UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
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 Number: 1-13906
BALLANTYNE STRONG, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 47-0587703 | |
| (State or Other Jurisdiction of | (IRS Employer | |
| Incorporation or Organization) | Identification Number) | |
4201 Congress Street, Suite 175 Charlotte, North Carolina |
28209 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(704) 994-8279
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name
of Each Exchange on Which Registered | ||
| Common Shares, $.01 par value | BTN | NYSE American |
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 twelve 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 [X] 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 [X] 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 | [X] | Smaller reporting company | [X] | |
| 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:
| Class | Outstanding as of October 29, 2019 | |
| Common Stock, $.01 par value | 14,518,756 shares |
TABLE OF CONTENTS
| 2 |
Ballantyne Strong, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except par values)
| September 30, 2019 | December 31, 2018 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 4,388 | $ | 6,698 | ||||
| Restricted cash | 350 | 350 | ||||||
| Accounts receivable (net of allowance for doubtful accounts of $1,409 and $1,832, respectively) | 13,304 | 13,841 | ||||||
| Inventories, net | 3,395 | 3,490 | ||||||
| Recoverable income taxes | 55 | 281 | ||||||
| Other current assets | 1,965 | 1,663 | ||||||
| Total current assets | 23,457 | 26,323 | ||||||
| Property, plant and equipment (net of accumulated depreciation of $9,602 and $9,046, respectively) | 11,078 | 14,483 | ||||||
| Operating lease right-of-use assets | 5,603 | - | ||||||
| Finance lease right-of-use assets | 2,037 | 692 | ||||||
| Investments | 14,060 | 11,167 | ||||||
| Intangible assets, net | 1,601 | 1,795 | ||||||
| Goodwill | 902 | 875 | ||||||
| Notes receivable | 1,812 | 3,965 | ||||||
| Other assets | 230 | 337 | ||||||
| Total assets | $ | 60,780 | $ | 59,637 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 6,064 | $ | 4,724 | ||||
| Accrued expenses | 3,342 | 2,782 | ||||||
| Short-term debt | 3,123 | 3,152 | ||||||
| Current portion of long-term debt | 979 | 1,094 | ||||||
| Current portion of operating lease obligations | 939 | - | ||||||
| Current portion of finance lease obligations | 1,317 | 160 | ||||||
| Deferred revenue and customer deposits | 3,376 | 2,310 | ||||||
| Total current liabilities | 19,140 | 14,222 | ||||||
| Long-term debt, net of current portion and debt issuance costs | 3,275 | 10,053 | ||||||
| Operating lease obligations, net of current portion | 4,894 | - | ||||||
| Finance lease obligations, net of current portion | 3,794 | 427 | ||||||
| Deferred revenue and customer deposits, net of current portion | 1,152 | 1,167 | ||||||
| Deferred income taxes | 2,476 | 2,516 | ||||||
| Other accrued expenses, net of current portion | 91 | 254 | ||||||
| Total liabilities | 34,822 | 28,639 | ||||||
| Commitments and contingencies (Note 14) | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock, par value $.01 per share; authorized 1,000 shares, none outstanding | - | - | ||||||
| Common stock, par value $.01 per share; authorized 25,000 shares; issued 17,313 and 17,237 shares at September 30, 2019 and December 31, 2018, respectively; outstanding 14,519 and 14,443 shares at September 30, 2019 and December 31, 2018, respectively | 169 | 169 | ||||||
| Additional paid-in capital | 42,272 | 41,474 | ||||||
| Retained earnings | 6,748 | 13,319 | ||||||
| Less 2,794 of common shares in treasury, at cost | (18,586 | ) | (18,586 | ) | ||||
| Accumulated other comprehensive loss | (4,645 | ) | (5,378 | ) | ||||
| Total stockholders' equity | 25,958 | 30,998 | ||||||
| Total liabilities and stockholders' equity | $ | 60,780 | $ | 59,637 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 3 |
Ballantyne Strong, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2019 and 2018
(In thousands, except per share data)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Net product sales | $ | 9,192 | $ | 8,417 | $ | 20,840 | $ | 24,602 | ||||||||
| Net service revenues | 7,654 | 8,036 | 24,581 | 21,856 | ||||||||||||
| Total net revenues | 16,846 | 16,453 | 45,421 | 46,458 | ||||||||||||
| Cost of products sold | 5,603 | 5,102 | 17,526 | 16,572 | ||||||||||||
| Cost of services | 5,430 | 7,821 | 16,204 | 22,216 | ||||||||||||
| Total cost of revenues | 11,033 | 12,923 | 33,730 | 38,788 | ||||||||||||
| Gross profit | 5,813 | 3,530 | 11,691 | 7,670 | ||||||||||||
| Selling and administrative expenses: | ||||||||||||||||
| Selling | 1,373 | 1,139 | 3,823 | 3,638 | ||||||||||||
| Administrative | 4,371 | 3,384 | 12,597 | 12,301 | ||||||||||||
| Total selling and administrative expenses | 5,744 | 4,523 | 16,420 | 15,939 | ||||||||||||
| Loss on disposal of assets | (3 | ) | (799 | ) | (105 | ) | (2,130 | ) | ||||||||
| Income (loss) from operations | 66 | (1,792 | ) | (4,834 | ) | (10,399 | ) | |||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 1 | - | 3 | - | ||||||||||||
| Interest expense | (263 | ) | (180 | ) | (568 | ) | (267 | ) | ||||||||
| Fair value adjustment to notes receivable | (845 | ) | 802 | (2,153 | ) | 953 | ||||||||||
| Foreign currency transaction gain (loss) | 66 | (67 | ) | (154 | ) | 41 | ||||||||||
| Other income (expense), net | 414 | 6 | 868 | (9 | ) | |||||||||||
| Total other (expense) income | (627 | ) | 561 | (2,004 | ) | 718 | ||||||||||
| Loss before income taxes and equity method investment (loss) income | (561 | ) | (1,231 | ) | (6,838 | ) | (9,681 | ) | ||||||||
| Income tax expense | 731 | 497 | 1,295 | 1,837 | ||||||||||||
| Equity method investment (loss) income | (496 | ) | 507 | (1,223 | ) | (244 | ) | |||||||||
| Net loss | $ | (1,788 | ) | $ | (1,221 | ) | $ | (9,356 | ) | $ | (11,762 | ) | ||||
| Basic loss per share | $ | (0.12 | ) | $ | (0.08 | ) | $ | (0.65 | ) | $ | (0.82 | ) | ||||
| Diluted loss per share | $ | (0.12 | ) | $ | (0.08 | ) | $ | (0.65 | ) | $ | (0.82 | ) | ||||
| Weighted-average shares used in computing net loss per share: | ||||||||||||||||
| Basic | 14,494 | 14,392 | 14,476 | 14,366 | ||||||||||||
| Diluted | 14,494 | 14,392 | 14,476 | 14,366 | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 4 |
Ballantyne Strong, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss
Three and Nine Months Ended September 30, 2019 and 2018
(In thousands)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Net loss | $ | (1,788 | ) | $ | (1,221 | ) | $ | (9,356 | ) | $ | (11,762 | ) | ||||
| Adjustment to postretirement benefit obligation | - | 6 | 2 | 15 | ||||||||||||
| Unrealized gain (loss) on available-for-sale securities of equity method investments, net of tax | 166 | (33 | ) | 407 | (203 | ) | ||||||||||
| Currency translation adjustment: | ||||||||||||||||
| Unrealized net change arising during period | (26 | ) | 245 | 324 | (585 | ) | ||||||||||
| Total other comprehensive income (loss) | 140 | 218 | 733 | (773 | ) | |||||||||||
| Comprehensive loss | $ | (1,648 | ) | $ | (1,003 | ) | $ | (8,623 | ) | $ | (12,535 | ) | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 5 |
Ballantyne Strong, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
Three and Nine Months Ended September 30, 2019 and 2018
(In thousands)
(Unaudited)
The following summarizes the changes in stockholders’ equity for the three and nine months ended September 30, 2019:
| Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | |||||||||||||||||||
| Balance at December 31, 2018 | $ | 169 | $ | 41,474 | $ | 13,319 | $ | (18,586 | ) | $ | (5,378 | ) | $ | 30,998 | ||||||||||
| Net loss | - | - | (4,150 | ) | - | - | (4,150 | ) | ||||||||||||||||
| Net other comprehensive income | - | - | - | - | 168 | 168 | ||||||||||||||||||
| Cumulative effect of adoption of ASC 842 | - | - | 2,785 | - | - | 2,785 | ||||||||||||||||||
| Stock-based compensation expense | - | 243 | - | - | - | 243 | ||||||||||||||||||
| Balance at March 31, 2019 | 169 | 41,717 | 11,954 | (18,586 | ) | (5,210 | ) | 30,044 | ||||||||||||||||
| Net loss | - | - | (3,418 | ) | - | - | (3,418 | ) | ||||||||||||||||
| Net other comprehensive income | - | - | - | - | 425 | 425 | ||||||||||||||||||
| Stock-based compensation expense | - | 221 | - | - | - | 221 | ||||||||||||||||||
| Balance at June 30, 2019 | 169 | 41,938 | 8,536 | (18,586 | ) | (4,785 | ) | 27,272 | ||||||||||||||||
| Net loss | - | - | (1,788 | ) | - | - | (1,788 | ) | ||||||||||||||||
| Net other comprehensive income | - | - | - | - | 140 | 140 | ||||||||||||||||||
| Stock-based compensation expense | - | 334 | - | - | - | 334 | ||||||||||||||||||
| Balance at September 30, 2019 | $ | 169 | $ | 42,272 | $ | 6,748 | $ | (18,586 | ) | $ | (4,645 | ) | $ | 25,958 | ||||||||||
The following summarizes the changes in stockholders’ equity for the three and nine months ended September 30, 2018:
| Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | |||||||||||||||||||
| Balance at December 31, 2017 | $ | 169 | $ | 40,565 | $ | 25,570 | $ | (18,586 | ) | $ | (3,596 | ) | $ | 44,122 | ||||||||||
| Net loss | - | - | (3,785 | ) | - | - | (3,785 | ) | ||||||||||||||||
| Net other comprehensive loss | - | - | - | - | (510 | ) | (510 | ) | ||||||||||||||||
| Cumulative effect of adoption of ASC 606 | - | - | 76 | - | - | 76 | ||||||||||||||||||
| Stock-based compensation expense | - | 255 | - | - | - | 255 | ||||||||||||||||||
| Balance at March 31, 2018 | 169 | 40,820 | 21,861 | (18,586 | ) | (4,106 | ) | 40,158 | ||||||||||||||||
| Net loss | - | - | (6,755 | ) | - | - | (6,755 | ) | ||||||||||||||||
| Net other comprehensive loss | - | - | - | - | (481 | ) | (481 | ) | ||||||||||||||||
| Issuance of warrants to purchase 100 shares of common stock, net of issuance costs | - | 75 | - | - | - | 75 | ||||||||||||||||||
| Stock-based compensation expense | - | 227 | - | - | - | 227 | ||||||||||||||||||
| Balance at June 30, 2018 | 169 | 41,122 | 15,106 | (18,586 | ) | (4,587 | ) | 33,224 | ||||||||||||||||
| Net loss | - | - | (1,221 | ) | - | - | (1,221 | ) | ||||||||||||||||
| Net other comprehensive income | - | - | - | - | 218 | 218 | ||||||||||||||||||
| Adjustment to issuance of warrants to purchase 100 shares of common stock, net of issuance costs | - | (4 | ) | - | - | - | (4 | ) | ||||||||||||||||
| Stock-based compensation expense | - | 166 | - | - | - | 166 | ||||||||||||||||||
| Balance at September 30, 2018 | $ | 169 | $ | 41,284 | $ | 13,885 | $ | (18,586 | ) | $ | (4,369 | ) | $ | 32,383 | ||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 6 |
Ballantyne Strong, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2019 and 2018
(In thousands)
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (9,356 | ) | $ | (11,762 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| (Recovery of) provision for doubtful accounts | (509 | ) | 381 | |||||
| Provision for obsolete inventory | 245 | 412 | ||||||
| Provision for warranty | 24 | 83 | ||||||
| Depreciation and amortization | 2,537 | 1,953 | ||||||
| Amortization and accretion of operating leases | 1,434 | - | ||||||
| Fair value adjustment to notes receivable | 2,153 | (953 | ) | |||||
| Equity method investment loss | 1,223 | 244 | ||||||
| Recognition of contract acquisition costs | - | 29 | ||||||
| Loss on disposal of assets | 105 | 2,130 | ||||||
| Gain on Firefly transaction (Note 6) | (220 | ) | - | |||||
| Deferred income taxes | (129 | ) | (146 | ) | ||||
| Impairment of operating lease | - | 209 | ||||||
| Impairment of contract acquisition costs | - | 59 | ||||||
| Stock-based compensation expense | 798 | 648 | ||||||
| Dividends received from investee | - | 817 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 1,148 | (4,244 | ) | |||||
| Inventories | (96 | ) | 413 | |||||
| Current income taxes | 229 | 178 | ||||||
| Other assets | (214 | ) | (1,021 | ) | ||||
| Accounts payable and accrued expenses | 1,568 | 415 | ||||||
| Deferred revenue and customer deposits | 1,043 | 1,359 | ||||||
| Operating lease obligations | (1,567 | ) | - | |||||
| Net cash provided by (used in) operating activities | 416 | (8,796 | ) | |||||
(Continued on following page)
See accompanying notes to unaudited condensed consolidated financial statements.
| 7 |
Ballantyne Strong, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows - Continued
Nine Months Ended September 30, 2019 and 2018
(In thousands)
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| Cash flows from investing activities: | ||||||||
| Proceeds from sale of equity securities | $ | - | $ | 4,531 | ||||
| Proceeds from sale of property, plant and equipment | 121 | - | ||||||
| Dividends received from investee in excess of cumulative earnings | - | 69 | ||||||
| Capital expenditures | (1,717 | ) | (1,220 | ) | ||||
| Net cash (used in) provided by investing activities | (1,596 | ) | 3,380 | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of long-term debt | 237 | - | ||||||
| Proceeds from issuance of short-term debt | - | 3,205 | ||||||
| Proceeds from sale-leaseback financing | - | 7,000 | ||||||
| Principal payments on short-term debt | (323 | ) | (1,097 | ) | ||||
| Principal payments on long-term debt | (725 | ) | (2,278 | ) | ||||
| Payment of debt issuance costs | - | (22 | ) | |||||
| Payments on capital lease obligations | (420 | ) | (147 | ) | ||||
| Other | - | (8 | ) | |||||
| Net cash (used in) provided by financing activities | (1,231 | ) | 6,653 | |||||
| Effect of exchange rate changes on cash and cash equivalents | 101 | (98 | ) | |||||
| Net (decrease) increase in cash and cash equivalents and restricted cash | (2,310 | ) | 1,139 | |||||
| Cash and cash equivalents and restricted cash at beginning of period | 7,048 | 4,870 | ||||||
| Cash and cash equivalents and restricted cash at end of period | $ | 4,738 | $ | 6,009 | ||||
| Components of cash and cash equivalents and restricted cash: | ||||||||
| Cash and cash equivalents | $ | 4,388 | $ | 5,659 | ||||
| Restricted cash | 350 | 350 | ||||||
| Total cash and cash equivalents and restricted cash | $ | 4,738 | $ | 6,009 | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Term loan borrowings to finance equipment purchases | $ | 364 | $ | 4,121 | ||||
| Capital lease obligations for property and equipment | $ | 1,613 | $ | - | ||||
| Investment in Firefly Systems, Inc. (Note 6) | $ | 3,614 | $ | - | ||||
| Short-term borrowings to finance insurance | $ | 46 | $ | - | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 8 |
Ballantyne Strong, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. Nature of Operations
Ballantyne Strong, Inc. (“Ballantyne” or the “Company”), a Delaware corporation, is a holding company with diverse business activities focused on serving the cinema, retail, financial, advertising and government markets. The Company, and its wholly owned subsidiaries Strong Technical Services, Inc., Strong/MDI Screen Systems, Inc. (“Strong/MDI”), Convergent Media Systems Corporation (“Convergent”) and Strong Digital Media, LLC (“SDM”), design, integrate and install technology solutions for a broad range of applications; develop and deliver out-of-home messaging, advertising and communications; manufacture projection screens; and provide managed services including monitoring of networked equipment to our customers.
Effective August 8, 2019, the Company’s Board of Directors approved the relocation of Ballantyne’s headquarters from 11422 Miracle Hills Drive, Suite 300, Omaha, Nebraska to 4201 Congress Street, Suite 175, Charlotte, North Carolina 28209.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and all majority owned and controlled domestic and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated financial statements included in this report are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America (also referred to as “GAAP”) for annual reporting purposes or those made in the Company’s Annual Report on Form 10-K. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
The condensed consolidated balance sheet as of December 31, 2018 was derived from the Company’s audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary to present a fair statement of the financial position and the results of operations and cash flows for the respective interim periods. Certain prior period balances have been reclassified to conform to current period presentation. The results for interim periods are not necessarily indicative of trends or results expected for a full year.
Unless otherwise indicated, all references to “dollars” and “$” in this Quarterly Report on Form 10-Q are to, and amounts are presented in, U.S. dollars.
Use of Management Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results and changes in facts and circumstances may alter such estimates and affect results of operations and financial position in future periods.
| 9 |
Restricted Cash
Restricted cash represents amounts held in a collateral account for the Company’s corporate travel and purchasing credit card program.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company determines the allowance for doubtful accounts based on several factors, including overall customer credit quality, historical write-off experience and a specific analysis that projects the ultimate collectability of the account. As such, these factors may change over time causing the allowance level and bad debt expense to be adjusted accordingly.
Investments
We apply the equity method of accounting to investments when we have significant influence, but not controlling interest, in the investee. Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. The Company’s proportionate share of the net income (loss) resulting from these investments is reported under the line item captioned “equity method investment income (loss)” in our condensed consolidated statements of operations. The Company’s equity method investments are reported at cost and adjusted each period for the Company’s share of the investee’s income or loss and dividend paid, if any. The Company’s share of the investee’s income or loss is recorded on a one quarter lag for all equity method investments. The Company classifies distributions received from equity method investments using the cumulative earnings approach on the condensed consolidated statements of cash flows. We apply the cost method of accounting to investments when we do not have significant influence or a controlling interest in the investee and the fair value of the investment is not readily determinable. Dividends on cost method investments received are recorded as income.
The Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable. Management reviewed the underlying net assets of the investments during the three and nine months ended September 30, 2019 and determined that the Company’s proportionate economic interest in the investments indicate that the investments were not other than temporarily impaired. The carrying value of our equity method and cost method investments is reported in “investments” in the condensed consolidated balance sheets. Note 6 contains additional information on our equity method and cost method investments.
Fair Value of Financial Instruments
Assets and liabilities measured at fair value are categorized into a fair value hierarchy based upon the observability of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
| ● | Level 1 – inputs to the valuation techniques are quoted prices in active markets for identical assets or liabilities | |
| ● | Level 2 – inputs to the valuation techniques are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly | |
| ● | Level 3 – inputs to the valuation techniques are unobservable for the assets or liabilities |
The following tables present the Company’s financial assets measured at fair value based upon the level within the fair value hierarchy in which the fair value measurements are classified, as of September 30, 2019 and December 31, 2018.
| 10 |
Fair values measured on a recurring basis at September 30, 2019 (in thousands):
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Cash and cash equivalents | $ | 4,388 | $ | - | $ | - | $ | 4,388 | ||||||||
| Restricted cash | 350 | - | - | 350 | ||||||||||||
| Notes receivable | - | - | 1,812 | 1,812 | ||||||||||||
| Total | $ | 4,738 | $ | - | $ | 1,812 | $ | 6,550 | ||||||||
Fair values measured on a recurring basis at December 31, 2018 (in thousands):
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Cash and cash equivalents | $ | 6,698 | $ | - | $ | - | $ | 6,698 | ||||||||
| Restricted cash | 350 | - | 350 | |||||||||||||
| Notes receivable | - | - | 3,965 | 3,965 | ||||||||||||
| Total | $ | 7,048 | $ | - | $ | 3,965 | $ | 11,013 | ||||||||
The following table reconciles the beginning and ending balance of the Company’s notes receivable at fair value (in thousands):
| Nine Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| Notes receivable balance, beginning of period | $ | 3,965 | $ | 2,815 | ||||
| Fair value adjustment | (2,153 | ) | 953 | |||||
| Notes receivable balance, end of period | $ | 1,812 | $ | 3,768 | ||||
Quantitative information about the Company’s level 3 fair value measurements at September 30, 2019 is set forth below (in thousands):
| Fair value at September 30, 2019 | Valuation technique | Unobservable input | Value | |||||||||
| Notes receivable | $ | 1,812 | Discounted cash flow | Default percentage | 72 | % | ||||||
| Discount rate | 18 | % | ||||||||||
During 2011, the Company entered into certain unsecured notes receivable arrangements with CDF2 Holdings, LLC pertaining to the sale and installation of digital projection equipment. The notes receivable accrue interest at a rate of 15% per annum. Interest not paid in any particular year is added to the principal and also accrues interest at 15%. The notes receivable are recorded at estimated fair value. In order to estimate the fair value, the Company reviews the financial position and estimated cash flows of the debtor of the notes receivable on a quarterly basis. The Company recorded a decrease to the fair value of the notes receivable of $2.2 million during the nine months ended September 30, 2019 and an increase to the fair value of the notes receivable of $1.0 million during the nine months ended September 30, 2018. The adjustments to the fair value of the notes receivable are included in other (expense) income on the Company’s condensed consolidated statements of operations.
The significant unobservable inputs used in the fair value measurement of the Company’s notes receivable are discount rate and percentage of default. Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower (higher) fair value measurement.
The Company’s short-term and long-term debt is recorded at historical cost. As of September 30, 2019, the Company’s long-term debt, including current maturities, had a carrying value of $4.3 million. Based on discounted cash flows using current quoted interest rates (Level 2 of the fair value hierarchy), the estimated fair value at September 30, 2019 was $3.8 million.
| 11 |
The carrying values of all other financial assets and liabilities, including accounts receivable, accounts payable, accrued expenses and short-term debt, reported in the condensed consolidated balance sheets equal or approximate their fair values due to the short-term nature of these instruments. Note 6 includes fair value information related to our equity and cost method investments. All non-financial assets that are not recognized or disclosed at fair value in the financial statements on a recurring basis, which include non-financial long-lived assets, are measured at fair value in certain circumstances (for example, when there is evidence of impairment). During the three and nine months ended September 30, 2018, the Company recorded impairment charges of $0.8 million and $2.1 million, respectively, related to the abandonment of internally developed software intangible assets as a loss on disposal of assets in the condensed consolidated statement of operations. Other than the intangible asset impairment, the Company did not have any significant non-recurring measurements of non-financial assets or liabilities during the three and nine months ended September 30, 2019 or 2018.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, “Leases (Topic 842),” which was further clarified by ASU 2018-11, “Leases – Targeted Improvements,” issued in July 2018. ASU 2016-02 requires lessees to recognize a lease liability and a right-to-use asset for all leases, including operating leases, with a term greater than twelve months, on its balance sheet. This ASU is effective in fiscal years beginning after December 15, 2018 and initially required a modified retrospective transition method under which entities would initially apply Topic 842 at the beginning of the earliest period presented in the financial statements. ASU 2018-11 added an additional optional transition method allowing entities to apply Topic 842 as of the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted Topic 842 using the optional transition method from ASU 2018-11 as of January 1, 2019. Upon adoption, the Company recorded a balance sheet gross-up of approximately $4.7 million to record operating lease liabilities and related right-of-use assets. In addition, the sale-leaseback of the Company’s Alpharetta, Georgia office facility in June 2018, which did not qualify for sale-leaseback accounting under the previous lease accounting standard, qualified for sale-leaseback accounting under Topic 842, as Topic 842 eliminated the concept of continuing involvement by the seller-lessee precluding sale-leaseback accounting. Upon adoption, the Company recorded a cumulative effect adjustment increasing retained earnings by approximately $2.8 million, which represents the gain on the sale of the facility. The Company also derecognized approximately $4.0 million of net land and building assets and approximately $6.8 million of debt associated with the previous accounting as a failed sale-leaseback and recorded approximately $5.0 million of operating lease right-of-use assets and liabilities for the leaseback under Topic 842. See Note 11 for more information about the Company’s leases.
In August 2018, the Securities and Exchange Commission (the “SEC”) adopted the final rule under SEC Release No. 33-10532, “Disclosure Update and Simplification,” amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The final rule is effective for all filings made on and after November 5, 2018. Given the effective date and proximity to most filers’ quarterly reports, the SEC did not object to filers deferring the presentation of changes in stockholders’ equity in their quarterly reports on Forms 10-Q until the quarter beginning after November 5, 2018. The Company elected to provide the required disclosure in a separate statement of stockholders’ equity beginning with Form 10-Q for the quarter ended March 31, 2019.
In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The new guidance eliminates Step 2 of the goodwill impairment testing which requires the fair value of individual assets and liabilities of a reporting unit to be determined when measuring goodwill impairment. The new guidance may result in different amounts of impairment that could be recognized compared to existing guidance. In addition, failing step 1 of the impairment test may not result in impairment under existing guidance. However, under the revised guidance, failing step 1 will always result in a goodwill impairment. ASU 2017-04 is to be applied prospectively for goodwill impairment testing performed in years beginning after December 15, 2019 with early adoption permitted. The Company adopted ASU 2017-04 in the first quarter of 2019. Adoption of ASU 2017-04 did not significantly impact the Company’s results of operations or financial position.
| 12 |
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 is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those fiscal years. In July 2019, the FASB announced its intention to propose an extended effective date of January 1, 2023 for adoption of the ASU by smaller reporting companies. In October 2019, the FASB voted in favor of finalizing its proposal to defer the effective date of this standard. Subject to any additional guidance or clarification from the FASB or the SEC, management believes the Company will qualify for this proposed deferral. The Company believes the adoption of this ASU will not significantly impact its results of operations and financial position.
3. Revenue
The Company accounts for revenue using the following steps:
| ● | Identify the contract, or contracts, with a customer | |
| ● | Identify the performance obligations in the contract | |
| ● | Determine the transaction price | |
| ● | Allocate the transaction price to the identified performance obligations | |
| ● | Recognize revenue when, or as, the Company satisfies the performance obligations |
The Company combines contracts with the same customer into a single contract for accounting purposes when the contracts are entered into at or near the same time and the contracts are negotiated as a single commercial package, consideration in one contract depends on the other contract, or the services are considered a single performance obligation. If an arrangement involves multiple performance obligations, the items are analyzed to determine the separate units of accounting, whether the items have value on a standalone basis and whether there is objective and reliable evidence of their standalone selling price. The total contract transaction price is allocated to the identified performance obligations based upon the relative standalone selling prices of the performance obligations. The standalone selling price is based on an observable price for services sold to other comparable customers, when available, or an estimated selling price using a cost plus margin approach. The Company estimates the amount of total contract consideration it expects to receive for variable arrangements by determining the most likely amount it expects to earn from the arrangement based on the expected quantities of services it expects to provide and the contractual pricing based on those quantities. The Company only includes some or a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is subsequently resolved. The Company considers the sensitivity of the estimate, its relationship and experience with the client and variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement.
As discussed in more detail below, revenue is recognized when a customer obtains control of promised goods or services under the terms of a contract and is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The Company does not have any material extended payment terms as payment is due at or shortly after the time of the sale. Observable prices are used to determine the standalone selling price of separate performance obligations, or a cost plus margin approach is used when observable prices are not available. Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded from revenue.
The Company recognizes contract assets or unbilled receivables related to revenue recognized for services completed but not yet invoiced to the clients. Unbilled receivables are recorded as accounts receivable when the Company has an unconditional right to contract consideration. A contract liability is recognized as deferred revenue when the Company invoices clients in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when the Company has satisfied the related performance obligation.
| 13 |
Deferred contract acquisition costs are included in other assets. The Company defers costs to acquire contracts, including commissions, incentives and payroll taxes, if they are incremental and recoverable costs of obtaining a customer contract with a term exceeding one year. Deferred contract costs are reported within other assets and amortized to selling expense over the contract term, which generally ranges from one to five years. The Company has elected to recognize the incremental costs of obtaining a contract with a term of less than one year as a selling expense when incurred. The Company did not have any deferred contract costs as of September 30, 2019 or December 31, 2018.
The following tables disaggregate the Company’s revenue by major source for the three and nine months ended September 30, 2019 (in thousands):
| Three Months Ended September 30, 2019 | ||||||||||||||||||||
| Strong Cinema | Convergent | Strong Outdoor | Other | Total | ||||||||||||||||
| Screen system sales | $ | 4,441 | $ | - | $ | - | $ | - | $ | 4,441 | ||||||||||
| Digital equipment sales | 3,285 | 757 | - | - | 4,042 | |||||||||||||||
| Extended warranty sales | 197 | - | - | - | 197 | |||||||||||||||
| Other product sales | 512 | - | - | - | 512 | |||||||||||||||
| Total product sales | 8,435 | 757 | - | - | 9,192 | |||||||||||||||
| Field maintenance and monitoring services | 1,969 | 3,078 | 58 | - | 5,105 | |||||||||||||||
| Installation services | 473 | 611 | - | - | 1,084 | |||||||||||||||
| Advertising | - | - | 1,173 | - | 1,173 | |||||||||||||||
| Other service revenues | 51 | 86 | 65 | 90 | 292 | |||||||||||||||
| Total service revenues | 2,493 | 3,775 | 1,296 | 90 | 7,654 | |||||||||||||||
| Total | $ | 10,928 | $ | 4,532 | $ | 1,296 | $ | 90 | $ | 16,846 | ||||||||||
| Nine Months Ended September 30, 2019 | ||||||||||||||||||||
| Strong Cinema | Convergent | Strong Outdoor | Other | Total | ||||||||||||||||
| Screen system sales | $ | 10,370 | $ | - | $ | - | $ | - | $ | 10,370 | ||||||||||
| Digital equipment sales | 6,396 | 2,248 | - | - | 8,644 | |||||||||||||||
| Extended warranty sales | 582 | - | - | - | 582 | |||||||||||||||
| Other product sales | 1,238 | 6 | - | - | 1,244 | |||||||||||||||
| Total product sales | 18,586 | 2,254 | - | - | 20,840 | |||||||||||||||
| Field maintenance and monitoring services | 6,060 | 8,637 | 286 | - | 14,983 | |||||||||||||||
| Installation services | 1,540 | 4,194 | - | - | 5,734 | |||||||||||||||
| Advertising | - | - | 3,127 | - | 3,127 | |||||||||||||||
| Other service revenues | 219 | 119 | 111 | 288 | 737 | |||||||||||||||
| Total service revenues | 7,819 | 12,950 | 3,524 | 288 | 24,581 | |||||||||||||||
| Total | $ | 26,405 | $ | 15,204 | $ | 3,524 | $ | 288 | $ | 45,421 | ||||||||||
| 14 |
The following tables disaggregate the Company’s revenue by major source for the three and nine months ended September 30, 2018 (in thousands):
| Three Months Ended September 30, 2018 | ||||||||||||||||||||
| Strong Cinema | Convergent | Strong Outdoor | Other | Total | ||||||||||||||||
| Screen system sales | $ | 5,024 | $ | - | $ | - | $ | - | $ | 5,024 | ||||||||||
| Digital equipment sales | 2,126 | 586 | - | - | 2,712 | |||||||||||||||
| Extended warranty sales | 213 | - | - | - | 213 | |||||||||||||||
| Other product sales | 450 | 18 | - | - | 468 | |||||||||||||||
| Total product sales | 7,813 | 604 | - | - | 8,417 | |||||||||||||||
| Field maintenance and monitoring services | 2,838 | 1,806 | - | - | 4,644 | |||||||||||||||
| Installation services | 712 | 1,069 | - | - | 1,781 | |||||||||||||||
| Advertising | - | - | 1,480 | - | 1,480 | |||||||||||||||
| Other service revenues | 68 | - | - | 63 | 131 | |||||||||||||||
| Total service revenues | 3,618 | 2,875 | 1,480 | 63 | 8,036 | |||||||||||||||
| Total | $ | 11,431 | $ | 3,479 | $ | 1,480 | $ | 63 | $ | 16,453 | ||||||||||
| Nine Months Ended September 30, 2018 | ||||||||||||||||||||
| Strong Cinema | Convergent | Strong Outdoor | Other | Total | ||||||||||||||||
| Screen system sales | $ | 13,288 | $ | - | $ | - | $ | - | $ | 13,288 | ||||||||||
| Digital equipment sales | 7,198 | 1,742 | - | - | 8,940 | |||||||||||||||
| Extended warranty sales | 804 | - | - | - | 804 | |||||||||||||||
| Other product sales | 1,552 | 18 | - | - | 1,570 | |||||||||||||||
| Total product sales | 22,842 | 1,760 | - | - | 24,602 | |||||||||||||||
| Field maintenance and monitoring services | 8,666 | 6,409 | - | - | 15,075 | |||||||||||||||
| Installation services | 1,420 | 3,057 | - | - | 4,477 | |||||||||||||||
| Advertising | - | - | 1,948 | - | 1,948 | |||||||||||||||
| Other service revenues | 165 | - | - | 191 | 356 | |||||||||||||||
| Total service revenues | 10,251 | 9,466 | 1,948 | 191 | 21,856 | |||||||||||||||
| Total | $ | 33,093 | $ | 11,226 | $ | 1,948 | $ | 191 | $ | 46,458 | ||||||||||
Screen system sales
The Company recognizes revenue on the sale of its screen systems when control of the screen is transferred to the customer, usually at time of shipment. However, revenue is recognized upon delivery for certain international shipments with longer shipping transit time because control does not transfer to the customer until delivery. The cost of freight and shipping to the customer is recognized in cost of sales at the time of transfer of control to the customer.
Digital equipment sales
The Company recognizes revenue on sales of digital equipment when the control of the equipment is transferred, which occurs at the time of shipment from the Company’s warehouse or drop-shipment from a third party. The cost of freight and shipping to the customer is recognized in cost of sales at the time of transfer of control to the customer.
Field maintenance and monitoring services
The Company sells service contracts that provide maintenance and monitoring services to Strong Cinema and Convergent customers. In the Strong Cinema segment, these contracts are generally 12 months in length, while the term for service contracts in the Convergent segment can be for multiple years. Revenue related to service contracts is recognized over the term of the agreement in proportion to the costs incurred in fulfilling performance obligations under the contract.
| 15 |
In addition to selling service contracts, the Company also performs discrete time and materials-based maintenance and repair work for customers in the Strong Cinema and Convergent segments. Revenue related to time and materials-based maintenance and repair work is recognized at the point in time when the performance obligation has been fully satisfied.
Installation services
The Company performs installation services for both its Strong Cinema and Convergent customers and recognizes revenue upon completion of the installations.
Extended warranty sales
The Company sells extended warranties to its Strong Cinema customers. When the Company is the primary obligor, revenue is recognized on a gross basis over the term of the extended warranty in proportion to the costs incurred in fulfilling performance obligations under the extended warranty. In third party extended warranty sales, the Company is not the primary obligor, and revenue is recognized on a net basis at the time of the sale.
Advertising
Strong Outdoor sells advertising space on top of taxicabs. Advertising revenue is recognized ratably over the contracted advertising periods.
