What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-02-14 compared with 2023-11-14 · 217 added, 385 removed, 402 unchanged (60% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current Assets

11 unchanged sentences

Other long-term assets

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities

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Commitments and contingencies (see Note 6)

Stockholders’

Stockholders’ Equity

Preferred stock, 15,000,000 shares authorized;

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20 shares authorized;

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

7 shares issued and 7 shares outstanding at December 31, 2023 and March 31, 2023.

Common Stock, $ 0.001 par value;

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.

Class A Stock:

275,000,000 shares authorized as of December 31, 2023, and March 31, 2023;

13,553,767 and 9,413,597 shares issued, with 13,265,214 and 9,347,805 shares outstanding as of December 31, 2023, and March 31, 2023, respectively.

Additional paid-in capital

Treasury stock, at cost;

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

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

Accumulated deficit

Accumulated other comprehensive loss

Total stockholders’

equity of Cineverse Corp.

Total stockholders’ equity of Cineverse Corp.

Deficit attributable to noncontrolling interest

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(In thousands, except per share data)

Three Months Ended September 30,

Six Months Ended

September 30,

Three Months Ended December 31,

Nine Months Ended

Costs and expenses

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Interest expense

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

Other income (expense), net

Net loss before income taxes

Income tax expense

Loss from equity investment in Metaverse, a related party

Employee retention tax credit

Other income (expenses), net

Net (loss) income before income taxes

Income tax benefit (expense)

Net (loss) income

Net income attributable to noncontrolling interest

Net loss attributable to controlling interests

Net (loss) income attributable to controlling interests

Preferred stock dividends

Net loss attributable to common stockholders

Net loss per share attributable to common stockholders:

Net (loss) income attributable to common stockholders

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

Weighted average shares of Common Stock outstanding:

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Cineverse Corp.

CONDENSED CONSOLIDATED STATE MENTS OF COMPREHENSIVE LOSS

CONDENSED CONSOLIDATED STATE MENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

Three Months Ended September 30,

Six Months Ended

September 30,

Other comprehensive loss:

Three Months Ended December 31,

Nine Months Ended

Net (loss) income

Other comprehensive (loss) income:

Foreign exchange translation

Comprehensive income attributable to noncontrolling interest

Comprehensive loss

Net income attributable to noncontrolling interest

Comprehensive (loss) income

See accompanying Notes to Condensed Consolidated Financial Statements

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(In thousands)

Six Months Ended

September 30,

Nine Months Ended

Cash flows from operating activities:

1 unchanged sentence

Depreciation and amortization

Allowance for prepaid advances

Provision for doubtful accounts

Changes in fair value of equity investment in Metaverse

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Change in estimated earnout consideration

Non-monetary sale of content licenses

Barter-related non-cash expenses

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Content advances

Employee retention tax credit

Accounts payable, accrued expenses, and other liabilities

4 unchanged sentences

Expenditures for long-lived assets

Sale of equity investment securities

Net cash used in investing activities

Cash flows from financing activities:

Payments of notes payable

Proceeds from line of credit, net of debt issuance costs

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(In thousands)

Six Months Ended

September 30,

Nine Months Ended

Cash interest paid

2 unchanged sentences

Noncash investing and financing activities:

Issuance of Class A common stock for payment of employee bonuses

Issuance of Class A common stock for payment of accrued employee bonuses

Treasury shares acquired for withholding taxes

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

Earnout consideration adjustment

Issuance of common stock for Board of Director compensation

See accompanying Notes to Condensed Consolidated Financial Statements

Cineverse Corp.

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Balances as of September 30, 2023

Foreign exchange translation

Stock-based compensation

Issuance of common stock for Board of Director compensation

Preferred stock dividends paid in stock

Preferred stock dividends accrued

Balances as of December 31, 2023

See accompanying Notes to Condensed Consolidated Financial Statements

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Preferred Stock

Additional Paid-In

Accumulated Other

Comprehensive

Stockholders’

Stockholders'

Balances as of March 31, 2022 (Audited)

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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 in connection employee bonuses

Issuance of Class A common stock for earnout commitment

1 unchanged sentence

Balances as of September 30, 2022

Foreign exchange translation

Stock-based compensation

Preferred stock dividends paid in 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

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Cineverse Corp.

