News Column

CINEDIGM CORP. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

February 14, 2014

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

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 the Company's control that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.



OVERVIEW

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) Phase I Deployment, (2) Phase II Deployment, (3) Services and (4) Content & Entertainment. The Phase I Deployment and Phase II Deployment segments are the non-recourse, financing vehicles and administrators for the Company's Systems installed in North American movie theatres. 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; maintenance and consulting services to Phase I and Phase II Deployment, various other exhibitors, studios and other content organizations. 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 is a market leader in the three pillars of digital entertainment distribution - aggregation and distribution, theatrical releasing and branded and curated over-the-top entertainment channels and applications. As a leading distributor of independent content domestically, 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, VOD and (iii) physical goods, including DVD and Blu-ray. The Company's library of over 33,000 movies and television episodes from more than 650 independent rights holders includes award-winning documentaries from Docurama Films®, next-generation independent movies from Flatiron Film Company® and acclaimed independent movies and festival picks through partnerships with the Sundance Institute and Tribeca Film. The Company is proud to distribute many Oscar®-nominated movies, including "The Invisible War," "Hell and Back Again," "GasLand," "Waste Land" and "Paradise Lost 3: Purgatory." 31 --------------------------------------------------------------------------------



The following organizational chart provides a graphic representation of our business and our four reporting segments:

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We had losses from continuing operations of $2,693 and $13,495 during the three and nine months ended December 31, 2013, respectively, and we have an accumulated deficit of $265,270 as of December 31, 2013. We also have significant contractual obligations related to our non-recourse and recourse debt for the remainder of the fiscal year ending March 31, 2014 and beyond. We may continue generating consolidated net losses in the future. Based on our cash position at December 31, 2013 and expected cash flows from operations, we believe that we have the ability to meet our obligations through at least December 31, 2014. Failure to generate additional revenues, raise additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations or liquidity. 32 -------------------------------------------------------------------------------- Results of Continuing Operations for the Three Months Ended December 31, 2013 and 2012 Revenues For the Three Months Ended December 31, ($ in thousands) 2013 2012 $ Change % Change Phase I Deployment $ 9,444$ 9,772$ (328 ) (3 )% Phase II Deployment 3,216 2,990 226 8 % Services 3,419 3,387 32 1 % Content & Entertainment 18,806 5,630 13,176 234 % $ 34,885$ 21,779$ 13,106 60 % Total revenues increased $13.1 million or 60% during the three months ended December 31, 2013 due to both organic growth in revenues in Content and Entertainment as well as the consolidation of the results after October 21, 2013 from the GVE Acquisition. Phase 1 and Phase 2 Deployment revenues remained flat year over year for the three months ended December 31, 2013 as virtual print fees were impacted by (i) a reduced releasing calendar in the current fiscal quarter as compared to the prior year fiscal quarter as three titles were delayed to our fiscal fourth quarter; and (ii) constrained booking patterns on many tent-pole and wide studio releases as a crowded release calendar this quarter limited screen space access. The Services segment remained level with the prior year quarter as increases in digital cinema services revenues were offset by decreases in activation fee revenue due to the completion of the North American deployment program in early 2013. International activation fees were recognized during the quarter from our international servicing initiative in Australia and New Zealand. During the three months ended December 31, 2013, 141 international Phase 2 DC Exhibitor-Buyer Structure Systems were installed and a total of 8,829 installed Phase 2 Systems were generating service fees at December 31, 2013 as compared to 7,965 Phase 2 Systems at December 31, 2012. The Company also services an additional 3,724 screens in its Phase I deployment subsidiary. We expect modest growth in Services as we continue with international servicing in Australia, New Zealand and Europe during the remainder of the fiscal year ending March 31, 2014 from our 44 international screen backlog. The CEG business increased 234% with revenues of $13.2 million, of which $10.9 million is directly attributable to the results of the GVE Acquisition which was completed on October 21, 2013. In addition, GVE generated for its previous owner approximately $2.2 million of revenues in the three weeks of October prior to the acquisition closing. Our fiscal third quarter was impacted by a combination of the sluggish retail holiday shopping environment experienced by our customers and an expected reduction in our new release slate as the GVE corporate sale process limited new content acquisition activity by GVE during 2013. The Company also signed several long-term library rights and digital licensing transactions in the quarter as well as a significant transaction which closed prior to year end and in which cash has been collected subsequently, but the revenue must be amortized over the multi-year term of the contract rather than recognized immediately. We continue to expect the combined company to utilize its strong market position, differentiated sales proposition and capital to accelerate growth over the next 15 months. CEG expanded its total home entertainment distribution library of movies and television episodes to over 33,000 titles during the third quarter. CEG is further leveraging its position to acquire the North American distribution rights in all media for independent movies as well as to launch several narrowcast entertainment networks through over-the-top video channels to all home and mobile platforms. During the three months ended December 31, 2013, CEG released three movies theatrically and has three movies in its upcoming release slate. CEG expects to release two of these movies during the remainder of the current fiscal year. CEG expects the slate of its releases to date to be profitable based upon ancillary revenue pre-sales, DVD pre-orders as well as projected transactional VOD results. 33 --------------------------------------------------------------------------------

