What changed in this filing

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Item 1. Financial Statements

2023-08-14 compared with 2023-02-14 · 362 added, 680 removed, 335 unchanged (76% of the section changed)

FINANCIAL STATEMENTS (UNAUDITED)

CINEDIGM CORP.

Cineverse Corp.

CONDENSED CONSOLIDATED BALANCE SHEETS

2 unchanged sentences

Cash and cash equivalents

Accounts receivable, net of allowance of $ 2,780 and $ 2,921 , respectively

Accounts receivable

Unbilled revenue

11 unchanged sentences

Current portion of deferred consideration on purchase of business

Other current liabilities

Current portion of earnout consideration on purchase of business

Operating lease liabilities

Current portion of deferred revenue

Total current liabilities

1 unchanged sentence

net of current portion

Operating lease liabilities - net of current portion

Other long-term liabilities

Total Liabilities

Commitments and contingencies (see Note 6)

Stockholders’

2 unchanged sentences

20 shares authorized;

7 shares issued and 7 shares outstanding at December 31, 2022 and March 31, 2022.

Liquidation preference of $ 3,648

Class A Common stock, $ 0.001 par value;

275,000,000 shares authorized at December 31, 2022 and March 31, 2022, 180,225,330 and 176,629,435 shares issued and 178,909,479 and 175,313,584 shares outstanding at December 31, 2022 and March 31, 2022, respectively

7 shares issued and outstanding, respectively, at June 30, 2023 and March 31, 2023.

Common stock, $ 0.001 par value;

Class A stock 275,000,000 shares authorized at June 30, 2023 and March 31, 2023, 11,750,765 and 9,413,597 shares issued and 11,684,973 and 9,347,805 shares outstanding at June 30, 2023 and March 31, 2023, respectively.

Additional paid-in capital

4 unchanged sentences

Total stockholders’

equity of Cinedigm Corp.

equity of Cineverse Corp.

Deficit attributable to noncontrolling interest

1 unchanged sentence

See accompanying Notes to Condensed Consolidated Financial Statements

CINEDIGM CORP.

Cineverse Corp.

CONDENSED CONSOLIDATED STA TEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(In thousands, except per share data)

Three Months Ended

Nine Months Ended

Costs and expenses:

3 unchanged sentences

Total operating expenses

Operating income (loss)

Operating loss

Interest expense

Gain on forgiveness of PPP loan

Change in fair value of equity investment in Metaverse, a related party

Employee retention tax credit

Other income (expense)

Income (loss) before income taxes

Income tax benefit

Net income (loss)

Net (income) loss attributable to noncontrolling interest

Net income (loss) attributable to controlling interests

Decrease in fair value of equity investment in Metaverse, a related party

Other expense, net

Net loss before income taxes

Income tax expense

Net income attributable to noncontrolling interest

Net loss attributable to controlling interests

Preferred stock dividends

Net income (loss) attributable to common stockholders

Net income (loss) per share attributable to common stockholders:

Net loss attributable to common stockholders

Net loss per share attributable to common stockholders:

Weighted average shares of common stock outstanding:

See accompanying Notes to Condensed Consolidated Financial Statements

CINEDIGM CORP.

CONDENSED CONSOLIDATED STATE MENTS OF COMPREHENSIVE INCOME (LOSS)

Cineverse Corp.

CONDENSED CONSOLIDATED STATE MENTS OF COMPREHENSIVE LOSS

(In thousands)

Three Months Ended

Nine Months Ended

Net income (loss)

Other comprehensive income (loss):

Other comprehensive loss:

Foreign exchange translation

Comprehensive income (loss) attributable to noncontrolling interest

Comprehensive income (loss)

Comprehensive income attributable to noncontrolling interest

Comprehensive loss

See accompanying Notes to Condensed Consolidated Financial Statements

CINEDIGM CORP.

Cineverse Corp.

CONDENSED CONSOLIDATED ST ATEMENTS OF CASH FLOWS

(In thousands)

Nine Months Ended

Three Months Ended

Cash flows from operating activities:

Net (loss) income

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

Allowance for prepaid advances

Changes in fair value of equity investment in Metaverse

Gain from forgiveness of PPP loan

Impairment of advances

Provision (benefit) for doubtful accounts

Amortization of debt issuance costs

Stock-based compensation

Interest expense for deferred consideration & earnouts

Non-monetary sale of content licenses

Interest expense for deferred consideration and earnouts

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable, net

Accounts receivable

Unbilled revenue

2 unchanged sentences

Accounts payable, accrued expenses, and other liabilities

Net cash (used in) provided by operating activities

Net cash used in operating activities

Cash flows from investing activities:

Purchases of property and equipment

Expenditures for long-lived assets

Purchase of businesses

Sale of investment securities

Net cash used in investing activities

Cash flows from financing activities:

Payments of notes payable and deferred consideration

Payments of notes payable

Proceeds from line of credit

Payments on line of credit

Debt issuance costs

Issuance of common stock

Net cash provided by financing activities

Issuance of common stock, net of issuance costs

Net cash provided by (used in) financing activities

Net change in cash and cash equivalents

2 unchanged sentences

See accompanying Notes to Condensed Consolidated Financial Statements

CINEDIGM CORP.

Cineverse Corp.

SUPPLEMENTAL CASH FLOW INFORMATION AND DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY

(In thousands)

Nine Months Ended

Three Months Ended

Cash interest paid

Income taxes paid

Lease liability related payments

Noncash investing and financing activities:

1 unchanged sentence

Issuance of Class A common stock for payment of accrued preferred stock dividends

Issuance of Class A common stock for business combination

Deferred consideration in purchase of business

Earnout consideration in purchase of a business

Earnout consideration paid with common shares of Company

Earnout consideration adjustment

Treasury shares acquired for withholding taxes

Issuance of common stock for Board of Director compensation

CINEDIGM CORP.

CONDENSED CONSOLIDA TED STATEMENTS OF EQUITY

(In thousands, except share data)

Cineverse Corp.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)

Preferred Stock

Comprehensive

Stockholders’

Stockholders'

Balances as of March 31, 2023 (Audited)

1 unchanged sentence

Stock-based compensation

Issuance of common stock in connection with a business combination

Preferred stock dividends paid with common stock

Balances as of June 30, 2021

Foreign exchange translation

Stock-based compensation

Issuance of common stock in connection with business combinations

Treasury stock in connection with taxes withheld from employees

Preferred stock dividends

Balances as of September 30, 2021

Foreign exchange translation

Stock-based compensation

Issuance of common stock in connection with equity line purchase commitment

Preferred stock dividends

Issuance of common stock in connection with performance stock units

Issuance of common stock in connection with equity line, net

Issuance of common stock in connection with ATM raises, net

Issuance of common stock in connection with direct equity offering

Preferred stock dividends paid in stock

Preferred stock dividends accrued

Net income (loss)

Balances as of December 31, 2021

Balances as of June 30, 2023

See accompanying Notes to Condensed Consolidated Financial Statements

CINEDIGM CORP.

Cineverse Corp.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share data)

(In thousands)

Preferred Stock

Comprehensive

Stockholders'

Stockholders’

Balances as of March 31, 2022 (Audited)

1 unchanged sentence

Stock-based compensation

Preferred stock dividends paid with common stock

Preferred stock dividends paid in stock

Preferred stock dividends accrued

Net income (loss)

Balances as of June 30, 2022

Foreign exchange translation

Stock-based compensation

Preferred stock dividends paid with common stock

Issuance of common stock in connection with performance stock units and annual incentive awards, net of employee payroll taxes

Issuance of common stock for BD Earnout commitment

Preferred stock dividends accrued

Net income (loss)

Balances as of September 30, 2022

Foreign exchange translation

Stock-based compensation

Preferred stock dividends paid with common stock

Issuance of common stock for Board of Director compensation

Preferred stock dividends accrued

Balances as of December 31, 2022

See accompanying Notes to Condensed Consolidated Financial Statements

CINEDIGM CORP.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NATURE OF OPERATIONS AND LIQUIDITY

Cinedigm Corp.

(“Cinedigm,”

the “Company,”

“we,”

“us,”

or similar pronouns) was incorporated in Delaware on March 31, 2000.

We are (i) a distributor and aggregator of independent movie, television and other short form content managing a library of distribution rights to thousands of titles and episodes released across digital, physical, theatrical, home and mobile entertainment platforms (“Streaming”) and (ii) a servicer of digital cinema assets for movie screens in both North America and several international countries.

We report our financial results in two reportable segments as follows:

(i) Cinema Equipment Business ("Cinema Equipment") and (ii) Content and Entertainment Business (“Content & Entertainment”).

The Cinema Equipment segment consists of the non-recourse, financing vehicles and administrators for our digital cinema equipment (the “Systems”) installed in movie theatres throughout North America.

Our Content & Entertainment segment operates in:

(i) ancillary market aggregation and distribution of entertainment content and (ii) branded and curated over-the-top (“OTT”) digital network business providing entertainment channels and applications.

Cineverse Corp.

(“Cineverse”, “us”, “our”, and “Company”

refers to Cineverse Corp.

and its subsidiaries unless the context otherwise requires) was incorporated in Delaware on March 31, 2000.

On May 22, 2023, the Company changed its corporate name to Cineverse Corp.

Since our inception, we have played a significant role in the digital distribution revolution that continues to transform the media and entertainment landscape.

Cineverse is a premier streaming technology and entertainment company with its core business (i) across a portfolio of owned and operated enthusiast streaming channels with enthusiast fan bases;

(ii) as a large-scale global aggregator and full-service distributor of feature films and television programs;

and (iii) as a proprietary technology software-as-a-service platform for over-the-top (“OTT”) app development and content distribution through subscription video on demand ("SVOD"), dedicated ad-supported ("AVOD"), ad-supported streaming linear ("FAST") channels, social video streaming services, and audio podcasts.

We distribute products for major brands such as Hallmark, Televisa, ITV, Nelvana, ZDF, Konami, NFL and Scholastic, as well as leading international and domestic content creators, movie producers, television producers and other short-form digital content producers.

We collaborate with producers, major brands and other content owners to market, source, curate and distribute quality content to targeted audiences through (i) existing and emerging digital home entertainment platforms, including but not limited to Apple iTunes, Amazon Prime, Netflix, Hulu, Xbox, Pluto, and Tubi, as well as (ii) physical goods, including DVD and Blu-ray Discs.

We played a significant role in the digital distribution revolution that continues to transform the media landscape, playing a pioneering role in transitioning approximately 12,000 movie screens from traditional analog film prints to digital distribution, and at the end of our fiscal year 2023, the Company's cinema equipment business concluded its active operations, as its contracts reached maturity.

The Company no longer separately manages cinema equipment separately, and with the run-off of its operations, no longer presents this part of the business as a separate segment.

All prior period reporting within this report reflect this change.

