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: June 30, ~~2022~~2023

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 001-31810

~~Cinedigm~~Cineverse Corp.

(Exact name of registrant as specified in its charter)

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

~~264 West 40th Street,~~ 244 Fifth Avenue, Suite M289, New York NY, N.Y.		~~10018~~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 which registered
CLASS A COMMON STOCK, PAR VALUE $0.001 PER SHARE	~~CIDM~~CNVS	NASDAQ ~~GLOBAL~~ CAPITAL MARKET

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


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

~~Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes~~ ☐ ~~No ☒~~

☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of August ~~9, 2022, 177,250,068~~7, 2023, 12,286,417 shares of Class A Common Stock, $0.001 par value, were outstanding.

Cineverse Corp.

~~CINEDIGM CORP.~~

TABLE OF CONTENTS

		~~Page~~
		Page
	PART I - FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets at June 30, ~~2022 (Unaudited)~~2023 and March 31, ~~2022~~2023	1
	Unaudited Condensed Consolidated Statements of Operations for the Three Months ended June 30, ~~2022~~2023 and ~~2021~~2022	2
	Unaudited Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss for the Three Months ended June 30, ~~2022~~2023 and ~~2021~~2022	3
	~~Unaudited Condensed Consolidated Statements of (Deficit) Equity for the Three Months ended June 30, 2022 and 2021~~	4
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months ended June 30, ~~2022~~2023 and ~~2021~~2022	64
	Unaudited Condensed Consolidated Statements of Equity for the Three Months ended June 30, 2023 and 2022	6
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	78
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2622
Item 4.	Controls and Procedures	3927

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	4128
Item 1A.	Risk Factors	4128
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4128
Item 3.	Defaults Upon Senior Securities	4128
Item 4.	Mine Safety Disclosures	4128
Item 5.	Other Information	4128
Item 6.	Exhibits	4229
Exhibit Index		4229
Signatures		4330

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

~~CINEDIGM CORP.~~Cineverse Corp.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except ~~for~~ share and per share data)

June 30,
2022 March 31,
2022
ASSETS
Current assets
Cash and cash equivalents $ 11,519 $ 13,062
Accounts receivable, net of allowance of $2,605 and $2,921, respectively 25,215 30,843
Inventory 129 116
Unbilled revenue 2,597 2,349
Prepaid and other current assets 4,621 5,793

Total current assets 44,081 52,163
Equity investment in A Metaverse Company, a related party, at fair value 5,772 7,028
Property and equipment, net 1,865 1,980
Operating lease right-of use assets, net 680 749
Intangible assets, net 19,290 20,034
Goodwill 21,084 21,084
Other long-term assets 1,451 1,598
Total assets $ 94,223 $ 104,636
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses $ 46,450 $ 52,025
Current portion of deferred consideration on purchase of business 3,449 3,432
Current portion of earnout consideration on purchase of business 1,188 1,081
Operating lease liabilities 193 258
Current portion of deferred revenue 371 196

Total current liabilities 51,651 56,992
Deferred consideration on purchase – net of current portion 5,379 5,600
Earnout consideration on purchase – net of current portion 627 603
Operating lease liabilities, net of current portion 489 491
Other long-term liabilities 86 -

Total liabilities 58,232 63,686
Commitments and contingencies (see Note 6)
Stockholders’ Equity
Preferred stock, 15,000,000 shares authorized; Series A 10% - $0.001 par value per share; 20 shares authorized; 7 shares issued and outstanding at June 30, 2022 and March 31, 2022. Liquidation preference of $3,648 3,559 3,559
Common stock, $0.001 par value; Class A stock 275,000,000 and 275,000,000 shares authorized at June 30, 2022 and March 31, 2022, respectively, 176,737,459 and 176,629,435 shares issued and 175,421,608 and 175,313,584 shares outstanding at June 30, 2022 and March 31, 2022, respectively. 174 174
Additional paid-in capital 523,669 522,601
Treasury stock, at cost; 1,315,851 and 1,315,851 Class A common shares at June 30, 2022 and March 31, 2022, respectively. (11,608 ) (11,608 )
Accumulated deficit (478,403 ) (472,310 )
Accumulated other comprehensive loss (115 ) (163 )
Total stockholders’ equity of Cinedigm Corp. 37,276 42,253
Deficit attributable to noncontrolling interest (1,285 ) (1,303 )
Total equity 35,991 40,950
Total liabilities and equity $ 94,223 $ 104,636


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

See accompanying Notes to Condensed Consolidated Financial Statements

Cineverse Corp.

~~CINEDIGM CORP.~~

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except ~~for share and~~ per share data)

Three Months Ended
June 30,
2022 2021
Revenues $ 13,590 $ 15,015
Costs and expenses:
Direct operating (excludes depreciation and amortization shown below) 7,356 4,631
Selling, general and administrative 9,815 6,043
Bad debt expense 3 71
Depreciation and amortization of property and equipment 256 649
Amortization of intangible assets 744 847
Total operating expenses 18,174 12,241
Income (loss) from operations (4,584 ) 2,774
Interest expense, net (133 ) (144 )
Gain on forgiveness of PPP loan and extinguishment of note payable - 2,178
Change in fair value of equity investment in A Metaverse Company, a related party (1,256 ) 334
Other expense, net (14 ) (11 )
Income (loss) before income taxes (5,987 ) 5,131
Income tax benefit - 63
Net income (loss) (5,987 ) 5,194
Net loss attributable to noncontrolling interest (18 ) (7 )
Net income (loss) attributable to controlling interests (6,005 ) 5,187
Preferred stock dividends (88 ) (89 )
Net income (loss) attributable to common stockholders $ (6,093 ) $ 5,098
Net income (loss) per Class A common stock attributable to common stockholders - basic: $ (0.03 ) $ 0.03
Weighted average number of Class A common stock outstanding: basic 175,420,421 167,940,285
Net income (loss) per Class A common stock attributable to common stockholders - diluted: $ (0.03 ) $ 0.03
Weighted average number of Class A common stock outstanding: diluted 175,420,421 171,257,356


	Three Months Ended June 30,
	2023			2022
Revenues	$	12,980		$	13,590
Costs and expenses:
Direct operating		6,987			7,356
Selling, general and administrative		7,888			9,818
Depreciation and amortization		822			1,000
Total operating expenses		15,697			18,174
Operating loss		(2,717	)		(4,584	)
Interest expense		(295	)		(133	)
Decrease in fair value of equity investment in Metaverse, a related party		—			(1,256	)
Other expense, net		(504	)		(14	)
Net loss before income taxes		(3,516	)		(5,987	)
Income tax expense		(20	)		—
Net loss		(3,536	)		(5,987	)
Net income attributable to noncontrolling interest		(14	)		(18	)
Net loss attributable to controlling interests		(3,550	)		(6,005	)
Preferred stock dividends		(88	)		(88	)
Net loss attributable to common stockholders	$	(3,638	)	$	(6,093	)

Net loss per share attributable to common stockholders:
Basic	$	(0.37	)	$	(0.69	)
Diluted	$	(0.37	)	$	(0.69	)
Weighted average shares of common stock outstanding:
Basic		9,879			8,771
Diluted		9,879			8,771

See accompanying Notes to Condensed Consolidated Financial Statements

Cineverse Corp.

~~CINEDIGM CORP.~~

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

(Unaudited)

(In thousands)

Three Months Ended
June 30,
2022 2021
Net income (loss) $ (5,987 ) $ 5,194
Other comprehensive (loss) income: foreign exchange translation 48 (54 )
Comprehensive income (loss) (5,939 ) 5,140
Less: comprehensive income attributable to noncontrolling interest (18 ) (7 )
Comprehensive income (loss) attributable to controlling interests $ (5,957 ) $ 5,133


	Three Months Ended June 30,
	2023			2022
Net loss	$	(3,536	)	$	(5,987	)
Other comprehensive loss:
Foreign exchange translation		(78	)		48
Comprehensive income attributable to noncontrolling interest		(14	)		(18	)
Comprehensive loss	$	(3,628	)	$	(5,957	)

See accompanying Notes to Condensed Consolidated Financial Statements

Cineverse Corp.

~~CINEDIGM CORP.~~

~~CONSDENSED CONSOLIDATED STATEMENTS OF (DEFICIT) EQUITY~~

~~(Unaudited)~~

~~(In thousands, except share data)~~

Series A Preferred Stock Class A
Common Stock Treasury Additional Paid-In Accumulated Accumulated Other Comprehensive Total Stockholders’
Equity Non-Controlling Total
Equity
Shares Amount Shares Amount Shares Amount Capital Deficit Loss (Deficit) Interest (Deficit)
Balances as of March 31, 2021 7 $ 3,559 166,228,568 $ 164 1,313,836 $ (11,603 ) $ 499,272 $ (474,080 ) $ (68 ) $ 17,244 $ (1,362 ) $ 15,882
Foreign exchange translation — — — — — — — — (54 ) (54 ) — (54 )
Stock-based compensation — — 35,714 — — — 983 — — 983 — 983
Issuance of common stock in connection with a business combination — — 1,483,129 2 — — 2,504 — — 2,506 — 2,506
Preferred stock dividends paid with common stock — — 53,278 — — — 89 (89 ) — — — —
Net income — — — — — — — 5,187 — 5,187 7 5,194
Balances as of June 30, 2021 7 3,559 167,800,689 166 1,313,836 (11,603 ) 502,848 (468,982 ) (122 ) 25,866 (1,355 ) 24,511

~~See accompanying & Notes to Condensed Consolidated Financial Statements~~

~~CINEDIGM CORP.~~

CONDENSED CONSOLIDATED STATEMENTS OF ~~(DEFICIT) EQUITY~~CASH FLOWS

(Unaudited)

(In ~~thousands, except share data)~~thousands)

Series A Preferred Stock Class A
Common Stock Treasury Additional Paid-In Accumulated Accumulated Other Comprehensive Total Stockholders’
Equity Non-Controlling Total
Equity
Shares Amount Shares Amount Shares Amount Capital Deficit Loss (Deficit) Interest (Deficit)
Balances as of March 31, 2022 7 $ 3,559 175,313,584 $ 174 1,315,851 $ (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 with common stock — — 108,024 — — — 88 — — 88 — 88
Preferred stock dividends accrued — — — — — — — (88 ) — (88 ) — (88 )
Net income (loss) — — — — — — — (6,005 ) — (6,005 ) 18 (5,987 )
Balances as of June 30, 2022 7 $ 3,559 175,421,608 $ 174 1,315,851 $ (11,608 ) $ 523,669 $ (478,403 ) $ (115 ) $ 37,276 $ (1,285 ) $ 35,991


	Three Months Ended June 30,
	2023			2022
Cash flows from operating activities:
Net loss	$	(3,536	)	$	(5,987	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		822			1,000
Allowance for prepaid advances		173			32
Changes in fair value of equity investment in Metaverse		—			1,256
Amortization of debt issuance costs		44			—
Stock-based compensation		409			980
Interest expense for deferred consideration and earnouts		181			133
Other		263			3
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		5,656			5,625
Unbilled revenue		(211	)		(248	)
Prepaids and other current and long-term assets		(2,688	)		1,274
Employee retention tax credit		312			—
Accounts payable, accrued expenses, and other liabilities		(4,685	)		(5,266	)
Net cash used in operating activities	$	(3,260	)		(1,198	)
Cash flows from investing activities:
Expenditures for long-lived assets		(272	)		(141	)
Purchase of businesses		—			80
Net cash used in investing activities	$	(272	)		(61	)
Cash flows from financing activities:
Payments of notes payable		—			(284	)
Proceeds from line of credit		8,761			—
Payments on line of credit		(8,761	)		—
Issuance of common stock, net of issuance costs		8,509			—
Net cash provided by (used in) financing activities	$	8,509			(284	)
Net change in cash and cash equivalents		4,977			(1,543	)
Cash and cash equivalents at beginning of period		7,152			13,062
Cash and cash equivalents at end of period	$	12,129		$	11,519

See accompanying Notes to Condensed Consolidated Financial Statements

Cineverse Corp.

SUPPLEMENTAL CASH FLOW INFORMATION AND DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY

(Unaudited)

(In thousands)


	Three Months Ended June 30,
	2023		2022
Cash interest paid	$	121	$	-
Income taxes paid	$	12	$	-
Lease liability related payments	$	109	$	-
Noncash investing and financing activities:
Accrued dividends on preferred stock	$	88	$	88
Issuance of Class A common stock for payment of accrued preferred stock dividends	$	88	$	88
Earnout consideration in purchase of a business	$	-	$	80

Cineverse Corp.

~~CINEDIGM CORP.~~

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~EQUITY

(Unaudited)

(In thousands)

Three Months Ended
June 30,
2022 2021
Cash flows from operating activities:
Net income (loss) $ (5,987 ) $ 5,194
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment and amortization of intangible assets 1,000 1,496
Impairment of prepaid advances 32 -
Changes in fair value of equity investment in A Metaverse Company 1,256 (334 )
Gain from forgiveness of PPP loan - (2,178 )
Provision for doubtful accounts 3 71
Stock-based compensation 980 983
Interest expense for deferred consideration 81 -
Interest expense for earnout consideration 52 -
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable 5,625 (6,103 )
Inventory (13 ) 24
Unbilled revenue (248 ) (295 )
Prepaids and other current assets, and other long-term assets 1,287 1,730
Accounts payable, accrued expenses, and other liabilities (5,441 ) 3,508
Deferred revenue 175 (475 )
Net cash (used in) provided by operating activities (1,198 ) 3,621
Cash flows from investing activities:
Purchases of property and equipment (141 ) (41 )
Purchase of a business 80 (750 )
Net cash used in investing activities (61 ) (791 )
Cash flows from financing activities:
Payment of notes payable (284 ) (4,755 )
Payment under revolving credit agreement, net - (1,569 )
Net cash used in by financing activities (284 ) (6,324 )
Net change in cash, cash equivalents, and restricted cash (1,543 ) (3,494 )
Cash, cash equivalents, and restricted cash at beginning of period 13,062 17,849
Cash, cash equivalents, and restricted cash at end of period $ 11,519 $ 14,355


	Preferred Stock				Common Stock				Treasury					Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders'			Non Controlling
	Shares		Amount		Shares		Amount		Shares		Amount			Capital		Deficit			Loss			Equity			Interest			Total
Balances as of March 31, 2023 (Audited)		1	$	3,559		9,348	$	185		66	$	(11,608	)	$	530,998	$	(482,395	)	$	(402	)	$	40,337		$	(1,264	)	$	39,073
Foreign exchange translation		—		—		—		—		—		—			—		—			(78	)		(78	)		—			(78	)
Stock-based compensation		—		—		—		—		—		—			409		—			—			409			—			409
Issuance of common stock in connection with ATM raises, net		—		—		177		4		—		—			1,065		—			—			1,069			—			1,069
Issuance of common stock in connection with direct equity offering		—		—		2,150		2		—		—			7,437		—			—			7,439			—			7,439
Preferred stock dividends paid in stock		—		—		10		—		—		—			88		—			—			88			—			88
Preferred stock dividends accrued		—		—		—		—		—		—			—		(88	)		—			(88	)		—			(88	)
Net loss		—		—		—		—		—		—			—		(3,550	)		—			(3,550	)		14			(3,536	)
Balances as of June 30, 2023		1	$	3,559		11,685	$	191		66	$	(11,608	)	$	539,997	$	(486,033	)	$	(480	)	$	45,626		$	(1,250	)	$	44,376

See accompanying Notes to Condensed Consolidated Financial Statements

Cineverse Corp.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

~~CINEDIGM~~(Unaudited)

(In thousands)


	Preferred Stock				Common Stock				Treasury					Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders’			Non Controlling			Total
	Shares		Amount		Shares		Amount		Shares		Amount			Capital		Deficit			Loss			Equity			Interest			Equity
Balances as of March 31, 2022 (Audited)		1	$	3,559		8,766	$	174		66	$	(11,608	)	$	522,601	$	(472,310	)	$	(163	)	$	42,253		$	(1,303	)	$	40,950
Foreign exchange translation		—		—		—		—		—		—			—		—			48			48			—			48
Stock-based compensation		—		—		—		—		—		—			980		—			—			980			—			980
Preferred stock dividends paid in stock		—		—		5		—		—		—			88		—			—			88			—			88
Preferred stock dividends accrued		—		—		—		—		—		—			—		(88	)		—			(88	)		—			(88	)
Net loss		—		—		—		—		—		—			—		(6,005	)		—			(6,005	)		18			(5,987	)
Balances as of June 30, 2022		1	$	3,559		8,771	$	174		66	$	(11,608	)	$	523,669	$	(478,403	)	$	(115	)	$	37,276		$	(1,285	)	$	35,991

See accompanying Notes to Condensed Consolidated Financial Statements

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. NATURE OF OPERATIONS AND LIQUIDITY

~~Cinedigm~~Cineverse Corp. (“~~Cinedigm,”~~Cineverse”, “us”, “our”, and “Company” refers to Cineverse Corp. and its subsidiaries unless the ~~“Company,” “we,” “us,” or similar pronouns)~~context otherwise requires) was incorporated in Delaware on March 31, 2000. On May 22, 2023, the Company changed its corporate name to Cineverse Corp. Since our inception, we have played a significant role in the digital distribution revolution that continues to transform the media and entertainment landscape.

