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, 34,947,7907, 2024, 13,327,960 shares of Class A Common Stock, $0.001 par value, were outstanding.
Cineverse Corp.
TABLE OF CONTENTS
Page | |||
Item 1. | 1 | ||
Condensed Consolidated Balance Sheets at December 31, | 1 | ||
2 | |||
3 | |||
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months ended December 31, | 4 | ||
6 | |||
Notes to | 8 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 | |
Item 4. | 31 | ||
- OTHER INFORMATION | |||
Item 1. | 32 | ||
Item 1A. | 32 | ||
Item 2. | 32 | ||
Item 3. | 32 | ||
Item 4. | 32 | ||
Item 5. | 32 | ||
Item 6. | 33 | ||
33 | |||
34 |
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 |
| |||||
| December 31, |
|
| March 31, |
| |||
|
| (Unaudited) |
|
|
|
| ||
ASSETS |
|
|
|
|
|
| ||
Current Assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 5,539 |
|
| $ | 7,152 |
|
Accounts receivable |
|
| 16,416 |
|
|
| 20,846 |
|
Unbilled revenue |
|
| 2,454 |
|
|
| 2,036 |
|
Employee retention tax credit |
|
| 1,672 |
|
|
| 2,085 |
|
Content advances |
|
| 8,477 |
|
|
| 3,724 |
|
Other current assets |
|
| 1,678 |
|
|
| 1,734 |
|
Total current assets |
|
| 36,236 |
|
|
| 37,577 |
|
Equity investment in Metaverse, a related party, at fair value |
|
| 1,276 |
|
|
| 5,200 |
|
Property and equipment, net |
|
| 2,065 |
|
|
| 1,833 |
|
Intangible assets, net |
|
| 18,727 |
|
|
| 19,868 |
|
Goodwill |
|
| 20,824 |
|
|
| 20,824 |
|
Content advances, net of current portion |
|
| 3,153 |
|
|
| 1,421 |
|
Other long-term assets |
|
| 943 |
|
|
| 1,265 |
|
Total Assets |
| $ | 83,224 |
|
| $ | 87,988 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
| ||
Current Liabilities |
|
|
|
|
|
| ||
Accounts payable and accrued expenses |
| $ | 26,987 |
|
| $ | 34,531 |
|
Line of credit, including unamortized debt issuance costs of $69 and $76, respectively |
|
| 4,931 |
|
|
| 4,924 |
|
Current portion of deferred consideration on purchase of business |
|
| 3,954 |
|
|
| 3,788 |
|
Current portion of earnout consideration on purchase of business |
|
| 110 |
|
|
| 1,444 |
|
Operating lease liabilities |
|
| 440 |
|
|
| 418 |
|
Current portion of deferred revenue |
|
| 246 |
|
|
| 226 |
|
Total current liabilities |
|
| 36,668 |
|
|
| 45,331 |
|
Deferred consideration on purchase of business, net of current portion |
|
| 2,639 |
|
|
| 2,647 |
|
Operating lease liabilities, net of current portion |
|
| 531 |
|
|
| 863 |
|
Other long-term liabilities |
|
| 59 |
|
|
| 74 |
|
Total Liabilities |
|
| 39,897 |
|
|
| 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 7 shares outstanding at December 31, 2023 and March 31, 2023. |
|
| 3,559 |
|
|
| 3,559 |
|
Common Stock, $0.001 par value; Class A Stock: 275,000,000 shares authorized as of December 31, 2023, and March 31, 2023; 13,553,767 and 9,413,597 shares issued, with 13,265,214 and 9,347,805 shares outstanding as of December 31, 2023, and March 31, 2023, respectively. |
|
| 192 |
|
|
| 185 |
|
Additional paid-in capital |
|
| 542,482 |
|
|
| 530,998 |
|
Treasury stock, at cost; 288,554 and 65,792 shares at December 31, 2023 and March 31, 2023, respectively. |
|
| (11,978 | ) |
|
| (11,608 | ) |
Accumulated deficit |
|
| (489,341 | ) |
|
| (482,395 | ) |
Accumulated other comprehensive loss |
|
| (417 | ) |
|
| (402 | ) |
Total stockholders’ equity of Cineverse Corp. |
|
| 44,497 |
|
|
| 40,337 |
|
Deficit attributable to noncontrolling interest |
|
| (1,170 | ) |
|
| (1,264 | ) |
Total equity |
|
| 43,327 |
|
|
| 39,073 |
|
Total Liabilities and Equity |
| $ | 83,224 |
|
| $ | 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 December 31, |
|
| Nine Months Ended |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Revenues | $ | 13,276 |
|
| $ | 27,882 |
|
| $ | 39,268 |
|
| $ | 55,478 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
| ||||
Direct operating |
| 5,464 |
|
|
| 14,411 |
|
|
| 17,097 |
|
|
| 29,859 |
|
Selling, general and administrative |
| 6,373 |
|
|
| 9,107 |
|
|
| 21,088 |
|
|
| 29,016 |
|
Depreciation and amortization |
| 1,012 |
|
|
| 924 |
|
|
| 2,787 |
|
|
| 2,908 |
|
Total operating expenses |
| 12,849 |
|
|
| 24,442 |
|
|
| 40,972 |
|
|
| 61,783 |
|
Operating income (loss) |
| 427 |
|
|
| 3,440 |
|
|
| (1,704 | ) |
|
| (6,305 | ) |
Interest expense |
| (291 | ) |
|
| (367 | ) |
|
| (781 | ) |
|
| (880 | ) |
Loss from equity investment in Metaverse, a related party |
| (3,043 | ) |
|
| — |
|
|
| (3,761 | ) |
|
| (1,828 | ) |
Employee retention tax credit |
| — |
|
|
| 2,025 |
|
|
| — |
|
|
| 2,475 |
|
Other income (expenses), net |
| 147 |
|
|
| (76 | ) |
|
| (331 | ) |
|
| (82 | ) |
Net (loss) income before income taxes |
| (2,760 | ) |
|
| 5,022 |
|
|
| (6,577 | ) |
|
| (6,620 | ) |
Income tax benefit (expense) |
| 24 |
|
|
| — |
|
|
| (12 | ) |
|
| — |
|
Net (loss) income |
| (2,736 | ) |
|
| 5,022 |
|
|
| (6,589 | ) |
|
| (6,620 | ) |
Net income attributable to noncontrolling interest |
| (41 | ) |
|
| (8 | ) |
|
| (94 | ) |
|
| (35 | ) |
Net (loss) income attributable to controlling interests |
| (2,777 | ) |
|
| 5,014 |
|
|
| (6,683 | ) |
|
| (6,655 | ) |
Preferred stock dividends |
| (87 | ) |
|
| (88 | ) |
|
| (263 | ) |
|
| (264 | ) |
Net (loss) income attributable to common stockholders | $ | (2,864 | ) |
| $ | 4,926 |
|
| $ | (6,946 | ) |
| $ | (6,919 | ) |
Net (loss) income per share attributable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic | $ | (0.22 | ) |
| $ | 0.55 |
|
| $ | (0.59 | ) |
| $ | (0.78 | ) |
Diluted | $ | (0.22 | ) |
| $ | 0.55 |
|
| $ | (0.59 | ) |
| $ | (0.78 | ) |
Weighted average shares of Common Stock outstanding: |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| 12,828 |
|
|
| 8,945 |
|
|
| 11,678 |
|
|
| 8,854 |
|
Diluted |
| 12,828 |
|
|
| 8,945 |
|
|
| 11,678 |
|
|
| 8,854 |
|
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 December 31, |
|
| Nine Months Ended |
| |||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| |||||
Net (loss) income |
| $ | (2,736 | ) |
| $ | 5,022 |
|
| $ | (6,589 | ) |
| $ | (6,620 | ) |
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign exchange translation |
|
| (3 | ) |
|
| 88 |
|
|
| (15 | ) |
|
| (226 | ) |
Net income attributable to noncontrolling interest |
|
| (41 | ) |
|
| (8 | ) |
|
| (94 | ) |
|
| (35 | ) |
Comprehensive (loss) income |
| $ | (2,780 | ) |
| $ | 5,102 |
|
| $ | (6,698 | ) |
| $ | (6,881 | ) |
See accompanying Notes to Condensed Consolidated Financial Statements
3
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 | ) |
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 |
| Nine Months Ended |
| ||||||
| 2023 |
|
| 2022 |
| |||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (6,589 | ) |
| $ | (6,620 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 2,787 |
|
|
| 2,908 |
|
Provision for doubtful accounts |
|
| — |
|
|
| 54 |
|
Changes in fair value of equity investment in Metaverse |
|
| 3,761 |
|
|
| 1,828 |
|
Amortization of debt issuance costs |
|
| 103 |
|
|
| 138 |
|
Stock-based compensation |
|
| 1,092 |
|
|
| 3,855 |
|
Interest expense for deferred consideration and earnouts |
|
| 381 |
|
|
| 743 |
|
Capitalized content |
|
| (1,371 | ) |
|
| — |
|
Change in estimated earnout consideration |
|
| (682 | ) |
|
| — |
|
Non-monetary sale of content licenses |
|
| — |
|
|
| (1,022 | ) |
Barter-related non-cash expenses |
|
| 256 |
|
|
| — |
|
Other |
|
| 395 |
|
|
| 102 |
|
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
| ||
Accounts receivable |
|
| 3,815 |
|
|
| 5,795 |
|
Other current and long-term assets |
|
| 449 |
|
|
| (2,215 | ) |
Content advances |
|
| (6,485 | ) |
|
| 1,104 |
|
Employee retention tax credit |
|
| — |
|
|
| (2,475 | ) |
Accounts payable, accrued expenses, and other liabilities |
|
| (6,802 | ) |
|
| (11,972 | ) |
Unbilled revenue |
|
| (418 | ) |
|
| (332 | ) |
Deferred revenue |
|
| 20 |
|
|
| 208 |
|
Net cash used in operating activities |
| $ | (9,287 | ) |
| $ | (7,901 | ) |
Cash flows from investing activities: |
|
|
|
|
|
| ||
Expenditures for long-lived assets |
|
| (641 | ) |
|
| (429 | ) |
Sale of equity investment securities |
|
| 159 |
|
|
| — |
|
Net cash used in investing activities |
| $ | (482 | ) |
| $ | (429 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Proceeds from line of credit, net of debt issuance costs |
|
| 28,565 |
|
|
| 19,469 |
|
Payments on line of credit |
|
| (28,565 | ) |
|
| (14,469 | ) |
Payment of earnout consideration |
|
| (291 | ) |
|
| (665 | ) |
Financing fees for line of credit |
|
| (96 | ) |
|
| (271 | ) |
Issuance of Class A common stock, net of issuance costs |
|
| 8,542 |
|
|
| — |
|
Net cash provided by financing activities |
| $ | 8,156 |
|
| $ | 4,064 |
|
Net change in cash and cash equivalents |
|
| (1,613 | ) |
|
| (4,266 | ) |
Cash and cash equivalents at beginning of period |
|
| 7,152 |
|
|
| 13,062 |
|
Cash and cash equivalents at end of period |
| $ | 5,539 |
|
| $ | 8,796 |
|
