What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-14 compared with 2025-02-14 · 47 added, 124 removed, 74 unchanged (70% of the section changed)

9 unchanged sentences

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

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

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

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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.

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

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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 a 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 is net of $4.8 million 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 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.

As of December 31, 2024, $3.8 million was outstanding on the Line of Credit Facility, net of issuance costs of $153 thousand.

Subsequent to December 31, 2024, our Line of Credit balance was paid down to $0.

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

The T3 Loan Agreement provides for the T3 Loan with a principal amount not to exceed $3.7 million, and a maturity date of April 1, 2025, with a permitted extension of the term for 120 days under certain conditions.

The T3 Loan bears no interest until the maturity date other than an interest advance equal to $576 thousand at the closing of the T3 Loan on April 5, 2024.

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, including interest of $576 thousand, was repaid in advance during the quarter ended December 31, 2024.

After the principal of the T3 Loan is paid in full, the T3 Lender will be entitled to receive 15% of all royalties earned by the Company on the Film under its distribution agreements for the Film until the T3 Lender has received 1.75 times the full commitment amount of $3.7 million, consisting of the principal amount plus interest and fees advanced to T3 Borrower, plus any extension interest.

The T3 Loan is secured by a first priority interest in all of T3 Borrower’s rights and interest in the Film and the distribution agreements, including the proceeds to the T3 Borrower from the distribution of the Film.

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 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 current portion, were $1.4 million and $2.6 million, respectively.

As of June 30, 2025, the Company has an accumulated deficit of $504.6 million and a working capital deficit of $(0.3) million.

For the three months ended June 30, 2025, the Company had a net loss attributable to the Company's common stock, par value $0.001 per share (the "Common Stock") holders of $3.6 million.

Net cash used in operating activities for the three months ended June 30, 2025 was $14.5 million, which included $1.2 million of incremental investment in our content portfolio via advances or minimum guarantee payouts.

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

Subsequent to June 30, 2025, 1.9 million warrants were exercised for net proceeds of $5.8 million.

The Company is party to a Loan, Guaranty, and Security Agreement, as amended on April 8, 2025, with East West Bank (the "Line of Credit Facility") providing for borrowings of up to $12.5 million and expandable to $15.0 million, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and our subsidiaries’ assets.

Credit Facility bears interest at a rate equal to 1.25% above the prime rate, equal to 8.75% as of June 30, 2025.

The Line of Credit Facility matures on April 8, 2028.

As of June 30, 2025, $3.6 million was outstanding on the Line of Credit Facility.

The Company will continue to invest in content development and acquisitions, from which it believes it will obtain an appropriate return on its investment.

As of June 30 and March 31, 2025, short-term content advances were $5.2 million and $6.7 million, respectively, and content advances, net of current portion, were $5.9 million and $4.1 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.

We believe our cash and cash equivalents and availability under our Line of Credit Facility as of June 30, 2025 will be sufficient to support our operations for at least twelve months from the filing of this report.

Critical Accounting Estimates

Our Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

In connection with the preparation of our Condensed Consolidated Financial Statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures.

We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our Condensed Consolidated Financial Statements are prepared.

On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP.

On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP.

However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

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

Results of Operations for the three months ended December 31, 2024 and 2023 (in thousands) :

For the Three Months Ended December 31,

As a % of Revenue

Streaming and digital

Podcast and other

Base distribution

Other and non-recurring

Total Revenue

For the three months ended December 31, 2024, total revenue grew by $27.5 million compared to the three months ended December 31, 2023.

Streaming and digital revenue increased by $4.6 million, primarily due to the net favorable impact of content releases' timing relative to the same period in the prior year, including the impact of Terrifier 3.

Podcast and other revenue grew by $1.2 million due to revenue increases from both:

(i) direct advertising ($1.1 million) and (ii) the Company's Bloody Disgusting podcast content ($0.1 million).

Base distribution revenue increased by $21.7 million mainly due to Terrifier 3 theatrical release in October 2024.

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

Digital Cinema revenue increased insignificantly million compared to the same period in the prior year.

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

Direct Operating Expenses

For the Three Months Ended December 31,

As a % of Revenue

Direct operating expenses

The increase of $15.5 million in Direct Operating Expenses for the three months ended December 31, 2024, compared to the same period of 2023 significantly relates to the impact of Terrifier 3 release.

Specifically, the increase is due to:

(i) $13.0 million higher royalty expense, (ii) $1.3 million increase in marketing costs (including digital marketing), (iii) $0.6 million theatrical distribution fees to our service provider, and (iv) $0.7 million higher manufacturing, fulfillment and freight charges.

