CIDM 12.31.13 Form 10Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q
 
(Mark One)
x     QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal period ended: December 31, 2013

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from --- to ---
 
Commission File Number: 000-31810
___________________________________
Cinedigm Corp.
(Exact name of registrant as specified in its charter)
___________________________________
Delaware
 
22-3720962
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
 
 
902 Broadway, 9th Floor New York, NY
 
10010
(Address of principal executive offices)
 
(Zip Code)
(212) 206-8600
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
 
Yes x No o
 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
 
Yes x No o
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer  o
Accelerated filer  o
Non-accelerated filer  o
Smaller reporting company  x
 
 
(Do not check if a smaller reporting company)
 
 
 
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No x

As of February 10, 2014, 64,565,196 shares of Class A Common Stock, $0.001 par value were outstanding.






CINEDIGM CORP.
TABLE OF CONTENTS
 
Page
 
PART I --
FINANCIAL INFORMATION
 
Item 1.
Financial Statements (Unaudited)
 
Condensed Consolidated Balance Sheets at December 31, 2013 (Unaudited) and March 31, 2013
 
Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months ended December 31, 2013 and 2012
 
Unaudited Condensed Consolidated Statements of Cash Flows for the Three and Nine Months ended December 31, 2013 and 2012
 
Notes to Unaudited Condensed Consolidated Financial Statements
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 4.
Controls and Procedures
PART II --
OTHER INFORMATION
Item 1.
Legal Proceedings
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
Signatures
 
Exhibit Index
 





PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)

CINEDIGM CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)

    
 
December 31, 2013
 
March 31, 2013
ASSETS
(Unaudited)
 
 
Current assets
 
 
 
Cash and cash equivalents
$
18,863

 
$
13,448

Accounts receivable, net
70,341

 
29,384

Deferred costs, current portion
1,878

 
1,238

Unbilled revenue, current portion
5,987

 
7,432

Prepaid and other current assets
12,230

 
6,091

Note receivable, current portion
333

 
331

Assets of discontinued operations, net of liabilities
1,876

 
2,279

Total current assets
111,508

 
60,203

 
 
 
 
Restricted cash
6,751

 
6,751

Security deposits
218

 
218

Property and equipment, net
144,291

 
170,088

Intangible assets, net
35,284

 
12,799

Goodwill
8,542

 
8,542

Deferred costs, net of current portion
7,931

 
7,396

Accounts receivable, long-term
1,451

 
1,225

Note receivable, net of current portion
102

 
130

Investment in non-consolidated entity, net

 
1,812

Assets of discontinued operations, net of current portion
6,164

 
12,295

Total assets
$
322,242

 
$
281,459


See accompanying notes to Unaudited Condensed Consolidated Financial Statements

3



CINEDIGM CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
(continued)

    
 
 
December 31, 2013
 
March 31, 2013
LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
(Unaudited)
 
 
Current liabilities
 
 
 
 
Accounts payable and accrued expenses
 
$
63,755

 
$
39,777

Current portion of notes payable, non-recourse
 
34,095

 
34,447

Current portion of notes payable
 
18,275

 

Current portion of capital leases
 
590

 
132

Current portion of deferred revenue
 
3,463

 
1,844

Current portion of contingent consideration for business combination
 

 
1,500

Total current liabilities
 
120,178

 
77,700

 
 
 
 
 
Notes payable, non-recourse, net of current portion
 
173,797

 
203,462

Notes payable, net of current portion
 
24,553

 

Capital leases, net of current portion
 
5,632

 
4,386

Interest rate derivatives
 

 
544

Deferred revenue, net of current portion
 
12,829

 
10,931

Contingent consideration, net of current portion
 
1,906

 
1,750

Total liabilities
 
338,895

 
298,773

Commitments and contingencies (see Note 7)
 
 
 


Stockholders’ Deficit
 
 
 
 
Preferred stock, 15,000,000 shares authorized; Series A 10% - $0.001 par value per share; 20 shares authorized; 7 shares issued and outstanding at December 31, 2013 and March 31, 2013, respectively. Liquidation preference of $3,636
 
3,547

 
3,466

Class A common stock, $0.001 par value per share; 118,759,000 shares authorized; 64,501,920 and 48,448,137 shares issued and 64,450,480 and 48,396,697 shares outstanding at December 31, 2013 and March 31, 2013, respectively
 
64

 
48

Class B common stock, $0.001 par value per share; 1,241,000 shares authorized and issued, 0 shares outstanding at December 31, 2013 and March 31, 2013
 

 

Additional paid-in capital
 
245,178

 
221,810

Treasury stock, at cost; 51,440 Class A shares
 
(172
)
 
(172
)
Accumulated deficit
 
(265,270
)
 
(242,466
)
Total stockholders’ deficit
 
(16,653
)
 
(17,314
)
Total liabilities and stockholders’ deficit
 
$
322,242

 
$
281,459


See accompanying notes to Unaudited Condensed Consolidated Financial Statements



4



CINEDIGM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for share and per share data)
(Unaudited)
    
 
For the Three Months Ended December 31,
 
For the Nine Months Ended December 31,
 
2013
 
2012
 
2013
 
2012
(As adjusted - See Note 1)
Revenues
$
34,885

 
$
21,779

 
$
72,664

 
$
61,448

Costs and expenses:
 
 
 
 
 
 
 
Direct operating (exclusive of depreciation and amortization shown below)
11,013

 
2,119

 
19,558

 
5,595

Selling, general and administrative
6,949

 
5,435

 
17,243

 
16,247

Provision for doubtful accounts
33

 
72

 
227

 
226

Merger and acquisition expenses
2,779

 

 
2,779

 
1,267

Restructuring and transition expenses
1,142

 

 
1,142

 
340

Depreciation and amortization of property and equipment
9,444

 
9,120

 
27,901

 
27,264

Amortization of intangible assets
1,228

 
732

 
2,055

 
1,100

Total operating expenses
32,588

 
17,478

 
70,905

 
52,039

Income from operations
2,297

 
4,301

 
1,759

 
9,409

Interest expense, net
(5,051
)
 
(6,690
)
 
(14,507
)
 
(21,426
)
Income (loss) on investment in non-consolidated entity

 
678

 
(1,812
)
 
1,340

Other income, net
23

 
102

 
269

 
494

Change in fair value of interest rate derivatives
38

 
349

 
796

 
1,025

Loss from continuing operations before benefit from income taxes
(2,693
)
 
(1,260
)
 
(13,495
)
 
(9,158
)
Benefit from income taxes

 

 

 
5,019

Loss from continuing operations
(2,693
)
 
(1,260
)
 
(13,495
)
 
(4,139
)
Loss from discontinued operations
(7,689
)
 
(524
)
 
(9,042
)
 
(389
)
Net loss
(10,382
)
 
(1,784
)
 
(22,537
)
 
(4,528
)
Preferred stock dividends
(89
)
 
(89
)
 
(267
)
 
(267
)
Net loss attributable to common stockholders
$
(10,471
)
 
$
(1,873
)
 
$
(22,804
)
 
$
(4,795
)
Net loss per Class A and Class B common share attributable to common shareholders - basic and diluted:
 
 
 
 
 
 
 
Loss from continuing operations
$
(0.05
)
 
$
(0.03
)
 
$
(0.25
)
 
$
(0.09
)
Loss from discontinued operations
(0.12
)
 
(0.01
)
 
(0.17
)
 
(0.01
)
 
$
(0.17
)
 
$
(0.04
)
 
$
(0.42
)
 
$
(0.10
)
 
 
 
 
 
 
 
 
Weighted average number of Class A and Class B common shares outstanding: Basic and diluted
61,729,658

 
48,320,257

 
54,357,320

 
47,254,337


See accompanying notes to Unaudited Condensed Consolidated Financial Statements



5



CINEDIGM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
    
 
For the Nine Months Ended December 31,
 
2013
 
2012
(As Adjusted -
See Note 1)
Cash flows from operating activities
 
 
 
Net loss
$
(22,537
)
 
$
(4,528
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization of property and equipment and
     amortization of intangible assets
30,209

 
28,492

Impairment related to the discontinued operations
7,226

 

Amortization of capitalized software costs
942

 
829

Amortization of debt issuance costs
933

 
1,671

Provision for doubtful accounts
227

 
226

Stock-based compensation and expenses
2,070

 
1,832

Change in fair value of contingent consideration for business combination
(1,500
)
 

Change in fair value of interest rate derivatives
(796
)
 
(1,025
)
Accretion and PIK interest expense added to note payable
1,700

 
7,303

Loss (income) on investment in non-consolidated entity
1,812

 
(1,340
)
Benefit from deferred income taxes

 
(5,019
)
Changes in operating assets and liabilities, net of acquisitions:
 
 
 
     Accounts receivable
(17,988
)
 
(6,096
)
     Unbilled revenue
3,613

 
(464
)
     Prepaid expenses and other current assets
9,283

 
(5,138
)
     Other assets
(2,494
)
 
331

     Accounts payable and accrued expenses
8,008

 
6,630

     Deferred revenue
2,924

 
577

     Other liabilities
(15
)
 
