1. NATURE OF OPERATIONS AND LIQUIDITY

Cineverse Corp. (“Cineverse”, “us”, “our”, and “Company” refers to Cineverse Corp. and its subsidiaries unless the context otherwise requires) was incorporated in Delaware on March 31, 2000. ~~On May 22, 2023, the Company changed its corporate name to Cineverse Corp.~~ 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) ~~across~~ a portfolio of owned and operated enthusiast streaming channels with enthusiast fan bases; (ii) as a large-scale global aggregator and full-service distributor of feature films and television programs; and (iii) as a proprietary technology software-as-a-service platform for over-the-top (“OTT”) app development and content distribution through subscription video on demand ("SVOD"), dedicated ad-supported ("AVOD"), ad-supported streaming linear ("FAST") channels, social video streaming services, and audio podcasts. We distribute products for major brands such as Hallmark, Televisa, ITV, Nelvana, ZDF, Konami, NFL and Scholastic, as well as leading international and domestic content creators, movie producers, television producers and other short-form digital content producers. We collaborate with producers, major brands and other content owners to market, source, curate and distribute quality content to targeted audiences through (i) existing and emerging digital home entertainment platforms, including but not limited to Apple iTunes, Amazon Prime, Netflix, Hulu, Xbox, Pluto, and Tubi, as well as (ii) physical goods, including DVD and Blu-ray Discs.

We played a significant role in the digital distribution revolution that continues to transform the media landscape, playing a pioneering role in transitioning approximately 12,000 movie screens from traditional analog film prints to digital distribution, and at the end of our fiscal year 2023, the Company's cinema equipment business concluded its active operations, as its contracts reached maturity. The Company no longer ~~separately~~ manages cinema equipment separately, and with the run-off of its operations, no longer presents this part of the business as a separate segment. All prior period reporting within this report reflect this change.

Our Class A common stock, par value $0.001 per share (the "Common Stock") is listed on the Nasdaq Capital Market (“Nasdaq”) under the symbol “CNVS.” ~~On April 4, 2022, the Company received a letter from the Nasdaq indicating that the Company no longer met the Bid Price Rule.~~

On June 7, 2023, Cineverse Corp. filed with the Secretary of State of the State of Delaware a Certificate of Amendment to the Company's Fifth Amended and Restated Certificate of Incorporation (the "Reverse Split Charter Amendment"), pursuant to which the Company effected a ~~1-for-20 reverse stock split~~ of the Class A common stock. The reverse stock split became effective as of 12:01 a.m. Eastern Time on June 9, 2023. All share and price amounts in this report reflect the 1-for-20 reverse stock split effected on June 9, 2023.

On June 30, 2023, Cineverse Corp. was notified by Nasdaq that the Company has regained compliance with the $1.00 bid price requirement for continued listing on The Nasdaq Capital Market. The Company remains subject to a one-year “Panel Monitor” as that term is defined by Nasdaq Listing Rule 5815(d)(4)(A).

Financial Condition and Liquidity

We have a history of net losses, and for the ~~quarter~~six months ended ~~June~~September 30, 2023, we had a net loss attributable to common stockholders in the amount of $(~~3.6~~4.1) ~~million.~~million, respectively. We may continue to generate net losses for the foreseeable future. As of ~~June~~September 30, 2023, the Company has an accumulated deficit of $~~486.0~~486.5 million and negative working capital of $~~2.1~~0.7 million. Net cash used in operating activities for the ~~three~~six months ended ~~June~~September 30, 2023 was $~~3.3~~6.2 ~~million.~~million, which included $5.3 million of cash outlay related to investments in our content portfolio via advances or minimum guarantee payouts.

The Company is party to a Loan, Guaranty, and Security Agreement with East West Bank (“EWB”) providing for a revolving line of credit (the “Line of Credit Facility”) of $5.0 million, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and such subsidiaries’ assets. The line of credit expires on September 15, 2024. The Line of Credit Facility bears interest at a rate equal to 1.5% above the prime rate, ~~9.75~~10.00% as of ~~June~~September 30, ~~2023.~~2023. As of ~~June~~September 30, 2023, $~~5.0~~4.9 million was outstanding on the Line of Credit ~~Facility. On August 11, 2023, the maturity date~~Facility, net of ~~the Line~~unamortized issuance costs of ~~Credit Facility was extended one year to~~ ~~September 15, 2024. The outstanding principal balance on the Line of Credit Facility as of August 7, 2023 was~~ $096. thousand.

8

~~CINEVERSE CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

In July 2020, we entered into an At-the-Market sales agreement (the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”) and B. Riley FBR, Inc. (“B. Riley” and, together with A.G.P., the “Sales Agents”), pursuant to which the Company may offer and sell, from time to time, through the Sales Agents, shares of Common Stock at the market prices prevailing on Nasdaq at the time of the sale of such shares. The Company is not obligated to sell any shares under the ATM Sales Agreement. Any sales of shares made under the ATM Sales Agreement will be made pursuant ~~the~~to an effective shelf registration statement, for an aggregate offering price of up to $30 million. ~~During~~

8

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

For the ~~quarter~~three months ended ~~June~~September 30, 2023, the Company did not sell any shares under this agreement. For the six months ended September 30, 2023, the Company sold 177 thousand shares for $1.1 million in net proceeds, respectively, after deduction of commissions and fees.

On June 16, 2023, the Company closed on the sale of 2,150 thousand shares of ~~common stock,~~Common Stock, 517 thousand pre-funded warrants, and warrants to purchase up to 2,667 thousand shares of ~~common stock~~Common Stock at a combined public offering price of $3.00 per share and accompanying warrant for aggregate gross proceeds of approximately $7.4 million, after deducting placement agent fees and other offering expenses in the amount of $0.6 million. The warrants had an exercise price of $3.00 per share, were exercisable immediately and will expire five years from the issuance. The Company received $2.999 per share for the pre-funded warrants, with the remaining $0.001 due at the time of exercise. All 516,667 pre-funded warrants were subsequently exercised in July 2023 for total proceeds of $0.5 thousand.

In addition, the Company remains authorized to purchase up to an aggregate of 500 thousand shares of its outstanding Common Stock, following the announcement of a stock repurchase program on March 1, 2023.

The Company will continue to invest in content development and acquisition, from which it believes it will obtain an appropriate return on its investment. As of September 30, 2023 and March 31, 2023, short term content advances were $7.9 million and $3.7 million, respectively, and content advances, net of current portion were, $2.6 million and $1.4 million, respectively.

We believe our cash and cash ~~equivalent balances,~~equivalents and ~~availability under~~ our credit facility, as of September 30, 2023, will be sufficient to support our operations for at least twelve months from the filing of this report. The Company may also undertake equity or debt offerings, if necessary and opportunistically available, for further capital needs.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The accompanying interim Condensed Consolidated Financial Statements of Cineverse Corp. have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended March 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on June 29, 2023. These Condensed Consolidated Financial Statements are unaudited and have been prepared by the Company following the rules and regulations of the SEC.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted as permitted by such rules and regulations; however, the Company believes the disclosures are adequate to make the information presented not misleading. Certain columns and rows may not add due to the use of rounded numbers.

The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2023. Interim results are not necessarily indicative of the results for a full year.

The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Significant items subject to such estimates and assumptions include revenue recognition, allowance for ~~doubtful accounts,~~credit losses, returns and recovery reserves, goodwill and intangible asset impairments, share-based compensation expense, valuation allowance for deferred income taxes and amortization of intangible assets. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On a regular basis, the Company evaluates the assumptions, judgments and estimates. Actual results may differ from these estimates.

9

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We own an 85% interest in CON TV, LLC ("CONtv"), a worldwide digital network that creates original content, and sells and distributes on-demand digital content on the internet and other consumer digital distribution platforms, such as gaming consoles, set-top boxes, handsets, and tablets. We evaluated the investment under the voting interest entity model and determined that the entity should be consolidated as we have a controlling financial interest in the entity through our ownership of outstanding voting shares, and that other equity holders do not have substantive voting, participating or liquidation rights. ~~We recorded net income attributable to noncontrolling interest in our Condensed Consolidated Statements of Operations~~The non-controlling equity holders have rights equal to 1110.5% of outstanding profit interest units retained by the noncontrolling interests.

Accounting Policies

There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended March 31, 2023.

Segment Reporting

Beginning in fiscal year 2024, following the run-off of the Company's digital cinema operations, the Company now manages its operations and manages its business in one reporting segment. Earlier periods presented herein have been presented to conform to this reportable segment composition.

Reclassifications

Certain amounts have been reclassified to conform to the current presentation.

Cash and Cash Equivalents

We consider all highly liquid investments with an original maturity of three months or less to be “cash equivalents.” We maintain bank accounts with major banks, which from time to time may exceed the Federal Deposit Insurance Corporation’s insured limits. We periodically assess the financial condition of the institutions and believe that the risk of any loss is minimal.

