Item 1. Business
ITEM
1. BUSINESS
OVERVIEW
Cinedigm
Corp. was incorporated in Delaware on March 31, 2000 (“Cinedigm”, and collectively with its subsidiaries, the “Company”).
Cinedigm is (i) a leading independent distributor and aggregator of independent film and television content rights distributed across
digital, over-the-top (OTT), physical, and home and mobile entertainment platforms as well as (ii) a leading servicer of digital cinema
assets on over 6,200 domestic and foreign movie screens.
Over
the past several years, Cinedigm has transformed itself from being a digital cinema equipment and physical content distributor to a leading
independent streaming company with the planned phasing out of its legacy projector division.
Cinedigm is a leading independent streaming entertainment
company serving global enthusiast fan bases. Since our inception, we have played a significant role in the digital distribution revolution
that continues to transform the media and entertainment landscape. Cinedigm delivers high-quality, curated content through subscription
video on demand (SVOD), dedicated ad-supported (AVOD) and free ad-supported streaming linear (FAST) channels.
Cinedigm’s broad portfolio enables the Company
to achieve significant market share on every key consumer streaming device and platform. As the Company achieves distribution to multiple,
high-growth territories on a global basis, the Company expects each of these channels will generate high-margin annual revenues to Cinedigm.
As its channel portfolio has grown, the Company’s viewership and subscription metrics have grown significantly. The Company currently
reaches over 23.8 million streaming channel monthly active viewers. The Company controls a library of over 33,000 film & TV assets,
16 different enthusiast streaming brands across 19 live streaming channels, and over 640,000 subscribers (SVOD) reaching 900 million unique
streaming devices globally.
Cinedigm has been a technological pioneer over
its history and continues to be one today. Through its world-class, proprietary streaming technology, the Company has become a partner
of choice for content producers, rightsholders, and major media companies seeking to monetize their content in the streaming ecosystem.
The Company’s streaming technology platform, known as Matchpoint TM , is a software-as-a-service platform which automates
the distribution of streaming content and OTT channels. The Company has a long legacy in using technology to transform the entertainment
industry, and played a pioneering role in transitioning over 11,000 movie screens from traditional analog film prints to digital distribution.
Cinedigm
is a leading distributor of independent film and television content. The Company operates a growing portfolio of owned and operated over-the-top
(“OTT”) streaming entertainment channels. The Company distributes content for major brands such as Hallmark, Televisa, ITV,
Nelvana, ZDF, Konami, NFL, and NHL as well as leading international and domestic content creators, movie producers, television producers
and other short form digital content producers. Cinedigm collaborates with producers, major brands and other IP owners to market, source,
curate and distribute quality content to targeted audiences through (i) existing and emerging digital home entertainment platforms, including
Apple, Amazon Prime, Netflix, Hulu, Xbox, Tubi, PlutoTV, Vudu and cable/satellite video-on-demand (“VOD”) and (ii) packaged
distribution of DVD and Blu-ray discs to wholesalers and retailers with sales coverage to over 48,000 retail storefronts, including Walmart,
Target, Best Buy and Amazon.
The Company is well positioned in a changing media
and entertainment landscape. Cinedigm is capitalizing on an evolving competitive environment where the top of the streaming industry is
consolidating including competitors such as Netflix, Amazon Prime, Hulu and Disney Plus while Cinedigm has a complimentary offering as
a leading independent distributor with a focus on the enthusiast segment of the market. The company believes the enthusiast segment, focusing
on audiences and genres underserved by the major streamers, will be a significant opportunity on a global basis. Today, the Company operate
properties in numerous specialty sectors, including faith and family, science fiction, horror, kids, and other major segments. Given our
extensive experience in operating and distributing enthusiast content, as well as the Company’s significantly improved financial
position, the Company has begun executing an M&A roll-up strategy with a focus on enthusiast channels, content, and supporting technology.
Over the past two years, the Company has acquired numerous channels and content libraries. The Company is actively focused on integrating
the most recent acquisitions, as well as building and launching a variety of associated critical products, including: Fantawild, Fandor,
The Film Detective, Screambox, Films Around the World and other initiatives driving major technological changes in the entertainment industry.