(290
)
Net cash provided by operating activities
23,617

 
23,991

Cash flows from investing activities:
 
 
 
Purchase of New Video Group, Inc., net of cash acquired of $6,873

 
(3,127
)
Purchase of GVE
(47,500
)
 

Purchases of property and equipment
(914
)
 
(4,354
)
Purchases of intangible assets
(4
)
 
(29
)
Additions to capitalized software costs
(1,745
)
 
(2,323
)
Sales/maturities of restricted available-for-sale investments

 
9,477

Net cash used in investing activities
(50,163
)
 
(356
)
Cash flows from financing activities:
 
 
 
Repayment of notes payable
(31,644
)
 
(37,383
)
Proceeds from notes payable
45,000

 
3,469

Principal payments on capital leases
(182
)
 
(132
)
Proceeds from issuance of Class A common stock
20,521

 
11,002

   Costs associated with issuance of Class A common stock
(1,734
)
 
(1,113
)
Net cash from (used in) financing activities
31,961

 
(24,157
)
Net change in cash and cash equivalents
5,415

 
(522
)
Cash and cash equivalents at beginning of period
13,448

 
17,843

Cash and cash equivalents at end of period
$
18,863

 
$
17,321


See accompanying notes to Unaudited Condensed Consolidated Financial Statements



6



CINEDIGM CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
($ in thousands, except for share and per share data)
(Unaudited)

1.
NATURE OF OPERATIONS

Cinedigm Corp. (formerly known as Cinedigm Digital Cinema Corp.) was incorporated in Delaware on March 31, 2000 (“Cinedigm”, and collectively with its subsidiaries, the “Company”). Cinedigm is a leading distributor of independent movie, television and other short form content across all theatrical and home entertainment platforms as well as a leading servicer of digital cinema assets in over 12,000 movies screens in both North America and several international countries.

The Company reports its financial results in four primary segments as follows: (1) the first digital cinema deployment (“Phase I Deployment”), (2) the second digital cinema deployment (“Phase II Deployment”), (3) digital cinema services (“Services”) and (4) media content and entertainment (“Content & Entertainment”).  The Phase I Deployment and Phase II Deployment segments are the non-recourse, financing vehicles and administrators for the Company's digital cinema equipment (the “Systems”) installed in movie theatres nationwide.  The Services segment provides services and support to approximately 12,000 movie screens in the Phase I Deployment and Phase II Deployment segments as well as directly to exhibitors and other third party customers.  Included in these services are Systems management services for a specified fee via service agreements with Phase I Deployment and Phase II Deployment as well as third party exhibitors as buyers of their own digital cinema equipment. These services primarily facilitate the conversion from analog to digital cinema and have positioned the Company at what it believes to be the forefront of a rapidly developing industry relating to the distribution and management of digital cinema and other content to theatres and other remote venues worldwide.  The Content & Entertainment segment provides content marketing and distribution services in both theatrical and ancillary home entertainment markets to independent movie, television and other short form content owners and to theatrical exhibitors. As a leading distributor of independent content, the Company collaborates with producers and the exhibition community to market, source, curate and distribute quality content to targeted and profitable audiences through (i) theatrical releases, (ii) existing and emerging digital home entertainment platforms, including iTunes, Amazon Prime, Netflix, Xbox, Playstation, and cable video-on-demand ("VOD") and (iii) physical goods, including DVD and Blu-ray.

Gaiam Acquisition
On October 17, 2013, the Company and Cinedigm Entertainment Holdings, LLC ("CEG"), a newly-formed, wholly-owned subsidiary of the Company, entered into a Membership Interest Purchase Agreement with Gaiam Americas, Inc. and Gaiam, Inc. (together, “GVE”) for the purchase by CEG of GVE's division that maintains exclusive distribution rights agreements with large independent studios/content providers, and distributes entertainment content through home video, digital and television distribution channels (the “GVE Acquisition”). The Company agreed to an aggregate purchase price of $51,500, subject to a working capital adjustment, with (i) $47,500 payable in cash and 666,978 shares of Class A Common Stock valued at $1,000, subject to certain transfer restrictions, in each case upon the closing of the GVE Acquisition, and (ii) $3,000 payable in cash on a deferred basis. The GVE Acquisition was consummated on October 21, 2013 and as of that date, GVE became part of the Company's Content & Entertainment segment.
Merger and acquisition expenses during the three months ended December 31, 2013 of $2,779 consist primarily of professional fees and internal expenses directly related to the GVE Acquisition of $2,294 and $485, respectively.
The results of operations of GVE have been included in the accompanying condensed consolidated statements of operations from the date of the acquisition of October 21, 2013 within the Company's Content & Entertainment segment and have been fully integrated with the financial results and operations for the three and nine months of the Company's Content & Entertainment segment. The total amount of revenues and net income of GVE since the acquisition date that have been included in the condensed consolidated statements of operations during the three months ended December 31, 2013 was approximately $10,911 and $2,878, respectively.
The purchase price has been preliminarily allocated to the identifiable net assets acquired as of the date of acquisition as follows:

7



Accounts receivable
$
24,389

Advances
11,630

Other assets
4,009

Intangible assets subject to amortization
24,536

Total assets acquired
64,564

Total liabilities assumed
(13,064
)
Total net assets acquired
$
51,500

Intangible assets subject to amortization represents the preliminary purchase price allocation to the content library. The Company estimates the preliminary useful life to be 5 years.
The fair values assigned to intangible assets were determined through the application of various commonly used and accepted valuation procedures and methods, including the multi-period excess earnings method. These valuation methods rely on management judgment, including expected future cash flows resulting from existing customer relationships, customer attrition rates, contributory effects of other assets utilized in the business, peer group cost of capital and royalty rates, and other factors. The valuation of tangible assets was preliminarily determined to approximate book value at the time of the GVE Acquisition. Useful lives for intangible assets were determined based upon the remaining useful economic lives of the intangible assets that are expected to contribute directly or indirectly to future cash flows.
Pro forma Information Related To the Acquisition of GVE
The following unaudited consolidated pro forma summary information for the three and nine months ended December 31, 2013 has been prepared by adjusting the historical data as set forth in the accompanying condensed consolidated statements of operations for the three and nine months ended December 31, 2013 to give effect to the GVE Acquisition as if it had occurred at April 1, 2012.
 
 
For the Three Months Ended December 31,
 
For the Nine Months Ended December 31,
 
 
2013
 
2012
 
2013
 
2012
Revenue
 
$
34,885

 
$
39,156

 
$
93,250

 
$
99,955

Operating income
 
$
2,297

 
$
8,580

 
$
2,548

 
$
17,785

Net (loss) income
 
$
(10,382
)
 
$
2,293

 
$
(22,055
)
 
$
3,499


Sale of Software
During the three months ended December 31, 2013, the Company made the strategic decision to discontinue, exit its software business and execute a plan of sale for Hollywood Software, Inc. d/b/a Cinedigm Software (“Software”), the Company's direct, wholly-owned subsidiary. Management concluded that it would be in the best interests of shareholders for the Company’s focus to be toward theatrical releasing and aggregation and distribution of independent content, digitally and in the form of DVDs and Blu-Ray discs, along with the growth and servicing of the existing digital cinema business. Further, management believed that Software, which was previously included in our Services segment, no longer yielded the same synergies across the Company’s businesses as once existed.
As a consequence, it was determined that Software met the criteria for classification as discontinued operations. As such, Software has been adjusted to reflect the lower of cost or market value and the consolidated financial statements and the notes to consolidated financial statements presented herein have been recast solely to reflect, for all periods presented, the adjustments resulting from these changes in classification for discontinued operations.

Purchase of New Video Group

On April 19, 2012, the Company entered into a stock purchase agreement for the purchase of all of the issued and outstanding capital stock of New Video Group, Inc. ("New Video"). Upon concluding the purchase price allocation for the purchase of New Video ("New Video Acquisition") in the fourth quarter of the fiscal year ended March 31, 2013, a measurement period adjustment was made to establish a deferred tax liability with a corresponding increase in goodwill at the acquisition date. As a result of this adjustment and the assessment of its consolidated tax filing status, the Company determined it was appropriate to release a portion of its deferred tax valuation allowance established prior to the New Video Acquisition. The release of the deferred tax valuation

8



allowance was recorded outside of acquisition accounting in accordance with the accounting guidance. Accordingly, the previously reported condensed consolidated statement of operations for the nine months ended December 31, 2012 has been revised as follows:

 
As Previously Reported1
 
As Adjusted1
 
Change
Condensed consolidated statement of operations
 
 
 
 
 
Loss from continuing operations before benefit from income taxes
$
(9,273
)
 
$
(9,158
)
 
$
115

Benefit from income taxes

 
5,019

 
5,019

Loss from continuing operations
(9,273
)
 
(4,139
)
 
5,134

Net loss
(9,547
)
 
(4,528
)
 
5,019

Net loss attributable to common stockholders
(9,814
)
 
(4,795
)
 
5,019

 
 
 
 
 
 
Net loss per Class A and Class B common share attributable to common shareholders - basic and diluted:
 
 
 
 
 
Loss from continuing operations
$
(0.20
)
 
$
(0.09
)
 
$
0.11

Loss from discontinued operations
(0.01
)
 
(0.01
)
 

 
$
(0.21
)
 
$
(0.10
)
 
$
0.11

1 As previously disclosed, the Company has adjusted previously reported amounts to reflect Software as discontinued operations.

