Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Cineverse Corp.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
As of
September 30,
2024
March 31,
2024
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents
$
2,429
$
5,167
Accounts receivable, net of allowance for credit losses of $ 84 and $ 269 , respectively
14,814
15,106
Employee retention tax credit
79
1,671
Content advances
10,788
9,345
Other current assets
2,069
1,432
Total current assets
30,179
32,721
Property and equipment, net
2,932
2,276
Intangible assets, net
17,937
18,328
Goodwill
6,799
6,799
Content advances, net of current portion
1,472
2,551
Other long-term assets
1,281
1,703
Total Assets
$
60,600
$
64,378
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued expenses
$
19,928
$
20,817
Line of credit, including unamortized debt issuance costs of $ 180 and $ 81 , respectively
4,637
6,301
Current portion of deferred consideration on purchase of business
3,040
3,114
Term loan, including unamortized debt issuance costs of $ 87 and $ 0 , respectively
3,147
—
Earnout consideration on purchase of business
—
180
Current portion of operating lease liabilities
273
401
Deferred revenue
352
436
Total current liabilities
31,377
31,249
Deferred consideration on purchase of business, net of current portion
—
457
Operating lease liabilities, net of current portion
371
462
Other long-term liabilities
61
59
Total Liabilities
$
31,809
$
32,227
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 September 30, 2024 and March 31, 2024
3,559
3,559
Common Stock, $ 0.001 par value; Class A Stock: 275,000,000 shares authorized as of September 30, 2024, and March 31, 2024; 16,287,824 and 15,985,620 shares issued, with 15,786,074 and 15,699,135 shares outstanding as of September 30, 2024 and March 31, 2024, respectively
194
194
Additional paid-in capital
547,234
545,996
Treasury stock, at cost; 503,819 and 288,554 shares as of September 30, 2024 and March 31, 2024, respectively
( 12,193
)
( 11,978
)
Accumulated deficit
( 508,691
)
( 504,153
)
Accumulated other comprehensive loss
( 297
)
( 345
)
Total stockholders’ equity of Cineverse Corp.
29,806
33,273
Deficit attributable to noncontrolling interest
( 1,015
)
( 1,122
)
Total equity
28,791
32,151
Total Liabilities and Equity
$
60,600
$
64,378
See accompanying Notes to Condensed Consolidated Financial Statements
1
Cineverse Corp.
CONDENSED CONSOLIDATED STA TEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three Months Ended September 30,
Six Months Ended
September 30,
2024
2023
2024
2023
Revenues
$
12,739
$
13,012
$
21,866
$
25,992
Costs and expenses
Direct operating
6,262
4,646
10,741
11,633
Selling, general and administrative
6,364
6,827
12,927
14,715
Depreciation and amortization
974
953
1,837
1,775
Total operating expenses
13,600
12,426
25,505
28,123
Operating (loss) income
( 861
)
586
( 3,639
)
( 2,131
)
Interest expense
( 337
)
( 195
)
( 768
)
( 490
)
Gain (loss) from equity investment in Metaverse, a related party
1
( 718
)
4
( 718
)
Other income (expense), net
-
26
163
( 478
)
Net loss before income taxes
( 1,197
)
( 301
)
( 4,240
)
( 3,817
)
Income tax expense
( 6
)
( 16
)
( 13
)
( 36
)
Net loss
( 1,203
)
( 317
)
( 4,253
)
( 3,853
)
Net income attributable to noncontrolling interest
( 84
)
( 40
)
( 106
)
( 53
)
Net loss attributable to controlling interests
( 1,287
)
( 357
)
( 4,359
)
( 3,906
)
Preferred stock dividends
( 89
)
( 88
)
( 177
)
( 176
)
Net loss attributable to common stockholders
$
( 1,376
)
$
( 445
)
$
( 4,536
)
$
( 4,082
)
Net loss per share attributable to common stockholders:
Basic
$
( 0.09
)
$
( 0.04
)
$
( 0.29
)
$
( 0.37
)
Diluted
$
( 0.09
)
$
( 0.04
)
$
( 0.29
)
$
( 0.37
)
Weighted average shares of Common Stock outstanding:
Basic
15,721
12,376
15,711
11,118
Diluted
15,721
12,376
15,711
11,118
See accompanying Notes to Condensed Consolidated Financial Statements
2
Cineverse Corp.