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

refers to 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.

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(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.

We distribute products for major brands such as Hallmark, ITV, Nelvana, ZDF, Konami, NFL and Highlander, 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.

We played 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 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 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).

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.” The Company has maintained its compliance with the $ 1.00 bid price requirement for continued listing on The Nasdaq Capital Market and remains subject to a one-year “Panel Monitor” as that term is defined by Nasdaq Listing Rule 5815(d)(4)(A) through June 30, 2024.

Financial Condition and Liquidity

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 have a history of net losses, and for the nine months ended December 31, 2023, we had a net loss attributable to common stockholders in the amount of $ 6.9 million.

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

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’

As of December 31, 2023, the Company has an accumulated deficit of $ 489.3 million and negative working capital of $ 0.4 million .

Net cash used in operating activities for the nine months ended December 31, 2023 was $ 9.3 million which included $ 6.5 million of incremental investment in our content portfolio via advances or minimum guarantee payouts.

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.

The Line of Credit Facility bears interest at a rate equal to 1.5 % above the prime rate, 10.00 % as of December 31, 2023 .

As of December 31, 2023, $ 5.0 million was outstanding on the Line of Credit Facility, net of unamortized issuance costs of $ 69 thousand.

On February 9, 2024, the Company expanded the Line of Credit Facility to $ 7.5 million at the same interest rate and with the same maturity date.

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.

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 to an effective shelf registration statement, for an aggregate offering price of up to $ 30 million.

For the three months ended December 31, 2023 , the Company did no t sell any shares under this agreement.

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.

nine months ended December 31, 2023 , the Company sold 177 thousand shares for $ 1.1 million in net proceeds, respectively, after deduction of commissions and fees.

The ATM Sales Agreement has expired in accordance with its terms.

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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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.

As of December 31, 2023 and March 31, 2023, short term content advances were $ 8.5 million and $ 3.7 million, respectively, and content advances, net of current portion were, $ 3.2 million and $ 1.4 million, respectively.

We believe our cash and cash equivalents and our credit facility, as of December 31, 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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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.

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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.

The interim Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2023.

Interim results are not necessarily indicative of the results for a full year.

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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.

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 .

Segment Reporting

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Cash and Cash Equivalents

We consider all highly liquid investments with an original maturity of three months or less to be “cash equivalents.”

We maintain bank accounts with major banks, which from time to time may exceed the Federal Deposit Insurance Corporation’s insured limits.

We consider all highly liquid investments with an original maturity of three months or less to be “cash equivalents.” We maintain bank accounts with major banks, which from time to time may exceed the Federal Deposit Insurance Corporation’s insured limits.

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

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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, of which $ 0.5 million w as recognized during the six months ended September 30, 2022.

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.

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 Condensed Consolidated Statements of Operations, of which $ 2.0 million was recognized during the three months ended December 31, 2022.

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

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

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

CINEVERSE CORP.

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Supplier Agreements

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

As of September 30, 2023

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

As of December 31, 2023

Content Library

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Total Intangible Assets

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):

During the three and nine months ended December 31, 2023, the Company had amortization expense of $ 879 thousand and $ 2,381 thousand, respectively.

During the three and nine months ended December 31, 2022, the Company had amortization expense of $ 712 thousand and $ 2,193 thousand, respectively.

As of December 31, 2023, amortization expense is expected to be (in thousands):

In-process intangible assets

1 unchanged sentence

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 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.

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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 and six months ended September 30, 2023 and 2022 .

There were no impairment charges recorded for long-lived and finite-lived intangible assets during the three and nine months ended December 31, 2023 and 2022 .

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

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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.