Our Class A common stock, par value $ 0.001 per share (the "Common Stock") is listed on the Nasdaq Capital Market (“Nasdaq”) under the symbol “CNVS.”

On April 4, 2022, the Company received a letter from the Nasdaq indicating that the Company no longer met the Bid Price Rule.

On June 7, 2023, Cineverse Corp.

filed with the Secretary of State of the State of Delaware a Certificate of Amendment to the Company's Fifth Amended and Restated Certificate of Incorporation (the "Reverse Split Charter Amendment"), pursuant to which the Company effected a 1-for-20 reverse stock split of the Class A common stock.

The reverse stock split became effective as of 12:01 a.m.

Eastern Time on June 9, 2023.

All share and price amounts in this report reflect the 1-for-20 reverse stock split effected on June 9, 2023.

On June 30, 2023, Cineverse Corp.

was notified by Nasdaq that the Company has regained compliance with the $ 1.00 bid price requirement for continued listing on The Nasdaq Capital Market.

The Company remains subject to a one-year “Panel Monitor”

as that term is defined by Nasdaq Listing Rule 5815(d)(4)(A).

Financial Condition and Liquidity

As of December 31, 2022, the Company has an accumulated deficit of $ 479.2 million and negative working capital of $ 4.5 million .

For the three and nine months ended December 31, 2022, the Company had net income (loss) attributable to common shareholders of $ 4.9 million and ($ 6.9 ) million , respectively.

Net cash used in operating activities for the nine months ended December 31, 2022 was $ 7.9 million .

We have a history of net losses, and for the quarter ended June 30, 2023, we had a net loss attributable to common stockholders in the amount of $( 3.6 ) million.

We may continue to generate net losses for the foreseeable future.

As of June 30, 2023, the Company has an accumulated deficit of $ 486.0 million and negative working capital of $ 2.1 million .

Net cash used in operating activities for the three months ended June 30, 2023 was $ 3.3 million .

The Company is party to a Loan, Guaranty, and Security Agreement with East West Bank (“EWB”) providing for a revolving line of credit (the “Line of Credit Facility”) of $ 5.0 million, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and such subsidiaries’

The Line of Credit Facility bears interest at a rate equal to 1.5 % above the prime rate, 9.0 % as of December 31, 2022 .

The Line of Credit Facility expires on September 15, 2023 with a one-year extension available at EWB’s discretion.

As of December 31, 2022 , $ 5.0 million was outstanding on the Line of Credit Facility.

We believe our cash and cash equivalent balances, and availability under our credit facility, as of December 31, 2022 will be sufficient to support our operations for at least twelve months from the filing of this report.

The Line of Credit Facility bears interest at a rate equal to 1.5 % above the prime rate, 9.75 % as of June 30, 2023 .

A s of June 30, 2023, $ 5.0 million was outstanding on the Line of Credit Facility.

On August 11, 2023, the maturity date of the Line of Credit Facility was extended one year to September 15, 2024 .

The outstanding principal balance on the Line of Credit Facility as of August 7, 2023 was $ 0 .

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In July 2020, we entered into an At-the-Market sales agreement (the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”) and B.

Riley FBR, Inc.

Riley”

and, together with A.G.P., the “Sales Agents”), pursuant to which the Company may offer and sell, from time to time, through the Sales Agents, shares of Common Stock at the market prices prevailing on Nasdaq at the time of the sale of such shares.

The Company is not obligated to sell any shares under the ATM Sales Agreement.

Any sales of shares made under the ATM Sales Agreement will be made pursuant the an effective shelf registration statement, for an aggregate offering price of up to $ 30 million.

During the quarter ended June 30, 2023, the Company sold 177 thousand shares for $ 1.1 million in net proceeds, after deduction of commissions and fees.

On June 16, 2023, the Company closed on the sale of 2,150 thousand shares of common stock, 517 thousand pre-funded warrants, and warrants to purchase up to 2,667 thousand shares of common stock at a combined public offering price of $ 3.00 per share and accompanying warrant for aggregate gross proceeds of approximately $ 7.4 million, after deducting placement agent fees and other offering expenses in the amount of $ 0.6 million.

The warrants had an exercise price of $ 3.00 per share, were exercisable immediately and will expire five years from the issuance.

The Company received $ 2.999 per share for the pre-funded warrants, with the remaining $ 0.001 due at the time of exercise.

All 516,667 pre-funded warrants were subsequently exercised in July 2023 for total proceeds of $ 0.5 thousand.

In addition, the Company remains authorized to purchase up to an aggre gate of 500 thousand sh ares of its outstanding Common Stock, following the announcement of a stock repurchase program on March 1, 2023.

We believe our cash and cash equivalent balances, and availability under our credit facility will be sufficient to support our operations for at least twelve months from the filing of this report.

The Company may also undertake equity or debt offerings, if necessary and opportunistically available, for further capital needs.

1 unchanged sentence

Consolidation

The accompanying interim Condensed Consolidated Financial Statements of Cinedigm Corp.

have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended March 31, 2022 filed with the Securities and Exchange Commission (the “SEC”) on July 1, 2022.

The accompanying interim Condensed Consolidated Financial Statements of Cineverse Corp.

have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended March 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on June 29, 2023.

These Condensed Consolidated Financial Statements are unaudited and have been prepared by the Company following the rules and regulations of the SEC.

1 unchanged sentence

however, the Company believes the disclosures are adequate to make the information presented not misleading.

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein.

6 unchanged sentences

Actual results may differ from these estimates.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We own an 85 % interest in CON TV, LLC ("CONtv"), a worldwide digital network that creates original content, and sells and distributes on-demand digital content on the internet and other consumer digital distribution platforms, such as gaming consoles, set-top boxes, handsets, and tablets.

We evaluated the investment under the voting interest entity model and determined that the entity should be consolidated as we have a controlling financial interest in the entity through our ownership of outstanding voting shares, and that other equity holders do not have substantive voting, participating or liquidation rights.

We recorded net loss attributable to noncontrolling interest in our Condensed Consolidated Statements of Operations equal to 11 % of outstanding profit interest units retained by the noncontrolling interests.

We recorded net income attributable to noncontrolling interest in our Condensed Consolidated Statements of Operations equal to 11 % of outstanding profit interest units retained by the noncontrolling interests.

There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended March 31, 2023 .

Segment Reporting

Beginning in fiscal year 2024, following the run-off of the Company's digital cinema operations, the Company now manages its operations and manages its business in one reporting segment.

Earlier periods presented herein have been presented to conform to this reportable segment composition.

Reclassifications

4 unchanged sentences

We periodically assess the financial condition of the institutions and believe that the risk of any loss is minimal.

Accounts Receivable, Net

We maintain reserves for potential credit losses on accounts receivable.

We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.

Reserves are recorded primarily on a specific identification basis.

Employee Retention Tax Credit

2 unchanged sentences

The Appropriations Act amended the employee retention credit to be equal to 70 % of qualified wages paid to employees during the 2021 fiscal year.

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company qualified for the employee retention credit beginning in June 2020 for qualified wages through September 2021 and filed a cash refund claim during the three months ended September 30, 2022 and December 31, 2022 for $ 0.5 million and $ 2.0 million, respectively.

During the three and nine months ended December 31, 2022 , the Company recorded an employee retention credit totaling $ 2.0 million and $ 2.5 million, respectively, in the Employee retention tax credit line on the Company’s Condensed Consolidated Statements of Operations.

As of December 31, 2022, the tax credit receivable has been included in the Employee retention tax credit line on the Company's Condensed Consolidated Balance Sheet.

The Company qualified for the employee retention credit beginning in June 2020 for qualified wages through September 2021 and filed a cash refund claim during the fiscal year ended March 31, 2023 in the amount of $ 2.5 million in the Employee retention tax credit line on the Company’s Consolidated Statements of Operations.

As of June 30, 2023, the tax credit receivable of $ 1.8 million has been included in the Employee retention tax credit line on the Company's Condensed Consolidated Balance Sheet.

Property and Equipment, Net

2 unchanged sentences

Computer equipment and software

Digital cinema projection systems

Internal use software

Machinery and equipment

Furniture and fixtures

Internal-Use Software

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We capitalize costs associated with software developed or obtained for internal use when the preliminary project stage is completed, and it is determined that the software will provide significantly enhanced capabilities and modifications.

4 unchanged sentences

We amortize internal-use software over its estimated useful life on a straight-line basis.

Impairment of Long-lived and Finite-lived Assets

We review the recoverability of our long-lived assets and finite-lived intangible assets, when events or conditions occur that indicate a possible impairment exists.

The assessment for recoverability is based primarily on our ability to recover the carrying value of our long-lived and finite-lived assets from expected future undiscounted net cash flows.

If the total of expected future undiscounted net cash flows is less than the total carrying value of the asset, the asset is deemed not to be recoverable and possibly impaired.

We then estimate the fair value of the asset to determine whether an impairment loss should be recognized.

An impairment loss will be recognized if the asset’s fair value is determined to be less than its carrying value.

Fair value is determined by computing the expected future discounted cash flows.

During the nine months ended December 31, 2022 and 2021 , no impairment charges were recorded from operations for long-lived assets or finite-lived assets.

Intangible Assets, Net

2 unchanged sentences

For intangible assets with indefinite lives, the assets are tested annually for impairment or sooner if a triggering event occurs.

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Amortization lives of intangible assets are as follows:

5 unchanged sentences

The Company’s intangible assets included the following (in thousands):

As of December 31, 2022

As of June 30, 2023

Content Library

Advertiser Relationships and Channel

Supplier Agreements

Customer Relationships

4 unchanged sentences

Advertiser Relationships and Channel

Supplier Agreements

Customer Relationships

Trademark and Tradenames

Supplier Agreements

Total Intangible Assets

During the nine months ended December 31, 2022 and 2021, no impairment charge was recorded for intangible assets.

During the three and nine months ended December 31, 2022, the Company had amortization expense of $ 0.7 million and $ 2.2 million , respectively.

During the three and nine months ended December 31, 2021, the Company had amortization expense of $ 0.7 million and $ 2.2 million , respectively.

During the three months ended December 31, 2022 , the Company entered into a non-monetary transaction for the purchase and sale of content licenses with an unrelated third-party.

The fair value of the content licenses sold was determined to be $ 1.0 million which is included in Revenues in our Condensed Consolidated Statement of Operations for the three months ended December 31, 2022 .

The fair value of the content licenses purchased was determined to be $ 1.0 million and is recognized in Intangible Assets, Net on our Condensed Consolidated Balance Sheet as of December 31, 2022.

As of December 31, 2022, amortization expense is expected to be (in thousands):

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the three months ended June 30, 2023 and 2022, the Company had amortization expense of $ 0.7 million, respectively .

As of June 30, 2023, amortization expense is expected to be (in thousands):

In-process intangible assets

Remainder of fiscal year 2024

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Content Assets

The Company capitalizes direct costs incurred in the production of content from which it expects to generate a return over the anticipated useful life and the Company’s predominant monetization strategy informs the method of amortizing these deferred costs.