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The Company will continue to pursue accretive
M&A opportunities in order to grow profitably and fortify its competitive advantage. The Company has completed & integrated four
acquisitions between October 2020 and March 31, 2021 with ongoing active M&A pipeline. As part of its M&A strategy, the Company
is:
● Executing
on roll-up by completing several content related acquisitions enabling monetization,
● Focused
on acquiring higher quality content and streaming channels,
● Exploring
opportunities for new technology and other revenue channels including NFTs, ecommerce, podcasts
and merchandise,
● Leveraging
its proprietary tech platform (Matchpoint TM ), which allows for on-boarding multiple
acquisitions concurrently, and
Some
of the evolving consumer habits that are driving consumption of streaming and OTT content include:
● Continued
“cord-cutting” resulting in rise in SVOD & AVOD migration,
● Consumer
preference towards third party channels and content platforms,
● The
rapid adoption of connected televisions and other dedicated streaming devices,
● A
rapid rise in consumption of ad-based content,
● Increasing
demand for underserved content, and the
● Trend
in youth (kids) media consumption across multiple devices and brands.
The
Company believes it is positioned to deliver sustained profitable growth in the future by executing on several key initiatives:
● Content :
Delivering high-quality, curated content through subscription video on demand (SVOD) and
dedicated ad-supported (AVOD) and free, ad-supported streaming (FAST) channels
● Technology
& Distribution :
○ Dramatically
expanding streaming content business through its Matchpoint™ platform,
○ Launching
and scaling our channel portfolio – including the building of an umbrella streaming
service encompassing all of the company’s brands.
○
Accelerating the Company’s device and platform reach, which has exceeded 900 million consumer devices, and establishing key strategic advantages through partnership deals with connected streaming TV including Samsung, Roku and Vizio, as well as large OEM’s, cable companies and technology platforms including Sinclair Broadcast Group, Samsung, Comcast Xfinity, Roku, Amazon, Vewd and Vizio, and others.
○ Licensing
film and TV content to every key player in OTT streaming ecosystem with Amazon, Apple,
Netflix and Google.
● Audience :
Growing viewership and subscription numbers significantly beyond our current base of more than 23 million viewers to potentially hundreds
of millions of global viewers across billions of connected devices.
● Financial
Performance/Metrics :
○ Paying
down debt and enhancing liquidity,
○ Driving
EBITDA through incremental revenue growth from new channel launches, expansion of distribution,
improved monetization and partnerships, and continuous efforts on cost mitigation.
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The
Company announced its acquisition of FoundationTV on March 8, 2021, which was consummated on June 9, 2021, and the formation of Cinedigm
India, its wholly-owned subsidiary formed to house FoundationTV. In addition to powering Cinedigm’s portfolio of streaming channels
and digital video distribution business, the new division will allow Cinedigm to expand their global streaming footprint. The Company
is developing a channel umbrella with global reach, which is expected to further enable growth and profitability.
As
previously announced, on December 27, 2019, the Company entered into, and on February 14, 2020 amended, (see Note 2 - Summary of Significant
Accounting Policies ), a stock purchase agreement (as so amended, the “Stock Purchase Agreement”) with BeiTai Investment
LP (“BeiTai”), a related party for accounting purposes of Cinedigm, and Aim Right Ventures Limited (“Aim Right”),
two shareholders of Starrise Media Holdings Limited, a leading Chinese entertainment company (“Starrise”), and related party,
to buy from them an aggregate of 410,901,000 outstanding Starrise ordinary shares (the “Share Acquisition”). On February
14, 2020, the Company purchased 162,162,162 of the Starrise ordinary shares from BeiTai and issued to BeiTai 21,646,604 shares of its
Class A common stock in consideration. On April 10, 2020, the Company, in accordance with the terms of the Stock Purchase Agreement,
terminated its obligation to purchase Starrise ordinary shares from Aim Right under the December 27, 2019 stock purchase agreement.
On
April 10, 2020, the Company entered into another stock purchase agreement (the “April Stock Purchase Agreement”) with five
(5) shareholders of Starrise-Bison Global Investment SPC - Bison Global No. 1 SP, Huatai Investment LP, Antai Investment LP, Mingtai
Investment LP and Shangtai Asset Management LP, to buy an aggregate of 223,380,000 outstanding Starrise ordinary shares from them and
for the Company to issue to them an aggregate of 29,855,081 shares of its Class A common stock in consideration therefor (the “April
Share Acquisition”). On April 15, 2020, the April Share Acquisition was consummated and this transaction was also recorded as an
equity investment in Starrise. Mingtai is indirectly managed by a subsidiary BFGL, which is controlled by Peixin Xu, one of our directors.
