1. Cinedigm’s current market valuation is depressed since at the current valuation the Company’s legacy digital cinema business will provide the necessary margin of safety and investors will receive the Company’s most attractive digital network business segment for free: The legacy digital cinema (deployment segment) will continue to provide steady free cash flows for the next couple of years. The fair value of the cash flows net off the non-recourse debt tied to the cash flows is estimated to be worth between $50-$100mm (or up to 110% of current market cap). With the legacy deployment segment alone worth more than the current trading valuation, investors will receive the following for free:
   • Cinedigm’s content and distribution business, which is the Company’s growth segment that has the potential to be worth multiple times over its current market valuation
   • Approx. $267mm of NOLs; currently the market ascribes no value to the NOLs.
   • Potential $5 - $20mm in litigation proceedings from settlement with Gaiam in the near future; claims are worth 10% - 50% of current market capitalization.
2. Digital work has substantial growth potential: Company has recently entered into the digital network business to build narrowcast Over-the-Top (OTT) Channels similar of Netflix and Hulu. The OTT channels are not directly competing with Netflix or Hulu but are aimed to deliver specific content to targeted audience. Cinedigm has the infrastructure, content distribution experience, relationships with distributors and producers, and the potential to build brand relationships to attract customers and launch successful channels.
   • Company plans to launch 3-4 channels per year. The Company has already launched two successful channels (Docurama and CONtv) and plans to launch two additional channels by end of the year.
   • A moderately successful channel has the potential to increase EBITDA by $10mm+ implying that a single moderately successful channel would double the current market valuation.
3. Scrupulous watch from activist investors: Activist investor Ronald Chez (top investor with 8% share) and Zvi Rhine of Sabra Capital (#8 investor with approx. 2% stake) have been actively campaigning against the management to cut cost, restructure the Board, and increase the current share repurchase program. More recently (June 30th), AOF Management filed Schedule 13D disclosing the funds 5.2% ownership position (#2 holder) and joined Ron and Sabra in the activist campaign. Most of the issues are well summarized in the letter [Link] by Sabra Capital to the Company on May 12th. The activist campaign was recently settled (July 31st) with four new independent board members being added to the Board, including Zvi Rhine and Patrick O’Brien (Director of Board of Merriman Holdings, of which Ronald Chez is a co-chairman). Ron Chez will now act as strategic advisor to the Company to advice on financings and capital structure related issues. The recent development should see material changes in the near future including:
• Additional share repurchase - I believe that the Company will announce $10mm of additional share repurchase in the near future
• Increased cost cutting and cost scrutiny on any new investments.
• Debt restructuring to reduce ongoing interest expense. The current $68mm of Prospect Capital debt has 13.5% interest rate or approx. $9.1mm of interest expense per year. The Prospect Capital debt is currently callable and has potential to be refinanced at attractive levels which could result in material interest expense savings for the Company
• Activist investors have advocated to explore strategic sale of the Company or spinoff the deployment business. The Company was recently rumored to have hired Evolution Media Capital to assist in the handling of potential offers. Cinedigm is said to have received interest from both domestic and international entertainment companies looking to bolster their digital strategies

1. Too many financing mistakes by the Management in the last two years:
• Gaiam Vivendi Entertainment (GVE) Acquisition: Cinedigm acquired GVE (Gaiam’s Entertainment unit) for $51.5mm in Oct 2013. At the time of the acquisition, the Company touted that the acquisition would be transformational and would generated $15mm+ in EBITDA. The actual revenues and earnings turned out to be much less. Soon after, the Company filed a lawsuit against Gaiam for $30mm in claims for materially breaching the financial details within GVE, including working capital
• Convertible bond financing: On April 23, 2015, the Company issued a $64mm convertible bond. The stock dropped 23% with the offering as existing equity investors disliked the dilutive nature of the offering and the fact that they did not get a chance participate in the offering to protect their stake
2. Additional negative pressure on the stock due to technical reasons:
• Convertible hedge fund activity: Short interest in the stock has built up post the convertible offering from technical hedge funds participating in the convert. Hedge funds participating in the convert are required to hedge their equity exposure by shorting the stock to maintain a delta neutral position (convert hedge funds do not hold an equity view on the stock and but trade the convert to play the cheapness in the volatility or the credit of the company)
  • Short interest has increased from 2.2mm before the convertible offering to the current 5.2mm shares (31% of float)
• Sub one dollar price stock tag: Current stock price is below a dollar. Most mutual funds and other investment firms probably cannot hold stocks below $1 by their investment charter. Additionally, the liquidity in the stock is low (the stock trades less than $1mm a day).
• Potential delisting from the Nasdaq Exchange: To add insult to injury, Nasdaq has sent a notice to the Company stating that the stock would be delisted from the exchange on December 7th, if the stock does not trade above $1 for at least 10 days
  • This is not a major consideration, as the Company can do a reverse stock split to mitigate the issue
3. Large amount of debt on the balance sheet obscuring the true liabilities of the Company: On screen, the Company looks highly levered with approx. $250mm of debt on its balance sheet compared to the $40mm in equity value. The fact is that, approx. 65% or $147mm of the debt is non-recourse debt tied to its deployment segment. Cash flows from the deployment segment can be estimated with reasonable certainty and the fair value estimated is between $50 - $100mm above the $147mm non-recourse debt.