The determination of the predominant monetization strategy is made at commencement of the production or license period and the classification of the monetization strategy as individual or group only changes if there is a significant change to the title’s monetization strategy relative to its initial assessment.

The costs are presently capitalized within construction-in-process and will be amortized as a group are included within Depreciation and Amortization within the Condensed Consolidated Statements of Operations.

Impairment of Long-lived and Finite-lived Intangible Assets

We review the recoverability of our long-lived assets and finite-lived intangible assets, when events or conditions occur that indicate a possible impairment exists.

The assessment for recoverability is based primarily on our ability to recover the carrying value of our long-lived and finite-lived assets from expected future undiscounted net cash flows.

If the total of expected future undiscounted net cash flows is less than the total carrying value of the asset, the asset is deemed not to be recoverable and possibly impaired.

We then estimate the fair value of the asset to determine whether an impairment loss should be recognized.

An impairment loss will be recognized if the asset’s fair value is determined to be less than its carrying value.

Fair value is determined by computing the expected future discounted cash flows.

There were no impairment charges recorded for long-lived and finite-lived intangible assets during the three months ended June 30, 2023 and 2022 .

Goodwill is the excess of the purchase price paid over the fair value of the net assets of an acquired business.

3 unchanged sentences

The Company has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or to perform the quantitative impairment test.

The Company reassessed goodwill impairment on its annual measurement date of March 31, 2022 by performing a qualitative analysis and determined that it was not more likely than not that the fair value of its reporting unit is less than its carrying amount.

No goodwill impairment charge was recorded in the three and nine months ended December 31, 2022 and 2021 .

The Company reassessed goodwill impairment on its annual measurement

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

date of March 31, 2023 by performing a qualitative analysis and determined that it was not more likely than not that the fair value of its reporting unit is less than its carrying amount.

No goodwill impairment charge was recorded in the three months ended June 30, 2023 and 2022 .

Fair Value Measurements

7 unchanged sentences

The following tables summarize the levels of fair value measurements of our financial assets and liabilities (in thousands):

As of December 31, 2022

As of June 30, 2023

Equity investment in Metaverse, at fair value

Current portion of earnout consideration on purchase of a business

Long-term portion of earnout consideration on purchase of a business

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of March 31, 2023

1 unchanged sentence

Current portion of earnout consideration on purchase of a business

Long-term portion of earnout consideration on purchase of a business

The Company's equity investment in A Metaverse Company ("Metaverse") is in Hong Kong dollars and was translated into US dollars as of December 31, 2022 and March 31, 2022 at an exchange rate of 7.8 Hong Kong Dollars to 1 US Dollar.

The fair value of this equity investment was measured by the quoted market price of Metaverse on the Stock Exchange of Hong Kong (SEHK:

1616) as of March 31, 2022.

On April 1, 2022, trading of Metaverse’s ordinary shares was halted on the Hong Kong Stock Exchange.

As of December 31, 2022, Metaverse’s stock valuation is based on an independent valuation based on the market approach and is categorized as Level 3 based on unobservable inputs.

The Company estimated the fair value based on the market approach based on the last known enterprise value adjusting for trends in value from comparable companies.

The adjustment to fair value of this investment resulted in a loss of $ 1.8 million and gain of $ 1.5 million for the nine months ended December 31, 2022 and 2021, respectively.

As the value of the investment in Metaverse is determined based on unobservable inputs, company and industry fluctuations, as well as general economic, political, regulatory and market conditions such as recessions, interest rate changes or international currency fluctuations, changes to these assumptions may have a significant impact on the fair value of our investment in Metaverse.

The Company has accounted for its investment in A Metaverse Company ("Metaverse") (SEHK:

1616) under the equity method of accounting as the Company can exert significant influence over Metaverse with its direct ownership and affiliation with the Company’s majority shareholders.

The Company has also made an irrevocable election to apply the fair value option under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 825-10, Financial Instruments , as it relates to its equity investment in Metaverse.

The Company previously used quoted trading price of the Stock Exchange of Hong Kong to measure the investment's fair value.

Following the halting of Metaverse stock trading on the Stock Exchange of Hong Kong on April 1, 2022, the Company valued our equity investment in Metaverse using a market approach and the investment is categorized as a Level 3 valuation based on unobservable inputs.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company estimated the fair value of Metaverse based on the last known enterprise value, adjusting for trends in enterprise valuations and market capitalization for comparable companies.

As of June 30, 2023 and March 31, 2023, the fair value was $ 5.2 million.

The Company estimated the fair value of its earnout consideration using contractual inputs from the related business combination, which established specific fiscal year revenue growth, profitability and EBITDA targets.

The Company utilizes the most up to date forecast to estimate the outcome against these targets to determine the ultimate estimated payout.

During the quarter ended June 30, 2023 , the Company accrued interest of $ 30 thousand and an increase in the estimated earnout payments by $ 52 thousand based on fiscal year 2024 estimated performance.

Our cash and cash equivalents, accounts receivable, unbilled revenue, accounts payable and accrued expenses are financial instruments and are recorded at cost in the Condensed Consolidated Balance Sheets.

2 unchanged sentences

Prepaid and other current assets consisted of the following (in thousands):

Due from producers

Amounts due from producers

Other receivables

Other prepaid expenses

Other prepayments

Total prepaid and other current assets

Advances represent amounts prepaid to studios or content producers for which we provide content distribution services.

We evaluate advances regularly for recoverability and record impairment charges for amounts that we expect may not be recoverable.

Impairments related to advances were $ 1.0 million and $ 0.4 million for the three months ended December 31, 2022 and 2021, respectively.

Impairments related to advances were $ 1.6 million and $ 0.8 million for the nine months ended December 31, 2022 and 2021 , respectively.

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Amounts due from producers represents amounts prepaid to studios or content producers for which we provide content distribution services.

We evaluate advances regularly for recoverability and record a provision for amounts that we expect may not be recoverable.

The provision for advances were $ 0.2 million and $ 0.03 million for the three months ended June 30, 2023 and 2022, respectively.

Other prepayments generally relate to prepaid operating expenses, short term deposits and prepaid taxes.

Accounts Payable and Accrued Expenses

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We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and payment for that product or service will be one year or less.

We have in the past entered into arrangements in connection with activation fees due from our System deployments that had extended payment terms.

The outstanding balances on these arrangements are insignificant and hence the impact of significant financing would be insignificant.

The following tables present the Company’s disaggregated revenue by segment and source (in thousands):

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following tables present the Company’s disaggregated revenue by source (in thousands):

Three Months Ended

Nine Months Ended

Cinema Equipment:

Digital system sales

Total Cinema Equipment revenue

Content & Entertainment:

Base distribution business

OTT streaming and digital

Total Content & Entertainment revenue

Streaming and digital

Base distribution

Podcast and other

Other non-recurring

Total revenue

Cinema Equipment Segment

Our Cinema Equipment segment consists of financing vehicles and administrators for Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”).

We retain ownership of our Systems and the residual cash flows related to the Systems in Phase I Deployment after the end of the 10-year deployment payment period.

For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Cinema Equipment segment also provides monitoring, data collection, serial data verification and management services to this segment, as well as to exhibitors who purchase their own equipment, in order to collect Virtual Print Fees (“VPFs”) from distributors and Alternative Content Fees (“ACFs”) from alternative content providers, and to distribute those fees to theatrical exhibitors (collectively, “Services”).

VPFs are earned, net of administrative fees, pursuant to contracts with distributors, whereby amounts are payable by a distributor to Phase I Deployment and to Phase II Deployment when distributor's movies are displayed on screens utilizing our Systems installed in movie theatres.

VPFs are earned and payable to us with respect to Phase I Deployment based on a defined fee schedule until the end of the VPF term.

One VPF is payable for every digital title initially displayed per System.

The amount of VPF revenue is dependent on the number of movie titles released and displayed using the Systems in any given accounting period.

VPF revenue is recognized in the period the title first plays for general audience viewing in a digital projector equipped movie theatre.

The Phase 1 Deployment’s and Phase 2 Deployment's performance obligations for revenue recognition are met at this time.

Phase II Deployment’s agreements with distributors require the payment of VPFs, according to a defined fee schedule, for ten years from the date each system is installed;

however, Phase II Deployment may no longer collect VPFs once “cost recoupment,”

as defined in the contracts with distributors, is achieved.

Cost recoupment will occur once the cumulative VPFs and other cash receipts collected by Phase II Deployment have equaled the total of all cash outflows, including the purchase price of all Systems, all financing costs, all “overhead and ongoing costs”, as defined, and including service fees, subject to maximum agreed upon amounts during the three-year rollout period and thereafter.

The Company evaluated the constraining estimates related to the variable consideration and determined that it is not probable to conclude at this point in time that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is subsequently resolved.

Under the terms of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time, they have the option to:

(i) return the Systems to us;

(ii) renew their license agreement for successive one-year terms;

or (iii) purchase the Systems from us at fair market value.

As permitted by these agreements, we typically pursue the sale of the Systems to such exhibitors.

Cinedigm recognizes revenue once the customer takes possession of the Systems and Cinedigm receives the sale proceeds.

Such sales were originally contemplated as the conclusion of the digital cinema deployment plan.

The Cinema Equipment segment earns an administrative fee of approximately 5 % of VPFs collected and, in addition, earns an incentive service fee equal to 2.5 % of the VPFs earned by Phase 1 Deployment.

This administrative fee is related to the collection and remittance of the VPF’s and the performance obligation is satisfied at the time the related VPF fees are due which is at the time the movies are displayed on screens utilizing our Systems installed in movie theatres.

The service fees are recognized as a point in time revenue when the corresponding VPF fees are due from the distributors.

A limited number of systems from our Phase I deployment remain eligible for VPFs from certain distributors where Phase I exhibitors have renewed their term on an annual basis.

We continue to pursue system sales for these remaining exhibitors.

Our Phase II deployment currently consists of a limited number of exhibitors who purchased their own systems and have not yet reached recoupment or the end of their contractual term.

We continue to administer VPFs for these limited systems from certain distributors.

During the three and nine months ended December 31, 2022, $ 7.4 million and $ 9.1 million of revenue was recognized that was included in the accounts payable balance as constrained variable consideration at the beginning of the year.

The Company recognized the revenue once the uncertainty associated with the variable consideration was resolved.

As of December 31, 2022 , approximately $ 1.0 million remains on our balance sheet in accounts payable as constrained variable consideration.

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Content & Entertainment Segment

Content & Entertainment segment earns fees for the distribution of content in the home entertainment markets via several distribution channels, including digital, video on demand (“VOD”

or “OTT Streaming and Digital”), and physical goods (e.g., DVDs and Blu-ray Discs) (“Physical Revenue”

or “Base Distribution Business”).

