Item 1. Business
ITEM 1. BUSINESS
OVERVIEW
Cinedigm Corp. was incorporated in Delaware on March 31, 2000 (“Cinedigm”,
“us”, “our”, and “Company” refers to Cinedigm Corp. and its subsidiaries unless the context otherwise
requires). Cinedigm is (i) a leading independent distributor and aggregator of independent music, television, and other short form 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 2,843 domestic and several international countries.
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) and 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 obtains high-growth distribution territories globally,
the Company expects each of these channels to generate high-margin 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 has rights to 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 operates channels 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, Bloody Disgusting, DMR, 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 six accretive acquisitions
between October 2020 and March 31, 2022 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; and
● Leveraging its proprietary tech platform (Matchpoint TM ), which allows for on-boarding multiple acquisitions concurrently.
Some of the evolving consumer habits that are driving consumption of
streaming and OTT content include:
● Continued “cord-cutting” resulting in an increase 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
● Growth 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 :
o Dramatically expanding streaming content business through its Matchpoint™ platform,
o Launching and scaling our channel portfolio – including the building of an umbrella streaming service encompassing all of the
Company’s brands.
o Accelerating the Company’s device and platform reach, which has
exceeded 700 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.
o 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 :
o 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 acquisition was consummated on June 14, 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 “Metaverse 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 A Metaverse Company, a
leading Chinese entertainment company (“Metaverse”), formerly Starrise Media Holdings
Limited, and related party, to buy from them an aggregate of 410,901,000 outstanding Metaverse ordinary shares (the “Metaverse
Share Acquisition”). On February 14, 2020, the Company purchased 162,162,162 of the Metaverse 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 Metaverse Stock Purchase Agreement, terminated its obligation to purchase Metaverse 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 Metaverse Stock Purchase Agreement”) with five (5) shareholders of Metaverse - 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 Metaverse 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 Metaverse Share Acquisition”). On April 15, 2020,
the April Metaverse Share Acquisition was consummated and this transaction was also recorded as an equity investment in Metaverse. 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.
As of March 31, 2022, the market value of Cinedigm’s ownership
in A Metaverse Company (“Metaverse”) ordinary shares was approximately $7.03 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 April 4, 2022, the Company received a letter from the Nasdaq indicating
that the Company no longer met the Bid Price Rule.
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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 slowly re-opened with limited capacities through March 31, 2022. The majority of major studios resumed blockbuster
films releases during the year which showed an encouraging return of consumer confidence for the theatrical experience. As vaccines became
readily available and COVID cases decreased, major studios resumed theatrical releases and there was an uptick in box office revenue during
the period ending March 31, 2022.
Longer term, there had been speculation that the future of theatrical
release strategies could change as a result of Major Studios being able to release movies simultaneously in theatres and on streaming
platforms during the pandemic. If fewer movies are released theatrically, a shift to digital viewing reduces revenue opportunities for
virtual print fees and sales of digital cinema equipment. While Studios are still in an experimentation phase regarding theatrical/streaming
strategies we are encouraged by the success of recent exclusive theatrical releases such as Sony’s ‘Spider-Man: No Way Home’,
which became the first movie since the pandemic to hit $1 billion globally with no current plans to premiere on any streaming platforms.
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 encompasses 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:
Our Subscription Video on Demand (SVOD) Services consist of:
● 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; and
● Screambox – a horror streaming service acquired in February 2021.
Our Ad-Supported Video on Demand (AVOD) or Free Ad Supported Streaming
Television Channels consist of:
● Dove Channel – a faith and family linear channel launched in 2017;
● 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;
● WhistleTV – a sports lifestyle channel launched in 2020, ended December 31, 2021;
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● 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; and
● Lone Star – a classic western channel and on demand platform acquired
in 2020;
● Real Madrid TV – a sports and lifestyle linear channel launched
in 2021;
● The Only Way is Essex – a British reality and content linear
channel launched in 2021;
● El Rey – a Latino centric linear channel launched in 2021;
● The Country Network – a country music lifestyle linear channel
launched in 2021;
● So…Real – a reality TV and documentary enthusiast linear
channel launched in 2020;
● Asian Crush – a pan-Asian culture and lifestyle linear channel
acquired in March 2022;
● Retro Crush – a classic anime linear channel acquired in March
2022;
● Cocoro – a kid and family centric Asian linear channel acquired
in March 2022;
● KMTV – a Korean-pop linear channel acquired in March 2022;
● Yuyu – a general programming adjunct linear channel acquired
in March 2022;
● Midnight Pulp – a horror, thriller and cult linear channel acquired
in March 2022.
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 2022:
● 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 fiscal year 2021, 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;
and
● 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 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 scaled 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 (collectively, our “Streaming” business)
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.
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 third 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, 2022, two customers, Amazon
and Distribution Solutions each represented 18% and 25% respectively of CEG’s revenues and approximately 6% and 8%, respectively,
of our consolidated revenues. For the fiscal year ended March 31, 2021, Amazon and Distribution Solutions
represented 15% and 22% respectively of CEG’s revenues and approximately 9% and 13%, respectively, 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 are Chicken Soup for the Soul Entertainment, Inc. and RLI/American Multi-Cinema, Inc.
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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 696 Systems (as defined below)
installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 2,147 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, 2022, Phase I Deployment had 696 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, 2022, Phase II Deployment had 2,147 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. 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, 2022, all of our
696 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, 2022. We expect to continue to earn such ancillary revenue from the cinema equipment segment through December of 2022;
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 906 digital projection Systems for an aggregate sales price of approximately $6.1 million
during the year ended March 31, 2022.
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, 2022, our Phase II Deployment division has master license agreements with
106 exhibitors covering 2,147 screens, whereby the exhibitors agreed to install our Systems. As of March 31, 2022, we had 2,147 Phase
2 DC Systems installed, including 839 screens under the exhibitor-buyer structure (“Exhibitor-Buyer”), and 1,308 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.
As of March 31, 2022, the Company has certain booked liabilities in
relation to exhibitors that have received payments that were permitted under the Agreements with Exhibitors. The administrative services
related to the Company give rise to variable consideration and are constrained until the uncertainty associated with the variable consideration
is resolved. As of March 31 2022, most of the Company’s agreements with studios and with exhibitors in relation to VPFs have either
reached the end of the term or are close to termination, with some of the agreements reaching the end of any audit rights.
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 the motion picture exhibition industry 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 696 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 2,147 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 as of March 31, 2022, 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, 2022 we had 146 employees, with 6 part-time, 134 full-time
and 6 temporaries, of which 11 are in sales and marketing, 61 are in operations, and 74 are in executive, finance, technology and administrative
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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