Direct Operating Expenses For the Three Months Ended December 31, ($ in thousands) 2013 2012 $ Change % Change Phase I Deployment $ 209$ 138$ 71 51 % Phase II Deployment 163 189 (26 ) (14 )% Services 120 197 (77 ) (39 )% Content & Entertainment 10,521 1,595 8,926 560 % $ 11,013$ 2,119$ 8,894 420 % Direct operating expenses increased by 420% due to the consolidation of $5.1 million from GVE direct costs, the significant growth in CEG home entertainment releases in the quarter and upfront theatrical releasing, marketing and acquisitions costs as CEG released three movies in the current quarter versus none in the prior year quarter. Excluding the impact of the GVE Acquisition, direct operating costs increased by $3.8 million from the three months ended December 31, 2012 on a pro-forma basis. These three theatrical releases total approximately $0.4 million of upfront releasing costs which CEG expects to fully recoup from revenues earned in home entertainment distribution during its first five-year ultimate cycle. In accordance with GAAP, Cinedigm must recognize its upfront content acquisition and marketing expenses at the time of a theatrical release of a movie. We expect to recover those expenses as well as earn our fee-based profits from revenues earned on the distribution of the movie in the ancillary home entertainment markets. This timing difference creates a "J-Curve" and will continue in future periods as we increase our distribution activities. We will also experience an increase in direct operating expenses corresponding with additional revenue growth. The decrease in the Services segment was primarily related to expense reductions in digital cinema services as the domestic installation period ended.



Selling, General and Administrative Expenses

For the Three Months Ended December 31, ($ in thousands) 2013 2012 $ Change % Change Phase I Deployment $ 47$ 16$ 31 194 % Phase II Deployment 76 36 40 111 % Services 213 207 6 3 % Content & Entertainment 4,202 2,305 1,897 82 % Corporate 2,411 2,871 (460 ) (16 )% $ 6,949$ 5,435$ 1,514 28 % Total selling, general and administrative expenses increased $1.5 million or 28% as the addition of GVE increased Content and Entertainment's SG&A expenses by $2.1 million. However, total selling, general and administrative expense declined by approximately 11% excluding GVE on a pro-forma basis as tight expense control and the significant synergies we achieved with the acquisition of GVE has allowed the Company to improve its efficiency levels. We expect to benefit from the realization of additional transaction synergies in our fourth quarter and will tie any future increases in selling, general and administrative expenses to additional revenues as we support our expanding content acquisition and distribution activities with additional sales and service headcount.



Merger and Acquisition Expenses

Merger and acquisition expenses during the three months ended December 31, 2013 of $2.8 million consist primarily of professional fees and internal expenses directly related to the GVE Acquisition of $2.3 million and $0.5 million, respectively. Restructuring and Transition Expenses During the three months ended December 31, 2013, the Company completed a strategic assessment of its resource requirements within its Content & Entertainment reporting segment which, based upon the GVE Acquisition, resulted in a restructuring expense of $1.0 million as a result of workforce reduction and severance and employee-related expenses. Transition expenses of $0.2 million are principally attributed to the integration of GVE. 34 --------------------------------------------------------------------------------



Depreciation and Amortization Expense on Property and Equipment

For the Three Months Ended December 31, ($ in thousands) 2013 2012 $ Change % Change Phase I Deployment $ 7,137$ 7,137 $ - - % Phase II Deployment 1,881 1,849 32 2 % Services 53 2 51 2,550 % Content & Entertainment 139 7 132 1,886 % Corporate 234 125 109 87 % $ 9,444$ 9,120$ 324 4 % Depreciation and amortization expense increased $0.3 million or 4%. The increase in the Phase II Deployment segment represents depreciation on the increased number of Phase 2 DC Systems which were not in service during the three months ended December 31, 2012. We expect the depreciation and amortization expense in the Phase II Deployment segment to remain at similar levels as the Phase 2 deployment period has ended and we do not expect to add international Systems that require inclusion on our balance sheet. In addition, we expect modest additional growth in Services and Corporate depreciation and amortization expense tied to technology investments supporting our upgraded corporate information technology infrastructure.



Amortization of intangible assets

Amortization of intangible assets increased to $1.2 million from $0.2 million for the three months ended December 31, 2013, principally due to the final purchase price allocation of the April 2012 acquisition of New Video, which was still preliminary during the prior year fiscal quarter, as well as the addition of a finite-lived intangible asset subject to amortization based upon the preliminary purchase price allocation from the GVE Acquisition. Interest expense, net For the Three Months Ended December 31, ($ in thousands) 2013 2012 $ Change % Change Phase I Deployment $ 3,633$ 1,683$ 1,950 116 % Phase II Deployment 478 588 (110 ) (19 )% Corporate 940 4,419 (3,479 ) (79 )% $ 5,051$ 6,690$ (1,639 ) (24 )% Interest expense, net decreased $1.6 million or 24% due to the interest savings driven by the February 2013 refinancing and the continued repayment of debt as the Company reduced principal outstanding by $10.1 million during the three months ended December 31, 2013. The 116% increase in interest paid and accrued within the non-recourse Phase I Deployment segment is the result of the shifting of the Company's corporate debt to non-recourse as part of the February 2013 refinancing. The non-recourse Phase I deployment debt was refinanced, expanded and combined with the proceeds of the non-recourse 2013 Prospect Loan to repay the recourse 2010 Note in the Company's Corporate segment. The 2013 Term Loans are at a rate of LIBOR, plus 275 basis points with a 1.0% LIBOR floor, versus the 2010 Term Loan rate of LIBOR, plus 350 basis points with a 1.75% LIBOR floor. The 2013 Prospect Loan carries an interest rate of 13.5%, including a cash rate of LIBOR, plus 9.0% with a 2.0% LIBOR floor, and a Payment In Kind ("PIK") rate of 2.5%. Interest on the prior recourse note was 8% PIK Interest and 7% per annum paid in cash. Interest decreased within the Phase II Deployment segment related to the KBC Facilities due to the reduction of outstanding principal. Phase 2 DC's non-recourse interest expense is expected to continue to decrease as it did during the fiscal quarter as we continue to repay the KBC Facilities from free cash flow and the benefit from the resulting reduced debt balance. The decrease in interest paid and accrued within Corporate is related to the prior recourse note, which was paid off in February 2013. Corporate interest expense, net during the three months ended December 31, 2013 includes recourse debt from the Cinedigm Term Loans, Cinedigm Revolving Loans and 2013 Notes. Each of the Cinedigm Term Loans and the Cinedigm Revolving Loans bear 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%. The 2013 Notes bear interest at 9.0%. Non-cash interest expense was approximately $0.7 million and $2.4 million for the three months ended December 31, 2013 and 2012, respectively. PIK interest was $0.4 million and $1.9 million for the three months ended December 31, 2013 and 2012, respectively, associated with the 2013 Prospect Loan and prior recourse note within Corporate for the prior period. Amortization 35 -------------------------------------------------------------------------------- of debt issuance costs were $0.3 million and $0.4 million for the three months ended December 31, 2013 and 2012, respectively. The remaining amount for the three months ended December 31, 2012 represents the accretion of $0.1 million on the note payable discount associated with the recourse note in Corporate. Change in fair value of interest rate derivatives The change in fair value of the interest rate derivatives was gains of $0.1 million and $0.3 million for the three months ended December 31, 2013 and 2012, respectively. Adjusted EBITDA



