What changed in this filing

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Item 1. Financial Statements

2023-11-14 compared with 2023-08-14 · 311 added, 221 removed, 476 unchanged (53% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current Assets

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Employee retention tax credit

Prepaid and other current assets

Content advances

Other current assets

Total current assets

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Intangible assets, net

Content advances, net of current portion

Other long-term assets

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Total current liabilities

Deferred consideration on purchase of business –

net of current portion

Deferred consideration on purchase of business, net of current portion

Operating lease liabilities, net of current portion

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20 shares authorized;

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

7 shares issued and outstanding, respectively, at September 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.

Class A stock 275,000,000 shares authorized at September 30, 2023 and March 31, 2023, 13,079,143 and 9,413,597 shares issued and 12,790,590 and 9,347,805 shares outstanding at September 30, 2023 and March 31, 2023, respectively.

Additional paid-in capital

Treasury stock, at cost;

65,792 shares

288,554 and 65,792 shares at September 30, 2023 and March 31, 2023, respectively.

Accumulated deficit

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(In thousands, except per share data)

Three Months Ended

Three Months Ended September 30,

Six Months Ended

September 30,

Costs and expenses:

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Total operating expenses

Operating loss

Operating income (loss)

Interest expense

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

Other expense, net

Other income (expense), net

Net loss before income taxes

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(In thousands)

Three Months Ended

Three Months Ended September 30,

Six Months Ended

September 30,

Other comprehensive loss:

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(In thousands)

Three Months Ended

Six Months Ended

September 30,

Cash flows from operating activities:

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Interest expense for deferred consideration and earnouts

Capitalized content

Change in estimated earnout consideration

Barter-related non-cash expenses

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

Unbilled revenue

Prepaids and other current and long-term assets

Employee retention tax credit

Other current and long-term assets

Content advances

Accounts payable, accrued expenses, and other liabilities

Unbilled revenue

Deferred revenue

Net cash used in operating activities

1 unchanged sentence

Expenditures for long-lived assets

Purchase of businesses

Net cash used in investing activities

1 unchanged sentence

Payments of notes payable

Proceeds from line of credit

Proceeds from line of credit, net of debt issuance costs

Payments on line of credit

Issuance of common stock, net of issuance costs

Net cash provided by (used in) financing activities

Payment of earnout consideration

Financing fees for line of credit

Issuance of Class A common stock, net of issuance costs

Net cash provided by financing activities

Net change in cash and cash equivalents

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(In thousands)

Three Months Ended

Six Months Ended

September 30,

Cash interest paid

Income taxes paid

Lease liability related payments

Income taxes paid

Noncash investing and financing activities:

Issuance of Class A common stock for payment of employee bonuses

Treasury shares acquired for withholding taxes

Earnout liability settled in stock

Accrued dividends on preferred stock

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

Earnout consideration in purchase of a business

Cineverse Corp.

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Stock-based compensation

Issuance of common stock in connection with ATM raises, net

Issuance of common stock in connection with direct equity offering

Issuance of Class A common stock in connection with ATM raises, net

Issuance of Class A common stock in connection with direct equity offering

Preferred stock dividends paid in stock

1 unchanged sentence

Balances as of June 30, 2023

Foreign exchange translation

Stock-based compensation

Issuance of Class A common stock in connection employee bonuses

Estimated fee decrease associated with equity issuance

Issuance in connection with the exercise of warrants

Issuance of Class A common stock for earnout commitment

Treasury stock in connection with taxes withheld from employees

Preferred stock dividends paid in stock

Preferred stock dividends accrued

Balances as of September 30, 2023

See accompanying Notes to Condensed Consolidated Financial Statements

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Balances as of June 30, 2022

Foreign exchange translation

Stock-based compensation

Preferred stock dividends paid in stock

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

Issuance of Class A common stock for earnout commitment

Preferred stock dividends accrued

Balances as of September 30, 2022

See accompanying Notes to Condensed Consolidated Financial Statements

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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.

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

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

and (iii) 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.

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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.

The Company no longer 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 30, 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.

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Financial Condition and Liquidity

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 have a history of net losses, and for the six months ended September 30, 2023, we had a net loss attributable to common stockholders in the amount of $( 4.1 ) million, respectively.

