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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549



FORM 10-K

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED MARCH 25, 2011ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                                 to


Commission file number: 001-34818

RealD Inc.(Exact Name of Registrant as Specified in Its Charter)

Delaware(State or Other Jurisdiction of
Incorporation or Organization)

77-0620426(I.R.S. Employer
Identification No.)


100 N. Crescent Drive, Suite 120
Beverly Hills, California 90210(Address of Principal Executive Offices, Zip code)

(310) 385-4000(Registrant's telephone number, including area code)

Securities
registered pursuant to Section 12(b) of the Act:

Common stock, par value $0.0001 per share

New York Stock Exchange(Title of each class)

(Name of each exchange on which registered)


Securities
registered pursuant to Section 12(g) of the Act:None

Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ý    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes o    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.    o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý (Do not check if a
smaller reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yes o    No ý

The aggregate market value of the common stock held by non-affiliates of the registrant was $490,120,467.45 based on the last reported sale price of
the registrant's common stock on September 24, 2010 (the last business day of the registrant's most recently completed second fiscal quarter) as reported by the New York Stock Exchange ($16.35
per share). As of June 6, 2011, there were 54,168,301 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III
incorporates certain information by reference from the registrant's Proxy Statement for its 2011 Annual Meeting of Stockholders, which will be filed on or before
July 25, 2011. With the exception of the sections of the registrant's 2011 Proxy Statement specifically incorporated herein by reference, the registrant's Proxy Statement for its 2011 Annual
Meeting of Stockholders is not deemed to be filed as part of this Form 10-K.



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Table of Contents

RealD Inc.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED

March 25, 2011

TABLE OF CONTENTS



Page
NumberSpecial Note Regarding Forward-Looking Statements and Other Industry Data

3PART IItem 1.

Business

4Item 1A.

Risk factors

19Item 1B.

Unresolved staff comments

33Item 2.

Properties

33Item 3.

Legal proceedings

33PART IIItem 5.

Market for registrant's common equity, related stockholder matters and issuer purchases of equity securities

34Item 6.

Selected financial data

35Item 7.

Management's discussion and analysis of financial condition and results of operations

40Item 7A.

Quantitative and qualitative disclosures about market risk

65Item 8.

Financial statements and supplementary data

66Item 9.

Changes in and disagreements with accountants on accounting and financial disclosure

102Item 9A.

Controls and procedures

102Item 9B.

Other information

102PART IIIItem 10.

Directors, executive officers and corporate governance

103Item 11.

Executive compensation

103Item 12.

Security ownership of certain beneficial owners and management and related stockholder matters

103Item 13.

Certain relationships and related transactions, and director independence

103Item 14.

Principal accounting fees and services

103PART IVItem 15.

Exhibits and financial statement schedules

103SIGNATURESSignatures

105


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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND
OTHER INDUSTRY DATA

This Annual Report on Form 10-K and the documents incorporated herein by reference contain forward-looking
statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, about our future
expectations, plans or prospects and our business. All statements contained in this Annual Report on Form 10-K, other than statements of historical fact, are forward-looking
statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," "continue" or the negative of these terms or other comparable terminology, but the absence of these words does not necessarily mean that a statement is not forward-looking.
Forward-looking statements include, among other things, statements concerning anticipated future financial and operating performance; RealD's ability to continue to derive substantial revenue from the
licensing of RealD's 3D technologies for use in the motion picture industry, as well as RealD's ability to generate substantial revenue from the licensing of RealD's 3D technologies for use in 3D
consumer electronics; 3D motion picture releases and conversions scheduled for fiscal 2012 ending March 23, 2012 and beyond, their commercial success and consumer preferences; our ability to
increase the number of RealD-enabled screens in domestic and international markets and market share; our ability to supply our solutions to our customers on a timely basis; the progress, timing and
amount of expenses associated with RealD's research and development activities; market and industry trends, including growth in 3D content; and RealD's projected operating results.

Actual
results may differ materially from those discussed in these forward-looking statements due to a number of factors, including the risks set forth in the section entitled "Risk
factors" in Part I, Item 1A of this Annual Report on Form 10-K and elsewhere in this filing. Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and
completeness of these forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this Annual Report on Form 10-K to conform
our prior statements to actual results.

This
Annual Report on Form 10-K also contains estimates and other information concerning our industry, including business segment and growth rates, that we obtained
from industry publications, surveys and forecasts. Unless we otherwise specify, industry and market data is given on a calendar year basis and is current as of December 31, 2010. This
information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. Although we believe the information in these industry publications,
surveys and forecasts is reliable, we have not independently verified the accuracy or completeness of the information. The industry in which we operate is subject to a high degree of uncertainty and
risk due to a variety of factors, including those described in the section entitled "Risk factors" in Part I, Item 1A of this Annual Report on Form 10-K.

RealD
and the RealD logo are trademarks of RealD Inc. All other trademarks and service marks appearing in this Annual Report on Form 10-K the property of their
respective holders. All rights reserved. The absence of a trademark or service mark or logo from this Annual Report on Form 10-K does not constitute a waiver of trademark or other
intellectual property rights of RealD Inc., its affiliates and/or licensors.

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PART I

Item 1.Business

Overview

We are a leading global licensor of 3D technologies. Our extensive intellectual property portfolio is used in applications that enable
a premium 3D viewing experience in the theater, the home and elsewhere. We license our RealD Cinema Systems to motion picture exhibitors that show 3D motion pictures and alternative 3D content. We
also provide our RealD Display, active and passive eyewear and RealD Format technologies to consumer electronics manufacturers and content providers and distributors to enable the delivery and viewing
of 3D content. Our cutting-edge 3D technologies have been used for applications such as piloting the Mars Rover.

Competitive strengths

Our competitive strengths include the following:

Innovative technology

Our technical expertise has allowed us to develop new and innovative technologies for viewing 3D content in the motion picture
industry, the home and elsewhere. Working with Disney to releaseChicken Littlein 3D in 2005, we became the first company to commercially enable 3D
theater screens using digital projection. Our patented RealD Cinema Systems deliver superior light output, providing for a high quality, brighter image and enabling display on larger theater screens
than most competing technologies. Many of our licensees, including American Multi-Cinema, Inc., or AMC, Cinemark USA, Inc., or Cinemark, Regal Cinemas, Inc., or Regal, Carmike
Cinemas, Inc., or Carmike, and Marcus Theatres, deploy our RealD Cinema Systems on their own premium-branded large-screen auditoriums. Our RealD Display, active and passive eyewear and RealD
Format technologies provide our consumer electronics licensees the ability to display high quality 3D content that can be delivered through the current cable, satellite and broadcast infrastructure.
Our
RDZ 3D display technology, which was jointly developed with Samsung Electronics LCD Business, is a next generation 3D display technology for televisions, personal computers, laptops and mobile devices
that delivers full resolution high definition 3D images to each eye utilizing the same affordable, lightweight and comfortable 3D cinema eyewear used in RealD 3D-equipped motion picture
theatres around the world. Our extensive intellectual property portfolio, which is based on years of research and development, contains approximately 123 individual issued patents and approximately
243 pending patent applications in approximately 15 jurisdictions worldwide. Content producers use our technologies to enhance and accelerate their production of 3D content. Our research, development
and engineering teams have expertise in many disciplines, including:



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Global leader in 3D-enabled theater screens

As of March 25, 2011, our RealD Cinema Systems were deployed on approximately 15,000 theater screens in 61 countries, which we
believe are more 3D screens than all of our competitors combined. The world's top 15 motion picture exhibition groups utilize RealD Cinema Systems in their theaters, including Regal, AMC, Cinemark,
Carmike, Cinepolis, Cineplex, ODEON, Cineworld and EuroPalaces. Our licensees include more than 700 motion picture exhibitors. Domestic box office on RealD-enabled screens represented over 80% of
total domestic 3D box office during our fiscal year ended March 25, 2011. As of March 25, 2011, we were working with our motion picture exhibitor licensees to deploy our RealD Cinema
Systems on up to approximately 2,700 additional screens under our existing agreements with them, and we are actively engaged with other motion picture exhibitors regarding potential new license
agreements.

Pioneer in emerging 3D consumer electronics technologies

We believe that the success of major 3D motion pictures is leading to the creation and distribution of 3D content and products for 3D
consumer electronics. Although 3D consumer electronics technologies are new and developing, we have already entered into agreements to provide our RealD Display, active and passive eyewear, RealD
Format technologies to leading consumer electronics manufacturers, including Victor Company of Japan, Limited, or JVC, Panasonic Corporation, or Panasonic, Samsung Electronics Company Limited, or
Samsung, Sony Electronics, Inc., or Sony Electronics, Toshiba Corporation, or Toshiba and VIZIO, Inc., or VIZIO. In May 2011, we entered into a license agreement with Samsung Electronics
LCD Business to make available to consumer electronics manufacturers panels featuring a new jointly developed 3D display technology, which delivers full resolution 3D images to each eye utilizing
RealD 3D cinema glasses. Our licensees also include content distributors, including cable television services such as Cablevision Systems Corp., or Cablevision, satellite television services such as
DirecTV Enterprises, LLC, or DirecTV.

Premium brand

We believe our brand is well-recognized among licensees and consumers as a result of motion picture studios and exhibitors
co-branding with us and moviegoers having worn our branded RealD eyewear over 430 million times. We believe the prominence of our brand in the motion picture industry will enhance
our marketing efforts of 3D consumer electronics technologies.

Scalable licensing model

We license our 3D technologies under a highly scalable business model with recurring revenue from those licensees. As an example, our
multi-year (typically five years or longer), generally exclusive agreements with motion picture exhibitors generate revenue on a per-admission, periodic fixed-fee
or per-motion picture basis at limited incremental direct cost to us. We believe motion picture exhibitors prefer our licensing model, which includes technological upgrades and
maintenance, because it reduces their capital expenditures and the risk they may purchase equipment that will become obsolete. We believe our motion picture exhibitor licensees also prefer our
low-cost RealD eyewear because it requires less personnel (no active collecting or washing by motion picture exhibitors) and reduces motion picture exhibitors' loss from theft and
breakage. Although we have not yet generated material revenue licensing 3D consumer electronics technologies, we anticipate that our relationships with consumer electronics manufacturers and others
will generate future license fees on 3D consumer electronics technologies on a per unit basis.

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Extensive industry relationships and strong technical expertise

Our experienced management team, including Michael V. Lewis, our Chairman and Chief Executive Officer, Joseph Peixoto, President of
Worldwide Cinema, and Robert Mayson, President of Consumer Electronics, have extensive, long-term relationships with content producers and distributors, major motion picture studios and
exhibitors, and consumer electronics manufacturers that help us drive the proliferation of 3D content, delivery and viewing in theaters, the home and elsewhere. Our research and development team,
based in Boulder, Colorado, is comprised of leaders in the invention, development and commercialization of innovative 3D technologies.

Strategy

Key elements of our strategy include:

Continue to innovate and develop new technologies

We continue to develop proprietary 3D technologies to enhance the 3D viewing experience and create additional revenue opportunities. We
endeavor to improve our RealD Cinema Systems to deliver an even better and more immersive 3D viewing experience to consumers in theaters. For 3D consumer electronics, we are working to enhance our
RealD Display, active and passive eyewear and RealD Format technologies to enable consumers to enjoy 3D at home and elsewhere. We have patented technologies that we believe will in the future enable
consumers to enjoy 3D content without eyewear. We believe our licensing of 3D technologies for professional applications will continue to provide a strong foundation for our development of new 3D
technologies for viewing 3D content at motion picture theaters, on consumer electronics and other applications. We also selectively pursue technology acquisitions to expand and enhance our
intellectual property portfolio in areas that complement our existing and new market opportunities and to supplement our internal research and development efforts.

Increase our leading global share in 3D-enabled theater screens

We continue to work with our existing motion picture exhibitor licensees to deploy additional RealD Cinema Systems. We also plan to
enter into agreements with new motion picture exhibitor licensees to increase the number of deployed RealD Cinema Systems worldwide. We believe there is a significant opportunity for us to continue to
expand our business internationally and to license our 3D technologies to international motion picture exhibitors based on a licensing model that is similar to our domestic model.

Expand our emerging 3D consumer electronics business

We continue to work with consumer electronics manufacturers and content producers and distributors to enable a premium 3D viewing
experience in the home and elsewhere using our 3D technologies. We endeavor to incorporate our RealD Display, active and passive eyewear, RealD Format technologies in plasma and LCD televisions,
set-top boxes, digital video recorders, interactive gaming consoles, laptop computers, desktop computers and mobile devices, and to enable the delivery of 3D content via cable, satellite,
broadcast, packaged media and the Internet.

Build upon the strength of our RealD brand

It is our goal to make RealD the best known 3D technology brand in the world, associated with delivering the highest quality 3D viewing
experience. We will further leverage the strength of our brand to generate stronger licensee and consumer preference for a RealD experience in the 3D consumer electronics and other applications. We
continue to actively encourage motion picture studios and exhibitors to prominently feature our brand in their motion picture advertising and marketing, at

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theater
locations, online and on consumer electronics products and packaging. We will also continue our advertising efforts to strengthen our brand in the theatrical and consumer electronics
industries. We plan to use our brand to drive the continued adoption of our 3D technologies in existing and new applications.

Industry

History of 3D

First used commercially in a public theater in 1922, 3D technology has been used by content producers in an effort to enhance the
viewing experience. 3D imagery is created using stereoscopic photography, which is a process that creates the illusion of 3D by using a pair of 2D images. Each image represents a different perspective
of the same object, emulating the different perspectives that binocular vision captures. When the two images are viewed by each eye, the brain fuses the two images to form a single picture,
creating the illusion of 3D. 3D technology has a wide range of applications including entertainment, research and development, scientific exploration and manufacturing.

Innovation
in 3D technology has centered on optimizing the projection of stereoscopic images as well as the filtering of the image intended for each eye. Early 3D exhibition required the
use of two projectors, one to project the reel for each eye to create the stereoscopic image, which required synchronization that was difficult to achieve due to the manual operation of projectors. To
view a
stereoscopic image, audiences utilized 3D eyewear that employed different filters that did not maintain the quality of a standard motion picture image and caused discomfort including eye strain and
headaches.

Benefiting
from the increased and continuing adoption of digital projection, the new wave of 3D projection uses digital technologies that address many of the limitations of previous
methods of 3D projection. The use of high definition digital projectors, advances in the construction of silver screens and the use of polarization filters and polarized lenses have broadened the
color spectrum, and reduced eyestrain and synchronization issues that caused headaches, which greatly improves the 3D viewing experience.

The
launch of modern 3D digital projection for motion pictures was marked by the presentation ofChicken Littleby Disney in November
2005, which debuted on approximately 100 RealD-enabled screens. Since the debut ofChicken Littlein 2005 through March 25, 2011, 55 3D major
motion pictures have been released on RealD-enabled screens includingAvatar,which debuted in December 2009 and has grossed approximately
$750 million domestically, approximately $620 million of which were domestic 3D box office receipts as of March 25, 2011.

Cutting-edge
3D technology has also been deployed in other applications including scientific research. For example, NASA has utilized 3D technology to analyze damage to the
Space Shuttle and to navigate the Mars Rover. Industrial applications for 3D technology include the use of 3D visualization by biotech firms for the development of pharmaceuticals, by aircraft and
motor vehicle manufacturers like McDonnell Douglas Corp., Caterpillar Inc. and Harley Davidson, Inc. for the design of new prototypes and by major energy companies such as Chevron who
utilize 3D technology to reduce the cost and environmental impact of exploration by analyzing oil and gas fields in virtual 3D environments.

Market opportunity

Our 3D technologies can be used in many different applications and businesses, including entertainment, consumer electronics,
education, aerospace, defense and healthcare. Our 3D technologies are primarily used in motion pictures, consumer electronics and professional applications.

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The
shift in the motion picture industry from analog to digital over the past decade has created an opportunity for new and transformative 3D technologies. With the commercial success of
recent 3D motion pictures, adoption of 3D digital cinema is positioned for continued growth as we believe many of the approximately 85,000 worldwide non-digital theater screens as of the
end of December 31, 2010 may convert to digital projection. As of December 31, 2010, only approximately 37,000 digital theater screens were deployed worldwide, representing approximately
30% of the worldwide installed base. However, as of December 31, 2010, 3D-enabled screens represented approximately 60% of digital theater screens.

The
following chart illustrates, as of December 31, 2010, the approximate total number of theater screens worldwide, the approximate number of theater screens that have been
converted to digital and the approximate number of digital theater screens that are 3D-enabled.

GRAPHIC

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In
the calendar year ended December 31, 2010, motion picture exhibitors installed approximately 20,000 digital cinema projectors, representing a growth rate of approximately 123%
over 2009 installations, and in calendar 2009, motion picture exhibitors installed approximately 7,500 digital cinema projectors, an approximately 86% growth rate over calendar 2008 installations.
Based on the slate announcements by motion picture studios, we anticipate that approximately 38 3D motion pictures will be released worldwide in our fiscal year 2012, including sequels to successful
major motion picture franchises, such asHarry Potter, Transformers, Pirates of the Caribbean, Kung Fu Pandaand Cars, and that as the number of
RealD-enabled screens and 3D motion pictures released increases, we expect that our revenue and capital needs will
continue to grow.

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In addition to creating original 3D motion pictures, content providers are converting 2D motion pictures to 3D in order to display them using 3D technologies.

The
following table shows the major 3D motion pictures released or scheduled for release on 3D-enabled screens for the fiscal year 2012 ending on March 23, 2012, the motion
picture studios and the release dates for those motion pictures (announced as of June 9, 2011).

Title

Motion Picture Studios

Release DateRio

Fox

4/15/2011Hoodwinked Too! Hood vs. Evil

The Weinstein Company

4/29/2011Thor

Paramount/Marvel

5/6/2011Priest

Sony/Screen Gems

5/13/2011Pirates of the Caribbean: On Stranger Tides

Disney

5/20/2011Kung Fu Panda 2

DreamWorks/Paramount

5/26/2011Green Lantern

Warner Bros.

6/17/2011Cars 2

Pixar/Disney

6/24/2011Transformers: Dark of the Moon

Paramount/Dreamworks

6/29/2011Harry Potter and the Deathly Hallows Part 2

Warner Bros.

7/15/2011Captain America: The First Avenger

Paramount/Marvel

7/22/2011The Smurfs

Sony

7/29/2011Glee Live!

Fox

8/12/2011Final Destination 5

Warner Bros.

8/12/2011Spy Kids 4: All the Time in the World

The Weinstein Company

8/19/2011Conan the Barbarian

Lionsgate

8/19/2011Fright Night

Dreamworks/Disney

8/19/2011Shark Night 3D

Relativity

9/2/2011Lion King 3D

Disney

9/16/2011Dolphin Tale 3D

Warner Bros.

9/23/2011Three Musketeers

Summit

10/14/2011Contagion

Warner Bros.

10/21/2011Puss in Boots

DreamWorks/Paramount

11/4/2011A Very Harold & Kumar 3D Christmas

Warner Bros.

11/4/2011Immortals

Relativity/Universal

11/11/2011Happy Feet 2

Warner Bros.

11/18/2011Arthur Christmas

Sony

11/23/2011Piranha 3DD

Weinstein/Dimension

11/23/2011Hugo Cabret

Paramount

11/23/2011The Darkest Hour

Summit

12/23/2011The Adventures of Tintin: The Secret of the Unicorn

Paramount/Sony

12/23/2011Underworld 4: New Dawn

Sony/Screen Gems

1/20/2012Journey 2: The Mysterious Island

Warner Bros.

1/27/2012Star Wars: Episode I: The Phantom Menace (re-release)

Fox/LucasFilm

2/10/2012Ghost Rider: Spirit of Vengeance

Sony

2/17/2012Dr. Seuss' The Lorax

Universal

3/2/2012Hansel and Gretel: Witch Hunters

MGM/Paramount

3/2/2012John Carter

Disney

3/9/2012


We
believe that more 3D-enabled theater screens, including more screens per location, will be needed to accommodate the increasing number of 3D motion pictures being released
simultaneously and to provide the necessary capacity to fully capitalize on commercially successful 3D motion pictures.

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We
believe that the success of major 3D motion pictures, includingAvatar, Alice in Wonderland,Shrek Forever
After, Toy Story 3andDespicable Mewill further stimulate the production and distribution of new and alternative 3D content
for digital cinema. In March 2011, we releasedCarmen in 3D, a
co-production with the Royal Opera House, to our participating exhibitor partners around the world. We also anticipate that there will be more live broadcast events in 3D, including
sporting events, concerts, cultural and other live events similar to a number of recent experiences. For example, in January 2009, the BCS national championship football game between the University of
Florida Gators and the University of Oklahoma Sooners was broadcast live in 3D to over 100 domestic theater screens. In March 2010, the National Hockey League game between the New York Rangers and New
York Islanders was broadcast live in 3D at the WaMu Theater at Madison Square Garden, and the 2010 NCAA Men's Final Four semifinal and national championship games were broadcast live in 3D for up to
100 Cinedigm Certified Digital Cinemas nationwide. In July 2010 matches from the FIFA World Cup were broadcast to theatres around the world in 3D.

We
believe that the recent success of 3D motion pictures is also leading to the production and distribution of new 3D content for consumer electronics applications. There are currently
3D channels available worldwide including linear broadcast channels and VOD systems on broadcast services including DirecTV, Virgin Media, Sky, Foxtel and Comcast. 3D channels are currently being
programmed from major content brands including ESPN (ESPN3D), British Sky Broadcasting (Sky 3D), and Discovery Communications (3net). Examples of major sporting events broadcast live in 3D include The
Masters golf tournament, Premier League soccer, NCAA football, NCAA men's basketball Final Four games, the NBA Finals and boxing.

The
proliferation of high definition televisions, laptops and other displays represents a new market opportunity for revenue arising from the release of 3D-enabled consumer electronics
products. According to Screen Digest, 2010 worldwide shipments for plasma and LCD televisions were approximately 129 million units, digital set-top boxes were approximately
171 million units and digital video recorders were approximately 27 million units.

Key applications

We believe that we possess innovative technology, a significant market presence, a premium brand and a scalable licensing model in our
key applications.

Cinema

We design, manufacture, license and market our RealD Cinema Systems that enable digital cinema projectors to show 3D motion pictures
and alternative 3D content to consumers wearing our RealD eyewear.

Technology.We believe our patented 3D digital projection technology delivers double the amount of light output compared to any other
3D digital
projection technology on the market, which is the most significant factor in producing a high quality 3D image. We believe we are able to reach larger screens with our RealD digital projection
technology than the majority of other 3D digital projection technology providers for use in motion picture theaters. For example, using a single digital DLP projector and the same lamp and lamp power
as a 2D presentation, our RealD XL Cinema System, using our polarizing technology, can deliver crisp, clear 3D content to screens. Our RealD Cinema Systems:



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Market presence.Our RealD Cinema Systems are the world's most widely deployed digital 3D cinema technology based on the number of
theater screens
installed worldwide. As of March 25, 2011, our RealD Cinema Systems were deployed on approximately 15,000 theater screens in 61 countries worldwide. We are working with our motion picture
exhibitor licensees to deploy our RealD Cinema Systems on up to approximately 2,700 additional screens under our existing agreements with them, of which approximately 1,500 screens are domestic and
approximately 1,200 are international. As of December 31, 2010, our RealD Cinema Systems accounted for over 80% of the estimated domestic 3D-enabled theater screens and over 50% of the
3D-enabled theater screens deployed worldwide. Domestic box office on RealD-enabled screens represented over 80% of total domestic 3D box office during our fiscal year ended March 25, 2011. We
expect to continue to grow our cinema business based on an increasing number of theater screens becoming RealD-enabled and an increasing number of RealD-compatible 3D motion pictures being released.

The
following chart illustrates the number of theater locations with RealD-enabled screens and the total number of RealD-enabled screens:

Year endedMarch 25,
2011

March 26,
2010

March 27,
2009Number of RealD enabled screens (at period end)Total domestic RealD enabled screens


8,700


3,400


1,700Total international RealD enabled screens


6,300


1,900


400Total RealD enabled screens


15,000


5,300


2,100Number of locations with RealD enabled screens (at period end)Total domestic locations with RealD enabled screens


2,300


1,800


1,100Total international locations with RealD enabled screens


2,200


1,200


400Total locations with RealD enabled screens


4,500


3,000


1,500Number of 3D motion pictures (released during period)


26


13


8


At
most of the theater locations, there are multiple RealD-enabled screens. We believe that having more RealD-enabled screens per location will allow us to accommodate the increasing
number of 3D motion pictures being released simultaneously and provide the necessary capacity to fully capitalize on commercially successful 3D motion pictures. We believe the commercial success of 3D
motion pictures, such asAvatar, Alice in Wonderland, Shrek Forever After,Toy Story 3and Despicable Me,
and the financing made available by DCIP will facilitate the conversion of theater screens to digital and 3D. After motion picture
exhibitors convert their projectors to digital cinema, they must install a silver screen and our RealD Cinema Systems in order to display motion pictures in RealD 3D.

Content.The following table shows the major motion pictures released on RealD-enabled screens in fiscal year 2011, including the
motion picture
studios, the release dates, the domestic box office for those motion pictures on RealD-enabled screens, the RealD domestic box office as a percentage of

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total
domestic 3D box office, and the RealD domestic box office as a percentage of the total domestic 2D and 3D box office (all data through March 25, 2011).

Title

Motion Picture Studio

Release Date

Domestic Box
Office on RealD-
Enabled Screens

RealD Percent
of Domestic
3D Box Office

RealD Percent
of Total (2D+3D)
Dom. Box OfficeClash of the Titans

Warner Bros

4/2/2010

$
68,033,090


85
%

43
%Shrek Forever After

DreamWorks/Paramount

5/21/2010

$
106,008,618


75
%

46
%Toy Story 3

Disney

6/18/2010

$
171,529,791


80
%

43
%The Last Airbender

Paramount

7/1/2010

$
57,174,179


85
%

45
%Despicable Me

Universal

7/9/2010

$
93,305,907


88
%

39
%Cats & Dogs: The Revenge of Kitty Galore

Warner Bros

7/30/2010

$
19,260,188


85
%

47
%Step Up 3D

Buena Vista

8/6/2010

$
27,675,964


88
%

71
%Piranha 3D

Weinstein/Dimension

8/20/2010

$
18,872,265


87
%

80
%Resident Evil: Afterlife

Sony/Screen Gems

9/10/2010

$
37,623,666


80
%

66
%Alpha and Omega

Lionsgate

9/17/2010

$
12,168,423


89
%

55
%Legend of the Guardians: The Owls of Ga'Hoole

Warner Bros.

9/24/2010

$
24,402,996


70
%

48
%My Soul to Take

Universal/Rogue

10/8/2010

$
10,107,479


88
%

72
%Jackass 3-D

Paramount

10/15/2010

$
88,648,228


86
%

77
%Saw 3D

Lionsgate

10/29/2010

$
35,166,270


89
%

82
%Megamind

DreamWorks/Paramount

11/5/2010

$
70,828,876


79
%

51
%Tangled

Disney

11/24/2010

$
69,880,488


90
%

36
%The Chronicles of Narnia: The Voyage of the Dawn Treader

Fox

12/10/2010

$
50,442,564


89
%

51
%Tron Legacy

Disney

12/17/2010

$
79,738,479


62
%

48
%Yogi Bear

Warner Bros.

12/17/2010

$
44,109,971


86
%

48
%Gulliver's Travels

Fox

12/25/2010

$
17,179,942


94
%

43
%The Green Hornet

Sony

1/14/2011

$
47,949,881


80
%

52
%Sanctum

Universal

2/4/2011

$
12,965,206


72
%

59
%Gnomeo & Juliet

Disney

2/11/2011

$
45,637,922


91
%

50
%Justin Bieber: Never Say Never

Paramount

2/11/2011

$
49,091,469


88
%

72
%Drive Angry

Summit

2/25/2011

$
7,165,588


82
%

75
%Mars Needs Moms

Disney

3/11/2011

$
7,310,458


74
%

50
%


Note: As of March 25, 2011 Source: Rentrak


In calendar year 2009, our RealD Cinema Systems were used in the exhibition of 15 major 3D motion pictures, including Avatar, which has
the highest box office gross in history. Approximately 65% ofAvatar's total domestic
3D box office was generated on RealD-enabled screens. In calendar year 2010, our RealD Cinema Systems were used in the exhibition of 22 major 3D motion pictures, includingToy
Story 3, Shrek Forever After, Despicable Me and Alice in Wonderland. Approximately 70% of the total domestic 3D box office forAlice in
Wonderlandwas generated on RealD-enabled screens. As of June 8, 2011 there were 37 3D motion pictures currently slated for release by the major motion picture studios
in calendar year 2011. As of June 8, 2011 there are 38 3D motion pictures slated for release during our fiscal year 2012 which ends on March 23, 2012, all of which we expect will be
exhibited using our RealD Cinema Systems.

We
believe that the recent success of major 3D motion pictures will drive the creation and theatrical distribution of more alternative content and live broadcast events in 3D. For
example, in March 2011, we releasedCarmen in 3D, a co-production with London's Royal Opera House, to our
participating exhibitor partners around the world. In addition, we introduced RealD LIVE, which enables live event 3D broadcast capabilities in theaters. RealD-enabled screens and the RealD Format
have been used to exhibit other new and alternative 3D content, including sporting events, concerts, cultural and other live events.

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Brand.Motion picture studios often co-brand RealD in motion picture marketing and advertising. Motion picture exhibitors display our
brand at theaters, on-screen and online. Moviegoers have worn our branded RealD eyewear over 430 million times. Our in-theater branding includes signage at the box
office where tickets are purchased, signage in the lobby and in poster cases in and around the theater, branded recycling bins located at each auditorium entrance and exit, an on-screen
animated 3D preview informing consumers when to put on their eyewear and reminding them to recycle their eyewear after the motion picture and a promotional trailer that plays immediately before the
motion picture. Our brand also appears on major online ticketing websites aligned with show times at theaters equipped with our RealD technology. We believe our branded 3D experience will lead to
increased admissions as consumers recognize our brand as the leading choice for 3D viewing, prompting motion picture exhibitors to select us as their 3D technology licensor.

Licensing model.We license our RealD Cinema Systems to motion picture exhibitors under multi-year (typically five years or longer)
agreements that are generally exclusive and from which we generally receive license fees on a per-admission basis. We believe our agreements with motion picture exhibitors provide us with
recurring revenue as 3D motion pictures are exhibited using our 3D technologies. Based on the number of deployed RealD-enabled screens, the number of additional RealD Cinema Systems that we will work
with our existing motion picture exhibitor licensees to deploy, our market presence and the number of 3D motion pictures slated for future release, we believe our cinema business will continue to
grow.

