Cineverse Corp. 10-Q

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Cineverse Corp. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) As of December 31, 2024 March 31, 2024 (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 6,083 $ 5,167 Accounts receivable, net of allowance for credit losses of $ 151 and $ 269 , respectively 33,938 15,106 Employee retention tax credit 79 1,671 Content advances 8,825 9,345 Other current assets 1,559 1,432 Total current assets 50,484 32,721 Property and equipment, net 2,927 2,276 Intangible assets, net 17,840 18,328 Goodwill 6,799 6,799 Content advances, net of current portion 1,431 2,551 Other long-term assets 1,061 1,703 Total Assets $ 80,542 $ 64,378 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable and accrued expenses $ 35,974 $ 20,817 Line of credit, including unamortized debt issuance costs of $ 153 and $ 81 , respectively 3,847 6,301 Current portion of deferred consideration on purchase of business 3,369 3,114 Earnout consideration on purchase of business — 180 Current portion of operating lease liabilities 207 401 Deferred revenue 331 436 Total current liabilities 43,728 31,249 Deferred consideration on purchase of business, net of current portion — 457 Operating lease liabilities, net of current portion 324 462 Other long-term liabilities 27 59 Total Liabilities $ 44,079 $ 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 December 31, 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 December 31, 2024 and March 31, 2024; 16,462,308 and 15,985,620 shares issued, with 15,958,489 and 15,699,135 shares outstanding as of December 31, 2024 and March 31, 2024, respectively 194 194 Additional paid-in capital 547,843 545,996 Treasury stock, at cost; 503,819 and 288,554 shares as of December 31, 2024 and March 31, 2024, respectively ( 12,193 ) ( 11,978 ) Accumulated deficit ( 501,667 ) ( 504,153 ) Accumulated other comprehensive loss ( 306 ) ( 345 ) Total stockholders’ equity of Cineverse Corp. 37,430 33,273 Deficit attributable to noncontrolling interest ( 967 ) ( 1,122 ) Total equity 36,463 32,151 Total Liabilities and Equity $ 80,542 $ 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 December 31, Nine Months Ended December 31, 2024 2023 2024 2023 Revenues $ 40,740 $ 13,276 $ 62,606 $ 39,268 Costs and expenses Direct operating 20,997 5,464 31,738 17,097 Selling, general and administrative 9,361 6,373 22,288 21,088 Depreciation and amortization 946 1,012 2,783 2,787 Total operating expenses 31,304 12,849 56,809 40,972 Operating income (loss) 9,436 427 5,797 ( 1,704 ) Interest expense ( 2,342 ) ( 291 ) ( 3,110 ) ( 781 ) Gain (loss) from equity investment in Metaverse, a related party 138 ( 3,043 ) 142 ( 3,761 ) Other (expense) income, net ( 65 ) 147 96 ( 331 ) Net income (loss) before income taxes 7,167 ( 2,760 ) 2,925 ( 6,577 ) Income tax (expense) benefit ( 6 ) 24 ( 19 ) ( 12 ) Net income (loss) 7,161 ( 2,736 ) 2,906 ( 6,589 ) Net income attributable to noncontrolling interest ( 48 ) ( 41 ) ( 155 ) ( 94 ) Net income (loss) attributable to controlling interests 7,113 ( 2,777 ) 2,751 ( 6,683 ) Preferred stock dividends ( 89 ) ( 87 ) ( 266 ) ( 263 ) Net income (loss) attributable to common stockholders $ 7,024 $ ( 2,864 ) $ 2,485 $ ( 6,946 ) Net income (loss) per share attributable to common stockholders: Basic $ 0.38 $ ( 0.22 ) $ 0.13 $ ( 0.59 ) Diluted $ 0.34 $ ( 0.22 ) $ 0.12 $ ( 0.59 ) Weighted average shares of Common Stock outstanding: Basic 15,880 12,828 15,766 11,678 Diluted 17,774 12,828 17,573 11,678 See accompanying Notes to Condensed Consolidated Financial Statements 2 Cineverse Corp. CONDENSED CONSOLIDATED STATE MENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (in thousands) Three Months Ended December 31, Nine Months Ended December 31, 2024 2023 2024 2023 Net income (loss) $ 7,161 $ ( 2,736 ) $ 2,906 $ ( 6,589 ) Other comprehensive income (loss): Foreign exchange translation ( 9 ) ( 3 ) 39 ( 15 ) Net income attributable to noncontrolling interest ( 48 ) ( 41 ) ( 155 ) ( 94 ) Comprehensive income (loss) $ 7,104 $ ( 2,780 ) $ 2,790 $ ( 6,698 ) See accompanying Notes to Condensed Consolidated Financial Statements 3 Cineverse Corp. CONDENSED CONSOLIDATED ST ATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine Months Ended December 31, 2024 2023 Cash flows from operating activities: Net income (loss) $ 2,906 $ ( 6,589 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 2,783 2,787 Amortization of debt issuance costs 310 103 Stock-based compensation 1,463 1,092 Non-cash interest expense 349 381 Changes in fair value of equity investment in Metaverse ( 142 ) 3,761 Change in estimated earnout consideration — ( 682 ) Barter-related non-cash expenses 256 256 Other ( 37 ) 395 Changes in operating assets and liabilities: Accounts receivable ( 18,832 ) 3,398 Other current and long-term assets 1,837 449 Content advances 1,194 ( 6,485 ) Accounts payable, accrued expenses and other liabilities 14,654 ( 6,802 ) Capitalized content ( 1,652 ) ( 1,371 ) Deferred revenue ( 105 ) 20 Net cash provided by (used in) operating activities $ 4,984 $ ( 9,287 ) Cash flows from investing activities: Expenditures for long-lived assets ( 1,104 ) ( 641 ) Sale of equity investment securities 449 159 Net cash used in investing activities $ ( 655 ) $ ( 482 ) Cash flows from financing activities: Proceeds from line of credit 47,588 28,565 Payments on line of credit ( 49,970 ) ( 28,565 ) 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 — Repayment of term loan ( 3,090 ) — Payment of earnout consideration ( 90 ) ( 291 ) Cost to acquire treasury shares ( 215 ) — Financing fees for line of credit ( 209 ) ( 96 ) Proceeds from common stock warrant exercise 30 — Issuance of Class A common stock, net of issuance costs — 8,542 Net cash (used in) provided by financing activities $ ( 3,413 ) $ 8,156 Net change in cash and cash equivalents 916 ( 1,613 ) Cash and cash equivalents at beginning of period 5,167 7,152 Cash and cash equivalents at end of period $ 6,083 $ 5,539 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) Nine Months Ended December 31, 2024 2023 Cash interest paid $ 931 $ 233 Lease liability related payments $ 351 $ 333 Income taxes paid $ 38 $ 49 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 $ 40 $ — Accrued dividends on preferred stock $ 266 $ 263 Issuance of Class A common stock for payment of accrued preferred stock dividends $ 267 $ 263 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 (Audited) 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 (income) — — — — — — — ( 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 (income) — — — — — — — ( 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 Foreign exchange translation — — — — — — — — ( 9 ) ( 9 ) — ( 9 ) Stock-based compensation — — — — — — 490 — — 490 — 490 Issuance of common stock for Board of Director compensation — — 74 — — — — — — — — — Preferred stock dividends paid in stock — — 89 — — — 89 — — 89 — 89 Preferred stock dividends accrued — — — — — — — ( 89 ) — ( 89 ) — ( 89 ) Exercise of common stock warrant — — 10 — — — 30 — — 30 — 30 Net income — — — — — — — 7,113 — 7,113 48 7,161 Balances as of December 31, 2024 1 $ 3,559 15,958 $ 194 504 $ ( 12,193 ) $ 547,843 $ ( 501,667 ) $ ( 306 ) $ 37,430 $ ( 967 ) $ 36,463 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 (Audited) 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 — — 1,204 — 1,204 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 — — — 87 — — 87 — 87 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 ) $ 542,211 $ ( 486,477 ) $ ( 414 ) $ 47,093 $ ( 1,210 ) $ 45,883 Foreign exchange translation — — — — — — — — ( 3 ) ( 3 ) — ( 3 ) Stock-based compensation — — — — — — 98 — — 98 — 98 Issuance of common stock for Board of Director compensation — — 400 — — — 85 — — 85 — 85 Preferred stock dividends paid in stock — — 74 — — — 87 — — 87 — 87 Preferred stock dividends accrued — — — — — — — ( 87 ) — ( 87 ) — ( 87 ) Net loss — — — — — — — ( 2,777 ) — ( 2,777 ) 41 ( 2,736 ) Balances as of December 31, 2023 1 $ 3,559 13,265 $ 192 289 $ ( 11,978 ) $ 542,481 $ ( 489,341 ) $ ( 417 ) $ 44,496 $ ( 1,170 ) $ 43,327 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 December 31, 2024, the Company has an accumulated deficit of $ 501.7 million and working capital surplus of $ 6.8 million. For the three and nine months ended December 31, 2024, the Company had a net income attributable to Common Stock holders of $ 7.0 million and $ 2.5 million , respectively. Net cash provided by operating activities for the nine months ended December 31, 2024 was $ 5.0 million, which i s net of $ 4.8 million of i ncremental 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 East West Bank ("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 9.0 % as of December 31, 2024. The Line of Credit Facility matures on September 15, 2025 . As of December 31, 2024, $ 3.8 million was outstanding on the Line of Credit Facility, net of unamortized issuance costs of $ 153 thousand . Subsequent to the quarter ended December 31, 2024 , our Line of Credit balance was paid down to $ 0 . 