| Summary of Significant Accounting Policies | 2.
Summary of Significant Accounting Policies Basis
of Presentation and Principles of Consolidation 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. The
condensed consolidated financial statements included in this report are presented in accordance with the requirements of Form 10-Q and
consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States
of America (also referred to as “GAAP”) for annual reporting purposes or those made in the Company’s Annual Report
on Form 10-K. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements
and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The
condensed consolidated balance sheet as of December 31, 2022, 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. Certain prior period balances have been reclassified to conform to current
period presentation. The results for interim periods are not necessarily indicative of trends or results expected for a full 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 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”) and inflationary pressures
have been posing 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 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, 2023, $ 0.6 4.3 Accounts
Receivable Trade
accounts receivable are recorded at the invoiced amount and do not bear interest. The Company determines the allowance for 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. Equity
Holdings The
Company accounts for its equity holdings using the equity method, at cost, or at fair value depending on the facts and circumstances
related to each individual holding. The Company applies the equity method of accounting to its holdings when it has significant
influence, but not controlling interest, in the entity. Judgment regarding the level of influence over each equity method holding
includes considering key factors such as ownership interest, representation on the board of directors, participation in
policy-making decisions and material intercompany transactions. The Company’s proportionate share of the net income or loss
resulting from these equity holdings is reported under the line item captioned “equity method holding loss” in our
condensed consolidated statements of operations. The Company’s equity method holding is reported at cost and adjusted each
period for the Company’s share of the entity’s income or loss and dividends paid, if any. The Company’s share of
the entity’s income or loss is recorded on a one quarter lag for all equity method holdings. The Company classifies
distributions received from equity method holdings using the cumulative earnings approach on the condensed consolidated statements
of cash flows. Changes
in fair value of holdings in marketable equity securities of unconsolidated entities in which the Company is not able to exercise significant
influence (“Fair Value Holdings”) are recognized on the consolidated statement of operations. Nonmarketable equity holdings
in unconsolidated entities in which the Company is not able to exercise significant influence (“Cost Method Holdings”) are
accounted for at the Company’s initial cost, minus any impairment (if any), plus or minus changes resulting from observable price
changes in orderly transactions for the identical or a similar holding or security of the same issuer. Dividends on Fair Value Holdings
and Cost Method Holdings received are recorded as income. The
Company assesses its equity holdings for impairment whenever events or changes in circumstances indicate that the carrying value of
an equity holding may not be recoverable. Management reviewed the underlying net assets of the Company’s equity method holding
as of March 31, 2023 and determined that the Company’s proportionate economic interest in the entity indicates that the equity
holding was not impaired. There were no observable price changes in orderly transactions for an identical or similar holding or
security of the Company’s Cost Method Holding during the three months ended March 31, 2023. The carrying value of our equity
method, Fair Value Holdings and Cost Method Holdings is reported as “equity holdings” on the condensed consolidated
balance sheets. Note 6 contains additional information on our equity method, Fair Value Holdings and Cost Method Holdings 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 Value Measured Financial Assets and Liabilities
Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 4,349 $ - $ - $ 4,349
Fair value method equity holding 13,677 - - 13,677
Total $ 18,026 $ - $ - $ 18,026 Fair
values measured on a recurring basis at December 31, 2022 (in thousands):
Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 3,789 $ - $ - $ 3,789
Fair value method equity holding 16,792 - - 16,792
Total $ 20,581 $ - $ - $ 20,581 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. Based on a combination of the cash on hand as well as quoted market prices of the securities held by FGF Holdings (as defined
below), the liquidation value of the Company’s equity method holding was $ 7.4 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
retained earnings by $ 24 |
