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Item 5. Market for Registrant’s Common Equity

2024-07-01 compared with 2023-06-29 · 20 added, 327 removed, 12 unchanged (97% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Common Stock trades publicly on The Nasdaq Capital Market (“Nasdaq”), under the trading symbol “CNVS”

following a rebranding announcement on May 22, 2023, when we changed our name from Cinedigm Corp.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Common Stock trades publicly on Nasdaq, under the trading symbol “CNVS” following a rebranding announcement on May 22, 2023, when we changed our name from Cinedigm Corp.

to Cineverse Corp.

Previously, the Company traded under the trading symbol "CIDM".

The following table shows the high and low sales prices per share of our Common Stock as reported by Nasdaq for the periods indicated, as effected by the Reverse Stock Split:

The following table shows the high and low sales prices per share of our Common Stock as reported by Nasdaq for the periods indicated, as adjusted for the June 2023 reverse stock split:

For the Fiscal Year Ended March 31,

April 1 –

July 1 –

October 1 –

January 1 –

April 1 – June 30

July 1 – September 30

October 1 – December 31

January 1 – March 31

The reported closing price per share of our Common Stock as reported by Nasdaq on June 17, 2024 was $0.86 per share.

6 unchanged sentences

SALES OF UNREGISTERED SECURITIES

On March 2, 2023, the Company issued 83,000 shares to Dove Family Channel, pursuant to an Asset Purchase Agreement, for a value of $898,339, to acquire the rights to certain intellectual property.

The sale of these shares of Common Stock was exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

On September 17, 2021, the Company acquired substantially all of the assets of Bloody Disgusting, LLC (“Bloody Disgusting”).

On February 29, 2024, the Company issued 84,610 shares of Common Stock as a deferred earnout payment of consideration for the acquisition, pursuant to Section 4(a)(2) of the Securities Act.

On March 25, 2022, the Company acquired substantially all of the equity of Asian Media Rights, LLC d/b/a Digital Media Rights (“DMR”).

On March 28, 2024, the Company issued 2,284,496 shares of Common Stock as a deferred earnout payment of consideration for the acquisition, pursuant to Section 4(a)(2) of the Securities Act.

PURCHASE OF EQUITY SECURITIES

There were no purchases of shares of our Common Stock made by us or on our behalf during the year ended March 31, 2023 and 2022.

On February 28, 2023, the Board of Directors of the Company approved a stock repurchase program of up to 0.5 million shares under which the Company is authorized to repurchase Class A shares from time to time in the open market during the following 12 months at its discretion.

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 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.

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

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

We distribute products for major brands such as Hallmark, Televisa, ITV, Nelvana, ZDF, Konami, and the NFL, 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, Tubi and most video-on-demand (“VOD”) and free ad-supported television (“FAST”) streaming platforms, as well as (ii) physical goods, including DVD and Blu-ray Discs.

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

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

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

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

Our Content & Entertainment segment operates in:

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

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

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

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

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

(1) return the Systems to us;

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

or (3) purchase the Systems from us at fair market value.

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

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

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

Risks and Uncertainties

Our business and prospects are exposed to numerous risks and uncertainties.

For more information, see “Item 1A.

Risk Factors”

in this report.

We have incurred net losses historically and a net loss for the year ended March 31, 2023 of $9.7 million.

As of March 31, 2023, we had an accumulated deficit of $482.4 million and negative working capital of $7.8 million.

Net cash used in operating activities for the fiscal year ended March 31, 2023 was $8.8 million.

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

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

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

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

On June 28, 2023, the Company was notified in writing by EWB that it intends to extend the maturity date of the Line of Credit Facility to September 15, 2024, subject to definitive documentation.

As of March 31, 2023, $5.0 million was outstanding on the Line of Credit Facility.

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

As of March 31, 2023, there was approximately $38.0 million available under the 2020 Shelf Registration Statement, and $37.6 million available under the Equity Line Purchase Agreement, to raise additional capital.

We believe our cash and cash equivalent balances as of March 31, 2023 and proceeds from the subsequent issuance of equity (See Note 9 - Subsequent Events ) 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.

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.

During the months of April and May 2023, a total of 177 thousand shares of Common Stock were sold under the ATM Sales Agreement for net proceeds of $1.1 million.