CONDENSED CONSOLIDATED STATE MENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(in thousands)
Three Months Ended September 30,
Six Months Ended
September 30,
2024
2023
2024
2023
Net loss
$
( 1,203
)
$
( 317
)
$
( 4,253
)
$
( 3,853
)
Other comprehensive (loss) income:
Foreign exchange translation
( 7
)
66
48
( 12
)
Net income attributable to noncontrolling interest
( 84
)
( 40
)
( 106
)
( 53
)
Comprehensive loss
$
( 1,294
)
$
( 291
)
$
( 4,311
)
$
( 3,918
)
See accompanying Notes to Condensed Consolidated Financial Statements
3
Cineverse Corp.
CONDENSED CONSOLIDATED ST ATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
September 30,
2024
2023
Cash flows from operating activities:
Net loss
$
( 4,253
)
$
( 3,853
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
1,837
1,775
Allowance for content advances
( 30
)
( 478
)
Amortization of debt issuance costs
197
76
Stock-based compensation
973
909
Interest expense
325
256
Changes in fair value of equity investment in Metaverse
4
718
Change in estimated earnout consideration
—
( 711
)
Barter-related non-cash expenses
170
170
Other
( 171
)
388
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
478
7,469
Other current and long-term assets
985
1,054
Content advances
( 364
)
( 5,332
)
Accounts payable, accrued expenses, and other liabilities
( 1,218
)
( 7,842
)
Capitalized content
( 1,227
)
( 821
)
Deferred revenue
( 87
)
47
Net cash used in operating activities
$
( 2,381
)
$
( 6,174
)
Cash flows from investing activities:
Expenditures for long-lived assets
( 1,024
)
( 515
)
Sale of equity investment securities
204
—
Net cash used in investing activities
$
( 820
)
$
( 515
)
Cash flows from financing activities:
Proceeds from line of credit, net of debt issuance costs
27,893
13,761
Payments on line of credit
( 29,459
)
( 13,761
)
Payment of deferred consideration
( 333
)
—
At-the-market issuance fees
( 41
)
—
Proceeds from the issuance of a term loan, net of debt issuance costs
2,917
—
Payment of earnout consideration
( 90
)
( 291
)
Cost to acquire treasury shares
( 215
)
—
Financing fees for line of credit
( 209
)
( 95
)
Issuance of Class A common stock, net of issuance costs
—
8,543
Net cash provided by financing activities
$
463
$
8,157
Net change in cash and cash equivalents
( 2,738
)
1,468
Cash and cash equivalents at beginning of period
5,167
7,152
Cash and cash equivalents at end of period
$
2,429
$
8,620
See accompanying Notes to Condensed Consolidated Financial Statements
4
Cineverse Corp.
SUPPLEMENTAL CASH FLOW INFORMATION AND DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY
(Unaudited)
(in thousands)
Six Months Ended
September 30,
2024
2023
Cash interest paid
$
211
$
150
Lease liability related payments
$
233
$
221
Income taxes paid
$
64
$
44
Noncash investing and financing activities:
Issuance of Class A common stock for payment of employee bonuses
$
—
$
1,203
Treasury shares acquired for withholding taxes
$
—
$
370
Earnout liability settled in stock
$
90
$
392
Bonus liability settled in stock
$
41
$
—
Accrued dividends on preferred stock
$
178
$
176
Issuance of Class A common stock for payment of accrued preferred stock dividends
$
178
$
176
See accompanying Notes to Condensed Consolidated Financial Statements
5
Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(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, 2024
1
$
3,559
15,699
$
194
289
$
( 11,978
)
$
545,996
$
( 504,153
)
$
( 345
)
$
33,273
$
( 1,122
)
$
32,151
Foreign exchange translation
—
—
—
—
—
—
—
—
55
55
—
55
Stock-based compensation
—
—
—
—
—
—
470
—
—
470
—
470
Treasury stock acquired
—
—
