UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the fiscal period ended:
For the transition period from _____ to _____
Commission File Number:
(Exact name of registrant as specified in its charter)
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(Address of principal executive offices) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
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Accelerated filer ☐ |
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Smaller reporting company |
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Emerging Growth Company |
☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
As of November 7, 2024,
Cineverse Corp.
TABLE OF CONTENTS
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Item 1. |
1 |
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Condensed Consolidated Balance Sheets at September 30, 2024 (unaudited) and March 31, 2024 |
1 |
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2 |
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3 |
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4 |
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6 |
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Notes to the Condensed Consolidated Financial Statements (Unaudited) |
8 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 |
Item 4. |
31 |
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Item 1. |
32 |
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Item 1A. |
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Item 2. |
32 |
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Item 3. |
32 |
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Item 4. |
32 |
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Item 5. |
32 |
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Item 6. |
33 |
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33 |
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34 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Cineverse Corp.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
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As of |
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September 30, |
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March 31, |
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(Unaudited) |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowance for credit losses of $ |
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Employee retention tax credit |
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Content advances |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Intangible assets, net |
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Goodwill |
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Content advances, net of current portion |
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Other long-term assets |
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Total Assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities |
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Accounts payable and accrued expenses |
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$ |
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$ |
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Line of credit, including unamortized debt issuance costs of $ |
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Current portion of deferred consideration on purchase of business |
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Term loan, including unamortized debt issuance costs of $ |
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— |
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Earnout consideration on purchase of business |
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— |
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Current portion of operating lease liabilities |
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Deferred revenue |
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Total current liabilities |
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Deferred consideration on purchase of business, net of current portion |
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— |
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Operating lease liabilities, net of current portion |
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Other long-term liabilities |
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Total Liabilities |
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$ |
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$ |
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Stockholders’ Equity |
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Preferred stock, |
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Common Stock, $ |
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Additional paid-in capital |
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Treasury stock, at cost; |
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( |
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( |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Total stockholders’ equity of Cineverse Corp. |
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Deficit attributable to noncontrolling interest |
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( |
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Total equity |
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Total Liabilities and Equity |
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$ |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements
1
Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
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Three Months Ended September 30, |
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Six Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenues |
$ |
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$ |
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$ |
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$ |
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Costs and expenses |
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Direct operating |
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Selling, general and administrative |
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Depreciation and amortization |
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Total operating expenses |
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Operating (loss) income |
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( |
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Interest expense |
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( |
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( |
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( |
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( |
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Gain (loss) from equity investment in Metaverse, a related party |
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( |
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( |
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Other income (expense), net |
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Net loss before income taxes |
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( |
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( |
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( |
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Income tax expense |
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( |
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( |
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( |
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( |
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Net loss |
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( |
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( |
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( |
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( |
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Net income attributable to noncontrolling interest |
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( |
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( |
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( |
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( |
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Net loss attributable to controlling interests |
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( |
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( |
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( |
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( |
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Preferred stock dividends |
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( |
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( |
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( |
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( |
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Net loss attributable to common stockholders |
$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Net loss per share attributable to common stockholders: |
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Basic |
$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Diluted |
$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average shares of Common Stock outstanding: |
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Basic |
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Diluted |
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See accompanying Notes to Condensed Consolidated Financial Statements
2
Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(in thousands)
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Three Months Ended September 30, |
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Six Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Other comprehensive (loss) income: |
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Foreign exchange translation |
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( |
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( |
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Net income attributable to noncontrolling interest |
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( |
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( |
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( |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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See accompanying Notes to Condensed Consolidated Financial Statements
3
Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
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Six Months Ended |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Allowance for content advances |
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( |
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( |
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Amortization of debt issuance costs |
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Stock-based compensation |
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Interest expense |
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Changes in fair value of equity investment in Metaverse |
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Change in estimated earnout consideration |
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( |
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Barter-related non-cash expenses |
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Other |
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Changes in operating assets and liabilities, net of acquisitions: |
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Accounts receivable |
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Other current and long-term assets |
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Content advances |
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( |
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( |
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Accounts payable, accrued expenses, and other liabilities |
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( |
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( |
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Capitalized content |
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( |
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( |
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Deferred revenue |
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( |
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Net cash used in operating activities |
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$ |
( |
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$ |
( |
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Cash flows from investing activities: |
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Expenditures for long-lived assets |
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( |
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( |
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Sale of equity investment securities |
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Net cash used in investing activities |
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$ |
( |
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$ |
( |
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Cash flows from financing activities: |
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Proceeds from line of credit, net of debt issuance costs |
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Payments on line of credit |
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( |
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( |
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Payment of deferred consideration |
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( |
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At-the-market issuance fees |
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( |
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Proceeds from the issuance of a term loan, net of debt issuance costs |
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Payment of earnout consideration |
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( |
) |
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( |
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Cost to acquire treasury shares |
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( |
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Financing fees for line of credit |
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( |
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( |
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Issuance of Class A common stock, net of issuance costs |
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Net cash provided by financing activities |
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$ |
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$ |
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Net change in cash and cash equivalents |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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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)
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Six Months Ended |
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2024 |
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2023 |
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Cash interest paid |
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$ |
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$ |
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Lease liability related payments |
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$ |
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$ |
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Income taxes paid |
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$ |
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$ |
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Noncash investing and financing activities: |
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Issuance of Class A common stock for payment of employee bonuses |
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$ |
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$ |
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Treasury shares acquired for withholding taxes |
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$ |
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$ |
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Earnout liability settled in stock |
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$ |
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$ |
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Bonus liability settled in stock |
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$ |
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$ |
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Accrued dividends on preferred stock |
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$ |
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$ |
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Issuance of Class A common stock for payment of accrued preferred stock dividends |
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$ |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements
5
Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(in thousands)
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Preferred Stock |
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Common Stock |
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Treasury |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Non |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Loss |
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Equity |
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Interest |
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Total |
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Balances as of March 31, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Foreign exchange translation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Treasury stock acquired |
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— |
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— |
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( |
) |
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— |
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( |
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— |
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— |
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— |
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( |
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— |
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( |
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Fees incurred in connection with ATM offering |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
) |
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— |
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( |
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Issuance of common stock for acquiree consideration |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Preferred stock dividends paid in stock |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Preferred stock dividends accrued |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
) |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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( |
) |
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Balances as of June 30, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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|||||||||
Foreign exchange translation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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— |
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( |
) |
Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of Class A common stock for earnout commitment |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Treasury stock acquired |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Preferred stock dividends paid in stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Preferred stock dividends accrued |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balances as of September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
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 |
|
|
Accumulated |
|
|
Accumulated |
|
|
Total |
|
|
Non |
|
|
|
|
|||||||||||||||||||||
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Equity |
|
|
Interest |
|
|
Total |
|
||||||||||||
Balances as of March 31, 2023 |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||||
Foreign exchange translation |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock-based compensation |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Issuance of Class A common stock in connection with ATM raises, net |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||||
Issuance of Class A common stock in connection with direct equity offering |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||||
Preferred stock dividends paid in stock |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Preferred stock dividends accrued |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balances as of June 30, 2023 |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||||||
Foreign exchange translation |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Stock-based compensation |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Issuance of Class A common stock in connection employee bonuses |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||||
Estimated fee decrease associated with equity issuance |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Issuance in connection with the exercise of warrants |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Issuance of Class A common stock for earnout commitment |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Treasury stock in connection with taxes withheld from employees |
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Preferred stock dividends paid in stock |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Preferred stock dividends accrued |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balances as of September 30, 2023 |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
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 MatchpointTM, is a software-based streaming operating platform which provides clients with AVOD, SVOD, transactional video on demand ("TVOD") and linear capabilities, automates the distribution of content, and features a robust data analytics platform.
