Notes
to the Consolidated Financial Statements
(In
thousands, except share and per share amounts)
1.
Basis of Presentation
Business
Description
Ballantyne
Strong, Inc. (“Ballantyne” or the “Company”), a Delaware corporation, is a holding company with diverse
business activities focused on serving the cinema, retail, financial, advertising and government markets. The Company,
and its wholly owned subsidiaries Strong Technical Services, Inc., Strong/MDI Screen Systems, Inc. (“Strong/MDI”)
and Convergent Media Systems Corporation design, integrate and install technology solutions for a broad range of applications;
develop and deliver out-of-home messaging, advertising and communications; manufacture projection screens; and provide managed
services including monitoring of networked equipment to our customers.
Principles
of Consolidation
The
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.
Reclassification
During
2017, the Company began classifying software in development as an intangible asset rather than property, plant and equipment,
to be consistent with its classification of software assets in service. Accordingly, approximately $0.5 million of software in
development at December 31, 2016 was reclassified to intangible assets from property, plant and equipment on the consolidated
balance sheet to conform to the current period presentation. This reclassification had no effect on the Company’s reported
results of operations, comprehensive loss or cash flows.
Use
of Management Estimates
The
preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles 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.
2.
Discontinued Operations
In
2016, the Company’s Board of Directors approved a plan to pursue a sale of the operations conducted by its subsidiaries
Strong Westrex (Beijing) Technology Inc. (“SWBTI”) and Strong Westrex, Inc. (“SWI”) (collectively, the
“China Operations”), which were historically included in the Cinema segment. The purpose of the plan was to focus
the efforts of the Company on the business units that have opportunities for higher return on invested capital. The results of
the China Operations are reported as discontinued operations for all periods presented. The assets and liabilities of the China
Operations have been reclassified as assets and liabilities held for sale in the consolidated balance sheets for all periods presented.
SWBTI
was sold in November 2016 for total proceeds of $0.4 million. The Company recorded a loss on disposal of SWBTI of approximately
$0.6 million, which is included in net loss from discontinued operations.
In
May 2017, the Company sold the operational assets of SWI for total proceeds of $60 thousand. As a result of this sale, the Company
recorded a gain on disposal of discontinued operations of approximately $50 thousand, which is included in net loss from discontinued
operations.
The
summary comparative financial results of discontinued operations were as follows (in thousands):
|
|
Years
ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Total
net revenues
|
|
$
|
24
|
|
|
$
|
6,864
|
|
|
$
|
14,769
|
|
Total
cost of revenues
|
|
|
48
|
|
|
|
6,351
|
|
|
|
13,896
|
|
Total
selling and administrative expenses
|
|
|
53
|
|
|
|
1,131
|
|
|
|
1,622
|
|
Loss
from operations of discontinued operations
|
|
|
(77
|
)
|
|
|
(618
|
)
|
|
|
(749
|
)
|
Loss
before income taxes
|
|
|
(25
|
)
|
|
|
(1,163
|
)
|
|
|
(780
|
)
|
Income
tax expense (benefit)
|
|
|
—
|
|
|
|
114
|
|
|
|
(37
|
)
|
Net
loss from discontinued operations, net of tax
|
|
$
|
(25
|
)
|
|
$
|
(1,277
|
)
|
|
$
|
(743
|
)
|
Depreciation
and amortization related to discontinued operations was immaterial in 2017, 2016 and 2015. Capital expenditures related to discontinued
operations were immaterial in 2017, 2016 and 2015.
3.
Summary of Significant Accounting Policies
Revenue
Recognition
The
Company recognizes revenue when all of the following circumstances are satisfied:
|
●
|
Persuasive
evidence of an arrangement exists;
|
|
●
|
Delivery
has occurred or services have been rendered;
|
|
●
|
The
seller’s price to the buyer is fixed or determinable; and
|
|
●
|
Collectability
is reasonably assured.
|
If
an arrangement involves multiple deliverables, the items are analyzed to determine the separate units of accounting, whether the
items have value on a stand-alone basis and whether there is objective and reliable evidence of their fair values. The deliverables
and timing depend upon the customer’s needs. Because the sales are so highly customized, separate sales are too infrequent
in most cases to establish vendor specific objective evidence (VSOE). As a result, the Company uses third party evidence for products
and the best estimate of selling prices for other contract features. For services performed, revenue is recognized when the products
have been installed and services have been rendered. Revenues from maintenance support or managed services contracts are deferred
and recognized as earned over the service coverage periods.
For
equipment sales, revenue is generally recognized upon shipment of the product; however, there are certain instances where revenue
is deferred and recognized upon delivery or customer acceptance of the product as the Company legally retains the risk of loss
on these transactions until such time.
Costs
related to revenues are recognized in the same period in which the specific revenues are recorded. Shipping and handling fees
billed to customers are reported in revenue. Shipping and handling costs incurred by the Company are included in cost of sales.
Estimates used in the recognition of revenues and cost of revenues include, but are not limited to, estimates for product warranties,
price allowances and product returns.
Cash
and Cash Equivalents
All
short-term, highly liquid financial instruments are classified as cash equivalents in the consolidated balance sheets and statements
of cash flows. Generally, these instruments have maturities of three months or less from date of purchase. As of December 31,
2017, $3.6 million of the $4.9 million in cash and cash equivalents was held by our foreign subsidiaries.
Equity
Method Investments
We
apply the equity method of accounting to investments when we have significant influence, but not controlling interest in the investee.
Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership
interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions.
The Company’s proportionate share of the net income (loss) resulting from these investments is reported under the line item
captioned “equity method investment income” in our Consolidated Statements of Operations. The carrying value of our
equity method investments is reported in equity method investments in the Consolidated Balance Sheets. The Company’s equity
method investments are reported at cost and adjusted each period for the Company’s share of the investee’s income
or loss and dividend paid, if any. The Company’s share of the investee’s income or loss is recorded on a one quarter
lag for all equity method investments. Beginning in 2017, the Company classifies distributions received from equity method investments
using the cumulative earnings approach on the Consolidated Statements of Cash Flows. Prior to 2017, dividends received from equity
method investees were classified as operating cash flows. The Company assesses investments for impairment whenever events or changes
in circumstances indicate that the carrying value of an investment may not be recoverable. The Company did not record any impairments
related to its investments in 2017, 2016 or 2015. Note 6 contains additional information on our equity method investments, which
are held by our Cinema segment.
Accounts
and Notes 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.
The
Company elected the fair value option on its notes receivable. Notes receivable are recorded at estimated fair value and accrue
interest at 15%.
Past
due accounts are written off for accounts and notes receivable when our efforts have been unsuccessful in collecting amounts due.
Inventories
Inventories
are stated at the lower of cost (first-in, first-out) or net realizable value in 2017 and at lower of cost (first-in, first-out)
or market for periods prior to 2017. Inventories include appropriate elements of material, labor and manufacturing overhead. Inventory
balances are net of reserves on slow moving or obsolete inventory based on management’s review of inventories on hand compared
to estimated future usage and sales, technological changes and product pricing.
Business
Combinations
The
Company uses the acquisition method of accounting for acquired businesses. Under the acquisition method, the financial statements
reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired and liabilities
assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price
over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. Significant judgment is often
required in estimating the fair value of assets acquired, particularly intangible assets. As a result, in the case of significant
acquisitions the Company normally obtains the assistance of third-party valuation specialists in estimating fair values of tangible
and intangible assets. The fair value estimates are based on available historical information and on expectations and assumptions
about the future, considering the perspective of marketplace participants. While management believes those expectations and assumptions
are reasonable, they are inherently uncertain. Unanticipated market or macroeconomic events and circumstances may occur, which
could affect the accuracy or validity of the estimates and assumptions.
Intangible
Assets
The
Company evaluates its intangible assets for impairment when there is evidence that events or circumstances indicate that the carrying
amount of these assets may not be recoverable. Intangible assets with definite lives are amortized over their respective estimated
useful lives to their estimated residual values. Significant judgments and assumptions are required in the impairment evaluations.
Goodwill
Goodwill
is not amortized and is tested for impairment at least annually, or whenever events or changes in circumstances indicate the carrying
amount of the asset may be impaired. Significant judgment is involved in determining if an indicator of impairment has occurred.
