Item 7. Management’s Discussion and Analysis
ITEM 7. 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.
OVERVIEW
Cineverse is a premier streaming technology and entertainment company with its core business operating as (i) a portfolio of owned and operated streaming channels with enthusiast fan bases; (ii) a large-scale global aggregator and full-service distributor of feature films and television programs; and (iii) a proprietary technology software-as-a-service platform for over-the-top (“OTT”) app development and content distribution through subscription video on demand ("SVOD"), dedicated ad-supported ("AVOD"), ad-supported streaming linear ("FAST") channels, social video streaming services, and audio podcasts. Our streaming channels reach audiences in several distinct ways: direct-to-consumer, through these major application platforms, and through third party distributors of content on platforms.
The Company’s streaming technology platform, known as MatchpointTM, is a software-based streaming operating platform which provides clients with AVOD, SVOD, transactional video on demand ("TVOD") and linear capabilities, automates the distribution of content, and features a robust data analytics platform.
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.
Liquidity
We have incurred net losses historically and a net loss for the year ended March 31, 2024 of $21.8 million. As of March 31, 2024, we had an accumulated deficit of $504.2 million and net cash used in operating activities for the fiscal year ended March 31, 2024 was $10.6 million. Though we have working capital of $1.5 million, we may continue to generate net losses for the foreseeable future.
The Company is party to a Loan, Guaranty, and Security Agreement, as amended to date, with East West Bank (“EWB”) providing for a revolving line of credit (the “Line of Credit Facility”) of $7.5 million, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and such subsidiaries’ assets. The Line of Credit Facility bears interest at a rate equal to 1.5% above the prime rate, equal to 10.00% as of March 31, 2024. In June 2024, 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, 2025, subject to definitive documentation.
As of March 31, 2024, $6.4 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. Please see Note 5 - Debt for further information regarding the Company's Line of Credit Facility.
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On June 16, 2023, the Company issued and sold 2,150,000 thousand shares of Common Stock, 516,667 thousand prefunded warrants, and warrants to purchase up to 2,666,667 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 have an exercise price of $3.00 per share, were exercisable immediately and will expire five years from 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.
On April 5, 2024, Cineverse Terrifier LLC (“T3 Borrower”), a wholly-owned subsidiary of the Company entered into a Loan and Security Agreement with BondIt LLC (“T3 Lender”) and the Company, as a guarantor (the “T3 Loan Agreement”). The T3 Loan Agreement provides for a term loan with a principal amount not to exceed $3,666,000 (the “T3 Loan”), and a maturity date of April 1, 2025, unless extended for 120 days under certain conditions. The T3 Loan bears no interest until the maturity date other than an interest advance equal to $576,000 at the closing of the T3 Loan on April 5, 2024. After the principal of the T3 Loan is paid in full, T3 Lender will be entitled to receive 15% of all royalties earned by the Company on the Film under its distribution agreements for the Film until T3 Lender has received 1.75 times the full commitment amount of $3,666,000, consisting of the principal amount plus interest and fees advanced to T3 Borrower, plus any extension interest. See Note 8 - Subsequent Events for further information.
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. (“B. 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. For the twelve months ended March 31, 2024, the Company sold 176,751 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 May 3, 2024, the Company entered into a Sales Agreement (the “Sales Agreement”) with A.G.P./Alliance Global Partners and The Benchmark Company, LLC (collectively, the “Sales Agents”), pursuant to which the Company may offer and sell, from time to time, through the Sales Agents, shares of its Class A common stock, par value $0.001 per share (the “Common Stock”). Shares of Common Stock may be offered and sold for an aggregate offering price of up to $15 million. The Sales Agents’ obligations to sell shares under the Sales Agreement are subject to satisfaction of certain conditions, including the continuing effectiveness of the Registration Statement on Form S-3 (Registration No. 333-273098) (the “Registration Statement”) filed by the Company with the U.S. Securities and Exchange Commission (the “SEC”) on June 30, 2023 and declared effective by the SEC on January 25, 2024, and other customary closing conditions. The Company will pay the Sales Agents a commission of 3.00% of the aggregate gross proceeds from each sale of shares and has agreed to provide the Sales Agents with customary indemnification and contribution rights. The Company has also agreed to reimburse the Sales Agents for certain specified expenses. The Company is not obligated to sell any shares under the Sales Agreement and has not sold any shares through the date of this report.
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 March 31, 2024 and March 31, 2023, short term content advances were $9.3 million and $3.7 million, respectively, and content advances, net of current portion were, $2.6 million and $1.4 million, respectively.
Our capital requirements will depend on many factors, and we may need to use capital resources and obtain additional capital. We believe our cash and cash equivalent balances as of March 31, 2024 (See Note 8 - 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.
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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
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.
In certain reporting periods, the Company may have 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.
In the years ended March 31, 2024 and 2023, no impairment charges were recorded to intangible assets.
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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; and
• 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.
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.
For the theatrical distribution of third party feature movies and alternative content, distribution fee revenue and participation in box office receipts are recognized at the time a feature movie and alternative content are viewed. The Company may have 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.
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; and
• which party has discretion in establishing the price for the specified good or service.
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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 expected credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical credit losses, customer concentrations, customer credit worthiness, current and forecasted economic trends and changes in customer payment patterns to evaluate the adequacy of this allowance.
Contract Assets and Liabilities
We generally record a receivable related to revenue or a unbilled revenue (contract asset) when we have an unconditional right to invoice and receive payment. Unbilled revenue includes an accrued revenue, the right to which has been earned at the period end based on completed performance. 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 includes payments related to the sale of DVDs with future release dates or subscription dues paid in advance.
Deferred revenue which is short term in nature, carried a balance as of March 31, 2024 and 2023 of $0.4 million and $0.2 million, respectively. For the years ended March 31, 2024 and 2023, 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.
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.
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Results of Operations for the Fiscal Years Ended March 31, 2024 and 2023 (in thousands, except where noted below)
Revenues
For the Fiscal Year Ended March 31,
2024
2023
$ Change
% Change
Streaming and digital
$
37,312
$
40,423
$
(3,111
)
(8
)%
Base distribution
5,259
13,341
$
(8,082
)
(61
)%
Podcast and other
2,718
2,213
$
505
23
%
Other non-recurring
3,842
12,049
$
(8,207
)
(68
)%
Total Revenue
$
49,131
$
68,026
$
(18,895
)
(28
)%
For the twelve months ended March 31, 2024, the Company's revenue declined by $18.9 million. The decrease was driven by the decrease in Other non-recurring revenue, related to the run-off of the Company's legacy digital cinema business. Following the legacy business' active operations' run-off at the end of fiscal year 2023, the Company had $0.5 million of digital system sales, with the remaining $3.3 million revenue relating to the recognition of previously constrained variable consideration. The Company does not anticipate this revenue to recur at a substantial level in fiscal year 2025 and beyond.
In addition, the Company experienced a $8.1 million decline in the Company's base distribution, driven by a $3.8 million decline in theatrical revenue following fiscal year 2023's theatrical success with films such as Terrifier 2, a $3.0 million decrease in DVD and related supply chain revenue, as the Company has shifted its focus away from the physical business.
Streaming and digital revenue decreased by $3.1 million, driven by a $6.6 million decrease in AVOD from the headwinds faced in the advertising market, partially offset by a $2.7 million increase in SVOD and a $0.6 million increase from digital revenue as the Company continued to see the benefits from recent years' acquisitions, such as DMR, Fandor and Bloody Disgusting, which have contributed value-accretive libraries, distribution platforms and technologies.
Direct Operating Expenses
For the Fiscal Year Ended March 31,
2024
2023
$ Change
% Change
Direct operating expenses
$
19,131
$
36,364
$
(17,233
)
(47
)%
For the twelve months ended March 31, 2024, the Company's direct operating expenses decreased $17.2 million. The decrease was primarily driven by a $7.0 million reduction in royalties and participation expenses from lower revenue and a $2.3 million decrease in estimated OTT royalty accrual as of March 31, 2024, $3.1 million in fulfillment and manufacturing costs associated with the decline in the Company's physical distribution business, a $1.9 million decrease in the Company's costs associated with the Company's reserves against advances to partners, and a $0.6 million decrease related to the estimated Bloody Disgusting earnout liability based on fiscal year 2024 performance.
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Selling, General and Administrative Expenses
For the Fiscal Year Ended March 31,
2024
2023
$ Change
% Change
Compensation expense
17,756
$
20,190
$
(2,434
)
(12
)%
Corporate expenses
3,762
5,538
(1,777
)
(32
)%
Share-based compensation
1,439
4,807
(3,368
)
(70
)%
Other operating expenses
4,947
6,284
(1,337
)
(21
)%
Selling, General and Administrative
$
27,904
$
36,819
$
(8,915
)
(24
)%
During the twelve months ended March 31, 2024, the Company's SG&A decreased by $8.9. million relative to the twelve months ended March 31, 2023.
The decrease was primarily related to a decrease in share-based expense of $3.4 million as a result of the US-based workforce reduction, a decline in stock price, and a number of legacy awards tranches fully vesting.
Compensation expense also declined primarily due to a $2.1 million decrease in employee wage, tax, and benefit-related expenses as a result of the lower cost from a shift in employees to Cineverse Services India, and a reduction in the Company's bonus expense of $1.1 million based on fiscal year 2024 performance, partially offset by a $0.5 million increase in severance expense.
Corporate expenses declined by $1.8 million primarily decreased due to a corporate focus on reducing third-party costs due to the Company's cost-saving initiatives, including $1.1 million in consulting and service providers and legal costs in the amount of $0.9 million.
Other operating expense declined by $1.3, which includes $0.9 million from decreased legal settlement costs and $0.8 million reduction in direct marketing campaigns.
Depreciation and Amortization
For the Fiscal Year Ended March 31,
2024
2023
$ Change
% Change
Amortization of intangible assets
$
3,196
$
2,888
$
308
11
%
Depreciation of property and equipment
575
875
(300
)
(34
)%
Depreciation and Amortization
$
3,771
$
3,763
$
8
0
%
Depreciation expense decreased primarily due to the remainder of our digital cinema assets reaching the conclusion of their ten-year useful lives during the fiscal year ended March 31, 2023. Amortization expense has continued to increase as a result of the Company's shift away from the physical business to its focus on content-related spend, including $0.2 million from the amortization of capitalized content costs.
Goodwill impairment
For the twelve months ended March 31, 2024, the Company recognized an impairment on its carrying value of goodwill in the amount of $14.0 million following a sustained depressed share price for the Company's fiscal year 2024, which was deemed a triggering event. In accordance with process outlined in ASC 350, the Company first determined that its finite long-lived assets were recoverable. The impairment was quantified using a market multiple approach which utilized information from comparable businesses. The Company does not anticipate any material change to future operating cash flows as a result of the impairment recognized.
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Interest expense
Interest expense decreased by $0.2 million to $1.1 million for the twelve months ended March 31, 2024 primarily as a result of lower deferred and earnout consideration accretion related to the acquisitions of Bloody Disgusting and DMR.
Loss from equity investment in Metaverse, a related party
Following the halting of trading on The Stock Exchange of Hong Kong Limited in April 2022, the Company valued our equity investment in Metaverse as of March 31, 2023 using a market approach and categorized it 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 decrease in fair value of $1.8 million for the year ended March 31, 2023.
On November 6, 2023, Metaverse's stock resumed trading on The Stock Exchange of Hong Kong Limited. During the year ended March 31, 2024, the Company sold 220,550,005 of its original 362,307,397 million shares held as of March 31, 2023, which resulted in a realized loss of $0.3 thousand during the twelve months ended March 31, 2024. 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 March 31, 2024 within the Level 1 grouping. The fair value of the shares held as of March 31, 2024 was $0.4 million, with associated losses of $4.3 million recognized during the fiscal year ended March 31, 2024.
Employee Retention Tax Credit
The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") provided an employee retention credit that 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, 2024 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 Consolidated Balance Sheet. The Company received notification during the second quarter of fiscal year 2024 that its ERTC claim was under examination with the Internal Revenue Service ("IRS"). In April 2024, the Company received a letter from the IRS indicating that its claim had been accepted and $1.7 million was received in June 2024.
Income Tax Expense
For the year ended March 31, 2024, the Company had income tax expense of $10 thousand consisted of $35 thousand of current foreign income taxes , offset by the recognition of a $14 thousand deferred tax benefit, and a tax benefit of $11 thousand for a return to provision adjustment related to U.S. state income taxes.
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.
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
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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 loss 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 March 31,
2024
2023
Net loss
$
(21,265
)
$
(9,694
)
Add Back:
Income tax expense
10
119
Depreciation and amortization
3,771
3,763
Interest expense
1,066
1,290
Loss from equity investment in Metaverse
4,299
1,828
Provision for credit losses
—
54
Stock-based compensation
1,439
4,470
Employee retention tax credit
—
(2,475
)
Other (income) expense, net
(140
)
13
Net income attributable to noncontrolling interest
(142
)
(39
)
Goodwill impairment
14,025
—
Transition-related costs
1,335
541
Mergers and acquisition costs
—
207
Adjusted EBITDA
$
4,398
$
76
Recent Accounting Pronouncements
See Note 2 - Basis of Presentation and Summary of Significant Accounting Policies to our consolidated financial statements included herein.
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Cash Flow
Changes in our cash flows were as follows (in thousands):
For the Fiscal Year Ended
March 31,
2024
2023
Net cash used in operating activities
(10,593
)
$
(8,797
)
Net cash used in investing activities
(531
)
(1,271
)
Net cash provided by financing activities
9,138
4,158
Net change in cash and cash equivalents
$
(1,985
)
$
(5,910
)
As of March 31, 2024 and 2023, we had cash balances of $5.2 million and $7.2 million, respectively.
For the year ended March 31, 2024, the change in net cash used in operating activities was primarily driven by a net loss of $21.3 million and decreases from the Company's operating assets and liabilities ($11.5 million), offset by the non-cash goodwill impairment charge of $14.0 million, depreciation and amortization of $3.8 million, and the non-cash change in the valuation of the Company's investment in Metaverse which is recognized in earnings ($4.3 million).
Cash flows used in investing activities of $0.5 million were driven by the acquisition of long-lived fixed and intangible assets, partially offset by cash received from the sale of Company shares in Metaverse.
Cash flows provided by financing activities were driven by issuance of the Company's Class A common stock in the first quarter of fiscal year 2024 ($8.5 million) and a net increase of $1.4 million funds, following the Company's expansion of its revolving line of credit from $5.0 million to $7.5 million in February 2024.
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.
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.
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.
Contractual Obligations
The following table summarizes our significant recognized contractual obligations as of March 31, 2024 (in thousands):
Payments Due
Contractual Obligations
Total
2025
2026
2027
2028
2029
Thereafter
Operating lease obligations
$
905
$
423
$
200
$
210
$
72
$
—
$
—
In addition, the Company presents its unrecognized commitments to content partners in the notes to the Financial Statements, Note 6 - Commitments and Contingencies.
Seasonality
The timing of movie and streaming content 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 business benefits from the winter holiday season, we believe the seasonality of the movie and streaming landscape,
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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.
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