2. Variable Interest Entity (“VIE”)

CONSOLIDATION OF VARIABLE INTEREST ENTITIES

Under certain criteria as provided for in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810, “Consolidation,” the Company may consolidate a partially-owned affiliate. To determine whether to consolidate a partially-owned affiliate, the Company first determines if the entity is a variable interest entity (VIE). An entity is considered to be a VIE if it has one of the following characteristics: 1) the entity is thinly capitalized; 2) residual equity holders do not control the entity; 3) equity holders are shielded from economic losses or do not participate fully in the entity’s residual economics; or 4) the entity was established with non-substantive voting. If the entity meets one of these characteristics, the Company then determines if it is the primary beneficiary of the VIE. The party with the power to direct activities of the VIE that most significantly impact the VIE’s economic performance and the potential to absorb benefits or losses that could be significant to the VIE is considered the primary beneficiary and consolidates the VIE.

Three Lions met the definition of a variable interest entity as the total equity investment at risk in Three Lions was not sufficient to permit Three Lions to finance its activities without further subordinated financial support by any parties, including the equity holders. Management determined at the date of the Company’s third contribution that the entity was a variable interest entity primarily based on the current equity investment at risk in Three Lions totaling $9.0 million, which consists of three contributions by the Company of $3.1 million on March 18, 2013, $1.9 million on April 26, 2013, and $3.5 million on October 2, 2013, and founder contributions of $.5 million, compared to capital in excess of that amount deemed necessary to develop and produce content, market and air the first revenue-generating event on September 9, 2014. 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 its third contribution, the Company raised capital through an offering of its common stock to its shareholders.

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. 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. As set forth in Note 1. Basis of Presentation, however, under the Company’s Pledge Agreement with SunTrust, upon an event of default under the SunTrust credit agreement, SunTrust would be entitled to exercise all voting and other rights with respect to the Company’s membership interests in Three Lions and to foreclose on such interests. Three Lions is in default under the express terms of the credit agreement and has commenced repayment of the facility, making $6.1 million in aggregate payments on the SunTrust loan, which has an outstanding principal balance of $1.8 million as of November 11, 2014. The Company does not know what, if any, actions SunTrust may seek to take against the pledged membership interests or the Company.

Through September 30, 2014, the Company’s total contributions of $8.5 million are reduced by Simon’s absorption of its share of Three Lions’ operating losses from the period March 18, 2013, through September 30, 2014, which brings the carrying value of its Three Lions investment to $0. Also, the Company was required to issue a cash collateralized bank letter of credit on April 12, 2013 in the amount of $.2 million with an expiration date of April 15, 2015, to guarantee payments on an office lease obtained by Three Lions. In connection with the pending liquidation of Three Lions, the Company also expects to lose its cash collateralized bank letter of credit and, accordingly, it has recorded a contingent loss of $.2 million at September 30, 2014. The Company’s investment, and guarantee, related to Three Lions totaled $8.7 million at September 30, 2014, representing the Company’s maximum exposures to loss.

Due to a confluence of a number of adverse factors, but in particular, a ratings performance well below expectations on Three Lion’s initial Fashion Rocks^TM broadcast on September 9, 2014, and the resultant decision to cancel further production on other projects, Three Lions recorded unanticipated losses. In a meeting held on October 27, 2014, the executive board of Three Lions considered and unanimously approved a plan proposed by Three Lions’ management, with the assistance of its advisors, to proceed with the voluntary liquidation and dissolution of Three Lions in accordance with Delaware law. See Note 6. Subsequent Events for further discussion.

A summary of the assets and liabilities as of September 30, 2014 and operating results for the nine months then ended, related to Three Lions are as follows (in thousands):


Current assets:
Cash	$	3,991
Accounts receivable		6,243
Prepaid expenses and other current assets		135

Total current assets		10,369
Noncurrent assets		479

Total assets		10,848

Current liabilities:
Accounts payable		10,587
Other current liabilities		8,092

Total current liabilities		18,679
Noncurrent liabilities		50

Total liabilities		18,729

Net assets	$	(7,881	)


Revenue	$	15,543
Cost of revenue		(23,350	)

Gross loss		(7,807	)
General and administrative expenses		(4,293	)
Depreciation and amortization		(45	)

Operating loss		(12,145	)
Interest income		3
Interest expense		(63	)

Net loss	$	(12,205	)