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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2022

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from          to

 

Commission File No. 1-13906

 

FG Group Holdings Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada   47-0587703
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

5960 Fairview Road, Suite 275

Charlotte, North Carolina

   28210
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (704) 994-8279

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of exchange on which registered
Common Stock, $0.01 par value   FGH   NYSE American

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer ☒   Smaller reporting company ☒
Emerging growth company ☐    
     

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

The aggregate market value of the Company’s voting common stock held by non-affiliates, based upon the closing price of the stock on the NYSE American on June 30, 2022 was approximately $30.3 million. The Company does not have any non-voting common equity. As of March 10, 2023, 19,469,649 shares of common stock of FG Group Holdings Inc., par value $0.01 per share, were outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None.

 

 

 

   

 

 

TABLE OF CONTENTS

 

 

Page No.
PART I
Item 1. Business 1
Item 1A. Risk Factors 7
Item 1B. Unresolved Staff Comments 15
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Mine Safety Disclosures 15
     
PART II  
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 16
Item 6. [Reserved] 16
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 25
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 27
Item 9A. Controls and Procedures 27
Item 9B. Other Information 27
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 27
     
PART III  
Item 10. Directors, Executive Officers and Corporate Governance 28
Item 11. Executive Compensation 33
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 41
Item 13. Certain Relationships and Related Transactions, and Director Independence 44
Item 14. Principal Accounting Fees and Services 45
     
PART IV  
Item 15. Exhibits and Financial Statement Schedules 46
Item 16. Form 10-K Summary 48
  Signatures 49

 

i

 

 

FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, forward-looking statements may be made in press releases, orally, at conferences, on the Company’s website, or otherwise, by or on behalf of the Company. Statements that are not historical are forward-looking and reflect expectations for future Company performance. These statements often use words such as “anticipates,” “targets,” “expects,” “hopes,” “estimates,” “intends,” “plans,” “goal,” “believes,” “continue” and other similar expressions or future or conditional verbs such as “will,” “may,” “might,” “should,” “would” and “could.” These statements involve certain known and unknown risks, uncertainties and assumptions that are difficult to predict and are often beyond the Company’s control. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 

You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties more fully discussed elsewhere in this report, including under Item 1A. Risk Factors of this Annual Report on Form 10-K and in any of the Company’s subsequent Securities and Exchange Commission filings for further information about factors that could affect such forward-looking statements: the Company’s ability to maintain and expand its revenue streams to compensate for the lower demand for the Company’s digital cinema products and installation services; potential interruptions of supplier relationships or higher prices charged by suppliers; the Company’s ability to successfully compete and introduce enhancements and new features that achieve market acceptance and that keep pace with technological developments; the Company’s ability to successfully execute its capital allocation strategy or achieve the returns it expects from these holdings; the Company’s ability to maintain its brand and reputation and retain or replace its significant customers; challenges associated with the Company’s long sales cycles; the impact of a challenging global economic environment or a downturn in the markets; the effects of economic, public health, and political conditions that impact business and consumer confidence and spending, including rising interest rates, periods of heightened inflation and market instability, the outbreak of any highly infectious or contagious diseases, such as COVID-19 and its variants or other health epidemics or pandemics, and armed conflicts, such as the ongoing military conflict in Ukraine and related sanctions; economic and political risks of selling products in foreign countries (including tariffs); risks of non-compliance with U.S. and foreign laws and regulations, potential sales tax collections and claims for uncollected amounts; cybersecurity risks and risks of damage and interruptions of information technology systems; the Company’s ability to retain key members of management and successfully integrate new executives; the Company’s ability to complete acquisitions, strategic investments, entry into new lines of business, divestitures, mergers or other transactions on acceptable terms, or at all; the impact of economic, public health and political conditions on the companies in which the Company holds equity stakes; the Company’s ability to utilize or assert its intellectual property rights, the impact of natural disasters and other catastrophic events, whether natural, man-made, or otherwise (such as the outbreak of any highly infectious or contagious diseases, or armed conflict); the adequacy of the Company’s insurance; the impact of having a controlling stockholder and vulnerability to fluctuation in the Company’s stock price.

 

Given the risks and uncertainties, readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results which may not occur as anticipated. Many of the risks listed above have been, and may further be, exacerbated by the impact of economic, public health (such as a resurgence of the COVID-19 pandemic) and political conditions (such as the military conflict in Ukraine) that impact consumer confidence and spending, particularly in the cinema, entertainment, and other industries in which the Company and the companies in which the Company holds an equity stake operate, and the worsening economic environment. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described herein, as well as others not now anticipated. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except where required by law, the Company assumes no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.

 

ii

 

 

PART I

 

Item 1. Business.

 

FG Group Holdings Inc. (“FG Group Holdings”, the “Company”, “us” or “we”), formerly known as Ballantyne Strong, Inc., has an operating history of over 90 years and has been a publicly traded company since 1995. Our shares are traded on the NYSE American market under the symbol “FGH.” Our website is fg.group. The inclusion of our Internet address in this Annual Report does not include or incorporate by reference into this Annual Report any information on our website. Effective December 23, 2022, we changed our name from Ballantyne Strong, Inc. to FG Group Holdings Inc. by filing a Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware. Also effective December 23, 2022, the Company changed its corporate domicile from Delaware to Nevada (the “Reincorporation”) by merging with and into a newly-formed corporation, FG Group Holdings Inc. (Nevada), which was incorporated in the State of Nevada for that purpose, pursuant to that certain Agreement and Plan of Merger dated October 19, 2022, and is now known as FG Group Holdings Inc., a Nevada corporation.

 

We operate Strong Entertainment, which has a leadership position in supplying projection screens and related products and services to the cinema exhibition and entertainment industry. We have capital allocated to equity holdings in three companies and also operate a technology incubator and co-working facility in Alpharetta, Georgia where we also own the land and building.

 

Our strategic plans contemplate a combination of:

 

  ● Expanding our Strong Entertainment operating business, organically and through complimentary transactions following a planned separation and initial public offering;
  ● Maximizing the value of our holdings by strategically allocating additional capital, monetizing positions, and redeploying capital; and
  ● Managing public company costs to minimize overhead levels at the holding company level.

 

We believe Strong Entertainment has established a leadership position in the entertainment industry, providing mission critical products and services to cinema exhibitors and entertainment venues for over 90 years. We intend to focus on growing and increasing the scope, scale and value of our Strong Entertainment operating business.

 

We have been focused on improving operating performance and positioning the group for accelerated growth following a period of COVID-19 related industry disruptions. Entering 2023, management is focused on growth opportunities, including a combination of organic growth and expansion through strategic transactions in the Entertainment business.

 

As part of that strategy, the Company announced plans to establish the Strong Entertainment business as a separate publicly listed company. Following the planned separation, the operations of the Strong Entertainment operating segment are expected to become part of a newly established British Columbia corporation, Strong Global Entertainment, Inc. (“Strong Global Entertainment”). Strong Global Entertainment filed a registration statement with the U.S. Securities and Exchange Commission (“SEC”) and intends to commence an initial public offering of its common shares to raise additional capital to support its growth plans. If successful, we expect to apply to have the Strong Global Entertainment common shares trade on the NYSE American under the ticker symbol “SGE” following the initial public offering, and the Company expects to continue to be the majority shareholder of Strong Global Entertainment.

 

The Company also continues to evaluate capital allocation opportunities. As of December 31, 2022, the Company held equity stakes in three separate companies. Firefly Systems, Inc. (“Firefly”) operates a media network and digital advertising solutions on taxi and rideshare vehicles. FG Financial Holdings, LLC, (“FGF Holdings”) which owns common and preferred shares of FG Financial Group, Inc. (“FGF”), which operates as a reinsurance and asset management holding company focused on collateralized and loss capped reinsurance and merchant banking, and GreenFirst Forest Products Inc (“GreenFirst”), a leading producer in the Canadian timber market. In February 2022, the Company, through its wholly owned subsidiary, Digital Ignition, LLC, completed the purchase of the land and building housing its Digital Ignition business in Alpharetta, Georgia.

 

Fundamental Global GP, LLC (“Fundamental Global”), the entities that it manages, its other affiliates, and the directors and officers of the Company and their affiliates together held approximately 34.6% of the Company’s outstanding stock as of March 10, 2023. In some cases, entities managed by Fundamental Global may acquire positions in the same public companies as the Company. Fundamental Global’s entities currently hold positions in FGF and GreenFirst.

 

Strong Entertainment Overview

 

As noted above, we have announced plans to establish the Strong Entertainment business as a separate publicly listed company. Following the planned separation, the operations of our Strong Entertainment operating segment are expected to become part of a newly established British Columbia corporation, Strong Global Entertainment. The information provided below describes the historical operation of our Strong Entertainment business segment, rather than as a standalone operating company.

 

1
 

 

Overview

 

Our Strong Entertainment business segment manufactures and distributes premium large format projection screens, and provides comprehensive managed services, technical support and related products and services primarily to cinema exhibitors, theme parks, educational institutions, and similar venues. We also distribute and support third party products, including digital projectors, servers, library management systems, menu boards and sound systems.

 

As a manufacturer and distributor of projection screens systems, we have contractual relationships to supply projection screens to major cinema exhibitors, including IMAX Corporation (“IMAX”), AMC Entertainment Holdings (“AMC”), Marcus Theaters (“Marcus”), and Cinemark Holdings, Inc. (“Cinemark”), and other cinema operators worldwide. In addition to traditional projection screens, we also manufacture and distribute our Eclipse curvilinear screens, which are specially designed for theme parks, immersive exhibitions, as well as simulation applications.

 

We provide maintenance, repair, installation, network support services and other services to cinema operators, primarily in the United States. Many of our customers choose annual managed service arrangements for maintenance and repair services. We also provide maintenance services to customers on a time and materials basis. Our field service and Network Operations Center (“NOC”) staff work hand in hand to monitor and resolve system and other issues for our customers. Our NOC, staffed by software engineers and systems technicians, operates 24/7/365 and monitors our customers’ networked equipment remotely, often providing proactive solutions to systems’ issues before they cause system failures.

 

In March 2022, we launched Strong Studios, Inc., (“Strong Studios”) a Delaware corporation and a wholly owned subsidiary of Strong Technical Services, Inc. The goal in launching Strong Studios is to expand our Entertainment Business to include content creation and production of feature films and series. The launch of Strong Studios is intended to further diversify our revenue streams and increase our addressable markets, while leveraging our existing relationships in the industry.

 

The coronavirus pandemic (“COVID-19”) and inflationary pressures have been posing and may continue to pose challenges for our business. The COVID-19 global pandemic resulted in a significant impact to consumer behaviors and our customers, particularly our customers’ ability and willingness to purchase our products and services. A significant number of our customers temporarily ceased operations at times during the height of the pandemic and continued to operate under COVID-19 restrictions for portions of 2022. As such, we have experienced, and may continue to experience an impact on our results of operations. We believe that consumer reticence to engage in outside-the-home activities, caused by the risk of contracting COVID-19, is abating, and our customers have resumed more typical, pre-COVID-19 purchasing behaviors. There can be no assurances, however, that there will be no further resurgence or variants of COVID-19 which could reverse the current trend.

 

Products and Services

 

Projection Screens and Support Systems — We believe we are the largest manufacturer and distributor of premium large format projection screens to the cinema industry in North America. We have contractual relationships to supply projection screens to major cinema exhibitors, including IMAX, AMC, Marcus, and Cinemark, and many other cinema operators worldwide. We also manufacture innovative screen support structures custom built to adapt to virtually any venue requirement, with a unique self-standing modular construction that allows for easy assembly and adjustable size.

 

In addition to traditional projection screens, we also manufacture and distribute our Eclipse curvilinear screens, which are specially designed for theme parks, immersive exhibitions, as well as simulation applications. Our Eclipse curvilinear screens are specially designed to provide maximum viewer engagement in media-based attractions and immersive projection environments. The solid surface minimizes light loss to maintain higher resolution at lower lumen output. Patented speaker panels allow selective placement of rear mounted speakers to ensure the audio derives from the source media on screen. Applications include interactive dark rides, 3D/4D theme park rides, flying theaters and motion simulators.

 

We believe that our screens are the highest quality in the industry providing the highest gain and other characteristics important to the exhibitor and its patrons. Our high quality is driven by our innovative manufacturing process, focus on quality control and our proprietary coatings. We believe we are the only major screen manufacturer that develops and produces its own proprietary coatings, which are critical to the overall quality, increased screen reflectivity and brightness, and continued innovation of our screens.

 

Technical Services – We provide digital projection equipment installation and after-sale maintenance and network support services to the entertainment industry. Our field service technicians and NOC staff work hand in hand to monitor and resolve system and other issues for our customers. We service many of our customers under recurring revenue contracts providing for maintenance and repair to a wide range of installed digital equipment, providing our customers with a reliable turnkey outsourced service option. We also provide services to customers on a time and materials basis. Our NOC, staffed by software engineers and systems techs, operates 24/7/365 and monitors our customers’ networked equipment remotely, often providing proactive solutions to systems’ issues before they cause system failures.

 

2
 

 

Content – In March 2022, we launched our Strong Studios division, expanding our Entertainment Business to include content creation and production of feature films and series. The launch of Strong Studios further diversifies our revenue streams and increases our addressable markets, while leveraging our existing relationships in the industry. Strong Studios acquired original feature films and television series from Landmark Studio Group LLC (“Landmark”), a Chicken Soup for the Soul Entertainment, Inc. (Nasdaq: CCSE) (“CSSE”) company, and was assigned third party rights to content for global multiplatform distribution. One new scripted television series, Safehaven, commenced production in 2022, and another scripted television series, Flagrant, is expected to begin production in 2023. The Company has agreed to sell the distribution rights of Safehaven to Screen Media Ventures LLC (“SMV”), a subsidiary of CSSE, for a total of $6.5 million, and we will also participate in a share of the profits of the series.

 

Other Products – We distribute projectors, servers, audio systems and other third-party products including library management systems, lenses and lamps to customers in North and South America.

 

Markets

 

We sell our screen systems worldwide, with our primary markets being North America and Asia. Screen systems are primarily sold on a direct basis, although we also use third-party distributors and integrators in some markets.

 

We have non-exclusive distribution agreements with NEC and Barco that allow us to market digital projectors in North and South America. We also have a preferred commercial relationship with Cinionic, Inc., the world’s leading provider of laser cinema solutions, to enhance the services to operators across North America. We believe this relationship enhances our ability to service our valued customers by providing increased access to technology and better training for our technicians and will strengthen our global reach due to closer relationships with their international sales teams.

 

We provide technical services in the United States. We market and sell our services both directly to theater owners and other entertainment-related markets and through dealers or Value Added Reseller (“VAR”) networks.

 

Competition

 

There are several other companies that manufacture and distribute projection screens. We believe that our primary competitors in the worldwide projection screen market include Harkness Screens International Ltd., Severtson, Screen Solutions, Spectro, MECHANISCHE Weberei BOHEMIA s.r.o. and Galalite Projection Screens. Competitive factors include product performance characteristics, quality, availability, location/shipping logistics and price.

 

The market for our other digital cinema equipment and technical services is highly competitive, and the industry is fragmented. The primary competitive factors are price, product quality, features and customer support. Competition in the digital cinema equipment market includes other integrators and resellers. Manufacturers may also sell equipment directly to exhibitors, especially for large orders. We believe that our primary competition for installation, after-sale maintenance, and NOC services is Christie Digital Systems USA, Inc., Moving Image Technologies, and Sonic Equipment Company. We also compete with in-house technical resources at some of our larger entertainment customers for services work.

 

In our new content business, we also compete with numerous independent motion picture and television production companies. Given such competition and our stage of development, we emphasize a lower cost structure, risk mitigation, reliance on financial partnerships and innovative financial strategies.

 

Entertainment Industry Trends and Positioning

 

We believe that the following trends positively impact our outlook for the entertainment industry:

 

  ● Post-COVID-19 Recovery — We believe there is pent-up demand for out-of-home entertainment that will drive favorable trends post-COVID-19 in the cinema exhibition and theme park industries. For example:

 

  ◌ Avatar: The Way of Water ranks in the top 10 of highest grossing films globally of all time
  ◌ Domestic box office gross receipts during 2022 increased approximately 64% over 2021
  ◌ The Batman was IMAX’s largest March opening since 2019
  ◌ Spider-man ranks #3 of top grossing films domestically of all time
  ◌ Spider-man delivered Cinemark’s biggest opening night of all time

 

3
 

 

  ● Blockbuster Studio Releases – According to the Hollywood Reporter, “Box Office Rebound: “Exhibitor Carnage Is in the Past,” the pace of Hollywood blockbuster movies scheduled for release to cinemas is poised to accelerate and is already creating stronger-than-expected demand trends. According to CNBC, 2023 is expected to have a much stronger slate of films than 2022, both in terms of number of films and diversity of content. These factors, along with the return of exclusive theatrical releases, is encouraging industry analysts who are predicting movie theaters to rebound to near pre-pandemic levels by 2023.

 

  ● Increasing Trend of Outsourcing in the Cinema Industry — We believe that cinema operators are increasing their use of outsourced services as they seek to reduce internal operating costs and maintain operational flexibility post-COVID-19.
     
  ● Upgrade Cycle from Xenon to Laser Projection — We believe the transition from xenon projection to laser protection in the cinema exhibition industry will accelerate and continue over the next decade. Several exhibitors have publicly discussed plans to upgrade to an all-laser projection strategy, notably Cinemark and IMAX, to further improve the quality of the theatrical experience. In addition, in April 2022, AMC announced an agreement with Cinionic, Inc. to install Barco laser projectors in 3,500 of its U.S. auditoriums through 2026. We expect this upgrade cycle to drive increased demand for screen replacement as well as for our services to de-install, install and upgrade new and existing projection equipment.
     
  ● Consolidating Industry – The cinema exhibition industry was consolidating via mergers and acquisitions pre-COVID-19. We expect consolidation of the supplier side of the cinema exhibition industry to accelerate post-COVID-19.

 

  ● Growing Demand for Content and Acceleration of New Streaming Services – The global entertainment business continues to grow and evolve, with the following factors contributing to increasingly favorable environment for content:
     
   

◌  Spending for new content continues to rise — In 2022, the top nine streaming giants spent $140.5 billion on content, and with a projected 10% annual increase, they are expected to increase that spend to a combined $172 billion by 2025.

 

◌  Global subscribers to streaming services is up — Since 2019, the number of global customers subscribing to streaming video platforms has grown from 642 million to more than 1.1 billion, a 71% leap. Over the next few years, this rise is expected to continue to 1.6 billion in 2025.

 

◌  Spending in Indie content continues to surge – As much as Netflix and the five major Hollywood Studios spend producing their own content, independently made and acquired content accounts for twice as much money globally. The independent market grew 21.4% in 2022, increasing to approximately$69 billion in 2022.

  

We believe the following strength and attributes position Strong Global Entertainment for accelerating growth:

 

  ● Partnerships with Industry Leaders — We believe our reputation for superior quality and customer service have made us the go-to screen provider for many of the leading operators in the industry. We provide projection screens and managed services to all of the top cinema operators in North America, including AMC, IMAX, Cinemark, Regal and many other regional cinema operators. We believe that we provide a majority of the large format projection screens used by the major operators in North America, including exclusive supply contracts with AMC and Cinemark, and we believe we also supply IMAX with substantially all of its projection screens globally. There is greater pressure on theaters to differentiate their experience from the at-home experience. We believe the global trend for premium entertainment plays to Strong Global Entertainment’s strengths. The table below includes the top cinema companies in North America, all of which are our customers:

 

Circuits   Screens     Sites     Customer     Exclusive  
AMC Entertainment Holdings, Inc.1     7,712       591       X       X  
Regal Cinemas (Cineworld Group PLC)2     6,474       478       X          
Cinemark Holdings, Inc.1     4,392       318       X       X  
Cinepolis3     4,271       509       X          
Cineplex Entertainment LP4     1,641       158       X          
Marcus Theaters Corp.5     1,053       84       X       X  

 

  1) Represents the quantity in the United States as of December 2022, for which we are the exclusive supplier of screen products.
  2) Represents the quantity in the United States as of December 2022.
  3) Represents the quantity in the United States and Mexico as of February 2023.
  4) Represents the quantity in Canada as of December 2022.
  5) Represents the quantity in the United States as of December 2022, for which we are the exclusive provider of both screen products and technical services.

 

4
 

 

  ● Innovator in the Industry — We are constantly innovating as exemplified by our new, rapidly growing Eclipse curvilinear screen division which specially designs screens with proprietary coatings for maximum viewer engagement in media-based attractions and immersive projection environments. Recently our screens were used in the much publicized Van Gogh: The Immersive Experience exhibit that wowed audiences with its all-encompassing experience of art, light, sound, movement and imagination. We also recently collaborated with Illuminarium Intermediate (Cayman), LLC in Atlanta, Georgia and plan to assist them in other cities as they expand their sensory cinema business. Eclipse screens are also used in theme parks and military simulation applications.

 

  ● Turn-Key, Vertically Integrated Partner — We offer a comprehensive turn-key solution for our customers, offering projection and audio equipment, projection screen systems, as well as installation, break/fix on demand and outsourced managed services providing customers with a one-stop shop for their needs.
     
  ● World-Class and Scalable Manufacturing and Research & Development (“R&D”) — We manufacture our screens in an approximately 80,000 square-foot facility in Joliette, Quebec, Canada (the “Joliette Plant”) that we plan to lease on a long term basis from Strong/MDI (as defined below). The Joliette Plant is unique with two 90-foot-high screen coating towers which allows us to produce and finish large screens to precise specifications. The Joliette Plant also includes polyvinyl chloride (“PVC”) welding operations with programmable automations and areas dedicated to the manufacture of our paints and coatings used on all our screens, as well as dedicated in-house chemists and R&D capabilities. We believe that our quality control procedures, in-house paint and coating capabilities and the quality standards for the products that we manufacture contribute significantly to our reputation for high performance and reliability.
     
  ● Strong Studios launches with proven management and a portfolio of content and projects - In March 2022, we launched Strong Studios with an experienced team and the acquisition of rights to a slate of motion picture and television series from Landmark. One new scripted television series, Safehaven, commenced production in 2022, and another scripted television series, Flagrant, is expected to begin production in 2023. The Company has agreed to sell the distribution rights of Safehaven to SMV for a total of $6.5 million, and we will also participate in a share of the profits of the series.

 

Equity Holdings

 

The Company holds equity stakes in three companies.

 

FGF Holdings, a limited liability company formed under the Delaware Limited Liability Company Act that holds common and preferred shares of FGF, a reinsurance and asset management holding company focused on collateralized and loss capped reinsurance and merchant banking. As of December 31, 2022, we had an economic interest of approximately 47% in FGF Holdings.

 

GreenFirst, a publicly-traded Canadian company focused on environmentally sustainable forest management and lumber production. As of December 31, 2022, we held approximately 8.4% of the outstanding common shares of GreenFirst.

 

Firefly Systems, Inc. (“Firefly”), a private company which operates a media network and digital advertising solutions on taxi and rideshare vehicles.

 

Financial Instruments and Credit Risk Concentrations

 

Our top ten customers accounted for 49% of 2022 consolidated net revenues. Trade accounts receivable from these customers represented 68% of net consolidated receivables at December 31, 2022. None of our customers accounted for more than 10% of both our consolidated net revenues during 2022 and our net consolidated receivables as of December 31, 2022.

 

Manufacturing

 

We manufacture cinema screens through Strong/MDI Screen Systems, Inc. (“Strong/MDI”), our subsidiary in Joliette, Quebec, Canada. These manufacturing operations consist of an approximately 80,000 square-foot facility for the manufacture of screen systems. These facilities include PVC welding operations with programmable automations, as well as two 90-foot high screen coating towers with state-of-the-art precision coating application software and painting systems. This world class ISO certified operation has the capability of manufacturing multiple standard screens simultaneously to large format 2D and 3D screens for cinema and special venue applications. We have also recently established outsourced warehousing and finishing operations in Belgium and China that will allow us to be more responsive to local customer orders in those markets.

 

5
 

 

Quality Control

 

We believe that our quality control procedures and the quality standards for the products that we manufacture, distribute or service have contributed significantly to our reputation for high performance and reliability. The inspection of incoming materials and components as well as the testing of all of our products during various stages of the sales and service cycle are key elements of this program.

 

Trademarks

 

We own or otherwise have rights to various trademarks and trade names used in conjunction with the sale of our products. We believe our success will not be dependent upon trademark protection, but rather upon our scientific and engineering capabilities and research and production techniques. We consider the Strong® trademark to be of value to our business. FG is a registered trademark of Fundamental Global.

 

Human Capital Resources

 

We employed 175 persons at December 31, 2022, 174 of which were full-time. Of these employees, 82 positions were considered manufacturing or operational, 50 were service related and 43 were considered sales and administrative. We are not a party to any collective bargaining agreement.

 

The Company believes it complies with all applicable state, local and international laws governing nondiscrimination in employment in every location in which the Company operates. All applicants and employees are treated with the same high level of respect regardless of their gender, ethnicity, religion, national origin, age, marital status, political affiliation, sexual orientation, gender identity, disability or protected veteran status. We continue to monitor our demand for skilled and unskilled labor and provide training and competitive compensation packages in an effort to attract and retain skilled employees.

 

The Company, including its subsidiaries, remains deeply rooted in cinema screen manufacturing and cinema- focused services. In this regard, we continuously drive our efforts to be the best partner for our customers, investment for our stockholders, neighbor in our community and to provide an empowering work environment for our employees.

 

Moreover, the Company is committed to the health, safety and wellness of its employees. We have modified our business practices and implemented certain policies at our offices in accordance with best practices to accommodate, and at times mandate, social distancing and remote work practices, including restricting employee travel, modifying employee work locations, implementing social distancing and enhanced sanitary measures in our facilities, and cancelling attendance at events and conferences. In addition, we have invested in employee safety equipment, additional cleaning supplies and measures, re-designed production lines and workplaces as necessary and adapted new processes for interactions with our suppliers and customers to safely manage our operations.

 

Regulation

 

We are subject to complex laws, rules and regulations affecting our domestic and international operations relating to, for example, environmental, safety and health requirements; exports and imports; bribery and corruption; tax; data privacy; labor and employment; competition; and intellectual property ownership and infringement. Compliance with these laws, rules and regulations may be onerous and expensive, and if we fail to comply or if we become subject to enforcement activity, our ability to manufacture our products and operate our business could be restricted and we could be subject to fines, penalties or other legal liability. Furthermore, should these laws, rules and regulations be amended or expanded, or new ones enacted, we could incur materially greater compliance costs or restrictions on our ability to manufacture our products and operate our business.

 

Some of these complex laws, rules and regulations – for example, those related to environmental, safety and health requirements – may particularly affect us in the jurisdictions in which we manufacture products, especially if such laws and regulations require the use of abatement equipment beyond what we currently employ; require the addition or elimination of a raw material or process to or from our current manufacturing processes; or impose costs, fees or reporting requirements on the direct or indirect use of energy, or of materials or gases used or emitted into the environment, in connection with the manufacture of our products. There can be no assurance that in all instances a substitute for a prohibited raw material or process would be available, or be available at reasonable cost.

 

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Item 1A. Risk Factors.

 

Our business and financial performance are subject to various risks and uncertainties, some of which are beyond our control. We discuss in this section some of the risk factors that, if they actually occurred, could materially and adversely affect our business, financial condition and results of operations. In that event, the trading price of our common stock could decline, and you may lose part or all of your investment. You should consider these risk factors in connection with evaluating the forward-looking statements contained in this Annual Report on Form 10-K because these factors could cause our actual results and financial condition to differ materially from those projected in forward-looking statements. We undertake no obligation to revise or update any forward-looking statements contained herein to reflect subsequent events or circumstances or the occurrence of unanticipated events.

 

We have no assurance of future business from any of our customers.

 

We estimate future revenue associated with customers and customer prospects for purposes of financial planning and measurement of our sales pipeline, but we have limited contractual assurance of future business from our customers. While we do have arrangements with some of our customers, customers are not required to purchase any minimum amounts, and could stop doing business with us. Some customers maintain simultaneous relationships with our competitors, and could shift more of their business away from us if they choose to do so in the future.

 

There is no guarantee that we will be able to service and retain or renew existing agreements, maintain relationships with any of our customers or business partners on acceptable terms or at all, or collect amounts owed to us from insolvent customers or business partners. The loss of any of our large customers could have a material adverse impact on our business.

 

Our operating results could be materially harmed if we are unable to accurately forecast demand for our products and services and adequately manage our inventory.

 

To ensure adequate inventory supply, we forecast inventory needs, place orders and plan personnel levels based on estimates of future demand. Our ability to accurately forecast demand for our products and services is limited and could be affected by many factors, including an increase or decrease in customer demand for our products and services or for products and services of our competitors, product and service introductions by competitors, unanticipated changes in general market conditions, effects of the COVID-19 pandemic and the weakening of economic conditions or consumer confidence in future economic conditions. If we fail to accurately forecast customer demand, we may experience excess inventory levels or a shortage of products available for sale. Conversely, if we underestimate customer demand for our products and services, we may not be able to deliver products to meet requirements, and this could result in damage to our brand and customer relationships and adversely affect our revenue and operating results.

 

Interruptions of, or higher prices of, components from our suppliers may affect our results of operations and financial performance.

 

A portion of our revenues is dependent on the distribution of products supplied by various key suppliers. If we fail to maintain satisfactory relationships with our suppliers, or if our suppliers experience significant financial difficulties, we could experience difficulty in obtaining needed goods and services. Some suppliers could also decide to reduce inventories or raise prices to increase cash flow. The loss of any one or more of our suppliers could have an adverse effect on our business, and we may be unable to secure alternative manufacturing arrangements. Even if we are able to obtain alternative manufacturing arrangements, such arrangements may not be on terms similar to our current arrangements, or we may be forced to accept less favorable terms in order to secure a supplier as quickly as possible so as to minimize the impact on our business operations. In addition, any required changes in our suppliers could cause delays in our operations and increase our production costs and new suppliers may not be able to meet our production demands as to volume, quality, or timeliness.

 

Geopolitical conditions, military conflicts, acts or threats of terrorism, natural disasters, pandemics, and other conditions or events beyond our control could adversely affect us.

 

Geopolitical conditions, military conflicts (including Russia’s invasion of Ukraine), acts or threats of terrorism, natural disasters, pandemics (including the COVID-19 pandemic), and other conditions or events beyond our control may adversely affect our business, results of operations, financial condition, or prospects. For example, military conflicts, acts or threats of terrorism, and political, financial, or military actions taken in response could adversely affect general economic, business, or market conditions and, in turn, us, especially as an intermediary within the financial system. In addition, nation states engaged in warfare or other hostile actions may directly or indirectly use cyberattacks against financial systems and financial-services companies like us to exert pressure on one another or other countries with influence or interests at stake. We also could be negatively impacted if our key personnel, a significant number of our employees, or our systems or infrastructure were to become unavailable or damaged due to a pandemic, natural disaster, war, act of terrorism, accident, or similar cause. These same risks and uncertainties arise too for the service providers and counterparties on whom we depend as well as their own third-party service providers and counterparties.

