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”), Convergent
Media Systems Corporation and Strong Digital Media, LLC 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.
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
May 2017, the Company sold the operational assets of Strong Westrex, Inc. for total proceeds of $60 thousand. The summary financial
results of discontinued operations were as follows (in thousands):
|
|
Year ended
December 31, 2017
|
|
|
|
|
|
Total net revenues
|
|
$
|
24
|
|
Total cost of revenues
|
|
|
48
|
|
Total selling and administrative expenses
|
|
|
53
|
|
Loss from operations of discontinued operations
|
|
|
(77
|
)
|
Loss before income taxes
|
|
|
(25
|
)
|
Income tax expense (benefit)
|
|
|
-
|
|
Net loss from discontinued operations, net of tax
|
|
$
|
(25
|
)
|
There
was no depreciation and amortization related to discontinued operations recorded for the year ended December 31, 2017. There were
no capital expenditures related to discontinued operations during the year ended December 31, 2017.
3.
Summary of Significant Accounting Policies
Revenue
Recognition
On
January 1, 2018, the Company adopted Financial Accounting Standards Board (“FASB”) Topic 606, “Revenue from
Contracts with Customers,” (“ASC 606”) using the modified retrospective method for all contracts not completed
as of the date of adoption. Results for reporting periods beginning on or after January 1, 2018 are presented under ASC 606, while
prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period.
Under
ASC 606, 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 the separate units of accounting, 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 some or 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 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 does not have any material extended payment terms, as payment is due at or shortly after
the time of the sale. Observable prices are used to determine the standalone selling price of separate performance obligations,
or a cost plus margin approach is used when observable prices are not available. 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 receives payments from clients 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.
Deferred
contract acquisition costs are included in other assets. Beginning January 1, 2018, with the adoption of ASC 606, 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.
Prior to 2018, all contract acquisition costs were expensed as incurred. The Company recorded a transition adjustment of approximately
$76 thousand increasing the opening balance of retained earnings, primarily related to the deferral and amortization of direct
and incremental costs of obtaining contracts. The following table summarizes the changes in the Company’s contract asset
balance during the year ended December 31, 2018 (in thousands):
Deferred contract acquisition costs as of January 1, 2018
|
|
$
|
76
|
|
Costs capitalized
|
|
|
12
|
|
Amortization
|
|
|
(29
|
)
|
Impairment
|
|
|
(59
|
)
|
Deferred contract acquisition costs as of December 31, 2018
|
|
$
|
-
|
|
During
the year ended December 31, 2018, the Company recorded an impairment charge of $59 thousand for the remaining deferred contract
acquisition costs, as they are no longer considered recoverable based on the customer’s recent credit history.
The
following table summarizes the impact the adoption of ASC 606 had on the Company’s consolidated financial statements (in
thousands, except per share data):
Condensed
Consolidated Statements of Operations:
|
|
As reported for the
12 months ended December 31, 2018
|
|
|
Adjustments
|
|
|
Balances without adoption of ASC 606
|
|
Total net revenues
|
|
$
|
64,689
|
|
|
$
|
271
|
|
|
$
|
64,960
|
|
Total cost of revenues
|
|
|
52,510
|
|
|
|
271
|
|
|
|
52,781
|
|
Gross profit
|
|
|
12,179
|
|
|
|
-
|
|
|
|
12,179
|
|
Total selling and administrative expenses
|
|
|
20,393
|
|
|
|
(78
|
)
|
|
|
20,315
|
|
Loss on disposal of assets
|
|
|
(2,135
|
)
|
|
|
-
|
|
|
|
(2,135
|
)
|
Loss from operations
|
|
|
(10,349
|
)
|
|
|
78
|
|
|
|
(10,271
|
)
|
Other income
|
|
|
1,001
|
|
|
|
-
|
|
|
|
1,001
|
|
Loss before income taxes and equity method investment loss
|
|
|
(9,348
|
)
|
|
|
78
|
|
|
|
(9,270
|
)
|
Income tax expense
|
|
|
2,427
|
|
|
|
-
|
|
|
|
2,427
|
|
Equity method investment loss
|
|
|
(552
|
)
|
|
|
-
|
|
|
|
(552
|
)
|
Net loss
|
|
$
|
(12,327
|
)
|
|
$
|
78
|
|
|
$
|
(12,249
|
)
|
Net loss per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.86
|
)
|
|
|
0.01
|
|
|
$
|
(0.85
|
)
|
Diluted
|
|
$
|
(0.86
|
)
|
|
|
0.01
|
|
|
$
|
(0.85
|
)
|
The
adoption of ASC 606 did not have any net impact on the Company’s consolidated balance sheet as of December 31, 2018, or
other comprehensive loss or cash flows for the year then ended.
The
following table disaggregates the Company’s revenue by major source for the year ended December, 2018 (in thousands):
|
|
Strong Cinema
|
|
|
Convergent
|
|
|
Strong Outdoor
|
|
|
Other
|
|
|
Eliminations
|
|
|
Total
|
|
Screen system sales
|
|
$
|
17,445
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
17,445
|
|
Digital equipment sales
|
|
|
9,956
|
|
|
|
4,110
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(279
|
)
|
|
|
13,787
|
|
Field maintenance and monitoring services
|
|
|
11,541
|
|
|
|
8,726
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(486
|
)
|
|
|
19,781
|
|
Installation services
|
|
|
2,055
|
|
|
|
4,356
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,411
|
|
Extended warranty sales
|
|
|
1,041
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,041
|
|
Advertising
|
|
|
-
|
|
|
|
-
|
|
|
|
3,632
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,632
|
|
Other
|
|
|
2,323
|
|
|
|
18
|
|
|
|
-
|
|
|
|
308
|
|
|
|
(57
|
)
|
|
|
2,592
|
|
Total
|
|
$
|
44,361
|
|
|
$
|
17,210
|
|
|
$
|
3,632
|
|
|
$
|
308
|
|
|
$
|
(822
|
)
|
|
$
|
64,689
|
|
Screen
system sales
The
Company 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
time because control does not transfer to the customer until delivery.