Cineverse is a premier streaming technology and entertainment company with its core business (i) across a portfolio of owned and operated enthusiast streaming channels with enthusiast fan bases; (ii) as a large-scale global aggregator and full-service distributor of feature films and television programs; and (iii) as a proprietary technology software-as-a-service platform for over-the-top (“OTT”) app development and content distribution through subscription video on demand ("SVOD"), dedicated ad-supported ("AVOD"), ad-supported streaming linear ("FAST") channels, social video streaming services, and audio podcasts. We ~~are (i) a distributor~~distribute products for major brands such as Hallmark, Televisa, ITV, Nelvana, ZDF, Konami, NFL and ~~aggregator of independent~~Scholastic, as well as leading international and domestic content creators, movie producers, television producers and other ~~short form~~short-form digital content ~~managing a library of distribution rights~~producers. We collaborate with producers, major brands and other content owners to ~~thousands of titles~~market, source, curate and ~~episodes released across~~distribute quality content to targeted audiences through (i) existing and emerging digital ~~physical, theatrical,~~ home ~~and mobile~~ entertainment platforms, ~~(“Streaming”)~~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 ~~servicer of~~significant role in the digital ~~cinema assets (“Systems”) for~~distribution revolution that continues to transform the media landscape, playing a pioneering role in transitioning approximately 12,000 movie screens ~~in both North America~~from traditional analog film prints to digital distribution, and ~~several international countries.~~

~~We report~~at the end of our ~~financial results in two primary segments as follows: (1)~~fiscal year 2023, the Company's cinema equipment business ~~and (2) content and entertainment business (“Content & Entertainment” or “CEG”).~~concluded its active operations, as its contracts reached maturity. The Company no longer separately manages cinema equipment ~~business segment consists~~separately, and with the run-off of its operations, no longer presents this part of the ~~non-recourse, financing vehicles~~business as a separate segment. All prior period reporting within this report reflect this change.

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

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

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

Financial Condition and Australia. It also provides fee-based support to music and movie screens as well as directly to exhibitors and other third-party customers in the form of monitoring, billing, collection and verification services. Our Content & Entertainment segment operates 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.

~~Risks and Uncertainties~~Liquidity

~~The COVID-19 pandemic~~We have a history of net losses, and ~~related economic repercussions created significant volatility and uncertainty impacting the Company’s results~~ for the ~~period. As part of our Content & Entertainment business, the Company sells DVDs and Blu-ray discs at brick-and-mortar stores.~~

~~Liquidity~~

~~We have incurred net losses historically and have net loss of $6.0 million for the three months~~quarter ended June 30, ~~2022. We also have an accumulated deficit~~2023, we had a net loss attributable to common stockholders in the amount of ~~$478.4 million and negative working capital of $7.6 million as of June 30, 2022. Net cash used by operating activities for the three months ended June 30, 2022 was $1.2~~$(3.6) million. We may continue to generate net losses for the foreseeable future. ~~Based on these conditions,~~As of June 30, 2023, the Company has an accumulated deficit of $486.0 million and negative working capital of $2.1 million. Net cash used in operating activities for the three months ended June 30, 2023 was $3.3 million.

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

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In July 2020, we entered into an At-the-Market sales agreement (the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”) and B. Riley FBR, Inc. (“B. Riley” and, together with A.G.P., the “Sales Agents”), pursuant to which the Company may offer and sell, from time to time, through the Sales Agents, shares of Common Stock at the market prices prevailing on Nasdaq at the time of the sale of such shares. The Company is not obligated to sell any shares under the ATM Sales Agreement. Any sales of shares made under the ATM Sales Agreement will be made pursuant the an effective shelf registration statement, for an aggregate offering price of up to $30 million. During the quarter ended June 30, 2023, the Company sold 177 thousand shares for $1.1 million in net proceeds, after deduction of commissions and fees.

On June 16, 2023, the Company closed on the sale of 2,150 thousand shares of common stock, 517 thousand pre-funded warrants, and warrants to purchase up to 2,667 thousand shares of common stock at a combined public offering price of $3.00 per share and accompanying warrant for aggregate gross proceeds of approximately $7.4 million, after deducting placement agent fees and other offering expenses in the amount of $0.6 million. The warrants had an exercise price of $3.00 per share, were exercisable immediately and will expire five years from the issuance. The Company received $2.999 per share for the pre-funded warrants, with the remaining $0.001 due at the time of exercise. All 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 ~~transactions described below:~~the announcement of a stock repurchase program on March 1, 2023.

We believe ~~the combination of: (i)~~ our cash and cash equivalent balances, ~~at June 30, 2022~~ and ~~(ii) expected cash flow from operations,~~availability under our credit facility will be sufficient ~~for~~to support our operations ~~and capital needs,~~ for at least twelve months from the filing of this report. ~~Our~~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 use capital resources and obtain additional capital. Failure to generate additional revenues, obtain 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

~~BASIS OF PRESENTATION AND CONSOLIDATION~~

Our consolidated financial statements include the accounts of Cinedigm and its wholly-owned and majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.Consolidation

Investments in which we do not have a controlling interest or are not the primary beneficiary, but have the ability to exert significant influence, are accounted for under the equity method of accounting. Noncontrolling interests for which we have been determined to be the primary beneficiary are consolidated and recorded as net loss attributable to noncontrolling interest. See Note 3 ~~- Other Interests~~ ~~to the~~The accompanying interim Condensed Consolidated Financial Statements ~~for a discussion~~ of ~~our noncontrolling interests.~~

~~USE OF ESTIMATES~~

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

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

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

The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires usmanagement to make estimates and ~~assumptions~~judgments that affect the ~~assets~~amounts reported in the Consolidated Financial Statements and ~~liabilities, disclosures of contingent assets~~accompanying notes. Significant items subject to such estimates and ~~liabilities at the date of the consolidated financial statements~~assumptions include revenue recognition, allowance for doubtful accounts, returns and ~~the reported amounts of revenue~~recovery reserves, goodwill and expenses during the reporting period. Such estimates include the accrual of digital revenue, accounts receivable reserves, return reserves, inventory reserves, recovery of advances, assessment of goodwill impairment, intangible asset ~~impairment and estimated amortization lives, fair value~~impairments, share-based compensation expense, valuation allowance for ~~asset acquisitions and business combinations, valuation allowances for~~deferred income taxes and ~~stock awards.~~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 ~~could~~may differ from these estimates.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We own an 85% interest in CON TV, LLC ("CONtv"), a worldwide digital network that creates original content, and sells and distributes on-demand digital content on the internet and other consumer digital distribution platforms, such as gaming consoles, set-top boxes, handsets, and tablets. We evaluated the investment under the voting interest entity model and determined that the entity should be consolidated as we have a controlling financial interest in the entity through our ownership of outstanding voting shares, and that other equity holders do not have substantive voting, participating or liquidation rights. We recorded net income attributable to noncontrolling interest in our Condensed Consolidated Statements of Operations equal to 11% of outstanding profit interest units retained by the noncontrolling interests.

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

~~CASH AND CASH EQUIVALENTS~~

Segment Reporting

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

Reclassifications

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

Cash and Cash Equivalents

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

Employee Retention Tax Credit

~~Cash~~The Coronavirus Aid, Relief, and ~~cash equivalents consisted~~Economic Security Act (the "CARES Act") provided an employee retention credit which was a refundable tax credit against certain employment taxes. The Consolidated Appropriations Act (the "Appropriations Act") extended and expanded the availability of the ~~following:~~

As of
(in thousands) June 30,
2022 March 31,
2022
Cash and Cash Equivalents $ 11,519 $ 13,062

employee retention credit through December 31, 2021. The Appropriations Act amended the employee retention credit to be equal to ~~EQUITY INVESTMENT IN A METAVERSE COMPANY, A RELATED PARTY~~70% of qualified wages paid to employees during the 2021 fiscal year.

On February 14, 2020, the Company acquired an approximately 11.5% interest in A Metaverse Company (“Metaverse”), a leading publicly traded Chinese entertainment company, formerly Starrise Media Holdings Limited, whose ordinary shares are listed on the Stock Exchange of Hong Kong. The Company acquired such interest as a strategic investment and in a private transaction from a shareholder of Metaverse that is related to our major shareholder. Our major shareholder also maintains a significant beneficial interest ownership in Metaverse. Upon consummation of the transaction on February 14, 2020, the Company recorded an initial investment of approximately $25.1 million, which is the fair market value of the Metaverse shares on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Company’s common stock of $11.2 million, valued as of the date of the issuance of the Common Stock of the Company. The difference in value of shares received in Metaverse and shares issued by the Company is deemed as contributed capital and recorded in additional paid-in capital.

On April 10, 2020, the Company purchased an additional 15% interest in Metaverse in a private transaction from shareholders of Metaverse that are affiliated with the major shareholder of the Company. The Company recorded an additional equity investment of approximately $28.2 million, which is the fair market value of the Metaverse shares on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Company’s common stock of $11.0 million, valued at the date of the issuance of the Common Stock of the Company. The difference in the value of shares received in Metaverse and shares issued by the Company is deemed as contributed capital and recorded in additional paid-in capital. This transaction was also recorded as an equity investment in Metaverse.

The Company ~~has accounted~~qualified for ~~these investments under~~ the ~~equity method~~employee retention credit beginning in June 2020 for qualified wages through September 2021 and filed a cash refund claim during the fiscal year ended March 31, 2023 in the amount of ~~accounting as~~$2.5 million in the ~~Company can exert significant influence over Metaverse with its direct ownership and affiliation with~~Employee retention tax credit line on the Company’s ~~majority shareholders. The Company has made an irrevocable election to apply the fair value option under ASC 825-10,~~ ~~Financial Instruments~~~~, as it relates to its equity investment in Metaverse.~~

~~On April 1, 2022, trading~~Consolidated Statements of Metaverse’s ordinary shares was halted on the Hong Kong Stock Exchange. This investment was previously a level 1 investment as the shares were being actively traded in a marketplace, but with the trading of the shares being halted, the Company needed to reassess the fair value level of the investment. Without an active market where the shares are being traded, the investment no longer qualifies as a level 1.Operations. As of June 30, ~~2022, Metaverse’s stock valuation is based on an evaluated offer received from an independent third party to purchase our shares and trending assessment~~2023, the tax credit receivable of ~~market pricing and is categorized as Level 3 based on unobservable inputs.~~$

~~ACCOUNTS RECEIVABLE~~1.8

~~We maintain reserves for potential~~ million has been included in the Employee retention tax credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.

We record accounts receivable, long-term in connection with activation fees that we earn from our Systems deployments that have extended payment terms. Such accounts receivable are discounted to their present value at prevailing market rate.

~~ADVANCES~~

~~Advances, which are recorded within prepaid and other current assets~~line on the ~~consolidated balance sheets, represent amounts prepaid to studios or content producers for which we provide content distribution services. We evaluate advances regularly for recoverability~~Company's Condensed Consolidated Balance Sheet.

Property and record impairment charges for amounts that we expect may not be recoverable as of the consolidated balance sheet date. Impairments and accelerated amortization related to advances were $32 thousand and $0.2 million, for the three months ended June 30, 2022 and 2021, respectively.

~~PROPERTY AND EQUIPMENT~~Equipment, Net

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


Computer equipment and software			3 - 5 years
Internal use software			5 years
~~Digital cinema projection systems~~			~~10 years~~
Machinery and equipment			3 - 10 years
Furniture and fixtures			3 - 67 years

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Intangible Assets, Net

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

Amortization lives of intangible assets are as follows:


Content Library			3 – 20 years
Advertiser Relationships and Channel			3 – 13 years
Customer Relationships			5 – 13 years
Software			10 years
Trademarks and Tradenames			2 – 15 years
Supplier Agreements			2 years

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


	As of June 30, 2023
	Cost Basis		Accumulated Amortization			Net
Content Library	$	24,073	$	(21,176	)	$	2,897
Advertiser Relationships and Channel		12,604		(1,348	)		11,256
Supplier Agreements		11,430		(11,430	)		-
Customer Relationships		8,690		(7,668	)		1,022
Software		3,200		(640	)		2,560
Trademark and Tradenames		4,026		(2,573	)		1,453
Total Intangible Assets	$	64,023	$	(44,835	)	$	19,188


	As of March 31, 2023
	Cost Basis		Accumulated Amortization			Net
Content Library	$	23,970	$	(21,126	)	$	2,844
Advertiser Relationships and Channel		12,604		(1,062	)		11,542
Supplier Agreements		11,430		(11,430	)		—
Customer Relationships		8,690		(7,600	)		1,090
Trademark and Tradenames		4,026		(2,274	)		1,752
Software		3,200		(560	)		2,640
Total Intangible Assets	$	63,920	$	(44,052	)	$	19,868

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the three months ended June 30, 2023 and ~~maintenance~~2022, the Company had amortization expense of $0.7 million, respectively.

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


	Total
In-process intangible assets	$	1,888
Remainder of fiscal year 2024		2,404
2025		2,307
2026		2,040
2027		1,521
2028		1,246
Thereafter		7,782
	$	19,188

Content Assets

The Company capitalizes direct costs incurred in the production of content from which it expects to generate a return over the anticipated useful life and the Company’s predominant monetization strategy informs the method of amortizing these deferred costs. The determination of the predominant monetization strategy is made at commencement of the production or license period and the classification of the monetization strategy as individual or group only changes if there is a significant change to the title’s monetization strategy relative to its initial assessment. The costs are ~~charged to expense~~presently capitalized within construction-in-process and will be amortized as ~~incurred. Major renewals, improvements~~a group are included within Depreciation and ~~additions are capitalized. Upon~~Amortization within the ~~sale or other disposition~~Condensed Consolidated Statements of ~~any property~~Operations.

Impairment of Long-lived 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 consolidated statements of operations.~~

~~IMPAIRMENT OF LONG-LIVED AND FINITE-LIVED ASSETS~~Finite-lived Intangible Assets

We review the recoverability of our long-lived assets and finite-lived intangible assets, when events or conditions occur that indicate a possible impairment exists. The assessment for recoverability is based primarily on our ability to recover the carrying value of our long-lived and finite-lived assets from expected future undiscounted net cash flows. If the total of expected future undiscounted net cash flows is less than the total carrying value of the asset, the asset is deemed not to be recoverable and possibly impaired. We then estimate the fair value of the asset to determine whether an impairment loss should be recognized. An impairment loss will be recognized if the asset’s fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted cash flows. ~~During~~There were no impairment charges recorded for long-lived and finite-lived intangible assets during the three months ended June 30, ~~2022~~2023 and ~~2021, no impairment charge was recorded from operations for long-lived assets or finite-lived assets.~~2022.

~~INTANGIBLE ASSETS~~

Goodwill

Intangible assets are stated at cost less accumulated amortization. For intangible assets that have finite lives, the assets are amortized using the straight-line method over the estimated useful lives of the related assets. For intangible assets with indefinite lives, the assets are tested annually for impairment or sooner if a triggering event occurs. During the three months ended June 30, 2022 and 2021, no impairment charge was recorded from operations for intangible assets.