BFGL’s subsidiary acts as a manager of Bison Global. Shangtai and Hutai are indirectly managed by a subsidiary of BFGL. Peixin
Xu controls the manager of the general partner of Antai.
Starrise’s ordinary shares (HK 1616) are listed on the main
board of the Stock Exchange of Hong Kong Limited. Based on the closing price of HKD 0.15 per share on July 23, 2021, calculated at an
exchange rate of $7.7698 Hong Kong Dollars to 1 US dollar, Cinedigm’s ownership in Starrise ordinary shares was approximately
$7.0 million.
On
October 11, 2019, the Company received a letter from the Listing Qualifications staff of The Nasdaq Stock Market LLC (“Nasdaq”)
indicating that, based upon the closing bid price of the Company’s Class A common stock, par value $0.001 per share (the “Common
Stock”), for the prior 30 consecutive business days, the Company no longer met the requirement to maintain a minimum bid price
of $1 per share (the “Bid Price Rule”), as set forth in Nasdaq Listing Rule 5450(a)(1).
On
December 18, 2019, the Company received a letter from Nasdaq indicating that the Company no longer met the requirement to maintain a
minimum market value of publicly held shares of $15,000,000 (the “MVPHS Rule”), as set forth in Nasdaq Listing Rule 5450(b)(3)(C).
On
April 17, 2020, the Company received notice from Nasdaq that it has suspended, effective April 16, 2020 and until June 30, 2020, relevant
grace periods to regain compliance with the Bid Price Rule and the MVPHS Rule due to the global market impact caused by COVID-19. Specifically,
(x) no delisting would occur until July 1, 2020, and any extension to reach compliance with the Bid Price Rule, if granted by the Panel,
would be further extended by the duration of the suspension, and (y) the Company now had until August 29, 2020 to regain compliance with
the MVPHS Rule.
On
May 7, 2020, the Company was notified by Nasdaq that the previously disclosed MVPHS Rule deficiency had been cured, that the Company
was in compliance, and that Nasdaq considered the matter closed.
On
June 17, 2020, the Company was notified by Nasdaq that the previously disclosed Bid Price Rule had been cured and that the Company was
in compliance, and that Nasdaq considered the matter closed.
On
October 5, 2020, the Company received a letter from the Nasdaq indicating that the Company no longer met the Bid Price Rule.
On
February 2, 2021, the Company was notified by Nasdaq that the previously disclosed Bid Price Rule had been cured and that the Company
was in compliance, and that Nasdaq considered the matter closed.
On July 20, 2021, Cinedigm Corp. (the “Company”)
received a notice (the “Notice”) from the Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company is not
in compliance with Nasdaq Listing Rule 5250(c)(1) (“Rule 5250(c)(1)”) because the Company did not timely file its Annual
Report on Form 10-K for the fiscal year ended March 31, 2021 (the “Form 10-K”) with the Securities and Exchange Commission
(the “SEC”). The Notice states that the Company is required to submit a plan to regain compliance with Rule 5250(c)(1) within
60 calendar days from the date of the Notice. If the plan is accepted by Nasdaq, then Nasdaq can grant the Company up to 180 calendar
days from the due date of the Form 10-K to regain compliance. The Notice does not result in the immediate delisting of the Common Stock
from the Nasdaq Global Market. The filing of this Annual Report on Form 10-K satisfies Rule 5250(c)(1).
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Risk
and Uncertainties
The
COVID-19 pandemic and related economic repercussions created significant volatility and uncertainty impacting the Company’s results
for the year. As part of our Content & Entertainment business, the Company sells DVDs and Blu-ray discs at brick-and-mortar stores.
With the closure of non-essential retail stores beginning in the spring of 2020, the sale of physical discs through our retail partners
declined although this was partially offset by digital purchases of physical product. As part of our Cinema Equipment business, the Company
earns revenue when movies are exhibited in theaters. Many movie theaters in the United States closed during the spring of 2020 and remained
closed or re-opened on a limited basis through March 31, 2021. The majority of major studios shifted films out of the fiscal year to
dates when more screens would be available, and consumers felt safe to return to theaters. Films released during the year had box office
results below pre-Covid expectations due to theater closure, limited capacity and new commercial models that permitted viewing day and
date via premium video on demand (“PVOD”) and subscription video on demand (“SVOD”). To the extent films are
not shown in theaters, we do not earn revenue.