Timing of Revenue Recognition
The following tables disaggregate the Company’s revenue by the timing of transfer of goods or services to the customer for the three and nine months ended September 30, 2019 (in thousands):
| Three Months Ended September 30, 2019 | ||||||||||||||||||||
| Strong Cinema | Convergent | Strong Outdoor | Other | Total | ||||||||||||||||
| Point in time | $ | 9,364 | $ | 1,518 | $ | 123 | $ | 49 | $ | 11,054 | ||||||||||
| Over time | 1,564 | 3,014 | 1,173 | 41 | 5,792 | |||||||||||||||
| Total | $ | 10,928 | $ | 4,532 | $ | 1,296 | $ | 90 | $ | 16,846 | ||||||||||
| Nine Months Ended September 30, 2019 | ||||||||||||||||||||
| Strong Cinema | Convergent | Strong Outdoor | Other | Total | ||||||||||||||||
| Point in time | $ | 21,746 | $ | 6,918 | $ | 397 | $ | 164 | $ | 29,225 | ||||||||||
| Over time | 4,659 | 8,286 | 3,127 | 124 | 16,196 | |||||||||||||||
| Total | $ | 26,405 | $ | 15,204 | $ | 3,524 | $ | 288 | $ | 45,421 | ||||||||||
| 16 |
The following tables disaggregate the Company’s revenue by the timing of transfer of goods or services to the customer for the three and nine months ended September 30, 2018 (in thousands):
| Three Months Ended September 30, 2018 | ||||||||||||||||||||
| Strong Cinema | Convergent | Strong Outdoor | Other | Total | ||||||||||||||||
| Point in time | $ | 9,743 | $ | 1,875 | $ | - | $ | - | $ | 11,618 | ||||||||||
| Over time | 1,688 | 1,604 | 1,480 | 63 | 4,835 | |||||||||||||||
| Total | $ | 11,431 | $ | 3,479 | $ | 1,480 | $ | 63 | $ | 16,453 | ||||||||||
| Nine Months Ended September 30, 2018 | ||||||||||||||||||||
| Strong Cinema | Convergent | Strong Outdoor | Other | Total | ||||||||||||||||
| Point in time | $ | 27,814 | $ | 5,710 | $ | - | $ | - | $ | 33,524 | ||||||||||
| Over time | 5,279 | 5,516 | 1,948 | 191 | 12,934 | |||||||||||||||
| Total | $ | 33,093 | $ | 11,226 | $ | 1,948 | $ | 191 | $ | 46,458 | ||||||||||
At September 30, 2019, the unearned revenue amount associated with maintenance and monitoring services, extended warranty sales and advertising services in which the Company is the primary obligor was $2.7 million. The Company expects to recognize $1.1 million of unearned revenue amounts throughout the rest of 2019, $1.6 million during 2020 and immaterial amounts during 2021-2023.
4. Loss Per Common Share
Basic loss per share has been computed on the basis of the weighted average number of shares of common stock outstanding. Diluted loss per share would be computed on the basis of the weighted average number of shares of common stock outstanding after giving effect to potential common shares from dilutive stock options and certain non-vested shares of restricted stock and restricted stock units. However, because the Company reported losses in all periods presented, there were no differences between average shares used to compute basic and diluted loss per share for the three and nine months ended September 30, 2019 and 2018. The following table summarizes the weighted average shares used to compute basic and diluted loss per share:
Three
Months Ended | Nine
Months Ended | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic weighted average shares outstanding | 14,494 | 14,392 | 14,476 | 14,366 | ||||||||||||
| Dilutive effect of stock options and certain non-vested restricted stock awards | - | - | - | - | ||||||||||||
| Diluted weighted average shares outstanding | 14,494 | 14,392 | 14,476 | 14,366 | ||||||||||||
For the three and nine months ended September 30, 2019, options to purchase 772,000 shares of common stock were outstanding but were not included in the computation of diluted loss per share as the option’s exercise price was greater than the average market price of the common shares for each period. An additional 165,206 and 146,461 common stock equivalents related to options and restricted stock awards were excluded for the three and nine months ended September 30, 2019, respectively, as their inclusion would be anti-dilutive, thereby decreasing the net losses per share. For the three and nine months ended September 30, 2018, options to purchase 330,000 shares of common stock were outstanding but were not included in the computation of diluted loss per share as the option’s exercise price was greater than the average market price of the common shares for each period. An additional 63,398 and 166,391 common stock equivalents related to options and restricted stock awards were excluded for the three and nine months ended September 30, 2018, respectively, as their inclusion would be anti-dilutive, thereby decreasing the net losses per share.
| 17 |
5. Inventories
Inventories consist of the following (in thousands):
| September 30, 2019 | December 31, 2018 | |||||||
| Raw materials and components | $ | 1,656 | $ | 1,422 | ||||
| Work in process | 351 | - | ||||||
| Finished goods | 1,388 | 2,068 | ||||||
| $ | 3,395 | $ | 3,490 | |||||
The inventory balances are net of reserves of approximately $1.4 million as of both September 30, 2019 and December 31, 2018, respectively.
6. Investments
The following summarizes our investments (dollars in thousands):
| September 30, 2019 | December 31, 2018 | |||||||||||||||
| Carrying Amount | Economic Interest | Carrying Amount | Economic Interest | |||||||||||||
| Equity Method Investments | ||||||||||||||||
| 1347 Property Insurance Holdings, Inc. | $ | 7,523 | 17.3 | % | $ | 7,738 | 17.3 | % | ||||||||
| Itasca Capital, Ltd. | 2,923 | 32.3 | % | 3,429 | 32.3 | % | ||||||||||
| Total Equity Method Investments | 10,446 | 11,167 | ||||||||||||||
| Cost Method Investment | ||||||||||||||||
| Firefly Systems, Inc. | 3,614 | - | ||||||||||||||
| Total Investments | $ | 14,060 | $ | 11,167 | ||||||||||||
Equity Method Investments
The following summarizes the (loss) income of equity method investees reflected in the condensed consolidated statements of operations (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Entity | ||||||||||||||||
| 1347 Property Insurance Holdings, Inc. | $ | (783 | ) | $ | 23 | $ | (622 | ) | $ | 603 | ||||||
| Itasca Capital, Ltd. | 287 | (28 | ) | (601 | ) | (967 | ) | |||||||||
| BK Technologies Corporation | - | 512 | - | 120 | ||||||||||||
| Total | $ | (496 | ) | $ | 507 | $ | (1,223 | ) | $ | (244 | ) | |||||
1347 Property Insurance Holdings, Inc. (“PIH”) is a publicly traded company that provides property and casualty insurance in the States of Louisiana, Texas and Florida. The Company’s Chief Executive Officer is chairman of the board of directors of PIH, and controls entities that, when combined with the Company’s ownership in PIH, own greater than 20% of PIH, providing the Company with significant influence over PIH, but not controlling interest. The Company did not receive dividends from PIH during the three and nine months ended September 30, 2019 or 2018. On February 25, 2019, PIH announced a definitive agreement pursuant to which FedNat Holding Company will acquire substantially all of PIH’s homeowners’ insurance operations. PIH intends to maintain its Nasdaq listing and utilize the proceeds from the transaction to launch a new growth strategy focused on reinsurance, investment management and new investment opportunities. PIH intends to provide additional details on the rollout of this strategy prior to the closing of the transaction. On June 10, 2019, PIH held a special meeting of stockholders at which PIH’s stockholders approved the transaction. In addition, regulatory approvals have been obtained, subject to compliance with the consent orders issued by the insurance regulators, and the transaction is currently expected to close in December 2019. During the quarter ended June 30, 2019, as a result of the planned sale, PIH classified its homeowners’ insurance operations as discontinued operations. Based on quoted market prices, the market value of the Company’s ownership in PIH was $4.6 million at September 30, 2019.
| 18 |
Itasca Capital, Ltd. (“Itasca”) is a publicly traded Canadian company that is an investment vehicle seeking transformative strategic investments. The Company’s Chief Executive Officer is chairman of the board of directors of Itasca. This board seat, combined with the Company’s 32.3% ownership of Itasca, provide the Company with significant influence over Itasca, but not controlling interest. The Company did not receive dividends from Itasca during the three and nine months ended September 30, 2019 or 2018. Based on quoted market prices, the market value of the Company’s ownership in Itasca was $1.7 million at September 30, 2019.
BK Technologies Corporation (“BKTI”) is a publicly traded holding company that, through its wholly-owned operating subsidiary BK Technologies, Inc., designs, manufactures and markets two-way land mobile radios, repeaters, base stations and related components and subsystems. BK Technologies Corporation became the parent company of BK Technologies, Inc. following the completion of a holding company reorganization on March 28, 2019. On September 9, 2018, the Company entered into an agreement with Fundamental Global Investors, LLC (“FGI”), a related party, where the Company sold its shares of common stock of BKTI to FGI. Due to the Company’s significant influence, but not controlling interest, in BKTI, the Company’s investment in BKTI was accounted for using the equity method. Prior to the sale of the BKTI common stock, the Company received dividends of $23 thousand and $0.1 million during the three and nine months ended September 30, 2018, respectively.
As of September 30, 2019, the Company’s retained earnings included accumulated deficit from its equity method investees of $0.6 million.
The summarized financial information presented below reflects the financial information of the Company’s equity method investees for the nine months ended June 30, 2019 and 2018, consistent with the Company’s recognition of the results of its equity method investments on a one-quarter lag (in thousands):
| For the nine months ended June 30, | 2019 | 2018 | ||||||
| Revenue (1) | $ | 16,713 | $ | 11,711 | ||||
| Operating (loss) income (1) | $ | (910 | ) | $ | 2,130 | |||
| Net (loss) income | $ | (5,490 | ) | $ | 2,500 | |||
(1) Except for the three month periods ended December 31, 2018 and 2017, these amounts have been restated to reflect PIH’s reclassification of a significant portion of its business to discontinued operations.
Cost Method Investment
On May 21, 2019, SDM entered into a Taxicab Advertising Collaboration Agreement (the “Commercial Agreement”) and a Unit Purchase Agreement (the “Unit Purchase Agreement”) with Firefly Systems, Inc. (“Firefly”), pursuant to which SDM has agreed to make available to Firefly 300 digital taxi tops and the parties have agreed to coordinate the fulfilling of SDM’s agreements with the Metropolitan Taxicab Board of Trade, Inc. (“MTBOT”) and Creative Mobile Media, LLC (“CMM”), each dated February 8, 2018. Firefly has agreed to fulfill the digital taxi top advertising obligations under the MTBOT agreement and CMM agreement, and SDM has agreed to fulfill the non-digital taxi top advertising obligations under the MTBOT agreement and CMM agreement. The Company is a party to the Unit Purchase Agreement and has agreed to guarantee the payment obligations of SDM under the Commercial Agreement. As consideration for entering into these agreements, the Company received $4.8 million of Firefly’s Series A-2 preferred shares (“Firefly Shares”). The Firefly Shares, including those subsequently issued pursuant to an earn-out provision (if any), will be subject to a repurchase option for a period of three years to cover SDM’s indemnity obligations and other post-closing covenants under the Commercial Agreement and the Unit Purchase Agreement. As a condition of the transaction, SDM has agreed to hold the Firefly Shares in an investment fund managed by Fundamental Global Investors, LLC, the controlling stockholder of the Company, that is wholly owned by SDM.
| 19 |
The 300 digital tops the Company has made available to Firefly are subject to a master equipment lease agreement the Company entered into during 2017. Pursuant to the master lease agreement and the Unit Purchase Agreement, the Company will remain the primary obligor until such time as the lease expires. In addition, of the $4.8 million of Firefly Shares received, $1.2 million are eligible for repurchase by Firefly if the Company does not exercise the purchase option contained within the master lease agreement. Accordingly, the Company has deferred recognizing an investment related to these Firefly Shares eligible for repurchase until such time it is reasonably certain the Company will exercise the purchase option. The transaction, in effect, transferred control of the underlying asset to Firefly. Therefore, the Company accounted for the transaction as a sales-type lease resulting in the derecognition of the $3.4 million right-of-use asset related to the master lease agreement and a selling profit of $0.2 million, which is recorded within other income (expense) on the condensed consolidated statement of operations. As additional consideration for the right to use the digital taxi tops, Firefly has agreed to pay for certain of Company’s operating expenses associated with the non-digital taxi tops. The Company concluded the payments that Firefly will make on its behalf are considered variable payments and were not included in the calculation of the selling profit. Therefore, the Company will record the benefit and the related operating expenses in the period when the changes in facts and circumstances on which the variable lease payments are based occur.
7. Intangible Assets
Intangible assets consisted of the following at September 30, 2019 (dollars in thousands):
| Useful life | Gross | Accumulated Amortization | Net | |||||||||||||
| (Years) | ||||||||||||||||
| Intangible assets not yet subject to amortization: | ||||||||||||||||
| Software in development | $ | 194 | $ | - | $ | 194 | ||||||||||
| Intangible assets subject to amortization: | ||||||||||||||||
| Software in service | 5 | 2,319 | (966 | ) | 1,353 | |||||||||||
| Product formulation | 10 | 462 | (408 | ) | $ | 54 | ||||||||||
| Total | $ | 2,975 | $ | (1,374 | ) | $ | 1,601 | |||||||||
Intangible assets consisted of the following at December 31, 2018 (dollars in thousands):
| Useful life | Gross | Accumulated Amortization | Net | |||||||||||||
| (Years) | ||||||||||||||||
| Intangible assets not yet subject to amortization: | ||||||||||||||||
| Software in development | $ | 119 | $ | - | $ | 119 | ||||||||||
| Intangible assets subject to amortization: | ||||||||||||||||
| Software in service | 5 | 2,188 | (595 | ) | 1,593 | |||||||||||
| Product formulation | 10 | 447 | (364 | ) | 83 | |||||||||||
| Total | $ | 2,754 | $ | (959 | ) | $ | 1,795 | |||||||||
Amortization expense relating to intangible assets was $0.1 million during each of the three months ended September 30, 2019 and 2018, and $0.4 million and $0.5 million during the nine months ended September 30, 2019 and 2018, respectively. During the nine months ended September 30, 2018, the Company also recorded an impairment charge of $1.3 million related to abandoned software in service in the Convergent segment as a loss on disposal of assets in the condensed consolidated statement of operations.
| 20 |
The following table shows the Company’s estimated future amortization expense related to intangible assets currently subject to amortization for the next five years (in thousands):
| Remainder 2019 | $ | 131 | ||
| 2020 | 515 | |||
| 2021 | 476 | |||
| 2022 | 230 | |||
| 2023 | 55 | |||
| Thereafter | - | |||
| Total | $ | 1,407 |
8. Goodwill
The following represents a summary of changes in the Company’s carrying amount of goodwill for the nine months ended September 30, 2019 (in thousands):
| Balance as of December 31, 2018 | $ | 875 | ||
| Foreign currency translation | 27 | |||
| Balance as of September 30, 2019 | $ | 902 |
9. Warranty Reserves
In most instances, the Company’s digital projection products are covered by the manufacturing firm’s original warranty; however, for certain customers the Company may grant warranties in excess of the manufacturer’s warranty. In addition, the Company provides warranty coverage on screens it manufactures. The Company accrues for these costs at the time of sale. The following table summarizes warranty activity for the three and nine months ended September 30, 2019 and 2018 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Warranty accrual at beginning of period | $ | 328 | $ | 449 | $ | 350 | $ | 521 | ||||||||
| Charged to expense | (1 | ) | 18 | 24 | 83 | |||||||||||
| Claims paid, net of recoveries | (16 | ) | (26 | ) | (70 | ) | (142 | ) | ||||||||
| Foreign currency adjustment | 2 | 8 | 9 | (13 | ) | |||||||||||
| Warranty accrual at end of period | $ | 313 | $ | 449 | $ | 313 | $ | 449 | ||||||||
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10. Debt
The Company’s debt consists of the following (in thousands):
| September 30, 2019 | December 31, 2018 | |||||||
| Short-term debt: | ||||||||
| Strong/MDI installment loan | $ | 3,077 | $ | 3,152 | ||||
| Insurance note payable | 46 | - | ||||||
| Current portion of long-term debt | 979 | 1,094 | ||||||
| Total short-term debt | 4,102 | 4,246 | ||||||
| Long-term debt: | ||||||||
| Sale-leaseback financing | - | 6,769 | ||||||
| Equipment term loans | 4,271 | 4,398 | ||||||
| Total principal balance of long-term debt | 4,271 | 11,167 | ||||||
| Less: current portion | (979 | ) | (1,094 | ) | ||||
| Less: unamortized debt issuance costs | (17 | ) | (20 | ) | ||||
| Total long-term debt | 3,275 | 10,053 | ||||||
| Total short-term and long-term debt | $ | 7,377 | $ | 14,299 | ||||
Equipment Term Loans
On May 22, 2018, the Company’s subsidiary, Convergent, entered into an installment payment agreement with an equipment financing company in order to purchase media players and related equipment in an aggregate amount of up to approximately $4.4 million. Installment payments under each contract for purchase of the equipment are due monthly for a period of 60 months. The financing provided in the agreement is secured by the equipment, and the obligations under the agreement are recorded as long-term debt on the Company’s condensed consolidated balance sheet. In December 2018, Convergent entered into additional installment payment agreements with other financing companies in order to purchase additional media players and related equipment. This round of financing totaled approximately $0.6 million. In June 2019, Convergent entered into additional installment payment agreements with other financing companies in order to purchase additional media players and related equipment. This round of financing totaled approximately $0.2 million. Installment payments under each contract are due monthly for a period of 60 months. The financing under the agreements is secured by the equipment. The borrowings under the agreements are recorded as long-term debt on the Company’s consolidated balance sheet. Collectively, the Company had $4.3 million of outstanding borrowings under equipment term loan agreements at September 30, 2019, which bear interest at a weighted-average fixed rate of 7.6%.
Strong/MDI Installment Loan
On September 5, 2017, the Company’s Canadian subsidiary, Strong/MDI, entered into a demand credit agreement with a bank consisting of a revolving line of credit for up to CDN$3.5 million subject to a borrowing base requirement, a 20-year installment loan for up to CDN$6.0 million and a 5-year installment loan for up to CDN$500,000. Amounts outstanding under the line of credit are payable on demand and bear interest at the prime rate established by the lender. Amounts outstanding under the installment loans bear interest at the lender’s prime rate plus 0.5% and are payable in monthly installments, including interest, over their respective borrowing periods. The lender may also demand repayment of the installment loans at any time. The Strong/MDI credit facilities are secured by a lien on Strong/MDI’s Quebec, Canada facility and substantially all of Strong/MDI’s assets. The credit agreement requires Strong/MDI to maintain a ratio of liabilities to “effective equity” (tangible stockholders’ equity, less amounts receivable from affiliates and equity method investments) not exceeding 2 to 1, a current ratio (excluding amounts due from related parties) of at least 1.5 to 1 and minimum “effective equity” of CDN$8.0 million. On April 24, 2018, the Company borrowed CDN$3.5 million on the 20-year installment loan. There was CDN$4.1 million of principal outstanding on the 20-year installment loan as of September 30, 2019, which bears variable interest at 4.45%. Strong/MDI was in compliance with its debt covenants as of September 30, 2019.