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)
| Nine Months Ended |
| ||||||
|
| 2023 |
|
| 2022 |
| ||
Cash interest paid |
| $ | 233 |
|
| $ | 58 |
|
Lease liability related payments |
| $ | 333 |
|
| $ | - |
|
Income taxes paid |
| $ | 49 |
|
| $ | - |
|
Noncash investing and financing activities: |
|
|
|
|
|
| ||
Issuance of Class A common stock for payment of accrued employee bonuses |
| $ | 1,203 |
|
| $ | - |
|
Treasury shares acquired for withholding taxes |
| $ | 370 |
|
| $ | - |
|
Earnout liability settled in stock |
| $ | 392 |
|
| $ | 238 |
|
Accrued dividends on preferred stock |
| $ | 263 |
|
| $ | 88 |
|
Issuance of Class A common stock for payment of accrued preferred stock dividends |
| $ | 263 |
|
| $ | 264 |
|
Earnout consideration adjustment |
| $ | - |
|
| $ | 80 |
|
Issuance of common stock for Board of Director compensation |
| $ | - |
|
| $ | 3 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
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 |
|
Foreign exchange translation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| (3 | ) |
|
| — |
|
|
| (3 | ) |
Stock-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 98 |
|
|
| — |
|
|
| — |
|
|
| 98 |
|
|
| — |
|
|
| 98 |
|
Issuance of common stock for Board of Director compensation |
| — |
|
|
| — |
|
|
| 400 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 85 |
|
|
| — |
|
|
| — |
|
|
| 85 |
|
|
| — |
|
|
| 85 |
|
Preferred stock dividends paid in stock |
| — |
|
|
| — |
|
|
| 74 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 87 |
|
|
| — |
|
|
| — |
|
|
| 87 |
|
|
| — |
|
|
| 87 |
|
Preferred stock dividends accrued |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (87 | ) |
|
| — |
|
|
| (87 | ) |
|
| — |
|
|
| (87 | ) |
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,777 | ) |
|
| — |
|
|
| (2,777 | ) |
|
| 41 |
|
|
| (2,736 | ) |
Balances as of December 31, 2023 |
| 1 |
|
| $ | 3,559 |
|
|
| 13,265 |
|
| $ | 192 |
|
|
| 289 |
|
| $ | (11,978 | ) |
| $ | 542,482 |
|
| $ | (489,341 | ) |
| $ | (417 | ) |
| $ | 44,497 |
|
| $ | (1,170 | ) |
| $ | 43,327 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
6
Cineverse Corp.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands)
Preferred Stock |
|
| Common Stock |
|
| Treasury |
|
| Additional Paid-In |
|
| Accumulated |
|
| Accumulated Other |
|
| Total |
|
| Non |
|
|
|
| ||||||||||||||||||||||
Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Equity |
|
| Interest |
|
| Total |
| |||||||||||||
Balances as of March 31, 2022 (Audited) |
| 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 employee bonuses |
| — |
|
|
| — |
|
|
| 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 |
|
Foreign exchange translation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| 88 |
|
|
| — |
|
|
| 88 |
|
Stock-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 657 |
|
|
| — |
|
|
| — |
|
|
| 657 |
|
|
| — |
|
|
| 657 |
|
Preferred stock dividends paid in stock |
| — |
|
|
| — |
|
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| 88 |
|
Issuance of common stock for Board of Director compensation |
| — |
|
|
| — |
|
|
| 34 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Preferred stock dividends accrued |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| (88 | ) |
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,014 |
|
|
| — |
|
|
| 5,014 |
|
|
| 8 |
|
|
| 5,022 |
|
Balances as of December 31, 2022 |
| 1 |
|
| $ | 3,559 |
|
|
| 8,945 |
|
| $ | 177 |
|
|
| 66 |
|
| $ | (11,608 | ) |
| $ | 526,402 |
|
| $ | (479,229 | ) |
| $ | (389 | ) |
| $ | 38,912 |
|
| $ | (1,268 | ) |
| $ | 37,644 |
|
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, ITV, Nelvana, ZDF, Konami, NFL and Highlander, 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 of digital cinema assets for overpioneering 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 Nasdaq Capital Market (“Nasdaq”) under the United States,symbol “CNVS.” The Company has maintained its compliance with the $1.00 bid price requirement for continued listing on The Nasdaq Capital Market and in Australiaremains subject to a one-year “Panel Monitor” as that term is defined by Nasdaq Listing Rule 5815(d)(4)(A) through June 30, 2024.
Financial Condition and New Zealand. Our Services segment provides fee based supportLiquidity
We have a history of net losses, and for the nine months ended December 31, 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") digital network business, providing entertainment channels and applications.
The Company is party to a Loan, Guaranty, and is servicedSecurity Agreement with East West Bank (“EWB”) providing for a revolving line of credit (the “Line of Credit Facility”) of $5.0 million, guaranteed by our digital cinema business and is non-recourse to us. We also had approximately $37.3 million of outstanding debt principal that is a partsubstantially all of our Content & Entertainmentmaterial subsidiaries and Corporate segmentssecured by substantially all of which $2.0our and such subsidiaries’ assets. The line of credit expires on September 15, 2024. The Line of Credit Facility bears interest at a rate equal to 1.5% above the prime rate, 10.00% as of December 31, 2023. As of December 31, 2023, $5.0 million was paid subsequentoutstanding on the Line of Credit Facility, net of unamortized issuance costs of $69 thousand. On February 9, 2024, the Company expanded the Line of Credit Facility to December 31, 2017.
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)
nine months ended December 31, 2023, the Company sold 177 thousand shares for $1.1 million in net proceeds, respectively, after deduction of commissions and fees. The ATM Sales Agreement has expired in accordance with its terms.
On June 16, 2023, the Company closed on the sale of 2,150 thousand shares of Common Stock, 517 thousand pre-funded warrants, and warrants to purchase 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 atequivalents and our credit facility, as of December 31, 2017, which includes the net proceeds received from Bison for the issuance of 19,666,667 shares and from the Loan, (ii) implemented and planned cost reduction initiatives, (iii) retirement of the full outstanding amount of Convertible Notes, and (iv) expected cash flows from operations2023, 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.
Accounting Policies
There have been no material changes in the notes thereto, includedCompany’s significant accounting policies as compared to the significant accounting policies described in ourthe 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 Company owned DVD and Blu-ray Disc titles andfiscal year 2024 that its ERTC claim is stated atunder examination with the lower of cost (determined based on weighted average cost) or market. We identify inventory items to be written down for obsolescence based on their sales status and condition. We write down discontinued or slow moving inventories based on an estimateInternal Revenue Service ("IRS"). As of the markdowndate of this report, the examination is ongoing, and the Company is responding to retail price needed to sell through our current stock level of the inventories.audit requests as they arise.
10
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Property and Equipment, Net
Property and equipment, net are stated at cost, less accumulated depreciation and amortization. Depreciation expense is recorded using the straight-line method over the estimated useful lives of the respective assets as follows:
Computer equipment and software | 3 - 5 years | |
Internal use software | 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, improvements and additions are capitalized. Upon the sale or other disposition of any property and equipment, the cost and related accumulated depreciation and amortization are removed from the accounts and the gain or loss on disposal is included in the condensed consolidated statements of operations.
Intangible Assets, Net
Intangible assets are stated at cost less accumulated amortization. For intangible assets that have finite lives, the market approach, where pricesassets 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 December 31, 2023 |
| |||||||||
|
| Cost Basis |
|
| Accumulated |
|
| Net |
| |||
Content Library |
| $ | 24,096 |
|
| $ | (21,378 | ) |
| $ | 2,718 |
|
Advertiser Relationships and Channel |
|
| 12,604 |
|
|
| (2,132 | ) |
|
| 10,472 |
|
Customer Relationships |
|
| 8,690 |
|
|
| (7,804 | ) |
|
| 886 |
|
Software |
|
| 3,200 |
|
|
| (800 | ) |
|
| 2,400 |
|
Trademark and Tradenames |
|
| 4,026 |
|
|
| (3,056 | ) |
|
| 970 |
|
Capitalized Content |
|
| 1,371 |
|
|
| (90 | ) |
|
| 1,281 |
|
Total Intangible Assets |
| $ | 53,987 |
|
| $ | (35,260 | ) |
| $ | 18,727 |
|
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 other relevant information are generated by market transactions involving identical or comparable assets or liabilities.