To the extent additional information arises, market conditions change, or our strategies change, it is possible that the conclusion regarding whether our remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material effect on our consolidated financial position or results of operations.

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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 .

No goodwill impairment charge was recorded in the three and nine months ended December 31, 2023 and 2022 .

Fair Value Measurements

The fair value measurement disclosures are grouped into three levels based on valuation factors:

Level 1 –

quoted prices in active markets for identical investments

Level 2 –

other significant observable inputs (including quoted prices for similar investments and market corroborated inputs)

Level 3 –

significant unobservable inputs (including our own assumptions in determining the fair value of investments)

• Level 1 – quoted prices in active markets for identical investments

• Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs)

• Level 3 – significant unobservable inputs (including our own assumptions in determining the fair value of investments)

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

As of September 30, 2023

As of December 31, 2023

Equity investment in Metaverse, at fair value

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Current portion of earnout consideration on purchase of a business

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

The Company has an investment in A Metaverse Company ("Metaverse") (SEHK:

1616) accounted for 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

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

ownership of approximately 15 % and affiliation with the Company’s largest shareholder.

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 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.

Changes in the investment's fair value are recognized within the "Loss from equity investment in Metaverse, a related party" line item within the Condensed Consolidated Statements of Operations.

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 was categorized as a Level 3 valuation based on unobservable inputs.

As such, as of March 31, 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 with a resulting fair value was $ 5.2 million.

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.

During the quarter ended December 31, 2023, the Company sold 30 million of the 362 million shares held as of September 30, 2023, which resulted in a realized loss of $ 131 thousand during the three months ended December 31, 2023.

The resumption of active trading status represented renewed availability of quoted, unadjusted prices in active markets for identical assets, upon which the Company can execute a sale and readily access pricing information at the measurement date.

Accordingly, the Company has presented the fair value of its Metaverse shares held as of December 31, 2023 within the Level 1 grouping.

The fair value of the shares held as of December 31, 2023 was $ 1.3 million, with associated unrealized losses of $ 3.6 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 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.

During the nine months ended December 31, 2023, the Company estimated a $ 682 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 $ 392 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.

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

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.

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 $ 3.2 million and $ 1.4 million as of December 31, 2023, and March 31, 2023, respectively.

For the nine months ended December 31, 2023, the Company recorded a recovery in the provision for advances of $ 0.5 million.

CINEVERSE CORP.

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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.

Compared to March 31, 2023, the decrease in accounts payable was primarily attributable to an $ 8.3 million decrease from the run-off of the Company's digital cinema operations, and the decrease in accrued compensation and benefits was driven by a decrease of $ 1.2 million due to a reduced bonus accrual.

Deferred Consideration

The Company has recognized liabilities related to deferred consideration arrangements related to the acquisition of FoundationTV ("FTV") and Digital Media Rights ("DMR").

These payments are fixed in nature and are due to the sellers of the respective companies.

The Company initially recognized the liability at fair value at the time of acquisition and has since recognizes interest expense related to accretion in advance of the ultimate settlement of these liabilities.

Amounts due within 12 months under the terms of the agreements are classified as current within the Condensed Consolidated Balance Sheets.

The deferred consideration related to the acquisition of DMR is payable in either Class A common shares of the Company stock or cash, at the Company's discretion and subject to certain conditions.

Payments of $ 3.0 million and $ 2.4 million are due in March 2024 and March 2025, respectively.

The deferred consideration related to the FTV acquisition is payable in the amount of $ 238 thousand in each of June 2024 and December 2024, and $ 464 thousand in June 2025.

There is $ 617 thousand presently due and payable.

The Company has the right to pay up to 25 % of post-close purchase price in equity.

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.

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

Three Months Ended

September 30,

Six Months Ended

September 30,

Nine Months Ended

Streaming and digital

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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.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

As the Company satisfies its performance obligations from these revenue sources, whether relating to the delivery of digital content, physical goods, or licensing, revenue is generally measured at a point in time.

