UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal period ended: December 31, 2017
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ---_____ to ---
Commission File Number: 000-31810
Cineverse Corp.
(Exact name of registrant as specified in its charter)
Delaware | 22-3720962 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
244 Fifth Avenue, Suite M289, New York | 10001 | |
(Address of principal executive offices) | (Zip Code) |
(212)206-8600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on | ||
CLASS A COMMON STOCK, PAR VALUE $0.001 PER SHARE | ||||
CNVS | ||||
NASDAQ CAPITAL MARKET |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | Emerging Growth Company | ||||
☐ |
☐If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of February 12, 2018, 34,947,790August 7, 2023, 12,286,417 shares of Class A Common Stock, $0.001 par value, were outstanding.
Cineverse Corp.
TABLE OF CONTENTS
Page | |||
- FINANCIAL INFORMATION | |||
Item 1. | 1 | ||
1 | |||
2 | |||
3 | |||
Unaudited Condensed Consolidated Statements of Cash Flows for the | 4 | ||
6 | |||
Notes to | 8 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 | |
Item 4. | 27 | ||
- OTHER INFORMATION | |||
Item 1. | 28 | ||
Item 1A. | 28 | ||
Item 2. | 28 | ||
Item 3. | 28 | ||
Item 4. | 28 | ||
Item 5. | 28 | ||
Item 6. | 29 | ||
29 | |||
30 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Cineverse Corp.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
December 31, 2017 | March 31, 2017 | ||||||
ASSETS | (Unaudited) | ||||||
Current assets | |||||||
Cash and cash equivalents | $ | 17,218 | $ | 12,566 | |||
Accounts receivable, net | 37,870 | 53,608 | |||||
Inventory, net | 812 | 1,137 | |||||
Unbilled revenue | 4,747 | 5,655 | |||||
Prepaid and other current assets | 10,885 | 13,484 | |||||
Total current assets | 71,532 | 86,450 | |||||
Restricted cash | 1,000 | 1,000 | |||||
Property and equipment, net | 23,479 | 33,138 | |||||
Intangible assets, net | 16,045 | 20,227 | |||||
Goodwill | 8,701 | 8,701 | |||||
Debt issuance costs | 134 | 260 | |||||
Other assets | 1,336 | 1,558 | |||||
Total assets | $ | 122,227 | $ | 151,334 | |||
LIABILITIES AND STOCKHOLDERS' DEFICIT | |||||||
Current liabilities | |||||||
Accounts payable and accrued expenses | $ | 63,460 | $ | 73,679 | |||
Current portion of notes payable, including unamortized debt discount of $318 and $0 (See Note 5) | 16,491 | 19,599 | |||||
Current portion of notes payable, non-recourse (see Note 5) | 2,954 | 6,056 | |||||
Current portion of capital leases | — | 66 | |||||
Current portion of deferred revenue | 1,855 | 2,461 | |||||
Total current liabilities | 84,760 | 101,861 | |||||
Notes payable, non-recourse, net of current portion and unamortized debt issuance costs and debt discounts of $2,289 and $2,701 respectively (see Note 5) | 38,331 | 55,048 | |||||
Notes payable, net of current portion and unamortized debt issuance costs and debt discounts of $3,445 and $5,340 respectively (see Note 5) | 16,997 | 59,396 | |||||
Deferred revenue, net of current portion | 4,213 | 5,324 | |||||
Other long-term liabilities | 331 | 408 | |||||
Total liabilities | 144,632 | 222,037 | |||||
Stockholders’ deficit | |||||||
Preferred stock, 15,000,000 shares authorized; Series A 10% - $0.001 par value per share; 20 shares authorized; 7 shares issued and outstanding at December 31, 2017 and March 31, 2017, respectively. Liquidation preference of $3,648 | 3,559 | 3,559 | |||||
Common stock, $0.001 par value; Class A and Class B stock; Class A stock 60,000,000 shares and 25,000,000 shares authorized at December 31, 2017 and March 31, 2017 respectively; 36,138,785 and 11,841,983 shares issued and 34,824,949 and 11,841,983 shares outstanding at December 31, 2017 and March 31, 2017, respectively; 1,241,000 Class B stock authorized and issued and zero shares outstanding at March 31, 2017 | 35 | 12 | |||||
Additional paid-in capital | 366,092 | 287,393 | |||||
Treasury stock, at cost; 1,313,836 Class A common shares at December 31, 2017 | (11,603 | ) | — | ||||
Accumulated deficit | (379,191 | ) | (360,415 | ) | |||
Accumulated other comprehensive loss | (51 | ) | (38 | ) | |||
Total stockholders’ deficit of Cinedigm Corp. | (21,159 | ) | (69,489 | ) | |||
Deficit attributable to noncontrolling interest | (1,246 | ) | (1,214 | ) | |||
Total deficit | (22,405 | ) | (70,703 | ) | |||
Total liabilities and deficit | $ | 122,227 | $ | 151,334 |
|
| As of |
| |||||
| June 30, |
|
| March 31, |
| |||
|
| (Unaudited) |
|
|
|
| ||
ASSETS |
|
|
|
|
|
| ||
Current Assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 12,129 |
|
| $ | 7,152 |
|
Accounts receivable |
|
| 14,711 |
|
|
| 20,846 |
|
Unbilled revenue |
|
| 2,247 |
|
|
| 2,036 |
|
Employee retention tax credit |
|
| 1,773 |
|
|
| 2,085 |
|
Prepaid and other current assets |
|
| 7,637 |
|
|
| 5,458 |
|
Total current assets |
|
| 38,497 |
|
|
| 37,577 |
|
Equity investment in Metaverse, a related party, at fair value |
|
| 5,200 |
|
|
| 5,200 |
|
Property and equipment, net |
|
| 2,075 |
|
|
| 1,833 |
|
Intangible assets, net |
|
| 19,188 |
|
|
| 19,868 |
|
Goodwill |
|
| 20,824 |
|
|
| 20,824 |
|
Other long-term assets |
|
| 2,862 |
|
|
| 2,686 |
|
Total Assets |
| $ | 88,646 |
|
| $ | 87,988 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
| ||
Current Liabilities |
|
|
|
|
|
| ||
Accounts payable and accrued expenses |
| $ | 29,867 |
|
| $ | 34,531 |
|
Line of credit, including unamortized debt issuance costs of $32 and $76, respectively |
|
| 4,968 |
|
|
| 4,924 |
|
Current portion of deferred consideration on purchase of business |
|
| 3,615 |
|
|
| 3,788 |
|
Current portion of earnout consideration on purchase of business |
|
| 1,526 |
|
|
| 1,444 |
|
Operating lease liabilities |
|
| 418 |
|
|
| 418 |
|
Current portion of deferred revenue |
|
| 221 |
|
|
| 226 |
|
Total current liabilities |
|
| 40,615 |
|
|
| 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 |
|
Other long-term liabilities |
|
| 59 |
|
|
| 74 |
|
Total Liabilities |
|
| 44,270 |
|
|
| 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 |
|
Additional paid-in capital |
|
| 539,997 |
|
|
| 530,998 |
|
Treasury stock, at cost; 65,792 shares |
|
| (11,608 | ) |
|
| (11,608 | ) |
Accumulated deficit |
|
| (486,033 | ) |
|
| (482,395 | ) |
Accumulated other comprehensive loss |
|
| (480 | ) |
|
| (402 | ) |
Total stockholders’ equity of Cineverse Corp. |
|
| 45,626 |
|
|
| 40,337 |
|
Deficit attributable to noncontrolling interest |
|
| (1,250 | ) |
|
| (1,264 | ) |
Total equity |
|
| 44,376 |
|
|
| 39,073 |
|
Total Liabilities and Equity |
| $ | 88,646 |
|
| $ | 87,988 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
1
Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except for share and per share data)
Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues | $ | 18,492 | $ | 24,445 | $ | 50,010 | $ | 70,800 | |||||||
Costs and expenses: | |||||||||||||||
Direct operating (excludes depreciation and amortization shown below) | 6,363 | 7,287 | 14,470 | 17,880 | |||||||||||
Selling, general and administrative | 9,259 | 6,095 | 21,824 | 17,766 | |||||||||||
Provision for doubtful accounts | 631 | 416 | 1,580 | 416 | |||||||||||
Restructuring expenses, net | — | 22 | — | 132 | |||||||||||
Depreciation and amortization of property and equipment | 2,213 | 6,271 | 10,215 | 22,558 | |||||||||||
Amortization of intangible assets | 1,395 | 1,395 | 4,185 | 4,322 | |||||||||||
Total operating expenses | 19,861 | 21,486 | 52,274 | 63,074 | |||||||||||
Income (loss) from operations | (1,369 | ) | 2,959 | (2,264 | ) | 7,726 | |||||||||
Interest expense, net | (3,147 | ) | (4,827 | ) | (11,163 | ) | (14,873 | ) | |||||||
Debt conversion expense and loss on extinguishment of notes payable | (1,299 | ) | (1,099 | ) | (4,504 | ) | (1,099 | ) | |||||||
Other (expense) income, net | (40 | ) | (55 | ) | (242 | ) | 211 | ||||||||
Gain on termination of capital lease | — | 2,535 | — | 2,535 | |||||||||||
Change in fair value of interest rate derivatives | 44 | 39 | 127 | 104 | |||||||||||
Loss from operations before income taxes | (5,811 | ) | (448 | ) | (18,046 | ) | (5,396 | ) | |||||||
Income tax expense | (113 | ) | (33 | ) | (495 | ) | (143 | ) | |||||||
Net loss | (5,924 | ) | (481 | ) | (18,541 | ) | (5,539 | ) | |||||||
Net loss attributable to noncontrolling interest | 15 | 18 | 32 | 54 | |||||||||||
Net loss attributable to controlling interests | (5,909 | ) | (463 | ) | (18,509 | ) | (5,485 | ) | |||||||
Preferred stock dividends | (89 | ) | (89 | ) | (267 | ) | (267 | ) | |||||||
Net loss attributable to common stockholders | $ | (5,998 | ) | $ | (552 | ) | $ | (18,776 | ) | $ | (5,752 | ) | |||
Net loss per Class A and Class B common stock attributable to common stockholders - basic and diluted: | |||||||||||||||
Net loss attributable to common stockholders | $ | (0.20 | ) | $ | (0.07 | ) | $ | (1.02 | ) | $ | (0.78 | ) | |||
Weighted average number of Class A and Class B common stock outstanding: basic and diluted | 29,389,017 | 8,361,807 | 18,399,597 | 7,409,746 |
|
| Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Revenues |
| $ | 12,980 |
|
| $ | 13,590 |
|
Costs and expenses: |
|
|
|
|
|
| ||
Direct operating |
|
| 6,987 |
|
|
| 7,356 |
|
Selling, general and administrative |
|
| 7,888 |
|
|
| 9,818 |
|
Depreciation and amortization |
|
| 822 |
|
|
| 1,000 |
|
Total operating expenses |
|
| 15,697 |
|
|
| 18,174 |
|
Operating loss |
|
| (2,717 | ) |
|
| (4,584 | ) |
Interest expense |
|
| (295 | ) |
|
| (133 | ) |
Decrease in fair value of equity investment in Metaverse, a related party |
|
| — |
|
|
| (1,256 | ) |
Other expense, net |
|
| (504 | ) |
|
| (14 | ) |
Net loss before income taxes |
|
| (3,516 | ) |
|
| (5,987 | ) |
Income tax expense |
|
| (20 | ) |
|
| — |
|
Net loss |
|
| (3,536 | ) |
|
| (5,987 | ) |
Net income attributable to noncontrolling interest |
|
| (14 | ) |
|
| (18 | ) |
Net loss attributable to controlling interests |
|
| (3,550 | ) |
|
| (6,005 | ) |
Preferred stock dividends |
|
| (88 | ) |
|
| (88 | ) |
Net loss attributable to common stockholders |
| $ | (3,638 | ) |
| $ | (6,093 | ) |
|
|
|
|
|
| |||
Net loss per share attributable to common stockholders: |
|
|
|
|
|
| ||
Basic |
| $ | (0.37 | ) |
| $ | (0.69 | ) |
Diluted |
| $ | (0.37 | ) |
| $ | (0.69 | ) |
Weighted average shares of common stock outstanding: |
|
|
|
|
|
| ||
Basic |
|
| 9,879 |
|
|
| 8,771 |
|
Diluted |
|
| 9,879 |
|
|
| 8,771 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
2
Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(In thousands)
Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net loss | $ | (5,924 | ) | $ | (481 | ) | $ | (18,541 | ) | $ | (5,539 | ) | ||||
