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 | |
224 W. 35th St.,Suite 500 #947,New York, NY 10001 | 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 | ||||
The Nasdaq Stock 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, 34,947,790November 7, 2023, 12,863,307 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 | 23 | |
Item 4. | 30 | ||
- OTHER INFORMATION | |||
Item 1. | 31 | ||
Item 1A. | 31 | ||
Item 2. | 31 | ||
Item 3. | 31 | ||
Item 4. | 31 | ||
Item 5. | 31 | ||
Item 6. | 32 | ||
32 | |||
33 |
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 |
| |||||
| September 30, |
|
| March 31, |
| |||
|
| (Unaudited) |
|
|
|
| ||
ASSETS |
|
|
|
|
|
| ||
Current Assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 8,620 |
|
| $ | 7,152 |
|
Accounts receivable |
|
| 12,377 |
|
|
| 20,846 |
|
Unbilled revenue |
|
| 2,423 |
|
|
| 2,036 |
|
Employee retention tax credit |
|
| 1,672 |
|
|
| 2,085 |
|
Content advances |
|
| 7,860 |
|
|
| 3,724 |
|
Other current assets |
|
| 1,550 |
|
|
| 1,734 |
|
Total current assets |
|
| 34,502 |
|
|
| 37,577 |
|
Equity investment in Metaverse, a related party, at fair value |
|
| 4,482 |
|
|
| 5,200 |
|
Property and equipment, net |
|
| 2,072 |
|
|
| 1,833 |
|
Intangible assets, net |
|
| 19,143 |
|
|
| 19,868 |
|
Goodwill |
|
| 20,824 |
|
|
| 20,824 |
|
Content advances, net of current portion |
|
| 2,617 |
|
|
| 1,421 |
|
Other long-term assets |
|
| 1,052 |
|
|
| 1,265 |
|
Total Assets |
| $ | 84,692 |
|
| $ | 87,988 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
| ||
Current Liabilities |
|
|
|
|
|
| ||
Accounts payable and accrued expenses |
| $ | 25,804 |
|
| $ | 34,531 |
|
Line of credit, including unamortized debt issuance costs of $96 and $76, respectively |
|
| 4,904 |
|
|
| 4,924 |
|
Current portion of deferred consideration on purchase of business |
|
| 3,742 |
|
|
| 3,788 |
|
Current portion of earnout consideration on purchase of business |
|
| 82 |
|
|
| 1,444 |
|
Operating lease liabilities |
|
| 432 |
|
|
| 418 |
|
Current portion of deferred revenue |
|
| 273 |
|
|
| 226 |
|
Total current liabilities |
|
| 35,237 |
|
|
| 45,331 |
|
Deferred consideration on purchase of business, net of current portion |
|
| 2,868 |
|
|
| 2,647 |
|
Operating lease liabilities, net of current portion |
|
| 645 |
|
|
| 863 |
|
Other long-term liabilities |
|
| 59 |
|
|
| 74 |
|
Total Liabilities |
|
| 38,809 |
|
|
| 48,915 |
|
Commitments and contingencies (see Note 6) |
|
|
|
|
|
| ||
Stockholders’ Equity |
|
|
|
|
|
| ||
Preferred stock, 15,000,000 shares authorized; Series A 10% - $0.001 par value per share; 20 shares authorized; 7 shares issued and outstanding, respectively, at September 30, 2023 and March 31, 2023. |
|
| 3,559 |
|
|
| 3,559 |
|
Common stock, $0.001 par value; Class A stock 275,000,000 shares authorized at September 30, 2023 and March 31, 2023, 13,079,143 and 9,413,597 shares issued and 12,790,590 and 9,347,805 shares outstanding at September 30, 2023 and March 31, 2023, respectively. |
|
| 192 |
|
|
| 185 |
|
Additional paid-in capital |
|
| 542,212 |
|
|
| 530,998 |
|
Treasury stock, at cost; 288,554 and 65,792 shares at September 30, 2023 and March 31, 2023, respectively. |
|
| (11,978 | ) |
|
| (11,608 | ) |
Accumulated deficit |
|
| (486,477 | ) |
|
| (482,395 | ) |
Accumulated other comprehensive loss |
|
| (414 | ) |
|
| (402 | ) |
Total stockholders’ equity of Cineverse Corp. |
|
| 47,094 |
|
|
| 40,337 |
|
Deficit attributable to noncontrolling interest |
|
| (1,210 | ) |
|
| (1,264 | ) |
Total equity |
|
| 45,883 |
|
|
| 39,073 |
|
Total Liabilities and Equity |
| $ | 84,692 |
|
| $ | 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 September 30, |
|
| Six Months Ended |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Revenues | $ | 13,012 |
|
| $ | 14,006 |
|
| $ | 25,992 |
|
| $ | 27,596 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
| ||||
Direct operating |
| 4,646 |
|
|
| 8,092 |
|
|
| 11,633 |
|
|
| 15,448 |
|
Selling, general and administrative |
| 6,827 |
|
|
| 9,641 |
|
|
| 14,715 |
|
|
| 19,459 |
|
Depreciation and amortization |
| 953 |
|
|
| 984 |
|
|
| 1,775 |
|
|
| 1,984 |
|
Total operating expenses |
| 12,426 |
|
|
| 18,717 |
|
|
| 28,123 |
|
|
| 36,891 |
|
Operating income (loss) |
| 586 |
|
|
| (4,711 | ) |
|
| (2,131 | ) |
|
| (9,295 | ) |
Interest expense |
| (195 | ) |
|
| (380 | ) |
|
| (490 | ) |
|
| (513 | ) |
Decrease in fair value of equity investment in Metaverse, a related party |
| (718 | ) |
|
| (572 | ) |
|
| (718 | ) |
|
| (1,828 | ) |
Other income (expense), net |
| 26 |
|
|
| 8 |
|
|
| (478 | ) |
|
| (6 | ) |
Net loss before income taxes |
| (301 | ) |
|
| (5,655 | ) |
|
| (3,817 | ) |
|
| (11,642 | ) |
Income tax expense |
| (16 | ) |
|
| — |
|
|
| (36 | ) |
|
| — |
|
Net loss |
| (317 | ) |
|
| (5,655 | ) |
|
| (3,853 | ) |
|
| (11,642 | ) |
Net income attributable to noncontrolling interest |
| (40 | ) |
|
| (9 | ) |
|
| (53 | ) |
|
| (27 | ) |
Net loss attributable to controlling interests |
| (357 | ) |
|
| (5,664 | ) |
|
| (3,906 | ) |
|
| (11,669 | ) |
Preferred stock dividends |
| (88 | ) |
|
| (88 | ) |
|
| (176 | ) |
|
| (176 | ) |
Net loss attributable to common stockholders | $ | (445 | ) |
| $ | (5,752 | ) |
| $ | (4,082 | ) |
| $ | (11,845 | ) |
|
|
|
|
|
|
|
|
|
|
| |||||
Net loss per share attributable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic | $ | (0.04 | ) |
| $ | (0.65 | ) |
| $ | (0.37 | ) |
| $ | (1.34 | ) |
Diluted | $ | (0.04 | ) |
| $ | (0.65 | ) |
| $ | (0.37 | ) |
| $ | (1.34 | ) |
Weighted average shares of Common Stock outstanding: |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| 12,376 |
|
|
| 8,845 |
|
|
| 11,118 |
|
|
| 8,808 |
|
Diluted |
| 12,376 |
|
|
| 8,845 |
|
|
| 11,118 |
|
|
| 8,808 |
|
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 September 30, |
|
| Six Months Ended |
| |||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| |||||
Net loss |
| $ | (317 | ) |
| $ | (5,655 | ) |
| $ | (3,853 | ) |
| $ | (11,642 | ) |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign exchange translation |
|
| 66 |
|
|
| (362 | ) |
|
| (12 | ) |
|
| (314 | ) |
Comprehensive income attributable to noncontrolling interest |
|
| (40 | ) |
|
| (9 | ) |
|
| (53 | ) |
|
| (27 | ) |
Comprehensive loss |
| $ | (291 | ) |
| $ | (6,026 | ) |
| $ | (3,918 | ) |
| $ | (11,983 | ) |
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 |
| Six Months Ended |
| ||||||
| 2023 |
|
| 2022 |
| |||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (3,853 | ) |
| $ | (11,642 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 1,775 |
|
|
| 1,984 |
|
Allowance for prepaid advances |
|
| (478 | ) |
|
| 614 |
|
Changes in fair value of equity investment in Metaverse |
|
| 718 |
|
|
| 1,828 |
|
Amortization of debt issuance costs |
|
| 76 |
|
|
| 12 |
|
Stock-based compensation |
|
| 909 |
|
|
| 3,198 |
|
Interest expense for deferred consideration and earnouts |
|
| 256 |
|
|
| 495 |
|
Capitalized content |
|
| (821 | ) |
|
| — |
|
Change in estimated earnout consideration |
|
| (711 | ) |
|
| — |
|
Barter-related non-cash expenses |
|
| 170 |
|
|
| — |
|
Other |
|
| 388 |
|
|
| 47 |
|
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
| ||
Accounts receivable |
|
| 7,856 |
|
|
| 5,857 |
|
Other current and long-term assets |
|
| 1,054 |
|
|
| (2,572 | ) |
Content advances |
|
| (5,332 | ) |
|
| (382 | ) |
Accounts payable, accrued expenses, and other liabilities |
|
| (7,842 | ) |
|
| (5,494 | ) |
Unbilled revenue |
|
| (387 | ) |
|
| (298 | ) |
Deferred revenue |
|
| 47 |
|
|
| 74 |
|
Net cash used in operating activities |
| $ | (6,174 | ) |
| $ | (6,279 | ) |
Cash flows from investing activities: |
|
|
|
|
|
| ||
Expenditures for long-lived assets |
|
| (515 | ) |
|
| (274 | ) |
Net cash used in investing activities |
| $ | (515 | ) |
| $ | (274 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Payments of notes payable |
|
| — |
|
|
| (443 | ) |
Proceeds from line of credit, net of debt issuance costs |
|
| 13,761 |
|
|
| 3,610 |
|
Payments on line of credit |
|
| (13,761 | ) |
|
| — |
|
Payment of earnout consideration |
|
| (291 | ) |
|
| — |
|
Financing fees for line of credit |
|
| (95 | ) |
|
| — |
|
Issuance of Class A common stock, net of issuance costs |
|
| 8,543 |
|
|
| — |
|
Net cash provided by financing activities |
| $ | 8,157 |
|
| $ | 3,167 |
|
Net change in cash and cash equivalents |
|
| 1,468 |
|
|
| (3,386 | ) |
Cash and cash equivalents at beginning of period |
|
| 7,152 |
|
|
| 13,062 |
|
Cash and cash equivalents at end of period |
| $ | 8,620 |
|
| $ | 9,676 |
|
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)
| Six Months Ended |
| ||||||
|
| 2023 |
|
| 2022 |
| ||
Cash interest paid |
| $ | 150 |
|
| $ | - |
|
Lease liability related payments |
| $ | 221 |
|
| $ | - |
|
Income taxes paid |
| $ | 44 |
|
| $ | - |
|
Noncash investing and financing activities: |
|
|
|
|
|
| ||
Issuance of Class A common stock for payment of employee bonuses |
| $ | 1,203 |
|
| $ | - |
|
Treasury shares acquired for withholding taxes |
| $ | 370 |
|
| $ | - |
|
Earnout liability settled in stock |
| $ | 392 |
|
| $ | 238 |
|
Accrued dividends on preferred stock |
| $ | 176 |
|
| $ | 176 |
|
Issuance of Class A common stock for payment of accrued preferred stock dividends |
| $ | 176 |
|
| $ | 176 |
|
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 Class A common stock in connection with ATM raises, net |
| — |
|
|
| — |
|
|
| 177 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 1,065 |
|
|
| — |
|
|
| — |
|
|
| 1,069 |
|
|
| — |
|
|
| 1,069 |
|
Issuance of Class A common stock in connection with direct equity offering |