Adjusted EBITDA is defined by the Company for the periods presented to be earnings before interest, taxes, depreciation and amortization, other income, net, stock-based compensation and expenses, merger and acquisition costs, restructuring and transition expenses and certain other items.

The Company reported an increase in Adjusted EBITDA (including its Phase 1 DC and Phase 2 DC subsidiaries) of $17.8 million for the three months ended December 31, 2013 in comparison to $15.2 million for the three months ended December 31, 2012. This increase reflects the positive impact of the GVE Acquisition as well as overall growth within CEG. Adjusted EBITDA from non-deployment businesses was $5.7 million during the three months ended December 31, 2013, increasing from $2.8 million for the three months ended December 31, 2012, reflecting the positive results of the GVE Acquisition as well as overall growth within CEG. GVE generated approximately an additional $1.0 million of EBITDA for its previous owner in the three week period of the quarter prior to the closing of the transaction. Phase 1 DC and Phase 2 DC revenues are expected to decline modestly this year due to the impact of an overcrowded release schedule on studio booking patterns. Other than limited Phase 2 DC contractual rate reductions, revenues going forward should be stable as the domestic deployment period ended at January 31, 2013 and any remaining international installations will be through an Exhibitor-Buyer structure or other servicing partnerships which should contribute to continued growth in digital cinema servicing. Based upon a full quarter of GVE ownership, a strong fourth quarter digital release schedule and solid physical retail replacements, we expect the fiscal fourth quarter to perform similarly to recent results. In addition, significant CEG resources were dedicated to the completion of the GVE Acquisition and we expect the combined company to utilize its strong market position to accelerate growth over the next 15 months with the greatest impact in the second half of fiscal year 2015. The Company intends to continue investing in the growth of its business through the acquisition of content distribution rights, related marketing related expenditures and through the continued development of additional software products and services. Adjusted EBITDA is not a measurement of financial performance under GAAP and may not be comparable to other similarly titled measures of other companies. The Company uses 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, the Company believes Adjusted EBITDA will also be useful to others, including its stockholders, as a valuable financial metric. Management presents Adjusted EBITDA because it believes that Adjusted EBITDA is a useful supplement to net loss from continuing operations as an indicator of operating performance. Management also believes that Adjusted EBITDA is a financial measure that is useful both to management and investors when evaluating the Company's performance and comparing our performance with the performance of our competitors. Management also uses Adjusted EBITDA for planning purposes, as well as to evaluate the Company's performance because Adjusted EBITDA excludes certain non-recurring or non-cash items, such as stock-based compensation charges, that management believes are not indicative of the Company's ongoing operating performance. The Company believes that Adjusted EBITDA is a performance measure and not a liquidity measure, and a reconciliation between net loss from continuing operations and Adjusted EBITDA is 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. Management does 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 the Company's consolidated financial statements prepared in accordance with GAAP. 36

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Following is the reconciliation of the Company's consolidated Adjusted EBITDA to consolidated GAAP net loss from continuing operations:

For the Three Months Ended December 31, ($ in thousands) 2013



2012

Net loss from continuing operations before income taxes $ (2,693 ) $ (1,259 ) Add Back: Depreciation and amortization of property and equipment 9,444 9,120 Amortization of intangible assets 1,228 732 Interest expense, net 5,051 6,690 Income on investment in non-consolidated entity - (678 ) Other income, net (23 ) (102 ) Change in fair value of interest rate derivatives (38 ) (349 ) Stock-based compensation and expenses 750 501 Merger and acquisition expenses 2,779 - Restructuring and transition expenses 1,142 - Allocated costs attributable to discontinued operations 206 495 Adjusted EBITDA $ 17,846 $ 15,150 Adjustments related to the Phase I and Phase II Deployments: Depreciation and amortization of property and equipment (9,018 ) (8,986 ) Amortization of intangible assets (13 ) (13 ) Income from operations (3,106 ) (3,318 ) Intersegment services fees earned 5 6 Adjusted EBITDA from non-deployment businesses $ 5,714 $ 2,839 37

