| Summary of Significant Accounting Policies | 2.
Summary of Significant Accounting Policies Basis
of Presentation The condensed consolidated financial
statements include the accounts of the Company and all majority-owned and controlled domestic and foreign subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation. These condensed consolidated financial
statements were 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 financial statements for the
years ended December 31, 2022 and 2021. The results for interim periods are not necessarily indicative of trends or results expected for
a full fiscal year. In May 2023, the Company became
a standalone publicly traded company, and its financial statements post-Separation are prepared on a consolidated basis. The combined
financial statements for all periods presented prior to the Separation (see below for additional information) are now also referred to
as “consolidated financial statements.” In connection with the Separation, the Company’s
assets and liabilities were transferred to the Company on a carry-over basis. The Company’s fiscal year
begins on January 1 of the year stated and ends on December 31 of the same 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. For
Periods Prior to the Separation Prior
to the separation, the Company’s financial statements were 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. Prior to the Separation, the historical results of operations included allocations of FG Group
Holdings’ costs and expenses including FG Group Holdings’ corporate function which incurred a variety of expenses including,
but not limited to, information technology, human resources, accounting, sales and sales operations, procurement, executive services,
legal, corporate finance and communications. For
periods prior to the Separation, 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 $ 0.3
million and $ 0.5
million for the six months ended June 30, 2023
and June 30, 2022, respectively, all of which is included in general and administrative expenses. Strong Global Entertainment expects
to incur additional expenses as a stand-alone publicly traded company. 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. The
operations of the Company were 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 financial
statements prior to the Separation are presented on a separate return basis as if Strong Global Entertainment had filed its own tax
returns. Use
of Management Estimates The
preparation of consolidated 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 consolidated 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”) had an 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 impact of COVID-19 on
inflation and supply chains and the continued economic 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 consolidated balance sheets and statements
of cash flows. Generally, these instruments have maturities of three months or less from date of purchase. As of June 30, 2023, $ 2.4 4.4 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 consolidated statements of operations as income tax expense. Stock
Compensation Plans 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 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 the Company’s common stock on
the date of grant. No stock-based compensation cost was capitalized as a part of inventory during the periods ended June 30, 2023 and
June 30, 2022. Prior
to the Separation, the Company’s employees participated in FG Group Holdings’ stock-based compensation plans. Stock-based
compensation expense was allocated to the Company based on the awards and terms previously granted to the FG Group Holdings’ employees. Film
and Television Programming Rights 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. Where available, the Company utilizes certain governmental incentives,
programs and other structures from states and foreign countries (e.g., refundable tax credits calculated based on the amount of money
spent in the particular jurisdiction in connection with the production) to fund its film and television productions and reduce financial
risk. 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. Participation costs represent contingent consideration payable based on the performance of the film or television
program to parties associated with the film or television program, including producers, writers, directors or actors and estimated liabilities
for participations are accrued based on the ratio of the current period’s revenues to management’s estimated remaining total
gross revenues to be earned. 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
materially 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 June 30, 2023 and December 31, 2022. Fair
values measured on a recurring basis at June 30, 2023 (in thousands): Schedule
of Fair Values Measured on Recurring Basis
Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 4,371 $ - $ - $ 4,371
Total $ 4,371 $ - $ - $ 4,371 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 consolidated 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). 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 |