Employee Retention Tax Credit

The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") provided an employee retention tax credit ("ERTC") which was a refundable tax credit against certain employment taxes. The Consolidated Appropriations Act (the "Appropriations Act") extended and expanded the availability of the employee retention credit through December 31, 2021. The Appropriations Act amended the employee retention credit to be equal to 70% of qualified wages paid to employees during the 2021 fiscal year.

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 $2.5 million in the Employee retention tax credit line on the Company’s Consolidated Statements of ~~Operations.~~Operations, of which $0.5 million was recognized during the six months ended September 30, 2022. As of ~~June~~September 30, 2023 and March 31, 2023, the tax credit receivable of $~~1.8~~1.7 and $2.1 million has been included in the Employee retention tax credit line on the Company's Condensed Consolidated Balance ~~Sheet.~~Sheet, respectively.

The Company has received notification during the second quarter of fiscal year 2024 that its ERTC claim is under audit with the Internal Revenue Service ("IRS"). As of the date of this report, the audit is ongoing, and the Company is responding to audit requests as they arise.

10

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Property and Equipment, Net

Property and equipment, net are stated at cost, less accumulated depreciation and amortization. Depreciation expense is recorded using the straight-line method over the estimated useful lives of the respective assets as follows:


Computer equipment and software		3 - 5 years
Internal use software		5 3 - 5years
Machinery and equipment		3 - 10 years
Furniture and fixtures		32 - 7 years

10

~~CINEVERSE CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

We capitalize costs associated with software developed or obtained for internal use when the preliminary project stage is completed, and it is determined that the software will provide significantly enhanced capabilities and modifications. These capitalized costs are included in property and equipment, net and include external direct cost of services procured in developing or obtaining internal-use software and personnel and related expenses for employees who are directly associated with, and who devote time to internal-use software projects. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended use. Once the software is ready for its intended use, the costs are amortized over the useful life of the software. Post-configuration training and maintenance costs are expensed as incurred. We amortize internal-use software over its estimated useful life on a straight-line basis.

Intangible Assets, Net

Intangible assets are stated at cost less accumulated amortization. For intangible assets that have finite lives, the assets are amortized using the straight-line method over the estimated useful lives of the related assets. For intangible assets with indefinite lives, the assets are tested annually for impairment or sooner if a triggering event occurs.

Amortization lives of intangible assets are as follows:


Content Library			3 – 20 years
~~Advertiser Relationships~~Trademarks and ~~Channel~~	Tradenames		32 – 1315 years
Customer Relationships			5 – 13 years
~~Software~~			10 ~~years~~
~~Trademarks~~Advertiser Relationships and ~~Tradenames~~	Channel		2 – 1513 years
Software		10 years
Capitalized Content		3 years
Supplier Agreements			2 years

The Company’s intangible assets included the following (in thousands):


	As of June 30, 2023							As of September 30, 2023
	Cost Basis		Accumulated Amortization			Net		Cost Basis		Accumulated Amortization			Net
Content Library	$	24,073	$	(21,176	)	$	2,897	$	24,096	$	(21,280	)	$	2,816
Advertiser Relationships and Channel		12,604		(1,348	)		11,256		12,604		(1,719	)		10,885
Supplier Agreements		11,430		(11,430	)		-
Customer Relationships		8,690		(7,668	)		1,022		8,690		(7,736	)		954
Software		3,200		(640	)		2,560		3,200		(720	)		2,480
Trademark and Tradenames		4,026		(2,573	)		1,453		4,026		(2,814	)		1,212
Capitalized Content									821		(25	)		796
Total Intangible Assets	$	64,023	$	(44,835	)	$	19,188	$	53,437	$	(34,295	)	$	19,143

As of March 31, 2023

Cost Basis

Accumulated
Amortization

Net

Content Library

$
23,970

$
(21,126
)

$
2,844

Advertiser Relationships and Channel

12,604

(1,062
)

11,542

Supplier Agreements

11,430

(11,430
)

—

Customer Relationships

8,690

(7,600
)

1,090

Trademark and Tradenames

4,026

(2,274
)

1,752

Software

3,200

(560
)

2,640

Total Intangible Assets

$
63,920

$
(44,052
)

$
19,868

11

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	As of March 31, 2023
	Cost Basis		Accumulated Amortization			Net
Content Library	$	23,970	$	(21,126	)	$	2,844
Advertiser Relationships and Channel		12,604		(1,062	)		11,542
Customer Relationships		8,690		(7,600	)		1,090
Trademark and Tradenames		4,026		(2,274	)		1,752
Software		3,200		(560	)		2,640
Total Intangible Assets	$	52,490	$	(32,622	)	$	19,868

During the three and six months ended ~~June~~September 30, 2023, the Company had amortization expense of $804 thousand and $1,502 thousand, respectively. During the three and six months ended September 30, 2022, the Company had amortization expense of $~~0.7~~736 ~~million,~~thousand and $1,480 thousand, respectively.

As of ~~June~~September 30, 2023, amortization expense is expected to be (in thousands):


	Total		Total
In-process intangible assets	$	1,888	$	411
Remainder of fiscal year 2024		2,404		2,005
2025		2,307		2,851
2026		2,040		2,669
2027		1,521		1,742
2028		1,246		1,356
Thereafter		7,782		8,109
	$	19,188	$	19,143

Capitalized Content ~~Assets~~

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 ~~presently~~ capitalized to the Capitalized Content costs within ~~construction-in-process~~Intangible Assets and ~~will be~~are amortized as a group ~~are included~~ 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 no impairment charges recorded for long-lived and finite-lived intangible assets during the three and six months ended ~~June~~September 30, 2023 and 2022.

Goodwill

Goodwill is the excess of the purchase price paid over the fair value of the net assets of an acquired business. Goodwill is tested for impairment on an annual basis or more often if warranted by events or changes in circumstances indicating that the carrying value may exceed fair value, also known as impairment indicators.

12

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current economic indicators and market conditions, and assumptions about our strategic plans with regard to its operations. To the extent additional information arises, market conditions change, or our strategies change, it is possible that the conclusion regarding whether our remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material effect on our consolidated financial position or results of operations.

The Company has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or to perform the quantitative impairment test. The Company ~~reassessed~~annually assesses goodwill for potential impairment onduring its ~~annual measurement~~

12

~~CINEVERSE CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~date of March 31, 2023 by performing a qualitative analysis and determined that~~fourth fiscal quarter, or sooner if event occurs or circumstances would indicate it ~~was not~~would be more likely than not that ~~the~~ fair value ~~of its reporting unit is less than~~would be reduced below its carrying amount.

No goodwill impairment charge was recorded in the three and six months ended ~~June~~September 30, 2023 and 2022.

Fair Value Measurements

The fair value measurement disclosures are grouped into three levels based on valuation factors:

•

Level 1 – quoted prices in active markets for identical investments

•

Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs)

•

Level 3 – significant unobservable inputs (including our own assumptions in determining the fair value of investments)

The following tables summarize the levels of fair value measurements of our financial assets and liabilities (in thousands):


	As of June 30, 2023								As of September 30, 2023
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Equity investment in Metaverse, at fair value	$	—	$	—	$	5,200	$	5,200	$	—	$	—	$	4,482	$	4,482
	$	—	$	—	$	5,200	$	5,200	$	—	$	—	$	4,482	$	4,482

Liabilities:
Current portion of earnout consideration on purchase of a business	$	—	$	—	$	1,526	$	1,526	$	—	$	—	$	82	$	82
	$	—	$	—	$	1,526	$	1,526	$	—	$	—	$	82	$	82


	As of March 31, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Equity investment in Metaverse, at fair value			$	—	$	5,200	$	5,200
	$	—	$	—	$	5,200	$	5,200

Liabilities:
Current portion of earnout consideration on purchase of a business	$	—	$	—	$	1,444	$	1,444
	$	—	$	—	$	1,444	$	1,444

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following (in thousands):


	As of
	September 30, 2023		March 31, 2023
Accounts payable	$	8,074	$	15,042
Amounts due to producers		12,763		13,114
Accrued compensation and benefits		1,672		2,532
Accrued other expenses		3,295		3,843
Total accounts payable and accrued expenses	$	25,804	$	34,531

As of

June 30,
2023

March 31,
2023

Accounts payable

$
10,291

$
15,042

Amounts due to producers

14,112

13,114

Accrued compensation and benefits

2,330

2,532

Accrued other expenses

3,134

3,843

Total accounts payable and accrued expenses

$
29,867

$
34,531

During the six months ended September 30, 2023, the Company settled its fiscal year 2023 bonus accrual of $1.2 million, recorded within Accrued compensation and benefits as of March 31, 2023, by issuing shares of Common Stock.

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.

