UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~June 30, 2023

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-13906

FG GROUP HOLDINGS INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada		47-0587703
(State or Other Jurisdiction of		(IRS Employer
Incorporation or Organization)		Identification Number)

5960 Fairview Road, Suite 275 Charlotte, North Carolina		28210
(Address of Principal Executive Offices)		(Zip Code)

(704) 994-8279

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered
Common Stock, $0.01 par value		FGH		NYSE American ~~American~~

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

Class		Outstanding as of ~~May 12,~~August 7, 2023
Common Stock, $0.01 par value		~~19,469,649~~19,638,248 shares

TABLE OF CONTENTS

		Page No.

	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets, ~~March 31,~~June 30, 2023 and December 31, 2022 (Unaudited)	3

	Condensed Consolidated Statements of Operations for the Three ~~Months~~and Six months Ended ~~March 31,~~June 30, 2023 and 2022 (Unaudited)	4

	Condensed Consolidated Statements of Comprehensive Loss for the Three ~~Months~~and Six months Ended ~~March 31,~~June 30, 2023 and 2022 (Unaudited)	5

	Condensed Consolidated Statements of Stockholders’ Equity for the Three ~~Months~~and Six months Ended ~~March 31,~~June 30, 2023 and 2022 (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the ~~Three Months~~Six months Ended ~~March 31,~~June 30, 2023 and ~~20221~~2022 (Unaudited)	7

	Notes to the Condensed Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2728

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3439

Item 4.	Controls and Procedures	3439

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3539

Item 1A.	Risk Factors	3540

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35 40

Item 6.	Exhibits	3640

	Signatures	3741

PART I. Financial Information

Item 1. Financial Statements

FG Group Holdings Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except par values)

(Unaudited)

	March 31, 2023			December 31, 2022			June 30, 2023			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	4,349		$	3,789		$	4,966		$	3,789
Accounts receivable (net of allowance for credit losses of $273 and $409, respectively)		5,552			6,167
Accounts receivable (net of credit allowances of $250 and $409, respectively)								6,408			6,167
Inventories, net		3,660			3,389			3,125			3,389
Other current assets		5,387			4,871			12,009			4,871
Total current assets		18,948			18,216			26,508			18,216
Property, plant and equipment, net		12,493			12,649			12,586			12,649
Operating lease right-of-use assets		285			310			259			310
Finance lease right-of-use asset		633			666			906			666
Equity holdings		33,756			37,522			30,240			37,522
Film and television programming rights, net		1,584			1,501			7,691			1,501
Intangible assets, net		4			5			2			5
Goodwill		882			882			902			882
Other assets		2			2			1			2
Total assets	$	68,587		$	71,753		$	79,095		$	71,753

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3,964		$	4,375		$	3,637		$	4,375
Accrued expenses		4,743			5,167			7,521			5,167
Short-term debt		4,088			2,510			14,927			2,510
Current portion of long-term debt		217			216			220			216
Current portion of operating lease obligations		118			116			116			116
Current portion of finance lease obligations		125			117			179			117
Deferred revenue and customer deposits		2,402			1,787			1,143			1,787
Total current liabilities		15,657			14,288			27,743			14,288
Operating lease obligations, net of current portion		227			257			200			257
Finance lease obligations, net of current portion		514			550			732			550
Long-term debt, net of current portion and deferred debt issuance costs, net		4,951			5,004			4,898			5,004
Deferred income taxes		4,400			4,851			4,490			4,851
Other long-term liabilities		103			105			720			105
Total liabilities		25,852			25,055			38,783			25,055

Commitments, contingencies and concentrations (Note 14)		-			-
Commitments, contingencies and concentrations (Note 16)								-			-

Stockholders’ equity:
Preferred stock, par value $.01 per share; authorized 1,000 shares, none outstanding		-			-			-			-
Common stock, par value $.01 per share; authorized 50,000 shares; issued 22,264 shares; outstanding 19,470		223			223			223			223
Additional paid-in capital		54,009			53,882			55,051			53,882
Retained earnings		12,424			16,437			7,151			16,437
Treasury stock, 2,794 shares at cost		(18,586	)		(18,586	)		(18,586	)		(18,586	)
Accumulated other comprehensive loss		(5,335	)		(5,258	)		(4,769	)		(5,258	)
Total FG Group Holdings shareholders’ equity								39,070			46,698
Equity attributable to non-controlling interest								1,242			-
Total stockholders’ equity		42,735			46,698			40,312			46,698
Total liabilities and stockholders’ equity	$	68,587		$	71,753		$	79,095		$	71,753

See accompanying notes to unaudited condensed consolidated financial statements.

FG Group Holdings Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

Three and Six Months Ended ~~March 31,~~June 30, 2023 and 2022

(In thousands, except per share data)

(Unaudited)

	2023			2022			2023			2022			2023			2022
	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022			2023			2022
Net product sales	$	7,204		$	7,703		$	8,411		$	6,683		$	15,615		$	14,386
Net service revenues		2,905			2,323			9,611			2,460			12,516			4,783
Total net revenues		10,109			10,026			18,022			9,143			28,131			19,169
Total cost of products		5,465			5,858			6,305			4,833			11,770			10,690
Total cost of services		2,166			1,657			4,270			1,890			6,436			3,547
Total cost of revenues		7,631			7,515			10,575			6,723			18,206			14,237
Gross profit		2,478			2,511			7,447			2,420			9,925			4,932
Selling and administrative expenses:
Selling		534			541			618			684			1,152			1,225
Administrative		2,723			2,733			7,602			2,621			10,326			5,354
Total selling and administrative expenses		3,257			3,274			8,220			3,305			11,478			6,579
Gain on disposal of assets		1			-			5			-			6			-
Loss from operations		(778	)		(763	)		(768	)		(885	)		(1,547	)		(1,647	)
Other income (expense):
Interest income		-			6			-			1			-			7
Interest expense		(111	)		(59	)		(138	)		(88	)		(249	)		(147	)
Foreign currency transaction gain (loss)		119			(342	)
Unrealized (loss) gain on equity holdings		(2,891	)		1,728
Other income (expense), net		24			(202	)
Total other (expense) income		(2,859	)		1,131
Foreign currency transaction (loss) gain								(426	)		206			(307	)		(136	)
Unrealized loss on equity holdings								(1,647	)		(4,178	)		(4,538	)		(2,451	)
Other (expense) income, net								(14	)		3			9			(198	)
Total other expense								(2,225	)		(4,056	)		(5,085	)		(2,925	)
(Loss) income before income taxes and equity method holding loss		(3,637	)		368			(2,993	)		(4,941	)		(6,632	)		(4,572	)
Income tax benefit (expense)		299			(350	)
Income tax (expense) benefit								(355	)		303			(56	)		(47	)
Equity method holding loss		(651	)		(820	)		(2,043	)		(960	)		(2,694	)		(1,780	)
Net loss	$	(3,989	)	$	(802	)		(5,391	)		(5,598	)		(9,382	)		(6,399	)
Net loss attributable to non-controlling interest								(118	)		-			(118	)		-
Net loss attributable to FG Group Holdings							$	(5,273	)	$	(5,598	)	$	(9,264	)	$	(6,399	)

Net loss per share
Net loss per share:
Basic	$	(0.20	)	$	(0.04	)	$	(0.27	)	$	(0.29	)	$	(0.48	)	$	(0.33	)
Diluted	$	(0.20	)	$	(0.04	)	$	(0.27	)	$	(0.29	)	$	(0.48	)	$	(0.33	)

Weighted-average shares used in computing net loss per share:
Basic		19,470			18,990			19,470			19,273			19,293			19,133
Diluted		19,470			18,990			19,470			19,273			19,293			19,133

See accompanying notes to unaudited condensed consolidated financial statements.

FG Group Holdings Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

Three and Six Months Ended ~~March 31,~~June 30, 2023 and 2022

(In thousands)

(Unaudited)

	2023			2022			2023			2022			2023			2022
	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022			2023			2022
Net loss	$	(3,989	)	$	(802	)	$	(5,391	)	$	(5,598	)	$	(9,382	)	$	(6,399	)
Adjustment to postretirement benefit obligation		(5	)		(8	)		(4	)		(4	)		(9	)		(11	)
Currency translation adjustment:
Unrealized net change arising during period		(72	)		178			558			(730	)		485			(553	)
Total other comprehensive (loss) income		(77	)		170
Total other comprehensive income (loss)								554			(734	)		476			(564	)
Comprehensive loss	$	(4,066	)	$	(632	)		(4,837	)		(6,332	)		(8,906	)		(6,963	)
Comprehensive loss attributable to non-controlling interest								(130	)		-			(130	)		-
Comprehensive loss attributable to FG Group Holdings							$	(4,707	)	$	(6,332	)	$	(8,776	)	$	(6,963	)

See accompanying notes to unaudited condensed consolidated financial statements.

FG Group Holdings Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

Three and Six Months Ended ~~March 31,~~June 30, 2023 and 2022

(In thousands)

(Unaudited)

	Common Stock (Shares)		Common Stock ($)		Additional Paid-In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Common Stock (Shares)		Common Stock ($)		Additional Paid-In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss				Total FG Group Holdings Shareholders’ Equity			Non-contolling Interest		Total Stockholders’ Equity
	Common Stock (Shares)		Common Stock ($)		Additional Paid-In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Common Stock (Shares)		Common Stock ($)		Additional Paid-In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss				Total FG Group Holdings Shareholders’ Equity			Non-contolling Interest		Total Stockholders’ Equity
Balance at December 31, 2022		22,264	$	223	$	53,882	$	16,437		$	(18,586	)	$	(5,258	)	$	46,698			22,264	$	223	$	53,882		$	16,437		$	(18,586	)	$	(5,258	)	$	46,698		$	-		$	46,698
Cumulative effect of adoption of accounting principle (Note 2)		-		-		-		(24	)		-			-			(24	)
Cumulative effect of adoption of accounting principle																				-		-		-			(24	)		-			-			(24	)		-			(24	)
Net loss		-		-		-		(3,989	)		-			-			(3,989	)		-		-		-			(3,989	)		-			-			(3,989	)		-			(3,989	)
Net other comprehensive loss		-		-		-		-			-			(77	)		(77	)		-		-		-			-			-			(77	)		(77	)		-			(77	)
Stock-based compensation expense		-		-		127		-			-			-			127			-		-		127			-			-			-			127			-			127
Balance at March 31, 2023		22,264	$	223	$	54,009	$	12,424		$	(18,586	)	$	(5,335	)	$	42,735			22,264		223		54,009			12,424			(18,586	)		(5,335	)		42,735			-			42,735
Net loss																				-		-		-			(5,273	)		-			-			(5,273	)		(118	)		(5,391	)
Net other comprehensive income																				-		-		-			-			-			566			566			(12	)		554
IPO of Strong Global Entertainment, Inc. and issuance of Landmark warrant, net of costs																				-		-		1,383			-			-			-			1,383			225			1,608
Non-controlling interest allocation																								(1,147	)											(1,147	)		1,147			-
Payments of withholding taxes for net share settlement of equity awards																				-		-		(104	)		-			-			-			(104	)		-			(104	)
Stock-based compensation expense																				-		-		910			-			-			-			910			-			910
Balance at June 30, 2023																				22,264	$	223	$	55,051		$	7,151		$	(18,586	)	$	(4,769	)	$	39,070		$	1,242		$	40,312

	Common Stock (Shares)		Common Stock ($)		Additional Paid-In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Common Stock (Shares)		Common Stock ($)		Additional Paid-In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total FG Group Holdings Shareholders’ Equity			Non-contolling Interest		Total Stockholders’ Equity
Balance at December 31, 2021		21,286	$	213	$	50,807	$	23,591		$	(18,586	)	$	(3,748	)	$	52,277			21,286	$	213	$	50,807		$	23,591		$	(18,586	)	$	(3,748	)	$	52,277		$	-	$	52,277
Net loss		-		-		-		(802	)		-			-			(802	)		-		-		-			(802	)		-			-			(802	)		-		(802	)
Net other comprehensive income		-		-		-		-			-			170			170			-		-		-			-			-			170			170			-		170
Issuance of common stock		761		8		2,342		-			-			-			2,350			761		8		2,342			-			-			-			2,350			-		2,350
Issuance of warrants		-		-		109		-			-			-			109			-		-		109			-			-			-			109			-		109
Stock-based compensation expense		-		-		194		-			-			-			194			-		-		194			-			-			-			194			-		194
Balance at March 31, 2022		22,047	$	221	$	53,452	$	22,789		$	(18,586	)	$	(3,578	)	$	54,298			22,047		221		53,452			22,789			(18,586	)		(3,578	)		54,298			-		54,298
Net loss																				-		-		-			(5,598	)		-			-			(5,598	)		-		(5,598	)
Net other comprehensive loss																				-		-		-			-			-			(734	)		(734	)		-		(734	)
Vesting of restricted stock																				73		-		(16	)		-			-			-			(16	)		-		(16	)
Stock-based compensation expense																				-		-		175			-			-			-			175			-		175
Net other comprehensive income/loss																				-		-		-			-			-			(734	)		(734	)		-		(734	)
Balance at June 30, 2022																				22,120	$	221	$	53,611		$	17,191		$	(18,586	)	$	(4,312	)	$	48,125		$	-	$	48,125

See accompanying notes to unaudited condensed consolidated financial statements.

FG Group Holdings Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

~~Three~~Six Months Ended ~~March 31,~~June 30, 2023 and 2022

(In thousands)

(Unaudited)

	2023			2022			2023			2022
	Three Months Ended March 31,						Six Months Ended June 30,
	2023			2022			2023			2022
Cash flows from operating activities:
Net loss	$	(3,989	)	$	(802	)	$	(9,382	)	$	(6,399	)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Recovery of doubtful accounts		(18	)		(15	)		(3	)		3
Provision for obsolete inventory		14			13			29			6
Provision for warranty		44			11			73			15
Depreciation and amortization		266			366			2,527			702
Amortization and accretion of operating leases		29			97			59			137
Equity method holding loss		651			820			2,694			1,780
Adjustment to SageNet promissory note in connection with prepayment		-			202			-			202
Unrealized loss (gain) on equity holdings		2,891			(1,728	)
Unrealized loss on equity holdings								4,538			2,451
Deferred income taxes		(443	)		239			(388	)		(292	)
Stock-based compensation expense		127			194			1,037			369
Changes in operating assets and liabilities:
Accounts receivable		612			(407	)		(225	)		(1,085	)
Inventories		(284	)		426			286			(602	)
Current income taxes		(186	)		(185	)		(401	)		(135	)
Other assets		2			(246	)		(8,692	)		1,055
Accounts payable and accrued expenses		(827	)		149			5,978			(674	)
Deferred revenue and customer deposits		615			(728	)		(651	)		(446	)
Operating lease obligations		(32	)		(89	)		(65	)		(132	)
Net cash used in operating activities		(528	)		(1,683	)		(2,586	)		(3,045	)

Cash flows from investing activities:
Capital expenditures		(75	)		(763	)		(318	)		(840	)
Acquisition of programming rights		(83	)		(395	)		(86	)		(337	)
Sale of equity holdings		198			-
Sale (purchase) of equity holdings								198			(2,000	)
Receipt of SageNet promissory note		-			2,300			-			2,300
Net cash provided by investing activities		40			1,142
Net cash used in investing activities								(206	)		(877	)

Cash flows from financing activities:
Principal payments on short-term debt		(250	)		(79	)		(414	)		(285	)
Principal payments on long-term debt		(51	)		(18	)		(101	)		(66	)
Proceeds from Strong Global Entertainment initial public offering								2,411			-
Borrowings under credit facility		1,596						4,344			-
Repayments under credit facility		(225	)		-			(2,132	)		-
Payments of withholding taxes for net share settlement of equity awards								(104	)		(15	)
Payments on finance lease obligations		(28	)		-			(66	)		(2	)
Net cash provided by (used in) financing activities		1,042			(97	)		3,938			(368	)

Effect of exchange rate changes on cash and cash equivalents		6			40			31			(30	)
Net increase (decrease) in cash and cash equivalents and restricted cash		560			(598	)		1,177			(4,320	)
Cash and cash equivalents and restricted cash at beginning of period		3,789			8,881			3,789			8,881
Cash and cash equivalents and restricted cash at end of period	$	4,349		$	8,283		$	4,966		$	4,561

Components of cash and cash equivalents and restricted cash:
Cash and cash equivalents	$	4,349		$	8,133		$	4,966		$	4,411
Restricted cash		-			150			-			150
Total cash and cash equivalents and restricted cash	$	4,349		$	8,283		$	4,966		$	4,561

Supplemental disclosure of non-cash investing and financing activities:
Short-term borrowings to finance insurance	$	453		$	392		$	586		$	392
Issuance of debt, common shares, and warrants in connection with purchase of Digital Ignition building	$	-		$	7,609		$	-		$	7,609
Amount payable to Landmark Studio Group in connection with aquistion of projects (Note 8)	$	-		$	1,345
Amount payable to Landmark Studio Group in connection with aquistion of projects (Note 9)							$	-		$	1,345

See accompanying notes to unaudited condensed consolidated financial statements.

FG Group Holdings Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

1. Nature of Operations

FG Group Holdings Inc. (previously Ballantyne Strong, Inc.) (“FG Group Holdings,” or the “Company”), a Nevada corporation, is a holding ~~company with business operations in the entertainment industry and~~company. The Company’s holdings primarily consist of equity securities in public and ~~privately held companies.~~ private companies and real estate holdings in the United States and Canada.

The Company has historically ~~has~~ conducted a large portion of its operations primarily through its Strong Entertainment operating ~~segment, which~~segment. The Company completed the Separation (as defined below) and initial public offering (“IPO”) of the Strong Entertainment business on May 18, 2023. Following this transaction, Strong Global Entertainment became a separate publicly listed company and FG Group Holdings holds approximately 84% of the Class A common shares and 100% of the Class B common shares as of the date hereof. As the Company continues to be the majority shareholder of Strong Global Entertainment, the financial results of Strong Global Entertainment are presented on a consolidated basis in the Company’s condensed consolidated financial statements. The Company reports the noncontrolling interest in Strong Global Entertainment as a component of equity separate from the Company’s equity. The Company’s net loss excludes the net loss attributable to the noncontrolling interest.

Strong Global Entertainment manufactures and distributes premium large format projection screens and provides technical support services and other related products and services to the cinema exhibition industry, theme parks, schools, museums and other entertainment-related markets. Strong Entertainment also distributes and supports third party products, including digital projectors, servers, library management systems, menu boards and sound systems. In March 2022, the Company launched Strong Studios, Inc. (“Strong Studios”) with the goal of expanding Strong Entertainment to include content creation and production of feature films and series. The launch of Strong Studios is intended to further diversify our revenue streams and increase our addressable markets, while leveraging and expanding our existing relationships in the industry.

Following the Separation and IPO, the operations of the Strong Entertainment operating segment are part of a newly established British Columbia corporation, Strong Global Entertainment, Inc. (“Strong Global Entertainment”). Strong Global Entertainment’s common shares are listed on the NYSE American under the ticker symbol “SGE.” In connection with the IPO, the Company and Strong Global Entertainment (and the subsidiaries of each) entered into a Master Asset Purchase Agreement, an IP Assignment Agreement, the FG Group Holdings Asset Transfer Agreement, the FG Group Holdings IP Assignment Agreement, the Joliette Plant Lease, the Share Transfer Agreements and a number of other agreements to govern the separation of the legacy Strong Entertainment business from the Company and the contribution of certain of the related business and assets to Strong Global Entertainment (the “Separation”). Under the Management Services Agreement, Strong Global Entertainment and the Company provide certain services to each other, which include information technology, legal, finance and accounting, human resources, tax, treasury, and other services, and charges a fee that is based on its actual costs and expenses for those services in the future (with mark-up, if necessary, to comply with applicable transfer pricing principles under Canadian and U.S. tax regulations).

The Company owns and operates its Digital Ignition technology incubator and co-working facility in Alpharetta, Georgia. In addition, the Company holds minority equity positions in three ~~companies.~~companies as discussed in Note 7.

The Company has announced plans to establish the Strong Entertainment business as a separate publicly listed company. Following the planned separation, the operations of the Strong Entertainment operating segment are expected to become part of a newly established British Columbia corporation, Strong Global Entertainment, Inc. (“Strong Global Entertainment”). Strong Global Entertainment has filed a registration statement with the U.S. Securities and Exchange Commission (“SEC”) and intends to commence an initial public offering of its common shares during 2023 to raise additional capital to support its growth plans. If successful, the Company expects to apply to have the Strong Global Entertainment common shares trade on the NYSE American under the ticker symbol “SGE” following the initial public offering, and the Company expects to continue to be the majority shareholder of Strong Global Entertainment.

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. Unless the context indicates otherwise, references to the “Company” include the Company and its majority-owned and controlled domestic and foreign subsidiaries.

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~~had an 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~~impact of COVID-19 on inflation and supply chains and the continued economic 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~~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,~~June 30, 2023, $~~0.6~~2.5 million of the $~~4.3~~5.0 million in cash and cash equivalents was held in Canada by ~~our foreign subsidiary.~~

Strong Global Entertainment.

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~~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,~~June 30, 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 or six months ended ~~March 31,~~June 30, 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 67 contains additional information on our equity method, Fair Value Holdings and Cost Method ~~Holdings~~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. Where available, the Company utilizes certain governmental incentives, programs and other structures from states and foreign countries (e.g., refundable tax credits calculated based on the amount of money spent in the particular jurisdiction in connection with the production) to fund its film and television productions and reduce financial risk. 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. Participation costs represent contingent consideration payable based on the performance of the film or television program to parties associated with the film or television program, including producers, writers, directors or actors and estimated liabilities for participations are accrued based on the ratio of the current period’s revenues to management’s estimated remaining total gross revenues to be earned. 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 materially 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,~~June 30, 2023 and December 31, 2022.

Fair values measured on a recurring basis at ~~March 31,~~June 30, 2023 (in thousands):

Schedule of Fair Value Measured Financial Assets and Liabilities

	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	4,349	$	-	$	-	$	4,349	$	4,966	$	-	$	-	$	4,966
Fair value method equity holding		13,677		-		-		13,677		12,205		-		-		12,205
Total	$	18,026	$	-	$	-	$	18,026	$	17,171	$	-	$	-	$	17,171

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~~5.1 million at ~~March 31,~~June 30, 2023 (see Note 6)7).

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 thousand.

3. Revenue

The Company accounts for revenue using the following steps:

	●	Identify the contract, or contracts, with a customer;
	●	Identify the performance obligations in the contract;
	●	Determine the transaction price;
	●	Allocate the transaction price to the identified performance obligations; and
	●	Recognize revenue when, or as, the Company satisfies the performance obligations.

The Company combines contracts with the same customer into a single contract for accounting purposes when the contracts are entered into at or near the same time and the contracts are negotiated as a single commercial package, consideration in one contract depends on the other contract, or the services are considered a single performance obligation. If an arrangement involves multiple performance obligations, the items are analyzed to determine whether they are distinct, whether the items have value on a standalone basis, and whether there is objective and reliable evidence of their standalone selling price. The total contract transaction price is allocated to the identified performance obligations based upon the relative standalone selling prices of the performance obligations. The standalone selling price is based on an observable price for services sold to other comparable customers, when available, or an estimated selling price using a cost-plus margin approach. The Company estimates the amount of total contract consideration it expects to receive for variable arrangements by determining the most likely amount it expects to earn from the arrangement based on the expected quantities of services it expects to provide and the contractual pricing based on those quantities. The Company only includes a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is subsequently resolved. The Company considers the sensitivity of the estimate, its relationship and experience with the client and variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement.

As discussed in more detail below, revenue is recognized when a customer obtains control of promised goods or services under the terms of a contract and is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The Company typically does not have any material extended payment terms, as payment is due at or shortly after the time of the sale. Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded from revenue.

The Company recognizes contract assets or unbilled receivables related to revenue recognized for services completed but not yet invoiced to the clients. Unbilled receivables are recorded as accounts receivable when the Company has an unconditional right to contract consideration. A contract liability is recognized as deferred revenue when the Company invoices clients, or receives cash, in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when the Company has satisfied the related performance obligation.

The Company defers costs to acquire contracts, including commissions, incentives and payroll taxes, if they are incremental and recoverable costs of obtaining a customer contract with a term exceeding one year. Deferred contract costs are reported within other assets and amortized to selling expense over the contract term, which generally ranges from one to five ~~years.~~years. The Company has elected to recognize the incremental costs of obtaining a contract with a term of less than one year as a selling expense when incurred. The Company did not have any deferred contract costs as of ~~March 31,~~June 30, 2023 or December 31, 2022.

The following tables disaggregate the Company’s revenue by major source and by operating segment for the three and six months ended ~~March 31,~~June 30, 2023 and 2022 (in thousands):

Schedule of Disaggregation of Revenue

	Strong Entertainment		Other		Total		Strong Entertainment		Other		Total		Strong Entertainment		Other		Total		Strong Entertainment		Other		Total
	Three Months Ended March 31, 2023						Three Months Ended March 31, 2022						Three Months Ended June 30, 2023						Three Months Ended June 30, 2022
	Strong Entertainment		Other		Total		Strong Entertainment		Other		Total		Strong Entertainment		Other		Total		Strong Entertainment		Other		Total
Screen system sales	$	2,582	$	-	$	2,582	$	3,306	$	-	$	3,306	$	4,046	$	-	$	4,046	$	3,251	$	-	$	3,251
Digital equipment sales		3,526		-		3,526		3,544		-		3,544		3,537		-		3,537		2,673		-		2,673
Extended warranty sales		51		-		51		100		-		100		49		-		49		84		-		84
Other product sales		1,045		-		1,045		753		-		753		779		-		779		675		-		675
Total product sales		7,204		-		7,204		7,703		-		7,703		8,411		-		8,411		6,683		-		6,683
Field maintenance and monitoring services		1,891		-		1,891		1,618		-		1,618		1,912		-		1,912		1,649		-		1,649
Installation services		802		-		802		371		-		371		1,038		-		1,038		469		-		469
Strong Studios services														6,379		-		6,379		-		-		-
Other service revenues		54		158		212		28		306		334		99		183		282		21		321		342
Total service revenues		2,747		158		2,905		2,017		306		2,323		9,428		183		9,611		2,139		321		2,460
Total	$	9,951	$	158	$	10,109	$	9,720	$	306	$	10,026	$	17,839	$	183	$	18,022	$	8,822	$	321	$	9,143

Strong Entertainment Other Total Strong Entertainment Other Total
Six Months Ended June 30, 2023 Six Months Ended June 30, 2022
Strong Entertainment Other Total Strong Entertainment Other Total
Screen system sales $      7,003 $ - $ 7,003 $      6,743 $ - $ 6,743
Digital equipment sales 7,063 - 7,063 6,216 - 6,216
Extended warranty sales 100 - 100 184 - 184
Other product sales 1,449 - 1,449 1,243 - 1,243
Total product sales 15,615 - 15,615 14,386 - 14,386
Field maintenance and monitoring services 3,803 - 3,803 3,267 - 3,267
Installation services 1,840 - 1,840 841 - 841
Strong Studios services 6,379 - 6,379 - - -
Other service revenues 153 341 494 49 626 675
Total service revenues 12,175 341 12,516 4,157 626 4,783
Total $ 27,790 $ 341 $ 28,131 $ 18,543 $ 626 $ 19,169
Screen system sales

The Company typically recognizes revenue on the sale of its screen systems when control of the screen is transferred to the customer, usually at time of shipment. However, revenue is recognized upon delivery for certain international shipments with longer shipping transit times because control transfers upon customer delivery. The cost of freight and shipping to the customer is recognized in cost of sales at the time of transfer of control to the customer. For contracts that are long-term in nature, the Company believes that the use of the percentage-of-completion method is appropriate as the Company has the ability to make reasonably dependable estimates of the extent of progress towards completion, contract revenues, and contract costs. Under the percentage-of-completion method, revenue is recorded based on the ratio of actual costs incurred to total estimated costs expected to be incurred related to the contract.

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Digital equipment sales

The Company recognizes revenue on sales of digital equipment when the control of the equipment is transferred, which typically occurs at the time of shipment from the Company’s warehouse or drop-shipment from a third party. The cost of freight and shipping to the customer is recognized in cost of sales at the time of transfer of control to the customer.

Field maintenance and monitoring services

The Company sells service contracts that provide maintenance and monitoring services to its Strong Entertainment customers. These contracts are generally 12 months in length. Revenue related to service contracts is recognized ratably over the term of the agreement.

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In addition to selling service contracts, the Company also performs discrete time and materials-based maintenance and repair work for customers in the Strong Entertainment segment. Revenue related to time and materials-based maintenance and repair work is recognized at the point in time when the performance obligation has been fully satisfied.

Installation services

The Company performs installation services for its Strong Entertainment customers and recognizes revenue upon completion of the installations.

Strong Studios services
The Company develops and produces original films and television series, as well as acquires third-party rights to content for global multi-platform distribution and recognizes revenue upon the transfer or license of film and television programming rights and related intellectual property.
Extended warranty sales

The Company performs installation services for its Strong Entertainment customers and recognizes revenue upon completion of the installations.

Timing of revenue recognition

The following tables disaggregate the Company’s revenue by the timing of transfer of goods or services to the customer for the three and six months ended ~~March 31,~~June 30, 2023 and 2022 (in thousands):
Schedule of Disaggregation of Revenue
Strong Entertainment Other Total Strong Entertainment Other Total
Three Months Ended June 30, 2023 Three Months Ended June 30, 2022
Strong Entertainment Other Total Strong Entertainment Other Total
Point in time $    16,312 $ 34 $ 16,346 $      7,532 $ 14 $ 7,546
Over time 1,527 149 1,676 1,290 307 1,597
Total $ 17,839 $ 183 $ 18,022 $ 8,822 $ 321 $ 9,143
Strong Entertainment Other Total Strong Entertainment Other Total
Three Months Ended March 31, 2023 Three Months Ended March 31, 2022
Strong Entertainment Other Total Strong Entertainment Other Total
Point in time $ 8,430 $ 14 $ 8,444 $ 8,442 $ 3 $ 8,445
Over time 1,521 144 1,665 1,278 303 1,581
Total $ 9,951 $ 158 $ 10,109 $ 9,720 $ 306 $ 10,026
Strong Entertainment Other Total Strong Entertainment Other Total
Six Months Ended June 30, 2023 Six Months Ended June 30, 2022
Strong Entertainment Other Total Strong Entertainment Other Total
Point in time $    24,742 $ 48 $ 24,790 $     15,974 $ 17 $ 15,991
Over time 3,048 293 3,341 2,569 609 3,178
Total $ 27,790 $ 341 $ 28,131 $ 18,543 $ 626 $ 19,169

At ~~March 31,~~June 30, 2023, the unearned revenue amount associated with long-term projects that the Company uses the percentage-of-completion method to recognize revenue, maintenance and monitoring services and extended warranty sales in which the Company is the primary obligor was $~~0.8~~0.4 million. The Company expects to recognize $~~0.8~~0.4 million of the unearned revenue amounts during the remainder of 2023, and immaterial amounts from 2024 through 2026.
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4. Net Loss Per Common Share

Basic net loss per share has been computed on the basis of the weighted average number of shares of common stock outstanding. In periods when the Company reported a net loss, there were no differences between average shares used to compute basic and diluted loss per share as inclusion of stock options and restricted stock units would have been anti-dilutive in those periods. The following table summarizes the weighted average shares used to compute basic and diluted net loss per share (in thousands):
Schedule of Net(Loss) Income Per Share
2023 2022
Three Months Ended March 31,
2023 2022
Weighted average shares outstanding:
Basic weighted average shares outstanding 19,470 18,990
Dilutive effect of stock options and certain non-vested restricted stock units - -
Diluted weighted average shares outstanding 19,470 18,990
2023 2022 2023 2022
Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Weighted average shares outstanding:
Basic weighted average shares outstanding 19,470 19,273 19,293 19,133
Dilutive effect of stock options and certain non-vested restricted stock units - - - -
Diluted weighted average shares outstanding 19,470 19,273 19,293 19,133

Anti-dilutive employee stock-based awards excluded 370 197 436 179

~~A total of~~ ~~140,420~~ ~~and~~ ~~225,379~~ common stock equivalents related to stock options and restricted stock units were excluded for the three months ended March 31, 2023 and March 31, 2022, respectively, as their inclusion would be anti-dilutive, thereby decreasing the net losses per share. Options to purchase ~~489,500~~742,000 and ~~354,500~~349,500 shares of common stock were outstanding as of ~~March 31,~~June 30, 2023 and ~~March 31,~~June 30, 2022, respectively, but were not included in the computation of diluted loss per share as the options’ exercise prices were greater than the average ~~market~~closing price of the common shares for each period.

5. Inventories

Inventories consisted of the following (in thousands):
Schedule of Inventories
March 31, 2023 December 31, 2022
Raw materials and components $ 1,925 $ 1,826
Work in process 448 279
Finished goods 1,287 1,284
Total $ 3,660 $ 3,389
June 30, 2023 December 31, 2022
Raw materials and components $ 1,984 $ 1,826
Work in process 312 279
Finished goods 829 1,284
Total $ 3,125 $ 3,389

The inventory balances are net of reserves of approximately $0.5 million as of both ~~March 31,~~June 30, 2023 and December 31, 2022. The inventory reserves primarily related to the Company’s finished goods inventory. A rollforward of the inventory reserve for the ~~three~~six months ended ~~March 31,~~June 30, 2023, is as follows (in thousands):
Schedule of Inventory Reserve

Inventory reserve balance at December 31, 2022 $ 486 $ 486
Inventory write-offs during 2023 (16 ) (16 )
Provision for inventory reserve during 2023 14 29
Inventory reserve balance at March 31, 2023 $ 484
Inventory reserve balance at June 30, 2023 $ 499

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6. Other Current Assets
Other current assets consisted of the following as of June 30, 2023 and December 31, 2022 (in thousands):
Schedule of Other Current Assets
June 30, 2023 December 31, 2022
Prepaid expenses $ 1,346 $ 553
Receivable from Safehaven 2022, Inc. - 1,625
Costs incurred in connection with Strong Global Entertainment initial public offering - 1,920
Unbilled accounts receivable 541 337
Production tax rebate receivable 3,476 -
Receivable from Ravenwood Productions LLC 6,379 -
Other 267 436
Total $ 12,009 $ 4,871
6.7. Equity Holdings

The following summarizes our equity holdings (dollars in thousands):
Summary of Investments
June 30, 2023 December 31, 2022
Carrying Amount Economic Interest Carrying Amount Economic Interest
Equity Method Holding
FG Financial Holdings, LLC $ 5,137 45.4 % $ 7,832 47.2 %

Fair Value Method Holding
GreenFirst Forest Products Inc. 12,205 8.3 % 16,792 8.4 %

Cost Method Holding
Firefly Systems, Inc. 12,898 12,898
Total Investments $ 30,240 $ 37,522
March 31, 2023 December 31 2022
Carrying Amount Economic Interest Carrying Amount Economic Interest
Equity Method Holding
FG Financial Holdings, LLC $ 7,181 47.3 % $ 7,832 47.2 %

Fair Value Method Holding
GreenFirst Forest Products Inc. 13,677 8.3 % 16,792 8.4 %

Cost Method Holding
Firefly Systems, Inc. 12,898 12,898
Total Investments $ 33,756 $ 37,522
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Equity Method Holding
FG Financial Holdings, LLC (“FGF Holdings”) is a limited liability company formed under the Delaware Limited Liability Company Act. The Company is a member of FGF Holdings and contributed its 2.9 million shares of FG Financial Group, Inc. (“FGF”) common stock to FGF Holdings on September 12, 2022. FGF is a publicly-traded reinsurance and investment management holding company focused on opportunistic collateralized and loss capped reinsurance, while allocating capital to special purpose acquisition companies (each, a “SPAC”) and SPAC sponsor-related businesses.

In consideration of its contribution to FGF Holdings, the Company was issued Series B Common Interests of FGF Holdings and 50% of the voting power over FGF Holdings. The members of FGF Holdings agreed that the powers of FGF Holdings shall be exercised by, or under the authority of, its managers. FGF Holdings has two managers, one of which was appointed by the Company. The Company designated its Chairman, D. Kyle Cerminara, to serve as a manager of FGF Holdings. The managers of FGF Holdings, acting unanimously, have the right, power and authority on behalf of FGF Holdings and in its name to execute documents or other instruments and exercise all of the rights, power and authority of FGF Holdings. Allocations of profits and losses and distributions of cash are made in accordance with the terms of the FGF Holdings operating agreement.

The Company has the ability to significantly influence FGF Holdings through its ~~50%~~50% voting power but does not maintain a controlling interest. Based on quoted ~~market prices~~closing stock of the ~~assets~~securities held by FGF Holdings, as well as the liabilities and cash balance on hand, the liquidation value of the Company’s LLC interest in FGF Holdings was approximately $~~7.4~~5.1 million as of ~~March 31,~~June 30, 2023.

The Company recorded an equity method loss related to FGF Holdings of $~~0.7~~2.0 million and $2.7 million during the three and six months ended ~~March 31, 2023.~~June 30, 2023, respectively. As of ~~March 31,~~June 30, 2023, the Company’s retained earnings included an accumulated deficit from its equity method ~~holdings~~holding of approximately $~~6.7~~$8.7 million.

Fair Value Method Holding

GreenFirst Forest Products Inc. (“GreenFirst”) is a publicly-traded Canadian company focused on environmentally sustainable forest management and lumber production. In April 2021, GreenFirst announced that it had entered into an asset purchase agreement pursuant to which it would acquire a portfolio of forest and paper product assets (the “GreenFirst Acquisition”). The Company’s Chairman, Mr. Cerminara, served as a member of the board of directors of GreenFirst from June 2016 to October 2021, and was also appointed Chairman of GreenFirst from June 2018 to June 2021. Prior to the closing of the GreenFirst Acquisition, the Company held a 20.7% ownership position in GreenFirst. The Company’s 20.7% ownership of GreenFirst, combined with Mr. Cerminara’s board seat, provided the Company with significant influence over GreenFirst, but not a controlling interest. Accordingly, the Company applied the equity method of accounting to its equity holding in GreenFirst. Following the GreenFirst Acquisition and GreenFirst’s issuance of additional common shares, the Company’s ownership percentage decreased to 8.6%. As a result, the Company is no longer able to exercise significant influence over GreenFirst and the equity holding in GreenFirst no longer qualified for equity method accounting. As a result of applying the fair value method of accounting, the Company recorded a loss on equity ~~holdings~~holding of approximately $~~2.9~~4.5 million and $2.5 million during the ~~three~~six months ended ~~March 31,~~June 30, 2023 and ~~a gain on equity holdings of~~ ~~1.7~~ ~~million during the three months ended March 31, 2022.~~June 30, 2023, respectively. The Company did not receive dividends from GreenFirst during the three and six months ended ~~March 31,~~June 30, 2023 or ~~March 31,~~June 30, 2022. Based on quoted ~~market prices,~~closing stock price, the fair value of the Company’s ownership in GreenFirst was $~~13.7~~12.2 million as of ~~March 31,~~June 30, 2023.

15
Cost Method Holding

Firefly Systems, Inc. (“Firefly”) is a private company which operates a media network and digital advertising solutions on taxi and rideshare vehicles. The Company holds approximately 1.1 million and 0.6 million Firefly Series B-1 and Firefly Series B-2 preferred shares, respectively, which were acquired in connection with the transactions with Firefly in May 2019 and August 2020. In addition, the Company holds an additional 0.7 million Firefly Series B-2 preferred shares, which were acquired in August 2020 pursuant to a stock purchase agreement with Firefly. The Company and its affiliated entities have designated Kyle Cerminara, Chairman of the Company’s board of directors and a principal of the Company’s largest shareholder, to Firefly’s board of directors.

16
7.8. Property, Plant and Equipment, Net

Property, plant and equipment, net consisted of the following as of ~~March 31,~~June 30, 2023 and December 31, 2022 (in thousands):
Schedule of Property, Plant and Equipment
March 31, 2023 December 31, 2022 June 30, 2023 December 31, 2022
Land $ 2,341 $ 2,341 $ 2,342 $ 2,341
Buildings and improvements 12,761 12,756 9,463 12,756
Machinery and other equipment 4,860 4,786 4,976 4,786
Office furniture and fixtures 860 860 873 860
Construction in progress 15 11 238 11
Total properties, cost 20,837 20,754 17,892 20,754
Less: accumulated depreciation (8,344 ) (8,105 ) (5,306 ) (8,105 )
Property, plant and equipment, net $ 12,493 $ 12,649 $ 12,586 $ 12,649
8.9. Film and Television Programming Rights, Net

Film and television programming rights, net consisted of the following as of ~~March 31,~~June 30, 2023 and December 31, 2022 (in thousands):
Schedule of Development Assets Acquired
March 31, 2023 December 31, 2022
Television series in development $ 1,362 $ 1,308
Films in development 222 193
Total $ 1,584 $ 1,501
~~The Company has not yet commenced amortization of the projects as they were still in development at March 31, 2023.~~
June 30, 2023 December 31, 2022
Television series in development $ 9,449 $ 1,308
Films in development 222 193
Total film and programming rights 9,671 1,501
Accumulated amortization (1,980 ) -
Total film and programming rights, net $ 7,691 $ 1,501

A rollforward of film and television programming rights, net for the ~~three~~six months ended ~~March 31,~~June 30, 2023, is as follows (in thousands):
Schedule of Film and Television Programming Rights
Balance at December 31, 2022 $ 1,501
Expenditures on in-process projects 83
Balance at March 31, 2023 $ 1,584
16
Balance at December 31, 2022 $ 1,501
Expenditures on in-process projects 86
Acquisition of distribution rights 8,188
Amortization of film and programming rights (1,980 )
Adjustment to fair value of warrant issued to Landmark (104 )
Balance at June 30, 2023 $ 7,691

In March 2022, Strong Studios acquired the rights to original feature films and television series from Landmark Studio Group LLC (“Landmark”), including the assignment of third party rights to content for global multiplatform distribution. The transaction entailed the acquisition of certain projects which are in varying stages of development, none of which have produced revenue as of ~~March 31,~~June 30, 2023. In connection with such assignment and purchase, Strong Studios agreed to pay to Landmark approximately $1.7 million in four separate payments, $0.3 million of which was paid upon the closing of the transaction. The $1.7 million acquisition price was allocated to three projects in development: $1.0 million to Safehaven, $0.3 million to Flagrant and $0.4 million to Shadows in the Vineyard. The Company also agreed to issue to Landmark no later than 10 days after the completion of the ~~initial public offering~~IPO of Strong Global Entertainment, a warrant to purchase up to 150,000 ~~common shares~~Common Shares of Strong Global Entertainment, exercisable for three years beginning six months after the consummation of the ~~initial public offering,~~IPO, at an exercise price equal to the per-share offering price of Strong Global Entertainment’s ~~common shares~~Common Shares in the ~~initial public offering~~IPO (the “Landmark Warrant”). The Landmark Warrant allows for cashless exercise in certain limited circumstances and provides for certain registration rights for such warrant shares. ~~In the event that an initial public offering of Strong Global Entertainment does not occur within a specified time, Landmark would have the right to surrender the warrant in exchange for~~ ~~2.5%~~ ~~ownership in Strong Studios.~~
17

As a condition precedent to entry into the AA Agreement, Strong Studios agreed to enter into distribution agreements for Safehaven and Flagrant (the “AA Distribution Agreements”) with Screen Media Ventures, LLC (“SMV”). Pursuant to the AA Distribution Agreements, SMV agreed to purchase the global distribution rights to Safehaven for $6.5million and Flagrantfor $2.5million upon delivery of each project. In January 2023, Strong Studios amended its agreement with SMV resulting in Strong Studios retaining the worldwide global distribution rights for the Flagrant series and releasing SMV from the obligation to purchase the distribution rights for the series. On June 30, 2023, Strong Studios amended the Safehaven AA Agreement with SMV resulting in Strong Studios retaining the worldwide global distribution rights for the Safehaven series and releasing SMV from the obligation to purchase the distribution rights for the series.

During the second quarter of 2022, Safehaven 2022, Inc. (“Safehaven 2022”) was established to manage the production and financing of Safehaven. Strong Studios ~~owns~~owned ~~49%~~ 49% of Safehaven 2022 and the remaining ~~51%~~ 51is% was owned by Unbounded Services, LLC (“Unbounded”). ~~No consideration was paid by Strong Studios in exchange for its~~ ~~49%~~ ~~equity interest in Safehaven 2022. Unbounded also did not contribute any assets or liabilities to Safehaven 2022 and agreed to provide day-to-day management services in exchange for their~~ ~~51%~~ ~~ownership. Unbounded will also serve as a co-producer on the project.~~ Strong Studios assigned the Landmark distribution agreement to Safehaven 2022, and the Landmark distribution agreement serves as collateral for the production financing at Safehaven 2022. ~~Strong Studios and Unbounded will share profits and losses, if any, from~~Effective June 23, 2023, the Company increased its ownership in Safehaven 2022 onfrom 49% to 100%, and Safehaven 2022 became a ~~pro-rata basis based on their relative ownership percentages.~~wholly owned subsidiary of Strong Studios.

~~Strong Studios allocated $1.0~~ ~~million of the $1.7~~ ~~million acquisition price~~Prior to ~~Safehaven~~ ~~and incurred an additional $~~acquiring ~~0.1~~100 ~~million of development costs during 2022. Strong Studios transferred the $1.1~~ ~~million in intellectual property representing the rights and assets related to~~ ~~Safehaven~~ ~~and Safehaven 2022 agreed to reimburse Strong Studios $1.1~~ ~~million for those costs following payment of any senior secured debt and prior to any profit participations or equity distributions. Safehaven 2022 reimbursed the $0.1~~ ~~million of development costs incurred by Strong Studios, and the remaining $1.0~~ ~~million payable to Strong Studios represents an obligation~~% of Safehaven 2022 to Strong Studios and is not contingent on any specific event. Accordingly, the Company has classified the amount due from Safehaven 2022 as a receivable within other current assets on its consolidated balance sheet as of March 31, 2023. Strong Studios expects Safehaven 2022 to reimburse the acquisition cost allocated to the project based on its ultimate expected revenues and profits from the exploitation of the project. Safehaven 2022 will begin to generate revenue and expenses upon delivery of the completed ~~Safehaven~~ ~~series to SMV, which is expected to occur~~ in ~~mid-2023.~~ ~~The $6.5 million minimum guarantee is due and payable to Safehaven 2022 in installments of 25% upon delivery and acceptance, 25% three months thereafter, and the remaining 50% six months thereafter.~~ ~~Upon delivery and acceptance, Safehaven 2022 expects to recognize $6.5~~ million in initial revenue from the distribution rights and will record cost of sales using the individual-film-forecast method based on the ratio of the current period’s revenues to management’s estimated remaining total gross revenues to be earned. Safehaven 2022 is an equity method holding and the Company will reflect its proportionate share of the net periodic profit and loss of Safehaven 2022 as equity method income (loss) during each reporting period.
~~Safehaven 2022 entered into a Loan and Security Agreement with Bank of Hope to provide interim production financing for the~~ ~~Safehaven~~ ~~production, secured by the Landmark distribution agreement. Safehaven 2022 is the sole borrower and guarantor under the loan agreement. As of March 31,~~June 2023, ~~Safehaven 2022 had borrowed $9.6~~ ~~million under the facility for production costs incurred to that date. Safehaven 2022 has also received working capital advances of $0.6~~ ~~million from Strong Studios. Strong Studios expects Safehaven 2022 to reimburse the working capital advances in the second half of 2023.~~
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Strong Studios reviewed its ownership in Safehaven 2022 and concluded that it ~~has~~had significant influence, but not a controlling interest, in Safehaven 2022 based on its ownership being less than 50%50% along with having one of three representatives on the board of managers of Safehaven 2022. Strong Studios also reviewed whether it otherwise had the power to make decisions that significantly impact the economic performance of Safehaven 2022 and concluded that it did not control the entity and is not the primary beneficiary. Accordingly, the Company ~~will apply~~applied the equity method of accounting to its equity holding in Safehaven 2022 through June 30, 2023, at which time the Company increased its ownership interest in Safehaven 2022 from 49% to 100% and ~~will record its proportionate share~~began consolidating Safehaven 2022 as a wholly owned subsidiary of Strong Studios. A summary of the balance sheet of Safehaven 2022 as of June 30, 2023, is as follows (in thousands):
18
Schedule of Balance Sheets

Cash $ 164
Television programming rights 8,142
Other assets 3,505
Total assets $ 11,811

Accounts payable and accrued expenses $ 250
Due to Strong Studios 1,710
Debt 9,851
Equity -
Total liabilities and equity $ 11,811
Effective June 30, 2023, Safehaven 2022 entered into a purchase agreement (the “Purchase Agreement”) with SMV, to purchase all of SMV’s right, title and interest in Safehaven. Under the terms of the Purchase Agreement, the purchase price payable to Safehaven 2022 was satisfied by the payment in full by Ravenwood-Productions, LLC (“Ravenwood”) of the amount due as a minimum guarantee under the Safehaven AA Distribution Agreement to Bank of Hope. SMV is entitled to receive no further payments in respect of the Safehaven series, provided that, upon Strong Studios’ receipt of $15.0 million in gross receipts, SMV shall be paid an amount equal to five percent (5%) of the net ~~income/loss resulting from~~proceeds up to a maximum of $0.4 million.
Effective June 30, 2023, the ~~equity holding as~~Company and Ravenwood entered into a ~~single line item captioned “equity method holding income (loss)” on its consolidated statement of operations.~~management agreement (the “Management Agreement”), pursuant to which:
● Ravenwood advanced the amount due to Bank of Hope in respect of the minimum guarantee under the Safehaven AA Distribution Agreement of approximately $6.4 million.
● Safehaven 2022, Strong Studios and Ravenwood will enter into a sales agent agreement with an agency to represent and sell the Safehaven series.
● Each of Ravenwood and Strong Studios will be paid a management commission of 20% and 7%, respectively, of the Net Sales Price of the Series (as defined in the Management Agreement).
● All Gross Receipts (as defined by the Management Agreement) shall be distributed according to an agreed waterfall, with the balance to be paid to the named participants, including Strong Studios which will be paid 32.5%.
● Safehaven 2022 conveyed to Ravenwood an undivided 75% interest in all rights in and to the Safehaven series, retaining 25% for itself.

Safehaven 2022 did not record any income or expense during the three months ended March 31, 2023, because all costs incurred by Safehaven 2022 related to the in-process production have been capitalized. Upon deliveryrecognizes revenue and ~~acceptance of the project, Safehaven 2022 expects to recognize revenue from the distribution rights and will record~~ cost of sales using the individual-film-forecast method based on the ratio of the current period’s revenues to management’s estimated remaining total gross revenues to be earned. ~~A summary~~During the quarter ended June 30, 2023, Safehaven 2022 recognized $6.4 million of revenue in connection with the sale of a portion of the ~~balance sheet~~intellectual property rights, recorded a total of ~~Safehaven 2022 as~~$5.4 million of ~~March 31, 2023, is as follows (in thousands):~~expenses, including $2.0 million amortization of the film and programming rights intangible asset and $3.4 million of accrued participation costs.
~~Schedule of Balance Sheets~~

Cash $ 37
Television programming rights 11,118
Other assets 76
Total assets $ 11,231

Accounts payable and accrued expenses $ 10
Due to Strong Studios 1,625
Debt 9,596
Equity -
Total liabilities and equity $ 11,231
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9.10. Goodwill

The following represents a summary of changes in the Company’s carrying amount of goodwill for the ~~three~~six months ended ~~March 31,~~June 30, 2023 (in thousands):
Summary of Changes in Carrying Amount of Goodwill
Balance as of December 31, 2022 $ 882 $ 882
Foreign currency translation adjustment - 20
Balance as of March 31, 2023 $ 882
Balance as of June 30, 2023 $ 902

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11. Accrued Expenses
The Company’s accrued expense consisted of the following as of June 30, 2023 and December 31, 2022 (in thousands):
Schedule of Accrued Expense
June 30, 2023 December 31, 2022
Employee-related $ 2,169 $ 1,428
Warranty obligation 321 309
Interest and taxes 309 671
Legal and professional fees 279 725
Accrued participation costs 3,473 -
Film and television programming rights 650 1,709
Other 320 325
Total $ 7,521 $ 5,167
~~10.~~12. Debt

The Company’s short-term debt and long-term debt consisted of the following as of ~~March 31,~~June 30, 2023 and December 31, 2022 (in thousands):
Schedule of Short term and Long term Debt
March 31, 2023 December 31, 2022
Short-term debt:
Strong/MDI 20-year installment loan $ 2,262 $ 2,289
Strong/MDI 5-year equipment loan - 221
Strong/MDI revolving credit facility 1,372 -
Insurance note payable 454 -
Total short-term debt $ 4,088 $ 2,510

Long-term debt:
Tenant improvement loan $ 153 $ 162
Digital Ignition building loan 5,059 5,105
Total long-term debt $ 5,212 $ 5,267
Less: current portion (217 ) (216 )
Less: deferred debt issuance costs, net (44 ) (47 )
Long-term debt, net of current portion and deferred debt issuance costs, net $ 4,951 $ 5,004
March 31, 2023 December 31, 2022
Deferred debt issuance costs $ 56 $ 56
Less: accumulated amortization (12 ) (9 )
Deferred debt issuance costs, net $ 44 $ 47
~~Estimated future amortization expense of deferred debt issuance costs is as follows (in thousands):~~
~~Schedule of Amortization Expense of Deferred Issuance Costs~~

Remainder of 2023 $ 9
2024 11
2025 11
2026 11
2027 2
Thereafter -
Total $ 44
June 30, 2023 December 31, 2022
Short-term debt:
Strong/MDI 20-year installment loan $ 2,283 $ 2,289
Strong/MDI 5-year equipment loan - 221
Strong/MDI revolving credit facility 2,237 -
Safehaven production debt 9,851 -
Insurance note payable 586 -
Total short-term debt 14,957 2,510
Less: deferred debt issuance costs, net (30 ) -
Total short-term debt, net of issuance costs $ 14,927 $ 2,510

Long-term debt:
Tenant improvement loan $ 144 $ 162
Digital Ignition building loan 5,015 5,105
Total long-term debt $ 5,159 $ 5,267
Less: current portion (220 ) (216 )
Less: deferred debt issuance costs, net (41 ) (47 )
Long-term debt, net of current portion and deferred debt issuance costs, net $ 4,898 $ 5,004

Strong/MDI Installment Loans and Revolving Credit Facility

On September 5, 2017, the Company’s Canadian subsidiary, Strong/MDI, entered into a demand credit agreement, as amended and restated May 15, 2018, with Canadian Imperial Bank of Commerce (“CIBC”) consisting of a revolving line of credit for up to CAD$3.5 million, subject to a borrowing base requirement, a 20-year installment loan for up to CAD$6.0 million and a 5-year installment loan for up to CAD$0.5 million. On June 7, 2021, Strong/MDI entered into a demand credit agreement (the “2021 Credit Agreement”), which amended and restated the demand credit agreement dated as of September 5, 2017. The 2021 credit agreement consisted of a revolving line of credit for up to CAD$2.0 million subject to a borrowing base requirement, a 20~~- year~~-year installment loan for up to CAD$5.1 million and a 5-year installment loan for up to CAD$0.5 million. Amounts outstanding under the line of credit are payable on demand and bear interest at the prime rate established by CIBC. Amounts outstanding under the installment loans bear interest at CIBC’s prime rate plus ~~0.5%~~0.5% and are payable in monthly installments, including interest, over their respective borrowing periods. CIBC may also demand repayment of the installment loans at any time. The Strong/MDI credit facilities are secured by a lien on Strong/MDI’s Quebec, Canada facility and substantially all of Strong/MDI’s assets. The 2021 Credit Agreement required Strong/MDI to maintain a ratio of liabilities to “effective equity” (tangible stockholders’ equity, less amounts receivable from affiliates and equity method holdings) not exceeding 2.5 to 1, a current ratio (excluding amounts due from related parties) of at least 1.3 to 1 and minimum “effective equity” of CAD$4.0 million.

1920

In January 2023, Strong/MDI and CIBC entered into a demand credit agreement (the “2023 Credit Agreement”), which amended and restated the 2021 Credit Agreement. The 2023 Credit Agreement consists of a revolving line of credit for up to CAD$5.0million and a 20-year installment loan for up to CAD$3.1million. Under the 2023 Credit Agreement: (i) the amount outstanding under the line of credit is payable on demand and bears interest at the lender’s prime rate plus ~~1.0%~~1.0% and (ii) the amount outstanding under the installment loan bears interest at the lender’s prime rate plus ~~0.5%~~0.5% and is payable in monthly installments, including interest, over their respective borrowing periods. The lender may also demand repayment of the installment loan at any time. The 2023 Credit Agreement is secured by a lien on Strong/MDI’s Quebec, Canada facility and substantially all of Strong/MDI’s assets. The 2023 Credit Agreement requires Strong/MDI to maintain a ratio of liabilities to “effective equity” (tangible stockholders’ equity, less amounts receivable from affiliates and equity holdings) not exceeding 2.5 to 1 and a fixed charge coverage ratio of not less than 1.1 times earnings before interest, income taxes, depreciation and amortization. The 5-year installment note was paid in full in connection with entering into the 2023 Credit Agreement. As of ~~March 31,~~June 30, 2023, there was CAD$3.1million, or approximately $2.3million, of principal outstanding on the 20-year installment loan, which bears variable interest at ~~7.20%~~7.20%. Strong/MDI was in compliance with its debt covenants as of ~~March 31,~~June 30, 2023. In May 2023, Strong/MDI and CIBC entered into an amendment to the 2023 Credit Agreement which reduced the amount available under the revolving line of credit to CAD$3.4million, and CIBC provided an undertaking to Strong/MDI to a release of CIBC’s security interest in certain assets to be transferred to a subsidiary in connection with transactions related to the ~~announced initial public offering~~IPO. As of ~~Strong Global Entertainment.~~June 30, 2023, there was CAD$3.0 million, or approximately $2.2 million, of principal outstanding on the revolving credit facility, which bears variable interest at 7.95%

Safehaven Production Debt
Safehaven 2022 entered into a Loan and Security Agreement (“Loan Agreement”) with Bank of Hope to provide interim production financing for the Safehaven production. The Company is not a borrower or guarantor under the Loan Agreement, and Safehaven 2022 is the sole borrower and guarantor under the Loan Agreement. The maturity date of the Loan Agreement is the earlier of (i) the date on which payment is accelerated by Bank of Hope due to an event of default or (ii) March 15, 2024. As of June 30, 2023, Safehaven 2022 had borrowed $9.9 million under the facility for production costs incurred to that date. Subsequent to June 30, 2023, Ravenwood paid approximately $6.4 million of the outstanding production debt. The remaining balance on the Loan Agreement was satisfied in July 2023 upon receipt of the production tax rebates and incentives earned as a result of shooting the Safehaven series in Canada.
Tenant Improvement Loan

During the fourth quarter of 2021, the Company entered into a lease for a combined office and warehouse in Omaha, Nebraska. The Company incurred total costs of approximately $0.4million to complete the build-out of the new combined office and warehouse facility. The landlord has agreed to fund approximately ~~50%~~50% of the build-out costs, and the Company is required to repay the portion funded by the landlord in equal monthly installments through the end of the initial lease term in February 2027. Through the end of 2021, the Company incurred approximately $0.2million of total costs to build out the facility, of which approximately $0.1million was funded by the landlord. The Company completed the build-out during the first quarter of 2022 and incurred an additional $0.2million of total costs to complete the build-out, of which approximately $0.1million was funded by the landlord.
Digital Ignition Building Loam

In January 2022, the Company purchased a parcel of land with buildings and improvements in Alpharetta, Georgia. In connection with the purchase of the land and building, the Company entered into a Commercial Loan Agreement (the “Loan Agreement”) with Community First Bank (the “Lender”), dated February 1, 2022. Pursuant to the Loan Agreement, the Lender agreed to lend the Company approximately $5.3 million (the “Loan Amount”), and the Borrower agreed to repay the Loan Amount pursuant to the terms of a promissory note (the “Note”).

The term of the Loan Agreement runs from February 1, 2022, until the Loan Amount is repaid in full by the Company or the Loan Agreement is terminated pursuant to its terms or by agreement between the Company and the Lender. The terms of the Note include (i) a fixed interest rate of 4%4%, (ii) maturity date of February 1, 2027, (iii) monthly payments of approximately $32 thousand beginning on March 1, 2022, and continuing on the first of each month until the maturity date or until the Note has been paid in full, (iv) a default interest of 8% in the event of a default pursuant to the terms of the Note, and (v) prepayment penalties of (a) 3% of all excess payments during the first two years of the term of the Note, (b) 2% of all excess payments during the third and fourth years of the term of the Note, and (c) 1% of all excess payments made during the fifth year of the term of the Note.

The Note includes standard events of default and references defaults under the Loan Agreement and the Deed to Secure Debt as events of default under the Note. The Company has a right to cure any curable events of default.
2021

Insurance Debt
The Company maintains certain commercial insurance policies, including management liability and other policies customarily held by publicly traded companies. The Company elected to finance a portion of the annual premium, which will be repaid in monthly installments through January 2024. The finance agreement bears fixed interest of approximately 9%.
Contractual Principal Payments

Contractual required principal payments on the Company’s long-term debt at ~~March 31,~~June 30, 2023, are as follows (in thousands):
Schedule of Contractual Principal Payments of Long-term Debt
Tenant Improvement Loan Digital Ignitiion Building Loan Total Tenant Improvement Loan Digital Ignitiion Building Loan Total
Remainder of 2023 $ 26 134 $ 160 $       18 90 $ 108
2024 38 187 225 37 187 224
2025 40 195 235 40 195 235
2026 42 203 245 42 203 245
2027 7 4,340 4,347 7 4,340 4,347
Thereafter - - - - - -
Total $ 153 $ 5,059 $ 5,212 $ 144 $ 5,015 $ 5,159
~~11.~~13. Leases

The Company and its subsidiaries lease plant and office facilities and equipment under operating and finance leases expiring through 2027. The Company determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset.

Right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement date. Certain of the leases contain extension options; however, the Company has not included such options as part of its right-of-use assets and lease liabilities because it does not expect to extend the leases. The Company measures and records a right-of-use asset and lease liability based on the discount rate implicit in the lease, if known. In cases where the discount rate implicit in the lease is not known, the Company measures the right-of-use assets and lease liabilities using a discount rate equal to the Company’s estimated incremental borrowing rate for loans with similar collateral and duration.

The Company elected to not apply the recognition requirements of Accounting Standards Codification Topic 842, “Leases,” to leases of all classes of underlying assets that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise. Instead, lease payments for such short-term leases are recognized in operations on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.

The Company elected, as a lessee, for all classes of underlying assets, to not separate nonlease components from lease components and instead to account for each separate lease component and the nonlease components associated with that lease component as a single lease component.

2122

The following tables present the Company’s lease costs and other lease information (dollars in thousands):
Schedule of Lease Costs and Other Lease Information
March 31, 2023 March 31, 2022
Lease cost Three Months Ended
March 31, 2023 March 31, 2022
Finance lease cost:
Amortization of right-of-use assets $ 33 $ -
Interest on lease liabilities 13 -
Operating lease cost 36 105
Short-term lease cost 17 14
Sublease income - (32 )
Net lease cost $ 99 $ 87
June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022
Lease cost Three Months Ended Six Months Ended
June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022
Finance lease cost:
Amortization of right-of-use assets $ 37 $ 2 $ 70 $ 2
Interest on lease liabilities 15 1 27 1
Operating lease cost 39 46 73 150
Short-term lease cost 14 14 31 28
Sublease income - - - (32 )
Net lease cost $ 105 $ 63 $ 201 $ 149
June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022
Other information Three Months Ended Six Months Ended
June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases $ 15 $ 1 $ 27 $ 1
Operating cash flows from operating leases $ 33 $ 49 $ 65 $ 141
Financing cash flows from finance leases $ 38 $ 2 $ 66 $ 2
Right-of-use assets obtained in exchange for new finance lease liabilities $ 310 $ 68 $ 310 $ 68
Right-of-use assets obtained in exchange for new operating lease liabilities $ - $ - $ - $ -

March 31, 2023 March 31, 2022
Other information Three Months Ended
March 31, 2023 March 31, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases $ 13 $ -
Operating cash flows from operating leases $ 32 $ 92
Financing cash flows from finance leases $ 26 $ -
Right-of-use assets obtained in exchange for new finance lease liabilities $ - $ -
Right-of-use assets obtained in exchange for new operating lease liabilities $ - $ -

Weighted-average remaining lease term - finance leases (years) 1.7
Weighted-average remaining lease term - operating leases (years) 3.4
Weighted-average discount rate - finance leases 4.7 %
Weighted-average discount rate - operating leases 3.7 %
As of June 30, 2022
Weighted-average remaining lease term - finance leases (years) 1.5
Weighted-average remaining lease term - operating leases (years) 3.2
Weighted-average discount rate - finance leases 4.8 %
Weighted-average discount rate - operating leases 3.8 %

The following table presents a maturity analysis of the Company’s operating and finance lease liabilities as of ~~March 31,~~June 30, 2023 (in thousands):
Schedule of Future Minimum Lease Payments
Operating Leases Finance Leases
Remainder of 2023 $ 99 $ 127
2024 101 170
2025 79 416
2026 81 16
2027 14 5
Thereafter      - -
Total lease payments 374 734
Less: Amount representing interest (29 ) (95 )
Present value of lease payments 345 639
Less: Current maturities (118 ) (125 )
Lease obligations, net of current portion $ 227 $ 514
Operating Leases Finance Leases
Remainder of 2023 $ 66 $ 124
2024 101 249
2025 79 496
2026 81 188
2027 14 5
Thereafter - -
Total lease payments 341 1,062
Less: Amount representing interest (25 ) (151 )
Present value of lease payments 316 911
Less: Current maturities (116 ) (179 )
Lease obligations, net of current portion $ 200 $ 732

~~12.~~14. Income and Other Taxes

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. The Company considers the scheduled reversal of taxable temporary differences, projected future taxable income and tax planning strategies in making this assessment. A cumulative loss in a particular tax jurisdiction in recent years is a significant piece of evidence with respect to the realizability that is difficult to overcome. Based on the available objective evidence, including recent updates to the taxing jurisdictions generating income, the Company concluded that a valuation allowance should be recorded against all of the Company’s U.S. tax jurisdiction deferred tax assets as of ~~March 31,~~June 30, 2023 and December 31, 2022.

2223

The Tax Cuts and Jobs Act provides for a territorial tax system, which began in 2018. It includes the global intangible low-taxed income (“GILTI”) provision. The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The GILTI provisions also allow for a high-tax exclusion if the effective tax rate of the tested income is greater than ~~18.9%~~18.9%. The Company has evaluated these regulations in determining the appropriate amount of the inclusion for the tax provision. The effective tax rate on the tested income is greater than 18.9%; thus, the Company is utilizing the GILTI high-tax exclusion for purposes of the tax provision for the three and six months ended ~~March 31,~~June 30, 2023, as well as the year ended December 31, 2022.

Changes in tax laws may affect recorded deferred tax assets and liabilities and our effective tax rate in the future. In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted and made significant changes to Federal tax laws, including certain changes that were retroactive to the 2019 tax year. The effects of these changes relate to deferred tax assets and net operating losses; all of which are offset by valuation allowance. There were no material income tax consequences of this enacted legislation on the reporting period of these financial statements.

The Company is subject to possible examinations not yet initiated for Federal purposes for the fiscal years 2019 through 2021. The Company is also subject to possible examinations for state and local purposes. In most cases, these examinations in the state and local jurisdictions remain open based on the particular jurisdiction’s statute of limitations.

~~13.~~15. Stock Compensation

The Company recognizes compensation expense for all stock-based payment awards based on estimated grant date fair values. Stock-based compensation expense included in selling and administrative expenses approximated $~~0.1~~0.9 million and $0.2 million for the three months ended ~~March 31,~~June 30, 2023 and ~~March 31,~~June 30, 2022, respectively and $1.0 million and $0.4 million for the six months ended June 30, 2023 and June 30, 2022, respectively. Consolidated stock-based compensation expense for the three months and six months ended June 30, 2023 includes approximately $0.7 million related to stock-based compensation at Strong Global Entertainment, pursuant to the equity compensation plans established at the subsidiary level.

The Company’s 2017 Omnibus Equity Compensation Plan (“2017 Plan”) was approved by the Company’s stockholders and provides the Compensation Committee of the Board of Directors with the discretion to grant stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares, performance units and other stock- based awards and cash-based awards. Vesting terms vary with each grant and may be subject to vesting upon a “change in control” of the Company. On December 17, 2019, the Company’s stockholders approved the amendment and restatement of the 2017 Plan to (i) increase the number of shares of the Company’s common stock authorized for issuance under the 2017 Plan by 1,975,000 shares and (ii) extend the expiration date of the 2017 Plan by approximately two years, until October 27, 2029. As of ~~March 31,~~June 30, 2023, approximately ~~2.3~~1.8 million shares were available for issuance under the amended and restated 2017 Plan.

Stock Options
The Company granted a total of 107,500 options during the six months ended June 30, 2023. Options to purchase shares of common stock were granted with exercise prices equal to the fair value of the common stock on the date of the grant. The weighted average grant date fair value of stock options granted during the six months ended June 30, 2023 was $1.16. The fair value of each stock option granted is estimated on the date of grant using a Black-Scholes valuation model with the following weighted average assumptions:
Schedule of Fair Value Valuation Model
Expected dividend yield at date of grant 0.00 %
Risk-free interest rate 3.52 %
Expected stock price volatility 68.2 %
Expected life of options (in years) 5.0
2324

~~Stock Options~~

The following table summarizes stock option activity for the ~~three~~six months ended ~~March 31,~~June 30, 2023:
Summary of Stock Option Activities
Number of Options Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2022 639,500 $ 3.72 5.6 $ 127
Granted -
Exercised -
Forfeited -
Expired -
Outstanding at March 31, 2023 639,500 $ 3.72 5.3 $ 45
Exercisable at March 31, 2023 499,500 $ 4.13 4.9 $ 18
Number of Options Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2022 639,500 $ 3.72 5.6 $ 127
Granted 107,500 $ 1.96
Exercised -
Forfeited (5,000 ) $ 1.96
Expired -
Outstanding at June 30, 2023 742,000 $ 3.21 4.4 $ 35
Exercisable at June 30, 2023 530,500 $ 4.06 4.7 $ 14

The aggregate intrinsic value in the table above represents the total that would have been received by the option holders if all in-the-money options had been exercised and sold on the date indicated.

As of ~~March 31,~~June 30, 2023, ~~140,000~~211,500 stock option awards were non-vested. Unrecognized compensation cost related to non-vested stock options was approximately $~~0.1~~0.2 million, which is expected to be recognized over a weighted average period of ~~1.8~~2.2 years.

Restricted Stock Units

The Company estimates the fair value of restricted stock awards based upon the ~~market~~closing price of the underlying common stock on the date of grant. The following table summarizes restricted stock unit activity for the ~~three~~six months ended ~~March 31,~~June 30, 2023:
Summary of Restricted Stock Activity
Number of Restricted Stock Units Weighted Average Grant Date Fair Value
Non-vested at December 31, 2022 206,934 $ 2.06
Granted 390,000 $ 1.96
Shares vested -
Shares forfeited -
Non-vested at June 30, 2023 596,934 $ 2.06
Number of Restricted Stock Units Weighted Average Grant Date Fair Value
Non-vested at December 31, 2022 206,934 $ 2.06
Granted -
Shares vested -
Shares forfeited -
Non-vested at March 31, 2023 206,934 $ 2.06
As of ~~March 31,~~June 30, 2023, the total unrecognized compensation cost related to non-vested restricted stock unit awards was approximately $~~0.1~~0.7 million, which is expected to be recognized over a weighted average period of ~~0.3~~2.7 years.

~~14.~~16. Commitments, Contingencies and Concentrations

Litigation

The Company is involved, from time to time, in certain legal disputes in the ordinary course of business. No such disputes, individually or in the aggregate, are expected to have a material effect on the Company’s business or financial condition.

The Company and certain of its subsidiaries are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. A majority of the cases involve product liability claims based principally on allegations of past distribution of commercial lighting products containing wiring that may have contained asbestos. Each case names dozens of corporate defendants in addition to the Company. In the Company’s experience, a large percentage of these types of claims have never been substantiated and have been dismissed by the courts. The Company has not suffered any adverse verdict in a trial court proceeding related to asbestos claims and intends to continue to defend these lawsuits. As of ~~March 31,~~June 30, 2023, the Company has a loss contingency reserve of approximately $0.2 million, which represents the Company’s estimate of its potential losses related to the settlement of open cases. During 2022 and the first ~~quarter~~half of 2023, the Company settled three cases, which resulted in payments totaling $53 thousand. When appropriate, the Company may settle additional claims in the future. The Company does not expect the resolution of these cases to have a material adverse effect on its consolidated financial condition, results of operations or cash flows.

2425

Concentrations

The Company’s top ten customers accounted for approximately 5740% of consolidated net revenues during the ~~three~~six months ended ~~March 31,~~June 30, 2023. Trade accounts receivable from these customers represented approximately 8062% of net consolidated receivables at ~~March 31,~~June 30, 2023. One of the Company’s customers accounted for more than 10% of both its consolidated net revenues during the ~~three~~six months ended ~~March 31,~~June 30, 2023 and its net ~~consolidated~~combined receivables as of ~~March 31,~~June 30, 2023. While the Company believes its relationships with such customers are stable, most arrangements are made by purchase order and are terminable at will by either party. A significant decrease or interruption in business from the Company’s significant customers could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company could also be adversely affected by such factors as changes in foreign currency rates and weak economic and political conditions in each of the countries in which the Company sells its products.

Financial instruments that potentially expose the Company to a concentration of credit risk principally consist of accounts receivable. The Company sells product to a large number of customers in many different geographic regions. To minimize credit risk, the Company performs ongoing credit evaluations of its customers’ financial condition.

~~15.~~17. Business Segment Information

The Company conducts its operations primarily through its Strong Entertainment business segment which manufactures and distributes premium large format projection screens and provides technical support services and other related products and services to the cinema exhibition industry, theme parks, schools, museums and other entertainment-related markets. Strong Entertainment also distributes and supports third party products, including digital projectors, servers, library management systems, menu boards and sound systems. Strong Studios, which is part of the Strong Entertainment operating segment, develops and produces original feature films and television series. The Company’s operating segments were determined based on the manner in which management organizes segments for making operating decisions and assessing performance.

2526

Summary by Business Segments
Schedule of Segment Reporting Information by Segment
2023 2022 2023 2022 2023 2022
Three Months Ended March 31, Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022 2023 2022
(in thousands) (in thousands) (in thousands)
Net revenues
Strong Entertainment $ 9,951 $ 9,720 $ 17,839 $ 8,822 $ 27,790 $ 18,543
Other 158 306 183 321 341 626
Total net revenues 10,109 10,026 18,022 9,143 28,131 19,169

Gross profit
Strong Entertainment 2,320 2,205 7,264 2,098 9,585 4,304
Other 158 306 183 322 340 628
Total gross profit 2,478 2,511 7,447 2,420 9,925 4,932

Operating income (loss)
Strong Entertainment 576 610 349 180 924 790
Other (169 ) (134 ) (122 ) (36 ) (291 ) (170 )
Total segment operating income 407 476 227 144 633 620
Unallocated administrative expenses (1,185 ) (1,239 ) (995 ) (1,029 ) (2,180 ) (2,267 )
Loss from operations (778 ) (763 ) (768 ) (885 ) (1,547 ) (1,647 )
Other (expense) income, net (2,859 ) 1,131
(Loss) income before income taxes and equity method holding loss $ (3,637 ) $ 368
Other expense, net (2,225 ) (4,056 ) (5,085 ) (2,925 )
Loss before income taxes and equity method holding loss $ (2,993 ) $ (4,941 ) $ (6,632 ) $ (4,572 )
Reconciliation of Assets from Segment to Consolidated
(In thousands) March 31, 2023 December 31, 2022 June 30, 2023 December 31, 2022
Identifiable assets
Strong Entertainment $ 34,196 $ 35,392 $ 39,843 $ 35,392
Corporate assets 34,391 36,361 39,252 36,361
Total $ 68,587 $ 71,753 $ 79,095 $ 71,753
Summary by Geographical Area
Schedule of Segment Reporting Information by Geographic Area
(In thousands) 2023 2022

Three Months Ended March 31, Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2023 2022 2023 2022 2023 2022
Net revenues
United States $ 8,735 $ 8,783 $ 17,072 $ 7,840 $ 25,808 $ 16,623
Canada 313 406 108 466 420 873
China 22 235 - 44 22 279
Mexico 64 7 64 7
Latin America 256 147 16 74 273 220
Europe 396 96 171 169 566 265
Asia (excluding China) 153 153 433 279 586 432
Other 234 206 158 264 392 470
Total $ 10,109 $ 10,026 $ 18,022 $ 9,143 $ 28,131 $ 19,169
Summary of Identifiable Assets by Geographical Area
(In thousands) March 31, 2023 December 31, 2022 June 30, 2023 December 31, 2022
Identifiable assets
United States $ 49,638 $ 51,423 $ 51,187 $ 51,423
Canada 18,949 20,330 27,908 20,330
Total $ 68,587 $ 71,753 $ 79,095 $ 71,753

Net revenues by business segment are to unaffiliated customers. Net revenues by geographical area are based on destination of sales. Identifiable assets by geographical area are based on location of facilities.

2627

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this report. In addition to historical information, this Quarterly Report on Form 10–Q, including management’s discussion and analysis, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not historical are forward-looking and reflect expectations for future Company performance. Forward-looking statements may be identified by the use of words such as “may,” “will,” “forecast,” “estimate,” “project,” “intend,” “plan,” “expect,” “should,” “believe” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions and speak only as of the date on which it is made. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve a number of risks and uncertainties, including but not limited to those discussed in the “Risk Factors” section contained in Item 1A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and the following risks and uncertainties: the Company’s ability to maintain and expand its revenue streams to compensate for the lower demand for the Company’s digital cinema products and installation services; potential interruptions of supplier relationships or higher prices charged by suppliers; the Company’s ability to successfully compete and introduce enhancements and new features that achieve market acceptance and that keep pace with technological developments; the Company’s ability to successfully execute its capital allocation strategy or achieve the returns it expects from these holdings; the Company’s ability to maintain its brand and reputation and retain or replace its significant customers; challenges associated with the Company’s long sales cycles; the impact of a challenging global economic environment or a downturn in the markets; the effects of economic, public health, and political conditions that impact business and consumer confidence and spending, including rising interest rates, periods of heightened inflation and market instability, the outbreak of any highly infectious or contagious diseases, such as COVID-19 and its variants or other health epidemics or pandemics, and armed conflicts, such as the ongoing military conflict in Ukraine and related sanctions; economic and political risks of selling products in foreign countries (including tariffs); risks of non-compliance with U.S. and foreign laws and regulations, potential sales tax collections and claims for uncollected amounts; cybersecurity risks and risks of damage and interruptions of information technology systems; the Company’s ability to retain key members of management and successfully integrate new executives; the Company’s ability to complete acquisitions, strategic investments, entry into new lines of business, divestitures, mergers or other transactions on acceptable terms, or at all; the impact of economic, public health and political conditions on the companies in which the Company holds equity stakes; the Company’s ability to utilize or assert its intellectual property rights, the impact of natural disasters and other catastrophic events, whether natural, man-made, or otherwise (such as the outbreak of any highly infectious or contagious diseases, or armed conflict); the adequacy of the Company’s insurance; the impact of having a controlling stockholder and vulnerability to fluctuation in the Company’s stock price. Given the risks and uncertainties, readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results which may not occur as anticipated. Many of the risks listed above have been, and may further be, exacerbated by the impact of economic, public health (such as a resurgence of the COVID-19 pandemic) and political conditions (such as the military conflict in Ukraine) that impact consumer confidence and spending, particularly in the cinema, entertainment, and other industries in which the Company and the companies in which the Company holds an equity stake operate, and the worsening economic environment. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described herein, as well as others not now anticipated. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except where required by law, the Company assumes no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.

Overview

FG Group Holdings Inc. (“FG Group Holdings”, the “Company”, “we”, “our”, and “us”) is a holding company with business operations in the entertainment industry and holdings in public and privately held companies. Our ~~Strong Entertainment segment includes~~Strong Entertainment segment includes one of ~~the largest manufacturers~~the largest manufacturers of ~~premium projection screens~~premium projection screens and customized screen support systems, and we also distribute other products and ~~customized screen support systems, and we also distribute other products and provide technical support services~~provide technical support services to the ~~cinema, amusement~~cinema, amusement park and other markets. We are focused on improving our operating performance as the United States and ~~other markets. We are focused on improving our operating performance as the United States and other countries~~other countries recover from ~~COVID-19 related business disruptions.~~COVID-19 related business disruptions. We ~~plan~~plan to ~~manage the Strong Entertainment business segment~~manage the Strong Entertainment business segment to grow ~~market share and organic revenue and improve operating results,~~market share and organic revenue and improve operating results, with ~~the~~the intent of ~~expanding~~expanding the ~~ultimate valuation~~ultimate valuation of the ~~business. We intend to separate~~business.
In May 2023, we separated our Strong Entertainment operating business from the Company ~~and pursue~~pursuant to an initial public offering to support the growth plans for that line of business. Following the ~~planned~~ separation, we ~~intend to~~ continue to be the majority shareholder of Strong Global ~~Entertainment.~~
27
~~In addition, we use our facility in Alpharetta, Georgia for our Digital Ignition technology incubator~~Entertainment, and ~~co-working facility. Results of those operations are included within “Other” in our results of operations.~~this discussion and analysis is prepared on a consolidated basis.

28
In addition, we use our facility in Alpharetta, Georgia for our Digital Ignition technology incubator and co-working facility. Results of those operations are included within “Other” in our results of operations. We ~~also continue to evaluate capital allocation opportunities~~also continue to evaluate capital allocation opportunities to invest in ~~other~~other public or ~~private companies~~private companies, real estate or ~~acquire other businesses, which~~acquire other businesses, which may be ~~within~~within or ~~outside~~outside of the ~~Company’s existing markets.~~Company’s existing markets.

Impact of COVID-19 Pandemic
~~In December 2019, a novel~~The coronavirus ~~disease was initially reported,~~pandemic (“COVID-19”) had an unprecedented impact to consumer behaviors and in March 2020, the World Health Organization characterized COVID-19 as a pandemic. COVID-19 has had a widespread and detrimental effect on the global economy as a result of the continued increase in the number of cases, particularly in the United States, and actions by public health and governmental authorities, businesses, other organizations and individuals to address the outbreak, including travel bans and restrictions, quarantines, shelter in place, stay at home or total lock-down orders and business limitations and shutdowns. The ultimate impact of the COVID-19 pandemic on our business and results of operations remains unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including repeat or cyclical outbreaks, and any additional preventative and protective actions that governments, or we or our customers, ~~may direct, which may result in an extended period of continued business disruption~~particularly our customers’ ability and ~~reduced operations. We believe~~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, ~~is abating,~~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 impact of COVID-19 on inflation and supply chains and the continued economic 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 ~~however,~~ that there will be no additional public health crises, including further resurgence or variants of COVID-19, which could reverse the current ~~trend.~~
~~The repercussions of the COVID-19 global pandemic resulted in~~trend and have a significant impact to our customers, specifically those in the entertainment and advertising industries, and their ability and willingness to spend on our products and services, which continues to negatively impact us. A significant number of our customers temporarily ceased operations during the pandemic, which negatively impacted our results of operations. For instance, during this time, many movie theaters and other entertainment centers were forced to close or curtail their hours and, correspondingly, terminated or deferred their non-essential capital expenditures. The COVID-19 pandemic also adversely affected film production and the pipeline of feature films available in the short- or long-term. However, we believe there is now pent-up demand for out-of-home entertainment that will drive favorable trends post-COVID-19 in the cinema exhibition and theme park industries. We also experienced other negative impacts during the pandemic; among other actions, we were required to temporarily close our screen manufacturing facility in Canada due to the governmental response to COVID-19, experienced lower revenues from field services, and saw a reduction in non-recurring time and materials-based services. The impact of any future outbreak of contagious disease, or a worsening or resurgence of COVID-19, is not readily ascertainable, is uncertain and cannot be predicted, but could have an adverse impact on the Company’s ~~business, financial condition and~~ results of ~~operations, and could also have a material adverse impact on our strategic partners’ businesses or on the businesses of companies in which we hold equity stakes.~~
While the current impacts of COVID-19 are reflected in our results of operations, we cannot at this time separate the direct COVID-19 impacts from other factors that cause our performance to vary from quarter to quarter. The ultimate duration and impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows is dependent on future developments and the related length of their impact on the global economy, which are uncertain and cannot be predicted at this time. Even as the COVID-19 pandemic subsides, we may continue to experience an adverse impact to our business as a result of its national and global economic impact.operations. Our results of operations in future periods may continue to be adversely impacted by ~~the COVID-19 pandemic~~inflationary pressures and ~~its~~global supply chain issues, and other negative effects on global economic conditions.

2829

Results of Operations

The following table sets forth our operating results for the periods indicated:

Three Months Ended March 31, Three Months Ended June 30,
2023 2022 $ Change % Change 2023 2022 $ Change % Change
(dollars in thousands) (dollars in thousands)
Net revenues $ 10,109 $ 10,026 $ 83 0.8 % $ 18,022 $ 9,143 $ 8,879 97.1 %
Cost of revenues 7,631 7,515 116 1.5 % 10,575 6,723 3,852 57.3 %
Gross profit 2,478 2,511 (33 ) (1.3 )% 7,447 2,420 5,027 207.7 %
Gross profit percentage 24.5 % 25.0 % 41.3 % 26.5 %
Selling and administrative expenses 3,257 3,274 (17 ) (0.5 )% 8,220 3,305 4,915 148.7 %
Gain on disposal of assets 1 - 1 100.0 % 5 - 5 100.0 %
Loss from operations (778 ) (763 ) (15 ) 2.0 % (768 ) (885 ) 117 (13.2 )%
Other (expense) income (2,859 ) 1,131 (3,990 ) (352.8 )%
(Loss) income before income taxes and equity method holding loss (3,637 ) 368 (4,005 ) (1088.3 )%
Income tax benefit (expense) 299 (350 ) 649 (185.4 )%
Other expense (2,225 ) (4,056 ) 1,831 (45.1 )%
Loss before income taxes and equity method holding loss (2,993 ) (4,941 ) 1,948 (39.4 )%
Income tax (expense) benefit (355 ) 303 (658 ) (217.2 )%
Equity method holding loss (651 ) (820 ) 169 (20.6 )% (2,043 ) (960 ) (1,083 ) 112.8 %
Net loss $ (3,989 ) $ (802 ) $ (3,187 ) 397.4 % (5,391 ) (5,598 ) 207 (3.7 )%
Net loss attributable to non-controlling interest (118 ) - (118 ) N/M
Net loss attributable to FG Group Holdings $ (5,273 ) $ (5,598 ) $ 325 (5.8 )%

Six Months Ended June 30,
2023 2022 $ Change % Change
(dollars in thousands)
Net revenues $ 28,131 $ 19,169 $ 8,962 46.8 %
Cost of revenues 18,206 14,237 3,969 27.9 %
Gross profit 9,925 4,932 4,993 101.2 %
Gross profit percentage 35.3 % 25.7 %
Selling and administrative expenses 11,478 6,579 4,899 74.5 %
Gain on disposal of assets 6 - 6 100.0 %
Loss from operations (1,547 ) (1,647 ) 100 (6.1 )%
Other (expense) income (5,085 ) (2,925 ) (2,160 ) 73.8 %
Loss  before income taxes and equity method holding loss (6,632 ) (4,572 ) (2,060 ) 45.1 %
Income tax expense (56 ) (47 ) (9 ) 19.1 %
Equity method holding loss (2,694 ) (1,780 ) (914 ) 51.3 %
Net loss (9,382 ) (6,399 ) (2,983 ) 46.6 %
Net loss attributable to non-controlling interest (118 ) - (118 ) N/M
Net loss attributable to FG Group Holdings $ (9,264 ) $ (6,399 ) $ (2,865 ) 44.8 %
Three Months Ended ~~March 31,~~June 30, 2023 Compared to the Three Months Ended ~~March 31,~~June 30, 2022

Revenues

Net revenues during the quarter ended ~~March 31,~~June 30, 2023 was ~~$10.1~~$18.0 million compared to ~~$10.0~~$9.1 million during the quarter ended ~~March 31,2022.~~June 30, 2022.

Three Months Ended March 31, Three Months Ended June 30,
2023 2022 $ Change % Change 2023 2022 $ Change % Change
(dollars in thousands) (dollars in thousands)
Strong Entertainment $ 9,951 $ 9,720 $ 231 2.4 % $ 17,839 $ 8,822 $ 9,017 102.2 %
Other 158 306 (148 ) (48.4 )% 183 321 (138 ) (43.0 )%
Total net revenues $ 10,109 $ 10,026 $ 83 0.8 % $ 18,022 $ 9,143 $ 8,879 97.1 %

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Strong Entertainment

Revenue from Strong Entertainment ~~increased 2.4%~~more than doubled to ~~$10.0~~$17.8 million in the ~~first~~second quarter of 2023 from ~~$9.7~~$8.8 million in the ~~first~~second quarter of 2022. The increase from the prior year was due to ~~$0.7~~$1.7 million of higher revenue from product sales and a $7.3 million increase in service revenue, ~~partially offset by~~which included $6.4 million from the sale of an ownership stake in the Safehaven series. The revenue recognized in connection with Strong Studios’ projects will vary from period to period and ~~a $0.5 million decrease in product revenue.~~will depend on the timing of the monetization of the projects. Excluding the revenue related to Safehaven, total revenue during the second quarter of 2023 increased 29.9% over the prior year, and service revenue increased 42.5%.

The increase in revenue from products was primarily due to a 24% increase in sales of screen systems as the upgrade to laser projection continues across the industry, as well as a 32% increase in sales of digital equipment. We expect the upgrades from xenon to laser to accelerate throughout 2023 and continue for at least the next several years.
On the cinema services side, the primary driver of the revenue increase was from installation services, which grew 121% from the prior year as we have increased the scope of our ~~services~~offerings to better support our customers and to increase market share in cinema services, including cinema screen installation work performed for certain of our customers. The decline in revenue from products was primarily due to the timing of projects utilizing our Eclipse curvilinear screens, which was partially offset by higher sales of traditional cinema screens as the upgrade to laser projection continues across the industry. We expect the upgrades from xenon to laser to accelerate throughout 2023 and continue for at least the next several years.

Other

The decrease in other revenue primarily related to the expiration of the agreement covering support services provided to Firefly, which expired at the end of 2022.

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Gross Profit

Consolidated gross profit was ~~$2.5~~$7.4 million compared to $2.4 million during ~~both~~ the quarter ended ~~March 31, 2023 and March 31,~~June 30, 2022. As a percentage of revenue, gross profit was ~~24.5%~~41.3% and ~~25.0%~~26.5% for the quarters ended ~~March 31,~~June 30, 2023 and ~~March 31,~~June 30, 2022, respectively.

Three Months Ended March 31, Three Months Ended June 30,
2023 2022 $ Change % Change 2023 2022 $ Change % Change
(dollars in thousands) (dollars in thousands)
Strong Entertainment $ 2,320 $ 2,205 $ 115 5.2 % $ 7,264 $ 2,098 $ 5,166 246.2 %
Other 158 306 (148 ) (48.4 )% 183 322 (139 ) (43.2 )%
Total gross profit $ 2,478 $ 2,511 $ (33 ) (1.3 )% $ 7,447 $ 2,420 $ 5,027 207.7 %

Strong Entertainment

Gross profit in the Strong Entertainment segment ~~was $2.3~~$7.3 million or ~~23.3%~~40.7% of revenues in the ~~first~~second quarter of 2023 compared to ~~$2.2~~$2.1 million or ~~22.7%~~23.8% in the ~~first~~second quarter of 2022. Gross profit during the 2^nd quarter of 2023 included approximately $4.4 million from the sale of an ownership stake in Safehaven. Gross profit generated from Strong Studios’ projects will vary from period to period and will depend on the timing of the monetization of the projects. Excluding the gross profit related to Safehaven, total gross profits during the second quarter of 2023 would have been 24.5% of revenue.

Gross profit from product sales was ~~$1.7~~$2.2 million or ~~24.1%~~25.7% of revenues for the ~~first~~second quarter of 2023 compared to ~~$1.6~~$1.8 million or ~~21.1%~~27.7% of revenues for the ~~first~~second quarter of 2022. The ~~increase~~decrease in gross profit percentage from product sales resulted primarily from product mix as revenue from sales of lower margin digital equipment grew at a slightly faster rate than our higher margin ~~traditional~~ cinema ~~screens grew at a faster rate than that of our other products.~~screens.

Gross profit from service revenue was ~~$0.6~~$5.1 million or ~~21.2%~~54.1% of revenues for the ~~first~~second quarter of 2023 compared to ~~$0.6~~$0.2 million or ~~28.7%~~11.6% of revenues for the ~~first~~second quarter of 2022. Gross profit percentage ~~declined~~increased from the prior year due to the sale of an ownership stake in the Safehaven series, as well as slightly higher overall gross margin from cinema services. Gross margin on our installation services also improved from the prior year as we started to see the ~~increase in gross margin~~benefits from ~~our field services and contract revenue was more than offset by~~the transition from third-party screen installation ~~costs. Third-party screen~~costs to internal labor. We expect margins on installation ~~costs are expected~~services to ~~be replaced with internal labor~~continue to improve as we continue to onboard ~~the team during the first half of 2023, which is expected to improve margins later in the year.~~and utilize our internal installation team.
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Other

Other gross profit decreased primarily related to the expiration of the agreement covering support services provided to Firefly, which expired at the end of 2022.

Loss From Operations

Consolidated loss from operations was $0.8 million induring the ~~first~~ quarter ~~of both~~ended June 30, 2023 ~~and~~compared to $0.9 million during the quarter ended June 30, 2022.

Three Months Ended March 31,
2023 2022 $ Change % Change
(dollars in thousands)
Strong Entertainment $ 576 $ 610 $ (34 ) (5.6 )%
Other (169 ) (134 ) (35 ) 26.1 %
Total segment operating income 407 476 (69 ) (14.5 )%
Unallocated administrative expenses (1,185 ) (1,239 ) 54 (4.4 )%
Total loss from operations $ (778 ) $ (763 ) $ (15 ) 2.0 %
Three Months Ended June 30,
2023 2022 $ Change % Change
(dollars in thousands)
Strong Entertainment $ 349 $ 180 $ 169 93.9 %
Other (122 ) (36 ) (86 ) 238.9 %
Total segment operating income 227 144 83 57.6 %
Unallocated administrative expenses (995 ) (1,029 ) 34 (3.3 )%
Total loss from operations $ (768 ) $ (885 ) $ 117 (13.2 )%

The Strong Entertainment segment generated operating income of ~~$0.6~~$0.3 million in ~~both~~ the ~~first~~second quarter of 2023 compared to operating income of $0.2 million during the second quarter of 2022. We recorded approximately $1.2 million of costs in connection with the completion of the IPO and ~~2022. There were increases to~~$3.4 million of production participation costs in connection with the sale of an ownership stake in the Safehaven series. The increase in gross profit was partially offset by higher selling and administrative expenses, including marketing and travel and entertainment expenses, ~~related to the increased~~as revenue and business activity ~~including that of Strong Studios, in the current period as compared to the prior year~~.increased.

Unallocated administrative expenses were ~~$1.2~~$1.0 million in each of the ~~first quarter of both~~second quarters 2023 and 2022. A decrease in stock-based compensation was partially offset by an increase in professional fees and higher overall compensation costs.
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Other Financial Items

Total other expense of ~~$2.9~~$2.2 million during the ~~first~~second quarter of 2023 primarily consisted of a ~~$2.9~~$1.6 million unrealized loss on equity holdings, $0.4 million of foreign currency transaction adjustments and $0.1 million of interest expense. Total other expense of $4.1 million during the second quarter of 2022 primarily consisted of a $4.2 million unrealized loss on equity holdings and $0.1 million of interest expense, partially offset by ~~$0.1~~$0.2 million of foreign currency transaction adjustments. Total other income of $1.1 million during the first quarter of 2022 primarily consisted of a $1.7 million unrealized gain on equity holdings, partially offset by $0.3 million of foreign currency transaction adjustments, a $0.2 million adjustment to the carrying value of a promissory note receivable in connection with a prepayment, and $0.1 million of interest expense.

Income tax ~~benefit~~expense was ~~$0.3~~$0.4 million during the ~~first~~second quarter of 2023 compared to income tax ~~expense~~benefit of ~~$0.4~~$0.3 million during the ~~first~~second quarter of 2022. Our income tax benefit/expense during the ~~first~~second quarter of 2023 and 2022 consisted primarily of current and deferred income tax on foreign earnings, which includes the unrealized (loss) gain on equity holdings.

We recorded a loss on our FGF Holdings equity method holding of ~~$0.7~~$2.0 million during the ~~first~~second quarter of 2023 compared to $1.0 million during the second quarter of 2022.
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As a result of the items outlined above, we generated a net loss attributable to FG Group Holdings of $5.3 million, or $0.27 per basic and diluted share, in the second quarter of 2023, compared to $5.6 million, or $0.29 per basic and diluted share, in the second quarter of 2022.
Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022
Revenues
Net revenues during the six months ended June 30, 2023 was $28.1 million compared to $19.2 million during the six months ended June 30, 2022.
Six Months Ended June 30,
2023 2022 $ Change % Change
(dollars in thousands)
Strong Entertainment $ 27,790 $ 18,543 $ 9,247 49.9 %
Other 341 626 (285 ) (45.5 )%
Total net revenues $ 28,131 $ 19,169 $ 8,962 46.8 %
Strong Entertainment
Revenue from Strong Entertainment increased 49.9% to $27.8 million in the first half of 2023 from $18.5 million in the first half of 2022. The increase from the prior year was due to $1.2 million of higher revenue from product sales and $8.0 million increase in service revenue, which included $6.4 million from the sale of an ownership stake in the Safehaven series. The revenue recognized in connection with Strong Studios’ projects will vary from period to period and will depend on the timing of the monetization of the projects. Excluding the revenue related to Safehaven, total revenue during the first half of 2023 increased 15.5% over the prior year, and service revenue increased 39.4%.
The increase in revenue from products was primarily due to a $0.8 million increase in sales of digital equipment and $0.3 million of higher sales of traditional cinema screens. We expect the upgrades from xenon to laser to accelerate throughout 2023 and continue for at least the next several years.
On the cinema services side, the primary driver of the revenue increase was from installation services, which increased $1.0 million from the prior year as we have increased the scope of our offerings to better support our customers and to increase market share in cinema services, including cinema screen installation work performed for certain of our customers.
Other
The decrease in other revenue primarily related to the expiration of the agreement covering support services provided to Firefly, which expired at the end of 2022.
Gross Profit
Consolidated gross profit was $9.9 million during the six months ended June 30, 2023 compared to $4.9 million during the six months ended June 30, 2022. As a percentage of revenue, gross profit was 35.3% and 25.7% for the six months ended June 30, 2023 and June 30, 2022, respectively.
Six Months Ended June 30,
2023 2022 $ Change % Change
(dollars in thousands)
Strong Entertainment $ 9,585 $ 4,304 $ 5,281 122.7 %
Other 340 628 (288 ) (45.9 )%
Total gross profit $ 9,925 $ 4,932 $ 4,993 101.2 %
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Strong Entertainment
Gross profit was $9.6 million or 34.5% of revenues in the first half of 2023 compared to $4.3 million or 22.7% in the first half of 2022. Gross profit during the first half of 2023 included approximately $4.4 million from the sale of an ownership stake in Safehaven. Gross profit generated from Strong Studios’ projects will vary from period to period and will depend on the timing of the monetization of the projects. Excluding the gross profit related to Safehaven, total gross profit during the first half of 2023 would have been 24.0% of revenue.
Gross profit from product sales was $3.9 million or 25.0% of revenues for the first half of 2023 compared to $3.7 million or 25.7% of revenues for the first half of 2022. The slight decrease in gross profit percentage from product sales resulted primarily from product mix as revenue from sales of lower margin digital equipment grew at a slightly faster rate than our higher margin traditional cinema screens.
Gross profit from service revenue was $5.7 million or 46.7% of revenues for the first half of 2023 compared to $0.6 million or 14.7% of revenues for the first half of 2022. Gross profit percentage increased from the prior year primarily due to the sale of an ownership stake in the Safehaven series. We expect margins on installation services to continue to improve as we continue to onboard and utilize our internal installation team.
Other
Other gross profit decreased primarily related to the expiration of the agreement covering support services provided to Firefly, which expired at the end of 2022.
Loss From Operations
Consolidated loss from operations for the first half of 2023 was $1.5 million compared to $1.6 million during the six months ended June 30, 2022.
Six Months Ended June 30,
2023 2022 $ Change % Change
(dollars in thousands)
Strong Entertainment $ 924 $ 790 $ 134 17.0 %
Other (291 ) (170 ) (121 ) 71.2 %
Total segment operating income 633 620 13 2.1 %
Unallocated administrative expenses (2,180 ) (2,267 ) 87 (3.8 )%
Total loss from operations $ (1,547 ) $ (1,647 ) $ 100 (6.1 )%
The Strong Entertainment segment generated operating income of $0.9 million in the first half of 2023 compared to operating income of $0.8 million during the first ~~quarter~~half of 2022. We recorded approximately $1.2 million of costs in connection with the completion of the Strong Global Entertainment IPO and $3.4 million of production participation costs in connection with the sale of an ownership stake in the Safehaven series. In addition, selling and administrative expenses, marketing and travel and entertainment expenses were higher during the first half of 2023 as revenue and business activity increased, including the addition of Strong Studios, in the current period as compared to the prior year, which was offset by an increase in gross profit.
Unallocated administrative expenses were $2.2 million compared to $2.3 million during the six months ended June 30, 2022. A decrease in stock-based compensation was partially offset by an increase in professional fees and higher overall compensation costs.
Other Financial Items
Total other expense of $5.1 million during the six months of 2023 primarily consisted of a $4.5 million unrealized loss on equity holdings, $0.3 million of foreign currency transaction adjustments and $0.2 million of interest expense. Total other expense of $2.9 million during the first half of 2022 primarily consisted of a $2.5 million unrealized loss on equity holdings, a $0.2 million adjustment to the carrying value of the SageNet Promissory Note in connection with a prepayment, and $0.1 million of interest expense, and $0.1 million of foreign currency transaction adjustments.
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Income tax expense was $0.1 million during the six months of 2023 compared to income tax expense of $47,000 during the six months of 2022. Our income tax benefit/expense during the six months of 2023 and 2022 consisted primarily of current and deferred income tax on foreign earnings, which includes the unrealized (loss) gain on equity holdings.
We recorded a loss on our FGF Holdings equity method holding of $2.7 million during the first six months of 2023 compared to $1.8 million during the first six months of 2022.

As a result of the items outlined above, we generated a net loss attributable to FG Group Holdings of ~~$4.0~~$9.3 million, or ~~$0.20~~$0.48 per basic and diluted share, in the first ~~quarter~~six months of 2023, compared to ~~$0.8~~$6.4 million, or ~~$0.04~~$0.33 per basic and diluted share, in the first ~~quarter~~six months of 2022.
Liquidity and Capital Resources

During the past several years, we have primarily met our working capital and capital resource needs from our operating cash flows, sales of our common stock and credit facilities. Our primary cash requirements involve operating expenses, working capital, capital expenditures, equity holdings, and other general corporate activities.
We ended the ~~first~~second quarter of 2023 with total cash and cash equivalents of ~~$4.3~~$5.0 million compared to $3.8 million as of December 31, 2022. Of the ~~$4.3~~$5.0 million as of ~~March 31,~~June 30, 2023, ~~$0.6~~$2.5 million was held in Canada by ~~our Canadian subsidiary, Strong/MDI.~~Strong Global Entertainment. Strong/MDI makes intercompany loans to the U.S. parent company which do not trigger Canadian withholding taxes if they meet certain requirements. As of ~~March 31,~~June 30, 2023, the parent company had outstanding intercompany loans from Strong/MDI of approximately $38.6 million. In the event those loans are not repaid, or are recharacterized as dividends to the U.S. parent company, we would be required to pay 5% Canadian withholding taxes, which have been fully accrued as of ~~March 31,~~June 30, 2023.
In response to the COVID-19 pandemic and related closures of cinemas, theme parks and entertainment venues, we took decisive actions to conserve cash, reduce operating expenditures, delay capital expenditures, and manage working capital.
On June 7, 2021, Strong/MDI entered into a demand credit agreement (the “2021 Credit Agreement”) with CIBC, which amended and restated the demand credit agreement dated as of September 5, 2017. The 2021 Credit Agreement consisted of a revolving line of credit for up to CDN$2.0 million subject to a borrowing base requirement, a 20-year installment loan for up to CDN$5.1 million and a 5-year installment loan for up to CDN$0.5 million. These borrowings were due on demand by the lender. In January 2023, Strong/MDI entered into a demand credit agreement (the “2023 Credit Agreement”), which amended and restated the 2021 Credit Agreement. The 2023 Credit Agreement consists of a revolving line of credit for up to CAD$5.0 million and a 20-year installment loan for up to CAD$3.1 million. Under the 2023 Credit Agreement: (i) the amount outstanding under the line of credit is payable on demand and bears interest at the lender’s prime rate plus 1.0% and (ii) the amount outstanding under the installment loan bears interest at the lender’s prime rate plus 0.5% and is payable in monthly installments, including interest, over their respective borrowing periods. The lender may also demand repayment of the installment loan at any time. The 2023 Credit Agreement is secured by a lien on Strong/MDI’s Quebec, Canada facility and substantially all of Strong/MDI’s assets. The 2023 Credit Agreement requires Strong/MDI to maintain a ratio of liabilities to “effective equity” (tangible stockholders’ equity, less amounts receivable from affiliates and equity holdings) not exceeding 2.5 to 1 and a fixed charge coverage ratio of not less than 1.1 times earnings before interest, income taxes, depreciation and amortization.These borrowings are due on demand by the lender and total $3.6 million as of ~~March 31,~~June 30, 2023. In May 2023, Strong/MDI and CIBC entered into an amendment to the 2023 Credit Agreement which reduced the amount available under the revolving line of credit to CAD$3.4 million, and CIBC provided an undertaking to Strong/MDI to a release of CIBC’s security interest in certain assets to be transferred to a subsidiary in connection with transactions related to the announced initial public offering of Strong Global Entertainment.
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We believe that our existing sources of liquidity, including cash and cash equivalents, operating cash flow, credit facilities, proceeds from equity holdings, real estate, receivables and other assets will be sufficient to meet our projected capital needs for at least the next twelve months. However, our ability to continue to meet our cash requirements will depend on, among other things, our ability to achieve anticipated levels of revenues and cash flow from operations, performance of our equity holdings, our ability to manage costs and working capital successfully, any unforeseen disruptions of cinemas, theme parks and other entertainment venues (such as those experienced with COVID-19), and the continued availability of financing, if needed. In addition, following the separation and initial public offering of Strong Global Entertainment, treasury and liquidity management are managed separately and the costs of operating separate public companies will likely increase from historical levels. We cannot provide any assurance that our assumptions used to estimate our liquidity requirements will remain accurate due to the variability and unpredictability of the current economic ~~environment~~.environment. In the event of a sustained market deterioration or declines in net sales or other events, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions. We may, depending on a variety of factors, including market conditions for capital raises, the trading price of our common stock and opportunities for uses of any proceeds, engage in additional public or private offerings of equity or debt securities to increase our capital resources. However, financial and economic conditions could limit our access to credit and impair our ability to raise capital, if needed, on acceptable terms or at all, and we cannot provide any assurance that we will be able to obtain any additional sources of financing or liquidity on acceptable terms, or at all. See Note 1012 to the condensed consolidated financial statements for a description of our debt as of ~~March 31,~~June 30, 2023.
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Cash Flows from Operating Activities

Net cash used in operating activities was ~~$0.5~~$2.6 million during the ~~three~~six months ended ~~March 31,~~June 30, 2023 and ~~$1.7~~$3.0 million during the ~~three~~six months ended ~~March 31,~~June 30, 2022. Cash used in operating activities decreased primarily due to improvements in working capital including the collection of accounts receivable and customer deposits, which was partially offset by higher payments to our vendors and for other accrued expenses.

Cash Flows from Investing Activities

Net cash provided by investing activities was ~~$40 thousand~~$0.2 million during the ~~three~~six months ended ~~March 31,~~June 30, 2023, which consisted of $0.2 million of proceeds from the sale of equity securities, offset by ~~$0.1~~$0.3 million of capital expenditures and a $0.1 million outflow related to the acquisition of film and television programming rights. Net cash ~~provided by~~used in investing activities from continuing operations was $0.9 million during the ~~three~~six months ended ~~March 31,~~June 30, 2022, ~~was $1.1 million,~~ which consisted of a ~~$2.3~~$2.0 million ~~receipt~~purchase of ~~a promissory note, partially offset by~~common stock of FGF, $0.8 million of capital expenditures and ~~a $0.4~~$0.3 million outflow related to the acquisition of film and television programming ~~rights. The capital expenditures during~~rights, partially offset by the ~~three months ended March 31, 2022 primarily related to the purchase~~$2.3 million receipt of the ~~Digital Ignition building in Alpharetta, Georgia.~~SageNet Promissory Note.

Cash Flows from Financing Activities

Net cash provided by financing activities was ~~$1.0~~$3.9 million during the ~~three~~six months ended ~~March 31,~~June 30, 2023, which primarily consisted of ~~$1.3~~$2.4 million of net proceeds from the Strong Global Entertainment IPO and $2.2 million of net borrowings under the CIBC revolving line of credit, partially offset by principal payments on short-term and long-term debt and finance lease obligations. Net cash used in financing activities from continuing operations was ~~$0.1~~$0.4 million during the ~~three~~six months ended ~~March 31,~~June 30, 2022, which primarily consisted of principal payments on short-term and long-term debt.

Use of Non-GAAP Measures

We prepare our consolidated financial statements in accordance with United States generally accepted accounting principles (“GAAP”). In addition to disclosing financial results prepared in accordance with GAAP, we disclose information regarding Adjusted EBITDA, which differs from the term EBITDA as it is commonly used. In addition to adjusting net income (loss) to exclude income taxes, interest, and depreciation and amortization, Adjusted EBITDA also excludes share-based compensation, impairment charges, equity method income (loss), fair value adjustments, severance, foreign currency transaction gains (losses), transactional gains and expenses, gains on insurance recoveries and other cash and non-cash charges and gains.

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EBITDA and Adjusted EBITDA are not measures of performance defined in accordance with GAAP. However, Adjusted EBITDA is used internally in planning and evaluating our operating performance. Accordingly, management believes that disclosure of these metrics offers investors, bankers and other stakeholders an additional view of our operations that, when coupled with the GAAP results, provides a more complete understanding of our financial results.
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EBITDA and Adjusted EBITDA should not be considered as an alternative to net income (loss) or to net cash from operating activities as measures of operating results or liquidity. Our calculation of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures used by other companies, and the measures exclude financial information that some may consider important in evaluating our performance.

EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. Some of these limitations are (i) they do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments, (ii) they do not reflect changes in, or cash requirements for, our working capital needs, (iii) EBITDA and Adjusted EBITDA do not reflect interest expense, or the cash requirements necessary to service interest or principal payments, on our debt, (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements, (v) they do not adjust for all non-cash income or expense items that are reflected in our statements of cash flows, (vi) they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations, and (vii) other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures.

We believe EBITDA and Adjusted EBITDA facilitate operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. These potential differences may be caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). We also present EBITDA and Adjusted EBITDA because (i) we believe these measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry, (ii) we believe investors will find these measures useful in assessing our ability to service or incur indebtedness, and (iii) we use EBITDA and Adjusted EBITDA internally as benchmarks to evaluate our operating performance or compare our performance to that of our competitors.

The following table sets forth reconciliations of net (loss) income under GAAP to EBITDA and Adjusted EBITDA (in thousands):

Quarters Ended March 31,
2023 2022
Strong Entertainment Corporate and Other Consolidated Strong Entertainment Corporate and Other Consolidated
Net (loss) income $          (752 ) $ (3,237 ) $     (3,989 ) $         735 $ (1,537 ) $        (802 )
Interest expense, net 57 54 111 24 29 53
Income tax (benefit) expense (301 ) 2 (299 ) 311 39 350
Depreciation and amortization 179 87 266 213 153 366
EBITDA (817 ) (3,094 ) (3,911 ) 1,283 (1,316 ) (33 )
Stock-based compensation expense - 127 127 - 194 194
Equity method holding loss - 651 651 - 820 820
Unrealized loss (gain) on equity holdings 1,622 1,269 2,891 (868 ) (860 ) (1,728 )
Foreign currency transaction (gain) loss (117 ) (2 ) (119 ) 342 - 342
Severance and other - - - - 222 222
Adjusted EBITDA $ 688 $ (1,049 ) $ (361 ) $ 757 $ (940 ) $ (183 )
Quarters Ended June 30,
2023 2022

Strong Entertainment Corporate and Other Consolidated Strong Entertainment Corporate and Other Consolidated
Net (loss) income $ (623 ) $ (4,768 ) $ (5,391 ) $ 561 $ (6,159 ) $ (5,598 )
Interest expense, net 62 76 138 29 58 87
Income tax expense (benefit) 413 (58 ) 355 (271 ) (32 ) (303 )
Depreciation and amortization 2,130 125 2,255 154 182 336
EBITDA 1,982 (4,625 ) (2,643 ) 473 (5,951 ) (5,478 )
Stock-based compensation expense 714 196 910 - 175 175
Equity method holding loss - 2,043 2,043 - 960 960
Unrealized loss on equity holdings - 1,647 1,647 - 4,178 4,178
IPO related expenses 475 - 475 - - -
Gain on disposal of assets - (5 ) (5 ) - - -
Foreign currency transaction loss (income) 426 - 426 (206 ) - (206 )
Adjusted EBITDA $ 3,597 $ (744 ) $ 2,853 $ 267 $ (638 ) $ (371 )

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Six Months Ended June 30,
2023 2022

Strong Entertainment Corporate and Other Consolidated Strong Entertainment Corporate and Other Consolidated
Net income (loss) $ 246 $ (9,628 ) $ (9,382 ) $ 427 $ (6,826 ) $ (6,399 )
Interest expense, net 118 131 249 53 87 140
Income tax expense 113 (57 ) 56 40 7 47
Depreciation and amortization 2,309 212 2,521 367 335 702
EBITDA 2,786 (9,342 ) (6,556 ) 887 (6,397 ) (5,510 )
Stock-based compensation expense 714 323 1,037 - 369 369
Equity method holding loss - 2,694 2,694 - 1,780 1,780
Unrealized loss on equity holdings - 4,538 4,538 - 2,451 2,451
IPO related expenses 475 - 475 - - -
Gain on disposal of assets - (5 ) (5 ) - - -
Foreign currency transaction loss (income) 309 (2 ) 307 134 2 136
Severance and other - - - - 222 222
Adjusted EBITDA $ 4,284 $ (1,794 ) $ 2,490 $ 1,021 $ (1,573 ) $ (552 )

Hedging and Trading Activities

Our primary exposure to foreign currency fluctuations pertains to our subsidiary in Canada. In certain instances, we may enter into a foreign exchange contract to manage a portion of this risk. We do not have any trading activities that include non-exchange traded contracts at fair value.
Seasonality

Generally, our revenue and earnings fluctuate moderately from quarter to quarter. As we increase our sales in our current markets, and as we expand into new markets in different geographies, it is possible we may experience different seasonality patterns in our business. As a result, the results of operations for the ~~three~~six months ended ~~March 31,~~June 30, 2023 are not necessarily indicative of the results that may be expected for an entire fiscal year.

Recently Issued Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, to the condensed consolidated financial statements for a description of recently issued accounting pronouncements.
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Critical Accounting Policies and Estimates

In preparing our consolidated financial statements in conformity with U.S. generally accepted accounting principles, management must make a variety of decisions which impact the reported amounts and the related disclosures. These decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In making these decisions, management applies its judgment based on its understanding and analysis of the relevant circumstances and our historical experience.

Our accounting policies and estimates that are most critical to the presentation of our results of operations and financial condition, and which require the greatest use of judgments and estimates by management, are designated as our critical accounting policies. See further discussion of our critical accounting policies under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for our year ended December 31, 2022. We periodically re-evaluate and adjust our critical accounting policies as circumstances change. There were no significant changes in our critical accounting policies during the ~~three~~six months ended ~~March 31,~~June 30, 2023.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable as we are a “smaller reporting company” as defined by Item 229.10(f)(1) of Regulation S-K.

Item 4. Controls and Procedures

The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer and principal accounting officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures (as defined in § 240.13a-15(e) or 240.15d-15(e) of Regulation S-K) were effective at ensuring that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 (as amended) is (1) accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures and (2) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

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There have been no changes in the Company’s internal control over financial reporting during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, such internal control over financial reporting.

PART II. Other Information

Item 1. Legal Proceedings

In the ordinary course of our business operations, we are involved, from time to time, in certain legal disputes. We and certain of our subsidiaries are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. A majority of the cases involve product liability claims based principally on allegations of past distribution of commercial lighting products containing wiring that may have contained asbestos. Each case names dozens of corporate defendants in addition to us. In our experience, a large percentage of these types of claims have never been substantiated and have been dismissed by the courts. We have not suffered any adverse verdict in a trial court proceeding related to asbestos claims and intend to continue to defend these lawsuits. As of ~~March 31,~~June 30, 2023, the Company has a loss contingency reserve of approximately $0.2 million, which represents our estimate of our potential losses related to the settlement of open cases. During 2022 and the first ~~quarter~~half of 2023, we settled three cases, which resulted in payments totaling $53 thousand. When appropriate, we may settle additional claims in the future. We do not expect the resolution of these cases to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
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Item 1A. Risk Factors

Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 includes a detailed discussion of the Company’s risk factors. As of the date of this filing there have been no material changes to the risk factors as previously disclosed.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On August 20, 2015, we announced that our Board of Directors adopted a stock repurchase program authorizing the repurchase of up to 700,000 shares of our outstanding Common Stock pursuant to a plan adopted under Rule 10b5-1 of the Securities Exchange Act of 1934 (as amended). The repurchase program has no expiration date. The following table provides information about purchases made by us of our common stock for each month included in the quarter ended ~~March 31,~~June 30, 2023:

ISSUER PURCHASES OF EQUITY SECURITIES

Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs The Maximum Number of Shares That May Still be Purchased Under the Plans or Programs

~~January~~April 2023       - $        -          - 636,931
~~February~~May 2023 - - - 636,931
~~March 31,~~June 2023 - - - 636,931
Quarter Ended ~~March 31,~~June 30, 2023 - $ - $ - 636,931

~~Item 5. Other Information~~
~~In May 2023, Strong/MDI and CIBC entered into an amendment to the 2023 Credit Agreement (the “Amendment~~”) which reduced the amount available under the revolving line of credit to CAD$3.4 million, and CIBC provided an undertaking to Strong/MDI to a release of CIBC’s security interest in certain assets to be transferred to a subsidiary in connection with transactions related to the announced initial public offering of Strong Global Entertainment. The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the Amendment, which is filed herewith as Exhibit 10.3 and incorporated herein by reference.
35
Item 6. Exhibits

Incorporated by Reference Incorporated by Reference
Exhibit
Number
Document Description Form Exhibit
Filing
Date

Filed
Herewith
Document Description Form Exhibit Filing Date Filed Herewith

3.1 Amended and Restated Articles of Incorporation of FG Group Holdings Inc.
8-K

3.4

December 23, 2022

3.2
Bylaws of FG Group Holdings Inc.

8-K
3.5 December 23, 2022
10.1 Amendment and Termination Agreement dated as of January 13, 2023, between Strong Studios, Inc., Landmark Studio Group LLC and Screen Media Ventures, LLC. 8-K 10.2 January 18, 2023
Underwriting Agreement dated May 15, 2023, by and among Strong Global Entertainment, Inc., FG Group Holdings Inc., Strong/MDI Screen Systems, Inc. and ThinkEquity LLC

8-K

10.1

May 19, 2023

10.2 Amended and restated demand credit agreement dated as of January 13, 2023, between Strong/MDI Screen Systems Inc. and Canadian Imperial Bank of Commerce. 8-K 10.1 January 18, 2023

10.3 Amendment #1 to Demand Credit Agreement, dated as of January 13, 2023, between Canadian Imperial Bank of Commerce and Strong/MDI Screen Systems Inc., dated May 8, 2023. X
10.2†
Master Asset Purchase Agreement dated May 18, 2023, by and between Strong/MDI Screen Systems, Inc. and Strong/MDI Screen Systems, Inc.

8-K

10.2

May 19, 2023

10.3†
Confirmatory of Ownership Assignment of Intellectual Property dated May 18, 2023, by and between Strong/MDI Screen Systems, Inc. and Strong/MDI Screen Systems, Inc.

8-K

10.3

May 19, 2023

10.4†

FG Group Holdings Asset Transfer Agreement dated May 18, 2023, by and between FG Group Holdings Inc. and Strong Technical Services, Inc.

8-K

10.4

May 19, 2023

10.5†

Patent Assignment dated May 18, 2023, by and between FG Group Holdings Inc. and Strong Technical Services, Inc.

8-K

10.5

May 19, 2023

10.6†
Management Services Agreement dated May 18, 2023, by and between FG Group Holdings Inc. and Strong Global Entertainment Inc.

8-K

10.6

May 19, 2023

10.7

Lease Agreement dated May 18, 2023, by and between Strong/MDI Screen Systems, Inc. and Strong/MDI Screen Systems, Inc.

8-K

10.7

May 19, 2023

10.8
Share Transfer Agreement dated May 18, 2023, by and between FG Group Holdings Inc. and Strong/MDI Screen Systems, Inc.

8-K

10.8

May 19, 2023

10.9
Mutual Termination and Release dated May 18, 2023, by and between FG Group Holdings Inc. and Ray F. Boegner.

8-K

10.9

May 19, 2023

10.10+†

Amended and Restated Employment Agreement dated May 18, 2023, by and between FG Group Holdings Inc. and Mark D. Roberson.

8-K

10.10

May 19, 2023

10.11+†

Amended and Restated Employment Agreement dated May 18, 2023, by and between FG Group Holdings Inc. and Todd R. Major.

8-K

10.11

May 19, 2023

31.1 Rule 13a-14(a) Certification of Chief Executive Officer. X Rule 13a-14(a) Certification of Chief Executive Officer. X

31.2 Rule 13a-14(a) Certification of Chief Financial Officer. X Rule 13a-14(a) Certification of Chief Financial Officer. X

32.1** 18 U.S.C. Section 1350 Certification of Chief Executive Officer. X 18 U.S.C. Section 1350 Certification of Chief Executive Officer. X

32.2** 18 U.S.C. Section 1350 Certification of Chief Financial Officer. X 18 U.S.C. Section 1350 Certification of Chief Financial Officer. X

101 The following materials from FG Group Holdings Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets (unaudited); (ii) the Condensed Consolidated Statements of Operations (unaudited); (iii) the Condensed Consolidated Statements of Comprehensive Loss (unaudited); (iv) the Condensed Consolidated Statements of Stockholders’ Equity (unaudited); (v) the Condensed Consolidated Statements of Cash Flows (unaudited); and (vi) the Notes to Consolidated Financial Statements (unaudited). X The following materials from FG Group Holdings Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets (unaudited); (ii) the Condensed Consolidated Statements of Operations (unaudited); (iii) the Condensed Consolidated Statements of Comprehensive Loss (unaudited); (iv) the Condensed Consolidated Statements of Stockholders’ Equity (unaudited); (v) the Condensed Consolidated Statements of Cash Flows (unaudited); and (vi) the Notes to Consolidated Financial Statements (unaudited). X

104 XBRL Cover Page Interactive Data File (embedded within the Inline XBRL document). X
XBRL Cover Page Interactive Data File (embedded within the Inline XBRL document).
X

+ Indicates management contract or compensatory plan.
† Exhibits and schedules to this Exhibit have been omitted pursuant to Regulation S-K Item 601(a)(5). The Registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.
** Furnished herewith.

3640

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FG GROUP HOLDINGS INC.

By:
/s/ MARK D. ROBERSON
By:
/s/ TODD R. MAJOR

Mark D. Roberson
Chief Executive Officer
(Principal Executive Officer)

Todd R. Major
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)

Date: ~~May 15,~~August 14, 2023 Date: ~~May 15,~~August 14, 2023

3741

	March 31, 2023		December 31, 2022
Raw materials and components	$	1,925	$	1,826
Work in process		448		279
Finished goods		1,287		1,284
Total	$	3,660	$	3,389


Inventory reserve balance at December 31, 2022	$	486		$	486
Inventory write-offs during 2023		(16	)		(16	)
Provision for inventory reserve during 2023		14			29
Inventory reserve balance at March 31, 2023	$	484
Inventory reserve balance at June 30, 2023				$	499

	June 30, 2023		December 31, 2022
Prepaid expenses	$	1,346	$	553
Receivable from Safehaven 2022, Inc.		-		1,625
Costs incurred in connection with Strong Global Entertainment initial public offering		-		1,920
Unbilled accounts receivable		541		337
Production tax rebate receivable		3,476		-
Receivable from Ravenwood Productions LLC		6,379		-
Other		267		436
Total	$	12,009	$	4,871

	June 30, 2023					December 31, 2022
	Carrying Amount		Economic Interest			Carrying Amount		Economic Interest
Equity Method Holding
FG Financial Holdings, LLC	$	5,137		45.4	%	$	7,832		47.2	%

Fair Value Method Holding
GreenFirst Forest Products Inc.		12,205		8.3	%		16,792		8.4	%

Cost Method Holding
Firefly Systems, Inc.		12,898					12,898
Total Investments	$	30,240				$	37,522

	March 31, 2023					December 31 2022
	Carrying Amount		Economic Interest			Carrying Amount		Economic Interest
Equity Method Holding
FG Financial Holdings, LLC	$	7,181		47.3	%	$	7,832		47.2	%

Fair Value Method Holding
GreenFirst Forest Products Inc.		13,677		8.3	%		16,792		8.4	%

Cost Method Holding
Firefly Systems, Inc.		12,898					12,898
Total Investments	$	33,756				$	37,522

	March 31, 2023		December 31, 2022
Television series in development	$	1,362	$	1,308
Films in development		222		193
Total	$	1,584	$	1,501

Balance at December 31, 2022	$	1,501
Expenditures on in-process projects		83
Balance at March 31, 2023	$	1,584


Cash	$	164
Television programming rights		8,142
Other assets		3,505
Total assets	$	11,811

Accounts payable and accrued expenses	$	250
Due to Strong Studios		1,710
Debt		9,851
Equity		-
Total liabilities and equity	$	11,811

	●	Ravenwood advanced the amount due to Bank of Hope in respect of the minimum guarantee under the Safehaven AA Distribution Agreement of approximately $6.4 million.
	●	Safehaven 2022, Strong Studios and Ravenwood will enter into a sales agent agreement with an agency to represent and sell the Safehaven series.
	●	Each of Ravenwood and Strong Studios will be paid a management commission of 20% and 7%, respectively, of the Net Sales Price of the Series (as defined in the Management Agreement).
	●	All Gross Receipts (as defined by the Management Agreement) shall be distributed according to an agreed waterfall, with the balance to be paid to the named participants, including Strong Studios which will be paid 32.5%.
	●	Safehaven 2022 conveyed to Ravenwood an undivided 75% interest in all rights in and to the Safehaven series, retaining 25% for itself.


Cash	$	37
Television programming rights		11,118
Other assets		76
Total assets	$	11,231

Accounts payable and accrued expenses	$	10
Due to Strong Studios		1,625
Debt		9,596
Equity		-
Total liabilities and equity	$	11,231

Balance as of December 31, 2022	$	882	$	882
Foreign currency translation adjustment		-		20
Balance as of March 31, 2023	$	882
Balance as of June 30, 2023			$	902

	June 30, 2023		December 31, 2022
Employee-related	$	2,169	$	1,428
Warranty obligation		321		309
Interest and taxes		309		671
Legal and professional fees		279		725
Accrued participation costs		3,473		-
Film and television programming rights		650		1,709
Other		320		325
Total	$	7,521	$	5,167

	March 31, 2023			December 31, 2022
Short-term debt:
Strong/MDI 20-year installment loan	$	2,262		$	2,289
Strong/MDI 5-year equipment loan		-			221
Strong/MDI revolving credit facility		1,372			-
Insurance note payable		454			-
Total short-term debt	$	4,088		$	2,510

Long-term debt:
Tenant improvement loan	$	153		$	162
Digital Ignition building loan		5,059			5,105
Total long-term debt	$	5,212		$	5,267
Less: current portion		(217	)		(216	)
Less: deferred debt issuance costs, net		(44	)		(47	)
Long-term debt, net of current portion and deferred debt issuance costs, net	$	4,951		$	5,004

	March 31, 2023			December 31, 2022
Deferred debt issuance costs	$	56		$	56
Less: accumulated amortization		(12	)		(9	)
Deferred debt issuance costs, net	$	44		$	47


Remainder of 2023	$	9
2024		11
2025		11
2026		11
2027		2
Thereafter		-
Total	$	44

	Tenant Improvement Loan		Digital Ignitiion Building Loan		Total		Tenant Improvement Loan		Digital Ignitiion Building Loan		Total
Remainder of 2023	$	26		134	$	160	$	18		90	$	108
2024		38		187		225		37		187		224
2025		40		195		235		40		195		235
2026		42		203		245		42		203		245
2027		7		4,340		4,347		7		4,340		4,347
Thereafter		-		-		-		-		-		-
Total	$	153	$	5,059	$	5,212	$	144	$	5,015	$	5,159

	March 31, 2023		March 31, 2022
Lease cost	Three Months Ended
	March 31, 2023		March 31, 2022
Finance lease cost:
Amortization of right-of-use assets	$	33	$	-
Interest on lease liabilities		13		-
Operating lease cost		36		105
Short-term lease cost		17		14
Sublease income		-		(32	)
Net lease cost	$	99	$	87

	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Lease cost	Three Months Ended				Six Months Ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Finance lease cost:
Amortization of right-of-use assets	$	37	$	2	$	70	$	2
Interest on lease liabilities		15		1		27		1
Operating lease cost		39		46		73		150
Short-term lease cost		14		14		31		28
Sublease income		-		-		-		(32	)
Net lease cost	$	105	$	63	$	201	$	149

	March 31, 2023		March 31, 2022
Other information	Three Months Ended
	March 31, 2023		March 31, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	13	$	-
Operating cash flows from operating leases	$	32	$	92
Financing cash flows from finance leases	$	26	$	-
Right-of-use assets obtained in exchange for new finance lease liabilities	$	-	$	-
Right-of-use assets obtained in exchange for new operating lease liabilities	$	-	$	-

Weighted-average remaining lease term - finance leases (years)				1.7
Weighted-average remaining lease term - operating leases (years)				3.4
Weighted-average discount rate - finance leases				4.7	%
Weighted-average discount rate - operating leases				3.7	%

	As of June 30, 2022
Weighted-average remaining lease term - finance leases (years)		1.5
Weighted-average remaining lease term - operating leases (years)		3.2
Weighted-average discount rate - finance leases		4.8	%
Weighted-average discount rate - operating leases		3.8	%

	Operating Leases			Finance Leases
Remainder of 2023	$	99		$	127
2024		101			170
2025		79			416
2026		81			16
2027		14			5
Thereafter		-			-
Total lease payments		374			734
Less: Amount representing interest		(29	)		(95	)
Present value of lease payments		345			639
Less: Current maturities		(118	)		(125	)
Lease obligations, net of current portion	$	227		$	514

Expected dividend yield at date of grant	0.00	%
Risk-free interest rate	3.52	%
Expected stock price volatility	68.2	%
Expected life of options (in years)	5.0

	Number of Options		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2022		639,500	$	3.72		5.6	$	127
Granted		-
Exercised		-
Forfeited		-
Expired		-
Outstanding at March 31, 2023		639,500	$	3.72		5.3	$	45
Exercisable at March 31, 2023		499,500	$	4.13		4.9	$	18

	Number of Restricted Stock Units		Weighted Average Grant Date Fair Value
Non-vested at December 31, 2022		206,934	$	2.06
Granted		390,000	$	1.96
Shares vested		-
Shares forfeited		-
Non-vested at June 30, 2023		596,934	$	2.06

(In thousands)	March 31, 2023		December 31, 2022		June 30, 2023		December 31, 2022
Identifiable assets
Strong Entertainment	$	34,196	$	35,392	$	39,843	$	35,392
Corporate assets		34,391		36,361		39,252		36,361
Total	$	68,587	$	71,753	$	79,095	$	71,753

	Quarters Ended March 31,
	2023									2022
	Strong Entertainment			Corporate and Other			Consolidated			Strong Entertainment			Corporate and Other			Consolidated
Net (loss) income	$	(752	)	$	(3,237	)	$	(3,989	)	$	735		$	(1,537	)	$	(802	)
Interest expense, net		57			54			111			24			29			53
Income tax (benefit) expense		(301	)		2			(299	)		311			39			350
Depreciation and amortization		179			87			266			213			153			366
EBITDA		(817	)		(3,094	)		(3,911	)		1,283			(1,316	)		(33	)
Stock-based compensation expense		-			127			127			-			194			194
Equity method holding loss		-			651			651			-			820			820
Unrealized loss (gain) on equity holdings		1,622			1,269			2,891			(868	)		(860	)		(1,728	)
Foreign currency transaction (gain) loss		(117	)		(2	)		(119	)		342			-			342
Severance and other		-			-			-			-			222			222
Adjusted EBITDA	$	688		$	(1,049	)	$	(361	)	$	757		$	(940	)	$	(183	)

	Quarters Ended June 30,
	2023									2022

	Strong Entertainment			Corporate and Other			Consolidated			Strong Entertainment			Corporate and Other			Consolidated
Net (loss) income	$	(623	)	$	(4,768	)	$	(5,391	)	$	561		$	(6,159	)	$	(5,598	)
Interest expense, net		62			76			138			29			58			87
Income tax expense (benefit)		413			(58	)		355			(271	)		(32	)		(303	)
Depreciation and amortization		2,130			125			2,255			154			182			336
EBITDA		1,982			(4,625	)		(2,643	)		473			(5,951	)		(5,478	)
Stock-based compensation expense		714			196			910			-			175			175
Equity method holding loss		-			2,043			2,043			-			960			960
Unrealized loss on equity holdings		-			1,647			1,647			-			4,178			4,178
IPO related expenses		475			-			475			-			-			-
Gain on disposal of assets		-			(5	)		(5	)		-			-			-
Foreign currency transaction loss (income)		426			-			426			(206	)		-			(206	)
Adjusted EBITDA	$	3,597		$	(744	)	$	2,853		$	267		$	(638	)	$	(371	)

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		The Maximum Number of Shares That May Still be Purchased Under the Plans or Programs

~~January~~April 2023		-	$	-		-		636,931
~~February~~May 2023		-		-		-		636,931
~~March 31,~~June 2023		-		-		-		636,931
Quarter Ended ~~March 31,~~June 30, 2023		-	$	-	$	-		636,931

+	Indicates management contract or compensatory plan.
†	Exhibits and schedules to this Exhibit have been omitted pursuant to Regulation S-K Item 601(a)(5). The Registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.
**	Furnished herewith.

FG GROUP HOLDINGS INC.

By:	/s/ MARK D. ROBERSON	By:	/s/ TODD R. MAJOR
	Mark D. Roberson Chief Executive Officer (Principal Executive Officer)		Todd R. Major Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

Date:	~~May 15,~~August 14, 2023	Date:	~~May 15,~~August 14, 2023