Other comprehensive income (loss): foreign exchange translation | 2 | (9 | ) | (13 | ) | 9 | ||||||||||
Comprehensive loss | (5,922 | ) | (490 | ) | (18,554 | ) | (5,530 | ) | ||||||||
Less: comprehensive loss attributable to noncontrolling interest | 15 | 18 | 32 | 54 | ||||||||||||
Comprehensive loss attributable to controlling interests | $ | (5,907 | ) | $ | (472 | ) | $ | (18,522 | ) | $ | (5,476 | ) |
|
|
| Three Months Ended |
| ||||||||
|
|
|
|
| 2023 |
|
| 2022 |
| |||
Net loss |
|
|
|
|
| $ | (3,536 | ) |
| $ | (5,987 | ) |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
| ||
Foreign exchange translation |
|
|
|
|
|
| (78 | ) |
|
| 48 |
|
Comprehensive income attributable to noncontrolling interest |
|
|
|
|
|
| (14 | ) |
|
| (18 | ) |
Comprehensive loss |
|
|
|
|
| $ | (3,628 | ) |
| $ | (5,957 | ) |
See accompanying Notes to Condensed Consolidated Financial Statements
Series A Preferred Stock | Class A and Class B | Treasury Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders’ Deficit | Non-Controlling Interest | Total Deficit | |||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||
Balances as of March 31, 2016 | 7 | $ | 3,559 | 7,977,861 | $ | 79 | (277,244 | ) | $ | (2,839 | ) | $ | 269,871 | $ | (342,448 | ) | $ | (64 | ) | $ | (71,842 | ) | $ | (1,185 | ) | $ | (73,027 | ) | |||||||||||||
Adjust par value of common stock for 1-for-10 stock split | — | — | — | (70 | ) | — | — | 70 | — | — | — | — | — | ||||||||||||||||||||||||||||
Adjusted balance as of March 31, 2016 | 7 | $ | 3,559 | 7,977,861 | $ | 9 | (277,244 | ) | $ | (2,839 | ) | $ | 269,941 | $ | (342,448 | ) | $ | (64 | ) | $ | (71,842 | ) | $ | (1,185 | ) | $ | (73,027 | ) | |||||||||||||
Foreign exchange translation | — | — | — | — | — | — | — | — | 26 | 26 | — | 26 | |||||||||||||||||||||||||||||
Issuance of common stock for third-party professional services | — | — | 419,838 | — | — | — | 342 | — | — | 342 | — | 342 | |||||||||||||||||||||||||||||
Issuance of shares for CEO retention bonus | — | — | 125,000 | — | — | — | 250 | — | — | 250 | — | 250 | |||||||||||||||||||||||||||||
Amortization of stock based compensation issued to Board of Directors | — | — | — | — | — | — | 272 | — | — | 272 | — | 272 | |||||||||||||||||||||||||||||
Common stock issued in connection with induced conversion of Convertible Notes | — | — | 1,297,756 | 1 | — | — | 14,279 | — | — | 14,280 | — | 14,280 | |||||||||||||||||||||||||||||
Issuance of restricted stock awards | — | — | 1,054,865 | 1 | — | — | (1 | ) | — | — | — | — | — | ||||||||||||||||||||||||||||
Issuance of common stock in connection with Second Secured Lien Notes | — | — | 751,450 | 1 | — | — | 1,055 | — | — | 1,056 | — | 1,056 | |||||||||||||||||||||||||||||
Issuance of warrants in connection with Second Secured Lien Notes | — | — | — | — | — | — | 107 | — | — | 107 | — | 107 | |||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 804 | — | — | 804 | — | 804 | |||||||||||||||||||||||||||||
Extension of term in connection with Sageview Warrants | — | — | — | — | — | — | 345 | — | — | 345 | — | 345 | |||||||||||||||||||||||||||||
Preferred stock dividends paid with common stock | — | — | 215,213 | — | — | — | 356 | (356 | ) | — | — | — | — | ||||||||||||||||||||||||||||
Contributions by noncontrolling interests | — | — | — | — | — | — | — | — | — | — | 39 | 39 | |||||||||||||||||||||||||||||
Re-issuance of treasury stock in connection with convertible notes exchange transaction | — | — | — | — | 277,244 | 2,839 | (357 | ) | (2,482 | ) | — | — | — | — | |||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (15,129 | ) | — | (15,129 | ) | (68 | ) | (15,197 | ) | |||||||||||||||||||||||||
Balances as of March 31, 2017 | 7 | $ | 3,559 | 11,841,983 | $ | 12 | — | $ | — | $ | 287,393 | $ | (360,415 | ) | $ | (38 | ) | $ | (69,489 | ) | $ | (1,214 | ) | $ | (70,703 | ) |
Series A Preferred Stock | Class A and Class B | Treasury Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders’ Deficit | Non-Controlling Interest | Total Deficit | |||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||
Balances as of March 31, 2017 | 7 | $ | 3,559 | 11,841,983 | $ | 12 | — | $ | — | $ | 287,393 | $ | (360,415 | ) | $ | (38 | ) | $ | (69,489 | ) | $ | (1,214 | ) | $ | (70,703 | ) | |||||||||||||||
Foreign exchange translation | — | — | — | — | — | — | — | — | (13 | ) | (13 | ) | — | (13 | ) | ||||||||||||||||||||||||||
Issuance of common stock for third-party professional services | — | — | 623,423 | 1 | — | — | 875 | — | — | 876 | — | 876 | |||||||||||||||||||||||||||||
Common stock issued in connection with induced conversion of Convertible Notes | — | — | 3,536,783 | 3 | — | — | 34,285 | — | — | 34,288 | — | 34,288 | |||||||||||||||||||||||||||||
Forfeitures of restricted stock awards, net of issuances | — | — | (27,673 | ) | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Issuance of common stock in connection with the stock purchase agreement with Bison | — | — | 19,666,667 | 20 | — | — | 28,034 | — | — | 28,054 | — | 28,054 | |||||||||||||||||||||||||||||
Issuance of common stock in connection with debt instruments | — | — | 333,333 | — | — | — | 500 | — | — | 500 | — | 500 | |||||||||||||||||||||||||||||
Issuance of warrants in connection with Bison | — | — | — | — | — | — | 1,084 | — | — | 1,084 | — | 1,084 | |||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 2,214 | — | — | 2,214 | — | 2,214 | |||||||||||||||||||||||||||||
Preferred stock dividends paid with common stock | — | — | 164,269 | — | — | — | 267 | (267 | ) | — | — | — | — | ||||||||||||||||||||||||||||
Issuance of treasury stock in connection with taxes withheld from employees | — | — | (134,698 | ) | — | 134,698 | (163 | ) | — | — | — | (163 | ) | — | (163 | ) | |||||||||||||||||||||||||
Issuance of treasury stock in connection with settlement of structured stock repurchase | — | — | (1,179,138 | ) | (1 | ) | 1,179,138 | (11,440 | ) | 11,440 | — | — | (1 | ) | — | (1 | ) | ||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (18,509 | ) | — | (18,509 | ) | (32 | ) | (18,541 | ) | |||||||||||||||||||||||||
Balances as of December 31, 2017 | 7 | $ | 3,559 | 34,824,949 | $ | 35 | 1,313,836 | $ | (11,603 | ) | $ | 366,092 | $ | (379,191 | ) | $ | (51 | ) | $ | (21,159 | ) | $ | (1,246 | ) | $ | (22,405 | ) |
3
Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended December 31, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (18,541 | ) | $ | (5,539 | ) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||
Depreciation and amortization of property and equipment and amortization of intangible assets | 14,400 | 26,880 | |||||
Gain on termination of capital lease | — | (2,535 | ) | ||||
Loss on disposal of property and equipment | 64 | — | |||||
Amortization of debt issuance costs included in interest expense | 1,573 | 2,158 | |||||
Provision for doubtful accounts | 1,580 | 416 | |||||
Provision for inventory reserve | 327 | 299 | |||||
Stock-based compensation and expenses | 2,214 | 1,364 | |||||
Change in fair value of interest rate derivatives | 127 | 104 | |||||
Accretion and PIK interest expense added to note payable | 862 | 681 | |||||
Debt conversion expense and loss on extinguishment of notes payable | 4,504 | 1,099 | |||||
Changes in operating assets and liabilities; | |||||||
Accounts receivable | 14,380 | (16,460 | ) | ||||
Inventory | (2 | ) | 484 | ||||
Unbilled revenue | 908 | 1,179 | |||||
Prepaid expenses and other assets | 2,383 | 631 | |||||
Accounts payable and accrued expenses | (8,966 | ) | 15,926 | ||||
Deferred revenue | (1,717 | ) | (2,075 | ) | |||
Net cash provided by operating activities | 14,096 | 24,612 | |||||
Cash flows from investing activities: | |||||||
Purchases of property and equipment | (531 | ) | (375 | ) | |||
Purchases of intangible assets | (3 | ) | (5 | ) | |||
Net cash used in investing activities | (534 | ) | (380 | ) | |||
Cash flows from financing activities: | |||||||
Payment of notes payable | (38,375 | ) | (42,115 | ) | |||
Net repayments under revolving credit agreement | (7,790 | ) | (2,328 | ) | |||
Proceeds from issuance of notes payable | 10,000 | 5,525 | |||||
Repurchase of Class A common stock | (163 | ) | — | ||||
Net proceeds from issuance of common stock | 28,054 | — | |||||
Principal payments on capital leases | (66 | ) | (194 | ) | |||
Payments of debt issuance costs | (570 | ) | (1,792 | ) | |||
Change in restricted cash balances | — | 7,983 | |||||
Capital contributions from noncontrolling interest | — | 39 | |||||
Net cash used in financing activities | (8,910 | ) | (32,882 | ) | |||
Net change in cash and cash equivalents | 4,652 | (8,650 | ) | ||||
Cash and cash equivalents at beginning of period | 12,566 | 25,481 | |||||
Cash and cash equivalents at end of period | $ | 17,218 | $ | 16,831 |
| Three Months Ended |
| ||||||
| 2023 |
|
| 2022 |
| |||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (3,536 | ) |
| $ | (5,987 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 822 |
|
|
| 1,000 |
|
Allowance for prepaid advances |
|
| 173 |
|
|
| 32 |
|
Changes in fair value of equity investment in Metaverse |
|
| — |
|
|
| 1,256 |
|
Amortization of debt issuance costs |
|
| 44 |
|
|
| — |
|
Stock-based compensation |
|
| 409 |
|
|
| 980 |
|
Interest expense for deferred consideration and earnouts |
|
| 181 |
|
|
| 133 |
|
Other |
|
| 263 |
|
|
| 3 |
|
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
| ||
Accounts receivable |
|
| 5,656 |
|
|
| 5,625 |
|
Unbilled revenue |
|
| (211 | ) |
|
| (248 | ) |
Prepaids and other current and long-term assets |
|
| (2,688 | ) |
|
| 1,274 |
|
Employee retention tax credit |
|
| 312 |
|
|
| — |
|
Accounts payable, accrued expenses, and other liabilities |
|
| (4,685 | ) |
|
| (5,266 | ) |
Net cash used in operating activities |
| $ | (3,260 | ) |
|
| (1,198 | ) |
Cash flows from investing activities: |
|
|
|
|
|
| ||
Expenditures for long-lived assets |
|
| (272 | ) |
|
| (141 | ) |
Purchase of businesses |
|
| — |
|
|
| 80 |
|
Net cash used in investing activities |
| $ | (272 | ) |
|
| (61 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Payments of notes payable |
|
| — |
|
|
| (284 | ) |
Proceeds from line of credit |
|
| 8,761 |
|
|
| — |
|
Payments on line of credit |
|
| (8,761 | ) |
|
| — |
|
Issuance of common stock, net of issuance costs |
|
| 8,509 |
|
|
| — |
|
Net cash provided by (used in) financing activities |
| $ | 8,509 |
|
|
| (284 | ) |
Net change in cash and cash equivalents |
|
| 4,977 |
|
|
| (1,543 | ) |
Cash and cash equivalents at beginning of period |
|
| 7,152 |
|
|
| 13,062 |
|
Cash and cash equivalents at end of period |
| $ | 12,129 |
|
| $ | 11,519 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
4
Cineverse Corp.