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.

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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 primarily on a specific identification basis.

We maintain reserves for expected 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.

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.

We recognize accounts receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that we recognize 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 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.

During the three and nine months ended December 31, 2023, we did no t recognize any credit losses as part of our ongoing operations or reversals of previously recorded provisions.

During the three and nine months ended December 31, 2022, we recognized credit losses of $ 7 thousand and $ 54 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 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.

The ending deferred revenue balance, including current and non-current balances as of December 31, 2023 and March 31, 2023, was and $ 0.2 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

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

3 unchanged sentences

Concentrations

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

For the three and nine months ended December 31, 2023 , one customer represen ted 26 % and 23 % of consolidated revenues, respectively.

For the three months ended December 31, 2022 , one customer represented approxima tely 16 % of consolidated revenues and another customer represented 14 % of consolidated revenues, respectively.

For the nine months ended December 31, 2022 , one customer represented 11 % of consolidated revenues.

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.

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

Stock-based Compensation

The Company issues stock-based awards to employees and non-employees, generally in the form of restricted stock, restricted stock units, stock appreciation rights ("SARs") and performance stock units ("PSUs").

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 Loss based on their fair values.

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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.

The Company’s estimates of these assumptions are primarily based on the trading price of the Company’s stock, historical data, peer company data and judgment regarding future trends and factors.

Forfeitures are recognized as they occur.

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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.

This amendment provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is “more-likely-than-not”

to be sustained were it to be challenged by a taxing authority.

The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged.

If an uncertain tax position meets the “more-likely-than-not”

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 September 30, 2023 and March 31, 2023 .

This amendment provides that the tax effects from an uncertain tax position can be recognized in the financial

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

statements only if the position is “more-likely-than-not” to be sustained were it to be challenged by a taxing authority.

The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged.

If an uncertain tax position meets the “more-likely-than-not” 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 December 31, 2023 and March 31, 2023 .

Earnings per Share

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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 September 30,

Six Months Ended

September 30,

Basic net loss per share:

Net loss attributable to common stockholders

Three Months Ended December 31,

Nine Months Ended

Basic net income (loss) per share:

Net income (loss) attributable to common stockholders

Shares used in basic computation:

Weighted-average shares of Common Stock outstanding

Basic net loss per share

Basic net income (loss) per share

Shares used in diluted computation:

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Weighted-average number of shares

Diluted net loss per share

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.

Diluted net income (loss) per share

The calculation of diluted net loss per share for the three and nine months ended December 31, 2023 does not include the impact of 798 thousand and 763 thousand anti-dilutive shares, respectively.

The calculation of diluted net loss per share for the three and nine months ended December 31, 2022 does not include the impact of 674 thousand and 640 thousand potentially anti-dilutive shares, respectively.

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 November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures." The update requires disclosure of incremental segment information, including significant segment expenses, on an annual and interim basis, and would apply to single segment companies.

The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption is permitted.

The Company is required to apply the updates retrospectively.

The Company is assessing the impact of ASU 2023-07 on its consolidated financial statements.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740)—Improvements to Income Tax Disclosures" On an annual basis, this update requires the disclosure of specific tax categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold.

The amendments are effective for annual periods beginning after December 15, 2024.

Prospective and retrospective adoption is permitted.

The Company is still evaluating its method of adoption and assessing the impact of ASU 2023-09 on the disclosures within its consolidated financial statements.

OTHER INTERESTS

Investment in CDF2 Holdings

We indirectly o wn 100 % of the common equity of CDF2 Holdings, LLC (“CDF2 Holdings”), which was created for the purpose of capitalizing on the conversion of the exhibition industry from film to digital technology.

CDF2 Holdings assists its customers in procuring the equipment necessary to convert their systems to digital technology by providing financing, equipment, installation and related ongoing services.

CDF2 Holdings is a Variable Interest Entity (“VIE”), as defined in ASC Topic 810 (“ASC 810”), Consolidation .