Digital
equipment sales
The
Company recognizes revenue on sales of digital equipment when the control of the equipment is transferred, which 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 Strong Cinema and Convergent customers. In
the Strong Cinema segment, these contracts are generally 12 months in length, while the term for service contracts in the Convergent
segment can be for multiple years. Revenue is recognized over the term of the agreement in proportion to the costs incurred in
fulfilling performance obligations under the contract.
The
Company also performs time and materials-based maintenance and repair work for customers in the Strong Cinema and Convergent segments.
Revenue is recognized at a point in time when the performance obligation has been fully satisfied.
Installation
services
The
Company performs installation services for both its Strong Cinema and Convergent customers and recognizes revenue upon completion
of the installations.
Extended
warranty sales
The
Company sells extended warranties to its Strong Cinema customers. When the Company is the primary obligor, revenue is recognized
on a gross basis over the term of the extended warranty in proportion to the costs incurred in fulfilling performance obligations
under the extended warranty. In third party extended warranty sales, the Company is not the primary obligor, and revenue is recognized
on a net basis at the time of the sale.
Advertising
Strong
Outdoor sells advertising space on top of taxicabs. Advertising revenue is recognized ratably over the contracted advertising
periods.
At
January 1, 2018, $0.8 million of unearned revenue associated with maintenance and monitoring services and extended warranty sales
in which the Company is the primary obligor was reported in deferred revenue and customer deposits. During the year ended December
31, 2018, all of this balance was earned and recognized as revenue. At December 31, 2018, the unearned revenue amount was $1.0
million. The Company expects to recognize $0.9 million of unearned revenue amounts in 2019 and immaterial amounts each year from
2020-2022.
The
following table disaggregates the Company’s revenue by the timing of transfer of goods or services to the customer for the
year ended December 31, 2018 (in thousands):
|
|
Strong Cinema
|
|
|
Convergent
|
|
|
Strong Outdoor
|
|
|
Other
|
|
|
Eliminations
|
|
|
Total
|
|
Point in time
|
|
$
|
37,456
|
|
|
|
9,565
|
|
|
|
31
|
|
|
$
|
48
|
|
|
$
|
(822
|
)
|
|
$
|
46,278
|
|
Over time
|
|
|
6,905
|
|
|
|
7,645
|
|
|
|
3,601
|
|
|
|
260
|
|
|
|
-
|
|
|
|
18,411
|
|
Total
|
|
$
|
44,361
|
|
|
$
|
17,210
|
|
|
$
|
3,632
|
|
|
$
|
308
|
|
|
$
|
(822
|
)
|
|
$
|
64,689
|
|
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,
2018, $2.4 million of the $6.7 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.
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 (loss) 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. The Company classifies distributions received from equity method investments using
the cumulative earnings approach on the Consolidated Statements of 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
recorded other-than-temporary impairment charges totaling $0.7 million related to its equity method investments during the year
ended December 31, 2018 and did not record any such impairment charges during the year ended December 31, 2017. Note 6 contains
additional information on our equity method investments.
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. 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. The annual impairment test is performed as of December 31 each year. 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, 2018 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.
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 amounted to $0.1 million for each of
the years ended December 31, 2018 and 2017.
Advertising
Costs
Advertising
and promotional costs are expensed as incurred and amounted to approximately $0.3 million and $0.6 million for the years ended
December 31, 2018 and 2017, respectively.
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, 2018 and 2017.
Fair
values measured on a recurring basis at December 31, 2018 (in thousands):
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
6,698
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,698
|
|
Restricted cash
|
|
|
350
|
|
|
|
-
|
|
|
|
-
|
|
|
|
350
|
|
Notes receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
3,965
|
|
|
|
3,965
|
|
Total
|
|
$
|
7,048
|
|
|
$
|
-
|
|
|
$
|
3,965
|
|
|
$
|
11,013
|
|
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
|
|
Quantitative
information about the Company’s level 3 fair value measurements at December 31, 2018 is set forth below (dollars in thousands):
|
|
Fair value at 12/31/18
|
|
|
Valuation technique
|
|
Unobservable input
|
|
Value
|
|
Notes receivable
|
|
$
|
3,965
|
|
|
Discounted cash flow
|
|
Default percentage
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
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. The Company recorded increases to the fair value of the notes receivable of approximately $1.2 million
and $1.1 million in other income in the consolidated statements of operations during the years ended December 31, 2018 and 2017,
respectively.
The
significant unobservable inputs used in the fair value measurement of the Company’s note receivable are the 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):
|
|
2018
|
|
|
2017
|
|
Notes receivable balance, beginning of period
|
|
$
|
2,815
|
|
|
$
|
1,669
|
|
Fair value adjustment
|
|
|
1,150
|
|
|
|
1,146
|
|
Notes receivable balance, end of period
|
|
$
|
3,965
|
|
|
$
|
2,815
|
|
The
Company’s short-term and long-term debt is recorded at historical cost. As of December 31, 2018, the Company’s long-term
debt, including current maturities, had a carrying value of $11.1 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, 2018 was $10.8 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 $5.5
million at December 31, 2018 (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 2018, the Company recorded other-than-temporary impairment charges totaling $0.7 million related to its
equity method investments. During 2018 and 2017, the Company recorded impairment charges of $2.1 million and $0.2 million, respectively,
in loss on sale or disposal of assets on the consolidated statements of operations related to groups of long-lived assets after
the Company determined the carrying amount of the assets was not recoverable, and adjusted the carrying amount of the related
assets to $0.
Loss
Per Common Share
Basic
loss per share has been computed on the basis of the weighted average number of shares of common stock outstanding. Diluted earnings
per share would be 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. However, because the
Company reported losses in both years presented, there were no differences between average shares used to compute basic and diluted
loss per share for either of the years ended December 31, 2018 and 2017.