| — |
|
|
| — |
|
|
| 2,150 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 7,437 |
|
|
| — |
|
|
| — |
|
|
| 7,439 |
|
|
| — |
|
|
| 7,439 |
|
Preferred stock dividends paid in stock |
| — |
|
|
| — |
|
|
| 10 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| 88 |
|
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 |
|
Foreign exchange translation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 66 |
|
|
| 66 |
|
|
| — |
|
|
| 66 |
|
Stock-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 499 |
|
|
| — |
|
|
| — |
|
|
| 499 |
|
|
| — |
|
|
| 499 |
|
Issuance of Class A common stock in connection employee bonuses |
| — |
|
|
| — |
|
|
| 725 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1,203 |
|
|
| — |
|
|
| — |
|
|
| 1,203 |
|
|
| — |
|
|
| 1,203 |
|
Estimated fee decrease associated with equity issuance |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 33 |
|
|
| — |
|
|
| — |
|
|
| 33 |
|
|
| — |
|
|
| 33 |
|
Issuance in connection with the exercise of warrants |
| — |
|
|
| — |
|
|
| 517 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Issuance of Class A common stock for earnout commitment |
| — |
|
|
| — |
|
|
| 41 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 392 |
|
|
| — |
|
|
| — |
|
|
| 392 |
|
|
| — |
|
|
| 392 |
|
Treasury stock in connection with taxes withheld from employees |
| — |
|
|
| — |
|
|
| (223 | ) |
|
| — |
|
|
| 223 |
|
|
| (370 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (370 | ) |
|
| — |
|
|
| (370 | ) |
Preferred stock dividends paid in stock |
| — |
|
|
| — |
|
|
| 46 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| 88 |
|
Preferred stock dividends accrued |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (87 | ) |
|
| — |
|
|
| (87 | ) |
|
| — |
|
|
| (87 | ) |
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (357 | ) |
|
| — |
|
|
| (357 | ) |
|
| 40 |
|
|
| (317 | ) |
Balances as of September 30, 2023 |
| 1 |
|
| $ | 3,559 |
|
|
| 12,791 |
|
| $ | 192 |
|
|
| 289 |
|
| $ | (11,978 | ) |
|
| 542,212 |
|
|
| (486,477 | ) |
| $ | (414 | ) |
| $ | 47,093 |
|
| $ | (1,210 | ) |
| $ | 45,883 |
|
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 |
|
Foreign exchange translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (362 | ) |
|
| (362 | ) |
|
| — |
|
|
| (362 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 791 |
|
|
| — |
|
|
| — |
|
|
| 791 |
|
|
| — |
|
|
| 791 |
|
Preferred stock dividends paid in stock |
|
| — |
|
|
| — |
|
|
| 9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| 88 |
|
Issuance of Class A common stock in connection with performance stock units and annual incentive awards, net of employee payroll taxes |
|
| — |
|
|
| — |
|
|
| 103 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 871 |
|
|
| — |
|
|
| — |
|
|
| 873 |
|
|
| — |
|
|
| 873 |
|
Issuance of Class A common stock for earnout commitment |
|
| — |
|
|
| — |
|
|
| 17 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 238 |
|
|
| — |
|
|
| — |
|
|
| 238 |
|
|
| — |
|
|
| 238 |
|
Preferred stock dividends accrued |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| (88 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,664 | ) |
|
| — |
|
|
| (5,664 | ) |
|
| 9 |
|
|
| (5,655 | ) |
Balances as of September 30, 2022 |
|
| 1 |
|
| $ | 3,559 |
|
|
| 8,900 |
|
| $ | 176 |
|
|
| 66 |
|
| $ | (11,608 | ) |
| $ | 525,657 |
|
| $ | (484,155 | ) |
| $ | (477 | ) |
| $ | 33,152 |
|
| $ | (1,276 | ) |
| $ | 31,876 |
|
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. We areSince our inception, we have played a significant role in the digital distribution revolution that continues to transform the media and entertainment landscape.
Cineverse is a premier streaming technology and entertainment company with its core business operating as (i) a portfolio of owned and operated enthusiast streaming channels with enthusiast fan bases; (ii) a large-scale global aggregator and full-service distributor of feature films and television programs; and (iii) a proprietary technology software-as-a-service platform for over-the-top (“OTT”) app development and content distribution through subscription video on demand ("SVOD"), dedicated ad-supported ("AVOD"), ad-supported streaming linear ("FAST") channels, social video streaming services, and audio podcasts. We distribute products for major brands such as Hallmark, 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") installed in movie theatres throughoutis listed on the United States,Nasdaq Capital Market (“Nasdaq”) under the symbol “CNVS.” On June 30, 2023, Cineverse Corp. was notified by Nasdaq that the Company has regained compliance with the $1.00 bid price requirement for continued listing on The Nasdaq Capital Market. The Company remains subject to a one-year “Panel Monitor” as that term is defined by Nasdaq Listing Rule 5815(d)(4)(A).
Financial Condition and in AustraliaLiquidity
We have a history of net losses, and New Zealand. Our Services segment provides fee based supportfor the six months ended September 30, 2023, we had a net loss attributable to over 12,000 movie screens in our Phase I Deployment and Phase II Deployment segments, as well as directly to exhibitors and other third party customers,common stockholders in the formamount of monitoring, billing, collection and verification services. Our Content & Entertainment segment is focused on: (1) ancillary market aggregation and distribution of entertainment content and; (2) a branded and curated over-the-top ("OTT"$(4.1) digital network business, providing entertainment channels and applications.
The Company is party to a Loan, Guaranty, and beyond.
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.
8
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the three months ended September 30, 2023, the Company also issueddid not sell any shares under this agreement. For the six months ended September 30, 2023, the Company sold 177 thousand shares for $1.1 million in net proceeds, respectively, after deduction of commissions and fees.
On June 16, 2023, the Company closed on the sale of 2,150 thousand shares of Common Stock, 517 thousand pre-funded warrants, and warrants to purchase 1,400,000up to 2,667 thousand shares of Common Stock at a combined public offering price of $3.00 per share and accompanying warrant for aggregate gross proceeds of approximately $7.4 million, after deducting placement agent fees and other offering expenses in the Company’s Class A commonamount of $0.6 million. The warrants had an exercise price of $3.00 per share, were exercisable immediately and will expire five years from the issuance. The Company received $2.999 per share for the pre-funded warrants, with the remaining $0.001 due at the time of exercise. All 516,667 pre-funded warrants were subsequently exercised in July 2023 for total proceeds of $0.5 thousand.
In addition, the Company remains authorized to purchase up to an aggregate of 500 thousand shares of its outstanding Common Stock, following the announcement of a stock (the “Warrants”). See Note 6 -
The Company will continue to invest in content development and acquisition, from which it believes it will obtain an appropriate return on its investment. As of the Warrants.
We believe the combination of: (i) our cash and restricted cash balances at December 31, 2017, which includes the net proceeds received from Bison for the issuanceequivalents and 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 operationsSeptember 30, 2023, 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. Certain columns and rows may not add due to the use of rounded numbers.
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 credit losses, returns and recovery reserves, goodwill and intangible asset impairments, share-based compensation expense, valuation allowance for deferred income taxes and amortization of intangible assets. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On a regular basis, the Company evaluates the assumptions, judgments and estimates. Actual results may differ from these estimates.
9
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We own an 85% interest in CON TV, LLC ("CONtv"), a worldwide digital network that creates original content, and sells and distributes on-demand digital content on the internet and other consumer digital distribution platforms, such as gaming consoles, set-top boxes, handsets, and tablets. We evaluated the investment under the voting interest entity model and determined that the entity should be readconsolidated as we have a controlling financial interest in conjunction withthe entity through our annual consolidated financial statementsownership of outstanding voting shares, and that other equity holders do not have substantive voting, participating or liquidation rights. The non-controlling equity holders have rights equal to 10.5% of outstanding profit interest units retained by the notes thereto, includednoncontrolling interests.
Accounting Policies
There have been no material changes in ourthe 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 tax credit losses on accounts receivable. We review("ERTC") which 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.
The Company has received notification during the second quarter of fiscal year 2024 that we expect may not be recoverable asits ERTC claim is under audit with the Internal Revenue Service ("IRS"). As of the consolidated balance sheet date. Impairmentsdate of this report, the audit is ongoing, and accelerated amortization relatedthe Company is responding to advances were $1.1 millionaudit requests as they arise.