• Phase1: Based on initial agreement in 2005 with Christie Digital Systems to install up to 4,000 systems 3,724 cinemas installed to date and have agreements with sixteen theatrical exhibitors
  • Cinedigm will retain ownership of the systems and the residual cash flows related to the systems after the repayment of all financing at the expiration of agreement (10 years from installation)
  • On average, VPF revenue has been approx. $50mm per year with more than 97% following down as free cash from operations. The revenues will decrease post 2016 since the 10 year contract will start expiring
  • Additionally, the Company collects service fee of 7.5% of the VPFs generated for providing additional services that include monitoring, billing, collection, verification and other management services
• Phase2: Formed in 2007 for administration up to 10,000 systems 8,904 systems installed to date
  • Of the 8,904, approx. 75% of the systems are installed under Exhibitor- Buyer Structure for which the Company only receives servicing revenues
  • For remaining systems (systems not covered under the Exhibitor-Buyer Structure), the current VPF per screen is lower than the Phase1 VPF per screen collected since most of the revenues were front loaded (VPF per screen going forward will remain constant until the agreements expire)
  • Company retains no ownership of the residual cash flows and equipment after the completion of cost recoupment and at the expiration of the agreements
  • Fees are collected for the max of 10years from installment or until when such cost is recouped
  • Servicing fees is 10% of the VPFs generated, higher than the 7.5% collected under Phase1
  • The Company records no debt, PPE, financing costs or depreciation in connection with the systems covered under the Exhibitor-Buyer Structure

Content and Entertainment Group (CEG): The segment includes distribution and acquisition of independent entertainment content. The segment can be further divided into two subgroups i) Home Entertainment and Theatrical releases, and ii) Digital network. Home entertainment business is currently a $22bln market in the US and growing at 8%+ rate. Physical distribution (DVDs, CDs, etc) that makes up approx. 60% of the current market spent is in a decline while digital (video-on-demand and subscription streaming) are growing rapidly. Cinedigm currently generates most of its revenues from physical sales but has a massive content library which it intends to leverage to develop its digital network business and boost revenues and earnings.

• Involves collaboration with producers and content owners to market, source, curate, and distribute content via different platforms including physical and digital platforms. Physical platforms include DVD, Blu-Ray Discs, etc. Currently approx. 92% of the sales are generated from physical distribution. Digital platforms include iTunes, Amazon Prime, Netflix, Xbox, PlayStation, and cable video- on- demand (VOD)
• Cinedigm’s library contains more than 52,000 titles of films & TV episodes
• According to the Company, Cinedigm is the 8th largest content distributor by unit; Distributors above Cinedigm include Warner Bros, 20th century fox, Universal, Disney, Sony, Lionsgate and Paramount
• The Company direct relationships with thousands of physical retail storefronts and digital platforms, including Wal-Mart, Target, iTunes, Netflix, and Amazon, and national cable TV VOD platforms
• Company distribute products for major brands such as the Discovery Networks, National Geographic and Scholastic

• Cinedigm is currently one of the largest distributor of independent content in all major platforms
• Company has a large and expanding independent content library (more than 52,000 titles), which it can leverage to curate channel contents
• Good relationships with many independent studios of high profile content providers
• Expertise in technology and content management
• Ability to partner with branded players like Wizard World, Dove Entertainment. Partnership not only provides loyal customers base but also helps reduce initial investment risk
• The Company already has two channels Documrama and CONtv. In a short period, the Company has managed to generate over 1mm+ app installations. Docurama, Cinedigm’s first channel, was launched on an experimental basis without any real marketing effort or brand partnership but the channel has still managed to get good traction.
• CONtv, on the other hand, was launched in partnership with Wizard World. Wizard World is well known for organizing Comic Cons in the US. Last year Wizard World organized about 16 conventions in different cities with 400,000+ attendees and 1.1million email database. CONtv currently has over 400k+ app installations in just over 4 months of launch. Both CONtv and Docurama appear on the top 50 most popular channels on Roku, off the more than 700 channels available on Roku.

1. New Video Group Inc: In April 2012, Cinedigm acquired New Video Group, an independent home entertainment distributor of physical and digital content for more than 500 independent rights holders
   • Holds licenses for more than 4,000 feature films and 6,000 television episodes
   • $14mm in upfront consideration, plus additional earn out potential of up to $6mm over three years tied to the future financial results ($10mm in cash from balance sheet and rest in shares)
   • The $14 million upfront purchase price represented approx. 5.6x New Video's 2011 adjusted EBITDA
2. Gaiam Vivendi Entertainment (GVE): In Oct 2013, Cinedigm acquired GVE, a division of Gaiam America’s entertainment unit
   • Maintains exclusive rights with number of independent studios/content providers. Largest aggregator and distributor of independent content and the fourth largest distributor of non-theatrical DVD's and Blu-Ray discs in the U.S.
   • GVE provides sales, marketing and distribution services to many of the home entertainment industry's most prestigious brands, including Discovery Communications, Hallmark Channel, NFL Films, National Geographic, Marvel Animation, Shout Factory, Televisa, and World Wrestling Entertainment.
   • Acquired GVE for $51.5 million, representing approx. 3.3x GVE's 2013 estimated EBITDA
   • The accretive acquisition was expected to add more than $15 million of annual EBITDA

• Cinedigm is seeking more than $30 million in damages, in addition to unspecified compensatory damages, attorneys’ fees, costs and interest, resulting from the acquisition
• Cinedigm alleges Gaiam materially breached financial details within GVE, including working capital. It claims Gaiam engaged in “fraud and tortious [litigious] acts” in connection with the sale, including the non-collection of accounts receivables, transfer of cash from collected accounts receivables, and mishandling post-closing collections, among other charges Cinedigm claims Gaiam did not disclose, or hid, information about the real financial condition of the division. It claims that Gaiam hid the fact it would not be able to hit a sales benchmark related to WWE Entertainment, forcing Cinedigm to pay millions to WWE after the deal closed 
• In August 2014, Cinedigm initiated mediation with Gaiam. On January 2015, Gaiam and the Company participated in a two- day mediation to determine whether the parties’ disputes could be resolved informally without arbitration. The mediation was not successful, and Cinedigm decided are pursuing its claims against Gaiam through arbitration. Although Gaiam initially filed an appeal against the arbitration, the appeal has been dismissed. The parties are now proceeding with the Working Capital Arbitration and it is expected to receive an initial decision on the working capital claims shortly.
• In addition, the parties are proceeding with their respective non- working capital claims in the AAA Arbitration.
• Gaiam disputes Cinedigm’s allegations and filed its own arbitration claims seeking working capital reimbursement from Cinedigm of more than $8 million

1. Docurama, the first OTT Channel, was launched in May 2014
   • Revenue model based on advertising- supported video on demand service (AVOD)
   • Available across most internet connected devices
   • 800+ documentary films available for download
   • Approx. 600k installs to date
2. CONtv – launched in March 2015
   • Brand partnership with Wizard World, Inc. (company that organizes Comic Con conventions throughout the country)
   • Freemium business model with both AVOD and SVOD (subscription video on demand offering)
   • Over 2,500hours of content available (approx. 40% original) designed to cater towards gaming based fans
   • Screening hundreds of hours of Comic Con panels, contests and behind the scenes footage direct from Comic Cons
3. Dove Tv: To be launched in mid September
   • Partnership with Dove foundation to provide faith based content and targeted towards family and kids 
   • Dove has access to 1.5mm monthly unique web visitors and 80k households subscribing to the Dove-approved list of films
   • Cinedigm will own and operate the channel, with 20% profit sharing with Dove Foundation
4. TV4 - At least one new OTT channel with brand partnership with Tv4:
   • First channel to be launched this summer and aimed at children, from preschoolers to tweens
   • The co-owned channel will be distributed through TV4's premium online video distribution platform, covering 100 million US households and over 300 million devices
   • The content for the new OTT network will be drawn from the Cinedigm library and then curated by TV4, which plans to add its own new networks to the partnership as well