SUPPLEMENTAL CASH FLOW INFORMATION AND DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY
(Unaudited)
(In thousands)
| Three Months Ended |
| ||||||
|
| 2023 |
|
| 2022 |
| ||
Cash interest paid |
| $ | 121 |
|
| $ | - |
|
Income taxes paid |
| $ | 12 |
|
| $ | - |
|
Lease liability related payments |
| $ | 109 |
|
| $ | - |
|
Noncash investing and financing activities: |
|
|
|
|
|
| ||
Accrued dividends on preferred stock |
| $ | 88 |
|
| $ | 88 |
|
Issuance of Class A common stock for payment of accrued preferred stock dividends |
| $ | 88 |
|
| $ | 88 |
|
Earnout consideration in purchase of a business |
| $ | - |
|
| $ | 80 |
|
5
Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands)
Preferred Stock |
|
| Common Stock |
|
| Treasury |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Total |
|
| Non |
|
|
|
| ||||||||||||||||||||||
Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Equity |
|
| Interest |
|
| Total |
| |||||||||||||
Balances as of March 31, 2023 (Audited) |
| 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 | ) |
Stock-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 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 |
|
Preferred stock dividends paid in stock |
| — |
|
|
| — |
|
|
| 10 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| 88 |
|
Preferred stock dividends accrued |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| (88 | ) |
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (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 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
6
Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands)
| Preferred Stock |
|
| Common Stock |
|
| Treasury |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Total |
|
| Non |
|
| Total |
| ||||||||||||||||||||||
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Equity |
|
| Interest |
|
| Equity |
| |||||||||||||
Balances as of March 31, 2022 (Audited) |
|
| 1 |
|
| $ | 3,559 |
|
|
| 8,766 |
|
| $ | 174 |
|
|
| 66 |
|
| $ | (11,608 | ) |
| $ | 522,601 |
|
| $ | (472,310 | ) |
| $ | (163 | ) |
| $ | 42,253 |
|
| $ | (1,303 | ) |
| $ | 40,950 |
|
Foreign exchange translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 48 |
|
|
| 48 |
|
|
| — |
|
|
| 48 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 980 |
|
|
| — |
|
|
| — |
|
|
| 980 |
|
|
| — |
|
|
| 980 |
|
Preferred stock dividends paid in stock |
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| 88 |
|
Preferred stock dividends accrued |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| (88 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,005 | ) |
|
| — |
|
|
| (6,005 | ) |
|
| 18 |
|
|
| (5,987 | ) |
Balances as of June 30, 2022 |
|
| 1 |
|
| $ | 3,559 |
|
|
| 8,771 |
|
| $ | 174 |
|
|
| 66 |
|
| $ | (11,608 | ) |
| $ | 523,669 |
|
| $ | (478,403 | ) |
| $ | (115 | ) |
| $ | 37,276 |
|
| $ | (1,285 | ) |
| $ | 35,991 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
7
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF OPERATIONS AND LIQUIDITY
Cineverse Corp. ("Cinedigm,"(“Cineverse”, “us”, “our”, and “Company” refers to Cineverse Corp. and its subsidiaries unless the "Company," "we," "us," or similar pronouns)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 (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 are (i) adistribute products for major brands such as Hallmark, Televisa, ITV, Nelvana, ZDF, Konami, NFL and Scholastic, as well as leading distributorinternational and aggregator of independentdomestic content creators, movie producers, television producers and other short formshort-form digital content managing a library of distribution rightsproducers. We collaborate with producers, major brands and other content owners to thousands of titlesmarket, source, curate and episodes released acrossdistribute quality content to targeted audiences through (i) existing and emerging digital physical, theatrical, home and mobile 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 leading servicer ofsignificant role in the digital cinema assets for overdistribution revolution that continues to transform the media landscape, playing a pioneering role in transitioning approximately 12,000 movie screens in both North Americafrom traditional analog film prints to digital distribution, and several international countries.
Our Class A common stock, par value $0.001 per share (the “Systems”"Common Stock") installedis 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 movie theatres throughoutthis report reflect the United States,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 $1.00 bid price requirement for continued listing on The Nasdaq Capital Market. The Company remains subject to a one-year “Panel Monitor” as that term is defined by Nasdaq Listing Rule 5815(d)(4)(A).
Financial Condition and in AustraliaLiquidity
We have a history of net losses, and New Zealand. Our Services segment provides fee based supportfor the quarter ended June 30, 2023, we had a net loss attributable to over 12,000 movie screens in our Phase I Deployment and Phase II Deployment segments, as well as directly to exhibitors and other third party customers,common stockholders in the formamount of monitoring, billing, collection and verification services. Our Content & Entertainment segment is focused on: (1) ancillary market aggregation and distribution of entertainment content and; (2) a branded and curated over-the-top ("OTT"$(3.6) digital network business, providing entertainment channels and applications.
The Company is party to a Loan, Guaranty, and beyond.
8
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In July 2020, we entered into an At-the-Market sales agreement (the "Stock Purchase Agreement"“ATM Sales Agreement”) with Bison Entertainment Investment Limited, an affiliate of Bison Capital Holding Company LimitedA.G.P./Alliance Global Partners (“Bison”A.G.P.”) and B. Riley FBR, Inc. (“B. Riley” and, together with A.G.P., the “Sales Agents”), we sold 20,000,000 shares of our Class A Common Stock for an aggregate purchase price of $30.0 million, of which 19,666,667 shares were sold to Bison, and 333,333 shares were sold to the CEO of the Company. In addition, we consummated exchange agreements with holders of our remaining 5.5% Convertible Notes due 2035 ("Convertible Notes"), whereby $46.3 million principal amount of the Convertible Notes were exchanged for a combination of $17.1 million cash and 2,221,457 shares of Class A Common Stock. The Convertible Notes were immediately retired.
On June 16, 2023, the Company closed on the sale of 2,150 thousand shares of common stock, 517 thousand pre-funded warrants, and warrants to purchase 1,400,000up to 2,667 thousand shares of the Company’s Class A common stock (the “Warrants”). See Note 6 -
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.
We believe the combination of: (i) our cash and restricted cash equivalent balances, at December 31, 2017, which includes the net proceeds received from Bison for the issuance of 19,666,667 shares and from the Loan, (ii) implemented and planned cost reduction initiatives, (iii) retirement of the full outstanding amount of Convertible Notes, and (iv) expected cash flows from operationsavailability under our credit facility will be sufficient to satisfysupport our liquidity and capital requirementsoperations for at least a year after these consolidated interim financial statements are issued. Ourtwelve months from the filing of this report. The Company may also undertake equity or debt offerings, if necessary and opportunistically available, for further capital requirements will depend on many factors, and we may need to develop and formulate operating plans with Bison to use available capital resources and raise additional capital. Failure to generate additional revenues, raise additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations and liquidity. needs.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The accompanying interim Condensed Consolidated Financial Statements are unaudited and include the accounts of the Company, its wholly owned and majority owned subsidiaries, and reflect all normal and recurring adjustments necessary for the fair presentation of its consolidated financial position, results of operations and cash flows. All material inter-company accounts and transactionsCineverse Corp. have been eliminated in consolidation.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to theas permitted by such rules and regulations ofregulations; however, the Securities and Exchange Commission ("SEC"), although we believe thatCompany believes the disclosures are adequate to make the information presented not misleading.
The resultsinterim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of operationsmanagement, 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 respective interim periodsyear ended March 31, 2023. Interim results are not necessarily indicative of the results expected for thea full year. These
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 notesnotes. Significant items subject to such estimates and assumptions include revenue recognition, allowance for doubtful accounts, 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 readconsolidated as we have a controlling financial interest in conjunction withthe entity through our annual consolidated financial statementsownership of outstanding voting shares, and the notes thereto, includedthat 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 equal to 11% of outstanding profit interest units retained by the noncontrolling interests.
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 fiscal year ended March 31, 2017.2023.
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“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 credit losses on accounts receivable. We reviewwhich was a refundable tax credit against certain employment taxes. The Consolidated Appropriations Act (the "Appropriations Act") extended and expanded the compositionavailability of accounts receivable and analyze historical bad debts, customer concentrations, customerthe employee retention credit worthiness, current economic trends and changes in customer payment patternsthrough December 31, 2021. The Appropriations Act amended the employee retention credit to evaluatebe equal to 70% of qualified wages paid to employees during the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis. We had a provision for doubtful accounts of $0.6 million and $1.6 million2021 fiscal year.
The Company qualified for the threeemployee retention credit beginning in June 2020 for qualified wages through September 2021 and nine monthsfiled a cash refund claim during the fiscal year ended DecemberMarch 31, 2017, respectively. The provision for doubtful accounts was $0.4 million for the three and nine months ended December 31, 2016.
Property and record impairment charges for amounts that we expect may not be recoverable as of the consolidated balance sheet date. Impairments and accelerated amortization related to advances were $1.1 million and $0.6 million for the three months ended December 31, 2017 and 2016, respectively. Impairments and accelerated amortization related to advances were $2.2 million and $1.4 million for the nine months ended December 31, 2017 and 2016, respectively.