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. A fter 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 extension interest. The T3 Loan, including interest o f $ 576 thousand, was repaid during the quarter ended December 31, 2024. See Note 6 - 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 8 CINEVERSE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 December 31, 2024 and March 31, 2024, short term content advances were $ 8.8 million and $ 9.3 million, respectively, and content advances, net of the current portion, were $ 1.4 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 and availability under our Line of Credit Facility as of December 31, 2024 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 Basis of Presentation 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. 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. 9 CINEVERSE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Use of Estimates 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. 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 December 31, 2024 Cost Basis Accumulated Amortization Net Content Library $ 24,226 $ ( 21,675 ) $ 2,551 Advertiser Relationships and Channel 12,832 ( 3,782 ) 9,050 Customer Relationships 8,690 ( 8,077 ) 613 Software 3,200 ( 1,120 ) 2,080 Tradenames, Trademarks and Patents 3,953 ( 3,171 ) 782 Capitalized Content 3,541 ( 777 ) 2,764 Total Intangible Assets $ 56,442 $ ( 38,602 ) $ 17,840 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 Tradenames, Trademarks and Patents 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 nine months ended December 31, 2024, the Company had amortization expense of $ 0.8 million and $ 2.3 million , respectively. During the three and nine months ended December 31, 2023 , the Company had amortization expense of $ 0.9 million and $ 2.4 million, respectively. 11 CINEVERSE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) As of December 31, 2024, future amortization expense is expected to be as follows (in thousands) : Total In-process intangible assets $ 469 Remainder of fiscal year 2025 1,004 2026 3,734 2027 2,785 2028 1,718 2029 1,615 Thereafter 6,515 Total $ 17,840 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 nine months ended December 31, 2024 and 2023 . Goodwill Goodwill is the excess of the purchase price paid over the fair value of the net assets of an acquired business. Goodwill is tested for impairment on an annual basis or more often if warranted by events or changes in circumstances indicating that the carrying value may exceed fair value, also known as impairment indicators. Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current economic indicators and market conditions, and assumptions about our strategic plans with regard to its operations. To the extent additional information arises, market conditions change, or our strategies change, it is possible that the conclusion regarding whether our remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material effect on our consolidated financial position or results of operations. The Company has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or to perform the quantitative impairment test. 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 nine months ended December 31, 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 December 31, 2024 Level 1 Level 2 Level 3 Total Assets: Equity investment in Metaverse, at fair value $ 53 $ — $ — $ 53 $ 53 $ — $ — $ 53 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 within the Level 1 grouping. The fair value of the shares held is presented within Other long-term assets and as of December 31, 2024 and March 31, 2024 was $ 0.1 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 an 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 $ 1.4 million and $ 2.6 million as of December 31, 2024 and March 31, 2024, respectively. For the three and nine months ended December 31, 2024 , the Company recognized a reduction in our reserve for the recovery of advances in the amount of $ 67 thousand and $ 37 thousand, respectively. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consisted of the following (in thousands) : As of December 31, 2024 March 31, 2024 Accounts payable $ 7,207 $ 5,804 Amounts due to producers 18,358 9,889 Accrued compensation and benefits 3,498 1,119 Accrued other expenses 6,911 4,005 Total Accounts Payable and Accrued Expenses $ 35,974 $ 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 of $1.1 million is due in June 2025. As of December 31, 2024 and March 31, 2024 , the Company has outstanding liabilities of $ 3.4 million and $ 3.1 million, respectively, relating to deferred consideration arrangements. 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 December 31, Nine Months Ended December 31, 2024 2023 2024 2023 Streaming and digital $ 14,128 $ 9,537 $ 31,920 $ 29,006 Podcast and other 2,058 864 4,374 1,953 Base distribution 24,481 2,811 26,153 4,529 Other non-recurring 73 64 159 3,780 Total Revenue $ 40,740 $ 13,276 $ 62,606 $ 39,268 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 DVDs. 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 nine months ended December 31, 2024, the Company recognized an increase (reduction) in its provision for credit losses of $ 68 thousand and ($ 118 ) thousand , respectively. During the three and nine months ended December 31, 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 ( 118 ) Allowance for credit losses as at December 31, 2024 $ 151 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 December 31, 2024 and March 31, 2024, was $ 0.3 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 nine months ended December 31, 2024, customers that individually account for greater than 10% collectively represented 71 % ( two customers) and 56 % ( two customers) of consolidated revenues. For the three and nine months ended December 31, 2023 , one customer represented 26 % and 23 % 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 awards, 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 December 31, 2024 and March 31, 2024. 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 17 CINEVERSE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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. 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 December 31, 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 December 31, 2024 and March 31, 2024. Total Stockholders’ Deficit of CDF2 Holdings at both December 31, 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 December 31, 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. 18 CINEVERSE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 4. STOCKHOLDERS’ EQUITY COMMON STOCK As of December 31, 2024 and 2023 , the number of shares of Common Stock authorized for issuance was 275,000,000 shares. During the three months ended December 31, 2024, the Company issued 173 thousand shares of Common Stock. This was comprised of 89 thousand shares for preferred stock dividends and 74 thousand shares for payment of compensation to the Company's Board of Directors. In addition, the Company issued 10 thousand shares in relation to the exercise of common stock warrants. During the nine months ended December 31, 2024 and in addition to the activities cited abov e, the Company also purchased 215 thousand shares as part of the share repurchase program, paid preferred stock dividends through the issuance of 164 thousand common shares, issued 108 thousand shares for payment of compensation to former owners of an acquired entity and issued 29 thousand shares for acquiree consideration. During the three months ended December 31, 2023, the Company issued 474 thousand shares of Common Stock. This was comprised of 74 thousand shares for preferred stock dividends, and 400 thousand shares for Board of Director compensation. During the nine months ended December 31, 2023, the Company issued 3,917 thousand shares of Common Stock. In addition to the activity cited for three months ended December 31, 2023, this was comprised of 517 thousand shares issued in conjunction with the exercise of pre-funded warrants issued, 502 shares issued in connection with employee bonuses, 56 thousand shares for preferred stock dividends, 41 thousand to satisfy earnout-related liabilities, 2,150 thousand shares were issued through a June 16, 2023 direct offering, and 177 thousand issued in connection with ATM sales during the first fiscal quarter. 