As of December 31, 20172023, amortization expense is expected to be (in thousands):
| Total |
| ||
In-process intangible assets |
| $ | 411 |
|
Remainder of fiscal year 2024 |
|
| 1,254 |
|
2025 |
|
| 3,264 |
|
2026 |
|
| 3,001 |
|
2027 |
|
| 1,772 |
|
2028 |
|
| 1,246 |
|
Thereafter |
|
| 7,779 |
|
|
| $ | 18,727 |
|
Capitalized Content
The Company capitalizes direct costs incurred in the production of content from which it expects to generate a return over the anticipated useful life and March 31, 2017:
(in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Restricted cash | $ | 1,000 | $ | — | — | $ | — | $ | 1,000 |
Impairment of their short-term nature. At December 31, 2017Long-lived and March 31, 2017, the estimated fair value of our fixed rate debt approximated its carrying amounts. We estimated the fair value of debt based upon current interest rates available to us at the respective balance sheet dates for arrangements with similar terms and conditions. Based on borrowing rates currently available to us for loans with similar terms, the carrying value of notes payable and capital lease obligations approximates fair value.
We review the recoverability of our long-lived assets and finite-lived intangible assets, when events or conditions occur that indicate a possible impairment exists. The assessment for recoverability is based primarily on our ability to recover the carrying value of our long-lived and finite-lived assets from expected future undiscounted net cash flows. If the total of expected future undiscounted net cash flows is less than the total carrying value of the asset, the asset is deemed not to be recoverable and possibly impaired. We then estimate the fair value of the asset to determine whether an impairment loss should be recognized. An impairment loss will be recognized if the asset'sasset’s fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted cash flows. DuringThere were no impairment charges recorded for long-lived and finite-lived intangible assets during the three and nine months ended December 31, 20172023 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 orand nine months ended December 31, 20172023 and 2016.2022.
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 December 31, 2023 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equity investment in Metaverse, at fair value |
| $ | 1,276 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,276 |
|
| $ | 1,276 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,276 |
| |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current portion of earnout consideration on purchase of a business |
| $ | — |
|
| $ | — |
|
| $ | 110 |
|
| $ | 110 |
|
| $ | — |
|
| $ | — |
|
| $ | 110 |
|
| $ | 110 |
|
|
| 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 an investment in A Metaverse Company ("Metaverse") (SEHK: 1616) accounted for under the equity method of accounting as the Company can exert significant influence over Metaverse with its direct
13
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
ownership of approximately 15% 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. Changes in the investment's fair value are recognized within the "Loss from equity investment in Metaverse, a related party" line item within the Condensed Consolidated Statements of Operations.
Following the halting of Metaverse stock trading on The Stock Exchange of Hong Kong Limited on April 1, 2022, the Company valued our equity investment in Metaverse using a market approach and the investment was categorized as a Level 3 valuation based on unobservable inputs. As such, as of March 31, 2023, the Company estimated the fair value of Metaverse based the last known enterprise value, adjusting for trends in enterprise valuations and market capitalization for comparable companies with a resulting fair value was $5.2 million.
On November 6, 2023, Metaverse's stock resumed trading on The Stock Exchange of Hong Kong Limited. During the quarter ended December 31, 2023, the Company sold 30 million of the 362 million shares held as of September 30, 2023, which resulted in a realized loss of $131 thousand during the three months ended December 31, 2023. The resumption of active trading status represented renewed availability of quoted, unadjusted prices in active markets for identical assets, upon which the Company can execute a sale and readily access pricing information at the measurement date. Accordingly, the Company has presented the fair value of its Metaverse shares held as of December 31, 2023 within the Level 1 grouping. The fair value of the shares held as of December 31, 2023 was $1.3 million, with associated unrealized losses of $3.6 million.
The Company estimated the fair value of its earnout consideration using contractual inputs from the related business combination, which established specific fiscal year revenue growth, profitability and EBITDA targets. The Company utilizes the most up to date forecast to estimate the outcome against these targets to determine the ultimate estimated payout. During the nine months ended December 31, 2023, the Company estimated a $682 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 $392 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 $3.2 million and $1.4 million as of December 31, 2023, and March 31, 2023, respectively. For the nine months ended December 31, 2023, the Company recorded a recovery 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 |
| ||||||
|
| December 31, |
|
| March 31, |
| ||
Accounts payable |
| $ | 6,568 |
|
| $ | 15,042 |
|
Amounts due to producers |
|
| 15,553 |
|
|
| 13,114 |
|
Accrued compensation and benefits |
|
| 1,209 |
|
|
| 2,532 |
|
Accrued other expenses |
|
| 3,657 |
|
|
| 3,843 |
|
Total accounts payable and accrued expenses |
| $ | 26,987 |
|
| $ | 34,531 |
|
Compared to March 31, 2023, the decrease in accounts payable was primarily attributable to an $8.3 million decrease from the run-off of the Company's digital cinema operations, and the decrease in accrued compensation and benefits was driven by a decrease of $1.2 million due to a reduced bonus accrual.
Deferred Consideration
The Company has recognized liabilities related to deferred consideration arrangements related to the acquisition of FoundationTV ("FTV") and Digital Media Rights ("DMR"). These payments are fixed in nature and are due to the sellers of the respective companies. The Company initially recognized the liability at fair value at the time of acquisition and has since recognizes interest expense related to accretion in advance of the ultimate settlement of these liabilities. Amounts due within 12 months under the terms of the agreements are classified as current within the Condensed Consolidated Balance Sheets.
The deferred consideration related to the acquisition of DMR is payable in either Class A common shares of the Company stock or cash, at the Company's discretion and subject to certain conditions. Payments of $3.0 million and $2.4 million are due in March 2024 and March 2025, respectively.
The deferred consideration related to the FTV acquisition is payable in the amount of $238 thousand in each of June 2024 and December 2024, and $464 thousand in June 2025. There is $617 thousand presently due and payable. The Company has the right to pay up to 25% of post-close purchase price in equity.
Revenue Recognition
Payment terms and conditions vary by customer and typically provide net 30 to 90 day terms. We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and payment for that product or service will be one year or less.
The following tables present the Company’s disaggregated revenue by source (in thousands):
Three Months Ended |
|
| Nine Months Ended |
| |||||||||||
2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| |||||
Streaming and digital | $ | 9,537 |
|
| $ | 11,598 |
|
| $ | 29,006 |
|
| $ | 31,375 |
|
Base distribution |
| 2,811 |
|
|
| 8,121 |
|
|
| 4,529 |
|
|
| 11,145 |
|
Podcast and other |
| 864 |
|
|
| 977 |
|
|
| 1,953 |
|
|
| 1,740 |
|
Other non-recurring |
| 64 |
|
|
| 7,186 |
|
|
| 3,780 |
|
|
| 11,218 |
|
Total revenue | $ | 13,276 |
|
| $ | 27,882 |
|
| $ | 39,268 |
|
| $ | 55,478 |
|
The Company's Streaming and digital revenue pertains to its OTT business, including the licensing, service, advertising, and subscription revenue related to the Company's streaming business and partnerships. Base
15
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
distribution revenue relates to non-streaming revenue, including Theatrical revenue and the sale of DVD's. Podcast and other revenue primarily relates to the Company's Bloody Disgusting Podcast Network. As the Company satisfies its performance obligations from these revenue sources, whether relating to the delivery of digital content, physical goods, or licensing, revenue is generally measured at a point in time.
Other non-recurring revenue relates to the Company's legacy digital cinema operations, whose operations have run-off, still may generate non-recurring revenue from the sale of cinema assets or the recognition of variable consideration as the associated uncertainty associated with the revenue is resolved.
The Company follows the five-step model established by ASC 606, Revenue from contracts with customers ("ASC 606") when preparing its assessment of revenue recognition.
Principal Agent Considerations
Revenue earned from the delivery of digital content and physical goods may be recognized gross or net depending on the terms of the arrangement. We determine whether revenue should be reported on a gross or net basis based on each revenue stream. Key indicators that we use in evaluating gross versus net treatment include, but are not limited to, the following:
Shipping and Handling
Shipping and handling costs are incurred to move physical goods (e.g., DVDs and Blu-ray Discs) to customers. We recognize all shipping and handling costs as an expense in direct operating expenses because we are responsible for delivery of the product to our customers prior to transfer of control to the customer.
Credit Losses
We maintain reserves for expected credit losses on accounts receivable primarily on a specific identification basis. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.
We recognize accounts receivable, net of an estimated allowance for product returns and customer chargebacks, at the time that we recognize revenue from a sale. Reserves for product returns and other allowances is variable consideration as part of the transaction price. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.
During the three and nine months ended December 31, 2023, we did not recognize any credit losses as part of our ongoing operations or reversals of previously recorded provisions. During the three and nine months ended December 31, 2022, we recognized credit losses of $7 thousand and $54 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 December 31, 2023 and March 31, 2023, was and $0.2 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
16
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
obligations, while the reductions are due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.
Participations and royalties payable
When we use third 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.
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 |
Concentrations
For the three and nine months ended December 31, 20172023, one customer represented 26% and 2016.