Options
to purchase 645,000 and 510,000 shares of common stock were outstanding as of December 31, 2018 and 2017, respectively, but were
not included in the computation of diluted loss 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 80,855 and 141,166 common stock equivalents related to options
and restricted stock units were excluded for the years ended December 31, 2018 and 2017, 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 2018 and 2017.
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 within the consolidated statements of comprehensive loss.
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 two years ended December 31 (in thousands):
|
|
2018
|
|
|
2017
|
|
Warranty accrual at beginning of period
|
|
$
|
521
|
|
|
$
|
645
|
|
Charged to expense
|
|
|
208
|
|
|
|
309
|
|
Claims paid, net of recoveries
|
|
|
(349
|
)
|
|
|
(462
|
)
|
Foreign currency adjustment
|
|
|
(30
|
)
|
|
|
29
|
|
Warranty accrual at end of period
|
|
$
|
350
|
|
|
$
|
521
|
|
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
Adopted Accounting Pronouncements
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. The Company adopted ASU 2016-01 prospectively on January 1, 2018. The adoption of
this ASU did not significantly impact the Company’s results of operations and 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 Company adopted this ASU effective January 1, 2018. The adoption of this ASU
did not significantly impact the Company’s results of operations and financial position.
Recently
Issued Accounting Pronouncements
In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which was further clarified by ASU 2018-11, “Leases
– Targeted Improvements,” issued in July 2018. 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 initially required a modified retrospective
transition method under which entities would initially apply Topic 842 at the beginning of the earliest period presented in the
financial statements. ASU 2018-11 added an additional optional transition method allowing entities to apply Topic 842 as of the
adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
The
Company will adopt ASU 2016-02 using the optional transition method from ASU 2018-11 as of January 1, 2019. We have made significant
progress in assessing the impact of the standards and planning for their adoption. Upon adoption, the Company expects to record
a balance sheet gross-up of approximately $4.7 million to record operating lease liabilities and related right-of-use assets.
In addition, the sale-leaseback of Convergent’s Alpharetta, Georgia office facility described in Note 11, which did not
qualify for sale-leaseback accounting under the previous lease accounting standard, qualified for sale-leaseback accounting under
Topic 842, as Topic 842 eliminated the concept of continuing involvement by the seller-lessee precluding sale-leaseback accounting.
The Company is completing its analysis of the impact of ASU 2016-02 on the sale-leaseback and expects to record a cumulative effect
adjustment increasing retained earnings, derecognize the property and equipment related to the sale-leaseback and derecognize
the sale-leaseback financing liability component of long-term debt current reflected on the Company’s consolidated balance
sheet. The Company also expects to record new operating right of use assets and liabilities for the sale-leaseback under Topic
842.
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
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 its adoption will significantly impact the Company’s
results of operations or financial position.
In
August 2018, the Securities and Exchange Commission (the “SEC”) adopted the final rule under SEC Release No. 33-10532,
“Disclosure Update and Simplification,” amending certain disclosure requirements that were redundant, duplicative,
overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’
equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity
presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation
of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be
filed. The final rule is effective for all filings made on and after November 5, 2018. Given the effective date and proximity
to most filers’ quarterly reports, the SEC is not objecting to filers deferring the presentation of changes in stockholders’
equity in their quarterly reports on Forms 10-Q until the quarter that begins after November 5, 2018. The Company’s first
presentation of changes in stockholders’ equity for an interim period will be included in its quarterly report on Form 10-Q
for the quarter ended March 31, 2019.
4.
Inventories
Inventories
consist of the following (in thousands):
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Raw materials and components
|
|
$
|
1,422
|
|
|
$
|
1,376
|
|
Work in process
|
|
|
-
|
|
|
|
362
|
|
Finished goods
|
|
|
2,068
|
|
|
|
3,083
|
|
|
|
$
|
3,490
|
|
|
$
|
4,821
|
|
The
inventory balances are net of reserves of approximately $1.4 million and $1.8 million as of December 31, 2018 and 2017, respectively.
5.
Property, Plant and Equipment
Property,
plant and equipment include the following (in thousands):
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Land
|
|
$
|
1,597
|
|
|
$
|
1,601
|
|
Buildings and improvements
|
|
|
9,231
|
|
|
|
9,277
|
|
Digital signage equipment
|
|
|
5,252
|
|
|
|
305
|
|
Machinery and other equipment
|
|
|
5,147
|
|
|
|
4,709
|
|
Office furniture and fixtures
|
|
|
3,509
|
|
|
|
3,714
|
|
Total properties, cost
|
|
|
24,736
|
|
|
|
19,606
|
|
Less: accumulated depreciation
|
|
|
(9,561
|
)
|
|
|
(8,780
|
)
|
Net property, plant and equipment
|
|
$
|
15,175
|
|
|
$
|
10,826
|
|
Depreciation
expense approximated $1.9 million and $1.6 million for the years ended December 31, 2018 and 2017, respectively.
6.
Equity Method Investments
The
following summarizes our equity method investments (dollars in thousands):
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Entity
|
|
Carrying Amount
|
|
|
Economic Interest
|
|
|
Carrying Amount
|
|
|
Economic Interest
|
|
1347 Property Insurance Holdings, Inc.
|
|
$
|
7,738
|
|
|
|
17.3
|
%
|
|
$
|
7,710
|
|
|
|
17.4
|
%
|
Itasca Capital, Ltd.
|
|
|
3,429
|
|
|
|
32.3
|
%
|
|
|
5,870
|
|
|
|
32.3
|
%
|
BK Technologies, Inc.