Longer
term, there may be a shift in consumer preference towards digital consumption over physical or theatrical viewing. Studios may reduce
their theatrical slates to tentpoles and certain genres releasing other content directly on their own streaming services. This decision
could negatively impact the Company’s ability to license content for the sale of physical product, if those rights are withheld
to create exclusivity to the platform and reduce revenue opportunities for virtual print fees and sales of digital cinema equipment.
While the Company has been encouraged by the pace of mass vaccinations, spikes or the emergence of new variants could require future
closures.
CONTENT
& ENTERTAINMENT
Content
Distribution and our Enthusiast Streaming Channels
Cinedigm
Entertainment Group, or CEG, is a leading independent content distributor in North America. We are unique among most independent distributors
because of our direct relationships with thousands of digital as well as physical retail locations, including Walmart, Target, Apple,
Netflix and Amazon, as well as the national Video on Demand platforms. Our library of films and television episodes encompass award winning
documentaries from Docurama Films®, acclaimed independent films, festival picks and a wide range of content from brand name suppliers,
including Scholastic, NFL, Konami and Hallmark.
Additionally,
we are leveraging our infrastructure, technology, content and distribution expertise to rapidly and cost effectively build and expand
our streaming digital network businesses, which operates as Cinedigm Networks.
The Company currently operates 16 different enthusiast
streaming brands across 19 live streaming channels under a wide array of business models:
Subscription
Video on Demand (SVOD) Services:
● Docurama
– a documentary and nonfiction streaming service launched in September 2014
● CONtv
– a fandom-centric service focused on comics, genre films and geek culture, launched
in March 2015
● Dove
Channel – a faith and family entertainment service launched in August 2015
● Viewster
Anime – a Japanese Anime streaming service acquired in February, 2018
● Fandor
– an independent film streaming service, acquired in January 2021.
● Screambox,
a horror streaming service acquired in February 2021
Ad-Supported
Video on Demand (AVOD) or Free Ad Supported Streaming Television Channels:
● Dove
Channel – a faith and family linear channel launched in 2017
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● Docurama
– a documentary and nonfiction linear channel launched in 2018
● CONtv
– a fandom-centric linear channel launched in 2018
● Comedy
Dynamics – a comedy linear channel launched in 2019
● The
Bob Ross Channel, a lifestyle linear channel launched in 2020
● MyTime,
a women’s entertainment linear channel, launched in 2020
● Gametoon
– an esports news and lifestyle linear channel launched in 2020
● Fashionbox
– a fashion lifestyle linear channel launched in 2020
● WhistleTV
– a sports lifestyle channel launched in 2020
● CONtv
Anime, an anime linear channel launched in 2020
● Bloody
Disgusting TV a horror linear channel launched in 2020
● The
Film Detective – a classic film linear channel and on demand platform acquired in 2020
● Lone
star – a classic western channel and on demand platform acquired in 2020
From time to time, the Company will announce channel
development deals with a variety of media companies. The timeline for planning and launching a channel varies from months to years and
is also dependent on carriage conversations with a wide array of platforms and distributors. We announced three channels in 2020 that
remain in development through 2021:
● LIVX,
a music and entertainment channel
● Party
Crashers, a political news channel
● AudPop,
a short form entertainment channel
The digital channels market is a nascent industry,
and from time to time, the Company will cease operating or distributing channels that do not find adequate audiences or meet the needs
of platforms or audiences. In the prior fiscal year, we elected to cease operating or distributing the following channels:
● Bambu,
a Chinese entertainment linear channel owned and operated by Cinedigm
● Hallypop,
a Korean music and lifestyle linear channel distributed by Cinedigm
● CombatGo,
an international combat sports linear channel distributed by Cinedigm
We
distribute our streaming channels in several distinct ways: direct to consumer, through major application platforms such as the web,
iOS, Android, Roku, Apple TV, Amazon Fire, Vizio, and Samsung; and through third party distributors of content on emerging platforms
such as Amazon Prime, Twitch, Xumo and Sling/ Dish, and a wide variety of Smart TV manufacturers globally. Through our rapidly expanding
base of distribution arrangements, Cinedigm has an estimated addressable device footprint of more than 330 million devices in North America
and more than 370 million internationally. Our focus in the near term will be to expand our market position in the FAST and AVOD divisions
of the streaming industry, taking advantage of the shift of more than $70 billion dollars in television advertising revenue to the OTT
market. We believe our scale channel portfolio, our superior capabilities in launching and managing channels at scale, and our strategic
partnerships with key content owners and platforms will provide us a strategic advantage to gain considerable market share in the immediate
future.
