Notes
to the Condensed Consolidated Financial Statements
(Unaudited)
1. Nature of Operations
Ballantyne
Strong, Inc. (“Ballantyne Strong,” or the “Company”), a Delaware corporation, is a holding company with business
operations in the entertainment industry and holdings in public and privately held companies. The Company historically has conducted
a large portion of its operations primarily through its Strong Entertainment operating 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.
The
Company owns and operates its Digital Ignition technology incubator and co-working facility in Alpharetta, Georgia. In addition, the
Company holds minority positions in one privately held company and two publicly traded companies.
The
Company recently 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.
The
Company 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 late 2022 or early 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 would expect to continue to be the
majority shareholder of Strong Global Entertainment.
Effective
July 20, 2022, the Company’s Board of Directors approved the relocation of Ballantyne Strong’s headquarters from 4201 Congress
Street, Suite 175, Charlotte, North Carolina, 28209 to 5960 Fairview Road, Suite 275, Charlotte North Carolina, 28210.
In
February 2021, the Company completed the sale of its Convergent business segment. As a result of the divestiture, the Company has presented
Convergent’s operating results as discontinued operations for all periods presented. See Note 3 for additional details.
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.
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, 2021.
The
condensed consolidated balance sheet as of December 31, 2021, 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.
Uncertainty
remains surrounding the COVID-19 global pandemic and ongoing geopolitical tensions, and the extent and duration of the impacts that these
and other events may have on the Company, as well as its customers, suppliers, and employees. While cinema and theme park operators in
the United States and other parts of the world are in various stages of returning to “normal”, there continue to be spikes
in COVID-19 cases and new variants in various parts of the world that could impact the pace of recovery in our markets. Accordingly,
there continues to be a heightened potential for future reserves against trade receivables, inventory write downs, and impairments of
long-lived assets, goodwill, intangible assets and equity holdings. In the current environment, assumptions about future financial and
operational performance, supply chain pricing and availability and customer creditworthiness have greater variability than normal, which
could in the future significantly affect the valuation of the Company’s assets, both financial and non-financial. As an understanding
of the longer-term impacts of COVID-19 and ongoing geopolitical tensions on the Company’s customers and business develops, there
is heightened potential for changes in these views over the remainder of 2022, and potentially beyond.
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 September 30, 2022,
$1.6 million of the $4.2 million in cash and cash equivalents was held by our foreign subsidiary.
Restricted
Cash
Restricted
cash represents amounts held in a collateral account for the Company’s corporate travel and purchasing credit card program.
Accounts
Receivable
Trade
accounts receivable are recorded at the invoiced amount and do not bear interest. The Company determines the allowance for doubtful accounts
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 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 holdings are 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 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 September 30, 2022 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 identical or a similar holding or security
of the Company’s Cost Method Holding during the nine months ended September 30, 2022. 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.
Notes 3 and 7 contain additional information on our equity method, Fair Value Holdings and Cost Method 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. 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. 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 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 yet 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 film library 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 September 30, 2022 and December 31, 2021.
Fair
values measured on a recurring basis at September 30, 2022 (in thousands):
Schedule of Fair Value Measured Financial Assets and
Liabilities
| | |
| Level 1 | | |
| Level 2 | | |
| Level 3 | | |
| Total | |
| Cash and cash equivalents | |
$ | 4,191 | | |
$ | - | | |
$ | - | | |
$ | 4,191 | |
| Restricted cash | |
| 151 | | |
| - | | |
| - | | |
| 151 | |
| Fair value method equity holding | |
| 17,876 | | |
| - | | |
| - | | |
| 17,876 | |
| Total | |
$ | 22,218 | | |
$ | - | | |
$ | - | | |
$ | 22,218 | |
Fair
values measured on a recurring basis at December 31, 2021 (in thousands):
| | |
| Level 1 | | |
| Level 2 | | |
| Level 3 | | |
| Total | |
| Cash and cash equivalents | |
$ | 8,731 | | |
$ | - | | |
$ | - | | |
$ | 8,731 | |
| Restricted cash | |
| 150 | | |
| - | | |
| - | | |
| 150 | |
| Fair value method equity holding | |
| 22,467 | | |
| - | | |
| - | | |
| 22,467 | |
| Total | |
$ | 31,348 | | |
$ | - | | |
$ | - | | |
$ | 31,348 | |
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 $4.8
million at September 30, 2022 (see Note 7).
Recently
Issued 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 will require 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 guidance was initially effective for the Company for annual reporting periods beginning after December 15, 2019 and interim periods
within those fiscal years. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326),
Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates,” which, among other things, defers the effective
date of ASU 2016-13 for public filers that are considered smaller reporting companies as defined by the Securities and Exchange Commission
to fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted. The Company
believes the adoption of this ASU will not significantly impact its results of operations and financial position.
3.
Discontinued Operations
Convergent
As
part of a transaction that closed in February 2021, the Company divested its Convergent business segment. The Company’s Convergent
business segment delivered digital signage solutions and related services to large multi-location organizations in the United States
and Canada.
On
February 1, 2021, the Company entered into an Equity Purchase Agreement (together with the other related documents defined therein, the
“Purchase Agreement”), and closed the transactions contemplated by the Purchase Agreement, with SageNet LLC (“SageNet”).
Pursuant to the Purchase Agreement, a subsidiary of Ballantyne Strong sold 100% of the issued and outstanding limited liability company
membership interests (the “Equity Interests”) in Convergent, LLC (“Convergent”) to SageNet. The purchase price
for the Equity Interests (the “Purchase Price”) pursuant to the Purchase Agreement was (i) $15.0 million in cash and (ii)
$2.5 million in the form of a subordinated promissory note delivered by SageNet in favor of the Company (the “SageNet Promissory
Note”). Per the terms of the SageNet Promissory Note, the Company would receive twelve consecutive equal quarterly payments of
principal, plus accrued interest thereon, commencing on March 31, 2022. The Company has elected to record the SageNet Promissory Note
using its historical cost basis. Additionally, a portion of the Purchase Price was placed in escrow by SageNet, the release of which
is contingent upon certain events and conditions specified in the Purchase Agreement. The Purchase Price is also subject to adjustment
based on closing working capital of Convergent. As further consideration, SageNet also assumed approximately $5.7 million of third-party
debt of Convergent, bringing the total enterprise value for Convergent’s equity interests to approximately $23.2 million. The Company
recorded a gain of $14.9 million during the first quarter of 2021 related to the sale of Convergent. In January 2022, the Company entered
into an amendment to the SageNet Promissory Note. Pursuant to the terms of the amendment, the Company received a prepayment of $2.3 million
plus accrued interest. As a result of the prepayment, all terms of the SageNet Promissory Note have been satisfied.