Direct Operating Expenses
Direct operating expenses consist of cost of revenue, fulfillment expenses, shipping costs, property taxes and insurance on systems, royalty expenses, reserves against advances and marketing and direct personnel costs.
Stock-based Compensation
The Company issues stock-based awards to employees and non-employees, generally in the form of restricted stock, restricted stock units, stock appreciation rights ("SARs") and performance stock units ("PSUs"). The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments, including grants of stock options and restricted stock units and modifications to existing stock options, to be recognized in the Condensed Consolidated Statements of Operations and Comprehensive Loss based on their fair values. The Company measures the compensation expense of employee and nonemployee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost is recognized on a straight-line basis over the period during which the three and nine months ended December 31, 2016.
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 Cuts and Jobs Act (the "Act") was enactedCompany accounts for uncertain tax positions in December 2017. Among other things,accordance with an amendment to ASC Topic 740-10, Income Taxes (Accounting for Uncertainty in Income Taxes), which clarified the Act reducesaccounting for uncertainty in tax positions. This amendment provides that the U.S. federal corporate tax rateeffects from 35 percentan uncertain tax position can be recognized in the financial
17
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
statements only if the position is “more-likely-than-not” to 21 percent and eliminates the alternative minimum tax (“AMT”) for corporations. Since the deferred tax assets are expectedbe sustained were it to reverse inbe challenged by a future year, it has been tax effected using the 21% federal corporate tax rate. As a resulttaxing authority. The assessment of the reduction intax position is based solely on the corporate incometechnical merits of the position, without regard to the likelihood that the tax rate, we wrote down approximately $35.5 millionposition may be challenged. If an uncertain tax position meets the “more-likely-than-not” threshold, the largest amount of our gross deferred tax assets and valuation allowancebenefit 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 December 31, 2017, which has no impact in our condensed consolidated financial statements2023 and March 31, 2023.
Earnings per Share
Basic net income (loss) per share is computed based on the weighted average number of shares of Common Stock outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) available to common stockholders by the weighted-average number of common shares outstanding and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include stock options and warrants outstanding during the period, using the treasury stock method. Potentially dilutive common shares are excluded from the computations of diluted income (loss) per share if their effect would be anti-dilutive. A net loss available to common stockholders causes all potentially dilutive securities to be anti-dilutive and are not included.
Basic and diluted net loss per share are computed as follows (in thousands, except share and per share data):
| Three Months Ended December 31, |
|
| Nine Months Ended |
| |||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| |||||
Basic net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) attributable to common stockholders |
| $ | (2,864 | ) |
|
| 4,926 |
|
| $ | (6,946 | ) |
| $ | (6,919 | ) |
Shares used in basic computation: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted-average shares of Common Stock outstanding |
|
| 12,828 |
|
|
| 8,945 |
|
|
| 11,678 |
|
|
| 8,854 |
|
Basic net income (loss) per share |
| $ | (0.22 | ) |
| $ | 0.55 |
|
| $ | (0.59 | ) |
| $ | (0.78 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shares used in diluted computation: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted-average shares of Common Stock outstanding |
|
| 12,828 |
|
|
| 8,945 |
|
|
| 11,678 |
|
|
| 8,854 |
|
Stock options and SARs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Weighted-average number of shares |
|
| 12,828 |
|
|
| 8,945 |
|
|
| 11,678 |
|
|
| 8,854 |
|
Diluted net income (loss) per share |
| $ | (0.22 | ) |
| $ | 0.55 |
|
| $ | (0.59 | ) |
| $ | (0.78 | ) |
The calculation of diluted net loss per share for the three and nine months ended December 31, 2017.
Recently Issued Accounting Standards BoardPronouncements
The Company evaluates all Accounting Standard Updates ("FASB"ASUs") issued new accounting guidance on revenue recognition. The new standard, issued Accounting Standards Update ("ASU") as ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, providesbut not yet effective by FASB for a single five-step modelconsideration of their applicability. ASU's not included in the Company's disclosures were assessed and determined to be appliednot applicable and material to all revenue contracts with customers as well as requires additionalthe Company's consolidated financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. During 2016,statements or disclosures.
In November 2023, the FASB issued several accountingASU 2023-07, "Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures." The update requires disclosure of incremental segment information, including significant segment expenses, on an annual and interim basis, and would apply to single segment companies. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption is permitted. The Company is required to apply the updates (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 evaluatingretrospectively. The Company is assessing the impact if any,of ASU 2023-07 on ourits consolidated financial statements remains ongoing. Duringstatements.
18
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In December 2023, the third quarter we engaged outside assistanceFASB issued ASU 2023-09, "Income Taxes (Topic 740)—Improvements to support our ongoing assessment.Income Tax Disclosures" On an annual basis, this update requires the disclosure of specific tax categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. The amendments are effective for annual periods beginning after December 15, 2024. Prospective and retrospective adoption is permitted. The Company is still evaluating its method of adoption and assessing the impact of ASU 2023-09 on the disclosures within its consolidated financial statements.
3. OTHER INTERESTS
Investment in CDF2 Holdings
We indirectly own 100%100% of the common equity of CDF2 Holdings, LLC ("(“CDF2 Holdings"Holdings”), which was created for the purpose of capitalizing on the conversion of the exhibition industry from film to digital technology. CDF2 Holdings assists its customers in procuring the equipment necessary to convert their Systemssystems to digital technology by providing financing, equipment, installation and related ongoing services.
CDF2 Holdings is a Variable Interest Entity (“VIE”), as defined in Accounting Standards CodificationASC Topic 810 ("(“ASC 810"810”), “Consolidation."Consolidation. ASC 810 requires the consolidation of VIEs by an entity that has a controlling financial interest in the VIE which entity is thereby defined as the primary beneficiary of the VIE. To be a primary beneficiary, an entity must have the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, among other factors. Although we indirectly, wholly own CDF2 Holdings, we, a third party that also has a variable interest in CDF2 Holdings, and an independent third party manager must mutually approve all business activities and transactions that significantly impact CDF2 Holdings' economic performance. We have therefore assessed our variable interests in CDF2 Holdings and determined that we are not the primary beneficiary of CDF2 Holdings. As a result, CDF2 Holdings' financial position and results of operations are not consolidated in our financial position and results of operations. In completing our assessment, we identified the activities that we consider most significant to the economic performance of CDF2 Holdings and determined that we do not have the power to direct those activities, and therefore we account for our investment in CDF2 Holdings under the equity method of accounting.
As of December 31, 20172023 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, 20172023 and March 31, 2017,2023, respectively, which are included in accounts receivable, net on the accompanying Condensed Consolidated Balance Sheets.
The accompanying Condensed Consolidated Statements of Operations includes digital cinema servicing revenue from CDF2 Holdings in the amount of $0.0 for the three and nine months ended December 31, 20172023, respectively, and 2016,$0.1 and $0.2 million for the accompanying Condensed Consolidated Statements of Operations includes $0.3 millionthree and $0.8 million, respectively of digital cinema servicing revenue from CDF2 Holdings.
Total Stockholders'Stockholders’ Deficit of CDF2 Holdings at December 31, 20172023 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, 20172023 and March 31, 20172023 is carried at $0.
Investment in CONtv
On March 15, 2022, the Company entered into a stock purchase agreement with Roundtable Entertainment Holdings, Inc. (“Roundtable”) pursuant to which the Company purchased 0.5 thousand shares of Roundtable Series A Preferred Stock and warrants to purchase 0.1 thousand shares of Roundtable Common Stock (together, the “Roundtable Securities”). The Company paid the purchase price for the Roundtable Securities by issuing 16 thousand shares of Common Stock to Roundtable. The Company recorded $0.2 million for the purchase of the Roundtable Securities which is included in CON TV, LLC, a worldwide digital network that creates original content, and sells and distributes on-demand digital contentother long-term assets on the Internetaccompanying Consolidated Balance Sheets. The investment in the Roundtable Securities was made in connection with a proposed collaboration with Roundtable regarding production and other consumer digital distribution platforms,of streaming content including the launch of high profile branded 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.
19
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. STOCKHOLDERS’ EQUITY
COMMON STOCK
As of December 31, 2023 and 2022, the number of shares of Common Stock authorized for issuance was 275,000,000 shares.
During the three months ended December 31, 2023, the Company issued 0.5 million shares of Common Stock. This was comprised of 74 thousand shares for preferred stock dividends, and 400 thousand shares for Board of Director compensation.
During the nine months ended December 31, 2023, the Company issued 3.9 million shares of Common Stock. In addition to the activity cited for three months ended December 31, 2023, 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, 56 thousand shares for preferred stock dividends, 41 thousand to satisfy earnout-related liabilities, 2,150 thousand shares were issued through a June 16, 2023 direct offering, and 177 thousand issued in connection with ATM sales during the first fiscal quarter. 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 December 31, 2023.
During the three months ended December 31, 2022, the Company issued 45 thousand shares. This was comprised of 11 thousand shares for preferred stock dividends and 34 thousand shares for Board of Director compensation.
During the nine months ended December 31, 2022, the Company issued 179 thousand shares. In addition to the activity cited during the three months ended December 31, 2022, this was comprised of 14 thousand shares for preferred stock dividends, 103 thousand shares for employee bonuses, and 17 thousand shares to satisfy earnout-related liabilities.
PREFERRED STOCK
Cumulative dividends in arrears on Series A Preferred Stock were $87 thousand and $88 thousand as of December 31, 2023 and 2022, respectively. During the three and nine months ended December 31, 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.