 

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The most notable impact of COVID-19 on our results of operations was the significant impact to our customers, specifically those in the entertainment and advertising industries, and their ability and willingness to purchase our products and services. A significant number of our customers temporarily ceased operations during the pandemic. For instance, many movie theaters and other entertainment centers were forced to close or curtail their hours and, correspondingly, terminated or deferred their non-essential capital expenditures. The COVID-19 pandemic also adversely affected film production and the pipeline of feature films available in the short- and long-term. We were also required to temporarily close our screen manufacturing facility in Canada due to the governmental response to COVID-19, experienced lower revenues from field services, and saw a reduction in non-recurring time and materials-based services. The impact of any future outbreak of contagious disease, or a worsening or resurgence of COVID-19, is not readily ascertainable, is uncertain and cannot be predicted, but could have an adverse impact on the Company’s business, financial condition and results of operations.

 

In the case of Russia’s invasion of Ukraine, security risks as well as increases in fuel and other commodity costs, supply-chain disruptions, and associated inflationary pressures have impacted our business the most.

 

We may also experience one or more of the following conditions that could have a material adverse impact on our business operations and financial condition: adverse effects on our strategic partners’ businesses or on the businesses of companies in which we hold equity stakes; impairment charges; extreme currency exchange-rate fluctuations; inability to recover costs from insurance carriers; and business continuity concerns for us, our customers and our third-party vendors.

 

These conditions and events and others like them are highly complex and inherently uncertain, and their effect on our business, results of operations, financial condition, and prospects in the future cannot be reliably predicted.

 

Changes in general economic conditions, geopolitical conditions, domestic and foreign trade policies, monetary policies and other factors beyond our control may adversely impact our business and operating results.

 

Our operations and performance may depend on global, regional, economic and geopolitical conditions. Russia’s invasion and military attacks on Ukraine have triggered significant sanctions from North American and European leaders. These events continue to develop and escalate, creating increasingly volatile global economic conditions. Resulting changes in North American trade policy could trigger retaliatory actions by Russia, its allies and other affected countries, including China, resulting in a “trade war.” A trade war could result in increased costs for raw materials that we use in our manufacturing and could otherwise limit our ability to sell our products abroad. These increased costs would have a negative effect on our financial condition and profitability. Furthermore, events like the military conflict between Russia and Ukraine may increase the likelihood of supply interruptions and further hinder our ability to find the materials we need to make our products. If the conflict between Russia and Ukraine continues for a long period of time, or if other countries become further involved in the conflict, we could face significant adverse effects to our business and financial condition.

 

Environmental, social and governance matters may impact our business and reputation.

 

Increasingly, in addition to the importance of their financial performance, companies are being judged by their performance on a variety of environmental, social and governance (“ESG”) matters, which are considered to contribute to the long-term sustainability of companies’ performance.

 

A variety of organizations measure the performance of companies on ESG topics, and the results of these assessments are widely publicized. In addition, investments in funds that specialize in companies that perform well in such assessments are increasingly popular, and major institutional investors have publicly emphasized the importance of ESG measures to their investment decisions. Topics taken into account in such assessments include, among others, companies’ efforts and impacts on climate change and human rights, ethics and compliance with law, diversity and the role of companies’ board of directors in supervising various sustainability issues.

 

ESG goals and values are embedded in our core mission and vision, and we consider their potential impact on the sustainability of our business over time and the potential impact of our business on society. However, in light of investors’ increased focus on ESG matters, there can be no certainty that we will manage such issues successfully, or that we will successfully meet society’s expectations as to our proper role. This could lead to risk of litigation or reputational damage relating to our ESG policies or performance.

 

Further, possible actions to address ESG issues may not maximize short-term financial results and may yield financial results that conflict with the market’s expectations. We have and may in the future make business decisions that may reduce our short-term financial results if we believe that the decisions are consistent with our ESG goals, which we believe will improve our financial results over the long-term. These decisions may not be consistent with the short-term expectations of our stockholders and may not produce the long-term benefits that we expect, in which case our business, financial condition, and operating results could be harmed.

 

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The markets for our products and services are highly competitive and if market share is lost, we may be unable to lower our cost structure quickly enough to offset the loss of revenue.

 

The domestic and international markets for our product lines are highly competitive, evolving and subject to rapid technological and other changes. We expect the intensity of competition in each of these areas to continue in the future for a number of reasons including:

 

  ● Certain of our competitors in the digital equipment industry have longer operating histories and greater financial, technical, marketing and other resources than we do, which, among other things, may permit them to adopt aggressive pricing policies. As a result, we may suffer from pricing pressures that could adversely affect our ability to generate revenues and our results of operations. Some of our competitors also have greater name and brand recognition and a larger customer base than us.
     
  ● Some of our competitors are manufacturing their own digital equipment while we employ a distribution business model through our distribution agreements with NEC Display Solutions of America, Inc. (“NEC”), Barco, Inc. (“Barco”) and certain other suppliers. As a result, we may suffer from pricing pressures that could adversely affect our ability to generate revenues.
     
  ● Suppliers could decide to utilize their current sales force to supply their products directly to customers rather than utilizing channels.

 

In addition, we face competition for consumer attention from other forms of entertainment, including streaming services and other forms of entertainment that may impact the cinema industry. The other forms of entertainment may be more attractive to consumers than those utilizing our technologies, which could harm our business, prospects and operating results.

 

For these and other reasons, we must continue to enhance our technologies and our existing products and services, and introduce new, high-quality technologies and products and services to meet the wide variety of competitive pressures that we face. If we are unable to compete successfully, our business, prospects and results of operations will be materially adversely impacted.

 

We depend in part on distributors, dealers and resellers to sell and market our products and services, and our failure to maintain and further develop our sales channels could harm our business.

 

In addition to our in-house sales force, we sell some of our products and services through distributors, dealers and resellers. As we do not have long-term contracts and these agreements may be cancelled at any time, any changes to our current mix of distributors could adversely affect our gross margin and could negatively affect both our brand image and our reputation. If our distributors, dealers and resellers are not successful in selling our products, our revenue would decrease. In addition, our success in expanding and entering into new markets internationally will depend on our ability to establish relationships with new distributors. If we do not maintain our relationship with existing distributors or develop relationships with new distributors, dealers and resellers our ability to grow our business and sell our products and services could be adversely affected and our business may be harmed.

 

Our capital allocation strategy may not be successful, which could adversely impact our financial condition.

 

We intend to continue investing part of our cash balances in public and private companies and may engage in mergers, acquisitions and divestitures. We intend our holdings in public companies to be made in circumstances where we believe that we will be able to exercise some degree of influence or control. We may also continue to invest in private companies or other areas, including acquisitions of businesses. Currently, our holdings are highly concentrated in three companies, FGF Holdings, GreenFirst, and Firefly. In some cases, funds controlled by our affiliate, Fundamental Global, have, and may in the future, acquire positions in the same public companies as us. These types of holdings are riskier than holding our cash balances as bank deposits or, for example, conservative options such as treasury bonds or money market funds. There can be no assurance that we will be able to maintain or enhance the value or the performance of the companies in which we have invested or may invest in the future, or that we will achieve returns or benefits from these holdings. Under certain circumstances, significant declines in the fair values of these holdings may require the recognition of other-than-temporary impairment losses. We may lose all or part of our holdings relating to such companies if their value decreases as a result of their financial performance or for any other reason. If our interests differ from those of other investors in companies over which we do not have control, we may be unable to effect any change at those companies. We are not required to meet any diversification standards, and our holdings may continue to remain concentrated. In addition, we may seek to sell some or all of our existing businesses as part of our holding company strategy.

 

If our capital allocation strategy is not successful or we achieve less than expected returns from these holdings, it could have a material adverse effect on us. The Board of Directors may also change our capital allocation strategy at any time, and such changes could further increase our exposure, which could adversely impact us.

 

If we are unable to maintain our brand and reputation, our business, results of operations and prospects could be materially harmed.

 

Our business, results of operations and prospects depend, in part, on maintaining and strengthening our brand and reputation for providing high quality products and services. Reputational value is based in large part on perceptions. Although reputations may take decades to build, any negative incidents can quickly erode trust and confidence, particularly if they result in adverse publicity, governmental investigations or litigation. If problems with our products cause operational disruption or other difficulties, or there are delays or other issues with the delivery of our products or services, our brand and reputation could be diminished. Damage to our reputation could also arise from actual or perceived legal violations, product safety issues, data security breaches, actual or perceived poor employee relations, actual or perceived poor service, actual or perceived poor privacy practices, operational or sustainability issues, actual or perceived ethical issues or other events within or outside of our control that generate negative publicity with respect to us. Any event that has the potential to negatively impact our reputation could lead to lost sales, loss of new opportunities and retention and recruiting difficulties. If we fail to promote and maintain our brand and reputation successfully, our business, results of operations and prospects could be materially harmed.

 

9
 

 

Our operating margins may decline as a result of increasing product costs.

 

Our business is subject to pressure on pricing and costs caused by many factors, including supply chain disruption, intense competition, the cost of components used in our products, labor costs, constrained sourcing capacity, inflationary pressure, pressure from customers to reduce the prices we charge for our products and services, and changes in consumer demand. While inflation has been relatively low in recent years, it began to increase in the second half of 2021. Factors including global supply chain disruptions have resulted in shortages in labor, materials and services. Such shortages have resulted in cost increases, particularly for labor, and could continue to increase. Costs for the raw materials used to manufacture our products are affected by, among other things, energy prices, demand, fluctuations in commodity prices and currency, shipping costs and other factors that are generally unpredictable and beyond our control such as the escalating military conflict between Russia and Ukraine. Increases in the cost of raw materials used to manufacture our products or in the cost of labor and other costs of doing business internationally could have an adverse effect on, among other things, the cost of our products, gross margins, operating results, financial condition, and cash flows.

 

Our sales cycle can be long and timing of orders and shipments unpredictable, particularly with respect to large enterprises, which could harm our business and operating results.

 

The timing of our sales is difficult to predict, and customers typically order screen and other distribution products with limited advance notice which impacts our ability to forecast revenue and manage operations. For our managed service offerings, the sales cycle can be long and involve educating and achieving buy-in from multiple parts of a customer organization. As a result, the length and variable nature of customer ordering patterns and timing could materially adversely impact our business and results of operations.

 

We are substantially dependent upon significant customers who could cease purchasing our products at any time.

 

Our top ten customers accounted for 49% of 2022 net consolidated revenues. Trade accounts receivable from these customers represented 68% of net consolidated receivables at December 31, 2022. Most arrangements with these customers are made by purchase order and are terminable at will by either party. A significant decrease or interruption in business from our significant customers could have a material adverse effect on our business, financial condition and results of operations.

 

Government agencies in Canada have notified Strong/MDI that certain modifications are required to be made to the Joliette Plant in order to meet safety and emissions standards.

 

Strong/MDI has been informed by certain government agencies in Canada, including but not limited to, the Joliette Fire Department, and the Quebec Ministry of the Environment, that certain aspects of the Joliette Plant must be modified to fully comply with safety and emissions standards. Strong/MDI has implemented changes to address some, but not all, of the identified requirements.

 

The required modifications include installing new air evaluator and exhaust chimneys as well as modifying the walls and doors in the paint and coatings area to achieve a 2-hour fire resistance standard. In addition, it was required that we modify certain mezzanine areas to reduce their size and upgrade construction to non-combustible materials, add an additional exterior access, and purchase spill resistant pallets. We estimate that if we were to proceed with implementing the remaining identified requirements, the cost would be approximately CAD$0.3 million to CAD$0.5 million (approximately USD$0.2 million to USD$0.4 million) if undertaken on their own and not as part of a broader plant improvement initiative. Our intention is to address the remaining requirements as one component of an expansion and reorganization of the certain areas of the Joliette Plant. We believe the project would improve production flow in the plant, accommodate growth of the Eclipse product line in addition to addressing the requirements. We estimate that the cost of an expansion and reorganization of the Joliette Plant, which includes the estimated costs to remedy the remaining required modifications, would be approximately CAD$1.0 million to CAD$1.5 million (approximately USD$0.8 million to USD$1.2 million), depending on the final scope of the expansion as well as fluctuations in construction materials and other costs. If we fail to address the requirements, it could be possible that we could incur penalties or production could be interrupted. The expansion could cost more or take longer than our expectations and could result in production disruptions in the facility during the construction process.

 

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Our business is subject to the economic and political risks of selling products in foreign countries.

 

Sales outside the United States accounted for approximately 13% of consolidated revenues during 2022. We expect that international sales will continue to be important to our business for the foreseeable future. Foreign sales are subject to general political and economic risks, including the adverse impact of changes to international trade and tariff policies, including in the U.S. and China, which have created uncertainty regarding international trade, unanticipated or unfavorable circumstances arising from host country laws or regulations, unfavorable changes in U.S. policies on international trade and investment, the imposition of governmental economic sanctions on countries in which we do business, quotas, capital controls or other trade barriers, whether adopted by individual governments or addressed by regional trade blocks, threats of war, terrorism or governmental instability, currency controls, fluctuating exchange rates with respect to sales not denominated in U.S. dollars, changes in import/export regulations, tariffs and freight rates, potential negative consequences from changes to taxation policies, restrictions on the transfer of funds into or out of a country and the disruption of operations from labor, political and other disturbances, such as the impact of the coronavirus and other public health epidemics or pandemics. Government policies on international trade and investment can affect the demand for our products, impact the competitive position of our products or prevent us from being able to sell or manufacture products in certain countries. The implementation of more restrictive trade policies, such as higher tariffs or new barriers to entry, in countries in which we sell large quantities of products and services could negatively impact our business, financial condition and results of operations. For example, a government’s adoption of “buy national” policies or retaliation by another government against such policies could have a negative impact on our results of operations. If we were unable to navigate the foreign regulatory environment, or if we were unable to enforce our contractual rights in foreign countries, our business could be adversely impacted. Any of these events could reduce our sales, limit the prices at which we can sell our products, interrupt our supply chain or otherwise have an adverse effect on our operating performance.

 

In addition, a portion of our foreign sales are denominated in foreign currencies and amounted to approximately USD$1.4 million in 2022. To the extent that orders are denominated in foreign currencies, our reported sales and earnings are subject to foreign exchange fluctuations. In addition, there can be no assurance that our remaining international customers will continue to accept orders denominated in U.S. dollars. For those sales which are denominated in U.S. dollars, a weakening in the value of foreign currencies relative to the U.S. dollar could have a material adverse impact on us by increasing the effective price of our products in international markets. Certain areas of the world are also more cost conscious than the U.S. market and there are instances where our products are priced higher than local manufacturers. We are also exposed to foreign currency fluctuations between the Canadian and U.S. dollar due to our screen manufacturing facility in Canada where a majority of its sales are denominated in the U.S. dollar while its expenses are denominated in Canadian currency. We cannot predict the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposures and the potential volatility of currency exchange rates.

 

Any of these factors could adversely affect our foreign activities and our business, financial condition and results of operations.

 

The risk of non-compliance with U.S. and foreign laws and regulations applicable to our international operations could have a significant impact on our financial condition, results of operations and strategic objectives.

 

Our global operations subject us to regulation by U.S. federal and state laws and multiple foreign laws, regulations and policies, which could result in conflicting legal requirements. These laws and regulations are complex, change frequently, have tended to become more stringent over time and increase our cost of doing business. These laws and regulations include import and export control, environmental, health and safety regulations, data privacy requirements, international labor laws and work councils and anti-corruption and bribery laws such as the U.S. Foreign Corrupt Practices Act, the U.N. Convention Against Bribery and local laws prohibiting corrupt payments to government officials. We are subject to the risk that we, our employees, our affiliated entities, contractors, agents or their respective officers, directors, employees and agents may take action determined to be in violation of any of these laws. An actual or alleged violation could result in substantial fines, sanctions, civil or criminal penalties, debarment from government contracts, curtailment of operations in certain jurisdictions, competitive or reputational harm, litigation or regulatory action and other consequences that might adversely affect our financial condition, results of operations and strategic objectives.

 

In addition, we are subject to Canadian and foreign anti-corruption laws and regulations such as the Canadian Corruption of Foreign Public Officials Act. In general, these laws prohibit a company and its employees and intermediaries from bribing or making other prohibited payments to foreign officials or other persons to obtain or retain business or gain some other business advantage. We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing laws might be administered or interpreted. Failure by us or our predecessors to comply with the applicable legislation and other similar foreign laws could expose us and our senior management to civil and/or criminal penalties, other sanctions and remedial measures, legal expenses and reputational damage, all of which could materially and adversely affect our business, financial condition and results of operations. Likewise, any investigation of any alleged violations of the applicable anti-corruption legislation by Canadian or foreign authorities could also have an adverse impact on our business, financial condition and results of operations.

 

11
 

 

A reversal of the U.S. economic recovery and a return to volatile or recessionary conditions in the United States or abroad could adversely affect our business or our access to capital markets in a material manner.

 

Worsening economic and market conditions, downside shocks, or a return to recessionary economic conditions could serve to reduce demand for our products and adversely affect our operating results. These economic conditions may also impact the financial condition of one or more of our key suppliers, which could affect our ability to secure product to meet our customers’ demand. In addition, a downturn in the cinema market could impact the valuation and collectability of certain receivables held by us. Our results of operations and the implementation of our business strategy could be adversely affected by general conditions in the global economy, including financial and economic conditions that are outside of our control, including those resulting from supply chain delays or interruptions, labor shortages, wage pressures, rising inflation, geopolitical events, or interruptions and other force majeure events, such as the COVID-19 pandemic. The most recent global financial crisis caused by COVID-19 resulted in extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn could result in a variety of risks to our business and could have a material adverse effect on us. We could also be adversely affected by such factors as changes in foreign currency rates and weak economic and political conditions in each of the countries in which we sell our products.

 

We rely extensively on our information technology systems and are vulnerable to damage and interruption.

 

We rely on our information technology systems and infrastructure to process transactions, summarize results and manage our business, including maintaining client and supplier information. Additionally, we utilize third parties, including cloud providers, to store, transfer and process data. From time to time, we experience cyber-attacks on our information technology systems. Our information technology systems, as well as the systems of our customers, suppliers and other partners, whose systems we do not control, are vulnerable to outages and an increasing risk of continually evolving deliberate intrusions to gain access to company sensitive information. Likewise, data security incidents and breaches by employees and others with or without permitted access to our systems pose a risk that sensitive data may be exposed to unauthorized persons or to the public. A cyber-attack or other significant disruption involving our information technology systems, or those of our customers, suppliers and other partners, could also result in disruptions in critical systems, corruption or loss of data and theft of data, funds or intellectual property. We may be unable to prevent outages or security breaches in our systems. We remain potentially vulnerable to additional known or yet unknown threats as, in some instances, we, our suppliers and our other partners may be unaware of an incident or its magnitude and effects. We also face the risk that we expose our customers or partners to cybersecurity attacks. Any or all of the foregoing could adversely affect our results of operations and cash flows, as well as our business reputation.

 

Any failure to maintain the security of information relating to our customers, employees and suppliers, whether as a result of cybersecurity attacks or otherwise, could expose us to litigation, government enforcement actions and costly response measures, and could disrupt our operations and adversely affect our business and reputation.

 

In connection with the sales and marketing of our products and services, we may from time to time transmit confidential information. We also have access to, collect or maintain private or confidential information regarding our customers, employees, and suppliers, as well as our business. We face risks associated with security breaches, whether through cyber-attacks or cyber intrusions over the internet, malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization, and other significant disruptions of our information technology networks and related systems. These risks include operational interruption, private data exposure and damage to our relationship with our customers, among others. Cyber-attacks are rapidly evolving and becoming increasingly sophisticated. It is possible that computer hackers and others might compromise our security measures, or security measures of those parties that we do business with now or in the future, and obtain the personal information of our customers, employees and suppliers or our business information. A security breach of any kind, including physical or electronic break- ins, computer viruses and attacks by hackers, employees or others, could expose us to risks of data loss, litigation, government enforcement actions, regulatory penalties and costly response measures, and could seriously disrupt our operations. Any resulting negative publicity could significantly harm our reputation, which could cause us to lose market share and have an adverse effect on our results of operations.

 

If we fail to retain key members of management, or successfully integrate new executives, our business may be materially harmed.

 

Our future success depends, in substantial part, on the efforts and abilities of our current management team. If certain of these individuals were to leave unexpectedly, we could experience substantial loss of institutional knowledge, face difficulty in hiring qualified successors and could experience a loss in productivity while any successor obtains the necessary training and experience. Our loss of services of any of our senior executives, or any failure to effectively integrate new management into our business processes, controls, systems and culture, could have a material adverse effect on us.

 

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There are risks associated with the completion of the planned separation and initial public offering of shares of common stock of our Strong Entertainment operating business.

 

We plan to conduct an initial public offering of our Strong Entertainment operating business after which the Entertainment business will operate independently as a publicly listed company. There is no assurance we will be able to successfully complete the separation and initial public offering. In the event the Company does not complete the separation and offering, it could incur write-offs related to the legal, tax and regulatory costs of the transaction.

 

In addition, if the separation and initial public offering is successful, the Entertainment business will then operate as an independent company. Although FG Group Holdings expects to be a large shareholder and have the ability to influence operating decisions, it will no longer directly control all day to day decision making or have direct access to the operating cash flows of that business following the separation.

 

Any potential future acquisitions, strategic investments, entry into new lines of business, divestitures, mergers or joint ventures may subject us to significant risks, any of which could harm our business.

 

Our long-term strategy may include identifying and acquiring, investing in or merging with suitable candidates on acceptable terms, entry into new lines of business and markets or divesting of certain business lines or activities. In particular, over time, we may acquire, make investments in or merge with providers of product offerings that complement our business or may terminate such activities. Mergers, acquisitions, divestitures and entries into new lines of business include a number of risks and present financial, managerial and operational challenges, including but not limited to:

 

  ● diversion of management attention from running our existing business;
     
  ● possible material weaknesses in internal control over financial reporting;
     
  ● increased expenses including legal, administrative and compensation expenses related to newly hired or terminated employees;
     
  ● increased costs to integrate, develop or, in the case of a divestiture, separate the technology, personnel, customer base and business practices of the acquired, new or divested business or assets;
     
  ● potential exposure to material liabilities not discovered in the due diligence process;
     
  ● potential adverse effects on reported results of operations due to possible write-down of goodwill and other intangible assets associated with acquisitions;
     
  ● potential damage to customer relationships or loss of synergies in the case of divestitures; and
     
  ● unavailability of acquisition financing or inability to obtain such financing on reasonable terms.

 

Any acquired business, technology, service or product, or entry into a new line of business could significantly under-perform relative to our expectations, and may not achieve the benefits we expect. For all these reasons, our pursuit of an acquisition, investment, new line of business, divestiture, merger or joint venture could cause our actual results to differ materially from those anticipated.

 

Failure to effectively utilize or successfully assert intellectual property rights could negatively impact us.

 

We own or otherwise have rights to various trademarks and trade names used in conjunction with the sale of our products, the most significant of which is Strong®. We rely on trademark laws to protect these intellectual property rights. We cannot assure that these intellectual property rights will be effectively utilized or, if necessary, successfully asserted. There is a risk that we will not be able to obtain and perfect our own intellectual property rights, or, where appropriate, license from others, intellectual property rights necessary to support new product introductions. Our intellectual property rights, and any additional rights we may obtain in the future, may be invalidated, circumvented or challenged in the future. Our failure to perfect or successfully assert intellectual property rights could harm our competitive position and could negatively impact us.

 

Natural disasters and other catastrophic events beyond our control could adversely affect our business operations and financial performance.

 

The occurrence of one or more natural disasters, such as fires, hurricanes, tornados, tsunamis, floods and earthquakes, geo-political events, such as civil unrest in a country in which our suppliers are located or terrorist or military activities disrupting transportation, communication or utility systems, or other highly disruptive events, such as nuclear accidents, public health epidemics or pandemics, such as the COVID-19 pandemic, unusual weather conditions or cyber-attacks, could adversely affect our operations and financial performance. In the event of a major disruption caused by the occurrence of any of the aforementioned events, we may lose the services of our employees or experience system interruptions, which could lead to diminishment of our business operations. Such events could result, among other things, in operational disruptions, physical damage to or destruction or disruption of one or more of our properties or properties used by third parties in connection with the supply of products or services to us, the lack of an adequate workforce in parts or all of our operations and communications and transportation disruptions. We cannot anticipate all the ways in which the current global health crisis and financial market conditions could adversely impact our business. These factors could also cause consumer confidence and spending to decrease or result in increased volatility in the United States and global financial markets and economy. Such occurrences could have a material adverse effect on us and could also have indirect consequences such as increases in the costs of insurance if they result in significant loss of property or other insurable damage.

 

13
 

 

The insurance that we maintain may not fully cover all potential exposures.

 

We maintain property, business interruption and casualty insurance but such insurance may not cover all risks associated with the hazards of our business and is subject to limitations, including deductibles and maximum liabilities covered. We are potentially at risk if one or more of our insurance carriers fail. Additionally, severe disruptions in the domestic and global financial markets could adversely impact the ratings and survival of some insurers. In the future, we may not be able to obtain coverage at current levels, and our premiums may increase significantly on coverage that we maintain.

 

Fundamental Global, with its affiliates, is our largest shareholder, and its interests may differ from the interests of our other stockholders.

 

The interests of Fundamental Global may differ from the interests of our other stockholders. Fundamental Global and its affiliates hold approximately 31.7% of our outstanding shares of common stock as of March 10, 2023. Mr. Cerminara, the Chief Executive Officer, Co-Founder and Partner of Fundamental Global, serves as our Chairman of our Board of Directors. As a result of its ownership position and Mr. Cerminara’s position with the Company, Fundamental Global could exert influence over matters submitted to stockholder approval, including the election of our directors, and other corporate actions such as amendments to our certificate of incorporation, bylaws, significant stock issuances, mergers and asset sales, and over our business, operations, and management, including the strategic plans for the business. Fundamental Global may have interests that differ from those of our other stockholders and may vote in a way with which our other stockholders disagree and which may be adverse to their interests. Fundamental Global’s ownership position may also have the effect of delaying, preventing or deterring a change of control of the Company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of the Company and might ultimately affect the market price of our common stock.

 

We are entering a new line of business which could require additional capital.

 

The production, acquisition and distribution of feature films and series content requires substantial capital. We intend to mitigate risks by pre-selling rights to content and utilizing tax credit incentives in most cases to offset production costs. However, a significant amount of time may elapse between our expenditure of funds and the receipt of revenues after release or distribution of such content. Although we intend to reduce the risks of production exposure through pre-sale of rights, tax credit programs, government and industry programs, co-financiers and other sources, we cannot assure you that we will successfully implement these arrangements or that we will not be subject to substantial financial risks relating to the production, acquisition and distribution of content. Additionally, the production, completion and distribution of motion picture and television content can be subject to a number of uncertainties, including delays and increased expenditures due to disruptions or events beyond our control. As a result, if production incurs substantial budget overruns, we may have to seek additional financing or fund the overrun ourselves. We cannot make assurances regarding the availability of such additional financing on terms acceptable to us, or that we will recoup these costs. For instance, increased costs or budget overruns incurred with respect to a particular film may prevent a picture from being completed or released or may result in a delayed release and the postponement to a potentially less favorable date, all of which could cause a decline in performance, and, thus, the overall financial success of such film. Any of the foregoing could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.

 

We may incur significant write-offs if our projects do not perform well enough to recoup costs.

 

We will be required to amortize capitalized content production costs over the expected revenue streams as we recognize revenue from films or other projects. The amount of production costs that will be amortized each quarter depends on, among other things, how much future revenue we expect to receive from each project. Unamortized production costs will be evaluated for impairment each reporting period on a project-by-project basis. If estimated remaining revenue is not sufficient to recover the unamortized production costs, including because of delayed theatrical distribution of films as a result of the COVID-19 global pandemic and its effects, those costs would be written down to fair value. In any given quarter, if we lower our previous forecast with respect to total anticipated revenue from any film or other project, we may be required to accelerate amortization or record impairment charges with respect to the unamortized costs, even if we previously recorded impairment charges for such film or other project. Such impairment charges could adversely impact our business, operating results and financial condition.

 

14
 

 

Our revenues and results of operations may fluctuate significantly from period to period.

 

Our revenues and results of operations can vary based on the timing of shipments of our cinema products particularly with regard to the timing of cinema screen shipments and timing of customer orders and shipments of projection equipment. With the launch of Strong Studios, those fluctuations could increase on a quarter-to-quarter basis as timing of revenue and amortization of production costs will depend on timing delivery of content, among other factors. The degree of commercial success of content that we sell, license or distribute, which cannot be predicted with certainty may cause our revenue and earnings results to fluctuate significantly from period to period, and the results of any one period may not be indicative of the results for any future periods.

 

The price of our common stock may fluctuate significantly, and this may make it difficult for you to resell shares of common stock.

 

The trading price of our common stock has been highly volatile in the past and could be subject to significant fluctuations in response to variations in quarterly operating results, general conditions in the industries in which we operate and other factors, including the risk factors described in this section. In addition, the stock market is subject to price and volume fluctuations affecting the market price for the stock of many companies generally, which fluctuations often are unrelated to operating performance. These market fluctuations may adversely affect the market price of our common stock, making it difficult for you to resell shares of common stock owned by you at times or prices you find attractive.

 

Item 1B. Unresolved Staff Comments.

 

Not applicable.

 

Item 2. Properties.

 

Our corporate offices are located at 5960 Fairview Road, Suite 275, Charlotte, North Carolina, 28210, where we lease office space. The lease expires in May 2024. In addition, we owned or leased the following facilities as of December 31, 2022:

 

● Strong/MDI, one of our subsidiaries, owns an approximate 80,000 square-foot manufacturing plant in Joliette, Quebec, Canada. The facility is used for offices, manufacturing, assembly and distribution of cinema and other screens. We believe this facility is adequate for future needs and are evaluating capital expenditures to expand and improve the facility in 2023.
   
● STS leases a combined office and warehouse facility in Omaha, Nebraska, which is primarily used for the storage and distribution of third-party products. The lease for this facility expires in February 2027.
   
● We operate our Digital Ignition technology incubator and co-working facility in a 43,000 square-foot office facility in Alpharetta, Georgia. We leased this facility until February 2022, at which time we entered into an agreement to purchase the real estate and now own the land and building.