Strong
Outdoor
As
part of transactions in May 2019 and August 2020, the Company divested its Strong Outdoor business segment. The Company’s Strong
Outdoor business segment provided outdoor advertising and experiential marketing to advertising agencies and corporate accounts, primarily
in New York City.
On
May 21, 2019, Strong Digital Media, LLC (“SDM”), an indirect subsidiary of Ballantyne Strong, entered into certain agreements
with Firefly Systems, Inc. (“Firefly”). As consideration for entering into these agreements, Ballantyne Strong received a
total of $5.7 million worth of Firefly’s Series A-2 preferred shares, which includes $0.9 million pursuant to an earn-out provision.
The Series A-2 preferred shares were subsequently renamed Firefly Series B-1 Shares (the “Firefly Series B-1 Shares”).
On
August 3, 2020, SDM entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Firefly, pursuant to which
SDM agreed to sell certain assets primarily related to its Strong Outdoor operating business to Firefly. As consideration for entering
into the Asset Purchase Agreement, SDM received approximately $3.2 million worth of Firefly Series A-3 preferred shares (the “Firefly
Series A-3 Shares”). The Series A-3 preferred shares were subsequently renamed Firefly Series B-2 Shares (the “Firefly Series
B-2 Shares”).
As
of September 30, 2022, the Company held approximately $5.7 million worth of Firefly Series B-1 Shares and $7.2 million worth of Firefly
Series B-2 Shares.
In
August 2020, Ballantyne Strong entered into a Master Services Agreement (the “Master Services Agreement”) with Firefly, pursuant
to which Ballantyne Strong agreed to provide certain support services to Firefly, including remote equipment monitoring and diagnostics
of screens, until no later than December 31, 2022, and to provide transition advertising instruction and integration services, content
management services, ad-hoc reporting and analysis, wireless service, advertising content management services, and mapping data until
no later than six months from closing. As consideration for entering into the Master Services Agreement, Ballantyne Strong received $2.0
million in cash consideration which the Company is recognizing as revenue ratably through the end of 2022.
The
major line items constituting the net income from discontinued operations are as follows (in thousands):
Schedule of Financial
Results of Discontinued Operations
| | |
| Convergent | | |
| Strong Outdoor | | |
| Total | |
| | |
Nine Months Ended September 30, 2021 | |
| | |
| Convergent | | |
| Strong Outdoor | | |
| Total | |
| Net revenues | |
$ | 1,472 | | |
$ | - | | |
$ | 1,472 | |
| Cost of revenues | |
| 746 | | |
| - | | |
| 746 | |
| Gross profit | |
| 726 | | |
| - | | |
| 726 | |
| Selling and administrative expenses | |
| 1,241 | | |
| - | | |
| 1,241 | |
| Loss from operations | |
| (515 | ) | |
| - | | |
| (515 | ) |
| Gain on Convergent transaction | |
| 14,937 | | |
| - | | |
| 14,937 | |
| Other income | |
| 194 | | |
| - | | |
| 194 | |
| Income from discontinued operations | |
| 14,616 | | |
| - | | |
| 14,616 | |
| Income tax benefit | |
| 33 | | |
| - | | |
| 33 | |
| Total net income from discontinued operations | |
$ | 14,649 | | |
$ | - | | |
$ | 14,649 | |
4.
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. 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 September 30, 2022 or December 31, 2021.
The
following tables disaggregate the Company’s revenue by major source and by operating segment for the three and nine months ended
September 30, 2022 and 2021 (in thousands):
Schedule of Disaggregation of Revenue
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
Three Months Ended September 30, 2022 | | |
Three Months Ended September 30, 2021 | |
| | |
| Strong Entertainment | | |
| Other | | |
| Total | | |
| Strong Entertainment | | |
| Other | | |
| Total | |
| Screen system sales | |
$ | 3,096 | | |
$ | - | | |
$ | 3,096 | | |
$ | 2,193 | | |
$ | - | | |
$ | 2,193 | |
| Digital equipment sales | |
| 3,592 | | |
| - | | |
| 3,592 | | |
| 1,408 | | |
| - | | |
| 1,408 | |
| Extended warranty sales | |
| 106 | | |
| - | | |
| 106 | | |
| 44 | | |
| - | | |
| 44 | |
| Other product sales | |
| 896 | | |
| - | | |
| 896 | | |
| 441 | | |
| - | | |
| 441 | |
| Total product sales | |
| 7,690 | | |
| - | | |
| 7,690 | | |
| 4,086 | | |
| - | | |
| 4,086 | |
| Field maintenance and monitoring services | |
| 1,708 | | |
| - | | |
| 1,708 | | |
| 1,436 | | |
| - | | |
| 1,436 | |
| Installation services | |
| 453 | | |
| - | | |
| 453 | | |
| 244 | | |
| - | | |
| 244 | |
| Other service revenues | |
| 53 | | |
| 370 | | |
| 423 | | |
| 56 | | |
| 294 | | |
| 350 | |
| Total service revenues | |
| 2,214 | | |
| 370 | | |
| 2,584 | | |
| 1,736 | | |
| 294 | | |
| 2,030 | |
| Total | |
$ | 9,904 | | |
$ | 370 | | |
$ | 10,274 | | |
$ | 5,822 | | |
$ | 294 | | |
$ | 6,116 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
Nine Months Ended September 30, 2022 | | |
Nine Months Ended September 30, 2021 | |
| | |
| Strong Entertainment | | |
| Other | | |
| Total | | |
| Strong Entertainment | | |
| Other | | |
| Total | |
| Screen system sales | |
$ | 9,341 | | |
$ | - | | |
$ | 9,341 | | |
$ | 6,680 | | |
$ | - | | |
$ | 6,680 | |
| Digital equipment sales | |
| 9,808 | | |
| - | | |
| 9,808 | | |
| 3,890 | | |
| - | | |
| 3,890 | |
| Extended warranty sales | |
| 290 | | |
| - | | |
| 290 | | |
| 105 | | |
| - | | |
| 105 | |
| Other product sales | |
| 2,637 | | |
| - | | |
| 2,637 | | |
| 1,136 | | |
| - | | |
| 1,136 | |
| Total product sales | |
| 22,076 | | |
| - | | |
| 22,076 | | |
| 11,811 | | |
| - | | |
| 11,811 | |
| Field maintenance and monitoring services | |
| 4,975 | | |
| - | | |
| 4,975 | | |
| 3,545 | | |
| - | | |
| 3,545 | |
| Installation services | |
| 1,294 | | |
| - | | |
| 1,294 | | |
| 674 | | |
| - | | |
| 674 | |
| Other service revenues | |
| 101 | | |
| 996 | | |
| 1,097 | | |
| 91 | | |
| 860 | | |
| 951 | |
| Total service revenues | |
| 6,370 | | |
| 996 | | |
| 7,366 | | |
| 4,310 | | |
| 860 | | |
| 5,170 | |
| Total | |
$ | 28,446 | | |
$ | 996 | | |
$ | 29,442 | | |
$ | 16,121 | | |
$ | 860 | | |
$ | 16,981 | |
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.
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.
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.
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 nine months ended September 30, 2022 and 2021 (in thousands):
Schedule of Disaggregation of Revenue
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
Three Months Ended September 30, 2022 | | |
Three Months Ended September 30, 2021 | |
| | |
| Strong Entertainment | | |
| Other | | |
| Total | | |
| Strong Entertainment | | |
| Other | | |
| Total | |
| Point in time | |
$ | 8,588 | | |
$ | 63 | | |
$ | 8,651 | | |
$ | 4,795 | | |
$ | 22 | | |
$ | 4,817 | |
| Over time | |
| 1,316 | | |
| 307 | | |
| 1,623 | | |
| 1,027 | | |
| 272 | | |
| 1,299 | |
| Total | |
$ | 9,904 | | |
$ | 370 | | |
$ | 10,274 | | |
$ | 5,822 | | |
$ | 294 | | |
$ | 6,116 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
Nine Months Ended September 30, 2022 | | |
Nine Months Ended September 30, 2021 | |
| | |
| Strong Entertainment | | |
| Other | | |
| Total | | |
| Strong Entertainment | | |
| Other | | |
| Total | |
| Point in time | |
$ | 24,561 | | |
$ | 80 | | |
$ | 24,641 | | |
$ | 13,648 | | |
$ | 32 | | |
$ | 13,680 | |
| Over time | |
| 3,885 | | |
| 916 | | |
| 4,801 | | |
| 2,473 | | |
| 828 | | |
| 3,301 | |
| Total | |
$ | 28,446 | | |
$ | 996 | | |
$ | 29,442 | | |
$ | 16,121 | | |
$ | 860 | | |
$ | 16,981 | |
At
September 30, 2022, 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 $0.9 million. The Company expects to recognize $0.8 million of the unearned revenue amounts during the remainder of 2022, $0.1 million
during 2023 and immaterial amounts from 2024 through 2026.
5.
Net (Loss) Income Per Common Share
Basic
net (loss) income 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 from continuing operations, 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) income per share (in thousands):
Schedule
of Reconciliation Weighted Average Between Basic and Diluted Earnings Per Share
| | |
| 2022 | | |
| 2021 | | |
| 2022 | | |
| 2021 | |
| | |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| | |
| 2022 | | |
| 2021 | | |
| 2022 | | |
| 2021 | |
| Weighted average shares outstanding: | |
| | | |
| | | |
| | | |
| | |
| Basic weighted average shares outstanding | |
| 19,437 | | |
| 18,437 | | |
| 19,235 | | |
| 17,870 | |
| Dilutive effect of stock options and certain non-vested restricted stock units | |
| - | | |
| 263 | | |
| - | | |
| 172 | |
| Diluted weighted average shares outstanding | |
| 19,437 | | |
| 18,700 | | |
| 19,235 | | |
| 18,042 | |
A
total of 159,994 and 114,408 common stock equivalents related to stock options and restricted stock units were excluded for the three
and nine months ended September 30, 2022, respectively, as their inclusion would be anti-dilutive, thereby decreasing the net losses
from continuing operations per share. Options to purchase 489,500 and 329,500 shares of common stock were outstanding as of September
30, 2022 and September 30, 2021, respectively, but were not included in the computation of diluted loss per share as the options’
exercise prices were greater than the average market price of the common shares for each period.
6.
Inventories
Inventories
consisted of the following (in thousands):
Schedule of Inventories
| | |
| September 30, 2022 | | |
| December 31, 2021 | |
| Raw materials and components | |
$ | 1,591 | | |
$ | 1,680 | |
| Work in process | |
| 364 | | |
| 399 | |
| Finished goods | |
| 1,711 | | |
| 1,192 | |
| Inventories, net | |
$ | 3,666 | | |
$ | 3,271 | |
The
inventory balances were net of reserves of approximately $0.5 million as of both September 30, 2022 and December 31, 2021. The inventory
reserves primarily related to the Company’s finished goods inventory. A rollforward of the inventory reserve for the nine months
ended September 30, 2022 is as follows (in thousands):
Schedule of Inventory Reserve
| | |
| | |
| Inventory reserve balance at December 31, 2021 | |
$ | 467 | |
| Inventory reserve, beginning balance | |
$ | 467 | |
| Inventory write-offs and other adjustments during 2022 | |
| 5 | |
| Provision for inventory reserve during 2022 | |
| - | |
| Inventory reserve balance at September 30, 2022 | |
$ | 472 | |
| Inventory reserve, ending balance | |
$ | 472 | |
7.