TREASURY STOCK
We have treasury stock, at cost, consisting of 289 thousand and 66 thousand shares of Common Stock at December 31, 2023 and March 31, 2023, respectively. During the nine months ended December 31, 2023, the Company acquired 223 thousand shares of Common Stock withheld in connection with employee bonuses that the Company elected to settle in shares of Common Stock.
20
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
EQUITY INCENTIVE PLANS
Stock Based Compensation Awards
The Company has issued awards under two plans, the 2000 Equity Incentive Plan (the “2000 Plan”) and the 2017 Equity Incentive Plan (the “2017 Plan").
Awards issued under our 2000 Plan were permitted to be issued to employees, outside directors or consultants in any of the following forms (or a combination thereof) (i) stock option awards; (ii) SARs; (iii) stock or restricted stock or restricted stock units; or (iv) performance awards. The 2000 Plan provided for the granting of incentive stock options (“ISOs”) with exercise prices not less than the fair market value of our Common Stock on the date of grant. ISOs granted to shareholders having more than 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 Entertainment Investment Limited, 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.
For the three and nine months ended December 31, 2023, the Company incurred stock-based compensation expenses of $0.2 million and $1.1 million, respectively. Of these amounts, $0.1 million and $0.3 million related to Board of Director compensation, respectively.
For the three and nine months ended December 31, 2022, the Company incurred stock-based compensation expenses of $0.7 million and $3.9 million, respectively. Of these amounts, $0.1 million and $0.3 million related to Board of Director compensation, respectively.
Share-based compensation expense is reported within Selling, General and Administrative expenses.
5. LINE OF CREDIT FACILITY
The Company is party to a Loan, Guaranty, and Security Agreement with East West Bank ("EWB") providing for a revolving line of credit (the "Line of Credit Facility") of $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 gaming consoles, set-top boxes, handsets,of December 31, 2023. As of December 31, 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 $69 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. On February 9, 2024, the Company expanded the Line of Credit Facility to $7.5 million at the same interest rate and with the same maturity date.
During the three and nine months ended December 31, 2023, the Company had interest expense, including cash interest and amortization, of $0.2 million and $0.4 million related to its Line of Credit Facility, respectively.
21
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. COMMITMENTS AND CONTINGENCIES
LEASES
Cineverse is a virtual company with one domestic operating lease, acquired through the acquisition of 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 $109 thousand and $337 thousand during the three and nine months ended December 31, 2023 and $94 thousand and $242 thousand three and nine months ended December 31, 2022, respectively.
The Company has recognized $45 thousand and $135 thousand of income related to its subleasing arrangement during three and nine months ended December 31, 2023, respectively. The Company recognized $44 thousand and $71 thousand of income related to its subleasing arrangement for the three and nine months ended December 31, 2022, respectively.
The table below presents the lease-related assets and liabilities recorded on our Consolidated Balance Sheets (in thousands):
Classification on the Balance Sheet |
| December 31, |
|
| March 31, |
| ||||
Assets |
|
|
|
|
|
|
|
| ||
Noncurrent |
| Other long-term assets |
| $ | 943 |
|
| $ | 1,265 |
|
Liabilities |
|
|
|
|
|
|
|
| ||
Current |
| Operating leases liabilities |
|
| 440 |
|
|
| 418 |
|
Noncurrent |
| Operating leases liabilities, net of current portion |
|
| 531 |
|
|
| 863 |
|
Total operating lease liabilities |
| $ | 971 |
|
| $ | 1,281 |
|
The table below presents the annual gross undiscounted cash flows related to the Company's operating lease commitments (in thousands):
Fiscal year ending March 31, |
| Operating Lease Commitments |
| |
2024 |
| $ | 115 |
|
2025 |
|
| 376 |
|
2026 |
|
| 247 |
|
2027 |
|
| 210 |
|
2028 |
|
| 72 |
|
Thereafter |
|
| — |
|
Total lease payments |
| $ | 1,020 |
|
Less imputed interest |
|
| (49 | ) |
Total |
| $ | 971 |
|
For leases which have a term of twelve months or less and do not contain an option to extend which the Company is reasonably certain to extend the term, the Company has elected to not apply the recognition provisions of ASC 842 and recognizes these expenses on a straight-line basis over the term of the agreement.
The table below presents the annual gross undiscounted cash flows related to the Company's operating lease subleasing arrangements (in thousands):
22
CINEVERSE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Fiscal year ending March 31, |
| Sublease Payments |
| |
2024 |
| $ | 45 |
|
2025 |
|
| 154 |
|
2026 |
|
| — |
|
2027 |
|
| — |
|
2028 |
|
| — |
|
Thereafter |
|
| — |
|
Total |
| $ | 199 |
|
7. INCOME TAXES
We calculate income tax expense based upon an annual effective tax rate forecast, includingwhich includes estimates and assumptions. IncomeWe recognized income tax (benefit) expense recordedof approximately $(24) thousand and $12 thousand for the three and nine month periodsmonths ended December 31, 20172023, respectively. We recognized $0 for both the three and 2016 represent statenine months ended December 31, 2022. The Company's annual income taxes. tax expense is attributable to taxable income earned in India relating to transfer pricing.
We have not recorded tax benefits on our loss before income taxes because we have provided for a full valuation allowance that offsets potential deferred tax assets resulting from net operating loss carry forwards, reflecting our inability to use such loss carry forwards.
Our effective tax rate for the nine months ended December 31, 2017was (0.9%) and 2016 was negative 2.7% and negative 2.7%, respectively.
December 31, 2017 | March 31, 2017 | |||||||||||||||
(In thousands) | Current Portion | Long Term Portion | Current Portion | Long Term Portion | ||||||||||||
Prospect Loan | $ | — | $ | 40,212 | $ | — | $ | 54,656 | ||||||||
KBC Facilities | 2,553 | 408 | 5,744 | 2,890 | ||||||||||||
P2 Vendor Note | 357 | — | 227 | 181 | ||||||||||||
P2 Exhibitor Notes | 44 | — | 85 | 22 | ||||||||||||
Total non-recourse notes payable | 2,954 | 40,620 | 6,056 | 57,749 | ||||||||||||
Less: Unamortized debt issuance costs and debt discounts | — | (2,289 | ) | — | (2,701 | ) | ||||||||||
Total non-recourse notes payable, net of unamortized debt issuance costs and debt discounts | $ | 2,954 | $ | 38,331 | $ | 6,056 | $ | 55,048 | ||||||||
Bison Note Payable | — | 10,000 | — | — | ||||||||||||
5.5% Convertible Notes Due 2035 | — | — | — | 50,571 | ||||||||||||
Second Secured Lien Notes | — | 10,442 | — | 9,165 | ||||||||||||
Cinedigm Revolving Loans | 11,809 | — | 19,599 | — | ||||||||||||
2013 Notes | 5,000 | — | — | 5,000 | ||||||||||||
Total recourse notes payable | 16,809 | 20,442 | 19,599 | 64,736 | ||||||||||||
Less: Unamortized debt issuance costs and debt discounts | (318 | ) | (3,445 | ) | — | (5,340 | ) | |||||||||
Total recourse notes payable, net of unamortized debt issuance costs and debt discounts | $ | 16,491 | $ | 16,997 | $ | 19,599 | $ | 59,396 | ||||||||
Total notes payable, net of unamortized debt issuance costs | $ | 19,445 | $ | 55,328 | $ | 25,655 | $ | 114,444 |
(In thousands) | December 31, 2017 | March 31, 2017 | ||||||
Prospect Loan, at issuance | $ | 70,000 | $ | 70,000 | ||||
PIK Interest | 4,778 | 4,778 | ||||||
Payments to date | (34,566 | ) | (20,122 | ) | ||||
Prospect Loan, net | 40,212 | 54,656 | ||||||
Less current portion | — | — | ||||||
Total long term portion | $ | 40,212 | $ | 54,656 |
Outstanding Principal Balance | ||||||||||||||||||
Facility1 | Credit Facility | Interest Rate2 | Maturity Date | December 31, 2017 | March 31, 2017 | |||||||||||||
1 | $ | 22,336 | 3.75 | % | September 2018 | $ | — | $ | 3,758 | |||||||||
3 | 11,425 | 3.75 | % | March 2019 | 2,040 | 3,264 | ||||||||||||
4 | 6,450 | 3.75 | % | December 2018 | 921 | 1,612 | ||||||||||||
$ | 40,211 | $ | 2,961 | $ | 8,634 |
23
Shares Under Option | Weighted Average Exercise Price Per Share | |||||
Balance at March 31, 2017 | 345,615 | $ | 16.03 | |||
Granted | — | — | ||||
Exercised | — | — | ||||
Canceled/forfeited | (7,300 | ) | 42.49 | |||
Balance at December 31, 2017 | 338,315 | $ | 15.57 |
Recipient | Amount outstanding | Expiration | Exercise price per share | ||||
Strategic management service provider | 52,500 | July 2021 | $17.20 - $30.00 | ||||
Warrants issued to creditors in connection with the 2013 Notes (the "2013 Warrants") | 125,063 | October 2018 | $18.50 | ||||
Warrants issued to Ronald L. Chez in connection with the Second Secured Lien Notes | 206,768 | July 2023 | $1.34 - $1.57 | ||||
Warrants issued in connection with Convertible Notes exchange transaction | 207,679 | December 2021 | $1.54 | ||||
5-year Warrant issued to Bison in connection with a term loan agreement | 1,400,000 | December 2022 | $1.80 |
December 31, | ||||||||
(in thousands) | 2017 | 2016 | ||||||
Cash interest paid | $ | 8,533 | $ | 12,193 | ||||
Accrued dividends on preferred stock | 89 | 178 | ||||||
Issuance of Class A common stock for payment of preferred stock dividends | 267 | 89 | ||||||
Issuance of Class A common stock in connection with Second Secured Lien Notes | — | 1,163 | ||||||
Issuance of Class A common stock and warrants to purchase Class A common stock in exchange for Convertible Notes | — | 3,838 | ||||||
Issuance of Second Lien Loans in connection with Convertible Notes exchange | 1,462 | — | ||||||
Issuance of warrants in connection with debt instruments | 1,084 | — | ||||||
Issuance of Class A common stock in exchange for the CEO's Second Lien Loans | 500 | — |
As of December 31, 2017 | ||||||||||||||||||||
(In thousands) | Intangible Assets, net | Goodwill | Total Assets | Notes Payable, Non-Recourse | Notes Payable | |||||||||||||||
Phase I Deployment | $ | 126 | $ | — | $ | 6,709 | $ | 37,923 | $ | — | ||||||||||
Phase II Deployment | — | — | 41,338 | 3,362 | — | |||||||||||||||
Services | — | — | 923 | — | — | |||||||||||||||
Content & Entertainment | 15,911 | 8,701 | 59,574 | — | — | |||||||||||||||
Corporate | 8 | — | 13,683 | — | 33,488 | |||||||||||||||
Total | $ | 16,045 | $ | 8,701 | $ | 122,227 | $ | 41,285 | $ | 33,488 |
As of March 31, 2017 | ||||||||||||||||||||||||
(In thousands) | Intangible Assets, net | Goodwill | Total Assets | Notes Payable, Non-Recourse | Notes Payable | Capital Leases | ||||||||||||||||||
Phase I Deployment | $ | 160 | $ | — | $ | 15,118 | $ | 51,955 | $ | — | $ | — | ||||||||||||
Phase II Deployment | — | — | 48,461 | 9,149 | — | — | ||||||||||||||||||
Services | — | — | 1,052 | — | — | — | ||||||||||||||||||
Content & Entertainment | 20,057 | 8,701 | 79,911 | — | — | 8 | ||||||||||||||||||
Corporate | 10 | — | 6,792 | — | 78,995 | 58 | ||||||||||||||||||
Total | $ | 20,227 | $ | 8,701 | $ | 151,334 | $ | 61,104 | $ | 78,995 | $ | 66 |
Statements of Operations | ||||||||||||||||||||||||
Three Months Ended December 31, 2017 | ||||||||||||||||||||||||
(Unaudited, in thousands) | ||||||||||||||||||||||||
Phase I | Phase II | Services | Content & Entertainment | Corporate | Consolidated | |||||||||||||||||||
Revenues | $ | 3,219 | $ | 3,193 | $ | 2,049 | $ | 10,031 | $ | — | $ | 18,492 | ||||||||||||
Direct operating (exclusive of depreciation and amortization shown below) | 337 | 94 | 28 | 5,904 | — | 6,363 | ||||||||||||||||||
Selling, general and administrative | 337 | 99 | 247 | 4,634 | 3,942 | 9,259 | ||||||||||||||||||
Allocation of Corporate overhead | — | — | 410 | 871 | (1,281 | ) | — | |||||||||||||||||
Provision for doubtful accounts | 452 | 182 | — | (3 | ) | — | 631 | |||||||||||||||||
Depreciation and amortization of property and equipment | 185 | 1,881 | — | 91 | 56 | 2,213 | ||||||||||||||||||
Amortization of intangible assets | 11 | — | — | 1,384 | — | 1,395 | ||||||||||||||||||
Total operating expenses | 1,322 | 2,256 | 685 | 12,881 | 2,717 | 19,861 | ||||||||||||||||||
Income (loss) from operations | $ | 1,897 | $ | 937 | $ | 1,364 | $ | (2,850 | ) | $ | (2,717 | ) | $ | (1,369 | ) |
Phase I | Phase II | Services | Content & Entertainment | Corporate | Consolidated | |||||||||||||||||||
Direct operating | $ | — | $ | — | $ | 28 | $ | 19 | $ | — | $ | 47 | ||||||||||||
Selling, general and administrative | — | — | 10 | 594 | 916 | 1,520 | ||||||||||||||||||
Total stock-based compensation | $ | — | $ | — | $ | 38 | $ | 613 | $ | 916 | $ | 1,567 |
Statements of Operations | ||||||||||||||||||||||||
Three Months Ended December 31, 2016 | ||||||||||||||||||||||||
(Unaudited, in thousands) | ||||||||||||||||||||||||
Phase I | Phase II | Services | Content & Entertainment | Corporate | Consolidated | |||||||||||||||||||
Revenues | $ | 7,266 | $ | 2,995 | $ | 2,625 | $ | 11,559 | $ | — | $ | 24,445 | ||||||||||||
Direct operating (exclusive of depreciation and amortization shown below) | 336 | 168 | 3 | 6,780 | — | 7,287 | ||||||||||||||||||
Selling, general and administrative | 158 | 62 | 227 | 3,910 | 1,738 | 6,095 | ||||||||||||||||||
Allocation of Corporate overhead | — | — | 399 | 906 | (1,305 | ) | — | |||||||||||||||||
Provision for doubtful accounts | 318 | 98 | — | — | — | 416 | ||||||||||||||||||
Restructuring, transition and acquisition expenses, net | — | — | — | — | 22 | 22 | ||||||||||||||||||
Depreciation and amortization of property and equipment | 4,136 | 1,881 | — | 69 | 185 | 6,271 | ||||||||||||||||||
Amortization of intangible assets | 11 | — | — | 1,383 | 1 | 1,395 | ||||||||||||||||||
Total operating expenses | 4,959 | 2,209 | 629 | 13,048 | 641 | 21,486 | ||||||||||||||||||
Income (loss) from operations | $ | 2,307 | $ | 786 | $ | 1,996 | $ | (1,489 | ) | $ | (641 | ) | $ | 2,959 |
Phase I | Phase II | Services | Content & Entertainment | Corporate | Consolidated | |||||||||||||||||||
Direct operating | $ | — | $ | — | $ | 3 | $ | — | $ | — | $ | 3 | ||||||||||||
Selling, general and administrative | — | — | 2 | 88 | 251 | 341 | ||||||||||||||||||
Total stock-based compensation | $ | — | $ | — | $ | 5 | $ | 88 | $ | 251 | $ | 344 |
Statements of Operations | ||||||||||||||||||||||||
Nine Months Ended December 31, 2017 | ||||||||||||||||||||||||
(Unaudited, in thousands) | ||||||||||||||||||||||||
Phase I | Phase II | Services | Content & Entertainment | Corporate | Consolidated | |||||||||||||||||||
Revenues | $ | 12,879 | $ | 8,845 | $ | 6,550 | $ | 21,736 | $ | — | $ | 50,010 | ||||||||||||
Direct operating (exclusive of depreciation and amortization shown below) | 888 | 284 | 38 | 13,260 | — | 14,470 | ||||||||||||||||||
Selling, general and administrative | 520 | 265 | 768 | 12,518 | 7,753 | 21,824 | ||||||||||||||||||
Allocation of Corporate overhead | — | — | 1,210 | 2,572 | (3,782 | ) | — | |||||||||||||||||
Provision for doubtful accounts | 1,360 | 223 | — | (3 | ) | — | 1,580 | |||||||||||||||||
Depreciation and amortization of property and equipment | 4,101 | 5,642 | — | 242 | 230 | 10,215 | ||||||||||||||||||
Amortization of intangible assets | 34 | — | — | 4,147 | 4 | 4,185 | ||||||||||||||||||
Total operating expenses | 6,903 | 6,414 | 2,016 | 32,736 | 4,205 | 52,274 | ||||||||||||||||||
Income (loss) from operations | $ | 5,976 | $ | 2,431 | $ | 4,534 | $ | (11,000 | ) | $ | (4,205 | ) | $ | (2,264 | ) |
Phase I | Phase II | Services | Content & Entertainment | Corporate | Consolidated | |||||||||||||||||||
Direct operating | $ | — | $ | — | $ | 36 | $ | 24 | $ | — | $ | 60 | ||||||||||||
Selling, general and administrative | — | — | 14 | 817 | 1,323 | 2,154 | ||||||||||||||||||
Total stock-based compensation | $ | — | $ | — | $ | 50 | $ | 841 | $ | 1,323 | $ | 2,214 |
Statements of Operations | ||||||||||||||||||||||||
Nine Months Ended December 31, 2016 | ||||||||||||||||||||||||
(Unaudited, in thousands) | ||||||||||||||||||||||||
Phase I | Phase II | Services | Content & Entertainment | Corporate | Consolidated | |||||||||||||||||||
Revenues | $ | 26,022 | $ | 9,448 | $ | 9,042 | $ | 26,288 | $ | — | $ | 70,800 | ||||||||||||
Direct operating (exclusive of depreciation and amortization shown below) | 770 | 270 | 6 | 16,834 | — | 17,880 | ||||||||||||||||||
Selling, general and administrative | 407 | 144 | 529 | 11,486 | 5,200 | 17,766 | ||||||||||||||||||
Allocation of Corporate overhead | — | — | 1,194 | 2,706 | (3,900 | ) | — | |||||||||||||||||
Provision for doubtful accounts | 318 | 98 | — | — | — | 416 | ||||||||||||||||||
Restructuring, transition and acquisition expenses, net | — | — | — | 87 | 45 | 132 | ||||||||||||||||||
Depreciation and amortization of property and equipment | 16,156 | 5,642 | — | 204 | 556 | 22,558 | ||||||||||||||||||
Amortization of intangible assets | 34 | — | — | 4,282 | 6 | 4,322 | ||||||||||||||||||
Total operating expenses | 17,685 | 6,154 | 1,729 | 35,599 | 1,907 | 63,074 | ||||||||||||||||||
Income (loss) from operations | $ | 8,337 | $ | 3,294 | $ | 7,313 | $ | (9,311 | ) | $ | (1,907 | ) | $ | 7,726 |
Phase I | Phase II | Services | Content & Entertainment | Corporate | Consolidated | |||||||||||||||||||
Direct operating | $ | — | $ | — | $ | 6 | $ | 2 | $ | — | $ | 8 | ||||||||||||
Selling, general and administrative | — | — | 3 | 181 | 1,172 | 1,356 | ||||||||||||||||||
Total stock-based compensation | $ | — | $ | — | $ | 9 | $ | 183 | $ | 1,172 | $ | 1,364 |
ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our historical consolidated financial statementsCondensed Consolidated Financial Statements and the related notes included elsewhere in this document.
