the three months ended June 30, 2022.



Selling, general and administrative expenses


                                           For the Three Months Ended June 30,
($ in thousands)                     2022           2021        $ Change      % Change
Cinema Equipment Business          $   1,071       $   429     $      642           150 %
Content & Entertainment Business       3,783         2,818            965  
         34 %
Corporate                              4,961         2,796          2,165            77 %
                                   $   9,815       $ 6,043     $    3,772            62 %



Selling, general and administrative expenses for the quarter ended June 30, 2022
increased by $3.7 million primarily due to $2.2  million increase in personnel
costs from the acquisitions of Screambox, DMR and Bloody Disguising, $0.7

million in legal fees primarily related to a legal settlement, and $0.5

million in professional consulting services.

Recovery of doubtful accounts

Recovery of bad debts has been $3,000 and $0.1 million for the fiscal quarter ended June 30, 2022 and 2021, respectively.


                                       34




Depreciation of property, plant and equipment


                                             For the Three Months Ended June 30,
($ in thousands)                     2022           2021          $ Change       % Change
Cinema Equipment Business          $    117            507             (390 )          (77 )%
Content & Entertainment Business        138            143               (5
)           (3 )%
Corporate                                 1             (1 )              2           (200 )%
                                   $    256       $    649       $     (393 )          (61 )%




Depreciation and amortization expense decreased in our Cinema Equipment Business
Segment as the majority of our digital cinema projection systems reached the
conclusion of their ten-year useful lives during the quarter ended June 30,
2022
and 2021


Amortization of intangible assets


                                             For the Three Months Ended June 30,
($ in thousands)                     2022           2021          $ Change       % Change
Content & Entertainment Business        637            845             (208
)          (25 )%
Corporate                               107              1              106          10600 %
                                   $    744       $    846       $     (102 )          (12 )%



The amortization of intangible fixed assets of Corporate and Content & Entertainment Business is $111,000 the assets of customer contracts with shorter maturities being fully amortized, which saves $0.4 millionpartially offset by $0.2 million increase in amortization expense related to the acquisition of DMR and Cinedigm India.


Interest expense, net



                                             For the Three Months Ended June 30,
($ in thousands)                     2022           2021          $ Change       % Change
Cinema Equipment Business          $      -       $    133       $     (133 )         (100 )%
Content & Entertainment Business          -              -                -
             - %
Corporate                               133             11              122           1109 %
                                   $    133       $    144       $      (11 )           (8 )%



Interest expense in our Corporate segment increased as a result of deferred and
earnout consideration accretion related to the acquisition of Bloody Disgusting,
FoundationTV and DMR.


Changes in fair value in Metaverse

On April 1, 2022, trading of Metaverse's ordinary shares was halted on the Hong
Kong Stock Exchange. This investment was previously a level 1 investment as the
shares were being actively traded in a marketplace, but with the trading of the
shares being halted the Company needed to reassess the fair value level of the
investment. Without an active market where the shares are being traded, the
investment no longer qualifies as a level 1. As of June 30, 2022, Metaverse's
stock valuation is based on an evaluated offer received from an independent
third party to purchase our shares and trending assessment of market pricing and
is categorized as Level 3 based on unobservable inputs.



Income Tax Benefit



We recorded income tax expense of $0  for the three months ended June 30, 2022.
We recorded an income tax benefit of approximately $63 thousand for the three
months ended June 30, 2021.


Our effective tax rate for the three months ended June 30, 2022 and 2021 were zero and minus 1.2%, respectively.