 

We believe these facilities are adequate for future needs. In addition, we do not anticipate any difficulty in retaining occupancy of any leased facilities, either by renewing leases prior to expiration or replacing them with equivalent leased facilities or purchasing these or other facilities in the future.

 

Item 3. Legal Proceedings.

 

In the ordinary course of our business operations, we are involved, from time to time, in certain legal disputes. We and certain of our subsidiaries are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. A majority of the cases involve product liability claims based principally on allegations of past distribution of commercial lighting products containing wiring that may have contained asbestos. Each case names dozens of corporate defendants in addition to us. In our experience, a large percentage of these types of claims have never been substantiated and have been dismissed by the courts. We have not suffered any adverse verdict in a trial court proceeding related to asbestos claims and intends to continue to defend these lawsuits. As of December 31, 2022, we have a loss contingency reserve of approximately $0.2 million, which represents our estimate of our potential losses related to the settlement of open cases. During 2022 and the first quarter of 2023, we settled three cases, which resulted in payments totaling $53 thousand. When appropriate, we may settle additional claims in the future. We do not expect the resolution of these cases to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

15
 

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Market Information and Holders

 

Our common stock is listed and traded on the NYSE American under the symbol “FGH.”

 

According to the records of our transfer agent, we had 26 stockholders of record of our common stock on March 10, 2023. Because brokers and other institutions hold many of our shares on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

 

Stock Repurchases

 

On August 20, 2015, we announced that our Board of Directors adopted a stock repurchase program authorizing the repurchase of up to 700,000 shares of our outstanding common stock pursuant to a plan adopted under Rule 10b5-1 of the Exchange Act. The program has no expiration date. The following table provides information about purchases made by us of our common stock for each month included in the fourth quarter of 2022:

 

ISSUER PURCHASES OF EQUITY SECURITIES
Period  Total Number of Shares Purchased   Average Price Paid Per Share   Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs   The Maximum Number of Shares That May Still be Purchased Under the Plans or Programs 
         
October 2022   -   $-    -    636,931 
November 2022   -    -    -    636,931 
December 2022   -    -    -    636,931 
Quarter Ended December 31, 2022   -   $-   $-    636,931 

 

Dividend Policy

 

We intend to retain our earnings to assist in financing our business and purchasing equity stakes in other companies and do not anticipate paying cash dividends on our common stock in the foreseeable future. The declaration and payment of dividends by the Company are also subject to the discretion of the Board of Directors. Any determination by the Board of Directors as to the payment of dividends in the future will depend upon, among other things, business conditions, our financial condition and capital requirements, as well as any other factors deemed relevant by the Board. We have not paid cash dividends since we went public in 1995.

 

Item 6. [Reserved]

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-looking Statements

 

The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. Management’s discussion and analysis contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not historical are forward-looking and reflect expectations for future Company performance. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 

Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve a number of risks and uncertainties, including but not limited to those discussed in the “Risk Factors” section contained in Item 1A. Given the risks and uncertainties, readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described herein, as well as others not now anticipated. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Any forward-looking statement made by us or on our behalf speaks only as of the date that it was made. Except where required by law, the Company assumes no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. You, however, should consult further disclosures (including disclosures of a forward-looking nature) that we may make in any subsequent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, or Current Report on Form 8-K. Readers are cautioned not to place undue reliance on these forward-looking statements.

 

16
 

 

Continuing Operations

 

Our Strong Entertainment segment includes one of the largest manufacturers of premium projection screens and customized screen support systems, and we also distribute other products and provide technical support services to the cinema, amusement park and other markets. We are focused on improving the operating performance as the United States and other countries recover from COVID-19 related business disruptions. We plan to manage the Strong Entertainment business segment to grow market share and organic revenue and improve operating results, with the intent of expanding the ultimate valuation of the business. We intend to separate our Strong Entertainment operating business from the Company and pursue an initial public offering to support the growth plans for that line of business.

 

In connection with the sale of our Strong Outdoor operating business to Firefly in August 2020, we entered into a Master Services Agreement and agreed to provide certain support services to Firefly through the end of 2022. In addition, we use our facility in Alpharetta, Georgia for our Digital Ignition technology incubator and co-working facility. Results of those operations are included within “Other” in our results of operations.

 

We also continue to evaluate capital allocation opportunities to invest in other public or private companies or acquire other businesses, which may be within or outside of the Company’s existing markets. During 2021, we completed the divestiture of our Convergent digital signage business and allocated additional capital to increase our positions in GreenFirst and FGF.

 

Discontinued Operations

 

Convergent Transaction in February 2021

 

As part of a transaction that closed on February 1, 2021, we divested our Convergent business segment. The purchase price was (i) $15.0 million in cash and (ii) $2.5 million in the form of a subordinated promissory note. Additionally, a portion of the Purchase Price was placed in escrow and a portion of the purchase price was subject to a working capital adjustment. As additional consideration, the buyer also assumed approximately $5.7 million of debt, bringing the total enterprise value for Convergent sale to approximately $23.2 million. We recorded a gain of approximately $14.8 million during 2021 related to the sale of Convergent.

 

Firefly Transaction in August 2020

 

On August 3, 2020, we sold certain assets of the Strong Outdoor operating business to Firefly, and made 300 digital taxi tops available to Firefly through December 31, 2022. Strong Digital Media, LLC (“SDM”), an indirect subsidiary of FG Group Holdings, 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 a result of these divestitures, we have presented Convergent’s and Strong Outdoor’s operating results as discontinued operations for all periods presented. Note 3 to the consolidated financial statements contains additional information regarding these transactions.

 

Impact of COVID-19 Pandemic

 

In December 2019, a novel coronavirus disease was initially reported, and in March 2020, the World Health Organization characterized COVID-19 as a pandemic. COVID-19 has had a widespread and detrimental effect on the global economy as a result of the continued increase in the number of cases, particularly in the United States, and actions by public health and governmental authorities, businesses, other organizations and individuals to address the outbreak, including travel bans and restrictions, quarantines, shelter in place, stay at home or total lock-down orders and business limitations and shutdowns. The ultimate impact of the COVID-19 pandemic on our business and results of operations remains unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including repeat or cyclical outbreaks, and any additional preventative and protective actions that governments, or we or our customers, may direct, which may result in an extended period of continued business disruption and reduced operations. We believe that consumer reticence to engage in outside-the-home activities, caused by the risk of contracting COVID-19, is abating, and our customers have resumed more typical, pre-COVID-19 purchasing behaviors. There can be no assurances, however, that there will be no further resurgence or variants of COVID-19 which could reverse the current trend.

 

17
 

 

The repercussions of the COVID-19 global pandemic resulted in a significant impact to our customers, specifically those in the entertainment and advertising industries, and their ability and willingness to spend on our products and services, which continues to negatively impact us. A significant number of our customers temporarily ceased operations during the pandemic, which negatively impacted our results of operations. For instance, during this time, many movie theaters and other entertainment centers were forced to close or curtail their hours and, correspondingly, terminated or deferred their non-essential capital expenditures. The COVID-19 pandemic also adversely affected film production and the pipeline of feature films available in the short- or long-term. However, we believe there is now pent-up demand for out-of-home entertainment that will drive favorable trends post-COVID-19 in the cinema exhibition and theme park industries. We also experienced other negative impacts during the pandemic; among other actions, we were required to temporarily close our screen manufacturing facility in Canada due to the governmental response to COVID-19, experienced lower revenues from field services, and saw a reduction in non-recurring time and materials-based services. The impact of any future outbreak of contagious disease, or a worsening or resurgence of COVID-19, is not readily ascertainable, is uncertain and cannot be predicted, but could have an adverse impact on the Company’s business, financial condition and results of operations, and could also have a material adverse impact on our strategic partners’ businesses or on the businesses of companies in which we hold equity stakes.

 

The Consolidated Appropriations Act extended and expanded the availability of the CARES Act employee retention credit through June 30, 2021. Subsequently, the American Rescue Plan Act of 2021 (“ARP Act”), enacted on March 11, 2021, extended and expanded the availability of the employee retention credit through December 31, 2021, however, certain provisions apply only after December 31, 2020. This new legislation expanded the group of qualifying business to include businesses with fewer than 500 employees and those who previously qualified for the Paycheck Protection Program (the “PPP Loan”). The employee retention credit is calculated to be equal to 70% of qualified wages paid to employees after December 31, 2020, and before January 1, 2022. During calendar year 2021, a maximum of $10,000 in qualified wages for each employee per qualifying calendar quarter may be counted in determining the 70% credit. Therefore, the maximum tax credit that can be claimed by an eligible employer is $7,000 per employee per qualifying calendar quarter of 2021. We have determined that the qualifications for the credit were met in the first, second and third quarters of 2021. During the nine months ended September 30, 2021, we applied for refunds of a total of $2.1 million of payroll taxes previously paid and recognized a corresponding reduction in compensation expenses. Of the $2.1 million, $1.3 million was recorded within cost of services, $0.5 million was recorded within general and administrative expenses, $0.1 million was recorded within selling expenses, and $0.2 million was recorded within discontinued operations during 2021. The Infrastructure Investment and Jobs Act was signed into law November 15, 2021, and ended the availability of the employee retention credit for the entire fourth quarter of 2021. We collected $0.8 million and $1.1 million of the employee retention credits during 2022 and 2021, respectively, and expect to collect the remaining $0.2 million during 2023.

 

While the current impacts of COVID-19 are reflected in our results of operations, we cannot at this time separate the direct COVID-19 impacts from other factors that cause our performance to vary from quarter to quarter. The ultimate duration and impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows is dependent on future developments and the related length of their impact on the global economy, which are uncertain and cannot be predicted at this time. Even as the COVID-19 pandemic subsides, we may continue to experience an adverse impact to our business as a result of its national and global economic impact. Our results of operations in future periods may continue to be adversely impacted by the COVID-19 pandemic and its negative effects on global economic conditions. For additional risks relating to the COVID-19 pandemic, see the discussion in the “Risk Factors” section contained in Item 1A of this report.

 

18
 

 

Results of Operations:

 

The following table sets forth our operating results for the periods indicated:

 

   Year Ended December 31,         
   2022   2021   $ Change   % Change 
   (dollars in thousands)     
Net revenues  $41,237   $27,030   $14,207    52.6%
Cost of revenues   30,321    18,820    11,501    61.1%
Gross profit   10,916    8,210    2,706    33.0%
Gross profit percentage   26.5%   30.4%          
Selling and administrative expenses   12,802    11,310    1,492    13.2%
Loss on disposal of assets   (474)   (38)   (436)   1147.4%
Loss from operations   (2,360)   (3,138)   778    (24.8)%
Other (loss) income   (4,724)   12,116    (16,840)   (139.0)%
(Loss) income before income taxes and equity method holding income (loss)   (7,084)   8,978    (16,062)   (178.9)%
Income tax expense   (473)   (3,236)   2,763    (85.4)%
Equity method holding income (loss)   403    (2,371)   2,774    (117.0)%
Net (loss) income from continuing operations  $(7,154)  $3,371   $(10,525)   (312.2)%

 

 

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

 

Revenues

 

Net revenues increased 52.6% to $41.2 million during 2022 from $27.0 million in 2021. The increase in consolidated net revenue was primarily due to the continuing recovery of the Strong Entertainment business from the impact of COVID-19 as demand increased for services and screens, as well as the revenue generated from Strong Studios, which commenced operations during 2022.

 

   Year Ended December 31,         
   2022   2021   $ Change   % Change 
   (dollars in thousands)     
Strong Entertainment  $39,867   $25,886   $13,981    54.0%
Other   1,370    1,144    226    19.8%
Total net revenues  $41,237   $27,030   $14,207    52.6%

 

Revenue from Strong Entertainment increased 54.0% to $39.9 million in 2022 from $25.9 million in 2021. The increase from the prior year was due to a $10.5 million increase in product revenue and a $3.5 million increase in service revenue.

 

Demand and revenue from products and services benefited from the continuing recovery in the cinema industry. With COVID-19 restrictions subsiding, studio releases increasing and box office performance improving over the past year, cinema exhibitors are allocating more resources to improving their auditoriums, including upgrading their auditoriums from xenon projection to laser projection, which helps drive demand for our products and services. We have also increased the scope of our services to better support our customers and to increase market share in cinema services. We expect the upgrades from xenon to laser to continue for at least the next several years.

 

Strong Studios commenced operations during 2022 and generated $0.9 million of revenue related to production services rendered to a project that was completed during the fourth quarter of 2022.

 

The increase in other revenue primarily related to growth in our Digital Ignition business. We also recognized revenue of $0.7 million and $0.8 million during 2022 and 2021, respectively, related to the support services provided to Firefly. The revenue generated from services provided to Firefly are not expected to continue in future periods.

 

Gross Profit

 

Consolidated gross profit increased 33.0% to $10.9 million in 2022 from $8.2 million in 2021. As a percentage of revenue, gross profit decreased to 26.5% during 2022 compared to 30.4% for 2021. Excluding the impact of employee retention credits, gross profit would have been 25.7% during 2021, as compared with 26.5% in 2022.

 

19
 

 

   Year Ended December 31,         
   2022   2021   $ Change   % Change 
   (dollars in thousands)     
Strong Entertainment  $9,546   $7,283   $2,263    31.1%
Other   1,370    927    443    47.8%
Total gross profit  $10,916   $8,210   $2,706    33.0%

 

 

Gross profit in the Strong Entertainment segment was $9.5 million or 23.9% of revenues for 2022 compared to $7.3 million or 28.1% of revenues for 2021. The 2021 annual period included a positive impact of $1.3 million as a result of the employee retention credit. Excluding the impact of the employee retention credit, gross profit for the year ended December 31, 2021 would have been 23.2% of revenue.

 

Gross profit from product sales was $7.4 million or 24.5% of revenues for 2022 compared to $4.8 million or 24.4% of revenues for 2021. The decrease in gross profit percentage resulted primarily from product mix as revenue from projection and audio equipment grew at a faster rate than our higher margin screen products and services. Costs of labor, materials, packaging and shipping also increased, partially offsetting the favorable impact of higher revenue levels.

 

Gross profit from service revenue was $2.1 million or 22.1% of revenues for 2022 compared to $2.5 million or 39.4% of revenues during 2021. Excluding the impact of the employee retention credits, gross profit from service revenue for 2021 would have been $1.2 million or 13.9% of revenue.

 

Other gross profit increased during 2022 compared to 2021 primarily due to growth in our Digital Ignition business.

 

Loss From Operations

 

Consolidated loss from operations was $2.4 million in 2022 compared to $3.1 million during 2021. Excluding the impact of employee retention credits, which favorably impacted the prior year period, loss from operations during 2021 would have been $5.1 million.

 

   Year Ended December 31,         
   2022   2021   $ Change   % Change 
   (dollars in thousands)     
Strong Entertainment  $2,761   $2,211   $550    24.9%
Other   (736)   (718)   (18)   2.5%
Total segment operating income   2,025    1,493    532    35.6%
Unallocated administrative expenses   (4,385)   (4,593)   208    (4.5)%
Unallocated loss on disposal of assets   -    (38)   38    100.0%
Total loss from operations  $(2,360)  $(3,138)  $778    (24.8)%

 

The Strong Entertainment segment generated income from operations of $2.8 million in 2022 compared to $2.2 million in 2021. The increase in operating income was primarily due to the increase in revenue and gross profit discussed above, which was partially offset by the favorable impact on the prior year period of $1.3 million of employee retention credits which did not recur in the current period. In addition, there were also increases to selling and administrative expenses due to higher compensation and benefits, marketing and travel and entertainment expenses related to the increased revenue and business activity, including the startup of Strong Studios, in the current period as compared to the prior year.

 

During 2022, we recorded a $0.5 million loss on disposal of assets within our Other operating segment related to the digital taxi tops that were made available to Firefly through December 31, 2022. The non-cash charge of $0.5 million represented the write-off of the net book value of the digital taxi at the end of the agreement with Firefly. 

 

Unallocated administrative expenses decreased to $4.4 million in 2022 compared to $4.6 million in 2021. Compensation and benefits expenses, including stock-based compensation expense, decreased in the current period as compared to prior year but were partially offset by the recognition of employee retention credits of $0.3 million recognized in the prior year.

 

Other Financial Items

 

Total other loss of $4.7 million during 2022 primarily consisted of a $4.5 million loss on equity holdings, primarily arising from unrealized mark to market losses, a $0.2 million adjustment to the carrying value of the SageNet Promissory Note (as defined in Note 3 to the consolidated financial statements) in connection with a prepayment, and $0.3 million of interest expense, partially offset by $0.3 million of foreign currency transaction adjustments. Total other income of $12.1 million during 2021 primarily consisted of a $12.3 million gain on equity holdings, which included a $10.6 million unrealized gain and a $1.7 million realized gain, a $0.1 million gain on our property and insurance claim for the weather-related incident at our production facility in Quebec, Canada, partially offset by $0.1 million of foreign currency transaction adjustments and $0.2 million of interest expense.

 

20
 

 

Income tax expense was approximately $0.5 million during 2022 compared to $3.2 million during 2021. Our income tax expense consisted primarily of current and deferred income tax on foreign earnings and gains and losses on equity holdings.

 

We recorded income of $0.4 million on our equity method holding in FGF Holdings during 2022. The year ended December 31, 2021 included a loss of $2.4 million on our equity method holdings, which consisted of approximately $1.2 million from each of FGF and GreenFirst.

 

As a result of the items outlined above, we generated a net loss from continuing operations of $7.2 million, or $0.37 per basic and diluted share, during 2022, compared to net income from continuing operations of $3.4 million, or $0.19 per basic and diluted share, during 2021.

 

Liquidity and Capital Resources

 

During the past several years, we have primarily met our working capital and capital resource needs from our operating cash flows, sales of our common stock and credit facilities. Our primary cash requirements involve operating expenses, working capital, capital expenditures, equity holdings, and other general corporate activities.

 

We ended 2022 with total cash and cash equivalents of $3.8 million compared to cash and cash equivalents and restricted cash of $8.9 million as of December 31, 2021. Of the $3.8 million as of December 31, 2022, $0.7 million was held by our Canadian subsidiary, Strong/MDI. Strong/MDI makes intercompany loans to the U.S. parent company which do not trigger Canadian withholding taxes if they meet certain requirements. As of December 31, 2022, the parent company had outstanding intercompany loans from Strong/MDI of approximately $38.6 million. In the event those loans are not repaid, or are recharacterized as dividends to the U.S. parent company, we would be required to pay 5% Canadian withholding taxes, which have been fully accrued as of December 31, 2022.

 

In response to the COVID-19 pandemic and related closures of cinemas, theme parks and entertainment venues, we took decisive actions to conserve cash, reduce operating expenditures, delay capital expenditures, and manage working capital.

 

On June 7, 2021, Strong/MDI entered into a demand credit agreement (the “2021 Credit Agreement”), which amended and restated the demand credit agreement dated as of September 5, 2017. The 2021 Credit Agreement consists of a revolving line of credit for up to CDN$2.0 million subject to a borrowing base requirement, a 20-year installment loan for up to CDN$5.1 million and a 5-year installment loan for up to CDN$0.5 million. These borrowings are due on demand by the lender and totaled $2.5 million as of December 31, 2022. In January 2023, Strong/MDI entered into a demand credit agreement (the “2023 Credit Agreement”), which amended and restated the 2021 Credit Agreement. The 2023 Credit Agreement consists of a revolving line of credit for up to CAD$5.0 million and a 20-year installment loan for up to CAD$3.1 million. Under the 2023 Credit Agreement: (i) the amount outstanding under the line of credit is payable on demand and bears interest at the lender’s prime rate plus 1.0% and (ii) the amount outstanding under the installment loan bears interest at the lender’s prime rate plus 0.5% and is payable in monthly installments, including interest, over their respective borrowing periods. The lender may also demand repayment of the installment loan at any time. The 2023 Credit Agreement is secured by a lien on Strong/MDI’s Quebec, Canada facility and substantially all of Strong/MDI’s assets. The 2023 Credit Agreement requires Strong/MDI to maintain a ratio of liabilities to “effective equity” (tangible stockholders’ equity, less amounts receivable from affiliates and equity holdings) not exceeding 2.5 to 1 and a fixed charge coverage ratio of not less than 1.1 times earnings before interest, income taxes, depreciation and amortization.

 

We believe that our existing sources of liquidity, including cash and cash equivalents, operating cash flow, credit facilities, equity holdings, receivables and other assets will be sufficient to meet our projected capital needs for at least the next twelve months. However, our ability to continue to meet our cash requirements will depend on, among other things, our ability to achieve anticipated levels of revenues and cash flow from operations, performance of our equity holdings, our ability to manage costs and working capital successfully, any new COVID-19 related restrictions or other unforeseen disruptions of cinemas, theme parks and other entertainment venues, and the continued availability of financing, if needed. We cannot provide any assurance that our assumptions used to estimate our liquidity requirements will remain accurate due to the unpredictability of the COVID-19 global pandemic. In the event of a sustained market deterioration or declines in net sales or other events, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions. We may, depending on a variety of factors, including market conditions for capital raises, the trading price of our common stock and opportunities for uses of any proceeds, engage in additional public or private offerings of equity or debt securities to increase our capital resources. However, financial and economic conditions could limit our access to credit and impair our ability to raise capital, if needed, on acceptable terms or at all, and we cannot provide any assurance that we will be able to obtain any additional sources of financing or liquidity on acceptable terms, or at all. See Note 12 to the consolidated financial statements for a description of our debt as of December 31, 2022.

 

21
 

 

Cash Flows from Operating Activities

 

Net cash used in operating activities from continuing operations was $3.6 million during 2022 primarily due to due to increases in working capital accompanying revenue growth in the Strong Entertainment business during the current period and outflows related to selling and administrative expense, partially offset by the receipt of $1.3 million of employee retention credits. Net cash provided by operating activities from continuing operations was $1.6 million during 2021 primarily due to the operating income generated by Strong Entertainment and improvements in working capital, partially offset by cash outflows for selling and administrative expense.

 

Cash Flows from Investing Activities

 

Net cash used in investing activities from continuing operations was $0.6 million during 2022, which consisted of a $2.0 million purchase of common stock of FGF, $0.9 million of capital expenditures and $0.5 million outflow related to the acquisition of film and television programming rights, partially offset by the $2.3 million receipt of the SageNet Promissory Note and $0.5 million of proceeds from the sale of equity securities. Net cash used in investing activities from continuing operations was $13.9 million during 2021, which consisted of a $10.0 million increase to our equity holding in GreenFirst, $2.4 million to increase our equity holding in FGF and $1.5 million of capital expenditures.

 

Cash Flows from Financing Activities

 

Net cash used in financing activities from continuing operations was $0.9 million during 2022, which primarily consisted of principal payments on short-term and long-term debt and finance lease obligations. Net cash provided by financing activities from continuing operations was $3.4 million during 2021, which primarily consisted of $6.3 million of net proceeds from the issuance of our common stock, partially offset by $2.8 million of principal payments on finance leases and short-term debt.

 

Use of Non-GAAP Measures

 

We prepare our consolidated financial statements in accordance with United States generally accepted accounting principles (“GAAP”). In addition to disclosing financial results prepared in accordance with GAAP, we disclose information regarding Adjusted EBITDA, which differs from the term EBITDA as it is commonly used. In addition to adjusting net income (loss) to exclude income taxes, interest, and depreciation and amortization, Adjusted EBITDA also excludes discontinued operations, share-based compensation, impairment charges, equity method income (loss), fair value adjustments, severance, foreign currency transaction gains (losses), transactional gains and expenses, gains on insurance recoveries and other cash and non-cash charges and gains.

 

EBITDA and Adjusted EBITDA are not measures of performance defined in accordance with GAAP. However, Adjusted EBITDA is used internally in planning and evaluating our operating performance. Accordingly, management believes that disclosure of these metrics offers investors, bankers and other stakeholders an additional view of our operations that, when coupled with the GAAP results, provides a more complete understanding of our financial results.

 

EBITDA and Adjusted EBITDA should not be considered as an alternative to net income (loss) or to net cash from operating activities as measures of operating results or liquidity. Our calculation of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures used by other companies, and the measures exclude financial information that some may consider important in evaluating our performance.

 

EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. Some of these limitations are (i) they do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments, (ii) they do not reflect changes in, or cash requirements for, our working capital needs, (iii) EBITDA and Adjusted EBITDA do not reflect interest expense, or the cash requirements necessary to service interest or principal payments, on our debt, (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements, (v) they do not adjust for all non-cash income or expense items that are reflected in our statements of cash flows, (vi) they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations, and (vii) other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures.

 

We believe EBITDA and Adjusted EBITDA facilitate operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. These potential differences may be caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). We also present EBITDA and Adjusted EBITDA because (i) we believe these measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry, (ii) we believe investors will find these measures useful in assessing our ability to service or incur indebtedness, and (iii) we use EBITDA and Adjusted EBITDA internally as benchmarks to evaluate our operating performance or compare our performance to that of our competitors.

 

22
 

 

The following table sets forth reconciliations of net income (loss) under GAAP to EBITDA and Adjusted EBITDA (in thousands):

 

   Years Ended Ended December 31, 
   2022   2021 
                                 
   Strong Entertainment   Corporate and Other   Discontinued Operations   Consolidated   Strong Entertainment   Corporate and Other   Discontinued Operations   Consolidated 
Net income (loss)  $98   $(7,252)  $-   $(7,154)  $8,492   $(5,121)  $14,566   $17,937 
Net income from discontinued operations   -    -    -    -    -    -    (14,566)   (14,566)
Net income (loss) from continuing operations   98    (7,252)   -    (7,154)   8,492    (5,121)   -    3,371 
Interest expense (income), net   143    197    -    340    107    126    -    233 
Income tax expense   369    104    -    473    2,755    481    -    3,236 
Depreciation and amortization   697    700    -    1,397    910    401    -    1,311 
EBITDA   1,307    (6,251)   -    (4,944)   12,264    (4,113)   -    8,151 
Stock-based compensation expense   -    652    -    652    -    892    -    892 
Equity method holdings loss (income)   -    (403)   -    (403)   1,150    1,221    -    2,371 
Employee retention credit   -    -    -    -    (1,576)   (336)   -    (1,912)
Loss (gain) on equity holdings   2,142    2,326    -    4,468    (10,527)   (1,746)   -    (12,273)
Loss on disposal of assets and impairment charges   -    474    -    474    -    38         38 
Foreign currency transaction (income) loss   (265)   1    -    (264)   67    -    -    67 
Gain on property and casualty insurance recoveries   -    -    -    -    (148)   -    -    (148)
Severance and other   -    222    -    222    15    87    -    102 
Adjusted EBITDA  $3,184   $(2,979)  $-   $205   $1,245   $(3,957)  $-   $(2,712)

 

Financial Instruments and Credit Risk Concentrations

 

Our top ten customers accounted for 49% of 2022 consolidated net revenues. Trade accounts receivable from these customers represented 68% of net consolidated receivables at December 31, 2022. None of our customers accounted for more than 10% of both our consolidated net revenues during 2022 and our net consolidated receivables as of December 31, 2022. While we believe our 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 our significant customers could have a material adverse effect on our business, financial condition and results of operations. We could also be adversely affected by such factors as changes in foreign currency rates and weak economic and political conditions in each of the countries in which we sell our products.

 

Financial instruments that potentially expose us to a concentration of credit risk principally consist of accounts receivable. We sell products to a large number of customers in many different geographic regions. To minimize credit concentration risk, we perform ongoing credit evaluations of our customers’ financial condition or use letters of credit.

 

Hedging and Trading Activities

 

Our primary exposure to foreign currency fluctuations pertains to our operations in Canada. In certain instances, we may enter into foreign exchange contracts to manage a portion of this risk. We do not have any trading activities that include non-exchange traded contracts at fair value.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Inflation

 

We believe that the relatively moderate rates of inflation in recent years have not had a significant impact on our net revenues or profitability. Historically, we have been able to offset any inflationary effects by either increasing prices or improving cost efficiencies. While inflation has been relatively low in recent years, it began to increase in the second half of 2021. Substantial increases in costs and expenses could impact our results of operations to the extent that such increases cannot be offset by price increases and/or increased efficiencies.

 

23
 

 

Recently Issued Accounting Pronouncements

 

See Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements for a description of recently issued accounting pronouncements.

 

Critical Accounting Policies and Estimates

 

General

 

The following accounting policies involve judgments and estimates used in preparation of the consolidated financial statements. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements.

 

Our accounting policies are discussed in Note 2 to the consolidated financial statements in this report. Management believes the following critical accounting policies reflect its more significant estimates and assumptions used in the preparation of the consolidated financial statements.

 

Revenue Recognition

 

We account 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.

 

We combine 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. We estimate the amount of total contract consideration we expect to receive for variable arrangements by determining the most likely amount we expect to earn from the arrangement based on the expected quantities of services we expect to provide and the contractual pricing based on those quantities. We only include 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. We consider the sensitivity of the estimate, our 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 in Note 2 to the consolidated financial statements, 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 we expect to receive in exchange for transferring goods or providing services. We do not have any material extended payment terms, as payment is due at or shortly after the time of the sale. Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded from revenue.

 

Equity Holdings

 

We apply the equity method of accounting to equity holdings when we have significant influence, but not controlling interest, in the entity. Judgment regarding the level of influence over each equity method holding includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. We assess equity holdings for impairment whenever events or changes in circumstances indicate that the carrying value of an equity holding may not be recoverable. For equity method holdings in public companies that are actively traded, fair value would generally be determined based on the security’s trading price multiplied by the number of shares held. Determining fair value for equity holdings in thinly traded public companies and privately held entities could require using a valuation model, which would include significant judgment and estimates.

 

24
 

 

Film and Television Programming Rights

 

Commencing in March 2022, we began producing original productions and acquiring rights to films and television programming. Film and television programming rights include the unamortized costs of in-process or in-development content produced or acquired by us. Our capitalized costs include all direct production and financing costs, capitalized interest when applicable, and production overhead. Film and television program rights are stated at the lower of amortized cost or estimated fair value. Fair value is determined using a discounted cash flow methodology with assumptions for cash flows. Key inputs employed in the discounted cash flow methodology include estimates of ultimate revenue (as defined below) and costs, as well as a discount rate. The discount rate utilized in the valuation is based on the weighted average cost of capital of the Company plus a risk premium representing the risk associated with acquiring the film and television programming rights.

 

The costs of producing content are amortized using the individual-film-forecast method. These costs are amortized based on the ratio of the current period’s revenues to management’s estimated remaining total gross revenues to be earned (“Ultimate Revenue”) as of each reporting date to reflect the most current available information. Management’s judgment is required in estimating Ultimate Revenue and the costs to be incurred throughout the life of each film or television program. Amortization is adjusted when necessary to reflect increases or decreases in forecasted Ultimate Revenues.

