Impact Of COVID-19 Pandemic And The Writers And Actors Strikes On Operations And Liquidity	9 Months Ended
Sep. 30, 2023
Impact Of COVID-19 Pandemic And The Writers And Actors Strikes On Operations And Liquidity [Abstract]
Impact Of COVID-19 Pandemic And The Writers And Actors Strikes On Operations And Liquidity	Note 3 – Impact of COVID-19 Pandemic and the Writers and Actors Strikes 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)The timing of certain anticipated cinema releases and the effectiveness of cinema marketing related to cinema releases have been adversely affected by the now settled writers’ and actors’ strikes (the “Hollywood Strikes”); (iii)Inflationary pressures, ongoing supply chain issues and increased variable operating expenses continue to compress margins as we encounter consumer resistance to price increases; (iv)Labor costs continue to increase (due both to government mandates and labor shortages); (v)The Reserve banks in the U.S., Australia and New Zealand have increased interest rates causing our cost of borrowing to increase materially; and (vi)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 accrued during the periods when our operations were closed or restricted due to the COVID-19 pandemic. Notwithstanding the above, our global cinema segment operating income continues to grow when compared to pandemic periods. Movies leading the box office during this period included Barbie, Oppenheimer, Mission: Impossible – Dead Reckoning Part One, Indiana Jones and the Dial of Destiny, Teenage Mutant Ninja Turtles: Mutant Mayhem and Sound of Freedom. Despite the fact that our industry has not fully returned to pre-COVID-19 pandemic levels, our industry is recovering. In light of the above factors, 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 and 5995 Sepulveda in Culver City, California. 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 progressive improvement in both the cinema segment revenues and operating income due to the successful release of various movies during the period), 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 of 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 $58.6 million of debt maturing in the twelve months from the issue of this Form 10-Q. As at September 30, 2023, we have unrestricted cash of $11.9 million and negative working capital of $85.7 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 continue to improve, cinema rents need to be renegotiated downward, and/or funds need to be raised through asset monetizations. We believe that it is probable that our outstanding loans with current maturities will be extended on terms reasonably 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 a refinance under a term sheet, and has now been extended to October 1, 2024, following the refinance on September 29, 2023. We extended our loan on our Australian assets from NAB facility to July 31, 2025. With respect to our U.S. based loan from Santander ($8.0 million), we expect our lender to extend that loan for a reasonable period to allow for an appropriate refinance. With respect to our loan on our assets in New Zealand from Westpac ($8.3 million), we have requested an extension for a reasonable period to allow for an appropriate refinance. We have begun active processes to monetize certain assets as detailed in Note 6. Based on the results of our asset monetizations in 2021, we believe these processes will produce net proceeds sufficient to alleviate any substantial doubt about our Company’s ability to continue as a going concern. 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 potential monetization of other real estate assets to further enhance our liquidity conditions for the long-term future of our Company. As noted above, we are continuing to reduce our fixed costs of operation by renegotiating lease rents and closing non-performing cinemas upon the expiration of their current lease terms. 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 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 nine 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 nine 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)The timing of certain anticipated cinema releases and the effectiveness of cinema marketing related to cinema releases have been adversely affected by the now settled writers’ and actors’ strikes (the “Hollywood Strikes”);

(iii)Inflationary pressures, ongoing supply chain issues and increased variable operating expenses continue to compress margins as we encounter consumer resistance to price increases;

(iv)Labor costs continue to increase (due both to government mandates and labor shortages);

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

(vi)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 accrued during the periods when our operations were closed or restricted due to the COVID-19 pandemic.

Notwithstanding the above, our global cinema segment operating income continues to grow when compared to pandemic periods. Movies leading the box office during this period included Barbie, Oppenheimer, Mission: Impossible – Dead Reckoning Part One, Indiana Jones and the Dial of Destiny, Teenage Mutant Ninja Turtles: Mutant Mayhem and Sound of Freedom. Despite the fact that our industry has not fully returned to pre-COVID-19 pandemic levels, our industry is recovering.

In light of the above factors, 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 and 5995 Sepulveda in Culver City, California.

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 progressive improvement in both the cinema segment revenues and operating income due to the successful release of various movies during the period), 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 of 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 $58.6 million of debt maturing in the twelve months from the issue of this Form 10-Q. As at September 30, 2023, we have unrestricted cash of $11.9 million and negative working capital of $85.7 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 continue to improve, cinema rents need to be renegotiated downward, and/or funds need to be raised through asset monetizations.

We believe that it is probable that our outstanding loans with current maturities will be extended on terms reasonably 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 a refinance under a term sheet, and has now been extended to October 1, 2024, following the refinance on September 29, 2023. We extended our loan on our Australian assets from NAB facility to July 31, 2025. With respect to our U.S. based loan from Santander ($8.0 million), we expect our lender to extend that loan for a reasonable period to allow for an appropriate refinance. With respect to our loan on our assets in New Zealand from Westpac ($8.3 million), we have requested an extension for a reasonable period to allow for an appropriate refinance.

We have begun active processes to monetize certain assets as detailed in Note 6. Based on the results of our asset monetizations in 2021, we believe these processes will produce net proceeds sufficient to alleviate any substantial doubt about our Company’s ability to continue as a going concern. 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 potential monetization of other real estate assets to further enhance our liquidity conditions for the long-term future of our Company.

As noted above, we are continuing to reduce our fixed costs of operation by renegotiating lease rents and closing non-performing cinemas upon the expiration of their current lease terms.

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 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 nine 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.