14

~~CINEVERSE CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The following tables present the Company’s disaggregated revenue by source (in thousands):


	Three Months Ended June 30,				Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022		2023		2022
Streaming and digital	$	10,114	$	9,503	$	9,355	$	10,275	$	19,469	$	19,778
Base distribution		1,158		2,205		560		818		1,718		3,023
Podcast and other		429		455		660		308		1,089		763
Other non-recurring		1,279		1,427		2,437		2,605		3,716		4,032
Total revenue	$	12,980	$	13,590	$	13,012	$	14,006	$	25,992	$	27,596

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 relates to the Company's Bloody Disgusting Podcast Network. 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:

•

which party is primarily responsible for fulfilling the promise to provide the specified good or service; and

15

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

•

which party has discretion in establishing the price for the specified good or service.

Shipping and Handling

Shipping and handling costs are incurred to move physical goods (e.g., DVDs and Blu-ray Discs) to customers. We recognize all shipping and handling costs as an expense in direct operating expenses because we are responsible for delivery of the product to our customers prior to transfer of control to the customer.

Credit Losses

We maintain reserves for potential credit losses on accounts ~~receivable.~~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. ~~Reserves are recorded primarily on a specific identification basis.~~

We recognizes accounts receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that it recognizes revenue from a sale. Reserves for product returns and other allowances is variable consideration as part of the transaction price. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.

During the three and six months ended ~~June~~September 30, 2023, ~~and 2022,~~ we did ~~not~~not recognize any credit losses as part of its ongoing operations or reversals of previously recorded ~~provisions,~~provisions. During the three and ~~did not have any write-offs charged against~~six months ended September 30, 2022, the ~~allowance.~~Company recognized credit losses of $

1544

~~CINEVERSE CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

thousand and $47 thousand, respectively.

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~~September 30, 2023 and March 31, 2023, was and $~~0.2~~0.3 million and $0.2 million respectively. ~~For the three months ended June 30, 2023,~~In each period, the additions to our deferred revenue balance ~~were primarily~~are due to cash payments received or due in advance of satisfying performance obligations, while the reductions ~~of $0.2~~ ~~million to our deferred revenue balance were primarily~~are due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.

Participations and royalties payable

When we use third-parties to distribute company owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers.

Concentrations

For the three and six months ended ~~June~~September 30, 2023, one customer represented 2825% and 24% of consolidated revenues. For the three months ended ~~June~~September 30, 2022, one customer represented approximately 19% of consolidated revenues and another customer represented ~~approximately~~ 1311% of consolidated revenues, respectively. For the six months ended September 30, 2022, one customer represented 15% of consolidated revenues.

16

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Direct Operating ~~Costs~~Expenses

Direct operating ~~costs~~expenses consist of cost of revenue, fulfillment expenses, shipping costs, property taxes and insurance on systems, royalty expenses, impairments of 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 ~~Income (Loss)~~Loss based on their fair values. The Company measures the compensation expense of employee and nonemployee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost is recognized on a straight-line basis over the period during which the employee or nonemployee is required to provide service in exchange for the award. The fair values of options and SARs are calculated as of the date of grant using the Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility, risk-free rate and expected term. The Company’s estimates of these assumptions are primarily based on the trading price of the Company’s stock, historical data, peer company data and judgment regarding future trends and factors. Forfeitures are recognized as they occur.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and tax credit

16

~~CINEVERSE CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

carryforwards and for differences between the carrying amounts of existing assets and liabilities and their respective tax bases.

Valuation allowances are established when management is unable to conclude that it is more likely than not that some portion, or all, of the deferred tax asset will ultimately be realized. The Company is primarily subject to income taxes in the United ~~States.~~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 50% likely to be recognized upon ultimate settlement with the taxing authority is recorded. The Company had no uncertain tax positions as of ~~June~~September 30, 2023 and March 31, 2023.

17

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Earnings per Share ~~("EPS")~~

Basic net income (loss) per share is computed based on the weighted average number of shares of ~~common stock~~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,						Three Months Ended September 30,						Six Months Ended September 30,
	2023			2022			2023			2022			2023			2022
Basic net loss per share:
Net loss attributable to common stockholders	$	(3,638	)		(6,093	)	$	(445	)		(5,752	)	$	(4,082	)	$	(11,845	)
Shares used in basic computation:
Weighted-average shares of common stock outstanding		9,879			8,771
Weighted-average shares of Common Stock outstanding								12,376			8,845			11,118			8,808
Basic net loss per share	$	(0.37	)	$	(0.69	)	$	(0.04	)	$	(0.65	)	$	(0.37	)	$	(1.34	)

Shares used in diluted computation:
Weighted-average shares of common stock outstanding		9,879			8,771
Weighted-average shares of Common Stock outstanding								12,376			8,845			11,118			8,808
Stock options and SARs		—			—			—			—			—			—
Weighted-average number of shares		9,879			8,771			12,376			8,845			11,118			8,808
Diluted net loss per share	$	(0.37	)	$	(0.69	)	$	(0.04	)	$	(0.65	)	$	(0.37	)	$	(1.34	)

~~Included in the computation of basic EPS are the~~ ~~516,667~~ ~~pre-funded warrants which were issued and sold on June 16, 2023.~~

The calculation of diluted net loss per share for the ~~quarters~~three and six months ended ~~June~~September 30, 2023 does not include the impact of 845 thousand and793 thousand anti-dilutive shares, respectively. The calculation of diluted net loss per share for both the three and six months ended September 30, 2022 does not include the impact of ~~2,666,667~~ ~~and~~ 0 ~~warrants, respectively, as well as~~ ~~934~~ ~~thousand and~~ ~~425~~621 thousand potentially ~~dilutive shares, respectively, relating to equity-based awards, as their impact would have been~~ anti-dilutive ~~due to the respective period's net loss.~~

17

~~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 July 2023, the FASB issued ASU No 2023-03,~~ “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718)” pursuant to SEC Staff Accounting Bulletin No. 120, which adds interpretive guidance for public companies to consider when entering into share-based payment transactions while in possession of material non-public information. This update is reflected in the Accounting Standard Codification upon issuance and will be effective in the Company's second quarter of fiscal year 2024, beginning July 1, 2023. The Company does not expect the adoption to have a material impact on our consolidated financial statements.shares.

3. OTHER INTERESTS

Investment in CDF2 Holdings

We indirectly own 100% of the common equity of CDF2 Holdings, LLC (“CDF2 Holdings”), which was created for the purpose of capitalizing on the conversion of the exhibition industry from film to digital technology. CDF2 Holdings assists its customers in procuring the equipment necessary to convert their systems to digital technology by providing financing, equipment, installation and related ongoing services.

CDF2 Holdings is a Variable Interest Entity (“VIE”), as defined in ASC Topic 810 (“ASC 810”), Consolidation. ASC 810 requires the consolidation of VIEs by an entity that has a controlling financial interest in the VIE which entity is thereby defined as the primary beneficiary of the VIE.

As of ~~June~~September 30, 2023 and March 31, 2023, our maximum exposure to loss, as it relates to the non-consolidated CDF2 Holdings entity, represents accounts receivable for service fees under a master service agreement with CDF2 Holdings. Such accounts receivable was $0.0 million and $0.5 million as of ~~June~~September 30, 2023 and March 31, 2023, respectively, which are included in accounts receivable, net on the accompanying Condensed Consolidated Balance Sheets.

18

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The accompanying Condensed Consolidated Statements of Operations ~~include $0.0~~ ~~million and ($0.1) million of~~includes digital cinema servicing revenue from CDF2 Holdings in the amount of $0.0for the three and six months ended ~~June~~September 30, 2023, respectively, and $0.0 and ($0.1) million for the three and six months ended September 30, 2022, respectively.

Total Stockholders’ Deficit of CDF2 Holdings at ~~June~~September 30, 2023 and March 31, 2023 was $59.2 million and $59.2 million, respectively. We have no obligation to fund the operating loss or the stockholders’ deficit beyond our initial investment of $2.0 million and, accordingly, our investment in CDF2 Holdings as of ~~June~~September 30, 2023 and March 31, 2023 is carried at $0.

Investment in Roundtable

On March 15, 2022, the Company entered into a stock purchase agreement with Roundtable Entertainment Holdings, Inc. (“Roundtable”) pursuant to which the Company purchased 0.5 thousand shares of Roundtable Series A Preferred Stock and warrants to purchase 0.1 thousand shares of Roundtable Common Stock (together, the “Roundtable Securities”). The Company paid the purchase price for the Roundtable Securities by issuing 16 thousand shares of Common Stock to Roundtable. The Company recorded $0.2 million for the purchase of the Roundtable Securities which is included in other long-term assets on the accompanying Consolidated Balance Sheets. The investment in the Roundtable Securities was made in connection with a proposed collaboration with Roundtable regarding production and distribution of streaming content including the launch of high profile branded

18

~~CINEVERSE CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

enthusiast streaming channels. The Roundtable investment was accounted for using the cost method of accounting as we own less than 20% of Roundtable and do not exert a significant influence over their operations. Our President and Chief Strategy Officer is on the Roundtable Board of Directors.