 

For an episodic television series, the period over which Ultimate Revenues are estimated cannot exceed ten years following the date of delivery of the first episode, or, if still in production, five years from the date of delivery of the most recent episode, if later. For films, Ultimate Revenue includes estimates over a period not to exceed ten years following the date of initial release.

 

Content assets are expected to be predominantly monetized individually and therefore are reviewed at the individual level when an event or change in circumstance indicates a change in the expected usefulness of the content or the fair value may be less than the unamortized cost.

 

Due to the inherent uncertainties involved in making such estimates of Ultimate Revenues and expenses, these estimates may differ from actual results. In addition, in the normal course of our business, some films and titles will be more successful or less successful than anticipated. Management regularly reviews and revises, when necessary, its Ultimate Revenue and cost estimates, which may result in a change in the rate of amortization of film costs and participations and residuals and/or a write-down of all or a portion of the unamortized costs of the film or television program to its estimated fair value. An increase in the estimate of Ultimate Revenue will generally result in a lower amortization rate and, therefore, less film and television program amortization expense, while a decrease in the estimate of Ultimate Revenue will generally result in a higher amortization rate and, therefore, higher film and television program amortization expense, and also periodically result in an impairment requiring a write-down of the film cost to the title’s fair value. We have not yet incurred any of these write-downs.

 

An impairment charge would be recorded in the amount by which the unamortized costs exceed the estimated fair value. Estimates of future revenue involve measurement uncertainties and it is therefore possible that reductions in the carrying value of film library costs may be required because of changes in management’s future revenue estimates.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable as we are a “smaller reporting company.”

 

25
 

 

Item 8. Financial Statements and Supplementary Data.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page No
   
Report of Independent Registered Public Accounting Firm – Haskell & White LLP (PCAOB ID: 200) F-1
   
Consolidated Financial Statements  
Consolidated Balance Sheets—December 31, 2022 and 2021 F-4
Consolidated Statements of Operations—Years Ended December 31, 2022 and 2021 F-5
Consolidated Statements of Comprehensive (Loss) Income—Years Ended December 31, 2022 and 2021 F-6
Consolidated Statements of Stockholders’ Equity—Years Ended December 31, 2022 and 2021 F-7
Consolidated Statements of Cash Flows—Years Ended December 31, 2022 and 2021 F-8
Notes to Consolidated Financial Statements—Years Ended December 31, 2022 and 2021 F-9

 

26

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors

FG Group Holdings Inc.

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of FG Group Holdings Inc. (formerly, Ballantyne Strong, Inc.) (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022 and 2021, and the consolidated results of its operations and its cash flows for each of the years then ended, in conformity with U.S. generally accepted accounting principles.

 

Emphasis-of-Matter

 

As summarized in Note 3 to the consolidated financial statements, the Company disposed of its Convergent operating business in February 2021. As a result of the disposition, Convergent has been presented as discontinued operations for all periods presented in the accompanying consolidated financial statements. Our opinion is not modified with respect to this matter.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current-period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

F-1

 

 

Revenue Recognition

 

Critical Audit Matter Description

 

The Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company may enter into certain contracts to sell their products and services that contain non-standard terms and conditions and multiple performance obligations. For such contracts, significant interpretation may be required to determine the appropriate accounting, including the identification of all performance obligations, determination of when performance obligations are distinct and when they should be combined, allocation of the transaction price among performance obligations in the arrangement, and the timing of the transfer of control of promised products or services.

 

Our assessment of management’s evaluation of the appropriate accounting for revenue recognition is significant to our audit because the revenue amounts are material to the consolidated financial statements, management’s assessment process involves significant judgment, and the application of U.S. generally accepted accounting principles in this area are complex.

 

How the Critical Audit Matter Was Addressed in the Audit

 

Our principal audit procedures related to the Company’s revenue recognition for customer contracts included the following:

 

  ● We obtained an understanding of management’s significant accounting policies related to revenue from contracts with customers, and we evaluated such policies for compliance with U.S. generally accepted accounting principles.
     
  ● We tested management’s identification of performance obligations and its assessment of whether or not the performance obligations are distinct.
     
  ● We evaluated the reasonableness of management’s estimate of stand-alone selling prices for products and services and the allocation of the transaction price among the identified performance obligations.
     
  ● We tested the mathematical accuracy of management’s calculations of revenue and the related timing of revenue recognized in the consolidated financial statements.
     
  ● We selected a sample of revenue transactions for each of the Company’s significant revenue streams, obtained the related customer agreement and performed the following procedures for each selection:

 

  ○ Examined source documents, including master agreements, customer purchase orders, shipping documents and/or other evidence of delivery, and other documentation to corroborate the arrangement with the customer.
     
  ○ Tested management’s identification and treatment of key contract terms for compliance with the Company’s revenue recognition policies.
     
  ○

Assessed the terms in the customer arrangement and evaluated the appropriateness of management’s application of the Company’s accounting policies, including its use of estimates, in the determination of revenue recognition amounts.

 

F-2

 

 

Accounting for Equity Investments

 

Critical Audit Matter Description

 

The Company’s equity investments comprise a significant portion of its total assets as of December 31, 2022, and management uses several methods of accounting to determine the appropriate accounting for each of its holdings based on management’s evaluation of current facts and circumstances. Significant judgment is required to determine if or when the Company has significant influence, or a controlling interest, with respect to an investee. Also, it is inherently difficult to assess the financial position, financial performance and valuation of entities that are privately held.

 

Our assessment of management’s determination of the appropriate accounting method and resulting valuations for the Company’s equity investments is significant to our audit because equity investments are material to the consolidated financial statements and management’s assessment process involves significant judgment.

 

How the Critical Audit Matter Was Addressed in the Audit

 

Our principal audit procedures related to the Company’s equity investments included the following:

 

  ● We obtained an understanding of management’s significant accounting policies related to equity investments, and we evaluated such policies for compliance with U.S. generally accepted accounting principles.
     
  ● We corroborated the existence of each of the Company’s equity investments as of December 31, 2022, and evaluated management’s determination of the appropriate accounting method for each investee (i.e., fair value, equity method, cost plus) based on current facts and circumstances.
     
  ● Tested management’s application of the accounting method to each investee, as well as management’s assessment of potential impairment to determine the accuracy of year-end balances.
     
  ● For material purchases, exchanges or disposition of equity securities, we performed the following procedures:

 

  ○ Examined source documents corroborating the transactions, including agreements, disbursement records, brokerage statements and bank statements.
     
  ○ Recalculated any related gains and losses.
     
  ○ Assessed the impact of the transaction on the accounting method used by management to account for the equity investment.

 

  ● For each applicable investment, reviewed management’s consideration of the applicability of variable interest entity guidance.

 

  /s/ Haskell & White LLP
  HASKELL & WHITE LLP

 

We have served as the Company’s auditor since 2019.

 

Irvine, California

March 16, 2023

 

F-3

 

 

FG Group Holdings Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except par values)

 

   December 31, 2022   December 31, 2021 
           
Assets          
Current assets:          
Cash and cash equivalents  $3,789   $8,731 
Restricted cash   -    150 
Accounts receivable, net   6,167    4,631 
Inventories, net   3,389    3,271 
Other current assets   4,871    4,992 
Total current assets   18,216    21,775 
Property, plant and equipment, net   12,649    6,226 
Operating lease right-of-use assets   310    3,975 
Finance lease right-of-use assets   666    - 
Note receivable, net of current portion   -    1,667 
Equity holdings   37,522    41,133 
Intangible assets, net   5    69 
Film and television programming rights, net   1,501    - 
Goodwill   882    942 
Other assets   2    22 
Total assets  $71,753   $75,809 
           
Liabilities and Stockholders’ Equity          
Current liabilities:          
Accounts payable  $4,375   $4,245 
Accrued expenses   5,167    2,994 
Short-term debt   2,510    2,998 
Current portion of long-term debt   216    23 
Current portion of operating lease obligations   116    577 
Current portion of finance lease obligations   117    - 
Deferred revenue and customer deposits   1,787    3,292 
Total current liabilities   14,288    14,129 
Operating lease obligations, net of current portion   257    3,586 
Finance lease obligations, net of current portion   550    - 
Long-term debt, net of current portion   5,004    105 
Deferred income taxes   4,851    5,594 
Other long-term liabilities   105    118 
Total liabilities   25,055    23,532 
           
Commitments, contingencies and concentrations (Note 16)   -    - 
           
Stockholders’ equity:          
Preferred stock, par value $.01 per share; authorized 1,000 shares, none outstanding   -    - 
Common stock, par value $.01 per share; authorized 50,000 shares; issued 22,264 and 21,286 shares at December 31, 2022 and December 31, 2021, respectively; outstanding 19,470 and 18,492 shares at December 31, 2022 and December 31, 2021, respectively   223    213 
Additional paid-in capital   53,882    50,807 
Retained earnings   16,437    23,591 
Treasury stock, 2,794 shares at cost   (18,586)   (18,586)
Accumulated other comprehensive loss   (5,258)   (3,748)
Total stockholders’ equity   46,698    52,277 
Total liabilities and stockholders’ equity  $71,753   $75,809 

 

See accompanying notes to consolidated financial statements.

 

F-4

 

 

FG Group Holdings Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share amounts)

 

               
   Years Ended December 31, 
   2022   2021 
Net product sales  $30,119   $19,631 
Net service revenues   11,118    7,399 
Total net revenues   41,237    27,030 
Cost of products sold   22,729    14,078 
Cost of services   7,592    4,742 
Total cost of revenues   30,321    18,820 
Gross profit   10,916    8,210 
Selling and administrative expenses:          
Selling   2,261    1,783 
Administrative   10,541    9,527 
Total selling and administrative expenses   12,802    11,310 
Loss on disposal of assets   (474)   (38)
Loss from operations   (2,360)   (3,138)
Other income (expense):          
Interest income   7    75 
Interest expense   (347)   (308)
Foreign currency transaction income (loss)   264    (67)
(Loss) gain on equity holdings   (4,468)   12,273 
Other (loss) income, net   (180)   143 
Total other (loss) income   (4,724)   12,116 
(Loss) income from continuing operations before income taxes and equity method holdings income (loss)   (7,084)   8,978 
Income tax expense   (473)   (3,236)
Equity method holding income (loss)   403    (2,371)
Net (loss) income from continuing operations   (7,154)   3,371 
Net income from discontinued operations (Note 3)   -    14,566 
Net (loss) income  $(7,154)  $17,937 
           
Basic net (loss) income per share          
Continuing operations  $(0.37)  $0.19 
Discontinued operations   -    0.81 
Basic net (loss) income per share  $(0.37)  $1.00 
           
Diluted net (loss) income per share          
Continuing operations  $(0.37)  $0.19 
Discontinued operations   -    0.81 
Diluted net (loss) income per share  $(0.37)  $1.00 
           
Weighted-average shares used in computing net (loss) income per share:          
Basic   19,293    18,023 
Diluted   19,293    18,192 

 

See accompanying notes to consolidated financial statements.

 

F-5

 

 

FG Group Holdings Inc. and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income

(In thousands)

 

   2022   2021 
   Years Ended December 31, 
   2022   2021 
Net (loss) income  $(7,154)  $17,937 
Adjustment to postretirement benefit obligation          
Prior service credit   (24)   (24)
Net actuarial gain (loss)   5    (34)
Total adjustment to postretirement benefit obligation   (19)   (58)
Removal of unrealized gain on available-for sale securities of equity method holding   (121)   - 
Currency translation adjustment:          
Unrealized net change arising during year   (1,370)   201 
Total other comprehensive (loss) income   (1,510)   143 
Comprehensive (loss) income  $(8,664)  $18,080 

 

See accompanying notes to consolidated financial statements.

 

F-6

 

 

FG Group Holdings Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

Years Ended December 31, 2022 and 2021

($ and shares in thousands)

 

                             
   Common Stock (Shares)   Common Stock ($)   Additional Paid-In Capital   Retained Earnings   Treasury Stock   Accumulated Other Comprehensive Loss   Total
Stockholders’ Equity		 
Balance at December 31, 2020   17,596   $176   $43,713   $5,654   $(18,586)  $(3,891)  $27,066 
Net income   -    -    -    17,937    -    -    17,937 
Net other comprehensive income   -    -    -    -    -    143    143 
Vesting of restricted stock   396    4    (84)   -    -    -    (80)
Stock option exercise   4    -    9    -    -    -    9 
Issuance of common stock, net of issuance costs   3,290    33    6,277    -    -    -    6,310 
Stock-based compensation expense   -    -    892    -    -    -    892 
Balance at December 31, 2021   21,286    213    50,807    23,591    (18,586)   (3,748)   52,277 
Net loss   -    -    -    (7,154)   -    -    (7,154)
Net other comprehensive loss   -    -    -    -    -    (1,510)   (1,510)
Vesting of restricted stock   217    2    (28)   -    -    -    (26)
Issuance of common stock   761    8    2,342    -    -    -    2,350 
Issuance of warrants   -    -    109                   109 
Stock-based compensation expense   -    -    652    -    -    -    652 
Balance at December 31, 2022   22,264   $223   $53,882   $16,437   $(18,586)  $(5,258)  $46,698 

 

See accompanying notes to consolidated financial statements.

 

F-7

 

 

FG Group Holdings Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

 

               
   Years Ended December 31, 
   2022   2021 
Cash flows from operating activities:          
Net (loss) income from continuing operations  $(7,154)  $3,371 
Adjustments to reconcile net (loss) income from continuing operations to net cash (used in) provided by operating activities:          
Recovery of doubtful accounts   (30)   (263)
Provision for obsolete inventory   49    95 
Provision for warranty   303    140 
Depreciation and amortization   1,397    1,306 
Amortization and accretion of operating leases   195    828 
Equity method holding (income) loss   (403)   2,371 
Loss (gain) on equity holdings   4,468    (10,584)
Adjustment to SageNet promissory note in connection with prepayment (Note 3)   202    - 
Loss on disposal of assets   474    38 
Deferred income taxes   (653)   2,511 
Stock-based compensation expense   652    892 
Changes in operating assets and liabilities:          
Accounts receivable   (1,614)   1,126 
Inventories   (309)   (1,095)
Current income taxes   329    38 
Other assets   2,245    (2,072)
Accounts payable and accrued expenses   (2,054)   2,095 
Deferred revenue and customer deposits   (1,476)   1,637 
Operating lease obligations   (193)   (822)
Net cash (used in) provided by operating activities from continuing operations   (3,572)   1,612 
Net cash provided by operating activities from discontinued operations   -    427 
Net cash (used in) provided by operating activities   (3,572)   2,039 
           
Cash flows from investing activities:          
Capital expenditures   (915)   (1,527)
Acquisition of programming rights   (459)   - 
Sale of equity holdings   498      
Purchase of common shares of FG Financial Group, Inc. (Note 7)   (2,000)   - 
Receipt of SageNet promissory note (Note 3)   2,300      
Exercise of GreenFirst Forest Products, Inc. rights (Note 7)   -    (9,981)
Exercise of FG Financial Group, Inc. rights (Note 7)   -    (2,400)
Net cash used in investing activities from continuing operations   (576)   (13,908)
Net cash provided by investing activities from discontinued operations   -    12,761 
Net cash used in investing activities   (576)   (1,147)
           
Cash flows from financing activities:          
Principal payments on short-term debt   (697)   (728)
Principal payments on long-term debt   (164)   - 
Proceeds from stock issuance, net of costs   -    6,310 
Payments of withholding taxes related to net share settlement of equity awards   (27)   (80)
Proceeds from exercise of stock options   -    9 
Payments on capital lease obligations   (36)   (2,106)
Net cash (used in) provided by financing activities from continuing operations   (924)   3,405 
Net cash used in financing activities from discontinued operations   -    (155)
Net cash (used in) provided by financing activities   (924)   3,250 
Effect of exchange rate changes on cash and cash equivalents   (20)   (48)
Net decrease in cash and cash equivalents and restricted cash from continuing operations   (5,092)   (8,939)
Net increase in cash and cash equivalents and restricted cash from discontinued operations   -    13,033 
Net (decrease) increase in cash and cash equivalents and restricted cash   (5,092)   4,094 
Cash and cash equivalents and restricted cash at beginning of year   8,881    4,787 
Cash and cash equivalents and restricted cash at end of year  $3,789   $8,881 
           
Components of cash and cash equivalents and restricted cash:          
Cash and cash equivalents  $3,789   $8,731 
Restricted cash   -    150 
Total cash and cash equivalents and restricted cash  $3,789   $8,881 
           
Supplemental disclosure of cash paid for:          
Interest  $322   $308 
Income taxes  $826   $715 
           
Supplemental disclosure of non-cash investing and financing activities:          
Issuance of debt, common shares, and warrants in connection with purchase of Digital Ignition building   $7,609    $- 
Amount payable to Landmark Studio Group in connection with aquistion of projects (Note 8)   $1,345    $- 

 

See accompanying notes to consolidated financial statements.

 

F-8

 

 

FG Group Holdings Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

 

1. Business Description and Basis of Presentation

 

Business Description

 

FG Group Holdings Inc. (previously Ballantyne Strong, Inc.) (“FG Group Holdings,” or the “Company”), a Nevada corporation, is a holding company with business operations in the entertainment industry and holdings in public and privately held companies. The Company historically has conducted a large portion of its operations primarily through its Strong Entertainment operating segment, which manufactures and distributes premium large format projection screens and provides technical support services and other related products and services to the cinema exhibition industry, theme parks, schools, museums and other entertainment-related markets. Strong Entertainment also distributes and supports third party products, including digital projectors, servers, library management systems, menu boards and sound systems. The Company also operates its Digital Ignition technology incubator and co-working facility in Alpharetta, Georgia. In addition, the Company holds minority equity positions in three companies.

 

In March 2022, the Company launched Strong Studios, Inc., (“Strong Studios”) with the goal of expanding Strong Entertainment to include content creation and production of feature films and series. The launch of Strong Studios is intended to further diversify our revenue streams and increase our addressable markets, while leveraging and expanding our existing relationships in the industry.

 

The Company announced plans to establish the Strong Entertainment business as a separate publicly listed company. Following the planned separation, the operations of the Strong Entertainment operating segment are expected to become part of a newly established British Columbia corporation, Strong Global Entertainment, Inc. (“Strong Global Entertainment”). Strong Global Entertainment has filed a registration statement with the U.S. Securities and Exchange Commission (“SEC”) and intends to commence an initial public offering of its common shares during 2023 to raise additional capital to support its growth plans. If successful, the Company expects to apply to have the Strong Global Entertainment common shares trade on the NYSE American under the ticker symbol “SGE” following the initial public offering, and the Company would expect to continue to be the majority shareholder of Strong Global Entertainment.

 

Effective December 23, 2022, the Company changed its name from Ballantyne Strong, Inc. to FG Group Holdings Inc. by filing a Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware. Also effective December 23, 2022, the Company changed its corporate domicile from Delaware to Nevada by merging with and into a newly-formed corporation, FG Group Holdings Inc. (Nevada), which was incorporated in the State of Nevada for that purpose, pursuant to that certain Agreement and Plan of Merger dated October 19, 2022, and is now known as FG Group Holdings Inc., a Nevada corporation.

 

Effective July 20, 2022, the Company’s Board of Directors approved the relocation of Ballantyne Strong’s headquarters from 4201 Congress Street, Suite 175, Charlotte, North Carolina, 28209 to 5960 Fairview Road, Suite 275, Charlotte North Carolina, 28210.

 

In February 2021, the Company completed the sale of its Convergent business segment. As a result of the divestiture, the Company has presented Convergent’s operating results as discontinued operations for all periods presented. See Note 3 for additional details.

 

Basis of Presentation

 

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.

 

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.

 

F-9

 

 

2. Summary of Significant Accounting Policies

 

Revenue Recognition

 

The Company accounts for revenue using the following steps:

 

  ● Identify the contract, or contracts, with a customer;
  ● Identify the performance obligations in the contract;
  ● Determine the transaction price;
  ● Allocate the transaction price to the identified performance obligations; and
  ● Recognize revenue when, or as, the Company satisfies the performance obligations.

 

The Company combines contracts with the same customer into a single contract for accounting purposes when the contracts are entered into at or near the same time and the contracts are negotiated as a single commercial package, consideration in one contract depends on the other contract, or the services are considered a single performance obligation. If an arrangement involves multiple performance obligations, the items are analyzed to determine whether they are distinct, whether the items have value on a standalone basis, and whether there is objective and reliable evidence of their standalone selling price. The total contract transaction price is allocated to the identified performance obligations based upon the relative standalone selling prices of the performance obligations. The standalone selling price is based on an observable price for services sold to other comparable customers, when available, or an estimated selling price using a cost-plus margin approach. The Company estimates the amount of total contract consideration it expects to receive for variable arrangements by determining the most likely amount it expects to earn from the arrangement based on the expected quantities of services it expects to provide and the contractual pricing based on those quantities. The Company only includes a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is subsequently resolved. The Company considers the sensitivity of the estimate, its relationship and experience with the client and variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement.

 

As discussed in more detail below, revenue is recognized when a customer obtains control of promised goods or services under the terms of a contract and is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The Company typically does not have any material extended payment terms, as payment is due at or shortly after the time of the sale. Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded from revenue.

 

The Company recognizes contract assets or unbilled receivables related to revenue recognized for services completed but not yet invoiced to the clients. Unbilled receivables are recorded as accounts receivable when the Company has an unconditional right to contract consideration. A contract liability is recognized as deferred revenue when the Company invoices clients, or receives cash, in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when the Company has satisfied the related performance obligation.

 

The Company defers costs to acquire contracts, including commissions, incentives and payroll taxes, if they are incremental and recoverable costs of obtaining a customer contract with a term exceeding one year. Deferred contract costs are reported within other assets and amortized to selling expense over the contract term, which generally ranges from one to five years. The Company has elected to recognize the incremental costs of obtaining a contract with a term of less than one year as a selling expense when incurred. The Company did not have any deferred contract costs as of December 31, 2022 or December 31, 2021.

 

Screen system sales

 

The Company typically recognizes revenue on the sale of its screen systems when control of the screen is transferred to the customer, usually at time of shipment. However, revenue is recognized upon delivery for certain international shipments with longer shipping transit times because control transfers upon customer delivery. The cost of freight and shipping to the customer is recognized in cost of sales at the time of transfer of control to the customer. For contracts that are long-term in nature, the Company believes that the use of the percentage-of-completion method is appropriate as the Company has the ability to make reasonably dependable estimates of the extent of progress towards completion, contract revenues, and contract costs. Under the percentage-of-completion method, revenue is recorded based on the ratio of actual costs incurred to total estimated costs expected to be incurred related to the contract.

 

Digital equipment sales

 

The Company recognizes revenue on sales of digital equipment when the control of the equipment is transferred, which typically occurs at the time of shipment from the Company’s warehouse or drop-shipment from a third party. The cost of freight and shipping to the customer is recognized in cost of sales at the time of transfer of control to the customer.

 

F-10

 

 

Field maintenance and monitoring services

 

The Company sells service contracts that provide maintenance and monitoring services to its Strong Entertainment customers. These contracts are generally 12 months in length. Revenue related to service contracts is recognized ratably over the term of the agreement.

 

In addition to selling service contracts, the Company also performs discrete time and materials-based maintenance and repair work for customers in the Strong Entertainment segment. Revenue related to time and materials-based maintenance and repair work is recognized at the point in time when the performance obligation has been fully satisfied.

 

Installation services

 

The Company performs installation services for its Strong Entertainment customers and recognizes revenue upon completion of the installations.

 

Extended warranty sales

 

The Company sells extended warranties to its Strong Entertainment customers. Typically, the Company is the primary obligor, and revenue is recognized on a gross basis ratably over the term of the extended warranty.

 

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, 2022, $0.7 million of the $3.8 million in cash and cash equivalents was held by our foreign subsidiary.

 

Restricted Cash

 

Restricted cash represented amounts held in a collateral account for the Company’s corporate travel and purchasing credit card program. During 2022, the Company switched its corporate travel and purchasing credit card program and is no longer required to maintain a collateral account.

 

Equity Holdings

 

The Company accounts for its equity holdings using the equity method, at cost, or at fair value depending on the facts and circumstances related to each individual holding. The Company applies the equity method of accounting to its holdings when it has significant influence, but not controlling interest, in the entity. Judgment regarding the level of influence over each equity method holding includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. The Company’s proportionate share of the net income or loss resulting from these equity holdings is reported under the line item captioned “equity method holding loss” in our consolidated statements of operations. The Company’s equity method holding is reported at cost and adjusted each period for the Company’s share of the entity’s income or loss and dividends paid, if any. The Company’s share of the entity’s income or loss is recorded on a one quarter lag for all equity method holdings. The Company classifies distributions received from equity method holdings using the cumulative earnings approach on the consolidated statements of cash flows.

 

Changes in fair value of holdings in marketable equity securities of unconsolidated entities in which the Company is not able to exercise significant influence (“Fair Value Holdings”) are recognized on the consolidated statement of operations. Nonmarketable equity holdings in unconsolidated entities in which the Company is not able to exercise significant influence (“Cost Method Holdings”) are accounted for at the Company’s initial cost, minus any impairment (if any), plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar holding or security of the same issuer. Dividends on Fair Value Holdings and Cost Method Holdings received are recorded as income.

 

The Company assesses its equity holdings for impairment whenever events or changes in circumstances indicate that the carrying value of an equity holding may not be recoverable. Management reviewed the underlying net assets of the Company’s equity method holding as of December 31, 2022 and determined that the Company’s proportionate economic interest in the entity indicates that the equity holding was not impaired. There were no observable price changes in orderly transactions for an identical or similar holding or security of the Company’s Cost Method Holding during 2022. The carrying value of our equity method, Fair Value Holdings and Cost Method Holdings is reported as “equity holdings” on the consolidated balance sheets. Notes 3 and 7 contain additional information on our equity method, Fair Value Holdings and Cost Method Holdings.

 

F-11

 

 

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. The accounts receivable balances on the consolidated balance sheets are net of an allowance for doubtful accounts of $0.4 million and $0.6 million as of December 31, 2022 and 2021, respectively. Past due accounts are written off 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.

 

The following table details a roll-forward of the inventory reserve during 2022 (in thousands):

 

      
Inventory reserve balance at December 31, 2021  $467 
Inventory write-offs during 2022   (59)
Provision for inventory reserve during 2022   49 
Reserve adjustments during 2022   29 
Inventory reserve balance at December 31, 2022  $486 

 

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’s intangible assets consist primarily of costs incurred to develop or obtain software, as well as costs incurred for upgrades and enhancements resulting in new or enhanced functionality. The Company evaluates its intangible assets for impairment when 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.

 

Film and Television Programming Rights

 

Commencing in March 2022, the Company began producing original productions and acquiring rights to films and television programming. Film and television programming rights include the unamortized costs of in-process or in-development content produced or acquired by the Company. The Company’s capitalized costs include all direct production and financing costs, capitalized interest when applicable, and production overhead. Film and television program rights are stated at the lower of amortized cost or estimated fair value.

 

The costs of producing content are amortized using the individual-film-forecast method. These costs are amortized based on the ratio of the current period’s revenues to management’s estimated remaining total gross revenues to be earned (“Ultimate Revenue”) as of each reporting date to reflect the most current available information. Management’s judgment is required in estimating Ultimate Revenue and the costs to be incurred throughout the life of each film or television program. Amortization is adjusted when necessary to reflect increases or decreases in forecasted Ultimate Revenues.

 

For an episodic television series, the period over which Ultimate Revenues are estimated cannot exceed ten years following the date of delivery of the first episode, or, if still in production, five years from the date of delivery of the most recent episode, if later. For films, Ultimate Revenue includes estimates over a period not to exceed ten years following the date of initial release.

 

F-12

 

 

Content assets are expected to be predominantly monetized individually and therefore are reviewed at the individual level when an event or change in circumstance indicates a change in the expected usefulness of the content or the fair value may be less than the unamortized cost.

 

Due to the inherent uncertainties involved in making such estimates of Ultimate Revenues and expenses, these estimates may differ from actual results. In addition, in the normal course of our business, some films and titles will be more successful or less successful than anticipated. Management regularly reviews and revises, when necessary, its Ultimate Revenue and cost estimates, which may result in a change in the rate of amortization of film costs and participations and residuals and/or a write-down of all or a portion of the unamortized costs of the film or television program to its estimated fair value. An increase in the estimate of Ultimate Revenue will generally result in a lower amortization rate and, therefore, less film and television program amortization expense, while a decrease in the estimate of Ultimate Revenue will generally result in a higher amortization rate and, therefore, higher film and television program amortization expense, and also periodically result in an impairment requiring a write-down of the film cost to the title’s fair value. The Company has not incurred any of these write-downs.

 

An impairment charge would be recorded in the amount by which the unamortized costs exceed the estimated fair value. Estimates of future revenue involve measurement uncertainties and it is therefore possible that reductions in the carrying value of capitalized costs may be required because of changes in management’s future revenue estimates.

 

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. For a reporting unit in which the Company concludes, based on the qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount (or if the Company elects to skip the optional qualitative assessment), the Company is required to perform a quantitative impairment test, which includes measuring the fair value of the reporting unit and comparing it to the reporting unit’s carrying amount. If the fair value of a reporting unit exceeds its carrying value, the goodwill of the reporting unit is not impaired. If the carrying value of a reporting unit exceeds its fair value, the Company must record an impairment loss for the amount that the carrying value of the reporting unit, including goodwill, exceeds the fair value of the reporting unit.

 

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, 2022 and it was determined that no events had occurred 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.

 

F-13

 

 

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 $0.3 million and $0.2 million for the years ended December 31, 2022 and 2021, respectively, and are included within administrative expenses on the consolidated statements of operations.

 

Advertising Costs

 

Advertising and promotional costs are expensed as incurred and amounted to approximately $0.2 million and $0.1 million for the years ended December 31, 2022 and 2021, respectively, and are included within selling expenses on the consolidated statements of operations.

 

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, 2022 and 2021.

 

Fair values measured on a recurring basis at December 31, 2022 (in thousands):

 

   Level 1   Level 2   Level 3   Total 
Cash and cash equivalents  $3,789   $-   $-   $3,789 
Restricted cash  $150    -    -    - 
Fair value method holding   16,792    -    -    16,792 
Total  $20,581   $-   $-   $20,581 

 

F-14

 

 

Fair values measured on a recurring basis at December 31, 2021 (in thousands):

 

   Level 1   Level 2   Level 3   Total 
Cash and cash equivalents  $8,731   $-   $-   $8,731 
Restricted cash  $150    -    -    - 
Fair value method holding   22,467    -    -    22,467 
Total  $31,348   $-   $-   $31,198 

 

The carrying values of all other financial assets and liabilities, including accounts receivable, accounts payable, accrued expenses and short-term debt reported in the consolidated balance sheets equal or approximate their fair values due to the short-term nature of these instruments. Based on a combination of the cash on hand as well as quoted market prices of the securities held by FGF Holdings (as defined below), the liquidation value of the Company’s equity method holding was $8.1 million at December 31, 2022 (see Note 7).

 

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).

 

(Loss) Income Per Common Share

 

Basic (loss) income per share has been computed on the basis of the weighted average number of shares of common stock outstanding. In periods when the Company reported net income from continuing operations, diluted net income per share has been computed on the basis of the weighted average number of shares of common stock outstanding after giving effect to potential common shares from dilutive stock options and certain non-vested restricted stock units. In periods when the Company reported a net loss from continuing operations, there were no differences between average shares used to compute basic and diluted loss per share as inclusion of stock options and restricted stock units would have been anti-dilutive in those periods.

 

A total of 136,055 common stock equivalents related to stock options and restricted stock units were excluded for the year ended December 31, 2022 as their inclusion would be anti-dilutive, thereby decreasing the net loss per share.

 

In addition, options to purchase 489,500 and 339,500 shares of common stock were outstanding as of December 31, 2022 and December 31, 2021, respectively, but were not included in the computation of diluted income (loss) per share as the options’ exercise prices were greater than the average market price of the common shares for each year.

 

Stock Compensation Plans

 

The Company recognizes compensation expense for all stock-based payment awards 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 2022 and 2021.

 

Post-Retirement Benefits

 

The Company recognizes the overfunded or underfunded position of a defined benefit postretirement plan as an asset or liability in the consolidated balance sheet, measures the plan’s assets and its obligations that determine its funded status as of each consolidated 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) income. Transaction gains and losses that arise from foreign exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the consolidated statements of operations as incurred. If the Company disposes of its holding in a foreign entity, any gain or loss on currency translation balance recorded in accumulated other comprehensive loss would be recognized as part of the gain or loss on disposition.

 

F-15

 

 

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 years ended December 31 (in thousands):

 

   2022   2021 
Warranty accrual at beginning of year  $136   $79 
Charged to expense   299    141 
Claims paid, net of recoveries   (117)   (85)
Foreign currency adjustment   (9)   1 
Warranty accrual at end of year  $309   $136 

 

Contingencies

 

The Company accrues for contingencies when its assessments indicate that it is probable that a liability has been incurred and an amount can be reasonably estimated. The Company’s estimates are based on currently available facts and its estimates of the ultimate outcome or resolution. Actual results may differ from the Company’s estimates, resulting in an impact, positive or negative, on earnings.

 

Recently Issued Accounting Pronouncements

 

In 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. The Company believes the adoption of this ASU will not significantly impact its results of operations and financial position.

 

3. Discontinued Operations

 

Convergent

 

As part of a transaction that closed in February 2021, the Company divested its Convergent business segment. The Company’s Convergent business segment delivered digital signage solutions and related services to large multi-location organizations in the United States and Canada.

 

On February 1, 2021, the Company entered into an Equity Purchase Agreement (together with the other related documents defined therein, the “Purchase Agreement”), and closed the transactions contemplated by the Purchase Agreement, with SageNet LLC (“SageNet”). Pursuant to the Purchase Agreement, a subsidiary of Ballantyne Strong sold 100% of the issued and outstanding limited liability company membership interests (the “Equity Interests”) in Convergent, LLC (“Convergent”) to SageNet. The purchase price for the Equity Interests (the “Purchase Price”) pursuant to the Purchase Agreement was (i) $15.0 million in cash and (ii) $2.5 million in the form of a subordinated promissory note delivered by SageNet in favor of the Company (the “SageNet Promissory Note”). Per the terms of the SageNet Promissory Note, the Company would receive twelve consecutive equal quarterly payments of principal, plus accrued interest thereon, commencing on March 31, 2022. The Company has elected to record the SageNet Promissory Note using its historical cost basis. Additionally, a portion of the Purchase Price was placed in escrow by SageNet, the release of which is contingent upon certain events and conditions specified in the Purchase Agreement. The Purchase Price is also subject to adjustment based on closing working capital of Convergent. As additional consideration, SageNet also assumed approximately $5.7 million of third-party debt of Convergent, bringing the total enterprise value for Convergent’s equity interests to approximately $23.2 million. The Company recorded a gain of $14.9 million during the first quarter of 2021 related to the sale of Convergent. In January 2022, the Company entered into an amendment to the SageNet Promissory Note. Pursuant to the terms of the amendment, the Company received a prepayment of $2.3 million plus accrued interest. As a result of the prepayment, all terms of the SageNet Promissory Note have been satisfied.

 

Strong Outdoor

 

As part of transactions in May 2019 and August 2020, the Company divested its Strong Outdoor business segment. The Company’s Strong Outdoor business segment provided outdoor advertising and experiential marketing to advertising agencies and corporate accounts, primarily in New York City.

 

F-16

 

 

On May 21, 2019, Strong Digital Media, LLC (“SDM”), an indirect subsidiary of Ballantyne Strong, entered into certain agreements with Firefly Systems, Inc. (“Firefly”). As consideration for entering into these agreements, Ballantyne Strong received a total of $5.7 million worth of Firefly’s Series A-2 preferred shares, which includes $0.9 million pursuant to an earn-out provision. The Series A-2 preferred shares were subsequently renamed Firefly Series B-1 Shares (the “Firefly Series B-1 Shares”).

 

On August 3, 2020, SDM entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Firefly, pursuant to which SDM agreed to sell certain assets primarily related to its Strong Outdoor operating business to Firefly. As consideration for entering into the Asset Purchase Agreement, SDM received approximately $3.2 million worth of Firefly Series A-3 preferred shares (the “Firefly Series A-3 Shares”). The Series A-3 preferred shares were subsequently renamed Firefly Series B-2 Shares (the “Firefly Series B-2 Shares”).

 

As of September 30, 2022, the Company held approximately $5.7 million of Firefly Series B-1 Shares and $7.2 million of Firefly Series B-2 Shares.

 

In August 2020, the Company entered into a Master Services Agreement (the “Master Services Agreement”) with Firefly, pursuant to which Ballantyne Strong agreed to provide certain support services to Firefly, including remote equipment monitoring and diagnostics of screens, until no later than December 31, 2022, and to provide transition advertising instruction and integration services, content management services, ad-hoc reporting and analysis, wireless service, advertising content management services, and mapping data until no later than six months from closing. As consideration for entering into the Master Services Agreement, the Company received $2.0 million in cash consideration which the Company recognized as revenue ratably through the end of 2022.

 

The major line items constituting the net income from discontinued operations are as follows (in thousands):

 

   Convergent   Strong Outdoor   Total 
   Year Ended December 31, 2021 
   Convergent   Strong Outdoor   Total 
Net revenues  $1,472   $-   $1,472 
Cost of revenues   746          -    746 
Gross profit   726    -    726 
Selling and administrative expenses   1,241    -    1,241 
Loss on disposal of assets   -    -    - 
(Loss) income from operations   (515)   -    (515)
Gain on Convergent transaction   14,814    -    14,814 
Gain on Firefly transaction   -    -    - 
Other income (expense)   195    -    195 
Income from discontinued operations   14,494    -    14,494 
Income tax benefit   72    -    72 
Total net income from discontinued operations  $14,566   $-   $14,566 

 

4. Revenue

 

The following tables disaggregate the Company’s revenue by major source for the years ended December 31, 2022 and December 31, 2021 (in thousands):

 

   Strong Entertainment   Other   Total   Strong Entertainment   Other   Total 
   Year Ended December 31, 2022   Year Ended December 31, 2021 
   Strong Entertainment   Other   Total   Strong Entertainment   Other   Total 
Screen system sales  $12,799   $-   $12,799   $9,292   $-   $9,292 
Digital equipment sales   13,245    -    13,245    8,264    -    8,264 
Extended warranty sales   347    -    347    250    -    250 
Other product sales   3,728    -    3,728    1,825    -    1,825 
Total product sales   30,119    -    30,119    19,631    -    19,631 
Field maintenance and monitoring services   6,797    -    6,797    5,113    -    5,113 
Installation services   1,889    -    1,889    987    -    987 
Production services   914    -    914    -    -    - 
Other service revenues   148    1,370    1,518    155    1,144    1,299 
Total service revenues   9,748    1,370    11,118    6,255    1,144    7,399 
Total  $39,867   $1,370   $41,237   $25,886   $1,144   $27,030 

 

F-17

 

 

The following tables disaggregate the Company’s revenue by the timing of transfer of goods or services to the customer for the years ended December 31, 2022 and December 31, 2021 (in thousands):

 

   Strong Entertainment   Other   Total   Strong Entertainment   Other   Total 
   Year Ended December 31, 2022   Year Ended December 31, 2021 
   Strong Entertainment   Other   Total   Strong Entertainment   Other   Total 
Point in time  $34,513   $139   $34,652   $22,218   $40   $22,258 
Over time   5,354    1,231    6,585    3,668    1,104    4,772 
Total  $39,867   $1,370   $41,237   $25,886   $1,144   $27,030 

 

At December 31, 2022, the unearned revenue amount associated with maintenance and monitoring services and extended warranty sales in which the Company is the primary obligor was $0.5 million. The Company expects to recognize $0.6 million of unearned revenue amounts during 2023 and immaterial amounts during 2024-2026. The amount expected to be recorded during 2023 includes $0.1 million related to long-term projects that the Company’s uses the percentage-of- completion method to recognize revenue.

 

F-18

 

 

5. Inventories

 Schedule of Inventories

   December 31, 2022   December 31, 2021 
Raw materials and components  $1,826   $1,680 
Work in process   279    399 
Finished goods   1,284    1,192 
Inventories, net  $3,389   $3,271 

 

The inventory balances are net of reserves of approximately $0.5 million as of both December 31, 2022 and December 31, 2021. The inventory reserves primarily related to the Company’s finished goods inventory. A rollforward of the inventory reserve for 2022 is provided in Note 2.

 

6. Property, Plant and Equipment

 

Property, plant and equipment include the following (in thousands):

 

   December 31, 2022   December 31, 2021 
Land  $2,341   $51 
Buildings and improvements   12,756    6,886 
Machinery and other equipment   4,786    5,992 
Office furniture and fixtures   860    837 
Construction in progress   11    393 
Total properties, cost   20,754    14,159 
Less: accumulated depreciation   (8,105)   (7,933)
Property, plant and equipment, net  $12,649   $6,226 

 

In January 2022, the Company, through its wholly owned subsidiary, Digital Ignition, LLC, and Metrolina Alpharetta, LLC (“Metrolina”) entered into an agreement pursuant to which the Company purchased a parcel of land with buildings and improvements in Alpharetta, Georgia. The Company previously leased the building and uses it for its Digital Ignition technology incubator and co-working facility. The purchase price consisted of (i) $5.8 million in cash, (ii) the grant of approximately 0.8 million shares of the Company’s common stock (the “Stock Grant”), and (iii) the issuance of a warrant to purchase an additional 0.1 million shares of the Company’s common stock (the “Stock Warrant”).

 

The Stock Grant was made to Metrolina Capital Investors, LLC (“Metrolina Capital”) and consisted of approximately 0.8 million shares of the Company’s common stock with a value equal to approximately $2.3 million. The number of shares of the Company’s stock was determined based upon a price per share equal to the average of the closing price of our on the NYSE American exchange for the 60 most recent trading days prior to February 1, 2022, rounded up to the nearest whole number of shares. Additionally, the Company issued the Stock Warrant to Metrolina Capital, consisting of a ten-year warrant to purchase up to 0.1 million shares of the Company’s common stock at an exercise price per share of $3.00. In connection with the issuance of Stock Warrant, the Company and Metrolina agreed that other warrants previously granted by the Company to Metrolina were cancelled and terminated.

 

Depreciation expense approximated $1.3 million and $1.0 million for the years ended December 31, 2022 and December 31, 2021, respectively.

 

7. Equity Holdings

 

The following summarizes our equity holdings (dollars in thousands):

 

   December 31, 2022   December 31, 2021 
   Carrying Amount   Economic Interest   Carrying Amount   Economic Interest 
Equity Method Holdings                    
FG Financial Holdings, LLC  $7,832    47.2%  $-      
FG Financial Group, Inc.   -         5,549    25.2%
Total Equity Method Investments   7,832         5,549      
                     
Fair Value Method Holding                    
GreenFirst Forest Products Inc.   16,792    8.4%   22,467    8.0%
                     
Cost Method Holding                    
Firefly Systems, Inc.   12,898         13,117      
Total Equity Holdings  $37,522        $41,133      

 

F-19

 

 

The following summarizes the income (loss) of equity method holdings reflected in the consolidated statements of operations (in thousands):

 

   2022   2021 
   Year Ended December 31, 
   2022   2021 
Entity          
FG Financial Group, Inc.  $(2,578)  $(1,221)
FG Financial Holdings, LLC   2,981    - 
GreenFirst Forest Products Inc.   -    (1,150)
Total  $403   $(2,371)

 

Equity Method Holding

 

FG Financial Group, Inc. (“FGF”) is a publicly-traded reinsurance and investment management holding company focused on opportunistic collateralized and loss capped reinsurance, while allocating capital to special purpose acquisition companies (each, a “SPAC”) and SPAC sponsor-related businesses.

 

In June 2022, FGF announced the closing of a public offering of common stock of 2,750,000 shares at a price of $1.58. The Company participated in the public offering and purchased 1,265,822 shares of FGF common stock. Following the purchase, the Company’s FGF holdings total approximately 2.9 million shares of FGF common stock.

 

The Company’s Chairman, D. Kyle Cerminara, is the chairman of the board of directors of FGF. Mr. Cerminara is affiliated with entities that, when combined with the Company’s ownership in FGF, own greater than 50% of FGF. Since FGF does not depend on the Company for continuing financial support to maintain operations, the Company has determined that FGF is not a variable interest entity, and therefore, the Company is not required to determine the primary beneficiary of FGF for potential consolidation. The Company did not receive dividends from FGF during the year ended December 31, 2022 or 2021.

 

FG Financial Holdings, LLC (“FGF Holdings”) is a limited liability company formed under the Delaware Limited Liability Company Act. The Company is a member of FGF Holdings and contributed its 2.9 million shares of FGF common stock to FGF Holdings on September 12, 2022. In consideration of its contribution to FGF Holdings, the Company was issued Series B Common Interests of FGF Holdings and 50% of the voting power over FGF Holdings. The members of FGF Holdings agreed that the powers of FGF Holdings shall be exercised by, or under the authority of, its managers. FGF Holdings has two managers, one of which was appointed by the Company. The Company designated its Chairman, D. Kyle Cerminara, to serve as a manager of FGF Holdings. The managers of FGF Holdings, acting unanimously, have the right, power and authority on behalf of FGF Holdings and in its name to execute documents or other instruments and exercise all of the rights, power and authority of FGF Holdings. Allocations of profits and losses and distributions of cash are made in accordance with the terms of the FGF Holdings operating agreement.

 

The Company has the ability to significantly influence FGF Holdings through its 50% voting power but does not maintain a controlling interest. Accordingly, the Company applied the equity method of accounting to its interest in FGF Holdings. The Company accounted for the transfer of the 2.9 million shares of FGF common stock to FGF Holdings as a change in interest and recognized a gain of $0.9 million during the third quarter of 2022, which was included in the equity method holding income on the consolidated statements of operations.

 

The Company is able to determine the value of its equity method holding in FGF Holdings using the quoted market prices of FGF common and preferred shares. Accordingly, the Company no longer needs to elect to recognize the results of its equity method holding in FGF Holdings in its statement of operations on a one-quarter lag.

 

Based on quoted market prices of the assets held by FGF Holdings, as well as the liabilities and cash balance on hand, the liquidation value of the Company’s LLC interest in FGF Holdings was approximately $8.1 million as of December 31, 2022.

 

As of December 31, 2022, the Company’s retained earnings included an accumulated deficit from its equity method holdings of approximately $6.0 million.

 

Fair Value Method Holding

 

GreenFirst Forest Products Inc. (“GreenFirst”) is a publicly-traded Canadian company focused on environmentally sustainable forest management and lumber production. In April 2021, GreenFirst announced that it had entered into an asset purchase agreement pursuant to which it would acquire a portfolio of forest and paper product assets (the “GreenFirst Acquisition”). The Company’s Chairman, Mr. Cerminara, served as a member of the board of directors of GreenFirst from June 2016 to October 2021, and was also appointed Chairman of GreenFirst from June 2018 to June 2021. Prior to the closing of the GreenFirst Acquisition, the Company held a 20.7% ownership position in GreenFirst. The Company’s 20.7% ownership of GreenFirst, combined with Mr. Cerminara’s board seat, provided the Company with significant influence over GreenFirst, but not a controlling interest. Accordingly, the Company applied the equity method of accounting to its equity holding in GreenFirst. Following the GreenFirst Acquisition and GreenFirst’s issuance of additional common shares, the Company’s ownership percentage decreased to 8.6%. As a result, the Company is no longer able to exercise significant influence over GreenFirst and the equity holding in GreenFirst no longer qualifies for equity method accounting. As a result of applying the fair value method of accounting, the Company recorded a loss on equity holdings of approximately $4.5 million during 2022, of which $4.4 million was an unrealized loss and $0.1 million was a realized loss. During 2021, a gain on equity holdings of $12.3 million, of which $10.6 million was unrealized and $1.7 million was realized. The Company did not receive dividends from GreenFirst during the year ended December 31, 2022 or 2021. Based on quoted market prices, the fair value of the Company’s ownership in GreenFirst was $16.7 million as of December 31, 2022.

 

F-20

 

 

Cost Method Holding

 

The Company holds approximately 1.1 million and 0.6 million Firefly Series B-1 and Firefly Series B-2 preferred shares, respectively, which were acquired in connection with the transactions with Firefly in May 2019 and August 2020. See Note 3 for additional details. In addition, the Company holds an additional 0.7 million Firefly Series B-2 preferred shares, which were acquired in August 2020 pursuant to a stock purchase agreement with Firefly. The Company and its affiliated entities have designated Kyle Cerminara, Chairman of the Company’s board of directors and a principal of the Company’s largest shareholder, to Firefly’s board of directors.

 

8. Film and Television Programming Rights, Net

 Schedule of Development Assets Acquired

   December 31, 2022   December 31, 2021 
Television series in development  $1,308   $- 
Films in development   193    - 
Total  $1,501   $- 

 

The Company has not yet commenced amortization of the projects as they were still in development at December 31, 2022.

 

A rollforward of film and television programming rights, net for year ended December 31, 2022 is as follows (in thousands):

 

Balance at December 31, 2021  $- 
In-process projects acquired from Landmark   1,670 
Warrant to be issued to Landmark   364 
Expenditures on in-process projects   459 
Reclass from other assets   124 
Reclass of reimbursable costs associated with Safehaven   (1,116)
Balance at December 31, 2022  $1,501 

 

On March 3, 2022, Strong Studios acquired, from Landmark Studio Group LLC (“Landmark”), the rights to original feature films and television series, and has been assigned third party rights to content for global multiplatform distribution. The transaction entailed the acquisition of certain projects which are in varying stages of development, none of which have, as yet, produced revenue. In connection with such assignment and purchase, Strong Studios agreed to pay to Landmark approximately $1.7 million in four separate payments, $0.3 million of which was paid upon the closing of the transaction. The $1.7 million acquisition price was allocated to three projects in development, including $1.0 million to Safehaven, $0.3 million to Flagrant and $0.4 million to Shadows in the Vineyard. The Company also agreed to issue to Landmark no later than 10 days after the completion of the initial public offering of Strong Global Entertainment, a warrant to purchase up to 150,000 common shares of Strong Global Entertainment, exercisable for three years beginning six months after the consummation of the initial public offering, at an exercise price equal to the per-share offering price of Strong Global Entertainment’s common shares in the initial public offering (the “Landmark Warrant”). The Landmark Warrant allows for cashless exercise in certain limited circumstances and provides for certain registration rights for such warrant shares. In the event that an initial public offering of the Company does not occur within a specified time, Landmark would have the right to surrender the warrant in exchange for 2.5% ownership in Strong Studios.

 

As a condition precedent to entry into the AA Agreement, Strong Studios agreed to enter into distribution agreements for the AA Projects (the “AA Distribution Agreements”) with Screen Media Ventures, LLC (“SMV”). Pursuant to the AA Distribution Agreements, SMV agreed to purchase the global distribution rights to Safehaven for $6.5 million and Flagrant for $2.5 million upon delivery of each project. In January 2023, Strong Studios amended its agreement with SMV resulting in Strong Studios retaining the worldwide global distribution rights for the Flagrant series and releasing SMV from the obligation to purchase the distribution rights for the series.

 

F-21

 

 

In accordance with Accounting Standards Codification (“ASC”) 926 Entertainment - Films, costs of acquiring and producing films and television programs are capitalized when incurred. In connection with the transaction, and using the guidance in “Acquisition of Assets Rather than a Business” subsections contained within ASC 805 Business Combinations, the Company allocated the $1.7 million acquisition price to the various projects under development based upon the historical costs incurred by Landmark, which the Company believes approximates fair value. The Company also recorded a liability for the $1.4 million of remaining installment payments it will make to Landmark. Finally, the Company also determined the fair value of the Landmark Warrant and allocated an additional $0.4 million to the various projects under development. The Company will recognize the remaining payment contingencies that may be due to Landmark, which include distribution fees and profit participations that will be incurred following the completion and exploitation of each project, when the contingencies are resolved, and the amounts become payable.

 

The fair value of the Landmark Warrant was estimated on the date of grant using a Black-Scholes valuation model with the following assumptions:

 

Expected dividend yield at date of grant   0.00%
Risk-free interest rate   1.7%
Expected stock price volatility   72.9%
Expected life of warrants (in years)   3.0 

 

During the second quarter of 2022, Safehaven 2022, Inc. (“Safehaven 2022”) was established to manage the production and financing of Safehaven, one of the projects acquired from Landmark. Strong Studios owns 49% of Safehaven 2022 and the remaining 51% is owned by Unbounded Services, LLC (“Unbounded”). No consideration was paid by Strong Studios in exchange for its 49% equity interest in Safehaven 2022. Unbounded also did not contribute any assets or liabilities to Safehaven 2022 and agreed to provide day-to-day management services in exchange for their 51% ownership. Unbounded will also serve as a co-producer on the project. Strong Studios assigned the Landmark distribution agreement to Safehaven 2022, and the Landmark distribution agreement serves as collateral for the production financing at Safehaven 2022. Strong Studios and Unbounded will share profits and losses, if any, from Safehaven 2022 on a pro-rata basis based on their relative ownership percentages.

 

Strong Studios allocated $1.0 million of the $1.7 million acquisition price to Safehaven and incurred an additional $0.1 million of development costs during 2022. Strong Studios transferred the $1.1 million in intellectual property representing the rights and assets related to Safehaven and Safehaven 2022 agreed to reimburse Strong Studios $1.1 million for those costs following payment of any senior secured debt and prior to any profit participations or equity distributions. Safehaven 2022 reimbursed the $0.1 million of development costs incurred by Strong Studios, and the remaining $1.0 million payable to Strong Studios represents an obligation of Safehaven 2022 to Strong Studios and is not contingent on any specific event. Accordingly, the Company has classified the amount due from Safehaven 2022 as a receivable within other current assets on its consolidated balance sheet as of December 31, 2022. Strong Studios expects Safehaven 2022 to reimburse the acquisition cost allocated to the project based on its ultimate expected revenues and profits from the exploitation of the project. Safehaven 2022 will begin to generate revenue and expenses upon delivery of the completed Safehaven series to SMV, which is expected to occur in mid-2023. The $6.5 million minimum guarantee is due and payable to Safehaven 2022 in installments of 25% upon delivery and acceptance, 25% three months thereafter, and the remaining 50% six months thereafter. Upon delivery and acceptance, Safehaven 2022 expects to recognize $6.5 million in initial revenue from the distribution rights and will record cost of sales using the individual-film-forecast method based on the ratio of the current period’s revenues to management’s estimated remaining total gross revenues to be earned. Safehaven 2022 is an equity method holding and the Company will reflect its proportionate share of the net periodic profit and loss of Safehaven 2022 as equity method income (loss) during each reporting period.

 

Safehaven 2022 entered into a Loan and Security Agreement with Bank of Hope to provide interim production financing for the Safehaven production, secured by the Landmark distribution agreement. Safehaven 2022 is the sole borrower and guarantor under the loan agreement. As of December 31, 2022, Safehaven 2022 had borrowed $9.4 million under the facility for production costs incurred to that date. Safehaven 2022 has also received working capital advances of $0.6 million from Strong Studios. Strong Studios expects Safehaven 2022 to reimburse the working capital advances in the second half of 2023.

 

Strong Studios reviewed its ownership in Safehaven 2022 and concluded that it has significant influence, but not a controlling interest, in Safehaven 2022 based on its ownership being less than 50% along with having one of three representatives on the board of managers of Safehaven 2022. Strong Studios also reviewed whether it otherwise had the power to make decisions that significantly impact the economic performance of Safehaven 2022 and concluded that it did not control the entity and is not the primary beneficiary. Accordingly, the Company will apply the equity method of accounting to its equity holding in Safehaven 2022 and will record its proportionate share of the net income/loss resulting from the equity holding as a single line item captioned “equity method holding income (loss)” on its statement of operations.

 

F-22

 

 

Safehaven 2022 did not record any income or expense during 2022 because all costs incurred by Safehaven 2022 were related to the in-process production and have been capitalized. Upon delivery and acceptance of the project, Safehaven 2022 expects to recognize revenue from the distribution rights and will record cost of sales using the individual-film-forecast method based on the ratio of the current period’s revenues to management’s estimated remaining total gross revenues to be earned. A summary of the balance sheet of Safehaven 2022 as of December 31, 2022, is as follows (in thousands):

 Schedule of Balance Sheets 

      
Cash  $117 
Television programming rights   10,890 
Other assets   59 
Total assets  $11,066 
      
Accounts payable and accrued expenses  $25 
Due to Strong Studios   1,625 
Debt   9,416 
Equity   - 
Total liabilities and equity  $11,066 

 

9. Goodwill

 

All of the Company’s goodwill is related to the Strong Entertainment segment. The following represents a summary of changes in the Company’s carrying amount of goodwill (in thousands):

 

Balance as of December 31, 2021  $942 
Foreign currency translation adjustment   (60)
Balance as of December 31, 2022  $882 

 

10. Accrued Expenses

 

The major components of current accrued expenses are as follows (in thousands):

 

   December 31, 2022   December 31, 2021 
Employee-related  $1,438   $1,538 
Film and television programming rights   1,709    - 
Legal and professional fees   822    524 
Warranty obligation   309    136 
Interest and taxes   653    385 
Post-retirement benefit obligation   15    6 
Other   221    405 
Total  $5,167   $2,994 

 

The major components of other long-term liabilities are as follows (in thousands):

 

   December 31, 2022   December 31, 2021 
Post-retirement benefit obligation  $99   $108 
Deferred revenue   6    10 
Total  $105   $118 

 

11. Income Taxes

 

(Loss) income from continuing operations before income taxes consists of (in thousands):

 

   2022   2021 
   Years Ended December 31, 
   2022   2021 
United States  $(7,956)  $(4,758)
Foreign   1,275    11,365 
Total  $(6,681)  $6,607 

 

F-23

 

 

Income tax expense from continuing operations consists of (in thousands):

 

   2022   2021 
   Years Ended December 31, 
   2022   2021 
Federal:          
Current  $-   $- 
Deferred   -    - 
Total   -    - 
State:          
Current   22    46 
Deferred   -    - 
Total   22    46 
Foreign:          
Current   1,173    713 
Deferred   (722)   2,477 
Total   451    3,190 
Total  $473   $3,236 

 

Income tax expense from continuing operations differed from the amounts computed by applying the U.S. Federal income tax rate to pretax (loss) income from continuing operations as follows (in thousands):

 

   2022   2021 
   Years Ended December 31, 
   2022   2021 
Expected federal income tax expense (benefit)  $(1,403)  $1,388 
State income taxes, net of federal benefit   (662)   36 
Foreign tax rate differential   71    625 
Change in state tax rate   (303)   (713)
Change in valuation allowance   2,568    2,084 
GILTI inclusion   -    213 
Return to provision   61    (314)
Foreign dividend inclusion   69    438 
Deferred tax adjustments   15    (333)
Other   57    (188)
Total  $473   $3,236 

 

Deferred tax assets and liabilities were comprised of the following (in thousands):

 

   December 31, 2022   December 31, 2021 
Deferred tax assets:          
Deferred revenue  $110   $415 
Non-deductible accruals   79    115 
Inventory reserves   124    217 
Stock compensation expense   587    889 
Warranty reserves   81    35 
Uncollectible receivable reserves   68    100 
Net operating losses   5,888    8,561 
Fair value adjustment to notes receivable   -    546 
Tax credits   1,699    1,699 
Disallowed interest expense   1,460    873 
Equity in income of equity method holdings   13    (1,262)
Other   162    340 
Total deferred tax assets   10,271    12,528 
Valuation allowance   (11,645)   (13,640)
Net deferred tax assets after valuation allowance   (1,374)   (1,112)
Deferred tax liabilities:          
Depreciation and amortization   544    1,618 
Cash repatriation   2,933    2,864 
Total deferred tax liabilities   3,477    4,482 
Net deferred tax liability  $(4,851)  $(5,594)

 

During the year ended December 31, 2021, the Company sold its Convergent business segment. See Note 3 for additional details. The tax expense/benefit for these business segments have been allocated to discontinued operations; however, the Company has sufficient net operating losses to offset taxable income/loss from these discontinued operations, all of which is offset by a valuation allowance.

 

F-24

 

 

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 $11.6 million and $13.6 million should be recorded against the Company’s U.S. tax jurisdiction deferred tax assets as of December 31, 2022 and 2021, respectively. The overall change in valuation allowance was a reduction of $2.1 million; however some changes in valuation allowance were allocated to discontinued operations. The effective tax rate above relates only to continuing operations.

 

The Company recorded a deferred tax liability related to withholding tax on the repatriation of earnings from its Canadian subsidiary of $2.9 million as of both December 31, 2022 and December 31, 2021.

 

A provision of Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) was 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 the year ended December 31, 2022, the Company did not incur any additional taxable income as a result of this provision. The Company is electing the GILTI High Tax Exclusion.

 

The Company’s gross net operating loss carryforwards for Federal tax purposes total approximately $19.7 million and $35.5 million at December 31, 2022 and 2021 respectively, expiring at various times in 2033 through 2037 for Federal losses generated through December 31, 2017. Though the Company incurred a taxable loss for the year ended December 31, 2022, gross net operating loss carryforwards decreased due to the sale of Convergent. The Federal and state losses previously allocated to Convergent are no longer available to the Company to offset future taxable income. Therefore, the related deferred tax asset and offsetting valuation allowance has been removed. As a result of the 2017 Tax Act, all Federal net operating losses that are generated beginning January 1, 2018 and beyond will carryforward indefinitely. The Company has foreign tax credit carryforwards of approximately $1.7 million as of December 31, 2022, that expire in 2024. Utilization of these losses may be limited in the event certain changes in ownership occur.

 

In March of 2020, The Coronavirus Aid, Relief, and Economic Security Act was enacted and made significant changes to Federal tax laws, including certain changes that were retroactive to the 2019 tax year. Changes in tax laws are accounted for in the period of enactment and the retroactive effects are recognized in these financial statements. There were no material income tax consequences of this enacted legislation on the reporting period of these financial statements.

 

The Company is subject to possible examinations not yet initiated for Federal purposes for the fiscal years 2019, 2020 and 2021. In most cases, the Company has examinations open for state or local jurisdictions based on the particular jurisdiction’s statute of limitations.

 

Estimated amounts related to underpayment of income taxes, including interest and penalties, are classified as a component of income tax expense in the consolidated statements of operations and were not material for the years ended December 31, 2022 and 2021. Amounts accrued for estimated underpayment of income taxes were zero as of December 31, 2022 and 2021.

 

12. Debt

 

The Company’s short-term and long-term debt consist of the following (in thousands):

 

   December 31, 2022   December 31, 2021 
Short-term debt:          
Strong/MDI 20-year installment loan  $2,289   $2,682 
Strong/MDI 5-year equipment loan   221    316 
Total short-term debt  $2,510   $2,998 
           
Long-term debt:          
Tenant improvement loan  $162   $128 
Digital Ignition building loan   5,105    - 
Total long-term debt  $5,267   $128 
Less: current portion   (216)   (23)
Less: deferred debt issuance costs, net   (47)   - 
Long-term debt, net of current portion and deferred debt issuance costs, net  $5,004   $105 

 

   December 31, 2022   December 31, 2021 
Deferred debt issuance costs  $56   $- 
Less: accumulated amortization        (9)         - 
Deferred debt issuance costs, net  $47   $- 

 

F-25

 

 

Estimated future amortization expense of deferred debt issuance costs is as follows (in thousands):

 

 

      
2023  $11 
2024   11 
2025   11 
2026   11 
2027   3 
Thereafter   - 
Total  $47 

 

Strong/MDI Installment Loans

 

On September 5, 2017, the Company’s Canadian subsidiary, Strong/MDI, entered into a demand credit agreement, as amended and restated May 15, 2018, with a bank consisting of a revolving line of credit for up to CAD$3.5 million, subject to a borrowing base requirement, a 20-year installment loan for up to CAD$6.0 million and a 5-year installment loan for up to CAD$0.5 million. On June 7, 2021, Strong/MDI entered into a demand credit agreement (the “2021 Credit Agreement”), which amended and restated the demand credit agreement dated as of September 5, 2017. The 2021 credit agreement consists of a revolving line of credit for up to CAD$2.0 million subject to a borrowing base requirement, a 20- year installment loan for up to CAD$5.1 million and a 5-year installment loan for up to CAD$0.5 million. Amounts outstanding under the line of credit are payable on demand and bear interest at the prime rate established by the lender. Amounts outstanding under the installment loans bear interest at the lender’s prime rate plus 0.5% and are payable in monthly installments, including interest, over their respective borrowing periods. The lender may also demand repayment of the installment loans at any time. The Strong/MDI credit facilities are secured by a lien on Strong/MDI’s Quebec, Canada facility and substantially all of Strong/MDI’s assets. The 2021 Credit Agreement requires Strong/MDI to maintain a ratio of liabilities to “effective equity” (tangible stockholders’ equity, less amounts receivable from affiliates and equity method holdings) not exceeding 2.5 to 1, a current ratio (excluding amounts due from related parties) of at least 1.3 to 1 and minimum “effective equity” of CAD$4.0 million. As of December 31, 2022, there was CAD$3.1 million, or approximately $2.3 million, of principal outstanding on the 20-year installment loan, which bears variable interest at 6.95%. As of December 31, 2022, there was CAD$0.3 million, or approximately $0.2 million, of principal outstanding on the 5-year installment loan, which also bears variable interest at 6.95%. Strong/MDI was in compliance with its debt covenants as of December 31, 2022.

 

In January 2023, Strong/MDI entered into a demand credit agreement (the “2023 Credit Agreement”), which amended and restated the 2021 Credit Agreement. The 2023 Credit Agreement consists of a revolving line of credit for up to CAD$5.0 million and a 20-year installment loan for up to CAD$3.1 million. Under the 2023 Credit Agreement: (i) the amount outstanding under the line of credit is payable on demand and bears interest at the lender’s prime rate plus 1.0% and (ii) the amount outstanding under the installment loan bears interest at the lender’s prime rate plus 0.5% and is payable in monthly installments, including interest, over their respective borrowing periods. The lender may also demand repayment of the installment loan at any time. The 2023 Credit Agreement is secured by a lien on Strong/MDI’s Quebec, Canada facility and substantially all of Strong/MDI’s assets. The 2023 Credit Agreement requires Strong/MDI to maintain a ratio of liabilities to “effective equity” (tangible stockholders’ equity, less amounts receivable from affiliates and equity holdings) not exceeding 2.5 to 1 and a fixed charge coverage ratio of not less than 1.1 times earnings before interest, income taxes, depreciation and amortization.

 

Tenant Improvement Loan

 

During the fourth quarter of 2021, the Company entered into a lease for a combined office and warehouse in Omaha, Nebraska. The Company incurred total costs of approximately $0.4 million to complete the build-out of the new combined office and warehouse facility. The landlord has agreed to fund approximately 50% of the build-out costs, and the Company is required to repay the portion funded by the landlord in equal monthly installments through the end of the initial lease term in February 2027. Through the end of 2021, the Company incurred approximately $0.2 million of total costs to build out the facility, of which approximately $0.1 million was funded by the landlord. The Company completed the build-out during the first quarter of 2022 and incurred an additional $0.2 million of total costs to complete the build-out, of which approximately $0.1 million was funded by the landlord.

 

F-26

 

 

Digital Ignition Building Loan

 

As discussed in Note 6, in January 2022 the Company purchased a parcel of land with buildings and improvements in Alpharetta, Georgia. In connection with the purchase of the land and building, the Company entered into a Commercial Loan Agreement (the “Loan Agreement”) with Community First Bank (the “Lender”), dated February 1, 2022. Pursuant to the Loan Agreement, the Lender agreed to lend the Company approximately $5.3 million (the “Loan Amount”), and the Borrower agreed to repay the Loan Amount pursuant to the terms of a promissory note (the “Note”).

 

The term of the Loan Agreement runs from February 1, 2022, until the Loan Amount is repaid in full by the Company or the Loan Agreement is terminated pursuant to its terms or by agreement between the Company and the Lender. The terms of the Note include (i) a fixed interest rate of 4%, (ii) maturity date of February 1, 2027, (iii) monthly payments of approximately $32 thousand beginning on March 1, 2022, and continuing on the first of each month until the maturity date or until the Note has been paid in full, (iv) a default interest of 8% in the event of a default pursuant to the terms of the Note, and (v) prepayment penalties of (a) 3% of all excess payments during the first two years of the term of the Note, (b) 2% of all excess payments during the third and fourth years of the term of the Note, and (c) 1% of all excess payments made during the fifth year of the term of the Note.

 

The Note includes standard events of default and references defaults under the Loan Agreement and the Deed to Secure Debt as events of default under the Note. The Company has a right to cure any curable events of default.

 

Contractual Principal Payments

 

Contractual required principal payments on the Company’s long-term debt at December 31, 2022 are as follows (in thousands):

  

   Tenant Improvement Loan   Digital Ignition Building Loan   Total 
2023  $36    180   $216 
2024   38    187    225 
2025   39    195    234 
2026   42    203    245 
2027   7    4,340    4,347 
Thereafter   -    -    - 
Total  $162   $5,105   $5,267 

 

13. Stock Compensation

 

The Company recognizes compensation expense for all stock-based payment awards based on estimated grant date fair values. Stock-based compensation expense included in selling and administrative expenses approximated $0.7 million and $0.9 million for the years ended December 31, 2022 and December 31, 2021, respectively.

 

The Company’s 2017 Omnibus Equity Compensation Plan (“2017 Plan”) was approved by the Company’s stockholders and provides the Compensation Committee of the Board of Directors with the discretion to grant stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares, performance units and other stock- based awards and cash-based awards. Vesting terms vary with each grant and may be subject to vesting upon a “change in control” of the Company. On December 17, 2019, the Company’s stockholders approved the amendment and restatement of the 2017 Plan to (i) increase the number of shares of the Company’s common stock authorized for issuance under the 2017 Plan by 1,975,000 shares and (ii) extend the expiration date of the 2017 Plan by approximately two years, until October 27, 2029. As of December 31, 2022, 2,312,911 shares were available for issuance under the amended and restated 2017 Plan.

 

F-27

 

 

Stock Options

 

The following table summarizes stock option activity for 2022:

  

   Number of Options   Weighted Average Exercise Price Per Share   Weighted Average Remaining Contractual Term (Years)   Aggregate Intrinsic Value (in thousands) 
Outstanding at December 31, 2021   659,500   $3.68    6.6   $187 
Granted   -                
Exercised   -                
Forfeited   (12,000)   1.60           
Expired   (8,000)   3.54           
Outstanding at December 31, 2022   639,500   $3.72    5.6   $127 
Exercisable at December 31, 2022   464,000   $4.09    5.2   $57 

 

The aggregate intrinsic value in the table above represents the total that would have been received by the option holders if all in-the-money options had been exercised and sold on the date indicated.

 

The Company did not grant stock options during the years ended December 31, 2022 and December 31, 2021. As of December 31, 2022, 175,500 stock option awards were non-vested. Unrecognized compensation costs related to all stock options outstanding amounted to $0.1 million at December 31, 2022, which is expected to be recognized over a weighted-average period of 1.9 years.

 

Restricted Stock Shares and Restricted Stock Units

 

The following table summarizes restricted stock unit activity for 2022:

 

   Number of Restricted Stock Units   Weighted Average Grant Date Fair Value 
Non-vested at December 31, 2021   314,079   $2.45 
Granted   120,829    2.40 
Shares vested   (227,974)   2.78 
Shares forfeited   -      
Non-vested at December 31, 2022   206,934   $2.06 

 

The Company awarded a total of 120,829 and 122,609 restricted stock units to its board of directors during the years ended December 31, 2022 and 2021, 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 stock units granted during the years ended December 31, 2022 and 2021 was $2.48 and $3.00, respectively. The fair value of restricted stock awards that vested during the years ended December 31, 2022 and 2021 was $0.6 million and $0.4 million, respectively.

 

As of December 31, 2022, the total unrecognized compensation cost related to non-vested restricted stock awards was approximately $0.2 million, which is expected to be recognized over a weighted average period of 0.6 years.

 

14. Compensation and Benefit Plans

 

Retirement Plan

 

The Company sponsors a defined contribution 401(k) plan (the “Plan”) for all eligible employees. Pursuant to the provisions of the Plan, employees may defer up to 100% of their compensation. The Company will match 50% of the amount deferred up to 6% of their compensation. The contributions made to the Plan by the Company were approximately $0.2 million and $0.1 million for the years ended December 31, 2022 and 2021, respectively.

 

15. Leases

 

The Company and its subsidiaries lease plant and office facilities and equipment under operating and finance leases expiring through 2027. The Company determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset.

 

F-28

 

 

Right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement date. Certain of the leases contain extension options; however, the Company has not included such options as part of its right-of-use assets and lease liabilities because it does not expect to extend the leases. The Company measures and records a right-of-use asset and lease liability based on the discount rate implicit in the lease, if known. In cases where the discount rate implicit in the lease is not known, the Company measures the right-of-use assets and lease liabilities using a discount rate equal to the Company’s estimated incremental borrowing rate for loans with similar collateral and duration.

 

The Company elected to not apply the recognition requirements of Accounting Standards Codification Topic 842, “Leases,” to leases of all classes of underlying assets that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise. Instead, lease payments for such short-term leases are recognized in operations on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.

 

The Company elected, as a lessee, for all classes of underlying assets, to not separate nonlease components from lease components and instead to account for each separate lease component and the nonlease components associated with that lease component as a single lease component.

 

The following tables present the Company’s lease costs and other lease information (dollars in thousands):

 

   December 31, 2022   December 31, 2021 
Lease cost  Year Ended 
   December 31, 2022   December 31, 2021 
Finance lease cost:          
Amortization of right-of-use assets  $37   $3 
Interest on lease liabilities   12    292 
Operating lease cost   243    882 
Short-term lease cost   53    56 
Sublease income   (32)   (335)
Net lease cost  $313   $898 

 

Other information  Year Ended 
   December 31, 2022   December 31, 2021 
Cash paid for amounts included in the measurement of lease liabilities:          
Operating cash flows from finance leases  $12   $292 
Operating cash flows from operating leases  $202   $819 
Financing cash flows from finance leases  $36   $2,106 
Right-of-use assets obtained in exchange for new operating lease liabilities  $97   $291 
Right-of-use assets obtained in exchange for new finance lease liabilities  $703   $- 

 

   As of December 31, 2022 
Weighted-average remaining lease term - finance leases (years)   1.9 
Weighted-average remaining lease term - operating leases (years)   3.6 
Weighted-average discount rate - finance leases   4.9%
Weighted-average discount rate - operating leases   3.6%

 

The following table presents a maturity analysis of the Company’s operating and finance lease liabilities as of December 31, 2022 (in thousands):

 

   Operating Leases   Finance Leases 
2023  $131   $170 
2024   101    170 
2025   79    403 
2026   81    16 
2027   14    5 
Thereafter   -    - 
Total lease payments   406    764 
Less: Amount representing interest   (33)   (97)
Present value of lease payments   373    667 
Less: Current maturities   (116)   (117)
Lease obligations, net of current portion  $257   $550 

 

F-29

 

 

16. Commitments, Contingencies and Concentrations

 

Concentrations

 

The Company’s top ten customers accounted for approximately 49% of 2022 consolidated net revenues. Trade accounts receivable from these customers represented approximately 68% of net consolidated receivables at December 31, 2022. None of the Company’s customers accounted for more than 10% of both its consolidated net revenues during 2022 and its net consolidated receivables as of December 31, 2022. While the Company believes its relationships with such customers are stable, most arrangements are made by purchase order and are terminable at will by either party. A significant decrease or interruption in business from the Company’s significant customers could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company could also be adversely affected by such factors as changes in foreign currency rates and weak economic and political conditions in each of the countries in which the Company sells its products.

 

Litigation

 

The Company is involved, from time to time, in certain legal disputes in the ordinary course of business. No such disputes, individually or in the aggregate, are expected to have a material effect on the Company’s business or financial condition.

 

The Company and certain of its subsidiaries are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. A majority of the cases involve product liability claims based principally on allegations of past distribution of commercial lighting products containing wiring that may have contained asbestos. Each case names dozens of corporate defendants in addition to us. In our experience, a large percentage of these types of claims have never been substantiated and have been dismissed by the courts. The Company has not suffered any adverse verdict in a trial court proceeding related to asbestos claims and intends to continue to defend these lawsuits. As of December 31, 2022, the Company has a loss contingency reserve of approximately $0.2 million, which represents the Company’s estimate of its potential losses related to the settlement of open cases. During 2022 and the first quarter of 2023, the Company settled three cases, which resulted in payments totaling $53 thousand. When appropriate, the Company may settle additional claims in the future. The Company does not expect the resolution of these cases to have a material adverse effect on its consolidated financial condition, results of operations or cash flows.

 

17. Business Segment Information

 

The Company conducts its operations primarily through its Strong Entertainment business segment which manufactures and distributes premium large format projection screens and provides technical support services and other related products and services to the cinema exhibition industry, theme parks, schools, museums and other entertainment-related markets. Strong Entertainment also distributes and supports third party products, including digital projectors, servers, library management systems, menu boards and sound systems. Strong Studios, which is part of the Strong Entertainment operating segment, develops and produces original feature films and television series. The Company’s operating segments were determined based on the manner in which management organizes segments for making operating decisions and assessing performance.

 

F-30

 

  

   2022   2021 
   Years Ended December 31, 
   2022   2021 
   (in thousands) 
Net revenues          
Strong Entertainment  $39,867   $25,886 
Other   1,370    1,144 
Total net revenues   41,237    27,030 
           
Gross profit          
Strong Entertainment   9,546    7,283 
Other   1,370    927 
Total gross profit   10,916    8,210 
           
Operating income (loss)          
Strong Entertainment   2,761    2,211 
Other   (736)   (718)
Total segment operating income   2,025    1,493 
Unallocated administrative expenses   (4,385)   (4,593)
Unallocated loss on disposal of assets   -    (38)
Loss from operations   (2,360)   (3,138)
Other (loss) income, net   (4,724)   12,116 
(Loss) income from continuing operations before income taxes and equity method holding income (loss)  $(7,084)  $8,978 

 

 

   Years Ended December 31, 
   2022   2021 
   (in thousands) 
Capital expenditures:          
Strong Entertainment  $253   $394 
Other   662    1,133 
Total capital expenditures from continuing operations  $915   $1,527 
           
Depreciation, amortization and impairment:          
Strong Entertainment  $697   $907 
Other   700    399 
Total depreciation, amortization and impairment from continuing operations  $1,397   $1,306 

 

Reconciliation of Assets from Segment to Consolidated

(In thousands)  December 31, 2022   December 31, 2021 
Identifiable assets          
Strong Entertainment  $35,392   $38,518 
Corporate assets   36,361    37,291 
Total  $71,753   $75,809 

 

Summary by Geographical Area

 

(In thousands)  2022   2021 
   Years December 31, 
(In thousands)  2022   2021 
Net revenues          
United States  $35,869   $22,462 
Canada   1,622    1,600 
China   327    454 
Mexico   20    16 
Latin America   592    424 
Europe   1,076    537 
Asia (excluding China)   809    992 
Other   922    545 
Total  $41,237   $27,030 

 

 

(In thousands)  December 31, 2022   December 31, 2021 
Identifiable assets        
United States  $51,423   $46,585 
Canada   20,330    29,224 
Total  $71,753   $75,809 

 

Net revenues by business segment are to unaffiliated customers. Net revenues by geographical area are based on destination of sales. Identifiable assets by geographical area are based on location of facilities.

 

F-31

 

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e), and internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

 

Internal Control over Financial Reporting

 

Management’s Annual Report on Internal Control over Financial Reporting

 

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s internal control over financial reporting. The Company’s management used the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to perform this evaluation. Based on that evaluation, the Company’s management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2022.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting for the three months ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information.

 

None.

 

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

 

Not applicable.

 

27

 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

BOARD OF DIRECTORS

 

Set forth below is certain information regarding the members of the Company’s Board of Directors, including the year in which each current director became a director of the Company. Each director is entitled to serve until the 2023 annual meeting of the Company’s stockholders and until a successor is duly elected and qualified or until his earlier retirement, resignation or removal. The age and business experience of each director are reported as of December 31, 2022.

 

D. Kyle Cerminara, age 45, has served as a director of FG Group Holdings since February 2015 and the Chairman of the Company’s Board of Directors since May 2015. Mr. Cerminara previously served as the Company’s Chief Executive Officer from November 2015 to April 2020. Mr. Cerminara has over 20 years’ experience as an institutional investor, asset manager, director, chief executive, founder and operator of multiple financial services and technology businesses. Mr. Cerminara co-founded Fundamental Global in 2012 and serves as its Chief Executive Officer. Mr. Cerminara is a member of the board of directors of a number of companies focused in the reinsurance, investment management, technology, communication, and real estate sectors, including FG Financial Group, Inc. (NASDAQ: FGF), which operates as a diversified reinsurance and investment management company, since December 2016; BK Technologies Corporation (NYSE American: BKTI), a provider of two-way radio communications equipment, since July 2015; FG Group Holdings, since February 2015; Firefly Systems Inc., a venture- backed digital advertising company, since August 2020; and FG Communities, Inc., a real estate management company focused on preserving and improving affordable housing, since July 2022. Mr. Cerminara is President and will serve as a director of FG New America Acquisition II Corp., a special purpose acquisition company currently in the process of completing its initial public offering and which is focused on searching for a target company in the financial services and insurance industries, and he is also the chairperson of the board of directors of FG Acquisition Corp. (TSX: FGAA-U.TO), a Canadian special purpose acquisition company which is focused on searching for a target company in the financial services sector. In addition, Mr. Cerminara has served as a Senior Advisor to FG Merger Corp. (NASDAQ: FGMC), a special purpose acquisition company, since February 2022. Mr. Cerminara was appointed Chairman of FG Financial Group, Inc. in May 2018 and served as its Principal Executive Officer from March 2020 to June 2020. From April 2021 to December 2021, Mr. Cerminara served as a director of Aldel Financial Inc. (NYSE: ADF), a special purpose acquisition company co-sponsored by Fundamental Global, which merged with Hagerty, (NYSE: HGTY) a leading specialty insurance provider focused on the global automotive enthusiast market. From July 2020 to July 2021, Mr. Cerminara served as Director and President of FG New America Acquisition Corp. (NYSE: FGNA), a special purpose acquisition company, which merged with OppFi Inc. (NYSE: OPFI), a leading financial technology platform that powers banks to help everyday consumers gain access to credit. Mr. Cerminara has served as the Chairman of FG Group Holdings since May 2015 and previously served as its Chief Executive Officer from November 2015 through April 2020. Mr. Cerminara was the Chairman of BK Technologies Corporation from March 2017 until April 2020. He served on the board of directors of GreenFirst Forest Products Inc. (TSXV: GFP) (formerly Itasca Capital Ltd.), a public company focused on investments in the forest products industry, from June 2016 to October 2021 and was appointed Chairman from June 2018 to June 2021; Limbach Holdings, Inc. (NASDAQ: LMB), a company which provides building infrastructure services, from March 2019 to March 2020; Iteris, Inc. (NASDAQ: ITI), a publicly-traded, applied informatics company, from August 2016 to November 2017; Magnetek, Inc., a publicly-traded manufacturer, in 2015; and blueharbor bank, a community bank, from October 2013 to January 2020. He served as a Trustee and President of StrongVest ETF Trust, which was an open-end management investment company, from July 2016 to March 2021. Previously, Mr. Cerminara served as the Co-Chief Investment Officer of CWA Asset Management Group, LLC, a position he held from January 2013 to December 2020. Prior to these roles, Mr. Cerminara was a Portfolio Manager at Sigma Capital Management, an independent financial adviser, from 2011 to 2012, a Director and Sector Head of the Financials Industry at Highside Capital Management from 2009 to 2011, and a Portfolio Manager and Director at CR Intrinsic Investors from 2007 to 2009. Before joining CR Intrinsic Investors, Mr. Cerminara was a Vice President, Associate Portfolio Manager and Analyst at T. Rowe Price (NASDAQ: TROW) from 2001 to 2007, where he was named amongst Institutional Investor’s Best of the Buy Side Analysts in November 2006, and an Analyst at Legg Mason from 2000 to 2001. Mr. Cerminara received an MBA degree from the Darden Graduate School of Business at the University of Virginia and a B.S. in Finance and Accounting from the Smith School of Business at the University of Maryland, where he was a member of Omicron Delta Kappa, an NCAA Academic All American and Co-Captain of the men’s varsity tennis team. He also completed a China Executive Residency at the Cheung Kong Graduate School of Business in Beijing, China. Mr. Cerminara holds the Chartered Financial Analyst (CFA) designation. Mr. Cerminara brings to the Board of Directors the perspective of the Company’s largest stockholder. He also has extensive experience in the financial industry, including investing, capital allocation, finance and financial analysis of public companies, and operational experience as our former Chief Executive Officer, which qualify him to serve on our Board of Directors.

 

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William J. Gerber, age 64, has served as a director of FG Group Holdings since May 2015. Mr. Gerber served as Chief Financial Officer of TD Ameritrade Holding Corporation (Nasdaq: AMTD) (“TD Ameritrade”), a provider of securities brokerage services and related technology-based financial services to retail investors, traders and independent registered investment advisors, from October 2006 to October 2015. In May 2007, he was named Executive Vice President of TD Ameritrade. In his role as Chief Financial Officer, he oversaw investor relations, business development, certain treasury functions and finance operations, including accounting, business planning and forecasting, external and internal reporting, tax and competitive intelligence. From May 1999 until October 2006, he served as the Managing Director of Finance at TD Ameritrade, during which time he played a significant role in evaluating merger and acquisition opportunities. Prior to joining TD Ameritrade, he served as Vice President of Acceptance Insurance Companies, Inc. (“Acceptance”), where he was responsible for all aspects of mergers and acquisitions, investment banking activity, banking relationships, investor communications and portfolio management. Prior to joining Acceptance, Mr. Gerber spent eight years with Coopers & Lybrand, now known as PricewaterhouseCoopers, serving as an audit manager primarily focusing on public company clients. Mr. Gerber was named to Institutional Investor Magazine’s All-America Executive Team as one of the top three CFOs in the Brokerage, Asset Managers and Exchanges category (2012 and 2013). He was also named a member of the CNBC CFO Council (2013 and 2014). Since January 2017, he has served on the Board of Directors of Northwestern Mutual Series Fund, Inc., a mutual fund company. He has also served on the Board of Directors of the U.S. holding company for the Royal Bank of Canada since July 2016 and Streck, Inc., a privately held company, since March 2015. He previously served on the Boys Town National Board of Trustees and the Board of Directors for CTMG Inc., a privately held pharmaceutical testing company. Mr. Gerber holds a B.B.A. in Accounting from the University of Michigan. Mr. Gerber is also a Certified Public Accountant in the State of Michigan. Mr. Gerber served as Executive Vice President and Chief Financial Officer of TD Ameritrade, an online brokerage business, for more than eight years and has extensive financial experience, bringing valuable skills to our Board of Directors.

 

Charles T. Lanktree, age 73, has served as a director of FG Group Holdings since May 2015. Since January 2022, Mr. Lanktree has served as an advisor to Eggland’s Best, LLC, a joint venture between Eggland’s Best, Inc. and Land O’Lakes, Inc. distributing nationally branded eggs. Mr. Lanktree served as Chief Executive Officer of Eggland’s Best, LLC from 2012 to December 2021 and also served as its President from 2012 to 2018. From 1997 to December 2021, Mr. Lanktree served as President and Chief Executive Officer of Eggland’s Best, Inc., a franchise-driven consumer egg business, where he previously served as the President and Chief Operating Officer from 1995 to 1996 and Executive Vice President and Chief Operating Officer from 1990 to 1994. Mr. Lanktree served on the Board of Directors of Eggland’s Best, Inc. and several of its affiliates through December 2022. He has also served on the board of directors of BK Technologies Corporation (NYSE American: BKTI), a holding company with a wholly-owned operating subsidiary that manufactures high-specification communications equipment, since March 2017. From 2010 to 2013, he served on the Board of Directors of Eurofresh Foods, Inc., a privately held company, and, from 2004 to 2013, he was on the Board of Directors of Nature’s Harmony Foods, Inc. Prior to joining Eggland’s Best, Inc., Mr. Lanktree served as the President and Chief Executive Officer of American Mobile Communications, Inc. from 1987 to 1990 and as the President and Chief Operating Officer of Precision Target Marketing, Inc. from 1985 to 1987. From 1974 to 1985, he held various executive-level marketing positions with The Grand Union Company, Beech-Nut Foods Corporation (Nestle) and Unilever. Mr. Lanktree received an MBA from the University of Notre Dame and a B.S. in Food Marketing from St. Joseph’s University. He also served in the U.S. Army and U.S. Army Reserves from 1971 to 1977. Mr. Lanktree’s almost 40 years of experience in consumer marketing and retail operations and his extensive experience as a Chief Executive Officer, coupled with his knowledge and insight of the retail industry, including distribution and franchising operations, qualifies him to serve on our Board of Directors.

 

Michael C. Mitchell, age 43, has served as a director of FG Group Holdings since October 2021. Mr. Mitchell most recently served as a Partner at Locust Wood Capital, which he retired from in 2019 after nine years with the firm in analytical positions in the consumer, industrial, real estate and media industries. From 2006 to 2011, Mr. Mitchell was a senior analyst at Breeden Capital LP, working with former SEC Chairman Richard C. Breeden, where Mr. Mitchell was primarily focused on consumer business and was actively involved in board engagements at Applebee’s, a then-Nasdaq-listed restaurant operating company and franchisor and Zale Corporation, a then-NYSE-listed leading specialty retailer of fine jewelry as an advisor to the board. From 2005 to 2006, Mr. Mitchell worked as an analyst for Kellogg Capital Group, LLC, the private investment firm founded by Peter Kellogg. From 2004 to 2005, Mr. Mitchell served as an equity research analyst at Jefferies and Company, Inc. covering post-reorganization equities. Mr. Mitchell is currently the Chief Operating Officer of Children’s Eye Care of Northern Colorado, P.C., a Pediatric Ophthalmology practice based in Fort Collins, CO, which he cofounded and operates with his wife Dr. Carolyn G. Mitchell. Additionally, Mr. Mitchell serves on the advisory board of the Michael F. Price College of Business at the University of Oklahoma. Mr. Mitchell received an MBA from the Michael F. Price College of Business at the University of Oklahoma and a B.S. in Marketing from the Spears College of Business at Oklahoma State University. We believe Mr. Mitchell is qualified to serve on our Board of Directors as he offers the Board valuable insights obtained through his extensive experience in the financial industry, including investing, capital allocation, finance and financial analysis of public companies.

 

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Robert J. Roschman, age 57, has served as a director of FG Group Holdings since May 2015. Mr. Roschman has been an owner of Triple R. Associates, Ltd., a real estate firm with over 100 properties leased to fast food, distribution and retail tenants, since 1992. Mr. Roschman also holds ownership interests in several development properties throughout Florida. Mr. Roschman previously served on the Board of Directors of Giant Holdings, Inc., a privately held federally chartered bank with an Internet division, which he founded in 1998 and which merged into Home BancShares, Inc. (Nasdaq: HOMB) in February 2017. From 1987 to 2000, Mr. Roschman was a Co-Founder and Vice President of Snapps Restaurants, Inc., a 76-store fast food restaurant which merged into Rally’s Hamburgers, Inc. From 1983 until 1997, he served as a shareholder of Charter Bank in Delray Beach, Florida, which merged into Southtrust Bank in 1997. Mr. Roschman received a B.S. from Florida State University. Mr. Roschman brings over 30 years of experience as an investor in multiple lines of business, including real estate, franchising, distribution, banking and retail. Mr. Roschman’s extensive experience as an investor and in managing and overseeing multiple businesses is valuable for evaluating strategic opportunities and qualifies him to serve on our Board of Directors.

 

Ndamukong Suh, age 35, has served as a director of FG Group Holdings since January 2016. Mr. Suh is an independent private investor and holds ownership interests in several real estate development projects across Michigan, Nebraska, Oregon and Colorado. Mr. Suh is the Founder and a director of the Suh Family Foundation. He is also a professional athlete and was a member of the Philadelphia Eagles of the National Football League (“NFL”) during 2022. He previously was with the NFL’s Tampa Bay Buccaneers from 2019 to 2022, becoming a Superbowl champion in February 2021, Los Angeles Rams from 2018 to 2019, Miami Dolphins from 2015 to 2017 and Detroit Lions from 2010 to 2014. He currently serves on the Board of Advisors of Ember Technologies, a privately held manufacturer and designer of patented temperature adjustable dishware and drinkware. Mr. Suh holds a Bachelor’s degree in Engineering focused on Construction Management from the University of Nebraska. Our Board of Directors believes that Mr. Suh’s well cultivated business and personal network adds unique value to the Company, which, coupled with his extensive experience as an investor, allows him to evaluate strategic opportunities and qualifies him to serve on our Board of Directors.

 

Larry G. Swets, Jr., age 48, has served as a director of FG Group Holdings since October 2021. Mr. Swets has served as the Chief Executive Officer of FG Financial Group, Inc. (Nasdaq: FGF) (“FG Financial”), a reinsurance and asset management holding company, since November 2020, after having served as Interim CEO from June 2020 to November 2020. Mr. Swets founded Itasca Financial LLC (“Itasca Financial”), an advisory and investment firm, in 2005 and has served as its managing member since inception. Mr. Swets is a member of the board of directors of FG Financial since November 2013; GreenFirst Forest Products Inc. (TSXV: GFP) (“GreenFirst”), a public company focused on investments in the forest products industry, since June 2016; Harbor Custom Development, Inc. (Nasdaq: HCDI) since February 2020; Ascension Illinois Foundation since March 2018; and Unbounded Media Corporation since June 2019. Previously, Mr. Swets served as a Director and Chief Executive Officer of FG New America Acquisition Corp. (NYSE: FGNA), a special purpose acquisition company which merged with OppFi Inc. (NYSE: OPFI), a leading financial technology platform that powers banks to help everyday consumers gain access to credit, from July 2020 to July 2021. Mr. Swets served as Chief Executive Officer of GreenFirst from June 2016 to June 2021. Mr. Swets served as the Chief Executive Officer of Kingsway Financial Services Inc. (NYSE: KFS) (“Kingsway”) from July 2010 to September 2018, including as its President from July 2010 to March 2017. He served as Chief Executive Officer and a director of 1347 Capital Corp., a special purpose acquisition company, from April 2014 to July 2016 when the company completed its initial business combination to form Limbach Holdings, Inc. (Nasdaq: LMB) (“Limbach”). Mr. Swets also previously served as a member of the board of directors of Limbach from July 2016 to August 2021; Kingsway from September 2013 to December 2018; Atlas Financial Holdings, Inc. (OTC: AFHIF) from December 2010 to January 2018; FMG Acquisition Corp. (Nasdaq: FMGQ) from May 2007 to September 2008; United Insurance Holdings Corp. from 2008 to March 2012; and Risk Enterprise Management Ltd. from November 2007 to May 2012. Mr. Swets served as director of Insurance Income Strategies Ltd. from October 2017 to December 2021. Prior to founding Itasca Financial, Mr. Swets served as an insurance company executive and advisor, including the role of director of investments and fixed income portfolio manager for Lumbermens Mutual Casualty Company, formerly known as Kemper Insurance Companies. Mr. Swets began his career in insurance as an intern in the Kemper Scholar program in 1994. Mr. Swets earned a Master’s Degree in Finance from DePaul University in 1999 and a Bachelor’s Degree from Valparaiso University in 1997. He is a member of the Young Presidents’ Organization and holds the Chartered Financial Analyst (CFA) designation. Mr. Swets’ 25 years of experience within financial services and extensive financial experience qualifies him to serve on our Board of Directors.

 

30

 

 

EXECUTIVE OFFICERS

 

The following is a list of the names and ages of the executive officers of the Company, their business history and their term of office with the Company. The age and business experience of each executive officer is reported as of December 31, 2022. All officers serve at the discretion of our Board of Directors.

 

Name   Age   Position and Principal Occupation  

Officer

Since

Mark D. Roberson   57   Chief Executive Officer since April 2020 and Executive Vice President, Chief Financial Officer and Treasurer from November 2018 to April 2020. Mr. Roberson brings an extensive background in executive leadership, operations, corporate finance, SEC reporting, treasury, and mergers and acquisitions. He previously served as Chief Operations Officer of Chanticleer Holdings, Inc., a Nasdaq-listed restaurant operating company, from May 2015 to November 2018, and as Chief Executive Officer of PokerTek, Inc., a then-Nasdaq-listed gaming technology company, from February 2010 to October 2014 (having served as Acting Chief Executive Officer from May 2009 until February 2010). He also served as Chief Financial Officer and Treasurer of PokerTek, Inc. from October 2007 until October 2014. Mr. Roberson previously held positions of increasing responsibility at Curtiss-Wright, Inc., a NYSE-listed aerospace and defense contractor, Krispy Kreme Doughnut Corporation, a then-NYSE-listed fast-casual restaurant franchisor and operator, and LifeStyle Furnishings International, a $2 billion private equity backed furniture manufacturer. Mr. Roberson is a Certified Public Accountant who started his career with Ernst & Young and PricewaterhouseCoopers. He earned an MBA from Wake Forest University, a B.S. in Accounting from UNC-Greensboro and a B.S. in Economics from Southern Methodist University. He served on the Board of Directors of CynergisTek, Inc. (NYSE American: CTEK), a cybersecurity and information management consulting firm, from May 2016 to September 2022, where he chaired the Audit Committee.   2018
             
Todd R. Major   50   Chief Financial Officer, Secretary and Treasurer since April 2020 and Senior Vice President, Finance from April 2019 to April 2020. Mr. Major previously served as Senior Director, Financial and SEC Reporting of Bojangles, Inc., a then Nasdaq-listed restaurant operating company and franchisor, from March 2015 to April 2019, as Director, Financial Reporting of Premier, Inc. (Nasdaq: PINC), a healthcare performance improvement company, from September 2014 to February 2015, and as Senior Director, Financial Reporting of Horizon Lines, Inc, a then NYSE-traded transportation and logistics company from November 2006 to September 2014. From June 2003 to November 2006, Mr. Major previously held positions of increasing responsibility at Nabi Biopharmaceuticals, Inc., a then Nasdaq-listed biopharmaceutical company engaged in the development and commercialization of proprietary products. Mr. Major is a Certified Public Accountant and earned an MBA from Queens University of Charlotte and a B.A. in Accounting from Flagler College.   2020
             
Ray F. Boegner   73   President of Strong Entertainment; previously Senior Vice President and Senior Vice President of Sales; Vice President of Sales prior to November 1996; joined the Company in 1985.   1997

 

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CORPORATE GOVERNANCE

 

Code of Ethics

 

Our Board of Directors has adopted the Code of Ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. The Code of Ethics is posted on our Internet website, fg.group/investor-relations, under the “Corporate Governance” tab, and is available free of charge, upon request to Corporate Secretary, 5960 Fairview Road, Suite 275, Charlotte, North Carolina 28210; telephone number: (704) 994-8279.

 

Any amendment to, or waiver from, the Code of Ethics applicable to our directors and executive officers will be disclosed in a current report on Form 8-K within four business days following the date of the amendment or waiver unless the rules of the NYSE American then permit website posting of such amendments and waivers, in which case we would post such disclosures on our Internet website.

 

Audit Committee

 

The Audit Committee of the Board of Directors consists of Messrs. Gerber (Chair), Mitchell and Roschman, each of whom is independent for purposes of serving on the committee under the SEC’s rules and NYSE American’s listing requirements. The Audit Committee acts under a written charter adopted by the Board of Directors. All Audit Committee members are financially literate. The Board of Directors has determined that Mr. Gerber is an “audit committee financial expert” as defined by Item 407(d)(5)(ii) of Regulation S-K under the Exchange Act.

 

Stockholder Nominees

 

There have been no material changes to the procedures by which stockholders of the Company may recommend nominees to the Company’s Board of Directors.

 

Family Relationships

 

There are no family relationships among any of our directors or executive officers.

 

Legal Proceedings

 

No director or executive officer has been involved in any legal proceeding during the past ten years that is material to an evaluation of his or her ability or integrity.

 

Delinquent Section 16(a) Reports

 

Section 16(a) of the Exchange Act requires the Company’s executive officers and directors, and persons who beneficially own more than 10% of the Company’s stock, to file initial reports of ownership and reports of changes in ownership with the SEC. Except as set forth below, the Company believes that all persons subject to these reporting requirements filed the required reports on a timely basis during 2022.

 

To the best of our knowledge based solely on a review of Forms 3, 4, and 5 (and any amendments thereof) received by us during or with respect to the year ended December 31, 2022, the following persons failed to file, on a timely basis, the identified reports required by Section 16(a) of the Exchange Act during fiscal year ended December 2022:

 

Name and Principal Position  Number of Late Reports   Transactions not Reported in Timely Manner 
Ray F. Boegner, President of Strong Entertainment  1   1 

 

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Item 11. Executive Compensation.

 

EXECUTIVE COMPENSATION

 

Introduction

 

In this section, we disclose our executive compensation for our named executive officers (the “Named Executive Officers”), consisting of our principal executive officer during 2022 and the two other individuals who were serving as executive officers at the end of 2022. Our Named Executive Officers for 2022 were as follows:

 

  ● Mark D. Roberson, Chief Executive Officer (as of April 2020) and former Executive Vice President and Chief Financial Officer;
     
  ● Todd R. Major, Chief Financial Officer (as of April 2020); and
     
  ● Ray F. Boegner, President of Strong Entertainment.

 

Base Salaries

 

Effective as of August 16, 2021, Messrs. Roberson and Major receive an annual salary of $295,000 and $230,000 respectively. Effective as of March 1, 2017, Mr. Boegner receives an annual base salary of $275,000.

 

Prior to August 16, 2021, Mr. Roberson received a base salary of $250,000, which salary was negotiated as part of his employment agreement at the time of his hiring as Executive Vice President and Chief Financial Officer of the Company, effective November 16, 2018. Prior to August 16, 2021, Mr. Major received a base salary of $200,000, which salary was negotiated as part of his employment agreement at the time of his hiring as Senior Vice President of Finance of the Company, effective March 20, 2019.

 

In response to the impact of the COVID-19 pandemic on the Company, the economy, and the industry, each executive officer of the Company agreed to four temporary reductions in the base salaries otherwise payable to the executive officers, which were expected to be temporary until the Company resumes normal operations. On April 29, 2020, as approved by the Board on April 30, 2020, Messrs. Roberson and Boegner agreed to a 60% reduction in each of their salaries, and Mr. Major agreed to a 25% reduction in his salary, which reductions were effective from April 13, 2020, until June 30, 2020. On July 8, 2020, the Board approved, and Messrs. Roberson, Boegner and Major agreed to, a 25% reduction in each of their salaries, which reductions were effective from July 1, 2020, until and including July 31, 2020. On August 17, 2020, as approved by the Board on August 18, 2020, Messrs. Roberson, Boegner and Major agreed to a 25% reduction in each of their salaries, which reductions were effective from August 1, 2020, until and including August 31, 2020. On September 15, 2020, the Board approved, and Messrs. Roberson, Boegner and Major agreed to, a 25% reduction in each of their salaries, which reductions were effective from September 1, 2020, until and including September 30, 2020.

 

Discretionary Bonuses

 

In March 2021, the Compensation Committee approved the payment of performance bonuses to Messrs. Roberson and Major of $262,500 and $112,500, respectively, for extra time and effort given by such employees in connection with the successful completion of the sale of our Convergent operating business. No discretionary performance bonuses were awarded in 2022.

 

Long-Term Incentives

 

We use long-term incentive equity awards as a part of our executive compensation program, in order to incentivize and reward the achievement of longer-term strategic objectives and align the financial interests of the Company’s executive officers with those of the Company’s stockholders. The Company’s long-term incentive program for its Named Executive Officers has consisted of restricted stock awards, restricted stock units and nonqualified stock options. Each such type of award, and the reasons it is used, is described below. At the Company’s 2017 Annual Meeting of Stockholders, the Company’s stockholders approved the 2017 Plan (prior to its amendment and restatement) as the successor to our 2010 Long-Term Incentive Plan (the “2010 Plan”) and 2014 Non-Employee Directors’ Restricted Stock Plan, and long-term incentive awards granted after the 2017 Annual Meeting of Stockholders have been made under the 2017 Plan. In addition, stockholders approved an amendment and restatement of the 2017 Plan at the 2019 Annual Meeting of Stockholders.

 

Restricted Stock Awards. Restricted stock awards represent the transfer of ownership of a certain number of shares of the Company’s common stock, subject to restrictions on transfer and a substantial risk of forfeiture based on the recipient’s continued employment by the Company during the applicable vesting period set out in the award agreement. Restricted stock awards are designed primarily to encourage retention of executive officers and key employees.

 

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Restricted Stock Units. RSUs represent a right to receive a specific number of units at the end of the specified period. Each recipient of RSUs has no rights as a stockholder through such RSUs during the restriction period of the RSUs. Settlement of an RSU award is made in cash, shares of stock or some combination thereof, as specified in the applicable award agreement. RSUs are designed to provide retention incentives to our executive officers and key employees.

 

Nonqualified Stock Options. Nonqualified stock options represent an option to purchase shares of the Company’s common stock at an option price equal to the closing price on the NYSE American of the Company’s common stock on the grant date. The stock options are designed to motivate executives to increase stockholder value as the stock options will only have value if our stockholders also benefit from increasing stock prices.

 

2022 and 2021 Equity Grants

 

The Compensation Committee did not approve grants of stock options or RSUs to our Named Executive Officers during 2022 or 2021.

 

401(k) Retirement Plan

 

The Company’s executive officers are able to participate in the Company’s Retirement and Savings 401(k) Plan (the “401(k) Plan”), which is a combination savings and profit-sharing plan designed to qualify under Section 401 of the U.S. Internal Revenue Code. Participation in the 401(k) Plan is generally available to all FG Group Holdings employees on the same terms. Each participant may defer up to 100% of his or her compensation. The Company may make a discretionary matching contribution equal to a uniform percentage of salary. Each year the Company determines the amount of the discretionary percentage. In 2022 and 2021, the Company matched 50% of the amount deferred up to 6% of each participating employee’s contribution. Employee contributions to the 401(k) Plan are non-forfeitable. Employer contributions vest annually over three years on the employee’s employment anniversary. Benefits may be distributed to participants or their beneficiaries, as the case may be, in the event of a participant’s death, retirement or other termination of service, or, if the participant so requests, on reaching age 59½. Participants may be eligible to withdraw benefits in case of hardship.

 

Contributions to the 401(k) Plan made by the Company on behalf of the Named Executive Officers are included in the 2022 Summary Compensation Table.

 

Employment Agreements

 

The Company currently has written employment agreements with Messrs. Roberson, Major and Boegner. The material provisions of these employment agreements are discussed below.

 

Mr. Roberson’s employment agreement with the Company, which was entered into as of November 6, 2018, provides for a base salary, subject to annual review and adjustment, and he is eligible for performance-based compensation in the form of an annual bonus targeted at $150,000, payable partly in cash and partly through equity awards as determined by the Compensation Committee. The bonus will be subject to the achievement of performance metrics and other criteria as determined by the Compensation Committee. Mr. Roberson is also eligible to participate in the Company’s 401(k), medical, dental and vision plans and certain other benefits available generally to employees of the Company. The employment agreement also contains customary non-competition and non-solicitation covenants. If Mr. Roberson’s employment is terminated by the Company without Cause (as defined in the Amendment), Mr. Roberson will be entitled to severance equal to one year of his base salary payable over a period of twelve months following the termination date in accordance with the Company’s regular payroll practices and, if Mr. Roberson timely and properly elects continuation health coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company will pay Mr. Roberson’s COBRA premiums for a period of twelve months following the termination date.

 

Mr. Major’s employment agreement with the Company, which was entered into as of March 20, 2019, provides for a base salary, subject to annual review and adjustment, and he is eligible for performance-based compensation in the form of an annual bonus targeted at 25% of base salary, payable in a combination in cash and equity, as determined by the Compensation Committee. The bonus will be subject to the achievement of performance metrics and other criteria as determined by the Compensation Committee. As a signing bonus, the Company granted Mr. Major 30,000 RSUs (equal to $90,000 of common stock, as determined based on the trading price of the Company’s common stock on the date of grant) pursuant to the 2017 Plan, vesting over a period of three years from the date of grant. The Company also paid a cash signing bonus of $30,000. Mr. Major is also eligible to participate in the Company’s 401(k), medical, dental and vision plans and certain other benefits available generally to employees of the Company. The employment agreement also contains customary non-competition and non-solicitation covenants. Mr. Major is entitled to severance equal to one year of his base salary in the event of a change in control that results in his termination or if the Senior Vice President of Finance position is eliminated without Mr. Major being offered a mutually-agreed comparable opportunity at an affiliate of the Company.

 

Mr. Boegner’s employment agreement with the Company, which was entered into on February 14, 2012, provides for a base salary, subject to annual review and adjustment, and Mr. Boegner’s eligibility to participate in and/or receive other benefits under compensation plans provided to other executive employees of the Company. He is eligible for performance-based compensation in the form of an annual bonus and is eligible to receive awards, in the Compensation Committee’s discretion, under the Company’s long-term incentive plans. Pursuant to his employment agreement, in the event that his employment is terminated by FG Group Holdings without cause or by Mr. Boegner for good reason, as these terms are defined in the agreement, then he will receive his base salary for a period equal to three (3) weeks for each year that he was employed by the Company. On April 26, 2021, the Company amended Mr. Boegner’s employment agreement to limit this severance period to three (3) weeks for each year that he was employed by the Company up to and including October 2020. In addition, the Company will pay for, or reimburse Mr. Boegner for, the cost of health insurance during this same period. For more information on the terms of Mr. Boegner’s employment agreement, see “Potential Payments Upon Termination or Change in Control — Employment Agreements.”

 

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Executive Compensation Tables

 

The following table sets forth information regarding all forms of compensation earned by the Company’s Named Executive Officers during the last two fiscal years.

 

2022 Summary Compensation Table

 

Name and Principal Position  Year  

Salary

($)

  

Bonus

($)(3)

   Stock Awards ($)(4)   Option Awards ($)(4)  

Non-Equity Incentive Plan

Compensation

($)

   All Other Compensation ($)(5)  

Total

($)

 
Mark D. Roberson (1)   2022    295,000    —    —    —    —    9,210    304,210 
CEO and Former CFO   2021    265,577    262,500    —    —    —    9,821    537,898 
Todd R. Major (2)   2022    230,000    —    —    —    —    8,816    238,816 
CFO   2021    210,385    112,500    —    —    —    8,227    331,112 
Ray F. Boegner   2022    275,000    —    —    —    —    9,913    284,913 

President of Strong Entertainment

   2021    275,000    —    —    —    —    9,913    284,913 

 

(1) Mr. Roberson served as our Executive Vice President and Chief Financial Officer from November 16, 2018, to April 13, 2020, and was appointed as our Chief Executive Officer effective April 13, 2020.
   
(2) Mr. Major served as our Senior Vice President, Finance from April 8, 2019, to April 13, 2020, and was appointed as our Chief Financial Officer effective April 13, 2020.
   
(3) In March 2021, the Compensation Committee approved the payment of transaction-related bonuses to Messrs. Roberson and Major for extra time and effort given by such employees in connection with the successful completion of the sale of a certain portion of our operating businesses.
   
(4) The amounts in these columns represent the aggregate grant date fair value calculated in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 718. For additional information relating to the assumptions made in valuing and expensing these awards refer to Note 13 to the consolidated financial statements.
   
(5) FG Group Holdings provides its executives with certain employee benefits. These benefits include excess life and disability insurance and contributions made by FG Group Holdings under the 401(k) Plan. The amounts reported for each Named Executive Officer as All Other Compensation for 2022 are identified and quantified below.

 

   Mr. Roberson   Mr. Major   Mr. Boegner 
Employer match on 401(k) Plan  $7,294   $6,900   $8,250 
Excess life and disability insurance   1,916    1,916    1,663 
Total All Other Compensation  $9,210   $8,816   $9,913 

 

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The following table sets forth information concerning outstanding equity awards for each of the Company’s Named Executive Officers as of the end of the last completed fiscal year.

 

   Option Awards   Stock Awards 
Name  Number of Securities Underlying Unexercised Options (#) Exercisable   Number of Securities Underlying Unexercised Options (#) Unexercisable  

Option Exercise Price

($)

   Option Expiration Date   Number of Shares or Units of Stock That Have Not Vested (#)   Market Value of Shares or Units of Stock That Have Not Vested ($)(*) 
Mark D. Roberson   32,000    8,000(1)   2.25    12/4/2028    —    — 
    18,000    12,000(2)   2.89    6/6/2029    —    — 
    8,000    12,000(3)   1.60    10/9/2030    —    — 
    —    —    —    —    26,667(8)   69,868 
                               
Todd R. Major   4,000    6,000(3)   1.60    10/9/2030    —    — 
    —    —    —    —    6,667(8)   17,468 
                               
Ray F. Boegner   5,000    —(5)   4.70    1/11/2022    —    — 
    32,000    —(6)   4.33    11/22/2025    —    — 
    40,000    8,000(7)   6.50    2/28/2027    —    — 
    40,000    10,000(4)   4.70    1/26/2028    —    — 
    12,000    8,000(2)   2.89    6/6/2029    —    — 
    6,000    9,000(3)   1.60    10/9/2030    —    — 
    —    —    —    —    10,000(8)   26,200 

 

* Based on the closing stock price of our common stock of $2.62 on December 31, 2022, the last trading day of the 2022 fiscal year.
   
(1) The 40,000 stock options granted to Mr. Roberson on December 4, 2018, pursuant to the 2017 Plan become exercisable in five equal annual installments beginning on December 4, 2019, and thereafter on December 4 of each year through 2023.
   
(2) The 30,000 and 20,000 stock options granted to Messrs. Roberson and Boegner, respectively, on June 6, 2019, pursuant to the 2017 Plan become exercisable in five equal annual installments beginning on June 6, 2020, and thereafter on June 6 of each year through 2024.
   
(3) The 20,000, 10,000 and 15,000 stock options granted to Messrs. Roberson, Major and Boegner, respectively, on October 9, 2020, pursuant to the 2017 Plan become exercisable in five equal annual installments beginning on October 9, 2021, and thereafter on October 9 of each year through 2025.
   
(4) The 50,000 stock options granted to Mr. Boegner on January 26, 2018, pursuant to the 2017 Plan become exercisable in five equal annual installments beginning on January 26, 2019, and thereafter on January 26 of each year through 2023.
   
(5) The 30,000 stock options granted to Mr. Boegner on January 11, 2012, pursuant to the 2010 Plan became exercisable in four equal installments beginning on January 11, 2013, and thereafter on January 11 of each year through 2016. On both August 11, 2016, and August 30, 2016, Mr. Boegner exercised options from this grant to acquire 5,000 shares of our common stock. On June 8, 2017, Mr. Boegner exercised options from this grant to acquire 7,000 shares of our common stock. On August 10, 2017, Mr. Boegner exercised options from this grant to acquire 8,000 shares of our common stock.

 

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(6) The 40,000 stock options granted to Mr. Boegner on November 22, 2015, pursuant to the 2010 Plan became exercisable in five equal annual installments beginning on November 22, 2016, and thereafter on November 22 of each year through 2020. On November 23, 2016, Mr. Boegner exercised options from this grant to acquire 8,000 shares of our common stock at an exercise price of $4.33 per share.
   
(7) The 40,000 stock options granted to Mr. Boegner on February 28, 2017, pursuant to the 2010 Plan become exercisable in five equal annual installments beginning on February 28, 2018, and thereafter on February 28 of each year through 2022.
   
(8) Represents RSUs to be settled in shares of our common stock on a one-for-one basis as soon as practicable following the applicable vesting date. The RSUs vest on October 9, 2023.

 

Potential Payments Upon Termination or Change-in-Control

 

Employment Agreements

 

If Mr. Roberson’s employment is terminated by the Company without Cause (as defined in the Amendment), Mr. Roberson will be entitled to severance equal to one year of his base salary payable over a period of twelve months following the termination date in accordance with the Company’s regular payroll practices and, if Mr. Roberson timely and properly elects continuation health coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company will pay Mr. Roberson’s COBRA premiums for a period of twelve months following the termination date

 

Pursuant to Mr. Major’s employment agreement with the Company, in the event of a change in control that results in Mr. Major being terminated, or if the Senior Vice President of Finance position is eliminated without Mr. Major being offered a mutually-agreed comparable opportunity at an affiliate of the Company, Mr. Major will be entitled to severance equal to one year of his base salary.

 

Pursuant to Mr. Boegner’s employment agreement with the Company, in the event Mr. Boegner’s employment is terminated by the Company without cause or by Mr. Boegner for good reason, then he will receive his base salary for a period equal to three (3) weeks for each year that he has been employed by the Company and all existing insurance benefits shall remain in force until the last day of the month in which the severance period expires, subject to Mr. Boegner’s continued compliance with certain restrictive covenants set forth in the employment agreement (including confidentiality and non-solicitation covenants) and his execution of the Company’s standard form of general release. On April 26, 2021, the Company amended Mr. Boegner’s employment agreement to limit the severance period to three (3) weeks for each year that he was employed by the Company up to and including October 2020. In addition, Mr. Boegner would be entitled to receive any earned and unpaid amounts owed to him under the employment agreement and such other accrued benefits as may be provided for under the agreement. For purposes of Mr. Boegner’s employment agreement, “good reason” means a material breach by the Company of its obligations to Mr. Boegner under the agreement. In addition, for purposes of the agreement, “cause” exists if Mr. Boegner (i) acted dishonestly or incompetently or engaged in willful misconduct in performance of his executive duties, (ii) breached fiduciary duties owed to the Company, (iii) intentionally failed to perform reasonably assigned duties, (iv) willfully violated any law, rule or regulation, or court order (other than minor traffic violations or similar offenses), or otherwise committed any act which would have a material adverse impact on the business of the Company, and/or (v) is in breach of his obligations under the agreement and fails to cure such breach within thirty (30) days after receiving notice of the breach from the Company. We are also obligated under Mr. Boegner’s employment agreement to provide certain payments to Mr. Boegner in the event of his death or termination by reason of his incapacity. In the event of Mr. Boegner’s death, we are obligated to pay his estate all accrued sums due and owing to Mr. Boegner with respect to his salary and such other benefits as may be provided under his agreement. In addition, in the event we terminate Mr. Boegner’s employment by reason of his incapacity, Mr. Boegner is entitled to any accrued amounts due and owing to him with respect to his salary and such other benefits as may be provided under his agreement.

 

2017 Omnibus Equity Compensation Plan – Change in Control Provisions

 

Our 2017 Plan, which was initially approved by our stockholders on June 15, 2017, with the amendment and restatement of the 2017 Plan, effective as of October 28, 2019, approved by our stockholders on December 17, 2019, generally provides for “double-trigger” vesting of equity awards in connection with a change in control of the Company, as described below.

 

To the extent that outstanding awards granted under the 2017 Plan are assumed in connection with a change in control, except as otherwise provided in the applicable award agreement or in another written agreement with the participant, all outstanding awards will continue to vest and become exercisable (as applicable) based on continued service during the remaining vesting period, with performance-based awards being converted to service-based awards at the “target” level. Vesting and exercisability (as applicable) of awards that are assumed in connection with a change in control generally would be accelerated in full on a “double-trigger” basis, if, within two years after the change in control, the participant’s employment is involuntarily terminated without cause, or by the participant for “good reason.” Any stock options or stock appreciation rights (“SARs”) that become vested on a “double-trigger” basis generally would remain exercisable for the full duration of the term of the applicable award.

 

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To the extent outstanding awards granted under the 2017 Plan are not assumed in connection with a change in control, then such awards generally would become vested in full on a “single-trigger” basis, effective immediately prior to the change in control, with performance-based awards becoming vested at the “target” level. Any stock options or SARs that become vested on a “single-trigger” basis generally would remain exercisable for the full duration of the term of the applicable award.

 

The Compensation Committee has the discretion to determine whether or not any outstanding awards granted under the 2017 Plan will be assumed by the resulting entity in connection with a change in control, and the Compensation Committee has the authority to make appropriate adjustments in connection with the assumption of any awards. The Compensation Committee also has the right to cancel any outstanding awards in connection with a change in control, in exchange for a payment in cash or other property (including shares of the resulting entity) in an amount equal to the excess of the fair market value of the shares subject to the award over any exercise price related to the award, including the right to cancel any “underwater” stock options and SARs without payment therefor.

 

For purposes of the 2017 Plan, subject to the exceptions set forth in the 2017 Plan, a “change in control” generally includes (a) the acquisition of more than 50% of the voting power or value of the Company’s stock; (b) the incumbent board of directors ceasing to constitute a majority of the board of directors during a twelve-month period; and (c) the acquisition of 50% or more of the gross fair market value of the Company’s assets over a twelve-month period. The full definition of “change in control” is set out in the 2017 Plan.

 

For purposes of the 2017 Plan, unless otherwise defined in a written agreement with the participant or an applicable severance plan, “cause”, as a reason for the Company’s termination of a participant’s employment, generally means that the participant (a) acted dishonestly or incompetently or engaged in willful misconduct in performance of his or her duties; (b) breached fiduciary duties owed to the Company; (c) intentionally failed to perform reasonably assigned duties, which the participant did not satisfactorily correct within 30 calendar days following written notification; (d) was convicted or entered a plea of guilty or nolo contendere of any felony crime involving dishonesty; or (e) otherwise committed any act which could have a material adverse impact on the business of the Company.

 

For purposes of the 2017 Plan, unless otherwise defined in a written agreement with the participant or an applicable severance plan, “good reason”, as a reason for a participant’s termination of his or her employment, generally means the occurrence of any of the following without the participant’s consent (and unless timely cured by the Company following notice from the participant): (a) any material diminution in the participant’s compensation or benefits, unless generally applicable to all similarly situated employees of the Company; (b) the assignment to the participant of any duties inconsistent with, or substantially adverse to, his or her status and duties, or a reduction in title; (c) a material breach by the Company or a subsidiary of its obligations under the participant’s employment agreement, if any; or (d) the relocation of the participant’s primary work location to a location more than fifty miles away from the current location.

 

Except as described above with respect to a change in control, unexercisable stock options, unvested restricted shares and unvested RSUs generally become forfeited upon termination of employment. The stock options that are exercisable at the time of termination of employment expire within the earlier of thirty days after such termination or the expiration date of the options. Upon termination for “cause,” all options, whether or not exercisable, are generally automatically forfeited.

 

Awards granted under the 2017 Plan may be subject to forfeiture or recoupment as determined by the Compensation Committee in the event of certain detrimental activity, such as a participant’s breach of applicable restrictive covenants. Awards granted under the 2017 Plan also may be subject to forfeiture or recoupment as provided pursuant to any compensation recovery (or “clawback”) policy that the Company may adopt or maintain from time to time.

 

2010 Long-Term Incentive Plan – Change in Control Provisions

 

The 2010 Plan provides that no acceleration of an award shall occur upon or after a “change in control” unless such acceleration is provided for in the applicable award agreement and determined by the Compensation Committee on a grant-by-grant basis or as may be provided in an after written agreement between the Company and the grantee. The award agreements for the stock options and restricted shares granted to Messrs. Cerminara and Boegner under the 2010 Plan provide for accelerated vesting of all unvested options and restricted shares upon the occurrence of a “change in control” while the grantee is employed by the Company or a subsidiary of the Company as of the date of the change in control.

 

For purposes of the 2010 Plan, subject to the exceptions set forth in the 2010 Plan, a “change in control” generally includes (i) the acquisition of more than 50% of the Company’s common stock; (ii) over a twelve-month period, the acquisition of more than 50% of the Company’s common stock or the replacement of a majority of the board of directors by directors not endorsed by the persons who were members of the board before the new directors’ appointment; and (iii) the acquisition of more than 50% of the total gross fair market value of all the assets of the Company over a twelve-month period.

 

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Compensation Committee Interlocks and Insider Participation

 

The Compensation Committee of the Board of Directors consists of Messrs. Lanktree (Chair), Gerber and Roschman, none of whom has been at any time an executive officer or employee of the Company, or has any relationship requiring disclosure under Item 404 of Regulation S-K. None of our executive officers serves, or in the past has served, on the board of directors, or as a member of the compensation committee (or other committee performing an equivalent function) of the board of directors of any entity that has one or more executive officers who serve as members of our Board of Directors or Compensation Committee.

 

Compensation Committee Report

 

The following report of the Compensation Committee shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall this report be incorporated by reference into any filing made by the Company under the Securities Act of 1933, as amended, or the Exchange Act.

 

The Compensation Committee has reviewed and discussed the executive compensation, as disclosed above, with management. Based on this review and those discussions, the Compensation Committee recommended that the executive compensation be included in this report.

 

  By the Compensation Committee
   
  Charles T. Lanktree (Chair)
  William J. Gerber
  Robert J. Roschman

 

March 16, 2023

 

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DIRECTOR COMPENSATION

 

The following table sets forth the compensation paid to the Company’s directors in fiscal 2022.

 

   Fees Earned Or Paid in Cash
($)(1)		   Stock Awards
($)(2)		   Option Awards
($)		   Non-Equity Incentive Plan Compensation
($)		  

Nonqualified Deferred Compensation Earnings

($)

   All Other Compensation
($)		   Total
($)		 
                             
D. Kyle Cerminara   65,000    49,999    —    —    —    —    114,999 
William J. Gerber   58,000    39,998    —    —    —    —    97,998 
Charles T. Lanktree   53,000    39,998    —    —    —    —    92,998 
Michael C. Mitchell   43,000    39,998    —    —    —    —    82,998 
Robert J. Roschman   56,000    39,998    —    —    —    —    95,998 
Ndamukong Suh   43,000    39,998    —    —    —    —    82,998 
Larry G. Swets, Jr   40,000    39,998                        79,998 

 

(1)Although not included in the above table, the directors are reimbursed for their out-of-pocket expenses of attending meetings of the Board of Directors.
  
(2)On July 1, 2022, Mr. Cerminara was granted 20,833 RSUs under the 2017 Plan, and Messrs. Gerber, Lanktree, Mitchell, Roschman, Suh and Swets were each granted 16,666 RSUs under the 2017 Plan. The RSUs vest on the one-year anniversary of the grant date, provided that, if the director makes himself available and consents to be nominated by the Company for continued service as a director of the Company, but is not nominated to the Board of Directors for election by stockholders, other than for good reason as determined by the Board of Directors in its discretion, then the RSUs will vest in full as of the director’s last date of service as a director of the Company. Each RSU represents a contingent right to receive one share of common stock of the Company. The amounts shown in this column include the fair value of the annual RSU award on the date of grant, which was $2.40 per share. For additional information relating to the assumptions made in valuing and expensing these awards for 2022, refer to Note 13 in the Company’s consolidated financial statements.
  
 The aggregate number of unvested RSU awards outstanding as of December 31, 2022, for each of Messrs. Gerber, Lanktree, Roschman and Suh was 26,220. The aggregate number of unvested RSU awards outstanding as of December 31, 2022, for each of Messrs. Mitchell and Swets was 16,666. The aggregate number of unvested RSU awards outstanding as of December 31, 2022 for Mr. Cerminara was 30,387.

 

On March 31, 2021, we modified the compensation program for all non-employee directors which was effective for fiscal year 2021. The program was adopted to remain competitive in attracting and retaining qualified Board members and to better align director compensation to other public companies of comparable size to the Company. The terms of the new program are as follows:

 

●The Chairman of the Board of Directors is entitled to receive an annual cash retainer of $65,000, and each other non-employee director is entitled to receive an annual cash retainer of $40,000, paid in quarterly installments;
   
●The Chairman of the Audit Committee is entitled to receive an additional annual cash retainer of $10,000 and each other member of the Audit Committee is entitled to receive an additional cash retainer of $3,000, paid in quarterly installments;
   
●The Chairman of the Compensation Committee as well as the Chairman of the Nominating and Corporate Governance Committee are each entitled to receive an additional cash retainer of $10,000, and each other member of the Compensation Committee as well as each other member of the Nominating and Corporate Governance Committee are entitled to receive and annual cash retainer of $3,000, paid in quarterly installments;

 

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●The Chairman of the Board of Directors receives an annual grant of RSUs with a value of $50,000, and each other non-employee director receives an annual grant of RSUs with a value of $40,000, vesting on the one-year anniversary of the grant date, provided that, if the director makes himself available and consents to be nominated by the Company for continued service as a director of the Company, but is not nominated to the Board of Directors for election by stockholders, other than for good reason as determined by the Board of Directors in its discretion, then the RSUs will vest in full as of the director’s last date of service as a director of the Company; and
   
●Each non-employee director receives reimbursement for reasonable out-of-pocket expenses for attending meetings of the Board of Directors and its committees.

 

The 2017 Plan includes a limit on the amount of compensation payable to our non-employee directors. Specifically, the 2017 Plan provides that the aggregate grant date fair value of all awards granted to any single non- employee director during any single calendar year (determined as of the applicable grant date(s) under applicable financial accounting rules), when taken together with any cash fees paid to the non-employee director during the same calendar year, may not exceed $200,000.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

Largest Owners of FG Group Holdings Shares

 

The following table shows each person or entity that FG Group Holdings knows to be the beneficial owner of more than five percent of the Company’s outstanding common stock as of March 10, 2023:

 

Name and Address of Beneficial Owner 

Amount and Nature of Beneficial Ownership(1)

   Percent of Class(2) 
Fundamental Global GP, LLC
108 Gateway Blvd., Suite 204
Mooresville, NC 28117		   6,177,460(3)   31.7%
           
Par Sanda and Sand Capital Associates
501 N. Birch Rd, Unit 3
Fort Lauderdale, FL 33304		   1,304,698(4)   6.7%

 

(1)This information is based on the following filings made with the SEC, as indicated. Fundamental Global GP, LLC (“Fundamental Global GP”) filed a Form 4 on December 16, 2022, and Par Sanda and Sand Capital Associates, LLC filed a Schedule 13G/A on February 13, 2023.
  
(2)Based upon 19,469,649 shares outstanding on March 10, 2023.
  
(3)Fundamental Global GP has shared voting and dispositive power over 5,115,453 shares, representing approximately 26.3% of the Company’s outstanding shares of common stock. Mr. Cerminara, Chairman of our Board of Directors and our former Chief Executive Officer, serves as Chief Executive Officer, Co-Founder and Partner of Fundamental Global. Mr. Cerminara beneficially owns an additional 425,716 shares (including 58,000 shares purchasable pursuant to stock options held by Mr. Cerminara exercisable within 60 days of March 10, 2023. Joseph H. Moglia serves as Chairman, Co-Founder and Partner of Fundamental Global GP and beneficially owns an additional 636,291 shares, thus increasing the total number of shares beneficially owned by Fundamental Global GP to 6,177,460 shares, or approximately 31.7% of the Company’s outstanding shares of common stock.
  
(4)Par Sanda and Sand Capital Associates, LLC reported sole dispositive power over 214,273 shares, shared dispositive power over 1,090,425 shares, and aggregate beneficial ownership of 1,304,698 shares, or approximately 6.7% of the Company’s outstanding shares of common stock.

 

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Share Ownership of Directors and Officers

 

The following chart sets forth, as of the close of business on March 10, 2023, certain information concerning beneficial ownership of common stock by each director of the Company, each of the Named Executive Officers, and all current directors and executive officers as a group. The address for each director and executive officer listed is: c/o FG Group Holdings Inc., 5960 Fairview Road, Suite 275, Charlotte, North Carolina 28210.

 

Name  Number of Shares Beneficially Owned(1)   Percent of Common Stock(2) 
         
Mark D. Roberson, Chief Executive Officer   190,280(3)   * 
Todd R. Major, Chief Financial Officer   44,378(4)   * 
Ray F. Boegner, President of Strong Entertainment   347,070(5)   1.8%
D. Kyle Cerminara, Chairman   5,541,169(6)   28.4%
William J. Gerber, Director   90,060(7)   * 
Charles T. Lanktree, Director   95,073(8)   * 
Michael C. Mitchell, Director   50,111(9)   * 
Robert J. Roschman, Director   99,473(10)   * 
 Ndamukong Suh, Director   86,059(11)   * 
Larry G. Swets, Jr., Director   50,000(12)   * 
All current directors and executive officers as a group (10 persons)   6,593,673(13)   33.4%

 

* Less than 1% of common stock outstanding.

 

(1)Each director and Named Executive Officer listed in the table owns all outstanding shares directly and has sole voting and investment power over such shares unless otherwise specified below.
  
(2)Based upon 19,469,649 shares of common stock outstanding as of March 10, 2023. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such persons have voting or investment power with respect to the securities. Each named person is deemed to be the beneficial owner of shares of common stock that may be acquired within 60 days of March 10, 2023, upon the exercise of stock options and vesting of restricted stock units (sometimes referred to as “RSUs”). Accordingly, the number of shares and percentage set forth next to the name of such person, and all current directors and executive officers as a group, includes shares of directly owned common stock (including shares of restricted common stock, if any), shares of common stock purchasable pursuant to stock options exercisable within 60 days of March 10, 2023 and shares of common stock potentially issuable upon the vesting of restricted stock units within 60 days of March 10, 2023. However, the shares of common stock so issuable upon the exercise of stock options or vesting of restricted stock units held by any such person are not included in calculating the percentage of common stock beneficially owned by any other stockholder.
  
(3)Includes 132,280 shares of common stock directly owned by Mr. Roberson and 58,000 shares purchasable pursuant to stock options exercisable within 60 days of the March 10, 2023. Does not include (i) 13,334 shares potentially issuable upon the vesting of RSUs granted on October 9, 2020, (ii) 8,000 shares potentially issuable upon the exercise of stock options granted on December 4, 2018, (iii) 12,000 shares potentially issuable upon the exercise of stock options granted on June 6, 2019, and (iv) 12,000 shares potentially issuable upon the exercise of stock options granted on October 9, 2020.
  
(4)Includes 40,378 shares of common stock directly owned by Mr. Major and 4,000 purchasable pursuant to stock options exercisable within 60 days of March 10, 2023. Does not include (i) 6,667 shares potentially issuable upon the vesting of RSUs granted on October 9, 2020 and (ii) 6,000 shares potentially issuable upon the exercise of stock options granted on October 9, 2020.

 

42

 

 

(5)Includes 217,070 shares of common stock directly owned by Mr. Boegner and 130,000 shares purchasable pursuant to stock options exercisable within 60 days of March 10, 2023. Does not include (i) 10,000 shares potentially issuable upon the vesting of RSUs granted on October 9, 2020, (ii) 10,000 shares potentially issuable upon the exercise of stock options granted on January 26, 2018, (iii) 8,000 shares potentially issuable upon the exercise of stock options granted on June 6, 2019, and (iv) 9,000 shares potentially issuable upon the exercise of stock options granted on October 9, 2020.
  
(6)Includes 344,736 shares of common stock directly owned by Mr. Cerminara, 7,540 shares held in Mr. Cerminara’s 401(k) plan, 15,440 shares held by Mr. Cerminara’s wife and children and 58,000 shares purchasable pursuant to stock options exercisable within 60 days of March 10, 2023. Also includes 5,115,453 shares of common stock beneficially owned by Fundamental Global GP, which, with its affiliates, is the largest stockholder of the Company. Mr. Cerminara, as Chief Executive Officer, Co-Founder and Partner of Fundamental Global, is deemed to have shared voting and dispositive power over the shares beneficially owned by Fundamental Global GP. Mr. Cerminara disclaims beneficial ownership of the shares beneficially owned by Fundamental Global GP. Does not include (i) 9,554 shares potentially issuable pursuant to RSUs granted on July 1, 2020, (ii) 20,833 shares potentially issuable pursuant to RSUs granted on July 1, 2022, (iii) 10,000 shares potentially issuable upon the exercise of stock options granted on January 26, 2018, and (iv) 12,000 shares potentially issuable upon the exercise of stock options granted on June 6, 2019.
  
(7)Includes shares of common stock directly owned by Mr. Gerber. Does not include (i) 9,554 shares potentially issuable upon the vesting of RSUs granted on July 1, 2020 and (ii) 16,666 shares potentially issuable upon the vesting of RSUs granted on July 1, 2022.
  
(8)Includes 87,573 shares of common stock directly owned by Mr. Lanktree and 7,500 shares directly owned by the Donna B. Lanktree Family Trust, the trustee of which is Donna B. Lanktree, the spouse of Mr. Lanktree. Does not include (i) 9,554 shares potentially issuable upon the vesting of RSUs granted on July 1, 2020 and (ii) 16,666 shares potentially issuable upon the vesting of RSUs granted on July 1, 2022.
  
(9)Includes shares of common stock directly owned by Mr. Mitchell. Does not include 16,666 shares potentially issuable upon the vesting of RSUs granted on July 1, 2022.
  
(10)Includes shares of common stock directly owned by Mr. Roschman. Does not include (i) 9,554 shares potentially issuable upon the vesting of RSUs granted on July 1, 2020 and (ii) 16,666 shares potentially issuable upon the vesting of RSUs granted on July 1, 2022.
  
(11)Includes shares of common stock directly owned by Mr. Suh. Does not include (i) 9,554 shares potentially issuable upon the vesting of RSUs granted on July 1, 2020 and (ii) 16,666 shares potentially issuable upon the vesting of RSUs granted on July 1, 2021.
  
(12)Includes shares of common stock directly owned by Mr. Swets. Does not include 16,666 shares potentially issuable upon the vesting of RSUs granted on July 1, 2022.
  
(13)Includes 1,197,740 shares directly owned by all current directors and executive officers as a group, 7,540 shares held in Mr. Cerminara’s 401(k) plan, 15,440 shares held by Mr. Cerminara’s wife and children, 7,500 shares held by the Donna B. Lanktree Family Trust, 250,000 shares purchasable pursuant to stock options exercisable within 60 days of March 10, 2023, and 5,115,453 shares beneficially held by Fundamental Global GP.

 

43

 

 

EQUITY COMPENSATION PLANS

 

The following table sets forth information regarding our equity compensation plans as of December 31, 2022.

 

Plan Category  Number of securities to be issued upon exercise of outstanding options, warrants and rights   Weighted average exercise price of outstanding options, warrants and rights  

Number of securities remaining available for future issuance under

equity compensation plans (excluding securities reflected in

column (a))

 
   (a)   (b)   (c) 
             
Equity compensation plans approved by security holders   846,434(1)  $    3.72    2,312,911(2)
Equity compensation plans not approved by security holders   -    -    - 
Total   846,434   $3.72    2,312,911 

 

  (1) Includes 142,000 securities to be issued upon exercise of outstanding options under the 2010 Plan; and 497,500 securities to be issued upon exercise of outstanding options and 206,934 securities to be issued upon vesting of restricted stock units under the 2017 Plan.
     
  (2) All shares available for future issuance are under the 2017 Plan.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

 

RELATED PERSON TRANSACTIONS

 

The Company’s Audit Committee Charter requires the Audit Committee to review policies and procedures regarding transactions between the Company and officers, directors and other related parties that are not a normal part of the Company’s business. There are no formal written policies or procedures used by Board of Directors or the Audit Committee to review, approve or ratify related party transactions. Rather, the Board of Directors or the Audit Committee reviews all related party transactions on a case-by-case basis for potential conflict of interest situations on an ongoing basis and uses its discretion in approving all such transactions. The Board of Directors or the Audit Committee will apply the standards of Item 404(a) of Regulation S-K when evaluating certain relationships and related transactions.

 

On an annual basis, the Company determines whether there are any related party transactions that need to be evaluated and approved by the Board of Directors or the Audit Committee based on the responses received from each director and executive officer based on an annual questionnaire completed by the director or executive officer. While there are no formal written policies or procedures used, the Board of Directors or the Audit Committee may consider the following factors in evaluating related party transactions:

 

 ●the nature of the related person’s interest in the transaction;
   
●the presence of standard prices, rates, charges or terms otherwise consistent with arms-length dealings with unrelated third parties;
   
 ●the materiality of the transaction to each party;
   
 ●the reasons for the Company entering into the transaction with the related person;
   
●the potential effect of the transaction on the status of a director as an independent, outside or disinterested director or committee member; and
   
 ●any other factors the Board of Directors or the Audit Committee may deem relevant.

 

44

 

 

The arrangements discussed below were approved by the Audit Committee and/or the independent members of our Board of Directors.

 

Indemnification Agreements

 

On September 1, 2020, the Company entered into indemnification agreements with each of its directors and executive officers. Under the terms of the indemnification agreements, subject to certain exceptions specified in the indemnification agreements, the Company will, among other things, indemnify its directors and executive officers to the fullest extent permitted by law in the event such director or executive officer becomes subject to or a participant in certain claims or proceedings as a result of his service as a director or officer. The Company will also, subject to certain exceptions and repayment conditions, advance to such director or executive officer specified indemnifiable expenses incurred in connection with such claims or proceedings.

 

DIRECTOR INDEPENDENCE

 

The Board of Directors is composed of a majority of independent directors as defined by the listing requirements of the NYSE American. The Board of Directors has determined that Messrs. Gerber, Lanktree, Mitchell, Roschman and Suh are independent directors of the Company under the listing standards adopted by the NYSE American. In making these independence determinations, the Board of Directors considered all of the factors that automatically compromise director independence as specified in the NYSE American’s listing standards and determined that none of those conditions existed. In addition, the Board of Directors considered whether any direct or indirect material relationship, beyond those factors that automatically compromise director independence, existed between those directors, their immediate family members, or their affiliated entities, on the one hand, and us and our subsidiaries, on the other hand. The Board of Directors determined, for those directors identified as independent above, that any relationship that existed was not material and did not compromise that director’s independence. Our independent directors meet in an executive session at least once per year. All standing committee members are independent for the purpose of the committees on which they serve.

 

Item 14. Principal Accounting Fees and Services.

 

Haskell & White has served as the Company’s independent registered public accounting firm since April 11, 2019. The following table sets forth the aggregate fees for professional services rendered by Haskell & White for the years ended December 31, 2022 and December 31, 2021:

 

   2022   2021 
Audit Fees(1)  $249,200   $236,300 
Audit-Related Fees(2)   —    28,000 
Tax Fees   —    — 
All Other Fees(3)   253,300    296,000 
Total  $502,500   $560,300 

 

(1)Includes fees for professional services rendered during the fiscal year for the audit of our annual financial statements and for reviews of the financial statements included in our quarterly reports on Form 10-Q.
  
(2)Includes fees for services that generally only the independent registered public accounting firm can be reasonably expected to provide, including comfort letters, consents, and review of registration statements filed with the SEC.
  
(3)As noted elsewhere in this Annual Report, Strong Global Entertainment has filed a registration statement with the SEC and intends to commence an initial public offering of its common shares during 2023 to raise additional capital to support its growth plans. Includes fees for professional services rendered during the fiscal year for the audit of Strong Global Entertainment’s annual financial statements for 2019, 2020, 2021, and 2022 and for reviews of interim financial statements included in the registration statement.

 

The Audit Committee has implemented pre-approval procedures consistent with the rules adopted by the SEC. All audit and permitted non-audit services are pre-approved by the Audit Committee. The Audit Committee has delegated the responsibility of approving proposed non-audit services that arise between Audit Committee meetings to the Audit Committee Chairman, provided that the decision to approve the services is presented for ratification at the next scheduled Audit Committee meeting.

 

45

 

 

PART IV

 

Item 15. Exhibits and Financial Statement Schedules.

 

a. The following documents are filed as part of this report on Form 10-K:

 

  1. Consolidated Financial Statements:
     
    An Index to the Consolidated Financial Statements is filed as a part of Item 8.
     
  2. Exhibit list.

 

EXHIBIT INDEX

 

Exhibit       Incorporated by Reference   Filed

Number

   Document Description   Form   Exhibit   Filing Date  

Herewith

2.1+   Agreement and Plan of Merger dated October 19, 2022   8-K   2.1  

December 23, 2022

    
                     
3.1   Delaware Certificate of Merger, as filed with the Secretary of State of the State of Delaware on December 21, 2022   8-K   3.2  

December 23, 2022

    
                     
3.2   Nevada Articles of Merger, as filed with the Secretary of State of the State of Nevada on December 21, 2022   8-K   3.3  

December 23, 2022

    
                     
3.3   Amended and Restated Articles of Incorporation of FG Group Holdings Inc.   8-K   3.4  

December 23, 2022

    
                     
3.4   Bylaws of FG Group Holdings Inc.   8-K   3.5  

December 23, 2022

    
                     
4.1   Description of the Securities of FG Group Holdings Inc.               X
                     
10.1   Authorized Reseller Agreement, dated as of January 21, 2010, between Ballantyne Strong, Inc. and NEC Display Solutions of America, Inc.   10-K   10.1   March 23, 2010    
                     
10.2*   Ballantyne Strong, Inc. 2017 Omnibus Equity Compensation Plan (Amended and Restated effective October 28, 2019)   8-K   10.1  

December 17, 2019

    

 

46

 

 

Exhibit       Incorporated by Reference   Filed

Number

   Document Description   Form   Exhibit   Filing Date  

Herewith

10.3*   Form of Stock Option Agreement under the Ballantyne Strong, Inc. Omnibus Equity Compensation Plan   S-8   4.13   June 15, 2017    
                     
10.4*   Form of Restricted Share Agreement under the Ballantyne Strong, Inc. Omnibus Equity Compensation Plan   S-8   4.14   June 15, 2017    
                     
10.5*   Form of Restricted Share Unit Agreement under the Ballantyne Strong, Inc. Omnibus Equity Compensation Plan   S-8   4.15   June 15, 2017    
                     
10.6*   Form of Non-Employee Director Restricted Share Unit Agreement under the Ballantyne Strong, Inc. Omnibus Equity Compensation Plan   10-Q   10.1   August 14, 2019    
                     
10.7*   Ballantyne Strong, Inc. 2010 Long-Term Incentive Plan (as amended and restated)   8-K   10.1   May 20, 2014    
                     
10.8*   Form of Stock Option Agreement under the Ballantyne Strong, Inc. 2010 Long-Term Incentive Plan   8-K   10.1   November 27, 2015    
                     
10.9*   Form of Restricted Stock Agreement under the Ballantyne Strong, Inc. 2010 Long-Term Incentive Plan   8-K   10.2   November 27, 2015    
                     
10.10*   Executive Employment Agreement, dated February 14, 2012, between Ballantyne Strong, Inc. and Ray F. Boegner   10-Q   10.27   May 4, 2012    
                     
10.11*   Executive Employment Agreement, dated November 7, 2018, between Ballantyne Strong, Inc. and Mark D. Roberson   8-K   10.1   November 7, 2018    
                     
10.11.1 *   Amendment to Executive Employment Agreement, executed as of September 3, 2021, by and between Ballantyne Strong, Inc., and Mark Roberson   8-K   10.1   September 8, 2021    
                     
10.12*   Employment Agreement, dated March 20, 2019, between Ballantyne Strong, Inc. and Todd R. Major   10-Q   10.1   May 12, 2020    
                     
10.13   Progress Payment Note and Reimbursement Agreement between Convergent Media Systems Corporation and Huntington Technology Finance, Inc., effective as of June 22, 2017   8-K   10.2   June 27, 2017    
                     
10.14+   Demand Credit Agreement, executed as of June 7, 2021, by and between Strong/MDI Screen Systems, Inc., as Borrower, and Canadian Imperial Bank of Commerce, as Lender   10-Q   10.1   August 10, 2021    
                     
10.15   Contract of Sale, dated January 28, 2022, by and among Digital Ignition, LLC, as Buyer and Metrolina Alpharetta, LLC, as Seller   8-K   10.1   February 3, 2022    
                     
10.16   Stock Grant Agreement, dated February 1, 2022, by and between Ballantyne Strong, Inc. and Metrolina Capital Investors   8-K   10.2   February 3, 2022    

 

47

 

 

Exhibit       Incorporated by Reference   Filed

Number

   Document Description   Form   Exhibit   Filing Date  

Herewith

10.17   Stock Warrant, dated February 1, 2022, by and between Ballantyne Strong, Inc. and Metrolina Capital Investors   8-K   10.3   February 3, 2022    
                     
10.18   Commercial Loan Agreement, dated February 1, 2022, by and among Ballantyne Strong, Inc., Digital Ignition, LLC and Community First Bank   8-K   10.4   February 3, 2022    
                     
10.19   Promissory Note dated February 1, 2022, by and among Ballantyne Strong, Inc., Digital Ignition, LLC and Community First Bank   8-K   10.5   February 3, 2022    
                     
10.20   Deed to Secure Debt, dated February 1, 2022, executed by Digital Ignition, LLC in favor of Community First Bank   8-K   10.6   February 3, 2022    
                     
10.21   Form of Representative’s Warrant, to be issued by FG Group Holdings Inc.   8-K   4.1   February 8, 2021    
                     
10.22+   Equity Purchase Agreement, dated February 1, 2021, by and among SageNet LLC, Ballantyne Strong, Inc., SDM Holdco, Inc. and Convergent LLC   8-K   2.1   February 2, 2021    
                     
10.23   Master Services Agreement, dated August 3, 2020, by and between Convergent Media Systems Corporation and Firefly Systems Inc.   8-K   10.1   August 4, 2020    
                     
10.24   Assignment and Attachment Agreement, dated March 3, 2022, by and among Ballantyne Strong, Inc., Strong Studios, Inc., and Landmark Studio Group, LLC Subsidiaries of the Registrant   8-K   10.1   March 8, 2022    
                     
10.25   Purchase Agreement, dated March 3, 2022, by and among Ballantyne Strong, Inc., Strong Studios, Inc., and Landmark Studio Group, LLC   8-K   10.2   March 8, 2022    
                     
10.26+   Amended and restated demand credit agreement dated as of January 13, 2023, between Strong/MDI Screen Systems Inc. and Canadian Imperial Bank of Commerce   8-K   10.1   January 18, 2023    
                     
10.27   Amendment and Termination Agreement dated as of January 13, 2023, between Strong Studios, Inc., Landmark Studio Group LLC and Screen Media Ventures, LLC   8-K   10.2   January 18, 2023    
                     
21   Subsidiaries of the Registrant               X
                     
23.1   Consent of Haskell & White LLP               X
                     
31.1   Principal Executive Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002               X
                     
31.2   Principal Financial Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002               X
                     
32.1**   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                
                     
32.2**   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                
                     
101   The following materials from FG Group Holdings Inc.’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Loss; (iv) the Consolidated Statements of Stockholders’ Equity; (v) the Consolidated Statements of Cash Flows; and (vi) the Notes to Consolidated Financial Statements               X
                     
104   XBRL Cover Page Interactive Data File               X

 

* Management contract or compensatory plan.
** Furnished herewith.

 

+

 The exhibits and schedules to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S- K. The Company will furnish copies of such exhibits and schedules to the Securities and Exchange Commission upon request.

 

Item 16. Form 10-K Summary.

 

None.

 

48

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

FG GROUP HOLDINGS INC.

 

By: /s/ MARK D. ROBERSON   By: /s/ TODD R. MAJOR
  Mark D. Roberson, Chief Executive Officer     Todd R. Major, Chief Financial Officer
  (Principal Executive Officer)    

(Principal Financial Officer and Principal Accounting

Officer)

 

Date: March 16, 2023   Date: March 16, 2023

 

POWER OF ATTORNEY

 

Each person whose signature appears below hereby constitutes and appoints Mark D. Roberson and Todd R. Major, and each of them, his attorneys-in-fact, each with the power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

By: /s/ D. KYLE CERMINARA  
  D. Kyle Cerminara, Chairman of the Board of Directors  
Date: March 16, 2023  
     
By: /s/ WILLIAM J. GERBER  
  William J. Gerber, Director  
Date: March 16, 2023  
     
By: /s/ CHARLES T. LANKTREE  
  Charles T. Lanktree, Director  
Date: March 16, 2023  
     
By: /s/ MICHAEL C. MITCHELL  
  Michael C. Mitchell, Director  
Date: March 16, 2023  
     
By: /s/ ROBERT J. ROSCHMAN  
  Robert J. Roschman, Director  
Date: March 16, 2023  
     
By: /s/ NDAMUKONG SUH  
  Ndamukong Suh, Director  
Date: March 16, 2023  
     
By: /s/ LARRY G. SWETS, JR.  
  Larry G. Swets, Jr., Director  
Date: March 16, 2023  

 

49

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