Notes
to the Condensed Consolidated Financial Statements
(Unaudited)
1.
Nature of Operations
Ballantyne
Strong, Inc. (“Ballantyne” or the “Company”), a Delaware corporation, is a holding company with diverse
business activities focused on serving the entertainment and retail markets. The Company, and its wholly owned subsidiaries Strong
Technical Services, Inc., Strong/MDI Screen Systems, Inc. (“Strong/MDI”), Convergent Media Systems Corporation (“Convergent”)
and Strong Digital Media, LLC (“SDM”) design, integrate and install technology solutions for a broad range of applications;
develop and deliver out-of-home messaging and communications; manufacture projection screens; and provide managed services including
monitoring of networked equipment to our customers.
In
August 2020, the Company completed the sale of its Strong Outdoor business segment. As a result of the divestiture, the Company
has presented Strong Outdoor’s operating results as a discontinued operation for all periods presented. See Note 3 for additional
details.
2.
Summary of Significant Accounting Policies
Basis
of Presentation and Principles of Consolidation
The
condensed consolidated financial statements include the accounts of the Company and all majority owned and controlled domestic
and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The
condensed consolidated financial statements included in this report are presented in accordance with the requirements of Form
10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the
United States of America (also referred to as “GAAP”) for annual reporting purposes or those made in the Company’s
Annual Report on Form 10-K. These condensed consolidated financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2019.
The
condensed consolidated balance sheet as of December 31, 2019 was derived from the Company’s audited consolidated balance
sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and, in the opinion
of management, reflect all adjustments of a normal recurring nature necessary to present a fair statement of the financial position
and the results of operations and cash flows for the respective interim periods. Certain prior period balances have been reclassified
to conform to current period presentation. The results for interim periods are not necessarily indicative of trends or results
expected for a full year.
Unless
otherwise indicated, all references to “dollars” and “$” in this Quarterly Report on Form 10-Q are to,
and amounts are presented in, U.S. dollars.
Use
of Management Estimates
The
preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
and changes in facts and circumstances may alter such estimates and affect results of operations and financial position in future
periods.
There
is significant ongoing uncertainty surrounding the COVID-19 global pandemic and the extent and duration of the impacts that it
may have on the Company, as well as its customers, suppliers, and employees. There is heightened potential for future reserves
against trade receivables, inventory write downs and impairments of long-lived assets, goodwill, intangible assets and investments.
In the current environment, assumptions about future financial and operational performance, supply chain pricing and availability
and customer creditworthiness have greater variability than normal, which could in the future significantly affect the valuation
of the Company’s assets, both financial and non-financial. As an understanding of the longer-term impacts of COVID-19 on
the Company’s customers and business develops, there is heightened potential for changes in these views over the remainder
of 2020, and potentially beyond.
Restricted
Cash
Restricted
cash represents amounts held in a collateral account for the Company’s corporate travel and purchasing credit card program.
Accounts
Receivable
Trade
accounts receivable are recorded at the invoiced amount and do not bear interest. The Company determines the allowance for doubtful
accounts based on several factors, including overall customer credit quality, historical write-off experience and a specific analysis
that projects the ultimate collectability of the account. As such, these factors may change over time causing the allowance level
and bad debt expense to be adjusted accordingly. Since many of Strong Entertainment’s customers have been negatively impacted
by COVID-19, the Company recorded $0.5 million of bad debt expense during the first nine months of 2020 as a result of the increased
uncertainty related to collection of trade accounts receivable from these customers.
Investments
The
Company applies the equity method of accounting to investments when it has 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 (loss)” in our condensed consolidated statements of operations.
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 condensed consolidated statements of cash flows. Investments in nonmarketable
unconsolidated entities in which the Company is not able to exercise significant influence (“Cost Method Investments”)
are accounted for at the Company’s initial cost, minus any impairment (if any), plus or minus changes resulting from observable
price changes in orderly transactions for the identical or a similar investment of the same issuer. Dividends on cost method
investments received are recorded as income.
The
Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an
investment may not be recoverable. Management reviewed the underlying net assets of the investees as of September 30, 2020 and
determined that the Company’s proportionate economic interest in the investees indicate that the investments were not other
than temporarily impaired. The carrying value of our equity method and cost method investments is reported as “investments”
on the condensed consolidated balance sheets. Notes 3 and 7 contain additional information on our equity method and cost
method investments.
Fair
Value of Financial Instruments
Assets
and liabilities measured at fair value are categorized into a fair value hierarchy based upon the observability of inputs to the
valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants
would use in pricing the asset or liability, including assumptions about risk. The categorization within the valuation hierarchy
is based upon the lowest level of input that is significant to the fair value measurement. Financial assets and liabilities carried
at fair value are classified and disclosed in one of the following three categories:
|
●
|
Level
1 – inputs to the valuation techniques are quoted prices in active markets for identical assets or liabilities
|
|
●
|
Level
2 – inputs to the valuation techniques are other than quoted prices but are observable for the assets or liabilities,
either directly or indirectly
|
|
●
|
Level
3 – inputs to the valuation techniques are unobservable for the assets or liabilities
|
The
following tables present the Company’s financial assets measured at fair value based upon the level within the fair value
hierarchy in which the fair value measurements are classified, as of September 30, 2020 and December 31, 2019.
Fair
values measured on a recurring basis at September 30, 2020 (in thousands):
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
7,026
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,026
|
|
Restricted cash
|
|
|
352
|
|
|
|
-
|
|
|
|
-
|
|
|
|
352
|
|
Notes receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
7,378
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,378
|
|
Fair
values measured on a recurring basis at December 31, 2019 (in thousands):
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
4,951
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,951
|
|
Restricted cash
|
|
|
351
|
|
|
|
-
|
|
|
|
-
|
|
|
|
351
|
|
Notes receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
5,302
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,302
|
|
The
following table reconciles the beginning and ending balance of the Company’s notes receivable at fair value (in thousands):
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Notes receivable balance, beginning of period
|
|
$
|
-
|
|
|
$
|
3,965
|
|
Fair value adjustment
|
|
|
-
|
|
|
|
(2,153
|
)
|
Notes receivable balance, end of period
|
|
$
|
-
|
|
|
$
|
1,812
|
|
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%. In connection with this transaction, the
Company also entered into an agreement with one of its customers, pursuant to which the Company is obligated to provide up to
$1.1 million of credits against any amounts due to the Company from the customer based on cash collected on the notes receivable.
In the event the Company does not have any outstanding balances due from the customer, the Company would be obligated to remit
up to the first $1.1 million collected on the notes receivable directly to the customer.
The
notes receivable are recorded at estimated fair value. The significant unobservable inputs used in the fair value measurement
of the Company’s notes receivable are the discount rate and percentage of default. Significant increases (decreases) in
any of these inputs in isolation would result in significantly lower (higher) fair value measurements. Adjustments to the fair
value of the notes receivable are included in other (expense) income on the Company’s condensed consolidated statements
of operations.
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 the year ended December 31, 2019, the Company adjusted the carrying value of the notes receivable to $0 based
on management’s review of the debtor’s financial statements and changes in the underlying trend of historical and
projected cash flows available to service the notes. The related $1.1 million contingent liability was also adjusted during the
year ended December 31, 2019, based on the Company’s expectation that cash flow from the notes receivable will not be available.
As of September 30, 2020, management estimated the fair value of the notes receivable to be $0.
The
Company’s short-term and long-term debt is recorded at historical cost. As of September 30, 2020, the Company’s long-term
debt, including current maturities, had a carrying value of $3.7 million. Based on discounted cash flows using current quoted
interest rates (Level 2 of the fair value hierarchy), the estimated fair value at September 30, 2020 was $3.4 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 condensed consolidated balance sheets equal or approximate their fair values due to the short-term
nature of these instruments. Note 7 includes fair value information related to our equity and cost method investments. 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). The
Company did not have any significant non-recurring measurements of non-financial assets or liabilities during the three and nine
months ended September 30, 2020 or 2019.
Recently
Adopted Accounting Pronouncements
In
August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2018-15, “Intangibles- Goodwill and Other- Internal Use Software (Topic 350): Customer’s Accounting for Implementation
Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” This ASU requires customers in a cloud computing
arrangement (i.e., hosting arrangement) that is a service contract to follow the internal use software guidance in ASC 350-40
to determine which implementation costs to capitalize or expense. The standard is effective for annual periods beginning after
December 15, 2019, and interim periods within those fiscal years. The adoption of the new standard on January 1, 2020 did not
have an impact on the Company’s consolidated financial statements and related disclosures.