10
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Property 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 | 3 - 5 years | |
Machinery and equipment | 3 - 10 years | |
Furniture and fixtures | 2 - |
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 | |
Trademarks and Tradenames | 2 – 15 years | |
Customer Relationships | 5 – 13 years | |
Advertiser Relationships and Channel | 2 – 13 years | |
Software | 10 years | |
Capitalized Content | 3 years | |
Supplier Agreements | 2 years |
The Company’s intangible assets included the following (in thousands):
|
| As of September 30, 2023 |
| |||||||||
|
| Cost Basis |
|
| Accumulated |
|
| Net |
| |||
Content Library |
| $ | 24,096 |
|
| $ | (21,280 | ) |
| $ | 2,816 |
|
Advertiser Relationships and Channel |
|
| 12,604 |
|
|
| (1,719 | ) |
|
| 10,885 |
|
Customer Relationships |
|
| 8,690 |
|
|
| (7,736 | ) |
|
| 954 |
|
Software |
|
| 3,200 |
|
|
| (720 | ) |
|
| 2,480 |
|
Trademark and Tradenames |
|
| 4,026 |
|
|
| (2,814 | ) |
|
| 1,212 |
|
Capitalized Content |
|
| 821 |
|
|
| (25 | ) |
|
| 796 |
|
Total Intangible Assets |
| $ | 53,437 |
|
| $ | (34,295 | ) |
| $ | 19,143 |
|
11
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| 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 |
|
Customer Relationships |
|
| 8,690 |
|
|
| (7,600 | ) |
|
| 1,090 |
|
Trademark and Tradenames |
|
| 4,026 |
|
|
| (2,274 | ) |
|
| 1,752 |
|
Software |
|
| 3,200 |
|
|
| (560 | ) |
|
| 2,640 |
|
Total Intangible Assets |
| $ | 52,490 |
|
| $ | (32,622 | ) |
| $ | 19,868 |
|
During the three and additions are capitalized. Uponsix months ended September 30, 2023, the sale or other dispositionCompany had amortization expense of any property$804 thousand and equipment,$1,502 thousand, respectively. During the costthree and related accumulated depreciationsix months ended September 30, 2022, the Company had amortization expense of $736 thousand and $1,480 thousand, respectively.
As of September 30, 2023, amortization are removedexpense is expected to be (in thousands):
| Total |
| ||
In-process intangible assets |
| $ | 411 |
|
Remainder of fiscal year 2024 |
|
| 2,005 |
|
2025 |
|
| 2,851 |
|
2026 |
|
| 2,669 |
|
2027 |
|
| 1,742 |
|
2028 |
|
| 1,356 |
|
Thereafter |
|
| 8,109 |
|
|
| $ | 19,143 |
|
Capitalized Content
The Company capitalizes direct costs incurred in the production 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 included ina significant change to 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 ninesix months ended December 31, 2017September 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.
12
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current economic indicators and market conditions, and assumptions about our strategic plans with regard to its operations. To the extent additional information arises, market conditions change, or our strategies change, it is possible that the conclusion regarding whether our remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material effect on our consolidated financial position or results of operations.
The Company has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or to perform the quantitative impairment test. The Company annually assesses goodwill for potential impairment during its fourth fiscal quarter, or sooner if event occurs or circumstances would indicate it would be more likely than not that fair value would be reduced below its carrying amount. No goodwill impairment charge was recorded in the three or nineand six months ended September 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 September 30, 2023 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equity investment in Metaverse, at fair value |
| $ | — |
|
| $ | — |
|
| $ | 4,482 |
|
| $ | 4,482 |
|
| $ | — |
|
| $ | — |
|
| $ | 4,482 |
|
| $ | 4,482 |
| |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current portion of earnout consideration on purchase of a business |
| $ | — |
|
| $ | — |
|
| $ | 82 |
|
| $ | 82 |
|
| $ | — |
|
| $ | — |
|
| $ | 82 |
|
| $ | 82 |
|
|
| As of March 31, 2023 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equity investment in Metaverse, at fair value |
|
|
|
| $ | — |
|
| $ | 5,200 |
|
| $ | 5,200 |
| |
| $ | — |
|
| $ | — |
|
| $ | 5,200 |
|
| $ | 5,200 |
| |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current portion of earnout consideration on purchase of a business |
| $ | — |
|
| $ | — |
|
| $ | 1,444 |
|
| $ | 1,444 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,444 |
|
| $ | 1,444 |
|
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
13
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
ownership of approximately 17% and affiliation with the Company’s largest shareholder. 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 the quoted trading price of Metaverse on the Stock Exchange of Hong Kong Limited to measure the investment's fair value. Following the halting of Metaverse stock trading on the Stock Exchange of Hong Kong Limited on April 1, 2022, the Company valued our equity investment in Metaverse using a market approach and the investment is categorized as a Level 3 valuation based on unobservable inputs.
In taking steps to resume trading, during three months ended September 30, 2023, Metaverse published its interim results for the half year ended June 30, 2022, its year-ended December 31, 20172022, and 2016.its interim results for the half year ended June 30, 2023.
The Company estimated the fair value of Metaverse based the last known enterprise value, adjusting for trends in enterprise valuations and market capitalization for comparable companies. As of September 30, 2023, and March 31, 2023, the fair value was $4.5 million and $5.2 million, respectively. This decline in fair value, which accounts for the change since March 31, 2023 is recognized within the "Decrease in fair value of equity investment in Metaverse, a related party" line item within the Condensed Consolidated Statements of Operations.
On November 6, 2023, Metaverse's stock resumed trading on The Stock Exchange of Hong Kong Limited. The Company will consider the quoted price of Metaverse's stock to measure fair value as of the date which Metaverse resumed trading and onward.
The Company estimated the fair value of its earnout consideration using contractual inputs from the related business combination, which established specific fiscal year revenue growth, profitability and EBITDA targets. The Company utilizes the most up to date forecast to estimate the outcome against these targets to determine the ultimate estimated payout. During the six months ended September 30, 2023, the Company estimated a $710 thousand decrease in the estimated ultimate earnout payments based on Bloody Disgusting's performance, made cash payments of $291 thousand, and issued equity to settle earnout liability of $391 thousand, and accrued interest of $29 thousand.
Our cash and cash equivalents, accounts receivable, unbilled revenue, accounts payable and accrued expenses are financial instruments and are recorded at cost in the Condensed Consolidated Balance Sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature.
Content Advances
Content advances represents amounts prepaid to studios or content producers for which we provide content distribution services. We evaluate advances regularly for recoverability and record a provision for amounts that we expect may not be recoverable. Amounts which are expected to be recovered in more than 12 months are classified as long term and presented within content advances, net of current portion, which were $2.6 million and $1.4 million as of September 30, 2023 and March 31, 2023, respectively. For the six months ended September 30, 2023, the Company recorded a decrease in the provision for advances of $0.5 million.
14
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following (in thousands):
| As of |
| ||||||
|
| September 30, |
|
| March 31, |
| ||
Accounts payable |
| $ | 8,074 |
|
| $ | 15,042 |
|
Amounts due to producers |
|
| 12,763 |
|
|
| 13,114 |
|
Accrued compensation and benefits |
|
| 1,672 |
|
|
| 2,532 |
|
Accrued other expenses |
|
| 3,295 |
|
|
| 3,843 |
|
Total accounts payable and accrued expenses |
| $ | 25,804 |
|
| $ | 34,531 |
|
During the six months ended September 30, 2023, the Company settled its fiscal year 2023 bonus accrual of $1.2 million, recorded within Accrued compensation and benefits as of March 31, 2023, by issuing shares of Common Stock.
Revenue Recognition
Payment terms and conditions vary by customer and typically provide net 30 to 90 day terms. We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and payment for that product or service will be one year or less.
The following tables present the Company’s disaggregated revenue by source (in thousands):
Three Months Ended |
|
| Six Months Ended |
| |||||||||||
2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| |||||
Streaming and digital | $ | 9,355 |
|
| $ | 10,275 |
|
| $ | 19,469 |
|
| $ | 19,778 |
|
Base distribution |
| 560 |
|
|
| 818 |
|
|
| 1,718 |
|
|
| 3,023 |
|
Podcast and other |
| 660 |
|
|
| 308 |
|
|
| 1,089 |
|
|
| 763 |
|
Other non-recurring |
| 2,437 |
|
|
| 2,605 |
|
|
| 3,716 |
|
|
| 4,032 |
|
Total revenue | $ | 13,012 |
|
| $ | 14,006 |
|
| $ | 25,992 |
|
| $ | 27,596 |
|
The Company's Streaming and digital revenue pertains to its OTT business, including the licensing, service, advertising, and subscription revenue related to the Company's streaming business and partnerships. Base distribution revenue relates to non-streaming revenue, including Theatrical revenue and the sale of DVD's. Podcast and other revenue primarily relates to the Company's Bloody Disgusting Podcast Network. Other non-recurring revenue relates to the Company's legacy digital cinema operations, whose operations have run-off, still may generate non-recurring revenue from the sale of cinema assets or the recognition of variable consideration as the associated uncertainty associated with the revenue is resolved.
The Company follows the five-step model established by ASC 606, Revenue from contracts with customers ("ASC 606") when preparing its assessment of revenue recognition.
Principal Agent Considerations
Revenue earned from the delivery of digital content and physical goods may be recognized gross or net depending on the terms of the arrangement. We determine whether revenue should be reported on a gross or net basis based on each revenue stream. Key indicators that we use in evaluating gross versus net treatment include, but are not limited to, the following:
15
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 primarily on a specific identification basis. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.
We recognizes accounts receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that it recognizes revenue from a sale. Reserves for product returns and other allowances is variable consideration as part of the transaction price. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.
During the three and six months ended September 30, 2023, we did not recognize any credit losses as part of its ongoing operations or reversals of previously recorded provisions. During the three and six months ended September 30, 2022, the Company recognized credit losses of $44 thousand and $47 thousand, respectively.
Contract Liabilities
We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability) when cash payments are received or due in advance of our performance, such as the sale of DVDs with future release dates, even if amounts are refundable. Amounts recorded as contract liabilities are generally not long-term in nature.
The ending deferred revenue balance, including current and non-current balances as of September 30, 2023 and March 31, 2023, was and $0.3 million and $0.2 million respectively. In each period, the additions to our deferred revenue balance are due to cash payments received or due in advance of satisfying performance obligations, while the reductions are due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.