The Company may consider indicators such as deterioration in general economic conditions, adverse changes in the markets in which
the reporting unit operates, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative
or declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may
differ from that used to evaluate the impairment of goodwill.
The
Company may first review for goodwill impairment by assessing qualitative factors to determine whether any impairment may exist.
If the Company believes, as a result of the qualitative assessment, that it is more likely than not that the fair value of a reporting
unit is less than its carrying amount, a quantitative two-step test is required; otherwise, no further testing is required. However,
the Company also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment
test. Under the first step of the quantitative test, the fair value of each reporting unit is compared with its carrying value
(including goodwill). If the fair value of the reporting unit exceeds its carrying value, step two is not performed. If the fair
value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit
and step two of the quantitative impairment test (measurement) is performed. Under step two, an impairment loss is recognized
for any excess of the carrying amount of the reporting unit’s goodwill over the fair value of that goodwill. The fair value
of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation
and the residual fair value after this allocation is the fair value of the reporting unit goodwill.
Goodwill
was recorded in connection with the acquisition of Peintures Elite, Inc. in 2013. A qualitative assessment was performed for the
year ended December 31, 2017 and it was determined that no events had occurred since the acquisition that would indicate an impairment
was more likely than not.
Property,
Plant and Equipment
Significant
expenditures for the replacement or expansion of property, plant and equipment are capitalized. Depreciation of property, plant
and equipment is provided over the estimated useful lives of the respective assets using the straight-line method. For financial
reporting purposes, assets are depreciated over the estimated useful lives of 20 years for buildings and improvements, the lesser
of the lease term or the estimated useful life for leasehold improvements, 3 to 10 years for machinery and equipment, 7 years
for furniture and fixtures and 3 years for computers and accessories. The Company generally uses accelerated methods of depreciation
for income tax purposes. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The recoverability of property, plant and equipment is based on management’s
estimates of future undiscounted cash flows and these estimates may vary due to a number of factors, some of which may be outside
of management’s control. To the extent that the Company is unable to achieve management’s forecasts of future income,
it may become necessary to record impairment losses for any excess of the net book value of property, plant and equipment over
their fair value. During 2017, the Company recorded an impairment charge of $0.2 million in loss on disposal of assets related
to a group of assets used exclusively for one customer in the Digital Media segment after the Company determined the carrying
amount of the assets was not recoverable.
The
Company incurs maintenance costs on all of its major equipment. Repair and maintenance costs are expensed as incurred.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. The Company uses an estimate of its annual effective rate at each
interim period based on the facts and circumstances at the time while the actual effective rate is calculated at year-end. Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date. In assessing whether the deferred tax assets
are realizable, management considers whether it is more likely than not that some portion or all of the deferred tax assets will
not be realized.
The
Company’s uncertain tax positions are evaluated in a two-step process, whereby 1) the Company determines whether it is more
likely than not that the tax positions will be sustained based on the technical merits of the position and 2) for those tax positions
that meet the more likely than not recognition threshold, the Company would recognize the largest amount of tax benefit that is
greater than fifty percent likely to be realized upon ultimate settlement with the related tax authority. The Company accrues
interest and penalties related to uncertain tax positions in the Consolidated Statements of Operations as income tax expense.
Other
Taxes
Sales
taxes assessed by governmental authorities, including sales, use and excise taxes, are recorded on a net basis. Such taxes are
excluded from revenues and are shown as a liability on the balance sheet until remitted to the appropriate taxing authorities.
Research
and Development
Research
and development related costs are charged to operations in the period incurred. Such costs were immaterial for the years ended
December 31, 2017 and 2016 and amounted to approximately $0.1 million for the year ended December 31, 2015.
Advertising
Costs
Advertising
and promotional costs are expensed as incurred and amounted to approximately $0.6 million for each of the years ended December
31, 2017, 2016 and 2015.
Fair
Value of Financial and Derivative 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 and liabilities measured at fair value based upon the level within
the fair value hierarchy in which the fair value measurements fall, as of December 31, 2017 and 2016.
Fair
values measured on a recurring basis at December 31, 2017 (in thousands):
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Cash
and cash equivalents
|
|
$
|
4,870
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,870
|
|
Notes
receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
2,815
|
|
|
|
2,815
|
|
Total
|
|
$
|
4,870
|
|
|
$
|
—
|
|
|
$
|
2,815
|
|
|
$
|
7,685
|
|
Fair
values measured on a recurring basis at December 31, 2016 (in thousands):
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Cash
and cash equivalents
|
|
$
|
7,596
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,596
|
|
Notes
receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
1,669
|
|
|
|
1,669
|
|
Total
|
|
$
|
7,596
|
|
|
$
|
—
|
|
|
$
|
1,669
|
|
|
$
|
9,265
|
|
Quantitative
information about the Company’s level 3 fair value measurements at December 31, 2017 is set forth below (dollars in thousands):
|
|
Fair
value at 12/31/17
|
|
|
Valuation
technique
|
|
Unobservable
input
|
|
Value
|
|
Notes
receivable
|
|
$
|
2,815
|
|
|
Discounted
cash flow
|
|
Default
percentage
|
|
46%
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
18%
|
|
During
2011, the Company entered into certain unsecured notes receivable arrangements with CDF2 Holdings, LLC pertaining to the sale
and installation of digital projection equipment. The notes receivable accrue interest at a rate of 15% per annum. Interest not
paid in any particular year is added to the principal and also accrues interest at 15%. The notes receivable are recorded at estimated
fair value. In order to estimate the fair value, the Company reviews the financial position and estimated cash flows of the debtor
of the notes receivable. During 2017, the Company obtained new information regarding the ability of the debtor to repay its obligation
and updated its estimated future cash flow assumptions. This resulted in an increase to the fair value of the notes receivable
of $1.1 million recorded in earnings during the year ended December 31, 2017. There was no adjustment to the estimated fair value
of the notes receivable during the year ended December 31, 2016.
The
significant unobservable inputs used in the fair value measurement of the Company’s note receivable are discount rate and
percentage of default. Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower
(higher) fair value measurement.
The
following table reconciles the beginning and ending balance of the Company’s notes receivable at fair value (in thousands):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Notes
receivable balance, beginning of period
|
|
$
|
1,669
|
|
|
$
|
1,669
|
|
|
$
|
2,985
|
|
Interest
income accrued
|
|
|
—
|
|
|
|
—
|
|
|
|
279
|
|
Fair
value adjustment
|
|
|
1,146
|
|
|
|
—
|
|
|
|
(1,595
|
)
|
Notes
receivable balance, end of period
|
|
$
|
2,815
|
|
|
$
|
1,669
|
|
|
$
|
1,669
|
|
The
Company’s short-term and long-term debt is recorded at historical cost. As of December 31, 2017, the Company’s long-term
debt, including current maturities, had a carrying value of $1.97 million. Based on discounted cash flows using current quoted
interest rates (Level 2 of the fair value hierarchy), the estimated fair value at December 31, 2017 was $1.93 million.
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 quoted market prices, the market value of the Company’s equity method investments was $15.3
million at December 31, 2017 (see Note 6).
All
non-financial assets that are not recognized or disclosed at fair value in the financial statements on a recurring basis, which
include non-financial long-lived assets, are measured at fair value in certain circumstances (for example, when there is evidence
of impairment). During 2017, the Company recorded an impairment charge of $0.2 million related to a group of assets used exclusively
for one customer in the Digital Media segment after the Company determined the carrying amount of the assets was not recoverable,
and adjusted the carrying amount of the assets at December 31, 2017 to $0. The Company did not have any other significant non-recurring
measurements of non-financial assets or liabilities during 2017. During 2015, the Company recorded an impairment charge of $0.6
million to adjust the fair value of certain software intangible assets to $0.
(Loss)
Earnings Per Common Share
Basic
(loss) earnings per share have been computed on the basis of the weighted average number of shares of common stock outstanding.
Diluted earnings per share have been computed on the basis of the weighted average number of shares of common stock outstanding
after giving effect to potential common shares from dilutive stock options and certain non-vested shares of restricted stock.