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 .

As of September 30, 2023, the Company has an accumulated deficit of $ 486.5 million and negative working capital of $ 0.7 million .

Net cash used in operating activities for the six months ended September 30, 2023 was $ 6.2 million , which included $ 5.3 million of cash outlay related to investments in our content portfolio via advances or minimum guarantee payouts.

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, 9.75 % 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

The line of credit expires on September 15, 2024 .

The Line of Credit Facility bears interest at a rate equal to 1.5 % above the prime rate, 10.00 % as of September 30, 2023 .

As of September 30, 2023, $ 4.9 million was outstanding on the Line of Credit Facility, net of unamortized issuance costs of $ 96 thousand.

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.

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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.

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.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended September 30, 2023 , the Company did no t sell any shares under this agreement.

For the six months ended September 30, 2023 , the Company sold 177 thousand shares for $ 1.1 million in net proceeds, respectively, 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.

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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.

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

The Company will continue to invest in content development and acquisition, from which it believes it will obtain an appropriate return on its investment.

As of September 30, 2023 and March 31, 2023, short term content advances were $ 7.9 million and $ 3.7 million, respectively, and content advances, net of current portion were, $ 2.6 million and $ 1.4 million, respectively.

We believe our cash and cash equivalents and our credit facility, as of September 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.

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

Certain columns and rows may not add due to the use of rounded numbers.

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.

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The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying notes.

Significant items subject to such estimates and assumptions include revenue recognition, allowance for doubtful accounts, returns and recovery reserves, goodwill and intangible asset impairments, share-based compensation expense, valuation allowance for deferred income taxes and amortization of intangible assets.

Significant items subject to such estimates and assumptions include revenue recognition, allowance for credit losses, returns and recovery reserves, goodwill and intangible asset impairments, share-based compensation expense, valuation allowance for deferred income taxes and amortization of intangible assets.

The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances.

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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 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.

The non-controlling equity holders have rights equal to 10.5 % of outstanding profit interest units retained by the noncontrolling interests.

Accounting Policies

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 .

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Employee Retention Tax Credit

The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") provided an employee retention credit which was a refundable tax credit against certain employment taxes.

The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") provided an employee retention tax credit ("ERTC") which was a refundable tax credit against certain employment taxes.

The Consolidated Appropriations Act (the "Appropriations Act") extended and expanded the availability of the employee retention credit through December 31, 2021.

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

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.

As of September 30, 2023 and March 31, 2023, the tax credit receivable of $ 1.7 and $ 2.1 million has been included in the Employee retention tax credit line on the Company's Condensed Consolidated Balance Sheet, respectively.

The Company has received notification during the second quarter of fiscal year 2024 that its ERTC claim is under audit with the Internal Revenue Service ("IRS").

As of the date of this report, the audit is ongoing, and the Company is responding to audit requests as they arise.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Property and Equipment, Net

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Furniture and fixtures

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.

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Content Library

Advertiser Relationships and Channel

Customer Relationships

Trademarks and Tradenames

Customer Relationships

Advertiser Relationships and Channel

Capitalized Content

Supplier Agreements

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

As of June 30, 2023

As of September 30, 2023

Content Library

Advertiser Relationships and Channel

Supplier Agreements

Customer Relationships

Trademark and Tradenames

Capitalized Content

Total Intangible Assets

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2023

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Advertiser Relationships and Channel

Supplier Agreements

Customer Relationships

1 unchanged sentence

Total Intangible Assets

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):

During the three and six months ended September 30, 2023, the Company had amortization expense of $ 804 thousand and $ 1,502 thousand, respectively.

During the three and six months ended September 30, 2022, the Company had amortization expense of $ 736 thousand and $ 1,480 thousand, respectively.

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

In-process intangible assets

Remainder of fiscal year 2024

Content Assets

Capitalized Content

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.

The costs are capitalized to the Capitalized Content costs within Intangible Assets and are amortized as a group within Depreciation and Amortization within the Condensed Consolidated Statements of Operations.

Impairment of Long-lived and Finite-lived Intangible Assets

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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 .

There were no impairment charges recorded for long-lived and finite-lived intangible assets during the three and six months ended September 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.