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND CONSOLIDATION

The Company has incurred net losses historically and has an accumulated deficit of $265,270 as of December 31, 2013. The Company also has significant contractual obligations related to its recourse and non-recourse debt for the fiscal year ending March 31, 2014 and beyond. The Company may continue to generate net losses for the foreseeable future. Based on the Company’s cash position at December 31, 2013, and expected cash flows from operations, management believes that the Company has the ability to meet its obligations through at least December 31, 2014. Failure to generate additional revenues, raise additional capital or manage discretionary spending could have an adverse effect on the Company’s financial position, results of operations or liquidity.

The Company’s condensed consolidated financial statements include the accounts of Cinedigm, Access Digital Media, Inc. (“AccessDM”), FiberSat Global Services, Inc. d/b/a Cinedigm Satellite and Support Services (“Satellite”), ADM Cinema Corporation (“ADM Cinema”) d/b/a the Pavilion Theatre (certain assets and liabilities of which were sold in May 2011), Christie/AIX, Inc. ("C/AIX") d/b/a Cinedigm Digital Cinema (“Phase 1 DC”), Vistachiara Productions, Inc. f/k/a The Bigger Picture, currently d/b/a Cinedigm Content and Entertainment Group, Cinedigm Entertainment Corp. f/k/a New Video Group, Inc. ("New Video"), CEG, Access Digital Cinema Phase 2 Corp. (“Phase 2 DC”), Cinedigm Digital Cinema Australia Pty Ltd, Access Digital Cinema Phase 2 B/AIX Corp. (“Phase 2 B/AIX”), Cinedigm Digital Funding I, LLC (“CDF I”) and Cinedigm DC Holdings LLC ("DC Holdings LLC"). Cinedigm Content and Entertainment Group and New Video are together referred to as CEG. Software, along with AccessDM and Satellite (together referred to as DMS (the majority of which was sold in November, 2011 and remaining assets of which were sold in May 2012)) are part of discontinued operations. All intercompany transactions and balances have been eliminated in consolidation.

The condensed consolidated balance sheet as of March 31, 2013, which has been derived from audited financial statements, and
the unaudited interim condensed consolidated financial statements were prepared following the interim reporting requirements of the Securities and Exchange Commission ("SEC"). They do not include all disclosures normally made in financial statements contained in the Form 10-K. In management’s opinion, all adjustments necessary for a fair presentation of financial position, the results of operations and cash flows in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for the periods presented have been made. The results of operations for the respective interim periods are not necessarily indicative of the results to be expected for the full year. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013 filed with the SEC on June 20, 2013 (the “Form 10-K”).


9



INVESTMENT IN NON-CONSOLIDATED ENTITY

The Company indirectly owns 100% of the common equity of CDF2 Holdings, LLC ("Holdings"), which is a Variable Interest Entity (“VIE”), as defined in Accounting Standards Codification Topic 810 ("ASC 810"), “Consolidation". The Company has determined that it is not the primary beneficiary of Holdings in accordance with ASC 810, and it accounts for its investment in Holdings under the equity method of accounting. The Company's net investment in Holdings is reflected as “Investment in non-consolidated entity, net" in the accompanying condensed consolidated balance sheets. See Note 4 for further discussion.

RECLASSIFICATION

Certain reclassifications, principally for Software's movement to discontinued operations and income taxes, have been made to the fiscal period ended December 31, 2012 consolidated financial statements to conform to the current fiscal period ended December 31, 2013 presentation.

USE OF ESTIMATES

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates include the adequacy of accounts receivable reserves, assessment of goodwill and intangible asset impairment and valuation reserve for income taxes, among others. Actual results could differ from these estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with an original maturity of three months or less to be “cash equivalents.” The Company maintains bank accounts with major banks, which from time to time may exceed the Federal Deposit Insurance Corporation’s insured limits. The Company periodically assesses the financial condition of the institutions and believes that the risk of any loss is minimal.

ACCOUNTS RECEIVABLE

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes 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. Allowance for doubtful accounts amounted to $833 and $681 as of December 31, 2013 and March 31, 2013, respectively.

Accounts receivable, long-term result from up-front activation fees earned from the Company's Systems deployments with extended payment terms that are discounted to their present value at prevailing market rates.

RESTRICTED CASH

In connection with the 2013 Term Loans issued in February 2013 and the 2013 Prospect Loan Agreement issued in February 2013 (collectively, see Note 5), the Company maintains cash restricted for repaying interest on the respective loans as follows:
 
 
As of December 31, 2013
 
As of March 31, 2013
Reserve account related to the 2013 Term Loans (See Note 5)
 
$
5,751

 
$
5,751

Reserve account related to the 2013 Prospect Loan Agreement (See Note 5)
 
1,000

 
1,000

 
 
$
6,751

 
$
6,751


DEFERRED COSTS

Deferred costs primarily consist of unamortized debt issuance costs related to the 2013 Term Loans, 2013 Prospect Loan and Cinedigm Credit Agreement (see Note 5) which are amortized under the effective interest rate method over the terms of the respective debt.  All other unamortized debt issuance costs are amortized on a straight-line basis over the term of the respective debt. For such debt, amortization on a straight-line basis is not materially different from the effective interest method.  


10



PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation expense is recorded using the straight-line method over the estimated useful lives of the respective assets as follows:
Computer equipment and software
3 - 5 years
Digital cinema projection systems
10 years
Machinery and equipment
3 - 10 years
Furniture and fixtures
3 - 6 years
Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the leasehold improvements. Maintenance and repair costs are charged to expense as incurred. Major renewals, improvements and additions are capitalized.  Upon the sale or other disposition of any property and equipment, the cost and related accumulated depreciation and amortization are removed from the accounts and the gain or loss on disposal is included in the condensed consolidated statements of operations.

ACCOUNTING FOR DERIVATIVE ACTIVITIES

Derivative financial instruments are recorded at fair value. The Company had three separate interest rate swap agreements (the “Interest Rate Swaps”) to limit the Company’s exposure to changes in interest rates related to the 2013 Term Loans which matured in June 2013.  Additionally, the Company entered into two separate interest rate cap transactions during the fiscal year ended March 31, 2013 to limit the Company's exposure to interest rates related to the 2013 Term Loans and 2013 Prospect Loan. Changes in fair value of derivative financial instruments are either recognized in accumulated other comprehensive loss (a component of stockholders' deficit) or in the condensed consolidated statements of operations depending on whether the derivative qualifies for hedge accounting.  The Company has not sought hedge accounting treatment for these instruments and therefore, changes in the value of its Interest Rate Swaps and caps were recorded in the condensed consolidated statements of operations (See Note 5).

FAIR VALUE MEASUREMENTS

The fair value measurement disclosures are 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 market corroborated inputs)
Level 3 – significant unobservable inputs (including the Company’s 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 involving identical or comparable assets or liabilities.

The following tables summarize the levels of fair value measurements of the Company’s financial assets and liabilities:

 
 
As of December 31, 2013
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Restricted cash
 
$
6,751

 
$

 
$

 
$
6,751

Interest rate derivatives
 

 
935

 

 
935

Contingent consideration
 

 

 
(1,906
)
 
(1,906
)
 
 
$
6,751

 
$
935

 
$
(1,906
)
 
$
5,780


11



 
 
As of March 31, 2013
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
 
$
1,004

 
$

 
$

 
$
1,004

Restricted cash
 
6,751

 

 

 
6,751

Interest rate derivatives
 

 
(544
)
 

 
(544
)
Contingent consideration
 

 

 
(3,250
)
 
(3,250
)
 
 
$
7,755

 
$
(544
)
 
$
(3,250
)
 
$
3,961


Contingent consideration is a liability to the sellers of New Video based upon its business unit financial performance target in each of the fiscal years ending March 31, 2014 and 2015. The estimates of the fair value of the contingent consideration arrangement was estimated by using the current forecast of New Video adjusted EBITDA, as defined by the New Video stock purchase agreement. That measure is based on significant inputs that are not observable in the market, which are considered Level 3 inputs.

The following change in contingent consideration liabilities during the nine months ended December 31, 2013 were as follows:
Balance at March 31, 2013
 
$
3,250

Change in fair value
 
(1,500
)
Accretion of contingent liability
 
156

Balance at December 31, 2013
 
$
1,906


Key assumptions include a discount rate of 7% and that New Video will achieve 100% of its business unit financial performance target in each of the two fiscal years described above, resulting in a payment of 75% of the maximum contingent consideration amount. During the three months ended September 30, 2013, the Company determined that the business unit would not meet the target for the fiscal year ending March 31, 2014 as defined in the New Video stock purchase agreement. Accordingly, the fair value of the liability was reduced by $1,500 and is a reduction of selling, general and administrative expenses within the condensed consolidated statements of operations for the nine months ended December 31, 2013. As of December 31, 2013, the remaining amount of contingent consideration arrangement, the range of outcomes and the assumptions used to develop the estimate had not changed for the fiscal year ending March 31, 2015.