-------------------------------------------------------------------------------- Results of Continuing Operations for the Nine Months Ended December 31, 2013 and 2012 Revenues For the Nine Months Ended December 31, ($ in thousands) 2013 2012 $ Change % Change Phase I Deployment $ 27,737$ 29,775$ (2,038 ) (7 )% Phase II Deployment 9,331 9,313 18 - % Services 9,798 10,362 (564 ) (5 )% Content & Entertainment 25,798 11,998 13,800 115 % $ 72,664$ 61,448$ 11,216 18 % Revenues increased $11.2 million or 18% during the nine months ended December 31, 2013 resulting from the organic growth in revenues in Content & Entertainment as well as the GVE Acquisition, partially offset by decreases in Deployment and Services revenues. Phase 1 and Phase 2 Deployment revenues declined by $2.0 million for the nine months ended December 31, 2013 as virtual print fees were reduced due to (i) a reduced releasing calendar in the current fiscal year as compared to the prior fiscal year period as three titles were delayed to our fiscal fourth quarter; and (ii) constrained booking patterns on many tent-pole and wide studio releases as a crowded release calendar at the peak summer and holiday seasons limited screen space; and (iii) several underperforming blockbuster releases receiving smaller releases than historically common. In the Services segment, a $0.6 million, or 5%, decrease in revenues was primarily due to (i) the expected reduction in service revenues as the termination of the North American deployment program resulted in $1.1 million of activation fee revenue recognized during the current period as compared to $3.4 million of activation fees in the prior year period; (ii) reduced virtual print fees of $2.0 million translating into an approximately $0.2 million reduction in service fees; and (iii) delays in remaining deployments by several international exhibitors to later this fiscal year. During the nine months ended December 31, 2013, 893 Phase 2 DC Exhibitor-Buyer Structure Systems were installed and a total of 8,829 installed Phase 2 Systems were generating service fees at December 31, 2013 as compared to 7,965 Phase 2 Systems at December 31, 2012. The Company also services an additional 3,724 screens in its Phase I deployment subsidiary. We expect modest growth in Services as we (i) continue with international servicing and software installations in Australia, New Zealand and Europe during remainder of the fiscal year ending March 31, 2014 from our 44 international screen backlog; and (ii) secure additional international servicing customers. The CEG business expanded by $13.8 million, or 115%, year over year, of which $10.9 million is directly attributed to revenues of GVE earned from October 21 through the end of our fiscal third quarter. In addition, GVE generated for its previous owner approximately $2.2 million of revenues in the three weeks of October prior to the acquisition closing. Organic growth was driven by expansion in distribution fees earned from (i) recent acquisitions of distribution rights of home entertainment titles; (ii) expanded fee revenue and monetization of our library of over 33,000 movies and television episodes; and (iii) revenues from theatrical releases that have reached the home entertainment window. The Company also signed several long-term library rights and digital licensing transactions in the quarter as well as a significant transaction which closed prior to year end and in which cash has been subsequently collected, but the revenue must be amortized over the multi-year term of the contract rather than recognized immediately. We expect this trend to continue as CEG is expanding its physical and digital content distribution rights due to its position as the largest aggregator of digital content. CEG expanded its total home entertainment distribution library by over 11,000 movie and television titles during the period. CEG, after the GVE Acquisition, expects to further leverage its position as the largest physical and digital goods distributor of non-theatrical released content into the home and mobile to acquire the North American distribution rights in all media for independent movies as well as to launch several narrowcast entertainment networks through over-the-top video channels to all home and mobile platforms. During the nine months ended December 31, 2013, CEG released twelve movies theatrically, acquired the distribution rights to eight independent movies and has three movies in its upcoming release slate. CEG expects to release two of these movies during the remainder of the current fiscal year. CEG expects the slate of its releases to date to be profitable based upon ancillary revenue pre-sales, DVD pre-orders as well as projected transactional VOD results. 38 --------------------------------------------------------------------------------

Direct Operating Expenses For the Nine Months Ended December 31, ($ in thousands) 2013 2012 $ Change % Change Phase I Deployment $ 566$ 347$ 219 63 % Phase II Deployment 446 513 (67 ) (13 )% Services 301 707 (406 ) (57 )% Content & Entertainment 18,245 4,028 14,217 353 % $ 19,558$ 5,595$ 13,963 250 % Direct operating expenses increased by 250% as a result of $5.1 million attributed to the GVE Acquisition during the period as well as significant growth in upfront theatrical releasing, marketing and acquisitions costs as CEG released nine movies during the current fiscal year versus a single small release in the prior year period. Excluding the impact of the GVE Acquisition, direct operating costs increased by $8.9 million from the nine months ended December 31, 2012. These twelve releases total over $2.6 million of upfront releasing costs which CEG expects to fully recoup from revenues earned in home entertainment distribution during its first five-year ultimate cycle. In accordance with GAAP, Cinedigm must recognize its upfront content acquisition and marketing expenses at the time of a theatrical release of a movie. We expect to recover those expenses as well as earn our fee-based profits from revenues earned on the distribution of the movie in the ancillary home entertainment markets. This timing difference creates a "J-Curve" and will continue in future periods as we increase our distribution activities. We will also experience an increase in direct operating expenses corresponding with additional revenue growth. The decrease in the Services segment was primarily related to expense reductions in digital cinema services as the domestic installation period ended.



Selling, General and Administrative Expenses

For the Nine Months Ended December 31, ($ in thousands) 2013 2012 $ Change % Change Phase I Deployment $ 206$ 89$ 117 131 % Phase II Deployment 203 87 116 133 % Services 624 615 9 1 % Content & Entertainment 9,729 6,193 3,536 57 % Corporate 6,481 9,263 (2,782 ) (30 )% $ 17,243$ 16,247$ 996 6 % Selling, general and administrative expenses grew modestly by 6% during the period as strong expense controls and synergies from the GVE Acquisition improved results. The Content & Entertainment segment increased 57% as a result of the GVE Acquisition, which added $2.1 million, and the expansion of our theatrical releasing and marketing teams which we added in the summer and fall of 2012 as well as increased staffing to support the rapid growth in our home entertainment acquisition and distribution volume. We have maintained selling, general and administrative expenses at CEG relatively consistent with the previous two quarters. The decrease within Corporate reflects ongoing prudent expense management and reduction of a contingent liability of $1.5 million related to a business combination. Future increases in selling, general and administrative expenses will be tied to the integration of GVE into CEG and the additional revenues as we support our expanding sales pipeline and our additional content acquisition and distribution activities with additional sales and service headcount.



Merger and Acquisition Expenses

Merger and acquisition expenses included in corporate expenses for the nine months ended December 31, 2013 of $2.8 million consist primarily of professional fees and internal expenses directly related to the GVE Acquisition of $2.3 million and $0.5 million, respectively. Merger and acquisition expenses included in corporate expenses for the nine months ended December 31, 2013 of $1.3 million include professional fees incurred which pertained to the purchase of New Video which was consummated in April 2012. 39 --------------------------------------------------------------------------------



Restructuring and Transition Expenses

During the three months ended December 31, 2013, the Company completed a strategic assessment of its resource requirements within its Content & Entertainment reporting segment which, based upon the GVE Acquisition, resulted in a restructuring expense of $1.0 million as a result of workforce reduction and severance and employee-related expenses. Transition expenses of $0.2 million are principally attributed to the integration of GVE.



Depreciation and Amortization Expense on Property and Equipment

For the Nine Months Ended December 31, ($ in thousands) 2013 2012 $ Change % Change Phase I Deployment $ 21,412$ 21,412 $ - - % Phase II Deployment 5,642 5,478 164 3 % Services 161 6 155 2,583 % Content & Entertainment 149 17 132 776 % Corporate 537 351 186 53 % $ 27,901$ 27,264$ 637 2 % Depreciation and amortization expense increased $0.6 million or 2%. The increase in the Phase II Deployment segment represents depreciation on the increased number of Phase 2 DC Systems which were not in service during the nine months ended December 31, 2012. We expect the depreciation and amortization expense in the Phase II Deployment segment to remain at similar levels as the Phase 2 deployment period has ended and we do not expect to add international Systems that require inclusion on our balance sheet. In addition, we expect modest additional growth in Services and Corporate depreciation and amortization expense tied to technology investments supporting our software expansion and our upgraded corporate information technology infrastructure.



Amortization of intangible assets

Amortization of intangible assets increased to $2.1 million from $1.1 million for the nine months ended December 31, 2013, principally due to the final purchase price allocation of the April 2012 acquisition of New Video, which was still preliminary during the prior year fiscal quarter, as well as the addition of a finite-lived intangible asset subject to amortization based upon the preliminary purchase price allocation from the GVE Acquisition. Interest expense, net For the Nine Months Ended December 31, ($ in thousands) 2013 2012 $ Change % Change Phase I Deployment $ 11,522$ 6,069$ 5,453 90 % Phase II Deployment 1,518 1,798 (280 ) (16 )% Corporate 1,467 13,559 (12,092 ) (89 )% $ 14,507$ 21,426$ (6,919 ) (32 )% Interest expense, net decreased $6.9 million or 32% due to the interest savings driven by the February 2013 refinancing and the continued repayment of debt as the company reduced principal outstanding by $31.6 million during the current fiscal year. The 90% increase in interest paid and accrued within the non-recourse Phase I Deployment segment is the result of the shifting of the Company's corporate debt to non-recourse as part of the February 2013 refinancing. The non-recourse Phase I deployment debt was refinanced, expanded and combined with the proceeds of the non-recourse 2013 Prospect Loan to repay the recourse 2010 Note in the Company's Corporate segment. The 2013 Term Loans are at a rate of LIBOR, plus 275 basis points with a 1.0% LIBOR floor, versus the 2010 Term Loan rate of LIBOR, plus 350 basis points with a 1.75% LIBOR floor. Interest decreased within the Phase II Deployment segment related to the KBC Facilities due to the reduction of outstanding principal. Phase 2 DC's non-recourse interest expense is expected to continue to decrease as it did during the fiscal quarter as we continue to repay the KBC Facilities from free cash flow and the benefit from the resulting reduced debt balance. The decrease in interest paid and accrued within Corporate is related to the recourse note, which was paid off in February 2013. The 2013 Prospect Loan carries an interest rate of 13.5%, including a cash rate of LIBOR, plus 9.0% with a 2.0% LIBOR floor, and a PIK rate of 2.5%. Interest on the prior recourse note was 8% PIK Interest and 7% per annum paid in cash. Corporate interest expense, net during the three months ended December 31, 2013 includes recourse debt from the Cinedigm Term Loans and Cinedigm Revolving Loans and the 2013 Notes. Each of the Cinedigm Term Loans and the Cinedigm Revolving Loans bear interest at the base rate plus 3.0% or the eurodollar 40 -------------------------------------------------------------------------------- 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%. The 2013 Notes bear interest at 9.0%. Non-cash interest expense was approximately $1.9 million and $7.3 million for the nine months ended December 31, 2013 and 2012, respectively. PIK interest was $1.3 million and $5.7 million for the nine months ended December 31, 2013 and 2012, respectively, associated with the 2013 Prospect Loan and prior recourse note within Corporate for the prior period. Amortization of debt issuance costs were $0.6 million and $1.2 million for the nine months ended December 31, 2013 and 2012, respectively.The remaining amount for the nine months ended December 31, 2012 represents the accretion of $1.4 million on the note payable discount associated with the recourse note in Corporate. Change in fair value of interest rate derivatives The change in fair value of the interest rate derivatives were gains of approximately $0.8 million and $1.0 million for the nine months ended December 31, 2013 and 2012, respectively. The interest swap associated with the 2013 Term Loans matured in June 2013. Benefit from income taxes A net benefit from income taxes of $5.0 million was recorded primarily from the acquisition of New Video during the nine months ended December 31, 2012. A net deferred tax liability of $5.0 million was recorded upon the New Video Acquisition for the excess of the financial statement basis over the tax basis of the acquired assets and liabilities. As New Video will be included in the Company's consolidated federal and state tax returns, deferred tax liabilities assumed in the New Video Acquisition are able to offset the reversal of the Company's pre-existing deferred tax assets. Accordingly, the Company's valuation allowance has been reduced by $5.0 million and recorded as a deferred tax benefit in the accompanying condensed consolidated statements of operations for the nine months ended December 31, 2012. Management will continue to assess the realizability of the deferred tax assets at each interim and annual balance sheet date based upon actual and forecasted operating results.