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

As of December 31, 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 December 31, 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 includes digital cinema servicing revenue from CDF2 Holdings in the amount of $ 0.0 for the three and nine months ended December 31, 2023, respectively, and $ 0.1 and $ 0.2 million for the three and nine months ended December 31, 2022, respectively.

Total Stockholders’ Deficit of CDF2 Holdings at December 31, 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 December 31, 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 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.

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

STOCKHOLDERS’

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

STOCKHOLDERS’ EQUITY

As of December 31, 2023 and 2022, the number of shares of Common Stock authorized for issuance was 275,000,000 shares.

During the three months ended December 31, 2023 , the Company issued 0 .5 million shares of Common Stock.

This was comprised of 74 thousand shares for preferred stock dividends, and 400 thousand shares for Board of Director compensation.

During the nine months ended December 31, 2023 , the Company issued 3.9 million shares of Common Stock.

In addition to the activity cited for three months ended December 31, 2023 , 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, 56 thousand shares for preferred stock dividends, 41 thousand to satisfy earnout-related liabilities, 2,150 thousand shares were issued through a June 16, 2023 direct offering, and 177 thousand issued in connection with ATM sales during the first fiscal quarter.

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 December 31, 2023.

During the three months ended December 31, 2022 , the Company issued 45 thousand shares.

This was comprised of 11 thousand shares for preferred stock dividends and 34 thousand shares for Board of Director compensation.

During the nine months ended December 31, 2022 , the Company issued 179 thousand shares.

In addition to the activity cited during the three months ended December 31, 2022 , this was comprised of 14 thousand shares for preferred stock dividends, 103 thousand shares for employee bonuses, and 17 thousand shares to satisfy earnout-related liabilities.

PREFERRED STOCK

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.

Cumulative dividends in arrears on Series A Preferred Stock were $ 87 th ousand and $ 88 thousand as of December 31, 2023 and 2022, respectively.

During the three and nine months ended December 31, 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 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.

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

During the nine months ended December 31, 2023 , the Company acquired 223 thousand shares of Common Stock withheld in connection with employee bonuses that the Company elected to settle in shares of Common Stock.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

EQUITY INCENTIVE PLANS

Stock Based Compensation 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).

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").

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;

1 unchanged sentence

or (iv) performance awards.

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.

1 unchanged sentence

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.

On November 1, 2017, upon the consummation of the initial equity investment in Cineverse by Bison Entertainment Investment Limited, 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.

1 unchanged sentence

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

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 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.

For the three and nine months ended December 31, 2023 , the Company incurred stock-based compensation expenses of $ 0.2 million and $ 1.1 million, respectively.

Of these amounts, $ 0.1 million and $ 0.3 million related to Board of Director compensation, respectively.

For the three and nine months ended December 31, 2022 , the Company incurred stock-based compensation expenses of $ 0.7 million and $ 3.9 million, respectively.

Of these amounts, $ 0.1 million and $ 0.3 million related to Board of Director compensation, respectively.

Share-based compensation expense is reported within Selling, General and Administrative expenses.

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 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.

The Line of Credit bears an interest rate equal to 1.5 % above the prime rate, and was 10.00 % as of December 31, 2023.

As of December 31, 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 $ 69 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.

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.

On February 9, 2024, the Company expanded the Line of Credit Facility to $ 7.5 million at the same interest rate and with the same maturity date.

During the three and nine months ended December 31, 2023, the Company had interest expense, including cash interest and amortization, of $ 0.2 million and $ 0.4 million related to its Line of Credit Facility, respectively.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

Cineverse is a virtual company with one domestic operating lease, acquired through the acquisition of 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.

1 unchanged sentence

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.

Expenses related to these leases were $ 109 thousand and $ 337 thousand during the three and nine months ended December 31, 2023 and $ 94 thousand and $ 242 thousand three and nine months ended December 31, 2022, respectively.