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Our
Strategy
The
shift from traditional entertainment consumption to streaming is accelerating. We believe that our large library of film and television
episodes, long-standing relationships with digital platforms, state of the art technologies and years of experience operating and growing
streaming audiences will allow us to continue to build a diversified portfolio of enthusiasts OTT channels that generate recurring revenue
streams from advertising, merchandising and subscriptions. We believe that our success, market leadership and scale will continue to
attract strong brands and media companies who bring name recognition, high-quality film and television content, and strong marketing
support (together our “Streaming” business).
We
believe that we are well positioned to succeed in the streaming channel business for the following key reasons:
●
More than 13 years of experience
as a primary distributor of content to scale 3rd party OTT platforms such as Netflix, Hulu, Amazon Prime, Apple iTunes and more,
and nearly seven years of history operating OTT channels with millions of downloads, hundreds of thousands of registered users, and
hundreds of millions of discrete data points on our customer’s behavior and preferences,
●
The depth and breadth of
our almost 33,000 title film and television episode library,
●
Our digital assets and
deep, long-standing relationships as launch partners that cover the major digital platforms and devices,
●
Our marketing expertise,
●
Our
flexible releasing strategies, which differ from larger entertainment companies that need to protect their legacy businesses,
●
Our
proprietary streaming technology enabling us to operate at scale and at lower operating costs than our competitors, and
●
Our experienced
management team
Intellectual
Property
We
own certain copyrights, trademarks and Internet domain names in connection with the Content & Entertainment business. We view these
proprietary rights as valuable assets. We maintain registrations, where appropriate, to protect them and monitor them on an ongoing basis.
Customers
For
the fiscal year ended March 31, 2021, two customers, Amazon and Walmart each represented 10% or more of CEG’s revenues and
approximately 10% of our consolidated revenues.
Competition
Numerous
companies are engaged in various forms of producing and distributing independent movies and alternative content. These competitors may
have significantly greater financial, marketing and managerial resources than we do, may have generated greater revenue and may be better
known than we are at this time.
Competitors
to our Content & Entertainment and Digital Networks segment is as follows:
●
Entertainment One (eOne) Ltd.
●
IFC Entertainment
●
Lionsgate Entertainment
●
Magnolia Pictures
●
RLJ Entertainment, Inc.
●
AMC Networks
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CINEMA
EQUIPMENT BUSINESS
The
Phase I Deployment and Phase II Deployment operations consist of the following:
Operations
of:
Products
and services provided:
Cinema
Equipment Business
Financing
vehicles and administrators for 3,122 Systems installed nationwide in our first deployment phase (“Phase I Deployment”)
to theatrical exhibitors and for 3,104 Systems installed domestically and internationally in our second deployment phase (“Phase
II Deployment”).
We retain ownership of our digital cinema equipment (the “Systems”) and the residual cash flows related to the Systems
in Phase I Deployment after the after the end of the 10-year deployment payment period.
For
certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment
after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.
The Cinema Equipment Business also provides monitoring, collection, verification and management services to this segment, as well as
to exhibitors who purchase their own equipment, and also collects and disburses VPFs from motion picture studios, and distributors and
ACFs from alternative content providers, movie exhibitors and theatrical exhibitors (collectively, “Services”).
PHASE
I DEPLOYMENT AND PHASE II DEPLOYMENT
In
June 2005, we formed our Phase I Deployment division in order to purchase up to 4,000 Systems under an amended framework agreement with
Christie Digital Systems USA, Inc. (“Christie”). As of March 31, 2021, Phase I Deployment had 3,122 Systems installed.
In
October 2007, we formed our Phase II Deployment division for the administration of up to 10,000 additional Systems. As of March 31,
2021, Phase II Deployment had 3,104 of such Systems installed.