The Company’s cash and cash equivalents, accounts receivable, unbilled revenue and accounts payable and accrued expenses are financial instruments and are recorded at cost in the condensed consolidated balance sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature.  The carrying amount of accounts receivable, long-term and notes receivable approximates fair value based on the discounted cash flows of that instrument using current assumptions at the balance sheet date. The fair value of fixed rate and variable rate debt is estimated by management based upon current interest rates available to the Company at the respective balance sheet date for arrangements with similar terms and conditions.  Based on borrowing rates currently available to the Company for loans with similar terms, the carrying value of notes payable and capital lease obligations approximates fair value.

IMPAIRMENT OF LONG-LIVED AND FINITE-LIVED ASSETS

The Company reviews the recoverability of its long-lived assets and finite-lived intangible assets, when events or conditions occur that indicate a possible impairment exists. The assessment for recoverability is based primarily on the Company’s 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.  The Company then estimates the fair value of the asset to determine whether an impairment loss should be recognized.  An impairment loss will be recognized if the difference between the fair value and the carrying value of the asset exceeds its fair value.  Fair value is determined by computing the expected future undiscounted cash flows.  During the three and nine months ended December 31, 2013 and 2012, no impairment charge from continuing operations for long-lived assets or finite-lived assets was recorded.

GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSETS

Goodwill is the excess of the purchase price paid over the fair value of the net assets of an acquired business. Goodwill and intangible assets with indefinite lives are not amortized; rather, they are tested for impairment on at least an annual basis.


12



The Company’s process of evaluating goodwill for impairment involves the determination of fair value of its CEG goodwill reporting unit. The Company conducts its annual goodwill impairment analysis during the fourth quarter of each fiscal year, measured as of March 31, unless triggering events occur which require goodwill to be tested at another date.

As of December 31, 2013 and March 31, 2013, the Company's goodwill from continuing operations of $8,542 was all part of its Content & Entertainment segment.

REVENUE RECOGNITION

Phase I Deployment and Phase II Deployment

Virtual print fees (“VPFs”) are earned pursuant to contracts with movie studios and distributors, whereby amounts are payable by a studio to Phase 1 DC, CDF I and to Phase 2 DC when movies distributed by the studio are displayed on screens utilizing the Company’s Systems installed in movie theatres.  VPFs are earned and payable to Phase 1 DC and CDF I based on a defined fee schedule with a reduced VPF rate year over year until the sixth year at which point the VPF rate remains unchanged through the tenth year.  One VPF is payable for every digital title displayed per System. The amount of VPF revenue is dependent on the number of movie titles released and displayed using the Systems in any given accounting period. VPF revenue is recognized in the period in which the digital title first plays on a System for general audience viewing in a digitally-equipped movie theatre, as Phase 1 DC’s, CDF I’s and Phase 2 DC’s performance obligations have been substantially met at that time.

Phase 2 DC’s agreements with distributors primarily require the payment of VPFs, according to a defined fee schedule, for ten years from the date each system is installed; however, Phase 2 DC may no longer collect VPFs once “cost recoupment,” as defined in the agreements, is achieved.  Cost recoupment will typically occur once the cumulative VPFs and other cash receipts collected by Phase 2 DC 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 the Company’s service fees, subject to maximum agreed upon amounts during the three-year rollout period and thereafter, plus a compounded return on any billed but unpaid overhead and ongoing costs, of 15% per year.  Further, if cost recoupment occurs before the end of the eighth contract year, a one-time “cost recoupment bonus” is payable by the studios to the Company.  Any other cash flows, net of expenses, received by Phase 2 DC following the achievement of cost recoupment are required to be returned to the distributors on a pro-rata basis. At this time, the Company cannot estimate the timing or probability of the achievement of cost recoupment.

Alternative content fees (“ACFs”) are earned pursuant to contracts with movie exhibitors, whereby amounts are payable to Phase 1 DC, CDF I and to Phase 2 DC, generally either a fixed amount or as a percentage of the applicable box office revenue derived from the exhibitor’s showing of content other than feature movies, such as concerts and sporting events (typically referred to as “alternative content”). ACF revenue is recognized in the period in which the alternative content first opens for audience viewing.

Revenues are deferred for up front exhibitor contributions and are recognized over the cost recoupment period, which is expected to be ten years.

Services

Exhibitors who purchased and own Systems using their own financing in the Phase II Deployment, paid an upfront activation fee that is generally $2 thousand per screen to the Company (the “Exhibitor-Buyer Structure”).  These upfront activation fees are recognized in the period in which these exhibitor owned Systems are ready for content, as the Company has no further obligations to the customer, and are generally paid quarterly from VPF revenues over approximately one year.  Additionally, the Company recognizes activation fee revenue of between $1 thousand and $2 thousand on Phase 2 DC Systems and for Systems installed by Holdings upon installation and such fees are generally collected upfront upon installation. The Company will then manage the billing and collection of VPFs and will remit all VPFs collected to the exhibitors, less an administrative fee that will approximate up to 10% of the VPFs collected.

The administrative fee related to the Phase I Deployment approximates 5% of the VPFs collected and an incentive service fee equal to 2.5% of the VPFs earned by Phase 1 DC. This administrative fee is recognized in the period in which the billing of VPFs occurs, as performance obligations have been substantially met at that time.

Content & Entertainment

CEG earns fees for the distribution of content in the home entertainment markets via several distribution channels, including digital, video-on-demand, and physical goods (e.g. DVD and Blu-ray). The fee rate earned by the Company varies depending upon the nature of the agreements with the platform and content providers. Generally, revenues are recognized at the availability

13



date of the content for a subscription digital platform, at the time of shipment for physical goods, or point-of-sale for transactional and video-on-demand services.

CEG also has contracts for the theatrical distribution of third party feature movies and alternative content. CEG’s distribution fee revenue and CEG's participation in box office receipts is recognized at the time a feature movie and alternative content is 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.

Movie Cost Amortization

Once a movie is released, capitalized acquisition costs are amortized and participations and residual costs are accrued on an individual title basis in the proportion to the revenue recognized during the period for each title ("Period Revenue") bears to the estimated remaining total revenue to be recognized from all sources for each title ("Ultimate Revenue"). The amount of movie and other costs that is amortized each period will depend on the ratio of Period Revenue to Ultimate Revenue for each movie. The Company makes certain estimates and judgments of Ultimate Revenue to be recognized for each title. Ultimate Revenue does not include estimates of revenue that will be earned beyond 5 years of a movie’s initial theatrical release date. Movie cost amortization is a component of direct operating costs within the condensed consolidated statements of operations.

Estimates of Ultimate Revenue and anticipated participation and residual costs are reviewed periodically in the ordinary course of business and are revised if necessary. A change in any given period to the Ultimate Revenue for an individual title will result in an increase or decrease in the percentage of amortization of capitalized movie and other costs and accrued participation and residual costs relative to a previous period. Depending on the performance of a title, significant changes to the future Ultimate Revenue may occur, which could result in significant changes to the amortization of the capitalized acquisition costs.

DIRECT OPERATING COSTS

Direct operating costs consist of facility operating costs such as rent, utilities, real estate taxes, repairs and maintenance, royalty expenses, advertising, insurance and other related expenses, direct personnel costs and subcontractors.

STOCK-BASED COMPENSATION

During the three months ended December 31, 2013 and 2012, the Company recorded employee stock-based compensation from continuing operations of $621 and $346, respectively. During the nine months ended December 31, 2013 and 2012, the Company recorded employee and director stock-based compensation of $1,803 and $2,044, respectively.

The weighted-average grant-date fair value of options granted during the three months ended December 31, 2013 and 2012 was $0.97 and $0.88, respectively. The weighted-average grant-date fair value of options granted during the nine months ended December 31, 2013 and 2012 was $0.91 and $0.92, respectively. There were 90,180 options exercised during the three months ended December 31, 2013. There were 132,820 stock options exercised during the nine months ended December 31, 2013. During the three and nine months ended December 31, 2012, there were no exercises of stock options.

The Company estimated the fair value of stock options at the date of each grant using a Black-Scholes option valuation model with the following assumptions:
 
 
For the Three Months Ended December 31,
 
For the Nine Months Ended December 31,
Assumptions for Option Grants
 
2013
 
2012
 
2013
 
2012
Range of risk-free interest rates
 
1.4 - 1.6%
 
0.6 - 0.7%
 
0.7 - 1.6%
 
0.9 - 2.1%
Dividend yield
 
 
 
 
Expected life (years)
 
5
 
5
 
5
 
5
Range of expected volatilities
 
 72.6 - 72.7%
 
74.5 - 75.2%
 
72.6- 73.7%
 
74.5 - 76.2%

The risk-free interest rate used in the Black-Scholes option pricing model for options granted under the Company’s stock option plan awards is the historical yield on U.S. Treasury securities with equivalent remaining lives. The Company does not currently anticipate paying any cash dividends on common stock in the foreseeable future. Consequently, an expected dividend yield of zero is used in the Black-Scholes option pricing model.  The Company estimates the expected life of options granted under the Company’s stock option plans using both exercise behavior and post-vesting termination behavior, as well as consideration of

14



outstanding options.   The Company estimates expected volatility for options granted under the Company’s stock option plans based on a measure of historical volatility in the trading market for the Company’s common stock.

Employee and director stock-based compensation expense from continuing operations related to the Company’s stock-based awards was as follows:
 
For the Three Months Ended December 31,
 
For the Nine Months Ended December 31,
 
2013
 
2012
 
2013
 
2012
Direct operating
$
2

 
$
2

 
$
18

 
$
15

Selling, general and administrative
619

 
344

 
1,785

 
2,029

 
$
621

 
$
346

 
$
1,803

 
$
2,044


NET LOSS PER SHARE

Basic and diluted net loss per common share has been calculated as follows:
Basic and diluted net loss per common share =
Net loss + preferred dividends
 
Weighted average number of common stock
 outstanding during the period

The sum of net loss from continuing operations per fully diluted share for the three months ended December 31, 2013, September 30, 2013 and three months ended June 30, 2013 does not equal the nine months ended December 31, 2013 amount due to rounding. Shares issued during the period are weighted for the portion of the period that they are outstanding.

The Company incurred net losses for each of the three and nine months ended December 31, 2013 and 2012 and, therefore, the impact of dilutive potential common shares from outstanding stock options and warrants, totaling 24,094,211 shares and 20,766,397 shares as of December 31, 2013 and 2012, respectively, were excluded from the computation as it would be anti-dilutive.

15



3.
DISCONTINUED OPERATIONS

As discussed in Note 1, discontinued operations is principally comprised of the operations of Software as of and for the three and nine months ended December 31, 2013. For the three and nine months ended December 31, 2012, the loss from discontinued operations is comprised of DMS and Software. There is no tax provision or benefit related to any of the discontinued operations.

The Company determined that an impairment of Software's goodwill and capitalized software was required after comparing Software's estimated fair value to the respective carrying values goodwill and capitalized software.
The assets and liabilities of discontinued operations were comprised of the following:
 
 
As of December 31, 2013
 
As of March 31, 2013
Current assets of discontinued operations:
 
 
 
 
Accounts receivable, net
 
$
3,278

 
$
2,311

Unbilled revenue
 
540

 
2,557

Prepaid and other current assets
 
148

 
12

Total current assets of discontinued operations
 
3,966

 
4,880

Current liabilities of discontinued operations:
 
 
 
 
Accounts payable and accrued expenses
 
627

 
543

Deferred revenue
 
1,463

 
2,058

Total current liabilities of discontinued operations
 
2,090

 
2,601

Current assets of discontinued operations, net
 
$
1,876

 
$
2,279

 
 
 
 
 
Property and equipment, net
 
$
479

 
$
423

Goodwill
 

 
4,197

Capitalized software, net
 
5,293

 
7,132

Other assets
 
392

 
543

Assets of discontinued operations
 
6,164

 
12,295

Net assets of discontinued operations
 
$
8,040

 
$
14,574


The results of Software and DMS have been reported as discontinued operations for all periods presented. The loss from discontinued operations was as follows:

 
For the Three Months Ended December 31,
 
For the Nine Months Ended December 31,
 
2013
 
2012
 
2013
 
2012
Revenues
$
1,061

 
$
1,434

 
$
3,274

 
$
5,344

Costs and Expenses:
 
 
 
 
 
 
 
Direct operating (exclusive of depreciation and amortization shown below)
457

 
1,067

 
1,856

 
3,115

Selling, general and administrative
965

 
740

 
2,926

 
2,324

Research and development
58

 
76

 
64

 
112

Provision for doubtful accounts

 
36

 

 
36

Impairment of goodwill and capitalized software
7,226

 

 
7,226

 

Depreciation and amortization
44

 
41

 
253

 
127

Total operating expenses
8,750

 
1,960

 
12,325

 
5,714

Loss from operations
(7,689
)
 
(526
)
 
(9,051
)
 
(370
)
Other expense, net

 
2

 
9

 
(19
)
Loss from discontinued operations
$
(7,689
)
 
$
(524
)
 
$
(9,042
)
 
$
(389
)

16



4. INVESTMENT IN NON-CONSOLIDATED ENTITY
 
Investment in Holdings
 
As discussed in Note 2, Holdings, a subsidiary of Phase 2 DC, which is wholly owned by the Company, and its wholly owned limited liability company, Cinedigm Digital Funding 2, LLC, were created for the purpose of capitalizing on the conversion of the exhibition industry from film to digital technology. Holdings assists customers in procuring the necessary equipment in the conversion of their Systems by providing the necessary financing, equipment, installation and related ongoing services. Holdings is a VIE, as defined in ASC 810, indirectly wholly owned by the Company. ASC 810 requires the consolidation of VIEs by an entity that has a controlling financial interest in the VIE which entity is thereby defined as the primary beneficiary of the VIE. To be a primary beneficiary, an entity must have the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, among other factors. Although Holdings is indirectly wholly owned by the Company, a third party, which also has a variable interest in Holdings, along with an independent third party manager and the Company must mutually approve all business activities and transactions that significantly impact Holdings' economic performance. The Company has thus assessed its variable interests in Holdings and determined that it is not the primary beneficiary of Holdings and therefore accounts for its investment in Holdings under the equity method of accounting. In completing our assessment, the Company identified the activities that it considers most significant to the economic performance of Holdings and determined that we do not have the power to direct those activities. As a result, Holdings' financial position and results of operations are not consolidated in the financial position and results of operations of the Company.

The Company's maximum exposure to loss as it relates to Holdings as of December 31, 2013 and March 31, 2013 includes:

The Company's investment in the equity of Holdings;
As a result of operating losses for the nine months ended December 31, 2013, the investment in the equity of Holdings is $0 as of December 31, 2013. As of March 31, 2013, the investment in the equity of Holdings was $1,812; and
Accounts receivable due from Holdings for service fees under its master service agreement of $372 and $396, respectively, included within accounts receivable, net on the accompanying condensed consolidated balance sheets.

During the three months ended December 31, 2013 and 2012, the Company received $285 and $434 in aggregate revenues through digital cinema servicing fees from Holdings, respectively, included in revenues on the accompanying condensed consolidated statements of operations. During the nine months ended December 31, 2013 and 2012, such amounts were $822 and $1,328, respectively. Digital cinema servicing fees earned from Holdings during the three and nine months ended December 31, 2012 included one-time installation management fees of $304 and $1,224, respectively.

The Holding’s Total Stockholder’s Deficit at December 31, 2013 was $(1,553). The Company has no obligation to fund the operating loss or the deficit beyond its initial investment, and accordingly, the Company carried its investment in Holdings at $0. The change in the carrying amount of our investment in Holdings for the nine months ended December 31, 2013 is as follows:
Balance at March 31, 2013
 
$
1,812

Equity in loss of Holdings
 
(1,812
)
Balance at December 31, 2013
 
$



17



5.
NOTES PAYABLE

Notes payable consisted of the following:
 
 
As of December 31, 2013
 
As of March 31, 2013
Notes Payable
 
Current Portion
 
Long Term Portion
 
Current Portion
 
Long Term Portion
2013 Term Loans, net of debt discount
 
$
25,878

 
$
74,947

 
$
26,250

 
$
96,207

2013 Prospect Loan Agreement
 

 
69,150

 

 
70,151

KBC Facilities
 
8,048

 
28,938

 
8,059

 
36,205

P2 Vendor Note
 
101

 
483

 
74

 
569

P2 Exhibitor Notes
 
68

 
279

 
64

 
330

Total non-recourse notes payable
 
$
34,095

 
$
173,797

 
$
34,447

 
$
203,462

 
 
 
 
 
 
 
 
 
Cinedigm Revolving Loans
 
$
14,775

 
$

 
$

 
$

Cinedigm Term Loans
 
3,500

 
21,108

 

 

2013 Notes, net of discount
 

 
3,445

 

 

Total recourse notes payable
 
$
18,275

 
$
24,553

 
$

 
$

Total notes payable
 
$
52,370

 
$
198,350

 
$
34,447

 
$
203,462


Non-recourse debt is generally defined as debt whereby the lenders’ sole recourse with respect to defaults by the Company is limited to the value of the asset collateralized by the debt.  The 2013 Term Loans are not guaranteed by the Company or its other subsidiaries, other than Phase 1 DC. The 2013 Prospect Loan Agreement is not guaranteed by the Company or its other subsidiaries and the service fees of Phase 1 DC and Phase 2 DC were assigned by the Company to DC Holdings LLC. The KBC Facilities, the P2 Vendor Note and the P2 Exhibitor Notes are not guaranteed by the Company or its other subsidiaries, other than Phase 2 DC.