The Company has recognized $ 45 thousand and $ 135 thousand of income related to its subleasing arrangement during three and nine months ended December 31, 2023, respectively.

The Company recognized $ 44 thousand and $ 71 thousand of income related to its subleasing arrangement for the three and nine months ended December 31, 2022, respectively.

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

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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,

2 unchanged sentences

Less imputed interest

For leases which have a term of twelve months or less and do not contain an option to extend which the Company is reasonably certain to extend the term, the Company has elected to not apply the recognition provisions of ASC 842 and recognizes these expenses on a straight-line basis over the term of the agreement.

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

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fiscal year ending March 31,

1 unchanged sentence

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 recognized income tax (benefit) expense of approximately $( 24 ) thousand and $ 12 thousand for the three and nine months ended December 31, 2023 , respectively.

We recognized $ 0 for both the three and nine months ended December 31, 2022.

The Company's annual 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 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

The following discussion and analysis should be read in conjunction with our historical Condensed Consolidated Financial Statements and the related notes included elsewhere in this report.

This report contains forward-looking statements within the meaning of the federal securities laws.

These include statements about our expectations, beliefs, intentions or strategies for the future, which are indicated by words or phrases such as “believes,”

“anticipates,”

“expects,”

“intends,”

“plans,”

“will,”

“estimates,”

and similar words.

Forward-looking statements represent, as of the date of this report, our judgment relating to, among other things, future results of operations, growth plans, sales, capital requirements and general industry and business conditions applicable to us.

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.

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;

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.

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 reflects this change.

Financial Condition and Liquidity

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 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.

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 to an effective shelf registration statement, for an aggregate offering price of up to $30 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.

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.

Critical Accounting Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures.

We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our Condensed Consolidated Financial Statements are prepared.

On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP.

However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 2 –

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 September 30, 2023, and 2022 (in thousands):

For the Three Months Ended September 30,

Streaming and digital

Base distribution

Podcast and other

Other non-recurring

Total Revenue

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 September 30,

Direct operating expenses

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 September 30,

Compensation expense

Corporate expenses

Share-based compensation

Other operating expenses

Selling, General and Administrative

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 September 30,

Amortization of intangible assets

Depreciation of property and equipment

Depreciation and Amortization

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

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

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.

We use Adjusted EBITDA as a financial metric to measure the financial performance of the business because management believes it provides additional information with respect to the performance of its fundamental business activities.

For this reason, we believe Adjusted EBITDA will also be useful to others, including our stockholders, as a valuable financial metric.

We present Adjusted EBITDA because we believe that Adjusted EBITDA is a useful supplement to net income (loss) from continuing operations as an indicator of operating performance.

We also believe that Adjusted EBITDA is a financial measure that is useful both to management and investors when evaluating our performance and comparing our performance with that of our competitors.

We also use Adjusted EBITDA for planning purposes and to evaluate our financial performance because Adjusted EBITDA excludes certain incremental expenses or non-cash items, such as stock-based compensation charges, that we believe are not indicative of our ongoing operating performance.

We believe that Adjusted EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net income (loss) from continuing operations and Adjusted EBITDA has been provided in the financial results.

Adjusted EBITDA should not be considered as an alternative to net income (loss) from operations as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity.

In addition, Adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows.

We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP.

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 (in thousands):

For the Three Months Ended

September 30,

For the Six Months Ended September 30,

Income tax expense

Depreciation and amortization

Interest expense

Stock-based compensation

Provision for doubtful accounts

Change in fair value on equity investment in Metaverse

Other (income) expense, net

Net income attributable to noncontrolling interest

Transition-related costs

Mergers and acquisition costs

Adjusted EBITDA

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

For the Six Months Ended

September 30,

Net used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net change in cash and cash equivalents

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 $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

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

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.

Our effective tax rate was ( 0.9 %) and 0.2 % for the three and nine months ended December 31, 2023, respectively, and 0 % and 0 % for the three and nine months ended December 31, 2022 .

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