Fees earned are typically a percentage based on the net amounts received from our customers.

Depending upon the nature of the agreements with the platform and content providers, the fee rate that we earn varies.

The Company’s performance obligations include the delivery of content for transactional, subscription and ad supported/free ad-supported streaming TV (“FAST”) on the digital platforms, and shipment of DVDs and Blu-ray Discs.

Revenue is recognized at the point in time when the content is available for subscription on the digital platform (the Company’s digital content is considered functional IP), at the time of shipment for physical goods, or point-of-sale for transactional and VOD services as the control over the content or the physical title is transferred to the customer.

The Company considers the delivery of content through various distribution channels to be a single performance obligation.

Revenue from the sale of physical goods is recognized after deducting reserves for sales returns and other allowances.

Reserves for potential sales returns of physical goods and other allowances are recorded based upon historical experience.

If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.

The Content & Entertainment segment also has contracts for the theatrical distribution of third-party feature movies and alternative content.

The Content & Entertainment segment’s distribution fee revenue participation in box office receipts are recognized at the time a feature movie and alternative content are viewed.

The Content & Entertainment segment has the right to receive or bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded as a receivable at the time of execution, and all related distribution revenue is deferred until the third-party feature movie's or alternative content’s theatrical release date.

The Company follows the five-step model established by Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"), Revenue from contracts with customers ("ASC 606") when preparing its assessment of revenue recognition.

The Company's Streaming and digital revenue pertains to its OTT business, including the licensing, service, advertising, and subscription revenue related to the Company's streaming business and partnerships.

Base distribution revenue relates to non-streaming revenue, including Theatrical revenue and the sale of DVD's.

Podcast and other revenue primarily relates to the Company's Bloody Disgusting Podcast Network.

Other non-recurring revenue relates to the Company's legacy digital cinema operations, whose operations have run-off, still may generate non-recurring revenue from the sale of cinema assets or the recognition of variable consideration as the associated uncertainty associated with the revenue is resolved.

The Company follows the five-step model established by ASC 606, Revenue from contracts with customers ("ASC 606") when preparing its assessment of revenue recognition.

Principal Agent Considerations

Revenue earned by our Content & Entertainment segment from the delivery of digital content and physical goods may be recognized gross or net depending on the terms of the arrangement.

Revenue earned from the delivery of digital content and physical goods may be recognized gross or net depending on the terms of the arrangement.

We determine whether revenue should be reported on a gross or net basis based on each revenue stream.

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Reserves are recorded primarily on a specific identification basis.

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Our Content & Entertainment segment recognizes accounts receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that it recognizes revenue from a sale.

We recognizes accounts receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that it recognizes revenue from a sale.

Reserves for product returns and other allowances is variable consideration as part of the transaction price.

If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.

During the three and nine months ended December 31, 2022 and 2021, we did not recognize any credit losses or reversals of previously recorded provisions, and did not have any write-offs charged against the allowance.

During the three months ended June 30, 2023 and 2022, we did not recognize any credit losses as part of its ongoing operations or reversals of previously recorded provisions, and did not have any write-offs charged against the allowance.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Contract Liabilities

We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability) when cash payments are received or due in advance of our performance, even if amounts are refundable.

Deferred revenue pertaining to our Content & Entertainment segment includes amounts related to the sale of DVDs with future release dates.

Deferred revenue relating to our Cinema & Equipment segment pertains to revenues earned in connection with up front exhibitor contributions that are deferred and recognized over the expected cost recoupment period.

It also includes unamortized balances in connection with activation fees due from the Systems deployments that have extended payment terms.

The ending deferred revenue balance, including current and non-current balances as of March 31, 2022 and December 31, 2022 was $ 0.2 million and $ 0.4 million , respectively.

For the three and nine months ended December 31, 2022, the additions to our deferred revenue balance were primarily due to cash payments received or due in advance of satisfying performance obligations, while the reductions to our deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.

Amounts recorded as contract liabilities are generally not long-term in nature.

The ending deferred revenue balance, including current and non-current balances as of June 30, 2023 and March 31, 2023, was and $ 0.2 million and $ 0.2 million respectively.

For the three months ended June 30, 2023, the additions to our deferred revenue balance were primarily due to cash payments receive d or due in advance of satisfying performance obligations, while the reductions of $ 0.2 million to our deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.

Participations and royalties payable

3 unchanged sentences

Concentrations

For the three months ended December 31, 2022, Iconic, Distribution Solutions, a division of Alliance Entertainment, Amazon.com, Inc., and Tubi represented 35 % , 16 % , 14 % and 5 % , respectively, of Content & Entertainment segment revenues, and approximately 16 % , 7 % , 14 % and 6 % , respectively, of our consolidated revenues.

For the nine months ended December 31, 2022, Iconic, Distribution Solutions, a division of Alliance Entertainment, Amazon.com, Inc., and Tubi, represented 27 % , 19 % , 25 % and 10 % respectively, of Content & Entertainment segment revenues, and approximately 8 % , 5 % , 11 % and 5 % , respectively, of our consolidated revenues.

For the three months ended December 31, 2021, Amazon.com, Inc., Distribution Solutions, a division of Alliance Entertainment and Tubi, represented 15 % , 11 % and 7 % , respectively, of Content & Entertainment segment revenues and approximately 13 % , 9 % and 6 % , respectively, of our consolidated revenues.

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the nine months ended December 31, 2021, Amazon.com, Inc.

Distribution Solutions, a division of Alliance Entertainment and Roku, Inc., represented 24 % , 9 % and 10 % , respectively, of Content & Entertainment segment revenues and approximately 17 % , 6 % and 7 % , respectively, of our consolidated revenues.

For the three months ended June 30, 2023 , one customer represented 28 % of consolidated revenues.

For the three months ended June 30, 2022 , one customer represented approximately 19 % and another customer represented approximately 13 % of consolidated revenues.

Direct Operating Costs

5 unchanged sentences

The Company measures the compensation expense of employee and nonemployee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date.

That cost is recognized on a straight-line basis over the period during which the employee and nonemployee is required to provide service in exchange for the award.

That cost is recognized on a straight-line basis over the period during which the employee or nonemployee is required to provide service in exchange for the award.

The fair values of options and SARs are calculated as of the date of grant using the Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility, risk-free rate and expected term.

2 unchanged sentences

The Company accounts for income taxes using the asset and liability method.

Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and tax credit carryforwards and for differences between the carrying amounts of existing assets and liabilities and their respective tax bases.

Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and tax credit

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

carryforwards and for differences between the carrying amounts of existing assets and liabilities and their respective tax bases.

Valuation allowances are established when management is unable to conclude that it is more likely than not that some portion, or all, of the deferred tax asset will ultimately be realized.

6 unchanged sentences

threshold, the largest amount of tax benefit that is more than 50 % likely to be recognized upon ultimate settlement with the taxing authority is recorded.

The Company has no uncertain tax positions as of December 31, 2022 .

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Earnings per Share

The Company had no uncertain tax positions as o f June 30, 2023 and March 31, 2023.

Earnings per Share ("EPS")

Basic net income (loss) per share is computed based on the weighted average number of shares of common stock outstanding during the period.

3 unchanged sentences

A net loss available to common stockholders causes all potentially dilutive securities to be anti-dilutive and are not included.

Basic and diluted net income (loss) per share are computed as follows (in thousands, except share and per share data):

Basic and diluted net loss per share are computed as follows (in thousands, except share and per share data):

Three Months Ended

Nine Months Ended

Basic net income (loss) per share:

Net income (loss) attributable to common stockholders

Basic net loss per share:

Net loss attributable to common stockholders

Shares used in basic computation:

Weighted-average shares of common stock outstanding

Basic net income (loss) per share

Basic net loss per share

Shares used in diluted computation:

2 unchanged sentences

Weighted-average number of shares

Diluted net income (loss) per share

The following table summarizes the potential shares of common stock excluded from the diluted calculation (in thousands):

Three Months Ended

December 31, 2022

Nine Months Ended

December 31, 2022

Stock options

For the three and nine months ended December 31, 2021, 12,088,473 and 8,484,982 , respectively, potentially dilutive shares have been excluded from the diluted loss per share as their impact would have been antidilutive.

Diluted net loss per share

Included in the computation of basic EPS are the 516,667 pre-funded warrants which were issued and sold on June 16, 2023.

The calculation of diluted net loss per share for the quarters ended June 30, 2023 and 2022 does not include the impact o f 2,666,667 and 0 warrants, respectively, as well as 934 thousand and 425 thousand potentially dilutive shares, respectively, relating to equity-based awards, as their impact would have been anti-dilutive due to the respective period's net loss.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Recently Issued Accounting Pronouncements

In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848).

The amendments in this ASU provide temporary, optional guidance to ease the potential burden in accounting for reference rate reform.

The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met.

The ASU primarily includes relief related to contract modifications and hedging relationships, as well as providing a one-time election for the sale or transfer of debt securities classified as held-to-maturity.

This guidance is effective immediately and the amendments were originally to be applied prospectively through December 31, 2022.

However, the FASB issued ASU 2022-06, deferring the sunset date to December 31, 2024.

The adoption of this ASU is not expected to have a material impact on the Company's Condensed Consolidated Financial Statements.

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815) .

The amendments in this ASU clarify the guidance on ASC 815 on fair value hedge accounting of interest rate risk for portfolios and financial assets.

Among other things, the amended guidance establishes the "last-of-layer" method for making the fair value hedge accounting for these portfolios more accessible and renames that method the "portfolio layer" method.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

We do not expect the amendments to have a material effect on our Condensed Consolidated Financial Statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) .

The amendments in this ASU eliminate the guidance on troubled debt restructurings while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulties.

The ASU also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

We do not expect the amendments to have a material effect on our Condensed Consolidated Financial Statements.

The Company evaluates all Accounting Standard Updates ("ASUs") issued but not yet effective by FASB for consideration of their applicability.

ASU's not included in the Company's disclosures were assessed and determined to be not applicable and material to the Company's consolidated financial statements or disclosures.

In July 2023, the FASB issued ASU No 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718)”

pursuant to SEC Staff Accounting Bulletin No.

120, which adds interpretive guidance for public companies to consider when entering into share-based payment transactions while in possession of material non-public information.

This update is reflected in the Accounting Standard Codification upon issuance and will be effective in the Company's second quarter of fiscal year 2024, beginning July 1, 2023.

The Company does not expect the adoption to have a material impact on our consolidated financial statements.

OTHER INTERESTS

4 unchanged sentences

ASC 810 requires the consolidation of VIEs by an entity that has a controlling financial interest in the VIE which entity is thereby defined as the primary beneficiary of the VIE.

As of December 31, 2022 and March 31, 2022, our maximum exposure to loss, as it relates to the non-consolidated CDF2 Holdings entity, represents accounts receivable for service fees under a master service agreement with CDF2 Holdings.