Our Phase I Deployment and Phase II Deployment
divisions own and license Systems to theatrical exhibitors and collect virtual print fees (“VPFs”) from motion picture studios
and distributors, as well as alternative content fees (“ACFs”) from alternative content providers and theatrical exhibitors,
when content is shown on exhibitors’ screens. We have licensed the necessary software and technology solutions to the exhibitor
and have facilitated the industry’s transition from analog (film) to digital cinema. As part of the Phase I Deployment of our Systems,
we have agreements with nine motion picture studios and certain smaller independent studios and exhibitors, allowing us to collect VPFs
and ACFs when content is shown in theatres, in exchange for having facilitated and financed the deployment of Systems. Cinedigm Digital
Funding I, LLC (“Phase 1 DC”) has agreements with 17 theatrical exhibitors that license our Systems in order to show digital
content distributed by the motion picture studios and other providers, including Content & Entertainment, which is described below.
Beginning
in December 2015, certain of our digital cinema equipment began to reach the conclusion of their 10-year deployment payment period with
certain distributors and, therefore, revenues ceased to be recognized on such Systems, related to such distributors. Furthermore, because
the Phase I Deployment installation period ended in November 2007, a majority of the VPF revenue associated with the Phase I Deployment
Systems has ended. As of March 31, 2021, all of our 3,122 systems from the Phase I Deployment phase of our cinema equipment business
segment had ceased to earn a significant portion of VPF revenue from certain major studios, although various other studios, consisting
mostly of small independent studios, continued to pay VPFs through March 31, 2021. We expect to continue to earn such ancillary revenue
from the cinema equipment segment through December of 2021; however, such amounts are expected to be significantly less material to our
consolidated financial statements. The reduction in VPF revenue on cinema equipment business systems approximately coincided with the
conclusion of certain of our non-recourse debt obligations and, therefore, the reduced cash outflows related to such non-recourse debt
obligations partially offset the reduced VPF revenue since November 2017.
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Under
the terms of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through
the end of the term of the licensing agreement, after which time, they have the option to: (1) return the Systems to us; (2) renew their
license agreement for successive one-year terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements,
we have begun, and expect to continue, to pursue the sale of the Systems to such exhibitors. Such sales were as originally contemplated
as the conclusion of the digital cinema deployment plan. Cinedigm completed the sale of approximately 2,177 digital projection Systems
for an aggregate sales price of approximately $6.7 million during the year ended March 31, 2021.
Our Phase II Deployment division has entered into
digital cinema deployment agreements with eight motion picture studios, and certain smaller independent studios and exhibitors, to distribute
digital movie releases to exhibitors equipped with our Systems, for which we and our wholly owned, non-consolidated subsidiary Cinedigm
Digital Funding 2, LLC (“CDF2 Holdings”) earn VPFs. As of March 31, 2021, our Phase II Deployment division has master
license agreements with 102 exhibitors covering 3,104 screens, whereby the exhibitors agreed to install our Systems. As of March 31, 2021,
we had 3,104 Access Digital Phase 2 Corp. (“Phase 2 DC”) Systems installed, including 1,717 screens under the exhibitor-buyer
structure (“Exhibitor-Buyer”), and 1,387 screens covering 23 exhibitors through CDF2.
Exhibitors
paid us an installation fee of up to $2.0 thousand per screen out of the VPFs collected by our Services division. We manage the billing
and collection of VPFs and remit to exhibitors all VPFs collected, less an administrative fee of approximately 10%. For Phase 2 DC Systems
we own and finance on a non-recourse basis, we typically received a similar installation fee of up to $2.0 thousand per screen and an
ongoing administrative fee of approximately 10% of VPFs collected. We have recorded no debt, property and equipment, financing costs
or depreciation in connection with Systems covered under the Exhibitor-Buyer Structure and CDF2 Holdings.
VPFs
are earned pursuant to contracts with movie studios and distributors, whereby amounts are payable to our Phase I and Phase II deployment
businesses according to fixed fee schedules, when movies distributed by studios are displayed in movie theatres using our installed Systems.
One VPF is payable to us upon the initial booking of a movie, for every movie title displayed per System. Therefore, the amount of VPF
revenue that we earn depends on the number of unique movie titles released and displayed using our Systems. Our Phase II Deployment division
earns VPF revenues only for Systems that it owns.
Our
Phase II Deployment agreements with distributors require payment of VPFs for ten years from the date that each system is installed; however,
we 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 us 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,
subject to maximum agreed upon amounts during the four-year roll-out period and thereafter. Furthermore, if cost recoupment occurs before
the end of the eighth contract year, a one-time “cost recoupment bonus” is payable to us by the studios. Cash flows, net
of expenses, received by our Phase II Deployment business, following the achievement of cost recoupment, must be returned to the distributors
on a pro-rata basis. At this time, we cannot estimate the timing or probability of the achievement of cost recoupment.