~~Amortization expense is recorded using the straight-line method over the estimated useful lives of the respective assets as follows:~~

~~Trademark~~			~~3 years~~
~~Content Library~~			~~3 – 20 years~~
~~Customer Relationships~~			~~5 – 13 years~~
~~Tradename~~			~~2 – 15 years~~
~~Supplier Agreements~~			~~2 years~~
~~Advertiser relationships and Channel~~			~~3-13 years~~
~~Software~~			~~10 years~~

~~The Company’s intangible assets included the following on June 30, 2022:~~

Cost Basis Accumulated
Amortization

Impairment
Net
Trademark $ 1,925 $ (925 ) $ - 1,000
Content Library 23,685 (20,803 ) - 2,882
Customer Relationships 10,658 (7,395 ) (1,968 ) 1,295
Tradename 2,101 (619 ) - 1,482
Theatre Relationship 550 (550 ) - -
Patents 17 (17 ) - -
Supplier Agreements 11,430 (11,399 ) - 31
Advertiser relationships and Channel 10,081 (361 ) - 9,720
Software 3,200 (320 ) - 2,880
Total Intangible Assets $ 63,647 $ (42,389 ) $ (1,968 ) 19,290

~~The Company’s intangible assets included the following on March 31, 2022:~~

Cost Basis Accumulated
Amortization

Impairment
Net
Trademark $ 1,925 $ (776 ) $ - 1,149
Content Library 23,685 (20,665 ) - 3,020
Customer Relationships 10,658 (7,327 ) (1,968 ) 1,363
Tradename 2,101 (525 ) - 1,576
Theatre Relationship 550 (550 ) - -
Patents 17 (17 ) - -
Supplier Agreements 11,430 (11,384 ) - 46
Advertiser relationships and Channel 10,081 (161 ) - 9,920
Software 3,200 (240 ) - 2,960
Total Intangible Assets $ 63,647 $ (41,645 ) $ (1,968 ) 20,034

~~Below is the amortization expense per year for the intangible assets:~~

Total
2023 $ 2,520
2024 3,048
2025 1,796
2026 1,489
2027 1,269
Thereafter 9,168
Total $ 19,290

~~FAIR VALUE MEASUREMENTS~~

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

●

~~Level 1 – quoted prices in active markets for identical investments~~

●

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

●

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

Assets and liabilities measured at fair value on a recurring basis use the market approach, where prices and other relevant information are generated by market transactions involving identical or comparable assets or liabilities.

The equity investment in Metaverse is in Hong Kong dollars and was translated into US dollars as of June 30, 2022 and 2021 at an exchange rate of 7.8 and 7.8 Hong Kong Dollars to 1 US Dollar, respectively. The fair value of this equity investment was measured by the quoted market price of Metaverse on the Stock Exchange of Hong Kong at June 30, 2021. On April 1, 2022, trading of Metaverse’s ordinary shares was halted on the Hong Kong Stock Exchange and as of June 30, 2022, Metaverse’s stock valuation is based on a preliminary evaluated offer received from an independent third party to purchase our shares and trending assessment of market pricing and is categorized as Level 3 based on unobservable inputs. The adjustment to fair value of this investment resulted in a loss of $1.3 million and gain of $0.3 million for the three months ended June 30, 2022 and 2021, respectively. As the value of the investment in Metaverse is being determined by an offer to purchase the shares from an independent third party, the value of the investment may need to be reduced or fully written off should the offer be rescinded.

~~The following tables summarize the levels of fair value measurements of our financial assets and liabilities as of June 30, 2022 and March 31, 2022:~~

~~As of June 30, 2022~~

(in thousands) Level 1 Level 2 Level 3 Total
Assets:
Equity investment in Metaverse, at fair value $ - $ - $ 5,772 $ 5,772
$ - $ - $ 5,772 $ 5,772

Liabilities:
Current portion of earnout consideration on purchase of a business $ — $ — $ 1,188 $ 1,188
Long term portion of earnout consideration on purchase of a business — — 627 627
$ — $ — $ 1,815 $ 1,815

~~As of March 31, 2022~~

(in thousands) Level 1 Level 2 Level 3 Total
Assets:
Equity investment in Metaverse, at fair value $ 7,028 $ — $ — $ 7,028
$ 7,028 $ — $ — $ 7,028

Liabilities:
Current portion of earnout consideration on purchase of a business $ — $ — $ 1,081 $ 1,081
Long term portion of earnout consideration on purchase of a business — — 603 603
$ — $ — $ 1,684 $ 1,684

Our cash and cash equivalents, accounts receivable, unbilled revenue and accounts payable and accrued expenses are financial instruments and are recorded at cost in the consolidated balance sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature.

~~ASSET ACQUISITIONS~~

An asset acquisition is an acquisition of an asset, or a group of assets, that does not meet the definition of a business. Asset acquisitions are accounted for by using the cost accumulation model whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values.

~~GOODWILL~~

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

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

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

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

date of March 31, ~~2022~~2023 by performing a qualitative analysis and determined that it was not more likely than not that the fair value of its reporting unit is less than its carrying amount.

No goodwill impairment charge was recorded in the three months ended June 30, ~~2022~~2023 and ~~2021.~~2022.

~~ACCOUNTS PAYABLE AND ACCRUED EXPENSES~~

Fair Value Measurements

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

•

Level 1 – quoted prices in active markets for identical investments

•

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

•

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

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


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

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


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

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

The Company has accounted for its investment in A Metaverse Company ("Metaverse") (SEHK: 1616) under the equity method of accounting as the Company can exert significant influence over Metaverse with its direct ownership and affiliation with the Company’s majority shareholders. The Company has also made an irrevocable election to apply the fair value option under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 825-10, Financial Instruments, as it relates to its equity investment in Metaverse.

The Company previously used quoted trading price of the Stock Exchange of Hong Kong to measure the investment's fair value. Following the halting of Metaverse stock trading on the Stock Exchange of Hong Kong on April 1, 2022, the Company valued our equity investment in Metaverse using a market approach and the investment is categorized as a Level 3 valuation based on unobservable inputs.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company estimated the fair value of Metaverse based on the last known enterprise value, adjusting for trends in enterprise valuations and market capitalization for comparable companies. As of June 30, 2023 and March 31, 2023, the fair value was $5.2 million.

The Company estimated the fair value of its earnout consideration using contractual inputs from the related business combination, which established specific fiscal year revenue growth, profitability and EBITDA targets. The Company utilizes the most up to date forecast to estimate the outcome against these targets to determine the ultimate estimated payout. During the quarter ended June 30, 2023, the Company accrued interest of $30 thousand and an increase in the estimated earnout payments by $52 thousand based on fiscal year 2024 estimated performance.

Our cash and cash equivalents, accounts receivable, unbilled revenue, accounts payable and accrued expenses are financial instruments and are recorded at cost in the Condensed Consolidated Balance Sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature.

Prepaid and Other Current Assets

Prepaid and other current assets consisted of the following (in thousands):


	As of
	June 30, 2023		March 31, 2023
Amounts due from producers	$	5,878	$	3,724
Other receivables		125		420
Inventory		165		207
Other prepayments		1,469		1,107
Total prepaid and other current assets	$	7,637	$	5,458

Amounts due from producers represents amounts prepaid to studios or content producers for which we provide content distribution services. We evaluate advances regularly for recoverability and record a provision for amounts that we expect may not be recoverable. The provision for advances were $0.2 million and $0.03 million for the three months ended June 30, 2023 and 2022, respectively.

Other prepayments generally relate to prepaid operating expenses, short term deposits and prepaid taxes.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the ~~following:~~

As of
(In thousands) June 30,
2022 March 31,
2022
Accounts payable $ 29,325 $ 34,177
Amounts due to producers 9,254 10,430
Accrued compensation and benefits 4,401 3,507
Accrued taxes (refund) payable (67 ) (78 )
Accrued other expenses 3,537 3,989
Total accounts payable and accrued expenses $ 46,450 $ 52,025

~~PREPAID AND OTHER CURRENT ASSETS~~following (in thousands):

~~Prepaid and other current assets consisted of the following:~~

As of
(In thousands) June 30,
2022 March 31,
2022
Non-trade accounts receivable $ 688 $ 826
Advances 1,853 2,117
Due from producers 1,057 1,861
Prepaid insurance 212 169
Other prepaid expenses 811 820
Total prepaid and other current assets $ 4,621 $ 5,793

~~Impairments and accelerated amortization related to advances were $32 thousand and $0.2 million, for the three months ended June 30, 2022 and 2021, respectively.~~


	As of
	June 30, 2023		March 31, 2023
Accounts payable	$	10,291	$	15,042
Amounts due to producers		14,112		13,114
Accrued compensation and benefits		2,330		2,532
Accrued other expenses		3,134		3,843
Total accounts payable and accrued expenses	$	29,867	$	34,531

~~REVENUE RECOGNITION~~

Revenue Recognition

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present the past entered into arrangements in connection with activation fees due from our System deployments that had extended payment terms. The outstanding balances on these arrangements are insignificant and hence the impact of significant financing would be insignificant.Company’s disaggregated revenue by source (in thousands):


	Three Months Ended June 30,
	2023		2022
Streaming and digital	$	10,114	$	9,503
Base distribution		1,158		2,205
Podcast and other		429		455
Other non-recurring		1,279		1,427
Total revenue	$	12,980	$	13,590

~~Cinema Equipment Business~~

~~Our Cinema Equipment Business consists of financing vehicles~~The Company's Streaming and ~~administrators for Systems installed nationwide in our first deployment phase (“Phase I Deployment”)~~digital revenue pertains to ~~theatrical exhibitors~~its OTT business, including the licensing, service, advertising, and ~~for Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”).~~

~~We retain ownership of our Systems and the residual cash flows~~subscription revenue related to the ~~Systems in Phase I Deployment after the end of the 10-year deployment payment period.~~

~~For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows~~Company's streaming business and ~~digital cinema equipment in Phase II Deployment after the completion of cost recoupment~~partnerships. Base distribution revenue relates to non-streaming revenue, including Theatrical revenue and ~~at the expiration of the exhibitor master license agreements.~~

The Cinema Equipment Business also provides monitoring, data collection, serial data verification and management services to this segment, as well as to exhibitors who purchase their own equipment, in order to collect virtual print fees (“VPFs”) from motion picture studios and distributors and Alternative Content Fees (“ACFs”) from alternative content providers, and to distribute those fees to theatrical exhibitors (collectively, “Services”).

VPFs are earned, net of administrative fees, pursuant to contracts with movie studios and distributors, whereby amounts are payable by a studio to Phase I Deployment and to Phase II Deployment when movies distributed by the studio are displayed on screens utilizing our Systems installed in movie theatres. VPFs are earned and payable to us with respect to Phase I Deployment based on a defined fee schedule until the end of the VPF term. One VPF is payable for every digital title initially displayed per System. The amount of VPF revenue is dependent on the number of movie titles released and displayed using the Systems in any given accounting period. VPF revenue is recognized in the period the title first plays for general audience viewing in a digital projector equipped movie theatre. The Phase 1 Deployment’s and Phase 2 Deployments performance obligations for revenue recognition are met at this time.

Phase II Deployment’s agreements with distributors require the payment of VPFs, according to a defined fee schedule, for ten years from the date each system is installed; however, Phase II Deployment may no longer collect VPFs once “cost recoupment,” as defined in the contracts with movie studios and distributors, is achieved. Cost recoupment will occur once the cumulative VPFs and other cash receipts collected by Phase II Deployment have equaled the total of all cash outflows, including the purchase price of all Systems, all financing costs, all “overhead and ongoing costs”, as defined, and including service fees, subject to maximum agreed upon amounts during the three-year rollout period and thereafter. Further, if cost recoupment occurs before the end of the eighth contract year, the studios will pay us a one-time “cost recoupment bonus.” The Company evaluated the constraining estimates related to the variable consideration, that it is not probable to conclude at this point in time that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is subsequently resolved.

Under the terms of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive one-year terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we typically pursue the sale of DVD's. Podcast and other revenue primarily relates to the ~~Systems~~Company's Bloody Disgusting Podcast Network. Other non-recurring revenue relates to ~~such exhibitors. Cinedigm recognizes revenue once~~ the ~~customer takes possession of the Systems and Cinedigm received the sale proceeds. Such sales were originally contemplated as the conclusion of the~~Company's legacy digital cinema deployment plan. Total system revenue was $1.2 million and $5.6 million, during the three months ended June 30, 2022 and 2021, respectively. Revenues earned in connection with up front exhibitor contributions are deferred and recognized over the expected cost recoupment period.

Exhibitors who purchased and own Systems using their own financing in Phase II of the Cinema Equipment Business paid us an upfront activation fee of approximately $2.0 thousand per screen (the “Exhibitor-Buyer Structure”). Upfront activation fees were recognized in the period in which these Systems were delivered and ready for content, as we had no further obligations to the customer after that time and collection was reasonably assured. In addition, we recognize activation fee revenue of between $1.0 thousand and $2.0 thousand on Phase II Deployment Systems and for Systems installed by CDF2 Holdings, a related party, (See Note 3 - ~~Other Interests~~) upon installation and such fees are generally collected upfront upon installation. Our services division manages and collects VPFs on behalf of exhibitors, for which it earns an administrative fee equal to 10% of the VPFs collected.

The Cinema Equipment Business earns an administrative fee of approximately 5% of VPFs collected and, in addition, earns an incentive service fee equal to 2.5% of the VPFs earned by Phase 1 DC. This administrative fee is related to the collection and remittance of the VPF’s and the performance obligation is satisfied at that time the related VPF fees are due which is at the time the movies are displayed on screens utilizing our Systems installed in movie theatres. The service fees are recognized as a point in time revenue when the corresponding VPF fees are due from the movie studios and distributors.

~~Content & Entertainment Business~~

CEG earns fees for the distribution of content in the home entertainment markets via several distribution channels, including digital, video on demand (“VOD” or “OTT Streaming and Digital”), and physical goods (e.g., DVDs and Blu-ray Discs) (“Physical Revenue” or “Base Distribution Business”). Fees earned are typically a percentage based on the net amounts received from our customers. Depending upon the nature of the agreements with the platform and content providers, the fee rate that we earn varies. The Company’s performance obligations include the delivery of content for transactional, subscription and ad supported/free ad-supported streaming TV (“FAST”) on the digital platforms, and shipment of DVDs and Blu-ray Discs. Revenue is recognized at the point in time when the content is available for subscription on the digital platform (the company’s digital content is considered functional IP), at the time of shipment for physical goods, or point-of-sale for transactional and VOD services as the control over the content or the physical title is transferred to the customer. The Company considers the delivery of content through various distribution channels to be a single performance obligation. Physicaloperations, whose operations have run-off, still may generate non-recurring revenue from the sale of ~~physical goods is recognized after deducting~~cinema assets or the ~~reserves for sales returns and other allowances, which are accounted for~~recognition of variable consideration as ~~variable consideration.~~

Reserves for potential sales returns of physical goods and other allowances are recorded based upon historical experience. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.

~~CEG also has contracts for~~ the ~~theatrical distribution of third party feature movies and alternative content. CEG’s distribution fee revenue and CEG’s participation in box office receipts are recognized at~~associated uncertainty associated with the time a feature movie and alternative content are viewed. CEG has the right to receive or bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded as a receivable at the time of execution, and all related distribution revenue is ~~deferred until the third party feature movies’ or alternative content’s theatrical release date.~~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~~recognition.

Principal Agent Considerations

Revenue earned ~~by our CEG business~~ from the delivery of digital content and physical goods may be recognized gross or net depending on the terms of the arrangement. We determine whether revenue should be reported on a gross or net basis based on each revenue stream. Key indicators that we use in evaluating gross versus net treatment include, but are not limited to, the following:

•

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

•

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

●

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

●

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

Shipping and Handling

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

Credit Losses

We maintain reserves for potential credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.

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

~~We record accounts receivable, long-term in connection with activation fees that~~During the three months ended June 30, 2023 and 2022, we ~~earn from Systems deployments that~~did not recognize any credit losses as part of its ongoing operations or reversals of previously recorded provisions, and did not have ~~extended payment terms. Such accounts receivable are discounted to their present value at prevailing market rates.~~any write-offs charged against the allowance.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Contract Liabilities

We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability) when cash payments are received or due in advance of our performance, ~~even if amounts are refundable.~~

~~Deferred revenue pertaining to our Content & Entertainment Business includes amounts related to~~such as the sale of DVDs with future release ~~dates.~~dates, even if amounts are refundable. Amounts recorded as contract liabilities are generally not long-term in nature.

Deferred revenue relating to our Cinema Equipment Business pertains to revenues earned in connection with up front exhibitor contributions that are deferred and recognized over the expected cost recoupment period. It also includes unamortized balances in connection with activation fees due from the Systems deployments that have extended payment terms.

The ending deferred revenue balance, including current and non-current balances as of June 30, ~~2022~~2023 and March 31, 2023, was ~~$0.4 million.~~and $0.2 million and $0.2 million respectively. For the three months ended June 30, ~~2022,~~2023, the additions to our deferred revenue balance were primarily due to cash payments received or due in advance of satisfying performance obligations, while the reductions of $0.2 million to our deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business. For the three months ended June 30, 2022 and 2021, there was $12.0 million and $14.6 million , respectively, included in accounts payable that represents a refund liability, a portion or all of which may be recognized as revenue upon completion of audit periods.