Participations and royalties payable
When we use third 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 and amortized oversix months ended September 30, 2023, one customer represented 25% and 24% of consolidated revenues. For the termsthree months ended September 30, 2022, one customer represented approximately 19% of consolidated revenues and another customer represented 11% of consolidated revenues, respectively. For 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 termsix months ended September 30, 2022, one customer represented 15% of the revolving debt agreements using the effective interest rate method.consolidated revenues.
16
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Direct Operating Expenses
Direct operating expenses received by Phase 2 DC following the achievementconsist of cost recoupment are required to be returned to the distributors on a pro-rata basis. At this time, we cannot estimate the timing or probability of the achievement of cost recoupment. Beginning in December 2018, certain Phase 2 DC Systems will have reached the conclusion of their deployment payment period, subject to earlier achievement of cost recoupment. In accordance with existing agreements with distributors, VPF revenues will cease to be recognized on such Systems. Because the Phase II deployment installation period ended in December 2012, a majority of the VPF revenue, associated with the Phase II systems will end by December 2022 or earlier if cost recoupment is achieved.
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
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 September 30, 2023 and Jobs Act (the "Act") was enacted in December 2017. Among other things,March 31, 2023.
17
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Earnings per Share
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:
| Three Months Ended September 30, |
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| Six Months Ended |
| |||||||||||
| 2023 |
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| 2022 |
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| 2023 |
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| 2022 |
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Basic net loss per share: |
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Net loss attributable to common stockholders |
| $ | (445 | ) |
|
| (5,752 | ) |
| $ | (4,082 | ) |
| $ | (11,845 | ) |
Shares used in basic computation: |
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| ||||
Weighted-average shares of Common Stock outstanding |
|
| 12,376 |
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| 8,845 |
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|
| 11,118 |
|
|
| 8,808 |
|
Basic net loss per share |
| $ | (0.04 | ) |
| $ | (0.65 | ) |
| $ | (0.37 | ) |
| $ | (1.34 | ) |
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Shares used in diluted computation: |
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| ||||
Weighted-average shares of Common Stock outstanding |
|
| 12,376 |
|
|
| 8,845 |
|
|
| 11,118 |
|
|
| 8,808 |
|
Stock options and SARs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Weighted-average number of shares |
|
| 12,376 |
|
|
| 8,845 |
|
|
| 11,118 |
|
|
| 8,808 |
|
Diluted net loss per share |
| $ | (0.04 | ) |
| $ | (0.65 | ) |
| $ | (0.37 | ) |
| $ | (1.34 | ) |
The calculation of 3. OTHER INTERESTS Investment in CDF2 Holdings We indirectly own CDF2 Holdings is a Variable Interest Entity (“VIE”), as defined in As of 18 CINEVERSE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The accompanying Condensed Consolidated Statements of Operations includes Total Investment in 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 4. STOCKHOLDERS’ EQUITY COMMON STOCK As of September 30, 2023 and 2022, the number of shares of Common Stock authorized for issuance was 275,000,000 shares. During the three months ended September 30, 2023, the Company issued 1.1 million shares of Common Stock. This was comprised of 517 thousand shares issued in conjunction with the exercise of pre-funded warrants issued, 502 shares issued in connection with employee bonuses, 46 thousand shares for preferred stock dividends, and 41 thousand to satisfy earnout-related liabilities. During the six months ended September 30, 2023, the Company issued 3.4 million shares of Common Stock. In addition to the activity cited for three months ended September 30, 2023, this was comprised of 2,150 thousand shares issued through a June 16, 2023 direct offering, 177 thousand issued in connection with ATM sales during the first fiscal quarter, and 10 thousand issued in payment of preferred stock dividends. In addition, the Company issued common warrants to purchase up to 2,667 thousand shares of Common Stock in conjunction with its direct offering on June 16, 2023. All pre-funded and common warrants were issued as immediately exercisable. All common warrants remain outstanding as of September 30, 2023. During the three months ended September 30, 2022, the Company issued 129 thousand shares. This was comprised of 9 thousand shares for preferred stock dividends, 103 thousand shares for employee bonuses, and 17 thousand shares to satisfy earnout-related liabilities. During the six months ended September 30, 2022, the Company issued 134 thousand shares. In addition to the activity cited during the three months ended September 30, 2022, this was comprised of 5 thousand shares for preferred stock dividends. 19 CINEVERSE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) PREFERRED STOCK Cumulative dividends in arrears on Series A Preferred Stock were $88 thousand as of September 30, 2023 and 2022. During the three and six months ended September 30, 2023 and 2022, the Company paid preferred stock dividends in arrears for the same amount in the form of shares of Common Stock. The Company has the right to pay preferred stock dividends in cash or stock, at the Company's discretion. The Company also has 1 share of Series B Preferred Stock issuedwith no shares currently outstanding. TREASURY STOCK We have treasury stock, at cost, consisting of 289 thousand and 66 thousand shares of Common Stock at September 30, 2023 and March 31, 2023, respectively. During the three months ended September 30, 2023, the Company acquired 223 thousand shares of Common Stock withheld in connection with employee bonuses, which the Company elected to settle in shares of Common Stock. EQUITY INCENTIVE PLANS Stock Based Compensation Awards The Company has issued awards under two plans, the 2000 Equity Incentive Plan (the “2000 Plan”) and the 2017 Equity Incentive Plan (the “2017 Plan). 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 provided for the issuance of up to 905 thousand shares of Common Stock, in the form of various awards, including stock options, SARs, restricted stock, restricted stock units, PSUs and cash awards. Employee and director stock-based compensation expense related to our stock-based awards of $499 thousand and $909 thousand, three and six months ended September 30, 2023, respectively, and $2,218 thousand and $3,198 thousand for the three and six months ended September 30, 2022, respectively. These costs are reported within to Selling, General and Administrative expenses. Included within this expense, our Board of Directors stock-based compensation was $90 thousand and $180 thousand for the three and six months ended September 30, 2023, respectively, and $90 thousand and $180 thousand for the three and six months ended September 30, 2022, respectively. Options Granted Outside Cineverse's Equity Incentive Plan In October 2013, we issued options outside of the 2000 Plan to 10 individuals who became employees as a result of a business combination. The employees received options to purchase an aggregate of 3 thousand shares of our Common Stock at an exercise price of $350 per share. The options were fully vested as of October 2017 and expired 20 CINEVERSE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) as unexercised 10 years from the date of grant in October 2023. As of September 30, 2023, 0.6 thousand of such options remained outstanding. 5. LINE OF CREDIT FACILITY The Company is party to a Loan, Guaranty, and Security Agreement with East West Bank ("EWB") providing for a revolving line of credit (the "Line of Credit Facility") of $5.0 million, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and such subsidiaries' assets. The Line of Credit bears an interest rate equal to 1.5% above the prime rate, and was 10.00% as During the three and six months ended September 30, 2023, the Company had interest expense, including cash interest and amortization, of $0.1 million and $0.2 million related to its Line of Credit Facility, respectively. 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 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 $121 thousand and $236 thousand during the three and six months ended September 30, 2023 and $111 thousand and $196 thousand three and six months ended September 30, 2022, respectively. The Company has recognized $45 thousand and $90 thousand of income related to its subleasing arrangement during three and six months ended September 30, 2023, respectively. The Company recognized $27 thousand of income related to its subleasing arrangement for both the three and six months ended September 30, 2022. The table below presents the lease-related assets and liabilities recorded on our Consolidated Balance Sheets (in thousands): Classification on the Balance Sheet September 30, March 31, Assets Noncurrent Other long-term assets $ 1,051 $ 1,265 Liabilities Current Operating leases liabilities 432 418 Noncurrent Operating leases liabilities, net of current portion 645 863 Total operating lease liabilities $ 1,077 $ 1,281 The table below presents the annual gross undiscounted cash flows related to the Company's operating lease commitments (in thousands): 21 CINEVERSE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Fiscal year ending March 31, Operating Lease Commitments 2024 $ 228 2025 420 2026 200 2027 210 2028 94 Thereafter — Total lease payments 1,152 Less imputed interest (75 ) Total $ 1,077 The table below presents the annual gross undiscounted cash flows related to the Company's operating lease subleasing arrangements (in thousands): Fiscal year ending March 31, Sublease Payments 2024 $ 91 2025 154 2026 — 2027 — 2028 — Thereafter — Total $ 245 7. INCOME TAXES We calculate income tax expense based upon an annual effective tax rate forecast, 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 22weighted average shares outstandingdiluted net loss per share for the three and ninesix months ended December 31, 2017.We incurredSeptember 30, 2023 does not include the impact of 845 thousand and 793 thousand anti-dilutive shares, respectively. The calculation of diluted net lossesloss per share for both the three and ninesix months ended December 31, 2017 and 2016, and thereforeSeptember 30, 2022 does not include the impact of 621 thousand potentially dilutive common shares from outstanding stock options and warrants, totaling 2,893,574 shares and 1,420,227 shares as of December 31, 2017 and 2016, respectively, were excluded from the computation of loss per share as their impact would have been anti-dilutive.anti-dilutive shares.RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTSIn May 2014, the Financial Accounting Standards Board ("FASB") 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)”, provides for a single five-step model to be applied to all revenue contracts with customers as well as requires additional 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, the FASB issued several accounting updates (ASU No. 2016-08, 2016-10 and 2016-12) to clarify implementation guidance and correct unintended application 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, April 1, 2018, but the process of evaluating the impact, if any, on our consolidated financial statements remains ongoing. During the third quarter we engaged outside assistance to support our ongoing assessment.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.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.December 31, 2017September 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, 2017September 30, 2023 and March 31, 2017,2023, respectively, which are included in accounts receivable, net on the accompanying Condensed Consolidated Balance Sheets.For the three and nine months ended December 31, 2017 and 2016, the$0.3 million and $0.8 million, respectively of digital cinema servicing revenue from CDF2 Holdings.Stockholders'Stockholders’ Deficit of CDF2 Holdings at December 31, 2017September 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, 2017September 30, 2023 and March 31, 20172023 is carried at $0.Majority Interest$0.CONtvWe own an 85% interestRoundtableCON 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 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.gaming consoles, set-top boxes, handsets,of September 30, 2023. As of September 30, 2023 and tablets.March 31, 2023, a balance of $5.0 million was outstanding on the line of the Credit Facility, gross of unamortized issuance costs of $96 thousand and $76 thousand, respectively. Under the Line of Credit Facility, the Company is subject to certain financial and nonfinancial covenants which require the Company to maintain certain metrics and ratios, maintain certain minimum cash on hand and to report financial information to our lender on a periodic basis. The Line of Credit Facility matures on September 15, 2024.