We
license and market systems to motion picture exhibitors based on the type of digital projector installed and theater configuration: our RealD Cinema System, RealD XL Cinema System,
RealD XLS Cinema System, and our recently introduced RealD XLW Cinema System, which is designed specifically for premium large screen auditoriums with stadium seating configurations. RealD XL Cinema
System can be displayed on screens of up to 82 feet wide, and our RealD Cinema Systems will be scalable to larger formats as projector technology evolves. The RealD XLW Cinema System, introduced in
January 2011, can accommodate a throw ratio as wide as 1.0 (projection distance divided by screen width), and is designed for use in premium large screen motion picture auditoriums, theme parks and
specialty theatres with stadium seating. Based on our actual experience, we believe we can upgrade almost any theater that has an existing digital cinema projector with our RealD Cinema Systems within
a few
hours. Under our agreements with motion picture exhibitors, we provide technological upgrades and maintenance on our RealD Cinema Systems at no additional charge to the exhibitor.

We
believe our RealD Cinema Systems are a compelling and scalable technology for the motion picture industry. Motion picture producers can tell their stories in more creative and
compelling ways through the use of 3D technology. As evidenced byAvatar,Alice in Wonderland, Shrek Forever After, Toy Story
3andDespicable Me, releasing content on RealD-enabled screens can
result in increased ticket sales at premium prices, enhanced monetization of a motion picture's initial release and, as a result, can provide a more attractive return on investment to motion picture
producers and distributors. Motion picture exhibitors share in the benefit of increased motion picture ticket sales at premium prices and increased concession sales, and they can also generate new
revenue opportunities through alternative 3D content, including 3D showings of sporting events, concerts, cultural and other live events. We also believe consumers benefit from a superior 3D
entertainment experience.

Consumer electronics

We make our RealD Display, active and passive eyewear and RealD Format technologies available to consumer electronics manufacturers,
content producers and content distributors to bring 3D to the home and elsewhere.

Technology.We recently entered into a licensing agreement with Samsung Electronics LCD Business for a jointly developed next
generation 3D display
technology that delivers full resolution 3D

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images
to each eye utilizing the same passive 3D eyewear as our Cinema Systems. The majority of 3D-enabled televisions sold today utilize active shuttering 3D eyewear. To address this opportunity, we
have developed technology to create universal active 3D eyewear, which are compatible with 3D-enabled televisions from most major consumer electronics brands. This technology includes a programmable
ASIC whose small size and low power consumption characteristics can allow for smaller, lighter weight and uniquely designed active 3D eyewear that work with most of today's active eyewear compatible
3D televisions.

Our
RealD Format is based on multiplexing technology (which packs two images in a single space) to deliver and display high definition 3D content via today's existing infrastructure for
cable, satellite, broadcast, packaged media and the Internet. Our technology can grow with the content distribution infrastructure to deliver the highest quality, premium 3D viewing experience across
a variety of distribution systems and consumer electronics products. Our 3D technologies can also be used for
3D-enabled interactive gaming by game developers and publishers. Our technologies for interactive gaming include those that adjust viewing angles in a game, assure 3D across depth of field and enable
in-frame 3D effects.

We
believe that 3D consumer electronics will continue to evolve towards an enhanced 3D entertainment experience and we intend to actively seek to have our technologies incorporated in
new 3D-enabled consumer electronics products. We continue to develop, maintain, and strengthen our relationships within the broad spectrum of consumer electronics participants to guide the development
of 3D in the home and elsewhere. We believe our active eyewear is adaptable to most consumer electronics applications and our patented high brightness, passive display could be used with high
definition displays without significantly degrading image resolution.

In
January 2011, together with Samsung Electronics LCD Business, we announced the joint development of a new 3D display technology called RDZ that offers full resolution
high definition 3D video and is compatible with the same 3D eyewear used in RealD 3D-equipped motion picture theatres around the world. Unlike patterned retarder based 3D display technologies that cut
resolution in half or diminish brightness, RDZ 3D display technology is designed to deliver full resolution high definition 3D images by adopting active shutter technology on the display.
Based on RealD technology used in many of the world's 3D-equipped motion picture theatres today, RDZ displays are also 2D compatible, resulting in no reduction of image quality in 2D
mode.

Competitive presence.Our 3D technologies can be deployed across the entire range of consumer electronics. We have recently made
available our RealD
Display, active and passive eyewear, RealD Format technologies to consumer electronics manufacturers, content producers and distributors to enable high definition televisions, laptops and other
displays to be viewed in 3D in the home and elsewhere. Although we have not yet generated material revenue licensing 3D consumer electronics technologies, we have agreements in place with DirecTV,
JVC, Panasonic, Samsung, Sony Electronics, Toshiba and Vizio.

Content.Building on the recent success of major 3D motion pictures released in theaters, we believe consumers' desire for 3D consumer
electronics
will be stimulated with the creation and distribution of new motion pictures and other forms of 3D content. We anticipate that the demand for live broadcast events in 3D, including sporting events,
concerts, cultural and other live events, for 3D interactive games, as well as other new and alternative 3D content for the home and elsewhere, will further stimulate the demand for RealD-enabled
consumer electronics products.

Brand.We believe the strength of our brand in the motion picture industry will assist us in the 3D
consumer electronics space. We are working with our licensees to incorporate RealD branding in their consumer electronics product advertising, marketing and packaging and to have our brand featured
prominently on our patented RealD eyewear used in the 3D consumer electronics application.

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Licensing model.We have entered into multi-year licensing agreements with participants in the consumer electronics industry to further
integrate our RealD Format and other technologies into their products. Although we have not yet generated material revenue from our current agreements in the consumer electronics industry, and may
never generate material revenue from those agreements, we believe there will be future revenue opportunities for licensing our 3D technologies to consumer electronics manufacturers, component and
accessories manufacturers, eyewear manufacturers, mobile device companies and others as the 3D consumer electronics opportunity continues to develop.

Professional

Our professional 3D technologies are utilized by Fortune 500 companies, government, academic institutions, and research and development
organizations for applications such as piloting the Mars Rover. Our professional 3D technologies have also been used for theme park installations, including at LEGOLAND®. In professional
applications, we sell CrystalEyes® eyewear, monitors, digital light processing television kits, polarizer film, emitters and linear polarizing systems.

Our history

RealD was founded by Michael V. Lewis and Joshua Greer in 2003 with the goal of bringing a premium 3D viewing experience to audiences
everywhere. In 2005, we acquired Stereographics Corporation, or Stereographics, a company founded in 1980 and one of the largest providers of 3D technologies at the time of the acquisition. In 1995,
Gary Sharp co-founded ColorLink, Inc., or ColorLink, a polarization control, photonics and optics company with an extensive patent portfolio. ColorLink played an instrumental role
collaborating with RealD to develop our first cinema system. In 2007, we acquired ColorLink and Gary Sharp became our Chief Technology Officer. In March 2005, we demonstrated our initial RealD Cinema
System to motion
picture exhibitors and studios. In November 2005, Disney releasedChicken Little, including on approximately 100 RealD-enabled screens. In December
2009, Fox releasedAvatarworldwide, including on approximately 4,200 RealD-enabled screens. In 2008, we entered 3D consumer electronics with a number
of 3D technologies for the home and elsewhere. The first consumer electronics products utilizing our 3D technologies are now available to consumers.

Licensees

Cinema

In our cinema business, our primary licensees are motion picture exhibitors that use our RealD Cinema Systems, including the world's
top 15 motion picture exhibition groups. As of March 25, 2011, we had multi-year (typically five years or longer) agreements that are generally exclusive with our motion picture
exhibitor licensees in both the domestic and international markets. However, our license agreements typically do not obligate motion picture exhibitors to deploy a specific number of our RealD Cinema
Systems according to a specific timeline. License revenue from AMC, Cinemark and Regal together comprised approximately 23% of our gross license revenue in the year ended March 25, 2011, 30% in
the year ended March 26, 2010 and 37% in the year ended March 27, 2009. No licensee accounted for more than 10% of our gross license revenue in fiscal 2011, 2010 or 2009.

Consumer electronics

In our consumer electronics business, our primary licensees are manufacturers, including JVC, Panasonic, Samsung, Sony Electronics,
Toshiba and Vizio. We currently have agreements in place with these consumer electronics manufacturers for the use of our 3D technologies in various consumer electronics products. In May 2011, we
entered into a license agreement with Samsung Electronics LCD Business to make available to consumer electronics manufacturers panels featuring a new jointly

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developed
3D display technology, which delivers full resolution 3D images to each eye utilizing RealD 3D cinema glasses. Our customers also include content distributors, including cable providers,
satellite television services company DirecTV, and content producers.

Professional

In our professional business, our primary customers are Fortune 500 companies, government agencies, academic institutions and research
and development organizations.

Sales and marketing

We market and license our technologies throughout the 3D motion picture, 3D consumer electronics and professional industries through an
internal sales team. We maintain sales offices in the United States, the United Kingdom, Japan, Hong Kong and China.

We
focus our marketing efforts on motion picture studios and exhibitors, consumer electronics manufacturers, interactive game companies, content producers and content distributors. We
reach these customers primarily through industry trade shows, public relations, our website and studio events.

Research and development

We believe we must continue to develop innovative 3D technology on a regular basis to maintain our competitive edge. We monitor trends
in the 3D motion picture, 3D consumer electronics and professional industries to stay abreast of new developments. We further monitor relevant intellectual property and other public domain
information. Our research and development is focused on building and testing licensed products that could potentially incorporate our 3D technologies. Once the proof of concepts are built and tested,
our 3D technologies are licensed to motion picture exhibitors and consumer electronics manufacturers.

Our
research and development expenses were $15.6 million for the year ended March 25, 2011, $11.0 million for the year ended March 26, 2010 and
$8.9 million for the year ended March 27, 2009. In addition, we have made significant investments in intellectual property through acquisitions, including our acquisitions of
Stereographics and ColorLink.

Manufacturing and supply

Cinema

RealD Cinema Systems.We purchase optical and mechanical components for our RealD Cinema Systems from multiple suppliers. We have also
entered into a
large number of license and deployment agreements with digital cinema projector and server companies that grant them a limited, royalty-free license related to the use of RealD technology
into digital cinema projection systems.

RealD eyewear.Our RealD eyewear is an integral part of our RealD Cinema Systems. Our circular polarized passive RealD eyewear allows
consumers to
move around with reduced image distortion and is comfortable and sanitary, which we believe provides convenience to consumers. We have entered into non-exclusive agreements with several
manufacturers to produce RealD eyewear. We manage worldwide manufacturing and distribution of RealD eyewear. Domestically, we operate a recycling program for our RealD eyewear. Domestically, we
provide our RealD eyewear free of charge to motion picture exhibitors and then receive a fee from the motion picture studios for the usage of that RealD eyewear by the motion picture exhibitors'
consumers. Most international motion picture exhibitors purchase RealD eyewear directly from us and sell them to consumers as part of their admission or as a concession item. As a result, we are one
of the world's largest distributors of passive 3D eyewear. Our recyclable eyewear is designed to fit comfortably on most viewers from ages three and up and easily over prescription eyewear. We also
make available kids size RealD 3D eyewear. With the

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growth
of 3D motion picture productions and releases, we anticipate that a market for personal and customized RealD eyewear will emerge.

RealD installation, repair and maintenance services.We hire independent contractors to perform installation, repair and maintenance
services related
to our RealD Cinema Systems.

Consumer electronics

Our RealD Display, RealD Format, and technologies for use in high definition televisions, laptops and other displays, as well as our
active and passive eyewear, are fully tested by our engineering team before they are delivered to consumer electronics manufacturers.

Professional

We use ColorLink Japan and other manufacturing suppliers for components of many of our professional products. We complete assembly,
testing and inspection in our Boulder, Colorado facilities.

Competition

The market for 3D visual display technologies is highly competitive.

Our
primary competitors for our RealD Cinema Systems include Dolby Laboratories, Inc., or Dolby, X6D Limited, or Xpand, MasterImage 3D, LLC, or MasterImage, Sony
Electronics, or Sony, and IMAX Corporation, or IMAX. As of December 31, 2010, these and other competitors had enabled approximately 11,000 worldwide theater screens, collectively, as compared
to our approximately 11,300 RealD-enabled worldwide theater screens (which has since increased to over 15,000 screens). Consumers may be more familiar with some of our competitors' brands in the
motion picture industry. However, we believe we differentiate ourselves from our competitors in the motion picture industry for reasons that include the following:



Our
primary competitors in 3D consumer electronics technologies include those who are developing 3D displays utilizing film patterned retarder technology including LG and universal
active 3D eyewear manufacturers including Xpand. While the 3D consumer electronics industry is new and rapidly developing, we must compete with companies that enjoy competitive advantages in the
consumer electronics industry.

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We
believe that the principal competitive factors include some or all of the following:



We
believe we compete favorably with respect to many of these factors.

Intellectual property

We have a substantial base of intellectual property assets, including patents, trademarks, copyrights, trade secrets and
know-how.

We
have multiple patents covering unique aspects and improvements for many of our technologies. As of March 25, 2011, we had over 157 patent families comprising approximately 123
individual issued patents and approximately 236 pending patent applications in approximately 15 jurisdictions worldwide. Our issued patents are scheduled to expire at various times between May 2011
and May 2029. Of these, seven patents expired in 2010, four patents are scheduled to expire in 2011, one patent is scheduled to expire in 2012, and two patents are scheduled to expire in 2013. We
believe the expiration of these patents will not adversely affect our business. Our patents are used in the areas of algorithms, autostereo, eyewear, projection, format, direct view, retarder stack
filters, polarization switches, eyewear protection, color switching and other areas. We currently derive our license revenue principally from our RealD Cinema Systems. Patents relating to our RealD
Cinema Systems generally expire between
2011 and 2029. We pursue a general practice of filing patent applications for our technology in the United States and outside of the United States where our licensees manufacture, distribute or sell
licensed products and where our competitors manufacture, distribute or sell competing products. We actively pursue new applications to expand our patent portfolio to address new technology
innovations.

We
have approximately 42 trademark and service mark registrations and pending applications worldwide for a variety of word marks, logos and slogans. Our registered and common law
trademarks are an integral part of our licensing program and licensees typically elect to place our trademarks on their products to inform consumers that their products incorporate our technology and
meet our quality specifications.

Employees

As of March 25, 2011, we had 114 employees located in the United States, Canada, the United Kingdom, Japan, Hong Kong, and
China. Approximately 37 are engaged in research and development, approximately 26 are in operations, and approximately 51 are in sales and general and administrative functions. None of our employees
are represented by a labor union, and we consider our employee relations to be good.

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Item 1A.Risk factors

The risks described below could have a material adverse impact on our financial position, results of
operations, liquidity and cash flows. Although it is not possible to predict or identify all such risks and uncertainties, they may include, but are not limited to, the factors discussed below. Our
business operations could also be affected by additional factors that are not presently known to us or that we currently consider not to be material to our operations. You should not consider this
list to be a complete statement of all risks and uncertainties.

Risks relating to our business

If motion pictures that can be viewed with RealD Cinema Systems are not made or are not commercially successful, our revenue will decline.

Almost all of our revenue is currently dependent upon both the number of 3D motion pictures released and the commercial success of
those 3D motion pictures. Although we have produced alternative content in 3D, such as the production ofCarmen in 3Dwith London's Royal Opera House,
we are not actively developing 3D motion pictures or our own 3D content, other than the current production ofMadame Butterfly, and therefore, we rely
on motion picture studios producing and releasing 3D motion pictures compatible with our RealD Cinema Systems. There is no guarantee an increasing number of 3D motion pictures will be released or that
motion picture studios will continue to produce 3D motion pictures at all. Motion picture studios may refrain from producing and releasing 3D motion pictures for any number of reasons, including their
lack of commercial success, consumer preferences, the lower-cost to produce 2D motion pictures or the availability of other entertainment options. The commercial success of a 3D motion
picture depends on a number of factors that are outside of our control, including whether it achieves critical acclaim, timing of the release, cost, marketing efforts and promotional support for the
release. In the past, consumer interest in 3D motion pictures was episodic and motion picture studios tended to use 3D motion pictures as a gimmick rather than as an artistic tool to enhance the
viewing experience. If consumers' recent renewed interest in the 3D viewing experience fails to grow or it declines for any reason, box office performance may suffer and motion picture studios may
reduce the number of 3D motion pictures they produce. Poor box office performance of 3D motion pictures, disruption or reduction in 3D motion picture production or conversion of
two-dimensional motion pictures into 3D motion pictures, changes in release schedules, cancellations of motion picture releases in 3D versions, a reduction in marketing efforts for 3D
motion pictures by motion picture studios or a lack of consumer demand for 3D motion pictures could result in lower 3D motion picture attendance, which would substantially reduce our revenue. For
example, Warner Brothers not being able to convertHarry Potter and the Deathly Hallows Part 1from 2D into 3D in time for a 2010 release in 3D
negatively impacted 3D motion picture attendance and, we believe, the box office for that motion picture and our revenue in the period in which that motion picture was released.

If motion picture exhibitors do not continue to use our RealD Cinema Systems or experience financial difficulties, our growth and results of operations could be adversely
affected.

Our primary licensees in the motion picture industry are motion picture exhibitors. Our license agreements with motion picture
exhibitors do not obligate these licensees to deploy a specific number of our RealD Cinema Systems. We cannot predict whether any of our existing motion picture exhibitor licensees will continue to
perform under their license agreements with us, whether they will renew their license agreements with us at the end of their term or whether we may now or in the future be in breach of those
agreements. If motion picture exhibitors reduce or eliminate the number of 3D motion pictures that are exhibited in theaters, then motion picture studios may not produce and release 3D motion pictures
and our revenue could be materially and adversely affected.

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In
addition, license revenue from AMC, Cinemark and Regal together comprised approximately 23% of our gross license revenue in the year ended March 25, 2011, 30% in the year ended
March 26, 2010 and 37% in the year ended March 27, 2009. Any inability or failure by AMC, Cinemark or Regal to pay us amounts due in a timely fashion or at all could substantially reduce
our cash flow and could materially and adversely impact our financial condition and results of operations.

A deterioration in our relationships with the major motion picture studios could adversely affect our business.

The six major motion picture studios accounted for approximately 82% of domestic box office revenue and 9 of the top 10 grossing 3D
motion pictures in calendar year 2010. Such 3D motion pictures are also released internationally. In addition, for our domestic operations, these major motion picture studios pay us a per use fee for
our RealD eyewear. To the extent that our relationship with any of these major motion picture studios deteriorates or any of these studios stop making motion pictures that can be viewed at
RealD-enabled theater screens, refuse to co-brand with us or stop using our RealD eyewear, our costs could increase and our revenue could decline, which would adversely affect our business
and results of operations.

If motion picture exhibitors do not continue converting analog theaters to digital or the pace of conversions slows, our future prospects could be limited and our business
could be adversely affected.

Our RealD Cinema Systems only work in theaters equipped with digital cinema projection systems, which enable 3D motion pictures to be
delivered, stored and projected electronically, and our systems are not compatible with analog motion picture projectors. Motion picture exhibitors have been converting projectors to digital cinema
over the last several years, giving us the opportunity to deploy our RealD Cinema Systems. After motion picture exhibitors convert their projectors to digital cinema, they must install a silver screen
and our RealD Cinema System in order to display motion pictures in RealD 3D. The conversion by motion picture exhibitors of their projectors and screens from analog to digital cinema requires
significant expense. In 2010, motion picture exhibitors installed approximately 20,000 digital cinema projectors, an approximately 123% growth from 2009, and in 2009, motion picture exhibitors
installed approximately 7,500 digital cinema projectors, an approximately 86% growth rate from 2008. Although DCIP completed its financing in March 2010 that is providing funding for the digital
conversion of approximately 14,000 additional domestic theater screens operated by our licensees AMC, Cinemark and Regal, we cannot predict the pace or success of this conversion, or that we will have
adequate supply of the components comprising our RealD Cinema
Systems in any given period to satisfy motion picture exhibitor demand. As of December 31, 2010, approximately 39% of domestic theater screens had converted to digital and a much smaller
percentage of international theater screens had been converted. If the market for digital cinema develops more slowly than expected, or if the motion picture exhibitors we have agreements with,
including AMC, Cinemark and Regal, delay or abandon the conversion of their theaters, our ability to grow our revenue and our business could be adversely affected.

If the deployment of our RealD Cinema Systems is delayed or not realized, our future prospects could be limited and our business could be adversely affected.

We have license agreements with motion picture exhibitors that give us the right, subject to certain exceptions, to deploy our RealD
Cinema Systems if a location under contract is already equipped with our systems and they choose to install additional 3D digital projector systems. As of March 25, 2011, we were working with
our motion picture exhibitor licensees to deploy our RealD Cinema Systems on up to approximately 2,700 additional screens under our existing agreements with them. On January 26, 2011, the
Company entered into an amendment to its license agreement with Regal to, among other things, provide for revised terms in respect of payment, royalties and duration of the agreement, as well as to
expand the number of RealD-enabled screens across the Regal theater circuit by up to 1,500

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additional
screens. However, our license agreements do not obligate our licensees to deploy a specific number of our RealD Cinema Systems. Numerous factors beyond our control could influence when and
whether our RealD Cinema Systems will be deployed, including motion picture exhibitors' ability to fund capital expenditures, or their decision to delay or abandon the conversion of their theaters to
digital projection or reduce the number of 3D motion pictures exhibited in their theaters, and our ability to secure adequate supplies of components comprising our RealD Cinema System in any given
period. If motion picture exhibitors delay, postpone or decide not to deploy RealD Cinema Systems at the number of screens they have announced, or we are unable to deploy our RealD Cinema Systems in a
timely manner, our future prospects could be limited and our business could be adversely affected.

We have a history of net losses and may continue to suffer losses in the future.

We have incurred net losses in each of our last five fiscal years, and incurred a net loss attributable to common stockholders of
approximately $12.3 million for the year ended March 25, 2011. If we cannot become profitable, our financial condition will deteriorate, and we may be unable to achieve our business
objectives.

Any inability to protect our intellectual property rights could reduce the value of our 3D technologies and brand, which could adversely affect our financial condition,
results of operations and business.

Our business is dependent upon our patents, trademarks, trade secrets, copyrights and other intellectual property rights. Effective
intellectual property rights protection, however, may not be available under the laws of every country in which we and our licensees operate, such as China. The efforts we have taken to protect our
proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. In addition, protecting our
intellectual property rights is costly and time consuming. It may not be practicable or cost effective for us to fully protect our intellectual property rights in some countries or jurisdictions. If
we are unable to successfully identify and stop unauthorized use of our intellectual property, we could lose potential revenue and experience increased operational and enforcement costs, which could
adversely affect our financial condition, results of operations and business.

It
is possible that some of our 3D technologies may not be protectable by patents. In addition, given the costs of obtaining patent protection, we may choose not to protect particular
innovations that later turn out to be important. Even where we do have patent protection, the scope of such protection may be insufficient to prevent third parties from designing around our particular
patent claims or otherwise avoiding infringement. Furthermore, there is always the possibility that an issued patent may later be found to be invalid or unenforceable, or a competitor may attempt to
engineer around our issued patent. Additionally, patents only offer a limited term of protection. Moreover, the intellectual property we maintain as trade secrets could be compromised by third
parties, or intentionally or accidentally by our employees, which would cause us to lose the competitive advantage resulting from them.

Our RealD Cinema Systems and other technologies are generally designed for use with third-party technologies and hardware, and if we are unable to maintain the ability of
our RealD Cinema Systems and other technologies to work with these third-party technologies and hardware, our business and operating results could be adversely affected.

Our RealD Cinema Systems and other technologies are generally designed for use with third-party technologies and hardware, such as
Christie projectors, Doremi servers, Harkness Hall screens and Sony Electronics 4K SXRD® digital cinema projectors. Third-party technologies and hardware may be modified,
re-engineered or removed altogether from the marketplace. In addition, third-party technologies used to interact with our RealD Cinema Systems, RealD Format and other 3D

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technologies
can change without prior notice to us, which could result in increased costs or our inability to provide our 3D technologies to our licensees. If we are unable to maintain the ability of
our RealD
Cinema Systems, RealD Format and other 3D technologies to work with these third-party technologies and hardware, our business and operating results could be adversely affected.

We may in the future be subject to intellectual property rights disputes that are costly to defend, could require us to pay damages and could limit our ability to use
particular 3D technologies in the future.

We may be exposed to, or threatened with, future litigation or any other disputes by other parties alleging that our 3D technologies
infringe their intellectual property rights. Any intellectual property disputes, regardless of their merit, could be time consuming, expensive to litigate or settle and could divert management
resources and attention. An adverse determination in any intellectual property dispute could require us to pay damages and/or stop using our 3D technologies, trademarks, copyrighted works and other
material found to be in violation of another party's rights and could prevent us from licensing our 3D technologies to others. In order to avoid these restrictions and resolve the dispute, we may have
to pay for a license. This license may not be available on reasonable terms, could require us to pay significant license fees and may significantly increase our operating expenses. A license also may
not be available to us at all. As a result, we may be required to use and/or develop non-infringing alternatives, which could require significant effort and expense, or which may not be
possible. If we cannot obtain a license or develop alternatives for any infringing aspects of our business, we may be forced to limit our 3D technologies and may be unable to compete effectively. In
certain instances, we have contractually agreed to provide indemnification to licensees relating to our intellectual property. This may require us to defend or hold harmless motion picture exhibitors,
consumer electronics manufacturers or other licensees. We have from time to time corresponded with one or more third parties regarding patent enforcement issues and in-bound and
out-bound patent licensing opportunities. In addition, from time to time we may be engaged in disputes regarding the licensing of our intellectual property rights, including matters
related to our license fee rates and other terms of our licensing arrangements. These types of disputes can be asserted by our licensees or prospective licensees or by other third parties as part of
negotiations with us or in private actions seeking monetary damages or injunctive relief or in regulatory actions. Requests for monetary and injunctive remedies asserted in claims like these could be
material and could have a significant impact on our business. Any disputes with our licensees, potential licensees or other third parties could materially and adversely affect our business, results of
operations and prospects.

If we are unable to maintain our brand and reputation for providing high quality 3D technologies, our business, results of operations and prospects could be materially
harmed.

Our business, results of operations and prospects depend, in part, on maintaining and strengthening our brand and reputation for
providing high quality 3D technologies. If problems with our 3D technologies cause motion picture exhibitors, consumer electronics manufacturers or other licensees to experience operational disruption
or failure or delays in the delivery of their products and services to their customers, our brand and reputation could be diminished. Maintaining and strengthening our brand and reputation may be
particularly challenging as we enter business segments in which we have limited experience, such as 3D consumer electronics. If
we fail to promote and maintain our brand and reputation successfully, our business, results of operations and prospects could be materially harmed.

Competition from other providers of 3D technologies to the motion picture industry could adversely affect our business.

The motion picture industry is highly competitive, particularly among providers of 3D technologies. Our primary competitors include
Dolby, Sony, IMAX, MasterImage and Xpand. In addition, other

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companies,
including motion picture exhibitors and studios, may develop their own 3D technologies in the future. Consumers may also perceive the quality of 3D technologies delivered by some of our
competitors to be equivalent or superior to our 3D technologies. In addition, some of our current or future competitors may have significantly greater financial, technical, marketing and other
resources than we do or may have more experience or advantages in the business segments in which we compete that will allow them to offer lower prices or higher quality technologies, products or
services. If we do not successfully compete with these providers of 3D technologies, we could lose market share and our business could be materially and adversely affected.

We face potential competition from companies with greater brand recognition and resources in the consumer electronics industry.

3D consumer electronics technologies are new and rapidly developing, and we must compete with companies that enjoy competitive
advantages, including:



As
a result, these current and potential competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, products, technologies or standards
in 3D consumer electronics.

We
also face competition where existing licensees relying on our RealD Cinema Systems in the motion picture industry may become current or potential competitors in 3D consumer
electronics, or vice versa. For example, Sony Pictures Entertainment, Inc., or Sony Pictures, is a major motion picture studio, but certain of its affiliates also design, manufacture and market
consumer electronics products and components and are marketing 3D consumer electronics. In 2009, we signed an agreement with Sony Electronics making available to it some of our 3D technologies for
potential use with their consumer electronics products. To the extent that Sony Electronics or our other licensees choose to utilize competing 3D technologies that they have developed or in which they
have an interest, rather than use our 3D technologies, our growth prospects could be adversely affected.

The introduction of new 3D technologies and changes in the way that our competitors operate could harm our business. If we fail to keep up with rapidly changing 3D
technologies or the growth of new and existing opportunities, our 3D technologies could become less competitive or obsolete.

The motion picture and consumer electronics industries in general are undergoing significant changes. Due to technological advances and
changing consumer tastes, numerous companies have developed, and are expected to continue to develop, new 3D technologies that may compete directly with our 3D technologies. Competitors may develop
alternative 3D technologies that are more attractive to consumers, content producers and distributors, motion picture exhibitors, consumer electronics manufacturers and others, or more cost effective
than our technologies, and which make our 3D technologies less competitive or obsolete. As a result of this competition, we could lose market share, which could harm our business and operating
results. We expect to expend considerable resources on research and development in response to changes in the motion picture and consumer

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electronics
industries. However, we may not be able to develop and effectively market new 3D technologies that adequately or competitively address the needs of these changing industries, which could
have a material and adverse effect on our business, results of operations and prospects.

If our 3D technologies fail to be widely adopted by or are not compatible with the needs of our licensees, our business prospects could be limited and our operating results
could be adversely affected.

Our motion picture and consumer electronics licensees depend upon our 3D technologies being compatible with a wide variety of motion
picture and consumer electronics systems, products and infrastructure. We make significant efforts to design our 3D technologies to address capability, quality and cost considerations so that they
either meet or, where possible, exceed the needs of our licensees in the motion picture and consumer electronics industries. To have our 3D technologies widely adopted in the motion picture and
consumer electronics industries, we must convince a broad spectrum of professional organizations worldwide, as well as motion picture studios and exhibitors and consumer electronics manufacturers who
are members of such organizations, to adopt them and to ensure that our 3D technologies are compatible with their systems, products and infrastructure.

If
our 3D technologies are not widely adopted or retained or if we fail to conform our 3D technologies to the expectations of, or standards set by, industry participants, they may not be
compatible with other products and our business, operating results and prospects could be adversely affected. We expect that meeting and maintaining the needs of our licensees for compatibility with
them will be significant to our business in the future. In addition, the market for broadcast technologies has traditionally been heavily regulated by governments or other regulatory bodies, and we
expect this to continue to be the case in the future. If our 3D technologies are not compatible with the broadcasting infrastructure or
governmental or regulatory requirements in particular geographic areas, our ability to compete in these markets could be adversely affected.

Other forms of entertainment may be more attractive to consumers than those using our 3D technologies, which could harm our growth and operating results.

