| 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 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 financial statements Company’s Annual Report on Form 10-K. The results for interim periods are not necessarily indicative
of trends or results expected for a full fiscal year. The
condensed consolidated balance sheet as of December 31, 2023, was derived from the Company’s audited consolidated balance sheet
as of that date. All other condensed consolidated 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. 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 “condensed consolidated financial statements.” In connection with the
Separation, the Company’s assets and liabilities were transferred to the Company on a carry-over (historical cost)
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 condensed consolidated financial statements and
accounting records of Fundamental Global 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 Fundamental Global’ reportable segments and did not operate as a stand-alone company. Accordingly, Fundamental Global 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 Fundamental Global’s condensed consolidated financial statements. Prior
to the Separation, the historical results of operations included allocations of Fundamental Global’s costs and expenses including
Fundamental Global’s 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 condensed consolidated financial statements of Fundamental Global 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 Fundamental Global. 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 Fundamental Global’s stock-based incentive plans, in the form of
restricted stock units (“RSUs”) and stock options issued pursuant to Fundamental Global’s employee stock plan. Stock-based
compensation expense has been directly reported by Strong Global Entertainment based on the awards and terms previously granted to Fundamental Global’s employees. Allocations
for management costs and corporate support services provided to Strong Global Entertainment prior to the Separation totaled $ 0.2 The
operations of the Company are included in the consolidated U.S. federal, and certain state and local and foreign income tax returns filed
by Fundamental Global, 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 condensed 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 condensed 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. Our results of operations in future periods may
continue to be adversely impacted by inflationary pressures and global supply chain issues, and other negative effects on global economic
conditions. 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 March 31, 2024, $ 0.9 5.1 Accounts
Receivable Trade
accounts receivable are recorded at the invoiced amount and do not bear interest. Management 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 provision for expected credit losses to be adjusted accordingly. The accounts receivable balances on the condensed
consolidated balance sheets are net of an allowance for expected credit losses of $ 0.2 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 condensed consolidated statements of operations as income tax expense. Stock
Compensation Plans Prior
to the Separation, the Company’s employees participated in Fundamental Global’s stock-based compensation plans. Stock-based
compensation expense has been allocated to the Company based on the awards and terms previously granted to Fundamental Global’s 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 Fundamental Global’s 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. Management estimates the fair value of restricted stock awards
based upon the closing 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 in during
the three months ended March 31, 2024 and March 31, 2023. 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, 2024 and December 31, 2023. Fair
values measured on a recurring basis at March 31, 2024 (in thousands): Schedule of Fair Values Measured on Recurring Basis
Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 5,111 $ - $ - $ 5,111
Total $ 5,111 $ - $ - $ 5,111 Fair
values measured on a recurring basis at December 31, 2023 (in thousands):
Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 5,470 $ - $ - $ 5,470
Total $ 5,470 $ - $ - $ 5,470 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, and short-term debt reported in the condensed 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) Leases The
Company and its subsidiaries lease plant and office facilities and equipment under operating and finance leases expiring through 2038.
See Note 15 for additional details related to the lease for the Company’s manufacturing facility in Quebec, Canada. The
Company determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease
if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over
the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the
use of the asset and (b) the right to direct the use of the asset. Right-of-use
assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement
date. Certain of the leases contain extension options; however, the Company has not included such options as part of its right-of-use
assets and lease liabilities because it does not expect to extend the leases. The Company measures and records a right-of-use asset and
lease liability based on the discount rate implicit in the lease, if known. In cases where the discount rate implicit in the lease is
not known, the Company measures the right-of-use assets and lease liabilities using a discount rate equal to the Company’s estimated
incremental borrowing rate for loans with similar collateral and duration. The
Company elected to not apply the recognition requirements of Accounting Standards Codification Topic 842, “Leases,” to leases
of all classes of underlying assets that, at the commencement date, have a lease term of 12 months or less and do not include an option
to purchase the underlying asset that the lessee is reasonably certain to exercise. Instead, lease payments for such short-term leases
are recognized in operations on a straight-line basis over the lease term and variable lease payments in the period in which the obligation
for those payments is incurred. The
Company elected, as a lessee, for all classes of underlying assets, to not separate nonlease components from lease components and instead
to account for each separate lease component and the nonlease components associated with that lease component as a single lease component. Recent
Issued Accounting Pronouncements In
December 2023, the Financial Accounting Standards Board issued ASU 2023-09, Improvements to Income Tax Disclosures. The ASU requires
disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income
taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024, with early adoption permitted.
The new ASU will not impact amounts recorded in the Company’s financial statements but instead, will require more detailed disclosures
in the footnotes to the financial statements. The Company plans to provide the updated disclosures required by the ASU in the periods
in which they are effective |