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Sale-leaseback Financing
On June 29, 2018, the Company and Convergent completed a sale-leaseback of Convergent’s Alpharetta, Georgia office facility. The transaction did not qualify for sale-leaseback accounting under the previous lease accounting standard and was accounted for as a financing liability. Upon adoption of ASC 842 during the first quarter of 2019, the Company derecognized approximately $6.8 million of debt associated with the previous accounting as a failed sale-leaseback. See Note 2 for additional details.
Scheduled repayments are as follows for the Company’s long-term debt outstanding as of September 30, 2019 (in thousands):
| Remainder of 2019 | $ | 239 | ||
| 2020 | 1,002 | |||
| 2021 | 1,079 | |||
| 2022 | 1,146 | |||
| 2023 | 786 | |||
| Thereafter | 19 | |||
| Total | $ | 4,271 |
11. Leases
The Company and its subsidiaries lease plant and office facilities and equipment under operating and finance leases expiring through 2028. The Company determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset.
Right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement date. Certain of the leases contain extension options; however, the Company has not included such options as part of its right-of-use assets and lease liabilities because it does not expect to extend the leases. The Company measures and records a right-of-use asset and lease liability based on the discount rate implicit in the lease, if known. In cases where the discount rate implicit in the lease is not known, the Company measures the right-of-use assets and lease liabilities using a discount rate equal to the Company’s estimated incremental borrowing rate for loans with similar collateral and duration.
The Company elected to not apply the recognition requirements of Topic 842 to leases of all classes of underlying assets that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise. Instead, lease payments for such short-term leases are recognized in profit or loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.
The Company elected, as a lessee, for all classes of underlying assets, to not separate nonlease components from lease components and instead to account for each separate lease component and the nonlease components associated with that lease component as a single lease component.
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The following tables present the Company’s lease costs and other lease information (dollars in thousands):
| Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | |||||||
| Lease cost | ||||||||
| Finance lease cost: | ||||||||
| Amortization of right-of-use assets | $ | 282 | $ | 420 | ||||
| Interest on lease liabilities | 142 | 184 | ||||||
| Operating lease cost | 421 | 1,751 | ||||||
| Short-term lease cost | 12 | 21 | ||||||
| Sublease income | (120 | ) | (313 | ) | ||||
| Net lease cost | $ | 737 | $ | 2,063 | ||||
| Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | |||||||
| Other information | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from finance leases | $ | 142 | $ | 184 | ||||
| Operating cash flows from operating leases | $ | 333 | $ | 1,567 | ||||
| Financing cash flows from finance leases | $ | 282 | $ | 420 | ||||
| Right-of-use assets obtained in exchange for new finance lease liabilities | $ | 902 | $ | 1,613 | ||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | - | $ | 644 | ||||
| Derecognition of right-of-use asset in connection with Firefly transaction | $ | - | $ | 3,394 | ||||
As of September 30, 2019 | ||||
| Weighted-average remaining lease term - finance leases (years) | 3.5 | |||
| Weighted-average remaining lease term - operating leases (years) | 7.5 | |||
| Weighted-average discount rate - finance leases | 12.6 | % | ||
| Weighted-average discount rate - operating leases | 5.0 | % | ||
The following table presents a maturity analysis of the Company’s finance and operating lease liabilities as of September 30, 2019 (in thousands):
| Operating Leases | Finance Leases | |||||||
| Remainder 2019 | $ | 322 | $ | 476 | ||||
| 2020 | 1,159 | 1,882 | ||||||
| 2021 | 1,061 | 1,882 | ||||||
| 2022 | 721 | 1,650 | ||||||
| 2023 | 656 | 353 | ||||||
| Thereafter | 3,116 | 87 | ||||||
| Total lease payments | 7,035 | 6,330 | ||||||
| Less: Amount representing interest | (1,202 | ) | (1,219 | ) | ||||
| Present value of lease payments | 5,833 | 5,111 | ||||||
| Less: Current maturities | (939 | ) | (1,317 | ) | ||||
| Lease obligations, net of current portion | $ | 4,894 | $ | 3,794 | ||||
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The Company subleases certain office and warehouse space and equipment to third parties. Sublease income is included in net service revenues in the condensed consolidated statements of operations. The following table presents a maturity analysis of the Company’s long-term subleases (in thousands):
| Remainder 2019 | $ | 54 | ||
| 2020 | 163 | |||
| 2021 | 137 | |||
| 2022 | 23 | |||
| 2023 | - | |||
| Thereafter | - | |||
| Total sublease payments | $ | 377 |
The Company leases certain equipment to customers as a component of its Digital Signage as a Service (“DSaaS”) offering. Under DSaaS, the Company provides support, maintenance and content management services in addition to the use of a media player to the customer. The Company elected, as a lessor, for all classes of underlying assets, to not separate nonlease components from lease components and, instead, to account for each separate lease component and the nonlease components associated with that lease component as a single component if the nonlease components otherwise would be accounted for under Accounting Standards Codification Topic 606 on revenue from contracts with customers, and both of the following conditions are met: 1) the timing and pattern of transfer for the lease component and nonlease components associated with that lease component are the same and 2) the lease component, if accounted for separately, would be classified as an operating lease in accordance with Topic 842. The combined component is accounted for as a single performance obligation under Topic 606 if the nonlease component or components are the predominant component(s) of the combined component. Otherwise, if the lease component is the predominant component, the combined component is accounted for as an operating lease under ASC 842. In the case of the Company’s DSaaS contracts, the nonlease components are predominant; therefore, revenue from DSaaS contracts is accounted for under Topic 606 and is included in net service revenues in the condensed consolidated statements of operations.
12. Income Taxes
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. The Company considers the scheduled reversal of taxable temporary differences, projected future taxable income and tax planning strategies in making this assessment. A cumulative loss in a particular tax jurisdiction in recent years is a significant piece of evidence with respect to the realizability that is difficult to overcome. Based on the available objective evidence, including recent updates to the taxing jurisdictions generating income, the Company concluded that a valuation allowance should be recorded against all of the Company’s U.S. tax jurisdiction deferred tax assets as of September 30, 2019 and December 31, 2018.
The Company is subject to possible examinations not yet initiated for Federal purposes for fiscal years 2015 through 2018. In most cases, the Company is subject to possible examinations by state or local jurisdictions based on the particular jurisdiction’s statute of limitations.
13. Stock Compensation
The Company recognizes compensation expense for all stock-based payment awards made to employees and directors based on estimated grant date fair values. Stock-based compensation expense included in selling and administrative expenses approximated $0.3 million and $0.2 million for the three months ended September 30, 2019 and 2018, respectively, and $0.8 million and $0.6 million for the nine months ended September 30, 2019 and 2018, respectively.
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The Company’s 2017 Omnibus Equity Compensation Plan (“2017 Plan”) was approved by the Company’s stockholders and provides the Compensation Committee of the Board of Directors with the discretion to grant stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares, performance units and other stock-based awards and cash-based awards. Vesting terms vary with each grant and may be subject to vesting upon a “change in control” of the Company. The total number of shares authorized for issuance under the 2017 Plan is 1,371,189 shares, with 391,778 shares remaining available for grant at September 30, 2019.
Stock Options
The Company granted a total of 295,000 and 387,500 stock options during the nine months ended September 30, 2019 and 2018, respectively. Options to purchase shares of common stock were granted with exercise prices equal to the fair value of the common stock on the date of grant.
The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2019 and 2018 was $2.91 and $1.82, respectively. The fair value of each stock option granted was estimated on the date of grant using a Black-Scholes valuation model with the following weighted average assumptions:
| 2019 | 2018 | |||||||
| Expected dividend yield at date of grant | 0.00% | 0.00% | ||||||
| Risk-free interest rate | 1.62% - 1.98% | 2.49% | ||||||
| Expected stock price volatility | 47.9% - 50.6% | 35.6% | ||||||
| Expected life of options (in years) | 6.0 | 6.0 | ||||||
The risk-free interest rate assumptions were based on the U.S. Treasury yield curve in effect at the time of the grant. Expected volatility is based on historical daily price changes of the Company’s stock for six years prior to the date of grant. The expected life of options is the average number of years the Company estimates that stock options will be outstanding.
The following table summarizes stock option activity for the nine months ended September 30, 2019:
| Number
of Options | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (in thousands) | |||||||||||||
| Outstanding at December 31, 2018 | 867,000 | $ | 5.06 | 8.3 | $ | - | ||||||||||
| Granted | 295,000 | 2.91 | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Forfeited | (41,500 | ) | 5.29 | |||||||||||||
| Expired | (13,500 | ) | 5.38 | |||||||||||||
| Outstanding at September 30, 2019 | 1,107,000 | $ | 4.47 | 8.1 | $ | 104 | ||||||||||
| Exercisable at September 30, 2019 | 294,000 | $ | 5.18 | 7.0 | $ | - | ||||||||||
The aggregate intrinsic value in the table above represents the total that would have been received by the option holders if all in-the-money options had been exercised and sold on the date indicated.
As of September 30, 2019, 813,000 stock option awards were non-vested. Unrecognized compensation cost related to stock option awards was approximately $1.2 million, which is expected to be recognized over a weighted average period of 3.4 years.
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Restricted Stock Shares and Restricted Stock Units
The Company granted a total of 417,378 and 147,500 restricted stock units during the nine months ended September 30, 2019 and 2018, respectively. The Company estimates the fair value of restricted stock awards based upon the market price of the underlying common stock on the date of grant.
The following table summarizes restricted stock share activity for the nine months ended September 30, 2019:
| Number
of Restricted Stock Shares | Weighted
Average Grant Date Fair Value | |||||||
| Non-vested at December 31, 2018 | 46,667 | $ | 6.50 | |||||
| Granted | - | - | ||||||
| Shares vested | (23,333 | ) | 6.50 | |||||
| Shares forfeited | - | - | ||||||
| Non-vested at September 30, 2019 | 23,334 | $ | 6.50 | |||||
The following table summarizes restricted stock unit activity for the nine months ended September 30, 2019:
| Number
of Restricted Stock Units | Weighted
Average Grant Date Fair Value | |||||||
| Non-vested at December 31, 2018 | 277,498 | $ | 3.33 | |||||
| Granted | 417,378 | 2.95 | ||||||
| Shares vested | (75,833 | ) | 3.87 | |||||
| Shares forfeited | - | - | ||||||
| Non-vested at September 30, 2019 | 619,043 | $ | 2.10 | |||||
As of September 30, 2019, the total unrecognized compensation cost related to non-vested restricted stock awards was approximately $1.5 million, which is expected to be recognized over a weighted average period of 2.3 years.
14. Commitments, Contingencies and Concentrations
Litigation
The Company is involved, from time to time, in certain legal disputes in the ordinary course of business operations. No such disputes, individually or in the aggregate, are expected to have a material effect on the Company’s business or financial condition.
Concentrations
The Company’s top ten customers accounted for approximately 59% and 53% of total consolidated net revenues for the three and nine months ended September 30, 2019, respectively. Trade accounts receivable from these customers represented approximately 53% of net consolidated receivables at September 30, 2019. The Company had one customer account for more than 10% of its net revenues during the three and nine months ended September 30, 2019. In addition, the Company had two customers account for more than 10% of net consolidated receivables at September 30, 2019. 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.
| 27 |
Financial instruments that potentially expose the Company to a concentration of credit risk principally consist of accounts receivable. The Company sells product to a large number of customers in many different geographic regions. To minimize credit risk, the Company performs ongoing credit evaluations of its customers’ financial condition.
Insurance Recoveries
During February 2019, one portion of Strong/MDI’s Quebec, Canada facility sustained damage as a result of inclement weather. The Company has property and casualty and business interruption insurance and has been working with its insurance carrier with regard to the insurance claims for reimbursement of incurred costs of the affected portion of the facility and compensation for the Company’s business interruption losses.
The insurance company has informed the Company that it has established preliminary loss reserves for both property and casualty claims and business interruption claims. However, those claims reserves are estimates based on preliminary information and are subject to change as the insurance carrier completes its analyses and continues its claims review process over the next several months. The ultimate amount of insurance proceeds to be received by the Company could be significantly different than the insurance company’s reserve estimates. During the nine months ended September 30, 2019, the insurance carrier advanced $1.8 million of insurance proceeds to the Company, which includes $1.2 million related to the property and casualty claim and the remaining $0.6 million related to our business interruption claim. Any additional future claims payments are at the discretion of the insurance carrier based on its continuing claims analysis.
For the nine months ended September 30, 2019, the Company recorded total insurance recoveries of its incurred costs totaling $0.8 million. Of the $0.8 million of insurance recoveries during the nine months ended September 30, 2019, $0.6 million related to the property and casualty claim and $0.2 million related to the business interruption claim. Those recoveries offset the operating costs detailed above, and effectively offset the incremental costs incurred by the Company in the first nine months of 2019. During the nine months ended September 30, 2019, the Company recorded a gain of $0.7 million related to its property and casualty claim. The remaining $0.4 million of proceeds received in connection with the business interruption claim has been recorded within accrued expenses on the condensed consolidated balance sheet as of September 30, 2019. Recovery of lost profit under the business interruption coverage will be reflected in future periods as contingencies are resolved and the amounts are confirmed with the insurer.
15. Business Segment Information
The Company conducts its operations through three primary business segments: Strong Cinema, Convergent and Strong Outdoor. Strong Cinema is one of the largest manufacturers of premium projection screens and also manufactures customized screen support systems, distributes other products and provides technical support services to the cinema, amusement park and other markets. Convergent delivers digital signage solutions and related services to large multi-location organizations in the United States and Canada. Strong Outdoor provides outdoor advertising and experiential marketing to corporate customers. The Company’s operating segments were determined based on the manner in which management organizes segments for making operating decisions and assessing performance. During the fourth quarter 2018, the Company separated its former Digital Media segment into separate Convergent and Strong Outdoor segments. All prior periods have been recast in our segment reporting to reflect the current segment organization.
| 28 |
Summary by Business Segments
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Net revenues | ||||||||||||||||
| Strong Cinema | $ | 10,928 | $ | 11,431 | $ | 26,405 | $ | 33,093 | ||||||||
| Convergent | 4,532 | 3,479 | 15,204 | 11,226 | ||||||||||||
| Strong Outdoor | 1,296 | 1,480 | 3,524 | 1,948 | ||||||||||||
| Other | 90 | 63 | 288 | 191 | ||||||||||||
| Total net revenues | 16,846 | 16,453 | 45,421 | 46,458 | ||||||||||||
| Gross profit (loss) | ||||||||||||||||
| Strong Cinema | 3,669 | 4,415 | 8,621 | 11,015 | ||||||||||||
| Convergent | 1,469 | (51 | ) | 4,622 | 580 | |||||||||||
| Strong Outdoor | 585 | (897 | ) | (1,839 | ) | (4,116 | ) | |||||||||
| Other | 90 | 63 | 287 | 191 | ||||||||||||
| Total gross profit | 5,813 | 3,530 | 11,691 | 7,670 | ||||||||||||
| Operating income (loss) | ||||||||||||||||
| Strong Cinema | 2,230 | 3,383 | 4,646 | 7,681 | ||||||||||||
| Convergent | 394 | (1,413 | ) | 1,467 | (5,170 | ) | ||||||||||
| Strong Outdoor | (224 | ) | (1,175 | ) | (3,829 | ) | (4,951 | ) | ||||||||
| Other | (206 | ) | (57 | ) | (603 | ) | (202 | ) | ||||||||
| Total segment operating income (loss) | 2,194 | 738 | 1,681 | (2,642 | ) | |||||||||||
| Unallocated administrative expenses | (2,128 | ) | (1,712 | ) | (6,515 | ) | (6,939 | ) | ||||||||
| Unallocated loss on disposal of assets | - | (818 | ) | - | (818 | ) | ||||||||||
| Income (loss) from operations | 66 | (1,792 | ) | (4,834 | ) | (10,399 | ) | |||||||||
| Other (expense) income, net | (627 | ) | 561 | (2,004 | ) | 718 | ||||||||||
| Loss before income taxes and equity method investment loss | $ | (561 | ) | $ | (1,231 | ) | $ | (6,838 | ) | $ | (9,681 | ) | ||||
| (In thousands) | September 30, 2019 | December 31, 2018 | ||||||
| Identifiable assets | ||||||||
| Strong Cinema | $ | 21,385 | $ | 27,009 | ||||
| Convergent | 16,824 | 14,024 | ||||||
| Strong Outdoor | 3,306 | 3,454 | ||||||
| Corporate assets | 19,265 | 15,150 | ||||||
| Total | $ | 60,780 | $ | 59,637 | ||||
Summary by Geographical Area
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
| (In thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Net revenue | ||||||||||||||||
| United States | $ | 13,691 | $ | 12,495 | $ | 38,519 | $ | 36,196 | ||||||||
| Canada | 1,111 | 1,234 | 2,664 | 4,148 | ||||||||||||
| China | 633 | 1,581 | 1,763 | 2,867 | ||||||||||||
| Mexico | 65 | 206 | 70 | 1,293 | ||||||||||||
| Latin America | 275 | 256 | 574 | 659 | ||||||||||||
| Europe | 521 | 456 | 1,058 | 809 | ||||||||||||
| Asia (excluding China) | 348 | 160 | 515 | 337 | ||||||||||||
| Other | 202 | 65 | 258 | 149 | ||||||||||||
| Total | $ | 16,846 | $ | 16,453 | $ | 45,421 | $ | 46,458 | ||||||||
| (In thousands) | September 30, 2019 | December 31, 2018 | ||||||
| Identifiable assets | ||||||||
| United States | $ | 43,813 | $ | 42,780 | ||||
| Canada | 16,967 | 16,857 | ||||||
| Total | $ | 60,780 | $ | 59,637 | ||||
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.
| 29 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the condensed 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 and Section 21E of the Securities Exchange Act of 1934. 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.
Forward-looking statements involve a number of risks and uncertainties, including but not limited to those discussed in the “Risk Factors” section contained in Item 1A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and the following risks and uncertainties: the Company’s ability to expand its revenue streams, 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, the Company’s ability to maintain its brand and reputation and retain or replace its significant customers, the impact of a challenging global economic environment or a downturn in the markets, 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 Company’s ability to utilize or assert its intellectual property rights, the impact of natural disasters and other catastrophic events, the adequacy of insurance and the impact of having a controlling stockholder. 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. 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.
Overview
Ballantyne Strong, Inc. (“BTN”, “Ballantyne”, “the Company”, “we”, “our” and “us”) is a holding company with diverse business activities focused on serving the cinema, retail, financial, advertising and government markets. The Company and its subsidiaries design, integrate and install technology solutions for a broad range of applications; develop and deliver out-of-home messaging, advertising and communications; manufacture projection screens; and provide managed services including monitoring of networked equipment to our customers. We add value through our design, engineering, manufacturing excellence and customer service.
Effective August 8, 2019, the Company’s Board of Directors approved the relocation of our headquarters from 11422 Miracle Hills Drive, Suite 300, Omaha, Nebraska to 4201 Congress Street, Suite 175, Charlotte, North Carolina 28209.
Also on August 8, 2019, the Company’s Board of Directors approved the unwinding of StrongVest Global Advisors, LLC, a wholly-owned subsidiary of the Company that served as advisor to an exchange-traded fund issued by the StrongVest ETF Trust. On August 9, 2019, the StrongVest ETF Trust’s Board of Directors also approved the shutdown. In connection with the unwinding, the Company recorded expenses of $0.1 million during the third quarter of 2019.
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We conduct our operations through three primary business segments: Strong Cinema, Convergent and Strong Outdoor. Our Strong Cinema business is one of the largest manufacturers of premium projection screens. We also manufacture customized screen support systems, distribute other products and provide technical support services to the cinema, amusement park and other markets. Convergent delivers digital signage solutions and related services to large multi-location organizations in the United States and Canada. Strong Outdoor provides outdoor advertising and experiential marketing to corporate customers. Strong Outdoor started operations in the second half of 2018 and began selling advertising on taxicab signs in New York City.
Our segments were determined based on the manner in which management organizes segments for making operating decisions and assessing performance. Approximately 58% of our revenues for the nine months ended September 30, 2019 were from Strong Cinema, approximately 34% were from Convergent and approximately 8% were from Strong Outdoor. During the fourth quarter 2018, we separated our former Digital Media segment into separate Convergent and Strong Outdoor segments. All prior periods have been recast in our segment reporting to reflect the current segment organization. Additional information related to our reporting segments can be found in Note 15 in the notes to the condensed consolidated financial statements.
Results of Operations:
The following table sets forth, for the periods indicated, the percentage of net revenues represented by certain items reflected in our condensed consolidated statements of operations.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Net revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
| Cost of revenues | 65.5 | 78.5 | 74.3 | 83.5 | ||||||||||||
| Gross profit | 34.5 | 21.5 | 25.7 | 16.5 | ||||||||||||
| Selling and administrative expenses | 34.1 | 27.5 | 36.2 | 34.3 | ||||||||||||
| Income (loss) from operations | 0.4 | (10.9 | ) | (10.6 | ) | (22.4 | ) | |||||||||
| Net loss | (10.6 | ) | (7.4 | ) | (20.6 | ) | (25.3 | ) | ||||||||
Three Months Ended September 30, 2019 Compared to the Three Months Ended September 30, 2018
Revenues
Net revenues during the quarter ended September 30, 2019 increased 2.4% to $16.8 million from $16.5 million during the quarter ended September 30, 2018.
| Three Months Ended September 30, | ||||||||||||||||
| 2019 | 2018 | $ Change | % Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Strong Cinema | $ | 10,928 | $ | 11,431 | $ | (503 | ) | (4.4 | )% | |||||||
| Convergent | 4,532 | 3,479 | 1,053 | 30.3 | % | |||||||||||
| Strong Outdoor | 1,296 | 1,480 | (184 | ) | (12.4 | )% | ||||||||||
| Other | 90 | 63 | 27 | 42.9 | % | |||||||||||
| Total net revenues | $ | 16,846 | $ | 16,453 | $ | 393 | 2.4 | % | ||||||||
Strong Cinema
Sales of Cinema products and services decreased 4.4% to $10.9 million in the third quarter of 2019 from $11.4 million in the third quarter of 2018. The decrease was primarily the result of a weather-related incident affecting our production facility in Quebec and a decrease in screen support systems, installation services and time and materials-based services, partially offset by an increase in non-recurring audio and projection system sales. As a result of excessive snow pack on the roof, a portion of the Quebec facility suffered damage that caused the facility to temporarily halt operations for several weeks in the first and second quarter of 2019 and relocate the affected operations to temporary areas of the plant. While operations resumed, we continued to experience inefficiencies while the affected portion of the building was demolished and rebuilt. The improved facility and new production equipment, which were covered by our insurance programs, are nearing completion and we expect will resume production in the fourth quarter of 2019.
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Convergent
Sales of Convergent products and services increased 30.3% to $4.5 million in the third quarter of 2019 from $3.5 million in the third quarter of 2018. The increase was driven primarily by the increased recurring revenue and installation revenue from the rollout of the DSaaS program to large enterprise customers. Revenue from the installation of other products also increased from the prior year due the timing of customer installation projects and the increase in new business.
Strong Outdoor
Revenues from advertising services were $1.3 million during the three months ended September 30, 2019 compared to $1.5 million during the three months ended September 30, 2018. The decrease in revenues during the quarter ended September 30, 2019 was due to the Firefly transaction as the digital taxitop revenues are no longer included in Strong Outdoors’s results of operations, which was partially offset by higher revenue from static taxitops during the third quarter of 2019.
Gross Profit
Gross profit during the quarter ended September 30, 2019 was $5.8 million compared to $3.5 million during the quarter ended September 30, 2018. As a percentage of revenue, gross profit improved to 34.5% for the quarter ended September 30, 2019 compared to 21.5% for the third quarter of 2018.
| Three Months Ended September 30, | ||||||||||||||||
| 2019 | 2018 | $ Change | % Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Strong Cinema | $ | 3,669 | $ | 4,415 | $ | (746 | ) | (16.9 | )% | |||||||
| Convergent | 1,469 | (51 | ) | 1,520 | (2,980.4 | )% | ||||||||||
| Strong Outdoor | 585 | (897 | ) | 1,482 | (165.2 | )% | ||||||||||
| Other | 90 | 63 | 27 | 42.9 | % | |||||||||||
| Total gross profit | $ | 5,813 | $ | 3,530 | $ | 2,283 | 64.7 | % | ||||||||
Strong Cinema
Gross profit in the Cinema segment was $3.7 million or 33.6% of revenues in the third quarter of 2019 compared to $4.4 million or 38.6% of revenues in the third quarter of 2018. The decrease in gross profit dollars is primarily due to the decline in revenues and changes in product mix.
Convergent
Gross profit in the Convergent segment was $1.5 million or 32.4% of revenues in the third quarter of 2019 compared to a gross loss of $0.1 million or 1.5% of revenues in the third quarter of 2018. The increase in gross profit was driven primarily by the increase in higher margin DSaaS revenue combined with positive impact of the cost reduction initiatives implemented in mid-2018. In addition, we incurred inventory write-offs and other non-recurring charges in 2018 related to the repositioning of the business and exiting of certain facilities and lines of business.
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Strong Outdoor
Strong Outdoor generated a gross profit of $0.6 million in the third quarter of 2019 compared to a gross loss of $0.9 million in the third quarter of 2018. Gross profit improved during the third quarter of 2019 due to increased revenue from static tops and lower fixed operating costs, partially offset by reduced revenue from digital tops following the Firefly transaction.
Operating Income (Loss)
We generated operating income of $0.1 million in the third quarter of 2019 compared to an operating loss of $1.8 million in the third quarter of 2018.
| Three Months Ended September 30, | ||||||||||||||||
| 2019 | 2018 | $ Change | % Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Strong Cinema | $ | 2,230 | $ | 3,383 | $ | (1,153 | ) | (34.1 | )% | |||||||
| Convergent | 394 | (1,413 | ) | 1,807 | (127.9 | )% | ||||||||||
| Strong Outdoor | (224 | ) | (1,175 | ) | 951 | (80.9 | )% | |||||||||
| Other | (206 | ) | (57 | ) | (149 | ) | 261.4 | % | ||||||||
| Total segment operating income | 2,194 | 738 | 1,456 | 197.3 | % | |||||||||||
| Unallocated administrative expenses | (2,128 | ) | (1,712 | ) | (416 | ) | 24.3 | % | ||||||||
| Unallocated loss on disposal of assets | - | (818 | ) | 818 | (100.0 | )% | ||||||||||
| Total operating income (loss) | $ | 66 | $ | (1,792 | ) | $ | 1,858 | (103.7 | )% | |||||||
Strong Cinema generated operating income of $2.2 million in the third quarter of 2019 compared to $3.4 million in the third quarter of 2018. The decrease in operating income was primarily due to the decline in revenues as discussed above.
Convergent generated operating income of $0.4 million in the third quarter of 2019 compared to an operating loss of $1.4 million in the third quarter of 2018. We restructured Convergent’s operations in mid-2018 to reduce operating costs, eliminate low/negative margin products, and to invest in growing our higher margin recurring revenue business lines.
Strong Outdoor generated an operating loss of $0.2 million in the third quarter of 2019 compared to an operating loss of $1.2 million in the third quarter of 2018. The decrease in operating loss was driven primarily by increased gross profit margins discussed above, partially offset by increased overhead and selling costs as the management and sales teams were brought on board in early 2019.
Unallocated administrative expenses increased to $2.1 million in the third quarter of 2019 compared to $1.7 million in the third quarter of 2018. The increase was driven primarily by higher stock-based compensation expense and employee compensation, partially offset by lower professional fees. Unallocated loss on disposal of assets consisted primarily of a $0.8 million loss on abandonment of an internally-developed software intangible asset in the third quarter of 2018.
Other Financial Items
For the third quarter of 2019, total other expense of $0.6 million primarily consisted of a $0.8 million fair value adjustment to our notes receivable and $0.3 million of interest expense, partially offset by a $0.4 million gain on our property and insurance claim for the weather-related incident at our production facility in Quebec and $0.1 million of foreign currency transaction adjustments. For the third quarter of 2018, total other income of $0.6 million primarily consisted of a $0.8 million fair value adjustment to our notes receivable, partially offset by $0.2 million of interest expense. The estimated fair market value of the notes receivable is subject to upward and downward revisions each quarter as more information becomes available to estimate the ultimate cash proceeds to be received by the Company in the future.
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The third quarter of 2019 included equity method investment loss of $0.5 million, which consisted of a $0.8 million loss from PIH, partially offset by $0.3 million in income from Itasca. The losses from PIH were primarily the result of write-downs related to the reclassification of its homeowners’ insurance operations as discontinued operations. The income from Itasca was a result of a change in the market value of its investment in Limbach Holdings, Inc. (“Limbach”). The third quarter of 2018 included equity method investment income of $0.5 million, which primarily consisted of a gain of $0.4 million on the sale of BKTI common stock.
As a result of the items outlined above, we generated a net loss of $1.8 million and basic and diluted loss per share of $0.12 in the third quarter of 2019, compared to a net loss of $1.2 million and basic and diluted loss per share of $0.08 in the third quarter of 2018.
Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September 30, 2018
Revenues
Net revenues during the nine months ended September 30, 2019 decreased 2.2% to $45.4 million from $46.5 million during the nine months ended September 30, 2018.
| Nine Months Ended September 30, | ||||||||||||||||
| 2019 | 2018 | $ Change | % Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Strong Cinema | $ | 26,405 | $ | 33,093 | $ | (6,688 | ) | (20.2 | )% | |||||||
| Convergent | 15,204 | 11,226 | 3,978 | 35.4 | % | |||||||||||
| Strong Outdoor | 3,524 | 1,948 | 1,576 | 80.9 | % | |||||||||||
| Other | 288 | 191 | 97 | 50.8 | % | |||||||||||
| Total net revenues | $ | 45,421 | $ | 46,458 | $ | (1,037 | ) | (2.2 | )% | |||||||
Strong Cinema
Sales of Cinema products and services decreased 20.2% to $26.4 million during the nine months ended September 30, 2019 from $33.1 million during the nine months ended September 30, 2018. The decrease was primarily the result of a weather-related incident affecting our production facility in Quebec and a decrease in non-recurring audio and projection system sales. As a result of excessive snow pack on the roof, a portion of the Quebec facility suffered damage that caused the facility to temporarily halt operations for several weeks in the first nine months of 2019. The facility resumed operations in March and is producing and shipping product to its customers, although we continue to experience inefficiencies while the affected portion of the building is being repaired. In addition, revenues from field service and equipment sales decreased due to large non-recurring projects in the first nine months of 2018 that did not repeat in 2019, as well as a reduction in non-recurring time and materials-based services.
Convergent
Sales of Convergent products and services increased 35.4% to $15.2 million during the nine months ended September 30, 2019 from $11.2 million during the nine months ended September 30, 2018. The increase was driven primarily by the increased recurring revenue and installation revenue from the rollout of the DSaaS program to large enterprise customers. Revenue from the installation of other products also increased from the prior year due the timing of customer installation projects and the increase in new business.
Strong Outdoor
Strong Outdoor was a start-up business in 2018 and began generating meaningful advertising revenue in mid-2018. Revenues from advertising services were $3.5 million during the nine months ended September 30, 2019 compared to $1.9 million during the nine months ended September 30, 2018. If the Firefly transaction was effective on January 1, 2019, Strong Outdoor revenue recognized during the first nine months of 2019 would have been reduced by $0.9 million.
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Gross Profit
Gross profit during the nine months ended September 30, 2019 was $11.7 million compared to $7.7 million during the nine months ended September 30, 2018. As a percentage of revenue, gross profit improved to 25.7% for the nine months ended September 30, 2019 compared to 16.5% during the nine months ended September 30, 2018.
| Nine Months Ended September 30, | ||||||||||||||||
| 2019 | 2018 | $ Change | % Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Strong Cinema | $ | 8,621 | $ | 11,015 | $ | (2,394 | ) | (21.7 | )% | |||||||
| Convergent | 4,622 | 580 | 4,042 | 696.9 | % | |||||||||||
| Strong Outdoor | (1,839 | ) | (4,116 | ) | 2,277 | (55.3 | )% | |||||||||
| Other | 287 | 191 | 96 | 50.3 | % | |||||||||||
| Total gross profit | $ | 11,691 | $ | 7,670 | $ | 4,021 | 52.4 | % | ||||||||
Strong Cinema
Gross profit in the Cinema segment was $8.6 million or 32.6% of revenues during the nine months ended September 30, 2019 compared to $11.0 million or 33.3% of revenues during the nine months ended September 30, 2018. The decrease in gross profit dollars is primarily due to the short-term disruption in our manufacturing operations and related lower revenues as discussed above.
Convergent
Gross profit in the Convergent segment was $4.6 million or 30.4% of revenues during the nine months ended September 30, 2019 compared to $0.6 million or 5.2% of revenues during the nine months ended September 30, 2018. The increase in gross profit was driven primarily by the increase in higher margin DsaaS revenue combined with positive impact of the cost reduction initiatives implemented in mid-2018. In addition, we incurred inventory write-offs and other non-recurring charges in 2018 related to the repositioning of the business and exiting of certain facilities and lines of business.
Strong Outdoor
Strong Outdoor generated a gross loss of $1.8 million during the nine months ended September 30, 2019 compared to $4.1 million during the nine months ended September 30, 2018. The improvement in gross profit was due to increased revenue from static tops and lower fixed operating costs, partially offset by reduced revenue from digital tops following the Firefly transaction. If the Firefly transaction was effective on January 1, 2019, Strong Outdoor cost of sales would have been reduced by approximately $2.4 million.
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Operating Income (Loss)
We generated an operating loss of $4.8 million during the nine months ended September 30, 2019 compared to operating loss of $10.4 million during the nine months ended September 30, 2018.
| Nine Months Ended September 30, | ||||||||||||||||
| 2019 | 2018 | $ Change | % Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Strong Cinema | $ | 4,646 | $ | 7,681 | $ | (3,035 | ) | (39.5 | )% | |||||||
| Convergent | 1,467 | (5,170 | ) | 6,637 | (128.4 | )% | ||||||||||
| Strong Outdoor | (3,829 | ) | (4,951 | ) | 1,122 | (22.7 | )% | |||||||||
| Other | (603 | ) | (202 | ) | (401 | ) | 198.5 | % | ||||||||
| Total segment operating income (loss) | 1,681 | (2,642 | ) | 4,323 | (163.6 | )% | ||||||||||
| Unallocated administrative expenses | (6,515 | ) | (6,939 | ) | 424 | (6.1 | )% | |||||||||
| Unallocated loss on disposal of assets | - | (818 | ) | 818 | (100.0 | )% | ||||||||||
| Total operating loss | $ | (4,834 | ) | $ | (10,399 | ) | $ | 5,565 | (53.5 | )% | ||||||
Strong Cinema generated operating income of $4.6 million during the nine months ended September 30, 2019 compared to $7.7 million during the nine months ended September 30, 2018. The decrease in operating income was primarily due to the disruption in our manufacturing operations and related revenues as discussed above.
Convergent generated operating income of $1.5 million during the nine months ended September 30, 2019 compared to an operating loss of $5.2 million during the nine months ended September 30, 2018. We restructured Convergent’s operations in mid-2018 to reduce operating costs, eliminate low/negative margin products, and to invest in growing our higher margin recurring revenue business lines. In addition, operating income during the nine months ended September 30, 2019 was favorably impacted by approximately $0.5 million due to the settlement and collection of a customer account that had previously been fully reserved as uncollectible.
Strong Outdoor generated an operating loss of $3.8 million during the nine months ended September 30, 2019 compared to an operating loss of $5.0 million during the nine months ended September 30, 2018. The decrease in operating loss was driven primarily by increased revenues and resulting margins being offset by increased overhead and selling costs.
Unallocated administrative expenses decreased to $6.5 million during the nine months ended September 30, 2019 compared to $6.9 million during the nine months ended September 30, 2018. The decrease was driven primarily by lower professional fees and employee compensation.