The following table provides the reconciliation between average shares used to compute basic and diluted (loss) earnings per share
for the three years ended December 31 (in thousands):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
14,251
|
|
|
|
14,233
|
|
|
|
14,135
|
|
Dilutive
effect of stock options and certain non-vested shares of restricted stock
|
|
|
—
|
|
|
|
95
|
|
|
|
—
|
|
Diluted
weighted average shares outstanding
|
|
|
14,251
|
|
|
|
14,328
|
|
|
|
14,135
|
|
Options
to purchase 510,000, 407,000 and 419,025 shares of common stock were outstanding as of December 31, 2017, 2016 and 2015, respectively,
but were not included in the computation of diluted earnings per share as the option’s exercise price was greater than the
average market price of the common shares for the respective periods. An additional 141,166, 95,244 and 126,148 common stock equivalents
related to options and restricted stock units were excluded for the years ended December 31, 2017, 2016 and 2015, respectively,
as their inclusion would be anti-dilutive, thereby decreasing the net losses per share.
Stock
Compensation Plans
The
Company recognizes compensation expense for all stock-based payment awards made to employees and directors based on estimated
fair values on the date of grant. The Company uses the straight-line amortization method over the vesting period of the awards.
The Company has historically issued shares upon exercise of stock options or vesting of restricted stock from new stock issuances.
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. The fair value of stock options granted is calculated using the Black-Scholes option pricing model. No stock-based
compensation cost was capitalized as a part of inventory in 2017 and 2016.
Post-Retirement
Benefits
The
Company recognizes the overfunded or underfunded position of a defined benefit postretirement plan as an asset or liability in
the balance sheet, measures the plan’s assets and its obligations that determine its funded status as of each balance sheet
date and recognizes the changes in the funded status through comprehensive income (loss) in the year in which the changes occur.
Foreign
Currency Translation
For
the Company’s foreign subsidiary, the environment in which the business conducts operations is considered the functional
currency, generally the local currency. The assets and liabilities of the foreign subsidiary are translated into the United States
dollar at the foreign exchange rates in effect at the end of the period. Revenue and expenses of the Company’s foreign subsidiary
are translated using an average of the foreign exchange rates in effect during the period. Translation adjustments are not included
in determining net earnings but are presented in comprehensive (loss) income within the consolidated statements of comprehensive
(loss) income. Transaction gains and losses that arise from foreign exchange rate fluctuations on transactions denominated in
a currency other than the functional currency are included in the consolidated statement of operations as incurred. If the Company
disposes of its investment in a foreign entity, any gain or loss on currency translation balance recorded in accumulated other
comprehensive income is recognized as part of the gain or loss on disposition.
Warranty
Reserves
In
most instances, digital products are covered by the manufacturing firm’s warranty; however, for certain customers the Company
may grant warranties in excess of the manufacturer’s warranty. In addition, the Company provides warranty coverage on screens
it manufactures. The Company accrues for these costs at the time of sale. The following table summarizes warranty activity for
the three years ended December 31 (in thousands):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Warranty
accrual at beginning of period
|
|
$
|
645
|
|
|
$
|
310
|
|
|
$
|
355
|
|
Charged
to expense
|
|
|
309
|
|
|
|
933
|
|
|
|
583
|
|
Claims
paid, net of recoveries
|
|
|
(462
|
)
|
|
|
(600
|
)
|
|
|
(592
|
)
|
Foreign
currency adjustment
|
|
|
29
|
|
|
|
2
|
|
|
|
(36
|
)
|
Warranty
accrual at end of period
|
|
$
|
521
|
|
|
$
|
645
|
|
|
$
|
310
|
|
Contingencies
The
Company accrues for contingencies when its assessments indicate that it is probable that a liability has been incurred and an
amount can be reasonably estimated. The Company’s estimates are based on currently available facts and its estimates of
the ultimate outcome or resolution. Actual results may differ from the Company’s estimates resulting in an impact, positive
or negative, on earnings.
Recently
Issued Accounting Pronouncements
In May 2014, the
Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,
“Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 requires an entity to recognize the amount of
revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace
most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The Company will adopt the new revenue
guidance effective January 1, 2018 by recognizing the cumulative effect of initially applying the new standard as an
adjustment to the opening balance of retained earnings. The Company has obtained an understanding of ASU 2014-09 and
performed a detailed assessment of the attributes within its contracts for its major products and services. For the Cinema
segment, the Company does not expect the adoption of ASC 606 to result in a material cumulative effect adjustment or material
changes to revenue recognition. For the Digital Media segment, the Company is completing a final review of its assessment
before concluding as to whether adoption of ASC 606 will result in a material cumulative effect adjustment or any material
changes to revenue recognition. The Company expects to conclude its assessment and implement ASC 606 during the quarter
ending March 31, 2018, and will include new disclosures required by ASC 606, including final effects of adoption, in its Form
10-Q for the quarter ending March 31, 2018.
In
July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory.” ASU 2015-11 requires an entity
utilizing the first in-first out inventory method to change its measurement principle for inventory changes from the lower of
cost or market to lower of cost and net realizable value. The guidance was effective for the Company beginning January 1, 2017.
An entity must adopt this ASU prospectively. The adoption of ASU 2015-11 did not have a material effect on the Company’s
consolidated financial statements.
In
January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall: Recognition and Measurement of Financial Assets
and Financial Liabilities.” ASU 2016-01 requires equity investments that do not result in consolidation and are not accounted
under the equity method to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment
assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment;
requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a
liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability
at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial
assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying
notes to the financial statements; clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax
asset related to available-for-sale securities in combination with the entity’s other deferred tax assets; and modifies
certain fair value disclosure requirements. ASU 2016-01 is effective for financial statements issued for fiscal years beginning
after December 15, 2017, and interim periods within those fiscal years. The adoption of ASU 2016-01 is not expected to have a
material effect on the Company’s consolidated financial statements.
In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 requires lessees to recognize a lease
liability and a right-to-use asset for all leases, including operating leases, with a term greater than twelve months, on its
balance sheet. This ASU is effective in fiscal years beginning after December 15, 2018, with early adoption permitted, and requires
a modified retrospective transition method. The Company is evaluating the requirements of ASU 2016-02 and its potential impact
on the Company’s financial statements. The Company has leases primarily for property and equipment and is in the process
of identifying and evaluating these leases for purposes of ASU 2016-02. For each of these leases, the term will be evaluated,
including extension and renewal options as well as the lease payments. While the Company has not yet quantified the impact that
the adoption of ASU 2016-02 will have on its consolidated financial statements, the Company expects to record assets and liabilities
on its balance sheet upon adoption of this standard, which may be material. The Company will continue to provide enhanced disclosures
as it continues its assessment.
In
March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting.” ASU 2016-09 simplifies accounting for share-based payment transactions, including the income
tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense
with actual forfeitures recognized as they occur and certain classifications on the statement of cash flows. The Company adopted
the guidance effective January 1, 2017 on a prospective basis. Additionally, as required by ASU 2016-09, when calculating diluted
earnings per share, excess tax benefits were excluded from the calculation of assumed proceeds since such amounts are recognized
in the income statement. The Company applied the cash flow presentation requirements prospectively, and the 2016 and 2015 statements
of cash flows were not adjusted. ASU 2016-09 allows an entity to elect as an accounting policy either to estimate the total number
of awards for which the requisite service period will not be rendered or to account for forfeitures for service-based awards as
they occur. The Company has elected to account for forfeitures as they occur.
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 is effective for annual reporting periods beginning after December 15, 2019 and interim periods
within those fiscal years. The Company believes its adoption will not significantly impact the Company’s results of operations
and financial position.
In
August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments,” which eliminates the diversity in practice related to eight cash flow classification issues. The Company
adopted this ASU in the first quarter of 2017 on a prospective basis. Adoption affected the classification of dividends received
from equity method investees on the statement of cash flow but did not have any other impact.
In
January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment.” The new guidance eliminates Step 2 of the goodwill impairment testing which requires the fair value of individual
assets and liabilities of a reporting unit to be determined when measuring goodwill impairment. The new guidance may result in
different amounts of impairment that could be recognized compared to existing guidance. In addition, failing step 1 of the impairment
test may not result in impairment under existing guidance. However, under the revised guidance, failing step 1 will always result
in a goodwill impairment. ASU 2017-04 is to be applied prospectively for goodwill impairment testing performed in years beginning
after December 15, 2019. The Company does not believe the adoption will significantly impact the Company’s results of operations
or financial position.
In
May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.”
The new guidance describes the types of changes to the terms or conditions of share-based payment awards to which an entity would
be required to apply modification accounting. The guidance is effective for annual reporting periods beginning after December
15, 2017, including interim periods within those fiscal years. The Company believes its adoption of this ASU effective January
1, 2018 will not significantly impact the Company’s results of operations and financial position.
4.
Inventories
Inventories
consist of the following (in thousands):
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Raw
materials and components
|
|
$
|
1,376
|
|
|
$
|
1,341
|
|
Work
in process
|
|
|
362
|
|
|
|
247
|
|
Finished
goods
|
|
|
3,083
|
|
|
|
4,975
|
|
|
|
$
|
4,821
|
|
|
$
|
6,563
|
|
The
inventory balances are net of reserves of approximately $1.8 million and $1.6 million as of December 31, 2017 and 2016, respectively.
5.
Property, Plant and Equipment
Property,
plant and equipment include the following (in thousands):
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Land
|
|
$
|
1,601
|
|
|
$
|
1,596
|
|
Buildings
and improvements
|
|
|
9,277
|
|
|
|
8,728
|
|
Machinery
and equipment
|
|
|
4,709
|
|
|
|
3,884
|
|
Office
furnitures and fixtures
|
|
|
4,019
|
|
|
|
4,045
|
|
Total
properties cost
|
|
|
19,606
|
|
|
|
18,253
|
|
Less
accumulated depreciation
|
|
|
(8,780
|
)
|
|
|
(7,066
|
)
|
Net
property, plant and equipment
|
|
$
|
10,826
|
|
|
$
|
11,187
|
|
Depreciation
expense approximated $1.6 million, $2.0 million and $2.1 million for the years ended December 31, 2017, 2016 and 2015, respectively.
6.
Equity Method Investments
The
following summarizes our equity method investments (dollars in thousands):
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Entity
|
|
Carrying
Amount
|
|
|
Economic
Interest
|
|
|
Carrying
Amount
|
|
|
Economic
Interest
|
|
RELM
Wireless Corporation
|
|
$
|
4,473
|
|
|
|
8.3
|
%
|
|
$
|
4,382
|
|
|
|
8.3
|
%
|
Itasca
Capital, Ltd.
|
|
|
5,870
|
|
|
|
32.3
|
%
|
|
|
3,368
|
|
|
|
32.3
|
%
|
1347
Property Insurance Holdings, Inc.
|
|
|
7,710
|
|
|
|
17.4
|
%
|
|
|
5,348
|
|
|
|
12.1
|
%
|
Total
|
|
$
|
18,053
|
|
|
|
|
|
|
$
|
13,098
|
|
|
|
|
|
The
following summarizes the income (loss) of equity method investees reflected in the Consolidated Statement of Operations (in thousands):
|
|
Year
Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Entity
|
|
|
|
|
|
|
|
|
|
|
|
|
RELM
Wireless Corporation
|
|
$
|
62
|
|
|
$
|
216
|
|
|
$
|
1
|
|
Itasca
Capital, Ltd.
|
|
|
2,073
|
|
|
|
(99
|
)
|
|
|
—
|
|
1347
Property Insurance Holdings, Inc.
|
|
|
(177
|
)
|
|
|
—
|
|
|
|
—
|
|
Digital
Link II, LLC
|
|
|
—
|
|
|
|
—
|
|
|
|
95
|
|
Total
|
|
$
|
1,958
|
|
|
$
|
117
|
|
|
$
|
96
|
|
RELM
Wireless Corporation (“RELM”) is a publicly traded company that designs, manufactures and markets two-way land mobile
radios, repeaters, base stations and related components and subsystems. The Company’s Chief Executive Officer is chairman
of the board of directors of RELM, and controls entities that, when combined with the Company’s ownership in RELM, own greater
than 20% of RELM, providing the Company with significant influence over RELM, but not controlling interest. The Company received
dividends of $0.3 million, $0.2 million, and $0 from RELM in 2017, 2016, and 2015, respectively. Based on quoted market prices,
the market value of the Company’s ownership in RELM was $4.0 million at December 31, 2017
.
Itasca
Capital, Ltd. (“Itasca”) is a publicly traded Canadian company that is an investment vehicle seeking transformative
strategic investments. The Company’s Chief Executive Officer is a member of the board of directors of Itasca. This board
seat, combined with the Company’s 32.3% ownership of Itasca, provide the Company with significant influence over Itasca,
but not controlling interest. The Company did not receive dividends from Itasca in 2017, 2016, or 2015. Based on quoted market
prices, the market value of the Company’s ownership in Itasca was $3.8 million at December 31, 2017.
As
of December 31, 2016, the Company owned 12.1% of 1347 Property Insurance Holdings, Inc. (“PIH”) and purchased shares
increasing its ownership to 17.4% during 2017 for an additional $2.5 million. PIH is a publicly traded company that provides property
and casualty insurance in the States of Louisiana, Texas and Florida. The Company’s Chief Executive Officer is a member
of the board of directors of PIH. This board seat and the Chief Executive Officer’s control of other entities that own shares
of PIH, combined with the Company’s 17.4% ownership of PIH, provide the Company with significant influence over PIH, but
not controlling interest. The Company did not receive dividends from PIH in 2017, 2016 or 2015. Based on quoted market prices,
the market value of the Company’s ownership in PIH was $7.5 million at December 31, 2017.
As
of December 31, 2017, the Company’s retained earnings included undistributed earnings from equity method investees of $1.6
million.
The
summarized financial information presented below reflects the aggregated financial information of all significant equity method
investees as of and for the twelve months ended September 30 of each year or portion of those twelve months the Company owned
its investment, consistent with the Company’s recognition of the results of its equity method investments on a one quarter
lag. The summarized financial information is presented only for the periods when the Company owned its investment. Because PIH
does not present a classified balance sheet, major components of its assets and liabilities are presented instead of current and
noncurrent assets and liabilities.
For the twelve
months ended September 30,
|
|
2017
|
|
|
2016
|
|
|
|
(in
thousands)
|
|
Revenue
|
|
$
|
72,325
|
|
|
$
|
44,621
|
|
Operating
income
|
|
|
1,021
|
|
|
|
3,204
|
|
Net
income
|
|
|
7,953
|
|
|
|
235
|
|
As of September
30,
|
|
2017
|
|
|
2016
|
|
|
|
(in
thousands)
|
|
Cash
and cash equivalents - PIH
|
|
$
|
25,679
|
|
|
$
|
38,926
|
|
Investments
- PIH
|
|
|
49,702
|
|
|
|
31,451
|
|
Reinsurance
recoverables - PIH
|
|
|
25,327
|
|
|
|
7,986
|
|
Other
assets - PIH
|
|
|
14,815
|
|
|
|
14,092
|
|
Current
assets - RELM and Itasca
|
|
|
33,359
|
|
|
|
30,216
|
|
Noncurrent
assets - RELM and Itasca
|
|
|
30,005
|
|
|
|
23,479
|
|
Total
assets - PIH, RELM and Itasca
|
|
$
|
178,887
|
|
|
$
|
146,150
|
|
|
|
|
|
|
|
|
|
|
Loss
and loss adjustment expense reserves - PIH
|
|
$
|
22,091
|
|
|
$
|
8,627
|
|
Unearned
premium reserves - PIH
|
|
|
32,170
|
|
|
|
26,344
|
|
Redeemable
preferred shares - PIH
|
|
|
2,744
|
|
|
|
2,616
|
|
Other
liabilities - PIH
|
|
|
12,920
|
|
|
|
9,625
|
|
Current
liabilities - RELM and Itasca
|
|
|
8,857
|
|
|
|
5,709
|
|
Noncurrent
liabilities - RELM and Itasca
|
|
|
452
|
|
|
|
394
|
|
Total
liabilities - PIH, RELM and Itasca
|
|
$
|
79,234
|
|
|
$
|
53,315
|
|
The
carrying value of the Company’s equity method investments at December 31, 2017 exceeds its share of equity in the net assets
of the equity method investees by $1.3 million, which is accounted for as equity method goodwill.