This report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which are indicated by words or phrases such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “will,” “estimates,“” and similar words. Forward-looking statements represent, as of the date of this report, our judgment relating to, among other things, future results of operations, growth plans, sales, capital requirements and general industry and business conditions applicable to us. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.
Business Overview
Cineverse is a significant role in the digital distribution revolution that continues to transform the media landscape. In addition to our pioneering role in transitioning over 12,000 movie screens from traditional analog film prints to digital distribution, we have becomepremier streaming technology and entertainment company with its core business (i) across a leadingportfolio of owned and operated enthusiast streaming channels with enthusiast fan bases; (ii) as a large-scale global aggregator and full-service distributor of independentfeature films and television programs; and (iii) as a proprietary technology software-as-a-service platform for over-the-top (“OTT”) app development and content bothdistribution through organic growthsubscription video on demand ("SVOD"), dedicated ad-supported ("AVOD"), ad-supported streaming linear ("FAST") channels, social video streaming services, and acquisitions.audio podcasts. We distribute products for major brands such as the Discovery Networks, National GeographicHallmark, ITV, Nelvana, ZDF, Konami, NFL and Scholastic,Highlander, 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, all2023, the Company has an accumulated deficit 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 from 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 $379.2credit (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. In addition, we have significant debt-related contractual obligations for2023. As of December 31, 2023, $5.0 million was outstanding on the fiscal year ending March 31, 2018Line of Credit Facility, gross of issuance costs of $(69) thousand. On February 9, 2024, the Company expanded the Line of Credit Facility to $7.5 million at the same interest rate and beyond.
In July 2020, 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 completed the exchanges under the Exchange Agreements for the remaining outstanding 5.5% Convertible Notes due 2035, (the "Convertible Notes") whereby $46.3 million principal amount of the Convertible Notes were exchanged for a combination of $17.1 million in cash and 2,221,457 shares of Class A Common Stock. The Convertible Notes were immediately retired.
24
pursuant to which the Company borrowed $10,000,000. The Loan maturesmay offer and sell, from time to time, through the Sales Agents, shares of Common 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. The ATM Sales Agreement has expired in accordance with its terms.
On June 16, 2023, the Company closed on the sale of 2,150 thousand shares of Common Stock, 517 thousand pre-funded warrants, and warrants to purchase 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 $1.1 million,the time of exercise. All 516,667 pre-funded warrants were subsequently exercised in July 2023 for total proceeds of $0.5 thousand.
In addition, the Company remains authorized to purchase up to an aggregate of 500 thousand shares of its outstanding Common Stock, following the announcement of a stock repurchase program on 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%March 1, 2023.
The Company will continue to invest in content development and acquisition, from which it believes it will obtain an expected volatility of 74.3%.
We believe the combination of: (i) our cash and restricted cash balances atequivalents and our credit facility, as of December 31, 2017, which includes the net proceeds received from Bison for the issuance of 19,666,667 shares and from the Loan, (ii) implemented and planned cost reduction initiatives, (iii) retirement of the full outstanding amount of Convertible Notes, and (iv) expected cash flows from operations2023, 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. Directors.
25
Results of Operations for the Three Months Ended December 31, 20172023, 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 December 31, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Streaming and digital |
| $ | 9,537 |
|
| $ | 11,598 |
|
| $ | (2,061 | ) |
|
| (18 | )% |
Base distribution |
|
| 2,811 |
|
|
| 8,121 |
|
|
| (5,310 | ) |
|
| (65 | )% |
Podcast and other |
|
| 864 |
|
|
| 977 |
|
|
| (113 | ) |
|
| (12 | )% |
Other non-recurring |
|
| 64 |
|
|
| 7,186 |
|
|
| (7,122 | ) |
|
| (99 | )% |
Total Revenue |
| $ | 13,276 |
|
| $ | 27,882 |
|
| $ | (14,606 | ) |
|
| (52 | )% |
For the three months ended December 31, 20172023, total revenue declined by $14.6 million, or 52% as compared to the prior period, primarily fromthree months ended December 31, 2022. During this time, Streaming and Digital revenue for three months ended December 31, 2023, decreased by $2.1 million, driven by a 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 entertainmentdecline in the 2018 fiscal yearCompany's AVOD revenue of $1.7 million due to continued headwinds in the broader advertising market. This decrease was partially offset by a $0.5 million increase in SVOD revenue as the Company continues to see the benefits from its acquisitions which have contributed value-accretive libraries, distribution platforms and beyond.
Three Months Ended December 31, | ||||||||||||||
($ 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 $5.3 million decline in Base Distribution revenue for the three months ended December 31, 2017,2023 as compared to the three months ended December 31, 2016,2022 was primarily duedriven by a bonus payout of $1.5$3.8 million decline in theatrical revenue, in part due to the officersTerrifier 2 success in fiscal year 2023, a decline of $1.1 million in barter-related licensing deal in the third quarter of fiscal 2023, as well as a $0.8 million decline in DVD-related sales and employeesrelated physical distribution revenue, as the Company's focus shifts away from physical sales.
Other non-recurring revenue related to the Company's legacy cinema equipment as its operations run-off. Following the completion of cost recoupment, the expiration of the exhibitor master license agreements applicable to this line of revenue, and the recognition of all remaining constrained variable consideration, revenue decreased $7.1 million. In the third quarter of fiscal 2024, $0.1 million of remaining systems sales were recognized.
Direct Operating Expenses
| For the Three Months Ended December 31, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Direct operating expenses |
| $ | 5,464 |
|
| $ | 14,411 |
|
| $ | (8,947 | ) |
|
| (62 | )% |
The $8.9 million decrease in conjunctionDirect Operating Expenses for the three months ended December 31, 2023 is primarily driven by the variable costs associated with the Bison transactiona 52% decrease in quarterly revenue, including reduced licensing, royalty and consistent with the Management Annual Incentive Plan.participation expenses of $3.6 million; reduced manufacturing, freight, and fulfillment charges of $3.4 million. In addition, stock-basedthe Company's reserve against advances provided to partners decreased by $1.1 million relative to the three months ended December 31, 2022 and a $0.5 million increase in acquired content-related preparation costs capitalized as a result of the Company's content investment initiative.
Selling, General and Administrative Expenses
| For the Three Months Ended December 31, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Compensation expense |
| $ | 4,336 |
|
| $ | 5,217 |
|
| $ | (881 | ) |
|
| (17 | )% |
Corporate expenses |
|
| 796 |
|
|
| 1,780 |
|
|
| (984 | ) |
|
| (55 | )% |
Share-based compensation |
|
| 183 |
|
|
| 658 |
|
|
| (475 | ) |
|
| (72 | )% |
Other operating expenses |
|
| 1,058 |
|
|
| 1,452 |
|
|
| (394 | ) |
|
| (27 | )% |
Selling, General and Administrative |
| $ | 6,373 |
|
| $ | 9,107 |
|
| $ | (2,733 | ) |
|
| (30 | )% |
Selling, general and administrative expenses for the three months ended December 31, 2023 decreased by $2.7 million. In comparison to the three months ended December 31, 2022, compensation expense increasedexpenses decreased by $1.2$0.9
26
million due to a $0.7 million reduction in bonus accrual attributable to fiscal year 2024 performance, a decrease in recurring salaries and associated taxes of $0.7 million, partially offset by a $0.2 million increase in severance expense.
Corporate expenses decreased by $1.0 million primarily related a reduction of $0.6 million in legal fees and $0.4 million in other consulting and service providers, as a result of the Company's savings initiatives.
Share-based compensation has decreased by $0.5 million, as a result of accelerated vestingforfeitures associated with US-based workforce reduction, a decline in stock price, and a relatively higher number of all stock optionsaward tranches fully vesting.
Other operating expenses decreased by $0.4 million, primarily driven by reductions in marketing related costs of $0.3 million as a result of spending controls put into place.
Depreciation and restricted stockAmortization Expense
| For the Three Months Ended December 31, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Amortization of intangible assets |
| $ | 879 |
|
| $ | 712 |
|
| $ | 167 |
|
|
| 23 | % |
Depreciation of property and equipment |
|
| 133 |
|
|
| 211 |
|
|
| (78 | ) |
|
| (37 | )% |
Depreciation and Amortization |
| $ | 1,012 |
|
| $ | 924 |
|
| $ | 88 |
|
|
| 10 | % |
Amortization expense has continued to increase and depreciation expense has continued to decrease as a result of the Company's shift away from the physical business to its focus on November 1, 2017content-related spend during the three months ended December 31, 2023.