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 common warrants were issued as immediately exercisable and 2,657 thousand common warrants remain outstanding as of December 31, 2024. These common warrants are considered participating securities for purposes of the earnings per share calculation. Refer to Note 5, Earnings (Loss) Per Share. PREFERRED STOCK Cumulative dividends in arrears on Series A Preferred Stock were $ 89 th ousand an d $ 87 th ousand as of December 31, 2024 and 2023, respectively. During the three and nine months ended December 31, 2024 and 2023, the Company paid preferred stock dividends in arrears for the same amount in the form of shares of Common Stock. 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 December 31, 2024 and March 31, 2024, respectively. During the nine months ended December 31, 2024 , the Company acquired 215 thousand shares of treasury stock, repurchased through a Rule 10b5-1 trading plan with B. Riley Securities, Inc. 19 CINEVERSE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 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. In December 2024, an increase in the authorization under the 2017 Plan to 2,505 thousand shares was approved. For the three and nine months ended December 31, 2024 , the Company incurred stock-based compensation expense of $ 0.5 million and $ 1.5 million, respectively. For the three and nine months ended December 31, 2023 , the Company incurred stock-based compensation expense of $ 0.2 million and $ 1.1 million, respectively. Included within this expense, our Board of Directors stock-based compensation was $ 83 thousand and $ 248 thousand for the three and nine months ended December 31, 2024 , respectively, and $ 85 thousand and $ 265 thousand for the three and nine months ended December 31, 2023, respectively. Share-based compensation expense is reported within Selling, General and Administrative expenses in our Condensed Consolidated Statements of Operations. For the three and nine months ended December 31, 2024, the Company's stock grants are primarily in the form of restricted stocks and restricted stock units. 20 CINEVERSE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 5. EARNINGS (LOSS) PER SHARE Basic net income (loss) per share is computed by dividing the net income (loss) attributable to Common Stockholders, adjusted for by the deemed earnings attributable to participating common warrant holders, by 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 restricted stock units, stock options and warrants outstanding during the period, and are calculated 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. The following table sets forth the computation of basic and diluted earnings per share and a reconciliation of the weighted average number of common and common equivalent shares outstanding for the three and nine months ended December 31, 2024:  Three Months Ended December 31, Nine Months Ended December 31, 2024 2023 2024 2023 (in thousands, except share & per share data) Numerator: Net income (loss) attributable to common stock holders $ 7,024 $ ( 2,864 ) $ 2,485 $ ( 6,946 ) Less: earnings attributable to participating common warrant holders ( 1,009 ) — ( 359 ) — Net income (loss) attributable to common stock holders - basic and diluted $ 6,015 $ ( 2,864 ) $ 2,126 $ ( 6,946 ) Denominator: Weighted average shares of common stock - basic 15,879,951 12,828,011 15,765,996 11,677,870 Effect of dilutive common stock equivalents 1,894,289 — 1,806,734 — Weighted average shares of common stock - diluted 17,774,240 12,828,011 17,572,730 11,677,870 Earnings per share: Basic earnings (loss) per share $ 0.38 $ ( 0.22 ) $ 0.13 $ ( 0.59 ) Effect of dilutive common stock equivalents ( 0.04 ) — ( 0.01 ) — Diluted earnings (loss) per share $ 0.34 $ ( 0.22 ) $ 0.12 $ ( 0.59 ) The following common equivalent shares outstanding at period-end have been excluded from the computation of earnings per share, as their inclusion would have been anti-dilutive: Three Months Ended December 31, Nine Months Ended December 31, 2024 2023 2024 2023 Options to purchase common stock 400 927 400 927 Stock appreciation rights 770,969 797,110 770,969 762,239 Warrants to purchase common stock 2,656,667 2,666,667 2,656,667 2,666,667 21 CINEVERSE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 6. DEBT LINE OF CREDIT FACILITY The Company is party to a Loan, Guaranty, and Security Agreement, as amended, with East West Bank ("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 9.0 % as of December 31, 2024. The Line of Credit Facility matures on September 15, 2025 . The Company intends to renew when the Line of Credit matures. 