Equity Holdings
The
following summarizes our equity holdings (dollars in thousands):
Summary of Investments
| | |
September 30, 2022 | | |
December 31 2021 | |
| | |
Carrying Amount | | |
Economic Interest | | |
Carrying Amount | | |
Economic Interest | |
| Equity Method Holdings | |
| | | |
| | | |
| | | |
| | |
| FG Financial Holdings, LLC | |
$ | 4,850 | | |
| 47.3 | % | |
$ | - | | |
| - | |
| FG Financial Group, Inc. | |
| - | | |
| - | | |
| 5,549 | | |
| 25.2 | % |
| | |
| | | |
| | | |
| | | |
| | |
| Fair Value Method Holding | |
| | | |
| | | |
| | | |
| | |
| GreenFirst Forest Products Inc. | |
| 17,876 | | |
| 8.6 | % | |
| 22,467 | | |
| 8.6 | % |
| | |
| | | |
| | | |
| | | |
| | |
| Cost Method Holding | |
| | | |
| | | |
| | | |
| | |
| Firefly Systems, Inc. | |
| 12,898 | | |
| | | |
| 13,117 | | |
| | |
| Total Investments | |
$ | 35,624 | | |
| | | |
$ | 41,133 | | |
| | |
The
following summarizes the loss of equity method holdings reflected in the condensed consolidated statements of operations (in thousands):
Summary
of Income (Loss) of Equity Method Investees
| | |
| | | |
| | | |
| | | |
| | |
| | |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Entity | |
| | | |
| | | |
| | | |
| | |
| FG Financial Group, Inc. | |
$ | (798 | ) | |
$ | 91 | | |
$ | (2,578 | ) | |
$ | (318 | ) |
| GreenFirst Forest Products Inc. | |
| - | | |
| (414 | ) | |
| - | | |
| (1,150 | ) |
| Total | |
$ | (798 | ) | |
$ | (323 | ) | |
$ | (2,578 | ) | |
$ | (1,468 | ) |
Equity
Method Holdings
FG
Financial Group, Inc. (“FGF”) is a 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
June 2022, FGF announced the closing of a public offering of common stock of 2,750,000 shares at a price of $1.58. The Company participated
in the public offering and purchased 1,265,822 shares of FGF common stock. Following the purchase, the Company’s FGF holdings total
approximately 2.9 million shares of FGF common stock.
The
Company’s Chairman, D. Kyle Cerminara, is the chairman of the board of directors of FGF. Mr. Cerminara is affiliated with entities
that, when combined with the Company’s ownership in FGF, own greater than 50% of FGF. Since FGF does not depend on the Company
for continuing financial support to maintain operations, the Company has determined that FGF is not a variable interest entity, and therefore,
the Company is not required to determine the primary beneficiary of FGF for potential consolidation. The Company did not receive dividends
from FGF during the three and nine months ended September 30, 2022 or 2021.
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 FGF common stock to FGF Holdings on September
12, 2022. 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
it 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% voting power but does not maintain a controlling interest.
Accordingly, the Company applied the equity method of accounting to its interest in FGF Holdings. The Company accounted for the transfer
of the 2.9 million shares of FGF common stock to FGF Holdings as a change in interest and recognized a gain of $0.9 million during the
third quarter of 2022, which was included part of the Equity method holding loss on the condensed consolidated statement of operations.
Consistent
with the Company’s policy to recognize the results of its equity method holdings in its statement of operations on a
one-quarter lag, the Company will begin to recognize its share of the results of FGF Holdings beginning in the fourth quarter of
2022 (reported in the first quarter of 2023).
Based
on quoted market prices of the assets held by FGF Holdings, as well as the cash balance on hand, the liquidation value of the
Company’s LLC interest in FGF Holdings was approximately $4.8
million as of September 30, 2022.
As
of September 30, 2022, the Company’s retained earnings included an accumulated deficit from its equity method holdings of approximately
$9.0 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 qualifies for equity method accounting. As a result of applying the fair
value method of accounting, the Company recorded an unrealized loss on equity holdings of approximately $1.3 million and $3.8 million
during the three and nine months ended September 30, 2022, respectively, and recorded an unrealized gain on equity holdings of $8.4 million
during the three and nine months ended September 30, 2021. The Company did not receive dividends from GreenFirst during the three and
nine months ended September 30, 2022 or 2021. Based on quoted market prices, the fair value of the Company’s ownership in GreenFirst
was $17.9 million as of September 30, 2022.
Cost
Method Holding
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. See Note 3 for additional details. 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.
8.
Property, Plant and Equipment, Net
Property,
plant and equipment, net consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):
Schedule of Property, Plant and Equipment
| | |
| September 30, 2022 | | |
| December 31, 2021 | |
| Land | |
$ | 2,340 | | |
$ | 51 | |
| Buildings and improvements | |
| 12,669 | | |
| 6,886 | |
| Machinery and other equipment | |
| 5,837 | | |
| 5,992 | |
| Office furniture and fixtures | |
| 846 | | |
| 837 | |
| Construction in progress | |
| 11 | | |
| 393 | |
| Total properties, cost | |
| 21,703 | | |
| 14,159 | |
| Less: accumulated depreciation | |
| (8,358 | ) | |
| (7,933 | ) |
| Property, plant and equipment, net | |
$ | 13,345 | | |
$ | 6,226 | |
In
January 2022, the Company, through its wholly owned subsidiary, Digital Ignition, LLC, and Metrolina Alpharetta, LLC (“Metrolina”)
entered into an agreement pursuant to which the Company purchased a parcel of land with buildings and improvements in Alpharetta, Georgia.
The Company previously leased the building and uses it for its Digital Ignition technology incubator and co-working facility. The purchase
price consisted of (i) $5.8 million in cash, (ii) the grant of approximately 0.8 million shares of the Company’s common stock (the
“Stock Grant”), and (iii) the issuance of a warrant to purchase an additional 0.1 million shares of the Company’s common
stock (the “Stock Warrant”).