On June 14, 2023, under a Securities Purchase Agreement and pursuant to a prospectus supplement which was part of an effective registration statement, the Company agreed to sell in a public offering an aggregate of 2,150,000 shares of our Class A common stock, pre-funded warrants to purchase up to 516,667 shares of Class A common stock, and common warrants to purchase up to 2,666,667 shares of Class A common stock at an effective combined purchase price of $3.00 per share and related common warrant, for aggregate gross proceeds of approximately $8.0 million, before deducting placement agents fees and offering expenses payable by the Company.

The shares or pre-funded warrants and related common warrants are immediately exercisable and separable.

Each pre-funded warrant is exercisable for one share of Class A common stock.

The pre-funded warrants have a nominal exercise price of $0.001 per share, after the remainder of the full exercise cost was pre-funded to the Company at the closing of the offering and will expire when exercised in full.

The common warrants have an exercise price of $3.00 per share and expire on the five year anniversary of the date of issuance.

The closing of the offering occurred on June 16, 2023.

Our capital requirements will depend on many factors, and we may need to use capital resources and obtain additional capital.

Failure to generate additional revenues, obtain additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations and liquidity.

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

Other Borrowings

On April 15, 2020, the Company received $2.2 million from East West Bank, the Company’s existing lender, pursuant to the Paycheck Protection Program (the “PPP Loan”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The Company used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts were eligible for forgiveness, subject to the provisions of the CARES Act and could be subject to repayment.

The PPP Loan was scheduled to mature on April 10, 2022 (the “Maturity Date”), accrued interest at 1% per annum and may be prepaid in whole or in part without penalty.

No interest payments were due within the initial six months of the PPP Loan and the interest which accrued during the initial six-month period was scheduled to be due and payable, together with the principal, on the Maturity Date.

On January 5, 2021, the Company submitted its application for forgiveness and, as of June 30, 2021, obtained forgiveness for the full amount.

Critical Accounting Policies and Estimates

Our consolidated 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 consolidated 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 consolidated financial statements are prepared.

On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated 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 Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.

Management believes that the following accounting 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.

FAIR VALUE ESTIMATES

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.

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.

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.

Property and Equipment, net and Intangible Assets, net

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

Determining whether impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the asset’s residual value, if any.

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

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

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

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

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

During the years ended March 31, 2023 and 2022, an impairment charge of $0 and $2.0 million was recorded to intangible assets, respectively.

Investment in Metaverse

The stock of Metaverse, an investment of the Company, was halted from trading on the Stock Exchange of Hong Kong in April 2022.

The Company valued our equity investment in Metaverse using a market approach and is categorized as a Level 3 valuation based on unobservable inputs.

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

As of March 31, 2023, the fair value was $5.2 million, resulting in a decrease in fair value of $1.8 million for the year ended March 31, 2023.

REVENUE RECOGNITION

We determine revenue recognition by:

identifying the contract, or contracts, with the customer;

identifying the performance obligations in the contract;

determining the transaction price;

allocating the transaction price to performance obligations in the contract;

recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services.

We recognize revenue in the amount that reflects the consideration we expect to receive in exchange for the services provided, sales of physical products (DVD’s and Blu-ray Discs) or when the content is available for subscription on the digital platform or available on the point-of-sale for transactional and video on demand services which is when the control of the promised products and services is transferred to our customers and our performance obligations under the contract have been satisfied.

Revenues that might be subject to various taxes are recorded net of transaction taxes assessed by governmental authorities, such as sales value-added taxes and other similar taxes.

Payment terms and conditions vary by customer and typically provide net 30 to 90 day terms.

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

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

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

Content & Entertainment Segment

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

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

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

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

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

Revenue is recognized at the point in time when the performance obligation is satisfied, which is when the content is available for subscription on the digital platform, at the time of shipment for physical goods, or point-of-sale for transactional and VOD services as the control over the content or the physical title is transferred to the customer.

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

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

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

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

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

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

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

or alternative content’s theatrical release date.

Cinema Equipment Segment

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

We continue to pursue system sales for these remaining exhibitors.

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

Principal Agent Considerations

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

Key indicators that we use in evaluating gross versus net treatment include, but are not limited to, the following:

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

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

Shipping and Handling

Shipping and handling costs are incurred to move physical goods (e.g., DVDs and Blu-ray Discs) to customers.