( 184
)
—
184
( 188
)
—
—
—
( 188
)
—
( 188
)
Fees incurred in connection with ATM offering
—
—
—
—
—
—
( 42
)
—
—
( 42
)
—
( 42
)
Issuance of common stock for acquiree consideration
—
—
29
—
—
—
41
—
—
41
—
41
Preferred stock dividends paid in stock
—
—
64
—
—
—
89
—
—
89
—
89
Preferred stock dividends accrued
—
—
—
—
—
—
—
( 89
)
—
( 89
)
—
( 89
)
Net loss
—
—
—
—
—
—
—
( 3,073
)
—
( 3,073
)
23
( 3,050
)
Balances as of June 30, 2024
1
$
3,559
15,608
$
194
473
$
( 12,166
)
$
546,554
$
( 507,315
)
$
( 290
)
$
30,536
$
( 1,099
)
$
29,437
Foreign exchange translation
—
—
—
—
—
—
—
—
( 7
)
( 7
)
—
( 7
)
Stock-based compensation
—
—
—
—
—
—
503
—
—
503
—
503
Issuance of Class A common stock for earnout commitment
—
—
108
—
—
—
88
—
—
88
—
88
Treasury stock acquired
—
—
( 31
)
—
31
( 27
)
—
—
—
( 27
)
—
( 27
)
Preferred stock dividends paid in stock
—
—
100
—
—
—
89
—
—
89
—
89
Preferred stock dividends accrued
—
—
—
—
—
—
—
( 89
)
—
( 89
)
—
( 89
)
Net loss
—
—
—
—
—
—
—
( 1,287
)
—
( 1,287
)
84
( 1,203
)
Balances as of September 30, 2024
1
$
3,559
15,785
$
194
504
$
( 12,193
)
$
547,234
$
( 508,691
)
$
( 297
)
$
29,806
$
( 1,015
)
$
28,791
See accompanying Notes to Condensed Consolidated Financial Statements
6
Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(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
—
—
—
—
—
—
—
—
( 78
)
( 78
)
—
( 78
)
Stock-based compensation
—
—
—
—
—
—
409
—
—
409
—
409
Issuance of Class A common stock in connection with ATM raises, net
—
—
177
4
—
—
1,065
—
—
1,069
—
1,069
Issuance of Class A common stock in connection with direct equity offering
—
—
2,150
2
—
—
7,437
—
—
7,439
—
7,439
Preferred stock dividends paid in stock
—
—
10
—
—
—
88
—
—
88
—
88
Preferred stock dividends accrued
—
—
—
—
—
—
—
( 88
)
—
( 88
)
—
( 88
)
Net loss
—
—
—
—
—
—
—
( 3,550
)
—
( 3,550
)
14
( 3,536
)
Balances as of June 30, 2023
1
$
3,559
11,685
$
191
66
$
( 11,608
)
$
539,997
$
( 486,033
)
$
( 480
)
$
45,626
$
( 1,250
)
$
44,376
Foreign exchange translation
—
—
—
—
—
—
—
—
66
66
—
66
Stock-based compensation
—
—
—
—
—
—
499
—
—
499
—
499
Issuance of Class A common stock in connection employee bonuses
—
—
725
1
—
—
1,203
—
—
1,203
—
1,203
Estimated fee decrease associated with equity issuance
—
—
—
—
—
—
33
—
—
33
—
33
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
)
Preferred stock dividends paid in stock
—
—
46
—
—
—
88
—
—
88
—
88
Preferred stock dividends accrued
—
—
—
—
—
—
—
( 87
)
—
( 87
)
—
( 87
)
Net loss
—
—
—
—
—
—
—
( 357
)
—
( 357
)
40
( 317
)
Balances as of September 30, 2023
1
$
3,559
12,791
$
192
289
$
( 11,978
)
$
542,212
$
( 486,477
)
$
( 414
)
$
47,093
$
( 1,210
)
$
45,883
See accompanying Notes to Condensed Consolidated Financial Statements
7
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF OPERATIONS AND LIQUIDITY
Cineverse Corp. (“Cineverse”, “us”, “our”, "we", and “Company” refers to Cineverse Corp. and its subsidiaries unless the context otherwise requires) was incorporated in Delaware on March 31, 2000. Since our inception, we have played a role in the digital distribution revolution that continues to transform the media and entertainment landscape.
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 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 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.
Our Class A common stock, par value $ 0.001 per share (the "Common Stock") is listed on The Nasdaq Stock Market (“Nasdaq”) under the symbol “CNVS.”
Financial Condition and Liquidity
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 unamortized issuance costs of $ 180 thousand .