4. STOCKHOLDERS’ EQUITY

COMMON STOCK

~~On June 7, 2023, the Company amended its Certificate of Incorporation to implement a~~ ~~1:20 reverse stock split~~, which became effective on June 9, 2023 (the "Reverse Stock Split"). Proportionate adjustments were made to the exercise prices and the number of shares underlying the Company’s outstanding equity awards, as applicable, as well as to the number of shares issuable under the Company’s equity incentive plans. The Reverse Stock Split did not affect the number of authorized shares of Common Stock or the par value of the Common Stock nor did it change the authorized shares of preferred stock or the relative voting power of such holders of our outstanding Common Stock and preferred stock. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who would have otherwise been entitled to receive fractional shares as a result of the Reverse Stock Split were entitled to a cash payment in lieu thereof after the sale on the open market of the aggregated fractional shares by the exchange agent for the Reverse Stock Split. All share and per share amounts discussed in these condensed consolidated financial statements have been retrospectively adjusted for the Reverse Stock Split. The effects of the Reverse Stock Split have been retrospectively effected throughout this document, including but not limited to earnings per share.

As of ~~June~~September 30, 2023 and 2022, the number of shares of Common Stock authorized for issuance was 275,000,000 shares.

During the three months ended ~~June~~September 30, 2023, the Company issued ~~2,337~~1.1 million shares of Common Stock. This iswas comprised of 517 thousand shares issued in conjunction with the exercise of pre-funded warrants issued, 502 shares issued in connection with employee bonuses, 46 thousand shares for preferred stock dividends, and 41 thousand to satisfy earnout-related liabilities.

During the six months ended September 30, 2023, the Company issued 3.4 million shares of Common Stock. In addition to the activity cited for three months ended September 30, 2023, this was comprised of 2,150 thousand shares issued through a June 16, 2023 direct offering, 177 thousand issued in connection with ATM sales during the first fiscal quarter, and 10 thousand issued in payment of preferred stock dividends.

In addition, the Company ~~sold~~ ~~517~~ ~~thousand pre-funded warrants, and~~ issued common warrants to purchase up to 2,667 thousand shares of ~~common stock.~~Common Stock in conjunction with its direct offering on June 16, 2023. All pre-funded and common warrants were issued as immediately ~~exercisable and remained~~exercisable. All common warrants remain outstanding as of ~~June~~September 30, 2023. ~~All pre-funded warrants were subsequently exercised in July 2023 for total proceeds of $0.5~~ ~~thousand. See Note 1 for further discussion.~~

During the three months ended ~~June~~September 30, 2022, the Company issued 129 thousand shares. This was comprised of 9 thousand shares for preferred stock dividends, 103 thousand shares for employee bonuses, and 17 thousand shares to satisfy earnout-related liabilities.

During the six months ended September 30, 2022, the Company issued 134 thousand shares. In addition to the activity cited during the three months ended September 30, 2022, this was comprised of 5 thousand shares ~~of Common Stock which consists of the issuance of Common Stock in payment of~~for preferred stock dividends.

19

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

PREFERRED STOCK

Cumulative dividends in arrears on Series A Preferred Stock were $88 thousand as of ~~June~~September 30, 2023 and 2022. InDuring the ~~first quarter of fiscal year~~three and six months ended September 30, 2023 and 2022, the Company paid preferred stock dividends in arrears for the same amount in the form of shares of Common Stock. The Company has the right to pay preferred stock dividends in cash or stock, at the Company's discretion.

The Company also has 1 share of Series B Preferred Stock issuedwith no shares currently outstanding.

TREASURY STOCK

We have treasury stock, at cost, consisting of 289 thousand and 66 thousand shares of Common Stock at ~~June~~September 30, 2023 and March 31, ~~2023.~~2023, respectively. During the three months ended September 30, 2023, the Company acquired 223 thousand shares of Common Stock withheld in connection with employee bonuses, which the Company elected to settle in shares of Common Stock.

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).

19

~~CINEVERSE CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Awards issued under our 2000 Plan were permitted to be issued to employees, outside directors or consultants in any of the following forms (or a combination thereof) (i) stock option awards; (ii) SARs; (iii) stock or restricted stock or restricted stock units; or (iv) performance awards. The 2000 Plan provided for the granting of incentive stock options (“ISOs”) with exercise prices not less than the fair market value of our Common Stock on the date of grant. ISOs granted to shareholders having more than 10% of the total combined voting power of the Company must have exercise prices of at least 110% of the fair market value of our Common Stock on the date of grant. ISOs and non-statutory stock options granted under the 2000 Plan were subject to vesting provisions, and exercise is subject to the continuous service of the participant. The exercise prices and vesting periods (if any) for non-statutory options were set at the discretion of our compensation committee. On November 1, 2017, upon the consummation of the initial equity investment in Cineverse by Bison, as a result of which there was a change of control of the Company, all stock options (incentive and non-statutory) and shares of restricted stock were vested immediately and the options became fully exercisable.

In August 2017, the Company adopted the 2017 Plan. The 2017 Plan replaced the 2000 Plan, and applies to employees and directors of, and consultants to, the Company. The 2017 Plan ~~provides~~provided for the issuance of up to 905 thousand shares of Common Stock, in the form of various awards, including stock options, SARs, restricted stock, restricted stock units, PSUs and cash awards.

Employee and director stock-based compensation expense related to our stock-based awards of $~~410~~499 thousand and $~~980~~909 thousand, three and six months ended September 30, 2023, respectively, and $2,218 thousand and $3,198 thousand for the ~~quarters~~three and six months ended ~~June~~September 30, ~~2023 and~~ 2022, ~~respectively, were recorded~~respectively. These costs are reported within to Selling, General and Administrative expenses.

~~There~~Included within this expense, our Board of Directors stock-based compensation was $~~0.1~~90 ~~million of stock-based compensation expense~~thousand and $180 thousand for the three and six months ended ~~June~~September 30, 2023, respectively, and $90 thousand and $180 thousand for the three and six months ended September 30, 2022, ~~related to Board of Directors compensation.~~respectively.

Options Granted Outside Cineverse's Equity Incentive Plan

In October 2013, we issued options outside of the 2000 Plan to 10 individuals who became employees as a result of a business combination. The employees received options to purchase an aggregate of 3 thousand shares of our Common Stock at an exercise price of $350 per share. The options were fully vested as of October 2017 and ~~expire~~expired

20

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

as unexercised 10 years from the date of grant ~~if unexercised.~~in October 2023. As of ~~June~~September 30, 2023, 0.6 thousand of such options remained outstanding.

5. LINE OF CREDIT FACILITY

The Company is party to a Loan, Guaranty, and Security Agreement with East West Bank ("EWB") providing for a revolving line of credit (the "Line of Credit Facility") of $5.0 million, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and such subsidiaries' assets. The Line of Credit bears an interest rate equal to 1.5% above the prime rate, and was ~~9.75~~10.00% as of ~~June~~September 30, 2023. As of ~~June~~September 30, 2023 and March 31, 2023, a balance of $5.0 million was outstanding on the line of the Credit ~~Facility.~~Facility, gross of unamortized issuance costs of $96 thousand and $76 thousand, respectively. Under the Line of Credit Facility, the Company is subject to certain financial and nonfinancial covenants which require the Company to maintain certain metrics and ratios, maintain certain minimum cash on hand and to report financial information to our lender on a periodic basis. The Line of Credit Facility matures on September 15, 2024.

During the three and six months ended ~~June~~September 30, 2023, ~~and 2022,~~ the Company had interest expense, including cash interest and amortization, of $0.1 million and $00.2 million related to ~~the~~its Line of Credit Facility, respectively. ~~The outstanding principal balance on the Line of Credit Facility as of August 7, 2023 was $~~0~~. On August 11, 2023, EWB extended the maturity date of the Line of Credit Facility one year to~~ ~~September 15, 2024~~.

6. COMMITMENTS AND CONTINGENCIES

LEASES

Cineverse is a virtual company with one domestic operating lease, acquired through the acquisition of Digital Media Rights ("DMR") which is subleased to a third party. The Company has not been relieved of the original lease obligation and therefore recognizes both a lease liability and right-of-use asset as part of the arrangement. The end

20

~~CINEVERSE CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

of both the original lease and sublease's term is January 2025. In addition, the Company has two operating leases related to its Cineverse India operations, with expiration dates in July 2027. Expenses related to these leases were $~~115~~121 thousand and $84236 thousand during the three and six months ended ~~June~~September 30, 2023 and $111 thousand and $196 thousand three and six months ended September 30, 2022, respectively.