We recognize all shipping and handling costs as an expense in direct operating expenses because we are responsible for delivery of the product to our customers prior to transfer of control to the customer.

Credit Losses

We maintain reserves for potential credit losses on accounts receivable.

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

Reserves are recorded primarily on a specific identification basis.

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

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.

Contract Assets and Liabilities

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

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

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

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

The ending deferred revenue balance, including current and non-current balances, as of March 31, 2023 and 2022 was $0.2 million, respectively.

For the years ended March 31, 2023 and 2022, the additions to our deferred revenue balance were primarily due to cash payments received or due in advance of satisfying performance obligations, while the reductions to our deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.

During the year ended March 31, 2023, $0.2 million revenue was recognized that was included in the deferred revenue balance at the beginning of the year.

Participations and Royalties Payable

When we use third parties to distribute company owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements.

When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers for royalties owed under licensing arrangements.

We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers.

ASSET ACQUISITIONS

An asset acquisition is an acquisition of an asset, or a group of assets, that does not meet the definition of a business as substantially all of the fair value of the gross assets acquired are concentrated in a single or group of similar, identifiable assets.

Asset acquisitions are accounted for by using the cost accumulation model whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on a relative fair value basis.

Determining the cost of an acquisition may require judgment in certain circumstances depending on the nature of the asset transferred as consideration.

BUSINESS COMBINATIONS

The Company accounts for acquisitions in accordance with FASB Accounting Standard Codification ("ASC") 805, Business Combinations (“ASC 805”), and goodwill in accordance with ASC 350, Intangibles —

Goodwill and Other (“ASC 350”).

The excess of the purchase price over the estimated fair value of net assets acquired in a business combination is recorded as goodwill.

ASC 805 specifies criteria to be used in determining whether intangible assets acquired in a business combination must be recognized and reported separately from goodwill.

Amounts assigned to goodwill and other identifiable intangible assets require judgment, which may be based on independent appraisals or internal estimates.

ASC 805 defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date the acquirer achieves control.

ASC 805 requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquirer (if any) at the acquisition date, measured at their fair values as of that date.

ASC 805 also requires the acquirer to recognize contingent consideration (if any) at the acquisition date, measured at its fair value at that date.

Results of Operations for the Fiscal Years Ended March 31, 2023 and 2022

For the Fiscal Year Ended March 31,

Content & Entertainment

Streaming and Digital

Base Distribution

Total Content & Entertainment

Cinema Equipment

Variable Consideration

Services and Deployment

Total Cinema Equipment

Total Revenue

Streaming and Digital experienced 47% growth in “FAST”

and TV-VOD revenue driven by the addition of new streaming channels related to the Digital Media Rights ("DMR") business acquisition in March 2022.

Additionally, Subscription revenue grew 47%, primarily due to the Screambox platform performance driven by strong content acquisition and the aforementioned DMR") business acquisition.

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

Revenue in Base Distribution increased by 49% for the twelve months ended March 31, 2023, compared to the twelve months ended March 31, 2022.

The increase is driven by significant growth in box office theatrical performance bolstered by the Terrifier 2 release and an increase in podcast revenue during the twelve months ended March 31, 2023.

Revenues generated by our Cinema Equipment segment decreased despite an increase of $4.3 million in Phase II variable consideration during the period that was included in the accounts payable balance as constrained variable consideration at the beginning of the year.

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

Following the recognition of this variable consideration and following the completion of cost recoupment and the expiration of the exhibitor master license agreements applicable to this segment, Cinema Equipment revenue has continued to decline in line with the business' legacy contract terms and minimal remaining dedicated segment assets.

As of March 31, 2023, approximately $1.0 remains on our Consolidated Balance Sheet in accounts payable as constrained variable consideration.

We do not expect any material revenues to be generated in the Cinema Equipment segment except for System Sales.

Direct Operating Expenses

For the Fiscal Year Ended March 31,

Cinema Equipment

Content & Entertainment

The $15.7 million increase in direct operating expenses in the twelve months ended March 31, 2023 for the Content & Entertainment segment was primarily due to higher content-related costs including licensing, royalty, participation and distribution expenses related to the continued growth in revenue noted above, coupled with a $2.9 million increase related to DVD manufacturing and fulfillment, a $1.0 million increase in platform expenses, primarily due to the DMR acquisition in March 2022.