Adjusted EBITDA

Adjusted EBITDA is defined by the Company for the periods presented to be earnings before interest, taxes, depreciation and amortization, other income, net, stock-based compensation and expenses, merger and acquisition costs, restructuring and transition expenses and certain other items.

The Company reported a decrease of 9% in Adjusted EBITDA (including its Phase 1 DC and Phase 2 DC subsidiaries) of $38.8 million for the nine months ended December 31, 2013 in comparison to $42.6 million for the nine months ended December 31, 2012. This decrease was due to (A) a decrease of $2.0 million in VPF revenues and related EBITDA earned in the period as a result of (i) fewer releases by studios in the current fiscal year as compared to the prior year fiscal year as three release titles were delayed to the fourth quarter of our current fiscal year due to the crowded release calendar this year; (ii) limited screen space to accommodate all tent-pole and wide studio releases constrained and concentrated booking patterns in the quarter (iii) a number of poor performing movies booked on fewer screen than past patterns; and (B) J-Curve costs from our theatrical releasing business of $2.6 million. These results were partially offset by the positive contributions from the GVE Acquisition. Adjusted EBITDA from non-deployment businesses was $3.3 million during the nine months ended December 31, 2013, decreasing from $4.8 million for the nine months ended December 31, 2012. Phase 1 DC and Phase 2 DC revenues are not expected to recover from the modest decline experienced this year due to the impact of an overcrowded release schedule on studio booking patterns. Other than limited Phase 2 DC contractual rate reductions, revenues going forward should be stable as the domestic deployment period ended at January 31, 2013 and any remaining international installations will be through an Exhibitor-Buyer structure or other servicing partnerships which should contribute to continued growth in digital cinema servicing. Based on the GVE Acquisition along with the expansion of the combined CEG business, the Company expects Adjusted non-deployment EBITDA performance to remain strong in the remainder of the fiscal year ending March 31, 2014. The Company also signed several long-term library rights and digital licensing transactions in the quarter as well as a significant transaction which closed prior to year end and in which cash has been subsequently collected, but the revenue must be amortized over the multi-year term of the contract rather than recognized immediately. Our fiscal third quarter is our seasonally strongest quarter in terms of revenue and EBITDA and our fiscal fourth quarter is our second strongest seasonal quarter with a seasonal slowdown common in our June and September quarters. Our main drivers of performance will be the growth in our library of distribution rights, the recognition of revenues from recently released theatrical movies and our expanding future content release slate. The Company intends to continue investing in the growth of its business through the acquisition of content distribution rights, related marketing related expenditures and the launch of over-the-top digital channels. 41 -------------------------------------------------------------------------------- Adjusted EBITDA is not a measurement of financial performance under GAAP and may not be comparable to other similarly titled measures of other companies. The Company uses 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, the Company believes Adjusted EBITDA will also be useful to others, including its stockholders, as a valuable financial metric. Management presents Adjusted EBITDA because it believes that Adjusted EBITDA is a useful supplement to net loss from continuing operations as an indicator of operating performance. Management also believes that Adjusted EBITDA is a financial measure that is useful both to management and investors when evaluating the Company's performance and comparing our performance with the performance of our competitors. Management also uses Adjusted EBITDA for planning purposes, as well as to evaluate the Company's performance because Adjusted EBITDA excludes certain non-recurring or non-cash items, such as stock-based compensation charges, that management believes are not indicative of the Company's ongoing operating performance. The Company believes that Adjusted EBITDA is a performance measure and not a liquidity measure, and a reconciliation between net loss from continuing operations and Adjusted EBITDA is 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. Management does 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 the Company's consolidated financial statements prepared in accordance with GAAP.



Following is the reconciliation of the Company's consolidated Adjusted EBITDA to consolidated GAAP net loss from continuing operations:

For the Nine Months Ended December 31, ($ in thousands) 2013 2012 Net loss from continuing operations before income taxes $ (13,495 )$ (9,158 ) Add Back: Depreciation and amortization of property and equipment 27,901



27,264

Amortization of intangible assets 2,055



1,100

Interest expense, net 14,507



21,426

Loss (income) on investment in non-consolidated entity 1,812 (1,340 ) Other income, net (269 ) (494 ) Change in fair value of interest rate derivatives (796 ) (1,025 ) Stock-based compensation and expenses 1,932



1,698

Merger and acquisition expenses 2,779



1,267

Restructuring and transition expenses 1,142



340

Allocated costs attributable to discontinued operations 1,208 1,503 Adjusted EBITDA $ 38,776$ 42,581 Adjustments related to the Phase I and Phase II Deployments: Depreciation and amortization of property and equipment (27,054 ) (26,890 ) Amortization of intangible assets (39 )



(39 )

Income from operations (8,351 ) (10,921 ) Intersegment services fees earned 16



21

Adjusted EBITDA from non-deployment businesses $ 3,348$ 4,752 42

--------------------------------------------------------------------------------



Critical Accounting Policies

The following is a discussion of our critical accounting policies.