The Company has recognized $4445 thousand and $90 thousand of ~~sublease~~ income related to its subleasing arrangement during three and six months ended September 30, 2023, respectively. The Company recognized $27 thousand of income related to its subleasing arrangement for both the three and six months ended ~~June~~September 30, ~~2023.~~2022.

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, 2023		March 31, 2023		Classification on the Balance Sheet	September 30, 2023		March 31, 2023
Assets
Noncurrent	Other long-term assets	$	1,125	$	1,265	Other long-term assets	$	1,051	$	1,265
Liabilities
Current	Operating leases – current portion		418		418	Operating leases liabilities		432		418
Noncurrent	Operating leases – long-term portion		728		863	Operating leases liabilities, net of current portion		645		863
Total operating lease liabilities		$	1,146	$	1,281		$	1,077	$	1,281

The table below presents the annual gross undiscounted cash flows related to the Company's operating lease commitments ~~and~~(in thousands):

21

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


Fiscal year ending March 31,	Operating Lease Commitments
2024	$	228
2025		420
2026		200
2027		210
2028		94
Thereafter		—
Total lease payments		1,152
Less imputed interest		(75	)
Total	$	1,077

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,	Operating Lease Commitments		Sublease Payments		Sublease Payments
2024	$	337	$	136	$	91
2025		415		154		154
2026		191		—		—
2027		201		—		—
2028		68		—		—
Thereafter		—		—		—
Total					$	245

7. INCOME TAXES

We calculate income tax expense based upon an annual effective tax rate forecast, ~~including~~which includes estimates and assumptions. We ~~recorded~~recognized income tax expense of approximately $2016 thousand and $36 for the three and six months ended September 30, 2023. We recognized $0 for the three and six months ended ~~June~~September 30, ~~2023 and~~ 2022, respectively. Income tax expense is attributable to taxable income earned in India relating to transfer pricing.

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 (5.3%) and (1.0%) for the three and six months ended ~~June~~September 30, 2023, ~~and 2022 was (0.6~~%) and 0%, and 0% for the three and six months ended September 30, 2022, respectively.

2122

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our historical Condensed Consolidated Financial Statements and the related notes included elsewhere in this report.

This report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which are indicated by words or phrases such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “will,” “estimates,” and similar words. Forward-looking statements represent, as of the date of this report, our judgment relating to, among other things, future results of operations, growth plans, sales, capital requirements and general industry and business conditions applicable to us. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

Business Overview

Cineverse is a premier streaming technology and entertainment company with its core business (i) across a portfolio of owned and operated enthusiast streaming channels with enthusiast fan bases; (ii) as a large-scale global aggregator and full-service distributor of feature films and television programs; and (iii) as a proprietary technology software-as-a-service platform for over-the-top (“OTT”) app development and content distribution through subscription video on demand ("SVOD"), dedicated ad-supported ("AVOD"), ad-supported streaming linear ("FAST") channels, social video streaming services, and audio podcasts. We distribute products for major brands such as Hallmark, Televisa, ITV, Nelvana, ZDF, Konami, NFL and Scholastic, as well as leading international and domestic content creators, movie producers, television producers and other short-form digital content producers. We collaborate with producers, major brands and other content owners to market, source, curate and distribute quality content to targeted audiences through (i) existing and emerging digital home entertainment platforms, including but not limited to Apple iTunes, Amazon Prime, Netflix, Hulu, Xbox, Pluto, and Tubi, as well as (ii) physical goods, including DVD and Blu-ray Discs.

We played a significant role in the digital distribution revolution that continues to transform the media landscape, playing a pioneering role in transitioning approximately 12,000 movie screens from traditional analog film prints to digital distribution, and at the end of our fiscal year 2023, the Company's cinema equipment business concluded its active operations, as its contracts reached maturity. The Company no longer separately manages cinema equipment separately, and with the run-off of its operations, no longer presents this part of the business as a separate segment. All prior period reporting within this report ~~reflect~~reflects this change.

Financial Condition and Liquidity

As of ~~June~~September 30, 2023, the Company has an accumulated deficit of ~~$486.0~~$486.5 million and negative working capital of ~~$2.1~~$0.7 million. For the three and six months ended ~~June~~September 30, 2023, the Company had a net loss attributable to common stockholders of ~~($3.6) million.~~$(445) thousand and $(4.1) million, respectively. Net cash used in operating activities for the ~~three~~six months ended ~~June~~September 30, 2023 was ~~$3.3 million.~~$6.2 million, which included $5.3 million of cash outlay related to investments in our content portfolio via advances or minimum guarantee payouts. We may continue to generate net losses for the foreseeable future.

The Company is party to a Loan, Guaranty, and Security Agreement with East West Bank (“EWB”) providing for a revolving line of credit (the “Line of Credit Facility”) of $5.0 million, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and such subsidiaries’ assets. The line of credit expires on September 15, 2024. The Line of Credit Facility bears interest at a rate equal to 1.5% above the prime rate, ~~9.75%~~10.00% as of ~~June~~September 30, 2023. As of ~~June~~September 30, 2023, $5.0 million was outstanding on the Line of Credit ~~Facility. The outstanding principal balance on the Line~~Facility, gross of ~~Credit Facility as~~issuance costs of ~~August 7, 2023 was $0. On August 11, 2023, EWB extended the maturity date of the Line of Credit Facility one year to September 15, 2024.~~$96 thousand.

In July 2020, we entered into an At-the-Market sales agreement (the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”) and B. Riley FBR, Inc. (“B. Riley” and, together with A.G.P., the “Sales Agents”), pursuant to which the Company may offer and sell, from time to time, through the Sales Agents, shares of Common

23

Stock at the market prices prevailing on Nasdaq at the time of the sale of such shares. The Company is not obligated

22

to sell any shares under the ATM Sales Agreement. Any sales of shares made under the ATM Sales Agreement will be made pursuant to an effective shelf registration statement, for an aggregate offering price of up to $30 million. During the first quarter ~~ended June 30, 2023,~~of the fiscal year, the Company sold 177 thousand shares under the ATM Sales Agreement for $1.1 million in net proceeds, after deduction of commissions and fees.

On June 16, 2023, the Company closed on the sale of ~~2,150,000~~2,150 thousand shares of ~~common stock, 516,667~~Common Stock, 517 thousand pre-funded warrants, and warrants to purchase up to ~~2,666,667~~2,667 thousand shares of ~~common stock~~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 ~~$2.9990~~$2.999 per share for the pre-funded warrants, with the remaining $0.001 due at the time of exercise. All 516,667 pre-funded warrants were subsequently exercised in July 2023 for total proceeds of $0.5 thousand.

In addition, the Company remains authorized to purchase up to an aggregate of 500 thousand ~~dollars.~~shares of its outstanding Common Stock, following the announcement of a stock repurchase program on March 1, 2023.

The Company will continue to invest in content development and acquisition, from which it believes it will obtain an appropriate return on its investment. As of September 30, 2023 and March 31, 2023, short term content advances were $7.9 million and $3.7 million, respectively, and content advances, net of current portion were, $2.6 million and $1.4 million, respectively.

We believe our cash and cash ~~equivalent balances,~~equivalents and ~~availability under~~ our credit facility, as of ~~June~~September 30, 2023, will be sufficient to support our operations for at least twelve months from the filing of this report. The Company may also undertake equity or debt offerings, if necessary and opportunistically available, for further capital needs.

Critical Accounting Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our Condensed Consolidated Financial Statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 2 – Basis of Presentation and Summary of Significant Accounting Policies, of the Notes to the Condensed Consolidated Financial Statements, included in Item 1, Condensed Consolidated Financial Statements (Unaudited), of this Quarterly Report on Form 10-Q. Management believes that these policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.

24

Results of Operations for the Three Months Ended ~~June~~September 30, 2023, and 2022 (in thousands):

Revenues


	For the Three Months Ended June 30,										For the Three Months Ended September 30,
	2023		2022		$ Change			% Change			2023		2022		$ Change			% Change
Streaming and digital	$	10,114	$	9,503	$	611			6	%	$	9,355	$	10,275	$	(920	)		(9	)%
Base distribution		1,158		2,205		(1,047	)		(47	)%		560		818		(258	)		(31	)%
Podcast and other		429		455		(26	)		(6	)%		660		308		352			114	%
Other non-recurring		1,279		1,427		(148	)		(10	)%		2,437		2,605		(168	)		(6	)%
Total Revenue	$	12,980	$	13,590	$	(610	)		(4	)%	$	13,012	$	14,006	$	(994	)		(7	)%

~~The Company's~~For the three months ended September 30, 2023, total revenue declined by $994 thousand, or 7%, as compared to three months ended September 30, 2022. During this time, Streaming and Digital revenue for ~~the~~ three months ended ~~June~~September 30, 2023, ~~increased~~decreased by 6%$0.9 million, as ~~compared~~the Company's AVOD revenue has declined $2.1 million due to continued headwinds in the ~~three months ended June 30, 2022,~~broader advertising market. This decrease was partially offset by a $1.2 million increase in SVOD revenue as the Company continues to see the benefits from its acquisitions which have contributed value-accretive libraries, distribution platforms and technologies, such as ~~Screambox, whose performance in the first quarter of fiscal 2024 exceeded the first quarter of fiscal 2023 by approximately $1.0 million, as it continued to benefit from the success of Terrifier 2.~~Screambox.