7.
Intangible Assets
Intangible
assets consisted of the following at December 31, 2017 (dollars in thousands):
|
|
Useful
life
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
|
(Years)
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets not yet subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
in development
|
|
|
|
|
|
$
|
1,243
|
|
|
$
|
—
|
|
|
$
|
1,243
|
|
Intangible
assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
in service
|
|
|
5
|
|
|
|
3,191
|
|
|
|
(597
|
)
|
|
|
2,594
|
|
Product
formulation
|
|
|
10
|
|
|
|
486
|
|
|
|
(351
|
)
|
|
|
135
|
|
Total
|
|
|
|
|
|
$
|
4,920
|
|
|
$
|
(948
|
)
|
|
$
|
3,972
|
|
Intangible
assets consisted of the following at December 31, 2016 (dollars in thousands):
|
|
Useful
life
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
|
|
(Years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets not yet subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
in development
|
|
|
|
|
|
$
|
508
|
|
|
$
|
—
|
|
|
$
|
508
|
|
Intangible
assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
in service
|
|
|
5
|
|
|
|
1,764
|
|
|
|
(93
|
)
|
|
|
1,671
|
|
Product
formulation
|
|
|
10
|
|
|
|
454
|
|
|
|
(276
|
)
|
|
|
178
|
|
Total
|
|
|
|
|
|
$
|
2,726
|
|
|
$
|
(369
|
)
|
|
$
|
2,357
|
|
Intangible
assets, other than goodwill, with definite lives are amortized over their useful lives. The Company recorded amortization expense
relating to other identifiable intangible assets of $0.6 million, $0.2 million and $0.3 million during the years ended December
31, 2017, 2016 and 2015, respectively. During 2015, we recorded an impairment charge of $0.6 million for software intangible assets
to measure them at their fair value.
The
following table shows the Company’s estimated future amortization expense related to intangible assets currently subject
to amortization for the next five years (in thousands).
2018
|
|
$
|
710
|
|
2019
|
|
|
698
|
|
2020
|
|
|
689
|
|
2021
|
|
|
548
|
|
2022
|
|
|
78
|
|
Thereafter
|
|
|
6
|
|
Total
|
|
$
|
2,729
|
|
8.
Goodwill
All
of the Company’s goodwill is related to the Cinema segment. The following represents a summary of changes in the Company’s
carrying amount of goodwill (in thousands):
Balance
as of December 31, 2015
|
|
$
|
863
|
|
Foreign
currency translation
|
|
|
26
|
|
Balance
as of December 31, 2016
|
|
|
889
|
|
Foreign
currency translation
|
|
|
63
|
|
Balance
as of December 31, 2017
|
|
$
|
952
|
|
9.
Accrued Expenses
The
major components of current accrued expenses are as follows (in thousands):
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Employee
related
|
|
$
|
1,388
|
|
|
$
|
1,785
|
|
Legal
and professional fees
|
|
|
222
|
|
|
|
295
|
|
Lease
expenses
|
|
|
268
|
|
|
|
267
|
|
Warranty
obligation
|
|
|
521
|
|
|
|
645
|
|
Interest
and taxes
|
|
|
567
|
|
|
|
967
|
|
Post-retirement
benefit obligation
|
|
|
18
|
|
|
|
13
|
|
Other
|
|
|
87
|
|
|
|
125
|
|
Total
|
|
$
|
3,071
|
|
|
$
|
4,097
|
|
The
major components of long-term accrued expenses are as follows (in thousands):
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Rent
and leasehold improvements
|
|
$
|
222
|
|
|
$
|
439
|
|
Post-retirement
benefit obligation
|
|
|
97
|
|
|
|
131
|
|
Total
|
|
$
|
319
|
|
|
$
|
570
|
|
10.
Income Taxes
(Loss)
income from continuing operations before income taxes consists of (in thousands):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
United
States
|
|
$
|
(11,588
|
)
|
|
$
|
(5,828
|
)
|
|
$
|
(16,630
|
)
|
Foreign
|
|
|
11,414
|
|
|
|
9,716
|
|
|
|
12,944
|
|
|
|
$
|
(174
|
)
|
|
$
|
3,888
|
|
|
$
|
(3,686
|
)
|
Income
tax expense (benefit) attributable to (loss) income from continuing operations consists of (in thousands):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
10
|
|
|
$
|
1,575
|
|
Deferred
|
|
|
—
|
|
|
|
(34
|
)
|
|
|
7,348
|
|
Total
|
|
|
—
|
|
|
|
(24
|
)
|
|
|
8,923
|
|
State:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
8
|
|
|
|
156
|
|
|
|
(1,301
|
)
|
Deferred
|
|
|
—
|
|
|
|
29
|
|
|
|
635
|
|
Total
|
|
|
8
|
|
|
|
185
|
|
|
|
(666
|
)
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
2,348
|
|
|
|
2,810
|
|
|
|
3,597
|
|
Deferred
|
|
|
1,062
|
|
|
|
48
|
|
|
|
1,184
|
|
Total
|
|
|
3,410
|
|
|
|
2,858
|
|
|
|
4,781
|
|
|
|
$
|
3,418
|
|
|
$
|
3,019
|
|
|
$
|
13,038
|
|
Income
tax expense attributable to (loss) income from continuing operations differed from the amounts computed by applying the U.S. Federal
income tax rate to pretax (loss) income from continuing operations as follows (in thousands):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Expected
federal income tax (benefit) expense
|
|
$
|
(59
|
)
|
|
$
|
1,322
|
|
|
$
|
(1,253
|
)
|
Effect
of federal rate change
|
|
|
5,341
|
|
|
|
—
|
|
|
|
—
|
|
Effect
of change to territorial system
|
|
|
(4,071
|
)
|
|
|
—
|
|
|
|
—
|
|
State
income taxes, net of federal benefit
|
|
|
(260
|
)
|
|
|
189
|
|
|
|
(324
|
)
|
Foreign
tax rates varying from 34%
|
|
|
(743
|
)
|
|
|
(638
|
)
|
|
|
(871
|
)
|
Change
in foreign reinvestment strategy
|
|
|
—
|
|
|
|
546
|
|
|
|
6,650
|
|
Change
in valuation allowance
|
|
|
3,321
|
|
|
|
105
|
|
|
|
8,856
|
|
Section
956 inclusion
|
|
|
—
|
|
|
|
1,615
|
|
|
|
—
|
|
Return
to provision
|
|
|
(49
|
)
|
|
|
(193
|
)
|
|
|
(8
|
)
|
Other
|
|
|
(62
|
)
|
|
|
73
|
|
|
|
(12
|
)
|
Total
|
|
$
|
3,418
|
|
|
$
|
3,019
|
|
|
$
|
13,038
|
|
Deferred
tax assets and liabilities were comprised of the following (in thousands):
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
$
|
230
|
|
|
$
|
1,672
|
|
Non-deductible
accruals
|
|
|
206
|
|
|
|
187
|
|
Inventory
reserves
|
|
|
451
|
|
|
|
567
|
|
Stock
compensation expense
|
|
|
199
|
|
|
|
281
|
|
Warranty
reserves
|
|
|
138
|
|
|
|
204
|
|
Uncollectible
receivable reserves
|
|
|
458
|
|
|
|
409
|
|
Net
operating losses
|
|
|
9,204
|
|
|
|
6,397
|
|
Fair
value adjustment to notes receivable
|
|
|
147
|
|
|
|
633
|
|
Foreign
tax credits
|
|
|
1,642
|
|
|
|
2,960
|
|
Depreciation
and amortization
|
|
|
79
|
|
|
|
671
|
|
Equity
in loss of equity method investments
|
|
|
—
|
|
|
|
163
|
|
Accumulated
other comprehensive income
|
|
|
—
|
|
|
|
1,685
|
|
Other
|
|
|
170
|
|
|
|
—
|
|
Total
deferred tax assets
|
|
|
12,924
|
|
|
|
15,829
|
|
Valuation
allowance
|
|
|
(12,317
|
)
|
|
|
(8,550
|
)
|
Net
deferred tax assets after valuation allowance
|
|
|
607
|
|
|
|
7,279
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
923
|
|
|
|
6
|
|
Cash
repatriation
|
|
|
1,884
|
|
|
|
8,958
|
|
Equity
in income of equity method investments
|
|
|
610
|
|
|
|
—
|
|
Accrued
group health insurance claims
|
|
|
—
|
|
|
|
66
|
|
Other
|
|
|
6
|
|
|
|
6
|
|
Total
deferred tax liabilities
|
|
|
3,423
|
|
|
|
9,036
|
|
Net
deferred tax liability
|
|
$
|
(2,816
|
)
|
|
$
|
(1,757
|
)
|
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 of $12.3 million and $8.6 million should be recorded against the Company’s U.S. tax jurisdiction deferred
tax assets as of December 31, 2017 and 2016, respectively.
In
December 2017, the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) was signed into law in the United States. The
law includes significant changes to the United States corporate income tax system, including a federal corporate rate reduction
and the transition of the United States from a worldwide tax system to a territorial tax system. As part of the transition to
a territorial tax system, the 2017 Tax Act requires taxpayers to calculate a one-time transition tax based on the deemed repatriation
of undistributed earnings of foreign subsidiaries. The Company is currently analyzing the 2017 Tax Act, and in certain areas,
has made provisional estimates of the effects on our consolidated financial statements and tax disclosures, including the amount
of the repatriation tax and changes to existing deferred tax balances.
The
one-time transition tax is based primarily on the Company’s accumulated foreign earnings and profits that were previously
deferred from U.S. income taxes. No additional U.S. federal income taxes have been provided as all accumulated earnings of foreign
subsidiaries are deemed to have been remitted as part of the one-time transition tax. After applying foreign tax credits, the
Company estimates its tax liability related to the one-time transition tax to be zero. The Company has recorded a deferred tax
liability of $1.9 million at December 31, 2017 related to withholding tax on earnings from its Canadian subsidiary. Due to the
full valuation allowance recorded against the U.S. tax jurisdiction deferred tax assets as of December 31, 2017, the net income
tax expense related to the one-time transition tax is zero.
The
decrease in the U.S. Federal corporate income tax rate resulted in a decrease in the future expected benefit of the Company’s
U.S. deferred tax assets. However, due to the full valuation allowance recorded against the
U.S.
tax jurisdiction deferred tax assets as of December 31, 2017, the net income tax expense recorded related to the change in the
corporate tax rate was zero.
The
tax effect of the Company’s net operating loss carryforwards for Federal and state tax purposes total approximately $9.2
million at December 31, 2017, expiring at various times in 2033 through 2037. The Company has foreign tax credit carryforwards
of approximately $1.6 million at December 31, 2017 that expire at various times in 2024 through 2025.
The
Company is subject to possible examinations not yet initiated for Federal purposes for fiscal years 2014, 2015 and 2016. In most
cases, the Company has examinations open for state or local jurisdictions based on the particular jurisdiction’s statute
of limitations.
Estimated
amounts related to underpayment of income taxes, including interest and penalties, are classified as a component of income tax
expense in the consolidated statements of operations and were not material for the years ended December 31, 2017, 2016 and 2015.
Amounts accrued for estimated underpayment of income taxes were zero as of December 31, 2017 and 2016.
The
Company’s long-term debt consists of the following (in thousands):
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Term
loan principal balance
|
|
$
|
1,968
|
|
|
$
|
—
|
|
Less:
current portion
|
|
|
(65
|
)
|
|
|
—
|
|
Less:
unamortized debt issuance costs
|
|
|
(33
|
)
|
|
|
—
|
|
Long-term
debt
|
|
$
|
1,870
|
|
|
$
|
—
|
|
On
April 27, 2017, the Company entered into a debt agreement with a bank consisting of 1) a $2.0 million five-year term loan secured
by a first lien deed of trust on the Company’s Alpharetta, GA facility, bearing interest at a fixed rate of 4.5% and payable
in equal monthly installments of principal and interest calculated based on a 20-year amortization schedule with a final balloon
payment of approximately $1.7 million due on May 10, 2022 and 2) a line of credit of up to $1.0 million secured by a second lien
deed of trust on the Company’s Alpharetta, GA facility, bearing interest at the Prime Rate published in the Wall Street
Journal plus 0.25% (4.75% at December 31, 2017) and with a term ending May 10, 2018. The debt agreement requires the Company to
maintain a ratio of total liabilities to tangible net worth not in excess of 3:1 and maintain minimum liquidity of $2.0 million.
The Company was in compliance with its debt covenants as of December 31, 2017. The Company had outstanding borrowings on the line
of credit as of December 31, 2017 of $0.5 million, which is classified as short-term debt on the Consolidated Balance Sheet. The
Company’s Chairman and Chief Executive Officer is also a member of the bank’s board of directors.
On
September 5, 2017, the Company’s Canadian subsidiary, Strong/MDI, entered into a demand credit agreement with a bank consisting
of a revolving line of credit for up to CDN$3.5 million subject to a borrowing base requirement, a 20-year installment loan for
up to CDN$6.0 million and a 5-year installment loan for up to CDN$500,000. Amounts outstanding under the line of credit are payable
on demand and will bear interest at the prime rate established by the lender. Amounts outstanding under the installment loans
will bear interest at the 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 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 investments) not exceeding 2 to 1, a current ratio (excluding
amounts due from related parties) of at least 1.5 to 1 and minimum “effective equity” of CDN$8.0 million. There were
no borrowings outstanding at December 31, 2017 on any of the Strong/MDI credit facilities, as Strong/MDI had not yet drawn on
the facilities. Strong/MDI was in compliance with its debt covenants as of December 31, 2017.
Scheduled
repayments are as follows for the Company’s long-term debt outstanding as of December 31, 2017 (in thousands):
2018
|
|
$
|
65
|
|
2019
|
|
|
68
|
|
2020
|
|
|
70
|
|
2021
|
|
|
74
|
|
2022
|
|
|
1,691
|
|
Total
|
|
$
|
1,968
|
|
12.
|
Restructuring
Activities
|
2015
Corporate-wide Strategic Initiative
In
connection with its strategic planning process, as well as the Company’s ongoing plans to improve efficiency and effectiveness
of its operations, the Company initiated plans in the second quarter of 2015 to reduce headcount and more efficiently utilize
real estate assets. Included in administrative expenses for year ended December 31, 2015, are $0.6 million and $0.2 million of
severance and lease termination costs, respectively, that the Company incurred as part of this restructuring plan. The corporate-wide
strategic initiative was completed in the third quarter of 2016.
The
following reconciles the activity in the restructuring related severance accruals for the years ended December 31, 2016 and 2015,
which are included in accrued expenses (in thousands):
Balance,
restructuring liability at December 31, 2014
|
|
$
|
—
|
|
Lease
termination expense
|
|
|
219
|
|
Lease
termination paid
|
|
|
(219
|
)
|
Severance
expense
|
|
|
559
|
|
Severance
paid
|
|
|
(486
|
)
|
Balance,
restructuring liability at December 31, 2015
|
|
|
73
|
|
Severance
paid
|
|
|
(73
|
)
|
Balance,
restructuring liability at December 31, 2016
|
|
$
|
—
|
|
The
Company recognizes compensation expense for all stock-based payment awards made to employees and directors based on estimated
grant date fair values. Stock-based compensation expense included in selling and administrative expenses was as follows (in thousands):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Stock-based
compensation expense
|
|
$
|
736
|
|
|
$
|
466
|
|
|
$
|
501
|
|
The
Company’s 2010 Long-Term Incentive Plan (“2010 Plan”) provided 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 and performance units. Vesting terms varied with each grant and could be subject to vesting upon a “change in control”
of the Company.
The
Ballantyne Strong, Inc. 2014 Non-Employee Directors’ Restricted Stock Plan (the “2014 Non-Employee Plan”) provided
for the award of restricted shares to outside directors. Restricted shares issued under the 2014 Non- Employee Plan vested the
day preceding the Company’s Annual Meeting of Stockholders in the year following issuance. The 2010 Plan and the 2014 Non-Employee
Plan were replaced during the second quarter of 2017 by the 2017 Omnibus Equity Compensation Plan (“2017 Plan”), and
therefore, no additional awards will be granted under the 2010 Plan or the 2014 Non-Employee Plan.
The
2017 Plan was approved by the Company’s stockholders at the annual meeting on June 15, 2017, 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. The total number of
shares authorized for issuance under the 2017 Plan is 1,371,189 shares, with 1,253,354 shares remaining available for grant
at December 31, 2017.
Options
The
Company granted a total of 435,000, 200,000, and 383,300 options during the years ended December 31, 2017, 2016 and 2015, respectively.
Options to purchase shares of common stock were granted with exercise prices equal to the fair value of the common stock on the
date of the grant.
The
weighted average grant date fair value of stock options granted during the years ended December 31, 2017, 2016 and 2015 was $2.42,
$1.81 and $1.44, respectively. The fair value of each stock option granted is estimated on the date of grant using a Black-Scholes
valuation model with the following weighted average assumptions:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Expected
dividend yield at date of grant
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Risk-free
interest rate
|
|
|
1.99
|
%
|
|
|
1.42
|
%
|
|
|
1.87
|
%
|
Expected
stock price volatility
|
|
|
34.85
|
%
|
|
|
31.36
|
%
|
|
|
32.06
|
%
|
Expected
life of options (in years)
|
|
|
6.0
|
|
|
|
6.0
|
|
|
|
6.0
|
|
The
risk-free interest rate assumptions were based on the U.S. Treasury yield curve in effect at the time of the grant. During 2017,
the expected volatility was based on historical daily price changes of the Company’s stock for six years prior to the date
of grant. During 2016, the Company used a one year period to calculate volatility, but updated this assumption in the current
year to align the expected volatility with the expected life of the options. The expected life of options is the average number
of years the Company estimates that options will be outstanding.
The
following table summarizes the Company’s activities with respect to its stock options:
|
|
Number
of Options
|
|
|
Weighted
Average
Exercise
Price
Per
Share
|
|
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
(in
thousands)
|
|
Outstanding
at December 31, 2016
|
|
|
545,300
|
|
|
$
|
4.78
|
|
|
|
9.7
|
|
|
$
|
1,757
|
|
Granted
|
|
|
435,000
|
|
|
|
6.53
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(15,000
|
)
|
|
|
4.70
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(33,000
|
)
|
|
|
6.09
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(2,000
|
)
|
|
|
4.33
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2017
|
|
|
930,300
|
|
|
$
|
5.63
|
|
|
|
8.7
|
|
|
$
|
150
|
|
Exercisable
at December 31, 2017
|
|
|
200,300
|
|
|
$
|
4.54
|
|
|
|
7.9
|
|
|
$
|
62
|
|
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. The intrinsic value of options exercised during the years ended December
31, 2017 and 2016 amounted to $45 thousand and $43 thousand, respectively. No options were exercised in 2015.
As
of December 31, 2017, 730,000 stock option awards were non-vested. Unrecognized compensation costs related to all stock options
outstanding amounted to $1.4 million at December 31, 2017, which is expected to be recognized over a weighted-average period of
3.9 years.
Restricted
Stock
The
Company awarded a total of 115,835, 45,555, and 140,708 restricted stock units and restricted shares during the years ended December
31, 2017, 2016 and 2015, respectively. 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. The weighted average grant date fair value of restricted shares and restricted
stock units granted during the twelve month periods ended December 31, 2017, 2016 and 2015 was $6.58, $4.89 and $4.38, respectively.
The fair value of restricted stock awards that vested during the years ended December 31, 2017, 2016 and 2015 was $0.4 million,
$0.5 million and $0.5 million, respectively.
As
of December 31, 2017, the total unrecognized compensation cost related to non-vested restricted stock awards was approximately
$0.5 million, which is expected to be recognized over a weighted average period of 1.8 years.
The
following table summarizes restricted share activity for 2017:
|
|
Number
of Restricted
Stock
Shares
|
|
|
Weighted
Average Grant
Date
Fair Value
|
|
Non-vested
at December 31, 2016
|
|
|
58,295
|
|
|
$
|
4.77
|
|
Granted
|
|
|
85,000
|
|
|
|
6.50
|
|
Shares
vested
|
|
|
(58,295
|
)
|
|
|
4.77
|
|
Shares
forfeited
|
|
|
—
|
|
|
|
|
|
Non-vested
at December 31, 2017
|
|
|
85,000
|
|
|
$
|
6.50
|
|
The
following table summarizes restricted stock unit activity for 2017:
|
|
Number
of Restricted
Stock
Units
|
|
|
Weighted
Average Grant
Date
Fair Value
|
|
Non-vested
at December 31, 2016
|
|
|
13,750
|
|
|
$
|
4.24
|
|
Granted
|
|
|
30,835
|
|
|
|
6.81
|
|
Shares
vested
|
|
|
(6,875
|
)
|
|
|
4.24
|
|
Shares
forfeited
|
|
|
(1,875
|
)
|
|
|
4.21
|
|
Non-vested
at December 31, 2017
|
|
|
35,835
|
|
|
$
|
6.45
|
|
14.
Compensation and Benefit Plans
Retirement
Plan
The
Company sponsors a defined contribution 401(k) plan (the “Plan”) for all eligible employees. Pursuant to the provisions
of the Plan, employees may defer up to 100% of their compensation. The Company will match 50% of the amount deferred up to 6%
of their compensation. The contributions made to the Plan by the Company were approximately $0.4 million for each of the years
ended December 31, 2017, 2016 and 2015.
The
Company and its subsidiaries lease plant and office facilities, autos and equipment under operating leases expiring through 2022.
These leases generally contain renewal options and the Company expects to renew or replace certain of these leases in the ordinary
course of business. Rent expense under operating lease agreements amounted to approximately $0.5 million, $0.4 million and $0.6
million for the years ended December 31, 2017, 2016 and 2015, respectively. The Company also has capital leases for computer equipment.
The capital lease obligations are included in accrued expenses on the balance sheet.
The
Company’s future minimum lease payments are as follows:
|
|
Capital
Leases
|
|
|
Operating
Leases
|
|
|
(in
thousands)
|
2018
|
|
$
|
251
|
|
|
$
|
1,758
|
|
2019
|
|
|
116
|
|
|
|
1,735
|
|
2020
|
|
|
—
|
|
|
|
1,507
|
|
2021
|
|
|
—
|
|
|
|
1,378
|
|
2022
|
|
|
—
|
|
|
|
1,066
|
|
Thereafter
|
|
|
—
|
|
|
|
-
|
|
Total
minimum lease payments
|
|
|
367
|
|
|
$
|
7,444
|
|
Less:
Amount representing interest
|
|
|
(14
|
)
|
|
|
|
|
Present
value of minimum lease payments
|
|
|
353
|
|
|
|
|
|
Less:
Current maturities
|
|
|
(239
|
)
|
|
|
|
|
Capital
lease obligations, net of current portion
|
|
$
|
114
|
|
|
|
|
|
16.
|
Contingencies
and Concentrations
|
Concentrations
The
Company’s top ten customers accounted for approximately 53% of 2017 consolidated net revenues. Trade accounts receivable
from these customers represented approximately 39% of net consolidated receivables at December 31, 2017.
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.
17.
Business Segment Information
The
Company has two primary operating segments: Cinema and Digital Media. During the fourth quarter of 2017, the Company decided to
reorganize its segments to move the operations of Strong Technical Services, Inc. from the Digital Media segment to the Cinema
segment. All prior periods have been recast in our segment reporting to reflect the current segment organization. The Cinema segment
provides a full range of product and service solutions primarily for the theater exhibition industry, including a wide spectrum
of premier audio-visual products and accessories such as digital projectors, state of the art projection screens, servers, library
management systems, menu boards, flat panel displays, and sound systems, as well as network monitoring and on-site service for
cinema equipment. The Digital Media segment delivers solutions and services across two primary markets: digital out-of- home and
cinema. While there is digital signage equipment sold within this segment, the primary focus of this segment is providing solutions
and services to our customers.
Summary
by Business Segments
|
|
Year
ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
Net
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
|
|
$
|
48,937
|
|
|
$
|
54,775
|
|
|
$
|
60,839
|
|
Digital
Media
|
|
|
24,484
|
|
|
|
21,996
|
|
|
|
17,433
|
|
Other
|
|
|
39
|
|
|
|
—
|
|
|
|
—
|
|
Total
segment net revenues
|
|
|
73,460
|
|
|
|
76,771
|
|
|
|
78,272
|
|
Eliminations
|
|
|
(814
|
)
|
|
|
(517
|
)
|
|
|
(213
|
)
|
Total
net revenues
|
|
|
72,646
|
|
|
|
76,254
|
|
|
|
78,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
|
|
|
14,919
|
|
|
|
17,160
|
|
|
|
15,163
|
|
Digital
Media
|
|
|
3,976
|
|
|
|
3,996
|
|
|
|
1,549
|
|
Other
|
|
|
39
|
|
|
|
—
|
|
|
|
—
|
|
Total
gross profit
|
|
|
18,934
|
|
|
|
21,156
|
|
|
|
16,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
|
|
|
10,678
|
|
|
|
13,398
|
|
|
|
9,964
|
|
Digital
Media
|
|
|
(3,902
|
)
|
|
|
(1,596
|
)
|
|
|
(3,764
|
)
|
Other
|
|
|
(382
|
)
|
|
|
(88
|
)
|
|
|
—
|
|
Total
segment operating income
|
|
|
6,394
|
|
|
|
11,714
|
|
|
|
6,200
|
|
Unallocated
general and administrative expenses
|
|
|
(9,208
|
)
|
|
|
(7,550
|
)
|
|
|
(10,407
|
)
|
(Loss)
income from operations
|
|
|
(2,814
|
)
|
|
|
4,164
|
|
|
|
(4,207
|
)
|
Other
income (expense), net
|
|
|
682
|
|
|
|
(393
|
)
|
|
|
425
|
|
(Loss)
earnings before income taxes and equity method
investment
income
|
|
$
|
(2,132
|
)
|
|
$
|
3,771
|
|
|
$
|
(3,782
|
)
|
|
|
|
Year
ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in
thousands)
|
|
Capital
expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinema
|
|
$
|
810
|
|
|
$
|
1,068
|
|
|
$
|
278
|
|
Digital
Media
|
|
|
1,909
|
|
|
|
1,673
|
|
|
|
180
|
|
Other
|
|
|
556
|
|
|
|
1,021
|
|
|
|
—
|
|
Total
capital expenditures
|
|
$
|
3,275
|
|
|
$
|
3,762
|
|
|
$
|
458
|
|
|
Depreciation,
amortization and impairment:
|
Cinema
|
|
$
|
912
|
|
|
$
|
771
|
|
|
$
|
993
|
|
Digital
Media
|
|
|
1,000
|
|
|
|
716
|
|
|
|
1,262
|
|
Other
|
|
|
269
|
|
|
|
700
|
|
|
|
686
|
|
Total
depreciation, amortization and impairment
|
|
$
|
2,181
|
|
|
$
|
2,187
|
|
|
$
|
2,941
|
|
|
|
December
31,
|
|
(In
thousands)
|
|
2017
|
|
|
2016
|
|
Identifiable
assets, excluding assets held for sale
|
|
|
|
|
|
|
|
|
Cinema
|
|
$
|
27,358
|
|
|
$
|
32,855
|
|
Digital
Media
|
|
|
13,603
|
|
|
|
16,298
|
|
Corporate
assets
|
|
|
18,053
|
|
|
|
13,098
|
|
Total
|
|
$
|
59,014
|
|
|
$
|
62,251
|
|
Summary
by Geographical Area
|
|
Year
ended December 31,
|
|
(In
thousands)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
57,479
|
|
|
$
|
59,917
|
|
|
$
|
60,754
|
|
Canada
|
|
|
5,535
|
|
|
|
4,616
|
|
|
|
5,074
|
|
China
|
|
|
5,031
|
|
|
|
5,885
|
|
|
|
3,654
|
|
Mexico
|
|
|
1,736
|
|
|
|
2,125
|
|
|
|
2,870
|
|
Latin
America
|
|
|
1,557
|
|
|
|
1,681
|
|
|
|
3,540
|
|
Europe
|
|
|
681
|
|
|
|
1,148
|
|
|
|
1,569
|
|
Other
|
|
|
353
|
|
|
|
185
|
|
|
|
507
|
|
Asia
(excluding China)
|
|
|
274
|
|
|
|
697
|
|
|
|
91
|
|
Total
|
|
$
|
72,646
|
|
|
$
|
76,254
|
|
|
$
|
78,059
|
|
|
|
December
31,
|
|
(In
thousands)
|
|
2017
|
|
|
2016
|
|
Identifiable
assets, excluding assets held for sale
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
37,230
|
|
|
$
|
40,255
|
|
Canada
|
|
|
21,784
|
|
|
|
21,996
|
|
Total
|
|
$
|
59,014
|
|
|
$
|
62,251
|
|
Net
revenues by business segment are to unaffiliated customers, except to the extent of certain revenues from intersegment services
provided by the Cinema segment to the Digital Media segment, which are represented by the eliminations in the segment operating
results table above. Identifiable assets by geographical area are based on location of facilities. Net sales by geographical area
are based on destination of sales.
18.
Quarterly Financial Data (Unaudited)
The
following is a summary of the unaudited quarterly results of operations for 2017 and 2016.
|
|
2017
|
|
|
2016
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
(in
thousands, except per share data)
|
|
Net
revenue
|
|
$
|
17,926
|
|
|
$
|
19,400
|
|
|
$
|
19,559
|
|
|
$
|
15,761
|
|
|
$
|
17,114
|
|
|
$
|
20,558
|
|
|
$
|
18,668
|
|
|
$
|
19,914
|
|
Gross
profit
|
|
|
4,439
|
|
|
|
5,274
|
|
|
|
5,319
|
|
|
|
3,902
|
|
|
|
5,236
|
|
|
|
6,149
|
|
|
|
4,377
|
|
|
|
5,394
|
|
Net
earnings (loss)
|
|
|
387
|
|
|
|
(1,975
|
)
|
|
|
(1,037
|
)
|
|
|
(992
|
)
|
|
|
(613
|
)
|
|
|
833
|
|
|
|
(470
|
)
|
|
|
(158
|
)
|
Basic
and diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(1)
|
|
|
0.03
|
|
|
|
(0.14
|
)
|
|
|
(0.07
|
)
|
|
|
(0.07
|
)
|
|
|
(0.04
|
)
|
|
|
0.06
|
|
|
|
(0.03
|
)
|
|
|
(0.01
|
)
|
Diluted
(1)
|
|
|
0.03
|
|
|
|
(0.14
|
)
|
|
|
(0.07
|
)
|
|
|
(0.07
|
)
|
|
|
(0.04
|
)
|
|
|
0.06
|
|
|
|
(0.03
|
)
|
|
|
(0.01
|
)
|
(1)
Earnings per share is computed independently for each of the quarters. Therefore, the sum of the quarterly earnings per
share may not equal the total for the year.
19.
|
Related
Party Transactions
|
Pursuant
to the proxy contest settlement agreement entered into with Fundamental Global Investors, LLC and certain of its affiliates on
April 21, 2015, the Company expanded its Board of Directors to nine directors and nominated five director candidates from Fundamental
Global’s slate of directors, who were elected at the 2015 Annual Meeting. Fundamental Global Investors, LLC and its affiliates
hold approximately 28.7% of the Company’s outstanding shares of common stock as of December 31, 2017. Mr. D. Kyle Cerminara,
the Chief Executive Officer, Co-Founder and Partner of Fundamental Global Investors, LLC, serves as the Company’s Chairman
and Chief Executive Officer. The Company reimbursed Fundamental Global for its expenses incurred in connection with the proxy
contest and settlement agreement in the amount of $178,415 in 2015. The independent members of the Board of Directors approved
the reimbursement.
The
Company’s purchase of the equity securities that comprise its equity method investments were made in companies in which
Fundamental Global has an ownership interest. The independent members of the Board of Directors approved these purchases and the
Company made no payments to Fundamental Global related to these purchases. See Note 6 for further information on the Company’s
equity method investments.
On
April 27, 2017, the Company entered into a debt agreement with blueharbor bank. The Company’s Chief Executive Officer serves
on the Board of Directors of blueharbor bank. The independent members of the Company’s Board of Directors approved this
agreement. See Note 11 for further information on the Company’s debt agreements.