The
Stock Grant was made to Metrolina Capital Investors, LLC (“Metrolina Capital”) and consisted of approximately 0.8 million
shares of the Company’s common stock with a value equal to approximately $2.3 million. The number of shares of the Company’s
stock was determined based upon a price per share equal to the average of the closing price of our on the NYSE American exchange for
the 60 most recent trading days prior to February 1, 2022, rounded up to the nearest whole number of shares. Additionally, the Company
issued the Stock Warrant to Metrolina Capital, consisting of a ten-year warrant to purchase up to 0.1 million shares of the Company’s
common stock at an exercise price per share of $3.00. In connection with the issuance of Stock Warrant, the Company and Metrolina agreed
that other warrants previously granted by the Company to Metrolina were cancelled and terminated.
9.
Film and Television Programming Rights, Net
Schedule
of Development Assets Acquired
| | |
| September 30, 2022 | | |
| December 31, 2021 | |
| Television series in development | |
$ | 1,257 | | |
$ | - | |
| Films in development | |
| 192 | | |
| - | |
| Total | |
$ | 1,449 | | |
$ | - | |
The
Company has not yet commenced amortization of the projects as they were still in development at September 30, 2022.
A
rollforward of film and television programming rights, net for the nine months ended September 30, 2022 is as follows (in thousands):
Schedule
of Film And Television Programming Rights
| Balance at December 31, 2021 | |
$ | - | |
| In-process projects acquired from Landmark | |
| 1,670 | |
| Warrant to be issued to Landmark | |
| 364 | |
| Expenditures on in-process projects | |
| 407 | |
| Reclass from other assets | |
| 124 | |
| Reclass of reimbursable costs associated with Safehaven | |
| (1,116 | ) |
| Balance at September 30, 2022 | |
$ | 1,449 | |
On
March 3, 2022, the Company, Strong Studios and Landmark Studio Group LLC (“Landmark”) entered into an Assignment and Attachment
Agreement (“AA Agreement”) and a Purchase Agreement, pursuant to which Strong Studios acquired from Landmark the rights to
original feature films and television series, and has been assigned 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, as yet,
produced revenue. 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, as follows: $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 of Strong Global Entertainment, a warrant to purchase up to 150,000 common shares of Strong Global Entertainment, exercisable
for three years beginning six months after the consummation of the initial public offering, at an exercise price equal to the per-share
offering price of Strong Global Entertainment’s common shares in the initial public offering (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.
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 $6.5 million and Flagrant
for $2.5 million upon delivery of each project.
In
accordance with Accounting Standards Codification (“ASC”) 926 Entertainment - Films, costs of acquiring and producing films
and television programs are capitalized when incurred. In connection with the transaction, and using the guidance in “Acquisition
of Assets Rather than a Business” subsections contained within ASC 805 Business Combinations, the Company allocated the $1.7 million
acquisition price to the various projects under development based upon the historical costs incurred by Landmark, which the Company believes
approximates fair value. The Company also recorded a liability for the $1.4 million of remaining installment payments it will make to
Landmark. Finally, the Company also determined the fair value of the Landmark Warrant and allocated an additional $0.4 million to the
various projects under development. The Company will recognize the remaining payment contingencies that may be due to Landmark, which
include distribution fees and profit participations that will be incurred following the completion and exploitation of each project,
when the contingencies are resolved, and the amounts become payable.
The
fair value of the Landmark Warrant was estimated on the date of grant using a Black-Scholes valuation model with the following assumptions:
Summary
of Warrants Granted Valuation Using Black Scholes Pricing Method
| Expected dividend yield at date of grant | |
| 0.00 | % |
| Risk-free interest rate | |
| 1.7 | % |
| Expected stock price volatility | |
| 72.9 | % |
| Expected life of warrants (in years) | |
| 3.0 | |
During
the second quarter of 2022, Safehaven 2022, Inc. (“Safehaven 2022”) was established to manage the production and financing
of Safehaven, one of the projects acquired from Landmark. Strong Studios owns 49% of Safehaven 2022 and the remaining 51% is 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 Safehaven 2022 on a pro-rata basis based on their
relative ownership percentages.
Strong Studios allocated $1.0 million of the $1.7 million acquisition price to Safehaven and incurred an additional $0.1 million of development
costs during the nine months ended September 30, 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. The $1.1 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 condensed consolidated
balance sheet as of September 30, 2022. 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 early 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 subsequently entered into an $8.9 million 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 September 30, 2022, Safehaven 2022 had borrowed $8.6 million under the facility for production costs incurred
to that date. Safehaven 2022 has also received working capital advances of $0.4 million from Strong Studios. Strong Studios expects Safehaven
2022 to reimburse the working capital advances when tax credits are received in the second half of 2023.
Strong Studios reviewed its ownership in Safehaven 2022 and concluded that it has significant influence, but not a controlling interest, in
Safehaven 2022 based on its ownership being less than 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 the equity method of accounting to its equity holding in Safehaven 2022 and will record its proportionate share of the net
income/loss resulting from the equity holding as a single line item captioned “equity method holding income (loss)” on its
statement of operations.
Safehaven
2022 did not record any income or expense during the nine months ended September 30, 2022, because all costs incurred by Safehaven 2022
related to the in-process production through September 30, 2022, have been capitalized. Upon delivery 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 of the balance sheet of Safehaven 2022 as of September 30, 2022, is as follows (in thousands):
Schedule
of Balance Sheets
| | |
| | |
| Cash | |
$ | 194 | |
| Television programming rights | |
| 10,439 | |
| Other assets | |
| 337 | |
| Total assets | |
$ | 10,970 | |
| | |
| | |
| Accounts payable and accrued expenses | |
$ | 946 | |
| Due to Strong Studios | |
| 1,375 | |
| Debt | |
| 8,649 | |
| Equity | |
| - | |
| Total liabilities and equity | |
$ | 10,970 | |
10.
Goodwill
The
following represents a summary of changes in the Company’s carrying amount of goodwill for the nine months ended September 30,
2022 (in thousands):
Summary of Changes in Carrying Amount of Goodwill
| Balance as of December 31, 2021 | |
$ | 942 | |
| Foreign currency translation adjustment | |
| (71 | ) |
| Balance as of September 30, 2022 | |
$ | 871 | |
11.
