{"url_path":"/sec/cnvs/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-06-26","source_url":"https://www.sec.gov/Archives/edgar/data/1173204/0001193125-26-284027-index.html","accession_number":"0001193125-26-284027","cik":"0001173204","ticker":"CNVS","issuer_name":"Cineverse Corp.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1173204/0001193125-26-284027-index.html","primary_entity_key":"0001173204","primary_entity_name":"Cineverse Corp."},"word_count":6104,"has_tables":true,"body_markdown":"ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n\n \n\nThe following discussion and analysis should be read in conjunction with our historical consolidated financial statements and the related notes included elsewhere in this report.\n\n \n\nThis 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.\n\n \n\nOVERVIEW\n\n \n\nCineverse is a premier technology and entertainment company with its core streaming business operating (i) a portfolio of owned and operated streaming channels with enthusiast fan bases; (ii) a large-scale global aggregator and full-service distributor of feature films and television programs; and (iii) a proprietary technology software-as-a-service platform for over-the-top (“OTT”) app development and content distribution through subscription video on demand (\"SVOD\"), dedicated ad-supported (\"AVOD\"), ad-supported streaming linear (\"FAST\") channels, social video streaming services, and audio podcasts. Our streaming channels reach audiences in several distinct ways: direct-to-consumer, through these major application platforms, and through third-party distributors of content on platforms.\n\n \n\nThe Company’s streaming technology platform, known as Matchpoint™, is a software-based streaming operating platform which provides clients with AVOD, SVOD, transactional video on demand (\"TVOD\") and linear capabilities, automates the distribution of content, and features a robust data analytics platform. Through the integration of Giant Worldwide, Matchpoint™ has expanded its automated media services ecosystem by adding audience development, customer acquisition, and direct-to-consumer marketing capabilities supported by longstanding studio relationships and performance marketing expertise.\n\n \n\nThe Company’s Connected TV (“CTV”) monetization platform, IndiCue, provides proprietary location-based digital advertising technology solutions that offer advertisers a targetable, measurable, and accountable way to utilize CTV media and data solutions at scale. The Company also provides solutions for media owners, including an advertising platform for DOOH (\"Digital Out-of-Home\") networks that enables users to manage advertising inventory, optimize sales, and monetize unsold inventory.\n\n \n\nRisks and Uncertainties\n\n \n\nOur business and prospects are exposed to numerous risks and uncertainties. For more information, see “Item 1A. Risk Factors” in this report.\n\n \n\nLiquidity and Capital Resources\n\n \n\nWe have incurred net losses historically. For the year ended March 31, 2026, we have net loss attributable to common stockholders of $(9.2) million. As of March 31, 2026, we had an accumulated deficit of $510.1 million and net cash used in operations for the fiscal year ended March 31, 2026 was $26.5 million. We have negative working capital of $(12.2) million as of March 31, 2026, we may continue to generate net losses for the foreseeable future.\n\n \n\nThe Company is party to a Loan, Guaranty, and Security Agreement, as amended on April 8, 2025, with East West Bank (the \"Line of Credit Facility\") currently provides for borrowings of up to $12.5 million guaranteed by substantially all of our material subsidiaries and secured by substantially all of our and our subsidiaries’ assets. The facility includes provisions that allow for an increase in total borrowing capacity up to $15.0 million, subject to lender approval.\n\n19\n\n \n\nAs of March 31, 2026, $9.4 million was outstanding on the Line of Credit Facility. Under the Line of Credit Facility, the Company is subject to certain financial and non-financial covenants including terms which require the Company to maintain certain metrics and ratios, to maintain certain minimum cash on hand, and to report financial information to our lender on a periodic basis. Please see Note 5 - Debt for further information regarding the Company's Line of Credit Facility.