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Impact Of COVID-19 Pandemic And Liquidity | 3 Months Ended
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Mar. 31, 2023
Impact Of COVID-19 Pandemic And Liquidity [Abstract] |
Impact Of COVID-19 Pandemic And Liquidity | Note 3 – Impact of COVID-19 Pandemic and Liquidity Cinema Segment Ongoing Impact While the World Health Organization has declared that the COVID-19 emergency has passed, the legacy of COVID-19 continues to impact the profitability of our cinema operating segment. Attendances are improving, but they have yet to return to pre-Covid-19 levels. We are seeing an increase in the number of films being released to exhibitors, but distributors are charging higher license fees for these films. Accordingly, while our industry is recovering, it has not returned to pre-Covid-19 levels of profitability. Also due to a combination of ongoing supply chain issues, inflation, labor cost increases (resulting from a combination of government mandates and labor shortages), and increases in the cost of insurance, our variable costs of operation have increased. Our fixed costs have also increased. Rent costs are increasing under long ago negotiated fixed rent increases, exacerbated on a cash flow basis by our need to now pay certain rent deferrals due to the periods when our operations were closed or restricted due to the pandemic. As the Fed has increased interest rates, our cost of borrowing has also increased materially. These factors are largely beyond our control. Cost-reduction efforts in our cinema operating segment continue, including, but not limited to, restricting utilities and essential operating expenditures 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 are prepared to terminate cinema leases where their long-term profitability is in sufficient doubt. Our Real Estate operating segment has been less impacted by the COVID-19 pandemic and is generating near-to-expected cash flows. The principal exception to this has been the post-Covid softness in the New York office market. 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 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 $48.1 million of debt maturing in the twelve months from the issue of this Form 10-Q. $22.3 million of this debt is due on July 3, 2023. As at March 31, 2023, we have cash of $14.6 million and negative working capital of $94.2 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. Valley National extended its loan from April 1, 2023 to July 3, 2023 to allow additional time to complete refinancing under a term sheet from Valley National. We believe that we have sufficient time to address our Santander ($8.0 million) and our Westpac ($8.7 million) facilities, due in the fourth quarter of 2023 and the first quarter of 2024, respectively. We have begun active processes to monetize certain assets, and, based on our successes in 2021, we believe these processes will be successful. We believe that the global cinema industry will continue to recover in 2023 and 2024. 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 the 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 the first quarter 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 quarter 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.

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