Strong Entertainment(SGE) - 2023 Q3 - Quarterly Report

Revenue Growth - Net revenues increased by 10.3% to $10.9 million in Q3 2023 from $9.9 million in Q3 2022, driven by a $0.3 million increase in product sales and a $0.7 million increase in service revenue [128]. - For the first nine months of 2023, net revenues rose by 36.1% to $38.7 million from $28.4 million in the same period of 2022, with service revenue increasing by 36.9% [137]. Gross Profit - Gross profit for Q3 2023 was $2.8 million, representing 25.8% of revenues, compared to $2.4 million or 23.9% in Q3 2022 [131]. - Gross profit for the first nine months of 2023 was $12.4 million, or 31.9% of revenues, compared to $6.7 million or 23.5% in the same period of 2022 [140]. - Gross profit from service revenue in Q3 2023 was $0.6 million, or 21.8% of revenues, compared to $0.2 million or 10.0% in Q3 2022, indicating improved margins [133]. - Gross profit from service revenue for the first nine months of 2023 was $6.3 million, representing 41.9% of revenues, up from $0.8 million or 13.1% in the same period of 2022 [143]. Operating Income - Income from operations decreased to $0.2 million in Q3 2023 from $0.5 million in Q3 2022, impacted by higher selling and administrative expenses [134]. - Income from operations decreased slightly to $0.7 million in the first nine months of 2023 from $0.8 million in the same period of 2022, impacted by $1.2 million in IPO-related costs and $3.4 million in production participation costs [144]. Cash Flow - Total cash and cash equivalents at the end of Q3 2023 were $3.1 million, down from $3.6 million as of December 31, 2022 [147]. - Net cash used in operating activities was $0.9 million during the first nine months of 2023, an improvement from $1.8 million in the same period of 2022 [151]. - Net cash used in investing activities was $0.8 million in the first nine months of 2023, including $0.3 million in capital expenditures and $0.5 million for acquiring film and television programming rights [152]. - Net cash provided by financing activities was $1.1 million during the first nine months of 2023, primarily from IPO proceeds of $2.4 million and $2.3 million in net borrowings [153]. EBITDA - Adjusted EBITDA for the nine months ended September 30, 2023, was $4.6 million, compared to $1.4 million in the same period of 2022 [161]. Acquisitions and Agreements - The company acquired Unbounded Media Corporation on September 12, 2023, marking the first acquisition in a strategy to build a portfolio of content and services companies [124]. - An asset purchase agreement was entered into with Innovative Cinema Solutions, LLC on November 3, 2023, to enhance market share and improve operating results [125]. Future Expectations - The company expects upgrades from xenon to laser projection to accelerate throughout 2023 and continue for several years [129]. - The company anticipates continued improvement in margins on installation services as it utilizes its internal installation team [143]. Revenue Recognition - Revenue is recognized when a customer obtains control of promised goods or services, measured as the expected consideration for the transfer of goods or services [169]. - Unbilled receivables are recorded as accounts receivable when there is an unconditional right to contract consideration, while deferred revenue is recognized when services are invoiced or cash is received in advance [170]. - The company has no deferred contract costs as of September 30, 2023, or December 31, 2022 [171]. Content Costs and Amortization - Film and television programming rights include unamortized costs of in-process content, with fair value determined using a discounted cash flow methodology [172]. - Costs of producing content are amortized based on the ratio of current period revenues to estimated Ultimate Revenues, requiring management judgment [173]. - For episodic television series, Ultimate Revenues are estimated over a maximum of ten years from the first episode delivery [175]. - Management regularly reviews and revises Ultimate Revenue estimates, which can affect amortization rates and may lead to impairment write-downs [177]. - An impairment charge would be recorded if unamortized costs exceed estimated fair value, reflecting uncertainties in future revenue estimates [178]. Financial Reporting - Historical financial statements were prepared on a stand-alone basis, with costs allocated from FG Group Holdings based on revenue or headcount [179]. - The company is classified as a "smaller reporting company," thus not subject to certain market risk disclosures [180].