| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis of Presentation The combined financial statements
of Strong Global Entertainment have been derived from the consolidated financial statements and accounting records of FG Group Holdings
as if Strong Global Entertainment had operated on a stand-alone basis during the periods presented and were prepared in accordance with
U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and pursuant to the regulations of the U.S. Securities and Exchange
Commission. Historically, Strong Global Entertainment was reported as an operating segment within FG Group Holdings’
reportable segments and did not operate as a stand-alone company. Accordingly, FG Group Holdings historically reported the financial position
and the related results of operations, cash flows and changes in equity of Strong Global Entertainment as a component of FG Group Holdings’
consolidated financial statements. The combined financial statements
are presented as if Strong Global Entertainment had been carved out of FG Group Holdings for all periods presented. Prior to the completion
of the IPO, certain assets and liabilities presented were transferred to Strong Global Entertainment at carry-over (historical cost) basis. Cash and cash equivalents are
managed through bank accounts legally owned by FG Group Holdings as well as accounts owned by STS and Strong/MDI. Accordingly, cash and
cash equivalents held by FG Group Holdings at the corporate level were not attributable to Strong Global Entertainment for any of the
periods presented. Only cash amounts in accounts legally owned by entities dedicated to the Strong Global Entertainment business are reflected
in the combined balance sheets. FG Group Holdings manages cash on a centralized basis and routinely transferred cash to and from its operating
subsidiaries to maintain target cash levels and fund disbursements. Transfers of cash, both to and from FG Group Holdings, are reflected
as a component of Net parent investment in the combined balance sheets and as a financing activity on the accompanying combined statements
of cash flows. As the
operations that comprise Strong Global Entertainment were not historically held by a single legal entity, total Net parent
investment is shown as a component of equity in the combined financial statements. Balances between Strong Global
Entertainment and FG Group Holdings that were not historically cash settled are included in Net parent investment. Net parent
investment represents FG Group Holdings’ interest in the recorded net assets of Strong Global Entertainment and represents the
cumulative investment by FG Group Holdings in Strong Global Entertainment through the dates presented, inclusive of operating
results. The operating results of Strong
Global Entertainment have historically been disclosed as a reportable segment within the consolidated financial statements of FG Group
Holdings enabling identification of directly attributable transactional information, functional departments and headcount. The combined
balance sheets were primarily derived by reference to one, or a combination, of Strong Global Entertainment transaction-level information,
functional department or headcount. Revenue and Cost of revenue were derived from transactional information specific to Strong Global
Entertainment products and services. Directly attributable operating expenses were derived from activities relating to Strong Global Entertainment
functional departments and headcount. Certain additional costs, including compensation costs for corporate employees, have been allocated
from FG Group Holdings. The allocated costs for corporate functions included, but were not limited to, information technology, legal,
finance and accounting, human resources, tax, treasury, research and development, sales and marketing activities, shared facilities and
other shared services, which are not provided at the Strong Global Entertainment level. These costs were allocated on a basis of revenue,
headcount or other measures Strong Global Entertainment has determined as reasonable. Strong Global Entertainment employees
also historically participated in FG Group Holdings’ stock-based incentive plans, in the form of restricted stock units (“RSUs”)
and stock options issued pursuant to FG Group Holdings’ employee stock plan. Stock-based compensation expense has been directly
reported by Strong Global Entertainment based on the awards and terms previously granted to FG Group Holdings’ employees. Allocations for management costs
and corporate support services provided to Strong Global Entertainment totaled $ 0.2 The management of Strong Global
Entertainment believes the assumptions underlying the combined financial statements, including the assumptions regarding the allocated
expenses, reasonably reflect the utilization of services provided, or the benefit received by, Strong Global Entertainment during the
periods presented. Nevertheless, the combined financial statements may not be indicative of Strong Global Entertainment’s future
performance, do not necessarily include all of the actual expenses that would have been incurred had Strong Global Entertainment been
an independent entity during the historical periods and may not reflect the results of operations, financial position, and cash flows
had Strong Global Entertainment been a stand-alone company during the periods presented. During the periods presented in
the combined financial statements, the operations of Strong Global Entertainment are included in the consolidated U.S. federal, and certain
state and local and foreign income tax returns filed by FG Group Holdings, where applicable. Income tax expense and other income tax related
information contained in the combined financial statements are presented on a separate return basis as if Strong Global Entertainment
had filed its own tax returns. The income taxes of Strong Global Entertainment as presented in the combined financial statements may not
be indicative of the income taxes that Strong Global Entertainment will generate in the future. Additionally, certain tax attributes such
as net operating losses or credit carryforwards are presented on a separate return basis, and accordingly, may differ in the future. In
jurisdictions where Strong Global Entertainment has been included in the tax returns filed by FG Group Holdings, any income tax receivables
resulting from the related income tax provisions have been reflected in the balance sheet within Net parent investment. Net income per share data has
not been presented in the combined financial statements because Strong Global Entertainment did not operate as a separate legal entity
with its own capital structure during the periods presented. The Company’s fiscal year
begins on January 1 of the year stated and ends on December 31 of the same year. These combined financial statements
are presented in accordance with the requirements of interim financial data and consequently do not include all of the disclosures normally
required by GAAP for annual reporting purposes, such as those made in the Company’s audited combined financial statements for the
years ended December 31, 2022 and 2021. These combined financial statements should be read in conjunction with the combined financial
statements and for the years ended December 31, 2022 and 2021. The combined balance sheet as
of December 31, 2022 was derived from the Company’s audited combined balance sheet as of that date. All other combined financial
statements contained herein are unaudited and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary
to present a fair statement of the financial position and the results of operations and cash flows for the respective interim periods.