We face competition for consumer attention from other forms of entertainment that may drive down motion picture box office, license
revenue from motion picture exhibitors, and license revenue from 3D-enabled consumer electronic devices. We compete with a number of alternative motion picture distribution channels, such as cable,
satellite, broadcast, packaged media and the Internet. There are also other forms of entertainment competing for consumers' leisure time and disposable income such as concerts, amusement parks and
sporting events. A significant increase in the popularity of these alternative motion picture channels and competing forms of entertainment could reduce the demand for theatrical exhibition of 3D
motion pictures, including those viewed with our RealD Cinema Systems, or the use of 3D-enabled consumer electronics devices, any of which would have an adverse effect on our business and operating
results.

Motion picture exhibitor stock options, our share price and the pace of theater conversions to RealD-enabled screens could create volatility in our reported revenue and
earnings.

In connection with some of our motion picture exhibitor licensing agreements, we issued to three motion picture exhibitors a
10-year option to purchase shares of our common stock at an exercise price of approximately $0.00667 per share. The stock options previously issued have now fully vested with the
achievement of all screen installation targets. Motion picture exhibitor stock options were valued at the underlying stock price at each reporting period when the targets were met. Amounts recognized
were based on the number of screens installed as a percentage of total screen installation targets. We recorded revenue net of motion picture exhibitor stock options, the amount of which is determined
by changes in our share price and the number of RealD-enabled screens relative to certain targets. As of March 25, 2011, all 3,668,340 outstanding motion picture exhibitor stock options had
vested and all

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associated
reduction of revenue has been recognized. Exercises of these stock options and sales of a significant amount of the underlying stock by our motion picture exhibitor optionees could cause
our stock price to decline.

Our limited operating history in 3D consumer electronics presents risk to our ability to achieve success in this area.

Our 3D technologies have only recently been made available to consumer electronics manufacturers, including JVC, Panasonic, Samsung,
Sony Electronics, Toshiba and Vizio, as well as electronics component suppliers such as Broadcom, to enable 3D viewing on high definition televisions, laptops and other displays. To date, we have not
generated revenue of any material significance from our arrangements with these and other consumer electronics manufacturers. 3D consumer electronics technologies are rapidly developing, as
manufacturers are working to set standards and content producers and distributors are working on increasing the availability of new 3D content. However, the demand for our 3D technologies and the
income potential from 3D consumer electronics is unproven. In addition, because 3D consumer electronics technologies are new and quickly evolving, we have limited insight into trends that may emerge
and affect our business. We may make errors in predicting and reacting to relevant business trends. We also may not be able to successfully address these risks on a timely basis or at all.

If consumer electronics manufacturers limit their use of our 3D technologies in high definition televisions, laptops and other displays or such products are not accepted by
consumers, our potential growth will be significantly reduced.

We are dependent on consumer electronics manufacturers to use our RealD Display, active and passive eyewear, RealD Format technologies
with their high definition televisions, laptops and other displays, and for content distributors to deliver 3D content via cable, satellite, broadcast, packaged media and the Internet. While we have
entered into agreements with some consumer electronics manufacturers regarding the use of our 3D technologies in various consumer electronics products, these agreements are not exclusive, and we can
give no assurances that these consumer electronics manufacturers will utilize our 3D technologies or that there will be sufficient consumer demand for 3D electronics products. In addition, since 3D
consumer electronics technologies are still emerging, it is unclear if consumers will widely adopt viewing 3D content in the home and elsewhere as an attractive alternative to the 2D viewing
experience. The lack of consumer interest in 3D technologies may cause consumer electronics manufacturers to limit their use of our 3D technologies. In addition, our competitors in 3D consumer
electronics technologies may offer consumers superior technology or lower prices which may reduce the demand for our RealD 3D-enabled consumer electronic devices. As a result, our future prospects
could be adversely affected if consumer electronics manufacturers choose not to use our 3D technologies in their devices.

Acquisition activities could result in operating difficulties, dilution to our stockholders and other harmful consequences.

We have built our business, in part, through acquisitions of intellectual property and other assets, including Stereographics in 2005
and ColorLink in 2007. We intend to
selectively pursue strategic acquisitions in the future. Future acquisitions could divert management's time and focus from operating our business. In addition, integrating an acquired company,
business or technology is risky and may result in unforeseen operating difficulties and expenditures. Foreign acquisitions also involve unique risks related to integration of operations across
different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries.

We
may not accurately assess the value or prospects of acquisition candidates, and the anticipated benefits from our future acquisitions may not materialize. In addition, future
acquisitions or

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dispositions
could result in potentially dilutive issuances of our equity securities, including our common stock, the incurrence of additional debt, contingent liabilities or amortization expenses, or
write-offs of goodwill, any of which could materially harm our financial condition.

Our growth may place a strain on our resources, and we may continue to borrow money as our business grows

We have experienced significant growth since we acquired ColorLink in 2007. The growth that we have experienced in the past, as well as
any further growth that we experience, may place a significant strain on our resources and increase demands on our management, our information and reporting systems and our internal controls over
financial reporting. Upon becoming a public company in July 2010, we began incurring additional general and administrative expenses to comply with the U.S. Securities and Exchange Commission, or SEC,
reporting requirements, the listing standards of the New York Stock Exchange, or NYSE, and provisions of the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010, and will continue to incur additional research and development expenses. If we are unable to manage our growth effectively while maintaining appropriate internal controls, we may
experience operating inefficiencies that could increase our costs or otherwise materially and adversely affect of financial position. In addition, as our business grows, we may borrow money to fund
various growth initiatives, including acquisitions or capital expenditures, which will result in debt service payment obligations and will require us to comply with certain financial and operating
covenants. For example, we recently drew down $20 million of our $50 million secured credit facility with City National Bank, or City National. We may draw the remaining
$30 million in order to fund growth initiatives and we may enter into new debt agreements or amend our agreement with City National in order to increase the amount we may borrow. In the event
we breach any of the covenants under our credit agreements or are unable to pay our obligations to City National or other lenders as they become due, we may become in default under our credit
agreements which will have a material and adverse effect on our business, results of operations and financial condition.

We face risks from doing business internationally that could harm our business, financial condition and results of operations.

We are dependent on international business for a significant portion of our total revenue. International gross revenue accounted for
approximately 55% in fiscal 2011, 46% in fiscal 2010 and 27% in fiscal 2009. We expect that our international business will continue to represent a significant portion of our total revenue for the
foreseeable future. This future revenue will depend to a large extent on the continued use and expansion of our 3D technologies in the motion picture and consumer electronics industries worldwide. As
a result, our business is subject to certain risks inherent in international business operations, many of which are beyond our control. These risks include:



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Events
or developments related to these and other risks associated with our international business operations could adversely affect our revenue from such operations, which could have a
material and adverse effect on our business, financial condition and results of operations.

Our operating results may fluctuate substantially from quarter to quarter, which may be different from analysts' expectations and adversely affect our stock price.

Our operating results may fluctuate from quarter to quarter. Factors that have affected our operating results in the past, and are
likely to affect our operating results in the future, include, among other things:



In
addition, variances in our operating results from analysts' expectations could adversely affect our stock price. See also "Part II, Item 7: Management's discussion and
analysis of financial condition and results of operationsSeasonality."

Our RealD eyewear may, in the future, be regulated by the Food and Drug Administration, or FDA, or by other state or foreign governmental or regulatory agencies, which could
increase our costs and materially and adversely impact our profitability.

Currently, polarized eyewear, including our RealD eyewear, is not regulated by the FDA, or by state or foreign governmental and
regulatory agencies. However, certain eyewear, such as non-prescription reading glasses and sunglasses, are considered to be medical devices by the FDA and are subject to regulations
imposed by the FDA and various state and foreign governmental and regulatory agencies. With the rising popularity of polarized 3D eyewear, there has been an increasing level of public scrutiny
examining its potential health risks. Polarized 3D eyewear, including our RealD eyewear, may at some point be subject to federal, state or foreign regulations that could potentially restrict how our
RealD eyewear is produced, used or marketed, and the cost of complying with those regulations may adversely affect our profitability.

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If 3D viewing with active or passive eyewear is found to cause health risks or consumers believe that it does, demand for the 3D viewing experience may decrease or we may
become subject to liability, any of which could adversely affect our results of operations, financial condition, business and prospects.

Research conducted by institutions unrelated to us has suggested that 3D viewing with active or passive eyewear may cause vision
fatigue, eye strain, discomfort, headaches, motion sickness, dizziness, nausea, epileptic seizures, strokes, disorientation, perceptual after-effects, decreased postural stability or other health
risks in some consumers. If these potential health risks are substantiated or consumers believe in their validity, demand for the 3D viewing experience in the theater, the home and elsewhere may
decline. As a result, major motion picture studios and other content producers and distributors may refrain from developing 3D content, motion picture exhibitors may reduce the number of 3D-enabled
screens (including RealD-enabled screens) they currently deploy or plan to deploy, or they may reduce the number of 3D motion pictures exhibited in their theaters, which would adversely affect our
results of operations, financial condition and prospects. A decline in consumer demand may also lead consumer electronics manufacturers and content distributors to reduce or abandon the production of
3D products, which could adversely affect our prospects and financial condition.

In
addition, if health risks associated with our RealD eyewear materialize, we may become subject to governmental regulation or product liability claims, including claims for personal
injury. Successful assertion against us of one or a series of large claims could materially harm our business. Also, if our RealD eyewear is found to be defective, we may be required to recall it,
which may result in substantial expense and adverse publicity that could adversely impact our sales, operating results and reputation. Potential product liability claims may exceed the amount of our
insurance coverage or may be excluded under the terms of the policy, which could adversely affect our financial condition. In addition, we may also be required to pay higher premiums and accept higher
deductibles in order to secure adequate insurance coverage in the future, which could materially and adversely affect our results of operations, financial condition and business. Even meritless
product liability claims could be expensive to resolve and may divert our management's attention.

Our agreements with motion picture studios domestically and motion picture exhibitors internationally require us to manage the supply chain of our RealD eyewear, and any
interruption to the supply chain for our RealD eyewear components could adversely affect our results of operations, financial condition, business and prospects.

Our RealD eyewear is an integral part of our RealD Cinema Systems. We have entered into non-exclusive agreements with
several manufacturers to produce RealD eyewear. We manage manufacturing, distribution and recycling of RealD eyewear for motion picture studios and exhibitors worldwide. Domestically, we provide our
RealD eyewear free of charge to motion picture exhibitors and then receive a fee from the motion picture studios for the usage of that RealD eyewear by the motion picture exhibitors' consumers. Most
international motion picture exhibitors purchase RealD eyewear directly from us and sell them to consumers as part of their admission or as a concession item. Any interruption in the supply of RealD
eyewear from manufacturers, increase in shipping cost, logistics or recycling interruption or other disruption to our global supply chain could adversely affect our results of operations, financial
condition, business and prospects. For example, in connection with recent major 3D motion picture releases and increased consumer demand, we have in the past exhausted our inventory of RealD eyewear
and incurred increased shipping costs to accelerate delivery.

Economic conditions beyond our control could reduce consumer demand for motion pictures and consumer electronics using our 3D technologies and, as a result, could materially
and adversely affect our business, revenue and growth prospects.

The global economic environment since late 2008 has been volatile and continues to pose risks. The economy could remain significantly
challenged for an indeterminate period of time. Present

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economic
conditions could lead to a decrease in discretionary consumer spending, resulting in lower motion picture box office. In the event of declining box office revenue, motion picture studios may
be less willing to release 3D motion pictures and motion picture exhibitors may be less willing to license our RealD Cinema Systems. Further, a decrease in discretionary consumer spending may
adversely affect future demand for 3D consumer electronics products that may use our 3D technologies, which could cause our business, revenue and growth prospects to suffer.

The loss of members of our management or research and development teams could substantially disrupt our business operations.

Our success depends to a significant degree upon the continued individual and collective contributions of our management and research
and development teams. A limited number of individuals have primary responsibility for managing our business, including our relationships with motion picture studios and exhibitors and consumer
electronics manufacturers and the research and development of our 3D technologies. The loss of any of these individuals, including Michael V. Lewis, our Chairman and Chief Executive Officer or our
failure to attract and retain other qualified and experienced personnel on acceptable terms, could impair our ability to sustain and grow our business. In addition, because we operate in a highly
competitive industry, our hiring of qualified executives, scientists, engineers or other personnel may cause us or those persons to be subject to lawsuits alleging misappropriation of trade secrets,
improper solicitation of employees, breach of contract or other claims.

Our ability to use our net operating loss carryforwards could be subject to additional limitation if our ownership has changed or will change by more than 50%, which could
potentially result in increased future tax liability.

While currently subject to a full valuation allowance for purposes of preparing our consolidated financial statements (see the
discussion under the heading "Management's discussion and analysis of financial condition and results of operationsCritical
accounting policies and estimatesDeferred tax asset valuation and tax exposures" in Part II, Item 7 of this Annual Report on Form 10-K), we intend to use
our U.S. net operating loss carryforwards to reduce any future U.S. corporate income tax liability associated with our operations. Section 382 of the U.S. Internal Revenue Code of 1986, as
amended, generally imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset taxable income when a corporation has undergone significant changes in
stock ownership. We have not determined whether such ownership change has previously occurred. It is possible that our initial public offering, or IPO, either on a standalone basis or when combined
with past or future transactions (including, but not limited to, significant increases during the applicable testing period in the percentage of our stock owned directly or constructively by
(i) any stockholder who owns 5% or more of our stock or (ii) some or all of the group of stockholders who individually own less than 5% of our stock), will cause us to undergo one or
more ownership changes. In that event, our ability to use our net operating loss carryforwards could be adversely affected. To the extent our use of net operating loss carryforwards is significantly
limited under the rules of Section 382 (as a result of our IPO or otherwise), our income could be subject to U.S. corporate income tax earlier than it would if we were able to use net operating
loss carryforwards, which could result in lower profits.

Risks related to owning our common stock

The price of our common stock may fluctuate significantly, and you could lose all or part of your investment.

Shares of our common stock were sold in our IPO in July 2010 at a price of $16.00 per share, and, as of June 8, 2011, our common
stock has subsequently traded as high as $35.60 and as low as $15.63. An active, liquid and orderly market for our common stock may not be sustained, which could depress the trading price of our
common stock.

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Volatility
in the market price of our common stock may prevent you from being able to sell your shares at or above the price you paid for your shares or at all. The market price of our
common stock could fluctuate significantly for various reasons, which include:



In
addition, the stock market in general, and the market for technology and media companies in particular, has experienced extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price of our common stock, regardless of actual
operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company's securities, securities class action litigation has
often been instituted against these companies. If litigation is instituted against us, it could result in substantial costs and a diversion of our management's attention and resources even if such
litigation is without merit..

Sales of outstanding shares of our common stock (or shares of our common stock issued upon exercise of stock options) into the market in the future could cause the market
price of our stock to drop significantly, even if our business is doing well.

As of June 6, 2011, we had 54,168,301 shares of common stock outstanding which are freely tradable, subject to prior
registration or qualification for an exemption from registration, including, in the case of shares held by affiliates, compliance with the volume, manner of sale, notice and availability of public
information provisions of Rule 144 under the Securities Act of 1933, as amended, or the Securities Act. Our co-founders and certain other pre-IPO stockholders also have
registration rights which enable them to cause us to register for sale shares held by them in the public markets. If our existing security holders sell, or indicate an intention to sell, substantial
amounts of our common stock in the public market, the trading price of our common stock could decline.

In
addition, as of March 25, 2011, there are 6,955,542 shares underlying options and restricted stock units, 326,700 shares underlying warrants that were issued and outstanding
and 407,593 shares issued or issuable pursuant to motion picture exhibitor stock options, and we have an aggregate of 2,216,443 shares of common stock reserved for future issuance under our equity
incentive plan. These shares will become eligible for sale in the public market to the extent permitted by the provisions of various option and warrant agreements, maintenance of applicable
registration statements and Rules 144 and 701 under the Securities Act. If additional shares are sold, or if it is perceived that they will be sold in the public market, the trading price of
our stock could decline.

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Our co-founders, directors, executive officers and principal stockholders have substantial control over us and could delay or prevent a change in corporate
control.

As of March 25, 2011, our directors and executive officers, together with their affiliates, beneficially owned approximately
23.01% of our outstanding common stock. Of this 23.01%, approximately 10.04% was beneficially owned by Michael V. Lewis, our chairman and chief executive officer, and approximately 9.63% was
beneficially owned by Joshua Greer, our co-founder and member of our board of directors.

These
stockholders, acting together, have the ability to control, or have significant influence over, the outcome of matters submitted to our stockholders for approval, including the
election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting together, have the ability to control, or have
significant influence over, the management and affairs of our company. Accordingly, this concentration of ownership might harm the market price of our common stock by:



As a public company, we are required to assess our internal control over financial reporting on an annual basis, and any future adverse results from such assessment could
result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

As a public company, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial
reporting and disclosure controls and procedures. In particular, we need to perform system and process evaluation and testing of our internal control over financial reporting to allow management and
our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by
Section 404 of the Sarbanes-Oxley Act. Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal control over
financial reporting that are deemed to be material weaknesses. Our compliance with Section 404 requires that we expend significant management time on compliance-related issues. Moreover, if we
are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over
financial reporting that are deemed to be material weaknesses, the market price of our common stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory
authorities, which could require additional financial and management resources.

Our
internal control over financial reporting does not currently meet the standards set forth in Internal ControlIntegrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The adequacy of our internal control over financial reporting must be assessed by our management for each fiscal year. We do not currently have
comprehensive documentation of our internal control over financial reporting, nor do we document or test our compliance with these controls on a periodic basis in accordance with Section 404 of
the Sarbanes-Oxley Act, with which we must come into compliance before filing our Annual Report on Form 10-K for the fiscal year ending March 23, 2012.

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Your percentage ownership in us may be diluted by future issuances of capital stock, which could reduce your influence over matters on which stockholders vote.

Our board of directors has the authority, without action or vote of our stockholders, to issue all or any part of our authorized but
unissued shares of common stock, including shares issuable upon the exercise of options, shares that may be issued to satisfy our obligations under our equity incentive plans, shares that may be
issued in connection with our acquisition of other companies, assets or technology, or shares of our authorized but unissued preferred stock. Issuances of common stock or preferred voting stock could
reduce your influence over matters on which our stockholders vote and, in the case of issuances of preferred stock, likely could result in your interest in us being subject to the prior rights of
holders of that preferred stock. In addition, any future issuance of capital stock by us will dilute your economic interest in our company.

We currently do not intend to pay dividends on our common stock and, consequently, your only opportunity to achieve a return on your investment is if the price of our common
stock appreciates.

We do not expect to pay dividends on shares of our common stock in the foreseeable future, and we intend to use cash generated from
operations to continue to grow our business. Consequently, your only opportunity to achieve a positive return on your investment in us will be if the market price of our common stock appreciates.

If securities or industry analysts cease to publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could
decline.

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about
us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or
more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

Provisions in our certificate of incorporation and bylaws and Delaware law may discourage, delay or prevent a change of control of our company or changes in our management
and, therefore, may depress the trading price of our stock.

Our certificate of incorporation and bylaws contain provisions that could depress the trading price of our stock by acting to
discourage, delay or prevent a change of control of our company or changes in our management that some of the stockholders of our company may deem advantageous. Some of these
provisions:



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We
may also adopt a "poison pill" stockholder rights plan at any time in response to a potentially hostile bid or for any or no reason due to our available "blank check" preferred stock.
Additionally, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business
combinations with any "interested" stockholder for a period of three years following the date on which the stockholder became an "interested" stockholder.

Item 1B.Unresolved staff comments

None.

Item 2.Properties

Our principal properties as of March 25, 2011 are set forth below:

Our
corporate headquarters and principal operations are located in Beverly Hills, California, where we lease and occupy approximately 38,000 square feet. The term of our lease for our
Beverly Hills corporate headquarters expires in August 2021, with an option for us to extend the term of the lease for one additional five-year period.

We
also have three facilities in Boulder, Colorado, where we lease and occupy a total of approximately 46,300 square feet. The terms of these leases expire in August 2011, September 2011
and August 2016.

We
also have offices outside London in Hemel Hempstead, United Kingdom where we lease and occupy a total of approximately 6,300 square feet. The terms of these leases expire in December
2019 and January 2020.

We
also have offices in Tokyo, Japan where we lease and occupy approximately 500 square feet. The term of this lease expires in December 2013.

We
believe that our facilities are in good condition and generally suitable and adequate for our needs for the foreseeable future. However, we will continue to seek additional space as
needed to satisfy our growth.

Item 3.Legal proceedings

From time to time, we are subject to certain legal proceedings that arise in the ordinary course of our business, including claims of
alleged infringement of intellectual property rights, commercial, employment and other matters. We are not currently involved in any legal proceedings by third parties that our management believes
could have a material adverse effect on our business, financial condition or results of operations. However, it is possible that an unfavorable resolution of one or more such proceedings could
materially affect our future operating results or financial condition in a particular period.

Item 4.Removed and reserved

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Table of Contents

PART II

Item 5.Market for registrant's common equity, related stockholder matters andissuer purchases of equity securities

Market information and holders

Our common stock is traded on the New York Stock Exchange under the symbol "RLD." The following table shows, for the periods indicated,
the high and low per share sale prices of our common stock, as reported by the New York Stock Exchange.

High

LowSecond Quarter of Fiscal 2011 (July 16, 2010 to September 24, 2010)

$
21.00

$
15.63Third Quarter of Fiscal 2011 (September 25, 2010 to December 24, 2010)

$
30.68

$
16.00Fourth Quarter of Fiscal 2011 (December 25, 2010 to March 25, 2011)

$
28.50

$
21.12


On
June 6, 2011, the last reported sales price of our common stock on the New York Stock Exchange was $23.85 per share. According to the records of our transfer agent, we had
54,168,301 stockholders of record of our common stock on June 6, 2011. Because brokers and other institutions hold many of our shares on behalf of stockholders, we are unable to estimate the
total number of stockholders represented by these record holders.

Dividends

We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Instead, we expect
that all of our earnings in the foreseeable future will be used for the operation and growth of our business. Any future determination to pay dividends on our common stock will be at the discretion of
our board of directors and will depend upon various factors, including our financial condition, results of operations, capital requirements, any restrictions that may be imposed by applicable law and
our contracts and such other factors as are deemed relevant by our board of directors.

Equity compensation plan information

The following table summarizes our equity compensation plans as of March 25, 2011:

Number of Securities
to be Issued Upon
Exercise of Outstanding
Options and Rights

Weighted-average
Exercise Price of
Outstanding Options
and Rights

Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column (a))(a)

(b)

(c)Equity compensation plans approved by security holders(1)


6,955,542

$
10.51


2,216,443Equity compensation plans not approved by security holders








Total revenues


6,955,542

$
10.51


2,216,443


(1)The
weighted average exercise price under column (b) with respect to equity compensation plans does not include 68,757 shares issuable upon the
vesting of outstanding restricted stock units.


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Comparison of stockholder return

The following graph compares the cumulative total return for the period from July 22, 2010, the date of our IPO, to
March 25, 2011 provided stockholders on RealD Inc.'s common stock relative to the cumulative total returns of the NYSE Composite Index, the Russell 2000 Index and the Bloomberg Hollywood
Reporter Index.

Comparison of Cumulative Total Return*
Among the NYSE Composite Index, the Russell 2000 Index
and the Bloomberg Hollywood Reporter Index

GRAPHIC

July 22,
2010

September 24,
2010

December 24,
2010(1)

March 25,
2011RealD Inc.

$
100.00

$
92.16

$
160.20

$
133.31NYSE Composite Index

$
100.00

$
105.78

$
114.83

$
120.57Russell 2000 Index

$
100.00

$
105.59

$
124.15

$
129.64Bloomberg Hollywood Reporter Index

$
100.00

$
114.80

$
125.58

$
143.97


*Assumes
that $100.00 was invested in RealD common stock and in each index at market closing prices on July 22, 2010, and that all dividends were
reinvested. No cash dividends have been declared on our common stock. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns.(1)Cumulative
total return for the quarter ended December 24, 2010 is based on the closing price of the respective stock or index on December 23,
2010, the last trading day of the quarter ended December 24, 2010.


Item 6.Selected financial data

The selected financial data set forth below should be read in conjunction with our consolidated financial statements and related notes
and "Management's discussion and analysis of financial condition and results of operations" in Part II, Item 7 appearing elsewhere in this Annual Report on Form 10-K.

The
selected consolidated statement of operations data for the years ended March 25, 2011, March 26, 2010 and March 27, 2009 and the selected consolidated balance
sheet data as of March 25, 2011 and March 26, 2010, have been derived from our audited consolidated financial statements included elsewhere in this Annual Report on
Form 10-K. The selected consolidated statement of operations data for the years ended March 31, 2008 and March 31, 2007 and the selected consolidated balance sheet
data as of March 27, 2009, March 31, 2008 and March 31, 2007 have been derived from

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our
audited consolidated financial statements, which are not included in this Annual Report on Form 10-K. Historical results are not necessarily indicative of the results to be
expected for future periods.

Year ended(in thousands, except per share data)

March 25,
2011

March 26,
2010

March 27,
2009

March 31,
2008

March 31,
2007Consolidated Statement of Operations Data:Net revenue

$
246,136

$
149,846

$
39,675

$
23,378

$
15,885Cost of revenue


178,396


140,603


27,107


13,500


13,985Gross profit


67,740


9,243


12,568


9,878


1,900Operating expenses:Research and development


15,582


11,021


8,915


11,166


4,677Selling and marketing


24,139


16,811


11,009


7,311


2,521General and administrative


35,835


15,638


7,940


8,006


4,294Total operating expenses


75,556


43,470


27,864


26,483


11,492Operating loss


(7,816
)

(34,227
)

(15,296
)

(16,605
)

(9,592
)Interest expense


(919
)

(1,730
)

(949
)

(1,257
)

(3,045
)Other income (loss)


6,182


(1,112
)

100


(7
)

45Income tax expense


4,272


2,680


219


20


116Net loss


(6,825
)

(39,749
)

(16,364
)

(29,685
)

(12,734
)Accretion of preferred stock


(4,934
)

(12,372
)

(9,826
)

(8,001
)

(789
)Net loss attributable to RealD Inc. common stockholders

$
(12,289
)
$
(51,225
)
$
(25,463
)
$
(37,265
)
$
(13,504
)Basic and diluted loss per share of common stock(1)

$
(0.29
)
$
(2.09
)
$
(1.06
)
$
(1.57
)
$
(0.68
)Shares used in computing basic and diluted loss per share of common stock(1)


41,933


24,500


24,027


23,713


19,974




Year ended(in thousands)

March 25,
2011

March 26,
2010

March 27,
2009

March 31,
2008

March 31,
2007Consolidated Balance Sheet Data:Cash and cash equivalents

$
16,936

$
13,134

$
15,704

$
9,448

$
7,628Total assets


280,147


162,146


96,548


70,811


90,133Total indebtedness (including short-term indebtedness)


2,310


31,396


14,863


7,966


17,714Mandatorily redeemable convertible preferred stock





62,831


50,459


40,633


32,632Total equity (deficit)

$
145,100

$
(41,886
)
$
(31,945
)
$
(14,565
)
$
1,209


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Year ended(in thousands)

March 25,
2011

March 26,
2010

March 27,
2009

March 31,
2008

March 31,
2007Consolidated Other Data:Capital expenditures

$
102,643

$
30,161

$
12,072

$
12,898

$
10,423Depreciation and amortization


15,737


7,952


5,598


5,296


1,612Adjusted EBITDA(2)

$
62,195

$
22,727

$
1,072

$
(3,768
)
$
(6,575
)Cash flows provided by (used in):Operating activities

$
35,098

$
15,135

$
10,134

$
(1,583
)
$
6,442Investing activities


(87,031
)

(29,636
)

(12,107
)

(9,988
)

(37,899
)Financing activities

$
55,735

$
11,931

$
8,229

$
13,391

$
38,198




Year ended(approximate numbers)

March 25,
2011

March 26,
2010

March 27,
2009

March 31,
2008

March 31,
2007Number of RealD-enabled screens (at period end):Total domestic RealD-enabled screens


8,700


3,400


1,700


1,000


600Total international RealD-enabled screens


6,300


1,900


400


150


50Total RealD-enabled screens


15,000


5,300


2,100


1,150


650Number of locations with RealD-enabled screens (at period end):Total locations with domestic RealD-enabled screens


2,300


1,800


1,100


650


500Total locations with international RealD-enabled screens


2,200


1,200


400


150


50Total locations with RealD-enabled screens


4,500


3,000


1,500


800


550


(1)All
basic and diluted loss per share of common stock and average shares outstanding information for all periods presented have been adjusted to reflect the
June 28, 2010 one-for-one and one-half (1 for 1.5) forward split of our common stock described in Note 1, "Business and basis of presentation", to our
consolidated financial statements in Item 8 below. For more information regarding loss per share calculations, see Note 2, "Net loss per share of common stock," to our consolidated
financial statements and our consolidated financial statements.(2)Adjusted
EBITDA is a Non-U.S. GAAP financial measure. Adjusted EBITDA is a supplemental measure of our performance. However, Adjusted
EBITDA is not a recognized measurement under U.S. GAAP. We define Adjusted EBITDA as net income (loss), plus net interest expense, income and other taxes, depreciation and amortization,
share-based compensation expense and exhibitor option expense, as further adjusted to eliminate the impact of certain other items that we do not consider indicative of our core operating performance.
Management considers our core operating performance to be that which can be affected by our managers in any particular period through their management of the resources that affect our underlying
revenue and profit generating operations for that period. Non-U.S. GAAP adjustments to our results prepared in accordance with U.S. GAAP are itemized below. You are
encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur
expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be
unaffected by unusual or non-recurring items.


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Set
forth below is a reconciliation of Adjusted EBITDA to net loss for the following periods indicated:

Year ended(in thousands)

March 25,
2011

March 26,
2010

March 27,
2009Net loss

$
(6,825
)
$
(39,749
)
$
(16,364
)Add (deduct):Interest expense


919


1,730


949Income tax expense


4,272


2,680


219Depreciation and amortization


15,737


7,952


5,598Other (income) loss(1)


(6,182
)

1,112


(100
)Share-based compensation expense(2)


8,950


2,909


1,932Exhibitor option expense(3)


36,447


39,234


4,878Impairment of assets and intangibles(4)


1,128


426


2,037Sales and use tax(5)


6,484


5,478


910Property tax(6)


1,090


605


663Management fee(7)


175


350


350Adjusted EBITDA

$
62,195

$
22,727

$
1,072


(1)Includes
amortization of debt issue costs and unrealized foreign currency exchange gains and losses and gain on sale of digital projectors.(2)Represents
share-based compensation expense of nonstatutory and incentive stock options and restricted stock units to employees, officers, directors and
consultants.(3)Represents
stock options granted to some of our motion picture exhibitor licensees. The amounts are recorded as contra revenue in the consolidated financial
statements.(4)Represents
impairment of long-lived assets, such as fixed assets, theatrical equipment and identifiable intangibles.(5)Represents
taxes incurred by us for cinema license and product revenue.(6)Represents
property taxes on RealD Cinema Systems and digital projectors.(7)Represents
payment of management fees to our Series C mandatorily redeemable convertible preferred stockholder (included in general and
administrative expense), which were terminated upon the completion of our IPO.


We
present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do
not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA in developing our internal budgets, forecasts and strategic plan, in analyzing the effectiveness of
our business strategies in evaluating potential acquisitions; in making compensation decisions, in communications with our board of directors concerning our financial performance and because our
credit facility agreement uses Adjusted EBITDA to measure our compliance with certain covenants. Adjusted EBITDA has limitations as an analytical tool which include, among others, the
following:



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Because
of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with U.S. GAAP. We
compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA only as a supplement. Our consolidated financial statements and the notes to those
statements included elsewhere are prepared in accordance with U.S. GAAP. See also "Part II, Item 7: Management's discussion and analysis of financial condition and results of
operationsNon-U.S. GAAP discussion" and "Seasonality."

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Item 7.Management's discussion and analysis of financial condition and results of operations

The following discussion should be read together with our consolidated financial statements and accompanying
notes, which are included elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion includes forward-looking information that involves
risks and assumptions which could cause actual results to differ materially from management's expectations. See "Part I, Item 1A: Risk factors" and "Special note regarding
forward-looking statements and other industry data"included elsewhere in this Annual Report on Form 10-K.

Overview

We are a leading global licensor of 3D technologies. Our extensive intellectual property portfolio is used in applications that enable
a premium 3D viewing experience in the theater, the home and elsewhere. We license our RealD Cinema Systems to motion picture exhibitors that show 3D motion pictures and alternative 3D content. We
also provide our RealD Display, active and passive eyewear, RealD Format technologies to consumer electronics manufacturers and content providers and distributors to enable the delivery and viewing of
3D content on high definition televisions, laptops and other displays. Our cutting-edge 3D technologies have been used for applications such as piloting the Mars Rover.

For
financial reporting purposes, we currently have one reportable segment. We have three operating segments: cinema, consumer electronics and professional within which we market our
various applications. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision
maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our Chief Executive Officer. We aggregate our three operating
segments into one reportable segment based on qualitative factors, including similar economic characteristics and the nature of the products and services. Our product portfolio is used in applications
that enable a premium 3D viewing experience across these segments. We currently generate substantially all of our revenue from the license of our RealD Cinema Systems and the use and sale of our
eyewear.

Key business metrics

Our management regularly reviews a number of business metrics, including the following key metrics to evaluate our business, monitor
the performance of our business model, identify trends affecting our business, determine the allocation of resources, make decisions regarding corporate strategies and evaluate forward-looking
projections. The measures that we believe are the primary indicators of our quarterly and annual performance are as follows:



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The
following table sets forth additional performance highlights of key business metrics for the periods presented (approximate numbers):

Year ended(approximate numbers)

March 25,
2011

March 26,
2010

March 27,
2009Number of RealD enabled screens (at period end)Total domestic RealD enabled screens


8,700


3,400


1,700Total international RealD enabled screens


6,300


1,900


400Total RealD enabled screens


15,000


5,300


2,100Number of locations with RealD enabled screens (at period end)Total domestic locations with RealD enabled screens


2,300


1,800


1,100Total international locations with RealD enabled screens


2,200


1,200


400Total locations with RealD enabled screens


4,500


3,000


1,500Number of 3D motion pictures (released during period)


26


13


8


Performance
highlights for Adjusted EBITDA, another key business metric and a Non-U.S. GAAP financial measure, are presented below under the caption
"Non-U.S. GAAP discussion."

If
we are successful in expanding our business with consumer electronics manufacturers and content producers and distributors to incorporate our RealD Format and display technologies
into their products and platforms, our key business metrics in future periods may include the number of units of 3D-enabled plasma and LCD televisions, interactive gaming consoles and laptop computers
shipped in that period. To date, we have not generated significant revenue in our consumer electronics business.

Opportunities, trends and factors affecting comparability

We have rapidly evolved and expanded our business since we acquired ColorLink in March 2007. This expansion has included hiring most of
our senior management team, acquiring and growing our research and development facilities in Boulder, Colorado, and building infrastructure to support our business. These investments in and changes to
our business have allowed us to significantly increase our revenue and key business metrics. We expect to continue to invest for the foreseeable future in expanding our business as we increase our
direct sales and marketing presence in the United States, Europe, Asia and other geographic regions, enhance and expand our technology and product offerings and pursue strategic acquisitions.

Cinema

The shift in the motion picture industry from analog to digital over the past decade has created an opportunity for new and
transformative 3D technologies. In 2010, motion picture exhibitors installed approximately 20,000 digital cinema projectors, an approximately 123% growth rate from 2009, in 2009,

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motion
picture exhibitors installed approximately 7,500 digital cinema projectors, an approximately 86% growth rate from 2008, and in 2008, motion picture exhibitors installed approximately 2,300
digital cinema projectors, an approximately 36% growth rate from 2007. As of March 25, 2011, there were approximately 15,000 RealD-enabled screens worldwide as compared to approximately 5,300
RealD-enabled screens worldwide as of March 26, 2010, an increase of 9,700 RealD-enabled screens or 183%. Based on the slate announcements by motion picture studios, we anticipate that
approximately 37 3D motion pictures will be released worldwide in our fiscal year 2012, including sequels to successful major motion picture franchises, such asHarry
Potter,Transformers,Pirates of the Caribbean, Kung Fu Pandaand Cars,and that as
the number of RealD-enabled screens and 3D motion pictures released increases, we expect that our revenue and capital needs will
continue to grow.

Consumer electronics

We have recently made available our RealD Display, active and passive eyewear, RealD Format technologies to consumer electronics
manufacturers and content distributors to enable 3D in high definition televisions, laptops and other displays in the home and elsewhere. We believe that the recent success of major 3D motion
pictures, includingAvatar, Alice in Wonderland, Shrek Forever After, Toy Story 3andDespicable Me, is
leading to the creation and distribution of 3D content for consumer electronics. The development of these technologies represents a significant opportunity for new revenue.

Motion picture exhibitor stock options

We have incurred variability in our license revenue and operating results in the past and during the period covered by this Annual
Report on Form 10-K in connection with stock options issued to some of our motion picture exhibitor licensees that vest upon the achievement of screen installation targets. All of
these screen installation targets have been
achieved, all associated reduction of revenue has been recognized and the motion picture exhibitor stock options have vested in full as of March 25, 2011. For further discussion regarding
exhibitor stock options, see "Key components of our results of operationsRevenueMotion picture exhibitor stock options" and "Critical accounting policies and estimates."

Key components of our results of operations

Revenue

We derive substantially all of our revenue from the license of our RealD Cinema Systems and the use and sale of our RealD eyewear.

We
license our RealD Cinema Systems in multi-year (typically five years or longer) agreements that are generally exclusive with our motion picture exhibitor licensees in both
the domestic and international markets. Our license agreements for our RealD Cinema Systems are typically structured on a per-admission, periodic fixed-fee, or
per-motion picture basis. Currently, our license revenue is derived principally on a per-admission basis.

We
generate product revenue from the distribution of RealD eyewear to motion picture studios and exhibitors worldwide. Domestically, we provide our RealD eyewear free of charge to motion
picture exhibitors and then receive a fee from the motion picture studios for the usage of that RealD eyewear by the motion picture exhibitors' consumers. Most international motion picture exhibitors
purchase RealD eyewear directly from us and sell them to consumers as part of their admission or as a concession item. Product revenue is principally derived from the use and sale of RealD eyewear.
International revenue is primarily earned in Europe, Central and South America, Asia and Australia.

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Our
cinema business is strongly tied to the release of 3D motion pictures. These motion pictures tend to be released based on specific consumer entertainment dynamics, which results in
seasonal patterns, with the largest number of motion pictures typically being released in summer and early winter. Although we have not yet generated material revenue licensing 3D consumer electronics
technologies, we expect to derive revenue from the licensing of our RealD Display, active and passive eyewear, RealD Format and technologies to consumer electronics manufacturers and content producers
and distributors. As a result, we expect a portion of our revenue growth in the future to be affected by consumer electronics, including the impact of supply chain timelines of the major consumer
electronics manufacturers.

We
record revenue net of motion picture exhibitor stock options, as discussed more fully immediately below, and estimated revenue allowances. Historically, allowances, which include
accruals for product returns, have been insignificant.

Upfront
payments for the purchase of RealD eyewear and license fees associated with certain motion picture exhibitor license agreements are recorded as deferred revenue until the
applicable revenue recognition criteria are met.

Motion picture exhibitor stock options.In connection with some of our motion picture exhibitor license agreements, we issued to three
motion picture
exhibitors 10-year options to purchase an aggregate of 3,668,340 shares of our common stock at an exercise price of approximately $0.00667 per share. The stock options vested upon the
achievement of screen installation targets, which have all been achieved. The stock options do not have net cash settlement features. Motion picture exhibitor stock options are valued at the
underlying stock price during each reporting period. As of March 25, 2011, all 3,668,340 motion picture exhibitor stock options had vested and all associated reduction of revenue has been
recognized. Amounts recorded as revenue reduction totaled $36.4 million for the year ended March 25, 2011, $39.2 million for the year ended March 26, 2010 and
$4.9 million for the year ended March 27, 2009. We did not issue stock options to our motion picture exhibitor licensees prior to our fiscal year 2009.

Cost of revenue and operating expenses

Cost of revenue principally consists of depreciation expense of our RealD Cinema Systems deployed at a motion picture exhibitor's
premises, digital projector depreciation expenses, RealD eyewear costs (including shipping, handling and recycling costs), field service and support costs and occupancy costs.

We
classify our operating expenses into three categories: research and development, selling and marketing and general and administrative. Personnel costs include salaries, bonuses,
benefits and share-based compensation. We allocate share-based compensation expense resulting from the amortization of the fair value of stock options granted based on how we categorize the department
in which the stock option holder works.

Research and development.Research and development costs principally consist of personnel costs related to our research and development
staff,
depreciation and amortization of research and development assets, prototype and materials costs, the cost of third-party service providers supporting our research and development efforts and occupancy
costs.

Selling and marketing.Selling and marketing costs principally consist of personnel costs related to our selling and marketing staff,
advertising
costs, including promotional events and other brand building initiatives and product marketing expenses, corporate communications, professional fees, occupancy costs and travel expenses.

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General and administrative.General and administrative costs principally consist of personnel costs related to our executive, legal,
finance, and
human resources staff, professional fees including legal and accounting costs, occupancy costs, bad debt expense and public company costs. Additionally, general and administrative costs include sales,
use, goods and services tax, and property taxes and management fees payable to a stockholder, which terminated upon consummation of our IPO. For our U.S. cinema license and product revenue, we absorb
the majority of sales and use taxes and do not pass such costs on to our customers.

Results of operations

The following table sets forth our consolidated statements of operations and other data for each of the periods indicated:

Year ended(in thousands)

March 25, 2011

March 26, 2010

March 27, 2009Consolidated statements of operations data:Gross revenue

$
282,583

$
189,080

$
44,553Motion picture exhibitor options


(36,447
)

(39,234
)

(4,878
)Net revenue


246,136


149,846


39,675Cost of revenue


178,396


140,603


27,107Gross profit


67,740


9,243


12,568Operating expenses:Research and development


15,582


11,021


8,915Selling and marketing


24,139


16,811


11,009General and administrative


35,835


15,638


7,940Total operating expenses


75,556


43,470


27,864Operating loss


(7,816
)

(34,227
)

(15,296
)Interest expense


(919
)

(1,730
)

(949
)Other income (loss)


6,182


(1,112
)

100Loss before income taxes


(2,553
)

(37,069
)

(16,145
)Income tax expense


4,272


2,680


219Net loss


(6,825
)

(39,749
)

(16,364
)Net (income) loss attributable to noncontrolling interest


(530
)

896


727Accretion of preferred stock


(4,934
)

(12,372
)

(9,826
)Net loss attributable to RealD Inc.
common stockholders

$
(12,289
)
$
(51,225
)
$
(25,463
)Other data:Adjusted EBITDA(1)

$
62,195

$
22,727

$
1,072


(1)Adjusted
EBITDA is not a recognized measurement under U.S. GAAP. For a definition of Adjusted EBITDA and reconciliation to net income (loss), the
comparable U.S. GAAP item, see "Non-U.S. GAAP discussion."


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The
following table sets forth our consolidated statements of operations and other data as a percentage of net revenue for each of the periods indicated:

Year endedMarch 25,
2011

March 26,
2010

March 27,
2009Net revenue


100
%

100
%

100
%Cost of revenue


72.5


93.8


68.3Gross margin


27.5


6.2


31.7Operating expenses:Research and development


6.3


7.4


22.5Selling and marketing


9.8


11.2


27.7General and administrative


14.6


10.4


20.0Total operating expenses


30.7


29.0


70.2Operating loss


(3.2
)

(22.8
)

(38.6
)Interest expense


(0.4
)

(1.2
)

(2.4
)Other income (loss)


2.5


(0.7
)

0.3Loss before income taxes


(1.0
)

(24.7
)

(40.7
)Income tax expense


1.7


1.8


0.6Net loss


(0.0
)

(0.3
)

(0.4
)Net (income) loss attributable to noncontrolling interest


(0.0
)

0.0


0.0Accretion of preferred stock


(0.0
)

(0.1
)

(0.2
)Net loss attributable to RealD Inc.
common stockholders


(5.0
)%

(34.2
)%

(64.2
)%Other data:Adjusted EBITDA(1)


25.3
%

15.2
%

2.7
%


(1)For
a definition of Adjusted EBITDA and reconciliation to net income (loss), the most comparable U.S. GAAP item, see
"Non-U.S. GAAP discussion."


The
following table sets forth share-based compensation and depreciation and amortization included in the above line items:

Year ended(in thousands)

March 25,
2011

March 26,
2010

March 27,
2009Share-based compensationCost of revenue

$
160

$
60

$
46Research and development


1,470


985


866Selling and marketing


2,937


1,589


744General and administrative


4,383


275


276Total

$
8,950

$
2,909

$
1,932


45

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Table of Contents



Year Ended(in thousands)

March 25,
2011

March 26,
2010

March 27,
2009Depreciation and amortizationCost of revenue

$
14,971

$
7,426

$
4,655Research and development


481


452


745Selling and marketing


84





114General and administrative


201


74


84Total

$
15,737

$
7,952

$
5,598


In
the period to period comparative discussion below, we describe our net revenue, license revenue (composed principally of revenue from our RealD Cinema Systems), and product and other
revenue (principally composed of our RealD eyewear and, to a much lesser extent, professional product revenue and other revenue).

Fiscal year ended March 25, 2011 compared to fiscal year ended March 26, 2010

Revenue

For the fiscal year ended March 25, 2011, net revenue increased $96.3 million to $246.1 million compared to
$149.8 million for the fiscal year ended March 26, 2010.

Year ended(in thousands)

March 25,
2011

March 26,
2010

Amount
change

Percentage
changeRevenue:Gross license

$
137,970

$
80,148

$
57,822


72
%Motion picture exhibitor options


(36,447
)

(39,234
)

2,787


(7
)%Net license


101,523


40,914


60,609


148
%Product and other


144,613


108,932


35,681


33
%Total net revenue

$
246,136

$
149,846

$
96,290


64
%Other data (approximate):Number of RealD enabled screens (at period end)Total domestic RealD enabled screens


8,700


3,400


5,300


156
%Total international RealD enabled screens


6,300


1,900


4,400


232
%Total RealD-enabled screens


15,000


5,300


9,700


183
%Number of locations with RealD enabled screens (at period end)Total domestic locations with RealD enabled screens


2,300


1,800


500


28
%Total international locations with RealD enabled screens


2,200


1,200


1,000


83
%Total locations with RealD enabled screens


4,500


3,000


1,500


50
%Number of 3D motion pictures (released during period)


26


13


13


100
%


The
significant increase in net revenue recorded during the fiscal year ended March 25, 2011 compared to the fiscal year ended March 26, 2010 was primarily due to an
increase in the number of RealD-enabled screens, an increase in the number of 3D motion pictures released and the resulting increase in the box office of 3D motion pictures on RealD-enabled screens.
Our international markets comprised approximately 55% of gross revenue for the fiscal year ended March 25, 2011.

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For the fiscal year ended March 25, 2011, there were 25 motion pictures that contributed greater than $1.0 million of admission-based fees to net
license revenue. The top 10 motion pictures that contributed greater than $1.0 million of admission-based fees to net license revenue for the fiscal year ended March 25, 2011 included
the following:Toy Story 3($14.4 million),Shrek Forever After($9.2 million), Despicable Me($6.9 million),How to Train Your Dragon($6.1 million), Tangled($5.7 million),Alice in Wonderland($5.5 million),Tron:
Legacy($5.1 million),Clash of the Titans($4.8 million),The Chronicles of Narnia: The
Voyage of the Dawn Treader($4.7 million) andMegamind($4.3 million). For the fiscal year ended March 26,
2010, there were seven motion pictures which contributed greater than $1.0 million of admission-based fees to net license revenue. Net license revenue for the fiscal year ended March 26,
2010 included admission-based fees related to the following motion pictures:Avatar($27.9 million), Up($8.5 million),Alice in Wonderland($7.2 million), Monsters vs. Aliens($4.9 million),Ice Age 3($6.2 million),GForce($3.7 million) andChristmas Carol($4.2 million). Both domestically and
internationally, our net license revenue has increased on a year-over-year basis as a result of the increased number of RealD-enabled screens and the number of 3D motion
pictures increasing the box office. The reduction to revenue resulting from motion picture exhibitor stock options decreased $2.8 million based upon changes in the price of our common stock and
screen installation targets. Motion picture exhibitor stock options are valued at the underlying stock price during each reporting period. As of March 25, 2011, all 3,668,340 motion picture
exhibitor stock options had vested and all associated reduction of revenue had been recognized.

Net
license revenues comprised 41% and 27% of total revenues for each of the fiscal years ended March 25, 2011 and March 26, 2010, respectively. International license
revenues comprised 54% of our gross license revenues in the fiscal year ended March 25, 2011.

The
increase in our net product revenue in the fiscal year ended March 25, 2011, as compared to the fiscal year ended March 26, 2010, was primarily a result of an increase
in the number of consumers attending 3D motion pictures using our RealD eyewear. International product and other revenues comprised 56% of total product and other revenues in the fiscal year ended
March 25, 2011.

We
expect our future revenue, particularly in our license business, will be driven by the number of RealD-enabled screens and motion pictures released in 3D. As the volume of RealD
eyewear usage increases as a result of an expanding 3D motion picture slate and box office, we may experience additional price pressure from our customers. As a result, our net revenues may increase
at a slower rate or decline in future periods.

Cost of revenue

Year ended(in thousands)

March 25,
2011

March 26,
2010

Amount
change

Percentage
changeRevenue

$
246,136

$
149,846

$
96,290


64
%Cost of revenue:License


17,994


9,452


8,542


90
%Product and other


160,402


131,151


29,251


22
%Total cost of revenue

$
178,396

$
140,603

$
37,793


27
%Gross profit

$
67,740

$
9,243

$
58,497


633
%Gross margin


28
%

6
%


For
the fiscal year ended March 25, 2011, our cost of revenue increased primarily due to increased RealD eyewear sales. Cost of revenue decreased, as a percentage of revenue, to
72% for the fiscal year ended March 25, 2011, as compared to 94% for the fiscal year ended March 26, 2010. The increase in gross margin was primarily due to an increase in license
revenues which was partially offset by the

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increased
use of RealD eyewear which generates lower gross margin. For the fiscal year ended March 25, 2011, the reduction to revenue resulting from motion picture exhibitor stock options
directly contributed to a $36.4 million decrease in gross profit. The motion picture exhibitor stock options have vested in full as of March 25, 2011 and we do not expect an impact on
gross profit in fiscal year 2012 or beyond due to such stock options.

Excluding
the impact of motion picture exhibitor stock options of $36.4 million, gross profit would have been $104.2 million for the fiscal year ended March 25,
2011, and gross margin would have been 37%. Excluding the impact of motion picture stock options of $39.2 million, gross profit would have been $48.5 million for the fiscal year ended
March 26, 2010, and gross margin would have been 26%.

License
gross margin improved to 82% for the fiscal year ended March 25, 2011 from 77% for the fiscal year ended March 26, 2010. Excluding the impact of motion picture
exhibitor stock options of $36.4 million for the fiscal year ended March 25, 2011 and $39.2 million for the fiscal year ended March 26, 2010, gross profit for license
revenue increased to $120.0 million from $70.7 million primarily due to economies of scale and the increase in the number of 3D motion pictures released and the resulting increase in the
box office of 3D motion pictures on RealD-enabled screens. Excluding the impact of motion picture exhibitor stock options, gross margin declined from 88% for the fiscal year ended March 26,
2010 to 87% for the fiscal period ended March 25, 2011 primarily due to a $7.8 million, or 108%, increase in depreciation expense. Depreciation expense as a percentage of gross license
revenue increased from 9% to 11%.

We
had a negative product and other gross profit of $15.8 million and $22.2 million for the fiscal year ended March 25, 2011 and March 26, 2010, respectively,
primarily due to RealD eyewear. The increase in our cost of product and other revenue was a result of the increase in the volume of RealD eyewear. Product and other gross margin was negative 11% for
the fiscal year ended March 25, 2011 as compared to negative 20% for the fiscal year ended March 26, 2010. The increase in gross margin was due to the lower cost of glasses related to
improved recycling efforts and a decrease in expedited freight costs of
$6.0 million. In addition, there was an increased usage of RealD eyewear internationally for the fiscal year ended March 25, 2011, which generates greater gross margin compared to the
usage of RealD eyewear domestically. Film amortization costs included in cost of revenue related toCarmen in 3Dwere $0.8 million.

Costs
associated with our eyewear recycling program have been expensed in the period incurred. Recycling costs totaled $8.1 million for the fiscal year ended March 25, 2011
and $6.6 million for the fiscal year ended March 26, 2010, and included the cost to transport RealD eyewear between theaters and the recycling production facility and costs to process
the RealD eyewear for reuse.

Our
cost of revenue as a percentage of net revenue will be affected in the future by the relative mix of net license and net product revenue, the mix of domestic and international
product revenues, the relative mix of products and any new revenue sources. As the number of RealD-enabled screens and the number of 3D motion pictures and attendance increase, our total cost of
revenue may continue to increase.



Year ended(in thousands)

March 25,
2011

March 26,
2010

Amount
change

Percentage
changeResearch and development

$
15,582

$
11,021

$
4,561


41
%Selling and marketing


24,139


16,811


7,328


44
%General and administrative


35,835


15,638


20,197


129
%Total operating expenses

$
75,556

$
43,470

$
32,086


74
%


48

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Research and development.Our research and development expenses increased primarily due to a $3.1 million increase in personnel
costs as we
increased the number of research and development personnel to 37 at March 25, 2011 from 25 at March 26, 2010 to increase our product development and engineering capabilities as well as
an increase in discretionary and contractual bonuses of $0.9 million. We also increased spending on consultants of $0.4 million in the fiscal year ended March 25, 2011 compared to
the fiscal year ended March 26, 2010. We expect to increase our research and development expenses to support our anticipated growth in consumer electronics projects and initiatives, primarily
for additional personnel, consultants and prototype and materials costs, as well as for continued investment in our cinema business.

Selling and marketing.Our selling and marketing expenses increased primarily due to a $3.0 million increase in personnel costs.
The change in
personnel costs includes $1.6 million related to the increase in the number of selling and marketing personnel to 21 at March 25, 2011 from 18 at March 26, 2010 and a
$1.3 million increase in share-based compensation expense. Selling and marketing expense includes $2.7 million of selling and marketing costs related to the feature film, Carmen in 3Dwhich we
co-produced with London's Royal Opera House and which was released on March 5, 2011. Selling and marketing
expense also increased from the incurrence of additional advertising and marketing initiatives of $1.0 million in the fiscal year ended March 25, 2011. Personnel costs and advertising
and marketing spending are expected to continue to increase in order to drive revenue growth. We expect to incur additional selling and marketing expenses in fiscal year 2012 and beyond as we increase
our international marketing efforts, particularly in Asia and Latin America, build our consumer electronics business worldwide and market future 3D films.

General and administrative.Our general and administrative expenses increased primarily due to a $7.5 million increase in
personnel costs as
well as a $1.0 million increase in sales and use taxes. The increase in personnel costs includes an increase in salaries and benefits of $2.0 million as we increased the number of
general and administrative employees to 30 at March 25, 2011 from 15 at March 26, 2010 to support our overall growth, including the requirements of being a public company. Also included
in personnel costs is an increase of $4.1 million related to share-based compensation expense and an increase of $1.3 million related to discretionary and contractual bonuses. Sales and
use taxes increased due to the increase in domestic revenues. We absorb the majority of all sales and use taxes in the United States and do not pass such costs on to our customers. Legal expenses and
professional fees increased $5.0 million to support the growth in our operations. Public company related expenses of $1.7 million were incurred in the fiscal year ended March 25,
2011 and include listing, registration and issuance costs, as well as investor relations and compliance fees. We expect to incur additional general and administrative expenses for sales and use taxes
as our revenue in the United States grows, as well as to comply with SEC reporting requirements, stock exchange listing standards and the provisions of the Sarbanes-Oxley Act of 2002 and the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Other

Interest expense.Interest expense for the fiscal years ended March 25, 2011 and March 26, 2010 was $0.9 million and
$1.7 million, respectively. Our interest expense decreased primarily due to reductions in borrowings as we repaid $25.1 million under our previous revolving credit facility on
July 21, 2010 out of the proceeds we received in connection with our IPO. As of March 25, 2011, there were no borrowings outstanding under the Credit Agreement as described below.

Income tax.Our income tax expense for the fiscal year ended March 25, 2011 was $4.3 million, primarily due to an increase in
our
foreign tax expense. We have net operating losses that may potentially be offset against future earnings. We expect to incur an increasing amount of income tax expenses that relate to federal and
state income tax and international operations. We file federal

49

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Table of Contents

income
tax returns and income tax returns in various state and foreign jurisdictions. Due to the net operating loss carryforwards, our United States federal and state returns are open to examination
by the Internal Revenue Service and state jurisdictions for all years since inception.

Noncontrolling interest.Noncontrolling interest represents a 44.4% interest in our subsidiary, Digital Link II, LLC, or Digital
Link II.
Digital Link II was formed for purposes of funding the deployment of digital projector systems and servers to our motion picture exhibitor licensees. The increase in the net income attributable to
noncontrolling interest was primarily due to the gain from the sale of digital projectors for the year ended March 25, 2011.

Fiscal year ended March 26, 2010 compared to fiscal year ended March 27, 2009

Revenue

For the fiscal year ended March 26, 2010, net revenue increased $110.1 million to $149.8 million compared to
$39.7 million for the fiscal year ended March 27, 2009.

Year ended(in thousands)

March 26,
2010

March 27,
2009

Amount
change

Percentage
changeRevenue:Gross license

$
80,148

$
17,620

$
62,528


355
%Motion picture exhibitor options


(39,234
)

(4,878
)

(34,356
)

704
%Net license


40,914


12,742


28,172


221
%Product and other


108,932


26,933


81,999


304
%Total net revenue

$
149,846

$
39,675

$
110,171


278
%Other data (approximate):Number of RealD enabled screens (at period end)Total domestic RealD enabled screens


3,400


1,700


1,700


100
%Total international RealD enabled screens


1,900


400


1,500


375
%Total RealD-enabled screens


5,300


2,100


3,200


152
%Number of locations with RealD enabled screens (at period end)Total domestic locations with RealD enabled screens


1,800


1,100


700


64
%Total international locations with RealD enabled screens


1,200


400


800


200
%Total locations with RealD enabled screens


3,000


1,500


1,500


100
%Number of 3D motion pictures (released during period)


13


8


5


63
%


This
significant increase in net revenue was primarily due to an increase in the number of RealD-enabled screens, an increase in the number of 3D motion pictures released and the
resulting increase in the box office of 3D motion pictures on RealD-enabled screens.

Net
license revenue for the fiscal year ended March 26, 2010 includes admission-based fees related to the following motion pictures: Avatar($27.9 million),Up($8.5 million),Alice in
Wonderland($7.2 million),Monsters vs. Aliens($4.9 million),Ice Age
3($6.2 million),GForce($3.7 million) andChristmas Carol($4.2 million). Net license revenue for the fiscal year ended March 27, 2009 includes admission-based fees related to the following motion pictures: Bolt($2.0 million),Journey to the Center of the Earth($2.1 million), My Bloody Valentine($1.5 million) andCoraline($1.6 million). Both domestically and
internationally, our net license revenue increased year-over-year as a result of the increased number of RealD-enabled screens and the number of 3D motion pictures increasing
the box office. The significant increase in gross license revenue was partially offset by higher reductions to gross

50

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Table of Contents

license
revenue relating to motion picture exhibitor stock options. Reduction to revenue resulting from motion picture exhibitor stock options increased $34.4 million based upon the change in
the estimated fair value of our common stock and the number of RealD-enabled screens of the related exhibitor. The reduction to revenue resulting from motion picture exhibitor stock options in the
fiscal year ended March 26, 2010 reflects an estimated fair value of our common stock of $23.07 per share and 1,374 deployed RealD Cinema Systems out of 4,500 RealD Cinema Systems set forth in
the performance vesting targets. As of March 26, 2010, unrecognized motion picture exhibitor stock options reductions to revenue totaled $40.5 million based upon an estimated fair value
of our common stock of $23.07 per share and 100% achievement of screen installation targets.

The
increase in our net product revenue in the fiscal year ended March 26, 2010, as compared to the fiscal year ended March 27, 2009, was primarily a result of an increase
in the number of consumers attending 3D motion pictures using our RealD eyewear. The growth in our product revenue was partially offset by a continued decline in our 3D professional revenue.

Cost of revenue

Year ended(in thousands)

March 26,
2010

March 27,
2009

Amount
change

Percentage
changeRevenue

$
149,846

$
39,675

$
110,171


278
%Cost of revenue:License


9,452


4,944


4,508


91
%Product and other


131,151


22,163


108,988


492
%Total cost of revenue

$
140,603

$
27,107

$
113,496


419
%Gross profit

$
9,243

$
12,568

$
(3,325
)

(26
)%Gross margin


6
%

32
%


Our
cost of revenue increased primarily due to increased RealD eyewear sales. Cost of revenue increased, as a percentage of revenue, to 93.8% for the fiscal year ended March 26,
2010, as compared to 68.3% for the fiscal year ended March 27, 2009. The decrease in gross margin was primarily due to the increased use of RealD eyewear which generates lower gross margin as
well as an increase in the reduction to revenue resulting from motion picture exhibitor stock options. The increased use of RealD eyewear was driven by increased attendance. The $34.4 million
increase in reduction to revenue resulting from motion picture exhibitor stock options directly contributed to a $34.4 million decline in gross profit. Excluding the impact of motion picture
stock options, gross profit would have increased $31.1 million from $17.4 million for fiscal 2009 to $48.5 million for fiscal 2010 and gross margin would have been 25.6% for
fiscal 2010.

License
cost of revenue increased year-over-year primarily as a result of a $2.5 million increase in depreciation expense and a $1.0 million
increase in cinema installation costs, in each case, resulting from an increase in RealD-enabled screens.

We
had a negative product and other gross profit of $22.2 million for the fiscal year ended March 26, 2010 primarily due to RealD eyewear. The increase in our cost of
product revenue and negative gross margins are a result of the increase in the volume of RealD eyewear. In the fiscal year ended March 26, 2010, we began to fully assume the logistics costs for
domestic distribution of RealD eyewear and commenced a domestic recycling program. Inbound and outbound freight expense increased an aggregate of $16.4 million as a result of assuming
logistical responsibilities for RealD eyewear. In addition, included in this $16.4 million increase is $8.5 million of expedited shipping expenses we incurred in the three months ended
March 26, 2010 to satisfy a significant increase in demand. Significant costs associated with the establishment and expansion of the recycling program

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have
been expensed in the period incurred, which further reduced gross margin. Recycling costs totaled $6.6 million during the fiscal year ended March 26, 2010, and include program start
up costs, the cost to transport RealD eyewear between theaters and the recycling production facility and costs to process the RealD eyewear for reuse.

Operating expenses

Year ended(in thousands)

March 26,
2010

March 27,
2009

Amount
change

Percentage
changeResearch and development

$
11,021

$
8,915

$
2,106


24%Selling and marketing


16,811


11,009


5,802


53%General and administrative


15,638


7,940


7,698


97%Total operating expenses

$
43,470

$
27,864

$
15,606


56%


Research and development.Our research and development expenses increased year-over-year primarily due to a
$1.6 million increase in personnel costs,
as we increased the number of research and development personnel to 25 at March 26, 2010 from 22 at March 27, 2009 to increase our product development and engineering capabilities.

Selling and marketing.Our selling and marketing expenses increased year-over-year primarily due to our expansion into
Europe, additional advertising and marketing initiatives, and higher personnel costs. As a result of the establishment of our European office in fiscal year 2010, our selling and marketing expenses
increased $1.0 million. Personnel costs increased $3.4 million, or 131.9%, driven primarily by our expansion of marketing efforts worldwide, including new employees in our European
office, executive bonuses and share-based compensation. The total number of selling and marketing personnel increased to 18 at March 26, 2010 from 13 at March 27, 2009. The remainder of
the increase was due to additional spending on advertising, marketing programs and sales promotions.

General and administrative.Our general and administrative expenses increased primarily due to a $4.6 million increase in sales and
use taxes
as a result of increased revenue. We absorb the majority of all sales and use taxes in the United States and do not pass such costs on to our customers. Personnel costs increased $2.0 million,
or 94.6%, as we increased the number of general and administrative employees to 15 at March 26, 2010 from 11 at March 27, 2009 to support our overall growth.

Other

Interest expense.Our interest expense increased primarily due to increases in borrowings under our credit facility. Our borrowings
under the credit
facility increased to $20.1 million at March 26, 2010 from $5.0 million at March 27, 2009.

Income tax.Our income tax expense increased $2.5 million year-over-year primarily due to a $2.4 million
increase in our foreign tax expense. We have net operating losses that may potentially be offset against future earnings. As of March 26, 2010, we had net operating loss carryforwards of
approximately $48.2 million for federal and $41.5 million for state purposes. We expect to incur an increasing amount of income tax expenses that relate to state income tax and
international operations. We file federal income tax returns and income tax returns in various state and foreign
jurisdictions. Due to the net operating loss carryforwards, our United States federal and state returns are open to examination by the Internal Revenue Service and state jurisdictions for all years
since inception.

Noncontrolling interest.Noncontrolling interest represents a 44.4% interest in our subsidiary, Digital Link II. Digital Link II was
formed for
purposes of funding the deployment of digital projector

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systems
and servers to our motion picture exhibitor licensees. The increase in the loss attributable to noncontrolling interest was primarily due to depreciation and property taxes on additional
digital projectors leased by that subsidiary.

Seasonality

Although not apparent in our results of operations due to our rapid growth rate, our operations are generally subject to seasonal
trends based on the number of 3D motion pictures released and the box office of those 3D motion pictures. We expect to experience seasonal fluctuations in results of operations as a result of changes
in the number of 3D motion pictures released and the box office of those 3D motion pictures. Our quarterly financial results have fluctuated in the past and may continue to fluctuate in the future
based on a number of factors, many of which are beyond our control. Factors that may cause our operating results to vary or fluctuate include those discussed under the caption "Risk factors."

Liquidity and capital resources

Since our inception and through March 25, 2011, we have financed our operations through the proceeds we received in connection
with our IPO, the sale of redeemable convertible preferred stock, borrowings under our previous credit facility agreement with City National Bank, a national banking association or City National and
through the issuance of notes payable to stockholders and vendors, and net cash provided by operating activities. Our cash flow from operating activities has historically been significantly impacted
by the contractual payment terms and patterns related to the license of our RealD Cinema Systems and use and sale of our RealD eyewear, as well as significant investments in research, development,
selling and marketing activities and corporate infrastructure. Prior to fiscal 2010, many of our licensing and product sale contracts included terms that required upfront payments. Since a majority of
our revenue recognized under our motion picture
exhibitor licenses results in admission and usage fees being paid to us subsequent to such consumer attendance, we expect our deferred revenue balances to continue to decline over the next several
years.

Cash
provided by operating activities is expected to be a primary recurring source of funds in future periods and will be driven by our expected increased revenue generated from the
growing number of 3D motion pictures exhibited on our RealD Cinema Systems and an increase in the number of RealD-enabled screens, partially offset by increased working capital requirements associated
with installing new RealD Cinema Systems as well as for building inventory, logistics and recycling costs for our RealD eyewear. Depending on our operating performance in any given period and the
installation rate of additional RealD Cinema Systems, we expect to supplement our liquidity needs primarily with borrowings under our new credit and security facility with City National.

As
of March 25, 2011, our primary sources of liquidity were our cash and cash equivalents of $16.9 million and our credit and security agreement with City National, dated
as of June 24, 2010, or the Credit Agreement, providing for a revolving credit facility of up to $15.0 million, $15.0 million of which was available for borrowing.

On
April 5, 2011, we entered into an amendment to the Credit Agreement with City National to provide that the aggregate principal amount outstanding at any one time under our
revolving credit loans may be (i) up to $50 million through December 31, 2011 and (ii) up to $25 million thereafter.

Any
loans outstanding under the Credit Agreement with City National will mature on June 30, 2012.

Since
the beginning of fiscal 2011, we have received $15.6 million in cash from motion picture exhibitors from the sale of digital projectors, resulting in a gain of
$6.7 million in other income. With

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the
proceeds from the sale of such projectors, we repaid an aggregate of $5.6 million of notes payable to the providers of those digital projectors.

On
July 21, 2010, we completed the initial public offering of our common stock, or our IPO, in which we sold and issued 6 million shares of common stock at an issue price
of $16.00 per share. A total of approximately $96 million in gross proceeds were raised from our IPO, or $81.9 million in net proceeds after deducting underwriting discounts and
commissions of approximately $6.7 million and other offering costs of approximately $7.4 million.

On
July 21, 2010, we repaid $25.1 million under our previous credit facility agreement.

On
July 23, 2010, 407,593 shares were issued pursuant to the exercise of motion picture exhibitor stock options.

On
December 6, 2010, we completed a secondary follow-on public offering in which certain selling stockholders sold 7,815,001 shares of our common stock at a price of
$27.75 per share. We did not sell any shares in this follow-on public offering and we received no proceeds in connection with this offering.

On
December 17, 2010, 1,222,780 shares were issued pursuant to the exercise of motion picture exhibitor stock options.

On
January 31, 2011 1,110,284 shares were issued pursuant to the exercise of motion picture exhibitor stock options.

On
March 9, 2011 407,594 shares were issued pursuant to the exercise of motion picture exhibitor stock options.

On
March 16, 2011 112,496 shares were issued pursuant to the exercise of motion picture exhibitor stock options.

On
May 9, 2011 407,593 shares were issued pursuant to the exercise of motion picture exhibitor stock options.

All
3,668,340 motion pictures exhibitor stock options have been exercised as of May 9, 2011.

See
"Part I, Item 1A: "Risk FactorsRisks related to owning our common stockSales of outstanding shares of our common stock (or shares of our
common stock issued upon exercise of stock options) into the market in the future could cause the market price of our stock to drop significantly, even if our business is doing well."

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Based on our current operations and anticipated growth, we believe that the proceeds from the Credit Agreement, our cash inflow from operating activities,
existing cash and cash equivalents and our ability to borrow on acceptable terms will provide adequate funds for ongoing operations, planned capital expenditures and working capital requirements for
at least the next 12 months.

The
following table sets forth our major sources and (uses) of cash for the periods indicated:

Year ended(in thousands)

March 25,
2011

March 26,
2010

March 27,
2009Operating activities

$
35,098

$
15,135

$
10,134Investing activities


(87,031
)

(29,636
)

(12,107
)Financing activities

$
55,735

$
11,931

$
8,229


Cash flow from operating activities

Net cash inflows from operating activities during the fiscal year ended March 25, 2011 primarily resulted from improved
operating performance as RealD Cinema System installations and related licensing revenues driven by admissions increased. Net cash inflows from operating activities also benefited from increases in
accounts payable and accrued expenses, partially offset by an increase in glasses inventories. Increases in accounts payable and accrued expenses were due to increased business activities, resulting
in significant amounts due to vendors and compensation payable to employees. Glasses inventories grew in anticipation of the summer 2011 3D film slate and in order to support an increase in RealD
Cinema System installations and admissions.

Net
cash inflows from operating activities during the fiscal year ended March 26, 2010 primarily resulted from improved operating performance as RealD Cinema System installations
and admissions increased. Net cash inflows from operating activities also benefited from increases in accounts payable and accrued expenses, partially offset by an increase in accounts receivable.
Increases in accounts payable
and accrued expenses were due to increased business activities at fiscal year end, resulting in significant amounts due to vendors and compensation payable to employees that were not paid until after
the fiscal year end. Accounts receivable increased as a result of an increase in revenue.

Net
cash inflows from operating activities during the fiscal year ended March 27, 2009 primarily resulted from a net loss and increases in accounts receivable and inventories more
than offset by increases in accounts payable, deferred revenue and virtual print fees and customer deposits. Accounts receivable increased as a result of an increase in revenue. Inventories grew in
order to support an increase in RealD Cinema System installations and admissions. Increases in accounts payables were the result of our deferring payments until after the end of the applicable fiscal
period. Deferred revenue increased as a result of receiving payments in advance for motion picture releases. Virtual print fees and customer deposits that accumulated during the period increased
primarily as a result of collections from studios based on the number of motion pictures exhibited using Digital Link and Digital Link II projectors.

Cash flow from investing activities and capital resources

For fiscal years 2009, 2010 and 2011, cash outflow for investing activities is primarily related to the establishment of our initial
infrastructure and for the purchase of component parts for our RealD Cinema Systems, digital projectors, and other property, equipment and leasehold improvements. Capital expenditures were
$102.6 million for the fiscal year ended March 25, 2011, $30.2 million for the fiscal year ended March 26, 2010 and $12.1 million for the fiscal year ended
March 27, 2009. We expect our capital expenditures for cinema systems and related components to be approximately $55.0 million to $65.0 million for the fiscal year ending
March 23, 2012. In the future, we will continue to invest in our business to grow sales and develop new products and support the related increasing employee

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headcount.
We expect capital expenditures to represent a decreasing percentage of net revenue in the future.

In
the fiscal year ended March 25, 2011, we purchased and sold available-for-sale securities of $6.8 million. In the fiscal year ended
March 25, 2011, we received proceeds of $15.6 million as a result of the sale of digital projectors to certain of our motion picture exhibitors. In the fiscal year ended March 26,
2010, we received proceeds of $0.5 million as a result of the sale of digital projectors to certain of our motion picture exhibitors.

Cash flow from financing activities

Net cash inflows from financing activities for the fiscal year ended March 25, 2011 primarily resulted from the proceeds from
the completion of our IPO in which we sold and issued 6 million shares of common stock at an issue price of $16.00 per share. A total of approximately $96 million in gross proceeds were
raised from our IPO, or $81.9 million in net proceeds after deducting underwriting discounts and commissions of approximately $6.7 million and other offering costs of approximately
$7.4 million. We used the net proceeds from our IPO to repay $25.1 million of amounts outstanding under our previous credit facility agreement. In the fiscal year ended March 25,
2011, repayments of long-term debt of $9.7 million and a noncontrolling interest distribution of $0.9 million offset proceeds from our previous credit facility agreement of
$5.0 million.

From
time to time, we enter into equipment purchase agreements with certain of our vendors for the purchase of digital projectors, digital servers, lenses and accessories. We pay a
portion of the cost of the equipment upon delivery and finance a portion of the purchase price by issuing notes payable. Certain of these notes payable are non-interest bearing. In those
cases, we record the net present value of the notes payable assuming an implied annual interest rate which is approximately 8.4%. Interest expense is based on annual interest rates ranging from 7.0%
to 8.4%. The notes are secured by the underlying equipment. Notes payable totaled $2.3 million at March 25, 2011, $11.3 million at March 26, 2010 and $9.9 million at
March 27, 2009.

Prior
to July 21, 2010, the date of our IPO, we had $25.1 million of borrowings outstanding pursuant to our previous credit facility agreement with City National Bank that
provides for a maximum amount of borrowing under a revolving credit facility of $25 million and a term loan of $10 million. All amounts outstanding under our previous credit facility
agreement became due and were repaid upon the closing of our IPO on July 21, 2010.

As
of March 25, 2011, there were no borrowings outstanding under our credit and security agreement with City National, dated as of June 24, 2010 (the "Credit Agreement")
providing for a revolving credit facility of up to $15.0 million. In the future, we may continue to utilize commercial financing, lines of credit and term loans for general corporate purposes,
including investing in technology.

As
of April 5, 2011, we entered into an amendment to the Credit Agreement with City National to provide that the aggregate principal amount outstanding at any one time under our
revolving credit loans may be (i) up to $50 million through December 31, 2011 and (ii) up to $25 million thereafter. Subsequently, we drew down an aggregate amount
of $20.0 million of revolving credit loans pursuant thereto. As of June 9, 2011, $30.0 million remains available for borrowing under the Credit Agreement.

Our
obligations under the Credit Agreement are secured by a first priority security interest in substantially all of our tangible and intangible assets in favor of City National Bank and
are fully and unconditionally guaranteed by our subsidiaries, ColorLink and Stereographics.

Under
the Credit Agreement, our business will be subject to certain limitations, including limitations on our ability to incur additional debt, make certain investments or acquisitions,
enter into certain merger and consolidation transactions, and sell our assets other than in the ordinary course of

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business.
We are also required to maintain compliance with certain financial covenants, including a minimum fixed charge coverage ratio and a maximum leverage ratio. As of March 25, 2011, we
were in compliance with all financial covenants in the Credit Agreement. If we fail to comply with any of the covenants or if any other event of default, as defined in the agreement, should occur, the
bank could elect to prevent us from borrowing and declare the indebtedness to be immediately due and payable.

In
November 2008, we entered into a stock purchase agreement with our shareholder of Series D preferred stock. We sold 199,999 shares of our common stock at $10.00 per share.
Total proceeds received were $2 million. Issuance costs were $14,000.

In
December 2007, we sold 1,666,667 shares of Series D convertible preferred stock, or Series D preferred stock, at $12.00 per share. Total proceeds received were
$20.0 million. Issuance costs incurred were $48,000.

In
February 2007, we sold 5,139,500 shares of Series C mandatorily redeemable convertible preferred stock at $6.81 per share. Total proceeds received were $35.0 million.
Issuance costs incurred were $3.2 million. Our Series C mandatorily redeemable convertible preferred stock was classified as temporary equity under the SEC's guidance provided in
Accounting Series Release No. 268,Presentation in Financial Statements of "Redeemable Preferred Stocks," (ASR 268) because the holders of our
Series C mandatorily redeemable convertible preferred stock had the right to cause us to redeem the instrument for cash for a specified period.

Prior
to April 1, 2006, we issued 2,000,000 shares of Series A convertible preferred stock for $2.0 million, or $1.00 per share and 2,417,644 shares of
Series B convertible preferred stock for $3.0 million or $1.24 per share. Issuance costs totaled $52,000 in connection with the issuance of both Series A and B convertible
preferred stock. All shares of our Series A and B convertible preferred stock were outstanding as of March 26, 2010. Our outstanding Series A, B and D convertible preferred stock
and common stock are classified as part of permanent equity within the consolidated balance sheets based on their rights and preferences set forth under the certificate of incorporation, California
law and the accounting standards pertaining to classification within the consolidated balance sheet. We therefore have recorded the Series A, B and D preferred stock at their original issuance
price net of applicable issuance costs.

Upon
the completion of our IPO, all of our outstanding preferred stock was converted into 16,835,714 shares of our common stock.

In
April 2007, we sold 240,000 shares of common stock at approximately $3.33 per share to former shareholders of ColorLink for cash proceeds of $0.8 million.

Non-controlling
interest partner capital contributions for the years ended March 25, 2011, March 26, 2010 and March 27, 2009, were not significant.

From
time to time, we expect to receive cash from the exercise of employee stock options and warrants in our common stock. Proceeds from the exercise of employee stock options and
warrants outstanding will vary from period to period based upon, among other factors, fluctuations in the market value of our common stock relative to the exercise price of such stock options and
warrants. Proceeds from employee stock option exercises was $3.9 million for the years ended March 25, 2011. Proceeds from employee stock option exercises for the years ended
March 26, 2010 and March 27, 2009 were not significant. Proceeds from the exercise of warrants in our common stock was $0.6 million for the years ended March 25, 2011.
Proceeds from the exercise of warrants in our common stock for the years ended March 26, 2010 and March 27, 2009 were not significant.

During
the fiscal year ended March 25, 2011, 3,260,747 shares were issued pursuant to the exercise of motion picture exhibitor stock options described elsewhere in this Annual
Report on Form 10-K.

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On
May 9, 2011 407,593 shares were issued pursuant to the exercise of motion picture exhibitor stock options. All 3,668,340 motion pictures exhibitor stock options
have been exercised as of May 9, 2011.

See
"Part I, Item 1A: "Risk factorsRisks related to owning our common stockSales of outstanding shares of our common stock (or shares of our
common stock issued upon exercise of stock options) into the market in the future could cause the market price of our stock to drop significantly, even if our business is doing well."

Contractual obligations and commitments

The following table sets forth our contractual obligations and commitments as of March 25, 2011 (in thousands):

Payments due by periodTotal

Less than
1 Year

Years
2 - 3

Years
4 - 5

More than
5 YearsNotes payable(1)

$
2,310

$
2,291

$
19

$


$
Operating lease obligations(2)


30,325


2,038


5,858


5,895


16,534Purchase obligations(3)


21,248


21,248








Total

$
53,883

$
25,577

$
5,877

$
5,895

$
16,534


(1)Consists
of equipment purchase agreements with certain of our vendors for the purchase of digital projectors digital servers, lenses and accessories. See
Note 6, "BorrowingsNotes payable", to our consolidated financial statements, which are included elsewhere in this Annual Report on Form 10-K.(2)See
Note 7, "Commitments and contingencies," to our consolidated financial statements, which are included elsewhere in this Annual Report on
Form 10-K.(3)Consists
of contractual purchase obligations with certain of our vendors including some revolving 90-day supply commitments.


In
addition to the foregoing, we drew down an aggregate amount of $20.0 million of revolving credit loans pursuant to the Credit Agreement since the beginning of our fiscal year
2012 that is not noted in the table above, all of which matures by June 30, 2012.

Off-balance sheet arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited
purposes. As such, we are not exposed to any
financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of
our own performance and the performance of our subsidiaries.

Non-U.S. GAAP discussion

In addition to our U.S. GAAP results, we present Adjusted EBITDA as a supplemental measure of our performance. However, Adjusted
EBITDA is not a recognized measurement under U.S. GAAP. We define Adjusted EBITDA as net income (loss), plus net interest expense, income and other taxes, depreciation and amortization,
share-based compensation expense and exhibitor option expense, as further adjusted to eliminate the impact of certain other items that we do not consider indicative of our

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core
operating performance. Management considers our core operating performance to be that which can be affected by our managers in any particular period through their management of the resources that
affect our underlying revenue and profit generating operations that period. Non-U.S. GAAP adjustments to our results prepared in accordance with U.S. GAAP are itemized below.
You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may
incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will
be unaffected by unusual or non-recurring items.

Set
forth below is a reconciliation of Adjusted EBITDA to net loss for the following periods indicated:

Year ended(in thousands)

March 25,
2011

March 26,
2010

March 27,
2009Net loss

$
(6,825
)
$
(39,749
)
$
(16,364
)Add (deduct):Interest expense


919


1,730


949Income tax expense


4,272


2,680


219Depreciation and amortization


15,737


7,952


5,598Other (income) loss(1)


(6,182
)

1,112


(100
)Share-based compensation expense(2)


8,950


2,909


1,932Exhibitor option expense(3)


36,447


39,234


4,878Impairment of assets and intangibles(4)


1,128


426


2,037Sales and use tax(5)


6,484


5,478


910Property tax(6)


1,090


605


663Management fee(7)


175


350


350Adjusted EBITDA

$
62,195

$
22,727

$
1,072


(1)Includes
amortization of debt issue costs and unrealized foreign currency exchange gains and losses and gain on sale of digital projectors.(2)Represents
share-based compensation expense of nonstatutory and incentive stock options and restricted stock units to employees, officers, directors and
consultants.(3)Represents
stock options granted to some of our motion picture exhibitor licensees. The amounts are recorded as contra revenue in the consolidated financial
statements.(4)Represents
impairment of long-lived assets, such as fixed assets, theatrical equipment and identifiable intangibles.(5)Represents
taxes incurred by us for cinema license and product revenue.(6)Represents
property taxes on RealD Cinema Systems and digital projectors.(7)Represents
payment of management fees to our Series C mandatorily redeemable convertible preferred stockholder (included in general and
administrative expense), which were terminated upon the completion of our IPO.


We
present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do
not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA in developing our internal budgets, forecasts and strategic plan; in analyzing the effectiveness of
our

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business
strategies; to evaluate potential acquisitions; in making compensation decisions; in communications with our board of directors concerning our financial performance and because our credit
facility agreement uses Adjusted EBITDA to measure our compliance with certain covenants. Adjusted EBITDA has limitations as an analytical tool. Some of these limitations
are:



Because
of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with U.S. GAAP. We
compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA only as a
supplement. Our consolidated financial statements and the notes to those statements included elsewhere are prepared in accordance with U.S. GAAP.

Critical accounting policies and estimates

The discussion in this Item 7 is based upon our consolidated financial statements, which have been prepared in accordance with
U.S. GAAP. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, estimates and judgments are evaluated, including those related to revenue recognition, revenue deductions, product
returns, fair value of our common stock, share-based compensation, inventories, definite lived asset impairments, goodwill impairment and income taxes. These estimates and judgments are based on
historical experience and on various other assumptions that we believe to be reasonable under the circumstances, which form the basis for our judgments about the carrying values of assets and
liabilities not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from these estimates.

We
believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

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Revenue recognition and revenue reductions

We derive substantially all of our revenue from the license of our RealD Cinema Systems and the international product sale of, or fees
received domestically related to, our RealD eyewear. We evaluate revenue recognition for transactions using the criteria set forth by the SEC in Staff Accounting Bulletin No. 104, Revenue Recognition(SAB 104) and Accounting Standards Codification Topic 605,Revenue
Recognition(ASC 605). The revenue recognition guidance states that revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the seller's price to the buyer is fixed or determinable and collectability is reasonably assured.

License revenue.License revenue is accounted for as an operating lease. License revenue is primarily derived under per-admission,
periodic fixed fee, or per-motion picture basis with motion picture exhibitors. Amounts received up front, less estimated allowances, are deferred and recognized over the lease term using
the straight-line method. Additional lease payments that are contingent upon future events outside our control, including those related to admission and usage, are recognized as revenues
when the contingency is resolved and we have no more obligations to our customers specific to the contingent payment received. Certain of our license
revenue from leasing our RealD Cinema Systems is earned upon admission by the motion picture exhibitor's consumers. Our licensees, however, do not report and pay for such license revenue until after
the admission has occurred, which may be received subsequent to our fiscal period end. We estimate and record licensing revenue related to motion picture exhibitor consumer admissions in the fiscal
quarter in which the admission occurs, but only when reasonable estimates of such amounts can be made. We determine that there is persuasive evidence of an arrangement upon the execution of a license
agreement or upon the receipt of a licensee's admissions report. Revenue is deemed fixed or determinable upon verification of a licensee's admissions report in accordance with the terms of the
underlying executed agreement or, in certain circumstances, receipt of a licensee's admissions report. We determine collectability based on an evaluation of the licensee's recent payment history.

Product revenue.We recognize product revenue, net of allowances, when title and risk of loss have passed and when there is persuasive
evidence of an
arrangement, the payment is fixed or determinable, and collectability of payment is reasonably assured. In the United States and Canada, certain of our product revenue from the sale of our RealD
eyewear is earned upon admission and usage by the motion picture exhibitor's consumers. Our customers, however, do not report admission or usage information until after the admission and usage has
occurred, and such information may be received subsequent to our fiscal period end. We estimate and record such product revenue in the quarter in which the admission and usage occurs, but only when
reasonable estimates of such amounts can be made.

Revenue reductions.We record revenue net of motion picture exhibitor stock options and estimated revenue allowances. In connection
with certain
exhibitor licensing agreements, we issued the motion picture exhibitors a 10-year option to purchase shares of our common stock at approximately $0.00667 per share. The stock options vest
upon the achievement of screen installation targets. Motion picture exhibitor stock options are valued at the underlying stock price at each reporting period until the targets are met. Amounts
recognized are based on the number of RealD-enabled screens as a percentage of total screen installation targets. The stock options do not have net cash settlement features. Amounts recorded as a
revenue reduction totaled $36.4 million for the fiscal year ended March 25, 2011, $39.2 million for the fiscal year ended March 26, 2010 and $4.9 million for the
fiscal year ended March 27, 2009. Motion picture exhibitor stock options are valued at the underlying stock price during each reporting period. As of March 25, 2011, all 3,668,340 motion
picture exhibitor stock options had vested and all associated reduction of revenue had been recognized.

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Share-based compensation

We account for stock options, performance stock options and restricted stock units granted to employees and directors by recording
compensation expense based on estimated fair values. Share-based awards to non-employees, including consultants, have been and are expected to be fully exercisable and nonforfeitable when
granted and, therefore, the fair value of such stock options are expensed on the date of grant. We estimate the fair value of share-based payment awards on the date of grant. The value of the portion
of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our consolidated statements of operations. Share-based awards are attributed to expense
using the straight-line method over the vesting period. We determine the value of each option award that contains a market condition using a lattice-based option valuation model, while all
other option awards are valued using the Black-Scholes valuation model as permitted under Accounting Standards Codification Topic 718,CompensationStock
Compensation(ASC 718). The assumptions used in calculating the fair value of share-based payment awards represent our best estimates. Our estimates may be impacted by certain
variables including stock price volatility, employee stock option exercise behaviors, additional stock option grants, estimates of forfeitures, and the related income tax impact. If any of the
assumptions used in our valuation models significantly changes, share-based compensation for future awards may differ materially from the awards granted previously.

Inventories

Domestically, we provide our RealD eyewear free of charge to motion picture exhibitors and then receive a fee from the motion picture
studios for the usage of that RealD eyewear by the motion picture exhibitors' consumers.

The
number of domestic RealD-enabled screens and related usage of RealD eyewear is expected to grow. Accordingly, for RealD eyewear located at a motion picture exhibitor, we believe that
it is not operationally practical to perform physical counts or request the motion picture exhibitor to perform physical counts and confirm quantities held to ensure that losses due to damage,
destruction, and shrinkage are specifically recognized in the period incurred. We believe that the cost to monitor shrinkage or usage significantly outweighs the financial reporting benefits of using
a specific identification methodology of expensing. We believe that utilizing a composite method of expensing RealD eyewear inventory costs provides a rational and reasonable approach to ensuring that
shrinkage is provided for in the period incurred and that inventory costs are expensed in the periods that reasonably reflect the periods in which the related revenue is recognized. In doing so, we
believe the following methodology reasonably and generally reflects periodic income or loss under these facts and circumstances:



We
believe that the expensing methodology described above rationally and reasonably approximates the period the related usage occurs resulting in our RealD eyewear product revenue. The
expensing start date following the date of shipment is meant to approximate the date at which usage begins. Additionally, as the expense recognition period has been and is expected to continue to be

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short,
we believe it adequately recognizes inventory impairments due to loss and damage on a timely basis. We further believe that exposures due to loss or damage, if any, are considered normal
shrinkage and a necessary and expected cost to generate the revenue per 3D motion picture earned through RealD eyewear usage. We continue to monitor the reasonableness of this methodology to ensure
that it approximates the period over which the related RealD eyewear product revenue is earned and realizable. RealD eyewear inventory costs that have not yet been expensed are reported as deferred
costs-eyewear.

Impairment of long-lived assets

We review long-lived assets, such as property and equipment, cinema systems, digital projectors and intangibles, for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors or circumstances that could indicate the occurrence of such events
include current period operating or cash flow losses combined with a history of operating or cash flow losses, a projection or forecast that demonstrates continuing operating or cash flow losses, or
incurring costs in excess of amounts originally expected to acquire or construct an asset. If the asset is not recoverable, an impairment loss is recognized as the amount by which the carrying amount
of the asset exceeds its fair value.

Goodwill impairment

Goodwill is deemed to have an indefinite useful life and therefore is not amortized. We evaluate our goodwill for impairment using a
two-step process that is performed at least annually during our fourth fiscal quarter, or whenever events or circumstances indicate that goodwill may be impaired. The first step is a
comparison of the fair value of an internal reporting unit with its carrying amount, including goodwill. A reporting unit is an operating segment or one level below an operating segment. If the fair
value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is not considered impaired and the second step is unnecessary. If the carrying value of the reporting unit
exceeds its fair value, the second step is performed to measure the amount of impairment by comparing the carrying amount of the goodwill to a determination of the implied value of the goodwill. If
the carrying amount of goodwill is greater than the implied value, an impairment loss is recognized for the difference. We currently have one reporting unit in which goodwill resides and the reporting
unit is not at risk of failing step one.

Deferred tax asset valuation and tax exposures

In preparing our consolidated financial statements, we are required to make estimates and judgments that affect our accounting for
income taxes. This process includes estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes.
These differences, including the timing of recognition of share-based compensation expense, result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. We
also assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent that we believe that recovery is not likely, we have established a valuation
allowance. We assess realization of our deferred tax assets based on all available evidence in order to conclude whether it is more likely than not that the deferred tax assets will be realized.
Available evidence considered by us includes, but is not limited to, our historic operating results, projected future operating results, reversing temporary differences, changing business
circumstances, and the ability to realize certain deferred tax assets through loss and tax credit carry-back and carry-forward strategies. As of March 25, 2011, we have determined
based on the weight of the available evidence, both positive and negative, to provide for a valuation allowance against substantially all of the net deferred tax assets. The current deferred tax
assets not reserved for by the valuation allowance are those in foreign jurisdictions or amounts that may be carried back in future

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years.
If there is a change in circumstances that causes a change in judgment about the realizability of the deferred tax assets, we will adjust all or a portion of the applicable valuation allowance
in the period when such change occurs.

We
are subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, we may incur additional tax expense based upon the outcomes of such matters.
In addition, when applicable, we adjust tax expense to reflect our ongoing assessments of such matters which require judgment and can materially increase or decrease its effective rate as well as
impact operating results.

Significant
judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, the valuation allowance against our deferred tax assets and
uncertainty in income tax positions. Our financial position and results of operations may be materially impacted if actual results significantly differ from these estimates or the estimates are
adjusted in future periods.

Contingencies and assessments

We are subject to various loss contingencies and assessments arising in the course of our business, some of which relate to litigation,
claims, property taxes and sales and use or goods and services tax assessments. We consider the likelihood of the loss or the incurrence of a liability, as well as our ability to reasonably estimate
the amount of loss in determining loss, contingencies and assessments. An estimated loss contingency or assessment is accrued when it is probable that a liability has been incurred and the amount of
loss can be reasonably estimated. We regularly evaluate current information available to us to determine whether such accruals should be adjusted. Based on the information presently available,
including discussion with counsel and other consultants, management believes that resolution of these matters will not have a material adverse effect on our business, consolidated results of
operations, financial condition or cash flows.

Recent accounting pronouncements

In January 2010, Accounting Standards Update, or ASU, 2010-6,Fair Value Measurements and
Disclosures: Improving Disclosures About Fair Value Measurements(ASU 2010-6) was issued which requires entities to make new disclosures about recurring or
nonrecurring fair value measurements including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances and
settlements on a gross basis in the reconciliation of Level 3 fair value measurements. We adopted ASU 2010-6 beginning in the first quarter of fiscal 2010, except for Level 3
reconciliation disclosures which are effective for us beginning in the first quarter of fiscal 2011. The adoption of the amended disclosure requirements for fair value measurements did not affect our
disclosures because we did not transfer financial assets or liabilities between levels in the fair value hierarchy.

In
October 2009, ASU No. 2009-13,Revenue Recognition (Topic 605)Multiple-Deliverable Revenue Arrangementsa consensus
of the Emerging Issues Task Force(ASU 2009-13) amends Accounting Standards Codification Subtopic 605-25, Revenue
RecognitionMultiple-Element Arrangements (ASC 605-25). The amendments in ASU 2009-13 enable vendors to account for products or services separately rather
than as a combined unit upon meeting certain criteria and establish a hierarchy for determining the selling price of a deliverable. In addition, a vendor can determine a best estimate of selling
price, in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis, if a vendor does not have vendor-specific objective evidence or third-party
evidence of selling price. ASC 605-25 is also amended to eliminate the use of the residual method and requires a vendor to allocate revenue using the relative selling price method. The
amendments in ASU 2009-13 will be effective prospectively, with an option for retrospective restatement of the financial statements, for revenue arrangements entered into or materially
modified in fiscal years beginning on

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or
after June 15, 2010 with early adoption permitted at the beginning of an entity's fiscal year. We expect to prospectively adopt the amendments in ASU 2009-13 beginning in the
first quarter of fiscal 2012. We are currently evaluating the impact the adoption of new guidance will have on the Company's consolidated financial statements.

Item 7A.Quantitative and qualitative disclosures about market risk

We have operations outside the United States. We are exposed to market risks in the ordinary course of our business. These risks
primarily include interest rate, foreign exchange and inflation risks as well as changes in the general economic conditions in the countries where we conduct business. To reduce certain of these
risks, we monitor the financial condition of our large customers and limit credit exposure as we deem appropriate. In addition, our investment strategy currently has been to invest in financial
instruments that are highly liquid, readily convertible into cash and which mature within three months from the date of purchase. We also enter into foreign exchange derivative hedging transactions as
part of our risk management program. For accounting purposes, we do not designate any of our derivative instruments as hedges and we do not use derivatives for speculating trading purposes and are not
a party to leveraged derivatives.

Interest rate risk

We are exposed to market risk related to changes in interest rates.

Our
investments are considered cash equivalents and primarily consist of money market funds. At March 25, 2011, we had cash and cash equivalents of $16.9 million. The
carrying amount of cash equivalents reasonably approximates fair value due to the short maturities of these instruments. The primary objective of our investment activities is preservation of capital,
fulfillment of liquidity needs and fiduciary control of cash and investments. We also seek to maximize income from our investments without assuming significant risk. We do not enter into investments
for trading or speculative purposes. Our investments are exposed to market risk due to a fluctuation in interest rates, which may affect our interest income and the fair market value of our
investments. Due to the short-term nature of our investment portfolio, however, we do not believe an immediate 10% increase or decrease in interest rates would have a material effect on
the fair market value of our portfolio, and therefore we do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.

We
do not believe our cash equivalents have significant risk of default or illiquidity. While we believe our cash equivalents do not contain excessive risk, we cannot provide absolute
assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial
institutions that are in excess of federally insured limits. We cannot be assured that we will not experience losses on these deposits.

At
March 25, 2011, we had no borrowings outstanding under the Credit Agreement. The revolving credit facility provides for, at our option, Revolving London Interbank Offered Rate
(LIBOR) loans, which bear interest at the greater of three and one half percent (3.50%) or the LIBOR plus two and one-half percent (2.50%) or Revolving Prime loans which bear interest at
the greater of three and one half percent (3.50%) or the fluctuating Prime Rate per annum. Changes in interest rates do not affect operating results or cash flows on our fixed rate borrowings but
would impact our variable rate borrowings.

Foreign currency risk

We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the United States
dollar. Our historical revenue has generally been denominated

65

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Table of Contents

in
United States dollars, and a significant portion of our current revenue continues to be denominated in United States dollars; however, we expect an increasing portion of our future revenue to be
denominated in currencies other than the United States dollar, primarily the Euro, British pound sterling, Canadian dollar, Japanese yen, Chinese Yuan and Hong Kong Dollar. Our operating expenses are
generally denominated in the currencies of the countries in which our operations are located, primarily the United States and United Kingdom. Increases and decreases in our international revenue
from movements in foreign exchange rates are partially offset by the corresponding increases or decreases in our international operating expenses. To further reduce our net exposure to foreign
exchange rate fluctuations on our results of operations, we have entered into foreign currency forward contracts.

We
had outstanding forward contracts based in British pound sterling, Canadian dollar and the Euro with notional amounts totaling $8.1 million as of March 25, 2011, and
$3.7 million as of March 26, 2010. We had no forward contracts outstanding during fiscal 2009. The net gain (loss) related to the change in fair value of our foreign currency forward
contracts was not significant for the year ended March 25, 2011 and March 26, 2010. With regard to these contracts, a hypothetical 10.0% adverse movement in foreign exchange rates
compared with the U.S. dollar relative to exchange rates on March 25, 2011 would result in a reduction in fair value of these forward contracts and a corresponding foreign currency loss of
approximately $0.1 million. This analysis does not consider the impact that hypothetical changes in foreign currency exchange rates would have on anticipated transactions and assets and
liabilities that these foreign currency sensitive instruments were designed to offset.

As
our international operations grow, our risks associated with fluctuation in currency rates will become greater, and we will continue to reassess our approach to managing this risk. In
addition, currency fluctuations or a weakening United States dollar can increase the costs of our international expansion.

Inflation risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs
were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business,
financial condition and results of operations.

Counterparty risk

Our financial statements, including derivatives, are subject to counterparty credit risk, which we consider as part of the overall fair
value measurement. We attempt to mitigate this risk through credit monitoring procedures.

Item 8.Financial statements and supplementary data

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Table of Contents

Index to financial statements



PageReport of Independent Registered Public Accounting Firm


68Consolidated balance sheets as of March 25, 2011 and March 26, 2010


69Consolidated statements of operations for the years ended, March 25, 2011, March 26, 2010 and March 27,
2009


70Consolidated statements of changes in mandatorily redeemable convertible preferred stock and equity (deficit) for the years
ended, March 25, 2011, March 26, 2010 and March 27, 2009


71Consolidated statements of cash flows for the years ended March 25, 2011, March 26, 2010 and March 27,
2009


72Notes to consolidated financial statements


73


67

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Table of Contents

Report of Independent Registered Public  Accounting Firm

The
Board of Directors and Stockholders of RealD Inc.

We
have audited the accompanying consolidated balance sheets of RealD Inc. as of March 25, 2011 and March 26, 2010, and the related consolidated statements of
operations, changes in mandatorily redeemable convertible preferred stock and equity (deficit), and cash flows for each of the three years in the period ended March 25, 2011. Our audits also
included the financial statement schedule listed in the Index at Item 15(a) 2. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of RealD Inc. at March 25, 2011 and
March 26, 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 25, 2011, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.



Los
Angeles, CA
June 9, 2011

68

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Table of Contents



RealD Inc.        Consolidated balance sheets        (in thousands, except per share data)

March 25,
2011

March 26,
2010AssetsCurrent assets:Cash and cash equivalents

$
16,936

$
13,134Accounts receivable, net


50,676


51,184Inventories


54,971


6,539Deferred costseyewear


49


1,842Deferred income taxes


1,029


4,349Income taxes receivable


139


Prepaid expenses and other current assets


1,734


1,128Total current assets


125,534


78,176Property and equipment, net


7,889


2,558Cinema systems, net


122,226


40,623Digital projectors, net-held for sale


10,475


25,521Goodwill


10,657


10,657Other intangibles, net


1,918


2,024Other assets


1,448


2,587Total assets

$
280,147

$
162,146Liabilities, redeemable convertible preferred stock and equity (deficit)Current liabilities:Accounts payable

$
58,713

$
37,625Accrued expenses and other liabilities


40,118


24,608Deferred revenue


14,176


19,430Credit facility agreement





20,066Income taxes payable





1,254Current portion of long-term debt


2,291


9,299Total current liabilities


115,298


112,282Deferred revenue, net of current portion


14,106


14,144Virtual print fee liability and customer deposits


4,533


8,331Long-term debt, net of current portion


19


2,031Deferred tax liability


1,091


4,413Commitments and contingenciesSeries C mandatorily redeemable convertible preferred stock, no par value, zero and 5,140 shares authorized; zero and 5,140 shares issued and
outstanding; zero and $17.025 redemption value per share at March 25, 2011 and March 26, 2010, respectively





62,831Equity (deficit)Series A redeemable convertible preferred stock, no par value, zero and 3,000 shares authorized; zero and 2,000 shares issued and outstanding at
March 25, 2011 and March 26, 2010, respectively





1,978Series B redeemable convertible preferred stock, no par value, zero and 2,418 shares authorized; zero and 2,417 shares issued and outstanding at
March 25, 2011 and March 26, 2010, respectively





2,970Series D redeemable convertible preferred stock, no par value, zero and 1,667 shares authorized; zero and 1,667 shares issued and outstanding at
March 25, 2011 and March 26, 2010, respectively





19,952Common stock, $0.0001 par value, 200,000 and 52,700 shares authorized; 53,570 and 24,691 shares issued and outstanding at March 25, 2011 and
March 26, 2010, respectively


292,904


68,371Other accumulated comprehensive loss





Accumulated deficit


(149,580
)

(137,291
)Total RealD Inc. stockholders' equity (deficit)


143,324


(44,020
)Noncontrolling interest


1,776


2,134Total equity (deficit)


145,100


(41,886
)Total liabilities, mandatorily redeemable convertible preferred stock and equity (deficit)

$
280,147

$
162,146


See accompanying notes to consolidated financial statements

69

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Table of Contents



RealD Inc.        Consolidated statements of operations        (in thousands, except per share data)

Year endedMarch 25,
2011

March 26,
2010

March 27,
2009Revenue:License

$
101,523

$
40,914

$
12,742Product and other


144,613


108,932


26,933Total revenue


246,136


149,846


39,675Cost of revenue:License


17,994


9,452


4,944Product and other


160,402


131,151


22,163Total cost of revenue


178,396


140,603


27,107Gross profit


67,740


9,243


12,568Operating expenses:Research and development


15,582


11,021


8,915Selling and marketing


24,139


16,811


11,009General and administrative


35,835


15,638


7,940Total operating expenses


75,556


43,470


27,864Operating loss


(7,816
)

(34,227
)

(15,296
)Interest expense


(919
)

(1,730
)

(949
)Other income (loss)


6,182


(1,112
)

100Loss before income taxes


(2,553
)

(37,069
)

(16,145
)Income tax expense


4,272


2,680


219Net loss


(6,825
)

(39,749
)

(16,364
)Net (income) loss attributable to noncontrolling interest


(530
)

896


727Accretion of preferred stock


(4,934
)

(12,372
)

(9,826
)Net loss attributable to RealD Inc. common stockholders

$
(12,289
)
$
(51,225
)
$
(25,463
)Loss per common share:Basic and diluted

$
(0.29
)
$
(2.09
)
$
(1.06
)Shares used in computing earnings per common share:Basic and diluted


41,933


24,500


24,027


See
accompanying notes to consolidated financial statements

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Table of Contents

RealD Inc.

Consolidated statements of changes in
mandatorily redeemable convertible preferred stock and equity
(deficit)

(in thousands, except share data)

Mandatorily
redeemable
convertible
preferred stock

Equity (deficit)Convertible preferred stockSeries C

Series A

Series B

Series D

Common stock

Accumulated
other
comprehensive
lossAccumulated
deficit

Noncontrolling
interest

Total
equity
(deficit)Shares

Amount

Shares

Amount

Shares

Amount

Shares

Amount

Shares

AmountBalance, March 31, 2008


5,139,500

$
40,633


2,000,000

$
1,978


2,417,644

$
2,970


1,666,667

$
19,952


23,908,624

$
17,387

$


$
(60,603
)
$
3,751

$
(14,565
)Issuance of common stock


























199,999


1,986











1,986Accretion of Series C preferred stock





9,826





























(9,826
)




(9,826
)Share-based compensation





























1,932











1,932Motion picture exhibitor option reduction in revenue





























4,878











4,878Exercise of stock options


























63,750


8











8Noncontrolling interest contribution






































6


6Comprehensive loss:Net loss



































(15,637
)

(727
)

(16,364
)Total comprehensive loss









































(16,364
)Balance, March 27, 2009


5,139,500

$
50,459


2,000,000

$
1,978


2,417,644

$
2,970


1,666,667

$
19,952


24,172,373

$
26,191

$


$
(86,066
)
$
3,030

$
(31,945
)Issuance of common stock









































Accretion of Series C preferred stock





12,372





























(12,372
)




(12,372
)Share-based compensation





























2,909











2,909Motion picture exhibitor option reduction in revenue





























39,234











39,234Exercise of stock options


























518,581


37











37Comprehensive loss:Cumulative translation adjustment









































Net loss



































(38,853
)

(896
)

(39,749
)Total comprehensive loss









































(39,749
)Balance, March 26, 2010


5,139,500

$
62,831


2,000,000

$
1,978


2,417,644

$
2,970


1,666,667

$
19,952


24,690,954

$
68,371

$


$
(137,291
)
$
2,134

$
(41,886
)Accretion of Series C preferred stock





4,934





























(4,934
)




(4,934
)Share-based compensation





























8,950











8,950Exercise of stock options


























2,019,816


3,875











3,875Exercise of motion picture exhibitor options


























3,260,747


22











22Exercise of warrants


























762,300


634











634Motion picture exhibitor option reduction in revenue





























36,447











36,447Noncontrolling interest distribution






































(888
)

(888
)Conversion of preferred stock


(5,139,500
)

(67,765
)

(2,000,000
)

(1,978
)

(2,417,644
)

(2,970
)

(1,666,667
)

(19,952
)

16,835,714


92,665











67,765Issuance of common stock in connection with initial public offering, net of issuance costs


























6,000,000


81,940











81,940Comprehensive loss:Net income (loss)



































(7,355
)

530


(6,825
)Total comprehensive loss









































(6,825
)Balance, March 25, 2011




$





$





$





$



53,569,531

$
292,904

$


$
(149,580
)
$
1,776

$
145,100


See accompanying notes to consolidated financial statements

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RealD Inc.        Consolidated statements of cash flows        (in thousands)

Year endedMarch 25,
2011

March 26,
2010

March 27,
2009Cash flows from operating activitiesNet loss

$
(6,825
)
$
(39,749
)
$
(16,364
)Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization


15,737


7,952


5,598Deferred income tax


(2
)

1,387


26Non-cash interest expense


125


1,245


669Non-cash share-based compensation


8,950


2,909


1,932Motion picture exhibitor option reduction in revenue


36,447


39,234


4,878Gain on sale of digital projectors


(6,720
)

(173
)

Impairment of long-lived assets


1,128


426


2,037Changes in operating assets and liabilities:Accounts receivable


508


(40,082
)

(5,804
)Inventories


(48,432
)

(4,025
)

(1,686
)Prepaid expenses and other current assets


(606
)

(671
)

161Deferred costseyewear


1,793


6,944


(6,386
)Other assets


1,139


(2,482
)

(50
)Accounts payable


21,330


24,943


10,791Accrued expenses and other liabilities


15,420


16,951


(1,504
)Virtual print fee liability and customer deposits


1,791


2,306


5,866Income taxes receivable/payable


(1,393
)

1,236


(8
)Deferred revenue


(5,292
)

(3,216
)

9,978Net cash provided by operating activities


35,098


15,135


10,134Cash flows from investing activitiesPurchases of marketable securities


(6,849
)




Proceeds from sale of marketable securities


6,849





Purchases of property and equipment


(6,416
)

(2,037
)

(502
)Purchases of cinema systems and related components


(95,756
)

(27,462
)

(5,394
)Purchases of digital projectors


(471
)

(662
)

(6,176
)Purchase of intangible assets








(35
)Proceeds from sale of digital projectors


15,612


525


Net cash used in investing activities


(87,031
)

(29,636
)

(12,107
)Cash flows from financing activitiesProceeds from common stock issuance, net of issuance costs


81,940





1,986Noncontrolling interest distribution


(888
)




6Proceeds from credit facility agreementterm loan





10,000


3,493Repayments on credit facility agreementterm loan


(10,000
)




Repayments of long-term debt


(9,698
)

(3,106
)

(2,241
)Proceeds from credit facility agreementrevolving credit facility


5,000


5,000


4,977Repayments on credit facility agreementrevolving credit facility


(15,150
)




Proceeds from exercise of stock options


3,875


37


8Proceeds from exercise of warrants


634





Proceeds from exercise of motion picture exhibitor options


22





Net cash provided by financing activities


55,735


11,931


8,229Net increase (decrease) in cash and cash equivalents


3,802


(2,570
)

6,256Cash and cash equivalents, beginning of year


13,134


15,704


9,448Cash and cash equivalents, end of year

$
16,936

$
13,134

$
15,704Supplemental disclosures of cash flow informationAccretion of Series C preferred stock

$
4,934

$
12,372

$
9,826Cash payments for income tax expense


3,952


57


46Cash payments for interest expense


794


485


390Digital projectors purchased in exchange for notes

$
370

$
4,005

$



See accompanying notes to consolidated financial statements

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Table of Contents

RealD Inc.        Notes to consolidated financial statements

1. Business and basis of presentation

RealD Inc., including its subsidiaries (RealD), is a global licensor of stereoscopic 3D technologies.

The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The
consolidated financial statements include the accounts of RealD, its wholly owned subsidiaries and its majority owned subsidiaries. We do not have any interests in variable interest entities. For
consolidated subsidiaries that are not wholly owned but are majority owned, the subsidiaries' assets, liabilities, and operating results are included in their entirety in the accompanying consolidated
financial statements. The noncontrolling interests in those assets, liabilities, and operations are reflected as non controlling interests in the consolidated balance sheets under equity (deficit) and
consolidated statements of operations. Effective January 1, 2009, we adopted a newly issued accounting standard for noncontrolling interests. In accordance with the accounting standard, we have
retrospectively applied the presentation and disclosure requirements by recharacterizing previously reported minority interests as noncontrolling interests and classifying noncontrolling interests as
a component of equity (deficit) in our consolidated balance sheets. The adoption of this standard did not have a material effect on our financial position or results of operations.

On
March 6, 2007, Digital Link II, LLC (Digital Link II) was formed between Ballantyne of Omaha, Inc. and RealD with member interests of 44.4% and 55.6%,
respectively. Digital Link II was formed to fund the deployment of digital projector systems and servers to third-party exhibitors.

On
April 8, 2010, we reincorporated in Delaware. Each class of our capital stock has a par value of $0.0001 per share.

All
significant intercompany balances and transactions have been eliminated in consolidation.

On
June 28, 2010, we amended our certificate of incorporation, which increased our total authorized capital stock to 200 million shares (comprised of 150 million
shares of common stock and 50 million shares of preferred stock), and effected a split of our common stock, which resulted in each share of our common stock splitting into one and
one-half shares (or a 1-for-1.5 forward split). The accompanying consolidated financial statements and notes to the consolidated financial statements have been
retroactively restated to reflect the stock split for all periods presented.

On
July 21, 2010, we completed the initial public offering (IPO) of our common stock in which we sold and issued 6 million shares of common stock at an issue price of
$16.00 per share. A total of approximately $96 million in gross proceeds were raised from the IPO, or $81.9 million in net proceeds after deducting underwriting discounts and commissions
of approximately $6.7 million and other offering costs of approximately $7.4 million.

2. Summary of significant accounting policies

Accounting period

Our fiscal year consists of four 13-week periods for a total of 52 weeks. The fiscal year for 2011 ended on
March 25, 2011. The fiscal year for 2010 ended on March 26, 2010. The fiscal year for 2009 ended on March 27, 2009.

73

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Table of Contents

RealD Inc.

Notes to consolidated financial statements (Continued)

2. Summary of significant accounting policies (Continued)

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense
during the reporting period. Actual results could differ from those estimates.

Net loss per share of common stock

Basic loss per share of common stock is computed by dividing the net loss attributable to RealD common stockholders for the period by
the weighted average number of shares of common stock outstanding during the period. Because the holders of our convertible preferred stock were entitled to participate in dividends and earnings of
our company, we applied the two-class method in calculating our earnings per share for periods when we generated net income. The two-class method requires net income to be
allocated between the common and preferred stockholders based on their respective rights to receive dividends, whether or not declared. No such dividends were paid. Because the convertible preferred
stock was not contractually obligated to share in our losses, no such allocation was made for periods when we had net losses. Diluted loss per share of common stock is the same as basic loss per share
of common stock for all periods presented because the effects of potentially dilutive items were anti-dilutive given our net losses.

The
calculation of the basic and diluted loss per share of common stock for the years ended March 25, 2011, March 26, 2010 and March 27, 2009 was as follows:

Year ended(in thousands, except per share data)

March 25,
2011

March 26,
2010

March 27,
2009Numerator:Net loss

$
(6,825
)
$
(39,749
)
$
(16,364
)Net (income) loss attributable to noncontrolling interest


(530
)

896


727Accretion of preferred stock


(4,934
)

(12,372
)

(9,826
)Net loss attributable to RealD Inc. common stockholders

$
(12,289
)
$
(51,225
)
$
(25,463
)Denominator:Weighted-average common shares outstanding


41,933


24,500


24,027Loss per common share:Basic and diluted

$
(0.29
)
$
(2.09
)
$
(1.06
)


74

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Table of Contents

RealD Inc.

Notes to consolidated financial statements (Continued)

2. Summary of significant accounting policies (Continued)

The
following table shows the weighted-average number of anti-dilutive shares excluded from the calculation of diluted loss per common share for each period presented:

Year ended(in thousands)

March 25,
2011

March 26,
2010

March 27,
2009Options and warrants to purchase common stock


9,782


6,603


6,291Conversion of convertible preferred stock


5,180


16,836


16,836Total


14,962


23,439


23,127


Fair value measurements

Our financial assets and liabilities are measured and reported in accordance with Accounting Standards Codification Topic (ASC)
820-10,Fair Value Accounting(ASC 820), which provides a common definition of fair value and establishes a framework to make the
measurement of fair value in U.S. GAAP more consistent and comparable. This guidance also requires expanded disclosures to provide information about the extent to which fair value is used to
measure assets and liabilities, the methods and assumptions used to measure fair value, and the effect of fair value measures on earnings. Fair value is defined as the amount that would be received
for selling an asset or paid to transfer a liability in an orderly transaction between market participants and requires that assets and liabilities carried at fair value be classified and disclosed in
the following three categories:



Our
financial assets and liabilities, which include financial instruments as defined by ASC 820, include cash and cash equivalents, accounts receivable, accounts payable,
long-term debt and derivatives. The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable are a reasonable approximation of fair value due to the short
maturities of these instruments. The carrying amount of long-term debt approximates fair value based on borrowing rates currently available to us. The carrying amount of our derivative
instruments is recorded at fair value and is determined based on observable inputs that are corroborated by market data (Level 2).

As
of March 25, 2011 and March 26, 2010, the fair values of our financial assets and liabilities that were carried at fair value on a recurring basis were not significant.

Derivative instruments

Our assets and liabilities associated with derivative instruments are recorded at fair value in other current assets or other current
liabilities, respectively, in the consolidated balance sheets. Changes in fair value are reported as a component of other income or loss on our consolidated statements of operations. For all periods
presented, none of our derivative instruments were designated as hedging

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2. Summary of significant accounting policies (Continued)

instruments.
We do not use foreign currency option or foreign exchange forward contracts for speculative or trading purposes.

We
purchase foreign currency forward contracts, generally with maturities of six months or less, to reduce the volatility of cash flows primarily related to forecasted payments and
expenses denominated in certain foreign currencies. As of March 25, 2011, we had outstanding forward contracts based in British pound sterling and Euro with notional amounts totaling
$8.1 million. As of March 25, 2011 and March 26, 2010, the carrying amount of our foreign currency forward contracts was not significant and was classified as Level 2 fair
value instruments, which was determined based on observable inputs that were corroborated by market data. For all periods presented, the net realized and unrealized gains and losses related to forward
contracts were not significant.

Marketable securities

We classify unrealized gains and losses on marketable securities reported as a component of accumulated other comprehensive income. As
of March 25, 2011 and March 26, 2010, we had no marketable securities. For the year ended March 25, 2011, the unrealized gains and losses from the
available-for-sale securities were not significant.

The
objectives of our investment policy are to preserve capital, provide sufficient liquidity to satisfy operating and investment purposes, and capture a market rate of return based on
our investment policy parameters and market conditions. Our investment policy limits investments to certain types of debt and money market instruments issued by institutions with investment grade
credit ratings and places restrictions on maturities and concentration by type and issuer.

Cash equivalents

We consider cash equivalents to be only those investments that are highly liquid, readily convertible into cash and which mature within
three months from the date of purchase.

Accounts receivable

Accounts receivable consist of trade receivables, VAT receivable and other receivables. We extend credit to our customers, who are
primarily in the movie production and exhibition businesses. We provide for the estimated accounts receivable that will not be collected. These estimates are based on an analysis of historical bad
debts, customer concentrations, customer
creditworthiness, current economic trends and changes in the customers' payment terms and their economic condition. Collection of accounts receivable may be affected by changes in economic or other
industry conditions and may, accordingly, impact our overall credit risk. The allowance for doubtful accounts and customer credits totaled $6.8 million and $1.2 million as of
March 25, 2011 and March 26, 2010, respectively.

Inventories and deferred costs-eyewear

Inventories and deferred costs-eyewear represent eyewear and are substantially all finished goods. Inventories and deferred
costs-eyewear are valued at the lower of cost (first-in, first-out method) or market value. At each balance sheet date, we evaluate ending inventories and deferred
costs-eyewear for net realizable value. We also evaluate inventories for excess quantities and obsolescence. These evaluations include analyses of expected future average selling prices, projections
of future demand and

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Notes to consolidated financial statements (Continued)

2. Summary of significant accounting policies (Continued)

technology
changes. In order to state inventories at lower of cost or market, we maintain reserves against such inventories. If our analyses indicate that market is lower than cost, a
write-down of inventories is recorded in cost of revenue in the period the loss is identified. For fiscal 2011 and fiscal 2010, we recorded inventory impairments of $9.0 million and
$4.8 million, respectively, as a result of our net realizable value analyses. There were no significant inventory impairments for fiscal 2009.

Domestically,
we provide our RealD eyewear free of charge to motion picture exhibitors and then receive a fee from the motion picture studios for the usage of that RealD eyewear by the
motion picture exhibitors' consumers.

The
number of domestic RealD-enabled screens and related usage of RealD eyewear is expected to grow. Accordingly, for RealD eyewear located at a motion picture exhibitor, we believe that
it is not operationally practical to perform physical counts or request the motion picture exhibitor to perform physical counts and confirm quantities held to ensure that losses due to damage,
destruction, and shrinkage are specifically recognized in the period incurred. We believe that the cost to monitor shrinkage or usage significantly outweighs the financial reporting benefits of using
a specific identification methodology of expensing. We believe that utilizing a composite method of expensing RealD eyewear inventory costs provides a rational and reasonable approach to ensuring that
shrinkage is provided for in the period incurred and that inventory costs are expensed in the periods that reasonably reflect the periods in which the related revenue is recognized. In doing so, we
believe the following methodology reasonably and generally reflects periodic income or loss under these facts and circumstances:



We
believe that the expensing methodology described above rationally and reasonably approximates the period the related usage occurs resulting in our RealD eyewear product revenue. The
expensing start date following the date of shipment is meant to approximate the date at which usage begins. Additionally, as the expense recognition period has been and is expected to continue to be
short, we believe it adequately recognizes inventory impairments due to loss and damage on a timely basis. We further believe that exposures due to loss or damage, if any, are considered normal
shrinkage and a necessary and expected cost to generate the revenue per 3D motion picture earned through RealD eyewear usage. We continue to monitor the reasonableness of this methodology to ensure
that it approximates the period over which the related RealD eyewear product revenue is earned and realizable. RealD eyewear inventory costs that have not yet been expensed are reported as deferred
costs-eyewear.

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Notes to consolidated financial statements (Continued)

2. Summary of significant accounting policies (Continued)

Deferred offering costs

There was $7.4 million of deferred offering costs incurred through July 21, 2010, which were offset against the proceeds
of our IPO.

Property and equipment, RealD Cinema Systems and digital projectors

Property and equipment, RealD Cinema Systems and digital projectors are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets. The major categories and related estimated useful lives are as follows:

RealD Cinema Systems

5 - 8 yearsDigital projectorsheld for sale

10 yearsLeasehold improvements

Shorter of useful life or leaseMachinery and equipment

2 - 7 yearsFurniture and fixtures

3 - 5 yearsComputer equipment and software

3 - 5 years


Digital
projectorsheld for sale (digital projectors) also include digital servers, lenses and accessories. Upon installation at the customer location, we retain title to the
RealD Cinema Systems which are held and used by our customers. The digital projectors are held for sale at either a specified date or upon occurrence of certain contingent events. Depreciation for
RealD Cinema Systems and digital projectors is included in cost of revenue.

We
receive virtual print fees (VPFs) from third-party motion picture studios. VPFs represent amounts from third-party motion picture studios that are paid to us when a motion picture is
played on one of our digital projectors. VPFs are deferred and deducted from the selling price of the digital projector. VPFs are recorded as a liability on the accompanying consolidated balance
sheets and totaled $1.5 million and $6.8 million and as of March 25, 2011 and March 26, 2010, respectively.

Major
enhancements and improvements are capitalized. Maintenance and repairs for cinema systems and digital projectors are charged to expense as incurred. Maintenance and repairs expense
totaled
$0.8 million, $0.8 million and $0.8 million for each of the years ended March 25, 2011, March 26, 2010 and March 27, 2009, respectively.

Intangibles

Intangibles are deemed to have finite lives and consist of acquired developed technologies (which are primarily patents) and are
amortized over their estimated useful lives of 11 to 19 years (with a weighted average amortization period of 16.7 years) using the straight-line method.

Impairment of long-lived assets

We review long-lived assets, such as property and equipment, cinema systems, digital projectors and intangibles, for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors or circumstances that could indicate the occurrence of such events
include current period operating or cash flow losses combined with a history of operating or cash flow losses, a projection or forecast that demonstrates continuing operating or cash flow losses, or
incurring costs in excess of amounts originally expected to acquire or construct an asset.

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2. Summary of significant accounting policies (Continued)

If
the asset is not recoverable, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.

In
fiscal year 2011 and fiscal year 2010 our impairment analysis resulted in charges of $1.1 million and $0.4 million, respectively, for impaired RealD Cinema Systems
charged to cost of revenue. In fiscal year 2009, our impairment analysis, based on certain strategic decisions and projected operating cash flow, resulted in charges of $0.3 million for RealD
Cinema Systems charged to cost of revenue and $1.7 million for impaired intangible assets including customer relationships, certain acquired developed technologies, trade names and
non-compete agreements, of which $1.1 million was charged to research and development expense, and $0.6 million to sales and marketing expense.

Goodwill

Goodwill is deemed to have an indefinite useful life and therefore is not amortized. We perform an impairment test annually and
whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. An impairment loss is recognized if the carrying amount of goodwill at each reporting
unit exceeds its implied fair value. For all periods presented, we reviewed goodwill for impairment and concluded that goodwill was not impaired.

Revenue recognition and revenue reductions

We derive substantially all of our revenue from the license of our RealD Cinema Systems and the product sale of our RealD eyewear. We
evaluate revenue recognition for transactions using the criteria set forth by the SEC in Staff Accounting Bulletin No. 104,Revenue Recognition(SAB 104) and Accounting Standards Codification Topic 605,Revenue Recognition(ASC 605). The revenue recognition guidance states that revenue is
recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller's price to the buyer is fixed or
determinable and collectibility is reasonable assured.

License revenue

License revenue is accounted for as an operating lease. License revenue is primarily derived under per-admission, periodic
fixed fee, or per-motion picture basis with motion picture exhibitors. Amounts received up front, less estimated allowances, are deferred and recognized over the lease term using the
straight-line method. Additional lease payments that are contingent upon future events outside our control, including those related to admission and usage, are recognized as revenues when
the contingency is resolved and we have no more obligations to our customers specific to the contingent payment received. Certain of our license revenue from leasing our RealD Cinema Systems is earned
upon admission by the motion picture exhibitor's consumers. Our licensees, however, do not report and pay for such license revenue until after the admission has occurred, which may be received
subsequent to our fiscal period end. We estimate and record licensing revenue related to motion picture exhibitor consumer admissions in the quarter in which the admission occurs, but only when
reasonable estimates of such amounts can be made. We determine that there is persuasive evidence of an arrangement upon the execution of a license agreement or upon the receipt of a licensee's
admissions report. Revenue is deemed fixed or determinable upon verification of a licensee's admissions report in accordance with the terms of the underlying executed agreement or, in certain
circumstances, receipt of a licensee's

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Notes to consolidated financial statements (Continued)

2. Summary of significant accounting policies (Continued)

admissions
report. We determine collectibility based on an evaluation of the licensee's recent payment history.

Product revenue

We recognize product revenue, net of allowances, when title and risk of loss have passed and when there is persuasive evidence of an
arrangement, the payment is fixed or determinable, and collectability of payment is reasonably assured. In the United States and Canada, certain of our product revenue from the sale of our RealD
eyewear is earned upon admission and usage by the motion picture exhibitor's consumers. Our customers, however, do not report admission or usage information until after the admission and usage has
occurred, and such information may be received subsequent to our fiscal period end. We estimate and record such product revenue in the period in which the admission and usage occurs, but only when
reasonable estimates of such amounts can be made.

Revenue reductions

We record revenue net of motion picture exhibitor stock options and estimated revenue allowances. In connection with certain exhibitor
licensing agreements, we issued to the motion picture exhibitors a 10-year option to purchase 3,668,340 shares of our common stock at $0.00667 per share. The stock options vest upon the
achievement of screen installation targets. Motion picture exhibitor stock options are valued at the underlying stock price at each reporting period until the targets are met. Amounts recognized are
based on the number of RealD-enabled screens as a percentage of total screen installation targets. The stock options do not have net cash settlement features. Amounts recorded as a revenue reduction
related to motion picture exhibitor stock options totaled $36.4 million for the year ended March 25, 2011, $39.2 million for the year ended March 26, 2010 and
$4.9 million for the year ended March 27, 2009. As of March 25, 2011 all 3,668,340 motion picture exhibitor stock options had vested and all associated reduction of revenue has
been recognized.

Cost of revenue

Cost of revenue principally consists of depreciation expense of our RealD Cinema Systems deployed at a motion picture exhibitor's
premises, digital projector depreciation expenses, RealD eyewear costs (including shipping, handling and recycling costs), field service and support costs and occupancy costs.

Shipping and handling costs

Amounts billed to customers for shipping and handling costs are included in revenue. Shipping and handling costs that we incur consist
primarily of packaging and transportation charges and are recorded in cost of revenue. Shipping and handling costs recognized in cost of revenue were $10.2 million, $9.6 million and
$0.2 million for the years ended March 25, 2011 March 26, 2010 and March 27, 2009, respectively.

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Notes to consolidated financial statements (Continued)

2. Summary of significant accounting policies (Continued)

Research and development costs

Research and development costs are expensed as incurred and are primarily comprised of personnel costs related to our research and
development staff, depreciation and amortization of research and development assets, prototype and materials costs, the cost of third-party service providers supporting our research and development
efforts and occupancy costs.

Selling and marketing costs

Selling and marketing costs are primarily comprised of personnel costs related to our selling and marketing staff, advertising costs,
including promotional events and other brand building and product marketing expenses, corporate communications, certain professional fees, occupancy costs and travel expenses.

Advertising
costs are expensed as incurred. Advertising expenses were approximately $4.3 million, $2.6 million and $1.4 million for the years ended March 25,
2011, March 26, 2010 and March 27, 2009, respectively.

General and administrative costs

General and administrative costs principally consist of personnel costs related to our executive, legal, finance, and human resources
staff, professional fees including legal and accounting costs, occupancy costs and public company costs. Additionally, general and administrative costs include sales, use, goods and services tax, and
property taxes and management fees payable to a stockholder, which terminated upon consummation of our IPO. For our U.S. cinema license and product revenue, we absorb the majority of sales and use
taxes and do not pass such costs on to our customers.

Share-based compensation

We account for stock options, performance stock options and restricted stock units granted to employees and directors by recording
compensation expense based on estimated fair values. Share-based awards to non-employees, including consultants, have been and are expected to be fully exercisable and nonforfeitable when
granted and, therefore, the fair value of such stock options are expensed on the date of grant.

We
estimate the fair value of share-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the
requisite service periods in our consolidated statements of operations. Share-based awards are attributed to expense using the straight-line method over the vesting period. We determine
the value of each option award that contains a market condition using a lattice-based option valuation model, while all other option awards are valued using the Black-Scholes valuation model as
permitted under Accounting Standards Codification Topic 718,CompensationStock Compensation(ASC 718). The assumptions used in calculating
the fair value of share-based payment awards represent our best estimates based on management judgment and subjective future expectations. Our estimates may be impacted by certain variables including
stock price volatility, employee stock option exercise behaviors, additional stock option grants, estimates of forfeitures and the related income tax impact. If any of the assumptions used in our
valuation models significantly changes, share-based compensation for future awards may differ materially from the awards granted previously. See Note 9, Share-based compensation.

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Notes to consolidated financial statements (Continued)

2. Summary of significant accounting policies (Continued)

Foreign currency

Local currency transactions of our foreign operations that have the U.S. dollar as their functional currency are remeasured into U.S.
dollars using current rates of exchange for monetary assets and liabilities and historical rates of exchange for nonmonetary assets and liabilities. Gains and losses from remeasurement of monetary
assets and liabilities are included in other income (loss) in our statements of operations.

The
assets and liabilities of our foreign operations for which the functional currency is not the U.S. dollar are translated into U.S. dollars at exchange rates as of the balance sheet
date, revenues and
expenses are translated at average exchange rates for the period, and equity balances are translated at the historical rate. Resulting translation adjustments are included in other comprehensive loss,
a component of equity (deficit).

Net
losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency and the net realized and unrealized gains and losses
related to forward contracts totaled $0.6 million, $1.3 million and $0.1 million for the years ended March 25, 2011, March 26, 2010 and March 27, 2009,
respectively, and are included in other income (loss).

Income taxes

Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities at year-end and their respective tax bases using enacted tax rates in effect for the year in which the differences
are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized.

Employee benefit plans

We have a voluntary 401(k) savings plans in which most U.S. employees are eligible to participate. Eligible employees may make
contributions not to exceed the maximum statutory contribution amounts. We may match a percentage of each employee's contributions consistent with the provisions of the plan for which they are
eligible. All employee and employer contributions fully vest immediately. Our contributions to these plans totaled $0.3 million, $0.2 million and $0.2 million for the years ended
March 25, 2011, March 26, 2010 and March 27, 2009, respectively.

Recent accounting pronouncements

In January 2010, Accounting Standards Update (ASU) 2010-6,Fair Value Measurements and Disclosures:
Improving Disclosures About Fair Value Measurements(ASU 2010-6) was issued which requires entities to make new disclosures about recurring or nonrecurring fair
value measurements including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances and
settlements on a gross basis in the reconciliation of Level 3 fair value measurements. We adopted ASU 2010-6 beginning in the first quarter of fiscal 2010, except for Level 3
reconciliation disclosures which are effective for us beginning in the first quarter of fiscal 2011. The adoption of the amended disclosure requirements for fair value measurements did not affect our
disclosures because we did not transfer financial assets or liabilities between levels in the fair value hierarchy.

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Notes to consolidated financial statements (Continued)

2. Summary of significant accounting policies (Continued)

In
October 2009, ASU No. 2009-13,Revenue Recognition (Topic 605)Multiple-Deliverable Revenue Arrangementsa consensus
of the Emerging Issues Task Force(ASU 2009-13) amends Accounting Standards Codification Subtopic 605-25,Revenue
RecognitionMultiple-Element Arrangements(ASC 605-25). The amendments in ASU 2009-13 enable vendors to account for products or
services separately rather than as a combined unit upon meeting certain criteria and establish a hierarchy for determining the selling price of a deliverable. In addition, a vendor can determine a
best estimate of selling price, in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis, if a vendor does not have vendor-specific objective
evidence or third-party evidence of selling price. ASC 605-25 is also amended to eliminate the use of the residual method and requires a vendor to allocate revenue using the relative
selling price method. The amendments in ASU 2009-13 will be effective prospectively, with an option for retrospective restatement of the financial statements, for revenue
arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 with early adoption permitted at the beginning of an entity's fiscal year. We expect to
prospectively adopt the amendments in ASU 2009-13 beginning in the first quarter of fiscal 2012. We are currently evaluating the impact the adoption of new guidance will have on our
consolidated financial statements.

3. Property and equipment, RealD Cinema Systems and digital projectors

Property and equipment, RealD Cinema Systems and digital projectors consist of the following:

(in thousands)

March 25,
2011

March 26,
2010RealD Cinema Systems

$
142,602

$
48,508Digital projectorsheld for sale


13,333


33,196Leasehold improvements


1,163


719Machinery and equipment


6,430


2,247Furniture and fixtures


15


13Computer equipment and software


2,089


356Construction in process


820


767Total

$
166,452

$
85,806Less accumulated depreciation


(25,862
)

(17,104
)Property and equipment, RealD Cinema Systems and digital projectors, net

$
140,590

$
68,702


Depreciation
expense amounted to $15.6 million, $7.7 million and $4.9 million for the years ended March 25, 2011, March 26, 2010 and March 27,
2009, respectively.

During
the year ended March 25, 2011, we received $15.6 million in cash from motion picture exhibitor customers for the sale of digital projectors, resulting in a gain of
$6.7 million in other income (loss). With the proceeds, we repaid an aggregate of $5.6 million of notes payable to the equipment providers.

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Notes to consolidated financial statements (Continued)

4. Goodwill and intangible assets

Goodwill and intangible assets consist of the following at:

March 25, 2011

March 26, 2010(in thousands)

Gross
amount

Accumulated
amortization

Gross
amount

Accumulated
amortizationAcquired developed technologies

$
3,239

$
1,321

$
3,239

$
1,215Goodwill


10,657





10,657


Total

$
13,896

$
1,321

$
13,896

$
1,215


Amortization
expense amounted to $0.1 million, $0.2 million and $0.7 million for the years ended March 25, 2011, March 26, 2010 and March 27,
2009, respectively. During the year ended March 27, 2009, certain intangible assets were impaired as discussed in Note 2. Amortization expense of acquired developed technologies is
included in research and development costs.

At
March 25, 2011, the remaining amortization expense is estimated to be as follows (in thousands):

Fiscal year 2012

$
169Fiscal year 2013


168Fiscal year 2014


168Fiscal year 2015


168Fiscal year 2016


168Thereafter


1,077Total

$
1,918


5. Accrued expenses and other liabilities

Accrued expenses and other liabilities consist of the following at:

(in thousands)

March 25,
2011

March 26,
2010Payroll and compensation

$
18,730

$
4,632Sales, use taxes and other taxes


7,749


5,876Professional fees


3,852


2,415Refundable deposits


3,434


8,500Other


6,353


3,185Total

$
40,118

$
24,608


For
our U.S. cinema license and product revenues, we absorb the majority of sales and use taxes and do not pass such costs on to our customers.

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Notes to consolidated financial statements (Continued)

6. Borrowings

Revolving credit facility agreement and term loan

Prior to July 21, 2010, the date of our IPO, we had a $35.0 million credit facility agreement with City National Bank
that provided for a maximum amount of borrowing under a revolving credit facility of $25.0 million and a term loan of $10.0 million.

Borrowings
outstanding under the term loan totaled $10.0 million as of March 26, 2010 at an interest rate of 8.625%. Borrowings outstanding under the credit facility
agreement totaled $10.2 million as of March 26, 2010. The interest rates related to our borrowings outstanding under the credit facility agreement ranged from 4.6% to 6.0%.

All
amounts outstanding under the pre-IPO credit facility agreement became due and were repaid upon the closing of our IPO offering on July 21, 2010.

Credit Agreement

As of June 24, 2010, we entered into a new credit and security agreement with City National Bank (the "Credit Agreement"), which
provides for a revolving credit facility of up to $15.0 million and which will mature on June 30, 2012. This agreement and the revolving credit facility provided thereunder became
effective on July 21, 2010. Our obligations under the Credit Agreement are secured by a first priority security interest in substantially all of our tangible and intangible assets in favor of
City National Bank and are guaranteed by our subsidiaries, ColorLink, Inc. (ColorLink) and Stereographics Corporation (Stereographics).

Under
the Credit Agreement, our business will be subject to certain limitations, including limitations on our ability to incur additional debt, make certain investments or acquisitions,
enter into certain merger and consolidation transactions, and sell our assets other than in the ordinary course of business. We will also be required to maintain compliance with certain financial
covenants, including a minimum fixed charge coverage ratio and a maximum leverage ratio. As of March 25, 2011, we were in compliance with all financial covenants in the Credit Agreement. If we
fail to comply with any of the covenants or if any other event of default, as defined in the agreement, should occur, the bank could elect to prevent us from borrowing and declare the indebtedness to
be immediately due and payable.

As
of March 25, 2011, there were no borrowings outstanding under the Credit Agreement and there was $15.0 million available to borrow under the Credit Agreement.

Notes payable

From time to time, we enter into equipment purchase agreements with certain of our vendors for the purchase of digital projectors,
digital servers, lenses and accessories. We pay a portion of the cost of the equipment upon delivery and finance a portion of the purchase price by issuing notes payable. The equipment is included in
digital projectors in the accompanying consolidated balance sheets. Certain of these notes payables are non-interest bearing. In those cases, we record the net present value of the notes
payable assuming an implied annual interest rate which is approximately 8.4%. The notes are secured by the underlying equipment. Notes payable totaled $2.3 million and $11.3 million as
of March 25, 2011 and March 26, 2010, respectively. Interest expense is based on annual interest rates ranging from 7.0% to 8.4%. Interest expense amounted to $0.9 million,
$0.8 million and $0.7 million for the years ended March 25, 2011, March 26, 2010 and March 27, 2009, respectively.

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Notes to consolidated financial statements (Continued)

6. Borrowings (Continued)

On
June 13, 2008, we entered into an agreement to settle one of the notes payable. We paid $0.5 million resulting in a forgiveness of the remaining note payable and accrued
interest of $0.2 million. The gain as a result of the forgiveness of the remaining notes payable was recorded in other income upon settlement.

At
March 25, 2011, the future principal payments due related to our borrowings are due as follows (in thousands):

Fiscal year 2012

$
2,291Fiscal year 2013


19Thereafter


Total

$
2,310


7. Commitments and contingencies

Lease obligations

We lease certain office, production and research and development space under noncancelable operating leases that expire at various
dates. Certain operating leases provide us with the option to renew for additional periods. Where operating leases contain escalation clauses, rent abatements, and/or concessions, such as rent
holidays and landlord or tenant incentives or allowances, we apply them in the determination of straight-line rent expense over the lease term. Certain operating leases require the payment
of real estate taxes or other occupancy costs, which may be subject to escalation.

At
March 25, 2011, our future minimum lease obligations were as follows (in thousands):

Fiscal year 2012

$
2,038Fiscal year 2013


2,897Fiscal year 2014


2,961Fiscal year 2015


2,906Fiscal year 2016


2,989Thereafter


16,534Total

$
30,325


Rent
expense was $2.6 million, $1.6 million and $1.0 million for the years ended March 25, 2011, March 26, 2010 and March 27, 2009,
respectively.

Indemnities and commitments

During the ordinary course of business, we make certain indemnities and commitments under which we may be required to make payments in
relation to certain transactions. These indemnities include indemnities of certain customers and licensees of our technologies, and indemnities to our directors and officers to the maximum extent
permitted under the laws of the State of California. The duration of these indemnities and commitments varies, and in certain cases, is indefinite. The majority of these indemnities and commitments do
not provide for any limitation of the maximum potential future payments we could be obligated to make. We have not recorded any liability for these indemnities and commitments in the accompanying
consolidated balance sheets. We do, however,

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Notes to consolidated financial statements (Continued)

7. Commitments and contingencies (Continued)

accrue
for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable and estimable.

We
have entered into contracts with certain of our vendors. Future obligations under such contracts totaled $21.2 million at March 25, 2011 and include revolving
90-day supply commitments. Many of the contracts contain cancellation penalty provisions requiring payment of up to 20.0% of the unused contract.

Contingencies and assessments

We are subject to various loss contingencies and assessments arising in the course of our business, some of which relate to litigation,
claims, property taxes and sales and use tax or goods and services tax assessments. We consider the likelihood of the loss or the incurrence of a liability, as well as our ability to reasonably
estimate the amount of loss in determining loss contingencies and assessments. An estimated loss contingency or assessment is accrued when it is probable that a liability has been incurred and the
amount of loss can be reasonably estimated. We regularly evaluate current information available to us to determine whether such accruals should be adjusted. Based on the information presently
available, including discussion with counsel and other consultants, management believes that resolution of these matters will not have a material adverse effect on our business, consolidated results
of operations, financial condition or cash flows.

8. Mandatorily redeemable convertible preferred stock and equity (deficit)

Initial public offering

In July 2010, we completed the IPO of our common stock in which we sold and issued 6 million shares of common stock at $16.00
per share. A total of approximately $96 million in gross proceeds were raised from the IPO, or $81.9 million in net proceeds after deducting underwriting discounts and commissions of
approximately $6.7 million and other offering costs of approximately $7.4 million. In conjunction with our IPO, all of our previously outstanding Series A, B and D convertible
preferred stock in the amount of 6,084,311 shares converted at a ratio of 1:1.5 into 9,126,466 shares of common stock.

Common stock

In November 2008, we entered into a stock purchase agreement with our Series D preferred stockholder. We sold 199,999 shares of
our common stock at $10.00 per share. Total proceeds received were $2.0 million and were recorded net of issuance costs.

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Notes to consolidated financial statements (Continued)

8. Mandatorily redeemable convertible preferred stock and equity (deficit) (Continued)

At
March 25, 2011, we reserved the following shares of common stock for future issuances in connection with (in thousands):

Warrants


327Motion picture exhibitor stock options


408Stock incentive plan:Outstanding


6,956Reserved for future issuance


2,216Total


9,907


Convertible preferred stock

Prior to April 1, 2006, we issued 2,000,000 shares of Series A preferred stock for $2.0 million, or $1.00 per
share. Offering costs were recorded against the proceeds received.

Rights
and preferences afforded the stockholders of Series A preferred stock were as follows:



Prior
to April 1, 2006, we had issued 2,417,644 shares of Series B preferred stock for $3.0 million or $1.24 per share. Offering costs have been recorded against the
proceeds received.

Rights
and preferences afforded the stockholders of Series B preferred stock were as follows:



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Notes to consolidated financial statements (Continued)

8. Mandatorily redeemable convertible preferred stock and equity (deficit) (Continued)



In
December 2007, we sold 1,666,667 shares of Series D preferred stock at $12.00 per share. Total proceeds received were $20.0 million. Offering costs, consisting primarily
of legal and placement fees, would have been recorded against the proceeds received. Rights and preferences afforded the stockholders of Series D preferred stock were as
follows:



Our
previously outstanding Series A, B and D convertible preferred stock was classified as part of permanent equity within the consolidated balance sheets based on their rights
and preferences set forth under the certificate of incorporation, California and Delaware law and the accounting standards pertaining to classification within the consolidated balance sheet. We
therefore recorded the Series A, B and D preferred stock at their original issuance price net of applicable issuance costs. On July 21, 2010, in conjunction with our IPO, all of our
previously outstanding Series A, B and D convertible preferred stock in the amount of 6,084,311 shares converted at a ratio of 1:1.5 into 9,126,466 shares of common stock.

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Notes to consolidated financial statements (Continued)

8. Mandatorily redeemable convertible preferred stock and equity (deficit) (Continued)

Mandatorily redeemable convertible preferred stock

During February 2007, we sold 5,139,500 shares of Series C mandatorily redeemable convertible preferred stock at $6.81 per
share. Total proceeds received were $35.0 million. Offering costs, consisting primarily of legal and placement fees, incurred were $3.2 million and have been recorded against the
proceeds received.

Rights
and preferences afforded the stockholders of Series C mandatorily redeemable convertible preferred stock were as follows:



Our
Series C mandatorily redeemable convertible preferred stock was classified in temporary equity under the SEC's guidance provided in Accounting Series Release No. 268, Presentation in Financial Statements of
"Redeemable Preferred Stocks,"(ASR 268) because the holders of our Series C mandatorily redeemable
convertible preferred stock had the right to cause us to redeem the instrument for cash for a specified period. On July 21, 2010, in conjunction with our IPO, all of our previously outstanding
Series C mandatorily redeemable convertible preferred stock in the amount of 5,139,500 shares converted at a ratio of 1:1.5 into 7,709,250 shares of common stock.

We
accreted the carrying value of the Series C mandatorily redeemable convertible preferred stock up to liquidation value through July 21, 2010. Accretion was provided
using the effective interest-rate method. During the years ended March 25, 2011, March 26, 2010, and March 27, 2009, we recorded accretion of $4.9 million,
$12.4 million and $9.8 million, respectively.

Motion picture exhibitor stock options

In connection with motion picture exhibitor licensing agreements, we issued to motion picture exhibitors a 10-year option
to purchase 3,668,340 shares of our common stock at $0.00667 per share. These stock options to our motion picture exhibitor licensees vested upon the achievement of screen installation targets and
were valued at the underlying stock price at each reporting period until the targets were met. All targets have been met and these stock options are fully vested.

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Notes to consolidated financial statements (Continued)

8. Mandatorily redeemable convertible preferred stock and equity (deficit) (Continued)

Amounts
recorded as a revenue reduction from motion picture exhibitor stock options totaled $36.4 million, $39.2 million and $4.9 million for the years ended
March 25, 2011, March 26, 2010 and March 27, 2009. Motion picture exhibitor stock options are valued at the underlying stock price at each reporting period until the targets were
met. Amounts recognized are based on the number of RealD-enabled screens as a percentage of total screen installation targets. The stock options do not have net cash settlement features. Amounts
recorded as a revenue reduction totaled $36.4 million for the year ended March 25, 2011, $39.2 million for the year ended March 26, 2010 and $4.9 million for the
year ended March 27, 2009. Motion picture exhibitor stock options are valued at the underlying stock price during each reporting period. As of March 25, 2011 all 3,668,340 motion picture
exhibitor stock options had vested and all associated reduction of revenue has been recognized. Additionally, 3,260,747 exhibitor stock options were exercised by certain of our motion picture
exhibitors during the year ended March 25, 2011.

Warrants

Prior to April 1, 2006, we had issued warrants to purchase a total of 1,335,000 shares of common stock. The warrants were
primarily issued in exchange for cash received totaling $24,000. During April 2007, warrants to purchase 360,000 shares of common stock were exercised.

Prior
to April 1, 2006, we issued warrants and options to purchase 1,900,500 shares of common stock in exchange for cash received and as additional consideration to a person who
lent us money. Prior to April 1, 2006, and when the awards were not fully vested, the lender exercised the warrants and options. The lender entered into a restricted stock agreement whereby we
could repurchase the shares if the shares do not vest. During the year ended March 31, 2008, we repurchased 307,500 restricted shares that did not vest.

As
of March 25, 2011, there were warrants outstanding to purchase 326,700 shares of common stock. The warrants' weighted-average exercise price is approximately $0.83 per share.
As of March 25, 2011, the weighted-average remaining term of the warrants was 5.0 years.

9. Share-based compensation

We account for stock options granted to employees and directors by recording compensation expense based on estimated fair values. We estimate the fair value of share-based payment awards
on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our consolidated statements of
operations. Share-based awards are attributed to expense using the straight-line method over the vesting period. We determine the value of each option award that contains a market
condition using a lattice-based option valuation model, while all other option awards are valued using the Black-Scholes valuation
model as permitted under ASC 718,CompensationStock Compensation. The assumptions used in calculating the fair value of share-based payment
awards represent our best estimates. Our estimates may be impacted by certain variables including stock price volatility, employee stock option exercise behaviors, additional stock option grants,
estimates of forfeitures and the related income tax impact.

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Notes to consolidated financial statements (Continued)

9. Share-based compensation (Continued)

In April 2010, our board of directors unanimously adopted the RealD Inc. 2010 Stock Incentive Plan (the "2010 Stock Plan"), and in June 2010, our stockholders approved the 2010
Stock Plan. The board of directors intends for the 2010 Stock Plan to replace our 2004 Amended and Restated Stock Incentive Plan, (the "2004 Plan"), such that, effective with our IPO, we will no
longer make any new grants under the 2004 Plan. Instead, the board of directors or our compensation committee will issue equity compensation awards under the 2010 Stock Plan. The stock plan provides
for the granting of nonstatutory stock options, incentive stock options, stock appreciation rights, restricted stock awards and stock units to employees, officers, directors, non-employee
directors and consultants.

The
following table reflects the components of stock-based compensation expense recognized in our consolidated statements of operations for the years ended March 25, 2011,
March 26, 2010 March 27, 2009:

Year ended(in thousands)

March 25,
2011

March 26,
2010

March 27,
2009Cost of revenue

$
160

$
60

$
46Research and development


1,470


985


866Selling and marketing


2,937


1,589


744General and administrative


4,383


275


276Total

$
8,950

$
2,909

$
1,932


Stock options

Stock options granted generally vest over a four-year period, with 25% of the shares vesting after one year and monthly
vesting thereafter. The options generally expire ten years from the date of grant. Share-based compensation expense related to stock options was $6.9 million for the year ended March 25,
2011, $2.9 million for the year ended March 26, 2010 and $1.9 million for the year ended March 27, 2009.

A
summary of our stock option activity is as follows:

(in thousands, except exercise price
data and contractual term data)

Options

Weighted-
average
exercise
price

Weighted-
average
remaining
contractual
term (years)

Aggregate
intrinsic
valueOutstanding at March 26, 2010


5,514

$
3.75Granted


2,781


16.38Exercised


(2,020
)

1.92Forfeited or expired


(29
)

8.96Outstanding at March 25, 2011


6,246

$
9.94


7.5

$
85,650Exercisable at March 25, 2011


2,937

$
4.20


5.7

$
57,128Vested or expected to vest


6,087

$
9.83


7.5

$
84,169


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RealD Inc.

Notes to consolidated financial statements (Continued)

9. Share-based compensation (Continued)

The
total intrinsic value of options exercised during the three years ended March 25, 2011, March 26, 2010 and March 25, 2009 was $47.0 million,
$6.2 million and $0.6 million, respectively.

Awards
that are vested or expected to vest take into consideration estimated forfeitures for awards not yet vested.