23

The Company's ~~$1.0~~$0.3 million decline in Base Distribution revenue for ~~the quarter~~three months ended ~~June~~September 30, 2023 as compared to the ~~quarter~~three months ended ~~June~~September 30, 2022 was primarily driven by a decline in DVD-related ~~sales.~~sales and related physical distribution revenue.

Relative to three months ended September 30, 2022, the Company's Podcast and other revenue increased $352 thousand, driven by an increased number of campaigns during the period.

Other non-recurring revenue relating to the Company's legacy cinema equipment ~~have materially concluded in line with the design of~~as its ~~underlying contracts.~~operations run-off. Following the completion of cost recoupment and the expiration of the exhibitor master license agreements applicable to this line of revenue, equipment deployment revenue and the ~~digital~~associated services decreased $1.8 million. Digital system sales have also continued its anticipated decrease in the amount of ~~$0.9~~$0.6 million as compared to the three months ended ~~June~~September 30, 2022, from ~~$1.2~~$0.7 million in the ~~first~~second quarter of fiscal 2023 to ~~$0.3~~$0.1 million in the ~~first~~second quarter of fiscal 2024. ~~During the quarter ended June 30, 2023, the Company also recognized $1~~These decreases were partially offset by $2.3 million of non-recurring variable consideration following the resolution of uncertainty associated with the underlying revenue related to ~~its~~the cinema equipment obligations, as compared to $0 variable consideration recognized in the ~~first~~second quarter of fiscal year 2023.

Direct Operating Expenses

For the Three Months Ended June 30,

2023

2022

$ Change

% Change

Direct operating expenses

$
6,987

$
7,356

$
(369
)

(5
)%


	For the Three Months Ended September 30,
	2023		2022		$ Change			% Change
Direct operating expenses	$	4,646	$	8,092	$	(3,446	)		(43	)%

The decrease in Direct Operating Expenses for the three months ended ~~June~~September 30, 2023 ~~was indicative of the~~is driven by a 7% decrease in quarterly revenue, continued integration efforts with respect to the Company's acquisitions during fiscal year 2022, such as DMR ~~FoundationTV,~~ and Bloody Disgusting. Notably, the physical revenue decrease contributed to a $1.1 million decline. Additionally, there was a reduction in the reserve for advances of $887 thousand over the comparative period as the Company's digital cinema business with studios has concluded in FY23 and the latest trends in content performance. There was a $821 thousand decrease due to capitalized content, an estimated a $762 thousand decrease in the fiscal year 2024 Bloody Disgusting earnout based on fiscal year 2024 forecast performance, and $861thousand from the cessation of third-party SAAS related costs primarily from internalizing services and cost savings synergies.

25

Selling, General and Administrative Expenses


	For the Three Months Ended June 30,										For the Three Months Ended September 30,
	2023		2022		$ Change			% Change			2023		2022		$ Change			% Change
Compensation expense	$	4,406	$	5,515	$	(1,109	)		(20	)%	$	4,460	$	5,180	$	(721	)		(14	)%
Corporate expenses		1,701		2,329		(628	)		(27	)%		764		1,084		(320	)		(30	)%
Share-based compensation		409		980		(571	)		(58	)%		499		2,218		(1,719	)		(78	)%
Other operating expenses		1,372		994		378			38	%		1,104		1,159		(55	)		(5	)%
Selling, General and Administrative	$	7,888	$	9,818	$	(1,930	)		(20	)%	$	6,827	$	9,641	$	(2,815	)		(29	)%

Selling, general and administrative expenses for the three months ended ~~June~~September 30, 2023 decreased by ~~$1.9~~$2.8 million.

~~Compensation~~ In comparison to the three months ended September 30, 2022, compensation expenses decreased by ~~$1.1 million primarily from~~$721 thousand due to a ~~26%~~$705 thousand reduction in ~~the number~~bonus accrual attributable to fiscal year 2024 performance, an increase in capitalized labor of ~~US-based workforce and an 11% reduction to the Company-wide workforce.~~$178 thousand, partially offset by a $186 thousand increase in severance expense. Corporate expenses decreased by ~~$0.6 million~~$320 thousand primarily related a reduction of $365 thousand in third-party consulting and legal fees as a result of the Company's cost ~~savings and a decline in legal expenses.~~saving initiatives. Share-based compensation has decreased by ~~$0.5~~$1.7 million, as a result of the US-based workforce ~~reduction.~~reduction, a decline in stock price, and a relatively higher number of award tranches vesting, as well as a decrease in FY23 share-based bonuses. Other operating expenses ~~increased by $0.4 million, primarily as a result of an increase in advertising, marketing and rent expense related to Cineverse India operations.~~remained relatively consistent, period-over-period.

Depreciation and Amortization Expense

For the Three Months Ended June 30,

2023

2022

$ Change

% Change

Amortization of Intangible Assets

$
698

$
744

$
(46
)

(6
)%
Depreciation of Property and Equipment

124

256

(132
)

(52
)%
Depreciation and Amortization

$
822

$
1,000

$
(178
)

(18
)%


	For the Three Months Ended September 30,
	2023		2022		$ Change			% Change
Amortization of intangible assets	$	804	$	736	$	68			9	%
Depreciation of property and equipment		149		248		(99	)		(40	)%
Depreciation and Amortization	$	953	$	984	$	(31	)		(3	)%

Depreciation expense ~~decreased~~has continued to decrease primarily due to substantially the remainder of our digital cinema projection systems reaching the conclusion of their ten-year useful lives during the fiscal year ended March 31, 2023.

24

Conversely, the Company's continued investment in intangible assets, such as Dove Family Channel and an increase in capitalized labor has increased the Company's amortization for the three months ended September 30, 2023.

Interest expense, net

~~Interest expense, net increased by $0.2 million from $0.1 million for~~For the three months ended ~~June~~September 30, ~~2022~~2023, interest expense decreased by $185 thousand from $380 thousand to ~~$0.3 million for the three months ended June 30, 2023~~$195, primarily as a result of a ~~higher outstanding debt balance and higher interest rates during the three months ended June 30, 2023 as compared to the prior period.~~$183 thousand decrease in deferred consideration amortization.

~~Other~~Results of Operations for the Six Months Ended September 30, 2023, and 2022 (in thousands):

Revenues


	For the Six Months Ended September 30,
	2023		2022		$ Change			% Change
Streaming and digital	$	19,469	$	19,778	$	(309	)		(2	)%
Base distribution		1,718		3,023		(1,305	)		(43	)%
Podcast and other		1,089		763		326			43	%
Other non-recurring		3,716		4,032		(316	)		(8	)%
Total Revenue	$	25,992	$	27,596	$	(1,604	)		(6	)%

For the six months ended September 30, 2023, the Company's revenue declined by $1.6 million. The decrease was driven by a $1.3 million decline in the Company's base distribution, resulting from a $1.6 million decline in physical sales, partially offset by a $0.3 million reduction in the return reserve, a $0.3 million decrease in other non-recurring revenue from the run-off of the Company's digital cinema operations, whereas in the prior year $4.0 was recognized

26

as a result of ongoing operations, in fiscal year 2024, $3.3 million was recognized as a result of the release of variable revenue at the conclusion of the digital cinema contracts' terms. Streaming and digital revenue decreased as a result of a $4.5 million decline in AVOD revenue due continued headwinds in the broader advertising market in FY24, partially offset by a $2.2 million increase in SVOD revenue as the Company continues to see the benefits from its acquisitions which have contributed value-accretive libraries, distribution platforms and technologies, as well as $1.8 million from digital revenue and distribution. These decreases were partially offset by podcast revenue, which benefited from greater demand in fiscal year 2024.

Direct Operating Expenses


	For the Six Months Ended September 30,
	2023		2022		$ Change			% Change
Direct operating expenses	$	11,633	$	15,448	$	(3,815	)		(25	)%

For the six months ended September 30, 2023, the Company's direct operation expense decreased $3.8 million. The decrease was primarily driven by a $1.5 million dollar reduction in SAAS related costs as a result of internalizing services previously performed by third parties and cost savings synergies, $1.2 million reduction in the costs associated with the Company's physical sales and related distribution costs in line with the decline in physical revenue, a $1.1 million reduction in the provision related to advances, and a $0.8 million related to a decrease in an estimated Bloody Disgusting earnout liability based on fiscal year 2024 performance to-date. These were partially offset by a $0.8 million dollar increase in royalty-related expenses ~~net~~based on the terms of the Company's contracts, and a $0.4 million increase in digital marketing expenses.