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
4,473
|
|
|
|
8.3
|
%
|
Total
|
|
$
|
11,167
|
|
|
|
|
|
|
$
|
18,053
|
|
|
|
|
|
The
following summarizes the (loss) income of equity method investees reflected in the Consolidated Statement of Operations (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Entity
|
|
|
|
|
|
|
|
|
1347 Property Insurance Holdings, Inc.
|
|
$
|
237
|
|
|
$
|
(177
|
)
|
Itasca Capital, Ltd.
|
|
|
(1,232
|
)
|
|
|
2,073
|
|
BK Technologies, Inc.
|
|
|
443
|
|
|
|
62
|
|
Total
|
|
$
|
(552
|
)
|
|
$
|
1,958
|
|
1347
Property Insurance Holdings, Inc. (“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 chairman of the board of directors
of PIH, and controls entities that, when combined with the Company’s ownership in PIH, own greater than 20% of PIH, providing
the Company with significant influence over PIH, but not controlling interest. The Company did not receive dividends from PIH
in 2018 or 2017. Based on quoted market prices, the market value of the Company’s ownership in PIH was $4.2 million at December
31, 2018.
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 chairman 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 received a dividend of $0.8 million from Itasca during 2018 and did not receive any
dividends from Itasca during 2017. Based on quoted market prices, the market value of the Company’s ownership in Itasca
was $1.3 million at December 31, 2018. A $0.7 million other-than-temporary impairment charge for Itasca is included in equity
method investment loss on the consolidated statement of operations for the year ended December 31, 2018.
BK
Technologies, Inc. (formerly known as RELM Wireless Corporation) (“BKTI”) is a publicly traded company that designs,
manufactures and markets two-way land mobile radios, repeaters, base stations and related components and subsystems. Due to the
Company’s significant influence, but not controlling interest, in BKTI, the Company’s investment in BKTI was accounted
for using the equity method. On September 9, 2018, the Company entered into an agreement with Fundamental Global Investors, LLC
(“FGI”), a related party, where the Company sold 1,147,087 shares of common stock of BKTI to FGI for a price of $3.95
per share and total proceeds of approximately $4.5 million. The per share transaction price of $3.95 represented the immediately
preceding closing price on the NYSE American stock exchange, and the transaction was approved by the Company’s Audit Committee,
comprised of only independent directors. The Company recorded a gain on the sale of the equity method investment of $0.8 million
within equity method investment income on the consolidated statement of operations for the year ended December 31, 2018. Prior
to the sale of the BKTI common stock, the Company received dividends of $0.1 million and $0.3 million during the years ended December
31, 2018 and 2017, respectively.
As
of December 31, 2018, the Company’s retained earnings included undistributed earnings from equity method investees of $0.3
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,
|
|
2018
|
|
|
2017
|
|
Revenue
|
|
$
|
53,395
|
|
|
$
|
72,325
|
|
Operating income
|
|
|
2,738
|
|
|
|
1,021
|
|
Net income
|
|
|
(462
|
)
|
|
|
7,953
|
|
As of September 30,
|
|
2018
|
|
|
2017
|
|
Cash and cash equivalents - PIH
|
|
$
|
30,024
|
|
|
$
|
25,679
|
|
Investments - PIH
|
|
|
80,918
|
|
|
|
49,702
|
|
Reinsurance recoverables - PIH
|
|
|
10,598
|
|
|
|
25,327
|
|
Other assets - PIH
|
|
|
22,928
|
|
|
|
14,815
|
|
Current assets - BKTI and Itasca
|
|
|
1,397
|
|
|
|
33,359
|
|
Noncurrent assets - BKTI and Itasca
|
|
|
11,693
|
|
|
|
30,005
|
|
Total assets - PIH, BKTI and Itasca
|
|
$
|
157,558
|
|
|
$
|
178,887
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expense reserves - PIH
|
|
$
|
14,172
|
|
|
$
|
22,091
|
|
Unearned premium reserves - PIH
|
|
|
49,964
|
|
|
|
32,170
|
|
Redeemable preferred shares - PIH
|
|
|
-
|
|
|
|
2,744
|
|
Other liabilities - PIH
|
|
|
18,651
|
|
|
|
12,920
|
|
Current liabilities - BKTI and Itasca
|
|
|
98
|
|
|
|
8,857
|
|
Noncurrent liabilities - BKTI and Itasca
|
|
|
82,885
|
|
|
|
452
|
|
Total liabilities - PIH, BKTI and Itasca
|
|
$
|
165,770
|
|
|
$
|
79,234
|
|
7.
Intangible Assets
Intangible
assets consisted of the following at December 31, 2018 (dollars in thousands):
|
|
Useful
life
|
|
|
Gross
|
|
|
Accumulated Amortization
|
|
|
Net
|
|
|
|
(Years)
|
|
|
|
|
|
|
|
|
|
|
Intangible assets not yet subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software in development
|
|
|
|
|
|
$
|
119
|
|
|
$
|
-
|
|
|
$
|
119
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software in service
|
|
|
5
|
|
|
|
2,188
|
|
|
|
(595
|
)
|
|
$
|
1,593
|
|
Product formulation
|
|
|
10
|
|
|
|
447
|
|
|
|
(364
|
)
|
|
$
|
83
|
|
Total
|
|
|
|
|
|
$
|
2,754
|
|
|
$
|
(959
|
)
|
|
$
|
1,795
|
|
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, other than goodwill, with definite lives are amortized over their useful lives. The Company recorded amortization expense
relating to intangible assets of $0.6 million during both of the years ended December 31 2018 and 2017. During 2018, the Company
recorded impairment charges of $2.1 million related to abandoned software in service within loss on disposal of assets on the
consolidated statements of operations.
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).
2019
|
|
$
|
485
|
|
2020
|
|
|
476
|
|
2021
|
|
|
438
|
|
2022
|
|
|
221
|
|
2023
|
|
|
56
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
1,676
|
|
8.
Goodwill
All
of the Company’s goodwill is related to the Strong Cinema segment. The following represents a summary of changes in the
Company’s carrying amount of goodwill (in thousands):
Balance as of December 31, 2017
|
|
$
|
952
|
|
Foreign currency translation
|
|
|
(77
|
)
|
Balance as of December 31, 2018
|
|
$
|
875
|
|
9.