Interest expense, net
For the three months ended December 31, 2023, interest expense decreased by $76 thousand from $367 thousand to $291, primarily as a result of a $69 thousand decrease in deferred consideration amortization.
Results of Operations for the nine months ended December 31, 2023 and 2022 (in thousands):
Revenues
| For the Nine Months Ended December 31, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Streaming and digital |
| $ | 29,006 |
|
| $ | 31,375 |
|
| $ | (2,369 | ) |
|
| (8 | )% |
Base distribution |
|
| 4,529 |
|
|
| 11,145 |
|
|
| (6,616 | ) |
|
| (59 | )% |
Podcast and other |
|
| 1,953 |
|
|
| 1,740 |
|
|
| 213 |
|
|
| 12 | % |
Other non-recurring |
|
| 3,780 |
|
|
| 11,218 |
|
|
| (7,438 | ) |
|
| (66 | )% |
Total Revenue |
| $ | 39,268 |
|
| $ | 55,478 |
|
| $ | (16,210 | ) |
|
| (29 | )% |
For the nine months ended December 31, 2023, the Company's revenue declined by $16.2 million. The decrease was driven by a $6.6 million decline in the Company's base distribution, driven by a $3.7 million decline in theatrical revenue following fiscal year 2023's theatrical success with films such as Terrifier 2, and a $2.4 million decrease in DVD and related supply chain costs, as the Company has shifted its focus away from the physical business.
Streaming and digital revenue decreased by $2.4 million, driven by a $6.2 million decrease in AVOD from the headwinds faced in the advertising market, partially offset by a $2.6 million increase in SVOD and a $0.9 million increase from digital revenue as the Company continued to see the benefits from recent years' acquisitions, such as DMR, Fandor and Bloody Disgusting, which have contributed value-accretive libraries, distribution platforms and technologies.
The decrease in Other non-recurring revenue decline was related to the run-off of the Company's legacy digital cinema business, whose active operations ran-off at the end of fiscal year 2023. For the nine months ended
27
December 31, 2023, variable consideration from these operations had decreased by $5.8 million and system sales decreased by$1.5 million.
Direct Operating Expenses
| For the Nine Months Ended December 31, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Direct operating expenses |
| $ | 17,097 |
|
| $ | 29,859 |
|
| $ | (12,762 | ) |
|
| (43 | )% |
For the nine months ended December 31, 2023, the Company's direct operation expense decreased $12.8 million. The decrease was primarily driven by $4.3 million in fulfillment and manufacturing costs associated with the decline in the Company's physical distribution business, a $2.5 million decrease in licenses, royalties, and participation expenses, a $2.2 million decrease in the Company's costs associated with the Company's reserves against advances to partners, a $1.6 million reduction in SaaS related costs as a result of internalizing services previously performed by third parties and cost savings synergies, and $0.7 million related to a decrease in an estimated Bloody Disgusting earnout liability based on fiscal year 2024 performance to-date.
Selling, General and Administrative Expenses
| For the Nine Months Ended December 31, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Compensation expense |
| $ | 13,369 |
|
| $ | 16,361 |
|
| $ | (2,992 | ) |
|
| (18 | )% |
Corporate expenses |
|
| 3,092 |
|
|
| 5,193 |
|
|
| (2,101 | ) |
|
| (40 | )% |
Share-based compensation |
|
| 1,092 |
|
|
| 3,855 |
|
|
| (2,763 | ) |
|
| (72 | )% |
Other operating expenses |
|
| 3,535 |
|
|
| 3,607 |
|
|
| (72 | ) |
|
| (2 | )% |
Selling, General and Administrative |
| $ | 21,088 |
|
| $ | 29,016 |
|
| $ | (7,928 | ) |
|
| (27 | )% |
During the nine months ended December 31, 2023, the Company's SG&A decreased by $7.9 million. Relative to nine months ended December 31, 2022, compensation related costs primarily decreased due to a changereduction in controlthe Company's bonus expense of $2.2 million and an increase in capitalized labor of $0.5 million from the development of the Company resulting fromCompany's Matchpoint software.
Corporate expenses declined by $2.1 million primarily decreased due to a corporate focus on reducing third-party legal costs in the Bison transaction.
Share-based compensation also decreased by $2.8 million, as a content provider experiencing recent financialresult of the US-based workforce reduction, a decline in stock price, and legal difficulties.
Depreciation and Amortization Expense on Property and Equipment
Three Months Ended December 31, | ||||||||||||||
($ 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 Nine Months Ended December 31, |
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Amortization of intangible assets |
| $ | 2,381 |
|
| $ | 2,193 |
|
|
| 188 |
|
|
| 9 | % |
Depreciation of property and equipment |
|
| 406 |
|
|
| 715 |
|
|
| (309 | ) |
|
| (43 | )% |
Depreciation and Amortization |
| $ | 2,787 |
|
| $ | 2,908 |
|
|
| (121 | ) |
|
| (4 | )% |
Depreciation and amortization expense decreased in our Phase I Deployment segment asprimarily due to the majorityremainder of our digital cinema projection systems reachedassets reaching 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, in our Corporate segment also decreased as we paid off all of our $64 million convertible debt as of November 7, 2017.
For the threenine months ended December 31, 2017 and 2016, respectively, in our Phase I and Corporate segments, for state income taxes.
28
in deferred consideration amortization, partially offset by a $182 thousand increase in line of debt of $0.7 million for the three months ended December 31, 2016.
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.
29
Following is the reconciliation of our consolidated net loss(loss) income 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 |
|
| For the Nine Months Ended December 31, |
| |||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net income (loss) |
| $ | (2,736 | ) |
| $ | 5,022 |
|
| $ | (6,589 | ) |
| $ | (6,620 | ) |
Add Back: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income tax (benefit) expense |
|
| (24 | ) |
|
| — |
|
|
| 12 |
|
|
| — |
|
Depreciation and amortization |
|
| 1,012 |
|
|
| 924 |
|
|
| 2,787 |
|
|
| 2,908 |
|
Interest expense |
|
| 291 |
|
|
| 367 |
|
|
| 781 |
|
|
| 880 |
|
Loss from equity investment in Metaverse |
|
| 3,043 |
|
|
| — |
|
|
| 3,761 |
|
|
| 1,828 |
|
Provision for doubtful accounts |
|
| — |
|
|
| 7 |
|
|
| — |
|
|
| 54 |
|
Stock-based compensation |
|
| 183 |
|
|
| 658 |
|
|
| 1,092 |
|
|
| 3,855 |
|
Employee retention tax credit |
|
| — |
|
|
| (2,025 | ) |
|
|
|
|
| (2,475 | ) | |
Other (income) expense, net |
|
| (147 | ) |
|
| 76 |
|
|
| 2 |
|
|
| 82 |
|
Net income attributable to noncontrolling interest |
|
| (41 | ) |
|
| (8 | ) |
|
| (94 | ) |
|
| (35 | ) |
Transition-related costs |
|
| 259 |
|
|
| 15 |
|
|
| 1,094 |
|
|
| 371 |
|
Mergers and acquisition costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 207 |
|
Adjusted EBITDA |
| $ | 1,840 |
|
| $ | 5,036 |
|
| $ | 2,846 |
|
| $ | 1,056 |
|
Cash Flow
Changes in our cash flows were as follows:
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 Nine Months Ended |
| ||||||
|
| 2023 |
|
| 2022 |
| ||
Net used in operating activities |
|
| (9,287 | ) |
| $ | (7,901 | ) |
Net cash used in investing activities |
|
| (482 | ) |
|
| (429 | ) |
Net cash provided by financing activities |
|
| 8,156 |
|
|
| 4,064 |
|
Net change in cash and cash equivalents |
| $ | (1,613 | ) |
| $ | (4,266 | ) |
For the nine months ended December 31, 2017, we had2023, net cash and restricted cash balances of $18.2 million.
Cash used in investing activities was used in the following two quartersexpenditures towards long-lived intangible assets and fixed assets, as we pay royalties onwell as the receipt from the return of investment from the sale of equity securities.
Cash provided by financing activities pertained to the draw and repayment of the Company's line of credit, payment of earnout consideration, and issuance of company equity, net of financing fees.
For the nine months ended December 31, 2022, net cash used in operating activities was primarily driven by loss from operations, excluding non-cash expenses such revenues.as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, including other changes in working capital. Additionally, during the nine months ended December 31, 2022, the Company decreased accounts payable by $11.8 million to vendors. Cash received from virtual print fees ("VPFs"), from our legacy digital cinema business, decreased from the previous period in alignment with the decrease in eligible VPF systems. Prepaid and other current assets increased by $2.7 million. In addition, we make 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.
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Cash flows used in investing activities consisted of purchases of property and equipment.
Net cash provided by financing activities primarily reflectswas driven by the net receipt of payments$5 million from the Company's line of $46.2 million on our long-term debt arrangements and credit, facilities andpartially offset by the proceeds of $38.0 million in connection with the Stock Purchase AgreementCompany's deferred consideration and a loan with Bison.
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 | $ | — |
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 December 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
There have been no material changes to the Risk Factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2017.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The exhibits are listed in the Exhibit Index beginning on the following page
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EXHIBIT INDEX
Exhibit | ||
Description of Document |
10.1 | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | Inline XBRL Instance Document. | |
101.SCH | Inline XBRL Taxonomy Extension | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL | |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CINEVERSE CORP. | |||
Date: | February 14, | By: | /s/ Christopher J. McGurk |
Christopher J. McGurk (Principal Executive Officer) | |||
Date: | February 14, | By: | /s/ |
Mark Lindsey | |||
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