We distribute products for major brands such as Hallmark, ITV, Nelvana, ZDF, Konami, NFL and Highlander, as well as 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 $
Financial Condition and Liquidity
We have a history of net losses and we may continue to generate net losses for the foreseeable future. As of September 30, 2024, the Company has an accumulated deficit of $
The Company is party to a Loan, Guaranty, and Security Agreement, as amended, with EWB providing for a $
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 $
8
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
extension interest. The T3 Loan is presented as current within the Company's Condensed Consolidated Balance Sheets and has a balance of $
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 $
The Company will continue to invest in content development and acquisition, from which it believes it will obtain an appropriate return on its investment. As of September 30, 2024 and March 31, 2024, short term content advances were $
Our capital requirements will depend on many factors, and we may need to use existing capital resources and/or undertake equity or debt offerings, if necessary and opportunistically available, for further capital needs. We believe our cash and cash equivalents as of September 30, 2024 and availability under our Line of Credit Facility will be sufficient to support our operations for at least twelve months from the filing of this report.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The accompanying interim Condensed Consolidated Financial Statements of Cineverse Corp. have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended March 31, 2024 filed with the SEC on July 1, 2024. These Condensed Consolidated Financial Statements are unaudited and have been prepared by the Company following the rules and regulations of the SEC.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted as permitted by such rules and regulations; however, the Company believes the disclosures are adequate to make the information presented not misleading. Certain columns and rows may not foot due to the use of rounded numbers.
The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2024. Interim results are not necessarily indicative of the results for a full year.
The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Significant items subject to such estimates and assumptions include revenue recognition, allowance for credit losses, returns and recovery reserves, goodwill and intangible asset impairments, share-based compensation expense, valuation allowance for deferred income taxes and amortization of intangible assets. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On a regular basis, the Company evaluates these assumptions, judgments and estimates. Actual results may differ from these estimates.
9
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We own an
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 |
|
|
Internal use software |
|
|
Machinery and equipment |
|
|
Furniture and fixtures |
|
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 |
|
|
Tradenames, Trademarks and Patents |
|
|
Customer Relationships |
` |
|
Advertiser Relationships and Channel |
|
|
Software |
|
|
Capitalized Content |
|
|
Supplier Agreements |
|
The Company’s intangible assets included the following (in thousands):
|
|
As of September 30, 2024 |
|
|||||||||
|
|
Cost Basis |
|
|
Accumulated |
|
|
Net |
|
|||
Content Library |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Advertiser Relationships and Channel |
|
|
|
|
|
( |
) |
|
|
|
||
Customer Relationships |
|
|
|
|
|
( |
) |
|
|
|
||
Software |
|
|
|
|
|
( |
) |
|
|
|
||
Tradenames, Trademarks and Patents |
|
|
|
|
|
( |
) |
|
|
|
||
Capitalized Content |
|
|
|
|
|
( |
) |
|
|
|
||
Total Intangible Assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
As of March 31, 2024 |
|
|||||||||
|
|
Cost Basis |
|
|
Accumulated |
|
|
Net |
|
|||
Content Library |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Advertiser Relationships and Channel |
|
|
|
|
|
( |
) |
|
|
|
||
Customer Relationships |
|
|
|
|
|
( |
) |
|
|
|
||
Software |
|
|
|
|
|
( |
) |
|
|
|
||
Trademark and Tradenames |
|
|
|
|
|
( |
) |
|
|
|
||
Capitalized Content |
|
|
|
|
|
( |
) |
|
|
|
||
Total Intangible Assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
During the three and six months ended September 30, 2024, the Company had amortization expense of $
11
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of September 30, 2024, future amortization expense is expected to be as follows (in thousands):
|
|
Total |
|
|
In-process intangible assets |
|
$ |
|
|
Remainder of fiscal year 2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
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
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 charge of $
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:
The following tables summarize the levels of fair value measurements of our financial assets and liabilities (in thousands):
|
|
As of September 30, 2024 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity investment in Metaverse, at fair value |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Current portion of earnout consideration on purchase of a business |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
As of March 31, 2024 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity investment in Metaverse, at fair value |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Current portion of earnout consideration on purchase of a business |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
Our cash and cash equivalents, accounts receivable and accounts payable and accrued expenses are financial instruments and are recorded at cost in the consolidated balance sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature.
Equity Investment in Metaverse
The Company has an equity investment in A Metaverse Company (“Metaverse”), a publicly traded Chinese entertainment company, formerly Starrise Media Holdings Limited, whose ordinary shares are listed on the Stock Exchange of Hong Kong.