Such accounts receivable was $ 2.1 million and $ 0.8 million as of December 31, 2022 and March 31, 2022, respectively, which are included in accounts receivable, net on the accompanying Condensed Consolidated Balance Sheets.

The accompanying Condensed Consolidated Statements of Operations include $ 0.1 million and $ 0.2 million of digital cinema servicing revenue from CDF2 Holdings for the three months ended December 31, 2022 and 2021, respectively.

The accompanying Condensed Consolidated Statements of Operations include $ 0.2 million and $ 0.5 million of digital cinema servicing revenue from CDF2 Holdings for the nine months ended December 31, 2022 and 2021, respectively.

As of June 30, 2023 and March 31, 2023, our maximum exposure to loss, as it relates to the non-consolidated CDF2 Holdings entity, represents accounts receivable for service fees under a master service agreement with CDF2 Holdings.

Such accounts receivable was $ 0.0 million a nd $ 0.5 million as of June 30, 2023 and March 31, 2023, respectively, which are included in accounts receivable, net on the accompanying Condensed Consolidated Balance Sheets.

The accompanying Condensed Consolidated Statements of Operations include $ 0.0 million and ($ 0.1 ) million of digital cinema servicing revenue from CDF2 Holdings for the three months ended June 30, 2023 and 2022, respectively.

Total Stockholders’

Deficit of CDF2 Holdings at December 31, 2022 and March 31, 2022 was $ 59.2 million and $ 55.6 million , respectively.

Deficit of CDF2 Holdings at June 30, 2023 and March 31, 2023 was $ 59.2 million and $ 59.2 million, respectively.

We have no obligation to fund the operating loss or the stockholders’

deficit beyond our initial investment of $ 2.0 million and, accordingly, our investment in CDF2 Holdings as of December 31, 2022 and March 31, 2022 is carried at $ 0 .

deficit beyond our initial investment of $ 2.0 million and, accordingly, our investment in CDF2 Holdings as of June 30, 2023 and March 31, 2023 is carried at $ 0 .

Investment in Roundtable

On March 15, 2022, the Company entered into a stock purchase agreement with Roundtable Entertainment Holdings, Inc.

(“Roundtable”) pursuant to which the Company purchased 

500  shares of Roundtable Series A Preferred Stock and warrants to purchase 

100  shares of Roundtable Common Stock (together, the “Roundtable Securities”).

The Company funded the purchase of the Roundtable Securities by issuing 

316,937  share s of Common Stock to Roundtable.

T he Company recorded $ 0.2  million for the purchase of the Securities which is included in other long-term assets on the Condensed Consolidated Balance Sheets. The Roundtable investment was accounted for using the cost method and is included within other long-term assets.

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(“Roundtable”) pursuant to which the Company purchased 0.5 thousand shares of Roundtable Series A Preferred Stock and warrants to purchase 0.1 thousand shares of Roundtable Common Stock (together, the “Roundtable Securities”).

The Company paid the purchase price for the Roundtable Securities by issuing 16 thousand shares of Common Stock to Roundtable.

The Company recorded $ 0.2 million for the purchase of the Roundtable Securities which is included in other long-term assets on the accompanying Consolidated Balance Sheets.

The investment in the Roundtable Securities was made in connection with a proposed collaboration with Roundtable regarding production and distribution of streaming content including the launch of high profile branded

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

enthusiast streaming channels.

The Roundtable investment was accounted for using the cost method of accounting as we own less than 20 % of Roundtable and do not exert a significant influence over their operations.

Our President and Chief Strategy Officer is on the Roundtable Board of Directors.

STOCKHOLDERS’

Authorized Common Stock

As of December 31, 2022 , the number of shares of Common Stock authorized for issuance was 275,000,000 shares.

During the three months ended December 31, 2022, the Company issued 908,383 shares of Common Stock.

This is comprised of 224,359 shares in payment of preferred stock dividends and 684,024 restricted shares issued in connection with Board of Director compensation.

During the nine months ended December 31, 2022, the Company issued 3,595,895 shares of Common Stock.

This is comprised of 510,955 shares in payment of preferred stock dividends, 2,750,903 shares issued on August 18, 2022 in connection with the vesting of grants pursuant to the 2017 Equity Incentive Plan, and 334,037 shares issued in payment of the Bloody Disgusting earnout commitment.

During the nine months ended December 31, 2021 , we issued 8,642,648 shares of Common Stock which consist of the sale of shares of our Class A common stock, issuance of Common Stock for business combination, the issuances of Common Stock in payment of preferred stock dividends and in payment of Board of Director retainer fees.

On June 7, 2023, the Company amended its Certificate of Incorporation to implement a 1:20 reverse stock split , which became effective on June 9, 2023 (the "Reverse Stock Split").

Proportionate adjustments were made to the exercise prices and the number of shares underlying the Company’s outstanding equity awards, as applicable, as well as to the number of shares issuable under the Company’s equity incentive plans.

The Reverse Stock Split did not affect the number of authorized shares of Common Stock or the par value of the Common Stock nor did it change the authorized shares of preferred stock or the relative voting power of such holders of our outstanding Common Stock and preferred stock.

No fractional shares were issued in connection with the Reverse Stock Split.

Stockholders who would have otherwise been entitled to receive fractional shares as a result of the Reverse Stock Split were entitled to a cash payment in lieu thereof after the sale on the open market of the aggregated fractional shares by the exchange agent for the Reverse Stock Split.

All share and per share amounts discussed in these condensed consolidated financial statements have been retrospectively adjusted for the Reverse Stock Split.

The effects of the Reverse Stock Split have been retrospectively effected throughout this document, including but not limited to earnings per share.

As of June 30, 2023 , the number of shares of Common Stock authorized for issuance was 275,000,000 shares.

During the three months ended June 30, 2023 , the Company issued 2,337 shares of Common Stock.

This is comprised of 2,150 thousand shares issued through a direct offering, 177 thousand issued in connection with ATM sales, and 10 thousand issued in payment of preferred stock dividends.

In addition, the Company sold 517 thousand pre-funded warrants, and issued common warrants to purchase up to 2,667 thousand shares of common stock.

All pre-funded and common warrants were issued as immediately exercisable and remained outstanding as of June 30, 2023.

All pre-funded warrants were subsequently exercised in July 2023 for total proceeds of $ 0.5 thousand.

See Note 1 for further discussion.

During the three months ended June 30, 2022, the Company issued 5 thousand shares of Common Stock which consists of the issuance of Common Stock in payment of preferred stock dividends.

PREFERRED STOCK

Cumulative dividends in arrears on preferred stock were $ 0.1 million as of December 31, 2022 and 2021.

In May, June and November 2022, we paid preferred stock dividends in arrears in the form of 510,955 shares of Class A Common Stock.

Cumulative dividends in arrears on Series A Preferred Stock were $ 88 thousand as of June 30, 2023 and 2022.

In the first quarter of fiscal year 2023 and 2022, the Company paid preferred stock dividends in arrears for the same amount in the form of shares of Common Stock.

The Company also has 1 share of Series B Preferred Stock with no shares outstanding.

TREASURY STOCK

We have treasury stock, at cost, consisting of 1,315,851 shares of Common Stock at December 31, 2022 and March 31, 2022.

We have treasury stock, at cost, consisting of 66 thousand shares of Common Stock at June 30, 2023 and March 31, 2023.

EQUITY INCENTIVE PLANS

Stock Based Compensation Awards

Awards issued under our 2000 Equity Incentive Plan (the “2000 Plan”) may be in any of the following forms (or a combination thereof) (i) stock option awards;

The Company has issued awards under two plans, the 2000 Equity Incentive Plan (the “2000 Plan”) and the 2017 Equity Incentive Plan (the “2017 Plan).

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Awards issued under our 2000 Plan were permitted to be issued to employees, outside directors or consultants in any of the following forms (or a combination thereof) (i) stock option awards;

(iii) stock or restricted stock or restricted stock units;

or (iv) performance awards.

The 2000 Plan provides for the granting of incentive stock options (“ISOs”) with exercise prices not less than the fair market value of our Common Stock on the date of grant.

The 2000 Plan provided for the granting of incentive stock options (“ISOs”) with exercise prices not less than the fair market value of our Common Stock on the date of grant.

ISOs granted to shareholders having more than 10 % of the total combined voting power of the Company must have exercise prices of at least 110 % of the fair market value of our Common Stock on the date of grant.

ISOs and non-statutory stock options granted under the 2000 Plan are subject to vesting provisions, and exercise is subject to the continuous service of the participant.

The exercise prices and vesting periods (if any) for non-statutory options are set at the discretion of our compensation committee.

On November 1, 2017, upon the consummation of the initial equity investment in Cinedigm by Bison, as a result of which there was a change of control of the Company, all stock options (incentive and non-statutory) and shares of restricted stock were vested immediately and the options became fully exercisable.

In connection with the grants of stock options and shares of restricted stock under the 2000 Plan, we and the participants have executed stock option agreements and notices of restricted stock awards setting forth the terms of the grants.

The 2000 Plan provided for the issuance of up to 2,380,000 shares of Common Stock to employees, outside directors and consultants.

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Options outstanding and exercisable under the 2000 Plan are as follows:

As of December 31, 2022:

Range of Prices

Outstanding and

Weighted Average

Remaining Life in

Weighted Average

Exercise Price

Intrinsic Value

(In thousands)

$ 1.16 - $ 7.40

$ 13.70 - $ 24.40

As of March 31, 2022:

Range of Prices

Outstanding and

Weighted Average

Remaining Life in

Weighted Average

Exercise Price

Intrinsic Value

(In thousands)

$ 14.00 - $ 24.40

In August 2017, the Company adopted the 2017 Equity Incentive Plan (the “2017 Plan).

The 2017 Plan replaced the 2000 Plan, and applies to employees and directors of, and consultants to, the Company.

The 2017 Plan provides for the issuance of up to 18,098,270 shares of Common Stock, in the form of various awards, including stock options, SARs, restricted stock, restricted stock units, PSUs and cash awards.

SARs outstanding under the 2017 Plan are as follows:

As of December 31, 2022:

Range of Prices

SARs Outstanding

Weighted Average

Remaining Life in

Weighted Average

Exercise Price

Intrinsic Value

(In thousands)

$ 0.33 - $ 0.74

$ 1.16 - $ 1.47

$ 1.71 - $ 2.10

$ 2.23 - $ 2.56

As of March 31, 2022:

Range of Prices

SARs Outstanding

Weighted Average

Remaining Life in

Weighted Average

Exercise Price

Intrinsic Value

(In thousands)

$ 0.54 - $ 0.74

$ 1.16 - $ 1.47

$ 1.71 - $ 2.10

$ 2.23 - $ 2.56

An analysis of all SARs exercisable under the 2017 Plan as of December 31, 2022 is presented below:

SARs Exercisable

Weighted Average

Remaining Life in

Weighted Average

Exercise Price

Intrinsic Value

(In thousands)

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Total SARs outstanding are as follows:

Nine Months Ended December 31, 2022

SARs Outstanding - March 31, 2022

Total SARs Outstanding - December 31, 2022

The following weighted average assumptions were used to estimate the fair value of SARs granted as follows:

Nine Months Ended December 31, 2022

Expected dividend yield

Expected equity volatility

Expected term (years)

Risk-free interest rate

Exercise price

Market price per share

Weighted average fair value per SAR

The risk-free rates are based on the implied yield available on U.S.