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 years | |
Machinery and equipment | 3 - 10 years | |
Furniture and fixtures | 3 - |
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 shorter of the lease term or the estimated useful life of the leasehold improvements. Repairsoftware. Post-configuration training and maintenance costs are charged to expenseexpensed as incurred. Major renewals, improvementsWe 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 and Channel | 3 – 13 years | |||
Customer Relationships | 5 – 13 years | |||
Software | 10 years | |||
Trademarks and Tradenames | 2 – 15 years | |||
Supplier Agreements | 2 years |
The Company’s intangible assets included the following (in thousands):
|
| As of June 30, 2023 |
| |||||||||
|
| Cost Basis |
|
| Accumulated |
|
| Net |
| |||
Content Library |
| $ | 24,073 |
|
| $ | (21,176 | ) |
| $ | 2,897 |
|
Advertiser Relationships and Channel |
|
| 12,604 |
|
|
| (1,348 | ) |
|
| 11,256 |
|
Supplier Agreements |
|
| 11,430 |
|
|
| (11,430 | ) |
|
| - |
|
Customer Relationships |
|
| 8,690 |
|
|
| (7,668 | ) |
|
| 1,022 |
|
Software |
|
| 3,200 |
|
|
| (640 | ) |
|
| 2,560 |
|
Trademark and Tradenames |
|
| 4,026 |
|
|
| (2,573 | ) |
|
| 1,453 |
|
Total Intangible Assets |
| $ | 64,023 |
|
| $ | (44,835 | ) |
| $ | 19,188 |
|
|
| As of March 31, 2023 |
| |||||||||
|
| Cost Basis |
|
| Accumulated |
|
| 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)
During the three months ended June 30, 2023 and additions are capitalized. Upon2022, the sale or other dispositionCompany had amortization expense of any property and equipment,$0.7 million, respectively.
As of June 30, 2023, amortization expense is expected to be (in thousands):
| Total |
| ||
In-process intangible assets |
| $ | 1,888 |
|
Remainder of fiscal year 2024 |
|
| 2,404 |
|
2025 |
|
| 2,307 |
|
2026 |
|
| 2,040 |
|
2027 |
|
| 1,521 |
|
2028 |
|
| 1,246 |
|
Thereafter |
|
| 7,782 |
|
|
| $ | 19,188 |
|
Content Assets
The Company capitalizes direct costs incurred in the cost and related accumulated depreciation and amortization are removedproduction of content from which it expects to generate a return over the accountsanticipated useful life and the gainCompany’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 loss on disposallicense 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 within construction-in-process and will be amortized as a group are included in the condensed consolidated statements of operations.
(in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Restricted cash | $ | 1,000 | $ | — | — | $ | — | $ | 1,000 |
Impairment of their short-term nature. At December 31, 2017Long-lived and March 31, 2017, the estimated fair value of our fixed rate debt approximated its carrying amounts. We estimated the fair value of debt based upon current interest rates available to us at the respective balance sheet dates for arrangements with similar terms and conditions. Based on borrowing rates currently available to us for loans with similar terms, the carrying value of notes payable and capital lease obligations approximates fair value.
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'sasset’s fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted cash flows. DuringThere were no impairment charges recorded for long-lived and finite-lived intangible assets during the three and nine months ended December 31, 2017June 30, 2023 and 2016, no impairment charge was recorded from operations for long-lived assets or finite-lived assets.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 at the end of the fourth quarter of each fiscal year, or more often if warranted by events or changes in circumstances indicating that the carrying value of a reporting unit may exceed fair value, also known as impairment indicators. Our process of evaluating goodwill for impairment involves the determination of fair value of goodwill compared to its carrying value. Our only reporting unit with goodwill is our Content & Entertainment reporting unit.
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 goodwill impairment on 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 it was not more likely than not that the fair value of its reporting unit is less than its carrying amount.
No goodwill impairment charge was recorded in the three or nine months ended DecemberJune 30, 2023 and 2022.
Fair Value Measurements
The fair value measurement disclosures are grouped into three levels based on valuation factors:
The following tables summarize the levels of fair value measurements of our financial assets and liabilities (in thousands):
|
| As of June 30, 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 |
| $ | — |
|
| $ | — |
|
| $ | 1,526 |
|
| $ | 1,526 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,526 |
|
| $ | 1,526 |
|
|
| 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 |
|
The Company has accounted for its investment in A Metaverse Company ("Metaverse") (SEHK: 1616) under the equity method of accounting as the Company can exert significant influence over Metaverse with its direct ownership and affiliation with the Company’s majority shareholders. The Company has also made an irrevocable election to apply the fair value option under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 825-10, Financial Instruments, as it relates to its equity investment in Metaverse.
The Company previously used quoted trading price of the Stock Exchange of Hong Kong to measure the investment's fair value. Following the halting of Metaverse stock trading on the Stock Exchange of Hong Kong on April 1, 2022, the Company valued our equity investment in Metaverse using a market approach and the investment is categorized as a Level 3 valuation based on unobservable inputs.
13
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company estimated the fair value of Metaverse based on the last known enterprise value, adjusting for trends in enterprise valuations and market capitalization for comparable companies. As of June 30, 2023 and March 31, 20172023, the fair value was $5.2 million.
The Company estimated the fair value of its earnout consideration using contractual inputs from the related business combination, which established specific fiscal year revenue growth, profitability and 2016.EBITDA targets. The Company utilizes the most up to date forecast to estimate the outcome against these targets to determine the ultimate estimated payout. During the quarter ended June 30, 2023, the Company accrued interest of $30 thousand and an increase in the estimated earnout payments by $52 thousand based on fiscal year 2024 estimated performance.
Our cash and cash equivalents, accounts receivable, unbilled revenue, accounts payable and accrued expenses are financial instruments and are recorded at cost in the Condensed Consolidated Balance Sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature.
Prepaid and Other Current Assets
Prepaid and other current assets consisted of the following (in thousands):
| As of |
| ||||||
|
| June 30, |
|
| March 31, |
| ||
Amounts due from producers |
| $ | 5,878 |
|
| $ | 3,724 |
|
Other receivables |
|
| 125 |
|
|
| 420 |
|
Inventory |
|
| 165 |
|
|
| 207 |
|
Other prepayments |
|
| 1,469 |
|
|
| 1,107 |
|
Total prepaid and other current assets |
| $ | 7,637 |
|
| $ | 5,458 |
|
Amounts due from producers represents amounts prepaid to studios or content producers for which we provide content distribution services. We evaluate advances regularly for recoverability and record a provision for amounts that we expect may not be recoverable. The provision for advances were $0.2 million and $0.03 million for the three months ended June 30, 2023 and 2022, respectively.
Other prepayments generally relate to prepaid operating expenses, short term deposits and prepaid taxes.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following (in thousands):
| As of |
| ||||||
|
| June 30, |
|
| March 31, |
| ||
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 |
|
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 |
| ||||||
|
| 2023 |
|
| 2022 |
| |||
Streaming and digital |
|
| $ | 10,114 |
|
| $ | 9,503 |
|
Base distribution |
|
|
| 1,158 |
|
|
| 2,205 |
|
Podcast and other |
|
|
| 429 |
|
|
| 455 |
|
Other non-recurring |
|
|
| 1,279 |
|
|
| 1,427 |
|
Total revenue |
|
| $ | 12,980 |
|
| $ | 13,590 |
|
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:
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. 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 months ended June 30, 2023 and 2022, we did not recognize any credit losses as part of its ongoing operations or reversals of previously recorded provisions, and did not have any write-offs charged against the allowance.
15
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Contract Liabilities
We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability) when cash payments are received or due in advance of our performance, such as the sale of DVDs with future release dates, even if amounts are refundable. Amounts recorded as contract liabilities are generally not long-term in nature.
The ending deferred revenue balance, including current and non-current balances as of June 30, 2023 and March 31, 2023, was and $0.2 million and $0.2 million respectively. For the three months ended June 30, 2023, the additions to our deferred revenue balance were primarily 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 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 partiesthird-parties to distribute company-ownedcompany owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers.
Concentrations
For the three months ended June 30, 2023, one customer represented 28% of consolidated revenues. For the three months ended June 30, 2022, one customer represented approximately 19% and amortized over the termsanother customer represented approximately 13% of the respective debt obligations using the effective interest rate method. Debt issuance costs recorded in connection with revolving debt arrangements are presented as other assets on the Consolidated Balance Sheets and are amortized over the term of the revolving debt agreements using the effective interest rate method.consolidated revenues.
Direct Operating Costs
Direct operating costs primarily consist of operating costs such as cost of goods sold,revenue, fulfillment expenses, shipping costs, property taxes and insurance on systems, shipping costs, royalty expenses, impairments of advances participation expenses,and marketing and direct personnel costs.
Stock-based Compensation
The Company issues stock-based awards to employees and directornon-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 expense related to ourawards in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based awards was as follows:
Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Direct operating | $ | 47 | $ | 3 | $ | 60 | $ | 8 | ||||||||
Selling, general and administrative | 1,520 | 341 | 2,154 | 1,356 | ||||||||||||
$ | 1,567 | $ | 344 | $ | 2,214 | $ | 1,364 |
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and
16
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
carryforwards and for
Valuation allowances are established when management is unable to conclude that it is more likely than not that some portion,
The Tax CutsCompany 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 30, 2023 and Jobs Act (the "Act"March 31, 2023.
Earnings per Share ("EPS") was enacted in December 2017. Among other things,
Basic net income (loss) per share is computed based on the Act reducesweighted average number of shares of common stock outstanding during the U.S. federal corporate tax rate from 35 percentperiod. Diluted net income (loss) per share is computed by dividing the net income (loss) available to 21 percentcommon stockholders by the weighted-average number of common shares outstanding and eliminatespotentially dilutive common shares outstanding during the alternative minimum tax (“AMT”) for corporations. Sinceperiod. Potentially dilutive common shares include stock options and warrants outstanding during the deferred tax assets are expected to reverse in a future year, it has been tax effectedperiod, using the 21% federal corporate tax rate. As a resulttreasury stock method. Potentially dilutive common shares are excluded from the computations of the reduction in the corporatediluted income tax rate, we wrote down approximately $35.5 million of our gross deferred tax assets(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 valuation allowance as of December 31, 2017, which has no impact in our condensed consolidated financial statements for the three and nine months ended December 31, 2017.
Basic and diluted net loss per common share has been calculatedare computed as follows:follows (in thousands, except share and per share data):
| Three Months Ended |
| ||||||
| 2023 |
|
| 2022 |
| |||
Basic net loss per share: |
|
|
|
|
|
| ||
Net loss attributable to common stockholders |
| $ | (3,638 | ) |
|
| (6,093 | ) |
Shares used in basic computation: |
|
|
|
|
|
| ||
Weighted-average shares of common stock outstanding |
|
| 9,879 |
|
|
| 8,771 |
|
Basic net loss per share |
| $ | (0.37 | ) |
| $ | (0.69 | ) |
|
|
|
|
|
|
| ||
Shares used in diluted computation: |
|
|
|
|
|
| ||
Weighted-average shares of common stock outstanding |
|
| 9,879 |
|
|
| 8,771 |
|
Stock options and SARs |
|
| — |
|
|
| — |
|
Weighted-average number of shares |
|
| 9,879 |
|
|
| 8,771 |
|
Diluted net loss per share |
| $ | (0.37 | ) |
| $ | (0.69 | ) |
Included in the computation of basic EPS are the 516,667 pre-funded warrants which were issued and treasury stock repurchased during the period are weightedsold on June 16, 2023.
The calculation of diluted net loss per share for the portion of the period that they are outstanding. The shares to be repurchased in connection with the forward stock purchase transaction discussed in Note 5 -
17
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recently Issued Accounting Standards BoardPronouncements
The Company evaluates all Accounting Standard Updates ("FASB"ASUs") issued new accounting guidance on revenue recognition. The new standard, issued Accounting Standards Update ("ASU") as ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, providesbut not yet effective by FASB for a single five-step modelconsideration of their applicability. ASU's not included in the Company's disclosures were assessed and determined to be appliednot applicable and material to all revenue contracts with customers as well as requires additionalthe Company's consolidated financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. During 2016,statements or disclosures.