Other Financial Items
For the nine months ended September 30, 2019, total other expense of $2.0 million primarily consisted of a $2.2 million fair value adjustment to notes receivable, $0.2 million of foreign currency transaction adjustments and $0.6 million of interest expense, partially offset by a $0.6 million gain on our property and insurance claim for the weather-related incident at our production facility in Quebec and a $0.2 million gain related to the Firefly transaction. For the nine months ended September 30, 2018, total other income of $0.7 million primarily consisted of a $1.0 million fair value adjustment to our notes receivable, partially offset by interest expense of $0.3 million. The estimated fair market value of the notes receivable is inherently volatile by its nature and subject to upward and downward revisions each quarter as more information becomes available to estimate the ultimate cash proceeds to be received by the Company in the future.
The nine months ended September 30, 2019 included equity method investment loss of $1.2 million, which consisted of losses from Itasca and PIH of $0.6 million each. The losses from Itasca were a result of the change in the market value of its investment in Limbach. The losses from PIH were primarily the result of write-downs related to the reclassification of its homeowners’ insurance operations as discontinued operations. The nine months ended September 30, 2018 included equity method investment loss of $0.2 million, primarily consisting of an other-than-temporary impairment charge of $0.7 million related to Itasca, loss of $0.2 million from Itasca and loss of $0.4 million from BKTI, partially offset by income of $0.6 million from PIH and a gain on the sale of BKTI common stock of $0.4 million.
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As a result of the items outlined above, we generated a net loss of $9.4 million and basic and diluted loss per share of $0.65 during the nine months ended September 30, 2019, compared to a net loss of $11.8 million and basic and diluted loss per share of $0.82 during the nine months ended September 30, 2018.
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 and credit facilities. Our primary cash requirements involve operating expenses, working capital fluctuations, capital expenditures, and other general corporate activities. We incurred operating losses and negative operating cash flow in our Convergent business for the first three quarters of 2018, as we executed our plans to restructure that business to reduce operating costs and invest in higher margin recurring revenue. Convergent’s financial performance has improved significantly as a result of those actions and is now generating positive operating income and cash from operations. The startup of Strong Outdoor negatively impacted our cash flow as we invested in building that business. Cash flow from Strong Cinema was historically used to fund operating expenses and startup costs in our other lines of business during 2018. Our capital expenditures during 2019 include costs incurred in the construction of the Strong Cinema production facility in Quebec that sustained damage as a result of inclement weather. The purchase of equipment in connection with the expansion of our Convergent business operations has recently been funded via term loan borrowings and capital leases, and we may continue to do so.
As of September 30, 2019, we had cash and cash equivalents and restricted cash of $4.7 million compared to $7.0 million at December 31, 2018. Of the $4.7 million, $1.5 million was held by our Canadian subsidiary, Strong/MDI, and $0.4 million was restricted.
We believe that our existing sources of liquidity, including cash and cash equivalents, operating cash flow, credit facilities, equity investments, receivables and other assets will be sufficient to meet our projected capital needs for the foreseeable future. However, our ability to continue to meet our capital requirements will depend on, among other things, our ability to achieve anticipated levels of revenues and cash flow from operations, our ability to manage costs and working capital successfully and the continued availability of financing, if needed. See Note 10, Debt to the condensed consolidated financial statements for a description of our debt as of September 30, 2019.
Cash Flows from Operating Activities
Net cash provided by operating activities was $0.4 million during the nine months ended September 30, 2019. Cash flows generated by Strong Cinema and Convergent and improvements in working capital were partially offset by the operating loss generated by Strong Outdoor and cash outflows for selling and administrative expenses. Net cash used in operating activities was $8.8 million during the nine months ended September 30, 2018. The operating loss generated by Strong Outdoor and Convergent, cash outflows for selling and administrative expenses and changes in working capital were partially offset by the operating income and cash flows generated by Strong Cinema.
Cash Flows from Investing Activities
Net cash used in investing activities was $1.6 million during the nine months ended September 30, 2019, consisting of $1.7 million of capital expenditures, partially offset by $0.1 million of proceeds received from the disposal of assets. Net cash provided by investing activities was $3.4 million in the nine months of 2018, consisting primarily of $4.5 million of proceeds from our sale of BKTI common stock, partially offset by $1.2 million of capital expenditures.
Cash Flows from Financing Activities
Net cash used in financing activities was $1.2 million during the nine months ended September 30, 2019, primarily consisting of $1.5 million of principal payments on debt and capital lease obligations, partially offset by $0.2 million of proceeds from the issuance of long-term debt. Net cash provided by financing activities during the nine months ended September 30, 2018 was $6.7 million, consisting primarily of $7.0 million of proceeds from the sale-leaseback of our Alpharetta, Georgia office facility and $3.2 million of proceeds from the issuance of short-term debt, partially offset by $3.5 million of principal payments on debt and capital lease obligations, including approximately $3.0 million of short-term and long-term debt previously secured by the office facility that was repaid in conjunction with the sale-leaseback transaction.
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Use of Non-GAAP Measures
We prepare our condensed consolidated financial statements in accordance with United States generally accepted accounting principles (“GAAP”). In addition to disclosing financial results prepared in accordance with GAAP, the Company discloses information regarding Adjusted EBITDA, which differs from the term EBITDA as it is commonly used. In addition to adjusting net income (loss) to exclude taxes, interest, and depreciation and amortization, Adjusted EBITDA also excludes share-based compensation, impairment charges, equity method income/loss, fair value adjustments, severance and transactional expenses and other non-cash charges.
EBITDA and Adjusted EBITDA are not measures of performance defined in accordance with GAAP. However, Adjusted EBITDA is used internally in planning and evaluating the Company’s operating performance. Accordingly, management believes that disclosure of these metrics offers investors, bankers and other stakeholders an additional view of the Company’s operations that, when coupled with the GAAP results, provides a more complete understanding of the Company’s financial results.
EBITDA and Adjusted EBITDA should not be considered as an alternative to net loss or to net cash used in 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 the Company’s 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.
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The following table sets forth reconciliations of net loss under GAAP to EBITDA and Adjusted EBITDA (in thousands):
| Quarters Ended September 30, | ||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | |||||||||||||||||||||||||||||||||||||||
| Strong Cinema | Convergent | Strong Outdoor | Corporate and Other | Consolidated | Strong Cinema | Convergent | Strong Outdoor | Corporate and Other | Consolidated | |||||||||||||||||||||||||||||||
| Net income (loss) | $ | 1,265 | $ | 386 | $ | (332 | ) | $ | (3,107 | ) | $ | (1,788 | ) | $ | 3,736 | $ | (1,727 | ) | $ | (1,176 | ) | $ | (2,054 | ) | $ | (1,221 | ) | |||||||||||||
| Interest expense, net | 35 | 120 | 106 | 1 | 262 | 29 | 151 | - | - | 180 | ||||||||||||||||||||||||||||||
| Income tax expense | 827 | (96 | ) | - | - | 731 | 423 | 74 | - | - | 497 | |||||||||||||||||||||||||||||
| Depreciation and amortization | 226 | 492 | 124 | 54 | 896 | 219 | 343 | 77 | 71 | 710 | ||||||||||||||||||||||||||||||
| EBITDA | 2,353 | 902 | (102 | ) | (3,052 | ) | 101 | 4,407 | (1,159 | ) | (1,099 | ) | (1,983 | ) | 166 | |||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | 334 | 334 | - | - | - | 166 | 166 | ||||||||||||||||||||||||||||||
| Fair value adjustment to notes receivable | 845 | - | - | - | 845 | (802 | ) | - | - | - | (802 | ) | ||||||||||||||||||||||||||||
| Equity method investment (income) loss | (287 | ) | - | - | 783 | 496 | 28 | - | - | (535 | ) | (507 | ) | |||||||||||||||||||||||||||
| Loss on disposal of assets | 3 | - | - | - | 3 | - | (19 | ) | - | 818 | 799 | |||||||||||||||||||||||||||||
| Severance and other | - | 4 | 27 | 8 | 39 | - | 428 | - | - | 428 | ||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 2,914 | $ | 906 | $ | (75 | ) | $ | (1,927 | ) | $ | 1,818 | $ | 3,633 | $ | (750 | ) | $ | (1,099 | ) | $ | (1,534 | ) | $ | 250 | |||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | |||||||||||||||||||||||||||||||||||||||
| Strong Cinema | Convergent | Strong Outdoor | Corporate and Other | Consolidated | Strong Cinema | Convergent | Strong Outdoor | Corporate and Other | Consolidated | |||||||||||||||||||||||||||||||
| Net income (loss) | $ | 1,120 | $ | 1,085 | $ | (3,776 | ) | $ | (7,785 | ) | $ | (9,356 | ) | $ | 6,333 | $ | (5,865 | ) | $ | (4,951 | ) | $ | (7,279 | ) | $ | (11,762 | ) | |||||||||||||
| Interest expense, net | 105 | 322 | 166 | (28 | ) | 565 | 44 | 178 | - | 45 | 267 | |||||||||||||||||||||||||||||
| Income tax expense | 1,137 | 72 | - | 86 | 1,295 | 1,516 | 321 | - | - | 1,837 | ||||||||||||||||||||||||||||||
| Depreciation and amortization | 665 | 1,387 | 323 | 162 | 2,537 | 662 | 823 | 190 | 175 | 1,850 | ||||||||||||||||||||||||||||||
| EBITDA | 3,027 | 2,866 | (3,287 | ) | (7,565 | ) | (4,959 | ) | 8,555 | (4,543 | ) | (4,761 | ) | (7,059 | ) | (7,808 | ) | |||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | 798 | 798 | - | - | - | 648 | 648 | ||||||||||||||||||||||||||||||
| Fair value adjustment to notes receivable | 2,153 | - | - | - | 2,153 | (953 | ) | - | - | - | (953 | ) | ||||||||||||||||||||||||||||
| Equity method investment loss (income) | 601 | - | - | 622 | 1,223 | 968 | - | - | (724 | ) | 244 | |||||||||||||||||||||||||||||
| Loss on disposal of assets | 66 | 1 | 38 | - | 105 | 2 | 1,310 | - | 818 | 2,130 | ||||||||||||||||||||||||||||||
| Severance and other | - | 4 | 27 | 8 | 39 | - | 529 | - | 33 | 562 | ||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 5,847 | $ | 2,871 | $ | (3,222 | ) | $ | (6,137 | ) | $ | (641 | ) | $ | 8,572 | $ | (2,704 | ) | $ | (4,761 | ) | $ | (6,284 | ) | $ | (5,177 | ) | |||||||||||||
Hedging and Trading Activities
Our primary exposure to foreign currency fluctuations pertains to our subsidiary in Canada. In certain instances, we may enter into a foreign exchange contract to manage a portion of this risk. We do not have any trading activities that include non-exchange traded contracts at fair value.
Seasonality
Generally, our revenue and earnings fluctuate moderately from quarter to quarter. As we increase our sales in our current markets, and as we expand into new markets in different geographies, it is possible we may experience different seasonality patterns in our business. As a result, the results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for an entire fiscal year.
Recently Issued Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies to the condensed consolidated financial statements for a description of recently issued accounting pronouncements.
Critical Accounting Policies and Estimates
In preparing our consolidated financial statements in conformity with U.S. generally accepted accounting principles, management must make a variety of decisions which impact the reported amounts and the related disclosures. These decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In making these decisions, management applies its judgment based on its understanding and analysis of the relevant circumstances and our historical experience.
| 39 |
Our accounting policies and estimates that are most critical to the presentation of our results of operations and financial condition, and which require the greatest use of judgments and estimates by management, are designated as our critical accounting policies. See further discussion of our critical accounting policies under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for our year ended December 31, 2018. We periodically re-evaluate and adjust our critical accounting policies as circumstances change. Other than policies related to the adoption of ASC 842 as described in Note 2 to the condensed consolidated financial statements, there were no significant changes in our critical accounting policies during the nine months ended September 30, 2019.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable as we are a “smaller reporting company.”
Item 4. Controls and Procedures
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 pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective at ensuring that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 (as amended) is (1) accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures and (2) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. There have been no changes in the Company’s internal control over financial reporting during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, such internal control over financial reporting.
In the ordinary course of business operations, we are involved, from time to time, in certain legal disputes. No such disputes, individually or in the aggregate, are expected to have a material effect on our business or financial condition.
Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 includes a detailed discussion of the Company’s risk factors. There have been no material changes to the risk factors as previously disclosed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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 Securities Exchange Act of 1934 (as amended). The repurchase program has no expiration date. There were no repurchases during the three months ended September 30, 2019. As of September 30, 2019, there were 636,931 shares that may yet be purchased under the stock repurchase program.
| 40 |
| Incorporated by Reference | ||||||||||
| Exhibit
Number |
Document Description | Form | Exhibit | Filing Date |
Filed
Herewith | |||||
| 31.1 | Rule 13a-14(a) Certification of Chief Executive Officer. | X | ||||||||
| 31.2 | Rule 13a-14(a) Certification of Chief Financial Officer. | X | ||||||||
| 32.1* | 18 U.S.C. Section 1350 Certification of Chief Executive Officer. | X | ||||||||
| 32.2* | 18 U.S.C. Section 1350 Certification of Chief Financial Officer. | X | ||||||||
| 101 | The following materials from Ballantyne Strong, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Loss, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows and (vi) the Notes to the Condensed Consolidated Financial Statements. | X | ||||||||
| * | Furnished herewith. |
| 41 |
Pursuant to the requirements 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.
| BALLANTYNE STRONG, INC. | ||||
| By: | /s/ D. Kyle Cerminara | By: | /s/ MARK D. ROBERSON | |
D. Kyle Cerminara, Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)
|
Mark
D. Roberson, Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
|||
| Date: | November 12, 2019 | Date: | November 12, 2019 | |
| 42 |
Exhibit 31.1
CERTIFICATION
I, D. Kyle Cerminara, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2019 of Ballantyne Strong, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| By: | /s/ D. KYLE CERMINARA | |
| D. Kyle Cerminara | ||
| Chairman and Chief Executive Officer | ||
| November 12, 2019 |
Exhibit 31.2
CERTIFICATION
I, Mark D. Roberson, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2019 of Ballantyne Strong, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| By: | /s/ MARK D. ROBERSON | |
| Mark D. Roberson | ||
| Chief Financial Officer |
November 12, 2019
Exhibit 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
The undersigned, D. Kyle Cerminara, Chief Executive Officer of Ballantyne Strong, Inc. (the “Company”), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2019 (the “Report”).
The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to his knowledge that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
IN WITNESS WHEREOF, the undersigned has executed this certification as of the 12th day of November, 2019.
| /s/ D. KYLE CERMINARA | |
| D. Kyle Cerminara | |
| Chairman and Chief Executive Officer |
A signed original of this written statement required by Section 906 has been provided to Ballantyne Strong, Inc. and will be retained by Ballantyne Strong, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 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
The undersigned, Mark D. Roberson, Chief Financial Officer of Ballantyne Strong, Inc. (the “Company”), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2019 (the “Report”).
The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to his knowledge that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
IN WITNESS WHEREOF, the undersigned has executed this certification as of the 12th day of November, 2019.
| /s/ MARK D. ROBERSON | |
| Mark D. Roberson | |
| Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to Ballantyne Strong, Inc. and will be retained by Ballantyne Strong, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Inventories - Schedule of Inventories (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Raw materials and components | $ 1,656 | $ 1,422 |
| Work in process | 351 | |
| Finished goods | 1,388 | 2,068 |
| Inventories net | $ 3,395 | $ 3,490 |
Stock Compensation - Summary of Restricted Stock Activity (Details) - Restricted Stock Shares [Member] |
9 Months Ended |
|---|---|
|
Sep. 30, 2019
$ / shares
shares
| |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Number of Restricted Stock, Non-vested beginning balance | shares | 46,667 |
| Number of Restricted Stock, Granted | shares | |
| Number of Restricted Stock, Vested | shares | (23,333) |
| Number of Restricted Stock, Forfeited | shares | |
| Number of Restricted Stock, Non-vested ending balance | shares | 23,334 |
| Weighted Average Grant Date Fair Value, Non-vested Beginning Balance | $ / shares | $ 6.50 |
| Weighted Average Grant Date Fair Value, Granted | $ / shares | |
| Weighted Average Grant Date Fair Value, Vested | $ / shares | 6.50 |
| Weighted Average Grant Date Fair Value, Forfeited | $ / shares | |
| Weighted Average Grant Date Fair Value, Non-vested Ending Balance | $ / shares | $ 6.50 |
Leases (Details Narrative) |
9 Months Ended |
|---|---|
Sep. 30, 2019 | |
| Leases [Abstract] | |
| Operating lease expire, term | expiring through 2028 |
| Finance lease, expire term | expiring through 2028 |
Income Taxes (Details Narrative) |
9 Months Ended |
|---|---|
Sep. 30, 2019 | |
| Income Tax Disclosure [Abstract] | |
| Income tax examination description | The Company is subject to possible examinations not yet initiated for Federal purposes for fiscal years 2015 through 2018. In most cases, the Company is subject to possible examinations by state or local jurisdictions based on the particular jurisdiction's statute of limitations. |
Commitments, Contingencies and Concentrations |
9 Months Ended |
|---|---|
Sep. 30, 2019 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments, Contingencies and Concentrations |
14. Commitments, Contingencies and Concentrations
Litigation
The Company is involved, from time to time, in certain legal disputes in the ordinary course of business operations. No such disputes, individually or in the aggregate, are expected to have a material effect on the Company’s business or financial condition.
Concentrations
The Company’s top ten customers accounted for approximately 59% and 53% of total consolidated net revenues for the three and nine months ended September 30, 2019, respectively. Trade accounts receivable from these customers represented approximately 53% of net consolidated receivables at September 30, 2019. The Company had one customer account for more than 10% of its net revenues during the three and nine months ended September 30, 2019. In addition, the Company had two customers account for more than 10% of net consolidated receivables at September 30, 2019. 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.
Financial instruments that potentially expose the Company to a concentration of credit risk principally consist of accounts receivable. The Company sells product to a large number of customers in many different geographic regions. To minimize credit risk, the Company performs ongoing credit evaluations of its customers’ financial condition.
Insurance Recoveries
During February 2019, one portion of Strong/MDI’s Quebec, Canada facility sustained damage as a result of inclement weather. The Company has property and casualty and business interruption insurance and has been working with its insurance carrier with regard to the insurance claims for reimbursement of incurred costs of the affected portion of the facility and compensation for the Company’s business interruption losses.
The insurance company has informed the Company that it has established preliminary loss reserves for both property and casualty claims and business interruption claims. However, those claims reserves are estimates based on preliminary information and are subject to change as the insurance carrier completes its analyses and continues its claims review process over the next several months. The ultimate amount of insurance proceeds to be received by the Company could be significantly different than the insurance company’s reserve estimates. During the nine months ended September 30, 2019, the insurance carrier advanced $1.8 million of insurance proceeds to the Company, which includes $1.2 million related to the property and casualty claim and the remaining $0.6 million related to our business interruption claim. Any additional future claims payments are at the discretion of the insurance carrier based on its continuing claims analysis.
For the nine months ended September 30, 2019, the Company recorded total insurance recoveries of its incurred costs totaling $0.8 million. Of the $0.8 million of insurance recoveries during the nine months ended September 30, 2019, $0.6 million related to the property and casualty claim and $0.2 million related to the business interruption claim. Those recoveries offset the operating costs detailed above, and effectively offset the incremental costs incurred by the Company in the first nine months of 2019. During the nine months ended September 30, 2019, the Company recorded a gain of $0.7 million related to its property and casualty claim. The remaining $0.4 million of proceeds received in connection with the business interruption claim has been recorded within accrued expenses on the condensed consolidated balance sheet as of September 30, 2019. Recovery of lost profit under the business interruption coverage will be reflected in future periods as contingencies are resolved and the amounts are confirmed with the insurer. |
Revenue (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Major Source [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Disaggregation of Revenue |
The following tables disaggregate the Company’s revenue by major source for the three and nine months ended September 30, 2019 (in thousands):
The following tables disaggregate the Company’s revenue by major source for the three and nine months ended September 30, 2018 (in thousands):
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| Timing of Transfer [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Disaggregation of Revenue |
The following tables disaggregate the Company’s revenue by the timing of transfer of goods or services to the customer for the three and nine months ended September 30, 2019 (in thousands):
The following tables disaggregate the Company’s revenue by the timing of transfer of goods or services to the customer for the three and nine months ended September 30, 2018 (in thousands):
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Debt |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt |
10. Debt
The Company’s debt consists of the following (in thousands):
Equipment Term Loans
On May 22, 2018, the Company’s subsidiary, Convergent, entered into an installment payment agreement with an equipment financing company in order to purchase media players and related equipment in an aggregate amount of up to approximately $4.4 million. Installment payments under each contract for purchase of the equipment are due monthly for a period of 60 months. The financing provided in the agreement is secured by the equipment, and the obligations under the agreement are recorded as long-term debt on the Company’s condensed consolidated balance sheet. In December 2018, Convergent entered into additional installment payment agreements with other financing companies in order to purchase additional media players and related equipment. This round of financing totaled approximately $0.6 million. In June 2019, Convergent entered into additional installment payment agreements with other financing companies in order to purchase additional media players and related equipment. This round of financing totaled approximately $0.2 million. Installment payments under each contract are due monthly for a period of 60 months. The financing under the agreements is secured by the equipment. The borrowings under the agreements are recorded as long-term debt on the Company’s consolidated balance sheet. Collectively, the Company had $4.3 million of outstanding borrowings under equipment term loan agreements at September 30, 2019, which bear interest at a weighted-average fixed rate of 7.6%.
Strong/MDI Installment Loan
On September 5, 2017, the Company’s Canadian subsidiary, Strong/MDI, entered into a demand credit agreement with a bank consisting of a revolving line of credit for up to CDN$3.5 million subject to a borrowing base requirement, a 20-year installment loan for up to CDN$6.0 million and a 5-year installment loan for up to CDN$500,000. Amounts outstanding under the line of credit are payable on demand and bear interest at the prime rate established by the lender. Amounts outstanding under the installment loans bear interest at the lender’s prime rate plus 0.5% and are payable in monthly installments, including interest, over their respective borrowing periods. The lender may also demand repayment of the installment loans at any time. The Strong/MDI credit facilities are secured by a lien on Strong/MDI’s Quebec, Canada facility and substantially all of Strong/MDI’s assets. The credit agreement requires Strong/MDI to maintain a ratio of liabilities to “effective equity” (tangible stockholders’ equity, less amounts receivable from affiliates and equity method investments) not exceeding 2 to 1, a current ratio (excluding amounts due from related parties) of at least 1.5 to 1 and minimum “effective equity” of CDN$8.0 million. On April 24, 2018, the Company borrowed CDN$3.5 million on the 20-year installment loan. There was CDN$4.1 million of principal outstanding on the 20-year installment loan as of September 30, 2019, which bears variable interest at 4.45%. Strong/MDI was in compliance with its debt covenants as of September 30, 2019.
Sale-leaseback Financing
On June 29, 2018, the Company and Convergent completed a sale-leaseback of Convergent’s Alpharetta, Georgia office facility. The transaction did not qualify for sale-leaseback accounting under the previous lease accounting standard and was accounted for as a financing liability. Upon adoption of ASC 842 during the first quarter of 2019, the Company derecognized approximately $6.8 million of debt associated with the previous accounting as a failed sale-leaseback. See Note 2 for additional details.
Scheduled repayments are as follows for the Company’s long-term debt outstanding as of September 30, 2019 (in thousands):
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Summary of Significant Accounting Policies |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies |
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and all majority owned and controlled domestic and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated financial statements included in this report are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America (also referred to as “GAAP”) for annual reporting purposes or those made in the Company’s Annual Report on Form 10-K. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
The condensed consolidated balance sheet as of December 31, 2018 was derived from the Company’s audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary to present a fair statement of the financial position and the results of operations and cash flows for the respective interim periods. Certain prior period balances have been reclassified to conform to current period presentation. The results for interim periods are not necessarily indicative of trends or results expected for a full year.
Unless otherwise indicated, all references to “dollars” and “$” in this Quarterly Report on Form 10-Q are to, and amounts are presented in, U.S. dollars.
Use of Management Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results and changes in facts and circumstances may alter such estimates and affect results of operations and financial position in future periods.
Restricted Cash
Restricted cash represents amounts held in a collateral account for the Company’s corporate travel and purchasing credit card program.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company determines the allowance for doubtful accounts based on several factors, including overall customer credit quality, historical write-off experience and a specific analysis that projects the ultimate collectability of the account. As such, these factors may change over time causing the allowance level and bad debt expense to be adjusted accordingly.
Investments
We apply the equity method of accounting to investments when we have significant influence, but not controlling interest, in the investee. Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. The Company’s proportionate share of the net income (loss) resulting from these investments is reported under the line item captioned “equity method investment income (loss)” in our condensed consolidated statements of operations. The Company’s equity method investments are reported at cost and adjusted each period for the Company’s share of the investee’s income or loss and dividend paid, if any. The Company’s share of the investee’s income or loss is recorded on a one quarter lag for all equity method investments. The Company classifies distributions received from equity method investments using the cumulative earnings approach on the condensed consolidated statements of cash flows. We apply the cost method of accounting to investments when we do not have significant influence or a controlling interest in the investee and the fair value of the investment is not readily determinable. Dividends on cost method investments received are recorded as income.
The Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable. Management reviewed the underlying net assets of the investments during the three and nine months ended September 30, 2019 and determined that the Company’s proportionate economic interest in the investments indicate that the investments were not other than temporarily impaired. The carrying value of our equity method and cost method investments is reported in “investments” in the condensed consolidated balance sheets. Note 6 contains additional information on our equity method and cost method investments.
Fair Value of Financial Instruments
Assets and liabilities measured at fair value are categorized into a fair value hierarchy based upon the observability of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
The following tables present the Company’s financial assets measured at fair value based upon the level within the fair value hierarchy in which the fair value measurements are classified, as of September 30, 2019 and December 31, 2018.
Fair values measured on a recurring basis at September 30, 2019 (in thousands):
Fair values measured on a recurring basis at December 31, 2018 (in thousands):
The following table reconciles the beginning and ending balance of the Company’s notes receivable at fair value (in thousands):
Quantitative information about the Company’s level 3 fair value measurements at September 30, 2019 is set forth below (in thousands):
During 2011, the Company entered into certain unsecured notes receivable arrangements with CDF2 Holdings, LLC pertaining to the sale and installation of digital projection equipment. The notes receivable accrue interest at a rate of 15% per annum. Interest not paid in any particular year is added to the principal and also accrues interest at 15%. The notes receivable are recorded at estimated fair value. In order to estimate the fair value, the Company reviews the financial position and estimated cash flows of the debtor of the notes receivable on a quarterly basis. The Company recorded a decrease to the fair value of the notes receivable of $2.2 million during the nine months ended September 30, 2019 and an increase to the fair value of the notes receivable of $1.0 million during the nine months ended September 30, 2018. The adjustments to the fair value of the notes receivable are included in other (expense) income on the Company’s condensed consolidated statements of operations.
The significant unobservable inputs used in the fair value measurement of the Company’s notes receivable are discount rate and percentage of default. Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower (higher) fair value measurement.
The Company’s short-term and long-term debt is recorded at historical cost. As of September 30, 2019, the Company’s long-term debt, including current maturities, had a carrying value of $4.3 million. Based on discounted cash flows using current quoted interest rates (Level 2 of the fair value hierarchy), the estimated fair value at September 30, 2019 was $3.8 million.
The carrying values of all other financial assets and liabilities, including accounts receivable, accounts payable, accrued expenses and short-term debt, reported in the condensed consolidated balance sheets equal or approximate their fair values due to the short-term nature of these instruments. Note 6 includes fair value information related to our equity and cost method investments. All non-financial assets that are not recognized or disclosed at fair value in the financial statements on a recurring basis, which include non-financial long-lived assets, are measured at fair value in certain circumstances (for example, when there is evidence of impairment). During the three and nine months ended September 30, 2018, the Company recorded impairment charges of $0.8 million and $2.1 million, respectively, related to the abandonment of internally developed software intangible assets as a loss on disposal of assets in the condensed consolidated statement of operations. Other than the intangible asset impairment, the Company did not have any significant non-recurring measurements of non-financial assets or liabilities during the three and nine months ended September 30, 2019 or 2018.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, “Leases (Topic 842),” which was further clarified by ASU 2018-11, “Leases – Targeted Improvements,” issued in July 2018. ASU 2016-02 requires lessees to recognize a lease liability and a right-to-use asset for all leases, including operating leases, with a term greater than twelve months, on its balance sheet. This ASU is effective in fiscal years beginning after December 15, 2018 and initially required a modified retrospective transition method under which entities would initially apply Topic 842 at the beginning of the earliest period presented in the financial statements. ASU 2018-11 added an additional optional transition method allowing entities to apply Topic 842 as of the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted Topic 842 using the optional transition method from ASU 2018-11 as of January 1, 2019. Upon adoption, the Company recorded a balance sheet gross-up of approximately $4.7 million to record operating lease liabilities and related right-of-use assets. In addition, the sale-leaseback of the Company’s Alpharetta, Georgia office facility in June 2018, which did not qualify for sale-leaseback accounting under the previous lease accounting standard, qualified for sale-leaseback accounting under Topic 842, as Topic 842 eliminated the concept of continuing involvement by the seller-lessee precluding sale-leaseback accounting. Upon adoption, the Company recorded a cumulative effect adjustment increasing retained earnings by approximately $2.8 million, which represents the gain on the sale of the facility. The Company also derecognized approximately $4.0 million of net land and building assets and approximately $6.8 million of debt associated with the previous accounting as a failed sale-leaseback and recorded approximately $5.0 million of operating lease right-of-use assets and liabilities for the leaseback under Topic 842. See Note 11 for more information about the Company’s leases.
In August 2018, the Securities and Exchange Commission (the “SEC”) adopted the final rule under SEC Release No. 33-10532, “Disclosure Update and Simplification,” amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The final rule is effective for all filings made on and after November 5, 2018. Given the effective date and proximity to most filers’ quarterly reports, the SEC did not object to filers deferring the presentation of changes in stockholders’ equity in their quarterly reports on Forms 10-Q until the quarter beginning after November 5, 2018. The Company elected to provide the required disclosure in a separate statement of stockholders’ equity beginning with Form 10-Q for the quarter ended March 31, 2019.
In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The new guidance eliminates Step 2 of the goodwill impairment testing which requires the fair value of individual assets and liabilities of a reporting unit to be determined when measuring goodwill impairment. The new guidance may result in different amounts of impairment that could be recognized compared to existing guidance. In addition, failing step 1 of the impairment test may not result in impairment under existing guidance. However, under the revised guidance, failing step 1 will always result in a goodwill impairment. ASU 2017-04 is to be applied prospectively for goodwill impairment testing performed in years beginning after December 15, 2019 with early adoption permitted. The Company adopted ASU 2017-04 in the first quarter of 2019. Adoption of ASU 2017-04 did not significantly impact the Company’s results of operations or financial position.
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 is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those fiscal years. In July 2019, the FASB announced its intention to propose an extended effective date of January 1, 2023 for adoption of the ASU by smaller reporting companies. In October 2019, the FASB voted in favor of finalizing its proposal to defer the effective date of this standard. Subject to any additional guidance or clarification from the FASB or the SEC, management believes the Company will qualify for this proposed deferral. The Company believes the adoption of this ASU will not significantly impact its results of operations and financial position. |
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| Equity Method Investments and Joint Ventures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments |
6. Investments
The following summarizes our investments (dollars in thousands):
Equity Method Investments
The following summarizes the (loss) income of equity method investees reflected in the condensed consolidated statements of operations (in thousands):
1347 Property Insurance Holdings, Inc. (“PIH”) is a publicly traded company that provides property and casualty insurance in the States of Louisiana, Texas and Florida. The Company’s Chief Executive Officer is chairman of the board of directors of PIH, and controls entities that, when combined with the Company’s ownership in PIH, own greater than 20% of PIH, providing the Company with significant influence over PIH, but not controlling interest. The Company did not receive dividends from PIH during the three and nine months ended September 30, 2019 or 2018. On February 25, 2019, PIH announced a definitive agreement pursuant to which FedNat Holding Company will acquire substantially all of PIH’s homeowners’ insurance operations. PIH intends to maintain its Nasdaq listing and utilize the proceeds from the transaction to launch a new growth strategy focused on reinsurance, investment management and new investment opportunities. PIH intends to provide additional details on the rollout of this strategy prior to the closing of the transaction. On June 10, 2019, PIH held a special meeting of stockholders at which PIH’s stockholders approved the transaction. In addition, regulatory approvals have been obtained, subject to compliance with the consent orders issued by the insurance regulators, and the transaction is currently expected to close in December 2019. During the quarter ended June 30, 2019, as a result of the planned sale, PIH classified its homeowners’ insurance operations as discontinued operations. Based on quoted market prices, the market value of the Company’s ownership in PIH was $4.6 million at September 30, 2019.
Itasca Capital, Ltd. (“Itasca”) is a publicly traded Canadian company that is an investment vehicle seeking transformative strategic investments. The Company’s Chief Executive Officer is chairman of the board of directors of Itasca. This board seat, combined with the Company’s 32.3% ownership of Itasca, provide the Company with significant influence over Itasca, but not controlling interest. The Company did not receive dividends from Itasca during the three and nine months ended September 30, 2019 or 2018. Based on quoted market prices, the market value of the Company’s ownership in Itasca was $1.7 million at September 30, 2019.
BK Technologies Corporation (“BKTI”) is a publicly traded holding company that, through its wholly-owned operating subsidiary BK Technologies, Inc., designs, manufactures and markets two-way land mobile radios, repeaters, base stations and related components and subsystems. BK Technologies Corporation became the parent company of BK Technologies, Inc. following the completion of a holding company reorganization on March 28, 2019. On September 9, 2018, the Company entered into an agreement with Fundamental Global Investors, LLC (“FGI”), a related party, where the Company sold its shares of common stock of BKTI to FGI. Due to the Company’s significant influence, but not controlling interest, in BKTI, the Company’s investment in BKTI was accounted for using the equity method. Prior to the sale of the BKTI common stock, the Company received dividends of $23 thousand and $0.1 million during the three and nine months ended September 30, 2018, respectively.
As of September 30, 2019, the Company’s retained earnings included accumulated deficit from its equity method investees of $0.6 million.
The summarized financial information presented below reflects the financial information of the Company’s equity method investees for the nine months ended June 30, 2019 and 2018, consistent with the Company’s recognition of the results of its equity method investments on a one-quarter lag (in thousands):
(1) Except for the three month periods ended December 31, 2018 and 2017, these amounts have been restated to reflect PIH’s reclassification of a signifcant portion of its business to discontinued operations.
Cost Method Investment
On May 21, 2019, SDM entered into a Taxicab Advertising Collaboration Agreement (the “Commercial Agreement”) and a Unit Purchase Agreement (the “Unit Purchase Agreement”) with Firefly Systems, Inc. (“Firefly”), pursuant to which SDM has agreed to make available to Firefly 300 digital taxi tops and the parties have agreed to coordinate the fulfilling of SDM’s agreements with the Metropolitan Taxicab Board of Trade, Inc. (“MTBOT”) and Creative Mobile Media, LLC (“CMM”), each dated February 8, 2018. Firefly has agreed to fulfill the digital taxi top advertising obligations under the MTBOT agreement and CMM agreement, and SDM has agreed to fulfill the non-digital taxi top advertising obligations under the MTBOT agreement and CMM agreement. The Company is a party to the Unit Purchase Agreement and has agreed to guarantee the payment obligations of SDM under the Commercial Agreement. As consideration for entering into these agreements, the Company received $4.8 million of Firefly’s Series A-2 preferred shares (“Firefly Shares”). The Firefly Shares, including those subsequently issued pursuant to an earn-out provision (if any), will be subject to a repurchase option for a period of three years to cover SDM’s indemnity obligations and other post-closing covenants under the Commercial Agreement and the Unit Purchase Agreement. As a condition of the transaction, SDM has agreed to hold the Firefly Shares in an investment fund managed by Fundamental Global Investors, LLC, the controlling stockholder of the Company, that is wholly owned by SDM.