\n\n \n\nOn February 17, 2026, the Company sold in a public offering an aggregate of 1,725,000 shares of Common Stock (the “Offered Shares”) at a price of $2.00 per share, for aggregate gross proceeds of approximately $3.45 million, before deducting underwriting commissions and expenses payable by the Company The Offered Shares were sold pursuant to an Underwriting Agreement with The Benchmark Company, LLC and pursuant a prospectus and prospectus supplement which are part of the Company’s shelf registration statement on Form S-3 (File No. 333-273098) filed with the SEC.\n\n \n\nOn February 12, 2026, the Company issued and sold convertible notes in the aggregate principal amount of $13,000,000 (each, a “Note”) to certain lenders (individually, an “Investor” and collectively, the “Investors”) pursuant to those certain note purchase agreements (each, a “Purchase Agreement”), dated February 12, 2026, between the Company and each Investor. The Notes mature on the earlier to occur of (i) the four-year anniversary of issuance and (ii) an event of default (such date, the “Maturity Date”). The Notes bear interest at a rate of 9% per annum payable in cash or, as to a portion, in shares of Common Stock in the holder’s discretion. At any time after issuance of the Notes, the Investors may convert their Notes, in whole or in part, into shares of Common Stock, in accordance with the terms of the Notes at a conversion price per share of $2.00 (the “Conversion Price”), subject to customary adjustments upon any stock split, stock dividend, stock combination, recapitalization or similar events.\n\n \n\nThe Company can require conversion in tranches of up to approximately 15% of the original principal amount of the Notes during each of the six-month periods beginning July 1, 2026 and ending December 31, 2028, with any unconverted tranches available on a cumulative basis in future tranches. The Notes may be prepaid by paying 100% of the outstanding principal amount, interest on the outstanding principal amount through the earlier of the Maturity Date or the date that is 24 months from the date of prepayment, and warrants (the “Warrants”) to purchase the number of shares of Common Stock into which the principal amount then outstanding would be convertible at the Conversion Price, with such warrants having an exercise price equal to such Conversion Price and a term that ends on the Maturity Date. The Notes rank junior to secured debt of the Company, including the Line of Credit Facility.\n\n \n\nOn May 3, 2024, the Company entered into an at-the-market, or ATM, Sales Agreement (the “Sales Agreement”) with A.G.P./Alliance Global Partners and The Benchmark Company, LLC (collectively, the “Sales Agents”), pursuant to which the Company may offer and sell, from time to time, through the Sales Agents, shares of its Class A common stock, par value $0.001 per share (the “Common Stock”). Shares of Common Stock may be offered and sold for an aggregate offering price of up to $15 million. The Sales Agents’ obligations to sell shares under the Sales Agreement are subject to satisfaction of certain conditions, including the continuing effectiveness of the Registration Statement on Form S-3 (Registration No. 333-273098) (the “Registration Statement”) filed by the Company with the U.S. Securities and Exchange Commission (the “SEC”) on June 30, 2023 and declared effective by the SEC on January 25, 2024, and other customary closing conditions. The Company will pay the Sales Agents a commission of 3.00% of the aggregate gross proceeds from each sale of shares and has agreed to provide the Sales Agents with customary indemnification and contribution rights. The Company has also agreed to reimburse the Sales Agents for certain specified expenses. The Company is not obligated to sell any shares under the Sales Agreement. During the year ended March 31, 2026, the Company sold 397 thousand shares for net proceeds of $1.0 million, after deduction of commissions and fees.