Goodwill is tested for impairment on an annual basis or more often if warranted by events or changes in circumstances indicating that the carrying value may exceed fair value, also known as impairment indicators.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current economic indicators and market conditions, and assumptions about our strategic plans with regard to its operations.

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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

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 .

The Company annually assesses goodwill for potential impairment during its fourth fiscal quarter, or sooner if event occurs or circumstances would indicate it would be more likely than not that fair value would be reduced below its carrying amount.

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

Fair Value Measurements

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

As of June 30, 2023

As of September 30, 2023

Equity investment in Metaverse, at fair value

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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.

1616) under the equity method of accounting as the Company can exert significant influence over Metaverse with its direct

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.

ownership of approximately 17 % and affiliation with the Company’s largest shareholder.

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

Following the halting of Metaverse stock trading on the Stock Exchange of Hong Kong Limited 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.

In taking steps to resume trading, during three months ended September 30, 2023, Metaverse published its interim results for the half year ended June 30, 2022, its year-ended December 31, 2022, and its interim results for the half year ended June 30, 2023.

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

As of September 30, 2023, and March 31, 2023, the fair value was $ 4.5 million and $ 5.2 million, respectively.

This decline in fair value, which accounts for the change since March 31, 2023 is recognized within the " Decrease in fair value of equity investment in Metaverse, a related party" line item within the Condensed Consolidated Statements of Operations.

On November 6, 2023, Metaverse's stock resumed trading on The Stock Exchange of Hong Kong Limited.

The Company will consider the quoted price of Metaverse's stock to measure fair value as of the date which Metaverse resumed trading and onward.

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.

During the six months ended September 30, 2023, the Company estimated a $ 710 thousand decrease in the estimated ultimate earnout payments based on Bloody Disgusting's performance, made cash payments of $ 291 thousand, and issued equity to settle earnout liability of $ 391 thousand, and accrued interest of $ 29 thousand.

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.

The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature.

Prepaid and Other Current Assets

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

Amounts due from producers

Other receivables

Other prepayments

Total prepaid and other current assets

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

Content Advances

Content advances 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.

Amounts which are expected to be recovered in more than 12 months are classified as long term and presented within content advances, net of current portion, which were $ 2.6 million and $ 1.4 million as of September 30, 2023 and March 31, 2023, respectively.

For the six months ended September 30, 2023, the Company recorded a decrease in the provision for advances of $ 0.5 million.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following (in thousands):

September 30,

Accounts payable

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Total accounts payable and accrued expenses

During the six months ended September 30, 2023 , the Company settled its fiscal year 2023 bonus accrual of $ 1.2 million, recorded within Accrued compensation and benefits as of March 31, 2023 , by issuing shares of Common Stock.

Revenue Recognition

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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.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended

September 30,

Six Months Ended

September 30,

Streaming and digital

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which party is primarily responsible for fulfilling the promise to provide the specified good or service;

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

which party has discretion in establishing the price for the specified good or service.

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Credit Losses

We maintain reserves for potential credit losses on accounts receivable.

We maintain reserves for potential credit losses on accounts receivable primarily on a specific identification basis.

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.

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.

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

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

During the three and six months ended September 30, 2023, we did no t recognize any credit losses as part of its ongoing operations or reversals of previously recorded provisions.

During the three and six months ended September 30, 2022 , the Company recognized credit losses of $ 44 thousand and $ 47 thousand, respectively.

Contract Liabilities

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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.

The ending deferred revenue balance, including current and non-current balances as of September 30, 2023 and March 31, 2023, was and $ 0.3 million and $ 0.2 million respectively.

In each period, the additions to our deferred revenue balance are due to cash payments received or due in advance of satisfying performance obligations, while the reductions are 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

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Concentrations

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

Direct operating costs consist of cost of revenue, fulfillment expenses, shipping costs, property taxes and insurance on systems, royalty expenses, impairments of advances and marketing and direct personnel costs.

For the three and six months ended September 30, 2023 , one customer represen ted 25 % and 24 % of consolidated revenues.

For the three months ended September 30, 2022 , one customer represented approxima tely 19 % of consolidated revenues and another customer represented 11 % of consolidated revenues, respectively.