After a period of time when trading in Metaverse's ordinary shares had been halted, the resumption of active trading status in November 2023 represented renewed availability of quoted, unadjusted prices in active markets for identical assets, upon which the Company can execute a sale and readily access pricing information at the measurement date. Accordingly, the Company has presented the fair value of its Metaverse shares held as of March 31, 2024 within the Level 1 grouping. The fair value of the shares held is presented within Other long term assets and as of September 30, 2024 and March 31, 2024 was $
13
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Earnout Consideration on Purchase of Business
Prior to the completion of the earnout period at the end of fiscal year 2024, the Company estimated the fair value of its earnout liability using contractual inputs from the related business combination, which established specific fiscal year revenue growth, profitability and EBITDA targets. During the quarter ended September 30, 2024, the Company made its final earnout payment reducing the earnout liability as of September 30, 2024 to $
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 $
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following (in thousands):
|
|
As of |
|
|||||
|
|
September 30, |
|
|
March 31, |
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Amounts due to producers |
|
|
|
|
|
|
||
Accrued compensation and benefits |
|
|
|
|
|
|
||
Accrued other expenses |
|
|
|
|
|
|
||
Total Accounts Payable and Accrued Expenses |
|
$ |
|
|
$ |
|
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 $
The deferred consideration related to the acquisition of FTV is payable in cash and up to
14
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Revenue Recognition
Payment terms and conditions vary by customer and typically provide net 30-to-90 day terms. We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and payment for that product or service will be one year or less.
The following tables present the Company’s disaggregated revenue by source (in thousands):
|
Three Months Ended September 30, |
|
|
Six Months Ended |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Streaming and digital |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Podcast and other |
|
|
|
|
|
|
|
|
|
|
|
||||
Base distribution |
|
|
|
|
|
|
|
|
|
|
|
||||
Other non-recurring |
|
|
|
|
|
|
|
|
|
|
|
||||
Total Revenue |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The Company's Streaming and digital revenue pertains to its OTT business, including the licensing, service, advertising, and subscription revenue related to the Company's streaming business and partnerships. Base distribution revenue relates to non-streaming revenue, including Theatrical revenue and the sale of DVD's. Podcast and other revenue primarily relate to the Company's Bloody Disgusting Podcast Network. As the Company satisfies its performance obligations from these revenue sources, whether relating to the delivery of digital content, physical goods, or licensing, revenue is generally measured at a point in time.
Other non-recurring revenue relates to the Company's legacy digital cinema operations, whose operations have run-off, still may generate non-recurring revenue from the sale of cinema assets or the recognition of variable consideration as the associated uncertainty associated with the revenue is resolved.
The Company follows the five-step model established by Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606, Revenue from contracts with customers ("ASC 606") when preparing its assessment of revenue recognition.
Principal Agent Considerations
Revenue earned from the delivery of digital content and physical goods may be recognized gross or net depending on the terms of the arrangement. We determine whether revenue should be reported on a gross or net basis based on each revenue stream. Key indicators that we use in evaluating gross versus net treatment include, but are not limited to, the following:
Shipping and Handling
Shipping and handling costs are incurred to move physical goods (e.g., DVDs and Blu-ray Discs) to customers. We recognize all shipping and handling costs as an expense in direct operating expenses because we are responsible for delivery of the product to our customers prior to transfer of control to the customer.
15
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Credit Losses
We maintain reserves for expected credit losses on accounts receivable primarily on a specific identification basis. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.
We recognize accounts receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that we recognize revenue from a sale. Reserves for product returns and other allowances are variable consideration as part of the transaction price. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.
During the three and six months ended September 30, 2024, the Company recognized a reduction in its provision for credit losses of $
Allowance for credit losses at the beginning of the year |
|
$ |
|
|
Decrease in estimated provision |
|
|
( |
) |
Allowance for credit losses as at September 30, 2024 |
|
$ |
|
Contract Liabilities
We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability) when cash payments are received or due in advance of our performance, such as the sale of DVDs with future release dates, even if amounts are refundable. Amounts recorded as contract liabilities are generally not long-term in nature.
The ending deferred revenue balance, including current and non-current balances as of September 30, 2024 and March 31, 2024, was $
Participations and Royalties Payable
When we use third parties to distribute Company-owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers.
Concentrations
For the three and six months ended September 30, 2024, customers that individually account for greater than 10% collectively represented
16
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Direct Operating Expenses
Direct operating expenses consist of cost of revenue, fulfillment expenses, shipping costs, property taxes and insurance on systems, royalty expenses, reserves against advances and marketing and direct personnel costs.
Stock-based Compensation
The Company issues stock-based awards to employees and non-employees, generally in the form of restricted stock, restricted stock units, stock appreciation rights ("SARs") and performance stock units ("PSUs"). The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments, including grants of stock options and restricted stock units and modifications to existing stock options, to be recognized in the Condensed Consolidated Statements of Operations and Comprehensive Loss based on their fair values. The Company measures the compensation expense of employee and non-employee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost is recognized on a straight-line basis over the period during which the employee or non-employee is required to provide service in exchange for the award. The fair values of options and SARs are calculated as of the date of grant using the Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility, risk-free rate and expected term. The Company’s estimates of these assumptions are primarily based on the trading price of the Company’s stock, historical data, peer company data and judgment regarding future trends and factors. Forfeitures are recognized as they occur.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and tax credit carryforwards and for differences between the carrying amounts of existing assets and liabilities and their respective tax basis.
Valuation allowances are established when management is unable to conclude that it is more likely than not that some portion, or all, of the deferred tax asset will ultimately be realized. The Company is primarily subject to income taxes in the United States and India.
The Company accounts for uncertain tax positions in accordance with an amendment to FASB ASC Topic 740-10, Income Taxes (Accounting for Uncertainty in Income Taxes), which clarified the accounting for uncertainty in tax positions. This amendment provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is “more-likely-than-not” to be sustained were it to be challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the “more-likely-than-not” threshold, the largest amount of tax benefit that is more than
17
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Earnings per Share
Basic net income (loss) per share is computed based on the weighted average number of shares of Common Stock outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) available to Common Stockholders by the weighted-average number of common shares outstanding and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include stock options and warrants outstanding during the period, using the treasury stock method. Potentially dilutive common shares are excluded from the computations of diluted income (loss) per share if their effect would be anti-dilutive. A net loss available to Common Stockholders causes all potentially dilutive securities to be anti-dilutive and are not included.
Basic and diluted net loss per share are computed as follows (in thousands, except per share data):
|
|
Three Months Ended September 30, |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Basic net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss attributable to Common Stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Shares used in basic computation: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average shares of Common Stock outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic Net Loss Per Share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Shares used in diluted computation: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average shares of Common Stock outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock options and SARs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Weighted-average number of shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted Net Loss Per Share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The calculation of diluted net loss per share for the three and six months ended September 30, 2024 does not include the impact of
Recently Issued Accounting Pronouncements
The Company evaluates all Accounting Standard Updates ("ASUs") issued but not yet effective by FASB for consideration of their applicability. ASU's not included in the Company's disclosures were assessed and determined to be not applicable and material to the Company's consolidated financial statements or disclosures.
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures." The update requires disclosure of incremental segment information, including significant segment expenses, on an annual and interim basis, and would apply to single segment companies. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption is permitted. The Company is required to apply the updates retrospectively. The Company is assessing the impact of ASU 2023-07 on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740)—Improvements to Income Tax Disclosures" On an annual basis, this update requires the disclosure of specific tax categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. The amendments are effective for annual periods beginning after December 15, 2024. Prospective and retrospective adoption is permitted. The Company is still evaluating its method of adoption and assessing the impact of ASU 2023-09 on the disclosures within its consolidated financial statements.
18
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. OTHER INTERESTS
Investment in CDF2 Holdings
We indirectly own
CDF2 Holdings is a Variable Interest Entity (“VIE”), as defined in ASC Topic 810 (“ASC 810”), Consolidation. ASC 810 requires the consolidation of VIEs by an entity that has a controlling financial interest in the VIE which entity is thereby defined as the primary beneficiary of the VIE.
As of September 30, 2024 and March 31, 2024, our maximum exposure to loss, as it relates to the non-consolidated CDF2 Holdings entity, represents accounts receivable for service fees under a master service agreement with CDF2 Holdings. Such accounts receivable was $
Total Stockholders’ Deficit of CDF2 Holdings at both September 30, 2024 and March 31, 2024 was $
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
19
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. STOCKHOLDERS’ EQUITY
COMMON STOCK
As of September 30, 2024 and 2023, the number of shares of Common Stock authorized for issuance was
During the three months ended September 30, 2024, the Company issued
During the six months ended September 30, 2024 and in addition to the activities cited above, the Company also purchased
During the three months ended September 30, 2023, the Company issued
During the six months ended September 30, 2023, the Company issued
PREFERRED STOCK
Cumulative dividends in arrears on Series A Preferred Stock were $
TREASURY STOCK
We have treasury stock, at cost, consisting of
EQUITY INCENTIVE PLANS
Stock Based Compensation Awards
The Company has issued awards under two plans, the 2000 Equity Incentive Plan (the “2000 Plan”) and the 2017 Equity Incentive Plan (the “2017 Plan").
Awards issued under our 2000 Plan were permitted to be issued to employees, outside directors or consultants in any of the following forms (or a combination thereof) (i) stock option awards; (ii) SARs; (iii) stock or restricted stock or restricted stock units; or (iv) performance awards. The 2000 Plan provided for the granting of incentive stock
20
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
options (“ISOs”) with exercise prices not less than the fair market value of Common Stock on the date of grant. ISOs granted to shareholders having more than
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
For the three and six months ended September 30, 2024, the Company incurred stock-based compensation expense of $
Included within this expense, our Board of Directors stock-based compensation was $
Share-based compensation expense is reported within Selling, General and Administrative expenses in our Condensed Consolidated Statements of Operations.
5. DEBT
LINE OF CREDIT FACILITY
The Company is party to a Loan, Guaranty, and Security Agreement, as amended, with EWB providing for a $
During the three and six months ended September 30, 2024, the Company had interest expense, including cash interest and amortization, of $
During the three and six months ended September 30, 2023, the Company had interest expense, including cash interest and amortization, of $
21
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
TERM LOAN
On April 5, 2024, T3 Borrower, a wholly-owned subsidiary of the Company, entered into the T3 Loan Agreement with the T3 Lender.
The T3 Loan Agreement provides for the T3 Loan with a principal amount not to exceed $
After the principal of the T3 Loan is paid in full, the T3 Lender will be entitled to receive
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 $
Under an Intercreditor Agreement, dated April 5, 2024, by and among EWB, T3 Lender, T3 Borrower and the Company, the Guarantee is subordinated in payment and performance to the Line of Credit Facility.
6. COMMITMENTS AND CONTINGENCIES
LEASES
Cineverse is a virtual company with
The Company recognized $
22
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The table below presents the lease-related assets and liabilities recorded on our Consolidated Balance Sheets (in thousands):
|
|
Classification on the Balance Sheet |
|
September 30, |
|
|
March 31, |
|
||
Assets |
|
|
|
|
|
|
|
|
||
Noncurrent |
|
Other long-term assets |
|
$ |
|
|
$ |
|
||
Liabilities |
|
|
|
|
|
|
|
|
||
Current |
|
Operating leases liabilities |
|
|
|
|
|
|
||
Noncurrent |
|
Operating leases liabilities, net of current |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
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 |
$ |
|
|
2026 |
|
|
|
2027 |
|
|
|
2028 |
|
|
|
Thereafter |
|
— |
|
Total lease payments |
$ |
|
|
Less imputed interest |
|
( |
) |
Total |
$ |
|
For leases which have a term of twelve months or less and do not contain an option to extend which the Company is reasonably certain to extend the term, the Company has elected to not apply the recognition provisions of ASC 842, Leases, and recognizes these expenses on a straight-line basis over the term of the agreement.
The table below presents the annual gross undiscounted cash flows related to the Company's operating lease subleasing arrangements (in thousands):
Fiscal year ending March 31, |
Sublease Payments |
|
|
2025 |
$ |
|
|
Thereafter |
|
— |
|
Total |
$ |
|
7. INCOME TAXES
We calculate income tax expense based upon an annual effective tax rate forecast, which includes estimates and assumptions. We recognized income tax expense of $
We have not recorded tax benefits on our loss before income taxes because we have provided for a full valuation allowance that offsets potential deferred tax assets resulting from net operating loss carry forwards, reflecting our inability to use such loss carry forwards.
Our effective tax rate was (
23
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our historical Condensed Consolidated Financial Statements and the related notes included elsewhere in this report.
This report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which are indicated by words or phrases such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “will,” “estimates,” and similar words. Forward-looking statements represent, as of the date of this report, our judgment relating to, among other things, future results of operations, growth plans, sales, capital requirements and general industry and business conditions applicable to us. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.
Business Overview
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.
The Company has a long legacy in using technology to transform the entertainment industry and played a pioneering role in transitioning movie screens from traditional analog film prints to digital distribution. Over the past several years, Cineverse has transformed itself from being a digital cinema equipment and physical content distributor to a leading independent streaming company.
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 MatchpointTM, is a software-based streaming operating platform which provides clients with AVOD, SVOD, transactional video on demand ("TVOD") and linear capabilities, automates the distribution of content, and features a robust data analytics platform.
We distribute products for major brands such as Hallmark, ITV, Nelvana, ZDF, Konami, NFL and Highlander, as well as 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.
24
Financial Condition and Liquidity
We have a history of net losses and we may continue to generate net losses for the foreseeable future. As of September 30, 2024, the Company has an accumulated deficit of $509 million and a working capital deficit of $1.2 million. For the three and six months ended September 30, 2024, the Company had a net loss attributable to Common Stockholders of $1.4 million and $4.5 million, respectively. Net cash used in operating activities for the six months ended September 30, 2024 was $2.4 million, which included $1.7 million of incremental investment in our content portfolio via advances or minimum guarantee payouts.
The Company is party to a Loan, Guaranty, and Security Agreement, as amended, with EWB providing for a $7.5 million Line of Credit Facility, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and our subsidiaries’ assets. The Line of Credit Facility bears interest at a rate equal to 1.5% above the prime rate, equal to 9.5% as of September 30, 2024. The Line of Credit Facility matures on September 15, 2025. As of September 30, 2024, $4.6 million was outstanding on the Line of Credit Facility, net of issuance costs of $180 thousand.
On April 5, 2024, T3 Borrower, a wholly-owned subsidiary of the Company, entered into the T3 Loan Agreement with the T3 Lender, and the Company as guarantor. The T3 Loan Agreement provides for the T3 Loan with a principal amount not to exceed $3.7 million, and a maturity date of April 1, 2025, with a permitted extension of the term for 120 days under certain conditions. The T3 Loan bears no interest until the maturity date other than an interest advance equal to $576 thousand at the closing of the T3 Loan on April 5, 2024. The interest advance was recorded as a discount on the T3 Loan at inception and will be amortized to interest expense and increase the loan amount over its term. If the T3 Loan is extended as noted above, the T3 Loan will bear interest at a rate of 1.44% per month. The T3 Borrower may prepay the obligations under the T3 Loan, in full or in part, without penalty or premium. The proceeds under the T3 Loan Agreement are being used for the funding under the Company’s distribution arrangements for the film titled Terrifier 3 (the “Film”). The T3 Loan Agreement contains customary covenants, representation and warranties and events of default. The T3 Loan is presented as current within the Company's Condensed Consolidated Balance Sheets and has a balance of $3.1 million as of September 30, 2024.
After the principal of the T3 Loan is paid in full, the T3 Lender will be entitled to receive 15% of all royalties earned by the Company on the Film under its distribution agreements for the Film until the T3 Lender has received 1.75 times the full commitment amount of $3.7 million, consisting of the principal amount plus interest and fees advanced to T3 Borrower, plus any extension interest. The T3 Loan is secured by a first priority interest in all of T3 Borrower’s rights and interest in the Film and the distribution agreements, including the proceeds to the T3 Borrower from the distribution of the Film. We expect the T3 Loan to be fully paid off in December 2024 from Film proceeds.
On May 3, 2024, the Company entered into a sales agreement (the “2024 Sales Agreement”) with A.G.P./Alliance Global Partners and The Benchmark Company, LLC (collectively, the “Sales Agents”), pursuant to which the Company may offer and sell, from time to time, through the Sales Agents, shares of Common Stock. Shares of Common Stock may be offered and sold for an aggregate offering price of up to $15 million. The Sales Agents’ obligations to sell shares under the 2024 Sales Agreement are subject to satisfaction of certain conditions, including the continuing effectiveness of the Registration Statement on Form S-3 (Registration No. 333-273098) (the “Registration Statement”) filed by the Company with the U.S. Securities and Exchange Commission (the “SEC”) on June 30, 2023 and declared effective by the SEC on January 25, 2024, and other customary closing conditions. The Company will pay the Sales Agents a commission of 3.0% of the aggregate gross proceeds from each sale of shares and has agreed to provide the Sales Agents with customary indemnification and contribution rights. The Company has also agreed to reimburse the Sales Agents for certain specified expenses. The Company is not obligated to sell any shares under the 2024 Sales Agreement and has not sold any shares through the date of this report.
The Company will continue to invest in content development and acquisition, from which it believes it will obtain an appropriate return on its investment. As of September 30, 2024 and March 31, 2024, short term content advances were $10.8 million and $9.3 million, respectively, and content advances, net of current portion, were $1.5 million and $2.6 million, respectively.
Our capital requirements will depend on many factors, and we may need to use existing capital resources and/or undertake equity or debt offerings, if necessary and opportunistically available, for further capital needs. We believe our cash and cash equivalents as of September 30, 2024 and availability under our Line of Credit Facility will be sufficient to support our operations for at least twelve months from the filing of this report.
25
Critical Accounting Estimates
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 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.
Our significant accounting policies are discussed in Note 2 – Basis of Presentation and Summary of Significant Accounting Policies, of the Notes to the Condensed Consolidated Financial Statements, included in Item 1, Condensed Consolidated Financial Statements (Unaudited), of this Quarterly Report on Form 10-Q. Management believes that these policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. 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 September 30, 2024 and 2023 (in thousands):
Revenues
|
|
For the Three Months Ended September 30, |
|
|
As a % of Revenue |
|
||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
|
2024 |
|
|
2023 |
|
||||||
Streaming and digital |
|
$ |
10,089 |
|
|
$ |
9,355 |
|
|
$ |
734 |
|
|
|
8 |
% |
|
|
79 |
% |
|
|
72 |
% |
Podcast and other |
|
|
1,273 |
|
|
|
660 |
|
|
|
613 |
|
|
|
93 |
% |
|
|
10 |
% |
|
|
5 |
% |
Base distribution |
|
|
1,321 |
|
|
|
560 |
|
|
|
761 |
|
|
|
136 |
% |
|
|
10 |
% |
|
|
4 |
% |
Other non-recurring |
|
|
56 |
|
|
|
2,437 |
|
|
|
(2,381 |
) |
|
|
(98 |
)% |
|
|
0 |
% |
|
|
19 |
% |
Total Revenue |
|
$ |
12,739 |
|
|
$ |
13,012 |
|
|
$ |
(273 |
) |
|
|
(2 |
)% |
|
|
100 |
% |
|
|
100 |
% |
For the three months ended September 30, 2024, total revenue declined by $0.3 million compared to the three months ended September 30, 2023. Streaming and digital revenue increased by $0.7 million, primarily due to: (i) the $1.6 million license fee revenue related to the licensing of the Dog Whisperer content, and offset by (ii) the unfavorable impact of other content releases' timing relative to the same period in the prior year.
Podcast and other revenue grew by $0.6 million due to the success of the Company's Bloody Disgusting podcast content.
Base distribution revenue increased by $0.8 million mainly due to the favorable physical returns reserves adjustments for the quarter.
Other non-recurring revenue is related to the Company's legacy digital cinema equipment business ("Digital Cinema") as its operations continue to run-off. Digital Cinema revenue decreased $2.4 million compared to the same period in the prior year. The Company doesn't anticipate future revenue related to the Digital Cinema business.
26
Direct Operating Expenses
|
|
For the Three Months Ended September 30, |
|
|
As a % of Revenue |
|
||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
|
2024 |
|
|
2023 |
|
||||||
Direct operating expenses |
|
$ |
6,262 |
|
|
$ |
4,646 |
|
|
$ |
1,616 |
|
|
|
35 |
% |
|
|
49 |
% |
|
|
36 |
% |
The increase of $1.6 million in Direct Operating Expenses for the three months ended September 30, 2024, compared to the same period of 2023, was primarily due to the following: (i) $0.8 million prior year reversal of earn-out consideration related to the Bloody Disgusting acquisition, (ii) $0.4 million higher manufacturing, fulfillment, and freight charges, and (iii) $0.5 million higher royalty expenses.
Selling, General and Administrative Expenses
|
|
For the Three Months Ended September 30, |
|
|
As a % of Revenue |
|
||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
|
2024 |
|
|
2023 |
|
||||||
Compensation expense |
|
$ |
4,088 |
|
|
$ |
4,460 |
|
|
$ |
(372 |
) |
|
|
(8 |
)% |
|
|
32 |
% |
|
|
34 |
% |
Corporate expenses |
|
|
732 |
|
|
|
764 |
|
|
|
(32 |
) |
|
|
(4 |
)% |
|
|
6 |
% |
|
|
6 |
% |
Share-based compensation |
|
|
503 |
|
|
|
499 |
|
|
|
4 |
|
|
|
1 |
% |
|
|
4 |
% |
|
|
4 |
% |
Other operating expenses |
|
|
1,041 |
|
|
|
1,104 |
|
|
|
(63 |
) |
|
|
(6 |
)% |
|
|
8 |
% |
|
|
8 |
% |
Selling, General and Administrative |
|
$ |
6,364 |
|
|
$ |
6,827 |
|
|
$ |
(463 |
) |
|
|
(7 |
)% |
|
|
50 |
% |
|
|
52 |
% |
Selling, general and administrative expenses for the three months ended September 30, 2024 decreased by $0.5 million compared to the same period of 2023. In comparison to the three months ended September 30, 2023, compensation expenses decreased by $0.4 million driven a change in the Company's employment mix, as a result of a greater investment in Cineverse Services India.
Depreciation and Amortization Expense
|
|
For the Three Months Ended September 30, |
|
|
As a % of Revenue |
|
|||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
|
2024 |
|
|
|
2023 |
|
||||||
Amortization of intangible assets |
|
$ |
815 |
|
|
$ |
804 |
|
|
$ |
11 |
|
|
|
1 |
% |
|
|
6 |
% |
|
|
|
6 |
% |
Depreciation of property and equipment |
|
|
159 |
|
|
|
149 |
|
|
|
10 |
|
|
|
7 |
% |
|
|
1 |
% |
|
|
|
1 |
% |
Depreciation and Amortization |
|
$ |
974 |
|
|
$ |
953 |
|
|
$ |
21 |
|
|
|
2 |
% |
|
|
8 |
% |
|
|
|
7 |
% |
Amortization expense and depreciation expense have remained relatively consistent for the three months ended September 30, 2024 and 2023 as the Company's intangible focused investment mix has remained consistent year-over-year.
Interest Expense, Net
For the three months ended September 30, 2024, interest expense increased by $142 thousand from $195 thousand to $337 thousand primarily due to higher outstanding debt balances and increased interest rates in 2024.
Results of Operations for the Six Months Ended September 30, 2024 and 2023, (in thousands):
Revenues
|
|
For the Six Months Ended September 30, |
|
|
As a % of Revenue |
|
||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
|
2024 |
|
|
2023 |
|
||||||
Streaming and digital |
|
$ |
17,792 |
|
|
$ |
19,469 |
|
|
$ |
(1,677 |
) |
|
|
(9 |
)% |
|
|
81 |
% |
|
|
75 |
% |
Podcast and other |
|
|
2,316 |
|
|
|
1,089 |
|
|
|
1,227 |
|
|
|
113 |
% |
|
|
11 |
% |
|
|
4 |
% |
Base distribution |
|
|
1,672 |
|
|
|
1,718 |
|
|
|
(46 |
) |
|
|
(3 |
)% |
|
|
8 |
% |
|
|
7 |
% |
Other non-recurring |
|
|
86 |
|
|
|
3,716 |
|
|
|
(3,630 |
) |
|
|
(98 |
)% |
|
|
0 |
% |
|
|
14 |
% |
Total Revenue |
|
$ |
21,866 |
|
|
$ |
25,992 |
|
|
$ |
(4,126 |
) |
|
|
(16 |
)% |
|
|
100 |
% |
|
|
100 |
% |
For the six months ended September 30, 2024, total revenue declined by $4.1 million compared to the six months ended September 30, 2023. Streaming and digital revenue for the six months ended September 30, 2024 decreased by $1.7 million
27
compared to the same period of 2023, primarily due to the unfavorable impact of content release timing relative to the same period in the prior year, offset by the $1.6 million of license fee revenue recorded during the current quarter related to the licensing of the Dog Whisperer content.
Podcast and other revenue grew by $1.2 million due to the success of the Company's Bloody Disgusting podcast content.
Other non-recurring revenue related to Digital Cinema decreased $3.6 million compared to the same period of 2023 as its operations continue to run-off. The Company doesn't anticipate future revenue related to the Digital Cinema business.
Direct Operating Expenses
|
|
For the Six Months Ended September 30, |
|
|
As a % of Revenue |
|
||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
|
2024 |
|
|
2023 |
|
||||||
Direct operating expenses |
|
$ |
10,741 |
|
|
$ |
11,633 |
|
|
$ |
(892 |
) |
|
|
(8 |
)% |
|
|
49 |
% |
|
|
45 |
% |
The decrease of $0.9 million in Direct Operating Expenses for the six months ended September 30, 2024, compared to the same period of 2023, is primarily due to the net effect of the following key changes: (i) $1.1 million lower royalty expense, (ii) $1.2 million lower digital marketing and SaaS subscription costs, (iii) $0.8 million prior year reversal of earn-out consideration related to the Bloody Disgusting acquisition, and (iv) $0.5 million allowance reductions.
Selling, General and Administrative Expenses
|
|
For the Six Months Ended September 30, |
|
|
As a % of Revenue |
|
||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
|
2024 |
|
|
2023 |
|
||||||
Compensation expense |
|
$ |
8,139 |
|
|
$ |
8,866 |
|
|
$ |
(727 |
) |
|
|
(8 |
)% |
|
|
37 |
% |
|
|
34 |
% |
Corporate expenses |
|
|
1,744 |
|
|
|
2,464 |
|
|
|
(720 |
) |
|
|
(29 |
)% |
|
|
8 |
% |
|
|
9 |
% |
Share-based compensation |
|
|
973 |
|
|
|
908 |
|
|
|
65 |
|
|
|
7 |
% |
|
|
4 |
% |
|
|
3 |
% |
Other operating expenses |
|
|
2,071 |
|
|
|
2,477 |
|
|
|
(406 |
) |
|
|
(16 |
)% |
|
|
9 |
% |
|
|
10 |
% |
Selling, General and Administrative |
|
$ |
12,927 |
|
|
$ |
14,715 |
|
|
$ |
(1,788 |
) |
|
|
(12 |
)% |
|
|
59 |
% |
|
|
57 |
% |
Selling, general and administrative expenses for the six months ended September 30, 2024 decreased by $1.8 million compared to the same period of 2023. In comparison to the six months ended September 30, 2023, compensation expenses decreased by $0.7 million driven by a change in the Company's employment mix as a result of a greater investment in Cineverse Services India.
Corporate expenses decreased by $0.7 million and other operating expenses decreased by $0.4 million primarily driven by the Company's continued focus on cost savings initiatives.
Depreciation and Amortization Expense
|
|
For the Six Months Ended September 30, |
|
|
As a % of Revenue |
|
|||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
|
2024 |
|
|
|
2023 |
|
||||||
Amortization of intangible assets |
|
|
1,524 |
|
|
$ |
1,502 |
|
|
$ |
22 |
|
|
|
1 |
% |
|
|
7 |
% |
|
|
|
6 |
% |
Depreciation of property and equipment |
|
|
313 |
|
|
|
273 |
|
|
|
40 |
|
|
|
15 |
% |
|
|
1 |
% |
|
|
|
1 |
% |
Depreciation and Amortization |
|
$ |
1,837 |
|
|
$ |
1,775 |
|
|
$ |
62 |
|
|
|
3 |
% |
|
|
8 |
% |
|
|
|
7 |
% |
Amortization expense and depreciation expense have remained relatively consistent for the six months ended September 30, 2024, compared to the six months ended September 30, 2023, as the Company's intangible focused investment mix has remained consistent over the past year.
28
Interest Expense, Net
For the six months ended September 30, 2024 compared to the same period of 2023, interest expense increased by $278 thousand from $490 thousand to $768 thousand primarily due to higher outstanding debt balances and increased interest rates in 2024.
Adjusted EBITDA
We define Adjusted EBITDA to be earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, merger and acquisition costs, restructuring, transition and acquisitions expense, net, goodwill impairment and certain other items.
Adjusted EBITDA is not a measurement of financial performance under GAAP and may not be comparable to other similarly titled measures of other companies. We use Adjusted EBITDA as a financial metric to measure the financial performance of the business because management believes it provides additional information with respect to the performance of its fundamental business activities. For this reason, we believe Adjusted EBITDA will also be useful to others, including our stockholders, as a valuable financial metric.
We present Adjusted EBITDA because we believe that Adjusted EBITDA is a useful supplement to net income (loss) from continuing operations as an indicator of operating performance. We also believe that Adjusted EBITDA is a financial measure that is useful both to management and investors when evaluating our performance and comparing our performance with that of our competitors. We also use Adjusted EBITDA for planning purposes and to evaluate our financial performance because Adjusted EBITDA excludes certain incremental expenses or non-cash items, such as stock-based compensation charges, that we believe are not indicative of our ongoing operating performance.
We believe that Adjusted EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net income (loss) from continuing operations and Adjusted EBITDA has been provided in the financial results. Adjusted EBITDA should not be considered as an alternative to net income (loss) from operations as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, Adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. 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 (loss) income to Adjusted EBITDA (in thousands):
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net loss |
|
$ |
(1,203 |
) |
|
$ |
(317 |
) |
|
$ |
(4,253 |
) |
|
$ |
(3,853 |
) |
Add Back: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax expense |
|
|
6 |
|
|
|
16 |
|
|
|
13 |
|
|
|
36 |
|
Depreciation and amortization |
|
|
974 |
|
|
|
953 |
|
|
|
1,837 |
|
|
|
1,775 |
|
Interest expense |
|
|
337 |
|
|
|
195 |
|
|
|
768 |
|
|
|
490 |
|
(Gain) loss from equity investment in Metaverse |
|
|
(1 |
) |
|
|
718 |
|
|
|
(4 |
) |
|
|
718 |
|
Stock-based compensation |
|
|
503 |
|
|
|
499 |
|
|
|
973 |
|
|
|
909 |
|
Other (income) expense, net |
|
|
— |
|
|
|
(26 |
) |
|
|
(163 |
) |
|
|
148 |
|
Net income attributable to noncontrolling interest |
|
|
(84 |
) |
|
|
(40 |
) |
|
|
(106 |
) |
|
|
(53 |
) |
Transition-related costs |
|
|
— |
|
|
|
368 |
|
|
|
27 |
|
|
|
835 |
|
Adjusted EBITDA |
|
$ |
532 |
|
|
$ |
2,366 |
|
|
$ |
(908 |
) |
|
$ |
1,005 |
|
29
Cash Flow
Changes in our cash flows were as follows (in thousands):
|
|
For the Six Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net used in operating activities |
|
|
(2,381 |
) |
|
|
(6,174 |
) |
Net cash used in investing activities |
|
|
(820 |
) |
|
|
(515 |
) |
Net cash provided by financing activities |
|
|
463 |
|
|
|
8,157 |
|
Net Change in Cash and Cash Equivalents |
|
$ |
(2,738 |
) |
|
$ |
1,468 |
|
For the six months ended September 30, 2024, net cash used in operating activities was primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization and stock-based compensation, and other changes in working capital. Specifically, the adjustments are primarily driven by net cash outflows related to content advances made to partners for which initial expenditures are generally recovered within six to twelve months and operating prepayments, partially offset by a decrease in accounts receivable, the collection of the Company's ERTC claim, and a decrease in accounts payable and accrued expenses. Operating cash flows are typically seasonally lower during the first two fiscal quarters and higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season.
Cash used in investing activities was used in the expenditures towards long-lived assets as well as the sale of equity securities.
Cash provided by financing activities were primarily due to the receipt of funds from the T3 Loan offset by a net $1.6 million repayment of the Line of Credit Facility, $0.3 million net payment of deferred acquisition consideration and $0.2 million used to repurchase outstanding shares.
For the six months ended September 30, 2023, net cash used in operating activities is primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, including capitalized content spend and other changes in working capital. 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. In addition, we made net advances of $5.3 million for the six months ended September 30, 2023, as part of the advances we make on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twelve months. Cash used in investing activities was used in the expenditures towards long-live intangible assets and fixed assets. Cash provided by financing activities pertained to the issuance of company equity, net of financing fees.
30
Off-balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements other than as discussed in Note 2 – Basis of Presentation and Summary of Significant Accounting Policies, Basis of Presentation and Consolidation and Note 3 - Other Interests to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q, we hold a 100% equity interest in CDF2 Holdings, which is an unconsolidated variable interest entity (“VIE”), which wholly owns Cinedigm Digital Funding 2, LLC; however, we are not the primary beneficiary of the VIE.
Item 4. CONTROLS AND PROCEDURES
Definition and Limitations of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
Evaluation of Disclosure Controls and Procedures
The management of the Company, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in the Exchange Act), as of September 30, 2024. Based on such evaluation, our principal executive officer and principal financial and accounting officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, on a timely basis, and (ii) accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures as of September 30, 2024.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the three and six months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
31
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Shares issued to Acquiree :
On September 17, 2021, the Company acquired substantially all of the assets of Bloody Disgusting, LLC (“Bloody Disgusting”). On August 29, 2024, the Company issued 108,434 shares of Common Stock as an earnout payment for the acquisition, pursuant to Section 4(a)(2) of the Securities Act.
During the six-months ended September 30, 2024, we issued 164,000 common shares as payment for preferred dividends.
Information on Share Repurchases :
The following table outlines the open market repurchases of Class A common Shares made under the Company's approved Rule 10b-18 plan :
Period |
|
(a) Total Number of Shares Purchased |
|
|
(b) Average Price Paid Per Share |
|
|
(c) Total Number of Shares Purchased as Part of Publicly announced Plans |
|
|
(d) Maximum Shares that May yet be purchased under the Plan or Programs (1.) |
|
||||
May 2024 (5/1/2024 - 5/31/2024) |
|
|
184,495 |
|
|
$ |
1.02 |
|
|
|
184,495 |
|
|
|
315,505 |
|
June 2024 (6/1/2024 - 6/30/2024) |
|
|
— |
|
|
$ |
— |
|
|
|
184,495 |
|
|
|
315,505 |
|
July 2024 (7/1/2024 - 7/31/2024) |
|
|
30,770 |
|
|
$ |
0.87 |
|
|
|
215,265 |
|
|
|
284,735 |
|
Total |
|
|
215,265 |
|
|
$ |
0.99 |
|
|
|
|
|
|
|
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
The exhibits are listed in the Exhibit Index beginning on the following page herein.
32
EXHIBIT INDEX
Exhibit |
|
Description of Document |
|
||
|
||
|
||
|
||
|
||
101.INS |
|
Inline XBRL Instance Document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbases Document. |
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
** Portions of this exhibit have been omitted pursuant to Rule 601(b)(10) of Regulation S-K. The omitted information is not material and would likely cause competitive harm to the registrant if publicly disclosed.
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
CINEVERSE CORP. |
|
|
|
|
Date: November 14, 2024 |
By: |
/s/ Christopher J. McGurk |
|
|
Christopher J. McGurk |
|
|
|
Date: November 14, 2024 |
By: |
/s/ Mark Lindsey |
|
|
Mark Lindsey |
34