Treasury constant maturities with remaining terms equivalent to the respective expected terms of the options.

In addition, the Company has granted PSU awards under the 2017 Plan to employees.

These awards vest upon certain performance goals being achieved as of March 31, 2022 and 2023 and can be settled in cash or equity upon vesting.

During the three and nine months ended December 31, 2022 , the Company issued 482,628 shares of common stock, net of 199,498 shares withheld to pay taxes, related to the vesting of 682,126 of PSU awards.

As of December 31, 2022 , there were 696,280 of PSU awards outstanding that vest as of March 31, 2023 subject to achieving certain performance goals.

No additional PSU awards were granted during the three and nine months ended December 31, 2022.

During the nine months ended December 31, 2022 , 482,628 shares were issued for vested awards.

Employee and director stock-based compensation expense related to our stock-based awards was as follows (in thousands):

Three Months Ended

Nine Months Ended

Selling, general and administrative

There was $ 0.1 million of stock-based compensation expense for the three months ended December 31, 2022 and 2021, respectively, related to the Board.

There was $ 0.3 million and $ 0.3 million of stock-based compensation for the nine months ended December 31, 2022 and 2021, respectively, related to Board of Directors compensation.

During the nine months ended December 31, 2022, the Company issued 684,024 restricted shares to non-employee directors.

Options Granted Outside Cinedigm's Equity Incentive Plan

As of March 31, 2022 , there were 12,500 options and 600,000 SARs granted to employees outside of Cinedigm's Equity Incentive Plan.

During the three months ended December 31, 2022 , 100,000 SARs were granted as an inducement to a new employee.

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ISOs and non-statutory stock options granted under the 2000 Plan were subject to vesting provisions, and exercise is subject to the continuous service of the participant.

The exercise prices and vesting periods (if any) for non-statutory options were set at the discretion of our compensation committee.

On November 1, 2017, upon the consummation of the initial equity investment in Cineverse by Bison, as a result of which there was a change of control of the Company, all stock options (incentive and non-statutory) and shares of restricted stock were vested immediately and the options became fully exercisable.

In August 2017, the Company adopted the 2017 Plan.

The 2017 Plan replaced the 2000 Plan, and applie s to employees and directors of, and consultants to, the Company.

The 2017 Plan provides for the issuance of up to 905 thousand shares of Common Stock, in the form of various awards, including stock options, SARs, restricted stock, restricted stock units, PSUs and cash awards.

Employee and director stock-based compensation expense related to our stock-based awards of $ 410 thousand and $ 980 thousand, for the quarters ended June 30, 2023 and 2022, respectively, were recorded to Selling, General and Administrative expenses.

There was $ 0.1 million of stock-based compensation expense for the three months ended June 30, 2023 and 2022 related to Board of Directors compensation.

Options Granted Outside Cineverse's Equity Incentive Plan

In October 2013, we issued options outside of the 2000 Plan to 10 individuals who became employees as a result of a business combination.

The employees received options to purchase an aggregate of 3 thousand shares of our Common Stock at an exercise price of $ 350 per share.

The options were fully vested as of October 2017 and expire 10 years from the date of grant, if unexercised.

As of June 30, 2023, 0.6 thousand of such options remained outstanding.

LINE OF CREDIT FACILITY

On September 15, 2022, the Company entered into a Loan, Guaranty, and Security Agreement with EWB.

The agreement provided for a Line of Credit Facility of $ 5.0 million , guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and such subsidiaries’

The Line of Credit Facility bears interest at a rate equal to 1.5 % above the prime rate, 9.0 % as of December 31, 2022 .

The Line of Credit Facility expires on September 15, 2023 with a one-year extension available at EWB’s discretion.

As of December 31, 2022, $ 5.0 million was outstanding on the Line of Credit Facility.

Under the Line of Credit Facility, the Company is subject to certain financial and nonfinancial covenants including terms which require the Company to maintain certain metrics and ratios, maintain certain minimum cash on hand, and to report financial information to our lender on a periodic basis.

During the three and nine months ended December 31, 2022 the Company had interest expense of $ 0.1 million related to the Line of Credit Facility.

SEGMENT REPORTING

We operate in two reportable segments:

Cinema Equipment and Content & Entertainment.

Our segments were determined based on the economic characteristics of our products and services, our internal organizational structure, the manner in which our operations are managed and the criteria used by our Chief Operating Decision Maker ("CODM") to evaluate performance, which is generally the segment’s operating income (loss) before depreciation and amortization.

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Operations of:

Products and services provided:

Cinema Equipment

Financing vehicles and administrators for 343 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 54 Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”).

We retain ownership of the Systems and the residual cash flows related to the Systems in Phase I Deployment after the repayment of all non-recourse debt at the expiration of exhibitor master license agreements.

For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.

Provides monitoring, collection, verification and management services as well as to exhibitors who purchase their own equipment, and also collects and disburses VPFs from motion picture studios, distributors and ACFs from alternative content providers, movie exhibitors and theatrical exhibitors (collectively, “Services”).

Content & Entertainment

Leading independent streaming company of content and channels.

We collaborate with producers and other content owners to market, source, curate and distribute independent content to targeted and under-served audiences in theatres and homes, and via mobile and emerging platforms.

The following tables present certain financial information related to our reportable segments and Corporate (in thousands):

As of December 31, 2022

Cinema Equipment

Content & Entertainment

As of March 31, 2022

Cinema Equipment

Content & Entertainment

Condensed Consolidated Statement of Operations

Three Months Ended December 31, 2022

Content & Entertainment

Direct operating

Selling, general and administrative

Allocation of corporate overhead

Depreciation and amortization

Total operating expenses

Operating income (loss)

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows (in thousands):

Three Months Ended December 31, 2022

Content & Entertainment

Direct operating

Selling, general and administrative

Total stock-based compensation

Condensed Consolidated Statement of Operations

Three Months Ended December 31, 2021

Content & Entertainment

Direct operating

Selling, general and administrative

Allocation of corporate overhead

Depreciation and amortization

Total operating expenses

Operating income (loss)

The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows (in thousands):

Three Months Ended December 31, 2021

Content & Entertainment

Direct operating

Selling, general and administrative

Total stock-based compensation

Condensed Consolidated Statement of Operations

Nine Months Ended December 31, 2022

Content & Entertainment

Direct operating

Selling, general and administrative

Allocation of corporate overhead

Depreciation and amortization

Total operating expenses

Operating income (loss)

CINEDIGM CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows (in thousands):

Nine Months Ended December 31, 2022

Content & Entertainment

Direct operating

Selling, general and administrative

Total stock-based compensation

Condensed Consolidated Statement of Operations

Nine Months Ended December 31, 2021

Content & Entertainment

Direct operating

Selling, general and administrative

Allocation of corporate overhead

Depreciation and amortization

Total operating expenses

Operating income (loss)

The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows (in thousands):

Nine Months Ended December 31, 2021

Content & Entertainment

Direct operating

Selling, general and administrative

Total stock-based compensation

The Company is party to a Loan, Guaranty, and Security Agreement with East West Bank ("EWB") providing for a revolving line of credit (the "Line of Credit Facility") of $ 5.0 million, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and such subsidiaries' assets.

The Line of Credit bears an interest rate equal to 1.5 % above the prime rate, and was 9.75 % as of June 30, 2023.

As of June 30, 2023 and March 31, 2023, a balance of $ 5.0 million was outstanding on the line of the Credit Facility.

Under the Line of Credit Facility, the Company is subject to certain financial and nonfinancial covenants which require the Company to maintain certain metrics and ratios, maintain certain minimum cash on hand, and to report financial information to our lender on a periodic basis.

During the three months ended June 30, 2023 and 2022, the Company had interest expense of $ 0.1 million and $ 0 related to the Line of Credit Fa cility, respectively.

The outstanding principal balance on the Line of Credit Facility as of August 7, 2023 was $ 0 .

On August 11, 2023, EWB extended the maturity date of the Line of Credit Facility one year to September 15, 2024 .

COMMITMENTS AND CONTINGENCIES

Cineverse is a virtual company with one domestic operating lease, acquired through the acquisition of Digital Media Rights ("DMR") which is subleased to a third party.

The Company has not been relieved of the original lease obligation and therefore recognizes both a lease liability and righ t-of-use asset as part of the arrangement.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

of both the original lease and sublease's term is January 2025 .

In addition, the Company has two operating leases related to its Cineverse India operations, with expiration dates in July 2027 .

Expenses related to these leases were $ 115 thousand and $ 84 thousand during the three months ended June 30, 2023 and 2022, respectively.

The Company has recognized $ 44 thousand of sublease income relate d to its subleasing arrangement during the three months ended, June 30, 2023.

The table below presents the lease-related assets and liabilities recorded on our Consolidated Balance Sheets (in thousands):

Classification on the Balance Sheet

Other long-term assets

Operating leases –

current portion

Operating leases –

long-term portion

Total operating lease liabilities

The table below presents the annual gross undiscounted cash flows related to the Company's operating lease commitments and subleasing arrangements (in thousands):

Fiscal year ending March 31,

Operating Lease Commitments

Sublease Payments

We calculate income tax expense upon an annual effective tax rate forecast, including estimates and assumptions.

We recorded an income tax benefit (expense) of $ 0.0 million for the three and nine months ended December 31, 2022.

We recorded an income tax benefit of approximately $ 0.0 million and $ 0.6 million for the three and nine months ended December 31, 2021, respectively.

We recorded income tax expense of appro ximately $ 20 thousand and $ 0 for the three months ended June 30, 2023 and 2022, respectively.

Income tax expense is attributable to taxable income earned in India relating to transfer pricing.

We have not recorded tax benefits on our loss before income taxes because we have provided for a full valuation allowance that offsets potential deferred tax assets resulting from net operating loss carry forwards, reflecting our inability to use such loss carry forwards.

Our effective tax rate for the three months ended December 31, 2022 and 2021 was 0 % and 4 %, respectively.

Our effective tax rate for the nine months ended December 31, 2022 and 2021 was 0 % and ( 14 %) , respectively.

Our effective tax rate for the three months ended June 30, 2023 and 2022 was ( 0.6 %) and 0 %, respectively.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

11 unchanged sentences

These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

Since our inception, we have played a significant role in the digital distribution revolution that continues to transform the media landscape.