In July 2023, the FASB issued several accounting updates (ASUASU 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. 2016-08, 2016-10120, 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 2016-12) to clarify implementation guidance and correct unintended applicationwill be effective in the Company's second quarter of the guidance. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard. We plan to adopt Topic 606 effective the start of our 2019 fiscal year April2024, beginning July 1, 2018, but2023. The Company does not expect the process of evaluating theadoption to have a material impact if any, on our consolidated financial statements remains ongoing. During the third quarter we engaged outside assistance to support our ongoing assessment.statements.
3. OTHER INTERESTS
Investment in CDF2 Holdings
We indirectly own 100%100% of the common equity of CDF2 Holdings, LLC ("(“CDF2 Holdings"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 Systemssystems to digital technology by providing financing, equipment, installation and related ongoing services.
CDF2 Holdings is a Variable Interest Entity (“VIE”), as defined in Accounting Standards CodificationASC Topic 810 ("(“ASC 810"810”), “Consolidation."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. To be a primary beneficiary, an entity must have the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, among other factors. Although we indirectly, wholly own CDF2 Holdings, we, a third party that also has a variable interest in CDF2 Holdings, and an independent third party manager must mutually approve all business activities and transactions that significantly impact CDF2 Holdings' economic performance. We have therefore assessed our variable interests in CDF2 Holdings and determined that we are not the primary beneficiary of CDF2 Holdings. As a result, CDF2 Holdings' financial position and results of operations are not consolidated in our financial position and results of operations. In completing our assessment, we identified the activities that we consider most significant to the economic performance of CDF2 Holdings and determined that we do not have the power to direct those activities, and therefore we account for our investment in CDF2 Holdings under the equity method of accounting.
As of December 31, 2017June 30, 2023 and March 31, 2017,2023, 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 were $0.4was $0.0 million and $0.5 million as of December 31, 2017June 30, 2023 and March 31, 2017,2023, respectively, which are included in accounts receivable, net on the accompanying Condensed Consolidated Balance Sheets.
The accompanying Condensed Consolidated Statements of Operations includes $0.3include $0.0 million and $0.8($0.1) million respectively of digital cinema servicing revenue from CDF2 Holdings.
Total Stockholders'Stockholders’ Deficit of CDF2 Holdings at December 31, 2017June 30, 2023 and March 31, 20172023 was $24.3$59.2 million and $18.7$59.2 million, respectively. We have no obligation to fund the operating loss or the stockholders'stockholders’ deficit beyond our initial investment of $2.0$2.0 million and, accordingly, our investment in CDF2 Holdings as of December 31, 2017June 30, 2023 and March 31, 20172023 is carried at $0.
Investment in CONtv
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 CON TV, LLC, a worldwide digital network that creates original content, and sells and distributes on-demand digital contentother long-term assets on the Internetaccompanying Consolidated Balance Sheets. The investment in the Roundtable Securities was made in connection with a proposed collaboration with Roundtable regarding production and other consumer digital distribution platforms,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 gaming consoles, set-top boxes, handsets,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 tablets.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 30, 2023, the number of shares of Common Stock authorized for issuance was 275,000,000 shares.
During the three months ended June 30, 2023, the Company issued 2,337 shares of Common Stock. This is comprised of 2,150 thousand shares issued through a direct offering, 177 thousand issued in connection with ATM sales, 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. All pre-funded and common warrants were issued as immediately exercisable and remained outstanding as of June 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 30, 2022, the Company issued 5 thousand shares of Common Stock which consists of the issuance of Common Stock in payment of preferred stock dividends.
PREFERRED STOCK
Cumulative dividends in arrears on Series A Preferred Stock were $88 thousand as of June 30, 2023 and 2022. In the first quarter of fiscal year 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 also has 1 share of Series B Preferred Stock with no shares outstanding.
TREASURY STOCK
We have treasury stock, at cost, consisting of 66 thousand shares of Common Stock at June 30, 2023 and March 31, 2023.
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 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 thousand and $980 thousand, for the quarters ended June 30, 2023 and 2022, respectively, were recorded to Selling, General and Administrative expenses.
There was $0.1 million of stock-based compensation expense for the three months ended June 30, 2023 and 2022 related to Board of Directors compensation.
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 10 years from the date of grant, if unexercised. As of June 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% as of June 30, 2023. As of June 30, 2023 and March 31, 2023, a balance of $5.0 million was outstanding on the line of the Credit Facility. 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. During the three months ended June 30, 2023 and 2022, the Company had interest expense of $0.1 million and $0 related to the 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 thousand and $84 thousand during the three months ended June 30, 2023 and 2022, respectively.
The Company has recognized $44 thousand of sublease income related to its subleasing arrangement during the three months ended, June 30, 2023.
The table below presents the lease-related assets and liabilities recorded on our Consolidated Balance Sheets (in thousands):
|
| Classification on the Balance Sheet |
| June 30, |
|
| March 31, |
| ||
Assets |
|
|
|
|
|
|
|
| ||
Noncurrent |
| Other long-term assets |
| $ | 1,125 |
|
| $ | 1,265 |
|
Liabilities |
|
|
|
|
|
|
|
| ||
Current |
| Operating leases – current portion |
|
| 418 |
|
|
| 418 |
|
Noncurrent |
| Operating leases – long-term portion |
|
| 728 |
|
|
| 863 |
|
Total operating lease liabilities |
|
|
| $ | 1,146 |
|
| $ | 1,281 |
|
The table below presents the annual gross undiscounted cash flows related to the Company's operating lease commitments and subleasing arrangements (in thousands):
Fiscal year ending March 31, |
| Operating Lease Commitments |
|
| Sublease Payments |
| ||
2024 |
| $ | 337 |
|
| $ | 136 |
|
2025 |
|
| 415 |
|
|
| 154 |
|
2026 |
|
| 191 |
|
|
| — |
|
2027 |
|
| 201 |
|
|
| — |
|
2028 |
|
| 68 |
|
|
| — |
|
Thereafter |
|
| — |
|
|
| — |
|
7. INCOME TAXES
We calculate income tax expense based upon an annual effective tax rate forecast, including estimates and assumptions. We recorded income tax expense of approximately $20 thousand and $0 for the three months ended June 30, 2023 and 2022, respectively. Income tax expense recorded for the three and nine month periods ended December 31, 2017 and 2016 represent stateis attributable to taxable income taxes. 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 for the ninethree months ended December 31, 2017 and 2016 was negative 2.7% and negative 2.7%, respectively.
December 31, 2017 | March 31, 2017 | |||||||||||||||
(In thousands) | Current Portion | Long Term Portion | Current Portion | Long Term Portion | ||||||||||||
Prospect Loan | $ | — | $ | 40,212 | $ | — | $ | 54,656 | ||||||||
KBC Facilities | 2,553 | 408 | 5,744 | 2,890 | ||||||||||||
P2 Vendor Note | 357 | — | 227 | 181 | ||||||||||||
P2 Exhibitor Notes | 44 | — | 85 | 22 | ||||||||||||
Total non-recourse notes payable | 2,954 | 40,620 | 6,056 | 57,749 | ||||||||||||
Less: Unamortized debt issuance costs and debt discounts | — | (2,289 | ) | — | (2,701 | ) | ||||||||||
Total non-recourse notes payable, net of unamortized debt issuance costs and debt discounts | $ | 2,954 | $ | 38,331 | $ | 6,056 | $ | 55,048 | ||||||||
Bison Note Payable | — | 10,000 | — | — | ||||||||||||
5.5% Convertible Notes Due 2035 | — | — | — | 50,571 | ||||||||||||
Second Secured Lien Notes | — | 10,442 | — | 9,165 | ||||||||||||
Cinedigm Revolving Loans | 11,809 | — | 19,599 | — | ||||||||||||
2013 Notes | 5,000 | — | — | 5,000 | ||||||||||||
Total recourse notes payable | 16,809 | 20,442 | 19,599 | 64,736 | ||||||||||||
Less: Unamortized debt issuance costs and debt discounts | (318 | ) | (3,445 | ) | — | (5,340 | ) | |||||||||
Total recourse notes payable, net of unamortized debt issuance costs and debt discounts | $ | 16,491 | $ | 16,997 | $ | 19,599 | $ | 59,396 | ||||||||
Total notes payable, net of unamortized debt issuance costs | $ | 19,445 | $ | 55,328 | $ | 25,655 | $ | 114,444 |
(In thousands) | December 31, 2017 | March 31, 2017 | ||||||
Prospect Loan, at issuance | $ | 70,000 | $ | 70,000 | ||||
PIK Interest | 4,778 | 4,778 | ||||||
Payments to date | (34,566 | ) | (20,122 | ) | ||||
Prospect Loan, net | 40,212 | 54,656 | ||||||
Less current portion | — | — | ||||||
Total long term portion | $ | 40,212 | $ | 54,656 |
Outstanding Principal Balance | ||||||||||||||||||
Facility1 | Credit Facility | Interest Rate2 | Maturity Date | December 31, 2017 | March 31, 2017 | |||||||||||||
1 | $ | 22,336 | 3.75 | % | September 2018 | $ | — | $ | 3,758 | |||||||||
3 | 11,425 | 3.75 | % | March 2019 | 2,040 | 3,264 | ||||||||||||
4 | 6,450 | 3.75 | % | December 2018 | 921 | 1,612 | ||||||||||||
$ | 40,211 | $ | 2,961 | $ | 8,634 |
21 2018. The 2013 Notes bear interest at 9.0% per annum, payable in quarterly installments over the term of the 2013 Notes. The 2013 Notes may be redeemed at any time, subject to certain premiums.