2023
20234.includingwhich includes estimates and assumptions. IncomeWe recognized income tax expense recordedof approximately $16 thousand and $36 for the three and nine month periodssix months ended December 31, 2017September 30, 2023. We recognized $0 for the three and 2016 represent statesix months ended September 30, 2022, respectively. Income tax expense is attributable to taxable income taxes. earned in India relating to transfer pricing.for the nine months ended December 31, 2017was (5.3%) and 2016 was negative 2.7% and negative 2.7%, respectively.The Act was enacted in December 2017. Among other things, the Act reduces the U.S. federal corporate tax rate from 35 percent to 21 percent and eliminates the alternative minimum tax (“AMT”(1.0%) for corporations. Since the deferred tax assets are expected to reverse in a future year, it has been tax effected using the 21% federal corporate tax rate. As a result of the reduction in the corporate income tax rate, we wrote down approximately $35.5 million of our gross deferred tax assets and valuation allowance as of December 31, 2017, which has no impact in our condensed consolidated financial statements for the three and ninesix months ended December 31, 2017.5. NOTES PAYABLENotes payable consisted of the following: 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 Non-recourse debt is generally defined as debt whereby the lenders’ sole recourse with respect to defaults, is limited to the value of the asset, which is collateral for the debt. Certain of our subsidiaries are liable with respect to, and their assets serve as collateral for, certain indebtedness for which our assets and the assets of our other subsidiaries that are not parties to the transaction are generally not liable. We have referred to this indebtedness as "non-recourse debt" because the recourse of the lenders is limited to the assets of specific subsidiaries. Such indebtedness includes the Prospect Loan, the KBC Facilities, the 2013 Term Loans, the P2 Vendor Note and the P2 Exhibitor Notes.Prospect LoanIn February 2013, our DC Holdings, AccessDM and Phase 2 DC subsidiaries entered into a term loan agreement (the “Prospect Loan”) with Prospect Capital Corporation (“Prospect”), pursuant to which DC Holdings borrowed $70.0 million. The Prospect Loan bears interest at LIBOR plus 9.0% (with a 2.0% LIBOR floor), which is payable in cash, and at an additional 2.50% to be accrued as an increase to the aggregate principal amount of the Prospect Loan until the 2013 Credit Agreement is paid off, at which time all accrued interest will be payable in cash.Collections of DC Holdings accounts receivable are deposited into accounts designated to pay certain operating expenses, principal, interest, fees, costs and expenses relating to the Prospect Loan. On a quarterly basis, if there is excess cash flow, it is used for prepayment of the Prospect Loan. We also maintain a debt service fund under the Prospect Loan for future principal and interest payments. As of December 31, 2017 and March 31, 2017, the debt service fund had a balance of $1.0 million, which is classified as part of restricted cash on our Condensed Consolidated Balance Sheets.The Prospect Loan matures on March 31, 2021 and may be accelerated upon a change in control (as defined in the agreement) or other events of default as set forth therein and would be subject to mandatory acceleration upon insolvency of DC Holdings. We are permitted to pay the full outstanding balance of the Prospect Loan at any time after the second anniversary of the initial borrowing, subject to the following prepayment penalties:5.0% of the principal amount prepaid between the second and third anniversaries of issuance;4.0% of the principal amount prepaid between the third and fourth anniversaries of issuance;3.0% of the principal amount prepaid between the fourth and fifth anniversaries of issuance;2.0% of the principal amount prepaid between the fifth and sixth anniversary of issuance;1.0% of the principal amount prepaid between the sixth and seventh anniversaries of issuance; andNo penalty if the balance of the Prospect Loan, including accrued interest, is prepaid thereafter.The Prospect Loan is primarily secured by a first priority pledge of the stock of DC Holdings, our wholly owned subsidiary, the stock of AccessDM, which is wholly owned by DC Holdings, the stock of Access Digital Cinema Phase II, Corp., our wholly owned subsidiary, and the stock of our Phase I DC subsidiaries, which are subsidiaries of AccessDM. The Prospect Loan is also guaranteed by each of those subsidiaries.The Prospect Loan contains customary representations, warranties, affirmative covenants, negative covenants and events of default. The following table summarizes the activity related to the Prospect Loan:(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 KBC FacilitiesIn December 2008, we began entering into multiple credit facilities to fund the purchase of Systems to be installed in movie theatres as part of our Phase II Deployment. There were no borrowings under the KBC Facilities during the nine months ended December 31, 2017. The following table presents a summary of the KBC Facilities (dollar amounts in thousands): Outstanding Principal Balance Credit Facility 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 1.For each facility, principal is to be repaid in twenty-eight quarterly installments.2.Each of the facilities bears interest at the three-month LIBOR rate, which was 1.69% at December 31, 2017, plus the interest rate noted above.Bison Note PayableAs discussed in Note 1 - Nature of Operations and Liquidity, the Company entered into a Loan with Bison for $10,000,000 and issued Warrants to purchase 1,400,000 shares of the Company's Class A Common Stock. See Note 6 - Stockholders' Deficit for further discussion of the warrants.The Loan was made in accordance with the previously disclosed Stock Purchase Agreement between the Company and Bison entered into on June 29, 2017.5.5% Convertible Notes Due April 2035On April 29, 2015, we issued $64.0 million aggregate principal amount of unsecured senior convertible notes payable (the "Convertible Notes") that bear interest at a rate of 5.5% per year, payable semiannually.On July 10, 2017, we entered into exchange agreements (the “Exchange Agreements”) with holders of the remaining Convertible Notes representing approximately 99% of the outstanding principal amount, pursuant to which $50.6 million of the Convertible Notes were surrendered by such holders in exchange for $17.6 million cash, 3,536,783 shares of Class A Common Stock and $1.5 million in second lien notes under the Loan Agreement during the nine months ended December 31, 2017. As aresult of the exchanges, we recorded debt conversion expense and loss on extinguishment of notes payable of $4.5 million for the nine months ended December 31, 2017. On November 7, 2017, we repurchased the remaining balance of $0.5 million of Convertible Notes from the holder for cash and the Convertible Notes were immediately retired. As a result of the exchanges and repurchasing, this debt was retired. In connection with exchanges, we recorded debt conversion expenses and a gain on extinguishment of notes payable of $4.5 million for the nine months ended December 31, 2017.Second Secured Lien NotesOn July 14, 2016, we entered into a Second Lien Loan Agreement (the “Loan Agreement”), under which we may borrow up to$15.0 million, subject to certain limitations imposed on us regarding the number of shares that we may issue in connection withthe loans. During the nine months ended December 31, 2017, we borrowed an aggregate principal amount of $1.5 million under the Loan Agreement (the "Second Secured Lien Notes"), and have borrowed $10.5 million in total under the Loan Agreement. The Second Secured Lien Notes mature on June 30, 2019 and bear interest at 12.75%, payable 7.5% in cash and 5.25% in cash or in kind at our option. In addition, under the terms of the Loan Agreement, we are required to issue 98,000 shares of our Class A common stock for every $1 million borrowed, subject to prorata adjustments. The Loans may be prepaid without premium or penalty and contain customary covenants, representations and warranties. The obligations under the Loans are guaranteed by certain of our existing and future subsidiaries. We have pledged substantially all of our assets, except those assets related to our digital cinema deployment business, to secure payment on the Second Secured Lien Notes. The Loan Agreement was amended on August 4, 2016, on October 7, 2016, and on March 31, 2017 to facilitate subsequent borrowing transactions and clarify certain terms of the shares issuable in connection with the loans.Cinedigm Credit AgreementOn October 17, 2013, we entered into a credit agreement (the “Cinedigm Credit Agreement”) with Société Générale. Under the Cinedigm Credit Agreement, as amended in February 2015 and April 2015, we were permitted to borrow an aggregate principal amount of up to $55.0 million, including term loans of $25.0 million (the “Cinedigm Term Loans”) and revolving loans of up to $30.0 million (the “Cinedigm Revolving Loans”). Interest under the Cinedigm Term Loans was charged at a base rate plus 5.0%, or the Eurodollar rate plus 6.0% until the Cinedigm Term Loan was repaid on April 29, 2015 in connection with the Convertible Notes offering. The Cinedigm Revolving Loans bear interest at a base rate of 6.25% or the Eurodollar rate of 1.0% plus 4.0%. The Base rate, per annum, is equal to the highest of (a) the rate quoted by the Wall Street Journal as the “base rate on corporate loans by at least 75% of the nation’s largest banks,” (b) 0.50% plus the federal funds rate, and (c) the Eurodollar rate plus 4.0%.We repaid the entire outstanding balance of the Cinedigm Term Loans and amended the terms of the Cinedigm Revolving Loans in connection with our issuance of the Convertible Notes. In connection with the repayment of the Cinedigm Term Loans, we wrote-off certain unamortized debt issuance costs and the discount that remained on the balance of the note payable. As a result, we recorded $0.9 million as a loss on extinguishment of debt for the year ended March 31, 2016.An April 2015 amendment to the Cinedigm Revolving Loans extended the term of the Cinedigm Credit Agreement to March 31, 2018, provided for the release of the equity interests in the subsidiaries that we had previously pledged as collateral, changed the interest rate and replaced all financial covenants with a single debt service coverage ratio test commencing at June 30, 2016 and a $5.0 million minimum liquidity covenant. The Cinedigm Revolving Loans, as amended, bear interest at Base Rate (as defined in the amendment) plus 3% or LIBOR plus 4%, at our election, but in no event may the elected Base Rate or LIBOR rate be less than 1%. We are permitted to repay the Cinedigm Revolving Loans, at our option, in whole or in part.In May 2016, we entered into an amendment to the Cinedigm Credit Agreement (the “May 2016 Amendment”) which primarily increased the Company’s cash available for operations. The May 2016 Amendment also reduced the maximum principal amount available under the Cinedigm Credit Agreement from $30.0 million to $22.0 million.In July 2016, we entered into an amendment to the Cinedigm Credit Agreement, which, among other things, lowered the minimum liquidity requirement to $0.8 million up to June 30, 2017 and all times after at least $5.0 million in minimum liquidity. On August 10, 2017, we received a waiver to keep the minimum liquidity at $0.8 million through October 13, 2017 and at all times after October 13, 2017, we must maintain at least $5.0 million minimum liquidity. On November 9, 2017, we entered into an amendment to maintain the minimum liquidity at $0.8 million until the maturity date of the Revolving Maturity date. This amendment also reduced the revolving aggregate maximum credit amount by $2.0 million on each of January 31, 2018 and February 28, 2018 if the outstanding obligations are not repaid in full by such date. In addition, certain of our subsidiaries that are guarantors to the Cinedigm Credit Agreement entered into a Guaranty Supplement, pursuant to which certain of the subsidiaries guaranteed the Company’s obligations under the Cinedigm Credit Agreement and the subsidiaries pledged substantially all of their assets to secure such obligations. In addition, pursuant to the July 2016 amendment, (i) the Eurodollar rate loans were changed to Base plus 4.5%and base plus 3.5% for Base rate loans, (ii) the requirement for the debt service reserve account was eliminated, and (iii) the maximum principal amount available to borrow was reduced from $22.0 million to $17.1 million. As of December 31, 2017, no additional borrowings were available under the Cinedigm Revolving Loans.In connection with the Cinedigm Revolving Loans, we maintained a debt service reserve account in restricted cash for certain scheduled interest and principal payments due on the Cinedigm Revolving Loans and Convertible Notes as of March 31, 2016 of $2.2 million. As a result of the July 2016 amendment to the Cinedigm Credit Agreement, no such reserve amount was required to be maintained as of March 31, 2017.In November 2017, we entered into a