Impact Of COVID-19 Pandemic And The Writers And Actors Strike On Operations And Liquidity	6 Months Ended
Jun. 30, 2023
Impact Of COVID-19 Pandemic And The Writers And Actors Strike On Operations And Liquidity [Abstract]
Impact Of COVID-19 Pandemic And The Writers And Actors Strike On Operations And Liquidity	Note 3 – Impact of COVID-19 Pandemic and the Writers and Actors Strike on Operations and Liquidity Cinema Segment Ongoing Impacts With respect to the COVID-19 pandemic, the World Health Organization has declared that the COVID-19 emergency has passed. However, the legacy of COVID-19 continues to negatively impact the profitability of our cinema operating segment. The following factors, which are largely beyond our control, continue to impact the profitability of our global cinema segment compared to pre-pandemic levels: (i)The number of movies released by the major Hollywood studios and other distributors, while increasing from pandemic levels, has not yet returned to pre-pandemic levels; (ii)Inflationary pressures, ongoing supply chain issues and increased operating expenses arising post-pandemic; (iii)Labor cost increases (resulting from a combination of government mandates and labor shortages); (iv)Reserve banks in the U.S., Australia and New Zealand have increased interest rates causing our cost of borrowing to increase materially; and (v)Increased fixed costs, such as third party cinema rents, some of which are increasing due to long ago negotiated fixed rent increases, which are exacerbated on a cash flow basis now by our need to also pay certain rent deferrals due to the periods when our operations were closed or restricted due to the COVID-19 pandemic. Notwithstanding the above, our global cinema segment operating income has increased from the second quarter of 2022 and other pandemic periods. Movies leading the box office during this period included The Super Mario Bros. Movie, Guardians of the Galaxy Vol. 3, The Little Mermaid and Spider-Man: Across the Spider-Verse. At $4.47 million, the global cinema segment operating income reported in this Form 10Q is the highest reported since the fourth quarter of 2019. In addition, in July 2023, our global cinema segment reported the highest revenues for a July period since 2018 due to the enormous success of Barbie and Oppenheimer. Despite the fact that our industry has not fully returned to pre-COVID-19 pandemic levels, our industry is recovering. In addition to the above factors impacting our global cinema business, we are also monitoring the two ongoing Hollywood union strikes (the “Hollywood Strikes”): (i) since May 2, 2023, the Writers Guild of America (“WGA”) and (ii) since July 14, 2023, the Screen Actors Guild - American Federation of Television and Radio Artists (“SAG-AFTRA”), have each been on strike against the Alliance of Motion Picture and Television Producers (“AMPTP”), which represents major Hollywood studios and streamers. As of today, the future movie release schedule for the global cinema industry for the remainder of 2023, 2024 and 2025 could potentially be impacted by the Hollywood Strikes because (i) production on nearly all AMPTP-associated film and television projects featuring WGA members and SAG-AFTRA talent have stopped while the Hollywood Strikes are ongoing and (ii) the full work-stoppage orders for SAG members also prohibits participation in promoting their SAG-AFTRA-certified work, past or present, including press tours, red carpets and festival appearances. Certain movies scheduled for the third and fourth quarter of 2023 have been postponed to later dates or are yet to be re-dated. The duration of the Hollywood Strikes will determine whether additional movies are re-scheduled and the impact to the future movie release schedule. Because the Hollywood Strikes impact the entire entertainment industry, in addition to the direct parties to the negotiations, we believe that the Strikes should not extend past the fourth quarter 2023, noting that WGA and AMPTP resumed negotiating talks on Friday, August 11, 2023. In light of the above factors impacting our global cinema segment, our Company continues its cost-reduction efforts in our cinema operating segment, including, but not limited to, restricting utilities and essential operating expenses to the minimum levels necessary, reducing employment costs by limiting hours of operation and/or shifts and increasing reliance on automation, and minimizing capital outlays. We continue to work with our landlords to manage our rent obligations. We have terminated cinema leases where their long-term profitability is in sufficient doubt. Our Real Estate operating segment has been less impacted by the legacy impacts of the COVID-19 pandemic, with the exception of our assets associated with office space, such as 44 Union Square in New York City. Going Concern We continue to evaluate the going concern assertion required by ASC 205-40 Going Concern as it relates to our Company. The evaluation of the going concern assertion involves firstly considering whether it is probable that our Company has sufficient resources, as at the issue date of the financial statements, to meet its obligations as they fall due for twelve months following the issue date. Should it be probable that there are not sufficient resources, we must determine whether it is probable that our plans will mitigate the consequential going concern substantial doubt. Our evaluation is informed by current operating conditions (including the recent box office successes), liquidity positions, debt obligations, cash flow estimates, known capital and other expenditure requirements and commitments and our current business plan and strategies. Our