2013 Term Loans

On February 28, 2013, CDF I entered into an amended and restated credit agreement (the “2013 Credit Agreement”) with Société Générale, New York Branch, as administrative agent and collateral agent for the lenders party thereto and certain other secured parties (the “Collateral Agent”), and the lenders party thereto. The 2013 Credit Agreement amended and restated the 2010 Credit Agreement. The primary changes effected by the Amended and Restated Credit Agreement were (i) changing the aggregate principal amount of the term loans to $130,000, which included an assignment of $5,000 of the principal balance to an affiliate of CDF I, (ii) changing the interest rate (described further below) and (iii) extending the term of the credit facility to February 2018. The proceeds of the term loans ("2013 Term Loans") under the 2013 Credit Agreement were used by CDF I to refinance the 2010 Credit Agreement.

Under the 2013 Credit Agreement, each of the 2013 Term loans bears interest, at the option of CDF I and subject to certain conditions, based on the base rate (generally, the bank prime rate) or the LIBOR rate set at a minimum of 1.00%, plus a margin of 1.75% (in the case of base rate loans) or, 2.75% (in the case of LIBOR rate loans). All collections and revenues of CDF I are deposited into designated accounts, from which amounts are paid out on a monthly basis to pay certain operating expenses and principal, interest, fees, costs and expenses relating to the 2013 Credit Agreement according to certain designated priorities. On a quarterly basis, if funds remain after the payment of all such amounts, they will be applied to prepay the 2013 Term Loans. The 2013 Term Loans mature and must be paid in full by February 28, 2018. In addition, CDF I may prepay the 2013 Term Loans, in whole or in part, subject to paying certain breakage costs, if applicable, and a 1.0% prepayment premium if a prepayment is made during the first year of the 2013 Term Loans.

The 2013 Credit Agreement also requires each of CDF I’s existing and future direct and indirect domestic subsidiaries (the "Guarantors") to guarantee, under an Amended and Restated Guaranty and Security Agreement dated as of February 28, 2013 by and among CDF I, the Guarantors and the Collateral Agent (the “Guaranty and Security Agreement”), the obligations under the 2013 Credit Agreement, and all such obligations to be secured by a first priority perfected security interest in all of the collective assets of CDF I and the Guarantors, including real estate owned or leased, and all capital stock or other equity interests in C/AIX, the direct holder of CDF I’s equity, CDF I and CDF I’s subsidiaries. In connection with the 2013 Credit Agreement, AccessDM, a wholly-owned subsidiary of the Company and the direct parent of C/AIX, entered into an amended and restated pledge agreement dated as of February 28, 2013 (the “AccessDM Pledge Agreement”) in favor of the Collateral Agent pursuant to which AccessDM pledged to the Collateral Agent all of the outstanding shares of common stock of C/AIX, and C/AIX entered into an amended and

18



restated pledge agreement dated as of February 28, 2013 (the “C/AIX Pledge Agreement”) in favor of the Collateral Agent pursuant to which C/AIX pledged to the Collateral Agent all of the outstanding membership interests of CDF I. The 2013 Credit Agreement contains customary representations, warranties, affirmative covenants, negative covenants and events of default.

All collections and revenues of CDF I are deposited into designated accounts. These amounts are included in cash and cash equivalents in the condensed consolidated balance sheets and are only available to pay certain operating expenses, principal, interest, fees, costs and expenses relating to the 2013 Credit Agreement, according to certain designated priorities, which totaled $4,707 and $6,787 as of December 31, 2013 and March 31, 2013, respectively.  The Company also set up a debt service fund under the 2013 Credit Agreement for future principal and interest payments, classified as restricted cash of $6,751 as of December 31, 2013 and March 31, 2013.

The balance of the 2013 Term Loans, net of the original issue discount, was as follows:
 
As of December 31, 2013
 
As of March 31, 2013
2013 Term Loans, at issuance, net
$
125,087

 
$
125,087

Payments to date
(23,982
)
 
(2,275
)
Discount on 2013 Term Loans
(280
)
 
(355
)
2013 Term Loans, net
100,825

 
122,457

Less current portion
(25,878
)
 
(26,250
)
Total long term portion
$
74,947

 
$
96,207


2013 Prospect Loan Agreement

On February 28, 2013, DC Holdings LLC, AccessDM and Phase 2 DC entered into a term loan agreement (the “2013 Prospect Loan Agreement”) with Prospect Capital Corporation (“Prospect”), as administrative agent (the “Prospect Administrative Agent”) and collateral agent (the “Prospect Collateral Agent”) for the lenders party thereto, and the other lenders party thereto pursuant to which DC Holdings LLC borrowed $70,000 (the “2013 Prospect Loan”). The 2013 Prospect Loan, as subsequently amended, will bear interest annually in cash at LIBOR plus 9.00% (with a 2.00% LIBOR floor) and at 2.50% to be accrued as an increase in the aggregate principal amount of the 2013 Prospect Loan until the 2013 Credit Agreement is paid off, at which time all interest will be payable in cash.

The 2013 Prospect Loan matures on March 31, 2021. The 2013 Prospect Loan may be accelerated upon a change in control (as defined in the Term Loan Agreement) or other events of default as set forth therein and would be subject to mandatory acceleration upon an insolvency of DC Holdings LLC. The 2013 Prospect Loan is payable on a voluntary basis after the second anniversary of the initial borrowing in whole but not in part, subject to a prepayment penalty equal to 5.00% of the principal amount prepaid if the 2013 Prospect Loan is prepaid after the second anniversary but prior to the third anniversary of issuance, a prepayment penalty of 4.00% of the principal amount prepaid if the 2013 Prospect Loan is prepaid after such third anniversary but prior to the fourth anniversary of issuance, a prepayment penalty of 3.00% of the principal amount prepaid if the 2013 Prospect Loan is prepaid after such fourth anniversary but prior to the fifth anniversary of issuance, a prepayment penalty of 2.00% of the principal amount prepaid if the 2013 Prospect Loan is prepaid after such fifth anniversary but prior to the sixth anniversary of issuance, a prepayment penalty of 1.00% of the principal amount prepaid if the 2013 Prospect Loan is prepaid after such sixth anniversary but prior to the seventh anniversary of issuance, and without penalty if the 2013 Prospect Loan is prepaid thereafter, plus cash in an amount equal to the accrued and unpaid interest amount with respect to the principal amount through and including the prepayment date.

In connection with the 2013 Prospect Loan, the Company assigned to DC Holdings LLC its rights to receive servicing fees under the Company’s Phase I and Phase II deployments. Pursuant to a Limited Recourse Pledge Agreement (the “Limited Recourse Pledge”) executed by the Company and a Guaranty, Pledge and Security Agreement (the “Prospect Guaranty and Security Agreement”) among DC Holdings LLC, AccessDM, Phase 2 DC and Prospect, as Prospect Collateral Agent, the Prospect Loan is secured by, among other things, a first priority pledge of the stock of Holdings owned by the Company, the stock of AccessDM owned by DC Holdings LLC and the stock of Phase 2 DC owned by the Company, and guaranteed by AccessDM and Phase 2 DC. The Company provides limited financial support to the 2013 Prospect Loan not to exceed $1,500 per year in the event financial performance does not meet certain defined benchmarks.


19



The 2013 Prospect Loan Agreement contains customary representations, warranties, affirmative covenants, negative covenants and events of default. The balance of the 2013 Prospect Loan Agreement at December 31, 2013 was as follows:
 
As of December 31, 2013
 
As of March 31, 2013
2013 Prospect Loan Agreement, at issuance
$
70,000

 
$
70,000

PIK Interest
1,478

 
151

Payments to date
(2,328
)
 

2013 Prospect Loan Agreement, net
69,150

 
70,151

Less current portion

 

Total long term portion
$
69,150

 
$
70,151


KBC Facilities

In December 2008, Phase 2 B/AIX, a direct wholly-owned subsidiary of Phase 2 DC and an indirect wholly-owned subsidiary of the Company, began entering into multiple credit facilities to fund the purchase of Systems from Barco, Inc. to be installed in movie theatres as part of the Company’s Phase II Deployment. A summary of the credit facilities is as follows:

 
 
 
 
 
 
 
 
Outstanding Principal Balance
Facility1
 
Credit Facility
 
Interest Rate2
 
Maturity Date
 
As of December 31, 2013
 
As of March 31, 2013
1

 
$
8,900

 
8.50
%
 
December 2016
 
$

 
$

2

 
2,890

 
3.75
%
 
December 2017
 
418

 
1,961

3

 
22,336

 
3.75
%
 
September 2018
 
14,359

 
16,752

4

 
13,312

 
3.75
%
 
September 2018
 
9,033

 
10,459

5

 
11,425

 
3.75
%
 
March 2019
 
8,569

 
9,794

6

 
6,450

 
3.75
%
 
December 2018
 
4,607

 
5,298

 
 
$
65,313

 
 
 
 
 
$
36,986

 
$
44,264

1 For each facility, principal is to be repaid in twenty-eight quarterly installments.
2 The interest rate for facilities 2 through 6 are the three month LIBOR, plus the interest rate noted above.

Cinedigm Credit Agreement
On October 17, 2013, the Company entered into a credit agreement (the “Cinedigm Credit Agreement”) with Société Générale, New York Branch, as administrative agent and collateral agent for the lenders party thereto and certain other secured parties (the “Collateral Agent”). Under the Cinedigm Credit Agreement and subject to the terms and conditions thereof, the Company may borrow an aggregate principal amount of up to $55,000, including term loans of $25,000 (the “Cinedigm Term Loans”) and revolving loans of up to $30,000 (the “Cinedigm Revolving Loans”). All of the Cinedigm Term Loans and $15,000 of the Cinedigm Revolving Loans were drawn at closing in connection with funding the GVE Acquisition upon the Company’s contribution of such funds. Each of the Cinedigm Term Loans and the Cinedigm Revolving Loans bears interest at the base rate plus 3.0% or the eurodollar rate plus 4.0%. Base rate, per annum, is equal to the highest of (a) the rate quoted by the Wall Street Journal as the “base rate on corporate loans by at least 75% of the nation’s largest banks,” (b) 0.50% plus the federal funds rate, and (c) the eurodollar rate plus 1.0%. All collections and revenues of CEG will be deposited into a special blocked account, from which amounts are paid out on a monthly basis to pay certain operating expenses and principal, interest, fees, costs and expenses relating to the Cinedigm Credit Agreement according to certain designated priorities. On a quarterly basis, if funds remain after the payment of all such amounts, a portion of such funds will be applied to prepay the Cinedigm Term Loans. The Cinedigm Term Loans and Cinedigm Revolving Loans mature and must be paid in full by October 21, 2016. In addition, the Company may prepay the Cinedigm Term Loans and Cinedigm Revolving Loans, in whole or in part, subject to paying certain breakage costs, as applicable.
At December 31, 2013, the balance of the Cinedigm Term Loans and Cinedigm Revolving Loans was $24,608 and $14,775, respectively. The Cinedigm Term Loans include an original issue discount, which will be amortized until its maturity date, of $392
as of December 31, 2013.




20



2013 Notes
On October 17, 2013 and October 21, 2013, the Company entered into securities purchase agreements (the “Securities Purchase Agreements”) with certain investors party thereto (the “Investors”) pursuant to which the Company agreed to sell to the Investors notes in the aggregate principal amount of $5,000 (the “2013 Notes”) and warrants to purchase an aggregate of 1,500,000 shares of Class A Common Stock (the “2013 Warrants”). The sales were consummated on October 21, 2013. The proceeds of the sales of the 2013 Notes and 2013 Warrants were used for working capital and general corporate purposes, including to finance, in part, the GVE Acquisition. The Company allocated a proportional value of $1,598 to the 2013 Warrants using a Black-Scholes option valuation model with the following assumptions:
Risk free interest rate
1.38
%
Dividend yield

Expected life (years)
5

Expected volatility
76.25
%
The Company has treated the proportional value of the 2013 Warrants of $1,598 as a debt discount. The debt discount of the 2013 Notes will be amortized through the maturity of the 2013 Notes as interest expense.
The principal amount outstanding under the 2013 Notes is due on October 21, 2018. The 2013 Notes bear interest at 9.0% per annum, payable in quarterly installments over the term of the 2013 Notes. The 2013 Notes entitle the Company to redeem the 2013 Notes any time on or after October 21, 2015, subject to certain premiums.
Letters of Credit
As of December 31, 2013, outstanding letters of credit amounted to approximately $7,000, of which $3,000 expire on March 31, 2014, which relate principally to a distribution agreement with a customer. No amounts were drawn upon during the three month ended December 31, 2013.

At December 31, 2013, the Company was in compliance with all of its debt covenants.

6.
STOCKHOLDERS’ EQUITY

CAPITAL STOCK

COMMON STOCK

As of December 31, 2013 and March 31, 2013, the Company has 118,759,000 authorized shares of Class A Common Stock and 1,241,000 shares of authorized Class B Common Stock of which none remain available for issuance.

On June 26, 2013, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Merriman Capital, Inc. and National Securities Corporation (together, the “Underwriters”) pursuant to which the Underwriters agreed to act as underwriters of 3,780,718 shares of the Company’s Class A common stock at a purchase price equal to $1.2834 per share, representing a per security discount equal to 7.0% of the public offering price per security of $1.38 (the “Offering”). In July 2013, the Underwriters’ exercised an option in full to buy up to an additional 567,108 shares from the Company under the above referenced terms (the "Over-Allotment"). The Company also agreed to bear the expenses of the Offering. The Over-Allotment shares were issued and sold on July 10, 2013. Total proceeds from the issuance of the Company's Class A common stock, including the Over-Allotment, amounted to approximately $5,520, net of underwriting discount, during July 2013.
On October 17, 2013, the Company conducted an underwritten public offering resulting in the sale by the Company of an aggregate of 9,089,990 shares of Class A Common Stock, priced at $1.43 per share on October 21, 2013 and October 23, 2013, with net proceeds to the Company of approximately $12,049.
On October 17, 2013, the Company entered into a common stock purchase agreement (the “Stock Purchase Agreement”) with an investor party thereto (the “Common Stock Investor”) pursuant to which the Company agreed to sell to the Common Stock Investor 1,398,601 shares (the “2013 Shares”) of Class A Common Stock, for an aggregate purchase price in cash of $2,000, priced at $1.43

21



per share. The sale was consummated on October 21, 2013. The proceeds of the sale of the 2013 Shares will be used for working capital and general corporate purposes, including to finance, in part, the GVE Acquisition.

PREFERRED STOCK

Cumulative dividends in arrears on the preferred stock at December 31, 2013 and March 31, 2013 were $89 on each date. In January 2014, the Company paid its preferred stock dividends accrued at December 31, 2013 in the form of 59,122 shares of its Class A Common Stock.

CINEDIGM’S EQUITY INCENTIVE PLAN

During the nine months ended December 31, 2013, the Company granted stock options to purchase 2,780,000 shares of its Class A Common Stock to its employees at exercise prices ranging from $1.37 to $1.58 per share, which will vest ratably over a four year period.  As of December 31, 2013, the weighted average exercise price for outstanding stock options was $1.66 and the weighted average remaining contractual life was 8.65 years.
 
The following table summarizes the activity of the Plan related to shares issuable pursuant to outstanding options:
 
Shares Under Option
 
Weighted Average Exercise Price
Per Share
Balance at March 31, 2013
4,053,000

 
$
2.16

Granted
2,780,000

 
1.50

Exercised
(222,820
)
 
1.63

Canceled
(540,969
)
 
2.33

Balance at December 31, 2013
6,069,211

 
1.66


Restricted Stock Awards

The Plan also provides for the issuance of restricted stock and restricted stock unit awards.  During the nine months ended December 31, 2013 and 2012, the Company did not grant any restricted stock or restricted stock units. There are currently no restricted stock units outstanding.

The following table summarizes the activity of the Plan related to restricted stock awards:
 
Restricted Stock Awards
 
Weighted Average Market Price Per Share
Balance at March 31, 2013
16,108

 
$
1.40

Vested
(15,140
)
 
1.40

Canceled
(968
)
 
1.40

Balance at December 31, 2013

 


OPTIONS GRANTED OUTSIDE CINEDIGM’S EQUITY INCENTIVE PLAN

In October 2013, the Company issued options outside of the Equity Incentive Plan to 10 employees who joined the Company following its acquisition of GVE. The employees received options to purchase an aggregate of 620,000 shares of the Company's Class A Common Stock. The options have 10-year terms and an exercise price of $1.75 per share.

WARRANTS

At December 31, 2013, outstanding warrants consisted of 16,000,000 held by Sageview ("Sageview Warrants"), 525,000 held by a strategic management service provider and the 2013 Warrants.


22



The Sageview Warrants were exercisable beginning on September 30, 2009, contain a customary cashless exercise provision and anti-dilution adjustments, and expire on August 11, 2016 (subject to extension in limited circumstances). 

The strategic management service provider warrants were issued in connection with a consulting management services agreement entered into with the Company. These warrants for the purchase of 525,000 shares of Class A common stock vested over 18 months commencing in July 2011 and expire on July 1, 2021.
The 2013 Warrants will be exercisable through October 21, 2018 at an exercise price per share of $1.85. The 2013 Warrants and 2013 Notes are subject to certain transfer restrictions.

7.
COMMITMENTS AND CONTINGENCIES

We are subject to certain legal proceedings in the ordinary course of business. We do not expect any such items to have a significant impact on our financial position and results of operations and liquidity.

8.     SUPPLEMENTAL CASH FLOWS DISCLOSURE
 
For the Nine Months Ended December 31,
 
2013
 
2012
Cash interest paid
$
13,235

 
$
12,835

Assets acquired under capital leases
$
1,886

 
$

Accretion of preferred stock discount
$
82

 
$
82

Issuance of Class A Common Stock in connection with New Video Acquisition
$

 
$
3,813

Issuance of Class A Common Stock in connection with GVE Acquisition
$
1,000

 
$

Issuance of common stock for payment of preferred stock dividends
$
178

 
$



23



9.
SEGMENT INFORMATION

The Company is comprised of four reportable segments: Phase I Deployment, Phase II Deployment, Services and Content & Entertainment. The segments were determined based on the products and services provided by each segment and how management reviews and makes decisions regarding segment operations. Performance of the segments is evaluated on the segment’s income (loss) from continuing operations before interest, taxes, depreciation and amortization.  
 
The Phase I Deployment and Phase II Deployment segments consist of the following:
Operations of:
Products and services provided:
Phase 1 DC
Financing vehicles and administrators for the Company’s 3,724 Systems installed nationwide in Phase 1 DC’s deployment to theatrical exhibitors.  The Company retains ownership of the Systems and the residual cash flows related to the Systems after the repayment of all non-recourse debt at the expiration of exhibitor master license agreements.
Phase 2 DC
Financing vehicles and administrators for the Company’s 8,829 Systems installed in the second digital cinema deployment, through Phase 2 DC.  The Company retains no ownership of the residual cash flows and digital cinema equipment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.

The Services segment consists of the following:
Operations of:
Products and services provided:
Services
Provides monitoring, billing, collection, verification and other management services to the Company’s Phase I Deployment, Phase II Deployment, Holdings, as well as to exhibitors who purchase their own equipment. Collects and disburses VPFs from motion picture studios and distributors and ACFs from alternative content providers, movie exhibitors and theatrical exhibitors.

The Content & Entertainment segment consists of the following:
Operations of:
Products and services provided:
CEG
As a leading distributor of independent digital content, CEG collaborates with producers and the exhibition community to market, source, curate and distribute independent content to targeted and profitable audiences in theatres and homes, and via mobile and emerging platforms.

24



Information related to the segments of the Company and its subsidiaries is detailed below:

 
 
As of December 31, 2013
 
 
Phase I
 
Phase II
 
Services
 
Content & Entertainment
 
Corporate
 
Consolidated
Total intangible assets, net
 
$
309

 
$
2

 
$

 
$
34,970

 
$
3

 
$
35,284

Total goodwill
 
$

 
$

 
$

 
$
8,542

 
$

 
$
8,542

Assets from continuing operations
 
$
116,892

 
$
68,885

 
$
4,343

 
$
111,879

 
$
12,203

 
$
314,202

Net assets from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
8,040

Total assets
 
 
 
 
 
 
 
 
 
 
 
$
322,242

 
 
 
 
 
 
 
 
 
 
 
 
 
Notes payable, non-recourse
 
$
169,975

 
$
37,917

 
$

 
$

 
$

 
$
207,892

Notes payable
 

 

 

 

 
42,828

 
42,828

Capital leases
 

 

 

 
79

 
6,143

 
6,222

Total debt
 
$
169,975

 
$
37,917

 
$

 
$
79

 
$
48,971

 
$
256,942


 
 
As of March 31, 2013
 
 
Phase I
 
Phase II
 
Services
 
Content & Entertainment
 
Corporate
 
Consolidated
Total intangible assets, net
 
$
344

 
$
6

 
$

 
$
12,449

 
$

 
$
12,799

Total goodwill
 
$

 
$

 
$

 
$
8,542

 
$

 
$
8,542

Assets from continuing operations
 
$
137,880

 
$
79,139

 
$
4,691

 
$
39,158

 
$
6,017

 
$
266,885

Net assets from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
14,574

Total assets
 
 
 
 
 
 
 
 
 
 
 
$
281,459

 
 
 
 
 
 
 
 
 
 
 
 
 
Notes payable, non-recourse
 
$
192,609

 
$
45,300

 
$

 
$

 
$

 
$
237,909

Capital leases
 

 

 

 

 
4,518

 
4,518

Total debt
 
$
192,609

 
$
45,300

 
$

 
$

 
$
4,518

 
$
242,427





25



 
 
Statements of Operations
 
 
For the Three Months Ended December 31, 2013
 
 
(Unaudited)
 
 
Phase I
 
Phase II
 
Services
 
Content & Entertainment
 
Corporate
 
Consolidated
Revenues from external customers
 
$
9,444

 
$
3,216

 
$
3,419

 
$
18,806

 
$

 
$
34,885

Intersegment revenues (1)
 

 

 
5

 
11

 

 
16

Total segment revenues
 
9,444

 
3,216

 
3,424

 
18,817

 

 
34,901

Less: Intersegment revenues
 

 

 
(5
)
 
(11
)
 

 
(16
)
Total consolidated revenues
 
$
9,444

 
$
3,216

 
$
3,419

 
$
18,806

 
$

 
$
34,885

Direct operating (exclusive of depreciation and amortization shown below)
 
209

 
163

 
120

 
10,521

 

 
11,013

Selling, general and administrative
 
47

 
76

 
213

 
4,202

 
2,411

 
6,949

Plus: Allocation of Corporate overhead
 

 

 
549

 
1,101

 
(1,650
)
 

Provision for doubtful accounts
 
5

 
23

 
5

 

 

 
33

Merger and acquisition expenses
 

 

 

 

 
2,779

 
2,779

Restructuring and transition expenses
 

 

 

 
1,142

 

 
1,142

Depreciation and amortization of property and equipment
 
7,137

 
1,881

 
53

 
139

 
234

 
9,444

Amortization of intangible assets
 
11

 
2

 

 
1,215

 

 
1,228

Total operating expenses
 
7,409

 
2,145

 
940

 
18,320

 
3,774

 
32,588

Income (loss) from operations
 
$
2,035

 
$
1,071

 
$
2,479

 
$
486

 
$
(3,774
)
 
$
2,297


(1) Intersegment revenues principally represent personnel expenses.

The following employee stock-based compensation expense related to the Company’s stock-based awards is included in the above amounts as follows:
 
 
Phase I
 
Phase II
 
Services
 
Content & Entertainment
 
Corporate
 
Consolidated
Direct operating
 
$

 
$

 
$

 
$
2

 
$

 
$
2

Selling, general and administrative
 

 

 
6

 
47

 
566

 
619

Total stock-based compensation
 
$

 
$

 
$
6

 
$
49

 
$
566

 
$
621



26



 
 
Statements of Operations
 
 
For the Three Months Ended December 31, 2012
 
 
(Unaudited)
 
 
Phase I
 
Phase II
 
Services
 
Content & Entertainment
 
Corporate
 
Consolidated
Revenues from external customers
 
$
9,772

 
$
2,990

 
$
3,387

 
$
5,630

 
$

 
$
21,779

Intersegment revenues (1)
 

 

 
5

 
6

 

 
11

Total segment revenues
 
9,772

 
2,990

 
3,392

 
5,636

 

 
21,790

Less: Intersegment revenues
 

 

 
(5
)
 
(6
)
 

 
(11
)
Total consolidated revenues
 
$
9,772

 
$
2,990

 
$
3,387

 
$
5,630

 
$

 
$
21,779

Direct operating (exclusive of depreciation and amortization shown below)
 
138

 
189

 
197

 
1,595

 

 
2,119

Selling, general and administrative
 
16

 
36

 
207

 
2,305

 
2,871

 
5,435

Plus: Allocation of Corporate overhead
 

 

 
906

 
900

 
(1,806
)
 

Provision for doubtful accounts
 
51

 
15

 
6

 

 

 
72

Depreciation and amortization of property and equipment
 
7,137

 
1,849

 
2

 
7

 
125

 
9,120

Amortization of intangible assets
 
11

 
2

 

 
719

 

 
732

Total operating expenses
 
7,353

 
2,091

 
1,318

 
5,526

 
1,190

 
17,478

Income (loss) from operations
 
$
2,419

 
$
899

 
$
2,069

 
$
104

 
$
(1,190
)
 
$
4,301


(1) Intersegment revenues principally represent personnel expenses.

The following employee stock-based compensation expense related to the Company’s stock-based awards is included in the above amounts as follows:
 
 
Phase I
 
Phase II
 
Services
 
Content & Entertainment
 
Corporate
 
Consolidated
Direct operating
 
$

 
$

 
$
7

 
$
2

 
$

 
$
9

Selling, general and administrative
 

 

 
2

 
25

 
460

 
487

Total stock-based compensation
 
$

 
$

 
$
9

 
$
27

 
$
460

 
$
496



27



 
 
Statements of Operations
 
 
For the Nine Months Ended December 31, 2013
 
 
(Unaudited)
 
 
Phase I
 
Phase II
 
Services
 
Content & Entertainment
 
Corporate
 
Consolidated
Revenues from external customers
 
$
27,737

 
$
9,331

 
$
9,798

 
$
25,798

 
$

 
$
72,664

Intersegment revenues (1)
 

 

 
16

 
43

 

 
59

Total segment revenues
 
27,737

 
9,331

 
9,814

 
25,841
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