2. Variable Interest Entity (“VIE”)

VIEs are defined as entities in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is known as its primary beneficiary, and is generally the entity with (i) the power to direct the activities that most significantly impact the VIE’s economic performance, and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE.

Three Lions meets the definition of a variable interest entity as the total equity investment at risk in Three Lions is not sufficient to permit Three Lions to finance its activities without further subordinated financial support by any parties, including the equity holders. Management determined both at the date of the Company’s initial contribution and its second contribution that the entity was a variable interest entity primarily based on the current equity investment at risk in Three Lions totaling $5.3 million, which consists of two contributions by the Company of $3.1 million on March 18, 2013 and $1.9 million on April 26, 2013 and founder contributions of $.3 million, compared to capital in excess of that amount deemed necessary to develop and produce content, market and air the first revenue-generating event in 2014. Additional capital contributions were required to be made by the Company (or OA3) and the founders of Three Lions by October 4, 2013. The Company made its third and final contribution to Three Lions of $3.5 million on October 2, 2013. In total, the Company’s contributions total $8.5 million and the founders’ contributions total $.5 million. As the Company did not have sufficient cash on hand to make the final contribution, the Company raised capital through an offering of its common stock to its shareholders which was funded on October 1, 2013.

The Company’s equity interest in Three Lions represents a variable interest in a VIE. Due to certain requirements under the LLC Agreement of Three Lions, the Company, through its voting rights associated with its LLC units, does not have the sole power to direct the activities of Three Lions that most significantly impact Three Lion’s economic performance and the obligation to absorb losses of Three Lions that could potentially be significant to Three Lions or the right to receive benefits from Three Lions that could potentially be significant to Three Lions. Specifically, the Company shares power with the founders who control the common units of Three Lions to approve budgets and business plans and make key business decisions all of which require unanimous consent from all the executive board members (e.g., three members under Simon’s control and the two founders). As a result, the Company is not the primary beneficiary of Three Lions and thus does not consolidate it. However, the Company has significant influence over Three Lions and therefore, accounts for its ownership interest in Three Lions under the equity method of accounting.

Through September 30, 2013, the Company’s total contributions of $5.0 million are reduced by Simon’s absorption of its share of Three Lions’ operating losses from the period March 18 to September 30, 2013, which brings the carrying value of its Three Lions investment to $3.6 million including transaction costs. Also, the Company caused to be issued a cash collateralized bank letter of credit on April 12, 2013 in the amount of $.2 million and with an expiration date of April 15, 2014, to guarantee payments on an office lease obtained by Three Lions. The Company’s investment, and guarantee, related to Three Lions totaled $5.2 million at September 30, 2013, representing the Company’s maximum exposures to loss.

A summary of the assets and liabilities as of September 30, 2013 and operating results for the six months and 13 days then ended (since March 18, 2013, the date of the LLC Agreement), related to Three Lions are as follows (in thousands):


Current assets:
Cash and cash equivalents	$	2,037
Prepaid expenses and other current assets		47

Total current assets		2,084
Non-current assets		786

Total assets		2,870
Accounts payable and other current liabilities		384

Total liabilities		384

Net assets	$	2,486

Revenue	$	—
General and administrative expenses		2,810

Operating loss		(2,810	)

Net loss	$	(2,810	)

Creditors of Three Lions do not have recourse against the general credit of the Company, regardless of whether Three Lions is accounted for as a consolidated entity.