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:
Title of each class |
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Trading Symbol |
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Name of each exchange on |
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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 August 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 June 30, 2024 and March 31, 2024 |
1 |
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2 |
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3 |
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4 |
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6 |
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Notes to the Condensed Consolidated Financial Statements (Unaudited) |
8 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 |
Item 4. |
30 |
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Item 1. |
31 |
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Item 1A. |
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Item 2. |
31 |
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Item 3. |
31 |
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Item 4. |
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Item 5. |
31 |
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Item 6. |
32 |
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32 |
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33 |
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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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June 30, |
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March 31, |
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(Unaudited) |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowance for credit losses of $ |
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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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Property and equipment, net |
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Intangible assets, net |
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Goodwill |
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Content advances, net of current portion |
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Other long-term assets |
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Total Assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities |
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Accounts payable and accrued expenses |
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$ |
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$ |
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Line of credit, including unamortized debt issuance costs of $ |
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Current portion of deferred consideration on purchase of business |
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Term Loan, including unamortized debt issuance costs of $ |
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— |
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Earnout consideration on purchase of business |
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Current portion of operating lease liabilities |
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Deferred revenue |
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Total current liabilities |
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Deferred consideration on purchase of business, net of current portion |
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— |
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Operating lease liabilities, net of current portion |
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Other long-term liabilities |
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Total Liabilities |
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Stockholders’ Equity |
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Preferred stock, |
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Common Stock, $ |
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Additional paid-in capital |
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Treasury stock, at cost; |
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( |
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( |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Total stockholders’ equity of Cineverse Corp. |
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Deficit attributable to noncontrolling interest |
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( |
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Total equity |
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Total Liabilities and Equity |
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$ |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements
1
Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
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Three Months Ended June 30, |
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2024 |
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2023 |
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Revenues |
$ |
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$ |
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Costs and expenses |
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Direct operating |
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Selling, general and administrative |
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Depreciation and amortization |
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Total operating expenses |
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Operating loss |
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( |
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( |
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Interest expense |
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( |
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Gain from equity investment in Metaverse, a related party |
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Other income (expense), net |
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( |
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Net loss before income taxes |
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( |
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( |
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Income tax expense |
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( |
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( |
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Net loss |
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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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Net loss attributable to controlling interests |
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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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Net loss attributable to common stockholders |
$ |
( |
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$ |
( |
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Net loss per share attributable to common stockholders: |
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Basic |
$ |
( |
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$ |
( |
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Diluted |
$ |
( |
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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 June 30, |
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2024 |
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2023 |
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Net loss |
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$ |
( |
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$ |
( |
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Other comprehensive (loss) income: |
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Foreign exchange translation |
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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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Comprehensive loss |
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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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Three Months Ended June 30, |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Provision for credit losses |
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( |
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Amortization of debt issuance costs |
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Stock-based compensation |
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Interest expense for deferred consideration and earnouts |
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Interest expense for term loan |
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Barter-related non-cash expenses |
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Other |
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Changes in operating assets and liabilities, net of acquisitions: |
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Accounts receivable |
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( |
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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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( |
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Employee retention tax credit |
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Accounts payable, accrued expenses, and other liabilities |
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( |
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( |
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Capitalized content |
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( |
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( |
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Unbilled Revenue |
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( |
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Deferred revenue |
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( |
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( |
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Net cash used in operating activities |
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$ |
( |
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$ |
( |
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Cash flows from investing activities: |
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Expenditures for long-lived assets |
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( |
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( |
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Sale of equity investment securities |
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Net cash used in investing activities |
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$ |
( |
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$ |
( |
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Cash flows from financing activities: |
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Proceeds from line of credit, net of debt issuance costs |
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Payments on line of credit |
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( |
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( |
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Payment of deferred consideration |
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( |
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At-the-market issuance fees |
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( |
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Cost to acquire treasury shares |
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( |
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Proceeds from the issuance of a term loan, net of debt issuance costs |
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Issuance of Class A common stock, net of issuance costs |
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Net cash provided by financing activities |
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$ |
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$ |
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Net change in cash and cash equivalents |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements
4
Cineverse Corp.
SUPPLEMENTAL CASH FLOW INFORMATION AND DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY
(Unaudited)
(In thousands)
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Three Months Ended June 30, |
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2024 |
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2023 |
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Cash interest paid |
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$ |
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$ |
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Lease liability related payments |
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$ |
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$ |
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Income taxes paid |
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$ |
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$ |
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Noncash investing and financing activities: |
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Bonus liability settled in stock |
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$ |
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$ |
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Accrued dividends on preferred stock |
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$ |
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$ |
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Issuance of Class A common stock for payment of accrued preferred stock dividends |
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$ |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements
5
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands)
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Preferred Stock |
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Common Stock |
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Treasury |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Non |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Loss |
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Equity |
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Interest |
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Total |
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Balances as of March 31, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Foreign exchange translation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Treasury stock acquired |
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— |
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— |
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( |
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— |
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( |
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— |
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— |
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— |
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( |
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— |
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( |
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Fees incurred in connection with ATM offering |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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— |
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( |
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Issuance of common stock for acquiree consideration |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Preferred stock dividends paid in stock |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Preferred stock dividends accrued |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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( |
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Balances as of June 30, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements
6
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 |
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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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— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Preferred stock dividends accrued |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balances as of June 30, 2023 |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
7
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF OPERATIONS AND LIQUIDITY
Cineverse Corp. (“Cineverse”, “us”, “our”, "we", and “Company” refers to Cineverse Corp. and its subsidiaries unless the context otherwise requires) was incorporated in Delaware on March 31, 2000. Since our inception, we have played a 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 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. Our streaming channels reach audiences in several distinct ways: direct-to-consumer, through these major application platforms, and through third party distributors of content on platforms.
The Company’s streaming technology platform, known as MatchpointTM, is a software-based streaming operating platform which provides clients with AVOD, SVOD, transactional video on demand ("TVOD") and linear capabilities, automates the distribution of content, and features a robust data analytics platform.
We distribute products for major brands such as Hallmark, ITV, Nelvana, ZDF, Konami, NFL and Highlander, as well as 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.
Our Class A common stock, par value $
On July 10, 2024, the Company received a letter from the Nasdaq Listing Qualifications staff indicating that, based upon the closing bid price of the Common Stock for the last
In accordance with Nasdaq Listing Rules 5810(c)(3)(A), the Company has been provided a period of
8
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Financial Condition and Liquidity
We have a history of net losses, and for the three months ended June 30, 2024, we had a net loss attributable to Common Stockholders in the amount of $
The Company is party to a Loan, Guaranty, and Security Agreement, as amended to date, with East West Bank (“EWB”) providing for a revolving line of credit (the “Line of Credit Facility”) of $
On April 5, 2024, Cineverse Terrifier LLC (“T3 Borrower”), a wholly-owned subsidiary of the Company entered into a Loan and Security Agreement with BondIt LLC (“T3 Lender”) and the Company, as a guarantor (the “T3 Loan Agreement”). The T3 Loan Agreement provides for a term loan with a principal amount not to exceed $
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 was able to 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. For the twelve months ended March 31, 2024, the Company sold
On May 3, 2024, the Company entered into a sales agreement (the “2024 Sales Agreement”) with A.G.P./Alliance Global Partners and The Benchmark Company, LLC (collectively, the “Sales Agents”), pursuant to which the Company may offer and sell, from time to time, through the Sales Agents, shares of Common Stock. Shares of Common Stock may be offered and sold for an aggregate offering price of up to $
On June 16, 2023, the Company closed on the sale of
9
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 June 30, 2024 and March 31, 2024, short term content advances were $
Our capital requirements will depend on many factors, and we may need to use existing capital resources and/or undertake equity or debt offerings, if necessary and opportunistically available, for further capital needs. We believe our cash and cash equivalent balances as of June 30, 2024 will be sufficient to support our operations for at least twelve months from the filing of this report.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The accompanying interim Condensed Consolidated Financial Statements of Cineverse Corp. have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended March 31, 2024 filed with the Securities and Exchange Commission (the “SEC”) on July 1, 2024. These Condensed Consolidated Financial Statements are unaudited and have been prepared by the Company following the rules and regulations of the SEC.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted as permitted by such rules and regulations; however, the Company believes the disclosures are adequate to make the information presented not misleading. Certain columns and rows may not foot due to the use of rounded numbers.
The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2024. Interim results are not necessarily indicative of the results for a full year.
The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the 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.
We own an
Accounting Policies
There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended March 31, 2024.
10
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Segment Reporting
The Company manages its operations and its business in one reporting segment.
Reclassifications
Certain amounts have been reclassified to conform to the current presentation.
Cash and Cash Equivalents
We consider all highly liquid investments with an original maturity of three months or less to be “cash equivalents.” We maintain bank accounts with major banks, which from time to time may exceed the Federal Deposit Insurance Corporation’s insured limits. We periodically assess the financial condition of the institutions and believe that the risk of any loss is minimal.
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 $
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.
11
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Intangible Assets, Net
Intangible assets are stated at cost less accumulated amortization. For intangible assets that have finite lives, the assets are amortized using the straight-line method over the estimated useful lives of the related assets. For intangible assets with indefinite lives, the assets are tested annually for impairment or sooner if a triggering event occurs.
Amortization lives of intangible assets are as follows:
Content Library |
|
|
Tradenames, Trademarks and Patents |
|
|
Customer Relationships |
|
|
Advertiser Relationships and Channel |
|
|
Software |
|
|
Capitalized Content |
|
|
Supplier Agreements |
|
The Company’s intangible assets included the following (in thousands):
|
|
As of June 30, 2024 |
|
|||||||||
|
|
Cost Basis |
|
|
Accumulated |
|
|
Net |
|
|||
Content Library |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Advertiser Relationships and Channel |
|
|
|
|
|
( |
) |
|
|
|
||
Customer Relationships |
|
|
|
|
|
( |
) |
|
|
|
||
Software |
|
|
|
|
|
( |
) |
|
|
|
||
Tradenames, Trademarks and Patents |
|
|
|
|
|
( |
) |
|
|
|
||
Capitalized Content |
|
|
|
|
|
( |
) |
|
|
|
||
Total Intangible Assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
As of March 31, 2024 |
|
|||||||||
|
|
Cost Basis |
|
|
Accumulated |
|
|
Net |
|
|||
Content Library |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Advertiser Relationships and Channel |
|
|
|
|
|
( |
) |
|
|
|
||
Customer Relationships |
|
|
|
|
|
( |
) |
|
|
|
||
Software |
|
|
|
|
|
( |
) |
|
|
|
||
Trademark and Tradenames |
|
|
|
|
|
( |
) |
|
|
|
||
Capitalized Content |
|
|
|
|
|
( |
) |
|
|
|
||
Total Intangible Assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
During the three months ended June 30, 2024 and June 30, 2023, the Company had amortization expense of $
12
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of June 30, 2024, amortization expense is expected to be (in thousands):
|
|
Total |
|
|
In-process intangible assets |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
Capitalized Content
The Company capitalizes direct costs incurred in the production of content from which it expects to generate a return over the anticipated useful life and the Company’s predominant monetization strategy informs the method of amortizing these deferred costs. The determination of the predominant monetization strategy is made at commencement of the production or license period and the classification of the monetization strategy as individual or group only changes if there is a significant change to the title’s monetization strategy relative to its initial assessment. The costs are capitalized 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.
Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current economic indicators and market conditions, and assumptions about our strategic plans with regard to its operations. To the extent additional information arises, market conditions change, or our strategies change, it is possible that the conclusion regarding whether our remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material effect on our consolidated financial position or results of operations.
The Company has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or to perform the quantitative impairment test. The Company annually assesses goodwill for potential impairment during its fourth fiscal quarter, or sooner if events occur or circumstances would indicate it would be more likely than not that fair value would be reduced below its carrying amount. For the year ended, March 31, 2024, the Company recognized a goodwill impairment charge of $
13
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Fair Value Measurements
The fair value measurement disclosures are grouped into three levels based on valuation factors:
The following tables summarize the levels of fair value measurements of our financial assets and liabilities (in thousands):
|
|
As of June 30, 2024 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity investment in Metaverse, at fair value |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Current portion of earnout consideration on purchase of a business |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
|
|
As of March 31, 2024 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity investment in Metaverse, at fair value |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Current portion of earnout consideration on purchase of a business |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Equity Investment in Metaverse
The Company has an equity investment in A Metaverse Company (“Metaverse”), a publicly traded Chinese entertainment company, formerly Starrise Media Holdings Limited, whose ordinary shares are listed on the Stock Exchange of Hong Kong.
After a period of time when trading in Metaverse's ordinary shares had been halted, the resumption of active trading status in November 2023 represented renewed availability of quoted, unadjusted prices in active markets for identical assets, upon which the Company can execute a sale and readily access pricing information at the measurement date. Accordingly, the Company has presented the fair value of its Metaverse shares held as of March 31, 2024 within the Level 1 grouping. The fair value of the shares held is presented within Other long term assets and as of June 30, 2024 and March 31, 2024 was $
14
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Earnout consideration on purchase of business
Prior to the completion of the earnout period at the end of fiscal year 2024, the Company estimated the fair value of its earnout liability using contractual inputs from the related business combination, which established specific fiscal year revenue growth, profitability and EBITDA targets. As of June 30, 2024, the balance which is classified as short term in nature remains unchanged from the balance March 31, 2024.
Our cash and cash equivalents, accounts receivable, unbilled revenue and accounts payable and accrued expenses are financial instruments and are recorded at cost in the consolidated balance sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature.
Content Advances
Content advances represent amounts prepaid to studios or content producers for which we provide content distribution services. We evaluate advances regularly for recoverability and record a provision for amounts that we expect may not be recoverable. Amounts which are expected to be recovered in more than 12 months are classified as long term and presented within content advances, net of current portion, which were $
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following (in thousands):
|
|
As of |
|
|||||
|
|
June 30, |
|
|
March 31, |
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Amounts due to producers |
|
|
|
|
|
|
||
Accrued compensation and benefits |
|
|
|
|
|
|
||
Accrued other expenses |
|
|
|
|
|
|
||
Total Accounts Payable and Accrued Expenses |
|
$ |
|
|
$ |
|
||
Deferred Consideration
The Company has recognized liabilities related to deferred consideration arrangements related to the acquisition of FoundationTV ("FTV") and Digital Media Rights ("DMR"). These payments are fixed in nature and are due to the sellers of the respective companies. The Company initially recognized the liability at fair value at the time of acquisition and has since recognized interest expense related to accretion in advance of the ultimate settlement of these liabilities. Amounts due within 12 months under the terms of the agreements are classified as current within the Condensed Consolidated Balance Sheets.
The deferred consideration related to the acquisition of DMR is payable in either shares of Common Stock or cash, at the Company's discretion and subject to certain conditions. A payment of $
The deferred consideration related to the FTV acquisition is payable in the amount of $
15
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Revenue Recognition
Payment terms and conditions vary by customer and typically provide net 30-to-90 day terms. We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and payment for that product or service will be one year or less.
The following tables present the Company’s disaggregated revenue by source (in thousands):
|
Three Months Ended June 30, |
|
|||||
|
2024 |
|
|
2023 |
|
||
Streaming and digital |
$ |
|
|
$ |
|
||
Podcast and other |
|
|
|
|
|
||
Base distribution |
|
|
|
|
|
||
Other non-recurring |
|
|
|
|
|
||
Total Revenue |
$ |
|
|
$ |
|
||
The Company's Streaming and digital revenue pertains to its OTT business, including the licensing, service, advertising, and subscription revenue related to the Company's streaming business and partnerships. Base distribution revenue relates to non-streaming revenue, including Theatrical revenue and the sale of DVD's. Podcast and other revenue primarily relate to the Company's Bloody Disgusting Podcast Network. As the Company satisfies its performance obligations from these revenue sources, whether relating to the delivery of digital content, physical goods, or licensing, revenue is generally measured at a point in time.
Other non-recurring revenue relates to the Company's legacy digital cinema operations, whose operations have run-off, still may generate non-recurring revenue from the sale of cinema assets or the recognition of variable consideration as the associated uncertainty associated with the revenue is resolved.
The Company follows the five-step model established by 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.
16
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We recognize accounts receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that we recognize revenue from a sale. Reserves for product returns and other allowances are variable consideration as part of the transaction price. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.
During the three months ended June 30, 2024 and 2023, the Company recognized a reduction in its provision for credit losses of $
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 June 30, 2024 and March 31, 2024, was $
Participations and royalties payable
When we use third parties to distribute Company-owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers.
Concentrations
For the three months ended June 30, 2024 and 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.
17
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and tax credit carryforwards and for differences between the carrying amounts of existing assets and liabilities and their respective tax basis.
Valuation allowances are established when management is unable to conclude that it is more likely than not that some portion, or all, of the deferred tax asset will ultimately be realized. The Company is primarily subject to income taxes in the United States and India.
The Company accounts for uncertain tax positions in accordance with an amendment to ASC Topic 740-10, Income Taxes (Accounting for Uncertainty in Income Taxes), which clarified the accounting for uncertainty in tax positions. This amendment provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is “more-likely-than-not” to be sustained were it to be challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the “more-likely-than-not” threshold, the largest amount of tax benefit that is more than
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 June 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Basic net loss per share: |
|
|
|
|
|
|
||
Net loss attributable to Common Stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
Shares used in basic computation: |
|
|
|
|
|
|
||
Weighted-average shares of Common Stock outstanding |
|
|
|
|
|
|
||
Basic Net Loss Per Share |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Shares used in diluted computation: |
|
|
|
|
|
|
||
Weighted-average shares of Common Stock outstanding |
|
|
|
|
|
|
||
Stock options and SARs |
|
|
— |
|
|
|
— |
|
Weighted-average number of shares |
|
|
|
|
|
|
||
Diluted Net Loss Per Share |
|
$ |
( |
) |
|
$ |
( |
) |
The calculation of diluted net loss per share for the three months ended June 30, 2024 and 2023 does not include the impact of
18
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recently Issued Accounting Pronouncements
The Company evaluates all Accounting Standard Updates ("ASUs") issued but not yet effective by FASB for consideration of their applicability. ASU's not included in the Company's disclosures were assessed and determined to be not applicable and material to the Company's consolidated financial statements or disclosures.
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures." The update requires disclosure of incremental segment information, including significant segment expenses, on an annual and interim basis, and would apply to single segment companies. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption is permitted. The Company is required to apply the updates retrospectively. The Company is assessing the impact of ASU 2023-07 on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740)—Improvements to Income Tax Disclosures" On an annual basis, this update requires the disclosure of specific tax categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. The amendments are effective for annual periods beginning after December 15, 2024. Prospective and retrospective adoption is permitted. The Company is still evaluating its method of adoption and assessing the impact of ASU 2023-09 on the disclosures within its consolidated financial statements.
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 June 30, 2024 and March 31, 2024, our maximum exposure to loss, as it relates to the non-consolidated CDF2 Holdings entity, represents accounts receivable for service fees under a master service agreement with CDF2 Holdings. Such accounts receivable was $
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 both June 30, 2024 and March 31, 2024 was $
19
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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
4. STOCKHOLDERS’ EQUITY
COMMON STOCK
As of June 30, 2024 and March 31, 2023, the number of shares of Common Stock authorized for issuance was
During the three months ended June 30, 2024, the Company issued
During the three months ended June 30, 2023, the Company issued
PREFERRED STOCK
Cumulative dividends in arrears on Series A Preferred Stock were $
TREASURY STOCK
We have treasury stock, at cost, consisting of
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 Common Stock on the date of grant. ISOs granted to shareholders having more than
In August 2017, the Company adopted the 2017 Equity Incentive Plan (the “2017 Plan). The 2017 Plan replaced the 2000 Plan, and applies to employees and directors of, and consultants to, the Company. The 2017 Plan provides for the issuance of up to
For both the three months ended June 30, 2024 and three months ended June 30, 2023, the Company incurred stock-based compensation expenses of $
Share-based compensation expense is reported within Selling, General and Administrative expenses.
5. DEBT
LINE OF CREDIT FACILITY
The Company is party to a Loan, Guaranty, and Security Agreement, as amended to date, with East West Bank (“EWB”) providing for a revolving line of credit (the “Line of Credit Facility”) of $
During the three months ended June 30, 2024 and 2023, the Company had interest expense, including cash interest and amortization, of $
21
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
TERM LOAN
On April 5, 2024, T3 Borrower, a wholly-owned subsidiary of the Company, entered into a Loan and Security Agreement with T3 Lender and the Company, as guarantor, to the T3 Loan Agreement.
The T3 Loan Agreement provides for the T3 Loan with a principal amount not to exceed $
After the principal of the T3 Loan is paid in full, T3 Lender will be entitled to receive
The Company entered into a Guaranty Agreement pursuant to which it provided a guarantee of the T3 Loan (the "Guarantee") which is capped at obligations not exceeding $
6. COMMITMENTS AND CONTINGENCIES
LEASES
Cineverse is a virtual company with
The Company recognized $
22
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The table below presents the lease-related assets and liabilities recorded on our Consolidated Balance Sheets (in thousands):
|
|
Classification on the Balance Sheet |
|
June 30, |
|
|
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 |
|
|
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):
Fiscal year ending March 31, |
Sublease Payments |
|
|
2025 |
$ |
|
|
Thereafter |
|
— |
|
Total |
$ |
|
|
7. INCOME TAXES
We calculate income tax expense based upon an annual effective tax rate forecast, which includes estimates and assumptions. We recognized income tax expense of 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 Corp. (“Cineverse”, “us”, “our”, "we", and “Company” refers to Cineverse Corp. and its subsidiaries unless the context otherwise requires) was incorporated in Delaware on March 31, 2000. Since our inception, we have played a significant role in the digital distribution revolution that continues to transform the media and entertainment landscape.
The Company has a long legacy in using technology to transform the entertainment industry and played a pioneering role in transitioning movie screens from traditional analog film prints to digital distribution. Over the past several years, Cineverse has transformed itself from being a digital cinema equipment and physical content distributor to a leading independent streaming company, and we continue to push the bounds of our industry with innovative technology offerings.
Cineverse is a premier streaming technology and entertainment company with its core business operating as (i) a portfolio of owned and operated streaming channels with enthusiast fan bases; (ii) a large-scale global aggregator and full-service distributor of feature films and television programs; and (iii) a proprietary technology software-as-a-service platform for over-the-top (“OTT”) app development and content distribution through subscription video on demand ("SVOD"), dedicated ad-supported ("AVOD"), ad-supported streaming linear ("FAST") channels, social video streaming services, and audio podcasts. Our streaming channels reach audiences in several distinct ways: direct-to-consumer, through these major application platforms, and through third party distributors of content on platforms.
The Company’s streaming technology platform, known as MatchpointTM, is a software-based streaming operating platform which provides clients with AVOD, SVOD, transactional video on demand ("TVOD") and linear capabilities, automates the distribution of content, and features a robust data analytics platform.
We distribute products for major brands such as Hallmark, ITV, Nelvana, ZDF, Konami, NFL and Highlander, as well as 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.
Financial Condition and Liquidity
As of June 30, 2024, the Company has an accumulated deficit of $507.3 million and a working capital deficit of $0.9 million. For the three months ended June 30, 2024, the Company had a net loss attributable to the Company's common stock, par value $0.001 per share (the "Common Stock") holders of $3.2 million. Net cash used in operating activities for the three months ended June 30, 2024 was $1.7 million, which included $2.0 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, as amended to date, with East West Bank (“EWB”) providing for a revolving line of credit (the “Line of Credit Facility”) of $7.5 million, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and such subsidiaries’ assets. The Line of Credit Facility bears interest at a rate equal to 1.5% above the prime rate, equal to 10.00% as of June 30, 2024. The term of the Line of Credit
24
Facility has been extended to September 15, 2025. As of June 30, 2024, $4.8 million was outstanding on the Line of Credit Facility, gross of issuance costs of $127 thousand.
On April 5, 2024, T3 Borrower, a wholly-owned subsidiary of the Company, entered into a Loan and Security Agreement with T3 Lender and the Company, as guarantor, to the T3 Loan Agreement. The T3 Loan Agreement provides for the T3 Loan with a principal amount not to exceed $3,666 thousand, and a maturity date of April 1, 2025, with a permitted extension of the term for 120 days under certain conditions. The T3 Loan bears no interest until the maturity date other than an interest advance equal to $576 thousand at the closing of the T3 Loan on April 5, 2024. The interest advance was recorded as a discount on the T3 Loan at inception and will be amortized to interest expense and increase the loan amount over its term. If the T3 Loan is extended as noted above, the T3 Loan will bear interest at a rate of 1.44% per month. T3 Borrower may prepay the obligations under the T3 Loan, in full or in part, without penalty or premium. The proceeds under the T3 Loan Agreement are being used for the funding under the Company’s distribution arrangements for the film titled Terrifier 3 (the “Film”). The T3 Loan Agreement contains customary covenants, representation and warranties and events of default. The T3 Loan is presented as current within the Company's Condensed Consolidated Balance Sheets and has a balance of $3.1 million as of June 30, 2024.
After the principal of the T3 Loan is paid in full, T3 Lender will be entitled to receive 15% of all royalties earned by the Company on the Film under its distribution agreements for the Film until T3 Lender has received 1.75 times the full commitment amount of $3,666 thousand, consisting of the principal amount plus interest and fees advanced to T3 Borrower, plus any extension interest. The T3 Loan is secured by a first priority interest in all of T3 Borrower’s rights and interest in the Film and the distribution agreements, including the proceeds to T3 Borrower from the distribution of the Film.
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 was able to 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. For the twelve months ended March 31, 2024, the Company sold 177 thousand shares for $1.1 million in net proceeds, respectively, after deduction of commissions and fees. The ATM Sales Agreement expired in fiscal year 2024 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 517 thousand pre-funded warrants were subsequently exercised in July 2023 for total proceeds of $0.5 thousand.
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 June 30, 2024 and March 31, 2024, short term content advances were $12.2 million and $9.3 million, respectively, and content advances, net of current portion were, $1.7 million and $2.6 million, respectively.
Our capital requirements will depend on many factors, and we may need to use existing capital resources and/or undertake equity or debt offerings, if necessary and opportunistically available, for further capital needs. We believe our cash and cash equivalent balances as of June 30, 2024 will be sufficient to support our operations for at least twelve months from the filing of this report.
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.
25
Our significant accounting policies are discussed in Note 2 – Basis of Presentation and Summary of Significant Accounting Policies, of the Notes to the Condensed Consolidated Financial Statements, included in Item 1, Condensed Consolidated Financial Statements (Unaudited), of this Quarterly Report on Form 10-Q. Management believes that these policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.
Results of Operations for the Three Months Ended June 30, 2024, and 2023 (in thousands):
Revenues
|
|
For the Three Months Ended June 30, |
|
|
As a % of Revenue |
|
||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
|
2024 |
|
|
2023 |
|
||||||
Streaming and digital |
|
$ |
7,703 |
|
|
$ |
10,114 |
|
|
$ |
(2,411 |
) |
|
|
(24 |
)% |
|
|
84 |
% |
|
|
78 |
% |
Podcast and other |
|
|
1,043 |
|
|
|
429 |
|
|
|
614 |
|
|
|
143 |
% |
|
|
12 |
% |
|
|
3 |
% |
Base distribution |
|
|
351 |
|
|
|
1,158 |
|
|
|
(807 |
) |
|
|
(70 |
)% |
|
|
4 |
% |
|
|
9 |
% |
Other non-recurring |
|
|
30 |
|
|
|
1,279 |
|
|
|
(1,249 |
) |
|
|
(98 |
)% |
|
|
0 |
% |
|
|
10 |
% |
Total Revenue |
|
$ |
9,127 |
|
|
$ |
12,980 |
|
|
$ |
(3,853 |
) |
|
|
(30 |
)% |
|
|
100 |
% |
|
|
100 |
% |
For the three months ended June 30, 2024, total revenue declined by $3.9 million, or 30% as compared to three months ended June 30, 2023. During this time, Streaming and digital revenue for three months ended June 30, 2024, decreased by $2.4 million, driven by a $1.9 million decline in the Company's digital distribution revenue resulting from the impact of content release timing in the current quarter relative to the first quarter in fiscal 2024, as well as the recent change in and build-out of the Company's direct advertising sales team. This decrease was partially offset by a $0.2 million increase in SVOD revenue.
Podcast and other revenue increased by $0.6 million, or 143%, due to the success of the Company's Bloody Disgusting podcast content.
The Company's $0.8 million decline in Base distribution revenue for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 was primarily driven by a decline in DVD-related sales and related physical distribution revenue, as the Company's focus shifts away from physical sales.
Other non-recurring revenue is related to the Company's legacy cinema equipment as its operations run-off. In the first quarter of fiscal 2024, the Company recognized $1.2 million in legacy digital cinema system sales and variable consideration; however, in the first quarter of fiscal year 2025, sales of legacy systems have decreased, and the Company anticipates this trend will continue.
Direct Operating Expenses
|
|
For the Three Months Ended June 30, |
|
|
As a % of Revenue |
|
||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
|
2024 |
|
|
2023 |
|
||||||
Direct operating expenses |
|
$ |
4,479 |
|
|
$ |
6,987 |
|
|
$ |
(2,508 |
) |
|
|
(36 |
)% |
|
|
49 |
% |
|
|
54 |
% |
The $2.5 million decrease in Direct operating expenses for the three months ended June 30, 2024 was primarily driven by the variable costs associated with the decline in comparative quarterly revenue, including reduced licensing, royalty and participation expenses of $1.7 million; reduced manufacturing, freight, and fulfillment charges of $0.1 million related to the decline of physical sales, and the Company's reserve against advances provided to partners increased by $0.2 million relative to the three months ended June 30, 2023.
26
Selling, General and Administrative Expenses
|
|
Three Months Ended June 30, |
|
|
As a % of Revenue |
|
||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
|
2024 |
|
|
2023 |
|
||||||
Compensation expense |
|
$ |
4,051 |
|
|
$ |
4,406 |
|
|
$ |
(355 |
) |
|
|
(8 |
)% |
|
|
44 |
% |
|
|
34 |
% |
Corporate expenses |
|
|
1,012 |
|
|
|
1,701 |
|
|
|
(689 |
) |
|
|
(41 |
)% |
|
|
11 |
% |
|
|
13 |
% |
Share-based compensation |
|
|
470 |
|
|
|
409 |
|
|
|
61 |
|
|
|
15 |
% |
|
|
5 |
% |
|
|
3 |
% |
Other operating expenses |
|
|
1,030 |
|
|
|
1,372 |
|
|
|
(342 |
) |
|
|
(25 |
)% |
|
|
11 |
% |
|
|
11 |
% |
Selling, General and Administrative |
|
$ |
6,563 |
|
|
$ |
7,888 |
|
|
$ |
(1,325 |
) |
|
|
(17 |
)% |
|
|
72 |
% |
|
|
61 |
% |
Selling, general and administrative expenses for the three months ended June 30, 2024 decreased by $1.3 million. In comparison to the three months ended June 30, 2023, compensation expenses decreased by $0.4 million driven a change in the Company's employment mix, as a result of a greater investment in Cineverse Services India.
Corporate expenses decreased by $0.7 million primarily related to a reduction of $0.3 million in other consulting service providers, $0.2 million in legal fees, and $0.1 million in public relations fees, as a result of the Company's savings initiatives.
Other operating expenses decreased by $0.3 million, primarily driven by reductions in the provision for credit losses of $0.2 million and a decrease in advertising barter costs of $0.2 million.
Depreciation and Amortization Expense
|
|
For the Three Months Ended June 30, |
|
|
As a % of Revenue |
|
||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
|
2024 |
|
|
2023 |
|
||||||
Amortization of intangible assets |
|
$ |
709 |
|
|
$ |
698 |
|
|
$ |
11 |
|
|
|
2 |
% |
|
|
8 |
% |
|
|
5 |
% |
Depreciation of property and equipment |
|
|
154 |
|
|
|
124 |
|
|
|
30 |
|
|
|
24 |
% |
|
|
2 |
% |
|
|
1 |
% |
Depreciation and Amortization |
|
$ |
863 |
|
|
$ |
822 |
|
|
$ |
41 |
|
|
|
5 |
% |
|
|
9 |
% |
|
|
6 |
% |
Amortization expense and depreciation expense have remained relatively consistent for three months ended June 30, 2024, compared to the three months ended June 30, 2023, as the Company's intangible focused investment mix has remained consistent over the past year.
Interest expense, net
For the three months ended June 30, 2024, interest expense increased by $0.1 million from $0.3 million to $0.4 million, primarily as a result of the Company's Terrifier 3 term loan interest of $0.1 million.
27
Adjusted EBITDA
We define Adjusted EBITDA to be earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, merger and acquisition costs, restructuring, transition and acquisitions expense, net, goodwill impairment and certain other items.
Adjusted EBITDA is not a measurement of financial performance under GAAP and may not be comparable to other similarly titled measures of other companies. We use Adjusted EBITDA as a financial metric to measure the financial performance of the business because management believes it provides additional information with respect to the performance of its fundamental business activities. For this reason, we believe Adjusted EBITDA will also be useful to others, including our stockholders, as a valuable financial metric.
We present Adjusted EBITDA because we believe that Adjusted EBITDA is a useful supplement to net income (loss) from continuing operations as an indicator of operating performance. We also believe that Adjusted EBITDA is a financial measure that is useful both to management and investors when evaluating our performance and comparing our performance with that of our competitors. We also use Adjusted EBITDA for planning purposes and to evaluate our financial performance because Adjusted EBITDA excludes certain incremental expenses or non-cash items, such as stock-based compensation charges, that we believe are not indicative of our ongoing operating performance.
We believe that Adjusted EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net income (loss) from continuing operations and Adjusted EBITDA has been provided in the financial results. Adjusted EBITDA should not be considered as an alternative to net income (loss) from operations as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, Adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our Condensed Consolidated Financial Statements prepared in accordance with GAAP.
Following is the reconciliation of our consolidated net (loss) income to Adjusted EBITDA (in thousands):
|
|
For the Three Months |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net loss |
|
$ |
(3,050 |
) |
|
$ |
(3,536 |
) |
Add Back: |
|
|
|
|
|
|
||
Income tax expense |
|
|
7 |
|
|
|
20 |
|
Depreciation and amortization |
|
|
863 |
|
|
|
822 |
|
Interest expense |
|
|
431 |
|
|
|
295 |
|
Loss from equity investment in Metaverse |
|
|
3 |
|
|
|
— |
|
Stock-based compensation |
|
|
470 |
|
|
|
409 |
|
Other (income) expense, net |
|
|
(163 |
) |
|
|
36 |
|
Net income attributable to noncontrolling interest |
|
|
(23 |
) |
|
|
(14 |
) |
Transition-related costs |
|
|
27 |
|
|
|
468 |
|
Adjusted EBITDA |
|
$ |
(1,435 |
) |
|
$ |
(1,500 |
) |
28
Cash Flow
Changes in our cash flows were as follows (in thousands):
|
|
For the Three Months |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net used in operating activities |
|
|
(1,714 |
) |
|
|
(3,260 |
) |
Net cash used in investing activities |
|
|
(423 |
) |
|
|
(272 |
) |
Net cash provided by financing activities |
|
|
925 |
|
|
|
8,509 |
|
Net Change In Cash and Cash Equivalents |
|
$ |
(1,212 |
) |
|
$ |
4,977 |
|
For the three months ended June 30, 2024, net cash used in operating activities was primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization and stock-based compensation, and other changes in working capital. Specifically, the adjustments are primarily driven by net cash outflows related to content advances made to partners for which initial expenditures are generally recovered within six to twelve months and operating prepayments, partially offset by a decrease in unbilled revenue, the collection of the Company's ERTC claim, and an increase in accounts payable and accrued expenses. Operating cash flows are typically seasonally lower during the first two fiscal quarters and higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season.
Cash used in investing activities was used in the expenditures towards long-lived 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 receipt of funds from the Company's Terrifier 3-related term loan, repayment of the Company's line of credit, payment of deferred consideration, and payment of financing fees.
For the three months ended June 30, 2023, net cash used in operating activities is primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, including capitalized content spend and other changes in working capital. Additionally, during the three months ended June 30, 2023, the Company decreased accounts payable by $4.7 million to vendors. Operating cash flows are typically seasonally lower during the first two fiscal quarters and higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season. In addition, we made net advances of $2.2 million for the three months ended June 30, 2023, as part of the advances we make on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twelve months.
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.
29
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 June 30, 2024. Based on such evaluation, our principal executive officer and principal financial and accounting officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, on a timely basis, and (ii) accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures as of June 30, 2024.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the three months ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
30
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, 2024.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Shares issued to Acquiree
On February 27, 2023, the Company, together with its subsidiary Dove Family Channel, entered into an asset purchase agreement with Christian Cinema LLC and Dove Movies LLC (together, “Christian Channel”), to buy substantially all of the assets of Christian Channel. On April 1, 2024, the Company issued 29,741 shares of Common Stock as a deferred payment of consideration for the acquisition, pursuant to Section 4(a)(2) of the Securities Act.
Information on Share Repurchases
The following table outlines the open market repurchases of Class A common Shares made under the Company's approved Rule 10b-18 plan :
Period |
|
(a) Total Number of Shares Purchased |
|
|
(b) Average Price Paid Per Share |
|
|
(c) Total Number of Shares Purchased as Part of Publicly announced Plans |
|
|
(d) Maximum Shares that May yet be purchased under the Plan or Programs (1.) |
|
||||
May 2024 (5/1/2024 - 5/31/2024) |
|
|
184,495 |
|
|
$ |
1.02 |
|
|
|
184,495 |
|
|
|
315,505 |
|
Total |
|
|
184,495 |
|
|
$ |
1.02 |
|
|
|
184,495 |
|
|
|
315,505 |
|
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.
31
EXHIBIT INDEX
Exhibit |
|
Description of Document |
4.1 |
|
Guaranty Agreement dated as of April 5, 2024 by Cineverse Corp. to BondIt, LLC. |
10.1 |
|
|
10.2 |
|
|
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). |
** Portions of this exhibit have been omitted pursuant to Rule 601(b)(10) of Regulation S-K. The omitted information is not material and would likely cause competitive harm to the registrant if publicly disclosed.
32
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: August 14, 2024 |
By: |
/s/ Christopher J. McGurk |
|
|
Christopher J. McGurk |
|
|
|
Date: August 14, 2024 |
By: |
/s/ Mark Lindsey |
|
|
Mark Lindsey |
33