For the six months ended September 30, 2022 , one customer represented 15 % of consolidated revenues.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Direct Operating Expenses

Direct operating expenses consist of cost of revenue, fulfillment expenses, shipping costs, property taxes and insurance on systems, royalty expenses, impairments of advances and marketing and direct personnel costs.

Stock-based Compensation

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The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”).

ASC 718 requires all stock-based payments, including grants of stock options and restricted stock units and modifications to existing stock options, to be recognized in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) based on their fair values.

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.

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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

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.

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.

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.

The Company is primarily subject to income taxes in the United States.

The Company is primarily subject to income taxes in the United States and India.

The Company accounts for uncertain tax positions in accordance with an amendment to ASC Topic 740-10, Income Taxes (Accounting for Uncertainty in Income Taxes) , which clarified the accounting for uncertainty in tax positions.

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

Earnings per Share ("EPS")

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

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Earnings per Share

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

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

Three Months Ended

Three Months Ended September 30,

Six Months Ended

September 30,

Basic net loss per share:

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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

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.

The calculation of diluted net loss per share for the three and six months ended September 30, 2023 does not include the impact of 845 thousand and 793 thousand anti-dilutive shares, respectively.

The calculation of diluted net loss per share for both the three and six months ended September 30, 2022 does not include the impact of 621 thousand potentially anti-dilutive shares.

OTHER INTERESTS

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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 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.

As of September 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 and $ 0.5 million as of September 30, 2023 and March 31, 2023, respectively, which are included in accounts receivable, net on the accompanying Condensed Consolidated Balance Sheets.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Total Stockholders’

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

Deficit of CDF2 Holdings at September 30, 2023 and March 31, 2023 was $ 59.2 million and $ 59.2 million, r espectively.

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 June 30, 2023 and March 31, 2023 is carried at $ 0 .

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

Investment in Roundtable

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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.

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STOCKHOLDERS’

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.

As of September 30, 2023 and 2022, the number of shares of Common Stock authorized for issuance was 275,000,000 shares.

During the three months ended September 30, 2023 , the Company issued 1.1 million shares of Common Stock.

This was comprised of 517 thousand shares issued in conjunction with the exercise of pre-funded warrants issued, 502 shares issued in connection with employee bonuses, 46 thousand shares for preferred stock dividends, and 41 thousand to satisfy earnout-related liabilities.

During the six months ended September 30, 2023 , the Company issued 3.4 million shares of Common Stock.

In addition to the activity cited for three months ended September 30, 2023 , this was comprised of 2,150 thousand shares issued through a June 16, 2023 direct offering, 177 thousand issued in connection with ATM sales during the first fiscal quarter, and 10 thousand issued in payment of preferred stock dividends.

In addition, the Company issued common warrants to purchase up to 2,667 thousand shares of Common Stock in conjunction with its direct offering on June 16, 2023.

All pre-funded and common warrants were issued as immediately exercisable.

All common warrants remain outstanding as of September 30, 2023.

During the three months ended September 30, 2022 , the Company issued 129 thousand shares.

This was comprised of 9 thousand shares for preferred stock dividends, 103 thousand shares for employee bonuses, and 17 thousand shares to satisfy earnout-related liabilities.

During the six months ended September 30, 2022 , the Company issued 134 thousand shares.

In addition to the activity cited during the three months ended September 30, 2022 , this was comprised of 5 thousand shares for preferred stock dividends.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PREFERRED 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.

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

During the three and six months ended September 30, 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 has the right to pay preferred stock dividends in cash or stock, at the Company's discretion.

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

TREASURY STOCK

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

We have treasury stock, at cost, consisting of 289 thousand and 66 thousand shares of Common Stock at September 30, 2023 and March 31, 2023, respectively.

During the three months ended September 30, 2023 , the Company acquired 223 thousand shares of Common Stock withheld in connection with employee bonuses, which the Company elected to settle in shares of Common Stock.

EQUITY INCENTIVE PLANS

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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;

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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.

The 2017 Plan provided 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 $ 499 thousand and $ 909 thousand, three and six months ended September 30, 2023, respectively, and $ 2,218 thousand and $ 3,198 thousand for the three and six months ended September 30, 2022, respectively.

These costs are reported within to Selling, General and Administrative expenses.