                                       35




Net profit/Net loss attributable to common shareholders


                                           For the Three Months Ended June 30,
($ in thousands)                      2022         2021       $ Change       % Change
Cinema Equipment Business          $      137     $ 4,771     $  (4,634 )          (97 )%
Content & Entertainment Business       (2,380 )      (108 )      (2,272 )  
     (2104 )%
Corporate                              (3,850 )       435        (4,285 )         (985 )%
                                   $   (6,093 )   $ 5,098     $ (11,191 )         (220 )%




Adjusted EBITDA


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



Consolidated Adjusted EBITDA (including the results of Cinema Equipment Business
segment) for the three months ended June 30, 2022 decreased by $7.7 million
compared to the three months ended June 30, 2021. Adjusted EBITDA from our
Cinema Equipment Business segment decreased primarily due to a decrease in
systems sales and eligible VPF systems. Adjusted EBITDA from the Content &
Entertainment Business and Corporate decreased by $2.3 million for the three
months ended June 30, 2022 compared to the three months ended June 30, 2021, due
to an increase of $2.8 million in direct operating expense and $3.1 million
higher selling, general and administrative expenses, versus previous year
despite a $3.4 million increase in Streaming digital revenue, adding channels,
and acquisitions, and $0.4 million  in one-time acquisition cost adjustments.



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 income (loss) from continuing operations as an indicator of
operating performance. We also believe that Adjusted EBITDA is a financial
measure that is useful both to management and investors when evaluating our
performance and comparing our performance with that of our competitors. We also
use Adjusted EBITDA for planning purposes and to evaluate our financial
performance because Adjusted EBITDA excludes certain incremental expenses or
non-cash items, such as stock-based compensation charges, that we believe are
not indicative of our ongoing operating performance.



We believe that Adjusted EBITDA is a performance measure and not a liquidity
measure, and therefore a reconciliation between net 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.



                                       36





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



                                                                  For the Three Months Ended
                                                                           June 30,
($ in thousands)                                                   2022                2021
Net income (loss)                                              $      (5,987 )     $       5,194
Add Back:
Income tax (income) expense                                                -                 (63 )
Depreciation and amortization of property and equipment                  256                 649
Amortization of intangible assets                                        744                 847
(Gain) Loss on extinguishment of note payable                             
-              (2,178 )
Interest expense, net                                                    133                 144
Intangible impairment                                                      -                   -
Change in fair value on equity investment in Metaverse                 1,256                (334 )
Other expense, net                                                       396                 173
Recovery of doubtful accounts                                              3                  71
Stock-based compensation and expenses                                    980                 983
Net income (loss) attributable to noncontrolling interest                (18 )                (7 )
Adjusted EBITDA                                                $      

(2,237) $5,479

Adjustments related to the cinematographic equipment activity Depreciation of property, plant and equipment

                 (117 )     $        (507 )
Amortization of intangible assets                                          -                   -
Stock-based compensation and expenses                                     
-                   -
Other expense                                                            (11 )               (11 )
Recovery of doubtful accounts                                             (3 )               (27 )
Income from operations                                                    11              (4,912 )
Adjusted (negative EBITDA) from Content & Entertainment
Business and Corporate                                         $      (2,357 )     $          22



Recent accounting pronouncements

See Note 2 – Summary of significant accounting policies to our consolidated financial statements included herein.


Cash flow


The changes in our cash flows are as follows:


                                                                  For the Three Months Ended
                                                                           June 30,
($ in thousands)                                                   2022                2021
Net cash (used in) provided by operating activities            $      (1,198 )     $       3,621
Net cash used in investing activities                                    (61 )              (791 )
Net cash used in financing activities                                   (284 )            (6,324 )
Net decrease in cash and cash equivalents                      $      (1,543 )     $      (3,494 )



Of the June 30, 2022we had cash and cash equivalent balances of $11.5 million.

Of the June 30, 2021we had cash, cash equivalents and cash balances restricted by $14.4 million.



For the three months ended June 30, 2022, net cash provided by operating
activities is primarily driven by income from operations, excluding non-cash
expenses such as depreciation, amortization, recovery for doubtful accounts and
stock-based compensation, gain on extinguishment of note payable, including
other changes in working capital. Additionally, during the three months ended
June 30, 2022, the Company increased accounts payable by $5.4 million to
vendors. Accounts receivable increased due to growth in streaming and
acquisitions of Bloody Disgusting, Screambox and DMR. Cash received from VPFs
decreased from the previous period in alignment with the decrease in eligible
VPF systems. 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 seasonally lower in the other two
quarters. 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.