In addition to our pioneering role in transitioning approximately 12,000 movie screens from traditional analog film prints to digital distribution, we have become a leading distributor of independent content, both through organic growth and acquisitions.

Business Overview

Cineverse is a premier streaming technology and entertainment company with its core business (i) across a portfolio of owned and operated enthusiast streaming channels with enthusiast fan bases;

(ii) as a large-scale global aggregator and full-service distributor of feature films and television programs;

We collaborate with producers, major brands and other content owners to market, source, curate and distribute quality content to targeted audiences through (i) existing and emerging digital home entertainment platforms, including but not limited to Apple iTunes, Amazon Prime, Netflix, Hulu, Xbox, Pluto, Tubi and most video-on-demand (“VOD”) and free ad-supported television (“FAST”) streaming platforms, as well as (ii) physical goods, including DVD and Blu-ray Discs.

We report our financial results in two reportable segments as follows:

(i) Cinema Equipment Business ("Cinema Equipment") and (ii) Content and Entertainment Business (“Content & Entertainment”).

It also provides fee-based support to over 465 movie screens as well as directly to exhibitors and other third-party customers in the form of monitoring, billing, collection and verification services.

Our Content & Entertainment segment operates in:

Beginning in December 2015, certain of our cinema equipment began to reach the conclusion of their 10-year deployment payment period with certain distributors and, therefore, Virtual Print Fee (“VPF”) revenues ceased to be recognized on such Systems, related to such distributors.

Furthermore, because the Phase I Deployment installation period ended in November 2007, a majority of the VPF revenue associated with the Phase I Deployment Systems has ended.

The reduction in VPF revenue on Cinema Equipment systems approximately coincided with the conclusion of certain of our non-recourse debt obligations and, therefore, the reduced cash outflows related to such non-recourse debt obligations partially offset the reduced VPF revenue since November 2017.

(i) return the Systems to us;

(ii) renew their license agreement for successive one-year terms;

or (iii) purchase the Systems from us at fair market value.

As permitted by these agreements, we typically pursue the sale of the Systems to such exhibitors.

Such sales were as originally contemplated as the conclusion of the digital cinema deployment plan.

We are structured so that our Cinema Equipment segment operates independently from our Content & Entertainment segment.

The Company no longer separately manages cinema equipment separately, and with the run-off of its operations, no longer presents this part of the business as a separate segment.

All prior period reporting within this report reflect this change.

Financial Condition and Liquidity

As of December 31, 2022, the Company has an accumulated deficit of $479.2 million and negative working capital of $4.5 million.

For the three and nine months ended December 31, 2022, the Company had net income (loss) attributable to common shareholders of $4.9 million and ($6.9) million, respectively.

Net cash used in operating activities for the nine months ended December 31, 2022 was $7.9 million.

As of June 30, 2023, the Company has an accumulated deficit of $486.0 million and negative working capital of $2.1 million.

For the three months ended June 30, 2023, the Company had a net loss attributable to common stockholders of ($3.6) million.

Net cash used in operating activities for the three months ended June 30, 2023 was $3.3 million.

We may continue to generate net losses for the foreseeable future.

The Company is party to a Loan, Guaranty, and Security Agreement with East West Bank (“EWB”) providing for a revolving line of credit (the “Line of Credit Facility”) of $5.0 million, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and such subsidiaries’

The Line of Credit Facility bears interest at a rate equal to 1.5% above the prime rate.

The Line of Credit Facility expires on September 15, 2023 with a one-year extension available at EWB’s discretion.

As of December 31, 2022, $5.0 million was outstanding on the Line of Credit Facility.

The Line of Credit Facility bears interest at a rate equal to 1.5% above the prime rate, 9.75% as of June 30, 2023.

As of June 30, 2023, $5.0 million was outstanding on the Line of Credit Facility.

The outstanding principal balance on the Line of Credit Facility as of August 7, 2023 was $0.

On August 11, 2023, EWB extended the maturity date of the Line of Credit Facility one year to September 15, 2024.

In July 2020, we entered into an At-the-Market sales agreement (the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”) and B.

Riley FBR, Inc.

Riley”

The Company is not obligated

to sell any shares under the ATM Sales Agreement.

Any sales of shares made under the ATM Sales Agreement will be made pursuant to an effective shelf registration statement, for an aggregate offering price of up to $30 million.

During the quarter ended June 30, 2023, the Company sold 177 thousand shares for $1.1 million in net proceeds, after deduction of commissions and fees.

On June 16, 2023, the Company closed on the sale of 2,150,000 shares of common stock, 516,667 pre-funded warrants, and warrants to purchase up to 2,666,667 shares of common stock at a combined public offering price of $3.00 per share and accompanying warrant for aggregate gross proceeds of approximately $7.4 million, after deducting placement agent fees and other offering expenses in the amount of $0.6 million.

The warrants had an exercise price of $3.00 per share, were exercisable immediately and will expire five years from the issuance.

The Company received $2.9990 per share for the pre-funded warrants, with the remaining $0.001 due at the time of exercise.

All 516,667 pre-funded warrants were subsequently exercised in July 2023 for total proceeds of $0.5 thousand dollars.

We believe our cash and cash equivalent balances, and availability under our credit facility, as of June 30, 2023 will be sufficient to support our operations for at least twelve months from the filing of this report.

The Company may also undertake equity or debt offerings, if necessary and opportunistically available, for further capital needs.

6 unchanged sentences

Our significant accounting policies are discussed in Note 2 –

Summary of Significant Accounting Policies , of the Notes to the Condensed Consolidated Financial Statements, included in Item 1, Condensed Consolidated Financial Statements (Unaudited) , of this Quarterly Report on Form 10-Q.

Management believes that fair value estimates, revenue recognition, asset acquisitions and business combinations are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

Basis of Presentation and Summary of Significant Accounting Policies , of the Notes to the Condensed Consolidated Financial Statements, included in Item 1, Condensed Consolidated Financial Statements (Unaudited) , of this Quarterly Report on Form 10-Q.

Management believes that these policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.

Results of Operations for the Three Months Ended December 31, 2022 and 2021 (in thousands):

For the Three Months Ended December 31,

Change Period over Period

Content & Entertainment

Results of Operations for the Three Months Ended June 30, 2023 and 2022 (in thousands):

For the Three Months Ended June 30,

Streaming and digital

Base distribution

Cinema Equipment

Streaming and Digital experienced 79% growth in “FAST”

and TV-VOD revenue due to the addition of six new streaming channels related to the Asian Media Rights, LLC d/b/a Digital Media Rights ("DMR") business acquisition and five managed channel additions of The Country Network, Real Madrid TV, El Rey, The Elvis Presley Channel and The Only Way is Essex.

Additionally, Subscription revenue grew 38% primarily due to the Screambox platform performance driven by strong content acquisition strategies driving increasing subscriptions and the aforementioned DMR business acquisition.

New releases such as Terrifier 2, MK Ultra, Chesapeake Shores, and continued success of Demon Slayer, Highlander and Short Circuit added to overall performance.

Revenue in Base Distribution increased by 121% for the three months ended December 31, 2022 compared to the three months ended December 31, 2021.

The increase is driven by significant growth in box office theatrical performance bolstered by the Terrifier 2 release during the three months ended December 31, 2022.

Revenues generated by the Cinema Equipment business increased as a result of an increase in Phase II variable consideration of $7.4 million during the period offset by lower system revenue and eligible VPF systems.

Total system revenue recognized was ($0.3) million and $1.3 million, during the three months ended December 31, 2022 and 2021, respectively.

Blockbuster content released during the period ending December 31, 2022 was consistent with Studio output from the prior period, however VPF eligible theatres decreased significantly for the same period last year.

Podcast and other

Other non-recurring

Total Revenue

The Company's Streaming and Digital revenue for the three months ended June 30, 2023 increased by 6% as compared to the three months ended June 30, 2022, as the Company continues to see the benefits from its acquisitions which have contributed value-accretive libraries, distribution platforms and technologies, such as Screambox, whose performance in the first quarter of fiscal 2024 exceeded the first quarter of fiscal 2023 by approximately $1.0 million, as it continued to benefit from the success of Terrifier 2.

The Company's $1.0 million decline in Base Distribution revenue for the quarter ended June 30, 2023 as compared to the quarter ended June 30, 2022 was primarily driven by a decline in DVD-related sales.

Other non-recurring revenue relating to the Company's cinema equipment have materially concluded in line with the design of its underlying contracts.

Following the completion of cost recoupment and the expiration of the exhibitor master license agreements applicable to this line of revenue, the digital system sales have continued its anticipated decrease in the amount of $0.9 million as compared to the three months ended June 30, 2022, from $1.2 million in the first quarter of fiscal 2023 to $0.3 million in the first quarter of fiscal 2024.

During the quarter ended June 30, 2023, the Company also recognized $1 million of variable consideration following the resolution of uncertainty associated with the underlying revenue related to its cinema equipment, as compared to $0 variable consideration recognized in the first quarter of fiscal year 2023.

Direct Operating Expenses

For the Three Months Ended December 31,

Change Period over Period

Content & Entertainment

Cinema Equipment

The increase in direct operating expenses for the three months ended December 31, 2022 for the Content & Entertainment segment compared to the prior year was primarily due to $6.6 million higher content and licensing costs including royalties and distribution expenses related to the continued growth in revenue noted above, coupled with a $1.2 million increase related to DVD manufacturing and fulfillment.

Selling, General and Administrative Expenses

For the Three Months Ended December 31,

Change Period over Period

Compensation expense

Public company expenses

Share-based compensation

Insurance expense

Other operating expenses

Selling, general and administrative expenses for the three months ended December 31, 2022 increased by $1.7 million primarily due to a $1.3 million increase in compensation expense primarily from the acquisition of DMR partially offset by a reduction in payroll taxes in the prior year as a result of the CARES Act and $0.7 million increase in other operating expenses primarily from rent, direct marketing and subscriptions, offset by $0.6 million decrease related to stock-based compensation to management and employees.

Public company expenses include accounting, legal, audit, investor relations and other related public company costs.

Depreciation and Amortization Expense

For the Three Months Ended December 31,

Change Period over Period

Amortization of Intangible Assets

Depreciation of Property and Equipment

Depreciation expense decreased primarily due to the majority of our digital cinema projection systems reaching the conclusion of their ten-year useful lives during the three months ended December 31, 2022.

Interest expense, net

Interest expense, net increased by $0.3 million from $0.1 million for the three months ended December 31, 2021 to $0.4 million for the December 31, 2022 as a result of deferred and earnout consideration accretion related to the acquisitions of Bloody Disgusting, FoundationTV and DMR and interest expense associated with our new Line of Credit facility obtained in September 2022.

Employee retention tax credit

Employee retention tax credit was $2.0 million for the three months ended December 31, 2022 compared to no employee retention credit for the three months ended December 31, 2021.

The employee retention tax credits were filed pursuant to the CARES Act.