Included within this expense, our Board of Directors stock-based compensation was $ 90 thousand and $ 180 thousand for the three and six months ended September 30, 2023 , respectively, and $ 90 thousand and $ 180 thousand for the three and six months ended September 30, 2022, respectively.

Options Granted Outside Cineverse's Equity Incentive Plan

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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.

The options were fully vested as of October 2017 and expired

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

as unexercised 10 years from the date of grant in October 2023.

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

LINE OF CREDIT FACILITY

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.

The Line of Credit bears an interest rate equal to 1.5 % above the prime rate, and was 10.00 % as of September 30, 2023.

As of September 30, 2023 and March 31, 2023, a balance of $ 5.0 million was outstanding on the line of the Credit Facility, gross of unamortized issuance costs of $ 96 thousand and $ 76 thousand, respectively.

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 .

The Line of Credit Facility matures on September 15, 2024 .

During the three and six months ended September 30, 2023, the Company had interest expense, including cash interest and amortization, of $ 0.1 million and $ 0.2 million related to its Line of Credit Facility, respectively.

COMMITMENTS AND CONTINGENCIES

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

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

Expenses related to these leases were $ 121 thousand and $ 236 thousand during the three and six months ended September 30, 2023 and $ 111 thousand and $ 196 thousand three and six months ended September 30, 2022, respectively.

The Company has recognized $ 45 thousand and $ 90 thousand of income related to its subleasing arrangement during three and six months ended September 30, 2023, respectively.

The Company recognized $ 27 thousand of income related to its subleasing arrangement for both the three and six months ended September 30, 2022.

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

Classification on the Balance Sheet

September 30,

Other long-term assets

Operating leases –

current portion

Operating leases –

long-term portion

Operating leases liabilities

Operating leases liabilities, net of current 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):

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

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fiscal year ending March 31,

Operating Lease Commitments

Total lease payments

Less imputed interest

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

Fiscal year ending March 31,

Sublease Payments

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

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

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

We recognized income tax expense of approximately $ 16 thousand and $ 36 for the three and six months ended September 30, 2023 .

We recognized $ 0 for the three and six months ended September 30, 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 June 30, 2023 and 2022 was ( 0.6 %) and 0 %, respectively.

Our effective tax rate was ( 5.3 %) and ( 1.0 %) for the three and six months ended September 30, 2023 , and 0 % and 0 % for the three and six months ended September 30, 2022, respectively.

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

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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.

All prior period reporting within this report reflects this change.

Financial Condition and Liquidity

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.

As of September 30, 2023, the Company has an accumulated deficit of $486.5 million and negative working capital of $0.7 million.

For the three and six months ended September 30, 2023, the Company had a net loss attributable to common stockholders of $(445) thousand and $(4.1) million, respectively.

Net cash used in operating activities for the six months ended September 30, 2023 was $6.2 million, which included $5.3 million of cash outlay related to investments in our content portfolio via advances or minimum guarantee payouts.

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, 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.

The line of credit expires on September 15, 2024.

The Line of Credit Facility bears interest at a rate equal to 1.5% above the prime rate, 10.00% as of September 30, 2023.

As of September 30, 2023, $5.0 million was outstanding on the Line of Credit Facility, gross of issuance costs of $96 thousand.

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.

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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.

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 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.

During the first quarter of the fiscal year, the Company sold 177 thousand shares under the ATM Sales Agreement 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 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.

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 aggregate of 500 thousand shares of its outstanding Common Stock, following the announcement of a stock repurchase program on March 1, 2023.

The Company will continue to invest in content development and acquisition, from which it believes it will obtain an appropriate return on its investment.

As of September 30, 2023 and March 31, 2023, short term content advances were $7.9 million and $3.7 million, respectively, and content advances, net of current portion were, $2.6 million and $1.4 million, respectively.

We believe our cash and cash equivalents and our credit facility, as of September 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.

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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 June 30, 2023 and 2022 (in thousands):

For the Three Months Ended June 30,

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

For the Three Months Ended September 30,

Streaming and digital

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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.

For the three months ended September 30, 2023, total revenue declined by $994 thousand, or 7%, as compared to three months ended September 30, 2022.

During this time, Streaming and Digital revenue for three months ended September 30, 2023, decreased by $0.9 million, as the Company's AVOD revenue has declined $2.1 million due to continued headwinds in the broader advertising market.

This decrease was partially offset by a $1.2 million increase in SVOD revenue as the Company continues to see the benefits from its acquisitions which have contributed value-accretive libraries, distribution platforms and technologies, such as Screambox.

The Company's $0.3 million decline in Base Distribution revenue for three months ended September 30, 2023 as compared to the three months ended September 30, 2022 was primarily driven by a decline in DVD-related sales and related physical distribution revenue.

Relative to three months ended September 30, 2022, the Company's Podcast and other revenue increased $352 thousand, driven by an increased number of campaigns during the period.

Other non-recurring revenue relating to the Company's legacy cinema equipment as its operations run-off.

Following the completion of cost recoupment and the expiration of the exhibitor master license agreements applicable to this line of revenue, equipment deployment revenue and the associated services decreased $1.8 million.

Digital system sales have also continued its anticipated decrease in the amount of $0.6 million as compared to the three months ended September 30, 2022, from $0.7 million in the second quarter of fiscal 2023 to $0.1 million in the second quarter of fiscal 2024.

These decreases were partially offset by $2.3 million of non-recurring variable consideration following the resolution of uncertainty associated with the underlying revenue related to the cinema equipment obligations, as compared to $0 variable consideration recognized in the second quarter of fiscal year 2023.

Direct Operating Expenses

For the Three Months Ended June 30,

For the Three Months Ended September 30,

Direct operating expenses

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.

The decrease in Direct Operating Expenses for the three months ended September 30, 2023 is driven by a 7% decrease in quarterly revenue, continued integration efforts with respect to the Company's acquisitions during fiscal year 2022, such as DMR and Bloody Disgusting.

Notably, the physical revenue decrease contributed to a $1.1 million decline.

Additionally, there was a reduction in the reserve for advances of $887 thousand over the comparative period as the Company's digital cinema business with studios has concluded in FY23 and the latest trends in content performance.

There was a $821 thousand decrease due to capitalized content, an estimated a $762 thousand decrease in the fiscal year 2024 Bloody Disgusting earnout based on fiscal year 2024 forecast performance, and $861thousand from the cessation of third-party SAAS related costs primarily from internalizing services and cost savings synergies.

Selling, General and Administrative Expenses

For the Three Months Ended June 30,

For the Three Months Ended September 30,

Compensation expense

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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.

Selling, general and administrative expenses for the three months ended September 30, 2023 decreased by $2.8 million.

In comparison to the three months ended September 30, 2022, compensation expenses decreased by $721 thousand due to a $705 thousand reduction in bonus accrual attributable to fiscal year 2024 performance, an increase in capitalized labor of $178 thousand, partially offset by a $186 thousand increase in severance expense.

Corporate expenses decreased by $320 thousand primarily related a reduction of $365 thousand in third-party consulting and legal fees as a result of the Company's cost saving initiatives.

Share-based compensation has decreased by $1.7 million, as a result of the US-based workforce reduction, a decline in stock price, and a relatively higher number of award tranches vesting, as well as a decrease in FY23 share-based bonuses.

Other operating expenses remained relatively consistent, period-over-period.

Depreciation and Amortization Expense

For the Three Months Ended June 30,

For the Three Months Ended September 30,

Amortization of intangible assets

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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.

Depreciation expense has continued to decrease 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.

Conversely, the Company's continued investment in intangible assets, such as Dove Family Channel and an increase in capitalized labor has increased the Company's amortization for the three months ended September 30, 2023.

Interest expense, net

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.

For the three months ended September 30, 2023, interest expense decreased by $185 thousand from $380 thousand to $195, primarily as a result of a $183 thousand decrease in deferred consideration amortization.

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

For the Six Months Ended September 30,

Streaming and digital

Base distribution

Podcast and other

Other non-recurring

Total Revenue

For the six months ended September 30, 2023, the Company's revenue declined by $1.6 million.

The decrease was driven by a $1.3 million decline in the Company's base distribution, resulting from a $1.6 million decline in physical sales, partially offset by a $0.3 million reduction in the return reserve, a $0.3 million decrease in other non-recurring revenue from the run-off of the Company's digital cinema operations, whereas in the prior year $4.0 was recognized

as a result of ongoing operations, in fiscal year 2024, $3.3 million was recognized as a result of the release of variable revenue at the conclusion of the digital cinema contracts' terms.

Streaming and digital revenue decreased as a result of a $4.5 million decline in AVOD revenue due continued headwinds in the broader advertising market in FY24, partially offset by a $2.2 million increase in SVOD revenue as the Company continues to see the benefits from its acquisitions which have contributed value-accretive libraries, distribution platforms and technologies, as well as $1.8 million from digital revenue and distribution.

These decreases were partially offset by podcast revenue, which benefited from greater demand in fiscal year 2024.

Direct Operating Expenses

For the Six Months Ended September 30,

Direct operating expenses

For the six months ended September 30, 2023, the Company's direct operation expense decreased $3.8 million.

The decrease was primarily driven by a $1.5 million dollar reduction in SAAS related costs as a result of internalizing services previously performed by third parties and cost savings synergies, $1.2 million reduction in the costs associated with the Company's physical sales and related distribution costs in line with the decline in physical revenue, a $1.1 million reduction in the provision related to advances, and a $0.8 million related to a decrease in an estimated Bloody Disgusting earnout liability based on fiscal year 2024 performance to-date.

These were partially offset by a $0.8 million dollar increase in royalty-related expenses based on the terms of the Company's contracts, and a $0.4 million increase in digital marketing expenses.

Selling, General and Administrative Expenses

For the Six Months Ended September 30,

Compensation expense

Corporate expenses

Share-based compensation

Other operating expenses

Selling, General and Administrative

During the six months ended September 30, 2023, the Company's SG&A decreased by $4.7 million.

Relative to six months ended September 30, 2022, compensation related costs primarily decreased due to a $1.5 million decrease in the Company's bonus accrued expense and an increase in capitalized labor of $0.3 million from the development of the Company's Matchpoint software.

Corporate expenses primarily decreased due to a corporate focus on reducing third-party legal and consulting costs in the amount of $1.3 million, which was partially offset by an increase in audit fees in the amount of $0.2 million.

Share-based compensation has decreased by $2.3 million, as a result of the US-based workforce reduction, a decline in stock price, and a relatively higher number of awards tranches vesting, as well as fiscal year 2023 share-based bonuses.

Other operating expenses primarily increased due to an increase in advertising barter costs in the amount of $0.3 million.

Depreciation and Amortization Expense

For the Six Months Ended September 30,

Amortization of intangible assets

Depreciation of property and equipment

Depreciation and Amortization

Adjusted EBITDA

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For the Three Months Ended

September 30,

For the Six Months Ended September 30,

Income tax expense

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Change in fair value on equity investment in Metaverse

Other expense, net

Other (income) expense, net

Net income attributable to noncontrolling interest

3 unchanged sentences

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

For the Three Months Ended

Net used in provided by operating activities

For the Six Months Ended

September 30,

Net used in operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash provided by 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.

For the six months ended September 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.

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.

In addition, we made net advances of $5.3 million for the six months ended September 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.

Cash used in investing activities was used in the expenditures towards long-live intangible assets and fixed assets.

Cash provided by financing activities pertained to the issuance of company equity, net of financing fees.

For the six months ended September 30, 2022, net cash provided by operating activities is primarily driven by a loss from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, gain on extinguishment of note payable, including other changes in working capital.

Additionally, during the six months ended September 30, 2022, the Company decreased Accounts payable, accrued expenses, and other liabilities by $5.5 million to vendors.

Cash received from virtual print fees in our legacy cinema equipment business decreased from the previous period in alignment with the decrease in eligible VPF systems.

Changes in accounts receivable from our studio customers largely impact cash flows from operating activities and vary based on the seasonality of movie release schedules by the major studios.

Other current assets, and other long term assets increased by $2.9 million.

Consistent with FY24, operating cash flows from Content & Entertainment Business 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 $1.5 million during the six months ended September 30, 2022.

Cash used in investing activities was used in the expenditures towards long-live intangible assets and fixed assets.

Cash provided by financing activities pertained to the drawdown on the Company's line of credit, offset by the payoff of notes payable.

Off-balance sheet arrangements

3 unchanged sentences

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