Debt
The
Company’s short-term debt and long-term debt consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):
Schedule of Short term and Long term Debt
| | |
| | | |
| | |
| | |
September 30, 2022 | | |
December 31, 2021 | |
| Short-term debt: | |
| | | |
| | |
| Strong/MDI 20-year installment loan | |
$ | 2,316 | | |
$ | 2,682 | |
| Strong/MDI 5-year equipment loan | |
| 237 | | |
| 316 | |
| Insurance note payable | |
| 133 | | |
| - | |
| Total short-term debt | |
$ | 2,686 | | |
$ | 2,998 | |
| | |
| | | |
| | |
| Long-term debt: | |
| | | |
| | |
| Tenant improvement loan | |
$ | 170 | | |
$ | 128 | |
| Digital Ignition building loan | |
| 5,149 | | |
| - | |
| Total long-term debt | |
$ | 5,319 | | |
$ | 128 | |
| Less: current portion | |
| (213 | ) | |
| (23 | ) |
| Less: deferred debt issuance costs, net | |
| (50 | ) | |
| - | |
| Long-term debt, net of current portion and deferred debt issuance costs, net | |
$ | 5,056 | | |
$ | 105 | |
| | |
September 30, 2022 | | |
December 31, 2021 | |
| Deferred debt issuance costs | |
$ | 56 | | |
$ | - | |
| Less: accumulated amortization | |
$ | (6 | ) | |
| - | |
| Deferred debt issuance costs, net | |
$ | 50 | | |
$ | - | |
Estimated
future amortization expense of deferred debt issuance costs is as follows (in thousands):
Schedule of Amortization Expense of Deferred Issuance Costs
| | |
| | |
| Remainder of 2022 | |
$ | 4 | |
| 2023 | |
| 11 | |
| 2024 | |
| 11 | |
| 2025 | |
| 11 | |
| 2026 | |
| 11 | |
| Thereafter | |
| 2 | |
| Total | |
$ | 50 | |
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 a bank 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 consists of a revolving line of credit for up to CAD$2.0 million subject to
a borrowing base requirement, a 20-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 the lender. Amounts
outstanding under the installment loans bear interest at the lender’s prime rate plus 0.5% and are payable in monthly installments,
including interest, over their respective borrowing periods. The lender 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 requires 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. As of
September 30, 2022, there was CAD$3.2 million, or approximately $2.3 million, of principal outstanding on the 20-year installment loan,
which bears variable interest at 5.20%. As of September 30, 2022, there was CAD$0.3 million, or approximately $0.2 million, of principal
outstanding on the 5-year installment loan, which also bears variable interest at 5.20%. Strong/MDI was in compliance with its debt covenants
as of September 30, 2022.
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 $0.4 million to complete the build-out of the new combined office and warehouse facility. The landlord has
agreed to fund approximately 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
$0.2 million of total costs to build out the facility, of which approximately $0.1 million was funded by the landlord. The Company completed
the build-out during the first quarter of 2022 and incurred an additional $0.2 million of total costs to complete the build-out, of which
approximately $0.1 million was funded by the landlord.
Digital
Ignition Building Loam
As
discussed in Note 8, 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%, (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.
Contractual
Principal Payments
Contractual
required principal payments on the Company’s long-term debt at September 30, 2022 are as follows (in thousands):
Schedule
of Contractual Principal Payments of Long-term Debt
| | |
Tenant Improvement Loan | | |
Digital Ignitiion Building Loan | | |
Total | |
| Remainder of 2022 | |
$ | 8 | | |
$ | 44 | | |
$ | 52 | |
| 2023 | |
| 36 | | |
| 180 | | |
| 216 | |
| 2024 | |
| 38 | | |
| 187 | | |
| 225 | |
| 2025 | |
| 39 | | |
| 195 | | |
| 234 | |
| 2026 | |
| 42 | | |
| 203 | | |
| 245 | |
| Thereafter | |
| 7 | | |
| 4,340 | | |
| 4,347 | |
| Total | |
$ | 170 | | |
$ | 5,149 | | |
$ | 5,319 | |
12.
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.
The
following tables present the Company’s lease costs and other lease information (dollars in thousands):
Schedule of Lease
Costs and Other Lease Information
| | |
| | | |
| | | |
| | | |
| | |
| Lease cost | |
Three Months Ended | | |
Nine Months Ended | |
| | |
September 30, 2022 | | |
September 30, 2021 | | |
September 30, 2022 | | |
September 30, 2021 | |
| Finance lease cost: | |
| | | |
| | | |
| | | |
| | |
| Amortization of right-of-use assets | |
$ | 3 | | |
$ | 1 | | |
$ | 6 | | |
$ | 3 | |
| Interest on lease liabilities | |
| 1 | | |
| - | | |
| 2 | | |
| 292 | |
| Operating lease cost | |
| 36 | | |
| 218 | | |
| 160 | | |
| 666 | |
| Short-term lease cost | |
| 13 | | |
| 13 | | |
| 41 | | |
| 42 | |
| Sublease income | |
| - | | |
| (93 | ) | |
| (32 | ) | |
| (246 | ) |
| Net lease cost | |
$ | 53 | | |
$ | 139 | | |
$ | 177 | | |
$ | 757 | |
| Other information | |
Three Months Ended | | |
Nine Months Ended | |
| | |
September 30, 2022 | | |
September 30, 2021 | | |
September 30, 2022 | | |
September 30, 2021 | |
| Cash paid for amounts included in the measurement of lease liabilities: | |
| | | |
| | | |
| | | |
| | |
| Operating cash flows from finance leases | |
$ | 1 | | |
$ | - | | |
$ | 2 | | |
$ | 292 | |
| Operating cash flows from operating leases | |
$ | 29 | | |
$ | 203 | | |
$ | 170 | | |
$ | 617 | |
| Financing cash flows from finance leases | |
$ | 3 | | |
$ | 1 | | |
$ | 5 | | |
$ | 2,106 | |
| Right-of-use assets obtained in exchange for new finance lease liabilities | |
$ | - | | |
$ | - | | |
$ | 68 | | |
$ | - | |
| Right-of-use assets obtained in exchange for new operating lease liabilities | |
$ | 97 | | |
$ | - | | |
$ | 97 | | |
$ | - | |
| | |
As of September 30, 2022 | |
| Weighted-average remaining lease term - finance leases (years) | |
| 4.5 | |
| Weighted-average remaining lease term - operating leases (years) | |
| 4.9 | |
| Weighted-average discount rate - finance leases | |
| 6.4 | % |
| Weighted-average discount rate - operating leases | |
| 6.0 | % |
The
following table presents a maturity analysis of the Company’s operating and finance lease liabilities as of September 30, 2022
(in thousands):
Schedule of Future Minimum Lease Payments
| | |
Operating Leases | | |
Finance Leases | |
| Remainder of 2022 | |
$ | 32 | | |
$ | 4 | |
| 2023 | |
| 131 | | |
| 16 | |
| 2024 | |
| 101 | | |
| 16 | |
| 2025 | |
| 79 | | |
| 16 | |
| 2026 | |
| 81 | | |
| 16 | |
| Thereafter | |
| 14 | | |
| 5 | |
| Total lease payments | |
| 438 | | |
| 73 | |
| Less: Amount representing interest | |
| (37 | ) | |
| (10 | ) |
| Present value of lease payments | |
| 401 | | |
| 63 | |
| Less: Current maturities | |
| (114 | ) | |
| (12 | ) |
| Lease obligations, net of current portion | |
$ | 287 | | |
$ | 51 | |
13.
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 September 30, 2022 and December 31, 2021.
During
the first quarter of 2021, the Company sold its Convergent business segment. As a result, this business segment is categorized as discontinued
operations for the periods presented. The Company has sufficient net operating losses to offset Federal taxable income from these discontinued
operations as well as the tax effects related to the gain on sale of discontinued operations. State income tax expense related to the
operations and sale of this entity has been allocated to discontinued operations.
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. As a result of the GILTI provisions, the
Company’s inclusion of taxable income was incorporated into the overall net operating loss and valuation allowance for the three
and nine months ended September 30, 2022 and comparative September 30, 2021, as well as December 31, 2021.
Changes
in tax laws may affect recorded deferred tax assets and liabilities and the Company’s effective tax rate in the future. In March
2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. The CARES Act made significant
changes to Federal tax laws, including certain changes that are 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 condensed consolidated financial statements.
The
Company is subject to possible examinations not yet initiated for Federal purposes for fiscal years 2018 through 2020. In most cases,
the Company is subject to possible examinations by state or local jurisdictions based on the particular jurisdiction’s statute
of limitations.
The
Consolidated Appropriations Act extended and expanded the availability of the CARES Act employee retention credit through June 30, 2021.
Subsequently, the American Rescue Plan Act of 2021 (“ARP Act”), enacted on March 11, 2021, extended and expanded the availability
of the employee retention credit through December 31, 2021, however, certain provisions apply only after December 31, 2020. This new
legislation expanded the group of qualifying business to include businesses with fewer than 500 employees and those who previously qualified
for the Paycheck Protection Program (the “PPP Loan”). The employee retention credit is calculated to be equal to 70% of qualified
wages paid to employees after December 31, 2020, and before January 1, 2022. During calendar year 2021, a maximum of $10,000 in qualified
wages for each employee per qualifying calendar quarter may be counted in determining the 70% credit. Therefore, the maximum tax credit
that can be claimed by an eligible employer is $7,000 per employee per qualifying calendar quarter of 2021. The Company has determined
that the qualifications for the credit were met in the first and second quarters of 2021. In July 2021, the Company applied for a refund
of $1.5 million of payroll taxes previously paid and recognized a corresponding reduction in compensation expenses during the three months
ending June 30, 2021. Of the $1.5 million, $0.8 million was recorded within cost of services, $0.1 million was recorded withing selling
expenses, $0.4 million was recorded withing general and administrative expenses and $0.2 million was recorded within discontinued operations
on the condensed consolidated statement of operations. In September 2021, the Company applied for a refund of $0.6 million of payroll
taxes previously paid and recognized a corresponding reduction in compensation expenses during the three months ended September 30, 2021.
Of the $0.6 million, $0.4 million was recorded within cost of services and $0.2 million was recorded within general and administrative
expenses.
14.
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 million and $0.2 million for the three months ended September
30, 2022 and September 30, 2021, respectively, and $0.5 million and $0.7 million for the nine months ended September 30, 2022 and September
30, 2021, respectively.
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 September 30, 2022, approximately 2.3 million shares were
available for issuance under the amended and restated 2017 Plan.
Stock
Options
The
following table summarizes stock option activity for the nine months ended September 30, 2022:
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, 2021 | |
| 659,500 | | |
$ | 3.68 | | |
| 6.6 | | |
$ | 187 | |
| Granted | |
| - | | |
| | | |
| | | |
| | |
| Exercised | |
| - | | |
| | | |
| | | |
| | |
| Forfeited | |
| (12,000 | ) | |
| 1.60 | | |
| | | |
| | |
| Expired | |
| (8,000 | ) | |
| 3.54 | | |
| | | |
| | |
| Outstanding at September 30, 2022 | |
| 639,500 | | |
$ | 3.72 | | |
| 5.8 | | |
$ | 52 | |
| Exercisable at September 30, 2022 | |
| 434,000 | | |
$ | 4.25 | | |
| 5.3 | | |
$ | 10 | |
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 September 30, 2022, 205,500 stock option awards were non-vested. Unrecognized compensation cost related to non-vested stock options
was approximately $0.2 million, which is expected to be recognized over a weighted average period of 1.9 years.
Restricted
Stock Units
The
Company estimates the fair value of restricted stock awards based upon the market price of the underlying common stock on the date of
grant. On July 1, 2022, the Company granted a total of 120,829 restricted stock units to the members of its Board of Directors. The restricted
stock units will vest on the first anniversary of the grant date, subject to continuous service to the Company.