Accrued Expenses
The
major components of current accrued expenses are as follows (in thousands):
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Employee related
|
|
$
|
1,431
|
|
|
$
|
1,388
|
|
Legal and professional fees
|
|
|
343
|
|
|
|
222
|
|
Lease expenses
|
|
|
150
|
|
|
|
78
|
|
Warranty obligation
|
|
|
350
|
|
|
|
521
|
|
Interest and taxes
|
|
|
374
|
|
|
|
567
|
|
Post-retirement benefit obligation
|
|
|
14
|
|
|
|
18
|
|
Other
|
|
|
120
|
|
|
|
88
|
|
Total
|
|
$
|
2,782
|
|
|
$
|
2,882
|
|
The
major components of long-term accrued expenses are as follows (in thousands):
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Lease expenses
|
|
$
|
114
|
|
|
$
|
109
|
|
Post-retirement benefit obligation
|
|
|
140
|
|
|
|
97
|
|
Total
|
|
$
|
254
|
|
|
$
|
206
|
|
10.
Income Taxes
Loss
from continuing operations before income taxes consists of (in thousands):
|
|
2018
|
|
|
2017
|
|
United States
|
|
$
|
(16,581
|
)
|
|
$
|
(11,588
|
)
|
Foreign
|
|
|
6,681
|
|
|
|
11,414
|
|
|
|
$
|
(9,900
|
)
|
|
$
|
(174
|
)
|
Income
tax expense (benefit) attributable to loss from continuing operations consists of (in thousands):
|
|
2018
|
|
|
2017
|
|
Federal:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
-
|
|
|
|
-
|
|
State:
|
|
|
|
|
|
|
|
|
Current
|
|
|
66
|
|
|
|
8
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
66
|
|
|
|
8
|
|
Foreign:
|
|
|
|
|
|
|
|
|
Current
|
|
|
2,609
|
|
|
|
2,348
|
|
Deferred
|
|
|
(248
|
)
|
|
|
1,062
|
|
Total
|
|
|
2,361
|
|
|
|
3,410
|
|
|
|
$
|
2,427
|
|
|
$
|
3,418
|
|
Income
tax expense attributable to loss from continuing operations differed from the amounts computed by applying the U.S. Federal income
tax rate to pretax loss from continuing operations as follows (in thousands):
|
|
2018
|
|
|
2017
|
|
Expected federal income tax benefit
|
|
$
|
(2,079
|
)
|
|
$
|
(59
|
)
|
Effect of federal rate change
|
|
|
-
|
|
|
|
5,341
|
|
Effect of change to territorial system
|
|
|
-
|
|
|
|
(4,071
|
)
|
State income taxes, net of federal benefit
|
|
|
52
|
|
|
|
(260
|
)
|
Foreign tax rate differential
|
|
|
381
|
|
|
|
(743
|
)
|
Change in state tax rate
|
|
|
(139
|
)
|
|
|
(67
|
)
|
Change in valuation allowance
|
|
|
3,859
|
|
|
|
3,321
|
|
GILTI inclusion
|
|
|
597
|
|
|
|
-
|
|
Return to provision
|
|
|
(490
|
)
|
|
|
(49
|
)
|
Foreign dividend inclusion
|
|
|
128
|
|
|
|
-
|
|
Other
|
|
|
118
|
|
|
|
5
|
|
Total
|
|
$
|
2,427
|
|
|
$
|
3,418
|
|
Deferred
tax assets and liabilities were comprised of the following (in thousands):
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
228
|
|
|
$
|
230
|
|
Non-deductible accruals
|
|
|
1,811
|
|
|
|
206
|
|
Inventory reserves
|
|
|
370
|
|
|
|
451
|
|
Stock compensation expense
|
|
|
325
|
|
|
|
199
|
|
Warranty reserves
|
|
|
93
|
|
|
|
138
|
|
Uncollectible receivable reserves
|
|
|
456
|
|
|
|
458
|
|
Net operating losses
|
|
|
10,658
|
|
|
|
9,204
|
|
Fair value adjustment to notes receivable
|
|
|
978
|
|
|
|
147
|
|
Tax credits
|
|
|
2,084
|
|
|
|
1,642
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
79
|
|
Disallowed interest expense
|
|
|
394
|
|
|
|
-
|
|
Other
|
|
|
129
|
|
|
|
170
|
|
Total deferred tax assets
|
|
|
17,526
|
|
|
|
12,924
|
|
Valuation allowance
|
|
|
(16,177
|
)
|
|
|
(12,317
|
)
|
Net deferred tax assets after valuation allowance
|
|
|
1,349
|
|
|
|
607
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,601
|
|
|
|
923
|
|
Cash repatriation
|
|
|
2,012
|
|
|
|
1,884
|
|
Equity in income of equity method investments
|
|
|
252
|
|
|
|
610
|
|
Other
|
|
|
-
|
|
|
|
6
|
|
Total deferred tax liabilities
|
|
|
3,865
|
|
|
|
3,423
|
|
Net deferred tax liability
|
|
$
|
(2,516
|
)
|
|
$
|
(2,816
|
)
|
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 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 $16.2 million and $12.3 million should be recorded against the Company’s U.S. tax jurisdiction
deferred tax assets as of December 31, 2018 and 2017, 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 to a territorial tax system. The 2017 Tax Act required taxpayers to calculate a one-time transition tax based
on the deemed repatriation of undistributed earnings of foreign subsidiaries. The Company included this repatriation tax and changes
to the existing deferred tax balances in the 2017 financial statements. Provisional amounts were originally recorded for the repatriation
and subsequently updated through the filing of the 2017 tax return. After applying foreign tax credits, the Company calculated
its transition tax liability to be zero. The Company has recorded a deferred tax liability related to withholding tax on earnings
from its Canadian subsidiary of $2.0 million and $1.9 million at December 31, 2018 and 2017, respectively.
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 corporate tax rate was zero.
During
the 2018 fiscal year, numerous provisions of the 2017 Tax Act went into effect. The Company evaluated these provisions and incorporated
the estimated impact in the 2018 income tax expense. These provisions include, but are not limited to, reductions in the corporate
income tax rate with regard to current income taxes, limitations with regard to interest expense that disallow a portion of interest
expense that is carried forward with no future expiration, changes to the deductibility of meals and entertainment, changes to
bonus depreciation and a reduced tax rate on foreign export sales.
An
additional provision of the 2017 Tax Act is the implementation of the Global Intangible-Low Taxed Income Tax, or “GILTI.”
The Company has elected to account for the impact of GILTI in the period in which the tax actually applies to the Company. During
fiscal 2018, the Company incurred an estimated $2.8 million of additional taxable income as a result of this provision. This increase
of taxable income was incorporated into the overall net operating loss and valuation allowance.
The
Company’s net operating loss carryforwards for federal and state tax purposes total approximately $42.8 million and $40.2
million, respectively, at December 31, 2018, expiring at various times in 2033 through 2037 for state net operating losses
and federal losses generated through December 31, 2017. As a result of the 2017 Tax Act, all net operating losses that are generated
beginning January 1, 2018 and beyond will carryforward indefinitely with no carryback. The Company has foreign tax credit carryforwards
of approximately $2.1 million at December 31, 2018 that expire at various times in 2024 through 2026. Utilization of these losses
may be limited in the event certain changes in ownership occur.
The
Company is subject to possible examinations not yet initiated for federal purposes for the fiscal years 2015, 2016 and 2017. In
most cases, the Company is subject to possible examinations 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, 2018 and 2017. Amounts
accrued for estimated underpayment of income taxes were zero as of December 31, 2018 and 2017.
11.
Debt
The
Company’s long-term debt consists of the following (in thousands):
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Short-term debt:
|
|
|
|
|
|
|
|
|
Strong/MDI installment loan
|
|
$
|
3,152
|
|
|
$
|
-
|
|
Revolving line of credit
|
|
|
-
|
|
|
|
500
|
|
Current portion of long-term debt
|
|
|
1,094
|
|
|
|
65
|
|
Total short-term debt
|
|
|
4,246
|
|
|
|
565
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
Sale-leaseback financing
|
|
|
6,769
|
|
|
|
-
|
|
Equipment term loans
|
|
|
4,398
|
|
|
|
-
|
|
Mortgage term loan
|
|
|
-
|
|
|
|
1,968
|
|
Total principal balance of long-term debt
|
|
|
11,167
|
|
|
|
1,968
|
|
Less: current portion
|
|
|
(1,094
|
)
|
|
|
(65
|
)
|
Less: unamortized debt issuance costs
|
|
|
(20
|
)
|
|
|
(33
|
)
|
Total long-term debt
|
|
|
10,053
|
|
|
|
1,870
|
|
Total short-term and long-term debt
|
|
$
|
14,299
|
|
|
$
|
2,435
|
|
On
May 22, 2018, the Company’s subsidiary, Convergent, entered into an installment payment agreement with an equipment financing
company in order to purchase media players and related equipment in an aggregate amount of up to approximately $4.4 million. Installment
payments under each contract for purchase of the equipment are due monthly for a period of 60 months. The financing provided in
the agreement is secured by the equipment, and the obligations under the agreement are guaranteed by the Company. The borrowings
under the agreement are recorded as long-term debt on the Company’s consolidated balance sheet. In December 2018, Convergent
entered into additional installment payment agreements with other financing companies in order to purchase additional media players
and related equipment. This round of financing totaled approximately $0.6 million. Installment payments under each contract are
due monthly for a period of 60 months. The financing under the agreements is secured by the equipment. The borrowings under the
agreements are recorded as long-term debt on the Company’s consolidated balance sheet. Collectively, the Company had $4.4
million of outstanding borrowings under equipment term loan agreements at December 31, 2018, which bear interest at a weighted-average
fixed rate of 6.8%.
On
June 29, 2018, the Company and Convergent completed a sale-leaseback of Convergent’s Alpharetta, Georgia office facility.
Convergent sold the Alpharetta facility for $7.0 million in cash and the Company simultaneously entered into a 10-year leaseback
of the facility for rent in the amount of $600,000 per year, escalating at the rate of 2% per year. Due to the Company’s
continuing involvement in the building, the transaction was accounted for as a financing rather than a normal leaseback. The net
proceeds from the transaction were recorded as a financing liability in long-term debt on the Company’s consolidated balance
sheet. Upon closing, the Company’s mortgage term loan and revolving line of credit that previously were secured by the Alpharetta
facility were repaid, and the related debt agreement was terminated. In addition, the Company issued warrants to the buyer to
purchase up to 100,000 shares of Company stock, consisting of warrants to purchase 25,000 shares at each of $10, $12, $14, and
$16 purchase prices per share. The warrants have a 10-year maturity. The Company recorded the aggregate $81 thousand fair value
of the warrants as additional paid-in capital. The warrants are recorded at grant date fair value, which was calculated based
on a Black-Scholes valuation model using the following assumptions:
Expected dividend yield at date of grant
|
|
|
0.00
|
%
|
Risk-free interest rate
|
|
|
2.81
|
%
|
Expected stock price volatility
|
|
|
37.01
|
%
|
Expected life of warrants (in years)
|
|
|
7.0
|
|
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
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. The Company borrowed
CDN$4.5 million on the 20-year installment loan during 2018. There was CDN$4.3 million of principal outstanding on the 20-year
installment loan as of December 31, 2018, which bears variable interest at 4.53%. Strong/MDI was in compliance with its debt covenants
as of December 31, 2018.
Scheduled
repayments are as follows for the Company’s long-term debt outstanding as of December 31, 2018 (in thousands):
2019
|
|
$
|
1,094
|
|
2020
|
|
|
1,177
|
|
2021
|
|
|
1,267
|
|
2022
|
|
|
1,364
|
|
2023
|
|
|
1,017
|
|
Thereafter
|
|
|
5,248
|
|
Total
|
|
$
|
11,167
|
|
12.