Participations and royalties payable

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

~~Disaggregation of Revenue~~

The Company disaggregates revenue into different revenue categories for the Cinema Equipment and CEG Businesses. The Cinema Equipment Business revenue categories are: Phase I Deployment revenue, Phase II Deployment revenue, Services, and Digital System Sales, and the Content & Entertainment Business revenue categories are: Base Distribution Business and OTT Streaming and Digital.

~~The following tables present the Company’s revenue categories for the three months ended June 30, 2022 and 2021 (in thousands):~~

Three Months Ended
June 30,
2022 2021
Cinema Equipment Business:
Phase I Deployment $ 113 $ 91
Phase II Deployment - 386
Services 120 179
Digital System Sales 1,194 5,575
Total Cinema Equipment Business revenue $ 1,427 $ 6,231

Content & Entertainment Business:
Physical Revenue $ 2,205 $ 1,778
OTT Streaming and Digital 9,958 7,006
Total Content & Entertainment Business revenue $ 12,163 $ 8,784

~~Concentrations~~

Concentrations

For the three months ended June 30, ~~2022, 3 customers, Amazon.com, Inc., Distribution Solutions, a division~~2023, one customer represented 28% of ~~Alliance Entertainment and Roku, Inc., represented 22% and 14%, and 10% respectively, of Content & Entertainment Business revenues, and approximately 19%, and 13% and 9%, respectively, of our~~ consolidated revenues. For the three months ended June 30, ~~2021, Amazon.com, Inc. Distribution Solutions, a division~~2022, one customer represented approximately 19% and another customer represented approximately 13% of ~~Alliance Entertainment and Roku, Inc., represented 23%, 11% and 11%, respectively, of Content & Entertainment Business revenues and approximately 14%, 6% and 6%, respectively, of our~~ consolidated ~~Revenues.~~revenues.

~~DIRECT OPERATING COSTS~~

Direct Operating Costs

Direct operating costs consist of ~~operating costs such as~~ cost of revenue, fulfillment expenses, shipping costs, property taxes and insurance on ~~Systems,~~systems, royalty expenses, impairments of advances and marketing and direct personnel costs.

~~STOCK-BASED COMPENSATION~~

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.~~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 ~~consolidated statements~~Condensed Consolidated Statements of ~~operations~~Operations and ~~comprehensive loss~~Comprehensive Income (Loss) based on their fair values. The Company measures the compensation expense of employee and nonemployee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost is recognized on a straight-line basis over the period during which the employee ~~and~~or nonemployee is required to provide service in exchange for the award. The fair values of options and ~~stock appreciation rights~~SARs are calculated as of the date of grant using the Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility, risk-free rate and expected term. The Company’s estimates of these assumptions are primarily based on the trading price of the Company’s stock, historical data, peer company data and judgment regarding future trends and factors. Forfeitures are recognized as they occur.

~~INCOME TAXES~~

Income Taxes

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

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Valuation allowances are established when management is unable to conclude that it is more likely than not that some portion, or all, of the deferred tax asset will ultimately be realized. The Company is primarily subject to income taxes in the United States.

The Company accounts for uncertain tax positions in accordance with an amendment to ASC Topic 740-10, Income Taxes (Accounting for Uncertainty in Income Taxes), which clarified the accounting for uncertainty in tax positions. This amendment provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is “more-likely-than-not” to be sustained were it to be challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the “more-likely-than-not” threshold, the largest amount of tax benefit that is more than ~~50%~~50% likely to be recognized upon ultimate settlement with the taxing authority is recorded. The Company ~~has~~had no uncertain tax ~~positions.~~positions as of June 30, 2023 and March 31, 2023.

~~NET LOSS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS~~

Earnings per Share ("EPS")

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 ~~common~~ share ~~has been calculated~~are computed as ~~follows:~~follows (in thousands, except share and per share data):

~~Basic net income (loss) per common share attributable to common stockholders~~	=	~~Net loss attributable to common stockholders~~
		Weighted average number of common stock outstanding during the period

~~Diluted net income (loss) per common share attributable to common stockholders~~	=	~~Net loss attributable to common stockholders~~
		Weighted average number of common stock outstanding during the period plus potential dilutive shares


	Three Months Ended June 30,
	2023			2022
Basic net loss per share:
Net loss attributable to common stockholders	$	(3,638	)		(6,093	)
Shares used in basic computation:
Weighted-average shares of common stock outstanding		9,879			8,771
Basic net loss per share	$	(0.37	)	$	(0.69	)

Shares used in diluted computation:
Weighted-average shares of common stock outstanding		9,879			8,771
Stock options and SARs		—			—
Weighted-average number of shares		9,879			8,771
Diluted net loss per share	$	(0.37	)	$	(0.69	)

~~Stock~~

Included in the computation of basic EPS are the 516,667 pre-funded warrants which were issued and ~~treasury stock repurchased or reacquired during the period are weighted~~sold on June 16, 2023.

The calculation of diluted net loss per share for the ~~portion of the period that they are outstanding.~~

~~We incurred a net loss for the three months~~quarters ended June 30, 2023 and 2022 ~~and therefore~~does not include the impact of 2,666,667 and 0 warrants, respectively, as well as 934 thousand and 425 thousand potentially dilutive ~~common~~ shares, ~~from outstanding stock options and warrants, totaling 8,506,098 shares as of June 30, 2022, were excluded from the computations of loss per share~~respectively, relating to equity-based awards, as their impact would have been ~~anti-dilutive.~~anti-dilutive due to the respective period's net loss.

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~We had a net income~~Recently Issued Accounting Pronouncements

The Company evaluates all Accounting Standard Updates ("ASUs") issued but not yet effective by FASB for ~~the three months ended June 30, 2021, and therefore the impact~~consideration of ~~potentially dilutive common shares from outstanding stock options, stock appreciation rights, and warrants, totaling 2,003,235 shares for the three months ended June 30, 2021, respectively, were~~their applicability. ASU's not included in the ~~computations of diluted earnings per share. The calculation of diluted net income per share for~~Company's disclosures were assessed and determined to be not applicable and material to the three months ended June 30, 2021 does not include the impact of 9,616,429 potentially dilutive shares relating to stock options, stock appreciation rights, and warrants as their impact would have been anti-dilutive.Company's consolidated financial statements or disclosures.

~~COMPREHENSIVE LOSS~~

~~For the three months ended June 30, 2022 and 2021, comprehensive loss consisted of net loss and foreign currency translation adjustments.~~

~~RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS~~

In ~~June 2016,~~July 2023, the FASB issued ASU ~~2016-13,~~ No 2023-03, “Presentation of Financial ~~Instruments – Credit Losses~~Statements (Topic ~~326): Measurement~~205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718)” pursuant to SEC Staff Accounting Bulletin No. 120, which adds interpretive guidance for public companies to consider when entering into share-based payment transactions while in possession of ~~Credit Losses on Financial Instruments~~ (“ASU 2016-13”), which provides new guidance regarding the measurement and recognition of credit impairment for certain financial assets. Such guidance will impact how the Company determines its allowance for estimated uncollectible receivables and evaluates its available-for-sale investments for impairment. ASU 2016-13material non-public information. This update is ~~effective for the Company~~reflected in the ~~first~~Accounting Standard Codification upon issuance and will be effective in the Company's second quarter of fiscal year 2024, beginning July 1, 2023. The Company ~~is currently evaluating~~does not expect the ~~effect that ASU 2016-13 will~~adoption to have a material impact on ~~its~~our consolidated financial ~~statements and related disclosures.~~statements.

3. OTHER INTERESTS

Investment in CDF2 Holdings

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

CDF2 Holdings is a Variable Interest Entity (“VIE”), as defined in ~~Accounting Standards Codification~~ASC Topic 810 (“ASC 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 June 30, ~~2022~~2023 and March 31, ~~2022,~~2023, our maximum exposure to loss, as it relates to the non-consolidated CDF2 Holdings entity, represents accounts receivable for service fees under a master service agreement with CDF2 Holdings. Such accounts receivable was ~~$0.7~~$0.0 million and ~~$0.8~~$0.5 million as of June 30, ~~2022~~2023 and March 31, ~~2022,~~2023, respectively, which are included in accounts receivable, net on the accompanying ~~consolidated balance sheets.~~Condensed Consolidated Balance Sheets.

The accompanying Condensed Consolidated Statements of Operations include ~~$(104) thousand~~$0.0 million and ~~$77 thousand~~($0.1) million of digital cinema servicing revenue from CDF2 Holdings for the three months ended June 30, 2023 and 2022, ~~and 2021,~~ respectively.

Total Stockholders’ Deficit of CDF2 Holdings at June 30, ~~2022~~2023 and March 31, ~~2022~~2023 was ~~$57.3~~$59.2 million and ~~$55.6~~$59.2 million, respectively. We have no obligation to fund the operating loss or the stockholders’ deficit beyond our initial investment of ~~$2.0~~$2.0 million and, accordingly, our investment in CDF2 Holdings as of June 30, ~~2022~~2023 and March 31, ~~2022~~2023 is carried at ~~$0.~~

$~~Majority Interest in CONtv~~0.

We own an 85% interest in CON TV, LLC, 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.

Investment in Roundtable

On March 15, 2022, the Company entered into a stock purchase agreement with Roundtable Entertainment Holdings, Inc. (“Roundtable”) pursuant to which the Company purchased ~~500~~0.5 thousand shares of Roundtable Series A Preferred Stock and warrants to purchase ~~100~~0.1 thousand shares of Roundtable Common Stock (together, the “Roundtable Securities”). The Company paid the purchase price for the Roundtable Securities by issuing ~~to Roundtable 316,937~~16 thousand shares of Common Stock ~~is based on the closing price of the company on the date of the purchase.~~to Roundtable. The Company recorded ~~$0.2~~$0.2 million for the purchase of the Roundtable Securities which is included in other long-term assets on the ~~consolidated balance sheet.~~accompanying Consolidated Balance Sheets. The investment in the Roundtable Securities was made in connection with a proposed collaboration with Roundtable regarding production and distribution of streaming content including the launch of high profile branded

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

4. STOCKHOLDERS’ EQUITY ~~(DEFICIT)~~

COMMON STOCK

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

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

During the three months ended June 30, 2023, the Company issued 2,337 shares of Common Stock. This is comprised of 2,150 thousand shares issued through a direct offering, 177 thousand issued in connection with ATM sales, and 10 thousand issued in payment of preferred stock dividends.

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

During the three months ended June 30, 2022, the Company issued ~~108,024~~5 thousand shares of Common Stock which ~~consist~~consists of the issuance of Common Stock in payment of preferred stock dividends.

PREFERRED STOCK

Cumulative dividends in arrears on ~~preferred stock~~Series A Preferred Stock were ~~$0.1 million and $0.1 million~~$88 thousand as of June 30, 2023 and 2022. In the first quarter of fiscal year 2023 and 2022, ~~and 2021, respectively. In May 2022 and 2021, we~~the Company paid preferred stock dividends in arrears for the same amount in the form of ~~108,024 and 53,278~~ shares of Common Stock. The Company also has 1 share of Series B Preferred Stock ~~respectively.~~with no shares outstanding.

TREASURY STOCK

We have treasury stock, at cost, consisting of ~~1,315,851 and 1,315,851~~66 thousand shares of Common Stock at June 30, ~~2022~~2023 and March 31, ~~2022, respectively.~~2023.

~~CINEDIGM’S~~ EQUITY INCENTIVE PLANS

Stock Based Compensation Awards

~~Awards~~The Company has issued awards under ~~our~~two plans, the 2000 Equity Incentive Plan (the “2000 Plan”) ~~may~~and the 2017 Equity Incentive Plan (the “2017 Plan).

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Awards issued under our 2000 Plan were permitted to be issued to employees, outside directors or consultants in any of the following forms (or a combination thereof) (i) stock option awards; (ii) ~~stock appreciation rights;~~SARs; (iii) stock or restricted stock or restricted stock units; or (iv) performance awards. The 2000 Plan ~~provides~~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%~~10% of the total combined voting power of the Company must have exercise prices of at least ~~110%~~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 ~~are~~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 ~~are~~were set at the discretion of our compensation committee. On November 1, 2017, upon the consummation of the initial equity investment in ~~Cinedigm~~Cineverse by Bison, as a result of which there was a change of control of the Company, all stock options (incentive and non-statutory) and shares of restricted stock were vested immediately and the options became fully exercisable.

In connection with the grants of stock options and shares of restricted stock under the 2000 Plan, we and the participants have executed stock option agreements and notices of restricted stock awards setting forth the terms of the grants. The 2000 Plan provided for the issuance of up to 2,380,000 shares of Common Stock to employees, outside directors and consultants.

As of June 30, 2022, there were 212,037 stock options outstanding in the 2000 Plan with weighted average exercise price of $14.46 and a weighted average contract life of 1.32 years. As of March 31, 2022, there were 217,337 shares pursuant to stock options outstanding in the Plan with weighted average exercise price of $14.49 and a weighted average contract life of 1.54 years. A total of 5,300 options expired and zero options were forfeited during the three months ended June 30, 2022.

~~Options outstanding under the 2000 Plan as of June 30, 2022 is as follows:~~

As of June 30, 2022
Range of Prices Options Outstanding Weighted Average Remaining Life in Years Weighted Average Exercise Price Aggregate Intrinsic Value
(In thousands)
$1.16 - $7.40 5,000 3.01 $ 7.40 $ —
$13.70 - $24.40 207,037 1.28 14.63 —
212,037 $ —

~~An analysis of all options exercisable under the 2000 Plan as of June 30, 2022 is presented below:~~

Options Exercisable Weighted Average
Remaining Life in Years Weighted Average
Exercise Price Aggregate Intrinsic Value
(In thousands)
212,037 1.32 $ 14.46 —

In August 2017, the Company adopted the 2017 ~~Equity Incentive Plan (the “2017 Plan).~~Plan. The 2017 Plan replaced the 2000 Plan, and applies to employees and directors of, and consultants to, the Company. The 2017 Plan ~~provided~~provides for the issuance of up to ~~2,108,270~~905 thousand shares of Common Stock, in the form of various awards, including stock options, ~~stock appreciation rights, stock,~~SARs, restricted stock, restricted stock units, ~~performance awards~~PSUs and cash awards. The Compensation Committee of the Company’s Board of Directors (the “Board”) is authorized to administer the 2017 Plan and make grants thereunder. The approval of the 2017 Plan did not affect awards already granted under the 2000 Plan. On December 4, 2019, upon shareholder approval, the 2017 Plan was amended to increase the maximum number of shares of Common Stock authorized for issuance thereunder from 2,108,270 shares to 4,098,270.

~~On October 23, 2020, the Company amended its 2017 Plan to increase the number of shares authorized for issuance thereunder from 4,098,270 to 14,098,270.~~

~~On October 11, 2021, the Company amended its 2017 Plan to increase the number of shares authorized for issuance thereunder from 14,098,270 to 18,098,270.~~

~~Stock appreciation rights outstanding under the 2017 Plan as of June 30, 2022 is as follows:~~

As of June 30, 2022
Range of Prices SARs Outstanding Weighted Average Remaining Life in Years Weighted Average Exercise Price Aggregate Intrinsic Value
(In thousands)
$0.54 - $0.74 5,550,000 8.45 $ 0.60 $ —
$1.16 - $1.47 2,283,610 6.29 1.25 —
$1.71 - $2.10 2,455,738 6.53 1.49 —
$2.23 - $2.56 604,250 9.31 2.29 —
10,893,598 $ —

~~An analysis of all stock appreciation rights exercisable under the 2017 Plan as of June 30, 2022 is presented below:~~

SAR Exercisable Weighted Average
Remaining Life in Years Weighted Average
Exercise Price Aggregate Intrinsic Value
(In thousands)
2,736,473 7.29 $ 1.21 -

~~Total SARs outstanding are as follows:~~

	Year Ended June 30, 2022
~~SARs Outstanding March 31, 2022~~		~~10,893,598~~
~~Issued~~		-
~~Forfeited~~		-
~~Total SARs Outstanding June 30, 2022~~		~~10,893,598~~

~~Following is the activity for performance stock unit awards:~~

Shares Weighted Average Grant Date Fair Value
Unvested balance at March 31, 2022 696,280 $ 1.25
Granted - -
Vested - -
Unvested balance at June 30, 2022 696,280 $ 1.25

~~During the three months ended June 30, 2022, zero shares were issued for vested awards and 255,219 shares are to be issued as of June 30, 2022.~~

Employee and director stock-based compensation expense related to our stock-based awards ~~was as follows:~~of $410 thousand and $980 thousand, for the quarters ended June 30, 2023 and 2022, respectively, were recorded to Selling, General and Administrative expenses.