The decrease in direct operating expenses in the twelve months ended March 31, 2023 for the Cinema Equipment segment compared to the prior period was primarily due to a decrease in property taxes as a result of system sales, as part of the decreasing overall scale of that business.

Selling, General and Administrative Expenses

For the Fiscal Year Ended March 31,

Cinema Equipment

Content & Entertainment

For the Fiscal Year Ended March 31,

Compensation expense

Corporate expenses

Share-based compensation

Other operating expenses

Selling, general and administrative expenses for the year ended March 31, 2023 increased by $7.3 million, across each business segment, primarily due to $3.4 million increase in compensation expense from the acquisitions of Fandor, DMR, and Bloody Disgusting and an increase in severance, offset by a $1.2 million decrease in bonus expense.

The increase in other operating expenses are driven by increased legal costs ($1.0 million), consulting expenses ($0.7 million) and subscription costs ($0.6 million).

Depreciation and Amortization

For the Fiscal Year Ended March 31,

Amortization of Intangible Assets

Depreciation of Property and Equipment

For the Fiscal Year Ended March 31,

Cinema Equipment

Content & Entertainment

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

Interest expense

For the Fiscal Year Ended March 31,

Cinema Equipment

Content & Entertainment

Interest expense increased by $0.9 million to $1.2 million for the twelve months ended March 31, 2023 as a result of deferred and earnout consideration accretion related to the acquisitions of Bloody Disgusting and DMR and interest expense associated with our new Line of Credit facility obtained in September 2022.

Changes in Fair Value in Metaverse

As of March 31, 2022, the value of our equity investment in Metaverse, using the readily determinable fair value method from the quoted trading price of the Stock Exchange of Hong Kong, was $7.0 million, resulting in an increase in fair value of $0.6 million for the year ended March 31, 2022.

Following the halting of trading on the Stock Exchange of Hong Kong in April 2022, the Company valued our equity investment in Metaverse using a market approach and is categorized as a Level 3 investment (See Note 2, Basis of Presentation and Summary of Significant Accounting Policies ).

As of March 31, 2023, the fair value was $5.2 million, resulting in a change in fair value of $1.8 million for the year ended March 31, 2023.

Gain on Forgiveness of PPP Loan

For the year ended March 31, 2022, we recognized a gain on extinguishment of note payable of $2.2 million for the forgiveness of PPP loan principal and interest due the approval of our PPP Loan forgiveness application by the U.S.

Small Business Administration.

This amount represents the entirety of our PPP loan and interest balance.

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 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 March 31, 2023, the tax credit receivable has been included in the Employee retention tax credit line on the Company's Condensed Consolidated Balance Sheet

Income Tax Expense

For the year ended March 31, 2023, the income tax expense of $119 thousand consisted of $107 thousand of foreign income taxes and $12 thousand of U.S.

state income taxes.

We recorded an income tax (benefit) of $(0.8) million for the year ended March 31, 2022, related to a $(0.9) million tax benefit release of the valuation allowance resulting from the acquisition of Foundation TV, offset by $0.1 million of state income taxes due to taxable income at the state level and timing differences related to fixed asset depreciation.

Adjusted EBITDA

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

The Company also presents certain adjustments to present results exclusive of its Cinema Equipment segment, to better understand the Company's anticipated recurring operations.

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 its 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 loss from continuing operations and Adjusted EBITDA has been provided in the financial results.

Adjusted EBITDA should not be considered as an alternative to income from operations or net loss from continuing 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 consolidated financial statements prepared in accordance with GAAP.

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

For the Fiscal Year Ended

Net income (loss)

Income tax (income) expense

Depreciation and amortization

Gain on forgiveness of PPP loan

Employee retention tax credit

Interest expense

(Increase) decrease in fair value of equity investment in Metaverse, a related party

Impairment of intangible assets

Other (income) expense, net

Provision (recovery) of doubtful accounts

Stock-based compensation

Net loss attributable to noncontrolling interest

Mergers and acquisitions costs

Transition-related costs

Adjusted EBITDA

Adjustments related to the Cinema Equipment segment

Depreciation and amortization

Other expense

Recovery of (provision for) doubtful accounts

Income from operations

Adjusted negative EBITDA from Content & Entertainment segment

Consolidated Adjusted EBITDA (including the results of the Cinema Equipment segment) for the year ended March 31, 2023 decreased by $10.7 million compared to the year ended March 31, 2022.

As the Company's Cinema Equipment segment contracts reach their maturity and the Company's Content & Entertainment segment comprises a greater share of its operations, management also considers Adjusted EBITDA excluding the results of the Cinema Equipment segment.

Recent Accounting Pronouncements

See Note 2 - Basis of Presentation and Summary of Significant Accounting Policies to our consolidated financial statements included herein.

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

For the Fiscal Year Ended

Net cash provided (used in) by operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net decrease in cash and cash equivalents

As of March 31, 2023 and 2022, we had cash balances of $7.2 million and $13.1 million, respectively.

For the year ended March 31, 2023, net cash used by operating activities was primarily driven by a net loss ($9.7 million), offset by non-cash expenses of stock based compensation ($4.4 million), allowance against advances, a decrease in the valuation of the Company's investment in Metaverse, and non-cash interest expense.

The Company's changes in working capital also contributed to cash used operations, highlighted by a decrease in accounts payable and accrued expenses by $18.0 million, offset by a decrease in accounts receivable by $9.9 million, due to the continued growth in streaming.

For the year ended March 31, 2022, net cash provided by operating activities was primarily driven by income 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 year ended March 31, 2022, the Company increased accounts payable by $4.1 million to vendors.

Accounts receivable increased due to acquisitions of Bloody Disgusting, Screambox and DMR during the fiscal year ended March 31, 2022.

For the year ended March 31, 2023, cash flows used in investing activities consisted of purchases of property and equipment of $0.7 million, and expenditures to acquire intangible assets of $0.6 million.

For the year ended March 31, 2022, cash flows used in investing activities consisted of purchases of property and equipment of $0.3 million, intangible assets of $0.3 million, and $11.7 million related to the purchase of businesses.

For the year ended March 31, 2023, cash flows provided by financing activities consisted of drawdowns under the line of credit of $31.0 million and corresponding repayments of $26.0 million.

Additionally, the Company paid $0.7 million in acquisition-related liabilities and $0.2 million for deferred financing fees.

For the year ended March 31, 2022, cash flows provided by financing activities consisted of payments of approximately $7.8 million in notes payable, $2.0 million in Line of Credit Facility repayments, and $12.4 million received in connection with the issuance Common Stock.

Contractual Obligations

The following table summarizes our significant contractual obligations as of March 31, 2023 (in thousands):

Contractual Obligations

Operating lease obligations

The timing of movie releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or any other quarter.

While our Content & Entertainment segment benefits from the winter holiday season, we believe the seasonality of motion picture exhibition, is becoming less pronounced as the motion picture studios are releasing movies somewhat more evenly throughout the year.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements.

In addition, as discussed further in Note 2 - Basis of Presentation and Summary of Significant Accounting Policies and Note 3 - Other Interests to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K, we hold a 100% equity interest in CDF2 Holdings, which is an unconsolidated variable interest entity (“VIE”), which wholly owns CDF2;

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

Impact of Inflation

The impact of inflation on our operations has not been significant to date.

However, there can be no assurance that a sustained high rate of inflation in the future would not have an adverse impact on our operating results.

There were no repurchases of shares of our Common Stock made by us or on our behalf during the year ended March 31, 2024 and 2023.

In connection with the settlement of the Company’s fiscal year 2023 employee bonuses, the Company paid cash for the bonus-related payroll taxes upon the surrender to the Company by the employees of 222,761 shares to the Company.

On February 29, 2024, the Board approved the renewal of the Company's stock repurchase program to purchase up to an aggregate of 500,000 shares of its outstanding Class A common stock.

Acquisitions pursuant to the stock repurchase program may be made through a combination of open market repurchases in compliance with Rule

10b-18 promulgated under the Securities Exchange Act of 1934, as amended, privately negotiated transactions, and/or other transactions at the Company’s discretion.

The stock repurchase program, which is subject to certain consents, will expire on March 1, 2025 unless otherwise modified by the Board at any time in its sole discretion.

In May 2024, the Company entered into a 10b5-1 repurchase plan with B.

Riley Securities, Inc.

and under this plan repurchased 184,495 shares for a total of $188 thousand, gross of fees in May 2024.

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-K

Item 5. Market for Registrant’s Common Equity