waiver and amendment the ("November 2017 Amendment") pursuant to which the Consolidated Debt Service Coverage Ratio may be maintained at not less than 1.25:1.00 for the Fiscal Quarter ending September 30, 20172023, and for each Fiscal Quarter thereafter. The November 2017 Amendment also reduced the Revolving Aggregate Maximum Credit Amount to $11.8 million effective November 14, 2017. The November 2017 Amendment also permits us to maintain at all times an aggregate amount of Minimum Liquidity of at least $800,000. Under the November 2017 Amendment, the Revolving Aggregate Maximum Credit Amount will be reduced by $2.0 million on each of January 31, 20180% and February 28, 2018 if the outstanding Obligations are not repaid in full by such date. On January 31, 2018, we paid $2.0 million resulting in an outstanding balance of $9.8 million.2013 NotesIn October 2013, we entered into securities purchase agreements with certain investors, pursuant to which we sold notes in the aggregate principal amount of $5.0 million (the “2013 Notes”) and warrants to purchase an aggregate of 150,000 shares of Class A Common Stock (the “2013 Warrants”) to such investors. We allocated a fair value of $1.6 million to the 2013 Warrants, which was recorded as a discount to the 2013 Notes and is being amortized through the maturity of the 2013 Notes as interest expense.The principal amount outstanding under the 2013 Notes is due on October 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.Zvi Rhine, a member of our Board of Directors and a related party, is a holder of $0.5 million of the 2013 Notes as of December 31, 2017 and March 31, 2017.6. STOCKHOLDERS’ DEFICITCOMMON STOCKOn October 31, 2017, the Company filed a Fifth Amended and Restated Certificate of Incorporation, pursuant to which (i) the number of shares of Common Stock authorized0% for issuance was increased to 60,000,000 shares, (ii) share transfer restrictions under Article Fourth were eliminated and (iii) two inactive classes of capital stock, the Class B common stock and the Series B Junior Participating preferred stock, were eliminated.On November 1, 2017, in connection with the Stock Purchase Agreement with Bison, we sold 19,666,667 shares of our Class ACommon Stock to Bison, and as a result Bison became a majority shareholder of the outstanding Class A Common Stock.During the nine months ended December 31, 2017, we issued 4,677,808 shares of Class A Common Stock in exchange for Convertible Notes and Second Lien Loans, as compensation to the board of directors, as payment of preferred stock dividends, as settlement of an obligation to a content provider, and as awards to employees.PREFERRED STOCKCumulative dividends in arrears on preferred stock at December 31, 2017 were $0.2 million. In February 2018, we paid the preferred stock dividends in arrears in the form of 59,972 shares of Class A Common Stock.TREASURY STOCKIn November 2017, the Company completed the previously announced June 29, 2017 stock purchase agreement with Bison which accelerated the vesting of all its equity awards. As a result, 134,698 shares of vested restricted stock were surrendered to the Company by employees in payment for withholding taxes, and were placed in treasury and are no longer outstanding.In connection with the sale of the Convertible Notes in April 2015, the Company and a financial institution (the "Forward Counterparty") which is one of the lenders under our credit agreement, entered into a privately negotiated forward stock purchase transaction, pursuant to which we paid $11.4 million to purchase 1,179,138 shares of our Class A common stock for settlement at anytime prior to the fifth year anniversary of the issuance date of the notes. On December 1, 2017, the Company announced the settlement of these shares in full with the Forward Counterparty as of November 24, 2017. This was included in additional paid in capital at the time the Forward Contract was entered into. The shares have been placed in treasury and are no longer outstanding.CINEDIGM’S EQUITY INCENTIVE PLANSStock Based Compensation AwardsAwards issued under our 2000 Equity Incentive Plan (the "2000 Plan") may be in any of the following forms (or a combination thereof) (i) stock option awards; (ii) stock appreciation rights; (iii) stock or restricted stock or restricted stock units; or (iv) performance awards. The 2000 Plan provides for the granting of incentive stock options (“ISOs”) with exercise prices not less than the fair market value of our Class A 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 Class A Common Stock on the date of grant. ISOs and non-statutory stock options granted under the 2000 Plan are 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 are set at the discretion of our compensation committee. On November 1, 2017, upon the consummation of the transactions pursuant to the Stock Purchase Agreement, 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 connection with the grants of stock options and shares of restricted stock under the 2000 Plan, we and the participants have executed stock option agreements and notices of restricted stock awards setting forth the terms of the grants. The 2000 Plan provided for the issuance of up to 2,380,000 shares of Class A Common Stock to employees, outside directors and consultants.At the August 31, 2017 Annual Meeting, the stockholders of the Company approved the 2017 Equity Incentive Plan (the "2017 Plan”), the Company’s new equity incentive 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 2,098,270 shares of Class A common stock, in the form of various awards, including stock options, stock appreciation rights, stock, restricted stock, restricted stock units, performance awards and cash awards. The Compensation Committee of the Company’s Board of Directors (the “Board”) is authorized to administer the 2017 Plan and make grants thereunder. The approval of the 2017 Plan does not affect awards already granted under the 2000 Plan. No awards were granted under the 2017 Plan during the three and ninesix months ended December 31, 2017.September 30, 2022, respectively.The following table summarizes the activity of the Plan related to shares issuable pursuant to outstanding options: Shares Under Option 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 The weighted average remaining contractual life for stock options outstanding as of December 31, 2017 was 5.37 years.OPTIONS GRANTED OUTSIDE CINEDIGM’S EQUITY INCENTIVE PLANIn October 2013, we issued options outside of the Plan to 10 individuals who became employees as a result of a business combination. The employees received options to purchase an aggregate of 62,000 shares of our Class A Common Stock at an exercise price of $17.5 per share. The options are fully vested as of October 2017 and expire 10 years from the date of grant, if unexercised. As of December 31, 2017, all options were fully vested.In December 2010, we issued options to purchase 450,000 shares of Class A Common Stock outside of the Plan as part of our Chief Executive Officer's initial employment agreement with the Company. Such options have exercise prices per share between $15.00 and $50.00, were vested as of December 2013 and will expire in December 2020. As of December 31, 2017, all such options remained outstanding.WARRANTSThe following table presents information about outstanding warrants to purchase shares of our Class A Common Stock as of December 31, 2017. All of the outstanding warrants are fully vested and exercisable.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 Outstanding warrants held by the strategic management service provider were issued in connection with a consulting management services agreement ("MSA"). The warrants may be terminated with 90 days' notice in the event of termination of the MSA.The 2013 Warrants and related 2013 Notes are subject to certain transfer restrictions.The warrants issued in connection with the Second Secured Lien Notes to Ronald L. Chez, at the time a member of Board of Directors, contain a cashless exercise provision and customary anti-dilution rights.Warrants to purchase Class A Common Stock issued in connection with the Convertible Notes exchange transaction were issued on December 2016, became exercisable six months after issuance and contain customary anti-dilution provisions. The value of the warrants issued in connection with the Exchange Agreement was $0.2 million, determined by using the Black-Scholes Option Pricing Model, assuming a 5-year life, a risk free rate interest of 2.0% and an expected volatility of 76.4%.On December 29, 2017, the Company issued Bison the Warrants to purchase 1,400,000 shares of the Company’s Class A common stock in connection with the Loan. The Warrants have a 5-year term and are immediately exercisable at $1.80 per share. The Warrants contain certain anti-dilution adjustments. The Company valued the Warrants at $1.1 million, on a relative fair value basis, using Black-Scholes Option Pricing Model assuming a 5-year life, a risk-free rate of interest of 2.2% and an expected volatility of 74.3%. These Warrants were recorded as debt issuance costs.7. COMMITMENTS AND CONTINGENCIESLEASESOn April 10, 2017, we entered into lease agreements for new office space in New York City, which coincides with the termination of our previous New York City office lease. The new agreements commenced on July 1, 2017 and initially required minimum lease payments of $33 with customary escalation clauses over the course of the contract which terminates in April 2021.Our capital lease obligations are primarily related to computer equipment.We also operate from leased properties under non-cancelable operating lease agreements, certain of which contain escalating lease clauses.8. SUPPLEMENTAL CASH FLOW INFORMATION 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 — 9. SEGMENT INFORMATIONWe operate in four reportable segments: Phase I Deployment, Phase II Deployment, Services and Content & Entertainment or CEG. Our segments were determined based on the economic characteristics of our products and services, our internal organizational structure, the manner in which our operations are managed and the criteria used by our Chief Operating Decision Maker to evaluate performance, which is generally the segment’s income (loss) from continuing operations before interest, taxes, depreciation and amortization. Certain Corporate assets, liabilities and operating expenses are not allocated to our reportable segments.Operations of:Products and services provided:Phase I DeploymentFinancing vehicles and administrators for 3,724 Systems installed nationwide in Phase 1 DC's deployment to theatrical exhibitors. We retain ownership of the Systems and the residual cash flows related to the Systems after the repayment of all non-recourse debt at the expiration of exhibitor, master license agreements. As of December 31, 2017, we are no longer earning a significant portion of VPF revenues from certain major studios on all such systems.Phase II DeploymentFinancing vehicles and administrators for our 8,904 Systems installed domestically and internationally, for which we retain no ownership of the residual cash flows and digital cinema equipment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.ServicesProvides monitoring, collection, verification and other management services to our Phase I Deployment, Phase II Deployment, CDF2 Holdings, as well as to exhibitors who purchase their own equipment. Services also collects and disburses VPFs from motion picture studios, distributors and ACFs from alternative content providers, movie exhibitors and theatrical exhibitors.Content & EntertainmentLeading distributor of independent content, and collaborates with producers and other content owners to market, source, curate and distribute independent content to targeted and profitable audiences in theatres and homes, and via mobile and emerging platforms.The following tables present certain financial information related to our reportable segments and Corporate: 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 ) The following employee and director stock-based compensation expense related to the Company’s stock-based awards is included in the above amounts as follows: 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 The following employee and director stock-based compensation expense related to the Company’s stock-based awards is included in the above amounts as follows: 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 ) The following employee and director stock-based compensation expense related to the Company’s stock-based awards is included in the above amounts as follows: 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 The following employee and director stock-based compensation expense related to the Company’s stock-based awards is included in the above amounts as follows: 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 fromSeptember 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 expires on September 15, 2024. The Line of Credit Facility bears interest at a rate equal to 1.5% above the prime rate, 10.00% as of December 31, 2017. September 30, 2023. As of September 30, 2023, $5.0 million was outstanding on the Line of Credit Facility, gross of issuance costs of $96 thousand.
In addition,July 2020, we have significant debt-related contractual obligations for the fiscal year ending March 31, 2018 and beyond.
23
Stock at the market prices prevailing on June 28, 2021 and bears interestNasdaq at 5% per annum, payable quarterly in cash. The principal is payable upon maturity. The Loan is unsecured and may be prepaid without premium or penalty, and contains customary covenants, representations and warranties. The proceedsthe time of the Loansale of such shares. The Company is not obligated to sell any shares under the ATM Sales Agreement. Any sales of shares made under the ATM Sales Agreement will be 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,first quarter of the fiscal year, the Company issuedsold 177 thousand shares under the ATM Sales Agreement for $1.1 million in net proceeds, after deduction of commissions and fees.
On June 16, 2023, the Company closed on the sale of 2,150 thousand shares of Common Stock, 517 thousand pre-funded warrants, and warrants to purchase 1,400,000up to 2,667 thousand shares of Common Stock at a combined public offering price of $3.00 per share and accompanying warrant for aggregate gross proceeds of approximately $7.4 million, after deducting placement agent fees and other offering expenses in the Company’s Class A common stock (amount of $0.6 million. The warrants had an exercise price of $3.00 per share, were exercisable immediately and will expire five years from the "Warrants"). The Warrants have a 5-year term and are immediately exercisable at $1.80 per share. The Warrants contain certain anti-dilution adjustments.issuance. The Company valuedreceived $2.999 per share for the Warrantspre-funded warrants, with the remaining $0.001 due at $1.1the time of exercise. All 516,667 pre-funded warrants were subsequently exercised in July 2023 for total proceeds of $0.5 thousand.
In addition, the Company remains authorized to purchase up to an aggregate of 500 thousand shares of its outstanding Common Stock, following the announcement of a stock repurchase program on March 1, 2023.
The Company will continue to invest in content development and acquisition, from which it believes it will obtain an appropriate return on its investment. As of September 30, 2023 and March 31, 2023, short term content advances were $7.9 million on a relative fair value basis, using Black-Scholes Option Pricing Model assuming a 5-year life, a risk-free rateand $3.7 million, respectively, and content advances, net of interest of 2.2%current portion were, $2.6 million and an expected volatility of 74.3%.
We believe the combination of: (i) our cash and restricted cash balances at December 31, 2017, which includes the net proceeds received from Bison for the issuanceequivalents and 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 operationsSeptember 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.
24
Results of Operations for the Three Months Ended December 31, 2017September 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 | )% |
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 | )% |
| For the Three Months Ended September 30, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Streaming and digital |
| $ | 9,355 |
|
| $ | 10,275 |
|
| $ | (920 | ) |
|
| (9 | )% |
Base distribution |
|
| 560 |
|
|
| 818 |
|
|
| (258 | ) |
|
| (31 | )% |
Podcast and other |
|
| 660 |
|
|
| 308 |
|
|
| 352 |
|
|
| 114 | % |
Other non-recurring |
|
| 2,437 |
|
|
| 2,605 |
|
|
| (168 | ) |
|
| (6 | )% |
Total Revenue |
| $ | 13,012 |
|
| $ | 14,006 |
|
| $ | (994 | ) |
|
| (7 | )% |
For the three months ended December 31, 2017September 30, 2023, total revenue declined by $994 thousand, or 7%, as compared to the prior period, primarily from a corresponding decrease in revenue in our CEG business. The current period also reflects reduced costs related to marketing and content acquisition costs as we intentionally focused more on developing OTT channel entertainment in the 2018 fiscal year and beyond.
Three Months Ended December 31, | ||||||||||||||
($ 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 | % |
The Company's $0.3 million decline in Base Distribution revenue for three months ended September 30, 2023 as compared to the three months ended December 31, 2016,September 30, 2022 was primarily duedriven by a bonus payoutdecline in DVD-related sales and related physical distribution revenue.
Relative to three months ended September 30, 2022, the Company's Podcast and other revenue increased $352 thousand, driven by an increased number of $1.5 millioncampaigns during the period.
Other non-recurring revenue relating to the officersCompany's legacy cinema equipment as its operations run-off. Following the completion of cost recoupment and employeesthe expiration of the exhibitor master license agreements applicable to this line of revenue, equipment deployment revenue and the associated services decreased $1.8 million. Digital system sales have also continued its anticipated decrease in conjunctionthe amount of $0.6 million as compared to the three months ended September 30, 2022, from $0.7 million in the second quarter of fiscal 2023 to $0.1 million in the second quarter of fiscal 2024. These decreases were partially offset by $2.3 million of non-recurring variable consideration following the resolution of uncertainty associated with the Bison transactionunderlying revenue related to the cinema equipment obligations, as compared to $0 variable consideration recognized in the second quarter of fiscal year 2023.
Direct Operating Expenses
| For the Three Months Ended September 30, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Direct operating expenses |
| $ | 4,646 |
|
| $ | 8,092 |
|
| $ | (3,446 | ) |
|
| (43 | )% |
The decrease in Direct Operating Expenses for the three months ended September 30, 2023 is driven by a 7% decrease in quarterly revenue, continued integration efforts with respect to the Company's acquisitions during fiscal year 2022, such as DMR and consistentBloody Disgusting. Notably, the physical revenue decrease contributed to a $1.1 million decline. Additionally, there was a reduction in the reserve for advances of $887 thousand over the comparative period as the Company's digital cinema business with studios has concluded in FY23 and the Management Annual Incentive Plan.latest trends in content performance. There was a $821 thousand decrease due to capitalized content, an estimated a $762 thousand decrease in the fiscal year 2024 Bloody Disgusting earnout based on fiscal year 2024 forecast performance, and $861thousand from the cessation of third-party SAAS related costs primarily from internalizing services and cost savings synergies.
25
Selling, General and Administrative Expenses
| For the Three Months Ended September 30, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Compensation expense |
| $ | 4,460 |
|
| $ | 5,180 |
|
| $ | (721 | ) |
|
| (14 | )% |
Corporate expenses |
|
| 764 |
|
|
| 1,084 |
|
|
| (320 | ) |
|
| (30 | )% |
Share-based compensation |
|
| 499 |
|
|
| 2,218 |
|
|
| (1,719 | ) |
|
| (78 | )% |
Other operating expenses |
|
| 1,104 |
|
|
| 1,159 |
|
|
| (55 | ) |
|
| (5 | )% |
Selling, General and Administrative |
| $ | 6,827 |
|
| $ | 9,641 |
|
| $ | (2,815 | ) |
|
| (29 | )% |
Selling, general and administrative expenses for the three months ended September 30, 2023 decreased by $2.8 million. In addition, stock-basedcomparison to the three months ended September 30, 2022, compensation expense increasedexpenses decreased by $1.2$721 thousand due to a $705 thousand reduction in bonus accrual attributable to fiscal year 2024 performance, an increase in capitalized labor of $178 thousand, partially offset by a $186 thousand increase in severance expense. Corporate expenses decreased by $320 thousand primarily related a reduction of $365 thousand in third-party consulting and legal fees as a result of the Company's cost saving initiatives. Share-based compensation has decreased by $1.7 million, as a result of acceleratedthe US-based workforce reduction, a decline in stock price, and a relatively higher number of award tranches vesting, of all stock options and restricted stock on November 1, 2017 due toas well as a changedecrease in control of the Company resulting from the Bison transaction.
Depreciation and Amortization Expense on Property and Equipment
Three Months Ended December 31, | ||||||||||||||
($ 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 September 30, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Amortization of intangible assets |
| $ | 804 |
|
| $ | 736 |
|
| $ | 68 |
|
|
| 9 | % |
Depreciation of property and equipment |
|
| 149 |
|
|
| 248 |
|
|
| (99 | ) |
|
| (40 | )% |
Depreciation and Amortization |
| $ | 953 |
|
| $ | 984 |
|
| $ | (31 | ) |
|
| (3 | )% |
Depreciation and amortization expense decreased in our Phase I Deployment segment ashas continued to decrease primarily 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 | )% |
Interest expense, and loss on extinguishment of notes payable
For the three months ended December 31, 2017 and 2016, respectively. In connection with the repayment of the 2013 Term Loans, we wrote-off debt issuance costs and debt discounts andSeptember 30, 2023, interest expense decreased by $185 thousand from $380 thousand to $195, primarily as a result recognizedof a loss on extinguishment$183 thousand decrease in deferred consideration amortization.