Selling, General and Administrative Expenses


	For the Six Months Ended September 30,
	2023		2022		$ Change			% Change
Compensation expense	$	8,866	$	10,695	$	(1,829	)		(17	)%
Corporate expenses		2,464		3,413		(949	)		(28	)%
Share-based compensation		908		3,197		(2,289	)		(72	)%
Other operating expenses		2,477		2,154		322			15	%
Selling, General and Administrative	$	14,715	$	19,459	$	(4,745	)		(24	)%

During the ~~three~~six months ended ~~June~~September 30, 2023, the ~~Company recognized $0.5~~Company's SG&A decreased by $4.7 million. Relative to six months ended September 30, 2022, compensation related costs primarily decreased due to a $1.5 million decrease in the Company's bonus accrued expense and an increase in capitalized labor of ~~other~~$0.3 million from the development of the Company's Matchpoint software. Corporate expenses ~~net,~~ primarily ~~from credit~~decreased due to a corporate focus on reducing third-party legal and ~~other run-off related charges associated with~~consulting costs in the ~~wind-down~~amount of ~~its legacy~~$1.3 million, which was partially offset by an increase in audit fees in the amount of $0.2 million. Share-based compensation has decreased by $2.3 million, as a result of the US-based workforce reduction, a decline in stock price, and a relatively higher number of awards tranches vesting, as well as fiscal year 2023 share-based bonuses. Other operating expenses primarily increased due to an increase in advertising barter costs in the amount of $0.3 million.

Depreciation and Amortization Expense


	For the Six Months Ended September 30,
	2023		2022		$ Change			% Change
Amortization of intangible assets	$	1,502	$	1,480	$	22			2	%
Depreciation of property and equipment		273		504		(231	)		(46	)%
Depreciation and Amortization	$	1,775	$	1,984	$	(209	)		(11	)%

Depreciation expense has continued to decrease primarily due to substantially the remainder of our digital cinema ~~segment.~~projection systems reaching the conclusion of their ten-year useful lives during the fiscal year ended March 31, 2023.

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.

25

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

For the Three Months Ended
June 30,

2023

2022

Net Loss

$
(3,536
)

$
(5,987
)
Add Back:

Income tax expense

20

—

Depreciation and amortization

822

1,000

Interest expense

295

133

Stock-based compensation

409

980

Provision for doubtful accounts

—

3

Change in fair value on equity investment in Metaverse

—

1,256

Other expense, net

36

14

Net income attributable to noncontrolling interest

(14
)

(18
)
Adjustments:

Transition-related costs

468

175

Mergers and acquisition costs

—

207

Adjusted EBITDA

$
(1,500
)

$
(2,237
)


	For the Three Months Ended September 30,						For the Six Months Ended September 30,
	2023			2022			2023			2022
Net Loss	$	(317	)	$	(5,655	)	$	(3,853	)	$	(11,642	)
Add Back:
Income tax expense		16			—			36			—
Depreciation and amortization		953			984			1,775			1,984
Interest expense		195			380			490			513
Stock-based compensation		499			2,218			909			3,198
Provision for doubtful accounts		—			44			—			47
Change in fair value on equity investment in Metaverse		718			572			718			1,828
Other (income) expense, net		(26	)		(8	)		148			6
Net income attributable to noncontrolling interest		(40	)		(9	)		(53	)		(27	)
Adjustments:
Transition-related costs		368			182			835			357
Mergers and acquisition costs		—			—			—			207
Adjusted EBITDA	$	2,366		$	(1,292	)	$	1,005		$	(3,529	)

28

Cash Flow

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


	For the Three Months Ended June 30,						For the Six Months Ended September 30,
	2023			2022			2023			2022
Net used in provided by operating activities	$	(3,260	)	$	(1,198	)
Net used in operating activities							$	(6,174	)	$	(6,279	)
Net cash used in investing activities		(272	)		(61	)		(515	)		(274	)
Net cash provided by (used in) financing activities		8,509			(284	)
Net cash provided by financing activities								8,157			3,167
Net change in cash and cash equivalents	$	4,977		$	(1,543	)	$	1,468		$	(3,386	)

For the ~~three~~six months ended ~~June~~September 30, 2023, net cash used in operating activities is primarily driven by loss from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, including capitalized content spend and other changes in working capital. ~~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~~$5.3 million for the ~~three~~six months ended ~~June~~September 30, 2023, as part of the advances we make on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twelve months. Cash used in investing activities was used in the expenditures towards long-live intangible assets and fixed assets. Cash provided by financing activities pertained to the issuance of company equity, net of financing fees.

For the ~~three~~six months ended ~~June~~September 30, 2022, net cash ~~used in~~provided by operating activities ~~was~~is primarily driven by a ~~net~~ loss ~~after taking into account the exclusion of~~from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, gain on extinguishment of note payable, including other changes in working capital. Additionally, during the ~~three~~six months ended ~~June~~September 30, 2022, the Company ~~increased accounts~~decreased Accounts payable, accrued expenses, and other liabilities by ~~$5.6~~$5.5 million to vendors. ~~Accounts receivable~~Cash received from virtual print fees in our legacy cinema equipment business decreased ~~due to a~~from the previous period in alignment with the decrease in ~~revenue as a result~~eligible VPF systems. Changes in accounts receivable from our studio customers largely impact cash flows from operating activities and vary based on the seasonality of movie release schedules by the ~~digital cinema amounts due.~~major studios. Other current assets, and other long term assets increased by $2.9 million. Consistent with FY24, operating cash flows from Content & Entertainment Business 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 $1.5 million during the six months ended September 30, 2022. Cash used in investing activities was used in the expenditures towards long-live intangible assets and fixed assets. Cash provided by financing activities pertained to the drawdown on the Company's line of credit, offset by the payoff of notes payable.

2629

Off-balance sheet arrangements

We are not a party to any off-balance sheet arrangements other than as discussed in Note 2 – Basis of Presentation and Summary of Significant Accounting Policies, Basis of Presentation and Consolidation and Note 3 - Other Interests to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q, we hold a 100% equity interest in CDF2 Holdings, which is an unconsolidated variable interest entity (“VIE”), which wholly owns Cinedigm Digital Funding 2, LLC; however, we are not the primary beneficiary of the VIE.

Item 4. CONTROLS AND PROCEDURES

Definition and Limitations of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

Evaluation of Disclosure Controls and Procedures

The management of the Company, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in the Exchange Act), as of ~~June~~September 30, 2023. Based on such evaluation, our principal executive officer and principal financial and accounting officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, on a timely basis, and (ii) accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures as of ~~June~~September 30, 2023.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the three months ended ~~June~~September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

2730

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

The following risk factor supplements the Risk Factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2023.

The Company's share price has decreased since the end of its fiscal year ending March 31, 2023. If this share price decline is sustained, the Company may be required to test for goodwill impairment before the performance of its required annual testing and if so, may be at risk of recognizing expenses related to goodwill impairment.

On March 31, 2023, the Company's share price was $8.40 and since has declined to a share price of ~~$1.38~~$1.15 as of ~~August~~November 7, 2023. Under the accounting standard, ASC 350-20,Goodwill a Company is required to test for impairment on an annual basis, but in the presence of a triggering event, ~~may need to test during an interim period.~~the Company performs additional testing. Under ASC 350, Goodwill,, a sustained decline in share price represents a triggering event which would require the Company to test for impairment. ~~If the Company is required to perform this analysis, there~~There may be a risk that the Company incurs expenses related to goodwill impairment.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None.~~On September 17, 2021, the Company acquired substantially all of the assets of Bloody Disgusting, LLC (“Bloody Disgusting”). On August 3, 2023, the Company issued 41,034 shares of Common Stock as a deferred earnout payment of consideration for the acquisition, pursuant to Section 4(a)(2) of the Securities Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

28The exhibits are listed in the Exhibit Index beginning on the following page herein.