Stock Compensation
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 approximated $0.8 million
and $0.7 million for the years ended December 31, 2018 and 2017, 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.
The total number of shares authorized for issuance under the 2017 Plan is 1,371,189 shares, with 1,049,156 shares remaining available
for grant at December 31, 2018.
Options
The
Company granted a total of 437,500 and 435,000 options during the years ended December 31, 2018 and 2017, 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, 2018 and 2017 was $1.72 and
$2.42, 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:
|
|
2018
|
|
|
2017
|
|
Expected dividend yield at date of grant
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Risk-free interest rate
|
|
|
2.53
|
%
|
|
|
1.99
|
%
|
Expected stock price volatility
|
|
|
35.93
|
%
|
|
|
34.85
|
%
|
Expected life of options (in years)
|
|
|
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. The expected
volatility was based on historical daily price changes of the Company’s stock for six years prior to the date of grant.
The expected life of options is the average number of years the Company estimates that options will be outstanding.
The
following table summarizes stock option activity for 2018:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise Price
Per Share
|
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic Value
(in thousands)
|
|
Outstanding at December 31, 2017
|
|
|
930,300
|
|
|
$
|
5.63
|
|
|
|
8.7
|
|
|
$
|
150
|
|
Granted
|
|
|
437,500
|
|
|
|
4.42
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(344,500
|
)
|
|
|
5.62
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(156,300
|
)
|
|
|
4.95
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
867,000
|
|
|
$
|
5.06
|
|
|
|
8.3
|
|
|
$
|
-
|
|
Exercisable at December 31, 2018
|
|
|
189,000
|
|
|
$
|
5.08
|
|
|
|
7.3
|
|
|
$
|
-
|
|
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. No options were exercised in 2018. The intrinsic value of options exercised
during the year ended December 31, 2017 amounted to $45 thousand.
As
of December 31, 2018, 678,000 stock option awards were non-vested. Unrecognized compensation costs related to all stock options
outstanding amounted to $1.1 million at December 31, 2018, which is expected to be recognized over a weighted-average period of
3.5 years.
Restricted
Stock
The
Company awarded a total of 277,498 and 115,835 restricted stock units and restricted shares during the years ended December 31,
2018 and 2017, 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, 2018 and 2017 was $3.33 and $6.58, respectively. The fair value
of restricted stock awards that vested during the years ended December 31, 2018 and 2017 was $0.3 million and $0.4 million, respectively.
As
of December 31, 2018, the total unrecognized compensation cost related to non-vested restricted stock awards was approximately
$0.8 million, which is expected to be recognized over a weighted average period of 1.7 years.
The
following table summarizes restricted share activity for 2018:
|
|
Number of Restricted
Stock Shares
|
|
|
Weighted Average Grant
Date Fair Value
|
|
Non-vested at December 31, 2017
|
|
|
85,000
|
|
|
$
|
6.50
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Shares vested
|
|
|
(28,333
|
)
|
|
|
6.50
|
|
Shares forfeited
|
|
|
(10,000
|
)
|
|
|
6.50
|
|
Non-vested at December 31, 2018
|
|
|
46,667
|
|
|
$
|
6.50
|
|
The
following table summarizes restricted stock unit activity for 2018:
|
|
Number of Restricted
Stock Units
|
|
|
Weighted Average Grant
Date Fair Value
|
|
Non-vested at December 31, 2017
|
|
|
35,835
|
|
|
$
|
6.45
|
|
Granted
|
|
|
277,498
|
|
|
|
3.33
|
|
Shares vested
|
|
|
(35,835
|
)
|
|
|
6.45
|
|
Shares forfeited
|
|
|
-
|
|
|
|
-
|
|
Non-vested at December 31, 2018
|
|
|
277,498
|
|
|
$
|
3.33
|
|
13.
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, 2018 and 2017.
14.
Leases
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 $0.9 million and $0.5 million for
the years ended December 31, 2018 and 2017, respectively. The Company also has capital leases for computer equipment and digital
signage equipment, which are recorded as capital lease obligations on the consolidated balance sheets.
The
Company’s future minimum lease payments are as follows:
|
|
Capital Leases
|
|
|
Operating Leases
|
|
|
|
(in thousands)
|
|
2019
|
|
$
|
219
|
|
|
$
|
1,740
|
|
2020
|
|
|
139
|
|
|
|
1,537
|
|
2021
|
|
|
139
|
|
|
|
1,420
|
|
2022
|
|
|
139
|
|
|
|
1,081
|
|
2023
|
|
|
128
|
|
|
|
-
|
|
Thereafter
|
|
|
4
|
|
|
|
-
|
|
Total minimum lease payments
|
|
|
768
|
|
|
$
|
5,778
|
|
Less: Amount representing interest
|
|
|
(181
|
)
|
|
|
|
|
Present value of minimum lease payments
|
|
|
587
|
|
|
|
|
|
Less: Current maturities
|
|
|
(160
|
)
|
|
|
|
|
Capital lease obligations, net of current portion
|
|
$
|
427
|
|
|
|
|
|
15.
Contingencies and Concentrations
Concentrations
The
Company’s top ten customers accounted for approximately 46% of 2018 consolidated net revenues, including one Strong Cinema
customer that individually accounted for 14% of 2018 consolidated net revenues. Trade accounts receivable from the top ten customers
represented approximately 45% of net consolidated receivables at December 31, 2018.
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.
16.
Business Segment Information
The
Company has three primary operating segments: Strong Cinema, Convergent and Strong Outdoor. During the fourth quarter of 2018,
the Company decided to divide its former Digital Media segment into separate Convergent and Strong Outdoor segments. All prior
periods have been recast in our segment reporting to reflect the current segment organization. The Strong 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 Convergent segment delivers solutions and services across two primary markets: digital out-of-home and enterprise video. While
there is digital signage equipment sold within this segment, the primary focus of this segment is providing solutions and services
to our customers. The Strong Outdoor segment provides taxi-top advertising services on over 3,500 New York City taxicabs.