Results of debt of $0.7 millionOperations for the threeSix Months Ended September 30, 2023, and 2022 (in thousands):
Revenues
| For the Six Months Ended September 30, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Streaming and digital |
| $ | 19,469 |
|
| $ | 19,778 |
|
| $ | (309 | ) |
|
| (2 | )% |
Base distribution |
|
| 1,718 |
|
|
| 3,023 |
|
|
| (1,305 | ) |
|
| (43 | )% |
Podcast and other |
|
| 1,089 |
|
|
| 763 |
|
|
| 326 |
|
|
| 43 | % |
Other non-recurring |
|
| 3,716 |
|
|
| 4,032 |
|
|
| (316 | ) |
|
| (8 | )% |
Total Revenue |
| $ | 25,992 |
|
| $ | 27,596 |
|
| $ | (1,604 | ) |
|
| (6 | )% |
For the six months ended DecemberSeptember 30, 2023, the Company's revenue declined by $1.6 million. The decrease was driven by a $1.3 million decline in the Company's base distribution, resulting from a $1.6 million decline in physical sales, partially offset by a $0.3 million reduction in the return reserve, a $0.3 million decrease in other non-recurring revenue from the run-off of the Company's digital cinema operations, whereas in the prior year $4.0 was recognized
26
as a result of ongoing operations, in fiscal year 2024, $3.3 million was recognized as a result of the release of variable revenue at the conclusion of the digital cinema contracts' terms. Streaming and digital revenue decreased as a result of a $4.5 million decline in AVOD revenue due continued headwinds in the broader advertising market in FY24, partially offset by a $2.2 million increase in SVOD revenue as the Company continues to see the benefits from its acquisitions which have contributed value-accretive libraries, distribution platforms and technologies, as well as $1.8 million from digital revenue and distribution. These decreases were partially offset by podcast revenue, which benefited from greater demand in fiscal year 2024.
Direct Operating Expenses
| For the Six Months Ended September 30, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Direct operating expenses |
| $ | 11,633 |
|
| $ | 15,448 |
|
| $ | (3,815 | ) |
|
| (25 | )% |
For the six months ended September 30, 2023, the Company's direct operation expense decreased $3.8 million. The decrease was primarily driven by a $1.5 million dollar reduction in SAAS related costs as a result of internalizing services previously performed by third parties and cost savings synergies, $1.2 million reduction in the costs associated with the Company's physical sales and related distribution costs in line with the decline in physical revenue, a $1.1 million reduction in the provision related to advances, and a $0.8 million related to a decrease in an estimated Bloody Disgusting earnout liability based on fiscal year 2024 performance to-date. These were partially offset by a $0.8 million dollar increase in royalty-related expenses based on the terms of the Company's contracts, and a $0.4 million increase in digital marketing expenses.
Selling, General and Administrative Expenses
| For the Six Months Ended September 30, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Compensation expense |
| $ | 8,866 |
|
| $ | 10,695 |
|
| $ | (1,829 | ) |
|
| (17 | )% |
Corporate expenses |
|
| 2,464 |
|
|
| 3,413 |
|
|
| (949 | ) |
|
| (28 | )% |
Share-based compensation |
|
| 908 |
|
|
| 3,197 |
|
|
| (2,289 | ) |
|
| (72 | )% |
Other operating expenses |
|
| 2,477 |
|
|
| 2,154 |
|
|
| 322 |
|
|
| 15 | % |
Selling, General and Administrative |
| $ | 14,715 |
|
| $ | 19,459 |
|
| $ | (4,745 | ) |
|
| (24 | )% |
During the six months ended September 30, 2023, the Company's SG&A decreased by $4.7 million. Relative to six months ended September 30, 2022, compensation related costs primarily decreased due to a $1.5 million decrease in the Company's bonus accrued expense and an increase in capitalized labor of $0.3 million from the development of the Company's Matchpoint software. Corporate expenses primarily decreased due to a corporate focus on reducing third-party legal and consulting costs in the amount of $1.3 million, which was partially offset by an increase in audit fees in the amount of $0.2 million. Share-based compensation has decreased by $2.3 million, as a result of the US-based workforce reduction, a decline in stock price, and a relatively higher number of awards tranches vesting, as well as fiscal year 2023 share-based bonuses. Other operating expenses primarily increased due to an increase in advertising barter costs in the amount of $0.3 million.
Depreciation and Amortization Expense
| For the Six Months Ended September 30, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Amortization of intangible assets |
| $ | 1,502 |
|
| $ | 1,480 |
|
| $ | 22 |
|
|
| 2 | % |
Depreciation of property and equipment |
|
| 273 |
|
|
| 504 |
|
|
| (231 | ) |
|
| (46 | )% |
Depreciation and Amortization |
| $ | 1,775 |
|
| $ | 1,984 |
|
| $ | (209 | ) |
|
| (11 | )% |
Depreciation expense has continued to decrease primarily due to substantially the remainder of our digital cinema projection systems reaching the conclusion of their ten-year useful lives during the fiscal year ended March 31, 2016.
27
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.
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 |
|
| For the Six Months Ended September 30, |
| |||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net Loss |
| $ | (317 | ) |
| $ | (5,655 | ) |
| $ | (3,853 | ) |
| $ | (11,642 | ) |
Add Back: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income tax expense |
|
| 16 |
|
|
| — |
|
|
| 36 |
|
|
| — |
|
Depreciation and amortization |
|
| 953 |
|
|
| 984 |
|
|
| 1,775 |
|
|
| 1,984 |
|
Interest expense |
|
| 195 |
|
|
| 380 |
|
|
| 490 |
|
|
| 513 |
|
Stock-based compensation |
|
| 499 |
|
|
| 2,218 |
|
|
| 909 |
|
|
| 3,198 |
|
Provision for doubtful accounts |
|
| — |
|
|
| 44 |
|
|
| — |
|
|
| 47 |
|
Change in fair value on equity investment in Metaverse |
|
| 718 |
|
|
| 572 |
|
|
| 718 |
|
|
| 1,828 |
|
Other (income) expense, net |
|
| (26 | ) |
|
| (8 | ) |
|
| 148 |
|
|
| 6 |
|
Net income attributable to noncontrolling interest |
|
| (40 | ) |
|
| (9 | ) |
|
| (53 | ) |
|
| (27 | ) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Transition-related costs |
|
| 368 |
|
|
| 182 |
|
|
| 835 |
|
|
| 357 |
|
Mergers and acquisition costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 207 |
|
Adjusted EBITDA |
| $ | 2,366 |
|
| $ | (1,292 | ) |
| $ | 1,005 |
|
| $ | (3,529 | ) |
28 2021 and bears interest at 5% per annum, payable quarterly in cash. The principal is payable upon maturity. The Loan is unsecured and may be prepaid without premium or penalty, and contains customary covenants, representations and warranties. The proceeds of the Loan will be used for working capital and general corporate purposes. The Loan is evidenced by a promissory note dated as of December 29, 2017. On December 29, 2017, the Company also issued to Bison Warrants to purchase 1,400,000 shares of Company’s Class A common stock. The Warrants have a 5-year term and are immediately exercisable at $1.80 per share. The Warrants contain certain anti-dilution adjustments. The Company valued the Warrants at $1.1 million, on a relative fair value basis, using Black-Scholes Option Pricing Model assuming a 5-year life, a risk-free rate of interest of 2.2% and an expected volatility of 74.3%. The Warrants were recorded as debt issuance costs.
Cash Flow
Changes in our cash flows were as follows:
For the Nine Months Ended December 31, | ||||||||
($ 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 Six Months Ended |
| ||||||
|
| 2023 |
|
| 2022 |
| ||
Net used in operating activities |
| $ | (6,174 | ) |
| $ | (6,279 | ) |
Net cash used in investing activities |
|
| (515 | ) |
|
| (274 | ) |
Net cash provided by financing activities |
|
| 8,157 |
|
|
| 3,167 |
|
Net change in cash and cash equivalents |
| $ | 1,468 |
|
| $ | (3,386 | ) |
For the six months ended September 30, 2023, net cash and restricted cash balances of $18.2 million.
For the six months ended September 30, 2022, net cash provided by operating activities is primarily driven by a loss from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, gain on extinguishment of note payable, including other changes in working capital. Additionally, during the six months ended September 30, 2022, the Company decreased Accounts payable, accrued expenses, and other liabilities by $5.5 million to vendors. Cash received from VPFs to continue tovirtual print fees in our legacy cinema equipment business decreased from the previous period in alignment with the decrease in the fourth quarter of our current fiscal year as all our Phase I Systems reached the conclusion of their deployment payment period with certain major studios.eligible VPF systems. Changes in accounts receivable from our studio customers largely impact cash flows from operating activities and vary based on the seasonality of movie release schedules by the major studios. OperatingOther current assets, and other long term assets increased by $2.9 million. Consistent with FY24, operating cash flows from CEGContent & Entertainment Business are typically seasonally lower during the first two fiscal quarters, and higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season, and lower in the following two quarters as we pay royalties on such revenues.season. In addition, we makemade net advances on theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twelve months. To manage working capital fluctuations, we have a revolving line of credit that allows for borrowings of up 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 | $ | — |
29
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 September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
30
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
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.
On March 31, 2023, the Company's share price was $8.40 and since has declined to a share price of $1.15 as of November 7, 2023. Under the accounting standard, ASC 350-20,Goodwill a Company is required to test for impairment on an annual basis, but in the presence of a triggering event, the Company performs additional testing. Under ASC 350, Goodwill, a sustained decline in share price represents a triggering event which would require the Company to test for impairment. 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
On September 17, 2021, the Company acquired substantially all of the assets of Bloody Disgusting, LLC (“Bloody Disgusting”). On August 3, 2023, the Company issued 41,034 shares of Common Stock as a deferred earnout payment of consideration for the acquisition, pursuant to Section 4(a)(2) of the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
31
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). |
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CINEVERSE CORP. | ||||
Date: November 14, | By: | /s/ Christopher J. McGurk | ||
Christopher J. McGurk (Principal Executive Officer) | ||||
Date: November 14, 2023 | By: | /s/ | ||
Mark Lindsey | ||||
33