\n\n \n\nOn April 5, 2024, Cineverse Terrifier LLC (“T3 Borrower”), a wholly-owned subsidiary of the Company entered into a Loan and Security Agreement with BondIt LLC (“T3 Lender”) and the Company, as a guarantor (the “T3 Loan Agreement”). The T3 Loan Agreement provides for a term loan with a principal amount not to exceed $3,666,000 (the “T3 Loan”), and a maturity date of April 1, 2025. The T3 Loan incurred no interest until the maturity date other than an interest advance equal to $576,000 at the closing of the T3 Loan on April 5, 2024. The interest advance was recorded as a discount on the T3 Loan at inception and was amortized to interest expense and increase the loan amount over its term. The proceeds under the T3 Loan Agreement were used for the funding under the Company’s distribution arrangements for the film titled Terrifier 3 (the “Film”). The T3 Loan, including interest of $576 thousand, was repaid in advance during the year ended March 31, 2025.\n\n \n\n20\n\n \n\nAfter the principal of the T3 Loan was paid in full, the T3 Lender was entitled to receive 15% of all royalties earned by the Company on the Film under its distribution agreements for the Film until the T3 Lender received 1.75 times the full commitment amount of $3,666,000, consisting of the principal amount plus interest and fees advanced to T3 Borrower (\"Participation Interest\"), plus any extension interest. The T3 Loan was secured by a first priority interest in all of T3 Borrower’s rights and interest in the Film and the distribution agreements, including the proceeds to the T3 Borrower from the distribution of the Film. During the fiscal year ended March 31, 2026, the Company paid the T3 Lender $700,000 in Participation Interest\n\n \n\nDuring the year ended March 31, 2026, the Company negotiated a reduction to the accrued Participation Interest of $375 thousand and made a final payment of $944 thousand to the T3 Lender. The $375 thousand reduction to Participation Interest was recorded as a reduction to interest expense in our Consolidated Statement of Operations for the year ended March 31, 2026.\n\n \n\nThe Company will continue to invest in content development and acquisition, from which it believes it will obtain an appropriate return on its investment. As of March 31, 2026 and 2025, short term content advances were $7.5 million and $6.7 million, respectively, and content advances, net of current portion were, $8.2 million and $4.1 million, respectively.\n\n \n\nOur capital requirements will depend on many factors, and we may need to use existing capital resources and/or undertake equity or debt offerings, if necessary and opportunistically available, for further capital needs. Management's plans with respect to the Company's recurring net losses and net operating cash outflows also include but are not limited to our effort in increasing revenue from existing services as well as offering new services, which may result in additional income from operations. Should management be unsuccessful in executing these plans, additional capital resources will be necessary. There can be no assurance that resources under our Line of Credit Facility or from additional debt or equity resources will be available on acceptable terms, if at all. We believe our cash and cash equivalents and availability under our Line of Credit Facility as of March 31, 2026 will be sufficient to support our operations for at least twelve months from the filing of this report.\n\n \n\nCritical Accounting Policies and Estimates\n\n \n\nOur 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 consolidated 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 are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated 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.\n\n \n\nOur significant accounting policies are discussed in Note 2 – Basis of Presentation and Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Management believes that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.\n\n \n\nFAIR VALUE ESTIMATES\n\n \n\nGoodwill\n\n \n\nGoodwill 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.\n\n21\n\n \n\nInherent 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.\n\n \n\nIn certain reporting periods, the Company may have 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.\n\n \n\nIntangible Assets, net\n\n \n\nWe 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 our long-lived and finite-lived assets from expected future undiscounted net cash flows. If the total 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.\n\n \n\nIn the years ended March 31, 2026 and 2025, no impairment charges were recorded to intangible assets.\n\n \n\nBusiness Combinations\n\n \n\nWe record tangible and intangible assets acquired and liabilities assumed in business combinations under the purchase method of accounting. Amounts paid for each acquisition are allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition. We then allocate the purchase price in excess of net tangible assets acquired to identifiable intangible assets based on detailed valuations that use information and assumptions provided by management. We allocate any excess purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed to goodwill. If the fair value of the assets acquired exceeds the purchase price, the excess is recognized as a gain.\n\n \n\nSignificant management judgments and assumptions are required in determining the fair value of acquired assets and liabilities, particularly acquired intangible assets. The valuation of purchased intangible assets is based upon estimates of the future performance and cash flows from the acquired business. Each asset is measured at fair value from the perspective of a market participant. Critical estimates in valuing purchased technology and customer lists include future cash flows that we expect to generate from the acquired assets. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could experience impairment charges which could be material. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be accelerated or slowed.\n\n \n\nIf different assumptions are used, it could materially impact the purchase price allocation and adversely affect our results of operations, financial condition and cash flows.\n\n \n\n22\n\n \n\nREVENUE RECOGNITION\n\n \n\nWe determine revenue recognition by:\n\n•\nidentifying the contract, or contracts, with the customer;\n\n•\nidentifying the performance obligations in the contract;\n\n•\ndetermining the transaction price;\n\n•\nallocating the transaction price to performance obligations in the contract; and\n\n•\nrecognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services.\n\nWe recognize revenue in the amount that reflects the consideration we expect to receive in exchange for the services provided, sales of physical products 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.\n\n \n\nPayment 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.\n\n \n\nDepending 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 physical products. 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.\n\n \n\nRevenue from the sale of physical goods is recognized after deducting reserves for sales returns and other allowances. Reserves for potential 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.\n\n \n\nFor the theatrical distribution of third-party feature movies and alternative content, distribution fee revenue and participation in box office receipts are recognized at the time a feature movie and alternative content are viewed. The Company may have 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.\n\n \n\nAdvertising technology revenue is derived from two principal revenue streams: Ad Network revenue and Ad Serving revenue.\n\n \n\n•\nFor Ad Network revenue, at the beginning of each advertising campaign, the client signs a contract and or insertion order which stipulates the (i) length of the campaign, (ii) number of impressions purchased, and (iii) targeted locations/demographics. Impressions are counted each time a client’s advertising tag is rendered on a procured advertising platform. The transaction price for these impressions is determined upfront as a contracted cost per mille (“CPM”) rate. Revenue is recognized at a point in time when the billable impression is delivered, meaning the ad has been successfully served in line with the contract and measurement standards based on the agreed CPM.\n\n•\nAd serving software represents instances where clients use the Company’s system as a technology platform for managing and delivering their advertising content across designated media channels. The\n\n23\n\n \n\ncustomer signs a contract that grants them access to the “marketplace” and stipulates (i) length of contract and (ii) fees associated with their purchase of impressions. Terms are based on a fixed monthly fee and a usage-based pricing model that includes charges based on queries per second (QPS), as well as contractually specified CPM rates tied to agreed-upon impression volumes. The Company recognizes fixed monthly fee revenue over time as access is provided to the customer and at a point in time for usage-base revenue for amounts delivered in a given month.\n\n \n\nMedia services revenue is derived from quality control, packaging, and localization work performed on behalf of studios for platform distribution, as specified work and prices are set forth in purchase orders. The Company recognizes revenue from these services as the services are completed.\n\nPrincipal Agent Considerations\n\n \n\nWe 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:\n\n•\nwhich party is primarily responsible for fulfilling the promise to provide the specified good or service; and\n\n•\nwhich party has discretion in establishing the price for the specified good or service.\n\n \n\nShipping and Handling\n\n \n\nShipping and handling costs are incurred to move physical goods to customers. We recognize all shipping and handling costs as an expense in direct operating expenses because we are responsible for delivery of the product to our customers prior to transfer of control to the customer.\n\n \n\nCredit Losses\n\n \n\nWe maintain reserves for expected credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical credit losses, customer concentrations, customer credit worthiness, current and forecasted economic trends and changes in customer payment patterns to evaluate the adequacy of this allowance.\n\n \n\nContract Assets and Liabilities\n\n \n\nWe generally record a receivable related to revenue or an unbilled revenue (contract asset) when we have an unconditional right to invoice and receive payment. Unbilled revenue includes an accrued revenue, the right to which has been earned at the period end based on completed performance. We record deferred revenue (contract liability) when cash payments are received or due in advance of our performance, even if the amounts are refundable. Deferred revenue includes payments related to the sale physical goods with future release dates or subscription dues paid in advance.\n\n \n\nDeferred revenue that is short term in nature, carried a balance as of March 31, 2026 and 2025 of $0.1 million and $0.2 million, respectively. For the years ended March 31, 2026 and 2025, the additions to our deferred revenue balance were primarily due to cash payments received or due in advance of satisfying performance obligations, while the reductions to our deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.\n\n \n\nParticipations and Royalties Payable\n\n \n\nWhen we use third-parties to distribute company owned content, we record participations payable, which represent amounts owed to the distributor under revenue-sharing arrangements. When we provide content distribution services, we record accounts payable and accrued expenses to studios or content producers for royalties owed under licensing arrangements. We identify and record as a reduction to the liability any expenses that are to be reimbursed to us by such studios or content producers.\n\n24\n\n \n\nResults of Operations for the Fiscal Years Ended March 31, 2026 and 2025 (in thousands, except where noted below)\n\n \n\nRevenues\n\n \n\n \n\nFor the Fiscal Year Ended March 31,\n\n \n\n \n\nAs a % of Revenue\n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n$ Change\n\n \n\n \n\n% Change\n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nStreaming and digital\n\n \n\n$\n\n40,186\n\n \n\n \n\n$\n\n44,408\n\n \n\n \n\n$\n\n(4,222\n\n)\n\n \n\n \n\n(10\n\n)%\n\n \n\n \n\n61\n\n%\n\n \n\n \n\n57\n\n%\n\nBase distribution\n\n \n\n \n\n9,534\n\n \n\n \n\n \n\n28,614\n\n \n\n \n\n \n\n(19,080\n\n)\n\n \n\n \n\n(67\n\n)%\n\n \n\n \n\n15\n\n%\n\n \n\n \n\n37\n\n%\n\nAdvertising technology and services\n\n \n\n \n\n7,922\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n7,922\n\n \n\n \n\n \n\n—\n\n%\n\n \n\n \n\n12\n\n%\n\n \n\n \n\n—\n\n%\n\nPodcast and other\n\n \n\n \n\n4,388\n\n \n\n \n\n \n\n4,946\n\n \n\n \n\n \n\n(558\n\n)\n\n \n\n \n\n(11\n\n)%\n\n \n\n \n\n7\n\n%\n\n \n\n \n\n6\n\n%\n\nMedia services\n\n \n\n \n\n3,685\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n3,685\n\n \n\n \n\n \n\n—\n\n%\n\n \n\n \n\n6\n\n%\n\n \n\n \n\n—\n\n%\n\nOther non-recurring\n\n \n\n \n\n18\n\n \n\n \n\n \n\n213\n\n \n\n \n\n \n\n(195\n\n)\n\n \n\n \n\n(92\n\n)%\n\n \n\n \n\n0\n\n%\n\n \n\n \n\n0\n\n%\n\nTotal Revenue\n\n \n\n$\n\n65,733\n\n \n\n \n\n$\n\n78,181\n\n \n\n \n\n$\n\n(12,448\n\n)\n\n \n\n \n\n(16\n\n)%\n\n \n\n \n\n100\n\n%\n\n \n\n \n\n100\n\n%\n\n \n\nFor the year ended March 31, 2026, the Company's revenue declined by $12.4 million.\n\n \n\nStreaming and digital revenue declined by $4.2 million, primarily due to the strong digital release of Terrifier 3, which generated $5.9 million in the prior period, partially offset by current year release of Return to Silent Hill, which generated $1.0 million in revenue.\n\n \n\nBase distribution revenue decreased by $19.1 million, primarily due to the successful theatrical performance of Terrifier 3, which generated $23.1 million in revenue in the prior year, as well as $2.6 million from related physical media sales in the prior period. This decline was partially offset by current year theatrical revenue of $4.0 million from releases such as Toxic Avenger, Silent Night, Deadly Night and Return to Silent Hill.\n\n \n\nThe Company also added new revenue streams of Advertising technology and services, as well as Media Services through the acquisitions of IndiCue and Giant Worldwide during the fiscal year ended March 31, 2026. These acquisitions contributed $11.6 million in revenue, representing 18% of total revenue.\n\n \n\nDirect Operating Expenses\n\n \n\n \n\nFor the Fiscal Year Ended March 31,\n\n \n\n \n\nAs a % of Revenue\n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n$ Change\n\n \n\n \n\n% Change\n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nDirect operating expenses\n\n \n\n$\n\n30,659\n\n \n\n \n\n$\n\n38,776\n\n \n\n \n\n$\n\n(8,117\n\n)\n\n \n\n \n\n(21\n\n)%\n\n \n\n \n\n47\n\n%\n\n \n\n \n\n50\n\n%\n\n \n\nThe decrease of $8.1 million in Direct Operating Expenses for the year ended March 31, 2026, primarily relates to lower royalty costs compared to the same period of 2025, which included $17 million royalty expenses for Terrifier 3. This was partially offset by increased payments due to supply partners of $6.4 million, as well as theatrical distribution fees related to current year releases, higher licensor costs, and the allowance applied against certain content advances.\n\n \n\nSelling, General and Administrative Expenses\n\n \n\n \n\nFor the Fiscal Year Ended March 31,\n\n \n\n \n\nAs a % of Revenue\n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n$ Change\n\n \n\n \n\n% Change\n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nCompensation expense\n\n \n\n$\n\n19,949\n\n \n\n \n\n$\n\n17,176\n\n \n\n \n\n$\n\n2,773\n\n \n\n \n\n \n\n16\n\n%\n\n \n\n \n\n30\n\n%\n\n \n\n \n\n22\n\n%\n\nCorporate expenses\n\n \n\n \n\n6,140\n\n \n\n \n\n \n\n3,354\n\n \n\n \n\n \n\n2,786\n\n \n\n \n\n \n\n83\n\n%\n\n \n\n \n\n9\n\n%\n\n \n\n \n\n4\n\n%\n\nShare-based compensation\n\n \n\n \n\n2,987\n\n \n\n \n\n \n\n1,925\n\n \n\n \n\n \n\n1,062\n\n \n\n \n\n \n\n55\n\n%\n\n \n\n \n\n5\n\n%\n\n \n\n \n\n2\n\n%\n\nMarketing expenses\n\n \n\n \n\n7,243\n\n \n\n \n\n \n\n152\n\n \n\n \n\n \n\n7,091\n\n \n\n \n\n \n\n4665\n\n%\n\n \n\n \n\n11\n\n%\n\n \n\n \n\n0\n\n%\n\nOther operating expenses\n\n \n\n \n\n6,989\n\n \n\n \n\n \n\n5,077\n\n \n\n \n\n \n\n1,912\n\n \n\n \n\n \n\n38\n\n%\n\n \n\n \n\n11\n\n%\n\n \n\n \n\n6\n\n%\n\nSelling, General and Administrative\n\n \n\n$\n\n43,308\n\n \n\n \n\n$\n\n27,684\n\n \n\n \n\n$\n\n15,624\n\n \n\n \n\n \n\n56\n\n%\n\n \n\n \n\n66\n\n%\n\n \n\n \n\n35\n\n%\n\n \n\n25\n\n \n\n \n\nSelling, general and administrative expenses for the year ended March 31, 2026 increased by $15.6 million compared to the year ended March 31, 2025, primarily due to $7.1 million of higher marketing expenses associated with our increased number of theatrical offerings in fiscal year 2026. Additionally, $1.2 million of marketing expenses were included within Direct operating expenses during the prior year.\n\n \n\nCorporate expenses increased by $2.8 million reflecting higher professional services and legal expenses associated with strategic business and content acquisitions. Compensation expenses increased by $2.8 million due to higher employee headcount. Other operating expenses increased by $1.9 million primarily due to higher administrative costs.\n\n \n\nDepreciation and Amortization\n\n \n\n \n\nFor the Fiscal Year Ended March 31,\n\n \n\n \n\nAs a % of Revenue\n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n$ Change\n\n \n\n \n\n% Change\n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nAmortization of intangible assets\n\n \n\n$\n\n5,634\n\n \n\n \n\n$\n\n3,226\n\n \n\n \n\n$\n\n2,408\n\n \n\n \n\n \n\n75\n\n%\n\n \n\n \n\n9\n\n%\n\n \n\n \n\n4\n\n%\n\nDepreciation of property and equipment\n\n \n\n \n\n338\n\n \n\n \n\n \n\n571\n\n \n\n \n\n \n\n(233\n\n)\n\n \n\n \n\n(41\n\n)%\n\n \n\n \n\n1\n\n%\n\n \n\n \n\n1\n\n%\n\nTotal Depreciation and Amortization\n\n \n\n$\n\n5,972\n\n \n\n \n\n$\n\n3,797\n\n \n\n \n\n$\n\n2,175\n\n \n\n \n\n \n\n57\n\n%\n\n \n\n \n\n9\n\n%\n\n \n\n \n\n5\n\n%\n\n \n\nAmortization increased by $2.4 million for the year ended March 31, 2026, compared to the year ended March 31, 2025, primarily due to increased capitalized content costs and internally developed software assets being placed into service.\n\n \n\nBargain purchase gain\n\nFor the year ended March 31, 2026, a bargain purchase gain was recognized related to the acquisition of Giant Worldwide, in the amount of $4.3 million. The bargain purchase was recognized as a result of the fair value of the assets acquired exceeding the consideration transferred, as a result of the seller's forced sale of Giant Worldwide, stemming from a bankruptcy-related proceeding.\n\nInterest Expense\n\nInterest expense decreased by $3.9 million to $0.5 million for the year ended March 31, 2026 primarily due to higher participation interest in the prior year related to the T3 Loan, which was obtained and repaid during the prior fiscal year, along with lower interest rates in the current fiscal year.\n\n \n\nIncome Tax (Benefit) Expense\n\n \n\nFor the year ended March 31, 2026, the Company had an income tax (benefit) of ($2.8) million, which represented a ($2.8) million release of the valuation allowance related to the IndiCue acquisition, a ($75) thousand deferred tax (benefit) related to changes in the Indian deferred tax asset, net of $25 thousand of current U.S. state income taxes and $43 thousand of current Indian income taxes.\n\nFor the year ended March 31, 2025, the Company had income tax expense of $106 thousand consisting of $62 thousand of current U.S. state income taxes, $51 thousand of current Indian income taxes, offset by the recognition of a $7 thousand deferred Indian tax benefit.\n\nAdjusted EBITDA\n\n \n\nWe define Adjusted EBITDA to be earnings before interest, taxes, depreciation and amortization, other income, net, stock-based compensation and expenses, merger and acquisition costs, restructuring, transition and acquisitions expense, net, goodwill impairment and non-recurring items.\n\nAdjusted 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\n\n26\n\n \n\nto the performance of its fundamental business activities. For this reason, we believe Adjusted EBITDA will also be useful to others, including its stockholders, as a valuable financial metric.\n\nWe present Adjusted EBITDA because we believe that Adjusted EBITDA is a useful supplement to net (loss) income 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.\n\nWe believe that Adjusted EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net loss from continuing operations and Adjusted EBITDA has been provided in the financial results. Adjusted EBITDA should not be considered as an alternative to 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 prepared in accordance with GAAP.\n\nFollowing is the reconciliation of our consolidated net (loss) income to Adjusted EBITDA (in thousands):\n\n \n\n \n\nFor the Fiscal Year Ended\nMarch 31,\n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nNet (loss) income\n\n \n\n$\n\n(8,657\n\n)\n\n \n\n$\n\n3,764\n\n \n\nAdd Back:\n\n \n\n \n\n \n\n \n\n \n\n \n\nIncome tax (expense) benefit\n\n \n\n \n\n(2,843\n\n)\n\n \n\n \n\n106\n\n \n\nDepreciation and amortization (1)\n\n \n\n \n\n6,355\n\n \n\n \n\n \n\n4,138\n\n \n\nInterest expense\n\n \n\n \n\n457\n\n \n\n \n\n \n\n4,365\n\n \n\nGain on bargain purchase\n\n \n\n \n\n(4,250\n\n)\n\n \n\n \n\n—\n\n \n\nChange in fair value of acquisition-related deferred consideration\n\n \n\n \n\n950\n\n \n\n \n\n \n\n—\n\n \n\nStock-based compensation\n\n \n\n \n\n2,987\n\n \n\n \n\n \n\n1,925\n\n \n\nOther expense (income), net\n\n \n\n \n\n137\n\n \n\n \n\n \n\n(311\n\n)\n\nNet loss attributable to noncontrolling interest\n\n \n\n \n\n(178\n\n)\n\n \n\n \n\n(162\n\n)\n\nAcquisition-related costs\n\n \n\n \n\n1,423\n\n \n\n \n\n \n\n—\n\n \n\nEmployee severance costs\n\n \n\n \n\n214\n\n \n\n \n\n \n\n92\n\n \n\nAdjusted EBITDA\n\n \n\n$\n\n(3,405\n\n)\n\n \n\n$\n\n13,917\n\n \n\n \n\n(1) - Includes $383 thousand and $341 thousand of amortization included in direct operating expenses on our Consolidated Statements of Operations for the years ended March 31, 2026 and 2025, respectively.\n\n \n\nRecent Accounting Pronouncements\n\n \n\nSee Note 2 - Basis of Presentation and Summary of Significant Accounting Policies to our Consolidated Financial Statements included herein.\n\n27\n\n \n\nCash Flow\n\n \n\nChanges in our cash flows were as follows (in thousands):\n\n \n\n \n\nFor the Fiscal Year Ended\nMarch 31,\n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nNet cash (used in) provided by operating activities\n\n \n\n$\n\n(26,497\n\n)\n\n \n\n \n\n17,370\n\n \n\nNet cash used in investing activities\n\n \n\n \n\n(14,320\n\n)\n\n \n\n \n\n(635\n\n)\n\nNet cash provided by (used in) financing activities\n\n \n\n \n\n30,240\n\n \n\n \n\n \n\n(8,002\n\n)\n\nNet Change in Cash and Cash Equivalents\n\n \n\n$\n\n(10,577\n\n)\n\n \n\n$\n\n8,733\n\n \n\n \n\nAs of March 31, 2026 and 2025, we had cash and cash equivalents of $3.4 million and $13.9 million, respectively.\n\n \n\nCashflows for the current fiscal year\n\n \n\nFor the year ended March 31, 2026, the change in net cash used in operating activities was $26.5 million, primarily driven by a net loss of $8.7 million, increases in working capital, and investments in content advances, partially offset by non-cash charges including depreciation and amortization and stock-based compensation.\n\n \n\nCash used in investing activities was $14.3 million, was primarily driven by business acquisitions and expenditures for long-lived assets.\n\n \n\nNet cash provided by financing activities of $30.2 million was primarily attributable to borrowings under the Company's line of credit facility, proceeds from the issuance of convertible notes, warrant exercises and common stock issuances, partially offset by repayments under the line of credit facility, tax withholdings related to restricted stock units, debt financing fees and deferred acquisition consideration payments.\n\n \n\nCashflows for the previous fiscal year\n\n \n\nFor the year ended March 31, 2025, the change in net cash provided by operating activities was primarily driven by a net income of $3.8 million, increases from the Company's operating assets and liabilities ($7.0 million), and add-backs relating to non-cash items, particularly: (i) depreciation and amortization of $3.8 million, and (ii) stock-based compensation of $1.9 million.\n\nCash used in investing activities of $0.6 million were driven by the acquisition of long-lived assets, partially offset by cash received from the sale of equity investment securities in Metaverse, an investment formerly held by the Company.\n\nCash used in financing activities of $8.0 million was primarily due to the net $6.4 million repayments of the Line of Credit Facility, repayment of our $3.1 million T3 Loan (which had been obtained during the 2025 fiscal year), $0.4 million net payment of deferred acquisition consideration, $0.6 million final earnout payment and $0.2 million used to repurchase outstanding shares.\n\n \n\nContractual Obligations\n\nThe Company presents its recognized and unrecognized commitments in the notes to the Financial Statements, Note 8 - Commitments and Contingencies.\n\n \n\nSeasonality\n\n \n\nThe timing of movie and streaming content 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 our business benefits from the winter holiday season, we believe the seasonality of the movie and streaming landscape, is becoming less pronounced as the motion picture studios are releasing movies somewhat more evenly throughout the year.\n\n28\n\n \n\n \n\nOff-Balance Sheet Arrangements\n\n \n\nWe are not a party to any off-balance sheet arrangements. In addition, as discussed further in Note 2 - Basis of Presentation and Summary of Significant Accounting Policies and Note 4 - Other Interests to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K, we hold a 100% equity interest in CDF2 Holdings, which is an unconsolidated variable interest entity (“VIE”), which wholly owns CDF2; however, we are not the primary beneficiary of the VIE.\n\n \n\nImpact of Inflation\n\n \n\nThe impact of inflation on our operations has not been significant to date. However, there can be no assurance that a sustained high rate of inflation in the future would not have an adverse impact on our operating results.\n\n29"}