In
August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the Disclosure
Requirements for Fair Value Measurement.” This ASU improves the effectiveness of fair value measurement disclosures by eliminating,
adding and modifying certain disclosure requirements for fair value measurements as part of its disclosure framework project.
Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair
value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant
unobservable inputs for Level 3 fair value measurements. The standard is effective for annual periods beginning after December
15, 2019, and interim periods within those fiscal years. The adoption of the new standard on January 1, 2020 did not have an impact
on the Company’s consolidated financial statements and related disclosures.
Recently
Issued Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments.” This ASU will require the measurement of all expected credit losses for financial assets,
including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and
supportable forecasts. The guidance was initially effective for the Company for annual reporting periods beginning after December
15, 2019 and interim periods within those fiscal years. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments
– Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates,” which,
among other things, defers the effective date of ASU 2016-13 for public filers that are considered smaller reporting companies
as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods
within those years. Early adoption is permitted. The Company believes the adoption of this ASU will not significantly impact its
results of operations and financial position.
In
December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.”
This ASU removes certain exceptions for investments, intraperiod allocations and interim tax calculations and adds guidance to
reduce complexity in accounting for income taxes. The effective date of the standard will be for annual periods beginning after
December 15, 2020, with early adoption permitted. The various amendments in the standard are applied on a retrospective basis,
modified retrospective basis and prospective basis, depending on the amendment. The Company is currently evaluating the new guidance
to determine the impact it may have on its consolidated financial statements.
In
January 2020, the FASB issued ASU 2020-01, “Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815.”
This ASU clarifies the interaction between accounting standards related to equity securities, equity method investments and certain
derivatives. The effective date of the standard will be for annual periods beginning after December 15, 2020, and interim periods
within those fiscal years. The Company is currently evaluating the impact of the adoption of the new standard on its condensed
consolidated financial statements and related disclosures.
In
April 2020, the FASB issued a question-and-answer document to address stakeholder questions on the application of the lease accounting
guidance for lease concessions related to the effects of the COVID-19 pandemic. The guidance will allow concessions related to
the timing of payments, where the total consideration has not changed, to not be accounted for as lease modifications. Instead,
any such concessions can be accounted for as if no change was made to the contract or as variable lease payments. As a result
of the COVID-19 pandemic, the Company received certain lease concessions in the form of rent deferrals during 2020. The Company
chose to implement the policy election provided by the FASB to record rent concessions as if no modifications to leases contracts
were made, and thus no changes to the lease obligations were recorded in respect to these concessions. As of September 30, 2020,
the Company had outstanding deferred rent of $0.1 million, the majority of which will be paid over the remaining term of the leases.
3.
Discontinued Operations
As
part of transactions in May 2019 and August 2020, the Company divested its Strong Outdoor business segment. The Company’s
Strong Outdoor business segment provided outdoor advertising and experiential marketing to advertising agencies and corporate
accounts, primarily in New York City.
On
May 21, 2019, SDM entered into a Taxicab Advertising Collaboration Agreement (the “Commercial Agreement”) and a Unit
Purchase Agreement (the “Unit Purchase Agreement”) with Firefly Systems, Inc. (“Firefly”), pursuant to
which SDM agreed to make available to Firefly 300 digital taxi tops and the parties agreed to coordinate the fulfilling of SDM’s
agreements with the Metropolitan Taxicab Board of Trade, Inc. (“MTBOT”) and Creative Mobile Media, LLC (“CMM”),
each dated February 8, 2018. Firefly agreed to fulfill the digital taxi top advertising obligations under the MTBOT agreement
and CMM agreement, and SDM agreed to fulfill the non-digital taxi top advertising obligations under the MTBOT agreement and CMM
agreement. The Company is a party to the Unit Purchase Agreement and agreed to guarantee the payment obligations of SDM under
the Commercial Agreement. As consideration for entering into these agreements, the Company received $4.8 million of Firefly’s
Series A-2 preferred shares (“Firefly Shares”). The Firefly Shares, including those subsequently issued pursuant to
an earn-out provision, were subject to a repurchase option for a period of three years to cover SDM’s indemnity obligations
and other post-closing covenants under the Commercial Agreement and the Unit Purchase Agreement. As part of the Asset Purchase
Agreement (as defined and described below), Firefly no longer has an option to repurchase any of the Series A-2 preferred shares
issued to SDM.
The
300 digital tops the Company has made available to Firefly are subject to a master equipment lease agreement the Company entered
into during 2017. Pursuant to the master lease agreement and the Unit Purchase Agreement, the Company will remain the primary
obligor until such time as the lease expires. In addition, of the $4.8 million of Firefly Shares received, $1.2 million were eligible
for repurchase by Firefly if the Company did not exercise the purchase option contained within the master lease agreement. Accordingly,
the Company had deferred recognizing an investment related to these Firefly Shares eligible for repurchase until such time it
was reasonably certain the Company would exercise the purchase option. The transaction, in effect, transferred control of the
underlying asset to Firefly. As additional consideration for the right to use the digital taxi tops, Firefly agreed to pay for
certain of Company’s operating expenses associated with the non-digital taxi tops. The Company concluded the payments that
Firefly made on its behalf were considered variable payments and were not included in the calculation of the selling profit. Therefore,
the Company recorded the benefit and the related operating expenses in the period when the changes in facts and circumstances
on which the variable lease payments were based occured. As part of the Asset Purchase Agreement (as defined and described below)
the Taxicab Advertising Collaboration Agreement dated May 21, 2019 was terminated, which relieved the Company of its obligation
to exercise the purchase option contained within the master lease agreement. As a result, the Company recognized an additional
$1.2 million investment at September 30, 2020 related to the Firefly Shares that were previously eligible for repurchase
by Firefly.
The
Unit Purchase Agreement contained an earnout provision pursuant to which SDM obtained additional Firefly Shares. The earnout period
was from May 22, 2019 through June 30, 2020. SDM was eligible to earn additional Firefly Shares equivalent to the cash collections
under certain digital top contracts that were in place at the closing of the transaction. The Company received the shares earned
pursuant to the earnout provision on August 3, 2020. In connection with the additional Firefly Shares that were received, the
Company recorded an additional $0.1 million and $0.7 million gain on the Firefly transaction during the three and nine months
ended September 30, 2020, respectively.
On
August 3, 2020, SDM entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Firefly, pursuant
to which SDM agreed to sell substantially all of the assets primarily related to its Strong Outdoor operating business to Firefly
and continue to make available 300 digital taxi tops to Firefly. SDM retained certain accounts receivable as well as liabilities
other than executory obligations under transferred contracts to the extent such liabilities are required to be performed following
closing or constitute certain deferred revenue. The transaction closed on the same day.
As
consideration for entering into the Asset Purchase Agreement, SDM received approximately $0.6 million in cash consideration and
approximately $3.2 million of Firefly’s Series A-3 preferred shares. In connection with the closing of the transactions
contemplated by the Asset Purchase Agreement, (i) SDM received approximately $1.1 million of Firefly’s Series A-2 preferred
shares, which constituted the remaining shares to be issued pursuant to the Unit Purchase Agreement, (ii) Firefly no longer has
an option to repurchase any of the Series A-2 preferred shares issued to SDM, (iii) accounts payable to Firefly were cancelled
and forgiven, and (iv) the Taxicab Advertising Collaboration Agreement dated May 21, 2019 was terminated, which relieved the Company
of its obligation to exercise the purchase option contained within the master lease agreement. The Company recorded a gain of
approximately $5.3 million during the third quarter of 2020 as a result of the transaction. As of September 30, 2020, SDM
held approximately $5.7 million of Firefly Series A-2 preferred shares, which included the shares issued to SDM as part of the
May 2019 transaction.
As
contemplated by the Asset Purchase Agreement, the newly issued Series A-2 preferred shares of Firefly will be held by SDM, and
the previously issued Series A-2 preferred shares of Firefly held by Fundamental Global Venture Partners, LP (“FGVP”),
an investment fund managed by Fundamental Global Investors, LLC in which SDM is the sole limited partner, were transferred
to SDM. The Asset Purchase Agreement includes customary representations and warranties. SDM is indemnifying Firefly for excluded
liabilities related to the transferred business.