Summary
by Business Segments
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Net revenues
|
|
|
|
|
|
|
|
|
Strong Cinema
|
|
$
|
44,361
|
|
|
$
|
48,938
|
|
Convergent
|
|
|
17,210
|
|
|
|
24,348
|
|
Strong Outdoor
|
|
|
3,632
|
|
|
|
-
|
|
Other
|
|
|
308
|
|
|
|
175
|
|
Total segment net revenues
|
|
|
65,511
|
|
|
|
73,461
|
|
Eliminations
|
|
|
(822
|
)
|
|
|
(815
|
)
|
Total net revenues
|
|
|
64,689
|
|
|
|
72,646
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
|
|
|
|
|
|
Strong Cinema
|
|
|
14,710
|
|
|
|
14,919
|
|
Convergent
|
|
|
2,061
|
|
|
|
3,840
|
|
Strong Outdoor
|
|
|
(4,843
|
)
|
|
|
-
|
|
Other
|
|
|
308
|
|
|
|
175
|
|
Total segment gross profit
|
|
|
12,236
|
|
|
|
18,934
|
|
Eliminations
|
|
|
(57
|
)
|
|
|
-
|
|
Total gross profit
|
|
|
12,179
|
|
|
|
18,934
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
Strong Cinema
|
|
|
10,407
|
|
|
|
10,678
|
|
Convergent
|
|
|
(4,483
|
)
|
|
|
(3,944
|
)
|
Strong Outdoor
|
|
|
(6,070
|
)
|
|
|
-
|
|
Other
|
|
|
(309
|
)
|
|
|
(340
|
)
|
Total segment operating (loss) income
|
|
|
(455
|
)
|
|
|
6,394
|
|
Unallocated general and administrative expenses
|
|
|
(9,076
|
)
|
|
|
(9,208
|
)
|
Unallocated loss on disposal of assets
|
|
|
(818
|
)
|
|
|
-
|
|
Loss from operations
|
|
|
(10,349
|
)
|
|
|
(2,814
|
)
|
Other income, net
|
|
|
1,001
|
|
|
|
682
|
|
Loss before income taxes and equity method investment income
|
|
$
|
(9,348
|
)
|
|
$
|
(2,132
|
)
|
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
Strong Cinema
|
|
$
|
639
|
|
|
$
|
810
|
|
Convergent
|
|
|
1,056
|
|
|
|
1,909
|
|
Strong Outdoor
|
|
|
286
|
|
|
|
-
|
|
Unallocated
|
|
|
3
|
|
|
|
556
|
|
Total capital expenditures
|
|
$
|
1,984
|
|
|
$
|
3,275
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and impairment:
|
|
|
|
|
|
|
|
|
Strong Cinema
|
|
$
|
892
|
|
|
$
|
912
|
|
Convergent
|
|
|
2,904
|
|
|
|
1,000
|
|
Strong Outdoor
|
|
|
267
|
|
|
|
-
|
|
Unallocated
|
|
|
1,091
|
|
|
|
269
|
|
Total depreciation, amortization and impairment
|
|
$
|
5,154
|
|
|
$
|
2,181
|
|
|
|
December 31,
|
|
(In thousands)
|
|
|
2018
|
|
|
|
2017
|
|
Identifiable assets
|
|
|
|
|
|
|
|
|
Strong Cinema
|
|
$
|
27,009
|
|
|
$
|
27,358
|
|
Convergent
|
|
|
14,024
|
|
|
|
13,603
|
|
Strong Outdoor
|
|
|
3,454
|
|
|
|
-
|
|
Corporate assets
|
|
|
15,150
|
|
|
|
18,053
|
|
Total
|
|
$
|
59,637
|
|
|
$
|
59,014
|
|
Summary
by Geographical Area
|
|
Year ended December 31,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
Net revenue
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
51,950
|
|
|
$
|
57,479
|
|
Canada
|
|
|
5,055
|
|
|
|
5,535
|
|
China
|
|
|
2,126
|
|
|
|
5,031
|
|
Mexico
|
|
|
2,910
|
|
|
|
1,736
|
|
Latin America
|
|
|
803
|
|
|
|
1,557
|
|
Europe
|
|
|
1,096
|
|
|
|
681
|
|
Asia (excluding China)
|
|
|
518
|
|
|
|
274
|
|
Other
|
|
|
231
|
|
|
|
353
|
|
Total
|
|
$
|
64,689
|
|
|
$
|
72,646
|
|
|
|
December 31,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
Identifiable assets
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
42,780
|
|
|
$
|
37,230
|
|
Canada
|
|
|
16,857
|
|
|
|
21,784
|
|
Total
|
|
$
|
59,637
|
|
|
$
|
59,014
|
|
Net
revenues by business segment are to unaffiliated customers, except to the extent of certain revenues from intersegment services
provided by the Strong Cinema segment to the Convergent 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.
17.
Related Party Transactions
Fundamental
Global Investors, LLC and certain of its affiliates (collectively, “FGI”) hold approximately 36.1% of the Company’s
outstanding shares of common stock as of December 31, 2018. 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’s
purchases of the equity securities that comprise its equity method investments were made in companies in which FGI has an ownership
interest. The independent members of the Board of Directors approved these purchases and the Company made no payments to FGI related
to these purchases. On September 9, 2018, the Company entered into an agreement with FGI where the Company sold 1,147,087 shares
of common stock of BKTI to FGI for a price of $3.95 per share and total proceeds of approximately $4.5 million. The per share
transaction price of $3.95 represented the immediately preceding closing price on the NYSE American stock exchange, and the transaction
was approved by the Company’s Audit Committee, comprised of only independent directors. See Note 6 for further information
on the Company’s equity method investments.