Company’s business plan - two businesses (real estate and cinema) in three countries (Australia, New Zealand and the U.S.) - has served us well since the onset of COVID-19 and is key to management’s overall evaluation of ASC 205-40 Going Concern. As at December 31, 2022, in our Form 10-K, we reported that our plans were probable of being implemented and thus they alleviated the substantial doubt about our Company’s ability to continue as a going concern. We have $48.5 million of debt maturing in the twelve months from the issue of this Form 10-Q. $22.2 million of this debt comes due on October 3, 2023. As at June 30, 2023, we have cash of $15.5 million and negative working capital of $81.9 million. To alleviate doubt that our Company will be able to generate sufficient cash flows for the coming twelve-months, these loans need to be refinanced, our revenues and net income need to improve, and/or funds need to be raised through asset monetization. We believe that it is probable that these outstanding loans with current maturities will be extended on terms acceptable to us. The maturity date of our loan on the Cinemas 123 from Valley National Bank was extended from April 1, 2023, to July 3, 2023, then to October 3, 2023 to allow additional time to complete refinancing under a term sheet. We believe that we have sufficient time to address our Santander ($8.0 million) and our Westpac ($8.5 million) facilities, due in the fourth quarter of 2023 and the first quarter of 2024, respectively. We have extended our NAB facility to July 31, 2025. We have begun active processes to monetize certain assets as detailed in Note 6. Based on our successes in 2021, we believe these processes will be successful. As we monitor the cinema market conditions (such as improving box office and progression of the Hollywood Strike negotiations), we are also currently exploring the sale of other real estate assets to further enhance our liquidity conditions for the long-term future of the Company. Notwithstanding some temporary release schedule impacts from the Hollywood Strikes, we believe that the global cinema industry will continue to recover in 2023 and into 2024 and 2025. This belief underpins our forecasts and cash flow projections. Our forecasts rely upon, among other things, the current industry movie release schedule, which demonstrates an increased number of movies from the major studios and other distributors and an improvement in the quality of the movie titles, and the public’s demonstrable desire to attend movies in a theatrical environment. These named factors are both out of management’s control and are material, individually and in aggregate, to the realization of management’s forecasts and expectations. In conclusion, as of the date of issuance of these financial statements, based on our evaluation of ASC 205-40 Going Concern and the current conditions and events, considered in the aggregate, and our various plans for enhancing liquidity and the extent to which those plans are progressing, we conclude that our plans are probable of being implemented and that they alleviate the substantial doubt about our Company’s ability to continue as a going concern. Impairment Considerations Our Company considers that the events and factors described above constitute impairment indicators under ASC 360 Property, Plant and Equipment. In 2022, when considered necessary, our Company performed quantitative recoverability tests of the carrying values of all its asset groups. These tests compare the carrying values of all asset groups to the estimated undiscounted future cash flows expected to result from the use of those asset groups. As a result of this testing, we recorded $1.5 million of impairment charges against certain cinema asset groups in the second quarter of 2022. The charges related to cinemas whose performance had not improved commensurate with the wider group. No further impairment charges were recorded in the remainder of the year. No impairment charges were recorded in six months of 2023. Actual performance against our forecasts is dependent on several variables and conditions, many of which are subject to the uncertainties associated with COVID-19 and its aftermath, with government policy related to work-place regulation, increasing interest rates, inflationary impacts and with ongoing theatrical release patterns and applicable film rent, and as a result, actual results may materially differ from management’s estimates. Our Company also considers that the events and factors described above continue to constitute impairment indicators under ASC 350 Intangibles – Goodwill and Other. Our Company performed a quantitative goodwill impairment test and determined that our goodwill was not impaired as of December 31, 2022. The test was performed at a reporting unit level by comparing each reporting unit’s carrying value, including goodwill, to its fair value. The fair value of each reporting unit was assessed using a discounted cash flow model based on the budgetary revisions performed by management in response to COVID-19 and the developing market conditions. No additional triggering events were identified in the first six months of 2023, and therefore no goodwill impairment testing or charges were necessary. Actual performance against our forecasts is dependent on several variables and conditions, many of which are subject to the uncertainties associated with COVID-19 and its aftermath, with government policy related to work-place regulation, increasing interest rates, inflationary impacts and with ongoing theatrical release patterns and applicable film rent and as a result, actual results may materially differ from management’s estimates.

With respect to the COVID-19 pandemic, the World Health Organization has declared that the COVID-19 emergency has passed. However, the legacy of COVID-19 continues to negatively impact the profitability of our cinema operating segment. The following factors, which are largely beyond our control, continue to impact the profitability of our global cinema segment compared to pre-pandemic levels:

(i)The number of movies released by the major Hollywood studios and other distributors, while increasing from pandemic levels, has not yet returned to pre-pandemic levels;

(ii)Inflationary pressures, ongoing supply chain issues and increased operating expenses arising post-pandemic;

(iii)Labor cost increases (resulting from a combination of government mandates and labor shortages);

(iv)Reserve banks in the U.S., Australia and New Zealand have increased interest rates causing our cost of borrowing to increase materially; and

(v)Increased fixed costs, such as third party cinema rents, some of which are increasing due to long ago negotiated fixed rent increases, which are exacerbated on a cash flow basis now by our need to also pay certain rent deferrals due to the periods when our operations were closed or restricted due to the COVID-19 pandemic.

Notwithstanding the above, our global cinema segment operating income has increased from the second quarter of 2022 and other pandemic periods. Movies leading the box office during this period included The Super Mario Bros. Movie, Guardians of the Galaxy Vol. 3, The Little Mermaid and Spider-Man: Across the Spider-Verse. At $4.47 million, the global cinema segment operating income reported in this Form 10Q is the highest reported since the fourth quarter of 2019. In addition, in July 2023, our global cinema segment reported the highest revenues for a July period since 2018 due to the enormous success of Barbie and Oppenheimer. Despite the fact that our industry has not fully returned to pre-COVID-19 pandemic levels, our industry is recovering.

In addition to the above factors impacting our global cinema business, we are also monitoring the two ongoing Hollywood union strikes (the “Hollywood Strikes”): (i) since May 2, 2023, the Writers Guild of America (“WGA”) and (ii) since July 14, 2023, the Screen Actors Guild - American Federation of Television and Radio Artists (“SAG-AFTRA”), have each been on strike against the Alliance of Motion Picture and Television Producers (“AMPTP”), which represents major Hollywood studios and streamers. As of today, the future movie release schedule for the global cinema industry for the remainder of 2023, 2024 and 2025 could potentially be impacted by the Hollywood Strikes because (i) production on nearly all AMPTP-associated film and television projects featuring WGA members and SAG-AFTRA talent have stopped while the Hollywood Strikes are ongoing and (ii) the full work-stoppage orders for SAG members also prohibits participation in promoting their SAG-AFTRA-certified work, past or present, including press tours, red carpets and festival appearances. Certain movies scheduled for the third and fourth quarter of 2023 have been postponed to later dates or are yet to be re-dated. The duration of the Hollywood Strikes will determine whether additional movies are re-scheduled and the impact to the future movie release schedule. Because the Hollywood Strikes impact the entire entertainment industry, in addition to the

direct parties to the negotiations, we believe that the Strikes should not extend past the fourth quarter 2023, noting that WGA and AMPTP resumed negotiating talks on Friday, August 11, 2023.

In light of the above factors impacting our global cinema segment, our Company continues its cost-reduction efforts in our cinema operating segment, including, but not limited to, restricting utilities and essential operating expenses to the minimum levels necessary, reducing employment costs by limiting hours of operation and/or shifts and increasing reliance on automation, and minimizing capital outlays. We continue to work with our landlords to manage our rent obligations. We have terminated cinema leases where their long-term profitability is in sufficient doubt.

Our Real Estate operating segment has been less impacted by the legacy impacts of the COVID-19 pandemic, with the exception of our assets associated with office space, such as 44 Union Square in New York City.

Going Concern

We continue to evaluate the going concern assertion required by ASC 205-40 Going Concern as it relates to our Company. The evaluation of the going concern assertion involves firstly considering whether it is probable that our Company has sufficient resources, as at the issue date of the financial statements, to meet its obligations as they fall due for twelve months following the issue date. Should it be probable that there are not sufficient resources, we must determine whether it is probable that our plans will mitigate the consequential going concern substantial doubt. Our evaluation is informed by current operating conditions (including the recent box office successes), liquidity positions, debt obligations, cash flow estimates, known capital and other expenditure requirements and commitments and our current business plan and strategies. Our Company’s business plan - two businesses (real estate and cinema) in three countries (Australia, New Zealand and the U.S.) - has served us well since the onset of COVID-19 and is key to management’s overall evaluation of ASC 205-40 Going Concern. As at December 31, 2022, in our Form 10-K, we reported that our plans were probable of being implemented and thus they alleviated the substantial doubt about our Company’s ability to continue as a going concern.

We have $48.5 million of debt maturing in the twelve months from the issue of this Form 10-Q. $22.2 million of this debt comes due on October 3, 2023. As at June 30, 2023, we have cash of $15.5 million and negative working capital of $81.9 million. To alleviate doubt that our Company will be able to generate sufficient cash flows for the coming twelve-months, these loans need to be refinanced, our revenues and net income need to improve, and/or funds need to be raised through asset monetization.

We believe that it is probable that these outstanding loans with current maturities will be extended on terms acceptable to us. The maturity date of our loan on the Cinemas 123 from Valley National Bank was extended from April 1, 2023, to July 3, 2023, then to October 3, 2023 to allow additional time to complete refinancing under a term sheet. We believe that we have sufficient time to address our Santander ($8.0 million) and our Westpac ($8.5 million) facilities, due in the fourth quarter of 2023 and the first quarter of 2024, respectively. We have extended our NAB facility to July 31, 2025. We have begun active processes to monetize certain assets as detailed in Note 6. Based on our successes in 2021, we believe these processes will be successful. As we monitor the cinema market conditions (such as improving box office and progression of the Hollywood Strike negotiations), we are also currently exploring the sale of other real estate assets to further enhance our liquidity conditions for the long-term future of the Company.

Notwithstanding some temporary release schedule impacts from the Hollywood Strikes, we believe that the global cinema industry will continue to recover in 2023 and into 2024 and 2025. This belief underpins our forecasts and cash flow projections. Our forecasts rely upon, among other things, the current industry movie release schedule, which demonstrates an increased number of movies from the major studios and other distributors and an improvement in the quality of the movie titles, and the public’s demonstrable desire to attend movies in a theatrical environment. These named factors are both out of management’s control and are material, individually and in aggregate, to the realization of management’s forecasts and expectations.

In conclusion, as of the date of issuance of these financial statements, based on our evaluation of ASC 205-40 Going Concern and the current conditions and events, considered in the aggregate, and our various plans for enhancing liquidity and the extent to which those plans are progressing, we conclude that our plans are probable of being implemented and that they alleviate the substantial doubt about our Company’s ability to continue as a going concern.

Impairment Considerations

Our Company considers that the events and factors described above constitute impairment indicators under ASC 360 Property, Plant and Equipment. In 2022, when considered necessary, our Company performed quantitative recoverability tests of the carrying values of all its asset groups. These tests compare the carrying values of all asset groups to the estimated undiscounted future cash flows expected to result from the use of those asset groups. As a result of this testing, we recorded $1.5 million of impairment charges against certain cinema asset groups in the second quarter of 2022. The charges related to cinemas whose performance had not improved commensurate with the wider group. No further impairment charges were recorded in the remainder of the year. No impairment charges were recorded in six months of 2023. Actual performance against our forecasts is dependent on several variables and conditions, many of which are subject to the uncertainties associated with COVID-19 and its aftermath, with government policy related to work-place regulation,

increasing interest rates, inflationary impacts and with ongoing theatrical release patterns and applicable film rent, and as a result, actual results may materially differ from management’s estimates.