Convergent
entered into a Master Services Agreement (the “Master Services Agreement”) with Firefly, pursuant to which Convergent
agreed to provide certain support services to Firefly, including remote equipment monitoring and diagnostics of screens until
no later than December 31, 2022 and transition advertising instruction and integration services, content management services,
ad-hoc reporting and analysis, wireless service, advertising content management services, and mapping data until no later than
six months from closing. As consideration for entering into the Master Services Agreement, Convergent received $2.0 million in
cash consideration.
The
components of the gain on the sale of the Strong Outdoor business to Firefly during the three months ended September 30, 2020
are as follows (in thousands):
Firefly Series A-3 preferred shares received
|
|
$
|
3,200
|
|
Cash received
|
|
|
571
|
|
Removal of Firefly's share repurchase option related to digital top lease
|
|
|
1,171
|
|
Forgiven accounts payable to Firefly
|
|
|
739
|
|
Book value of liabilities transferred to Firefly
|
|
|
191
|
|
Book value of assets transferred to Firefly
|
|
|
(608
|
)
|
Net gain from sale of discontinued operations
|
|
$
|
5,264
|
|
The
major line items constituting the net income (loss) from discontinued operations are as follows (in thousands):
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net revenues
|
|
$
|
148
|
|
|
$
|
1,296
|
|
|
$
|
1,587
|
|
|
$
|
3,524
|
|
Cost of revenues
|
|
|
160
|
|
|
|
684
|
|
|
|
1,487
|
|
|
|
4,769
|
|
Gross profit
|
|
|
(12
|
)
|
|
|
612
|
|
|
|
100
|
|
|
|
(1,245
|
)
|
Selling and administrative expenses
|
|
|
515
|
|
|
|
733
|
|
|
|
1,498
|
|
|
|
1,725
|
|
Loss on disposal of assets
|
|
|
(64
|
)
|
|
|
-
|
|
|
|
(64
|
)
|
|
|
(38
|
)
|
(Loss) income from operations
|
|
|
(591
|
)
|
|
|
(121
|
)
|
|
|
(1,462
|
)
|
|
|
(3,008
|
)
|
Other income (expense)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
(Loss) income from discontinued operations
|
|
|
(591
|
)
|
|
|
(121
|
)
|
|
|
(1,462
|
)
|
|
|
(3,008
|
)
|
Gain on Firefly transaction
|
|
|
5,264
|
|
|
|
(2
|
)
|
|
|
5,966
|
|
|
|
218
|
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total net income (loss) from discontinued operations
|
|
$
|
4,673
|
|
|
$
|
(123
|
)
|
|
$
|
4,504
|
|
|
$
|
(2,790
|
)
|
Strong
Outdoor’s assets and liabilities are reflected as assets and liabilities of discontinued operations for all periods presented.
The major classes of assets and liabilities included as part of discontinued operations are as follows (in thousands):
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Accounts receivable
|
|
$
|
-
|
|
|
$
|
-
|
|
Other
current assets
|
|
|
-
|
|
|
|
320
|
|
Total
current assets of discontinued operations
|
|
|
-
|
|
|
|
320
|
|
Property, plant and
equipment
|
|
|
-
|
|
|
|
491
|
|
Other
long-term assets
|
|
|
-
|
|
|
|
94
|
|
Total
long-term assets of discontinued operations
|
|
|
-
|
|
|
|
585
|
|
Total
assets of discontinued operations
|
|
$
|
-
|
|
|
$
|
905
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
-
|
|
|
$
|
304
|
|
Current portion of
operating lease obligation
|
|
|
-
|
|
|
|
125
|
|
Deferred
revenue and customer deposits
|
|
|
-
|
|
|
|
275
|
|
Total
current liabilities of discontinued operations
|
|
|
-
|
|
|
|
704
|
|
Operating
lease obligation, net of current portion
|
|
|
-
|
|
|
|
147
|
|
Total
long-term liabilities of discontinued operations
|
|
|
-
|
|
|
|
147
|
|
Total
liabilities of discontinued operations
|
|
$
|
-
|
|
|
$
|
851
|
|
4.
Revenue
The
Company accounts for revenue using the following steps:
|
●
|
Identify
the contract, or contracts, with a customer;
|
|
●
|
Identify
the performance obligations in the contract;
|
|
●
|
Determine
the transaction price;
|
|
●
|
Allocate
the transaction price to the identified performance obligations; and
|
|
●
|
Recognize
revenue when, or as, the Company satisfies the performance obligations.
|
The
Company combines contracts with the same customer into a single contract for accounting purposes when the contracts are entered
into at or near the same time and the contracts are negotiated as a single commercial package, consideration in one contract depends
on the other contract, or the services are considered a single performance obligation. If an arrangement involves multiple performance
obligations, the items are analyzed to determine 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 or when the uncertainty associated with the variable consideration
is subsequently resolved. The Company considers the sensitivity of the estimate, its relationship and experience with the client
and variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to
the overall arrangement.
As
discussed in more detail below, revenue is recognized when a customer obtains control of promised goods or services under the
terms of a contract and is measured as the amount of consideration the Company expects to receive in exchange for transferring
goods or providing services. The Company 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 invoices 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.
The
Company defers costs to acquire contracts, including commissions, incentives and payroll taxes, if they are incremental and recoverable
costs of obtaining a customer contract with a term exceeding one year. Deferred contract costs are reported within other assets
and amortized to selling expense over the contract term, which generally ranges from one to five years. The Company has elected
to recognize the incremental costs of obtaining a contract with a term of less than one year as a selling expense when incurred.
The Company did not have any deferred contract costs as of September 30, 2020 or December 31, 2019.
The
following tables disaggregate the Company’s revenue by major source and by operating segment for the three and nine months
ended September 30, 2020 (in thousands):
|
|
Three Months Ended September 30, 2020
|
|
|
|
Strong Entertainment
|
|
|
Convergent
|
|
|
Other
|
|
|
Total
|
|
Screen system sales
|
|
$
|
1,631
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,631
|
|
Digital equipment sales
|
|
|
2,192
|
|
|
|
322
|
|
|
|
-
|
|
|
|
2,514
|
|
Extended warranty sales
|
|
|
110
|
|
|
|
-
|
|
|
|
-
|
|
|
|
110
|
|
Other product sales
|
|
|
205
|
|
|
|
-
|
|
|
|
-
|
|
|
|
205
|
|
Total product sales
|
|
|
4,138
|
|
|
|
322
|
|
|
|
-
|
|
|
|
4,460
|
|
Field maintenance and monitoring services
|
|
|
875
|
|
|
|
3,808
|
|
|
|
-
|
|
|
|
4,683
|
|
Installation services
|
|
|
186
|
|
|
|
216
|
|
|
|
-
|
|
|
|
402
|
|
Other service revenues
|
|
|
61
|
|
|
|
-
|
|
|
|
301
|
|
|
|
362
|
|
Total service revenues
|
|
|
1,122
|
|
|
|
4,024
|
|
|
|
301
|
|
|
|
5,447
|
|
Total
|
|
$
|
5,260
|
|
|
$
|
4,346
|
|
|
$
|
301
|
|
|
$
|
9,907
|
|
|
|
Nine Months Ended September 30, 2020
|
|
|
|
Strong Entertainment
|
|
|
Convergent
|
|
|
Other
|
|
|
Total
|
|
Screen system sales
|
|
$
|
5,566
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,566
|
|
Digital equipment sales
|
|
|
4,529
|
|
|
|
1,725
|
|
|
|
-
|
|
|
|
6,254
|
|
Extended warranty sales
|
|
|
418
|
|
|
|
-
|
|
|
|
-
|
|
|
|
418
|
|
Other product sales
|
|
|
857
|
|
|
|
-
|
|
|
|
-
|
|
|
|
857
|
|
Total product sales
|
|
|
11,370
|
|
|
|
1,725
|
|
|
|
-
|
|
|
|
13,095
|
|
Field maintenance and monitoring services
|
|
|
3,030
|
|
|
|
10,517
|
|
|
|
-
|
|
|
|
13,547
|
|
Installation services
|
|
|
518
|
|
|
|
694
|
|
|
|
-
|
|
|
|
1,212
|
|
Other service revenues
|
|
|
123
|
|
|
|
18
|
|
|
|
493
|
|
|
|
634
|
|
Total service revenues
|
|
|
3,671
|
|
|
|
11,229
|
|
|
|
493
|
|
|
|
15,393
|
|
Total
|
|
$
|
15,041
|
|
|
$
|
12,954
|
|
|
$
|
493
|
|
|
$
|
28,488
|
|
The
