Cineverse Corp. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Cineverse Corp. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID# 274 ) F- 1 Consolidated Balance Sheets at March 31, 2024 and 2023 F- 3 Consolidated Statements of Operations for the fiscal years ended March 31, 2024 and 2023 F- 4 Consolidated Statements of Comprehensive Loss for the fiscal years ended March 31, 2024 and 2023 F- 5 Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2024 and 2023 F- 6 Consolidated Statements of Equity for the fiscal years ended March 31, 2024 and 2023 F- 9 Notes to Consolidated Financial Statements F- 10 27 REP ORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Cineverse Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Cineverse Corp. (the “Company”) as of March 31, 2024 and 2023, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2024 and 2023, and the consolidated results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Goodwill Impairment Assessment As discussed in Note 2, the Company performs goodwill impairment testing on an annual basis on March 31 at the end of its fiscal year or when events occur or circumstances change that would indicate the carrying value exceeds the F- 1 fair value. An impairment loss is recognized when the carrying amount of a reporting unit’s net assets exceeds the estimated fair value of the reporting unit. These estimates are subject to significant management judgment, including the determination of many factors such as, but not limited to, selection of the appropriate valuation model in estimating the fair value and selection of guideline peer public companies. Changes in these estimates can have a significant impact on the determination of cash flows and the resulting fair values. During the fourth quarter of the year ended March 31, 2024, the Company determined that the Company’s declining stock price was a triggering event which required a quantitative evaluation of goodwill at March 31, 2024. As part of their quantitative assessment, the fair value was determined using a market approach. Based on the impairment test performed, the Company recorded a $14.0 million impairment charge. We identified the goodwill impairment assessment as a critical audit matter because of the significant management judgment and subjectivity in developing the fair value measurement of the reporting unit. This required a high degree of auditor judgment and an increase in audit effort to perform procedures and evaluate audit evidence related to the consideration of the valuation model selected by management, the consideration of the reasonableness of the guideline peer public companies selected and consideration of the market capitalization of the Company in relation to the estimated fair value. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) obtaining an understanding of management’s process and evaluating the design of controls related to the goodwill impairment assessment; (ii) testing management’s process for developing the fair value estimate; (iii) evaluating the appropriateness of the valuation model used in management’s estimate; (iv) testing the completeness, accuracy, and evaluating the reconciliation of estimated fair value to the Company’s stock price in relation to relevant transactions. We involved valuation professionals with specialized skills and knowledge when performing audit procedures to evaluate the reasonableness of Management’s estimates and assumptions related to the selection the appropriate valuation model and reconciliation of fair value to the Company’s stock price. /s/EISNERAMPER LLP We have served as the Company’s auditor since 2004. EISNERAMPER LLP Iselin, New Jersey July 1, 2024 F- 2 Cineverse Corp. CONSOLIDATED BALANCE SHEETS (In thousands, except for share and per share data) March 31, 2024 2023 ASSETS Current Assets Cash and cash equivalents $ 5,167 $ 7,152 Accounts receivable, net of allowance for credit losses of $ 269 and $ 0 , respectively 8,667 20,846 Unbilled revenue 6,439 2,036 Employee retention tax credit 1,671 2,085 Content advances 9,345 3,724 Other current assets 1,432 1,734 Total current assets 32,721 37,577 Equity investment in Metaverse, a related party, at fair value 362 5,200 Property and equipment, net 2,276 1,833 Intangible assets, net 18,328 19,868 Goodwill 6,799 20,824 Content advances, net of current portion 2,551 1,421 Other long-term assets 1,341 1,265 Total Assets $ 64,378 $ 87,988 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable and accrued expenses $ 20,817 $ 34,531 Line of credit, including unamortized debt issuance costs of $ 81 and $ 76 , respectively 6,301 4,924 Current portion of deferred consideration on purchase of business 3,114 3,788 Earnout consideration on purchase of business 180 1,444 Current portion of operating lease liabilities 401 418 Deferred revenue 436 226 Total current liabilities 31,249 45,331 Deferred consideration on purchase of business, net of current portion 457 2,647 Operating lease liabilities, net of current portion 462 863 Other long-term liabilities 59 74 Total Liabilities 32,227 48,915 Commitments and contingencies (see Note 6) Stockholders’ Equity Preferred stock, 15,000,000 shares authorized; Series A 10 % - $ 0.001 par value per share; 20 shares authorized; 7 shares issued and 7 shares outstanding at March 31, 2024 and March 31, 2023. Liquidation preference of $ 3,648 . 3,559 3,559 Common Stock, $ 0.001 par value; Class A Stock: 275,000,000 shares authorized as of March 31, 2024, and March 31, 2023; 15,985,620 and 9,413,597 shares issued, with 15,699,135 and 9,347,805 shares outstanding as of March 31, 2024, and March 31, 2023, respectively. 194 185 Additional paid-in capital 545,996 530,998 Treasury stock, at cost; 288,554 and 65,792 shares at March 31, 2024 and March 31, 2023, respectively. ( 11,978 ) ( 11,608 ) Accumulated deficit ( 504,153 ) ( 482,395 ) Accumulated other comprehensive loss ( 345 ) ( 402 ) Total stockholders’ equity of Cineverse Corp. 33,273 40,337 Deficit attributable to noncontrolling interest ( 1,122 ) ( 1,264 ) Total equity 32,151 39,073 Total Liabilities and Equity $ 64,378 $ 87,988 See accompanying Notes to Consolidated Financial Statements F- 3 Cineverse Corp. CONSOLIDATED STATEMEN TS OF OPERATIONS (In thousands, except for per share data) For the Fiscal Year Ended March 31, 2024 2023 Revenues $ 49,131 $ 68,026 Costs and expenses Direct operating 19,131 36,364 Selling, general and administrative 27,904 36,819 Depreciation and amortization 3,771 3,763 Goodwill impairment 14,025 — Total operating expenses 64,831 76,946 Operating loss ( 15,700 ) ( 8,920 ) Interest expense ( 1,066 ) ( 1,290 ) Loss from equity investment in Metaverse, a related party ( 4,299 ) ( 1,828 ) Employee retention tax credit — 2,475 Other expenses, net ( 190 ) ( 13 ) Net loss before income taxes ( 21,255 ) ( 9,575 ) Income tax expense ( 10 ) ( 119 ) Net loss ( 21,265 ) ( 9,694 ) Net income attributable to noncontrolling interest ( 142 ) ( 39 ) Net loss attributable to controlling interests ( 21,407 ) ( 9,734 ) Preferred stock dividends ( 350 ) ( 351 ) Net loss attributable to common stockholders $ ( 21,757 ) $ ( 10,085 ) Net loss per share attributable to common stockholders: Basic $ ( 1.78 ) $ ( 1.13 ) Diluted $ ( 1.78 ) $ ( 1.13 ) Weighted average shares of Common Stock outstanding: Basic 12,253 8,889 Diluted 12,253 8,889 See accompanying Notes to Consolidated Financial Statements F- 4 Cineverse Corp. CONSOLIDATED STATEMENTS OF COMPREH ENSIVE LOSS (In thousands) For the Fiscal Year Ended March 31, 2024 2023 Net loss $ ( 21,265 ) $ ( 9,694 ) Other comprehensive loss: Foreign exchange translation 57 ( 239 ) Net income attributable to noncontrolling interest ( 142 ) ( 39 ) Comprehensive loss $ ( 21,350 ) $ ( 9,973 ) See accompanying Notes to Consolidated Financial Statements F- 5 Cineverse Corp. CONSOLIDATED STATEMENTS OF CAS H FLOWS (In thousands) For the Fiscal Year Ended March 31, 2024 2023 Cash flows from operating activities: Net loss $ ( 21,265 ) $ ( 9,694 ) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 3,771 3,829 Impairment of goodwill 14,025 — Changes in fair value of equity investment in Metaverse 4,299 1,828 Amortization of debt issuance costs 188 101 Stock-based compensation 1,439 4,470 Change in estimated earnout consideration ( 612 ) 80 Interest expense for deferred consideration and earnouts 503 986 Capitalized content expenditures ( 1,822 ) — Stock-based bonus to acquired company 100 — Revenue recognized under nonmonetary purchase and exchange of content — ( 1,022 ) Barter-related non-cash expenses 341 — Other ( 16 ) 130 Changes in operating assets and liabilities: Accounts receivable 11,969 9,943 Content advances ( 5,621 ) 1,075 Unbilled revenue ( 4,403 ) 313 Other current and long-term assets ( 942 ) ( 2,816 ) Accounts payable and accrued expenses ( 12,756 ) ( 18,049 ) Deferred revenue 210 30 Net cash used in operating activities $ ( 10,593 ) $ ( 8,796 ) Cash flows from investing activities: Purchases of property and equipment ( 1,069 ) ( 1,271 ) Sale of investment securities 538 — Net cash used in investing activities $ ( 531 ) $ ( 1,271 ) Cash flows from financing activities: Proceeds from line of credit 43,955 31,046 Payments on line of credit ( 42,572 ) ( 26,046 ) Payment of business acquisition related liabilities ( 576 ) ( 665 ) Financing fees for line of credit ( 193 ) ( 177 ) Issuance of Class A common stock, net of issuance costs 8,524 — Net cash provided by financing activities $ 9,138 $ 4,158 Net change in cash and cash equivalents ( 1,985 ) ( 5,910 ) Cash and cash equivalents at beginning of year 7,152 13,062 Cash and cash equivalents at end of year $ 5,167 $ 7,152 See accompanying Notes to Consolidated Financial Statements F- 6 Cineverse Corp. SUPPLEMENTAL CASH FLOW INFORMATION AND DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY (In thousands) For the Fiscal Year Ended March 31, 2024 2023 Cash interest paid $ 376 $ 203 Lease liability related payments $ 446 $ 373 Income taxes paid $ 55 $ 98 Noncash investing and financing activities: Issuance of Class A common stock for payment of accrued employee bonuses $ 1,203 $ — Accrued dividends on preferred stock $ 89 $ 87 Issuance of Class A common stock for intangible asset purchase $ — $ 898 Right of use assets recognized underlying lease arrangements $ — $ 781 Treasury shares acquired for withholding taxes $ 370 $ 5 Deferred consideration settled in stock $ 3,000 $ 3,000 Earnout liability settled in stock $ 392 $ 238 Issuance of Class A common stock for payment of accrued preferred stock dividends $ 350 $ 351 See accompanying Notes to Consolidated Financial Statements F- 7 Cineverse Corp. CONSOLIDATED STATEMENTS OF EQUITY (In thousands) Preferred Stock Common Stock Treasury Additional Paid-In Accumulated Accumulated Other Comprehensive Total Stockholders' Non Controlling Shares Amount Shares Amount Shares Amount Capital Deficit Loss Equity Interest Total Balances as of March 31, 2023 1 $ 3,559 9,348 $ 185 66 $ ( 11,608 ) $ 530,998 $ ( 482,395 ) $ ( 402 ) $ 40,337 $ ( 1,264 ) $ 39,073 Foreign exchange translation — — — — — — — — 57 57 — 57 Stock-based compensation — — — — — — 1,271 — — 1,271 — 1,271 Preferred stock dividends paid with common stock — — 196 0 — — 350 — — 350 — 350 Preferred stock dividends accrued — — — — — — — ( 350 ) — ( 350 ) — ( 350 ) Issuance of common stock for Board of Director compensation — — 400 — — — 168 — — 168 — 168 Issuance of Class A common stock in connection with ATM raises, net — — 177 3 — — 1,080 — — 1,084 — 1,084 Issuance of Class A common stock in connection with direct equity offering — — 2,150 2 — — 7,437 — — 7,439 — 7,439 Issuance of Class A common stock in connection employee bonuses — — 725 1 — — 1,203 — — 1,203 — 1,203 Issuance in connection with the exercise of warrants — — 517 — — — — — — - — — Issuance of Class A common stock for earnout commitment — — 41 — — — 392 — — 392 — 392 Treasury stock in connection with taxes withheld from employees — — ( 223 ) — 223 ( 370 ) — — — ( 370 ) — ( 370 ) Issuance of common stock for deferred and earnout consideration — — 2,369 3 — — 3,097 — — 3,100 — 3,100 Net loss (income) — — — — — — — ( 21,407 ) — ( 21,407 ) 142 ( 21,265 ) Balances as of March 31, 2024 1 $ 3,559 15,699 $ 194 289 $ ( 11,978 ) $ 545,996 $ ( 504,153 ) $ ( 345 ) $ 33,273 $ ( 1,122 ) $ 32,151 See accompanying Notes to Consolidated Financial Statements F- 8 Cineverse Corp. CONSOLIDATED STATEM ENTS OF EQUITY (In thousands) Series A Preferred Stock Class A Common Stock Treasury Stock Additional Paid-In Accumulated Accumulated Other Total Stockholders’ Equity Non- Controlling Total Shares Amount Shares Amount Shares Amount Capital Deficit Comprehensive Loss (Deficit) Interest Equity Balances as of March 31, 2022 1 $ 3,559 8,766 $ 174 66 $ ( 11,608 ) $ 522,601 $ ( 472,310 ) $ ( 163 ) $ 42,253 $ ( 1,303 ) 40,950 Foreign exchange translation — — — — — — — — ( 239 ) ( 239 ) — ( 239 ) Stock-based compensation — — — — — — 3,045 — — 3,045 — 3,045 Preferred stock dividends paid with common stock — — 37 — — — 351 — — 351 — 351 Preferred stock dividends accrued — — — — — — — ( 351 ) — ( 351 ) — ( 351 ) Issuance of common stock for with PSUs and incentives, net of payroll taxes — — 103 2 — — 871 — — 873 — 873 Issuance of common stock for earnout commitment — — 17 — — — 238 — — 238 — 238 Issuance of common stock for Board of Director compensation — — 34 1 — — — — — 1 — 1 Issuance of common stock for acquisition — — 391 8 — — 3,892 — — 3,900 — 3,900 Net loss (income) — — — — — — — ( 9,734 ) — ( 9,734 ) 39 ( 9,694 ) Balances as of March 31, 2023 1 $ 3,559 9,348 $ 185 66 $ ( 11,608 ) $ 530,998 $ ( 482,395 ) $ ( 402 ) $ 40,337 $ ( 1,264 ) 39,073 See accompanying Notes to Consolidated Financial Statements F- 9 Cineverse Corp. NOTE S TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND LIQUIDITY Cineverse Corp. (“Cineverse”, “us”, "we", “our”, and “Company” refers to Cineverse Corp. and its subsidiaries unless the context otherwise requires) was incorporated in Delaware on March 31, 2000. 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. Financial Condition and Liquidity As of March 31, 2024, the Company has an accumulated deficit of $ 504.2 million . For the year ended March 31, 2024, the Company had a net loss attributable to common shareholders of $ 21.8 million . Though the Company had positive working capital of $ 1.5 million, net cash used in operating activities for the year ended March 31, 2024 was $ 10.6 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. For the year ended March 31, 2024, the Company was out of compliance with its covenants, and received a waiver in June 2024. 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. 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation The accompanying consolidated financial statements of Cineverse Corp. have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). These consolidated financial Statements have been prepared by the Company following the rules and regulations of the SEC. All intercompany transactions and balances have been eliminated in consolidation. Certain columns and rows may not add due to rounded numbers. We own an 85 % interest in CON TV, LLC ("CONtv"), a worldwide digital network that creates original content, and sells and distributes on-demand digital content on the internet and other consumer digital distribution platforms, F- 10 such as gaming consoles, set-top boxes, handsets, and tablets. We evaluated the investment under the voting interest entity model and determined that the entity should be consolidated as we have a controlling financial interest in the entity through our ownership of outstanding voting shares, and that other equity holders do not have substantive voting, participating or liquidation rights. We record net income or loss attributable to noncontrolling interest in our Consolidated Statements of Operations equal to the proportionate share of outstanding profit interest units retained by the noncontrolling interests. We indirectly own 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 Accounting Standards Codification ("ASC") 810, Consolidation ("ASC 810") . 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. To be a primary beneficiary, an entity must have the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, among other factors. Although we indirectly, wholly own CDF2 Holdings, we, a third party that also has a variable interest in CDF2 Holdings, and an independent third party manager must mutually approve all business activities and transactions that significantly impact CDF2 Holdings’ economic performance. We have therefore assessed our variable interests in CDF2 Holdings and determined that we are not the primary beneficiary of CDF2 Holdings. As a result, CDF2 Holdings’ financial position and results of operations are not consolidated in our financial position and results of operations. In completing our assessment, we identified the activities that we consider most significant to the economic performance of CDF2 Holdings and determined that we do not have the power to direct those activities, and therefore we account for our investment in CDF2 Holdings under the equity method of accounting. Use of Estimates The preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include revenue recognition, share-based compensation expense, valuation allowance for deferred income taxes, recovery of content advances, goodwill and intangible asset impairments, estimated royalties payable to content partners, and the assessment of amortization lives to intangible assets. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On a regular basis, the Company evaluates the assumptions, judgments and estimates. Actual results may differ from these estimates. Reclassifications Certain amounts have been reclassified to conform to the current presentation. 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 periodically assess the financial condition of the institutions and believe that the risk of any loss is minimal. Non-monetary Transactions During the year ended March 31, 2023, the Company entered into a non-monetary transaction for the purchase and sale of content licenses with an unrelated third party. The fair value of the content was based on a market approach and determined to be $ 1.0 million which is included in Revenues in our Consolidated Statements of Operations. No gain or loss was recognized, as the fair value of the content licenses purchased was determined to be $ 1.0 million and recognized within Intangible Assets, Net on our Consolidated Balance Sheets, and will be amortized over its F- 11 three year estimated life. For the years ended March 31, 2024 and March 31, 2023, $ 341 thousand and $ 85 thousand of related amortization expense had been recognized, respectively. Accounts Receivable, Net 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. During the year ended March 31, 2024, the Company had no write-offs of previously reserved accounts receivable and as of March 31, 2024, accrued an allowance for expected credit losses of $ 0.3 million. During the year ended March 31, 2023, the Company had written off $ 2.8 million of previously reserved accounts receivable balances and as of March 31, 2023, carried an allowance for credit losses of $ 0 . 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, 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 ("ERTC") 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. Content Advances Content advances represents amounts prepaid to studios or content producers for which we provide content distribution services. We evaluate advances regularly for recoverability and record a provision for amounts that we expect may not be recoverable. Amounts which are expected to be recovered within 12 months are classified as current, which were $ 9.3 million and $ 3.7 million as of March 31, 2024, and March 31, 2023, respectively. Amounts estimated to be recoverable 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 March 31, 2024, and March 31, 2023, respectively. For the twelve months ended March 31, 2024 and March 31, 2023, the Company recorded a recovery and increase in the provision for advances of $ 0.5 million and $ 1.3 million, respectively. Property and Equipment, Net Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation expense is recorded using the straight-line method over the estimated useful lives of the respective assets, with useful life ranges by major asset class as follows: Computer equipment and software 3 - 5 years Internal use software 3 - 5 years Machinery and equipment 3 - 10 years Furniture and fixtures 2 - 7 years F- 12 We capitalize costs associated with software developed or obtained for internal use when the preliminary project stage is completed, and it is determined that the software will provide significantly enhanced capabilities and modifications. These capitalized costs are included in property and equipment and include external direct cost of services procured in developing or obtaining internal-use software and personnel and related expenses for employees who are directly associated with, and who devote time to internal-use software projects. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended use. Once the software is ready for its intended use, the costs are amortized over the useful life of the software on a straight-line basis. Post-configuration training and maintenance costs are expensed as incurred. Intangible Assets, Net Intangible assets are stated at cost less accumulated amortization. For intangible assets that have finite lives, the assets are amortized using the straight-line method over the estimated useful lives of the related assets. During both of the years ended March 31, 2024 and 2023 , we did no t record any impairment. Amortization expense is recorded using the straight-line method over the estimated useful lives of the respective assets as follows: Content Library 3 – 20 years Trademarks and Tradenames 2 – 15 years Customer Relationships 5 – 13 years Advertiser Relationships and Channel 2 – 13 years Software 10 years Capitalized Content 3 years Supplier Agreements 2 years The Company’s intangible assets include the following (in thousands): As of March 31, 2024 Cost Basis Accumulated Amortization Net Content Library $ 24,133 $ ( 21,492 ) $ 2,641 Advertiser Relationships and Channel 12,603 ( 2,541 ) 10,062 Customer Relationships 8,690 ( 7,872 ) 818 Software 3,200 ( 880 ) 2,320 Trademark and Tradenames 3,914 ( 3,059 ) 855 Capitalized Content 1,822 ( 190 ) 1,632 Total Intangible Assets $ 54,362 $ ( 36,034 ) $ 18,328 As of March 31, 2023 Cost Basis Accumulated Amortization Net Content Library $ 23,970 $ ( 21,126 ) $ 2,844 Advertiser Relationships and Channel 12,604 ( 1,062 ) 11,542 Supplier Agreements 11,430 ( 11,430 ) — Customer Relationships 10,658 ( 9,568 ) 1,090 Trademark and Tradenames 4,026 ( 2,274 ) 1,752 Software 3,200 ( 560 ) 2,640 Total Intangible Assets $ 65,888 $ ( 46,020 ) $ 19,868 F- 13 As of March 31, 2024, amortization expense for each of the successive five years is expected to be (in thousands): Total In-process intangible assets 448 2025 3,186 2026 3,006 2027 2,225 2028 1,356 2029 1,356 Thereafter 6,751 Total $ 18,328 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 Consolidated Statements of Operations. Impairment of Long-lived and Finite-lived Intangible Assets We review the recoverability of our long-lived assets and finite-lived intangible assets, when events or conditions occur that indicate a possible impairment exists. The assessment for recoverability is based primarily on our ability to recover the carrying value of our long-lived and finite-lived assets from expected future undiscounted net cash flows. If the total of expected future undiscounted net cash flows is less than the total carrying value of the asset, the asset is deemed not to be recoverable and possibly impaired. We then estimate the fair value of the asset to determine whether an impairment loss should be recognized. An impairment loss will be recognized if the asset’s fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted cash flows. There were no impairment charges recorded for long-lived and finite-lived intangible assets during the twelve months ende d March 31, 2024 and 2023 . 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. 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. For the twelve months ended March 31, 2024, the Company recognized a goodwill impairment loss of $ 14.0 million. The Company considered the sustained decrease in its share price to be a goodwill impairment indicator and determined that it would be appropriate to proceed with a quantitative test. Primarily utilizing a market-multiple approach, which took into account the sustained decrease in share price, the Company determined that goodwill impairment of $ 14.0 million would be recognized. F- 14 For the twelve months ended March 31, 2023, the Company assessed goodwill impairment on its annual measurement date of March 31, 2023 by performing a qualitative analysis and determined that it was not more likely than not that the fair value of its reporting unit was greater than its carrying amount. During the year ended March 31, 2023, the Company recorded a purchase price adjustment to reduce Goodwill by $ 260 thousand. No goodwill impairment charge was recorded for the twelve months ended March 31, 2023 . Fair Value Measurements The authoritative guidance on fair value measurements establishes a framework with respect to measuring assets and liabilities at fair value on a recurring basis and non-recurring basis, within ASC 820, Fair Value Measurement . Under the framework, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as of the measurement date. The framework also establishes a three-tier hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability and are developed based on the best information available in the circumstances. The hierarchy consists of the following three levels: • 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 March 31, 2024 Level 1 Level 2 Level 3 Total Assets: Equity investment in Metaverse, at fair value $ 362 $ — $ — $ 362 $ 362 $ — $ — $ 362 Liabilities: Earnout consideration on purchase of a business $ — $ — $ 180 $ 180 $ — $ — $ 180 $ 180 As of March 31, 2023 Level 1 Level 2 Level 3 Total Assets: Equity investment in Metaverse, at fair value $ — $ — $ 5,200 $ 5,200 $ — $ — $ 5,200 $ 5,200 Liabilities: Earnout consideration on purchase of a business $ — $ — $ 1,444 $ 1,444 $ — $ — $ 1,444 $ 1,444 F- 15 Equity Investment in Metaverse On February 14, 2020, the Company acquired an approximate 11.5 % interest in A Metaverse Company (“Metaverse”), a publicly traded Chinese entertainment company, formerly Starrise Media Holdings Limited, whose ordinary shares are listed on the Stock Exchange of Hong Kong. The Company acquired such interest as a strategic investment and in a private transaction from a shareholder of Metaverse that is related to our major shareholders. Our major shareholders also maintain a significant beneficial interest ownership in Metaverse. On April 10, 2020, the Company purchased an additional 15 % interest in Metaverse in a private transaction from shareholders of Metaverse that are affiliated with the major shareholder of the Company. The Company recorded an additional equity investment of approximately $ 28.2 million, which was the fair market value of the Metaverse shares on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Company’s common stock of $ 11.0 million, valued at the date of the issuance of the Common Stock of the Company. The difference in the value of shares received in Metaverse and shares issued by the Company was deemed as contributed capital and recorded in additional paid-in capital. This transaction was also recorded as an equity investment in Metaverse. The Company accounted for this investment under the equity method of accounting as the Company was deemed to be able to exert significant influence over Metaverse with its direct ownership and affiliation with the Company’s majority shareholders. At the time, the Company made an irrevocable election to apply the fair value option under ASC 825-10, Financial Instruments , as it relates to its equity investment in Metaverse. Following the halting of Metaverse stock 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 at the time and then 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. 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 221 million of its original 362 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. As a result of the decrease in ownership of its investment in Metaverse from its sale of shares, along with a corresponding decrease in influence, the Company no longer accounts for its investment in Metaverse under the equity method and instead will follow the guidance for equity securities for which the equity method is no longer appropriate under ASC 321, Investments - Equity Securities, and accordingly, the Company will continue to measure its investment at fair value, with changes in the value of securities held to be recognized in earnings. Earnout consideration on purchase of business The Company estimated the fair value of its earnout liability using contractual inputs from the related business combination, which established specific fiscal year revenue growth, profitability and EBITDA targets. Prior to the completion of the earnout period at the end of fiscal year 2024, the Company utilized the most up to date forecast to estimate the outcome against these targets to determine the ultimate estimated payout. The amounts recognized are not discounted. During the fiscal year ended March 31, 2024, the final year of the earnout measurement period, the Company estimated a $ 612 thousand decrease in its earnout liability, issued $ 392 thousand worth of equity to settle its liability, made cash payments of $ 291 thousand, and incurred interest of $ 29 thousand. F- 16 During the fiscal year ended March 31, 2023, the Company increased the estimated earnout liability by $ 80 thousand and made payments of $ 238 thousand to reduce this liability, partially offset by $ 83 thousand of interest accrued. Our cash and cash equivalents, accounts receivable, unbilled revenue and accounts payable and accrued expenses are financial instruments and are recorded at cost in the consolidated balance sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature. 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. 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 the basis of relative fair values. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consisted of the following (in thousands): As of March 31, 2024 March 31, 2023 Accounts payable $ 5,804 $ 15,042 Amounts due to producers 9,889 13,114 Accrued compensation and benefits 1,119 2,532 Accrued other expenses 4,005 3,843 Total accounts payable and accrued expenses $ 20,817 $ 34,531 As of March 31, 2024, the Company's accrued royalty estimate decreased by $ 2.3 million , which contributed to a decrease in Amounts due to producers relative to March 31, 2023. 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 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 condit ions. Payments of $ 2.4 million are due in March 2025. 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 $ 475 thousand presently due and payable. The Company has the right to pay up to 25 % of post-close purchase price in equity. F- 17 Disaggregation of Revenue The following table presents the Company’s revenue by source (in thousands): Year Ended March 31, 2024 2023 Streaming and digital $ 37,312 $ 40,423 Base distribution 5,259 13,341 Podcast and other 2,718 2,213 Other non-recurring 3,842 12,049 Total revenue $ 49,131 $ 68,026 Streaming and digital revenue represents advertising and subscription fees earned through the operation of the Company's owned and managed channels. Certain revenue recognition estimates may be required for this source at the end of a reporting period when we are not contractually entitled to receive final performance reporting from our partners for an extended period of time. Base distribution revenue is generated by the Company's physical revenue streams such as DVD's and related supply chain revenue, as well as theatrical revenue. Other non-recurring revenue represents remaining system sales and the release of previously constrained variable consideration, following the run-off of the Company's legacy digital cinema business at the conclusion of fiscal year 2023. The Company also has contracts 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. Podcast and other revenue represents advertising fees earned in support of the Company's podcast programming. 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. Revenue Recognition Fees for the distribution of content in the home entertainment markets via several distribution channels, including digital, video on demand (“VOD” or "Streaming and Digital”), and physical goods (e.g., DVDs and Blu-ray Discs) (“Base Distribution”). Fees earned are typically a percentage of the net amounts received from our customers. Depending upon the nature of the agreements with the platform and content providers, the fee rate that we earn varies. The Company’s performance obligations include the delivery of content for transactional, subscription and ad supported/free ad-supported streaming TV (“FAST”) on the digital platforms, and shipment of DVDs and Blu-ray Discs. Revenue is recognized at the point in time when the content is available for subscription on the digital platform (the Company’s digital content is considered functional IP), at the time of shipment for physical goods, or point-of-sale for transactional and VOD services as the control over the content or the physical title is transferred to the customer. The Company considers the delivery of content through various distribution channels to be a single performance obligation. Base Distribution Revenue from the sale of physical goods is recognized after deducting the reserves for sales returns and other allowances, which are accounted for as variable consideration. 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. We 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. 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. As the Company satisfies its performance obligations, whether relating to the delivery of digital content, physical goods, or licensing, revenue is generally measured at a point in time. F- 18 The Company follows the five-step model established by ASC 606, Revenue from Contracts with Customers when preparing its assessment of revenue recognition. Principal Agent Considerations Revenue earned from the delivery of digital content and physical goods may be recognized gross or net depending on the terms of the arrangement. We determine whether revenue should be reported on a gross or net basis based on each revenue stream. 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. 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. Contract Liabilities We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability) when cash payments are received or due in advance of our performance, even if amounts are refundable. Deferred revenue includes amounts related to advances, he sale of DVDs or theatrical releases with future release dates. The ending deferred revenue balance, all current as of March 31, 2024 and 2023 was $ 0.4 million and $ 0.2 million, respectively. There were no long term amounts at either date. 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. Concentrations For the fiscal year ended March 31, 2024 , one customer represented 26 % of consolidated revenue. For the fiscal year ended March 31, 2023, one customer represented 10 % of consolidated revenue. Direct Operating Costs Direct operating costs consist of operating costs such as cost of revenue, fulfillment expenses, shipping costs, property taxes and insurance on systems, royalty and participation expenses, allowance against advances, a nd 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 and performance stock units. 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 Consolidated Statements of Operations based on their fair values. The Company measures the compensation expense of employee and non-employee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost is recognized on a straight-line basis over the period during which the employee and non-employee is required F- 19 to provide service in exchange for the award. The fair values of options and stock appreciation rights 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. Income Taxes The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and tax credit carryforwards and for differences between the carrying amounts of existing assets and liabilities and their respective tax basis. Valuation allowances are established when management is unable to conclude that it is more likely than not that some portion, or all, of the deferred tax asset will ultimately be realized. The Company is primarily subject to income taxes in the United States and India. The Company accounts for uncertain tax positions in accordance with an amendment to ASC Topic 740-10, Income Taxes , which 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 has no uncertain tax positions. Earnings per Share Basic net income (loss) per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) available to common stockholders by the weighted-average number of common shares outstanding and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include stock options and stock appreciation right outstanding during the period, and performance awards which are expected to be settled in shares and would be issuable at period end, using the treasury stock method. Potentially dilutive common shares are excluded from the computations of diluted income (loss) per share if their effect would be anti-dilutive. A net loss available to common stockholders causes all potentially dilutive securities to be anti-dilutive and are not included. Basic and diluted net income (loss) per share are computed as follows (in thousands, except per share data): Year Ended March 31, 2024 2023 Basic net loss per share: Net loss attributable to common stockholders $ ( 21,757 ) $ ( 10,085 ) Shares used in basic computation: Weighted-average shares of Common Stock outstanding 12,253 8,889 Basic net loss per share $ ( 1.78 ) $ ( 1.13 ) Shares used in diluted computation: Weighted-average shares of Common Stock outstanding 12,253 8,889 Stock options and SARs — — Weighted-average number of shares 12,253 8,889 Diluted net loss per share $ ( 1.78 ) $ ( 1.13 ) F- 20 The calculation of diluted net income (loss) per share for the year ended March 31, 2024 and 2023 does not include the impact of 3,443 and 700 thousand potentially dilutive shares, respectively, relating to warrants, stock options, performance shares and stock appreciation rights, as their impact would have been anti-dilutive due to the respective period's income (loss) and an exercise price which exceeded period-end share price. 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. 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. In March 2024, the FASB issued ASU 2024-01, "Compensation—Stock Compensation (Topic 718)—Scope Application of Profits Interest and Similar Awards." This update clarifies the scope of "Profit Interest" and similar awards and adds an illustrative example to the existing ASC 718 standard that includes four fact patterns to demonstrate how an entity should apply the scope guidance in paragraph 718-10-15-3 to determine whether a profits interest award should be accounted for in accordance with Topic 718. The amendments in this Update are effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The amendments in this Update should be applied either (1) retrospectively to all prior periods presented in the financial statements or (2) prospectively to profits interest and similar awards granted or modified on or after the date at which the entity first applies the amendments. Based on the Company's population of awards, the Company does not anticipate a material impact on its financial results as a result of adoption. F- 21 3. OTHER INTERESTS CDF2 Holdings We indirectly own 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 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. To be a primary beneficiary, an entity must have the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, among other factors. Although we indirectly, wholly own CDF2 Holdings, we, a third party that also has a variable interest in CDF2 Holdings, and an independent third party manager must mutually approve all business activities and transactions that significantly impact CDF2 Holdings’ economic performance. We have therefore assessed our variable interests in CDF2 Holdings and determined that we are not the primary beneficiary of CDF2 Holdings. As a result, CDF2 Holdings’ financial position and results of operations are not consolidated in our financial statements. In completing our assessment, we identified the activities that we consider most significant to the economic performance of CDF2 Holdings and determined that we do not have the power to direct those activities, and therefore we account for our investment in CDF2 Holdings under the equity method of accounting. As of March 31, 2024 and 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 March 31, 2024 and 2023, respectively, which are included in accounts receivable, net on the accompanying Consolidated Balance Sheets. The accompanying Consolidated Statements of Operation s include $ 0.0 million and $ 0.2 million of digital cinema servicing revenue from CDF2 Holdings for the year ended March 31, 2024 and 2023, respectively. Total stockholders’ deficit of CDF2 Holdings at March 31, 2024 and 2023 was $ 59.2 and $ 59.2 million, respectively. We have no obligation to fund the operating loss or the stockholders’ deficit beyond our initial investment of $ 2.0 million and, accordingly, our investment in CDF2 Holdings as of March 31, 2024 and 2023 is carried at $ 0 . CONtv We own an 85 % interest in CON TV, LLC ("CONtv"), a worldwide digital network that creates original content, and sells and distributes on-demand digital content on the Internet and other consumer digital distribution platforms, such as gaming consoles, set-top boxes, handsets, and tablets. CONtv is consolidated in our consolidated financial statements with the 15 % minority interest presented as a non-controlling interest. 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 , after taking into account the June 2023 reverse stock split (further described in the Stockholders' Equity footnote) . The Company recorded $ 0.2 million for the purchase of the Roundtable Securities which is included in other long-term assets on the accompanying Consolidated Balance Sheets. The investment in the Roundtable Securities was made in connection with a proposed collaboration with Roundtable regarding production and distribution of streaming content including the launch of high profile branded enthusiast streaming channels. The Roundtable investment was accounted for using the cost method of accounting as we own less than 20 % of Roundtable and do not exert a significant influence over their operations. Our President and Chief Strategy Officer is on the Roundtable Board of Directors. F- 22 4. STOCKHOLDERS’ EQUITY COMMON STOCK Common Stock On October 11, 2021, the Company filed an Amended and Restated Certificate of Incorporation which authorized an increase in the n umber of shares of Common Stock for issuance to 275 million shares, the level at which it remains. On June 9, 2023, the Company effected a 1-for-20 reverse stock split of the Company's Class A common sto ck. All shares and price amounts in this report reflect the 1-for-20 reverse stock split effected on June 9, 2023. During the fiscal year ended March 31, 2024, the Company issued 6.4 million shares of Common Stock, through a direct offering, ATM sales, preferred stock dividends, issuance for shares for employee bonuses net of shares withheld for taxes, exercise of pre-funded warrants, Board fees, deferred consideration and earnout commitments. During the fiscal year ended March 31, 2023, the Company issued 582 thousand shares of Common Stock in payment of preferred stock dividends, Board fees, payment of performance shares, pursuant to a business combinations, and the acqui sition of intangible assets. Direct Offering On June 14, 2023, the Company sold in a public offering an aggregate of 2,150,000 shares of the Company’s Class A common stock, pre-funded warrants to purchase up to 516,667 shares of Common Stock, and common warrants to purchase up to 2,666,667 shares of 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 purchase price of each Pre-Funded Warrant and related Common Warrant was equal to the Purchase Price less the $ 0.001 per share exercise price of each Pre-Funded Warrant. All pre-funded and common warrants were issued as immediately exercisable. All pre-funded warrants were subsequently exercised in July 2023 for total proceeds of $ 0.5 thousand. All common warrants remain outstanding as of March 31, 2024. ATM Sales Agreement 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. 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 the 2020 Shelf Registration Statement, for an aggregate offering price of up to $ 30 million. No sales under the ATM Sales Agreement were made during the year ended March 31, 2023. For the twelve months ended March 31, 2024, 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 May 3, 2024, Cineverse Corp. (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 F- 23 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. PREFERRED STOCK Cumulative dividends in arrears on preferred stock were $ 0.1 million as of March 31, 2024 and 2023. For the years ended March 31, 2024 and 2023, we paid preferred stock dividends in the form of 196 thousand and 37 thousand shares of Common Stock, respectively. TREASURY STOCK We have treasury stock, at cost, consisting of 289 thousand shares and 66 thousand shares of Common Stock as of March 31, 2024 and 2023, respectively. EQUITY INCENTIVE PLANS Stock Based Compensation Awards Awards issued under our 2000 Equity Incentive Plan (the “2000 Plan”) were in any of the following forms (or a combination thereof) (i) stock option awards; (ii) stock appreciation rights; (iii) stock or restricted stock or restricted stock units; 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. ISOs and non-statutory stock options granted under the 2000 Plan are subject to vesting provisions, and exercise is subject to the continuous service of the participant. The exercise prices and vesting periods (if any) for non-statutory options were set at the discretion of our Compensation Committee. The Company does not estimate forfeitures, but recognizes forfeitures in the period in which they occur. Options outstanding and exercisable under the 2000 Plan are as follows: As of March 31, 2024 Min Max Options Outstanding (In thousands) Weighted Average Remaining Life in Years Weighted Average Exercise Price Aggregate Intrinsic Value (In thousands) $ 148.0 $ 148.0 0.3 1.25 $ 148 $ — $ 280.0 $ 488.0 0.6 0.52 $ 345 — 0.9 0.72 $ 290 $ — As of March 31, 2023 Min Max Options Outstanding (In thousands) Weighted Average Remaining Life in Years Weighted Average Exercise Price Aggregate Intrinsic Value (In thousands) $ 148.0 $ 148.0 0.3 2.25 $ 148 $ — $ 280.0 $ 488.0 10.0 0.50 $ 290 — 10.2 0.54 $ 287 $ — A total of 9 thousand options expired during the year ended March 31, 2024. In August 2017, the Company adopted the 2017 Equity Incentive Plan (the “2017 Plan). The 2017 Plan replaced the 2000 Plan, and applies to employees and directors of, and consultants to, the Company. The 2017 Plan provides for the issuance of up to 2,055 thousand shares of Common Stock as of December 8, 2023, in the form of various awards, including stock options, stock appreciation rights, stock, restricted stock, restricted stock units, performance awards and cash awards. During the year ended March 31, 2024, the Company granted 207 thousand stock appreciation rights (“SARs”), which were granted under the 2017 Plan. All SARs issued have an exercise price equal to the market price of the F- 24 Company’s Common Stock on the date of grant and a maturity date of 10 years after grant date. The Company has the option to settle the SARs through a cash payment, issuance of shares, or some combination of cash payment and shares. Based on past practice and intent to settle these awards with shares of Class A common stock, the Company has determined that these awards should be classified in equity. The following weighted average assumptions were used to estimate the fair value of SARs granted, as follows: For the Year Ended March 31, 2024 2023 Expected dividend yield — — Expected equity volatility 107 % 112 % Expected term (years) 6.50 6.50 Risk-free interest rate 4.51 % - 3.82 % 4.49 % Exercise price $ 5.80 - $ 10.43 $ 9.82 Market price per share $ 5.80 - $ 10.43 $ 9.82 The weighted average fair value of outstanding grants made during the year ended March 31, 2024, was $ 4.99 per award. The weighted average fair value of outstanding the grants made during the year ended March 31, 2023, was $ 8.52 per award. SARs outstanding under the 2017 Plan, along with the minimum and maximum strike price of each group, are as follows: As of March 31, 2024 Min Max SARs Outstanding (In thousands) Weighted Average Remaining Life in Years Weighted Average Exercise Price Aggregate Intrinsic Value (In thousands) $ 5.8 $ 12.8 632 7.92 $ 9.45 $ — $ 23.2 $ 29.4 98 5.12 $ 27.77 — $ 39.4 $ 46.4 46 6.96 $ 40.15 — 776 7.51 $ 13.58 $ — As of March 31, 2023 Min Max SARs Outstanding (In thousands) Weighted Average Remaining Life in Years Weighted Average Exercise Price Aggregate Intrinsic Value (In thousands) $ 7.80 $ 14.80 430 8.37 $ 11.15 $ 3 $ 23.20 $ 29.40 105 6.25 $ 27.62 — $ 34.20 $ 42.00 100 8.78 $ 40.18 — $ 44.60 $ 51.20 21 8.57 $ 45.46 — 657 8.10 $ 19.33 $ 3 Exercisable SARs under the 2017 Plan as of March 31, 2024 are as follows: SARs Exercisable (In thousands) Weighted Average Remaining Life in Years Weighted Average Exercise Price Aggregate Intrinsic Value (In thousands) 469 8.5 $ 17.64 $ — F- 25 As of March 31, 2024, the compensation cost not yet recognized related nonvested SARS awards totaled $ 703 thousand, to be recognized over the weighted average remaining vesting period of 0.8 years. SARs activity for the year ended March 31, 2024 is as follows (in thousands): Year Ended March 31, 2024 SARs Outstanding March 31, 2023 657 Issued 207 Forfeited ( 88 ) Total SARs Outstanding March 31, 2024 776 A total of $ 1.4 million and $ 4.8 million of stock based compensation was included within Selling, General and Administrative expenses for the years ended March 31, 2024 and 2023, respectively. In addition, the Company grants performance stock unit ("PSU") awards under the 2017 Plan to employees of the Company that vest upon certain performance goals being achieved. Upon vesting, the award may be settled in shares or cash at the Company's discretion. There were no shares granted or issued in fiscal year 2024. Based on performance for the year ended March 31, 2023, the Company accrued for 16 thousand unvested. Of this stock based compensation expense, there was $ 0.3 million and $ 0.4 million of stock-based compensation expense for the year ended March 31, 2024 and 2023, respectively, related to Board of Director fees. During the years ended March 31, 2024 and 2023, the Company issued 400 thousand and 34 thousand restricted shares to non-employee directors, respectively. F- 26 5. DEBT Line of Credit Facility 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 and March 31, 2023, $ 6.4 million and $ 5.0 million was outstanding on the Line of Credit Facility, respectively. 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. For the year ended March 31, 2024, the Company was out of compliance with its covenants, and received a waiver in June 2024. For the year ended March 31, 2024 and March 31, 2023, the Company incurred interest expense of $ 0.4 million and $ 0.2 million to EWB related to the Line of Credit Facility, respectively. 6. COMMITMENTS AND CONTINGENCIES Operating Leases Cineverse is a virtual company with one domestic operating lease, acquired through the acquisition of Digital Media Rights ("DMR") and subleased to a third party. The Company has not been relieved of the its original lease obligation and therefore recognizes both a lease liability and right-of-use asset as part of the arrangement. The end of both the original lease and sublease's term is January 2025 . The Company has recognized $ 0.2 million of sublease income related to its subleasing arrangement for the twelve months ended March 31, 2024. The Company's two operating leases for its India operations expire in July 2027 . The table below presents the lease-related assets and liabilities recorded on our Consolidated Balance Sheets (in thousands): Classification on the Balance Sheet March 31, 2024 March 31, 2023 Assets Noncurrent Other long-term assets $ 834 $ 1,265 Liabilities Current Operating leases liabilities 401 418 Noncurrent Operating leases liabilities, net of current portion 462 863 Total operating lease liabilities $ 863 $ 1,281 F- 27 The table below presents the annual gross undiscounted cash flows related to the Company's operating lease commitments and subleasing arrangements (in thousands): Fiscal year ending March 31, Operating Lease Commitments 2025 $ 423 2026 200 2027 210 2028 72 2029 — Thereafter — Total lease payments $ 905 Less imputed interest ( 42 ) Total $ 863 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. Since our operating leases do not provide a readily determinable implicit rate, the Company estimated its incremental borrowing rate to discount the lease payments based on information available at Cineverse's lease commencement date. The average discount rate utilized was 3.34 %. The Company incurred $ 445 thousand and $ 441 thousand in rental expense associated with its operating leases during the years ended March 31, 2024 and 2023, respectively. Commitments In the ordinary course of business, the Company enters into contractual arrangements, from time to time, under which it agrees to commitments with content providers for certain rights which are in production or have not yet been completed, delivered to, and accepted by the Company. Based on the nature of these agreements, which may be subject to delay or project abandonment, there is uncertainty with the amounts and timing of its commitments. Certain of these advances are eligible to be recouped through future revenue sharing arrangements. Based on the stage of the Company's projects, the table presented below represents an estimate of the Company's gross project commitments over the next five fiscal years (in thousands). Fiscal Year Ended March 31, 2025 2026 2027 2028 2029 Total Project Commitments $ 2,094 $ 915 $ 965 $ 665 $ 315 F- 28 7. INCOME TAXES We recorded income tax expense of $ 0.0 million and $ 0.1 mill ion from operations for the years ended March 31, 2024 and 2023, respectively. For the year ended March 31, 2023, the income tax expense of $ 0.1 million was mainly related to foreign income taxes. The following table presents the components of income tax expense (benefit) (in thousands): For the Fiscal Year Ended March 31, 2024 2023 Federal: Current $ — $ — Deferred — — Total federal $ — $ — State: Current $ ( 11 ) $ 12 Deferred — — Total state $ ( 11 ) $ 12 Foreign: Current $ 35 $ 107 Deferred ( 14 ) — Total foreign $ 21 $ 107 Income tax expense $ 10 $ 119 Net deferred taxes consisted of the following (in thousands): As of March 31, 2024 2023 Deferred tax assets: Net operating loss carryforwards $ 20,945 $ 18,318 Stock-based compensation 3,724 3,246 Intangibles 6,423 4,800 Accrued liabilities 535 908 Capital loss carryforward 3,924 — Investments 1,977 4,344 Non-deductible interest expense 4,213 3,479 Other 240 750 Total deferred tax assets before valuation allowance 41,981 35,845 Less: Valuation allowance ( 41,668 ) ( 35,755 ) Total deferred tax assets after valuation allowance $ 312 $ 90 Deferred tax liabilities: Right of use asset $ ( 248 ) $ — Depreciation and amortization ( 50 ) ( 90 ) Total deferred tax liabilities ( 298 ) ( 90 ) Net deferred tax $ 14 $ — We have provided a valuation allowance to our net deferred tax assets as of March 31, 2024 and 2023. We are required to recognize all or a portion of our deferred tax assets if we believe that it is more likely than not that such assets will be realized, given the weight of all available evidence. We assess the realizability of the deferred tax assets at each interim and annual balance sheet date. In assessing the need for a valuation allowance, we considered both positive and negative evidence, including recent financial performance, projections of future taxable income and scheduled reversals of deferred tax liabilities. The net changes in the valuation allowance of $ 5.9 million and $ 2.5 million during the fiscal years ended March 31, 2024 and 2023, respectively, were mainly due to increases in the deferred tax asset related to the net operating loss carryforward and other temporary differences. We will F- 29 continue to assess the realizability of the deferred tax assets at each interim and annual balance sheet date based upon actual and forecasted operating results. As of March 31, 2024, we had utilizable federal and state net operating loss carryforwards of approximately $ 70.3 million available in the United States of America (“U.S.”) to reduce future taxable income. U.S. federal and state net operating loss carryforwards of approximately $ 22.5 and $ 70.3 million, respectively, generally begin to expire in 2026. U.S. federal net operating loss carryforwards that were generated during the years ended March 31, 2020, 2021, 2022, 2023, and 2024 of approximately $ 47.9 million, do not expire. On March 27, 2020, the CARES Act was signed into law. The Act contains several new or changed income tax provisions, including but not limited to the following: increased limitation threshold for determining deductible interest expense; class life changes to qualified improvements (in general, from 39 years to 15 years); and the ability to carry back net operating losses incurred from tax years 2018 through 2020 up to the five preceding tax years. The Company has evaluated the new tax provisions of the CARES Act and determined the impact to be either immaterial or not applicable. The differences between the U.S. statutory federal tax rate and our effective tax rate are as follows: For the Year Ended March 31, 2024 2023 Provision at the U.S. statutory federal tax rate 21.0 % 21.0 % State income taxes, net of federal benefit 14.2 % 8.0 % Change in valuation allowance ( 27.8 )% ( 27.8 )% Non-deductible expenses ( 1.0 )% ( 8.3 )% Executive officer compensation limitation – Section 162(m) — % ( 2.0 )% Goodwill impairment ( 6.3 )% — Losses from non-consolidated entities — % 7.9 % Other — % ( 0.1 )% Income tax expense ( 0.1 )% ( 1.3 )% We file income tax returns in the U.S. federal jurisdiction, various U.S. states, and India. For federal income tax purposes, our fiscal 2021 through 2024 tax years remain open for examination by the tax authorities under the normal three-year statute of limitations. For U.S. state tax purposes, our fiscal 2020 through 2024 tax years generally remain open for examination by most of the tax authorities under a four-year statute of limitations. For Indian income tax purposes, our fiscal 2022 through 2024 tax years remain open for examination by the tax authorities. F- 30 8. SUBSEQUENT EVENTS Terrifier 3 Financing 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 guarantor (the “T3 Loan Agreement”). The T3 Loan Agreement provides for a term loan with a principal amount not to exceed $ 3,666 thousand (the “T3 Loan”), and a maturity date of April 1, 2025 , with a permitted extension of the term for 120 days under certain conditions. The T3 Loan bears no interest until the maturity date other than an interest advance equal to $ 576 thousand at the closing of the T3 Loan on April 5, 2024. If the T3 Loan is extended as noted above, the T3 Loan will bear interest at a rate of 1.44 % per month. T3 Borrower may prepay the obligations under the T3 Loan, in full or in part, without penalty or premium. The proceeds under the T3 Loan Agreement will be used for the funding under the Company’s distribution arrangements for the film titled Terrifier 3 (the “Film”). The T3 Loan Agreement contains customary covenants, representation and warranties and events of default. 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 thousand, consisting of the principal amount plus interest and fees advanced to T3 Borrower, plus any extension interest. The T3 Loan is secured by a first priority interest in all of T3 Borrower’s rights and interest in the Film and the distribution agreements, including the proceeds to T3 Borrower from the distribution of the Film. The Company entered into a Guaranty Agreement pursuant to which it provided a guarantee of the T3 Loan which is capped at obligations not exceeding $ 1,500 thousand (the “Guaranty Agreement”). The Guaranty is subordinated in payment and performance to the Line of Credit Facility pursuant to an intercreditor agreement between EWB and the T3 Lender, and acknowledged by the Company and the T3 Borrower. In connection with the T3 Loan Agreement, the Company entered into Amendment No. 3 to the Amended and Restated Loan, Guaranty and Security Agreement dated as of September 15, 2022 with East West Bank and the Guarantors named therein, as amended to date (the “EWB Amendment”) to facilitate the T3 Loan and the Guarantee. F- 31 PART II. OTHER INFORMATION ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.