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 December 31, 2024, $ 3.8 million was outstanding on the Line of Credit Facility, net of unamortized issuance costs of $ 153 thousand . Subsequent to December 31, 2024, our Line of Credit balance was paid down to $ 0 . During the three and nine months ended December 31, 2024, the Company had interest expense, including cash interest and amortization, of $ 0.2 million and $ 0.5 million , related to its Line of Credit Facility, respectively. During the three and nine months ended December 31, 2023 , the Company had interest expense, including cash interest and amortization, of $ 0.2 million and $ 0.4 million related to its Line of Credit Facility, respectively. 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. I f 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. 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. As of December 31, 2024, we have recorded interest expense of $ 1.5 million to the T3 Lender representing its 15 % share of royalties earned under the T3 Loan Agreement. 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. The T3 Loan, including interest of $ 576 thousand, was repaid during the quarter ended December 31, 2024 . 22 CINEVERSE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 7. 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 right-of-use asset as part of the arrangement. The end of both the original lease and sublease term is January 2025 . In addition, the Company has two operating leases related to its Cineverse India operations, with expiration dates in July 2027 . Expenses related to these leases were $ 117 thousand and $ 351 thousand during the three and nine months ended December 31, 2024 , respectively, and $ 109 thousand and $ 337 thousand during the three and nine months ended December 31, 2023, respectively. The Company recognized $ 46 thousand and $ 138 thousand of income related to its subleasing arrangement during the three and nine months ended December 31, 2024 , respectively, and $ 45 thousand and $ 135 thousand for the three and nine months ended December 31, 2023, respectively. The table below presents the lease-related assets and liabilities recorded on our Consolidated Balance Sheets (in thousands) : Classification on the Balance Sheet December 31, 2024 March 31, 2024 Assets Noncurrent Other long-term assets $ 502 $ 834 Liabilities Current Operating leases liabilities 207 401 Noncurrent Operating leases liabilities, net of current 324 462 $ 531 $ 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 (remainder of the fiscal year) $ 72 2026 200 2027 210 2028 72 Thereafter — Total lease payments $ 554 Less imputed interest ( 23 ) Total $ 531 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. 23 CINEVERSE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 $ 15 Thereafter — Total $ 15 8. 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 $ 19 thousand for the three and nine months ended December 31, 2024 , respectively. We recognized income tax (benefit) expense of $( 24 ) thousand and $ 12 thousand for the three and nine months ended December 31, 2023, respectively. Our income tax expense is attributable to taxable income earned in India relating to transfer pricing. We have not recorded tax expense in the U.S. on our income because we anticipate utilizing net operating loss carry forwards. We have not recorded tax benefits on our U.S. deferred tax assets because we continue to provide a valuation allowance for all our U.S. net deferred tax assets as of December 31, 2024, as it is more likely than not that the assets will not be recovered based on an insufficient history of earnings Our effective tax rate was 0.1 % and 0.6 % for the three and nine months ended December 31, 2024, respectively, and 0.9 % and ( 0.2 )% for the three and nine months ended December 31, 2023 , respectively. 24