31

EXHIBIT INDEX


Exhibit Number		Description of Document
31.1		Officer’s Certificate Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Officer’s Certificate Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

2932

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~~November 14, 2023	By:	/s/ Christopher J. McGurk
		Christopher J. McGurk Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer)

Date: ~~August~~November 14, 2023	By:	/s/ ~~John K. Canning~~Mark Lindsey
		~~John K. Canning~~Mark Lindsey Chief Financial Officer (Principal Financial Officer)

3033


Delaware		22-3720962
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

~~244 Fifth Avenue,~~224 W. 35th St., Suite ~~M289~~500 #947,, New York, ~~N.Y~~NY. 10001		10001
(Address of principal executive offices)		(Zip Code)


Title of each class	Trading Symbol	Name of each exchange on which registered
CLASS A COMMON STOCK, PAR VALUE $0.001 PER SHARE	CNVS	The ~~NASDAQ~~Nasdaq ~~CAPITAL MARKET~~Stock Market


Large accelerated filer ☐		Accelerated filer ☐		Non-accelerated filer ☒		Smaller reporting company ☒		Emerging Growth Company ☐


		Page
	PART I - FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets at ~~June~~September 30, 2023 and March 31, 2023	1
	Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months ended ~~June~~September 30, 2023 and 2022	2
	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months ended ~~June~~September 30, 2023 and 2022	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Three~~Six Months ended ~~June~~September 30, 2023 and 2022	4
	Unaudited Condensed Consolidated Statements of Equity for the Three and Six Months ended ~~June~~September 30, 2023 and 2022	6
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2223
Item 4.	Controls and Procedures	2730

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	2831
Item 1A.	Risk Factors	2831
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2831
Item 3.	Defaults Upon Senior Securities	2831
Item 4.	Mine Safety Disclosures	2831
Item 5.	Other Information	2831
Item 6.	Exhibits	2932
Exhibit Index		2932
Signatures		3033


	As of						As of
	June 30, 2023			March 31, 2023			September 30, 2023			March 31, 2023
	(Unaudited)						(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	12,129		$	7,152		$	8,620		$	7,152
Accounts receivable		14,711			20,846			12,377			20,846
Unbilled revenue		2,247			2,036			2,423			2,036
Employee retention tax credit		1,773			2,085			1,672			2,085
Prepaid and other current assets		7,637			5,458
Content advances								7,860			3,724
Other current assets								1,550			1,734
Total current assets		38,497			37,577			34,502			37,577
Equity investment in Metaverse, a related party, at fair value		5,200			5,200			4,482			5,200
Property and equipment, net		2,075			1,833			2,072			1,833
Intangible assets, net		19,188			19,868			19,143			19,868
Goodwill		20,824			20,824			20,824			20,824
Content advances, net of current portion								2,617			1,421
Other long-term assets		2,862			2,686			1,052			1,265
Total Assets	$	88,646		$	87,988		$	84,692		$	87,988
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	29,867		$	34,531		$	25,804		$	34,531
Line of credit, including unamortized debt issuance costs of $32 and $76, respectively		4,968			4,924
Line of credit, including unamortized debt issuance costs of $96 and $76, respectively								4,904			4,924
Current portion of deferred consideration on purchase of business		3,615			3,788			3,742			3,788
Current portion of earnout consideration on purchase of business		1,526			1,444			82			1,444
Operating lease liabilities		418			418			432			418
Current portion of deferred revenue		221			226			273			226
Total current liabilities		40,615			45,331			35,237			45,331
Deferred consideration on purchase of business – net of current portion		2,868			2,647
Operating lease liabilities - net of current portion		728			863
Deferred consideration on purchase of business, net of current portion								2,868			2,647
Operating lease liabilities, net of current portion								645			863
Other long-term liabilities		59			74			59			74
Total Liabilities		44,270			48,915			38,809			48,915
Commitments and contingencies (see Note 6)
Stockholders’ Equity
Preferred stock, 15,000,000 shares authorized; Series A 10% - $0.001 par value per share; 20 shares authorized; 7 shares issued and outstanding, respectively, at June 30, 2023 and March 31, 2023.		3,559			3,559
Common stock, $0.001 par value; Class A stock 275,000,000 shares authorized at June 30, 2023 and March 31, 2023, 11,750,765 and 9,413,597 shares issued and 11,684,973 and 9,347,805 shares outstanding at June 30, 2023 and March 31, 2023, respectively.		191			185
Preferred stock, 15,000,000 shares authorized; Series A 10% - $0.001 par value per share; 20 shares authorized; 7 shares issued and outstanding, respectively, at September 30, 2023 and March 31, 2023.								3,559			3,559
Common stock, $0.001 par value; Class A stock 275,000,000 shares authorized at September 30, 2023 and March 31, 2023, 13,079,143 and 9,413,597 shares issued and 12,790,590 and 9,347,805 shares outstanding at September 30, 2023 and March 31, 2023, respectively.								192			185
Additional paid-in capital		539,997			530,998			542,212			530,998
Treasury stock, at cost; 65,792 shares		(11,608	)		(11,608	)
Treasury stock, at cost; 288,554 and 65,792 shares at September 30, 2023 and March 31, 2023, respectively.								(11,978	)		(11,608	)
Accumulated deficit		(486,033	)		(482,395	)		(486,477	)		(482,395	)
Accumulated other comprehensive loss		(480	)		(402	)		(414	)		(402	)
Total stockholders’ equity of Cineverse Corp.		45,626			40,337			47,094			40,337
Deficit attributable to noncontrolling interest		(1,250	)		(1,264	)		(1,210	)		(1,264	)
Total equity		44,376			39,073			45,883			39,073
Total Liabilities and Equity	$	88,646		$	87,988		$	84,692		$	87,988


	Preferred Stock				Common Stock				Treasury					Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders'			Non Controlling						Preferred Stock				Common Stock					Treasury					Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders'			Non Controlling
	Shares		Amount		Shares		Amount		Shares		Amount			Capital		Deficit			Loss			Equity			Interest			Total			Shares		Amount		Shares			Amount		Shares		Amount			Capital		Deficit			Loss			Equity			Interest			Total
Balances as of March 31, 2023 (Audited)		1	$	3,559		9,348	$	185		66	$	(11,608	)	$	530,998	$	(482,395	)	$	(402	)	$	40,337		$	(1,264	)	$	39,073			1	$	3,559		9,348		$	185		66	$	(11,608	)	$	530,998	$	(482,395	)	$	(402	)	$	40,337		$	(1,264	)	$	39,073
Foreign exchange translation		—		—		—		—		—		—			—		—			(78	)		(78	)		—			(78	)		—		—		—			—		—		—			—		—			(78	)		(78	)		—			(78	)
Stock-based compensation		—		—		—		—		—		—			409		—			—			409			—			409			—		—		—			—		—		—			409		—			—			409			—			409
Issuance of common stock in connection with ATM raises, net		—		—		177		4		—		—			1,065		—			—			1,069			—			1,069
Issuance of common stock in connection with direct equity offering		—		—		2,150		2		—		—			7,437		—			—			7,439			—			7,439
Issuance of Class A common stock in connection with ATM raises, net																																—		—		177			4		—		—			1,065		—			—			1,069			—			1,069
Issuance of Class A common stock in connection with direct equity offering																																—		—		2,150			2		—		—			7,437		—			—			7,439			—			7,439
Preferred stock dividends paid in stock		—		—		10		—		—		—			88		—			—			88			—			88			—		—		10			—		—		—			88		—			—			88			—			88
Preferred stock dividends accrued		—		—		—		—		—		—			—		(88	)		—			(88	)		—			(88	)		—		—		—			—		—		—			—		(88	)		—			(88	)		—			(88	)
Net loss		—		—		—		—		—		—			—		(3,550	)		—			(3,550	)		14			(3,536	)		—		—		—			—		—		—			—		(3,550	)		—			(3,550	)		14			(3,536	)
Balances as of June 30, 2023		1	$	3,559		11,685	$	191		66	$	(11,608	)	$	539,997	$	(486,033	)	$	(480	)	$	45,626		$	(1,250	)	$	44,376			1	$	3,559		11,685		$	191		66	$	(11,608	)	$	539,997	$	(486,033	)	$	(480	)	$	45,626		$	(1,250	)	$	44,376
Foreign exchange translation																																—		—		—			—		—		—			—		—			66			66			—			66
Stock-based compensation																																—		—		—			—		—		—			499		—			—			499			—			499
Issuance of Class A common stock in connection employee bonuses																																—		—		725			1		—		—			1,203		—			—			1,203			—			1,203
Estimated fee decrease associated with equity issuance																																—		—		—			—		—		—			33		—			—			33			—			33
Issuance in connection with the exercise of warrants																																—		—		517			—		—		—			—		—			—			—			—			—
Issuance of Class A common stock for earnout commitment																																—		—		41			—		—		—			392		—			—			392			—			392
Treasury stock in connection with taxes withheld from employees																																—		—		(223	)		—		223		(370	)		—		—			—			(370	)		—			(370	)
Preferred stock dividends paid in stock																																—		—		46			—		—		—			88		—			—			88			—			88
Preferred stock dividends accrued																																—		—		—			—		—		—			—		(87	)		—			(87	)		—			(87	)
Net loss																																—		—		—			—		—		—			—		(357	)		—			(357	)		40			(317	)
Balances as of September 30, 2023																																1	$	3,559		12,791		$	192		289	$	(11,978	)		542,212		(486,477	)	$	(414	)	$	47,093		$	(1,210	)	$	45,883