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 being amortized over the shorter of the lease term or the estimated useful life of the improvement. Maintenance and repair costs are charged to expense as incurred. Major renewals, improvements and additions are capitalized. Useful lives are determined based on an estimate of either physical or economic obsolescence, or both. During the three and nine months ended December 31, 2013 and 2012, the Company has not made any revisions to estimated useful lives.



GOODWILL AND DEFINITE-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. 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.



For further details on the Company's process for evaluating goodwill for impairment, refer to the Company's Form 10-K.

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.

As of December 31, 2013, the Company's finite-lived intangible assets consisted of customer relationships and agreements, theatre relationships, covenants not to compete, a favorable operating lease, trade names and trademarks. During the three and nine months ended December 31, 2013 and 2012, no impairment charge for finite-lived intangible assets from continuing operations was recorded.



REVENUE RECOGNITION

Phase I Deployment and Phase II Deployment

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 (calendar 2011) 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 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 contracts with movie studios and distributors, is achieved. Cost recoupment will 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 43 -------------------------------------------------------------------------------- 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 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 44 -------------------------------------------------------------------------------- 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. Liquidity and Capital Resources We have incurred net losses each year since we commenced our operations. Since our inception, we have financed our operations substantially through the private placement of shares of our common and preferred stock, the issuance of promissory notes, our initial public offering and subsequent private and public offerings, notes payable and common stock used to fund various acquisitions. Our business is primarily driven by the growth in global demand for entertainment content in all forms, and in particular, the shifting consumer demand for content in digital forms within home and mobile devices as well as the maturing digital cinema marketplace. Primary revenue drivers will be the increasing number of digitally equipped screens, the growing demand for software to power these screens and drive other efficiencies and the demand for entertainment content in both theatrical and home ancillary markets. According to the Motion Picture Association of America, during 2012 there were approximately 43,000 domestic (United States and Canada) movie theatre screens and approximately 130,000 screens worldwide, of which approximately 36,000 of the domestic screens were equipped with digital cinema technology, and 12,553 of those screens contained our Systems and software. The Company's North American digital deployment period ended at January 31, 2013 other than for a modest special program for drive-in theatres. We have deployed 3,724 screens in our Phase I Deployment, and through December 31, 2013 have deployed 8,829 Phase 2 DC Systems. To date, the number of digitally-equipped screens in the marketplace has been a significant determinant of our potential revenue streams. The expansion of our content business into the ancillary distribution markets as well into the acquisition and distribution of new movie releases expands our market opportunities as the rapidly evolving digital and entertainment landscape creates significant new growth potential for the Company. Beginning in May 2010, Phase 2 B/AIX, an indirect wholly-owned subsidiary of the Company, entered into additional credit facilities, the KBC Facilities, to fund the purchase of Systems from Barco, to be installed in movie theatres as part of the Company's Phase II Deployment. As of December 31, 2013, the outstanding principal balance of the KBC Facilities was $37.0 million. In February 2013, the Company refinanced its existing non-recourse senior 2010 Term Loan and recourse 2010 Note with a $125.0 million senior non-recourse credit facility led by SociÉtÉ GÉnÉrale, New York Branch and a $70.0 million non-recourse credit facility provided by Prospect Capital Corporation. These two new non-recourse credit facilities will be supported by the cash flows of the Phase 1 deployment and the Company's digital cinema servicing business. In October 2013, the Company entered into a credit facility led by SociÉtÉ GÉnÉrale, New York Branch where the Company borrowed term loans of $25.0 million and revolving loans of up to $30.0 million, of which $15.0 million were drawn upon in connection with the GVE Acquisition. The credit agreement will be supported by the cash flows of the Company's media library, acquired in connection with the GVE Acquisition.



As of December 31, 2013, we had working capital, defined as current assets less current liabilities, of $8.7 million and cash and cash equivalents and restricted cash totaling $25.6 million.

Operating activities provided net cash of $23.6 million and $24.0 million for the nine months ended December 31, 2013 and 2012, respectively. While the Company expects to recover initial investments in movie acquisition in the next fiscal year, cash flows from VPFs are expected to remain consistent with the current fiscal year. Generally, changes in accounts receivable from our studio customers and others is a large component of operating cash flow and will vary based on the seasonality of movie release schedules by the major studios. The CEG business differs slightly from our deployment business as we will continue to build receivables, the amount of which will depend upon the success of the theatrical releases, through the end of this fiscal year which the Company expects to collect upon during the first quarter of the next fiscal year. Generally, the Company makes advances towards theatrical releases and expects to recover the initial expenditures within six to twelve months. CEG also generates additional operating cash flows during the Company's fiscal third and fourth quarter resulting from holiday revenues and distributes royalties from such revenues in the subsequent one to two fiscal quarters. The changes in the Company's trade accounts payable is also a significant factor, but the Company does not anticipate major changes in payables activity. The Company also has non-cash expense fluctuations, primarily resulting from the change in the fair value of interest rate derivative arrangements. We expect operating activities to continue to be a positive source of cash.



Investing activities used net cash of $50.2 million and $0.4 million for the nine months ended December 31, 2013 and 2012, respectively. The increase is principally due to the GVE Acquisition which occurred in October 2013.

45 -------------------------------------------------------------------------------- Financing activities provided net cash of $32.0 million and used $24.2 million for the nine months ended December 31, 2013 and 2012 respectively. Proceeds from the issuance of the Cinedigm Credit Facility in October 2013 and issuances of Class A Common Stock during July 2013 and October 2013 more than offset normal principal reduction of notes payables of during the nine months ended March 31, 2013. Financing activities are expected to continue using the net cash generated from the Phase 1 and Phase 2 DC operations, primarily for principal repayments on the 2013 Term Loans, 2013 Prospect Loan, the Cinedigm Credit Facility and other existing debt facilities. We have contractual obligations that include long-term debt consisting of notes payable, credit facilities, non-cancelable long-term capital lease obligations for the Pavilion Theatre, capital leases for information technology equipment and other various computer related equipment, non-cancelable operating leases consisting of real estate leases, and minimum guaranteed obligations under theatre advertising agreements with exhibitors for displaying cinema advertising. The capital lease obligation of the Pavilion Theatre is paid by an unrelated third party, although Cinedigm remains the primary lessee and would be obligated to pay if the unrelated third party were to default on its rental payment obligations.



The following table summarizes our significant contractual obligations as of December 31, 2013:

Payments Due Contractual Obligations ($ in 2015 & 2017 & thousands) Total 2014 2016 2018 Thereafter Long-term recourse debt (1) 44,775 $ 18,275$ 21,500 500 $ 5,000 $ - Long-term non-recourse debt (2) 222,111 34,092 64,060 40,462 83,497



Capital lease obligations (3) 6,217 609 1,315

1,253 3,040 Debt-related obligations, principal $ 273,103$ 52,976$ 86,875$ 46,715$ 86,537



Interest on recourse debt (1) 5,409 $ 1,835$ 2,750

$ 824 $ - Interest on non-recourse debt (2) 73,339 12,618 22,021 18,456 20,244



Interest on capital leases (3) 5,224 941 1,695

1,384 1,204 Total interest $ 83,972$ 15,394$ 26,466$ 20,664$ 21,448 Total debt-related obligations $ 357,075$ 68,370$ 113,341$ 67,379$ 107,985 Total non-recourse debt including interest $ 295,450$ 46,710$ 86,081$ 58,918$ 103,741 Operating lease obligations (4) $ 2,241$ 1,151$ 888$ 202 $ - (1) Recourse debt includes the Cinedigm Term Loans, Cinedigm Revolving Loans and the 2013 Notes. (2) 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, which is collateral for the debt. The 2013 Term Loans are not guaranteed by the Company or its other subsidiaries, other than Phase



1 DC and CDF I, the 2013 Prospect Loan is not guaranteed by the Company or

its other subsidiaries, other than Phase 1 DC and DC Holdings LLC and the

KBC Facilities are not guaranteed by the Company or its other subsidiaries, other than Phase 2 DC.



(3) Represents the capital lease and capital lease interest for the Pavilion

Theatre and capital leases on information technology equipment. The

Company has remained the primary obligor on the Pavilion capital lease,

and therefore, the capital lease obligation and related assets under the

capital lease remain on the Company's condensed consolidated financial

statements as of December 31, 2013. The Company has, however, entered into

a sub-lease agreement with the unrelated third party purchaser which pays the capital lease and as such, has no continuing involvement in the operation of the Pavilion Theatre. This capital lease was previously included in discontinued operations. (4) Includes the remaining operating lease agreement for one IDC lease now operated and paid for by FiberMedia, consisting of unrelated third



parties. FiberMedia currently pays the lease directly to the landlord and

the Company will attempt to obtain landlord consent to assign the facility

lease to FiberMedia. Until such landlord consent is obtained, the Company

will remain as the lessee.

We may continue to generate net losses for the foreseeable future primarily due to depreciation and amortization, interest on the 2013 Term Loans, 2013 Prospect Loan and Cinedigm Credit Agreement, software development, marketing and promotional activities and content acquisition and marketing costs. Certain of these costs, including costs of software development and marketing and promotional activities, could be reduced if necessary. The restrictions imposed by the 2013 Term Loans and 2013 Prospect Loan may limit our ability to obtain financing, make it more difficult to satisfy our debt obligations or require us to dedicate a 46 -------------------------------------------------------------------------------- substantial portion of our cash flow to payments on our existing debt obligations. The 2013 Prospect Loan requires certain screen turn performance from Phase 1 DC and Phase 2 DC. While such restrictions may reduce the availability of our cash flow to fund working capital, capital expenditures and other corporate requirements, we do not have similar restrictions imposed upon our Software and CEG businesses. We may seek to raise additional capital for strategic acquisitions or working capital as necessary. Failure to generate additional revenues, raise additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations or liquidity. Seasonality Revenues from our Phase I Deployment and Phase II Deployment segments 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. 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. CEG experiences significant seasonality with revenues and EBITDA concentrated in the December and March quarters due to the impact of the winter holiday season on sales.



Off-balance sheet arrangements

We are not a party to any off-balance sheet arrangements, other than operating leases in the ordinary course of business, which are disclosed above in the table of our significant contractual obligations, and Holdings. In addition, as discussed further in Note 2 to the Consolidated Financial Statements, the Company holds a 100% equity interest in Holdings, which is an unconsolidated variable interest entity ("VIE"), which wholly owns Cinedigm Digital Funding 2, LLC; however, the Company is not the primary beneficiary of the VIE.



Impact of Inflation

The impact of inflation on our operations has not been significant to date. However, there can be no assurance that a high rate of inflation in the future would not have an adverse impact on our operating results.


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