On April 5, 2024, Cineverse Terrifier LLC (“T3 Borrower”), a wholly-owned subsidiary of the Company entered into a Loan and Security Agreement with BondIt LLC (“T3 Lender”) and the Company, as a guarantor (the “T3 Loan Agreement”). The T3 Loan Agreement provides for a term loan with a principal amount not to exceed $ 3,666 thousand (the “T3 Loan”), and a maturity date of April 1, 2025 , unless extended for 120 days under certain conditions. The T3 Loan bears no interest until the maturity date other than an interest advance equal to $ 576 thousand paid at the closing of the T3 Loan on April 5, 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 titled Terrifier 3 (the "Film") under its distribution agreements until the T3 Lender has received 1.75 times of the full commitment amount of $ 3,666 thousand consisting of principal plus interest and fees advanced to the T3 Borrower, plus any
8
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
extension interest. 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. See Note 5 - Debt , for further information.
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 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 the 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 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.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The accompanying interim Condensed Consolidated Financial Statements of Cineverse Corp. have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended March 31, 2024 filed with the SEC on July 1, 2024. These Condensed Consolidated Financial Statements are unaudited and have been prepared by the Company following the rules and regulations of the SEC.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted as permitted by such rules and regulations; however, the Company believes the disclosures are adequate to make the information presented not misleading. Certain columns and rows may not foot due to the use of rounded numbers.
The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2024. Interim results are not necessarily indicative of the results for a full year.
The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Significant items subject to such estimates and assumptions include revenue recognition, allowance for credit losses, returns and recovery reserves, goodwill and intangible asset impairments, share-based compensation expense, valuation allowance for deferred income taxes and amortization of 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 these assumptions, judgments and estimates. Actual results may differ from these estimates.
9
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. 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.
Accounting Policies
There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended March 31, 2024 .
Segment Reporting
The Company manages its operations and its business in one reporting segment.
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.
Property and Equipment, Net
Property and equipment, net 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 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
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, net 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. Post-configuration training and maintenance costs are expensed as incurred. We amortize internal-use software over its estimated useful life on a straight-line basis.
10
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. For intangible assets with indefinite lives, the assets are tested annually for impairment or sooner if a triggering event occurs.
Amortization lives of intangible assets are as follows:
Content Library
3 – 20 years
Tradenames, Trademarks and Patents
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 included the following (in thousands) :
As of September 30, 2024
Cost Basis
Accumulated
Amortization
Net
Content Library
$
24,165
$
( 21,618
)
$
2,547
Advertiser Relationships and Channel
12,604
( 3,360
)
9,244
Customer Relationships
8,690
( 8,008
)
682
Software
3,200
( 1,040
)
2,160
Tradenames, Trademarks and Patents
3,946
( 3,140
)
806
Capitalized Content
3,048
( 550
)
2,498
Total Intangible Assets
$
55,653
$
( 37,716
)
$
17,937
As of March 31, 2024
Cost Basis
Accumulated
Amortization
Net
Content Library
$
24,133
$
( 21,492
)
$
2,641
Advertiser Relationships and Channel
12,604
( 2,541
)
10,063
Customer Relationships
8,690
( 7,872
)
818
Software
3,200
( 880
)
2,320
Trademark and Tradenames
3,914
( 3,059
)
855
Capitalized Content
1,821
( 190
)
1,631
Total Intangible Assets
$
54,362
$
( 36,034
)
$
18,328
During the three and six months ended September 30, 2024, the Company had amortization expense of $ 0.8 million and $ 1.5 million , respectively. During the three and six months ended September 30, 2023 , the Company had amortization expense of $ 0.8 million and $ 1.5 million, respectively.
11
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of September 30, 2024, future amortization expense is expected to be as follows (in thousands) :
Total
In-process intangible assets
$
469
Remainder of fiscal year 2025
1,960
2026
3,584
2027
2,635
2028
1,601
2029
1,545
Thereafter
6,143
Total
$
17,937
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 as Capitalized Content costs within Intangible Assets and are amortized as a group within Depreciation and Amortization on our Condensed 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 three and six months ended September 30, 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. The Company annually assesses goodwill for potential impairment during its fourth fiscal quarter, or sooner if events occur or circumstances would indicate it would be more likely than not that fair value would be reduced below its carrying amount. For the year ended March 31, 2024, the Company recognized a goodwill impairment cha rge of $ 14 million. No goodwill impairment charge was recorded in the three and six months ended September 30, 2024 and 2023 .
12
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Fair Value Measurements
The fair value measurement disclosures are grouped into three levels based on valuation factors:
• Level 1 – quoted prices in active markets for identical investments
• Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs)
• Level 3 – significant unobservable inputs (including our own assumptions in determining the fair value of investments)
The following tables summarize the levels of fair value measurements of our financial assets and liabilities (in thousands) :
As of September 30, 2024
Level 1
Level 2
Level 3
Total
Assets:
Equity investment in Metaverse, at fair value
$
160
$
—
$
—
$
160
$
160
$
—
$
—
$
160
Liabilities:
Current portion of earnout consideration on purchase of a business
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
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:
Current portion of earnout consideration on purchase of a business
$
—
$
—
$
180
$
180
$
—
$
—
$
180
$
180
Our cash and cash equivalents, accounts receivable 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.
Equity Investment in Metaverse
The Company has an equity investment 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.
After a period of time when trading in Metaverse's ordinary shares had been halted, the resumption of active trading status in November 2023 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 is presented within Other long term assets and as of September 30, 2024 and March 31, 2024 was $ 0.2 million and $ 0.4 million, respectively.
13
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Earnout Consideration on Purchase of Business
Prior to the completion of the earnout period at the end of fiscal year 2024, 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 . During the quarter ended September 30, 2024, the Company made its final earnout payment reducing the earnout liability as of September 30, 2024 to $ 0 .
Content Advances
Content advances represent 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 in more than 12 months are classified as long term and presented within content advances, net of current portion, which were $ 1.5 million and $ 2.6 million as of September 30, 2024, and March 31, 2024, respectively. For the three and six months ended September 30, 2024, the Company recognized a reduction in our reserve for the recovery of advances in the amount of $ 27 thousand and $ 30 thousand , respectively.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following (in thousands) :
As of
September 30,
2024
March 31,
2024
Accounts payable
$
7,308
$
5,804
Amounts due to producers
7,221
9,889
Accrued compensation and benefits
982
1,119
Accrued other expenses
4,417
4,005
Total Accounts Payable and Accrued Expenses
$
19,928
$
20,817
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 recognized interest expense related to accretion in advance of the ultimate settlement of these liabilities. Amounts due within 12 months under the terms of the agreements are classified as current within the Condensed Consolidated Balance Sheets.
The deferred consideration related to the acquisition of DMR is payable in either shares of Common Stock or cash, at the Company's discretion and subject to certain conditions. A final payment of $ 2.4 million is due in March 2025.
The deferred consideration related to the acquisition of FTV is payable in cash and up to 25 % in shares of Common Stock, at the Company's discretion and subject to certain conditions. The final payment is due in June 2025.
14
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Revenue Recognition
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.
The following tables present the Company’s disaggregated revenue by source (in thousands) :
Three Months Ended September 30,
Six Months Ended
September 30,
2024
2023
2024
2023
Streaming and digital
$
10,089
$
9,355
$
17,792
$
19,469
Podcast and other
1,273
660
2,316
1,089
Base distribution
1,321
560
1,672
1,718
Other non-recurring
56
2,437
86
3,716
Total Revenue
$
12,739
$
13,012
$
21,866
$
25,992
The Company's Streaming and digital revenue pertains to its OTT business, including the licensing, service, advertising, and subscription revenue related to the Company's streaming business and partnerships. Base distribution revenue relates to non-streaming revenue, including Theatrical revenue and the sale of DVD's. Podcast and other revenue primarily relate to the Company's Bloody Disgusting Podcast Network. As the Company satisfies its performance obligations from these revenue sources, whether relating to the delivery of digital content, physical goods, or licensing, revenue is generally measured at a point in time.
Other non-recurring revenue relates to the Company's legacy digital cinema operations, whose operations have run-off, still may generate non-recurring revenue from the sale of cinema assets or the recognition of variable consideration as the associated uncertainty associated with the revenue is resolved.
The Company follows the five-step model established by Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606, Revenue from contracts with customers ("ASC 606") 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.
15
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Credit Losses
We maintain reserves for expected credit losses on accounts receivable primarily on a specific identification basis. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.
We recognize accounts receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that we recognize revenue from a sale. Reserves for product returns and other allowances are variable consideration as part of the transaction price. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.
During the three and six months ended September 30, 2024, the Company recognized a reduction in its provision for credit losses of $ 30 thousand and $ 185 thousand , respectively. During the three and six months ended September 30, 2023 , we did no t recognize any credit losses as part of its ongoing operations or reversals of previously recorded provisions.
A summary of the movements of our allowances for credit losses follows (in thousands) :
Allowance for credit losses at the beginning of the year
$
269
Decrease in estimated provision
( 185
)
Allowance for credit losses as at September 30, 2024
$
84
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, such as the sale of DVDs with future release dates, even if amounts are refundable. Amounts recorded as contract liabilities are generally not long-term in nature.
The ending deferred revenue balance, including current and non-current balances as of September 30, 2024 and March 31, 2024, was $ 0.4 million and $ 0.4 million, respectively. In each period, the additions to our deferred revenue balance are due to cash payments received or due in advance of satisfying performance obligations, while the reductions are due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.
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 three and six months ended September 30, 2024, customers that individually account for greater than 10% collectively represented 45 % ( three customers) and 32 % ( two customers) of consolidated revenues. For the three and six months ended September 30, 2023 , one customer represented 25 % and 24 % of consolidated revenues, respectively.
16
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Direct Operating Expenses
Direct operating expenses consist of cost of revenue, fulfillment expenses, shipping costs, property taxes and insurance on systems, royalty expenses, reserves against advances and marketing and direct personnel costs.
Stock-based Compensation
The Company issues stock-based awards to employees and non-employees, generally in the form of restricted stock, restricted stock units, stock appreciation rights ("SARs") and performance stock units ("PSUs"). The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments, including grants of stock options and restricted stock units and modifications to existing stock options, to be recognized in the Condensed Consolidated Statements of Operations and Comprehensive Loss based on their fair values. 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 or non-employee is required to provide service in exchange for the award. The fair values of options and SARs are calculated as of the date of grant using the Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility, risk-free rate and expected term. The Company’s estimates of these assumptions are primarily based on the trading price of the Company’s stock, historical data, peer company data and judgment regarding future trends and factors. Forfeitures are recognized as they occur.
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 FASB ASC Topic 740-10, Income Taxes (Accounting for Uncertainty in Income Taxes) , which clarified the accounting for uncertainty in tax positions. This amendment provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is “more-likely-than-not” to be sustained were it to be challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the “more-likely-than-not” threshold, the largest amount of tax benefit that is more than 50 % likely to be recognized upon ultimate settlement with the taxing authority is recorded. The Company had no uncertain tax positions as of September 30, 2024 and March 31, 2024.
17
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 warrants outstanding during the period, 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 loss per share are computed as follows (in thousands, except per share data) :
Three Months Ended September 30,
Six Months Ended
September 30,
2024
2023
2024
2023
Basic net loss per share:
Net loss attributable to Common Stockholders
$
( 1,376
)
$
( 445
)
$
( 4,536
)
$
( 4,082
)
Shares used in basic computation:
Weighted-average shares of Common Stock outstanding
15,721
12,376
15,711
11,118
Basic Net Loss Per Share
$
( 0.09
)
$
( 0.04
)
$
( 0.29
)
$
( 0.37
)
Shares used in diluted computation:
Weighted-average shares of Common Stock outstanding
15,721
12,376
15,711
11,118
Stock options and SARs
—
—
—
—
Weighted-average number of shares
15,721
12,376
15,711
11,118
Diluted Net Loss Per Share
$
( 0.09
)
$
( 0.04
)
$
( 0.29
)
$
( 0.37
)
The calculation of diluted net loss per share for the three and six months ended September 30, 2024 does not include the impact of 5,784 thousand and 5,474 thousand anti-dilutive shares, respectively. The calculation of diluted net loss per share for the three and six months ended September 30, 2023 does not include the impact of 845 thousand and 793 thousand anti-dilutive shares, respectively.
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.
18
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. OTHER INTERESTS
Investment in 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 Topic 810 (“ASC 810”), Consolidation . ASC 810 requires the consolidation of VIEs by an entity that has a controlling financial interest in the VIE which entity is thereby defined as the primary beneficiary of the VIE.
As of September 30, 2024 and March 31, 2024 , 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 as of both September 30, 2024 and March 31, 2024.
Total Stockholders’ Deficit of CDF2 Holdings at both September 30, 2024 and March 31, 2024 was $ 59.2 million. 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 both September 30, 2024 and March 31, 2024 is carried at $ 0 .
Investment in Roundtable
On March 15, 2022, the Company entered into a stock purchase agreement with Roundtable Entertainment Holdings, Inc. (“Roundtable”) pursuant to which the Company purchased 0.5 thousand shares of Roundtable Series A Preferred Stock and warrants to purchase 0.1 thousand shares of Roundtable common stock (together, the “Roundtable Securities”). The Company paid the purchase price for the Roundtable Securities by issuing 16 thousand shares of Common Stock to Roundtable. The Compan y recorded $ 0.2 mi llion 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.
19
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. STOCKHOLDERS’ EQUITY
COMMON STOCK
As of September 30, 2024 and 2023 , the number of shares of Common Stock authorized for issuance was 275,000,000 shares.
During the three months ended September 30, 2024, the Company issue d 208 thousand shares of Common Stock. This was comprised of 100 thousand shares for preferred stock dividends and 108 thousan d shares for payment of compensation to former owners of an acquired entity. In addition, the Company purchased 31 thousand shares as part of its share repurchase program.
During the six months ended September 30, 2024 and in addition to the activities cited above, the Company also purchased 184 thousand shares as part of the share repurchase program, paid preferred stock dividends through the issuance of 64 thousand common shares and issued 29 thousand shares for acquiree consideration.
During the three months ended September 30, 2023, the Company issued 1.3 million shares of Common Stock. This was comprised of 517 thousand shares issued in conjunction with the exercise of pre-funded warrants issued, 725 thousand shares issued in connection with employee bonuses, 46 thousand shares for preferred stock dividends, and 41 thousand to satisfy earnout-related liabilities. In addition, the Company withheld 223 thousand shares related to taxes on employee bonuses that will be reflected as treasury shares.
During the six months ended September 30, 2023, the Company issued 3.7 million shares of Common Stock. In addition to the activities cited for three months ended September 30, 2023, this was comprised of 2,150 thousand shares issued through a June 16, 2023 direct offering, 177 thousand issued in connection with ATM sales during the first fiscal quarter, and 10 thousand issued in payment of preferred stock dividends. In addition, the Company issued common warrants to purchase up to 2,667 thousand shares of Common Stock in conjunction with its direct offering on June 16, 2023. All pre-funded and common warrants were issued as immediately exercisable. All common warrants remain outstanding as of September 30, 2023.
PREFERRED STOCK
Cumulative dividends in arrears on Series A Preferred Stock were $ 89 th ousand an d $ 87 th ousand as of September 30, 2024 and 2023, respectively. During the three and six months ended September 30, 2024 , the Company paid preferred stock dividends in arrears of $ 89 thousand and $ 178 thousand in the form of shares of Common Stock, respectively. The Company has the right to pay preferred stock dividends in cash or stock, at the Company's discretion.
TREASURY STOCK
We have treasury stock, at cost, consisting of 504 thousand and 289 thousand shares of Common Stock as of September 30, 2024 and March 31, 2024, respectively. During the six months ended September 30, 2024, the Company acqui red 214 thousand shares of treasury stock, repurchased through a Rule 10b5-1 trading plan with B. Riley Securities, Inc.
EQUITY INCENTIVE PLANS
Stock Based Compensation Awards
The Company has issued awards under two plans, the 2000 Equity Incentive Plan (the “2000 Plan”) and the 2017 Equity Incentive Plan (the “2017 Plan").
Awards issued under our 2000 Plan were permitted to be issued to employees, outside directors or consultants in any of the following forms (or a combination thereof) (i) stock option awards; (ii) SARs; (iii) stock or restricted stock or restricted stock units; or (iv) performance awards. The 2000 Plan provided for the granting of incentive stock
20
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
options (“ISOs”) with exercise prices not less than the fair market value of 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 Common Stock on the date of grant. ISOs and non-statutory stock options granted under the 2000 Plan were 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.
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, in the form of various awards, including stock options, stock appreciation rights, stock, restricted stock, restricted stock units, performance awards and cash awards.
For the three and six months ended September 30, 2024, the Company incurred stock-based compensation expense of $ 0.5 million and $ 1.0 million, respectively. For the three and six months ended September 30, 2023, the Company incurred stock-based compensation expense of $ 0.5 million and $ 0.9 million, respectively.
Included within this expense, our Board of Directors stock-based compensation was $ 83 thousand and $ 165 thousand for the three and six months ended September 30, 2024, respectively, and $ 90 thousand and $ 180 thousand for the three and six months ended September 30, 2023, respectively.
Share-based compensation expense is reported within Selling, General and Administrative expenses in our Condensed Consolidated Statements of Operations.
5. DEBT
LINE OF CREDIT FACILITY
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 . Under the Line of Credit Facility, the Company is subject to certain financial and non-financial covenants which require the Company to maintain certain metrics and ratios, maintain certain minimum cash on hand and to report financial information to our lender on a periodic basis. As of September 30, 2024, $ 4.6 million was outstanding on the Line of Credit Facility, net of unamortized issuance costs of $ 180 thousand .
During the three and six months ended September 30, 2024, the Company had interest expense, including cash interest and amortization, of $ 0.2 million and $ 0.3 million , related to its Line of Credit Facility, respectively.
During the three and six months ended September 30, 2023, the Company had interest expense, including cash interest and amortization, of $ 0.1 million and $ 0.2 million related to its Line of Credit Facility, respectively.
21
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
TERM LOAN
On April 5, 2024, T3 Borrower, a wholly-owned subsidiary of the Company, entered into the T3 Loan Agreement with the T3 Lender.
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. The interest advance was recorded as a discount on the T3 Loan at inception and will be amortized to interest expense and increase the loan amount over its term. If the T3 Loan is extended as noted above, the T3 Loan will bear interest at a rate of 1.44 % per month. 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 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 in total 1.75 times the full commitment amount of $ 3.7 million. The T3 Loan is secured by a first priority interest in all of T3 Borrower’s assets in connection with the Film, including T3 Borrower's rights, title and interest in the distribution agreements, including the proceeds to the T3 Borrower from the distribution of the Film.
The Company entered into a Guaranty Agreement (the "T3 Guaranty Agreement") on April 25, 2024, pursuant to which it guarantees T3 Borrower's obligations under the T3 Loan Agreement (the "Guarantee"). The Guarantee is capped at $ 1.5 million.
Under an Intercreditor Agreement, dated April 5, 2024, by and among EWB, T3 Lender, T3 Borrower and the Company, the Guarantee is subordinated in payment and performance to the Line of Credit Facility.
6 . COMMITMENTS AND CONTINGENCIES
LEASES
Cineverse is a virtual company with one domestic operating lease, acquired through the acquisition of DMR which property is subleased to a third party. The Company has not been relieved of the original lease obligation and therefore recognizes both a lease liability and righ t-of-use asset as part of the arrangement. The end of both the original lease and sublease's term is January 2025 . In addition, the Company has two operating leases related to its Cinev erse India operations, with expiration dates in July 2027 . Expenses related to these leases were $ 117 thousand and $ 233 thousand during the three and six months ended September 30, 2024 , respectively, and $ 121 thousand and $ 236 thousand during the three and six months ended September 30, 2023, respectively
The Company recognized $ 46 thousand and $ 92 thousand of income related to its subleasing arrangement during the three and six months ended September 30, 2024 , respectively, and $ 45 thousand and $ 90 thousand for the three and six months ended September 30, 2023, respectively
22
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The table below presents the lease-related assets and liabilities recorded on our Consolidated Balance Sheets (in thousands) :
Classification on the Balance Sheet
September 30,
2024
March 31,
2024
Assets
Noncurrent
Other long-term assets
$
614
$
834
Liabilities
Current
Operating leases liabilities
273
401
Noncurrent
Operating leases liabilities, net of current
371
462
$
644
$
863
The table below presents the annual gross undiscounted cash flows related to the Company's operating lease commitments (in thousands) :
Fiscal year ending March 31,
Operating Lease Commitments
2025
$
191
2026
200
2027
210
2028
72
Thereafter
—
Total lease payments
$
673
Less imputed interest
( 29
)
Total
$
644
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, Leases , and recognizes these expenses on a straight-line basis over the term of the agreement.
The table below presents the annual gross undiscounted cash flows related to the Company's operating lease subleasing arrangements (in thousands) :
Fiscal year ending March 31,
Sublease Payments
2025
$
62
Thereafter
—
Total
$
62
7. INCOME TAXES
We calculate income tax expense based upon an annual effective tax rate forecast, which includes estimates and assumptions. We recognized income tax expense of $ 6 thousand and $ 13 thousand for the three and six months ended September 30, 2024, respectively. We recognized income tax expense of $ 16 thousand and $ 36 thousand for the three and six months ended September 30, 2023, respectively. Our income tax expense is attributable to taxable income earned in India relating to transfer pricing.
We have not recorded tax benefits on our loss before income taxes because we have provided for a full valuation allowance that offsets potential deferred tax assets resulting from net operating loss carry forwards, reflecting our inability to use such loss carry forwards.
Our effective tax rate was ( 0.5 )% and ( 0.3 )% for the three and six months ended September 30, 2024, respectively, and ( 5.3 )% and ( 1.0 )% for the three and six months ended September 30, 2023 , respectively.
23
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.