Shares Under Option | Weighted Average Exercise Price Per Share | |||||
Balance at March 31, 2017 | 345,615 | $ | 16.03 | |||
Granted | — | — | ||||
Exercised | — | — | ||||
Canceled/forfeited | (7,300 | ) | 42.49 | |||
Balance at December 31, 2017 | 338,315 | $ | 15.57 |
Recipient | Amount outstanding | Expiration | Exercise price per share | ||||
Strategic management service provider | 52,500 | July 2021 | $17.20 - $30.00 | ||||
Warrants issued to creditors in connection with the 2013 Notes (the "2013 Warrants") | 125,063 | October 2018 | $18.50 | ||||
Warrants issued to Ronald L. Chez in connection with the Second Secured Lien Notes | 206,768 | July 2023 | $1.34 - $1.57 | ||||
Warrants issued in connection with Convertible Notes exchange transaction | 207,679 | December 2021 | $1.54 | ||||
5-year Warrant issued to Bison in connection with a term loan agreement | 1,400,000 | December 2022 | $1.80 |
December 31, | ||||||||
(in thousands) | 2017 | 2016 | ||||||
Cash interest paid | $ | 8,533 | $ | 12,193 | ||||
Accrued dividends on preferred stock | 89 | 178 | ||||||
Issuance of Class A common stock for payment of preferred stock dividends | 267 | 89 | ||||||
Issuance of Class A common stock in connection with Second Secured Lien Notes | — | 1,163 | ||||||
Issuance of Class A common stock and warrants to purchase Class A common stock in exchange for Convertible Notes | — | 3,838 | ||||||
Issuance of Second Lien Loans in connection with Convertible Notes exchange | 1,462 | — | ||||||
Issuance of warrants in connection with debt instruments | 1,084 | — | ||||||
Issuance of Class A common stock in exchange for the CEO's Second Lien Loans | 500 | — |
As of December 31, 2017 | ||||||||||||||||||||
(In thousands) | Intangible Assets, net | Goodwill | Total Assets | Notes Payable, Non-Recourse | Notes Payable | |||||||||||||||
Phase I Deployment | $ | 126 | $ | — | $ | 6,709 | $ | 37,923 | $ | — | ||||||||||
Phase II Deployment | — | — | 41,338 | 3,362 | — | |||||||||||||||
Services | — | — | 923 | — | — | |||||||||||||||
Content & Entertainment | 15,911 | 8,701 | 59,574 | — | — | |||||||||||||||
Corporate | 8 | — | 13,683 | — | 33,488 | |||||||||||||||
Total | $ | 16,045 | $ | 8,701 | $ | 122,227 | $ | 41,285 | $ | 33,488 |
As of March 31, 2017 | ||||||||||||||||||||||||
(In thousands) | Intangible Assets, net | Goodwill | Total Assets | Notes Payable, Non-Recourse | Notes Payable | Capital Leases | ||||||||||||||||||
Phase I Deployment | $ | 160 | $ | — | $ | 15,118 | $ | 51,955 | $ | — | $ | — | ||||||||||||
Phase II Deployment | — | — | 48,461 | 9,149 | — | — | ||||||||||||||||||
Services | — | — | 1,052 | — | — | — | ||||||||||||||||||
Content & Entertainment | 20,057 | 8,701 | 79,911 | — | — | 8 | ||||||||||||||||||
Corporate | 10 | — | 6,792 | — | 78,995 | 58 | ||||||||||||||||||
Total | $ | 20,227 | $ | 8,701 | $ | 151,334 | $ | 61,104 | $ | 78,995 | $ | 66 |
Statements of Operations | ||||||||||||||||||||||||
Three Months Ended December 31, 2017 | ||||||||||||||||||||||||
(Unaudited, in thousands) | ||||||||||||||||||||||||
Phase I | Phase II | Services | Content & Entertainment | Corporate | Consolidated | |||||||||||||||||||
Revenues | $ | 3,219 | $ | 3,193 | $ | 2,049 | $ | 10,031 | $ | — | $ | 18,492 | ||||||||||||
Direct operating (exclusive of depreciation and amortization shown below) | 337 | 94 | 28 | 5,904 | — | 6,363 | ||||||||||||||||||
Selling, general and administrative | 337 | 99 | 247 | 4,634 | 3,942 | 9,259 | ||||||||||||||||||
Allocation of Corporate overhead | — | — | 410 | 871 | (1,281 | ) | — | |||||||||||||||||
Provision for doubtful accounts | 452 | 182 | — | (3 | ) | — | 631 | |||||||||||||||||
Depreciation and amortization of property and equipment | 185 | 1,881 | — | 91 | 56 | 2,213 | ||||||||||||||||||
Amortization of intangible assets | 11 | — | — | 1,384 | — | 1,395 | ||||||||||||||||||
Total operating expenses | 1,322 | 2,256 | 685 | 12,881 | 2,717 | 19,861 | ||||||||||||||||||
Income (loss) from operations | $ | 1,897 | $ | 937 | $ | 1,364 | $ | (2,850 | ) | $ | (2,717 | ) | $ | (1,369 | ) |
Phase I | Phase II | Services | Content & Entertainment | Corporate | Consolidated | |||||||||||||||||||
Direct operating | $ | — | $ | — | $ | 28 | $ | 19 | $ | — | $ | 47 | ||||||||||||
Selling, general and administrative | — | — | 10 | 594 | 916 | 1,520 | ||||||||||||||||||
Total stock-based compensation | $ | — | $ | — | $ | 38 | $ | 613 | $ | 916 | $ | 1,567 |
Statements of Operations | ||||||||||||||||||||||||
Three Months Ended December 31, 2016 | ||||||||||||||||||||||||
(Unaudited, in thousands) | ||||||||||||||||||||||||
Phase I | Phase II | Services | Content & Entertainment | Corporate | Consolidated | |||||||||||||||||||
Revenues | $ | 7,266 | $ | 2,995 | $ | 2,625 | $ | 11,559 | $ | — | $ | 24,445 | ||||||||||||
Direct operating (exclusive of depreciation and amortization shown below) | 336 | 168 | 3 | 6,780 | — | 7,287 | ||||||||||||||||||
Selling, general and administrative | 158 | 62 | 227 | 3,910 | 1,738 | 6,095 | ||||||||||||||||||
Allocation of Corporate overhead | — | — | 399 | 906 | (1,305 | ) | — | |||||||||||||||||
Provision for doubtful accounts | 318 | 98 | — | — | — | 416 | ||||||||||||||||||
Restructuring, transition and acquisition expenses, net | — | — | — | — | 22 | 22 | ||||||||||||||||||
Depreciation and amortization of property and equipment | 4,136 | 1,881 | — | 69 | 185 | 6,271 | ||||||||||||||||||
Amortization of intangible assets | 11 | — | — | 1,383 | 1 | 1,395 | ||||||||||||||||||
Total operating expenses | 4,959 | 2,209 | 629 | 13,048 | 641 | 21,486 | ||||||||||||||||||
Income (loss) from operations | $ | 2,307 | $ | 786 | $ | 1,996 | $ | (1,489 | ) | $ | (641 | ) | $ | 2,959 |
Phase I | Phase II | Services | Content & Entertainment | Corporate | Consolidated | |||||||||||||||||||
Direct operating | $ | — | $ | — | $ | 3 | $ | — | $ | — | $ | 3 | ||||||||||||
Selling, general and administrative | — | — | 2 | 88 | 251 | 341 | ||||||||||||||||||
Total stock-based compensation | $ | — | $ | — | $ | 5 | $ | 88 | $ | 251 | $ | 344 |
Statements of Operations | ||||||||||||||||||||||||
Nine Months Ended December 31, 2017 | ||||||||||||||||||||||||
(Unaudited, in thousands) | ||||||||||||||||||||||||
Phase I | Phase II | Services | Content & Entertainment | Corporate | Consolidated | |||||||||||||||||||
Revenues | $ | 12,879 | $ | 8,845 | $ | 6,550 | $ | 21,736 | $ | — | $ | 50,010 | ||||||||||||
Direct operating (exclusive of depreciation and amortization shown below) | 888 | 284 | 38 | 13,260 | — | 14,470 | ||||||||||||||||||
Selling, general and administrative | 520 | 265 | 768 | 12,518 | 7,753 | 21,824 | ||||||||||||||||||
Allocation of Corporate overhead | — | — | 1,210 | 2,572 | (3,782 | ) | — | |||||||||||||||||
Provision for doubtful accounts | 1,360 | 223 | — | (3 | ) | — | 1,580 | |||||||||||||||||
Depreciation and amortization of property and equipment | 4,101 | 5,642 | — | 242 | 230 | 10,215 | ||||||||||||||||||
Amortization of intangible assets | 34 | — | — | 4,147 | 4 | 4,185 | ||||||||||||||||||
Total operating expenses | 6,903 | 6,414 | 2,016 | 32,736 | 4,205 | 52,274 | ||||||||||||||||||
Income (loss) from operations | $ | 5,976 | $ | 2,431 | $ | 4,534 | $ | (11,000 | ) | $ | (4,205 | ) | $ | (2,264 | ) |
Phase I | Phase II | Services | Content & Entertainment | Corporate | Consolidated | |||||||||||||||||||
Direct operating | $ | — | $ | — | $ | 36 | $ | 24 | $ | — | $ | 60 | ||||||||||||
Selling, general and administrative | — | — | 14 | 817 | 1,323 | 2,154 | ||||||||||||||||||
Total stock-based compensation | $ | — | $ | — | $ | 50 | $ | 841 | $ | 1,323 | $ | 2,214 |
Statements of Operations | ||||||||||||||||||||||||
Nine Months Ended December 31, 2016 | ||||||||||||||||||||||||
(Unaudited, in thousands) | ||||||||||||||||||||||||
Phase I | Phase II | Services | Content & Entertainment | Corporate | Consolidated | |||||||||||||||||||
Revenues | $ | 26,022 | $ | 9,448 | $ | 9,042 | $ | 26,288 | $ | — | $ | 70,800 | ||||||||||||
Direct operating (exclusive of depreciation and amortization shown below) | 770 | 270 | 6 | 16,834 | — | 17,880 | ||||||||||||||||||
Selling, general and administrative | 407 | 144 | 529 | 11,486 | 5,200 | 17,766 | ||||||||||||||||||
Allocation of Corporate overhead | — | — | 1,194 | 2,706 | (3,900 | ) | — | |||||||||||||||||
Provision for doubtful accounts | 318 | 98 | — | — | — | 416 | ||||||||||||||||||
Restructuring, transition and acquisition expenses, net | — | — | — | 87 | 45 | 132 | ||||||||||||||||||
Depreciation and amortization of property and equipment | 16,156 | 5,642 | — | 204 | 556 | 22,558 | ||||||||||||||||||
Amortization of intangible assets | 34 | — | — | 4,282 | 6 | 4,322 | ||||||||||||||||||
Total operating expenses | 17,685 | 6,154 | 1,729 | 35,599 | 1,907 | 63,074 | ||||||||||||||||||
Income (loss) from operations | $ | 8,337 | $ | 3,294 | $ | 7,313 | $ | (9,311 | ) | $ | (1,907 | ) | $ | 7,726 |
Phase I | Phase II | Services | Content & Entertainment | Corporate | Consolidated | |||||||||||||||||||
Direct operating | $ | — | $ | — | $ | 6 | $ | 2 | $ | — | $ | 8 | ||||||||||||
Selling, general and administrative | — | — | 3 | 181 | 1,172 | 1,356 | ||||||||||||||||||
Total stock-based compensation | $ | — | $ | — | $ | 9 | $ | 183 | $ | 1,172 | $ | 1,364 |
ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our historical consolidated financial statementsCondensed Consolidated Financial Statements and the related notes included elsewhere in this document.
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 significant role in the digital distribution revolution that continues to transform the media landscape. In addition to our pioneering role in transitioning over 12,000 movie screens from traditional analog film prints to digital distribution, we have becomepremier streaming technology and entertainment company with its core business (i) across a leadingportfolio of owned and operated enthusiast streaming channels with enthusiast fan bases; (ii) as a large-scale global aggregator and full-service distributor of independentfeature films and television programs; and (iii) as a proprietary technology software-as-a-service platform for over-the-top (“OTT”) app development and content bothdistribution through organic growthsubscription video on demand ("SVOD"), dedicated ad-supported ("AVOD"), ad-supported streaming linear ("FAST") channels, social video streaming services, and acquisitions.audio podcasts. We distribute products for major brands such as the Discovery Networks, National GeographicHallmark, Televisa, ITV, Nelvana, ZDF, Konami, NFL and Scholastic, as well as leading international and domestic content creators, movie producers, television producers and other short formshort-form digital content producers.
We report our financial resultsplayed a significant role in four primary segments as follows: (1) the first digital cinema deployment (“Phase I Deployment”), (2)distribution revolution that continues to transform the second digital cinema deployment (“Phase II Deployment”), (3) digital cinema services (“Services”) and (4) media content and entertainment group (“Content & Entertainment” or "CEG"). The Phase I Deployment and Phase II Deployment segments are the non-recourse, financing vehicles and administrators for our digital cinema equipment (the “Systems”) installedlandscape, playing a pioneering role in movie theatres throughout the United States, and in Australia and New Zealand. Our Services segment provides fee based support to overtransitioning approximately 12,000 movie screens in our Phase I Deployment, Phase II Deployment segments as well as directlyfrom traditional analog film prints to exhibitorsdigital distribution, and other third party customers inat the form of monitoring, billing, collection and verification services. Our Content & Entertainment segment is a market leader in: (1) ancillary market aggregation and distribution of entertainment content and; (2) branded and curated over-the-top ("OTT") digital network business providing entertainment channels and applications.
Financial Condition and Liquidity
As of December 31, 2017, all of our 3,724 systems in our Phase I Deployment segment had ceased to earn a significant portion of VPF revenue from certain major studios in our Phase I Deployment, although various other studios, consisting mostly of small independent studios, will continue to pay VPFs through December 2020. We expect to continue to earn such ancillary revenue fromJune 30, 2023, the Phase I Deployment Systems through December of 2020; however, such amounts are expected to be significantly less material to our consolidated financial statements. The reduction in VPF revenue on our Phase I Deployment systems approximately coincided with the conclusion of certain of our non-recourse debt obligations and, therefore, the reduced cash outflows related to such non-recourse debt obligations partially offset the reduced VPF revenue since November 2017.
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 Facility bears interest at a rate equal to 1.5% above the prime rate, 9.75% as of December 31, 2017. In addition, we have significant debt-related contractual obligations forJune 30, 2023. As of June 30, 2023, $5.0 million was outstanding on the fiscal year ending March 31, 2018 and beyond.
In addition,July 2020, we completed the exchanges under the Exchange Agreements for the remaining outstanding 5.5% Convertible Notes due 2035, (the "Convertible Notes") whereby $46.3 million principal amount of the Convertible Notes were exchanged for a combination of $17.1 million in cash and 2,221,457 shares of Class A Common Stock. The Convertible Notes were immediately retired.
22
to sell any shares under the ATM Sales Agreement. Any sales of shares made under the ATM Sales Agreement will be usedmade pursuant to an effective shelf registration statement, for working capital and general corporate purposes. In conjunction withan aggregate offering price of up to $30 million. During the Loan agreement,quarter ended June 30, 2023, the Company issuedsold 177 thousand shares 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 shares of common stock, 516,667 pre-funded warrants, and warrants to purchase 1,400,000up to 2,666,667 shares of the Company’s Class A 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 "Warrants").amount of $0.6 million. The Warrants have a 5-year termwarrants had an exercise price of $3.00 per share, were exercisable immediately and are immediately exercisable at $1.80 per share. The Warrants contain certain anti-dilution adjustments.will expire five years from the issuance. The Company valuedreceived $2.9990 per share for the Warrantspre-funded warrants, with the remaining $0.001 due at $1.1 million, on a relative fair value basis, using Black-Scholes Option Pricing Model assuming a 5-year life, a risk-free ratethe time of interestexercise. All 516,667 pre-funded warrants were subsequently exercised in July 2023 for total proceeds of 2.2% and an expected volatility of 74.3%.
We believe the combination of: (i) our cash and restricted cash equivalent balances, at December 31, 2017, which includes the net proceeds received from Bison for the issuanceand availability under our credit facility, as of 19,666,667 shares and from the Loan, (ii) implemented and planned cost reduction initiatives, (iii) retirement of the full outstanding amount of Convertible Notes, and (iv) expected cash flows from operationsJune 30, 2023 will be sufficient to satisfysupport our liquidity and capital requirementsoperations for at least a year after these consolidated interimtwelve 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 issued. 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 capital requirements will dependsignificant 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 many factors,Form 10-Q. Management believes that these policies are the most critical to aid in fully understanding and we mayevaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to developmake estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and formulate operating plansrelated disclosures with Bison to use available capital resources and raise additional capital. Failure to generate additional revenues, raise additional capital or manage discretionary spending could have an adverse effect onthe Audit Committee of our financial position, resultsBoard of operations and liquidity.
Results of Operations for the Three Months Ended December 31, 2017June 30, 2023 and 2016
Revenues
Three Months Ended December 31, | ||||||||||||||
($ in thousands) | 2017 | 2016 | $ Change | % Change | ||||||||||
Phase I Deployment | $ | 3,219 | $ | 7,266 | $ | (4,047 | ) | (56 | )% | |||||
Phase II Deployment | 3,193 | 2,995 | 198 | 7 | % | |||||||||
Services | 2,049 | 2,625 | (576 | ) | (22 | )% | ||||||||
Content & Entertainment | 10,031 | 11,559 | (1,528 | ) | (13 | )% | ||||||||
$ | 18,492 | $ | 24,445 | $ | (5,953 | ) | (24 | )% |
| For the Three Months Ended June 30, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Streaming and digital |
| $ | 10,114 |
|
| $ | 9,503 |
|
| $ | 611 |
|
|
| 6 | % |
Base distribution |
|
| 1,158 |
|
|
| 2,205 |
|
|
| (1,047 | ) |
|
| (47 | )% |
Podcast and other |
|
| 429 |
|
|
| 455 |
|
|
| (26 | ) |
|
| (6 | )% |
Other non-recurring |
|
| 1,279 |
|
|
| 1,427 |
|
|
| (148 | ) |
|
| (10 | )% |
Total Revenue |
| $ | 12,980 |
|
| $ | 13,590 |
|
| $ | (610 | ) |
|
| (4 | )% |
The Company's Streaming and therefore, have ceased to earn VPF revenues from certain major studios.
Three Months Ended December 31, | ||||||||||||||
($ in thousands) | 2017 | 2016 | $ Change | % Change | ||||||||||
Phase I Deployment | $ | 337 | $ | 336 | $ | 1 | — | % | ||||||
Phase II Deployment | 94 | 168 | (74 | ) | (44 | )% | ||||||||
Services | 28 | 3 | 25 | 833 | % | |||||||||
Content & Entertainment | 5,904 | 6,780 | (876 | ) | (13 | )% | ||||||||
$ | 6,363 | $ | 7,287 | $ | (924 | ) | (13 | )% |
Three Months Ended December 31, | ||||||||||||||
($ in thousands) | 2017 | 2016 | $ Change | % Change | ||||||||||
Phase I Deployment | $ | 337 | $ | 158 | $ | 179 | 113 | % | ||||||
Phase II Deployment | 99 | 62 | 37 | 60 | % | |||||||||
Services | 247 | 227 | 20 | 9 | % | |||||||||
Content & Entertainment | 4,634 | 3,910 | 724 | 19 | % | |||||||||
Corporate | 3,942 | 1,738 | 2,204 | 127 | % | |||||||||
$ | 9,259 | $ | 6,095 | $ | 3,164 | 52 | % |
23
The Company's $1.0 million decline in Base Distribution revenue for the quarter ended June 30, 2023 as compared to the officers and employeesquarter ended June 30, 2022 was primarily driven by a decline in conjunctionDVD-related sales.
Other non-recurring revenue relating to the Company's cinema equipment have materially concluded in line with the Bison transactiondesign of its underlying contracts. Following the completion of cost recoupment and consistentthe expiration of the exhibitor master license agreements applicable to this line of revenue, the digital system sales have continued its anticipated decrease in the amount of $0.9 million as compared to the three months ended June 30, 2022, from $1.2 million in the first quarter of fiscal 2023 to $0.3 million in the first quarter of fiscal 2024. During the quarter ended June 30, 2023, the Company also recognized $1 million of variable consideration following the resolution of uncertainty associated with the Management Annual Incentive Plan. In addition, stock-basedunderlying revenue related to its cinema equipment, as compared to $0 variable consideration recognized in the first 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 | )% |
The decrease in Direct Operating Expenses for the three months ended June 30, 2023 was indicative of the continued integration efforts with respect to the Company's acquisitions during fiscal year 2022, such as DMR, FoundationTV, and Bloody Disgusting.
Selling, General and Administrative Expenses
| For the Three Months Ended June 30, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Compensation expense |
| $ | 4,406 |
|
| $ | 5,515 |
|
| $ | (1,109 | ) |
|
| (20 | )% |
Corporate expenses |
|
| 1,701 |
|
|
| 2,329 |
|
|
| (628 | ) |
|
| (27 | )% |
Share-based compensation |
|
| 409 |
|
|
| 980 |
|
|
| (571 | ) |
|
| (58 | )% |
Other operating expenses |
|
| 1,372 |
|
|
| 994 |
|
|
| 378 |
|
|
| 38 | % |
Selling, General and Administrative |
| $ | 7,888 |
|
| $ | 9,818 |
|
| $ | (1,930 | ) |
|
| (20 | )% |
Selling, general and administrative expenses for the three months ended June 30, 2023 decreased by $1.9 million.
Compensation expenses decreased by $1.1 million primarily from a 26% reduction in the number of US-based workforce and an 11% reduction to the Company-wide workforce. Corporate expenses decreased by $0.6 million primarily as a result of cost savings and a decline in legal expenses. Share-based compensation expense increasedhas decreased by $1.2$0.5 million, as a result of accelerated vestingthe US-based workforce reduction. Other operating expenses increased by $0.4 million, primarily as a result of all stock optionsan increase in advertising, marketing and restricted stock on November 1, 2017 due to a change in control of the Company resulting from the Bison transaction.
Depreciation and Amortization Expense on Property and Equipment
Three Months Ended December 31, | ||||||||||||||
($ in thousands) | 2017 | 2016 | $ Change | % Change | ||||||||||
Phase I Deployment | $ | 185 | $ | 4,136 | $ | (3,951 | ) | (96 | )% | |||||
Phase II Deployment | 1,881 | 1,881 | — | — | % | |||||||||
Content & Entertainment | 91 | 69 | 22 | 32 | % | |||||||||
Corporate | 56 | 185 | (129 | ) | (70 | )% | ||||||||
$ | 2,213 | $ | 6,271 | $ | (4,058 | ) | (65 | )% |
| 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 | )% |
Depreciation and amortization expense decreased in our Phase I Deployment segment asprimarily due to substantially the majorityremainder of our digital cinema projection systems reachedreaching the conclusion of their ten-year useful lives through December 31, 2017. The balance of the decline, for the current quarter was in the Corporate segment due to reduced depreciation for assets under capital lease and leasehold improvements.
Three Months Ended December 31, | ||||||||||||||
($ in thousands) | 2017 | 2016 | $ Change | % Change | ||||||||||
Phase I Deployment | $ | 1,632 | $ | 2,566 | $ | (934 | ) | (36 | )% | |||||
Phase II Deployment | 50 | 262 | (212 | ) | (81 | )% | ||||||||
Corporate | 1,465 | 1,999 | (534 | ) | (27 | )% | ||||||||
$ | 3,147 | $ | 4,827 | $ | (1,680 | ) | (35 | )% |
24
Interest expense, in our Corporate segment also decreased as we paid off all of our $64net
Interest expense, net increased by $0.2 million convertible debt as of November 7, 2017.
Other expenses, net
During the three months ended June 30, 2023, the Company recognized $0.5 million of other expenses, net, primarily from credit and other run-off related charges associated with the wind-down of its legacy digital cinema segment.
Adjusted EBITDA
We define Adjusted EBITDA to be earnings before interest, taxes, depreciation and amortization, other income, net, stock-based compensation and expenses,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 itsour stockholders, as a valuable financial metric.