The results for interim periods are not necessarily indicative of trends or results expected for a full fiscal year. Unless otherwise indicated, all
references to “dollars” and “$” in this Quarterly Report on Form 10-Q are to, and amounts are presented in, U.S.
dollars. Use of Management Estimates The preparation of combined financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results and changes in facts and circumstances may alter such estimates and
affect results of operations and financial position in future periods. The coronavirus pandemic (“COVID-19”)
and inflationary pressures have posed, and may continue to pose, challenges for our business. The COVID-19 global pandemic resulted in
unprecedented impact to consumer behaviors and our customers, particularly our customers’ ability and willingness to purchase our
products and services. The Company believes that consumer reticence to engage in outside-the-home activities, caused by the risk of contracting
COVID-19, has abated, and our customers have resumed more typical, pre-COVID-19 purchasing behaviors. And while we believe our customers
made significant progress in its recovery from the pandemic, the ongoing recovery will be contingent upon several key factors, including
the volume of new film content available, the box office performance of new film content released, the duration of the exclusive theatrical
release window, and evolving consumer behavior with competition from other forms of in- and out-of-home entertainment. There can be no
assurances that there will be no additional public health crises, including further resurgence or variants of COVID-19, which could reverse
the current trend and have a negative impact on the Company’s results of operations. Cash and Cash Equivalents All short-term, highly liquid
financial instruments are classified as cash equivalents in the condensed combined balance sheets and statements of cash flows. Generally,
these instruments have maturities of three months or less from date of purchase. As of March 31, 2023, $ 0.6 4.1 Accounts Receivable Trade accounts
receivable are recorded at the invoiced amount and do not bear interest. The Company determines the allowance for expected credit
losses based on several factors, including overall customer credit quality, historical write-off experience and a specific analysis
that projects the ultimate collectability of the account. As such, these factors may change over time causing the allowance level
and bad debt expense to be adjusted accordingly. Past due accounts are written off when our efforts have been unsuccessful in
collecting amounts due. Income Taxes Income taxes are accounted for
under the asset and liability method. The Company uses an estimate of its annual effective rate at each interim period based on the facts
and circumstances at the time while the actual effective rate is calculated at year-end. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date. In assessing whether the deferred tax assets are realizable, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The Company’s uncertain
tax positions are evaluated in a two-step process, whereby 1) the Company determines whether it is more likely than not that the tax positions
will be sustained based on the technical merits of the position and 2) for those tax positions that meet the more likely than not recognition
threshold, the Company would recognize the largest amount of tax benefit that is greater than fifty percent likely to be realized upon
ultimate settlement with the related tax authority. The Company accrues interest and penalties related to uncertain tax positions in the
combined statements of operations as income tax expense. Stock Compensation Plans The Company’s employees
have historically participated in FG Group Holdings’ stock-based compensation plans. Stock-based compensation expense has been allocated
to the Company based on the awards and terms previously granted to the FG Group Holdings’ employees. The Company measures stock-based
compensation at the grant date based on the fair value of the award. The fair value of stock options is estimated using the Black-Scholes
option pricing model. Estimated compensation cost relating to RSUs is based on the closing fair market value of FG Group Holdings’
common stock on the date of grant. The Company recognizes compensation
expense for all stock-based payment awards based on estimated fair values on the date of grant. The Company uses the straight-line amortization
method over the vesting period of the awards. The Company has historically issued shares upon exercise of stock options or vesting of
restricted stock from new stock issuances. The Company estimates the fair value of restricted stock awards based upon the market price
of the underlying Common Shares on the date of grant. The fair value of stock options granted is calculated using the Black-Scholes option
pricing model. No stock-based compensation cost was capitalized as a part of inventory during the three months ended March 31, 2023 and
March 31, 2022. Film and Television
Programming Rights Commencing
in March 2022, the Company began producing original productions and acquiring rights to films and television programming. Film and television
programming rights include the unamortized costs of in-process or in-development content produced or acquired by the Company. The Company’s
capitalized costs include all direct production and financing costs, capitalized interest when applicable, and production overhead. Film
and television program rights are stated at the lower of amortized cost or estimated fair value. The costs of producing content
are amortized using the individual-film-forecast method. These costs are amortized based on the ratio of the current period’s revenues
to management’s estimated remaining total gross revenues to be earned (“Ultimate Revenue”) as of each reporting date
to reflect the most current available information. Management’s judgment is required in estimating Ultimate Revenue and the costs
to be incurred throughout the life of each film or television program. Amortization is adjusted when necessary to reflect increases or
decreases in forecasted Ultimate Revenues. For an episodic television series,
the period over which Ultimate Revenues are estimated cannot exceed ten years following the date of delivery of the first episode, or,
if still in production, five years from the date of delivery of the most recent episode, if later. For films, Ultimate Revenue includes
estimates over a period not to exceed ten years following the date of initial release. Content assets are expected to
be predominantly monetized individually and therefore are reviewed at the individual level when an event or change in circumstance indicates
a change in the expected usefulness of the content or the fair value may be less than the unamortized cost. Due to the inherent uncertainties
involved in making such estimates of Ultimate Revenues and expenses, these estimates may differ from actual results. In addition, in the
normal course of our business, some films and titles will be more successful or less successful than anticipated. Management regularly
reviews and revises, when necessary, its Ultimate Revenue and cost estimates, which may result in a change in the rate of amortization
of film costs and participations and residuals and/or a write-down of all or a portion of the unamortized costs of the film or television
program to its estimated fair value. An increase in the estimate of Ultimate Revenue will generally result in a lower amortization rate
and, therefore, less film and television program amortization expense, while a decrease in the estimate of Ultimate Revenue will generally
result in a higher amortization rate and, therefore, higher film and television program amortization expense, and also periodically result
in an impairment requiring a write-down of the film cost to the title’s fair value. The Company has not incurred any of these write-downs. An impairment charge would be
recorded in the amount by which the unamortized costs exceed the estimated fair value. Estimates of future revenue involve measurement
uncertainties and it is therefore possible that reductions in the carrying value of capitalized costs may be required because of changes
in management’s future revenue estimates. Fair Value of Financial Instruments Assets and liabilities measured
at fair value are categorized into a fair value hierarchy based upon the observability of inputs to the valuation of an asset or liability
as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability,
including assumptions about risk. The categorization within the valuation hierarchy is based upon the lowest level of input that is significant
to the fair value measurement. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following
three categories:
● Level 1 – inputs to the valuation techniques are quoted prices in active markets for identical assets or liabilities
● Level 2 – inputs to the valuation techniques are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly
● Level 3 – inputs to the valuation techniques are unobservable for the assets or liabilities The following tables present the
Company’s financial assets measured at fair value based upon the level within the fair value hierarchy in which the fair value measurements
are classified, as of March 31, 2023 and December 31, 2022. Fair values measured on a recurring
basis at March 31, 2023 (in thousands): Schedule
of Fair Values Measured on Recurring Basis
Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 4,077 $ - $ - $ 4,077
Total $ 4,077 $ - $ - $ 4,077 Fair values measured on a recurring
basis at December 31, 2022 (in thousands):
Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 3,615 $ - $ - $ 3,615
Total $ 3,615 $ - $ - $ 3,615 The Company’s short-term
debt is recorded at historical cost. The carrying values of all other financial assets and liabilities, including accounts receivable,
accounts payable, accrued expenses and short-term debt reported in the combined balance sheets equal or approximate their fair values
due to the short-term nature of these instruments. All non-financial assets that
are not recognized or disclosed at fair value in the financial statements on a recurring basis, which include non-financial long-lived
assets, are measured at fair value in certain circumstances (for example, when there is evidence of impairment). Net parent investment Net parent investment on the combined
balance sheets represents FG Group Holdings’ historical investment in Strong Global Entertainment, the net effect of transactions
with, and allocations to and from, FG Group Holdings, and Strong Global Entertainment. Recently Adopted Accounting Pronouncements In June 2016, the FASB issued
ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”
This ASU requires the measurement of all expected credit losses for financial assets, including trade receivables, held at the reporting
date based on historical experience, current conditions and reasonable and supportable forecasts. The Company adopted this ASU effective
January 1, 2023. Upon adoption the Company recorded a cumulative effect adjustment decreasing net parent investment by $ 24,000 |