following tables disaggregate the Company’s revenue by major source and by operating segment for the three and nine months
ended September 30, 2019 (in thousands):
|
|
Three Months Ended September 30, 2019
|
|
|
|
Strong Entertainment
|
|
|
Convergent
|
|
|
Other
|
|
|
Total
|
|
Screen system sales
|
|
$
|
4,441
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,441
|
|
Digital equipment sales
|
|
|
3,282
|
|
|
|
757
|
|
|
|
-
|
|
|
|
4,039
|
|
Extended warranty sales
|
|
|
197
|
|
|
|
-
|
|
|
|
-
|
|
|
|
197
|
|
Other product sales
|
|
|
515
|
|
|
|
-
|
|
|
|
-
|
|
|
|
515
|
|
Total product sales
|
|
|
8,435
|
|
|
|
757
|
|
|
|
-
|
|
|
|
9,192
|
|
Field maintenance and monitoring services
|
|
|
1,972
|
|
|
|
3,145
|
|
|
|
-
|
|
|
|
5,117
|
|
Installation services
|
|
|
473
|
|
|
|
611
|
|
|
|
-
|
|
|
|
1,084
|
|
Other service revenues
|
|
|
48
|
|
|
|
19
|
|
|
|
90
|
|
|
|
157
|
|
Total service revenues
|
|
|
2,493
|
|
|
|
3,775
|
|
|
|
90
|
|
|
|
6,358
|
|
Total
|
|
$
|
10,928
|
|
|
$
|
4,532
|
|
|
$
|
90
|
|
|
$
|
15,550
|
|
|
|
Nine Months Ended September 30, 2019
|
|
|
|
Strong Entertainment
|
|
|
Convergent
|
|
|
Other
|
|
|
Total
|
|
Screen system sales
|
|
$
|
10,370
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,370
|
|
Digital equipment sales
|
|
|
6,396
|
|
|
|
2,248
|
|
|
|
-
|
|
|
|
8,644
|
|
Extended warranty sales
|
|
|
582
|
|
|
|
-
|
|
|
|
-
|
|
|
|
582
|
|
Other product sales
|
|
|
1,238
|
|
|
|
6
|
|
|
|
-
|
|
|
|
1,244
|
|
Total product sales
|
|
|
18,586
|
|
|
|
2,254
|
|
|
|
-
|
|
|
|
20,840
|
|
Field maintenance and monitoring services
|
|
|
6,060
|
|
|
|
8,704
|
|
|
|
-
|
|
|
|
14,764
|
|
Installation services
|
|
|
1,540
|
|
|
|
4,194
|
|
|
|
-
|
|
|
|
5,734
|
|
Other service revenues
|
|
|
219
|
|
|
|
52
|
|
|
|
288
|
|
|
|
559
|
|
Total service revenues
|
|
|
7,819
|
|
|
|
12,950
|
|
|
|
288
|
|
|
|
21,057
|
|
Total
|
|
$
|
26,405
|
|
|
$
|
15,204
|
|
|
$
|
288
|
|
|
$
|
41,897
|
|
Screen
system sales
The
Company typically recognizes revenue on the sale of its screen systems when control of the screen is transferred to the customer,
usually at time of shipment. However, revenue is recognized upon delivery for certain international shipments with longer shipping
transit time because control does not transfer to the customer until delivery. For contracts that are long-term in nature, the
Company believes that the use of the percentage-of-completion method is appropriate as the Company has the ability to make reasonably
dependable estimates of the extent of progress towards completion, contract revenues, and contract costs. Under the percentage-of-completion
method, revenue is recorded based on the ratio of actual costs incurred to total estimated costs expected to be incurred related
to the contract. 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.
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 Entertainment and Convergent customers.
In the Strong Entertainment 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 related to service contracts is recognized ratably over the term of
the agreement.
The
Company also performs discrete time and materials-based maintenance and repair work for customers in the Strong Entertainment
and Convergent segments. Revenue related to time and materials-based maintenance and repair work is recognized at the point in
time when the performance obligation has been fully satisfied.
Installation
services
The
Company performs installation services for both its Strong Entertainment and Convergent customers and recognizes revenue upon
completion of the installations.
Extended
warranty sales
The
Company sells extended warranties to its Strong Entertainment customers. When the Company is the primary obligor, revenue is recognized
on a gross basis ratably over the term of 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.
Timing
of Revenue Recognition
The
following tables disaggregate the Company’s revenue by the timing of transfer of goods or services to the customer for the
three and nine months ended September 30, 2020 (in thousands):
|
|
Three Months Ended September 30, 2020
|
|
|
|
Strong Entertainment
|
|
|
Convergent
|
|
|
Other
|
|
|
Total
|
|
Point in time
|
|
$
|
4,532
|
|
|
$
|
767
|
|
|
$
|
-
|
|
|
$
|
5,299
|
|
Over time
|
|
|
728
|
|
|
|
3,579
|
|
|
|
301
|
|
|
|
4,608
|
|
Total
|
|
$
|
5,260
|
|
|
$
|
4,346
|
|
|
$
|
301
|
|
|
$
|
9,907
|
|
|
|
Nine Months Ended September 30, 2020
|
|
|
|
Strong Entertainment
|
|
|
Convergent
|
|
|
Other
|
|
|
Total
|
|
Point in time
|
|
$
|
12,326
|
|
|
$
|
2,987
|
|
|
$
|
6
|
|
|
$
|
15,319
|
|
Over time
|
|
|
2,715
|
|
|
|
9,967
|
|
|
|
487
|
|
|
|
13,169
|
|
Total
|
|
$
|
15,041
|
|
|
$
|
12,954
|
|
|
$
|
493
|
|
|
$
|
28,488
|
|
The
following tables disaggregate the Company’s revenue by the timing of transfer of goods or services to the customer for the
three and nine months ended September 30, 2019 (in thousands):
|
|
Three Months Ended September 30, 2019
|
|
|
|
Strong Entertainment
|
|
|
Convergent
|
|
|
Other
|
|
|
Total
|
|
Point in time
|
|
$
|
9,364
|
|
|
$
|
1,518
|
|
|
$
|
-
|
|
|
$
|
10,882
|
|
Over time
|
|
|
1,564
|
|
|
|
3,014
|
|
|
|
90
|
|
|
|
4,668
|
|
Total
|
|
$
|
10,928
|
|
|
$
|
4,532
|
|
|
$
|
90
|
|
|
$
|
15,550
|
|
|
|
Nine Months Ended September 30, 2019
|
|
|
|
Strong Entertainment
|
|
|
Convergent
|
|
|
Other
|
|
|
Total
|
|
Point in time
|
|
$
|
21,746
|
|
|
$
|
6,918
|
|
|
$
|
-
|
|
|
$
|
28,664
|
|
Over time
|
|
|
4,659
|
|
|
|
8,286
|
|
|
|
288
|
|
|
|
13,233
|
|
Total
|
|
$
|
26,405
|
|
|
$
|
15,204
|
|
|
$
|
288
|
|
|
$
|
41,897
|
|
At
September 30, 2020, the unearned revenue amount associated with maintenance and monitoring services, extended warranty sales and
advertising services in which the Company is the primary obligor, was $2.9 million. The Company expects to recognize $1.4 million
of unearned revenue amounts throughout the rest of 2020, $0.8 million during 2021 and $0.7 million during 2022.
5.
Income (Loss) Per Common Share
Basic
income (loss) per share has been computed on the basis of the weighted average number of shares of common stock outstanding. Diluted
net income per share has been calculated using the weighted-average number of shares of common stock outstanding and potentially
dilutive during the period, using the treasury stock method. Diluted loss 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 and restricted stock units. However, because the Company reported losses from
continuing operations for the nine months ended September 30, 2020 and the three and nine months ended September 30, 2019,
there were no differences between average shares used to compute basic and diluted loss per share. The following table summarizes
the weighted average shares used to compute basic and diluted income (loss) per share (in thousands):
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
14,789
|
|
|
|
14,494
|
|
|
|
14,699
|
|
|
|
14,476
|
|
Dilutive effect of stock options and certain non-vested restricted stock units
|
|
|
117
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Diluted weighted average shares outstanding
|
|
|
14,906
|
|
|
|
14,494
|
|
|
|
14,699
|
|
|
|
14,476
|
|
Options
to purchase 884,500 and 772,000 shares of common stock were outstanding as of September 30, 2020 and September 30, 2019, respectively,
but were not included in the computation of diluted loss per share as the options’ exercise prices were greater than the
average market price of the common shares for each period. An additional 165,206 and 146,461 common stock equivalents related
to options and restricted stock awards were excluded for the three and nine months ended September 30, 2019, respectively, as
their inclusion would be anti-dilutive, thereby decreasing the net losses per share.
6.
Inventories
Inventories
consist of the following (in thousands):
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Raw materials and components
|
|
$
|
1,632
|
|
|
$
|
1,584
|
|
Work in process
|
|
|
269
|
|
|
|
211
|
|
Finished goods
|
|
|
915
|
|
|
|
1,084
|
|
|
|
$
|
2,816
|
|
|
$
|
2,879
|
|
The
inventory balances are net of reserves of approximately $0.7 million and $0.9 million as of September 30, 2020 and December 31,
2019, respectively.
7.
Investments
The
following summarizes our investments (dollars in thousands):
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
|
Carrying Amount
|
|
|
Economic Interest
|
|
|
Carrying Amount
|
|
|
Economic Interest
|
|
Equity Method Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1347 Property Insurance Holdings, Inc.
|
|
$
|
6,379
|
|
|
|
21.0
|
%
|
|
$
|
6,897
|
|
|
|
17.2
|
%
|
Itasca Capital Ltd.
|
|
|
2,729
|
|
|
|
32.3
|
%
|
|
|
2,800
|
|
|
|
32.3
|
%
|
Total Equity Method Investments
|
|
|
9,108
|
|
|
|
|
|
|
|
9,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost Method Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Firefly Systems, Inc.
|
|
|
12,898
|
|
|
|
|
|
|
|
3,614
|
|
|
|
|
|
Total Investments
|
|
$
|
22,006
|
|
|
|
|
|
|
$
|
13,311
|
|
|
|
|
|
Equity
Method Investments
The
following summarizes the (loss) income of equity method investees reflected in the condensed consolidated statements of operations
(in thousands):
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Entity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1347 Property Insurance Holdings, Inc.
|
|
$
|
(440
|
)
|
|
$
|
(783
|
)
|
|
$
|
(443
|
)
|
|
$
|
(622
|
)
|
Itasca Capital Ltd.
|
|
|
(20
|
)
|
|
|
287
|
|
|
|
(137
|
)
|
|
|
(601
|
)
|
Total
|
|
$
|
(460
|
)
|
|
$
|
(496
|
)
|
|
$
|
(580
|
)
|
|
$
|
(1,223
|
)
|
1347 Property Insurance
Holdings, Inc. (“PIH”) is a publicly traded company that is implementing business plans to operate as a diversified
holding company of insurance, reinsurance and investment management businesses. On September 15, 2020, PIH entered into an
agreement pursuant to which PIH purchased 1.1 million shares of its outstanding common stock from an existing shareholder. The
purchase of the 1.1 million shares decreased the number of outstanding shares of PIH and increased the Company’s ownership
interest to approximately 21%. The Company’s Chairman and former Chief Executive Officer is the chairman of the board
of directors of PIH, and the Company’s Co-Chairman is co-chairman of the board of directors of PIH. As of September 30,
2020, they controlled entities that, when combined with the Company’s ownership in PIH, own greater than 50% of PIH. Since
PIH does not depend on the Company for continuing financial support to maintain operations, the Company has determined that PIH
is not a variable interest entity, and therefore, the Company is not required to consolidate PIH. The equity method loss from
PIH during the three and nine months ended September 30, 2020 was primarily the result of PIH’s non-cash losses associated
with the change in fair value of its investment in the common stock of FedNat Holding Company (Nasdaq: FNHC). The Company did
not receive dividends from PIH during the three and nine months ended September 30, 2020 or 2019. Based on quoted market prices,
the market value of the Company’s ownership in PIH was $4.0 million at September 30, 2020.
Itasca
Capital Ltd. (“Itasca”) is a publicly traded Canadian company that is an investment vehicle seeking transformative
strategic investments. The Company’s Chairman and former Chief Executive Officer is chairman of the board of directors of
Itasca, and the Company’s Co-Chairman is also a member of the board of directors of Itasca. These board seats, 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 during the three and nine months ended September 30, 2020 or 2019.
Based on quoted market prices, the market value of the Company’s ownership in Itasca was $3.4 million at September 30, 2020.
As
of September 30, 2020, the Company’s retained earnings included an accumulated deficit from its equity method investees
of approximately $1.9 million.
The
summarized financial information presented below reflects the financial information of the Company’s equity method investees
for the nine months ended June 30, 2020 and 2019, consistent with the Company’s recognition of the results of its equity
method investments on a one-quarter lag (in thousands):
For the nine months ended June 30,
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Revenue (1)
|
|
$
|
(4,883
|
)
|
|
$
|
1,086
|
|
Operating (loss) income
|
|
$
|
(7,845
|
)
|
|
$
|
898
|
|
Net loss
|
|
$
|
(3,020
|
)
|
|
$
|
(5,489
|
)
|
(1) PIH records realized and unrealized gains and losses on investments in net investment income (loss), which is included in the revenue line above.
Cost
Method Investment
The
Company received preferred shares of Firefly in connection with the transactions with Firefly in May 2019 and August 2020. See
Note 3 for additional details. In addition, on August 3, 2020, Strong/MDI entered into a Stock Purchase Agreement (the “Stock
Purchase Agreement”) with Firefly, pursuant to which MDI agreed to purchase $4.0 million of Firefly’s Series A-3 preferred
shares at the initial closing, which took place on the same day, and the Company or its affiliated entities may purchase an additional
$2.0 million of Firefly’s Series A-3 preferred shares at a second closing subject to certain conditions. As contemplated
by the Stock Purchase Agreement and ancillary investment agreements, the Company and its affiliated entities will have the right
to designate a director to be elected to the board of directors of Firefly, subject to holding, together with its affiliates,
approximately $7.2 million of Firefly’s Series A-3 preferred shares and other conditions. The Company and its affiliated
entities currently hold $7.2 million of Series A-3 preferred shares and have designated Kyle Cerminara, Chairman of the Company’s
board of directors and a principal of the Company’s largest shareholder, to Firefly’s board of directors.
8.
Intangible Assets
Intangible
assets consisted of the following as of September 30, 2020 (dollars in thousands):
|
|
Useful life
|
|
|
Gross
|
|
|
Accumulated Amortization
|
|
|
Net
|
|
|
|
(Years)
|
|
|
|
|
|
|
|
|
|
|
Intangible assets not yet subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software in development
|
|
|
|
|
$
|
250
|
|
|
$
|
-
|
|
|
$
|
250
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software in service
|
|
5
|
|
|
|
2,404
|
|
|
|
(1,478
|
)
|
|
|
926
|
|
Product formulation
|
|
10
|
|
|
|
458
|
|
|
|
(420
|
)
|
|
|
38
|
|
Total
|
|
|
|
|
$
|
3,112
|
|
|
$
|
(1,898
|
)
|
|
$
|
1,214
|
|
Intangible
assets consisted of the following as of December 31, 2019 (dollars in thousands):
|
|
Useful life
|
|
|
Gross
|
|
|
Accumulated Amortization
|
|
|
Net
|
|
|
|
(Years)
|
|
|
|
|
|
|
|
|
|
|
Intangible assets not yet subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software in development
|
|
|
|
|
$
|
203
|
|
|
$
|
-
|
|
|
$
|
203
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software in service
|
|
5
|
|
|
|
2,362
|
|
|
|
(1,087
|
)
|
|
|
1,275
|
|
Product formulation
|
|
10
|
|
|
|
471
|
|
|
|
(415
|
)
|
|
|
56
|
|
Total
|
|
|
|
|
$
|
3,036
|
|
|
$
|
(1,502
|
)
|
|
$
|
1,534
|
|
Amortization
expense relating to intangible assets was $0.2 million during each of the three months ended September 30, 2020 and 2019 and $0.6
million during each of the nine months ended September 30, 2020 and 2019.
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):
Remainder of 2020
|
|
$
|
140
|
|
2021
|
|
|
523
|
|
2022
|
|
|
244
|
|
2023
|
|
|
57
|
|
2024
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
964
|
|
9.
Goodwill
The
following represents a summary of changes in the Company’s carrying amount of goodwill for the nine months ended September
30, 2020 (in thousands):
Balance as of December 31, 2019
|
|
$
|
919
|
|
Foreign currency translation adjustment
|
|
|
(24
|
)
|
Balance as of September 30, 2020
|
|
$
|
895
|
|
10.
Debt
The
Company’s debt consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands):
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Short-term debt:
|
|
|
|
|
|
|
|
|
Strong/MDI installment loan
|
|
$
|
2,830
|
|
|
$
|
3,080
|
|
Insurance note payable
|
|
|
142
|
|
|
|
-
|
|
Current portion of long-term debt
|
|
|
1,055
|
|
|
|
998
|
|
Total short-term debt
|
|
|
4,027
|
|
|
|
4,078
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
Equipment term loans
|
|
|
3,683
|
|
|
|
4,031
|
|
Total principal balance of long-term debt
|
|
|
3,683
|
|
|
|
4,031
|
|
Less: current portion
|
|
|
(1,055
|
)
|
|
|
(998
|
)
|
Less: unamortized debt issuance costs
|
|
|
(11
|
)
|
|
|
(14
|
)
|
Total long-term debt
|
|
|
2,617
|
|
|
|
3,019
|
|
Total short-term and long-term debt
|
|
$
|
6,644
|
|
|
$
|
7,097
|
|
Equipment
Term Loans
On
May 22, 2018, 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. In each of December 2018 and June
2019, Convergent entered into additional installment payment agreements with other financing companies in order to purchase additional
media players and related equipment, with each round of financing totaling approximately $0.6 million and $0.2 million, respectively.
Installment payments under each contract are due monthly for a period of 60 months. The financing under each of the agreements
is secured by the respective equipment. The borrowings under the agreements are recorded as long-term debt on the Company’s
consolidated balance sheet. Collectively, the Company had $3.7 million of outstanding borrowings under equipment term loan agreements
at September 30, 2020, which bore interest at a weighted-average fixed rate of 7.7%.
Strong/MDI
Installment Loan and Revolving Credit Facility
On
September 5, 2017, the Company’s Canadian subsidiary, Strong/MDI, entered into a demand credit agreement, as amended and
restated May 15, 2018, with a bank consisting of a revolving line of credit for up to 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 bear interest at the prime rate established by the lender. Amounts
outstanding under the installment loans bear interest at the lender’s prime rate plus 0.5% and are payable in monthly installments,
including interest, over their respective borrowing periods. The lender may also demand repayment of the installment loans at
any time. The Strong/MDI credit facilities are secured by a lien on Strong/MDI’s Quebec, Canada facility and substantially
all of Strong/MDI’s assets. The 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. On April 24, 2018, the Company borrowed CDN$3.5 million on the 20-year installment loan. There
was CDN$3.8 million, or approximately $2.8 million, of principal outstanding on the 20-year installment loan as of September 30,
2020, which bears variable interest at 2.95%. There was no balance outstanding on Strong/MDI’s revolving credit facility
as of September 30, 2020. Strong/MDI was in compliance with its debt covenants as of September 30, 2020.
Scheduled
repayments are as follows for the Company’s long-term debt outstanding as of September 30, 2020 (in thousands):
Remainder of 2020
|
|
$
|
257
|
|
2021
|
|
|
1,080
|
|
2022
|
|
|
1,151
|
|
2023
|
|
|
1,165
|
|
2024
|
|
|
30
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
3,683
|
|
Paycheck
Protection Program
On
April 14, 2020, the Company entered into a promissory note evidencing a loan of $3.2 million (the “Loan”) under the
U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) of the CARES Act. The Company
intended to use the Loan for qualifying payroll, rent and utility expenses in accordance with the terms of the CARES Act. At the
time the Company applied for the Loan, the Company believed it qualified to receive the funds pursuant to the PPP.
On
April 23, 2020, the SBA, in consultation with the Department of Treasury, issued new guidance that created additional uncertainty
regarding the qualification requirements for a PPP loan for public companies. The Company has less than 300 employees and continues
to be severely impacted by the disruption to the cinema, theme park and advertising industries as a result of COVID-19. However,
out of an abundance of caution and in light of the new guidance, the Company repaid the full amount of the Loan plus accrued interest
to the lender on May 5, 2020.
11.
Leases
The
Company and its subsidiaries lease plant and office facilities and equipment under operating and finance leases expiring through
2028. The Company determines if a contract is or contains a lease at inception or modification of a contract. A contract is or
contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration.
Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic
benefits from the use of the asset and (b) the right to direct the use of the asset.
Right-of-use
assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term
at commencement date. Certain of the leases contain extension options; however, the Company has not included such options as part
of its right-of-use assets and lease liabilities because it does not expect to extend the leases. The Company measures and records
a right-of-use asset and lease liability based on the discount rate implicit in the lease, if known. In cases where the discount
rate implicit in the lease is not known, the Company measures the right-of-use assets and lease liabilities using a discount rate
equal to the Company’s estimated incremental borrowing rate for loans with similar collateral and duration.
The
Company elected to not apply the recognition requirements of Topic 842 to leases of all classes of underlying assets that, at
the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that
the lessee is reasonably certain to exercise. Instead, lease payments for such short-term leases are recognized in profit or loss
on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments
is incurred.
The
Company elected, as a lessee, for all classes of underlying assets, to not separate nonlease components from lease components
and instead to account for each separate lease component and the nonlease components associated with that lease component as a
single lease component.
The
following tables present the Company’s lease costs and other lease information (dollars in thousands):
Lease cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2020
|
|
|
Three Months Ended
September 30, 2019
|
|
|
Nine Months Ended
September 30, 2020
|
|
|
Nine Months Ended
September
30, 2019
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
420
|
|
|
$
|
282
|
|
|
$
|
1,195
|
|
|
$
|
420
|
|
Interest on lease liabilities
|
|
|
154
|
|
|
|
142
|
|
|
|
473
|
|
|
|
184
|
|
Operating lease cost
|
|
|
372
|
|
|
|
421
|
|
|
|
1,163
|
|
|
|
1,751
|
|
Short-term lease cost
|
|
|
12
|
|
|
|
12
|
|
|
|
42
|
|
|
|
21
|
|
Sublease income
|
|
|
(92
|
)
|
|
|
(120
|
)
|
|
|
(297
|
)
|
|
|
(313
|
)
|
Net lease cost
|
|
$
|
866
|
|
|
$
|
737
|
|
|
$
|
2,576
|
|
|
$
|
2,063
|
|
Other information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2020
|
|
|
Three Months Ended
September 30, 2019
|
|
|
Nine Months Ended
September 30, 2020
|
|
|
Nine Months Ended
September
30, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from finance leases
|
|
$
|
154
|
|
|
$
|
142
|
|
|
$
|
473
|
|
|
$
|
184
|
|
Operating cash flows from operating leases
|
|
$
|
289
|
|
|
$
|
333
|
|
|
$
|
857
|
|
|
$
|
875
|
|
Financing cash flows from finance leases
|
|
$
|
420
|
|
|
$
|
282
|
|
|
$
|
1,195
|
|
|
$
|
420
|
|
Right-of-use assets obtained in exchange for new finance lease liabilities
|
|
$
|
231
|
|
|
$
|
902
|
|
|
$
|
553
|
|
|
$
|
1,613
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
109
|
|
|
$
|
644
|
|
Derecognition of right-of-use asset in connection with Firefly transaction
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,394
|
|
|
|
As of
September 30, 2020
|
|
Weighted-average remaining lease term - finance leases (years)
|
|
|
2.7
|
|
Weighted-average remaining lease term - operating leases (years)
|
|
|
7.1
|
|
Weighted-average discount rate - finance leases
|
|
|
12.1
|
%
|
Weighted-average discount rate - operating leases
|
|
|
4.9
|
%
|
The
following table presents a maturity analysis of the Company’s finance and operating lease liabilities as of September 30,
2020 (in thousands):
|
|
Operating Leases
|
|
|
Finance Leases
|
|
Remainder of 2020
|
|
$
|
253
|
|
|
$
|
580
|
|
2021
|
|
|
944
|
|
|
|
2,320
|
|
2022
|
|
|
812
|
|
|
|
2,114
|
|
2023
|
|
|
660
|
|
|
|
499
|
|
2024
|
|
|
669
|
|
|
|
235
|
|
Thereafter
|
|
|
2,447
|
|
|
|
75
|
|
Total lease payments
|
|
|
5,785
|
|
|
|
5,823
|
|
Less: Amount representing interest
|
|
|
(935
|
)
|
|
|
(892
|
)
|
Present value of lease payments
|
|
|
4,850
|
|
|
|
4,931
|
|
Less: Current maturities
|
|
|
(743
|
)
|
|
|
(1,820
|
)
|
Lease obligations, net of current portion
|
|
$
|
4,107
|
|
|
$
|
3,111
|
|
The
Company leases certain equipment to customers as a component of its Digital Signage as a Service (“DSaaS”) offering.
Under DSaaS, the Company provides support, maintenance and content management services in addition to the use of a media player
to the customer. The Company elected, as a lessor, for all classes of underlying assets, to not separate nonlease components from
lease components and, instead, to account for each separate lease component and the nonlease components associated with that lease
component as a single component if the nonlease components otherwise would be accounted for under Accounting Standards Codification
Topic 606 on revenue from contracts with customers, and both of the following conditions are met: 1) the timing and pattern of
transfer for the lease component and nonlease components associated with that lease component are the same and 2) the lease component,
if accounted for separately, would be classified as an operating lease in accordance with Topic 842. The combined component is
accounted for as a single performance obligation under Topic 606 if the nonlease component or components are the predominant component(s)
of the combined component. Otherwise, if the lease component is the predominant component, the combined component is accounted
for as an operating lease under ASC 842. In the case of the Company’s DSaaS contracts, the nonlease components are predominant;
therefore, revenue from DSaaS contracts is accounted for under Topic 606 and is included in net service revenues in the condensed
consolidated statements of operations.
12.
Income Taxes
In
assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income. The Company considers the scheduled reversal of taxable temporary differences, projected
future taxable income and tax planning strategies in making this assessment. A cumulative loss in a particular tax jurisdiction
in recent years is a significant piece of evidence with respect to the realizability that is difficult to overcome. Based on the
available objective evidence, including recent updates to the taxing jurisdictions generating income, the Company concluded that
a valuation allowance should be recorded against all of the Company’s U.S. tax jurisdiction deferred tax assets as of September
30, 2020 and December 31, 2019.
The
Tax Cuts and Jobs Act of 2017 provides for a territorial tax system, which began in 2018. It includes the global intangible low-taxed
income (“GILTI”) provision. The GILTI provisions require the Company to include in its U.S. income tax return foreign
subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. As a result of the GILTI
provisions, the Company’s inclusion of taxable income was incorporated into the overall net operating loss and valuation
allowance for the three and nine months ended September 30, 2020 and September 30, 2019, as well as December31, 2019.
Changes
in tax laws may affect recorded deferred tax assets and liabilities and the Company’s effective tax rate in the future.
On March 27, 2020, The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. The CARES
Act made significant changes to Federal tax laws, including certain changes that are retroactive to the prior year. The effects
of these changes relate to deferred tax assets and net operating losses; all of which are offset by valuation allowance.
The
Company is subject to possible examinations not yet initiated for Federal purposes for fiscal years 2016 through 2019. In most
cases, the Company is subject to possible examinations by state or local jurisdictions based on the particular jurisdiction’s
statute of limitations.
13.
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 was $0.2 million and
$0.3 million for the three months ended September 30, 2020 and 2019, respectively, and $0.7 million and $0.8 million for the nine
months ended September 30, 2020 and 2019, respectively.
The
Company’s 2017 Omnibus Equity Compensation Plan (“2017 Plan”) was approved by the Company’s stockholders
and provides the Compensation Committee of the Board of Directors with the discretion to grant stock options, stock appreciation
rights, restricted shares, restricted stock units, performance shares, performance units and other stock-based awards and cash-based
awards. Vesting terms vary with each grant and may be subject to vesting upon a “change in control” of the Company.
On December 17, 2019, the Company’s stockholders approved the amendment and restatement of the 2017 Plan to (i) increase
the number of shares of the Company’s common stock authorized for issuance under the 2017 Plan by 1,975,000 shares and (ii)
extend the expiration date of the 2017 Plan by approximately two years, until October 27, 2029. As of September 30, 2020, 2,589,278
shares were available for issuance under the amended and restated 2017 Plan.
Stock
Options
The
following table summarizes stock option activity for the nine months ended September 30, 2020:
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
Per Share
|
|
|
Weighted Average Remaining Contractual
Term (Years)
|
|
|
Aggregate Intrinsic Value
(in thousands)
|
|
Outstanding at December 31, 2019
|
|
|
1,107,000
|
|
|
$
|
4.47
|
|
|
|
7.9
|
|
|
$
|
148
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(100,500
|
)
|
|
|
4.76
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(122,000
|
)
|
|
|
5.27
|
|
|
|
|
|
|
|
|
|
Outstanding at Spetember 30, 2020
|
|
|
884,500
|
|
|
$
|
4.33
|
|
|
|
7.2
|
|
|
$
|
-
|
|
Exercisable at September 30, 2020
|
|
|
386,000
|
|
|
$
|
4.77
|
|
|
|
6.6
|
|
|
$
|
-
|
|
The
aggregate intrinsic value in the table above represents the total that would have been received by the option holders if all in-the-money
options had been exercised and sold on the date indicated.
As
of September 30, 2020, 498,500 stock option awards were non-vested. Unrecognized compensation cost related to non-vested stock
options was approximately $0.6 million, which is expected to be recognized over a weighted average period of 2.7 years.
Restricted
Stock Shares and Restricted Stock Units
The
Company granted a total of 200,634 and 417,378 restricted stock units during the nine months ended September 30, 2020 and 2019,
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
following table summarizes restricted stock share activity for the nine months ended September 30, 2020:
|
|
Number of Restricted
Stock Shares
|
|
|
Weighted Average Grant
Date Fair Value
|
|
Non-vested at December 31, 2019
|
|
|
23,334
|
|
|
$
|
6.50
|
|
Granted
|
|
|
-
|
|
|
|
|
|
Shares vested
|
|
|
(23,334
|
)
|
|
|
6.50
|
|
Shares forfeited
|
|
|
-
|
|
|
|
|
|
Non-vested at September 30, 2020
|
|
|
-
|
|
|
|
|
|
The
following table summarizes restricted stock unit activity for the nine months ended September 30, 2020:
|
|
Number of Restricted Stock Units
|
|
|
Weighted Average Grant
Date Fair Value
|
|
Non-vested at December 31, 2019
|
|
|
522,379
|
|
|
$
|
3.14
|
|
Granted
|
|
|
200,634
|
|
|
|
1.57
|
|
Shares vested
|
|
|
(174,954
|
)
|
|
|
2.73
|
|
Shares forfeited
|
|
|
(3,334
|
)
|
|
|
2.89
|
|
Non-vested at September 30, 2020
|
|
|
544,725
|
|
|
$
|
2.51
|
|
As
of September 30, 2020, the total unrecognized compensation cost related to non-vested restricted stock unit awards was approximately
$1.1 million, which is expected to be recognized over a weighted average period of 1.9 years.
14.
Commitments, Contingencies and Concentrations
Litigation
The
Company is involved, from time to time, in certain legal disputes in the ordinary course of business operations. No such disputes,
individually or in the aggregate, are expected to have a material effect on the Company’s business or financial condition.
Concentrations
The Company’s top
ten customers accounted for approximately 62% and 57% of consolidated net revenues during the three and nine months
ended September 30, 2020, respectively. Trade accounts receivable from these customers represented approximately 37% of
net consolidated receivables at September 30, 2020. In addition, the Company had one customer account for more than 10% of both
its consolidated net revenues during the three and nine months ended September 30, 2020. While the Company believes its relationships
with such customers are stable, most arrangements are made by purchase order and are terminable at will by either party. A significant
decrease or interruption in business from the Company’s significant customers could have a material adverse effect on the
Company’s business, financial condition and results of operations. The Company could also be adversely affected by such
factors as the impact of COVID-19 on its customers, changes in foreign currency rates and weak economic and political conditions
in each of the countries in which the Company sells its products.
Financial
instruments that potentially expose the Company to a concentration of credit risk principally consist of accounts receivable.
The Company sells product to a large number of customers in many different geographic regions. To minimize credit risk, the Company
performs ongoing credit evaluations of its customers’ financial condition.
Insurance
Recoveries
During
February 2019, one portion of Strong/MDI’s Quebec, Canada facility sustained damage as a result of inclement weather. The
Company has property and casualty and business interruption insurance and has been working with its insurance carrier with regard
to the insurance claims for reimbursement of incurred costs of the affected portion of the facility and compensation for the Company’s
business interruption losses. During the third quarter of 2020, the Company reached a settlement with its insurance company which
resolved all contingencies related to its business interruption claim.
Through
September 30, 2020, the Company has received insurance proceeds of $5.0 million, which included $2.0 million related to the property
and casualty claim and $3.0 million related to our business interruption claim. Any additional future claims payments associated
with the Company’s property and casualty losses are at the discretion of the insurance carrier based on its continuing claims
analysis.
The
Company received an additional $1.9 million during the third quarter of 2020 associated with the final settlement of the business
interruption claim, which combined with the $0.8 million of proceeds previously received and deferred, resulted in an insurance
recovery gain of approximately $2.7 million during the third quarter of 2020.
Consulting
Agreement
On
May 19, 2020, the Company entered into a Financial and Consulting Services Agreement (the “Itasca Financial Agreement”)
with Itasca Financial LLC (“Itasca Financial”), pursuant to which Itasca Financial agreed to advise the Company on
aspects of its strategic direction. In exchange for Itasca Financial’s services, the Company agreed to pay Itasca Financial
a retainer fee of $50,000, payable in two installments of $25,000, and a monthly fee of $20,000. The Itasca Financial Agreement
may not be terminated for a period of three months from May 19, 2020, after which time it may be terminated by either party at
any time with prior written notice of at least 30 calendar days. During the nine months ended September 30, 2020, the Company
paid $130,000 to Itasca Financial, and the parties have agreed to suspend the Itasca Financial Agreement indefinitely. Upon termination
of the Itasca Financial Agreement by either party, the Company has agreed to pay Itasca Financial a termination fee of $100,000,
which can be payable in a combination of cash and stock at the Company’s discretion, and if any such fee is paid in stock,
then the Company has agreed to grant Itasca Financial unlimited piggyback registration rights for such stock. The Itasca Financial
Agreement also includes expense reimbursement provisions and indemnification provisions in favor of Itasca Financial and its affiliates.
This description of the Itasca Financial Agreement is a summary only and is qualified by reference to full text of the Itasca
Financial Agreement, which is filed as Exhibit 10.4 to our Quarterly Report on Form 10-Q filed with the Commission on August 12,
2020.
Fundamental
Global Investors, LLC, with its affiliates (collectively, “Fundamental Global”), is the controlling stockholder of
the Company. D. Kyle Cerminara, the Chief Executive Officer, Co-Founder and Partner of Fundamental Global Investors, LLC, is the
Chairman of the Company’s board of directors and former Chief Executive Officer of the Company, and Lewis M. Johnson, the
President, Co-Founder and Partner of Fundamental Global Investors, LLC, is Co-Chairman of the Company’s board of directors.
Fundamental Global is the controlling stockholder of PIH, and Larry G. Swets, Jr. serves as Interim Chief Executive Officer and
principal executive officer of PIH and as a member of PIH’s Board of Directors. In addition, Mr. Swets founded and serves
as the managing member of Itasca Financial, which provides services to the Company, as described above, as well as to other companies
affiliated with Fundamental Global.
15.
Business Segment Information
Subsequent
to the disposal of its Strong Outdoor business segment, the Company conducts its operations through two primary business segments:
Strong Entertainment (formerly known as Strong Cinema) and Convergent. The Strong Entertainment segment name change is to the
name only and had no impact on the Company’s historical financial position, results of operations, cash flow or segment
level results previously reported. Strong Entertainment is one of the largest manufacturers of premium projection screens and
also manufactures customized screen support systems, distributes other products and provides technical support services to the
cinema, amusement park and other markets. Convergent delivers digital signage solutions and related services to large multi-location
organizations in the United States and Canada. The Company’s operating segments were determined based on the manner in which
management organizes segments for making operating decisions and assessing performance.
Summary
by Business Segments
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Net revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strong Entertainment
|
|
$
|
5,260
|
|
|
$
|
10,928
|
|
|
$
|
15,041
|
|
|
$
|
26,405
|
|
Convergent
|
|
|
4,346
|
|
|
|
4,532
|
|
|
|
12,954
|
|
|
|
15,204
|
|
Other
|
|
|
301
|
|
|
|
90
|
|
|
|
493
|
|
|
|
288
|
|
Total net revenues
|
|
|
9,907
|
|
|
|
15,550
|
|
|
|
28,488
|
|
|
|
41,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strong Entertainment
|
|
|
889
|
|
|
|
3,669
|
|
|
|
2,769
|
|
|
|
8,621
|
|
Convergent
|
|
|
2,083
|
|
|
|
1,469
|
|
|
|
5,668
|
|
|
|
4,622
|
|
Other
|
|
|
275
|
|
|
|
63
|
|
|
|
412
|
|
|
|
(307
|
)
|
Total gross profit
|
|
|
3,247
|
|
|
|
5,201
|
|
|
|
8,849
|
|
|
|
12,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strong Entertainment
|
|
|
(79
|
)
|
|
|
2,230
|
|
|
|
(894
|
)
|
|
|
4,646
|
|
Convergent
|
|
|
1,059
|
|
|
|
394
|
|
|
|
2,508
|
|
|
|
1,467
|
|
Other
|
|
|
52
|
|
|
|
(233
|
)
|
|
|
(225
|
)
|
|
|
(1,197
|
)
|
Total segment operating income
|
|
|
1,032
|
|
|
|
2,391
|
|
|
|
1,389
|
|
|
|
4,916
|
|
Unallocated administrative expenses
|
|
|
(1,377
|
)
|
|
|
(2,204
|
)
|
|
|
(4,893
|
)
|
|
|
(6,742
|
)
|
Unallocated loss on disposal of assets
|
|
|
(18
|
)
|
|
|
-
|
|
|
|
(18
|
)
|
|
|
-
|
|
(Loss) income from operations
|
|
|
(363
|
)
|
|
|
187
|
|
|
|
(3,522
|
)
|
|
|
(1,826
|
)
|
Other income (expense), net
|
|
|
2,322
|
|
|
|
(625
|
)
|
|
|
2,091
|
|
|
|
(2,222
|
)
|
Income (loss) before income taxes and equity method investment loss
|
|
$
|
1,959
|
|
|
$
|
(438
|
)
|
|
$
|
(1,431
|
)
|
|
$
|
(4,048
|
)
|
(In thousands)
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Identifiable assets
|
|
|
|
|
|
|
|
|
Strong Entertainment
|
|
$
|
18,616
|
|
|
$
|
18,135
|
|
Convergent
|
|
|
10,304
|
|
|
|
15,797
|
|
Corporate assets
|
|
|
29,468
|
|
|
|
22,796
|
|
Discontinued operations
|
|
|
-
|
|
|
|
905
|
|
Total
|
|
$
|
58,388
|
|
|
$
|
57,633
|
|
Summary
by Geographical Area
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
(In thousands)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
8,566
|
|
|
$
|
12,395
|
|
|
$
|
24,699
|
|
|
$
|
34,995
|
|
Canada
|
|
|
645
|
|
|
|
1,111
|
|
|
|
1,708
|
|
|
|
2,664
|
|
China
|
|
|
507
|
|
|
|
633
|
|
|
|
775
|
|
|
|
1,763
|
|
Mexico
|
|
|
-
|
|
|
|
65
|
|
|
|
78
|
|
|
|
70
|
|
Latin America
|
|
|
-
|
|
|
|
275
|
|
|
|
328
|
|
|
|
574
|
|
Europe
|
|
|
38
|
|
|
|
521
|
|
|
|
262
|
|
|
|
1,058
|
|
Asia (excluding China)
|
|
|
24
|
|
|
|
348
|
|
|
|
337
|
|
|
|
515
|
|
Other
|
|
|
127
|
|
|
|
202
|
|
|
|
301
|
|
|
|
258
|
|
Total
|
|
$
|
9,907
|
|
|
$
|
15,550
|
|
|
$
|
28,488
|
|
|
$
|
41,897
|
|
(In thousands)
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Identifiable assets
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
37,052
|
|
|
$
|
37,508
|
|
Canada
|
|
|
21,336
|
|
|
|
20,125
|
|
Total
|
|
$
|
58,388
|
|
|
$
|
57,633
|
|
Net
revenues by business segment are to unaffiliated customers. Net revenues by geographical area are based on destination of sales.
Identifiable assets by geographical area are based on location of facilities.