We present Adjusted EBITDA because we believe that Adjusted EBITDA is a useful supplement to net lossincome (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 lossincome (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 or net loss from continuing 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 consolidated financial statementsCondensed Consolidated Financial Statements prepared in accordance with GAAP.
25
Following is the reconciliation of our consolidated net loss to Adjusted EBITDA:
Three Months Ended December 31, | ||||||||
($ in thousands) | 2017 | 2016 | ||||||
Net loss | $ | (5,924 | ) | $ | (481 | ) | ||
Add Back: | ||||||||
Income tax expense | 113 | 33 | ||||||
Depreciation and amortization of property and equipment | 2,213 | 6,271 | ||||||
Amortization of intangible assets | 1,395 | 1,395 | ||||||
Gain on termination of capital lease | — | (2,535 | ) | |||||
Interest expense, net | 3,147 | 4,827 | ||||||
Debt conversion expense and loss on extinguishment of notes payable | 1,299 | 1,099 | ||||||
Other (income) expense, net | 1,491 | 126 | ||||||
Change in fair value of interest rate derivatives | (44 | ) | (39 | ) | ||||
Provision for doubtful accounts | 204 | 416 | ||||||
Stock-based compensation and expenses | 1,567 | 344 | ||||||
Restructuring, transition and acquisition expenses, net | — | 22 | ||||||
Net loss attributable to noncontrolling interest | 15 | 18 | ||||||
Adjusted EBITDA | $ | 5,476 | $ | 11,496 | ||||
Adjustments related to the Phase I and Phase II Deployments: | ||||||||
Depreciation and amortization of property and equipment | $ | (2,066 | ) | $ | (6,017 | ) | ||
Amortization of intangible assets | (11 | ) | (11 | ) | ||||
Provision for doubtful accounts | (208 | ) | (416 | ) | ||||
Other (income) expense, net | (59 | ) | — | |||||
Income from operations | (2,834 | ) | (3,093 | ) | ||||
Adjusted EBITDA from non-deployment businesses | $ | 298 | $ | 1,959 |
Nine Months Ended December 31, | ||||||||||||||
($ in thousands) | 2017 | 2016 | $ Change | % Change | ||||||||||
Phase I Deployment | $ | 12,879 | $ | 26,022 | $ | (13,143 | ) | (51 | )% | |||||
Phase II Deployment | 8,845 | 9,448 | (603 | ) | (6 | )% | ||||||||
Services | 6,550 | 9,042 | (2,492 | ) | (28 | )% | ||||||||
Content & Entertainment | 21,736 | 26,288 | (4,552 | ) | (17 | )% | ||||||||
$ | 50,010 | $ | 70,800 | $ | (20,790 | ) | (29 | )% |
Nine Months Ended December 31, | ||||||||||||||
($ in thousands) | 2017 | 2016 | $ Change | % Change | ||||||||||
Phase I Deployment | $ | 888 | $ | 770 | $ | 118 | 15 | % | ||||||
Phase II Deployment | 284 | 270 | 14 | 5 | % | |||||||||
Services | 38 | 6 | 32 | 533 | % | |||||||||
Content & Entertainment | 13,260 | 16,834 | (3,574 | ) | (21 | )% | ||||||||
$ | 14,470 | $ | 17,880 | $ | (3,410 | ) | (19 | )% |
Nine Months Ended December 31, | ||||||||||||||
($ in thousands) | 2017 | 2016 | $ Change | % Change | ||||||||||
Phase I Deployment | $ | 520 | $ | 407 | $ | 113 | 28 | % | ||||||
Phase II Deployment | 265 | 144 | 121 | 84 | % | |||||||||
Services | 768 | 529 | 239 | 45 | % | |||||||||
Content & Entertainment | 12,518 | 11,486 | 1,032 | 9 | % | |||||||||
Corporate | 7,753 | 5,200 | 2,553 | 49 | % | |||||||||
$ | 21,824 | $ | 17,766 | $ | 4,058 | 23 | % |
Nine Months Ended December 31, | ||||||||||||||
($ in thousands) | 2017 | 2016 | $ Change | % Change | ||||||||||
Phase I Deployment | $ | 4,101 | $ | 16,156 | $ | (12,055 | ) | (75 | )% | |||||
Phase II Deployment | 5,642 | 5,642 | — | — | % | |||||||||
Content & Entertainment | 242 | 204 | 38 | 19 | % | |||||||||
Corporate | 230 | 556 | (326 | ) | (59 | )% | ||||||||
$ | 10,215 | $ | 22,558 | $ | (12,343 | ) | (55 | )% |
Nine Months Ended December 31, | ||||||||||||||
($ in thousands) | 2017 | 2016 | $ Change | % Change | ||||||||||
Phase I Deployment | 5,403 | 8,123 | (2,720 | ) | (33 | )% | ||||||||
Phase II Deployment | 235 | 862 | (627 | ) | (73 | )% | ||||||||
Corporate | 5,525 | 5,888 | (363 | ) | (6 | )% | ||||||||
$ | 11,163 | $ | 14,873 | $ | (3,710 | ) | (25 | )% |
Nine Months Ended December 31, | ||||||||
($ in thousands) | 2017 | 2016 | ||||||
Net loss | $ | (18,541 | ) | $ | (5,539 | ) | ||
Add Back: | ||||||||
Income tax expense | 495 | 143 | ||||||
Depreciation and amortization of property and equipment | 10,215 | 22,558 | ||||||
Amortization of intangible assets | 4,185 | 4,322 | ||||||
Gain on termination of capital lease | — | (2,535 | ) | |||||
Interest expense, net | 11,163 | 14,873 | ||||||
Debt conversion expense and loss on extinguishment of notes payable | 4,504 | 1,099 | ||||||
Other (income) expense, net | 1,993 | (140 | ) | |||||
Change in fair value of interest rate derivatives | (127 | ) | (104 | ) | ||||
Provision for doubtful accounts | 597 | 416 | ||||||
Stock-based compensation and expenses | 2,214 | 1,364 | ||||||
Restructuring, transition and acquisition expenses, net | — | 132 | ||||||
Net loss attributable to noncontrolling interest | 32 | 54 | ||||||
Adjusted EBITDA | $ | 16,730 | $ | 36,643 | ||||
Adjustments related to the Phase I and Phase II Deployments: | ||||||||
Depreciation and amortization of property and equipment | $ | (9,743 | ) | $ | (21,798 | ) | ||
Amortization of intangible assets | (34 | ) | (34 | ) | ||||
Provision for doubtful accounts | (601 | ) | (416 | ) | ||||
Other (income) expense, net | (59 | ) | — | |||||
Income from operations | (8,407 | ) | (11,631 | ) | ||||
Adjusted EBITDA from non-deployment businesses | $ | (2,114 | ) | $ | 2,764 |
| For the Three Months Ended |
| ||||||
|
| 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 | ) |
Cash Flow
Changes in our cash flows were as follows:
For the Nine Months Ended December 31, | ||||||||
($ in thousands) | 2017 | 2016 | ||||||
Net cash provided by operating activities | $ | 14,096 | $ | 24,612 | ||||
Net cash used in investing activities | (534 | ) | (380 | ) | ||||
Net cash used in financing activities | (8,910 | ) | (32,882 | ) | ||||
Net change in cash and cash equivalents | $ | 4,652 | $ | (8,650 | ) |
| For the Three Months Ended |
| ||||||
|
| 2023 |
|
| 2022 |
| ||
Net used in provided by operating activities |
| $ | (3,260 | ) |
| $ | (1,198 | ) |
Net cash used in investing activities |
|
| (272 | ) |
|
| (61 | ) |
Net cash provided by (used in) financing activities |
|
| 8,509 |
|
|
| (284 | ) |
Net change in cash and cash equivalents |
| $ | 4,977 |
|
| $ | (1,543 | ) |
For the three months ended June 30, 2023, net cash and restricted cash balances of $18.2 million.
For the three months ended June 30, 2022, net cash used in operating activities was primarily driven by a net loss, after taking into account the exclusion of non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, including other changes in working capital fluctuations, we have a revolving line of credit that allows for borrowings of upcapital. Additionally, during the three months ended June 30, 2022, the Company increased accounts payable by $5.6 million to $11.8 million, of which no amount was available for borrowing as of December 31, 2017.
Payments Due | ||||||||||||||||||||
Contractual Obligations (in thousands) | Total | 2018 | 2019 & 2020 | 2021 & 2022 | Thereafter | |||||||||||||||
Long-term recourse debt | $ | 37,251 | $ | 16,809 | $ | 10,442 | $ | 10,000 | $ | — | ||||||||||
Long-term non-recourse debt (1) | 43,574 | 2,954 | 408 | 40,212 | — | |||||||||||||||
Capital lease obligations | 8 | 8 | — | — | — | |||||||||||||||
Debt-related obligations, principal | $ | 80,833 | $ | 19,771 | $ | 10,850 | $ | 50,212 | $ | — | ||||||||||
Interest on recourse debt | $ | 3,753 | $ | 1,404 | $ | 2,349 | $ | — | $ | — | ||||||||||
Interest on non-recourse debt (1) | 18,004 | 5,619 | 11,028 | 1,357 | — | |||||||||||||||
Interest on capital leases | — | — | — | — | — | |||||||||||||||
Total interest | $ | 21,757 | $ | 7,023 | $ | 13,377 | $ | 1,357 | $ | — | ||||||||||
Total debt-related obligations | $ | 102,590 | $ | 26,794 | $ | 24,227 | $ | 51,569 | $ | — | ||||||||||
Total non-recourse debt including interest | $ | 61,578 | $ | 8,573 | $ | 11,436 | $ | 41,569 | $ | — | ||||||||||
Operating lease obligations | $ | 4,226 | $ | 343 | $ | 2,070 | $ | 1,813 | $ | — |
26
Off-balance sheet arrangements
We are not a party to any off-balance sheet arrangements other than operating leasesas discussed in the ordinary courseNote 2 – Basis of business, which are disclosed above in the tablePresentation and Summary of our significant contractual obligations,Significant Accounting Policies, Basis of Presentation and CDF2 Holdings, LLC ("CDF2 Holdings"), our wholly owned unconsolidated subsidiary. As discussed further inConsolidation and Note 3 -
Item 4. CONTROLS AND PROCEDURES
Definition and operated, can provide only reasonable assurance, not absolute assurance that the objectiveLimitations of the control system will be met. Further, the design of a control system must reflect the fact that there are resource constraintsDisclosure Controls and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. Because of the inherent limitations in a cost-effective control system, misstatement due to error or
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 provide reasonable assurancereasonably 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 achieving their objectives.
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'sCompany’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))Act), as of December 31, 2017.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the last fiscal quarterthree months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
27
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, 2017.
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 as of August 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. 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 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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EXHIBIT INDEX
Exhibit Number | Description of Document |
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | Inline XBRL Instance Document. | |
101.SCH | Inline XBRL Taxonomy Extension | |
101.CAL | Inline XBRL Taxonomy Extension | |
101.DEF | Inline XBRL Taxonomy Extension | |
101.LAB | Inline XBRL Taxonomy Extension | |
101.PRE | Inline XBRL Taxonomy Extension | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CINEVERSE CORP. | ||||
Date: August 14, | By: | /s/ Christopher J. McGurk | ||
Christopher J. McGurk (Principal Executive Officer) | ||||
Date: August 14, 2023 | By: | /s/ | ||
John K. Canning | ||||
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