The
weighted-average grant date fair values were determined using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Year endedMarch 25,
2011

March 26,
2010

March 27,
2009Fair value of stock options granted

$
8.92

$
6.05

$
5.14Expected volatility


57
%

63
%

61
%Expected term (years)


6


6


6Risk-free rate


2.0
%

2.9
%

2.8
%Expected dividends











For
purposes of determining the expected term and in the absence of historical data relating to stock option exercises, we apply a simplified approach: the expected term of awards
granted is presumed to be the mid-point between the vesting date and the end of the contractual term. We use the contractual term when valuing awards to consultants. We use the average
volatility of similar, publicly traded companies as an estimate for expected volatility. The risk-free interest rate for periods within the expected or contractual life of the option, as
applicable, is based on the United States Treasury yield curve in effect during the period the options were granted. Our expected dividend yield is zero.

As
of March 25, 2011, there was $23.1 million of total unrecognized compensation costs related to stock option compensation arrangements granted which is expected to be
recognized over the remaining weighted-average period of 3.0 years.

Performance stock options

Certain of our management-level employees receive performance stock options, which gives the recipient the right to receive common
stock that is contingent upon achievement of specified pre-established performance goals over the performance period, which is three years. The performance goals for the performance stock
options are based on the measurement of our total shareholder return, on a percentile basis, compared to a comparable group of companies. Depending on the outcome of the performance goals, the
recipient may ultimately earn performance stock options equal to or less than the number of performance stock options granted. For the year ended March 25, 2011, we granted 641,250 performance
stock options at a weighted average grant date fair value of $9.45 per share. For the year ended March 25, 2011, share-based compensation expense related to performance stock options was
$1.4 million.

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Notes to consolidated financial statements (Continued)

9. Share-based compensation (Continued)

The
weighted average grant date fair values were determined using the lattice-based option valuation model with the following weighted average assumptions:

Year ended
March 25,
2011Fair value of performance stock options

$
9.45Expected volatility


65
%Expected term (years)


4Risk-free rate


3.4
%Expected dividends





The
lattice-based option valuation model uses terms based on the length of the performance period and compound annual growth rate goals for total stockholder return based on the
provisions of the award. For purposes of determining the expected term and in the absence of historical data relating to stock option exercises, we apply a simplified approach: the expected term of
awards granted is presumed to be the mid-point between the vesting date and the end of the contractual term. We use the average volatility of a peer group of companies as an estimate for
expected volatility. The risk-free interest rate for periods within the expected or contractual life of the option, as applicable, is based on the United States Treasury yield curve in
effect during the period the options were granted.

As
of March 25, 2011, there was $4.7 million of total unrecognized compensation costs related to performance stock option compensation arrangements granted which is
expected to be recognized over the remaining weighted-average period of 2.3 years.

Restricted stock units

The fair value of a restricted stock unit is equal to the closing price of our common stock on the grant date. The weighted-average
grant date fair values of restricted stock units granted in fiscal 2011 was $20.78. For the year ended March 25, 2011, share-based compensation expense related to restricted stock units was
$0.7 million.

The
following summarizes select information regarding our restricted stock units during the year ended March 25, 2011:

(in thousands, except grant date fair value data)

Units

Weighted-
average
grant date
fair valueNonvested at March 26, 2010




$
Granted


69


20.78Vested


(33
)

19.84Forfeited





Nonvested at March 25, 2011


36

$
23.31


As
of March 25, 2011, there was $0.7 million of total unrecognized compensation costs related to restricted stock units granted which is expected to be recognized over the
remaining weighted-average period of 1.7 years.

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Notes to consolidated financial statements (Continued)

9. Share-based compensation (Continued)

The
total fair values restricted stock units that vested during the year ended March 25, 2011 was $0.7 million. Restricted stock units were not granted in fiscal 2010 or
fiscal 2009.

10. Income taxes

The income tax provision from continuing operations consists of the following:

Year ended(in thousands)

March 25,
2011

March 26,
2010

March 27,
2009Current income tax provisionFederal

$


$


$
State


87


78


50Foreign


4,187


2,538


1434,274


2,616


193Deferred income tax benefitFederal








26State








Foreign


(2
)

64


Total income tax provision from continuing operations

$
4,272

$
2,680

$
219


Income
(loss) from continuing operations before income taxes consisted of the following:

Year ended(in thousands)

March 25,
2011

March 26,
2010

March 27,
2009Domestic

$
(5,749
)
$
(41,405
)
$
(15,795
)Foreign


3,196


4,336


(350
)Total

$
(2,553
)
$
(37,069
)
$
(16,145
)


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RealD Inc.

Notes to consolidated financial statements (Continued)

10. Income taxes (Continued)

Significant
components of our deferred tax balances are as follows:

(in thousands)

March 25,
2011

March 26,
2010Deferred tax assets:Net operating loss carryforwards

$
25,622

$
17,936Deferred revenue


6,986


8,114Motion picture exhibitor options


3,605


16,767Accruals, reserves and allowances


9,197


3,427Share-based compensation


4,441


2,434Intangible assets


454


Foreign tax credit carryovers


4,913


1,165Other


1,610


1,138Total deferred tax assets

$
56,828

$
50,981Deferred tax liabilitiesFixed assets

$
(9,493
)
$
(5,009
)Intangible assets





(19
)Partnership interest


(358
)

(1,723
)Unbilled receivables


(3,782
)

(6,059
)Other


(76
)

(40
)Total deferred tax liabilities

$
(13,709
)
$
(12,850
)Valuation allowance


(43,181
)

(38,195
)Net deferred tax liabilities

$
(62
)
$
(64
)


Due
to the uncertainties surrounding the timing and realization of the benefits from our tax attributes in future tax returns, we have placed a valuation allowance against primarily all
of our otherwise recognizable net deferred tax assets as of March 25, 2011 and March 26, 2010. As a result, we increased our valuation allowance through the operating statement as
follows:

(in thousands)

March 25,
2011

March 26,
2010Through continuing operations

$
4,986

$
16,338Net deferred tax liabilities

$
4,986

$
16,338


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RealD Inc.

Notes to consolidated financial statements (Continued)

10. Income taxes (Continued)

The
income tax provision from continuing operations differs from the amount computed by applying the U.S. statutory federal income tax rate of 34.0% to the pretax loss as a result of the
following differences:

Year endedMarch 25,
2011

March 26,
2010

March 27,
2009Federal tax at statutory rate


34.0
%

34.0
%

34.0
%State tax, net of federal benefit


(1.2
)%

4.2
%

4.2
%Foreign tax rate differential


11.3
%

0.1
%

(0.3
)%LLC income minority interest not taxed


7.2
%

(0.8
)%

(1.5
)%Revaluation of deferred taxes due to changes in effective income tax rates


(13.7
)%

(0.6
)%

Research tax credits


25.2
%




Permanent differences and other


(35.0
)%

(0.2
)%

(6.2
)%Change in valuation allowance


(195.4
)%

(43.9
)%

(31.6
)%Total tax benefit


(167.7
)%

(7.2
)%

(1.4
)%


As
of March 25, 2011, we had net operating loss carryforwards of approximately $123.0 million for federal and $69.7 million for state purposes. Federal and state net
operating loss carryforwards begin to expire in years 2012 and 2020, respectively. As of March 25, 2011 we had foreign tax credit carryforwards of approximately $4.7 million for federal
income tax purposes that begin to expire in the year 2019. Our ability to utilize net operating loss carryforwards are generally limited and may become limited further in the event that a change in
ownership occurs, as defined in the Internal Revenue Code.

We
recognize excess tax benefits associated with share-based compensation and motion picture exhibitor options to stockholders' equity only when realized. As of March 25, 2011, we
have approximately $19.7 million of unrealized excess tax benefits associated with share-based compensation and exhibitor options. These tax benefits will be accounted for as a credit to
additional paid-in capital, if and when realized, rather than a reduction of the provision for income taxes.

On
April 1, 2009, we adopted accounting for uncertain tax positions pursuant to ASC 740,Income Taxes. As a result of adoption, we
recorded a reduction of our deferred tax assets of approximately $0.1 million with a corresponding decrease to our valuation allowance.

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RealD Inc.

Notes to consolidated financial statements (Continued)

10. Income taxes (Continued)

The
following table summarized the activity related to our unrecognized tax benefits (in thousands):

Balance as of March 27, 2009

$
Increases related to prior year tax positions


95Increase related to current year tax positions


Expiration of the statute of limitations for the assessment of taxes


Settlements


Balance as of March 26, 2010

$
95Increases related to prior year tax positions


90Increase related to current year tax positions


161Expiration of the statute of limitations for the assessment of taxes


Settlements


Balance as of March 25, 2011

$
346


Approximately
$0.3 million of the unrecognized tax benefits will decrease the effective tax rate if recognized, subject to the valuation allowance.

It
is not anticipated that there will be a significant change in the unrecognized tax benefits over the next 12 months.

Due
to the net operating loss carryforwards, our United States federal and state returns are open to examination by the Internal Revenue Service and state jurisdictions for all years
since inception.

Our
policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. As of March 25, 2011, amounts for accrued interest
and penalties associated with uncertain tax positions were not significant.

As
of March 25, 2011, unremitted earnings of the subsidiary outside of the United States were approximately $4.6 million, on which no United States taxes had been provided.
Our current intention is to reinvest these earnings outside the United States. It is not practicable to estimate the amount of additional taxes that might be payable upon repatriation of foreign
earnings.

11. Related-party transactions

In November 2007, we sold our 51.0% interest in ColorLink Japan to its noncontrolling interest owner. Prior to the November disposition, ColorLink Japan leased certain employees and
facilities from its noncontrolling interest owner and purchased certain raw materials from that owner. Furthermore, the noncontrolling interest owner and its affiliate acted as a sales distributor for
ColorLink Japan for designated customers. The noncontrolling interest owner provided management services for ColorLink Japan for which it received a fee of 2.0% to 3.0% of ColorLink Japan sales.
Management fees paid by ColorLink Japan to its noncontrolling interest owner from the date of acquisition through the date of sale totaled $0.1 million.

In
conjunction with the November 2007 disposition of ColorLink Japan, we entered into a Technology and License Agreement with the previous noncontrolling interest owner of ColorLink
Japan, and ColorLink Japan granting the parties certain exclusive and non-exclusive rights to make, use

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Notes to consolidated financial statements (Continued)

11. Related-party transactions (Continued)

and
sell designated inventions. As consideration for the grant of these rights, the parties have agreed to pay a royalty equal to 8.0% of revenue earned on the sale of the licensed products. Royalties
earned in the year ended March 25, 2011 totaled $5.9 million, of which $0.2 million remained due and outstanding as of March 25, 2011. Royalties earned in the year ended
March 26, 2010 totaled $0.8 million, of which $0.2 million remained due and outstanding as of March 26, 2010. Royalties earned in the year ended March 27, 2009
totaled $0.5 million, of which $0.1 million remained due and outstanding as of March 27, 2009.

In
addition, we purchased inventory from the previous noncontrolling interest owner of ColorLink Japan. Inventory amounts purchased totaled $13.5 million and $12.7 million
for the years ended March 25, 2011 and March 26, 2010, respectively. As of March 25, 2011 and March 26, 2010, we owed the previous noncontrolling interest owner of
ColorLink Japan $1.4 million and $1.7 million, respectively. Amounts purchased from us by the noncontrolling interest owner of ColorLink Japan in the year ended March 25, 2011
totaled $0.6 million of which $0.5 million remained outstanding. A principal of the previous noncontrolling interest owner of ColorLink Japan owns less than 5% share of our common stock.

During
the year ended March 25, 2011, we purchased digital projectors from the noncontrolling interest owner of our subsidiaries totaling $0.8 million. Of this amount,
$0.5 million was paid upfront and $0.3 million was financed as long-term debt.

During
the year ended March 26, 2010, we purchased digital projectors from the noncontrolling interest owner of our subsidiaries totaling $4.6 million. Of this amount,
$0.1 million was paid upfront, $1.6 million was due as of March 26, 2010 to our noncontrolling interest partner and $2.9 million was financed as long-term debt.

During
the year ended March 25, 2011 we paid a $0.2 million management fee to the holder of our Series C mandatorily redeemable convertible preferred stock. During
the years end March 26, 2010 and March 27, 2009 we paid a $0.4 million management fee to the holder of our Series C mandatorily redeemable convertible preferred stock in
the years ended. Upon the closing of our IPO in July 2010, our obligation to pay this management fee ceased.

12. Segment and geographic information

For financial reporting purposes we currently have one reportable segment. We have three operating segments: cinema, consumer electronics and professional. Operating segments are defined
as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. Our chief operating decision maker is our Chief Executive Officer. We aggregate our three operating segments into one reportable segment based on
qualitative factors including similar economic characteristics and the nature of the products and services. Our product portfolio is used in applications that enable a premium 3D viewing experience
across the segments. We currently generate substantially all of our revenue from the license of our RealD Cinema Systems and the sale of our eyewear, which together enable a digital cinema projector
to show 3D motion pictures.

Our
top 10 customers with an accounts receivable balance represented approximately 52% and 57% of our net accounts receivable at March 25, 2011 and March 26, 2010,
respectively. Our top 10

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Notes to consolidated financial statements (Continued)

12. Segment and geographic information (Continued)

customers
accounted for approximately 50%, 70% and 70% of our revenue for the years ended March 25, 2011, March 26, 2010 and March 27, 2009, respectively.

Our
customers with revenues of 10% or greater of total revenues are presented below for the periods indicated:

Percentage of total revenueYear endedMarch 26,
2010

March 27,
2009Customer A


13
%

Customer B


12
%

20
%Customer C





Customer D





10
%Customer E


10
%

Customer F








No
individual customer accounted for greater than 10% of our revenues during the fiscal year ended March 25, 2011.

Geographic information

Revenue by geographic region, as determined based on the location of our customers or the anticipated destination of use was as
follows:

Year ended(in thousands)

March 25,
2011

March 26,
2010

March 27,
2009Domestic (United States and Canada)

$
91,259

$
62,488

$
27,775International


154,877


87,358


11,900Total revenues

$
246,136

$
149,846

$
39,675


Long-lived
tangible assets, net of accumulated depreciation, by geographic region were as follows:

(in thousands)

March 25,
2011

March 26,
2010Domestic (United States and Canada)

$
101,563

$
52,544International


39,027


16,158Total long-lived tangible assets

$
140,590

$
68,702


14. Quarterly financial data (unaudited)

Three months ended(dollars in thousands, except per share data)

March 25,
2011

December 24,
2010

September 24,
2010

June 25,
2010Net revenue

$
58,514

$
57,780

$
65,322

$
64,520


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RealD Inc.

Notes to consolidated financial statements (Continued)

14. Quarterly financial data (unaudited) (Continued)

Three months ended(dollars in thousands, except per share data)

March 25,
2011

December 24,
2010

September 24,
2010

June 25,
2010Gross profit


29,877


6,138


13,823


17,902Net income (loss)


4,305


(16,768
)

(4,214
)

9,852Net income (loss) attributable to RealD Inc. common stockholders(1)

$
4,467

$
(16,587
)
$
(5,123
)
$
2,946Earnings (loss) per common share:Basic

$
0.09

$
(0.34
)
$
(0.12
)
$
0.12Diluted

$
0.08

$
(0.34
)
$
(0.12
)
$
0.09


(1)Includes
undistributed earnings attributable to preferred stockholders of $2.0 million for the three months ended June 25, 2010.


Three months ended(dollars in thousands, except per share data)

March 26,
2010

December 25,
2009

September 25,
2009

June 26,
2009Net revenue

$
55,404

$
30,195

$
38,683

$
25,564Gross profit


(514
)

(1,432
)

8,326


2,863Net loss


(17,936
)

(12,279
)

(2,545
)

(6,989
)Net loss attributable to RealD Inc. common stockholders

$
(20,860
)
$
(15,111
)
$
(5,410
)
$
(9,844
)Loss per common share, basic and diluted

$
(0.85
)
$
(0.61
)
$
(0.22
)
$
(0.41
)


15. Subsequent events (unaudited)

On April 5, 2011, we entered into an amendment to the Credit Agreement with City National to provide that the aggregate principal amount outstanding at any one time under our
revolving credit loans may be (i) up to $50 million through December 31, 2011 and (ii) up to $25 million thereafter. Subsequently, we drew down an aggregate amount
of $20.0 million of revolving credit loans pursuant thereto. As of June 9, 2011, $30.0 million remains available for borrowing under the Credit Agreement.

On
May 9, 2011 407,593 shares were issued pursuant to the exercise of motion picture exhibitor stock options. All 3,668,340 motion pictures exhibitor stock options
have been exercised as of May 9, 2011.

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Item 9.Changes in and disagreements with accountants on accounting and financial disclosure

None.

Item 9A.Controls and procedures

Evaluation of disclosure controls and procedures

We maintain "disclosure controls and procedures," as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In
designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to
apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part
upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Subject
to the limitations noted above, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design
and operation of our disclosure controls and procedures as of the end of the fiscal period covered by this Annual Report on Form 10-K. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective to meet the objective for which they were designed and operate at the
reasonable assurance level.

Exemption from Management's Report on Internal Control Over Financial Reporting for Fiscal Year 2011

This annual report does not include a report of management's assessment regarding internal control over financial reporting or an
attestation report of the company's registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended March 25, 2011, that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.Other information

Information required by this Item is incorporated by reference to the information contained in RealD's definitive Proxy Statement for
its 2011 Annual Meeting of Stockholders under the headings "Compensation Discussion and Analysis".

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Table of Contents

PART III

Item 10.Directors, executive officers and corporategovernance

Information required by this Item is incorporated by reference to the information contained in RealD's definitive Proxy Statement for
its 2011 Annual Meeting of Stockholders under the headings "Proposal OneElection of Class I Directors," "Corporate Governance," and "Security Ownership of Management and Certain
Beneficial OwnersSection 16(a) beneficial ownership reporting compliance".

Item 11.Executive compensation

Information required by this Item is incorporated by reference to the information contained in RealD's definitive Proxy Statement for
its 2011 Annual Meeting of Stockholders under the headings "Compensation Discussion and Analysis," "Board structureCompensation committee interlocks and insider participation," and
"Compensation Committee Report".

Item 12.Security ownership of certain beneficial owners and management and related stockholder matters

Information required by this Item is incorporated by reference to the information contained in RealD's definitive Proxy Statement for
its 2011 Annual Meeting of Stockholders under the headings "Security Ownership of Management and Certain Beneficial Owners" and "Equity Compensation Plan Information".

Item 13.Certain relationships and related transactions, and director independence

Information required by this Item is incorporated by reference to the information contained in RealD's definitive Proxy Statement for
its 2011 Annual Meeting of Stockholders under the headings "Board StructureDetermination of Independence," "Compensation Discussion and AnalysisExecutive employment
agreements," "Proposal OneElection of Class 1 Directors," and "Corporate Governance".

Item 14.Principal accounting fees and services

Information required by this Item is incorporated by reference to the information contained in RealD's definitive Proxy Statement for
its 2011 Annual Meeting of Stockholders under the headings "Proposal TwoRatification of the Appointment of Independent Registered Public Accounting Firm for Fiscal Year 2012".

PART IV

Item 15.Exhibit and financial statement schedules

(a)   The
following documents are filed as part of or are included in this Annual Report on Form 10-K:





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Table of Contents

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS

Description

Balance at
beginning of
period

Additions charged to
cost and expenses

Other adjustments/
deductions(1)

Balance at
end of periodAllowance for doubtful accounts and customer credits:Year ended March 25, 2011

$
1,201

$
5,432

$
170

$
6,803Year ended March 26, 2010

$
647

$
816

$
(262
)
$
1,201Year ended March 27, 2009

$
154

$
308

$
185

$
647Deferred tax valuation allowance:Year ended March 25, 2011

$
(38,195
)
$
(4,986
)
$


$
(43,181
)Year ended March 26, 2010

$
(21,857
)
$
(16,338
)
$


$
(38,195
)Year ended March 27, 2009

$
(16,724
)
$
(5,133
)
$


$
(21,857
)


---



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Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

RealD Inc.
(Registrant)June 9, 2011

By:

/s/ MICHAEL V. LEWIS Michael V. Lewis Chief Executive Officer


POWER OF ATTORNEY

Each person whose individual signature appears below hereby constitutes and appoints Michael V. Lewis, Andrew A. Skarupa and Craig S.
Gatarz, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent
to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this Annual
Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue thereof.

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

Signature

Title

Date/s/ MICHAEL V. LEWIS Michael V. Lewis

Chief Executive Officer and Director (Principal Executive Officer)

June 9, 2011/s/ ANDREW A. SKARUPA Andrew A. Skarupa

Chief Operating Officer and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

June 9, 2011/s/ JOSHUA GREER Joshua Greer

President and Director

June 9, 2011/s/ FRANK J. BIONDI, JR. Frank J. Biondi, Jr.

Director

June 9, 2011


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Table of Contents

Signature

Title

Date/s/ RICHARD L. GRAND-JEAN Richard L. Grand-Jean

Director

June 9, 2011/s/ SHERRY LANSING Sherry Lansing

Director

June 9, 2011/s/ STEPHEN ROYER Stephen Royer

Director

June 9, 2011/s/ P. GORDON HODGE P. Gordon Hodge

Director

June 9, 2011/s/ JAMES CAMERON James Cameron

Director

June 9, 2011


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Table of Contents

EXHIBIT INDEX

Exhibit
Number

Description3.1
(1)
Amended and Restated Certificate of Incorporation of the registrant.3.2
(2)
Amended and Restated Bylaws of the registrant4.1
(3)
Specimen of common stock certificate.4.2
(3)
Amended and Restated Investors' Rights Agreement, dated December 24, 2007, by and among the registrant, the founders and the investors named therein.4.3
(4)
Amendment and Agreement to Amended and Restated Investors' Rights Agreement, dated June 11, 2010, by and among the registrant and the other signatories thereto.4.4
(5)
Side letter, dated June 25, 2010, to Amended and Restated Investors' Rights Agreement, as amended.10.1
#(6)
2004 Amended and Restated Stock Incentive Plan.10.2
#(7)
Form of Stock Option Agreement for 2004 Amended and Restated Stock Incentive Plan.10.3
#(6)
2010 Stock Incentive Plan.10.4
#(6)
2010 Stock Incentive PlanForm of Nonstatutory Stock Option Agreement between the Chief Executive Officer and the registrant.10.5
#(6)
2010 Stock Incentive PlanForm of Nonstatutory Stock Option Agreement between the executive officers and the registrant.10.6
#(6)
2010 Stock Incentive PlanForm of Performance Stock Option Agreement issued in connection with the initial public offering between the Chief Executive Officer and the registrant.10.7
#(6)
2010 Stock Incentive PlanForm of Performance Stock Option Agreement issued in connection with the initial public offering between the executive officers and the registrant.10.8
#(6)
2010 Stock Incentive PlanForm of Stock Unit Agreement between the non-employee directors and the registrant.10.9
#(6)
Employment Agreement, dated May 25, 2010, between Michael V. Lewis and the registrant.10.10
#(6)
Employee Invention Assignment and Confidentiality Agreement dated May 25, 2010 between Michael V. Lewis and the registrant.10.11
#(3)
Indemnification Agreement, dated April 8, 2010, between Michael V. Lewis and the registrant.10.12
#(3)
Form of Separation Agreement and General Release of Claims between Michael V. Lewis and the registrant.10.13
#(7)
Form of Indemnification Agreement between the registrant and its directors and officers.10.14
+(6)
Real D System License Agreement (U.S. 2008), dated October 15, 2008, by and between REGAL Cinemas, Inc. and the registrant.10.15
+(8)
Real D Nonqualified Stock Option Grant and Real D Stock Option Agreement, both dated, October 15, 2008, by and between REGAL Cinemas, Inc. and the registrant.


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Table of Contents

Exhibit
Number

Description10.16
+(6)
Amended and Restated Real D System License Agreement (U.S. 2009), dated May 19, 2009, by and between Cinemark USA, Inc. and the registrant.10.17
+(8)
Real D Nonqualified Stock Option Grant and Real D Stock Option Agreement, both dated May 19, 2009, by and between Cinemark USA, Inc. and the registrant.10.18
+(6)
Second Amended and Restated RealD System License Agreement (2010), dated May 9, 2010, by and between American Multi-Cinema, Inc. and the registrant.10.19
(8)
Operating Agreement of Digital Link II, LLC, dated March 2, 2007.10.20
+(9)
RealD Inc. Amended and Restated Nonqualified Stock Option Grant and RealD Inc. Amended and Restated Stock Option Agreement, both dated May 9, 2010, by and between American Multi-Cinema, Inc. and the
registrant.10.21
#(10)
Director Offer Letter and Consent, dated May 17, 2010, by and between P. Gordon Hodge and the registrant.10.22
#(11)
Employment Agreement, dated May 25, 2010, between Andrew A. Skarupa and the registrant.10.23
#(12)
Employment Agreement, dated May 25, 2010, between Joshua Greer and the registrant.10.24
#(13)
Employment Agreement, dated May 25, 2010, between Joseph Peixoto and the registrant.10.25
#(14)
Employment Agreement, dated May 25, 2010, between Robert Mayson and the registrant.10.26
#(15)
Form of Separation Agreement and General Release of Claims between the registrant and Andrew A. Skarupa, Joshua Greer, Joseph Peixoto and Robert Mayson.10.27
#(16)
Form of Employee Invention Assignment and Confidentiality Agreement between the registrant and Andrew A. Skarupa, Joshua Greer, Joseph Peixoto, Robert Mayson and other non-executive employees.10.28
#(17)
Employment Agreement, dated January 21, 2010, between Craig Gatarz and the registrant.10.29
(18)
Credit and Security Agreement, dated June 24, 2010, by and between City National Bank and the registrant.10.30
#(19)
Employment Agreement, dated September 1, 2007, between Andrew A. Skarupa and the registrant.10.31
#(20)
Employment Agreement, dated September 1, 2007, between Joseph Peixoto and the registrant.10.32
#(21)
Employment Agreement, dated February 25, 2010, between Robert Mayson and the registrant.10.33
#(22)
Employment Agreement, dated November 5, 2008, between Robert Mayson and RealD Europe Limited.10.34
#(23)
Director Offer Letter and Consent, dated May 20, 2010, by and between Sherry Lansing and the registrant.10.35
#(24)
Director Offer Letter and Consent, dated May 17, 2010, by and between Frank J. Biondi, Jr. and the registrant.


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Table of Contents

Exhibit
Number

Description10.36
#(25)
Director Offer Letter and Consent, dated May 17, 2010, by and between Richard Grand-Jean and the registrant.10.37
#(26)
Director Offer Letter and Consent, dated May 20, 2010, by and between James Cameron and the registrant.10.38
#(27)
2010 Management Incentive Plan.10.39
#(28)
Employment Agreement, dated October 18, 2010, between Craig Gatarz and the registrant.10.40
(29)
First Amendment to the Real D System License Agreement (U.S. 2008), dated as of January 26, 2011, by and between RealD Inc. and Regal Cinemas, Inc.10.41
(30)
First Amendment to Credit and Security Agreement, dated as of April 5, 2011, between RealD, Inc. and City National Bank.10.42
(31)
Continuing Guaranty, dated as of April 5, 2011, executed by ColorLink Inc. in favor of City National Bank.10.43
(32)
Continuing Guaranty, dated as of April 5, 2011, executed by Stereographics Corporation in favor of City National Bank.10.44
#
Separation Agreement and General Release of Claims, dated as of May 16, 2011, by and between Joshua Greer and the registrant.10.45
#
Consulting Agreement, dated as of May 16, 2011, by and between Joshua Greer and the registrant.10.46
#
2010 Stock Incentive PlanForm of Stock Unit Agreement between the executive officers and the registrant.21.1

List of significant subsidiaries of the registrant.23.1

Consent of Independent Registered Public Accounting Firm.24.1

Power of Attorney (included on signature page to this Annual Report on Form 10-K).31.1

Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.31.2

Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


+Certain
provisions of this exhibit have been omitted pursuant to a request for confidential treatment.#Indicates
management contract or compensatory plan, contract, or agreement.(1)Incorporated
by reference to Exhibit 3.2 filed with the Registrant's Registration Statement on Form S-1
(No. 333-165988) on April 9, 2010.


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Table of Contents

(2)Incorporated
by reference to Exhibit 3.4 filed with the Registrant's Registration Statement on Form S-1
(No. 333-165988) on April 9, 2010.(3)Incorporated
by reference to exhibit of same number filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on May 26, 2010.(4)Incorporated
by reference to Exhibit 4.6 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on June 28, 2010.(5)Incorporated
by reference to Exhibit 4.8 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on June 28, 2010.(6)Incorporated
by reference to exhibit of same number filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on June 28, 2010.(7)Incorporated
by reference to exhibit of same number filed with the Registrant's Registration Statement on Form S-1
(No. 333-165988) on April 9, 2010.(8)Incorporated
by reference to exhibit of same number filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on May 10, 2010.(9)Incorporated
by reference to Exhibit 10.24 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on May 10, 2010.(10)Incorporated
by reference to Exhibit 10.25 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on May 26, 2010.(11)Incorporated
by reference to Exhibit 10.27 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on June 28, 2010.(12)Incorporated
by reference to Exhibit 10.28 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on June 28, 2010.(13)Incorporated
by reference to Exhibit 10.29 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on June 28, 2010.(14)Incorporated
by reference to Exhibit 10.31 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on June 28, 2010.(15)Incorporated
by reference to Exhibit 10.31 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on May 26, 2010.(16)Incorporated
by reference to Exhibit 10.32 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on May 26, 2010.(17)Incorporated
by reference to Exhibit 10.33 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on May 26, 2010.(18)Incorporated
by reference to Exhibit 10.34 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on June 28, 2010.(19)Incorporated
by reference to Exhibit 10.35 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on June 28, 2010.(20)Incorporated
by reference to Exhibit 10.36 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on June 28, 2010.(21)Incorporated
by reference to Exhibit 10.37 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on May 26, 2010.


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(22)Incorporated
by reference to Exhibit 10.38 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on May 26, 2010.(23)Incorporated
by reference to Exhibit 10.39 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on May 26, 2010.(24)Incorporated
by reference to Exhibit 10.40 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on May 26, 2010.(25)Incorporated
by reference to Exhibit 10.41 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on May 26, 2010.(26)Incorporated
by reference to Exhibit 10.42 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on June 28, 2010.(27)Incorporated
by reference to Exhibit 10.43 filed with the Registrant's Registration Statement on Form S-1/A
(No. 333-165988) on June 28, 2010.(28)Incorporated
by reference to Exhibit 10.39 filed with the Registrant's Registration Statement on Form S-1
(No. 333-170766) on November 22, 2010.(29)Incorporated
by reference to Exhibit 10.1 filed with the Registrant's Current Report on Form 8-K on January 27, 2011.(30)Incorporated
by reference to Exhibit 10.1 filed with the Registrant's Current Report on Form 8-K on April 8, 2011.(31)Incorporated
by reference to Exhibit 10.2 filed with the Registrant's Current Report on Form 8-K on April 8, 2011.(32)Incorporated
by reference to Exhibit 10.3 filed with the Registrant's Current Report on Form 8-K on April 8, 2011.


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