Three Months Ended
June 30,
(In thousands) 2022 2021
Selling, general and administrative $ 980 $ 983
$ 980 $ 983

There was ~~$875 thousand and $1 thousand~~$0.1 million of stock-based compensation ~~recorded~~expense for the three months ended June 30, ~~2022~~2023 and ~~2021, respectively,~~2022 related to ~~employees’ restricted stock awards.~~Board of Directors compensation.

There was $105 thousand and $126 thousand of stock-based compensation for the three months ended June 30, 2022 and 2021, respectively, related to board of directors. During the three months ended June 30, 2022, the Company issued zero restricted shares to non-employee directors.

~~OPTIONS GRANTED OUTSIDE CINEDIGM’S EQUITY INCENTIVE PLAN~~Options Granted Outside Cineverse's Equity Incentive Plan

In October 2013, we issued options outside of the 2000 Plan to 10 individuals who became employees as a result of a business combination. The employees received options to purchase an aggregate of ~~62,000~~3 thousand shares of our Common Stock at an exercise price of ~~$17.50~~$350 per share. The options were fully vested as of October 2017 and expire 10 years from the date of grant, if unexercised. As of June 30, ~~2022, 12,500~~2023, 0.6 thousand of such options remained outstanding.

~~WARRANTS~~

5. LINE OF CREDIT FACILITY

The ~~following table presents information about outstanding warrants~~Company is party to ~~purchase shares~~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 ~~Common Stock~~material subsidiaries and secured by substantially all of our and such subsidiaries' assets. The Line of Credit bears an interest rate equal to 1.5% above the prime rate, and was 9.75% as of June 30, ~~2022. All~~2023. As of June 30, 2023 and March 31, 2023, a balance of $5.0 million was outstanding on the line of the Credit Facility. Under the Line of Credit Facility, the Company is subject to certain financial and nonfinancial covenants which require the Company to maintain certain metrics and ratios, maintain certain minimum cash on hand, and to report financial information to our lender on a periodic basis. During the three months ended June 30, 2023 and 2022, the Company had interest expense of $0.1 million and $0 related to the Line of Credit Facility, respectively. The outstanding ~~warrants are fully vested and exercisable.~~principal balance on the Line of Credit Facility as of August 7, 2023 was $0. On August 11, 2023, EWB extended the maturity date of the Line of Credit Facility one year to September 15, 2024.

Recipient Amount
outstanding Expiration Exercise price
per share
5-year Warrant issued to Bison Entertainment and Media Group(” BEMG”) in connection with a term loan agreement 1,400,000 December 2022 $ 1.80

6. COMMITMENTS AND CONTINGENCIES

~~We operate from leased properties under non-cancelable~~LEASES

Cineverse is a virtual company with one domestic operating lease, ~~agreements, certain~~acquired through the acquisition of Digital Media Rights ("DMR") which ~~contain escalating lease clauses.~~

is subleased to a third party. The Company ~~leases office space under an~~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

CINEVERSE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

of both the original lease and sublease's term is January 2025. In addition, the Company has two operating ~~lease. The Company’s portfolio of~~ leases ~~is primarily~~ related to ~~real estate~~its Cineverse India operations, with expiration dates in July 2027. Expenses related to these leases were $115 thousand and ~~since most~~$84 thousand during the three months ended June 30, 2023 and 2022, respectively.

The Company has recognized $44 thousand of ~~our leases do not provide a readily determinable implicit rate,~~sublease income related to its subleasing arrangement during the Company estimated its incremental borrowing rate to discount the lease payments based on information available at either the implementation date of Topic 842 or at lease commencement for leases entered into thereafter.three months ended, June 30, 2023.

The table below presents the lease-related assets and liabilities recorded on ~~the balance sheet as of June 30, 2022 and March 31, 2022:~~our Consolidated Balance Sheets (in thousands):

(In thousands) Classification on the Balance Sheet June 30, 2022 March 31,
2022
Assets
Noncurrent Operating lease right-of-use asset $ 680 $ 749
Liabilities
Current Operating leases – current portion 193 258
Noncurrent Operating leases – long-term portion 489 491
Total operating lease liabilities $ 682 $ 749


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

~~Lease Costs~~

The table below presents ~~certain information~~the annual gross undiscounted cash flows related to the Company's operating lease ~~costs for leases:~~commitments and subleasing arrangements (in thousands):


Fiscal year ending March 31,	Operating Lease Commitments		Sublease Payments
2024	$	337	$	136
2025		415		154
2026		191		—
2027		201		—
2028		68		—
Thereafter		—		—

Three Months Ended Three Months Ended
(In thousands) June 30,
2022 June 30,
2021
Operating lease cost $ 84 $ 22
Total lease cost $ 84 $ 22

~~Other Information~~

~~The table below presents supplemental cash flow information related to leases:~~

Three Months Ended Three Months Ended
(In thousands) June 30,
2022 June 30,
2021
Cash paid for amounts included in the measurement of lease liabilities - 22
Operating cash flows used for operating leases Hyde Park Agreement $ - �� $ 22

On January 5, 2022, the Company entered into a letter agreement with Hyde Park Entertainment, Inc. (“Hyde Park”), pursuant to which the Company and Hyde Park are collaborating on the development, production and/or distribution of a project based on the novel ~~Audition~~ by Ryu Murakami (the “Audition Project”). Each of the Company and Hyde Park owns 50% of the rights in connection with the Audition Project. The Company paid $100 thousand to Hyde Park plus $26 thousand in legal fees to counsel for the Audition project. Ashok Amritraj, a director of the Company, is the Chairman and CEO of Hyde Park and has an interest in 100% of the revenues of Hyde Park. Ashok Amritraj is a current board member and related party to the Company.7. INCOME TAXES

~~6. SUPPLEMENTAL CASH FLOW INFORMATION AND DISCLOSURE OF NON-CASH INVESTMENTING AN FINANCING ACTIVITY~~

Three Months Ended
June 30,
(In thousands) 2022 2021
Cash interest paid $ - $ 663
Income taxes paid - -
Accrued dividends on preferred stock 88 89
Issuance of Class A common stock for payment of preferred stock dividends 88 89
Issuance of Class A common stock for business combination - 2,506
Deferred consideration in purchase of a business - 1,980
Earnout consideration in purchase of a business 80 -

~~7. SEGMENT INFORMATION~~

We operate in 2 reportable segments: Cinema Equipment Business and Content & Entertainment Business. Our segments were determined based on the economic characteristics of our products and services, our internal organizational structure, the manner in which our operations are managed and the criteria used by our CODM to evaluate performance, which is generally the segment’s operating income (loss) before depreciation and amortization.

~~Operations of:~~

~~Products and services provided:~~

~~Cinema Equipment Business~~

Financing vehicles and administrators for 434 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 648 Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”).

We retain ownership of the Systems and the residual cash flows related to the Systems in Phase I Deployment after the repayment of all non-recourse debt at the expiration of exhibitor master license agreements. For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.

The Cinema Equipment Business segment also provides monitoring, collection, verification and management services to this segment, as well as to exhibitors who purchase their own equipment, and also collects and disburses VPFs from motion picture studios, distributors and ACFs from alternative content providers, movie exhibitors and theatrical exhibitors (collectively, “Services”).

~~Content & Entertainment Business~~

Leading independent streaming company of content and channels. We collaborate with producers and other content owners to market, source, curate and distribute independent content to targeted and under-served audiences in theatres and homes, and via mobile and emerging platforms.

~~The following tables present certain financial information related to our reportable segments and Corporate:~~

As of June 30, 2022
(In thousands) Intangible
Assets, net Goodwill Total
Assets Notes
Payable,
Non-
Recourse Notes
Payable Operating
lease
liabilities
Cinema Equipment Business $ — $ — $ 20,282 $ — $ — $ —
Content & Entertainment Business 19,202 21,084 66,770 — — 675
Corporate 88 — 7,171 — — 7
Total $ 19,290 $ 21,084 $ 94,223 $ — $ — $ 682

As of March 31, 2022
(In thousands) Intangible
Assets, net Goodwill Total
Assets Notes
Payable,
Non-
Recourse Notes
Payable Operating
lease
liabilities
Cinema Equipment Business $ — $ — $ 24,445 $ — $ — $ —
Content & Entertainment Business 19,946 21,084 68,873 — — —
Corporate 88 — 11,318 — — 749
Total $ 20,034 $ 21,084 $ 104,636 $ — $ — $ 749

Statements of Operations
Three Months Ended June 30, 2022
(in thousands)
Cinema
Equipment
Business Content & Entertainment
Business Corporate Consolidated

Revenues $ 1,427 $ 12,163 $ - $ 13,590
Direct operating (exclusive of depreciation and amortization shown below) 144 7,212 - 7,356
Selling, general and administrative 1,071 3,783 4,961 9,815
Allocation of corporate overhead 103 2,752 (2,855 ) 0
Provision for (recovery of) doubtful accounts 3 - - 3
Depreciation and amortization of property and equipment 117 138 1 256
Amortization of intangible assets - 637 107 744
Total operating expenses 1,438 14,522 2,214 18,174
Income (loss) from operations $ (11 ) $ (2,359 ) $ (2,214 ) $ (4,584 )

~~The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows:~~

(In thousands)
Cinema
Equipment
Business
Content & Entertainment
Business Corporate Consolidated
Direct operating $ - $ - $ - $ -
Selling, general and administrative - - 980 980
Total stock-based compensation $ - $ - $ 980 $ 980

Statements of Operations
Three Months Ended June 30, 2021
(in thousands)
Cinema
Equipment
Business Content & Entertainment
Business Corporate Consolidated
Revenues $ 6,231 $ 8,784 $ — $ 15,015
Direct operating (exclusive of depreciation and amortization shown below) 257 4,374 — 4,631
Selling, general and administrative 429 2,818 2,796 6,043
Allocation of corporate overhead 99 660 (759 ) —
Provision for doubtful accounts 27 44 — 71
Depreciation and amortization of property and equipment 507 143 (1 ) 649
Amortization of intangible assets — 846 1 847
Total operating expenses 1,319 8,885 2,037 12,241
Income (loss) from operations $ 4,912 $ (101 ) $ (2,037 ) $ 2,774

~~The following employee and director stock-based compensation expense related to our stock-based awards is included in the above amounts as follows:~~

(In thousands)
Cinema
Equipment
Business
Content & Entertainment
Business Corporate Consolidated
Direct operating $ — $ — $ — $ —
Selling, general and administrative — 166 817 983
Total stock-based compensation $ — $ 166 $ 817 $ 983

~~8. INCOME TAXES~~

We calculate income tax expense ~~based~~ upon an annual effective tax rate forecast, including estimates and assumptions. We recorded an income tax ~~benefit (expense)~~expense of approximately ~~zero~~$20 thousand and ~~$63 thousand~~$0 for the three months ended June 30, 2023 and 2022, ~~and 2021,~~ respectively. Income tax expense is attributable to taxable income earned in India relating to transfer pricing.

We have not recorded tax benefits on our loss before income taxes because we have provided for a full valuation allowance that offsets potential deferred tax assets resulting from net operating loss carry forwards, reflecting our inability to use such loss carry forwards.

Our effective tax rate for the three months ended June 30, 2023 and 2022 was (0.6%) and ~~2021 was zero and negative 1.2%~~0%, respectively.

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

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

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

~~OVERVIEW~~Business Overview

~~Since our inception, we have played~~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 approximately 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 ~~leading~~portfolio of owned and operated enthusiast streaming channels with enthusiast fan bases; (ii) as a large-scale global aggregator and full-service distributor of ~~independent~~feature films and television programs; and (iii) as a proprietary technology software-as-a-service platform for over-the-top (“OTT”) app development and content ~~both~~distribution through ~~organic growth~~subscription 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 Hallmark, Televisa, ITV, Nelvana, ZDF, Konami, NFL and Scholastic, as well as leading international and domestic content creators, movie producers, television producers and other short-form digital content producers. We collaborate with producers, major brands and other content owners to market, source, curate and distribute quality content to targeted audiences through (i) existing and emerging digital home entertainment platforms, including but not limited to Apple iTunes, Amazon Prime, Netflix, Hulu, Xbox, Pluto, ~~Tubi~~ and ~~most video-on-demand (“VOD”) and free ad-supported television (“FAST”) streaming platforms,~~Tubi, as well as (ii) physical goods, including DVD and Blu-ray Discs.

We ~~report~~played a significant role in the digital distribution revolution that continues to transform the media landscape, playing a pioneering role in transitioning approximately 12,000 movie screens from traditional analog film prints to digital distribution, and at the end of our ~~financial results in two primary segments as follows: (1)~~fiscal year 2023, the Company's cinema equipment business ~~and (2) content and entertainment business (“Content & Entertainment” or “CEG”).~~concluded its active operations, as its contracts reached maturity. The Company no longer separately manages cinema equipment ~~business segment consists~~separately, and with the run-off of its operations, no longer presents this part of the ~~non-recourse, financing vehicles~~business as a separate segment. All prior period reporting within this report reflect this change.

Financial Condition and administrators for our digital cinema equipment (the “Systems”) installed in movie theatres throughout North America and Australia. It also provides fee-based support to over 1,082 movie screens as well as directly to exhibitors and other third-party customers in the form of monitoring, billing, collection and verification services. Our Content & Entertainment segment operates 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.Liquidity

Beginning in December 2015, certain of our cinema equipment began to reach the conclusion of their 10-year deployment payment period with certain distributors and, therefore, Virtual Print Fee (“VPF”) revenues ceased to be recognized on such Systems, related to such distributors. Furthermore, because the Phase I Deployment installation period ended in November 2007, a majority of the VPF revenue associated with the Phase I Deployment Systems has ended. The reduction in VPF revenue on cinema equipment business 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.

~~We are structured so that our cinema equipment business segment operates independently from our Content & Entertainment business.~~ As of June 30, 2022, we had approximately $0.0 million of non-recourse outstanding debt principal that relates to, and is serviced by, our cinema equipment business. We have approximately $0.0 million of outstanding debt principal, as of June 30, 2022 that is attributable to our Content & Entertainment and Corporate segments.

~~Risks and Uncertainties~~

The COVID-19 pandemic and related economic repercussions created significant volatility and uncertainty impacting the Company’s results for the period. As part of our Content & Entertainment business,2023, the Company ~~sells DVDs~~has an accumulated deficit of $486.0 million and ~~Blu-ray discs at brick-and-mortar stores.~~

~~Liquidity~~

~~We have incurred net losses historically and net loss for~~negative working capital of $2.1 million. For the three months ended June 30, ~~2022~~2023, the Company had a net loss attributable to common stockholders of ~~$6.0 million. As of June 30, 2022, we had an accumulated deficit of $478.4 million and negative working capital of $7.6~~($3.6) million. Net cash used in operating activities for the three months ended June 30, ~~2022~~2023 was ~~$1.2~~$3.3 million. ~~Based on these and prior conditions, the Company entered into the following transactions described below.~~

~~Capital Raises~~

~~On May 20, 2020, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain investors (the “Investors”)~~We may continue to generate net losses for the ~~purchase~~foreseeable future.

The Company is party to a Loan, Guaranty, and ~~sale~~Security Agreement with East West Bank (“EWB”) providing for a revolving line of ~~10,666,666 shares~~credit (the “Line of Credit Facility”) of $5.0 million, guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and such subsidiaries’ assets. The Line of Credit Facility bears interest at a rate equal to 1.5% above the prime rate, 9.75% as of June 30, 2023. As of June 30, 2023, $5.0 million was outstanding on the Line of Credit Facility. The outstanding principal balance on the Line of Credit Facility as of August 7, 2023 was $0. On August 11, 2023, EWB extended the maturity date of the ~~Common Stock, at a purchase price~~Line of ~~$0.75 per share, in a registered direct offering, pursuant~~Credit Facility one year to an effective shelf registration statement on Form S-3 which was declared effective by the Securities and Exchange Commission on May 14, 2020 (File No. 333-238183) and an applicable prospectus supplement. The closing of the sale occurred on May 22, 2020. The aggregate gross proceeds for the sale was $8.0 million. The net proceeds to the Company from the sale, after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, were approximately $7.1 million.September 15, 2024.

to sell any shares under the ATM Sales Agreement. Any sales of shares made under the ATM Sales Agreement will be made pursuant ~~the 2020 Shelf Registration Statement,~~to an effective shelf registration statement, for an aggregate offering price of up to $30 million. ~~Net proceeds from such sales totaled $18.6 million. No sales under~~During the ~~ATM Sales Agreement were made during the three months~~quarter ended June 30, ~~2022.~~

~~On July 16, 2020,~~2023, the Company ~~entered into a securities purchase agreement with certain investors~~sold 177 thousand shares for $1.1 million in net proceeds, after deduction of commissions and fees.

On June 16, 2023, the ~~purchase and~~Company closed on the sale of ~~7,213,334~~2,150,000 shares of ~~Common Stock, par value $0.001~~common stock, 516,667 pre-funded warrants, and warrants to purchase up to 2,666,667 shares of common stock at a combined public offering price of $3.00 per share ~~at a purchase price of $1.50 per share, in a registered direct offering, pursuant to the 2020 Shelf Registration Statement~~ and ~~an applicable prospectus supplement. The closing of the sale occurred on July 20, 2020. The~~accompanying warrant for aggregate gross proceeds of approximately $7.4 million, after deducting placement agent fees and other offering expenses in the amount of $0.6 million. The warrants had an exercise price of $3.00 per share, were exercisable immediately and will expire five years from the issuance. The Company received $2.9990 per share for the ~~sale was approximately $10.8 million. The net proceeds to~~pre-funded warrants, with the ~~Company from the sale, after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, is approximately $10.1 million.~~

On February 2, 2021, the Company entered into a Securities Purchase Agreement with a single institutional investor for the purchase and sale of 5,600,000 shares of Common Stock at a purchase price of $1.25 per share, in a registered direct offering, pursuant to an effective shelf registration statement on Form S-3 which was declared effective by the Securities and Exchange Commission on July 10, 2020 (File No. 333-239710) (the “2020 Shelf Registration Statement”) and an applicable prospectus supplement. The closing of the sale occurred on February 5, 2021. The aggregate gross proceeds for the sale was approximately $7.0 million. The net proceeds to the Company from the sale, after deducting the fees of the placement agent but before paying the Company’s estimated offering expenses, was approximately $6.5 million.

In October 2021, we entered into a Common Stock Purchase Agreement (the “Equity Line Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with B. Riley Principal Capital, LLC (“B. Riley Principal Capital”). Pursuant to the Equity Line Purchase Agreement, the Company has the right to sell to B. Riley Principal Capital up to the lesser of (i) $50,000,000 of newly issued shares of Common Stock and (ii) the Exchange Cap (as defined in the Equity Line Purchase Agreement), from time to time during the 24-month period from and after the October 21, 2021. Sales of Common Stock pursuant to the Equity Line Purchase Agreement, and the timing of any sales, are solelyremaining $0.001 due at the ~~option~~time of the Company, and the Company is under no obligation to sell any securities to B. Riley Principal Capital under the Equity Line Purchase Agreement. As consideration for B. Riley Principal Capital’s commitment to purchase shares of Common Stock at the Company’s direction upon the terms and subject to the conditions set forthexercise. All 516,667 pre-funded warrants were subsequently exercised in the Equity Line Purchase Agreement, upon execution of the Equity Line Purchase Agreement, the Company issued 210,084 shares of Common Stock to B. Riley Principal Capital (the “Commitment Shares”). The purchase price of the shares of Common Stock that we elect to sell to B. Riley Principal Capital pursuant to the Equity Line Purchase Agreement will be determined by reference to the volume weighted average price of the Common Stock (“VWAP”) during the applicable purchase date, less a fixed 5% discount to such VWAP. Pursuant to the Registration Rights Agreement, the Company filed a Registration Statement on Form S-1 that was declared effective by the Securities and Exchange Commission on October 21, 2021 (File No. 333-260210) for the resale by B. Riley Principal Capital of up to 25,210,084 shares of Common Stock (including the Commitment Shares) acquired pursuant to the Equity Line Purchase Agreement. During the year ended March 31, 2022, we sold 5,300,000 shares of Common Stock under the Equity Line Purchase Agreement. Net proceeds from such sales totaled $12.4 million. No sales under the Equity Line Purchase Agreement were made during the three months ended June 30, 2022.

As of June 30, 2022, there is still approximately $38.0 million available under the 2020 Shelf Registration Statement, and $37.6 million available under the Equity Line Purchase Agreement, to raise additional capital.

~~Sale of Cinematic Equipment~~

On March 17, 2021, the Company entered into two separate agreements (the “AMC Equipment Purcahse Agreements”) for the sale of cinematic equipment to American Multi-Cinema, Inc. (“AMC”). The agreement included the sale in tranches of a total of 2,369 cinematic projectors starting in March 2021 throughout JanuaryJuly 2023 for ~~a total cash consideration of $10.8 million. As of June 30, 2022, the Company recognized revenue for $10.3 million. A portion of the~~ total proceeds ~~was utilized to pay off the remaining Prospect note payable.~~

~~Equity Investment in a Related Party~~

The Company has accounted for these investments under the equity method of accounting as the Company can exert significant influence over Metaverse with its direct ownership and affiliation with the Company’s majority shareholders. The Company has made an irrevocable election to apply the fair value option under ASC 825-10, ~~Financial Instruments~~~~, as it relates to its equity investment in Metaverse.~~

On April 1, 2022, trading of Metaverse’s ordinary shares was halted on the Hong Kong Stock Exchange. This investment was previously a level 1 investment as the shares were being actively traded in a marketplace, but with the trading of the shares being halted the Company needed to reassess the fair value level of the investment. Without an active market where the shares are being traded, the investment no longer qualifies as a level 1. As of June 30, 2022, Metaverse’s stock valuation is based on a evaluated offer received from an independent third party to purchase our shares and trending assessment of market pricing and is categorized as Level 3 based on unobservable inputs. As the value of the investment in Metaverse is being determined by an offer to purchase the shares from an independent third party, the value of the investment may need to be reduced or fully written off should the offer be rescinded.

We believe ~~the combination of: (i)~~ our cash and cash equivalent balances, atand availability under our credit facility, as of June 30, ~~2022 and (ii) expected cash flow from operations~~2023 will be sufficient ~~for~~to support our operations ~~and capital needs,~~ for at least twelve months from the filing of this report. ~~Our~~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 use capital resources and obtain additional capital. Failure to generate additional revenues, obtain additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations and liquidity.needs.

Critical Accounting ~~Policies and~~ Estimates

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

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

~~FAIR VALUE ESTIMATES~~

~~Goodwill, Intangible~~Results of Operations for the Three Months Ended June 30, 2023 and ~~Long-Lived Assets~~2022 (in thousands):

~~Goodwill is~~Revenues


	For the Three Months Ended June 30,
	2023		2022		$ Change			% Change
Streaming and digital	$	10,114	$	9,503	$	611			6	%
Base distribution		1,158		2,205		(1,047	)		(47	)%
Podcast and other		429		455		(26	)		(6	)%
Other non-recurring		1,279		1,427		(148	)		(10	)%
Total Revenue	$	12,980	$	13,590	$	(610	)		(4	)%

The Company's Streaming and Digital revenue for the ~~excess of the purchase price paid over the fair value of the net assets of an acquired business. Goodwill is tested for impairment on an annual basis or more often if warranted~~three months ended June 30, 2023 increased by ~~events or changes in circumstances indicating that the carrying value may exceed fair value, also known~~6% as ~~impairment indicators.~~

~~Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating~~compared 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.

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. Determining whether impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the asset’s residual value, if any. The assessment for recoverability is based primarily on our ability to recover the carrying value of its 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 assets the asset is deemed not to be recoverable and possibly impaired. We then estimate the fair value of the asset to determine whether an impairment loss should be recognized. An impairment loss will be recognized if the asset’s fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted cash flows.

~~During~~ the three months ended June 30, 2022, as the Company continues to see the benefits from its acquisitions which have contributed value-accretive libraries, distribution platforms and ~~2021, no impairment charge~~technologies, such as Screambox, whose performance in the first quarter of fiscal 2024 exceeded the first quarter of fiscal 2023 by approximately $1.0 million, as it continued to benefit from the success of Terrifier 2.

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

Other non-recurring revenue relating to ~~intangible assets.~~

~~Investment~~the Company's cinema equipment have materially concluded in ~~Metaverse~~

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

●

~~Level 1 – quoted prices in active markets for identical investments~~

●

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

●

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

~~Assets~~line with the design of its underlying contracts. Following the completion of cost recoupment and ~~liabilities measured at fair value on a recurring basis use~~ the ~~market approach, where prices and other relevant information are generated by market transactions involving identical or comparable assets or liabilities.~~

~~During~~expiration of the exhibitor master license agreements applicable to this line of revenue, the digital system sales have continued its anticipated decrease in the amount of $0.9 million as compared to the three months ended June 30, 2022, ~~and 2021, the company recorded a charge of $1,256 and ($334)~~from $1.2 million in the ~~company’s investment in Metaverse.~~

~~REVENUE RECOGNITION~~

~~Adoption~~first quarter of ~~ASU Topic 606, “Revenue from Contracts with Customers”~~

~~We determine revenue recognition by:~~

●

~~identifying the contract, or contracts, with the customer;~~

●

~~identifying the performance obligations in the contract;~~

●

~~determining the transaction price;~~

●

~~allocating the transaction price to performance obligations in the contract; and~~

●

~~recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services.~~

~~We recognize revenue~~fiscal 2023 to $0.3 million in the ~~amount that reflects~~first quarter of fiscal 2024. During the ~~consideration we expect to receive in exchange for~~quarter ended June 30, 2023, the ~~services provided, sales~~Company also recognized $1 million of physical products (DVD’s and Blu-ray Discs) or when the content is available for subscription on the digital platform or available on the point-of-sale for transactional and video on demand services which is when the control of the promised products and services is transferred to our customers and our performance obligations under the contract have been satisfied. Revenues that might be subject to various taxes are recorded net of transaction taxes assessed by governmental authorities such as sales value-added taxes and other similar taxes.

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. We have in the past entered into arrangements in connection with activation fees due from our System deployments that had extended payment terms. The outstanding balances on these arrangements are insignificant and hence the impact of significant financing would be insignificant.

~~Cinema Equipment Business~~

Our Cinema Equipment Business consists of financing vehicles and administrators for 434 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 648 Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”).

~~We retain ownership of our Systems and the residual cash flows related to the Systems in Phase I Deployment after the end of the 10-year deployment payment period.~~

For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.

VPFs are earned, net of administrative fees, pursuant to contracts with movie studios and distributors, whereby amounts are payable by a studio to Phase I Deployment and to Phase II Deployment when movies distributed by the studio are displayed on screens utilizing our Systems installed in movie theatres. VPFs are earned and payable to Phase I Deployment based on a defined fee schedule until the end of the VPF term. One VPF is payable for every digital title initially displayed per System. The amount of VPF revenue is dependent on the number of movie titles released and displayed using the Systems in any given accounting period. VPF revenue is recognized in the period the title first plays for general audience viewing in a digital projector equipped movie theatre. The Phase 1 Deployment’s and Phase 2 Deployments performance obligations for revenue recognition are met at this time.

Phase II Deployment’s agreements with distributors require the payment of VPFs, according to a defined fee schedule, for ten years from the date each system is installed; however, Phase II Deployment may no longer collect VPFs once “cost recoupment,” as defined in the contracts with movie studios and distributors, is achieved. Cost recoupment will occur once the cumulative VPFs and other cash receipts collected by Phase II Deployment have equaled the total of all cash outflows, including the purchase price of all Systems, all financing costs, all “overhead and ongoing costs”, as defined, and including service fees, subject to maximum agreed upon amounts during the three-year rollout period and thereafter. Further, if cost recoupment occurs before the end of the eighth contract year, the studios will pay us a one-time “cost recoupment bonus.” The Company evaluated the constraining estimates related to the variable consideration ~~i.e.,~~following the ~~one-time bonus and determined that it is not probable to conclude at this point in time that a significant reversal in the amount~~resolution of ~~cumulative revenue recognized will occur when the~~ uncertainty associated with the underlying revenue related to its cinema equipment, as compared to $0 variable consideration ~~is subsequently resolved.~~

~~Under~~recognized in the ~~terms~~first quarter of our standard cinema equipment licensing agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement, after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreementfiscal year 2023.

Direct Operating Expenses


	For the Three Months Ended June 30,
	2023		2022		$ Change			% Change
Direct operating expenses	$	6,987	$	7,356	$	(369	)		(5	)%

The decrease in Direct Operating Expenses for successive one-year terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we typically pursue the sale of the Systems to such exhibitors. Cinedigm recognizes revenue once the customer takes possession of the Systems and Cinedigm received the sale proceeds. Such sales were originally contemplated as the conclusion of the digital cinema deployment plan. Total system revenue was $1.2 million and $5.6 million, during the three months ended June 30, ~~2022 and 2021, respectively. Revenues earned in connection with up front exhibitor contributions are deferred and recognized over the expected cost recoupment period.~~

~~Exhibitors who purchased and own Systems using their own financing in Phase II~~2023 was indicative of the Cinema Equipment Business paid us an upfront activation fee of approximately $2.0 thousand per screen (the “Exhibitor-Buyer Structure”). Upfront activation fees were recognized in the period in which these Systems were delivered and ready for content, as we had no further obligationscontinued integration efforts with respect to the ~~customer after that time~~Company's acquisitions during fiscal year 2022, such as DMR, FoundationTV, and collection was reasonably assured. In addition, we recognize activation fee revenue of between $1.0 thousand and $2.0 thousand on Phase II Deployment Systems and for Systems installed by CDF2 Holdings, a related party, (See Note 3 – ~~Other Interests~~) upon installation and such fees are generally collected upfront upon installation. Our services division manages and collects VPFs on behalf of exhibitors, for which it earns an administrative fee equal to 10% of the VPFs collected.Bloody Disgusting.

The Cinema Equipment Business earns an administrative fee of approximately 5% of VPFs collected and, in addition, earns an incentive service fee equal to 2.5% of the VPFs earned by Phase 1 DC. This administrative fee is related to the collection and remittance of the VPFs and the performance obligation is satisfied at that time the related VPF fees are due which is at the time the movies are displayed on screens utilizing our Systems installed in movie theatres. The service fees are recognized as a point in time revenue when the corresponding VPF fees are due from the movie studios and distributors.

~~Content & Entertainment Business~~

CEG earns fees for the distribution of content in the home entertainment markets via several distribution channels, including digital, video on demand (“VOD” or “OTT Streaming and Digital”), and physical goods (e.g., DVDs and Blu-ray Discs) (“Physical Revenue” or “Base Distribution Business”). Fees earned are typically a percentage based on the net amounts received from our customers. Depending upon the nature of the agreements with the platform and content providers, the fee rate that we earn varies. The Company’s performance obligations include the delivery of content for transactional, subscription and ad supported/free ad-supported streaming TV (“FAST”) on the digital platforms, and shipment of DVDs and Blu-ray Discs. Revenue is recognized at the point in time when the performance obligation is satisfied, which is when the content is available for subscription on the digital platform, at the time of shipment for physical goods, or point-of-sale for transactional and VOD services as the control over the content or the physical title is transferred to the customer. The Company considers the delivery of content through various distribution channels to be a single performance obligation. Physical revenue is recognized after deducting the reserves for sales returns and other allowances, which are accounted for as variable consideration.

Physical goods reserved for sales returns and other allowances are recorded based upon historical experience. If actual future returns and allowances differ from past experience, adjustments to our allowances may be required.

CEG also has contracts for the theatrical distribution of third party feature movies and alternative content. CEG’s distribution fee revenue and CEG’s participation in box office receipts are recognized at the time a feature movie and alternative content are viewed. CEG has the right to receive or bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded as a receivable at the time of execution, and all related distribution revenue is deferred until the third party feature movies’ or alternative content’s theatrical release date.

~~Principal Agent Considerations~~

We determine whether revenue should be reported on a gross or net basis based on each revenue stream. Key indicators that we use in evaluating gross versus net treatment include, but are not limited to, the following:

●

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

●

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

~~Shipping and Handling~~

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

~~Credit Losses~~

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

We record accounts receivable, long-term in connection with activation fees that we earn from Systems deployments that have extended payment terms. Such accounts receivable are discounted to their present value at prevailing market rates.

~~Contract Liabilities~~

~~Deferred revenue pertaining to our Content & Entertainment Business includes amounts related to the sale of DVDs with future release dates.~~

The ending deferred revenue balance, including current and non-current balances, as of June 30, 2022 was $0.4 million. For the three months ended June 30, 2022, the additions to our deferred revenue balance were primarily due to cash payments received or due in advance of satisfying performance obligations, while the reductions to our deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.

~~Participations and royalties payable~~

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

~~ASSET ACQUISITIONS~~

An asset acquisition is an acquisition of an asset, or a group of assets, that does not meet the definition of a business as substantially all of the fair value of the gross assets acquired are concentrated in a single or group of similar, identifiable assets. Asset acquisitions are accounted for by using the cost accumulation model whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on a relative fair value basis. Determining and valuing intangible assets requires judgment.

~~BUSINESS COMBINATIONS~~

~~The Company accounts for acquisitions in accordance with FASB ASC 805, “Business Combinations” (“ASC 805”), and goodwill in accordance with ASC 350, “~~~~Intangibles — Goodwill and Other”~~ (“ASC 350”). The excess of the purchase price over the estimated fair value of net assets acquired in a business combination is recorded as goodwill. ASC 805 specifies criteria to be used in determining whether intangible assets acquired in a business combination must be recognized and reported separately from goodwill. Amounts assigned to goodwill and other identifiable intangible assets are based on independent appraisals or internal estimates.

ASC 805 defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date the acquirer achieves control. ASC 805 requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquirer (if any) at the acquisition date, measured at their fair values as of that date. ASC 805 also requires the acquirer to recognize contingent consideration (if any) at the acquisition date, measured at its fair value at that date.

~~Results of Operations for the Fiscal Three Months Ended June 30, 2022 and 2021~~

~~Revenues~~

For the Three Months Ended June 30,
($ in thousands) 2022 2021 $ Change % Change
Cinema Equipment Business $ 1,427 $ 6,231 $ (4,804 ) (77 )%
Content & Entertainment Business 12,163 8,784 3,379 38 %
$ 13,590 $ 15,015 $ (1,425 ) (9 )%

Revenues generated by our Cinema Equipment Business segment decreased as a result of the lower system revenue and eligible VPF systems. Total system revenue recognized was $1.2 million and $5.6 million, during the quarter ended June 30, 2022 and 2021, respectively. An increase in Blockbuster content released during the period ending June 30, 2022 showed a return to pre-pandemic results; however, this was offset by an 80% decrease in eligible VPF systems for the same period last year. Revenue in the Content & Entertainment Business segment increased by 38% for the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021. The increase is consistent with the addition of seven new streaming channels related to Bloody Disgusting and DMR business acquisitions and four managed channel additions of The Country Network, Real Madrid TV, El Rey and The Only Way is Essex as well as an increase in the number of advertising partners

~~Direct Operating Expenses~~

For the Three Months Ended June 30,
($ in thousands) 2022 2021 $ Change % Change
Cinema Equipment Business $ 144 $ 257 $ (113 ) (44 )%
Content & Entertainment Business 7,212 4,374 2,838 65 %
$ 7,356 $ 4,631 $ 2,725 59 %

The decrease in direct operating expenses in the quarter ended June 30, 2022 for the Cinema Equipment Business compared to the prior period was primarily due to a decrease in property taxes as a result of system sales. The increase in direct operating expenses in the three months ended June 30, 2022 for the Content & Entertainment Business compared to the prior year was primarily due to $0.2 million higher license and royalty costs, $0.3 million increase related to DVD manufacturing and fulfillment, $0.7 million higher content and production costs related to continued growth in revenue and distribution, $0.3 million higher personnel and contractors, and $0.2 million related to the film restoration, conversion and website content production costs. Additionally, $0.8 million in Software as a service (“SaaS”) expense resulted from the DMR acquisition was realized during the three months ended June 30, 2022.

Selling, General and Administrative Expenses

For the Three Months Ended June 30,
($ in thousands) 2022 2021 $ Change % Change
Cinema Equipment Business $ 1,071 $ 429 $ 642 150 %
Content & Entertainment Business 3,783 2,818 965 34 %
Corporate 4,961 2,796 2,165 77 %
$ 9,815 $ 6,043 $ 3,772 62 %


	For the Three Months Ended June 30,
	2023		2022		$ Change			% Change
Compensation expense	$	4,406	$	5,515	$	(1,109	)		(20	)%
Corporate expenses		1,701		2,329		(628	)		(27	)%
Share-based compensation		409		980		(571	)		(58	)%
Other operating expenses		1,372		994		378			38	%
Selling, General and Administrative	$	7,888	$	9,818	$	(1,930	)		(20	)%

Selling, general and administrative expenses for the quarter ended June 30, 2022 increased by $3.7 million primarily due to $2.2 million increase in personnel costs from the acquisitions of Screambox, DMR and Bloody Disguising, $0.7 million in legal expenses primarily related to a legal settlement , and $0.5 million in professional consulting services.

~~Recovery of Doubtful Accounts~~

~~Recovery of doubtful accounts was $3 thousand and $0.1 million for the fiscal~~ three months ended June 30, ~~2022~~2023 decreased by $1.9 million.

Compensation expenses decreased by $1.1 million primarily from a 26% reduction in the number of US-based workforce and ~~2021, respectively.~~an 11% reduction to the Company-wide workforce. Corporate expenses decreased by $0.6 million primarily as a result of cost savings and a decline in legal expenses. Share-based compensation has decreased by $0.5 million, as a result of the US-based workforce reduction. Other operating expenses increased by $0.4 million, primarily as a result of an increase in advertising, marketing and rent expense related to Cineverse India operations.

Depreciation and Amortization Expense ~~on Property and Equipment~~

For the Three Months Ended June 30,
($ in thousands) 2022 2021 $ Change % Change
Cinema Equipment Business $ 117 507 (390 ) (77 )%
Content & Entertainment Business 138 143 (5 ) (3 )%
Corporate 1 (1 ) 2 (200 )%
$ 256 $ 649 $ (393 ) (61 )%


	For the Three Months Ended June 30,
	2023		2022		$ Change			% Change
Amortization of Intangible Assets	$	698	$	744	$	(46	)		(6	)%
Depreciation of Property and Equipment		124		256		(132	)		(52	)%
Depreciation and Amortization	$	822	$	1,000	$	(178	)		(18	)%

Depreciation ~~and amortization~~ expense decreased ~~in our Cinema Equipment Business Segment as~~primarily due to substantially the ~~majority~~remainder of our digital cinema projection systems ~~reached~~reaching the conclusion of their ten-year useful lives during the ~~quarter~~fiscal year ended ~~June 30, 2022 and 2021~~March 31, 2023.

~~Amortization of intangible assets~~

For the Three Months Ended June 30,
($ in thousands) 2022 2021 $ Change % Change
Content & Entertainment Business 637 845 (208 ) (25 )%
Corporate 107 1 106 10600 %
$ 744 $ 846 $ (102 ) (12 )%

Corporate and Content & Entertainment Business amortization expense on intangible assets is $111 thousand lower due Customer Contracts asset being fully amortized, saving $0.4 million, partially offset by $0.2 million higher amortization expense related to the DMR acquisition and Cinedigm India.24

Interest expense, net

For the Three Months Ended June 30,
($ in thousands) 2022 2021 $ Change % Change
Cinema Equipment Business $ - $ 133 $ (133 ) (100 )%
Content & Entertainment Business - - - - %
Corporate 133 11 122 1109 %
$ 133 $ 144 $ (11 ) (8 )%

Interest expense, ~~in our Corporate segment~~net increased ~~as a result of deferred and earnout consideration accretion related to the acquisition of Bloody Disgusting, FoundationTV and DMR.~~

~~Changes in fair value in Metaverse~~

On April 1, 2022, trading of Metaverse’s ordinary shares was halted on the Hong Kong Stock Exchange. This investment was previously a level 1 investment as the shares were being actively traded in a marketplace, but with the trading of the shares being halted the Company needed to reassess the fair value level of the investment. Without an active market where the shares are being traded, the investment no longer qualifies as a level 1. As of June 30, 2022, Metaverse’s stock valuation is based on an evaluated offer receivedby $0.2 million from ~~an independent third party to purchase our shares and trending assessment of market pricing and is categorized as Level 3 based on unobservable inputs.~~

~~Income Tax Benefit~~

~~We recorded income tax expense of $0 for the three months ended June 30, 2022. We recorded an income tax benefit of approximately $63 thousand for the three months ended June 30, 2021.~~

~~Our effective tax rate~~$0.1 million for the three months ended June 30, 2022 to $0.3 million for the three months ended June 30, 2023 as a result of a higher outstanding debt balance and ~~2021 was zero~~higher interest rates during the three months ended June 30, 2023 as compared to the prior period.

Other expenses, net

During the three months ended June 30, 2023, the Company recognized $0.5 million of other expenses, net, primarily from credit and ~~negative 1.2%, respectively.~~other run-off related charges associated with the wind-down of its legacy digital cinema segment.

~~Net Income/Loss attributable to common shareholders~~

For the Three Months Ended June 30,
($ in thousands) 2022 2021 $ Change % Change
Cinema Equipment Business $ 137 $ 4,771 $ (4,634 ) (97 )%
Content & Entertainment Business (2,380 ) (108 ) (2,272 ) (2104 )%
Corporate (3,850 ) 435 (4,285 ) (985 )%
$ (6,093 ) $ 5,098 $ (11,191 ) (220 )%

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.

Consolidated Adjusted EBITDA (including the results of Cinema Equipment Business segment) for the three months ended June 30, 2022 decreased by $7.7 million compared to the three months ended June 30, 2021. Adjusted EBITDA from our Cinema Equipment Business segment decreased primarily due to a decrease in systems sales and eligible VPF systems. Adjusted EBITDA from the Content & Entertainment Business and Corporate decreased by $2.3 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, due to an increase of $2.8 million in direct operating expense and $3.1 million higher selling, general and administrative expenses, versus previous year despite a $3.4 million increase in Streaming digital revenue, adding channels, and acquisitions, and $0.4 million in one-time acquisition cost adjustments.

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 ~~its~~our stockholders, as a valuable financial metric.

We present Adjusted EBITDA because we believe that Adjusted EBITDA is a useful supplement to net income (loss) from continuing operations as an indicator of operating performance. We also believe that Adjusted EBITDA is a financial measure that is useful both to management and investors when evaluating our performance and comparing our performance with that of our competitors. We also use Adjusted EBITDA for planning purposes and to evaluate our financial performance because Adjusted EBITDA excludes certain incremental expenses or non-cash items, such as stock-based compensation charges, that we believe are not indicative of our ongoing operating performance.

We believe that Adjusted EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net ~~loss~~income (loss) from continuing operations and Adjusted EBITDA has been provided in the financial results. Adjusted EBITDA should not be considered as an alternative to net income (loss) from ~~operations 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 statements~~Condensed Consolidated Financial Statements prepared in accordance with GAAP.

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


	For the Three Months Ended June 30,
	2023			2022
Net Loss	$	(3,536	)	$	(5,987	)
Add Back:
Income tax expense		20			—
Depreciation and amortization		822			1,000
Interest expense		295			133
Stock-based compensation		409			980
Provision for doubtful accounts		—			3
Change in fair value on equity investment in Metaverse		—			1,256
Other expense, net		36			14
Net income attributable to noncontrolling interest		(14	)		(18	)
Adjustments:
Transition-related costs		468			175
Mergers and acquisition costs		—			207
Adjusted EBITDA	$	(1,500	)	$	(2,237	)

For the Three Months Ended
June 30,
($ in thousands) 2022 2021
Net income (loss) $ (5,987 ) $ 5,194
Add Back:
Income tax (income) expense - (63 )
Depreciation and amortization of property and equipment 256 649
Amortization of intangible assets 744 847
(Gain) Loss on extinguishment of note payable - (2,178 )
Interest expense, net 133 144
Intangible impairment - -
Change in fair value on equity investment in Metaverse 1,256 (334 )
Other expense, net 396 173
Recovery of doubtful accounts 3 71
Stock-based compensation and expenses 980 983
Net income (loss) attributable to noncontrolling interest (18 ) (7 )
Adjusted EBITDA $ (2,237 ) $ 5,479

Adjustments related to the Cinema Equipment Business
Depreciation and amortization of property and equipment (117 ) $ (507 )
Amortization of intangible assets - -
Stock-based compensation and expenses - -
Other expense (11 ) (11 )
Recovery of doubtful accounts (3 ) (27 )
Income from operations 11 (4,912 )
Adjusted (negative EBITDA) from Content & Entertainment Business and Corporate $ (2,357 ) $ 22

~~Recent Accounting Pronouncements~~

~~See Note 2 -~~ ~~Summary of Significant Accounting Policies~~ ~~to our consolidated financial statements included herein.~~

Cash ~~flow~~Flow

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

For the Three Months Ended
June 30,
($ in thousands) 2022 2021
Net cash (used in) provided by operating activities $ (1,198 ) $ 3,621
Net cash used in investing activities (61 ) (791 )
Net cash used in financing activities (284 ) (6,324 )
Net decrease in cash and cash equivalents $ (1,543 ) $ (3,494 )


	For the Three Months Ended June 30,
	2023			2022
Net used in provided by operating activities	$	(3,260	)	$	(1,198	)
Net cash used in investing activities		(272	)		(61	)
Net cash provided by (used in) financing activities		8,509			(284	)
Net change in cash and cash equivalents	$	4,977		$	(1,543	)

~~As of June 30, 2022, we had cash and cash equivalents balances of $11.5 million.~~

~~As of June 30, 2021, we had cash, cash equivalents, and restricted cash balances of $14.4 million.~~

For the three months ended June 30, ~~2022,~~2023, net cash ~~provided by~~used in operating activities is primarily driven by ~~income~~loss from operations, excluding non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, ~~gain~~including capitalized content spend and other changes in working capital. Additionally, during the three months ended June 30, 2023, the Company decreased accounts payable by $4.7 million to vendors. Operating cash flows are typically seasonally lower during the first two fiscal quarters and higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season. In addition, we made net advances of $2.2 million for the three months ended June 30, 2023, as part of the advances we make on ~~extinguishment~~theatrical releases and to certain home entertainment distribution clients for which initial expenditures are generally recovered within six to twelve months.

For the three months ended June 30, 2022, net cash used in operating activities was primarily driven by a net loss, after taking into account the exclusion of ~~note payable,~~non-cash expenses such as depreciation, amortization, recovery for doubtful accounts and stock-based compensation, including other changes in working capital. Additionally, during the three months ended June 30, 2022, the Company increased accounts payable by ~~$5.4~~$5.6 million to vendors. Accounts receivable ~~increased~~decreased due to ~~growth in streaming and acquisitions of Bloody Disgusting, Screambox and DMR. Cash received from VPFs decreased from the previous period in alignment with the~~a decrease in ~~eligible VPF systems. Changes in accounts receivable from our studio customers largely impact cash flows from operating activities and vary based on~~revenue as a result of the seasonality of movie release schedules by the major studios. Operating cash flows from CEG are typically higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season, and seasonally lower in the other two quarters. 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.

For the three months ended June 30, 2021, net cash provided by operating activities is primarily driven by income from operations, excluding non-cash expenses such as depreciation, amortization, provision for doubtful accounts and stock-based compensation, including other changes in working capital. Additionally, during the three months ended June 30, 2021, the Company paid down $8.1 million to vendors at both CEG and Corporate. Cash received from VPFs declined from the previous period as Phase I Deployment Systems in our Cinema Equipment Business reached the conclusion of their deployment payment periods with certain major studios. Changes in accounts receivable from our studio customers largely impact cash flows from operating activities and vary based on the seasonality of movie release schedules by the major studios. This was further impacted by the decrease in eligible VPF systems. Because our digital cinema business earns a VPF when a movie is first played on a system, the reduction of eligible VPF systems resulted in reduced revenues. Operating cash flows from CEG are typically higher during our fiscal third and fourth quarters, resulting from revenues earned during the holiday season, and lower in the other two quarters as we pay royalties on such revenues. 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. For the three months ended June 30, 2022 revenues from the sale of digital projections Systems was $1.2 million.amounts due.

~~For the three months ended June 30, 2022, cash flows used in investing activities consisted of purchases of property and equipment of $0.1 million.~~

For the three months ended June 30, 2021, cash flows used in investing activities consisted of purchases of property and equipment of $40 thousand and the purchase of a business of $1.0 million related to the business combination for FoundationTV.

~~For the three months ended June 30, 2022, cash flows provided by financing activities consisted of payments of approximately $0.3 million in notes payable.~~

~~For the three months ended June 30, 2021, cash flows used in financing activities consisted of payments of approximately $4.8 million in notes payable and $1.6 million in Credit Facility repayments.~~

~~Contractual Obligations~~

~~The following table summarizes our significant contractual obligations as of June 30, 2022:~~

Payments Due
Contractual Obligations (in thousands) Total 2023 2024 &
2025 2026 &
2027 Thereafter
Operating lease obligations $ 682 $ 193 $ 489 $ — $ —

We may continue to generate net losses for the foreseeable future primarily due to depreciation and amortization, marketing and promotional activities and content acquisition and marketing costs. Certain of these costs, including costs of content acquisition, marketing and promotional activities, could be reduced if necessary. We feel we are adequately financed for at least the next twelve months; however, we may need to raise additional capital for working capital as deemed necessary. Failure to generate additional revenues, raise additional capital or manage discretionary spending could have an adverse effect on our financial position, results of operations or liquidity.

~~Seasonality~~

Revenues from our Cinema Equipment Business derived from the collection of VPFs from motion picture studios are seasonal, coinciding with the timing of releases of movies by the motion picture studios. Generally, motion picture studios release the most marketable movies during the summer and the winter holiday season. The unexpected emergence of a hit movie during other periods can alter the traditional trend. The timing of movie releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or any other quarter. While CEG benefits from the winter holiday season, we believe the seasonality of motion picture exhibition, is becoming less pronounced as the motion picture studios are releasing movies somewhat more evenly throughout the year.

Off-balance sheet arrangements

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

~~Impact of Inflation~~

The impact of inflation on our operations has not been significant to date. However, there can be no assurance that a high rate of inflation in the future would not have an adverse impact on our operating results.

Item 4. CONTROLS AND PROCEDURES

Definition and Limitations of Disclosure Controls and Procedures

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

Evaluation of Disclosure Controls and Procedures

The management of the Company, under the supervision and with the participation of our Chief Executive Officer and Chief ~~Operating~~Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in the Exchange Act), as of June 30, ~~2022.~~2023. Based on such evaluation, our principal executive officer and principal financial and accounting officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were ~~not~~ effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, on a timely basis, and (ii) accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures ~~due to the material weaknesses identified in our internal control over financial reporting~~ as of June 30, ~~2022.~~2023.

~~Previously Reported Material Weakness on Internal Control Over Financial Reporting~~

In the 2022 Form 10-K, filed with the SEC on July 1, 2022, management concluded that our internal control over financial reporting was not effective as of March 31, 2022. In the evaluation, management identified material weaknesses in internal controls related to our financial close and reporting process and information and communication controls. Management also concluded that we did not have a sufficient complement of corporate personnel with appropriate levels of accounting and controls knowledge and experience commensurate with our financial reporting requirements to appropriately analyze, record and disclose accounting matters completely and accurately. As a result of this evaluation, management extensively used outside consultants who possessed the appropriate levels of accounting and controls knowledge.

~~Remediation~~. Following identification of this control deficiency, management is implementing modifications to better ensure that the Company has appropriate and timely reviews on all financial reporting analysis. The material weakness in our internal control over financial reporting will not be considered remediated until these modifications are implemented, in operation for a sufficient period of time, tested, and concluded by management to be designed and operating effectively. In addition, as we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to address control deficiencies or determine to modify our remediation plan. Management will test and evaluate the implementation of these modifications to ascertain whether they are designed and operating effectively to provide reasonable assurance that they will prevent or detect a material misstatement in the Company’s financial statements.

~~The steps we took to address the deficiencies identified included:~~

●

~~we hired a new Chief Financial Officer;~~

●

~~we hired a new Executive Vice-President (“EVP”) Accounting;~~

●

~~we have engaged in efforts to restructure accounting processes and revise organizational structures to enhance accurate accounting and appropriate financial reporting;~~

●

~~we have hired additional experienced accounting personnel in the corporate office to enhance the application of accounting standards and our financial closing and reporting process;~~

●

~~we have engaged external advisors to provide financial accounting and reporting assistance;~~

●

we will enhance information and communication processes through information technology solutions to ensure that information needed for financial reporting is accurate, complete, relevant and reliable, and communicated in a timely manner; and

●

we have engaged external advisors to evaluate and document the design and operating effectiveness of our internal control over financial reporting and assist with the remediation and implementation of our internal control function.

As noted above, we believe that, as a result of management’s in-depth review of its accounting processes, and the additional procedures management has implemented, there are no material inaccuracies or omissions of material fact in this Form 10-Q and, to the best of our knowledge, we believe that the consolidated financial statements in this Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows in conformity with GAAP.

We and our Board treat the controls surrounding, and the integrity of, our financial statements with the utmost priority. Management is committed to the planning and implementation of remediation efforts to address control deficiencies and any other identified areas of risk. These remediation efforts are intended to both address the identified material weakness and to enhance our overall financial control environment. We are committed to maintaining a strong internal control environment, and we believe the measures described above will strengthen our internal control over financial reporting and remediate the material weakness we have identified. Our remediation efforts have begun, and we will continue to devote significant time and attention to these remedial efforts. As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to strengthen controls or to modify the remediation plan described above, which may require additional implementation time.

Changes in Internal Control Over Financial Reporting

There have been no changes ~~other than our remediation efforts discussed above,~~ in the Company’s internal control over financial reporting during the ~~fiscal quarter~~three months ended June 30, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

~~There have been no material changes to~~The following risk factor supplements the Risk Factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2022.~~2023.

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

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

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

EXHIBIT INDEX


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

SIGNATURES

~~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.

	~~CINEDIGM CORP.~~
			CINEVERSE CORP.

Date: August ~~15, 2022~~14, 2023	By:	/s/ Christopher J. McGurk
		Christopher J. McGurk Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer)

Date: August ~~15, 2022~~14, 2023	By:	/s/ John K. Canning
		John K. Canning Chief Financial Officer (Principal Financial Officer)

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 false --03-31 Q1 2023 0001173204 iso4217:USD xbrli:shares

	June 30, 2022			March 31, 2022
ASSETS
Current assets
Cash and cash equivalents	$	11,519		$	13,062
Accounts receivable, net of allowance of $2,605 and $2,921, respectively		25,215			30,843
Inventory		129			116
Unbilled revenue		2,597			2,349
Prepaid and other current assets		4,621			5,793

Total current assets		44,081			52,163
Equity investment in A Metaverse Company, a related party, at fair value		5,772			7,028
Property and equipment, net		1,865			1,980
Operating lease right-of use assets, net		680			749
Intangible assets, net		19,290			20,034
Goodwill		21,084			21,084
Other long-term assets		1,451			1,598
Total assets	$	94,223		$	104,636
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses	$	46,450		$	52,025
Current portion of deferred consideration on purchase of business		3,449			3,432
Current portion of earnout consideration on purchase of business		1,188			1,081
Operating lease liabilities		193			258
Current portion of deferred revenue		371			196

Total current liabilities		51,651			56,992
Deferred consideration on purchase – net of current portion		5,379			5,600
Earnout consideration on purchase – net of current portion		627			603
Operating lease liabilities, net of current portion		489			491
Other long-term liabilities		86			-

Total liabilities		58,232			63,686
Commitments and contingencies (see Note 6)
Stockholders’ Equity
Preferred stock, 15,000,000 shares authorized; Series A 10% - $0.001 par value per share; 20 shares authorized; 7 shares issued and outstanding at June 30, 2022 and March 31, 2022. Liquidation preference of $3,648		3,559			3,559
Common stock, $0.001 par value; Class A stock 275,000,000 and 275,000,000 shares authorized at June 30, 2022 and March 31, 2022, respectively, 176,737,459 and 176,629,435 shares issued and 175,421,608 and 175,313,584 shares outstanding at June 30, 2022 and March 31, 2022, respectively.		174			174
Additional paid-in capital		523,669			522,601
Treasury stock, at cost; 1,315,851 and 1,315,851 Class A common shares at June 30, 2022 and March 31, 2022, respectively.		(11,608	)		(11,608	)
Accumulated deficit		(478,403	)		(472,310	)
Accumulated other comprehensive loss		(115	)		(163	)
Total stockholders’ equity of Cinedigm Corp.		37,276			42,253
Deficit attributable to noncontrolling interest		(1,285	)		(1,303	)
Total equity		35,991			40,950
Total liabilities and equity	$	94,223		$	104,636

	Three Months Ended June 30,
	2022			2021
Revenues	$	13,590		$	15,015
Costs and expenses:
Direct operating (excludes depreciation and amortization shown below)		7,356			4,631
Selling, general and administrative		9,815			6,043
Bad debt expense		3			71
Depreciation and amortization of property and equipment		256			649
Amortization of intangible assets		744			847
Total operating expenses		18,174			12,241
Income (loss) from operations		(4,584	)		2,774
Interest expense, net		(133	)		(144	)
Gain on forgiveness of PPP loan and extinguishment of note payable		-			2,178
Change in fair value of equity investment in A Metaverse Company, a related party		(1,256	)		334
Other expense, net		(14	)		(11	)
Income (loss) before income taxes		(5,987	)		5,131
Income tax benefit		-			63
Net income (loss)		(5,987	)		5,194
Net loss attributable to noncontrolling interest		(18	)		(7	)
Net income (loss) attributable to controlling interests		(6,005	)		5,187
Preferred stock dividends		(88	)		(89	)
Net income (loss) attributable to common stockholders	$	(6,093	)	$	5,098
Net income (loss) per Class A common stock attributable to common stockholders - basic:	$	(0.03	)	$	0.03
Weighted average number of Class A common stock outstanding: basic		175,420,421			167,940,285
Net income (loss) per Class A common stock attributable to common stockholders - diluted:	$	(0.03	)	$	0.03
Weighted average number of Class A common stock outstanding: diluted		175,420,421			171,257,356

	Series A Preferred Stock				Class A Common Stock				Treasury					Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders’ Equity			Non-Controlling			Total Equity
	Shares		Amount		Shares		Amount		Shares		Amount			Capital		Deficit			Loss			(Deficit)			Interest			(Deficit)
Balances as of March 31, 2021		7	$	3,559		166,228,568	$	164		1,313,836	$	(11,603	)	$	499,272	$	(474,080	)	$	(68	)	$	17,244		$	(1,362	)	$	15,882
Foreign exchange translation		—		—		—		—		—		—			—		—			(54	)		(54	)		—			(54	)
Stock-based compensation		—		—		35,714		—		—		—			983		—			—			983			—			983
Issuance of common stock in connection with a business combination		—		—		1,483,129		2		—		—			2,504		—			—			2,506			—			2,506
Preferred stock dividends paid with common stock		—		—		53,278		—		—		—			89		(89	)		—			—			—			—
Net income		—		—		—		—		—		—			—		5,187			—			5,187			7			5,194
Balances as of June 30, 2021		7		3,559		167,800,689		166		1,313,836		(11,603	)		502,848		(468,982	)		(122	)		25,866			(1,355	)		24,511

	Cost Basis		Accumulated Amortization			Impairment			Net
Trademark	$	1,925	$	(925	)	$	-			1,000
Content Library		23,685		(20,803	)		-			2,882
Customer Relationships		10,658		(7,395	)		(1,968	)		1,295
Tradename		2,101		(619	)		-			1,482
Theatre Relationship		550		(550	)		-			-
Patents		17		(17	)		-			-
Supplier Agreements		11,430		(11,399	)		-			31
Advertiser relationships and Channel		10,081		(361	)		-			9,720
Software		3,200		(320	)		-			2,880
Total Intangible Assets	$	63,647	$	(42,389	)	$	(1,968	)		19,290

	Total
2023	$	2,520
2024		3,048
2025		1,796
2026		1,489
2027		1,269
Thereafter		9,168
Total	$	19,290

As of June 30, 2022
Range of Prices	Options Outstanding		Weighted Average Remaining Life in Years		Weighted Average Exercise Price		Aggregate Intrinsic Value (In thousands)
$1.16 - $7.40		5,000		3.01	$	7.40	$	—
$13.70 - $24.40		207,037		1.28		14.63		—
		212,037					$	—

Options Exercisable				Weighted Average Remaining Life in Years				Weighted Average Exercise Price				Aggregate Intrinsic Value (In thousands)
	212,037				1.32			$	14.46				—

As of June 30, 2022
Range of Prices	SARs Outstanding		Weighted Average Remaining Life in Years		Weighted Average Exercise Price		Aggregate Intrinsic Value (In thousands)
$0.54 - $0.74		5,550,000		8.45	$	0.60	$	—
$1.16 - $1.47		2,283,610		6.29		1.25		—
$1.71 - $2.10		2,455,738		6.53		1.49		—
$2.23 - $2.56		604,250		9.31		2.29		—
		10,893,598					$	—

SAR Exercisable				Weighted Average Remaining Life in Years				Weighted Average Exercise Price				Aggregate Intrinsic Value (In thousands)
	2,736,473				7.29			$	1.21				-

	Shares		Weighted Average Grant Date Fair Value
Unvested balance at March 31, 2022		696,280	$	1.25
Granted		-		-
Vested		-		-
Unvested balance at June 30, 2022		696,280	$	1.25

(In thousands)	Classification on the Balance Sheet	June 30, 2022		March 31, 2022
Assets
Noncurrent	Operating lease right-of-use asset	$	680	$	749
Liabilities
Current	Operating leases – current portion		193		258
Noncurrent	Operating leases – long-term portion		489		491
Total operating lease liabilities		$	682	$	749

	Three Months Ended		Three Months Ended
(In thousands)	June 30, 2022		June 30, 2021
Operating lease cost	$	84	$	22
Total lease cost	$	84	$	22

	As of June 30, 2022
(In thousands)	Intangible Assets, net		Goodwill		Total Assets		Notes Payable, Non- Recourse		Notes Payable		Operating lease liabilities
Cinema Equipment Business	$	—	$	—	$	20,282	$	—	$	—	$	—
Content & Entertainment Business		19,202		21,084		66,770		—		—		675
Corporate		88		—		7,171		—		—		7
Total	$	19,290	$	21,084	$	94,223	$	—	$	—	$	682

	As of March 31, 2022
(In thousands)	Intangible Assets, net		Goodwill		Total Assets		Notes Payable, Non- Recourse		Notes Payable		Operating lease liabilities
Cinema Equipment Business	$	—	$	—	$	24,445	$	—	$	—	$	—
Content & Entertainment Business		19,946		21,084		68,873		—		—		—
Corporate		88		—		11,318		—		—		749
Total	$	20,034	$	21,084	$	104,636	$	—	$	—	$	749

	Statements of Operations
	Three Months Ended June 30, 2022
	(in thousands)
	Cinema Equipment Business			Content & Entertainment Business			Corporate			Consolidated

Revenues	$	1,427		$	12,163		$	-		$	13,590
Direct operating (exclusive of depreciation and amortization shown below)		144			7,212			-			7,356
Selling, general and administrative		1,071			3,783			4,961			9,815
Allocation of corporate overhead		103			2,752			(2,855	)		0
Provision for (recovery of) doubtful accounts		3			-			-			3
Depreciation and amortization of property and equipment		117			138			1			256
Amortization of intangible assets		-			637			107			744
Total operating expenses		1,438			14,522			2,214			18,174
Income (loss) from operations	$	(11	)	$	(2,359	)	$	(2,214	)	$	(4,584	)

	Statements of Operations
	Three Months Ended June 30, 2021
	(in thousands)
	Cinema Equipment Business		Content & Entertainment Business			Corporate			Consolidated
Revenues	$	6,231	$	8,784		$	—		$	15,015
Direct operating (exclusive of depreciation and amortization shown below)		257		4,374			—			4,631
Selling, general and administrative		429		2,818			2,796			6,043
Allocation of corporate overhead		99		660			(759	)		—
Provision for doubtful accounts		27		44			—			71
Depreciation and amortization of property and equipment		507		143			(1	)		649
Amortization of intangible assets		—		846			1			847
Total operating expenses		1,319		8,885			2,037			12,241
Income (loss) from operations	$	4,912	$	(101	)	$	(2,037	)	$	2,774

	For the Three Months Ended June 30,
($ in thousands)	2022		2021		$ Change			% Change
Cinema Equipment Business	$	1,427	$	6,231	$	(4,804	)		(77	)%
Content & Entertainment Business		12,163		8,784		3,379			38	%
	$	13,590	$	15,015	$	(1,425	)		(9	)%

	Payments Due
Contractual Obligations (in thousands)	Total		2023		2024 & 2025		2026 & 2027		Thereafter
Operating lease obligations	$	682	$	193	$	489	$	—	$	—