Selling, General and Administrative Expenses

For the Three Months Ended December 31,

As a % of Revenue

Compensation expense

Corporate expenses

Share-based compensation

Other operating expenses

Selling, General and Administrative

Selling, general and administrative expenses for the three months ended December 31, 2024 increased by $3.0 million compared to the same period of 2023, primarily due to (i) bonus accrual driven by Terrifier 3 theatrical revenue results and (ii) higher share-based compensation.

Excluding the effect of bonus accrual, compensation expenses decreased by $0.2 million, in comparison to the three months ended December 31, 2023, driven by a change in the Company's employment mix, as a result of a greater investment in Cineverse Services India.

Depreciation and Amortization Expense

For the Three Months Ended December 31,

As a % of Revenue

Amortization of intangible assets

Depreciation of property and equipment

Depreciation and Amortization

Amortization expense and depreciation expense have remained relatively consistent for the three months ended December 31, 2024 and 2023 as the Company's intangible focused investment mix has remained consistent year-over-year.

Interest Expense, Net

For the three months ended December 31, 2024, interest expense increased by $2.1 million from $0.3 million to $2.3 million primarily due to:

(i) interest participation relating to the T3 Loan (which was obtained and repaid during the fiscal year), (ii) higher drawings on our line of credit, and (iii) increased interest rates in 2024.

Results of Operations for the Nine Months Ended December 31, 2024 and 2023 (in thousands) :

For the Nine Months Ended December 31,

Results of Operations for the Three Months Ended June 30, 2025 and 2024 (Unaudited) (in thousands):

For the Three Months Ended June 30,

As a % of Revenue

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Total Revenue

For the nine months ended December 31, 2024, total revenue grew by $23.3 million compared to the nine months ended December 31, 2023.

Streaming and digital revenue for the nine months ended December 31, 2024 increased by $2.9 million compared to the same period of 2023, primarily due to:

(i) $1.6 million of license fee revenue recorded during the period related to the licensing of the Dog Whisperer content, and (ii) net favorable impact of other content releases' timing relative to the same period in the prior year, including effect of Terrifier 3 content.

Podcast and other revenue grew by $2.4 million due to revenue increases from both:

(i) direct advertising ($1.7 million) and (ii) the Company's Bloody Disgusting podcast content ($0.7 million).

Base distribution revenue increased by $21.6 million mainly due to Terrifier 3 theatrical release in October 2024.

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

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

For the three months ended June 30, 2025, total revenue increased by $2.0 million, or 22%, as compared to the three months ended June 30, 2024.

Streaming and digital revenue for the three months ended June 30, 2025 increased by $1.4 million, primarily driven by an increase of $0.5 million in subscriber revenue, $0.5 million in transaction revenue related to Terrifier 3 and $0.4 million of barter revenue.

The Company's $0.7 million increase in Base distribution revenue for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024 was primarily driven by increased physical sales related to the DVD release for Terrifier 3.

Direct Operating Expenses

For the Nine Months Ended December 31,

For the Three Months Ended June 30,

As a % of Revenue

Direct operating expenses

The increase of $14.6 million in Direct Operating Expenses for the nine months ended December 31, 2024, compared to the same period of 2023 significantly relates to the impact of Terrifier 3 release.

Specifically, the increase is due to the net effect of the following changes:

(i) $11.9 million higher royalty expense, (ii) $0.8 million increase in marketing costs, (iii) $0.6 million theatrical distribution fees to our service provider, (iv) $1.2 million higher manufacturing, fulfillment and freight charges, (v) $1.1 million higher license participations and advertising pool impression costs, and offset by (vi) $1.1 million lower SaaS subscription fees.

The $0.3 million increase in Direct operating expenses for the three months ended June 30, 2025 was primarily driven by increased variable costs associated with the increase in revenue compared to the prior year quarter, primarily royalty and participation expenses and manufacturing, freight, and fulfillment charges.

Selling, General and Administrative Expenses

For the Nine Months Ended December 31,

For the Three Months Ended June 30,

As a % of Revenue

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Selling, General and Administrative

Selling, general and administrative expenses for the nine months ended December 31, 2024 increased by $1.2 million compared to the same period of 2023, primarily due to (i) bonus accrual driven by Terrifier 3 theatrical revenue results and (ii) higher share-based compensation.

Excluding the effect of bonus accrual, compensation expenses decreased by $1.1 million, in comparison to the nine months ended December 31, 2023, driven by a change in the Company's employment mix as a result of a greater investment in Cineverse Services India.

Corporate expenses decreased by $0.5 million primarily driven by the Company's continued focus on cost savings initiatives.

Selling, general and administrative expenses for the three months ended June 30, 2025 increased by $2.4 million compared to the prior year quarter.

Compared to the three months ended June 30, 2024, compensation expense increased by $1.1 million due to increased headcount and other operating expenses increased $1.2 million primarily driven by increased marketing and legal costs associated with our increased theatrical offerings this year.

Depreciation and Amortization Expense

For the Nine Months Ended December 31,

For the Three Months Ended June 30,

As a % of Revenue

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Depreciation and Amortization

Amortization expense and depreciation expense have remained relatively consistent for the nine months ended December 31, 2024, compared to the nine months ended December 31, 2023, as the Company's intangible focused investment mix has remained consistent over the past year.

Depreciation and amortization expense increased $0.2 million compared to the prior year quarter primarily due to internally developed software assets being placed into service.

Interest expense, net

For the nine months ended December 31, 2024 compared to the same period of 2023, interest expense increased by $2.3 million from $0.8 million to $3.1 million primarily due to:

(i) interest participation relating to the T3 Loan (which was obtained and repaid during the fiscal year), (ii) higher drawings on our line of credit and (ii) increased interest rates in 2024.

For the three months ended June 30, 2025, interest expense decreased by $0.7 million to $(0.3) million compared to the prior year quarter.

The decrease is primarily the result of a lower average balance on the Line of Credit Facility during the quarter compared to the prior year quarter and a $0.4 million discount to accrued interest provided by the Terrifier 3 lender in return for an expedited final payment.

Adjusted EBITDA

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These non-GAAP measures should be read only in conjunction with our Condensed Consolidated Financial Statements prepared in accordance with GAAP.

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

For the Three Months Ended December 31,

For the Nine Months Ended December 31,

Net income (loss)

Income tax (benefit) expense

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

For the Three Months Ended

Income tax expense

Depreciation and amortization (1)

Interest expense

(Gain) loss from equity investment in Metaverse

Interest (income) expense

Stock-based compensation

Other (income) expense, net

Other expense (income), net

Net income attributable to noncontrolling interest

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Adjusted EBITDA

(1) - Includes $85 thousand of amortization included in direct operating expenses on our Consolidated Statements of Operations for the three months ended June 30, 2025 and 2024

(2) - Primarily employee severance costs.

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

For the Nine Months Ended December 31,

Net cash provided by (used in) operating activities

For the Three Months Ended June 30,

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Net Change in Cash and Cash Equivalents

Cash flows for the current fiscal period

For the nine months ended December 31, 2024, net cash provided by operating activities was primarily driven by income from operations, excluding non-cash expenses such as depreciation, amortization and stock-based compensation, and other changes in working capital.

Further, we had cash outflows related to content advances made to partners for which initial expenditures are generally recovered within six to twelve months and operating prepayments, partially offset by the collection of the Company's ERTC claim.

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

Cash used in investing activities was used in the expenditures towards long-lived assets, net of proceeds from sale of equity securities.

Cash used in financing activities was primarily due to the net $2.4 million repayment of the Line of Credit Facility, repayment of our $3.1 million T3 Loan (which was obtained during the fiscal year), $0.3 million net payment of deferred acquisition consideration and $0.2 million used to repurchase outstanding shares.

Cash flows for the prior fiscal period

For the nine months ended December 31, 2023, net cash used in operating activities is primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization and stock-based compensation, and other changes in working capital.

Specifically, the adjustments are primarily driven by net cash outflows related to content advances made to partners for which initial expenditures are generally recovered within six to twelve months and increases in accounts payable, accrued expenses, and other liabilities, partially offset by a decrease in accounts receivable and the unrealized loss from the Company's investment in Metaverse's stock.

For the three months ended June 30, 2025, net cash used in operating activities was primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization and stock-based compensation, and other changes in working capital.

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

Cash provided by financing activities pertained to the draw and repayment of the Company's line of credit, payment of earnout consideration, and issuance of company equity, net of financing fees.

Cash used in investing activities is primarily related to expenditures towards long-lived intangible and fixed assets.

Cash provided by financing activities are primarily driven by proceeds, net of payments, on the Line of Credit Facility.

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

Operating cash flows are typically seasonally lower

during the first two fiscal quarters and higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season.

Off-balance sheet arrangements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis