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 February 7, 2024,
Cineverse Corp.
TABLE OF CONTENTS
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Page |
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Item 1. |
1 |
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Condensed Consolidated Balance Sheets at December 31, 2023 and March 31, 2023 |
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. |
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Item 5. |
32 |
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Item 6. |
33 |
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33 |
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34 |
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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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December 31, |
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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 |
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Unbilled revenue |
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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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Equity investment in Metaverse, a related party, at fair value |
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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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Current portion of earnout consideration on purchase of business |
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Operating lease liabilities |
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Current portion of 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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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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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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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 December 31, |
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Nine Months Ended |
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2023 |
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2022 |
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2023 |
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2022 |
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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 income (loss) |
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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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Loss from equity investment in Metaverse, a related party |
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( |
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— |
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( |
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( |
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Employee retention tax credit |
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— |
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— |
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Other income (expenses), net |
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( |
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( |
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( |
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Net (loss) income before income taxes |
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( |
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( |
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( |
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Income tax benefit (expense) |
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— |
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( |
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— |
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Net (loss) income |
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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) income attributable to controlling interests |
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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) income attributable to common stockholders |
$ |
( |
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$ |
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$ |
( |
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$ |
( |
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Net (loss) income 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 December 31, |
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Nine Months Ended |
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2023 |
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2022 |
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2023 |
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2022 |
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Net (loss) income |
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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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( |
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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) income |
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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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Nine Months Ended |
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2023 |
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2022 |
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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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Provision for doubtful accounts |
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— |
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Changes in fair value of equity investment in Metaverse |
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Amortization of debt issuance costs |
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Stock-based compensation |
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Interest expense for deferred consideration and earnouts |
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Capitalized content |
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( |
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— |
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Change in estimated earnout consideration |
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( |
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— |
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Non-monetary sale of content licenses |
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— |
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( |
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Barter-related non-cash expenses |
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— |
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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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( |
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Content advances |
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( |
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Employee retention tax credit |
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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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Unbilled revenue |
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( |
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( |
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Deferred revenue |
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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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— |
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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 earnout consideration |
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( |
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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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— |
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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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( |
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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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Nine Months Ended |
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2023 |
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2022 |
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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 accrued 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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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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Earnout consideration adjustment |
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$ |
- |
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$ |
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Issuance of common stock for Board of Director compensation |
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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, 2023 (Audited) |
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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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( |
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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 in connection with ATM raises, net |
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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 in connection with direct equity 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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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, 2023 |
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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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Issuance of Class A common stock in connection employee bonuses |
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— |
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— |
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— |
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— |
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— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||||
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 |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||||
Foreign exchange translation |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock-based compensation |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Issuance of common stock for Board of Director compensation |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Preferred stock dividends paid in stock |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Preferred stock dividends accrued |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balances as of December 31, 2023 |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
6
Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands)
|
Preferred Stock |
|
|
Common Stock |
|
|
Treasury |
|
|
Additional Paid-In |
|
|
Accumulated |
|
|
Accumulated Other |
|
|
Total |
|
|
Non |
|
|
|
|
|||||||||||||||||||||
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Equity |
|
|
Interest |
|
|
Total |
|
||||||||||||
Balances as of March 31, 2022 (Audited) |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||||
Foreign exchange translation |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Stock-based compensation |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Preferred stock dividends paid in stock |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Preferred stock dividends accrued |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balances as of June 30, 2022 |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||||
Foreign exchange translation |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock-based compensation |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Preferred stock dividends paid in stock |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Issuance of Class A common stock in connection employee bonuses |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||||
Issuance of Class A common stock for earnout commitment |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Preferred stock dividends accrued |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balances as of September 30, 2022 |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||||
Foreign exchange translation |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Stock-based compensation |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Preferred stock dividends paid in stock |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Issuance of common stock for Board of Director compensation |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Preferred stock dividends accrued |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||
Balances as of December 31, 2022 |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||||
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”, 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 significant role in the digital distribution revolution that continues to transform the media and entertainment landscape.
Cineverse is a premier streaming technology and entertainment company with its core business operating as (i) a portfolio of owned and operated enthusiast streaming channels with enthusiast fan bases; (ii) a large-scale global aggregator and full-service distributor of feature films and television programs; and (iii) a proprietary technology software-as-a-service platform for over-the-top (“OTT”) app development and content distribution through subscription video on demand ("SVOD"), dedicated ad-supported ("AVOD"), ad-supported streaming linear ("FAST") channels, social video streaming services, and audio podcasts. We distribute products for major brands such as Hallmark, ITV, Nelvana, ZDF, Konami, NFL and Highlander, as well as leading international and domestic content creators, movie producers, television producers and other short-form digital content producers. 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.
We played a pioneering role in transitioning approximately 12,000 movie screens from traditional analog film prints to digital distribution, and at the end of our fiscal year 2023, the Company's cinema equipment business concluded its active operations, as its contracts reached maturity. The Company no longer manages cinema equipment separately, and with the run-off of its operations, no longer presents this part of the business as a separate segment. All prior period reporting within this report reflect this change.
Our Class A common stock, par value $
Financial Condition and Liquidity
We have a history of net losses, and for the nine months ended December 31, 2023, we had a net loss attributable to common stockholders in the amount of $
The Company is party to a Loan, Guaranty, and Security Agreement with East West Bank (“EWB”) providing for a revolving line of credit (the “Line of Credit Facility”) of $
In July 2020, we entered into an At-the-Market sales agreement (the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”) and B. Riley FBR, Inc. (“B. Riley” and, together with A.G.P., the “Sales Agents”), pursuant to which the Company may offer and sell, from time to time, through the Sales Agents, shares of Common Stock at the market prices prevailing on Nasdaq at the time of the sale of such shares. The Company is not obligated to sell any shares under the ATM Sales Agreement. Any sales of shares made under the ATM Sales Agreement will be made pursuant to an effective shelf registration statement, for an aggregate offering price of up to $
8
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
nine months ended December 31, 2023, the Company sold
On June 16, 2023, the Company closed on the sale of
In addition, the Company remains authorized to purchase up to an aggregate of
The Company will continue to invest in content development and acquisition, from which it believes it will obtain an appropriate return on its investment. As of December 31, 2023 and March 31, 2023, short term content advances were $
We believe our cash and cash equivalents and our credit facility, as of December 31, 2023, will be sufficient to support our operations for at least twelve months from the filing of this report. The Company may also undertake equity or debt offerings, if necessary and opportunistically available, for further capital needs.
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, 2023 filed with the Securities and Exchange Commission (the “SEC”) on June 29, 2023. 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 add 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, 2023. 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 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 the 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, 2023.
Segment Reporting
Beginning in fiscal year 2024, following the run-off of the Company's digital cinema operations, the Company now manages its operations and manages its business in one reporting segment. Earlier periods presented herein have been presented to conform to this reportable segment composition.
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.
Employee Retention Tax Credit
The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") provided an employee retention tax credit ("ERTC") which was a refundable tax credit against certain employment taxes. The Consolidated Appropriations Act (the "Appropriations Act") extended and expanded the availability of the employee retention credit through December 31, 2021. The Appropriations Act amended the employee retention credit to be equal to
The Company qualified for the employee retention credit beginning in June 2020 for qualified wages through September 2021 and filed a cash refund claim during the fiscal year ended March 31, 2023 in the amount of $
The Company has received notification during the second quarter of fiscal year 2024 that its ERTC claim is under examination with the Internal Revenue Service ("IRS"). As of the date of this report, the examination is ongoing, and the Company is responding to audit requests as they arise.
10
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
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 |
|
|
Trademarks and Tradenames |
|
|
Customer Relationships |
|
|
Advertiser Relationships and Channel |
|
|
Software |
|
|
Capitalized Content |
|
|
Supplier Agreements |
|
The Company’s intangible assets included the following (in thousands):
|
|
As of December 31, 2023 |
|
|||||||||
|
|
Cost Basis |
|
|
Accumulated |
|
|
Net |
|
|||
Content Library |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Advertiser Relationships and Channel |
|
|
|
|
|
( |
) |
|
|
|
||
Customer Relationships |
|
|
|
|
|
( |
) |
|
|
|
||
Software |
|
|
|
|
|
( |
) |
|
|
|
||
Trademark and Tradenames |
|
|
|
|
|
( |
) |
|
|
|
||
Capitalized Content |
|
|
|
|
|
( |
) |
|
|
|
||
Total Intangible Assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
11
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
As of March 31, 2023 |
|
|||||||||
|
|
Cost Basis |
|
|
Accumulated |
|
|
Net |
|
|||
Content Library |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Advertiser Relationships and Channel |
|
|
|
|
|
( |
) |
|
|
|
||
Customer Relationships |
|
|
|
|
|
( |
) |
|
|
|
||
Trademark and Tradenames |
|
|
|
|
|
( |
) |
|
|
|
||
Software |
|
|
|
|
|
( |
) |
|
|
|
||
Total Intangible Assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
During the three and nine months ended December 31, 2023, the Company had amortization expense of $
As of December 31, 2023, amortization expense is expected to be (in thousands):
|
|
Total |
|
|
In-process intangible assets |
|
$ |
|
|
Remainder of fiscal year 2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
|
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 to the Capitalized Content costs within Intangible Assets and are amortized as a group within Depreciation and Amortization within the 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.
12
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 event occurs or circumstances would indicate it would be more likely than not that fair value would be reduced below its carrying amount.
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 December 31, 2023 |
|
|||||||||||||
|
|
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, 2023 |
|
|||||||||||||
|
|
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 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The Company has an investment in A Metaverse Company ("Metaverse") (SEHK: 1616) accounted for under the equity method of accounting as the Company can exert significant influence over Metaverse with its direct
13
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
ownership of approximately
Following the halting of Metaverse stock trading on The Stock Exchange of Hong Kong Limited on April 1, 2022, the Company valued our equity investment in Metaverse using a market approach and the investment was categorized as a Level 3 valuation based on unobservable inputs. As such, as of March 31, 2023, the Company estimated the fair value of Metaverse based the last known enterprise value, adjusting for trends in enterprise valuations and market capitalization for comparable companies with a resulting fair value was $
On November 6, 2023, Metaverse's stock resumed trading on The Stock Exchange of Hong Kong Limited. During the quarter ended December 31, 2023, the Company sold
The Company estimated the fair value of its earnout consideration using contractual inputs from the related business combination, which established specific fiscal year revenue growth, profitability and EBITDA targets. The Company utilizes the most up to date forecast to estimate the outcome against these targets to determine the ultimate estimated payout. During the nine months ended December 31, 2023, the Company estimated a $
Our cash and cash equivalents, accounts receivable, unbilled revenue, accounts payable and accrued expenses are financial instruments and are recorded at cost in the Condensed Consolidated Balance Sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature.
Content Advances
Content advances represents 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 $
14
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following (in thousands):
|
|
As of |
|
|||||
|
|
December 31, |
|
|
March 31, |
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Amounts due to producers |
|
|
|
|
|
|
||
Accrued compensation and benefits |
|
|
|
|
|
|
||
Accrued other expenses |
|
|
|
|
|
|
||
Total accounts payable and accrued expenses |
|
$ |
|
|
$ |
|
||
Compared to March 31, 2023, the decrease in accounts payable was primarily attributable to an $
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 recognizes 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 Class A common shares of the Company stock or cash, at the Company's discretion and subject to certain conditions. Payments of $
The deferred consideration related to the FTV acquisition is payable in the amount of $
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 |
|
|
Nine Months Ended |
|
||||||||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Streaming and digital |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Base distribution |
|
|
|
|
|
|
|
|
|
|
|
||||
Podcast and other |
|
|
|
|
|
|
|
|
|
|
|
||||
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
15
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
distribution revenue relates to non-streaming revenue, including Theatrical revenue and the sale of DVD's. Podcast and other revenue primarily relates 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 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.
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 is variable consideration as part of the transaction price. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.
During the three and nine months ended December 31, 2023, we did
Contract Liabilities
We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability) when cash payments are received or due in advance of our performance, such as the sale of DVDs with future release dates, even if amounts are refundable. Amounts recorded as contract liabilities are generally not long-term in nature.
The ending deferred revenue balance, including current and non-current balances as of December 31, 2023 and March 31, 2023, was and $
16
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
obligations, while the reductions are due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.
Participations and royalties payable
When we use third-parties to distribute company owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers.
Concentrations
For the three and nine months ended December 31, 2023,
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 nonemployee 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 nonemployee 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 bases.
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 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
17
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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
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 share and per share data):
|
|
Three Months Ended December 31, |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Basic net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) attributable to common stockholders |
|
$ |
( |
) |
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Shares used in basic computation: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average shares of Common Stock outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic net income (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 income (loss) per share |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
The calculation of diluted net loss per share for the three and nine months ended December 31, 2023 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.
18
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
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 December 31, 2023 and March 31, 2023, 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 $
The accompanying Condensed Consolidated Statements of Operations includes digital cinema servicing revenue from CDF2 Holdings in the amount of $
Total Stockholders’ Deficit of CDF2 Holdings at December 31, 2023 and March 31, 2023 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 December 31, 2023 and 2022, the number of shares of Common Stock authorized for issuance was
During the three months ended December 31, 2023, the Company issued 0
During the nine months ended December 31, 2023, the Company issued
During the three months ended December 31, 2022, the Company issued 45 thousand shares. This was comprised of
During the nine months ended December 31, 2022, 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
20
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
EQUITY INCENTIVE PLANS
Stock Based Compensation Awards
The Company has issued awards under two plans, the 2000 Equity Incentive Plan (the “2000 Plan”) and the 2017 Equity Incentive Plan (the “2017 Plan").
Awards issued under our 2000 Plan were permitted to be issued to employees, outside directors or consultants in any of the following forms (or a combination thereof) (i) stock option awards; (ii) SARs; (iii) stock or restricted stock or restricted stock units; or (iv) performance awards. The 2000 Plan provided for the granting of incentive stock options (“ISOs”) with exercise prices not less than the fair market value of our Common Stock on the date of grant. ISOs granted to shareholders having more than
In August 2017, the Company adopted 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 provided for the issuance of up to
For the three and nine months ended December 31, 2023, the Company incurred stock-based compensation expenses of $
For the three and nine months ended December 31, 2022, the Company incurred stock-based compensation expenses of $
Share-based compensation expense is reported within Selling, General and Administrative expenses.
5. LINE OF CREDIT FACILITY
The Company is party to a Loan, Guaranty, and Security Agreement with East West Bank ("EWB") providing for a revolving line of credit (the "Line of Credit Facility") of $
During the three and nine months ended December 31, 2023, the Company had interest expense, including cash interest and amortization, of $
21
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. COMMITMENTS AND CONTINGENCIES
LEASES
Cineverse is a virtual company with
The Company has recognized $
The table below presents the lease-related assets and liabilities recorded on our Consolidated Balance Sheets (in thousands):
Classification on the Balance Sheet |
|
December 31, |
|
|
March 31, |
|
||||
Assets |
|
|
|
|
|
|
|
|
||
Noncurrent |
|
Other long-term assets |
|
$ |
|
|
$ |
|
||
Liabilities |
|
|
|
|
|
|
|
|
||
Current |
|
Operating leases liabilities |
|
|
|
|
|
|
||
Noncurrent |
|
Operating leases liabilities, net of current portion |
|
|
|
|
|
|
||
Total operating lease liabilities |
|
$ |
|
|
$ |
|
||||
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 |
|
|
2024 |
|
$ |
|
|
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 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):
22
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Fiscal year ending March 31, |
|
Sublease Payments |
|
|
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
— |
|
2027 |
|
|
— |
|
2028 |
|
|
— |
|
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 (benefit) expense of approximately $(
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 is a premier streaming technology and entertainment company with its core business (i) across a portfolio of owned and operated enthusiast streaming channels with enthusiast fan bases; (ii) as a large-scale global aggregator and full-service distributor of feature films and television programs; and (iii) as a proprietary technology software-as-a-service platform for over-the-top (“OTT”) app development and content distribution through subscription video on demand ("SVOD"), dedicated ad-supported ("AVOD"), ad-supported streaming linear ("FAST") channels, social video streaming services, and audio podcasts. We distribute products for major brands such as Hallmark, ITV, Nelvana, ZDF, Konami, NFL and Highlander, as well as leading international and domestic content creators, movie producers, television producers and other short-form digital content producers. 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.
We played a significant role in the digital distribution revolution that continues to transform the media landscape, playing a pioneering role in transitioning approximately 12,000 movie screens from traditional analog film prints to digital distribution, and at the end of our fiscal year 2023, the Company's cinema equipment business concluded its active operations, as its contracts reached maturity. The Company no longer manages cinema equipment separately, and with the run-off of its operations, no longer presents this part of the business as a separate segment. All prior period reporting within this report reflects this change.
Financial Condition and Liquidity
As of December 31, 2023, the Company has an accumulated deficit of $489.3 million and negative working capital of $0.4 million. For the three and nine months ended December 31, 2023, the Company had a net loss attributable to common stockholders of $(2,864) thousand and $(6.9) million, respectively. Net cash used in operating activities for the nine months ended December 31, 2023 was $9.3 million, which included $6.5 million of incremental investment in our content portfolio via advances or minimum guarantee payouts. We may continue to generate net losses for the foreseeable future.
The Company is party to a Loan, Guaranty, and Security Agreement with East West Bank (“EWB”) providing for a revolving line of credit (the “Line of Credit Facility”) of $5.0 million, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and such subsidiaries’ assets. The line of credit expires on September 15, 2024. The Line of Credit Facility bears interest at a rate equal to 1.5% above the prime rate, 10.00% as of December 31, 2023. As of December 31, 2023, $5.0 million was outstanding on the Line of Credit Facility, gross of issuance costs of $(69) thousand. On February 9, 2024, the Company expanded the Line of Credit Facility to $7.5 million at the same interest rate and with the same maturity date.
In July 2020, we entered into an At-the-Market sales agreement (the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”) and B. Riley FBR, Inc. (“B. Riley” and, together with A.G.P., the “Sales Agents”),
24
pursuant to which the Company may offer and sell, from time to time, through the Sales Agents, shares of Common Stock at the market prices prevailing on Nasdaq at the time of the sale of such shares. The Company is not obligated to sell any shares under the ATM Sales Agreement. Any sales of shares made under the ATM Sales Agreement will be made pursuant to an effective shelf registration statement, for an aggregate offering price of up to $30 million. During the first quarter of the fiscal year, the Company sold 177 thousand shares under the ATM Sales Agreement for $1.1 million in net proceeds, after deduction of commissions and fees. The ATM Sales Agreement has expired in accordance with its terms.
On June 16, 2023, the Company closed on the sale of 2,150 thousand shares of Common Stock, 517 thousand pre-funded warrants, and warrants to purchase up to 2,667 thousand shares of Common Stock at a combined public offering price of $3.00 per share and accompanying warrant for aggregate gross proceeds of approximately $7.4 million, after deducting placement agent fees and other offering expenses in the amount of $0.6 million. The warrants had an exercise price of $3.00 per share, were exercisable immediately and will expire five years from the issuance. The Company received $2.999 per share for the pre-funded warrants, with the remaining $0.001 due at the time of exercise. All 516,667 pre-funded warrants were subsequently exercised in July 2023 for total proceeds of $0.5 thousand.
In addition, the Company remains authorized to purchase up to an aggregate of 500 thousand shares of its outstanding Common Stock, following the announcement of a stock repurchase program on March 1, 2023.
The Company will continue to invest in content development and acquisition, from which it believes it will obtain an appropriate return on its investment.
We believe our cash and cash equivalents and our credit facility, as of December 31, 2023, will be sufficient to support our operations for at least twelve months from the filing of this report. The Company may also undertake equity or debt offerings, if necessary and opportunistically available, for further capital needs.
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.
25
Results of Operations for the Three Months Ended December 31, 2023, and 2022 (in thousands):
Revenues
|
|
For the Three Months Ended December 31, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Streaming and digital |
|
$ |
9,537 |
|
|
$ |
11,598 |
|
|
$ |
(2,061 |
) |
|
|
(18 |
)% |
Base distribution |
|
|
2,811 |
|
|
|
8,121 |
|
|
|
(5,310 |
) |
|
|
(65 |
)% |
Podcast and other |
|
|
864 |
|
|
|
977 |
|
|
|
(113 |
) |
|
|
(12 |
)% |
Other non-recurring |
|
|
64 |
|
|
|
7,186 |
|
|
|
(7,122 |
) |
|
|
(99 |
)% |
Total Revenue |
|
$ |
13,276 |
|
|
$ |
27,882 |
|
|
$ |
(14,606 |
) |
|
|
(52 |
)% |
For the three months ended December 31, 2023, total revenue declined by $14.6 million, or 52% as compared to three months ended December 31, 2022. During this time, Streaming and Digital revenue for three months ended December 31, 2023, decreased by $2.1 million, driven by a decline in the Company's AVOD revenue of $1.7 million due to continued headwinds in the broader advertising market. This decrease was partially offset by a $0.5 million increase in SVOD revenue as the Company continues to see the benefits from its acquisitions which have contributed value-accretive libraries, distribution platforms and technologies, such as Screambox.
The Company's $5.3 million decline in Base Distribution revenue for the three months ended December 31, 2023 as compared to the three months ended December 31, 2022 was primarily driven by a $3.8 million decline in theatrical revenue, in part due to the Terrifier 2 success in fiscal year 2023, a decline of $1.1 million in barter-related licensing deal in the third quarter of fiscal 2023, as well as a $0.8 million decline in DVD-related sales and related physical distribution revenue, as the Company's focus shifts away from physical sales.
Other non-recurring revenue related to the Company's legacy cinema equipment as its operations run-off. Following the completion of cost recoupment, the expiration of the exhibitor master license agreements applicable to this line of revenue, and the recognition of all remaining constrained variable consideration, revenue decreased $7.1 million. In the third quarter of fiscal 2024, $0.1 million of remaining systems sales were recognized.
Direct Operating Expenses
|
|
For the Three Months Ended December 31, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Direct operating expenses |
|
$ |
5,464 |
|
|
$ |
14,411 |
|
|
$ |
(8,947 |
) |
|
|
(62 |
)% |
The $8.9 million decrease in Direct Operating Expenses for the three months ended December 31, 2023 is primarily driven by the variable costs associated with a 52% decrease in quarterly revenue, including reduced licensing, royalty and participation expenses of $3.6 million; reduced manufacturing, freight, and fulfillment charges of $3.4 million. In addition, the Company's reserve against advances provided to partners decreased by $1.1 million relative to the three months ended December 31, 2022 and a $0.5 million increase in acquired content-related preparation costs capitalized as a result of the Company's content investment initiative.
Selling, General and Administrative Expenses
|
|
For the Three Months Ended December 31, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Compensation expense |
|
$ |
4,336 |
|
|
$ |
5,217 |
|
|
$ |
(881 |
) |
|
|
(17 |
)% |
Corporate expenses |
|
|
796 |
|
|
|
1,780 |
|
|
|
(984 |
) |
|
|
(55 |
)% |
Share-based compensation |
|
|
183 |
|
|
|
658 |
|
|
|
(475 |
) |
|
|
(72 |
)% |
Other operating expenses |
|
|
1,058 |
|
|
|
1,452 |
|
|
|
(394 |
) |
|
|
(27 |
)% |
Selling, General and Administrative |
|
$ |
6,373 |
|
|
$ |
9,107 |
|
|
$ |
(2,733 |
) |
|
|
(30 |
)% |
Selling, general and administrative expenses for the three months ended December 31, 2023 decreased by $2.7 million. In comparison to the three months ended December 31, 2022, compensation expenses decreased by $0.9
26
million due to a $0.7 million reduction in bonus accrual attributable to fiscal year 2024 performance, a decrease in recurring salaries and associated taxes of $0.7 million, partially offset by a $0.2 million increase in severance expense.
Corporate expenses decreased by $1.0 million primarily related a reduction of $0.6 million in legal fees and $0.4 million in other consulting and service providers, as a result of the Company's savings initiatives.
Share-based compensation has decreased by $0.5 million, as a result of forfeitures associated with US-based workforce reduction, a decline in stock price, and a relatively higher number of award tranches fully vesting.
Other operating expenses decreased by $0.4 million, primarily driven by reductions in marketing related costs of $0.3 million as a result of spending controls put into place.
Depreciation and Amortization Expense
|
|
For the Three Months Ended December 31, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Amortization of intangible assets |
|
$ |
879 |
|
|
$ |
712 |
|
|
$ |
167 |
|
|
|
23 |
% |
Depreciation of property and equipment |
|
|
133 |
|
|
|
211 |
|
|
|
(78 |
) |
|
|
(37 |
)% |
Depreciation and Amortization |
|
$ |
1,012 |
|
|
$ |
924 |
|
|
$ |
88 |
|
|
|
10 |
% |
Amortization expense has continued to increase and depreciation expense has continued to decrease as a result of the Company's shift away from the physical business to its focus on content-related spend during the three months ended December 31, 2023.
Interest expense, net
For the three months ended December 31, 2023, interest expense decreased by $76 thousand from $367 thousand to $291, primarily as a result of a $69 thousand decrease in deferred consideration amortization.
Results of Operations for the nine months ended December 31, 2023 and 2022 (in thousands):
Revenues
|
|
For the Nine Months Ended December 31, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Streaming and digital |
|
$ |
29,006 |
|
|
$ |
31,375 |
|
|
$ |
(2,369 |
) |
|
|
(8 |
)% |
Base distribution |
|
|
4,529 |
|
|
|
11,145 |
|
|
|
(6,616 |
) |
|
|
(59 |
)% |
Podcast and other |
|
|
1,953 |
|
|
|
1,740 |
|
|
|
213 |
|
|
|
12 |
% |
Other non-recurring |
|
|
3,780 |
|
|
|
11,218 |
|
|
|
(7,438 |
) |
|
|
(66 |
)% |
Total Revenue |
|
$ |
39,268 |
|
|
$ |
55,478 |
|
|
$ |
(16,210 |
) |
|
|
(29 |
)% |
For the nine months ended December 31, 2023, the Company's revenue declined by $16.2 million. The decrease was driven by a $6.6 million decline in the Company's base distribution, driven by a $3.7 million decline in theatrical revenue following fiscal year 2023's theatrical success with films such as Terrifier 2, and a $2.4 million decrease in DVD and related supply chain costs, as the Company has shifted its focus away from the physical business.
Streaming and digital revenue decreased by $2.4 million, driven by a $6.2 million decrease in AVOD from the headwinds faced in the advertising market, partially offset by a $2.6 million increase in SVOD and a $0.9 million increase from digital revenue as the Company continued to see the benefits from recent years' acquisitions, such as DMR, Fandor and Bloody Disgusting, which have contributed value-accretive libraries, distribution platforms and technologies.
The decrease in Other non-recurring revenue decline was related to the run-off of the Company's legacy digital cinema business, whose active operations ran-off at the end of fiscal year 2023. For the nine months ended
27
December 31, 2023, variable consideration from these operations had decreased by $5.8 million and system sales decreased by$1.5 million.
Direct Operating Expenses
|
|
For the Nine Months Ended December 31, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Direct operating expenses |
|
$ |
17,097 |
|
|
$ |
29,859 |
|
|
$ |
(12,762 |
) |
|
|
(43 |
)% |
For the nine months ended December 31, 2023, the Company's direct operation expense decreased $12.8 million. The decrease was primarily driven by $4.3 million in fulfillment and manufacturing costs associated with the decline in the Company's physical distribution business, a $2.5 million decrease in licenses, royalties, and participation expenses, a $2.2 million decrease in the Company's costs associated with the Company's reserves against advances to partners, a $1.6 million reduction in SaaS related costs as a result of internalizing services previously performed by third parties and cost savings synergies, and $0.7 million related to a decrease in an estimated Bloody Disgusting earnout liability based on fiscal year 2024 performance to-date.
Selling, General and Administrative Expenses
|
|
For the Nine Months Ended December 31, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Compensation expense |
|
$ |
13,369 |
|
|
$ |
16,361 |
|
|
$ |
(2,992 |
) |
|
|
(18 |
)% |
Corporate expenses |
|
|
3,092 |
|
|
|
5,193 |
|
|
|
(2,101 |
) |
|
|
(40 |
)% |
Share-based compensation |
|
|
1,092 |
|
|
|
3,855 |
|
|
|
(2,763 |
) |
|
|
(72 |
)% |
Other operating expenses |
|
|
3,535 |
|
|
|
3,607 |
|
|
|
(72 |
) |
|
|
(2 |
)% |
Selling, General and Administrative |
|
$ |
21,088 |
|
|
$ |
29,016 |
|
|
$ |
(7,928 |
) |
|
|
(27 |
)% |
During the nine months ended December 31, 2023, the Company's SG&A decreased by $7.9 million. Relative to nine months ended December 31, 2022, compensation related costs primarily decreased due to a reduction in the Company's bonus expense of $2.2 million and an increase in capitalized labor of $0.5 million from the development of the Company's Matchpoint software.
Corporate expenses declined by $2.1 million primarily decreased due to a corporate focus on reducing third-party legal costs in the amount of $1.5 million and a decline of $0.6 million in other consulting and service providers due to the Company's cost-saving initiatives.
Share-based compensation also decreased by $2.8 million, as a result of the US-based workforce reduction, a decline in stock price, and a relatively higher number of awards tranches fully vesting.
Depreciation and Amortization Expense
|
|
For the Nine Months Ended December 31, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Amortization of intangible assets |
|
$ |
2,381 |
|
|
$ |
2,193 |
|
|
|
188 |
|
|
|
9 |
% |
Depreciation of property and equipment |
|
|
406 |
|
|
|
715 |
|
|
|
(309 |
) |
|
|
(43 |
)% |
Depreciation and Amortization |
|
$ |
2,787 |
|
|
$ |
2,908 |
|
|
|
(121 |
) |
|
|
(4 |
)% |
Depreciation expense decreased primarily due to the remainder of our digital cinema assets reaching the conclusion of their ten-year useful lives during the fiscal year ended March 31, 2023. Amortization expense has continued to increase as a result of the Company's shift away from the physical business to its focus on content related spend.
Interest expense, net
For the nine months ended December 31, 2023 relative to the nine months ended December 31, 2022, interest expense decreased by $99 thousand from $880 thousand to $781, primarily as a result of a $233 thousand decrease
28
in deferred consideration amortization, partially offset by a $182 thousand increase in line of credit related interest costs, which was entered into in September 2022.
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.
29
Following is the reconciliation of our consolidated net (loss) income to Adjusted EBITDA (in thousands):
|
|
For the Three Months |
|
|
For the Nine Months Ended December 31, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Net income (loss) |
|
$ |
(2,736 |
) |
|
$ |
5,022 |
|
|
$ |
(6,589 |
) |
|
$ |
(6,620 |
) |
Add Back: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax (benefit) expense |
|
|
(24 |
) |
|
|
— |
|
|
|
12 |
|
|
|
— |
|
Depreciation and amortization |
|
|
1,012 |
|
|
|
924 |
|
|
|
2,787 |
|
|
|
2,908 |
|
Interest expense |
|
|
291 |
|
|
|
367 |
|
|
|
781 |
|
|
|
880 |
|
Loss from equity investment in Metaverse |
|
|
3,043 |
|
|
|
— |
|
|
|
3,761 |
|
|
|
1,828 |
|
Provision for doubtful accounts |
|
|
— |
|
|
|
7 |
|
|
|
— |
|
|
|
54 |
|
Stock-based compensation |
|
|
183 |
|
|
|
658 |
|
|
|
1,092 |
|
|
|
3,855 |
|
Employee retention tax credit |
|
|
— |
|
|
|
(2,025 |
) |
|
|
|
|
|
(2,475 |
) |
|
Other (income) expense, net |
|
|
(147 |
) |
|
|
76 |
|
|
|
2 |
|
|
|
82 |
|
Net income attributable to noncontrolling interest |
|
|
(41 |
) |
|
|
(8 |
) |
|
|
(94 |
) |
|
|
(35 |
) |
Transition-related costs |
|
|
259 |
|
|
|
15 |
|
|
|
1,094 |
|
|
|
371 |
|
Mergers and acquisition costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
207 |
|
Adjusted EBITDA |
|
$ |
1,840 |
|
|
$ |
5,036 |
|
|
$ |
2,846 |
|
|
$ |
1,056 |
|
Cash Flow
Changes in our cash flows were as follows (in thousands):
|
|
For the Nine Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net used in operating activities |
|
|
(9,287 |
) |
|
$ |
(7,901 |
) |
Net cash used in investing activities |
|
|
(482 |
) |
|
|
(429 |
) |
Net cash provided by financing activities |
|
|
8,156 |
|
|
|
4,064 |
|
Net change in cash and cash equivalents |
|
$ |
(1,613 |
) |
|
$ |
(4,266 |
) |
For the nine months ended December 31, 2023, net cash used in operating activities is primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization and stock-based compensation, and other changes in working capital. Specifically, the adjustments are primarily driven by net cash outflows related to content advances made to partners for which initial expenditures are generally recovered within six to twelve months and increases in accounts payable, accrued expenses, and other liabilities, partially offset by a decrease in accounts receivable and the unrealized loss from the Company's investment in Metaverse's stock. Operating cash flows are typically seasonally lower during the first two fiscal quarters and higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season.
Cash used in investing activities was used in the expenditures towards long-lived intangible assets and fixed assets, as well as the receipt from the return of investment from the sale of equity securities.
Cash provided by financing activities pertained to the draw and repayment of the Company's line of credit, payment of earnout consideration, and issuance of company equity, net of financing fees.
For the nine months ended December 31, 2022, net cash used in operating activities was primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, including other changes in working capital. Additionally, during the nine months ended December 31, 2022, the Company decreased accounts payable by $11.8 million to vendors. Cash received from virtual print fees ("VPFs"), from our legacy digital cinema business, decreased from the previous period in alignment with the decrease in eligible VPF systems. Prepaid and other current assets increased by $2.7 million. In addition, we made $1.1 million in advances for the nine months ended December 31, 2022.
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Cash used in financing was used for the purchase of long-lived fixed assets.
Net cash provided by financing activities was driven by the net receipt of $5 million from the Company's line of credit, partially offset by the Company's deferred consideration and debt issuance costs.
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 December 31, 2023. 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 December 31, 2023.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the three months ended December 31, 2023 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
There have been no material changes to the Risk Factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2023 and each Item 1A of our Quarterly Reports on Form 10-Q for quarters ended June 30, 2023 and September 30, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The exhibits are listed in the Exhibit Index beginning on the following page herein.
32
EXHIBIT INDEX
Exhibit |
|
Description of Document |
10.1 |
|
|
31.1 |
|
|
31.2 |
|
|
32.1 |
|
|
32.2 |
|
|
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). |
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: February 14, 2024 |
By: |
/s/ Christopher J. McGurk |
|
|
Christopher J. McGurk |
|
|
|
Date: February 14, 2024 |
By: |
/s/ Mark Lindsey |
|
|
Mark Lindsey |
34