Customers
No
single Phase I or Phase II customer comprised more than 10% of our consolidated revenue.
Seasonality
Revenues
earned by our Cinema Equipment Business segment 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. The seasonality of motion picture exhibition; however, has
become less pronounced as the motion picture studios are releasing movies somewhat more evenly throughout the year.
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SERVICES
Our
Services division provides monitoring, billing, collection, verification and other management services to Phase 1 DC and Phase 2 DC as
well as to exhibitor-buyers who purchase their own equipment. Our Services division provides such services to the 3,122 screens in the
Phase I Deployment for a monthly service fee equal to 5% of the VPFs earned by Phase 1 DC and an incentive service fee equal to 2.5%
of the VPFs earned by Phase 1 DC. The Services division also provides services to the 3,104 Phase II Systems deployed, for which we typically
receive a monthly fee of approximately 10% of the VPFs earned by Phase 2 DC. The total Phase II service fees are subject to an annual
limitation under the terms of our agreements with motion picture studios and are determined based upon the respective Exhibitor-Buyer
Structure, or CDF2 agreements. Unpaid service fees in any period remain an obligation to Phase 2 DC in the cost recoupment framework.
Such fees are not recognized as income or accrued as an asset on our balance sheet given the uncertainty of the receipt and the timing
thereof as future movie release and bookings are not known. Service fees are accrued and recognized only on deployed Phase II Systems.
As a result, the annual service fee limitation is variable until these fees are paid.
In
February 2013, we (i) assigned to our wholly owned subsidiary, Cinedigm DC Holdings LLC (“DC Holdings”), the right and obligation
to service the digital cinema projection systems from the Phase I Deployment and certain systems that were part of the Phase II Deployment,
(ii) delegated to DC Holdings the right and obligation to service certain other systems that were part of the Phase II Deployment and
(iii) assigned to DC Holdings the right to receive servicing fees from the Phase I and Phase II Deployments. We also transferred to DC
Holdings certain of our operational staff whose responsibilities and activities relate solely to the operation of the servicing business
and to provide DC Holdings with the right to use the supporting software and other intellectual property associated with the operation
of the servicing business.
Our
Services division also has international servicing partnerships in Australia and New Zealand with the Independent Cinema Association
of Australia and serviced 107 screens as of March 31, 2021, at which time we ceased providing servicing to such parties.
Competition
Our
Services division faces limited competition domestically in its digital cinema services business as the major Hollywood movie studios
have only signed digital cinema deployment agreements with five entities, including us, and the deployment period in North America is
now complete. Competitors include: Digital Cinema Implementation Partners (“DCIP”), a joint venture of three large exhibitors
(Regal Entertainment Group, AMC Entertainment Holdings, Inc. and Cinemark Holdings, Inc.) focused on managing the conversions of those
three exhibitors; Sony Digital Cinema, to support the deployment of Sony projection equipment; Christie Digital USA, Inc., to support
the deployment of Christie equipment; and GDC, Inc., to support the deployment of GDC equipment. We have a significantly greater market
share than all other competitors except for the DCIP consortium, which services approximately 18,000 total screens representing its consortium
members.
As
we expand our servicing platform internationally, additional competitors beyond those listed above consist of Arts Alliance, Inc., a
leading digital cinema servicer focused on the European markets, and GDC, as well as other potential local start-ups seeking to service
a specific international market. We typically seek to partner with a leading local entity to combine our efficient servicing infrastructure
and strong studio relationships with the necessary local market expertise and exhibitor relationships.
ENVIRONMENTAL
The
nature of our business does not subject us to environmental laws in any material manner.
EMPLOYEES
As of March 31, 2021, we had 72 employees,
with 4 part-time/temporaries and 68 full-time, of which 18 are in sales and marketing, 23 are in operations, and 31 are in executive,
finance, technology and administration functions.
AVAILABLE
INFORMATION
Our
Internet website address is www.cinedigm.com. We will make available, free of charge at the “Investor Relations - Financial Information”
section of our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements
and all amendments to those reports and statements filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC.
In
addition, the SEC maintains a website that contains reports, proxy and information statements, and other information regarding companies
that file electronically with the Commission. This information is available at www.sec.gov , the SEC’s Public Reference Room
at 100 F Street, NE, Washington, DC 20549 or by calling 1-800-SEC-0330.
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