                                       37





For the three months ended June 30, 2021, net cash provided by operating
activities is primarily driven by income from operations, excluding non-cash
expenses such as depreciation, amortization, provision for doubtful accounts and
stock-based compensation, including other changes in working capital.
Additionally, during the three months ended June 30, 2021, the Company paid down
$8.1 million to vendors at both CEG and Corporate. Cash received from VPFs
declined from the previous period as Phase I Deployment Systems in our Cinema
Equipment Business reached the conclusion of their deployment payment periods
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. This was
further impacted by the decrease in eligible VPF systems. Because our digital
cinema business earns a VPF when a movie is first played on a system, the
reduction of eligible VPF systems resulted in reduced revenues. Operating cash
flows from CEG are typically higher during our fiscal third and fourth quarters,
resulting from revenues earned during the holiday season, and lower in the other
two quarters as we pay royalties on such revenues. In addition, we make advances
on theatrical releases and to certain home entertainment distribution clients
for which initial expenditures are generally recovered within six to twelve
months. For the three months ended June 30, 2022 revenues from the sale of
digital projections Systems was $1.2 million.



For the three months ended June 30, 2022cash flows used in investing activities consisted of purchases of property, plant and equipment of $0.1 million.



For the three months ended June 30, 2021, cash flows used in investing
activities consisted of purchases of property and equipment of $40 thousand and
the purchase of a business of $1.0 million related to the business combination
for FoundationTV.


For the three months ended June 30, 2022cash flows from financing activities consist of payments of approximately $0.3 million in notes payable.

For the three months ended June 30, 2021cash flows used in financing activities consisted of payments of approximately $4.8 million in notes payable and $1.6 million in repayments of the credit facility.


Contractual Obligations



The following table summarizes our significant contractual obligations as of
June 30, 2022:



                                                                Payments Due
Contractual Obligations (in                                      2024 &         2026 &
thousands)                          Total          2023           2025           2027          Thereafter
Operating lease obligations       $      682     $     193     $      489  
  $         -     $           -



We may continue to generate net losses for the foreseeable future primarily due
to depreciation and amortization, marketing and promotional activities and
content acquisition and marketing costs. Certain of these costs, including costs
of content acquisition, marketing and promotional activities, could be reduced
if necessary. We feel we are adequately financed for at least the next twelve
months; however, we may need to raise additional capital for working capital as
deemed necessary. Failure to generate additional revenues, raise additional
capital or manage discretionary spending could have an adverse effect on our
financial position, results of operations or liquidity.



Seasonality


Revenues from our Cinema Equipment Business derived from the collection of VPFs
from motion picture studios are seasonal, coinciding with the timing of releases
of movies by the motion picture studios. Generally, motion picture studios
release the most marketable movies during the summer and the winter holiday
season. The unexpected emergence of a hit movie during other periods can alter
the traditional trend. The timing of movie releases can have a significant
effect on our results of operations, and the results of one quarter are not
necessarily indicative of results for the next quarter or any other quarter.
While CEG benefits from the winter holiday season, we believe the seasonality of
motion picture exhibition, is becoming less pronounced as the motion picture
studios are releasing movies somewhat more evenly throughout the year.



                                       38




Off-balance sheet arrangements



We are not a party to any off-balance sheet arrangements other than as discussed
in Note 2 - Summary of Significant Accounting Policies, Basis of Presentation
and Consolidation and Note 3 - Other Interests to the Condensed Consolidated
Financial Statements (Unaudited) included in Item 1 of this Quarterly Report on
Form 10-Q, we hold a 100% equity interest in CDF2 Holdings, which is an
unconsolidated variable interest entity ("VIE"), which wholly owns Cinedigm
Digital Funding 2, LLC; however, we are not the primary beneficiary of the
VIE.



Impact of Inflation


The impact of inflation on our operations has not been significant to date. However, there can be no assurance that high inflation in the future will not adversely affect our results of operations.

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