The
following table summarizes restricted stock unit activity for the nine months ended September 30, 2022:
Summary of Restricted Stock Activity
| | |
Number of Restricted Stock Units | | |
Weighted Average Grant Date Fair Value | |
| Non-vested at December 31, 2021 | |
| 314,079 | | |
$ | 2.45 | |
| Granted | |
| 120,829 | | |
| 2.40 | |
| Shares vested | |
| (189,641 | ) | |
| 3.02 | |
| Shares forfeited | |
| - | | |
| | |
| Non-vested at September 30, 2022 | |
| 245,267 | | |
$ | 1.99 | |
As
of September 30, 2022, the total unrecognized compensation cost related to non-vested restricted stock unit awards was approximately
$0.2 million, which is expected to be recognized over a weighted average period of 1.1 years.
15.
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. During 2021, the Company recorded a loss contingency reserve of approximately $0.3 million, which
represents the Company’s estimate of its potential losses related to the resolution of open cases. There have been no changes to
this loss contingency reserve during 2022. When appropriate, the Company may settle certain claims. The Company does not expect the resolution
of these cases to have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash
flows.
Concentrations
The
Company’s top ten customers accounted for approximately 66% and 52% of consolidated net revenues during the three and nine months
ended September 30, 2022. Trade accounts receivable from these customers represented approximately 45% of net consolidated receivables
at September 30, 2022. None of the Company’s customers accounted for more than 10% of both its consolidated net revenues during
the nine months ended September 30, 2022 and its net consolidated receivables as of September 30, 2022. 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.
Some
operators in the cinema industry carry high levels of balance sheet leverage arising from pre-COVID acquisitions. Cineworld Group Plc,
the parent company of Regal Cinemas and one of the largest cinema operators, filed for Chapter 11 bankruptcy on September 7, 2022 to
restructure their balance sheet and alleviate their debt burden. As of September 30, 2022, the Company had $0.2 million in accounts receivable
related to products and services sold to Regal Cinemas. The bankruptcy filing is expected to negatively impact the collectability of
our accounts receivable and could also negatively impact our revenue in future periods.
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.
16.
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.
Summary
by Business Segments
Schedule of Segment Reporting Information by Segment
| | |
| | | |
| | | |
| | | |
| | |
| | |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| | |
(in thousands) | | |
(in thousands) | |
| Net revenues | |
| | | |
| | | |
| | | |
| | |
| Strong Entertainment | |
$ | 9,904 | | |
$ | 5,822 | | |
$ | 28,446 | | |
$ | 16,121 | |
| Other | |
| 370 | | |
| 294 | | |
| 996 | | |
| 860 | |
| Total net revenues | |
| 10,274 | | |
| 6,116 | | |
| 29,442 | | |
| 16,981 | |
| | |
| | | |
| | | |
| | | |
| | |
| Gross profit | |
| | | |
| | | |
| | | |
| | |
| Strong Entertainment | |
| 2,371 | | |
| 2,154 | | |
| 6,674 | | |
| 5,428 | |
| Other | |
| 369 | | |
| 294 | | |
| 996 | | |
| 644 | |
| Total gross profit | |
| 2,740 | | |
| 2,448 | | |
| 7,670 | | |
| 6,072 | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating (loss) income | |
| | | |
| | | |
| | | |
| | |
| Strong Entertainment | |
| 732 | | |
| 1,028 | | |
| 1,522 | | |
| 2,150 | |
| Other | |
| (34 | ) | |
| (142 | ) | |
| (204 | ) | |
| (577 | ) |
| Total segment operating income | |
| 698 | | |
| 886 | | |
| 1,318 | | |
| 1,573 | |
| Unallocated administrative expenses | |
| (990 | ) | |
| (1,004 | ) | |
| (3,258 | ) | |
| (3,434 | ) |
| Loss from operations | |
| (292 | ) | |
| (118 | ) | |
| (1,940 | ) | |
| (1,861 | ) |
| Other (expense) income, net | |
| (864 | ) | |
| 10,223 | | |
| (3,788 | ) | |
| 9,937 | |
| (Loss) income from continuing operations before income taxes and equity method holding loss | |
$ | (1,156 | ) | |
$ | 10,105 | | |
$ | (5,728 | ) | |
$ | 8,076 | |
Schedule
of Reconciliation of Assets from Segment to Consolidated
| | |
| | | |
| | |
| (In thousands) | |
September 30, 2022 | | |
December 31, 2021 | |
| Identifiable assets | |
| | | |
| | |
| Strong Entertainment | |
$ | 33,344 | | |
$ | 38,518 | |
| Corporate assets | |
| 36,020 | | |
| 37,291 | |
| Total | |
$ | 69,364 | | |
$ | 75,809 | |
Summary
by Geographical Area
Schedule of Segment Reporting Information by Geographic Area
| | |
| | | |
| | | |
| | | |
| | |
| | |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| (In thousands) | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Net revenues | |
| | | |
| | | |
| | | |
| | |
| United States | |
$ | 8,780 | | |
$ | 4,735 | | |
$ | 25,403 | | |
$ | 13,831 | |
| Canada | |
| 391 | | |
| 524 | | |
| 1,264 | | |
| 1,101 | |
| China | |
| 48 | | |
| 197 | | |
| 327 | | |
| 355 | |
| Mexico | |
| 12 | | |
| 1 | | |
| 19 | | |
| 15 | |
| Latin America | |
| 97 | | |
| 45 | | |
| 317 | | |
| 146 | |
| Europe | |
| 525 | | |
| 244 | | |
| 790 | | |
| 442 | |
| Asia (excluding China) | |
| 142 | | |
| 290 | | |
| 573 | | |
| 636 | |
| Other | |
| 279 | | |
| 80 | | |
| 749 | | |
| 455 | |
| Total | |
$ | 10,274 | | |
$ | 6,116 | | |
$ | 29,442 | | |
$ | 16,981 | |
Schedule of Identifiable Assets by Geographical Area
| | |
| | | |
| | |
| (In thousands) | |
September 30, 2022 | | |
December 31, 2021 | |
| Identifiable assets | |
| | | |
| | |
| United States | |
$ | 48,632 | | |
$ | 46,585 | |
| Canada | |
| 20,732 | | |
| 29,224 | |
| Total | |
$ | 69,364 | | |
$ | 75,809 | |
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.