Results of Operations for the Nine Months Ended December 31, 2022 and 2021

For the Nine Months Ended December 31,

Change Period over Period

Content & Entertainment

Streaming and Digital

Base Distribution

Cinema Equipment

Streaming and Digital experienced 102% growth in “FAST”

and TV-VOD revenue due to the addition of six new streaming channels related to the DMR business acquisition and five managed channel additions of The Country Network, Real Madrid TV, El Rey, The Elvis Presley Channel and The Only Way is Essex.

Additionally, Subscription revenue grew 39% primarily due to the Screambox platform performance driven by strong content acquisition strategies driving increasing subscriptions and the aforementioned DMR business acquisition.

Top performing titles, including new releases, such as the Terrifier 2, Demon Slayer, Boon, The Ravine, The Mulligan, Incarnation, 7 Days, Chesapeake Shores, When Calls the Heart and the classics, Short Circuit and Highlander added to overall performance.

Revenue in Base Distribution increased by 75% for the nine months ended December 31, 2022 compared to the nine months ended December 31, 2021.

The increase is driven by significant growth in box office theatrical performance bolstered by the Terrifier 2 release during the nine months ended December 31, 2022.

Revenues generated by our Cinema Equipment business decreased slightly despite an increase in Phase II variable consideration of $9.1 million during the period.

Total system revenue recognized was $2.0 million and $9.1 million during the nine months ended December 31, 2022 and 2021, respectively.

For the Three Months Ended June 30,

Direct operating expenses

For the Nine Months Ended December 31,

Change Period over Period

Content & Entertainment

Cinema Equipment

The increase in direct operating expenses in the nine months ended December 31, 2022 for the Content & Entertainment segment was primarily due to $11.0 million higher content and licensing costs including royalties and distribution expenses related to the continued growth in revenue noted above, coupled with a $2.4 million increase related to DVD manufacturing and fulfillment, a $1.2 million increase in delivery, platform and Software as a service (“SaaS”) and platform expenses, primarily due to the additive DMR acquisition, $0.7 million related to film restoration and conversion and website content production costs.

The decrease in direct operating expenses in the nine months ended December 31, 2022 for the Equipment business compared to the prior period was primarily due to a decrease in property taxes as a result of system sales.

The decrease in Direct Operating Expenses for the three months ended June 30, 2023 was indicative of the continued integration efforts with respect to the Company's acquisitions during fiscal year 2022, such as DMR, FoundationTV, and Bloody Disgusting.

Selling, General and Administrative Expenses

For the Nine Months Ended December 31,

Change Period over Period

For the Three Months Ended June 30,

Compensation expense

Public company expenses

Corporate expenses

Share-based compensation

Insurance expense

Other operating expenses

Selling, general and administrative expenses for the nine months ended December 31, 2022 increased by $8.5 million primarily due to $2.2 million increase in compensation expense from the acquisitions of Fandor, DMR, and Bloody Disgusting, $1.6 million increase in bonus, severance and insurance expense related to management and employees, $1.0 million increase related to legal expense and $1.1 million increase in other operating expenses primarily from rent, direct marketing and subscriptions.

Public company expenses include accounting, legal, audit, investor relations and other related public company costs.

Selling, General and Administrative

Selling, general and administrative expenses for the three months ended June 30, 2023 decreased by $1.9 million.

Compensation expenses decreased by $1.1 million primarily from a 26% reduction in the number of US-based workforce and an 11% reduction to the Company-wide workforce.

Corporate expenses decreased by $0.6 million primarily as a result of cost savings and a decline in legal expenses.

Share-based compensation has decreased by $0.5 million, as a result of the US-based workforce reduction.

Other operating expenses increased by $0.4 million, primarily as a result of an increase in advertising, marketing and rent expense related to Cineverse India operations.

Depreciation and Amortization Expense

For the Nine Months Ended December 31,

Change Period over Period

For the Three Months Ended June 30,

Amortization of Intangible Assets

Depreciation of Property and Equipment

Depreciation expense decreased primarily due to the majority of our digital cinema projection systems reaching the conclusion of their ten-year useful lives during the nine months ended December 31, 2022.

Depreciation and Amortization

Depreciation expense decreased primarily due to substantially the remainder of our digital cinema projection systems reaching the conclusion of their ten-year useful lives during the fiscal year ended March 31, 2023.

Interest expense, net

Interest expense, net increased by $0.6 million to $0.9 million for the nine months ended December 31, 2022 as a result of deferred and earnout consideration accretion related to the acquisitions of Bloody Disgusting, FoundationTV and DMR and interest expense associated with our new Line of Credit facility obtained in September 2022.

Employee retention tax credit

Employee retention tax credit was $2.5 million for the nine months ended December 31, 2022 compared to no employee retention credit for the nine months ended December 31, 2021.

The employee retention tax credits were filed pursuant to the CARES Act.

Changes in fair value in Metaverse

On April 1, 2022, trading of Metaverse’s ordinary shares was halted on the Hong Kong Stock Exchange.

This investment was previously a level 1 investment as the shares were being actively traded in a marketplace, but with the trading of the shares being halted the Company needed to reassess the fair value level of the investment.

Without an active market where the shares are being traded, the investment no longer qualifies as a level 1.

The changes in the valuation resulted in a decrease in fair value of $1.8 million during the nine months ended December 31, 2022.

Interest expense, net increased by $0.2 million from $0.1 million for the three months ended June 30, 2022 to $0.3 million for the three months ended June 30, 2023 as a result of a higher outstanding debt balance and higher interest rates during the three months ended June 30, 2023 as compared to the prior period.

Other expenses, net

During the three months ended June 30, 2023, the Company recognized $0.5 million of other expenses, net, primarily from credit and other run-off related charges associated with the wind-down of its legacy digital cinema segment.

Adjusted EBITDA

We define Adjusted EBITDA to be earnings before interest, taxes, depreciation and amortization, other income, net, stock-based compensation and expenses, merger and acquisition costs, restructuring, transition and acquisitions expense, net, goodwill impairment and certain other items.

We define Adjusted EBITDA to be earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, merger and acquisition costs, restructuring, transition and acquisitions expense, net, goodwill impairment and certain other items.

Adjusted EBITDA is not a measurement of financial performance under GAAP and may not be comparable to other similarly titled measures of other companies.

9 unchanged sentences

These non-GAAP measures should be read only in conjunction with our Condensed Consolidated Financial Statements prepared in accordance with GAAP.

Following is the reconciliation of our consolidated net loss to Adjusted EBITDA:

Following is the reconciliation of our consolidated net loss to Adjusted EBITDA (in thousands):

For the Three Months Ended

Net income (loss)

Income tax benefit

Income tax expense

Depreciation and amortization

Interest expense

Change in fair value on equity investment in Metaverse

Other expense

Provision (recovery) for doubtful accounts

Stock-based compensation

Employee retention tax credit

Net (income) loss attributable to noncontrolling interest

Adjusted EBITDA

Adjustments related to Cinema Equipment

Depreciation and amortization

Provision for doubtful accounts

Income from operations

Adjusted EBITDA from non-Cinema Equipment

For the Nine Months Ended

Net income (loss)

Income tax benefit

Depreciation and amortization

Gain on forgiveness of PPP loan

Interest expense

Change in fair value on equity investment in Metaverse

Other expense

Provision (recovery) for doubtful accounts

Stock-based compensation

Employee retention tax credit

Net (income) loss attributable to noncontrolling interest

Other expense, net

Net income attributable to noncontrolling interest

Transition-related costs

Mergers and acquisition costs

Adjusted EBITDA

Adjustments related to Cinema Equipment

Depreciation and amortization

Acquisition, integration and other expense

Provision (recovery) for doubtful accounts

Income from operations

Adjusted EBITDA from non-Cinema Equipment

Recent Accounting Pronouncements

See Note 2 - Summary of Significant Accounting Policies to our Condensed Consolidated Financial Statements included herein.

Changes in our cash flows were as follows:

For the Nine Months Ended

Net cash (used in) provided by operating activities

Changes in our cash flows were as follows (in thousands):

For the Three Months Ended

Net used in provided by operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

For the nine months ended December 31, 2022, net cash used in operating activities is primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, including other changes in working capital.

Additionally, during the nine months ended December 31, 2022, the Company decreased accounts payable by $11.8 million to vendors.

Cash received from VPFs decreased from the previous period in alignment with the decrease in eligible VPF systems.

Prepaid and other current assets increased by $2.7 million.

Operating cash flows from the Content & Entertainment segment are typically seasonally lower during the first two fiscal quarters and higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season.

In addition, we made $1.1 million in advances for the nine months ended December 31, 2022, we make advances on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twelve months.

For the nine months ended December 31, 2021, net cash provided by operating activities was primarily driven by income from operations, excluding non-cash expenses such as depreciation, amortization, provision for doubtful accounts and stock-based compensation, gain on extinguishment of note payable, including other changes in working capital.

Additionally, during the nine months ended December 31, 2021, the Company paid down $32.6 million to vendors at both the Content & Entertainment segment and Corporate.

Operating cash flows from the Content & Entertainment segment are typically higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season, and lower in the other two quarters as we pay royalties on such revenues.

In addition, we make advances on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twenty four months.

For the nine months ended December 31, 2021 revenues from the sale of digital projections Systems was $9.1 million.

Net cash provided by (used in) financing activities

Net change in cash and cash equivalents

For the three months ended June 30, 2023, net cash used in operating activities is primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, including capitalized content spend and other changes in working capital.

Additionally, during the three months ended June 30, 2023, the Company decreased accounts payable by $4.7 million to vendors.

Operating cash flows are typically seasonally lower during the first two fiscal quarters and higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season.

In addition, we made net advances of $2.2 million for the three months ended June 30, 2023, as part of the advances we make on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twelve months.

For the three months ended June 30, 2022, net cash used in operating activities was primarily driven by a net loss, after taking into account the exclusion of non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, including other changes in working capital.

Additionally, during the three months ended June 30, 2022, the Company increased accounts payable by $5.6 million to vendors.

Accounts receivable decreased due to a decrease in revenue as a result of the digital cinema amounts due.

Off-balance sheet arrangements

We are not a party to any off-balance sheet arrangements other than as discussed in Note 2 –

Summary of Significant Accounting Policies, Basis of Presentation and Consolidation and Note 3 - Other Interests to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q, we hold a 100% equity interest in CDF2 Holdings, which is an unconsolidated variable interest entity (“VIE”), which wholly owns Cinedigm Digital Funding 2, LLC;

Basis of Presentation and Summary of Significant Accounting Policies, Basis of Presentation and Consolidation and Note 3 - Other Interests to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q, we hold a 100% equity interest in CDF2 Holdings, which is an unconsolidated variable interest entity (“VIE”), which wholly owns Cinedigm Digital Funding 2, LLC;

however, we are not the primary beneficiary of the VIE.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements