What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-14 compared with 2024-08-14 · 104 added, 65 removed, 86 unchanged (66% of the section changed)

9 unchanged sentences

and its subsidiaries unless the context otherwise requires) was incorporated in Delaware on March 31, 2000.

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

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

The Company has a long legacy in using technology to transform the entertainment industry and played a pioneering role in transitioning movie screens from traditional analog film prints to digital distribution.

Over the past several years, Cineverse has transformed itself from being a digital cinema equipment and physical content distributor to a leading independent streaming company, and we continue to push the bounds of our industry with innovative technology offerings.

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;

Over the past several years, Cineverse has transformed itself from being a digital cinema equipment and physical content distributor to a leading independent streaming company.

Cineverse is a 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.

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 video on demand ("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.

We distribute products for major brands such as Hallmark, ITV, Nelvana, ZDF, Konami, NFL and Highlander, as well as leading international and domestic content creators, movie producers, television producers and other short-form digital content producers.

The Company’s streaming technology platform, known as Matchpoint TM , 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.

We distribute products for major brands such as Hallmark, ITV, Nelvana, ZDF, Konami, NFL and Highlander, as well as international and domestic content creators, movie producers, television producers and other short-form digital content producers.

We collaborate with producers, major brands and other content owners to market, source, curate and distribute quality content to targeted audiences through (i) existing and emerging digital home entertainment platforms, including but not limited to Apple iTunes, Amazon Prime, Netflix, Hulu, Xbox, Pluto, and Tubi, as well as (ii) physical goods, including DVD and Blu-ray Discs.

Financial Condition and Liquidity

As of June 30, 2024, the Company has an accumulated deficit of $507.3 million and a working capital deficit of $0.9 million.

For the three months ended June 30, 2024, the Company had a net loss attributable to the Company's common stock, par value $0.001 per share (the "Common Stock") holders of $3.2 million.

Net cash used in operating activities for the three months ended June 30, 2024 was $1.7 million, which included $2.0 million of incremental investment in our content portfolio via advances or minimum guarantee payouts.

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

The Company is party to a Loan, Guaranty, and Security Agreement, 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 June 30, 2024.

The term of the Line of Credit

Facility has been extended to September 15, 2025.

As of June 30, 2024, $4.8 million was outstanding on the Line of Credit Facility, gross of issuance costs of $127 thousand.

On April 5, 2024, T3 Borrower, a wholly-owned subsidiary of the Company, entered into a Loan and Security Agreement with T3 Lender and the Company, as guarantor, to the T3 Loan Agreement.

The T3 Loan Agreement provides for the T3 Loan with a principal amount not to exceed $3,666 thousand, and a maturity date of April 1, 2025, with a permitted extension of the term for 120 days under certain conditions.

We have a history of net losses and we may continue to generate net losses for the foreseeable future.

As of September 30, 2024, the Company has an accumulated deficit of $509 million and a working capital deficit of $1.2 million.

For the three and six months ended September 30, 2024, the Company had a net loss attributable to Common Stockholders of $1.4 million and $4.5 million, respectively.

Net cash used in operating activities for the six months ended September 30, 2024 was $2.4 million, which included $1.7 million of incremental investment in our content portfolio via advances or minimum guarantee payouts.

The Company is party to a Loan, Guaranty, and Security Agreement, as amended, with EWB providing for a $7.5 million Line of Credit Facility, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and our subsidiaries’ assets.

The Line of Credit Facility bears interest at a rate equal to 1.5% above the prime rate, equal to 9.5% as of September 30, 2024.

The Line of Credit Facility matures on September 15, 2025.

As of September 30, 2024, $4.6 million was outstanding on the Line of Credit Facility, net of issuance costs of $180 thousand.

On April 5, 2024, T3 Borrower, a wholly-owned subsidiary of the Company, entered into the T3 Loan Agreement with the T3 Lender, and the Company as guarantor.

The T3 Loan Agreement provides for the T3 Loan with a principal amount not to exceed $3.7 million, 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.

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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 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 are being 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.

The T3 Loan is presented as current within the Company's Condensed Consolidated Balance Sheets and has a balance of $3.1 million as of June 30, 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 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.

In July 2020, we entered into an At-the-Market sales agreement (the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”) and B.

Riley FBR, Inc.

Riley” and, together with A.G.P., the “Sales Agents”), pursuant to which the Company was able to 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 177 thousand shares for $1.1 million in net proceeds, respectively, after deduction of commissions and fees.

The ATM Sales Agreement expired in fiscal year 2024 in accordance with its terms.

On June 16, 2023, the Company closed on the sale of 2,150 thousand shares of Common Stock, 517 thousand pre-funded warrants, and warrants to purchase up to 2,667 thousand shares of Common Stock at a combined public offering price of $3.00 per share and accompanying warrant for aggregate gross proceeds of approximately $7.4 million, after deducting placement agent fees and other offering expenses in the amount of $0.6 million.

The warrants had an exercise price of $3.00 per share, were exercisable immediately and will expire five years from the issuance.

The Company received $2.999 per share for the pre-funded warrants, with the remaining $0.001 due at the time of exercise.

All 517 thousand pre-funded warrants were subsequently exercised in July 2023 for total proceeds of $0.5 thousand.

The T3 Loan is presented as current within the Company's Condensed Consolidated Balance Sheets and has a balance of $3.1 million as of September 30, 2024.

After the principal of the T3 Loan is paid in full, the 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 the T3 Lender has received 1.75 times the full commitment amount of $3.7 million, 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 the T3 Borrower from the distribution of the Film.

We expect the T3 Loan to be fully paid off in December 2024 from Film proceeds.

On May 3, 2024, the Company entered into a sales agreement (the “2024 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 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 2024 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 3.0% 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 2024 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 June 30, 2024 and March 31, 2024, short term content advances were $12.2 million and $9.3 million, respectively, and content advances, net of current portion were, $1.7 million and $2.6 million, respectively.

As of September 30, 2024 and March 31, 2024, short term content advances were $10.8 million and $9.3 million, respectively, and content advances, net of current portion, were $1.5 million and $2.6 million, respectively.

Our capital requirements will depend on many factors, and we may need to use existing capital resources and/or undertake equity or debt offerings, if necessary and opportunistically available, for further capital needs.

We believe our cash and cash equivalent balances as of June 30, 2024 will be sufficient to support our operations for at least twelve months from the filing of this report.

We believe our cash and cash equivalents as of September 30, 2024 and availability under our Line of Credit Facility will be sufficient to support our operations for at least twelve months from the filing of this report.

Critical Accounting Estimates

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Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.

Results of Operations for the Three Months Ended June 30, 2024, and 2023 (in thousands):

For the Three Months Ended June 30,

Results of Operations for the three months ended September 30, 2024 and 2023 (in thousands) :

For the Three Months Ended September 30,

As a % of Revenue

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Total Revenue

For the three months ended June 30, 2024, total revenue declined by $3.9 million, or 30% as compared to three months ended June 30, 2023.

During this time, Streaming and digital revenue for three months ended June 30, 2024, decreased by $2.4 million, driven by a $1.9 million decline in the Company's digital distribution revenue resulting from the impact of content release timing in the current quarter relative to the first quarter in fiscal 2024, as well as the recent change in and build-out of the Company's direct advertising sales team.

This decrease was partially offset by a $0.2 million increase in SVOD revenue.

Podcast and other revenue increased by $0.6 million, or 143%, due to the success of the Company's Bloody Disgusting podcast content.

The Company's $0.8 million decline in Base distribution revenue for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 was primarily driven by a decline in DVD-related sales and related physical distribution revenue, as the Company's focus shifts away from physical sales.

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

In the first quarter of fiscal 2024, the Company recognized $1.2 million in legacy digital cinema system sales and variable consideration;

however, in the first quarter of fiscal year 2025, sales of legacy systems have decreased, and the Company anticipates this trend will continue.

For the three months ended September 30, 2024, total revenue declined by $0.3 million compared to the three months ended September 30, 2023.

Streaming and digital revenue increased by $0.7 million, primarily due to:

(i) the $1.6 million license fee revenue related to the licensing of the Dog Whisperer content, and offset by (ii) the unfavorable impact of other content releases' timing relative to the same period in the prior year.

Podcast and other revenue grew by $0.6 million due to the success of the Company's Bloody Disgusting podcast content.

Base distribution revenue increased by $0.8 million mainly due to the favorable physical returns reserves adjustments for the quarter.

Other non-recurring revenue is related to the Company's legacy digital cinema equipment business ("Digital Cinema") as its operations continue to run-off.

Digital Cinema revenue decreased $2.4 million compared to the same period in the prior year.

The Company doesn't anticipate future revenue related to the Digital Cinema business.

Direct Operating Expenses

For the Three Months Ended June 30,

For the Three Months Ended September 30,

As a % of Revenue

Direct operating expenses

The $2.5 million decrease in Direct operating expenses for the three months ended June 30, 2024 was primarily driven by the variable costs associated with the decline in comparative quarterly revenue, including reduced licensing, royalty and participation expenses of $1.7 million;

reduced manufacturing, freight, and fulfillment charges of $0.1 million related to the decline of physical sales, and the Company's reserve against advances provided to partners increased by $0.2 million relative to the three months ended June 30, 2023.

The increase of $1.6 million in Direct Operating Expenses for the three months ended September 30, 2024, compared to the same period of 2023, was primarily due to the following:

(i) $0.8 million prior year reversal of earn-out consideration related to the Bloody Disgusting acquisition, (ii) $0.4 million higher manufacturing, fulfillment, and freight charges, and (iii) $0.5 million higher royalty expenses.

Selling, General and Administrative Expenses

Three Months Ended June 30,

For the Three Months Ended September 30,

As a % of Revenue

4 unchanged sentences

Selling, General and Administrative

Selling, general and administrative expenses for the three months ended June 30, 2024 decreased by $1.3 million.

In comparison to the three months ended June 30, 2023, compensation expenses decreased by $0.4 million driven a change in the Company's employment mix, as a result of a greater investment in Cineverse Services India.

Corporate expenses decreased by $0.7 million primarily related to a reduction of $0.3 million in other consulting service providers, $0.2 million in legal fees, and $0.1 million in public relations fees, as a result of the Company's savings initiatives.

Other operating expenses decreased by $0.3 million, primarily driven by reductions in the provision for credit losses of $0.2 million and a decrease in advertising barter costs of $0.2 million.

Selling, general and administrative expenses for the three months ended September 30, 2024 decreased by $0.5 million compared to the same period of 2023.

In comparison to the three months ended September 30, 2023, compensation expenses decreased by $0.4 million driven a change in the Company's employment mix, as a result of a greater investment in Cineverse Services India.

Depreciation and Amortization Expense

For the Three Months Ended June 30,

For the Three Months Ended September 30,

As a % of Revenue

2 unchanged sentences

Depreciation and Amortization

Amortization expense and depreciation expense have remained relatively consistent for three months ended June 30, 2024, compared to the three months ended June 30, 2023, as the Company's intangible focused investment mix has remained consistent over the past year.

Amortization expense and depreciation expense have remained relatively consistent for the three months ended September 30, 2024 and 2023 as the Company's intangible focused investment mix has remained consistent year-over-year.

Interest Expense, Net

For the three months ended June 30, 2024, interest expense increased by $0.1 million from $0.3 million to $0.4 million, primarily as a result of the Company's Terrifier 3 term loan interest of $0.1 million.

For the three months ended September 30, 2024, interest expense increased by $142 thousand from $195 thousand to $337 thousand primarily due to higher outstanding debt balances and increased interest rates in 2024.

Results of Operations for the Six Months Ended September 30, 2024 and 2023, (in thousands) :

For the Six Months Ended September 30,

As a % of Revenue

Streaming and digital

Podcast and other

Base distribution

Other non-recurring

Total Revenue

For the six months ended September 30, 2024, total revenue declined by $4.1 million compared to the six months ended September 30, 2023.

Streaming and digital revenue for the six months ended September 30, 2024 decreased by $1.7 million

compared to the same period of 2023, primarily due to the unfavorable impact of content release timing relative to the same period in the prior year, offset by the $1.6 million of license fee revenue recorded during the current quarter related to the licensing of the Dog Whisperer content.

Podcast and other revenue grew by $1.2 million due to the success of the Company's Bloody Disgusting podcast content.

Other non-recurring revenue related to Digital Cinema decreased $3.6 million compared to the same period of 2023 as its operations continue to run-off.

The Company doesn't anticipate future revenue related to the Digital Cinema business.

Direct Operating Expenses

For the Six Months Ended September 30,

As a % of Revenue

Direct operating expenses

The decrease of $0.9 million in Direct Operating Expenses for the six months ended September 30, 2024, compared to the same period of 2023, is primarily due to the net effect of the following key changes:

(i) $1.1 million lower royalty expense, (ii) $1.2 million lower digital marketing and SaaS subscription costs, (iii) $0.8 million prior year reversal of earn-out consideration related to the Bloody Disgusting acquisition, and (iv) $0.5 million allowance reductions.

Selling, General and Administrative Expenses

For the Six Months Ended September 30,

As a % of Revenue

Compensation expense

Corporate expenses

Share-based compensation

Other operating expenses

Selling, General and Administrative

Selling, general and administrative expenses for the six months ended September 30, 2024 decreased by $1.8 million compared to the same period of 2023.

In comparison to the six months ended September 30, 2023, compensation expenses decreased by $0.7 million driven by a change in the Company's employment mix as a result of a greater investment in Cineverse Services India.

Corporate expenses decreased by $0.7 million and other operating expenses decreased by $0.4 million primarily driven by the Company's continued focus on cost savings initiatives.

Depreciation and Amortization Expense

For the Six Months Ended September 30,

As a % of Revenue

Amortization of intangible assets

Depreciation of property and equipment

Depreciation and Amortization

Amortization expense and depreciation expense have remained relatively consistent for the six months ended September 30, 2024, compared to the six months ended September 30, 2023, as the Company's intangible focused investment mix has remained consistent over the past year.

Interest Expense, Net

For the six months ended September 30, 2024 compared to the same period of 2023, interest expense increased by $278 thousand from $490 thousand to $768 thousand primarily due to higher outstanding debt balances and increased interest rates in 2024.

Adjusted EBITDA

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

For the Three Months

Ended June 30,

For the Three Months Ended

September 30,

For the Six Months Ended

September 30,

Income tax expense

1 unchanged sentence

Interest expense

Loss from equity investment in Metaverse

(Gain) loss from equity investment in Metaverse

Stock-based compensation

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

For the Three Months

Ended June 30,

For the Six Months Ended September 30,

Net used in operating activities

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Net Change in Cash and Cash Equivalents

For the three months ended June 30, 2024, net cash used in operating activities was primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization and stock-based compensation, and other changes in working capital.

Specifically, the adjustments are primarily driven by net cash outflows related to content advances made to partners for which initial expenditures are generally recovered within six to twelve months and operating prepayments, partially offset by a decrease in unbilled revenue, the collection of the Company's ERTC claim, and an increase in accounts payable and accrued expenses.

For the six months ended September 30, 2024, net cash used in operating activities was primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization and stock-based compensation, and other changes in working capital.

Specifically, the adjustments are primarily driven by net cash outflows related to content advances made to partners for which initial expenditures are generally recovered within six to twelve months and operating prepayments, partially offset by a decrease in accounts receivable, the collection of the Company's ERTC claim, and a decrease in accounts payable and accrued expenses.

Operating cash flows are typically seasonally lower during the first two fiscal quarters and higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season.

Cash used in investing activities was used in the expenditures towards long-lived intangible assets and fixed assets, as well as the receipt from the return of investment from the sale of equity securities.

Cash provided by financing activities pertained to the receipt of funds from the Company's Terrifier 3-related term loan, repayment of the Company's line of credit, payment of deferred consideration, and payment of financing fees.

For the three months ended June 30, 2023, net cash used in operating activities is primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, including capitalized content spend and other changes in working capital.

Additionally, during the three months ended June 30, 2023, the Company decreased accounts payable by $4.7 million to vendors.

Cash used in investing activities was used in the expenditures towards long-lived assets as well as the sale of equity securities.

Cash provided by financing activities were primarily due to the receipt of funds from the T3 Loan offset by a net $1.6 million repayment of the Line of Credit Facility, $0.3 million net payment of deferred acquisition consideration and $0.2 million used to repurchase outstanding shares.

For the six months ended September 30, 2023, net cash used in operating activities is primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, including capitalized content spend and other changes in working capital.

In addition, we made net advances of $2.2 million for the three months ended June 30, 2023, as part of the advances we make on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twelve months.

In addition, we made net advances of $5.3 million for the six months ended September 30, 2023, as part of the advances we make on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twelve months.

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

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

Off-balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis