Cineverse Corp. Income Taxes Disclosure
9. INCOME TAXES
We recorded income tax expense of $0.1 million and $0.0 million from operations for the years ended March 31, 2025 and 2024, respectively. For the year ended March 31, 2025, the income tax expense of $0.1 million was related to U.S. state and foreign income taxes.
The following table presents the components of income tax expense (benefit) (in thousands):
|
|
For the Fiscal Year |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Federal: |
|
|
|
|
|
|
||
Current |
|
$ |
— |
|
|
$ |
— |
|
Deferred |
|
|
— |
|
|
|
— |
|
Total federal |
|
$ |
— |
|
|
$ |
— |
|
State: |
|
|
|
|
|
|
||
Current |
|
$ |
62 |
|
|
$ |
(11 |
) |
Deferred |
|
|
— |
|
|
|
— |
|
Total state |
|
$ |
62 |
|
|
$ |
(11 |
) |
Foreign: |
|
|
|
|
|
|
||
Current |
|
$ |
51 |
|
|
$ |
35 |
|
Deferred |
|
|
(7 |
) |
|
|
(14 |
) |
Total foreign |
|
$ |
44 |
|
|
$ |
21 |
|
Income tax expense |
|
$ |
106 |
|
|
$ |
10 |
|
Net deferred taxes consisted of the following (in thousands):
|
|
As of March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Net operating loss carryforwards |
|
$ |
16,216 |
|
|
$ |
20,945 |
|
Stock-based compensation |
|
|
2,198 |
|
|
|
3,724 |
|
Intangibles |
|
|
3,857 |
|
|
|
6,423 |
|
Accrued liabilities |
|
|
441 |
|
|
|
535 |
|
Capital loss carryforward |
|
|
4,637 |
|
|
|
3,924 |
|
Investments |
|
|
— |
|
|
|
1,977 |
|
Non-deductible interest expense |
|
|
3,741 |
|
|
|
4,213 |
|
Other |
|
|
204 |
|
|
|
240 |
|
Total deferred tax assets before valuation allowance |
|
|
31,294 |
|
|
|
41,981 |
|
Less: Valuation allowance |
|
|
(31,141 |
) |
|
|
(41,668 |
) |
Total deferred tax assets after valuation allowance |
|
$ |
153 |
|
|
$ |
312 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
||
Right of use asset |
|
$ |
(102 |
) |
|
$ |
(248 |
) |
Depreciation and amortization |
|
|
(30 |
) |
|
|
(50 |
) |
Total deferred tax liabilities |
|
|
(132 |
) |
|
|
(298 |
) |
Net deferred tax |
|
$ |
21 |
|
|
$ |
14 |
|
We have provided a valuation allowance to our net deferred tax assets as of March 31, 2025 and 2024. We are required to recognize all or a portion of our deferred tax assets if we believe that it is more likely than not that such assets will be realized, given the weight of all available evidence. We assess the realizability of the deferred tax assets at each interim and annual balance sheet date. In assessing the need for a valuation allowance, we considered both positive and negative evidence, including recent financial performance, projections of future taxable income and scheduled reversals of deferred tax liabilities. The decrease in the valuation allowance of $10.5 million during the fiscal year ended March 31, 2025 was mainly due to a change in the blended state statutory tax rate. The state statutory tax rate decreased due to the utilization of the census-method for purposes of apportioning revenue. This
change caused the gross state deferred tax asset to decrease along with the corresponding valuation allowance. The increase in the valuation allowance of $5.9 million during the fiscal year ended March 31, 2024, was mainly due to increases in the deferred tax asset related to the net operating loss carryforward and other temporary differences. We will continue to assess the realizability of the deferred tax assets at each interim and annual balance sheet date based upon actual and forecasted operating results.
As of March 31, 2025, we had federal and state net operating loss carryforwards of approximately $68.6 million available in the United States of America (“U.S.”) to reduce future taxable income. U.S. federal and state net operating loss carryforwards of approximately $20.0 and $68.6 million, respectively, generally begin to expire in 2027. U.S. federal net operating loss carryforwards that were generated during the years ended March 31, 2020, 2021, 2022, 2023, and 2024 of approximately $48.6 million, do not expire.
Under Section 382 of the Internal Revenue Code, if a corporation undergoes an ownership change (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to use its pre-change net operating loss (“NOL”) carryforwards to offset its post-change income may be limited. Similar rules may apply under state tax laws. On November 1, 2017, we experienced an ownership change with respect to the Bison acquisition. Accordingly, our ability to utilize our NOL carryforwards attributable to periods prior to November 1, 2017, is subject to substantial limitations. These limitations could result in increased future tax payments, which could be material. We experienced subsequent ownership changes under Section 382 on September 15, 2020 and November 1, 2022, which resulted in additional limitations in our ability to utilize our NOL carryforwards attributable to periods prior to September 15, 2020 and November 2022, respectively. The limitations triggered by the September 15, 2020 and November 1, 2022 ownership changes were significantly less substantial than the limitation triggered by the November 1, 2017 ownership change, however.
The differences between the U.S. statutory federal tax rate and our effective tax rate are as follows:
|
|
For the Year |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Provision at the U.S. statutory federal tax rate |
|
|
21.0 |
% |
|
|
21.0 |
% |
State income taxes, net of federal benefit |
|
|
2.6 |
% |
|
|
8.7 |
% |
Change in valuation allowance |
|
|
(44.3 |
)% |
|
|
(22.5 |
)% |
Non-deductible expenses |
|
|
5.9 |
% |
|
|
(1.0 |
)% |
Deferred tax adjustments |
|
|
17.3 |
% |
|
|
— |
% |
Goodwill impairment |
|
|
— |
% |
|
|
(6.3 |
)% |
Other |
|
|
0.2 |
% |
|
|
— |
% |
Income tax expense (benefit) |
|
|
2.7 |
% |
|
|
(0.1 |
)% |
We file income tax returns in the U.S. federal jurisdiction, various U.S. states, and India. For federal income tax purposes, our fiscal tax years remain open for examination by the tax authorities under the normal three-year statute of limitations. Fiscal 2007 will also remain open for examination as the Company used the fiscal 2007 NOL carryforward this year. For U.S. state tax purposes, our fiscal tax years generally remain open for examination by most of the tax authorities under a four-year statute of limitations. For Indian income tax purposes, our fiscal tax years remain open for examination by the tax authorities.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Jun 30, 2025 | Showing above |
| 2024 | Jul 1, 2024 | |
| 2023 | Jun 29, 2023 | |
| 2022 | Jul 1, 2022 | |
| 2021 | Jul 30, 2021 | |
| 2020 | Jul 6, 2020 | |
| 2019 | Jul 16, 2019 | |
| 2018 | Jun 26, 2018 | |
| 2017 | Jun 29, 2017 | |
| 2016 | Jul 14, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.