The 300 digital tops the Company has made available to Firefly are subject to a master equipment lease agreement the Company entered into during 2017. Pursuant to the master lease agreement and the Unit Purchase Agreement, the Company will remain the primary obligor until such time as the lease expires. In addition, of the $4.8 million of Firefly Shares received, $1.2 million are eligible for repurchase by Firefly if the Company does not exercise the purchase option contained within the master lease agreement. Accordingly, the Company has deferred recognizing an investment related to these Firefly Shares eligible for repurchase until such time it is reasonably certain the Company will exercise the purchase option. The transaction, in effect, transferred control of the underlying asset to Firefly. Therefore, the Company accounted for the transaction as a sales-type lease resulting in the derecognition of the $3.4 million right-of-use asset related to the master lease agreement and a selling profit of $0.2 million, which is recorded within other income (expense) on the condensed consolidated statement of operations. As additional consideration for the right to use the digital taxi tops, Firefly has agreed to pay for certain of Company’s operating expenses associated with the non-digital taxi tops. The Company concluded the payments that Firefly will make on its behalf are considered variable payments and were not included in the calculation of the selling profit. Therefore, the Company will record the benefit and the related operating expenses in the period when the changes in facts and circumstances on which the variable lease payments are based occur. |
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Debt (Tables) |
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| Schedule of Debt |
The Company’s debt consists of the following (in thousands):
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| Schedule of Long-term Debt Maturities |
Scheduled repayments are as follows for the Company’s long-term debt outstanding as of September 30, 2019 (in thousands):
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Intangible Assets (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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| Finite-Lived Intangible Assets [Line Items] | ||||
| Amortization expense | $ 100 | $ 100 | $ 400 | $ 500 |
| Loss on disposal of assets | $ (3) | $ (799) | $ (105) | (2,130) |
| Convergent [Member] | Service [Member] | Abandoned Software [Member] | ||||
| Finite-Lived Intangible Assets [Line Items] | ||||
| Loss on disposal of assets | $ 1,300 | |||
Warranty Reserves - Schedule of Product Warranty Liability (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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| Extended Product Warranty Disclosure [Abstract] | ||||
| Warranty accrual at beginning of period | $ 328 | $ 449 | $ 350 | $ 521 |
| Charged to expense | (1) | 18 | 24 | 83 |
| Claims paid, net of recoveries | (16) | (26) | (70) | (142) |
| Foreign currency adjustment | 2 | 8 | 9 | (13) |
| Warranty accrual at end of period | $ 313 | $ 449 | $ 313 | $ 449 |
Condensed Consolidated Statements of Stockholders' Equity (Parenthetical) - shares |
Sep. 30, 2018 |
Jun. 30, 2018 |
|---|---|---|
| Statement of Stockholders' Equity [Abstract] | ||
| Number of warrants share purchased | 100,000 | 100,000 |
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Accounts receivable, allowance for doubtful accounts | $ 1,409 | $ 1,832 |
| Property, plant and equipment, accumulated depreciation | $ 9,602 | $ 9,046 |
| Preferred stock par value | $ .01 | $ .01 |
| Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
| Preferred stock, shares outstanding | ||
| Common stock par value | $ .01 | $ .01 |
| Common stock, shares authorized | 25,000,000 | 25,000,000 |
| Common stock, shares issued | 17,313,000 | 17,237,000 |
| Common stock, shares outstanding | 14,519,000 | 14,443,000 |
| Common shares in treasury, shares | 2,794,000 | 2,794,000 |
Business Segment Information - Summary of Identifiable Assets by Geographical Area (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
|---|---|---|
| Segment Reporting Information [Line Items] | ||
| Identifiable assets | $ 60,780 | $ 59,637 |
| United States [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Identifiable assets | 43,813 | 42,780 |
| Canada [Member] | ||
| Segment Reporting Information [Line Items] | ||
| Identifiable assets | $ 16,967 | $ 16,857 |
Business Segment Information (Details Narrative) |
9 Months Ended |
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Sep. 30, 2019
Segments
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| Segment Reporting [Abstract] | |
| Number of business segments | 3 |
Revenue |
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| Revenue |
3. Revenue
The Company accounts for revenue using the following steps:
The Company combines contracts with the same customer into a single contract for accounting purposes when the contracts are entered into at or near the same time and the contracts are negotiated as a single commercial package, consideration in one contract depends on the other contract, or the services are considered a single performance obligation. If an arrangement involves multiple performance obligations, the items are analyzed to determine the separate units of accounting, whether the items have value on a standalone basis and whether there is objective and reliable evidence of their standalone selling price. The total contract transaction price is allocated to the identified performance obligations based upon the relative standalone selling prices of the performance obligations. The standalone selling price is based on an observable price for services sold to other comparable customers, when available, or an estimated selling price using a cost plus margin approach. The Company estimates the amount of total contract consideration it expects to receive for variable arrangements by determining the most likely amount it expects to earn from the arrangement based on the expected quantities of services it expects to provide and the contractual pricing based on those quantities. The Company only includes some or a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is subsequently resolved. The Company considers the sensitivity of the estimate, its relationship and experience with the client and variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement.
As discussed in more detail below, revenue is recognized when a customer obtains control of promised goods or services under the terms of a contract and is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The Company does not have any material extended payment terms as payment is due at or shortly after the time of the sale. Observable prices are used to determine the standalone selling price of separate performance obligations, or a cost plus margin approach is used when observable prices are not available. Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded from revenue.
The Company recognizes contract assets or unbilled receivables related to revenue recognized for services completed but not yet invoiced to the clients. Unbilled receivables are recorded as accounts receivable when the Company has an unconditional right to contract consideration. A contract liability is recognized as deferred revenue when the Company invoices clients in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when the Company has satisfied the related performance obligation.
Deferred contract acquisition costs are included in other assets. The Company defers costs to acquire contracts, including commissions, incentives and payroll taxes, if they are incremental and recoverable costs of obtaining a customer contract with a term exceeding one year. Deferred contract costs are reported within other assets and amortized to selling expense over the contract term, which generally ranges from one to five years. The Company has elected to recognize the incremental costs of obtaining a contract with a term of less than one year as a selling expense when incurred. The Company did not have any deferred contract costs as of September 30, 2019 or December 31, 2018.
The following tables disaggregate the Company’s revenue by major source for the three and nine months ended September 30, 2019 (in thousands):
The following tables disaggregate the Company’s revenue by major source for the three and nine months ended September 30, 2018 (in thousands):
Screen system sales
The Company recognizes revenue on the sale of its screen systems when control of the screen is transferred to the customer, usually at time of shipment. However, revenue is recognized upon delivery for certain international shipments with longer shipping transit time because control does not transfer to the customer until delivery. The cost of freight and shipping to the customer is recognized in cost of sales at the time of transfer of control to the customer.
Digital equipment sales
The Company recognizes revenue on sales of digital equipment when the control of the equipment is transferred, which occurs at the time of shipment from the Company’s warehouse or drop-shipment from a third party. The cost of freight and shipping to the customer is recognized in cost of sales at the time of transfer of control to the customer.
Field maintenance and monitoring services
The Company sells service contracts that provide maintenance and monitoring services to Strong Cinema and Convergent customers. In the Strong Cinema segment, these contracts are generally 12 months in length, while the term for service contracts in the Convergent segment can be for multiple years. Revenue related to service contracts is recognized over the term of the agreement in proportion to the costs incurred in fulfilling performance obligations under the contract.
In addition to selling service contracts, the Company also performs discrete time and materials-based maintenance and repair work for customers in the Strong Cinema and Convergent segments. Revenue related to time and materials-based maintenance and repair work is recognized at the point in time when the performance obligation has been fully satisfied.
Installation services
The Company performs installation services for both its Strong Cinema and Convergent customers and recognizes revenue upon completion of the installations.
Extended warranty sales
The Company sells extended warranties to its Strong Cinema customers. When the Company is the primary obligor, revenue is recognized on a gross basis over the term of the extended warranty in proportion to the costs incurred in fulfilling performance obligations under the extended warranty. In third party extended warranty sales, the Company is not the primary obligor, and revenue is recognized on a net basis at the time of the sale.
Advertising
Strong Outdoor sells advertising space on top of taxicabs. Advertising revenue is recognized ratably over the contracted advertising periods.
Timing of Revenue Recognition
The following tables disaggregate the Company’s revenue by the timing of transfer of goods or services to the customer for the three and nine months ended September 30, 2019 (in thousands):
The following tables disaggregate the Company’s revenue by the timing of transfer of goods or services to the customer for the three and nine months ended September 30, 2018 (in thousands):
At September 30, 2019, the unearned revenue amount associated with maintenance and monitoring services, extended warranty sales and advertising services in which the Company is the primary obligor was $2.7 million. The Company expects to recognize $1.1 million of unearned revenue amounts throughout the rest of 2019, $1.6 million during 2020 and immaterial amounts during 2021-2023. |
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Intangible Assets |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible Assets |
7. Intangible Assets
Intangible assets consisted of the following at September 30, 2019 (dollars in thousands):
Intangible assets consisted of the following at December 31, 2018 (dollars in thousands):
Amortization expense relating to intangible assets was $0.1 million during each of the three months ended September 30, 2019 and 2018, and $0.4 million and $0.5 million during the nine months ended September 30, 2019 and 2018, respectively. During the nine months ended September 30, 2018, the Company also recorded an impairment charge of $1.3 million related to abandoned software in service in the Convergent segment as a loss on disposal of assets in the condensed consolidated statement of operations.
The following table shows the Company’s estimated future amortization expense related to intangible assets currently subject to amortization for the next five years (in thousands):
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Leases |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases |
11. Leases
The Company and its subsidiaries lease plant and office facilities and equipment under operating and finance leases expiring through 2028. The Company determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset.
Right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement date. Certain of the leases contain extension options; however, the Company has not included such options as part of its right-of-use assets and lease liabilities because it does not expect to extend the leases. The Company measures and records a right-of-use asset and lease liability based on the discount rate implicit in the lease, if known. In cases where the discount rate implicit in the lease is not known, the Company measures the right-of-use assets and lease liabilities using a discount rate equal to the Company’s estimated incremental borrowing rate for loans with similar collateral and duration.
The Company elected to not apply the recognition requirements of Topic 842 to leases of all classes of underlying assets that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise. Instead, lease payments for such short-term leases are recognized in profit or loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.
The Company elected, as a lessee, for all classes of underlying assets, to not separate nonlease components from lease components and instead to account for each separate lease component and the nonlease components associated with that lease component as a single lease component.
The following tables present the Company’s lease costs and other lease information (dollars in thousands):
The following table presents a maturity analysis of the Company’s finance and operating lease liabilities as of September 30, 2019 (in thousands):
The Company subleases certain office and warehouse space and equipment to third parties. Sublease income is included in net service revenues in the condensed consolidated statements of operations. The following table presents a maturity analysis of the Company’s long-term subleases (in thousands):
The Company leases certain equipment to customers as a component of its Digital Signage as a Service (“DSaaS”) offering. Under DSaaS, the Company provides support, maintenance and content management services in addition to the use of a media player to the customer. The Company elected, as a lessor, for all classes of underlying assets, to not separate nonlease components from lease components and, instead, to account for each separate lease component and the nonlease components associated with that lease component as a single component if the nonlease components otherwise would be accounted for under Accounting Standards Codification Topic 606 on revenue from contracts with customers, and both of the following conditions are met: 1) the timing and pattern of transfer for the lease component and nonlease components associated with that lease component are the same and 2) the lease component, if accounted for separately, would be classified as an operating lease in accordance with Topic 842. The combined component is accounted for as a single performance obligation under Topic 606 if the nonlease component or components are the predominant component(s) of the combined component. Otherwise, if the lease component is the predominant component, the combined component is accounted for as an operating lease under ASC 842. In the case of the Company’s DSaaS contracts, the nonlease components are predominant; therefore, revenue from DSaaS contracts is accounted for under Topic 606 and is included in net service revenues in the condensed consolidated statements of operations. |
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Business Segment Information (Tables) |
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Segment Reporting Information by Segment |
Summary by Business Segments
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| Reconciliation of Assets from Segment to Consolidated |
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| Schedule of Segment Reporting Information by Geographic Area |
Summary by Geographical Area
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| Summary of Identifiable Assets by Geographical Area |
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Warranty Reserves (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Extended Product Warranty Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Product Warranty Liability |
The following table summarizes warranty activity for the three and nine months ended September 30, 2019 and 2018 (in thousands):
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Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) $ in Thousands |
Common Stock [Member] |
Additional Paid-In Capital [Member] |
Retained Earnings [Member] |
Treasury Stock [Member] |
Accumulated Other Comprehensive Loss [Member] |
Total |
|---|---|---|---|---|---|---|
| Balance at Dec. 31, 2017 | $ 169 | $ 40,565 | $ 25,570 | $ (18,586) | $ (3,596) | $ 44,122 |
| Net loss | (3,785) | (3,785) | ||||
| Net other comprehensive income (loss) | (510) | (510) | ||||
| Cumulative effect of adoption of ASC 606 | 76 | 76 | ||||
| Stock-based compensation expense | 255 | 255 | ||||
| Balance at Mar. 31, 2018 | 169 | 40,820 | 21,861 | (18,586) | (4,106) | 40,158 |
| Balance at Dec. 31, 2017 | 169 | 40,565 | 25,570 | (18,586) | (3,596) | 44,122 |
| Net loss | (11,762) | |||||
| Balance at Sep. 30, 2018 | 169 | 41,284 | 13,885 | (18,586) | (4,369) | 32,383 |
| Balance at Mar. 31, 2018 | 169 | 40,820 | 21,861 | (18,586) | (4,106) | 40,158 |
| Net loss | (6,755) | (6,755) | ||||
| Net other comprehensive income (loss) | (481) | (481) | ||||
| Adjustment to issuance of warrants to purchase 100 shares of common stock, net of issuance costs | 75 | 75 | ||||
| Stock-based compensation expense | 227 | 227 | ||||
| Balance at Jun. 30, 2018 | 169 | 41,122 | 15,106 | (18,586) | (4,587) | 33,224 |
| Net loss | (1,221) | (1,221) | ||||
| Net other comprehensive income (loss) | 218 | 218 | ||||
| Adjustment to issuance of warrants to purchase 100 shares of common stock, net of issuance costs | (4) | (4) | ||||
| Stock-based compensation expense | 166 | 166 | ||||
| Balance at Sep. 30, 2018 | 169 | 41,284 | 13,885 | (18,586) | (4,369) | 32,383 |
| Balance at Dec. 31, 2018 | 169 | 41,474 | 13,319 | (18,586) | (5,378) | 30,998 |
| Net loss | (4,150) | (4,150) | ||||
| Net other comprehensive income (loss) | 168 | 168 | ||||
| Cumulative effect of adoption of ASC 842 | 2,785 | 2,785 | ||||
| Stock-based compensation expense | 243 | 243 | ||||
| Balance at Mar. 31, 2019 | 169 | 41,717 | 11,954 | (18,586) | (5,210) | 30,044 |
| Balance at Dec. 31, 2018 | 169 | 41,474 | 13,319 | (18,586) | (5,378) | 30,998 |
| Net loss | (9,356) | |||||
| Balance at Sep. 30, 2019 | 169 | 42,272 | 6,748 | (18,586) | (4,645) | 25,958 |
| Balance at Mar. 31, 2019 | 169 | 41,717 | 11,954 | (18,586) | (5,210) | 30,044 |
| Net loss | (3,418) | (3,418) | ||||
| Net other comprehensive income (loss) | 425 | 425 | ||||
| Stock-based compensation expense | 221 | 221 | ||||
| Balance at Jun. 30, 2019 | 169 | 41,938 | 8,536 | (18,586) | (4,785) | 27,272 |
| Net loss | (1,788) | (1,788) | ||||
| Net other comprehensive income (loss) | 140 | 140 | ||||
| Stock-based compensation expense | 334 | 334 | ||||
| Balance at Sep. 30, 2019 | $ 169 | $ 42,272 | $ 6,748 | $ (18,586) | $ (4,645) | $ 25,958 |
Inventories (Details Narrative) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Inventory valuation reserves | $ 1,400 | $ 1,400 |
Stock Compensation - Schedule of Nonvested Restricted Stock Units Activity (Details) - Restricted Stock Units (RSUs) [Member] - $ / shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Number of Restricted Stock, Non-vested beginning balance | 277,498 | |
| Number of Restricted Stock, Granted | 417,378 | 147,500 |
| Number of Restricted Stock, vested | (75,833) | |
| Number of Restricted Stock, forfeited | ||
| Number of Restricted Stock, Non-vested ending balance | 619,043 | |
| Weighted Average Grant Date Fair Value, Non-vested beginning balance | $ 3.33 | |
| Weighted Average Grant Date Fair Value, Granted | 2.95 | |
| Weighted Average Grant Date Fair Value, Vested | 3.87 | |
| Weighted Average Grant Date Fair Value, Forfeited | ||
| Weighted Average Grant Date Fair Value, Non-vested ending balance | $ 2.10 | |
Business Segment Information |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Segment Information |
15. Business Segment Information
The Company conducts its operations through three primary business segments: Strong Cinema, Convergent and Strong Outdoor. Strong Cinema is one of the largest manufacturers of premium projection screens and also manufactures customized screen support systems, distributes other products and provides technical support services to the cinema, amusement park and other markets. Convergent delivers digital signage solutions and related services to large multi-location organizations in the United States and Canada. Strong Outdoor provides outdoor advertising and experiential marketing to corporate customers. The Company’s operating segments were determined based on the manner in which management organizes segments for making operating decisions and assessing performance. During the fourth quarter 2018, the Company separated its former Digital Media segment into separate Convergent and Strong Outdoor segments. All prior periods have been recast in our segment reporting to reflect the current segment organization.
Summary by Business Segments
Summary by Geographical Area
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. |
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Loss Per Common Share (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Reconciliation Weighted Average Between Basic and Diluted Earnings Per Share |
The following table summarizes the weighted average shares used to compute basic and diluted loss per share:
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Leases (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Lease Costs and Other Lease Information |
The following tables present the Company’s lease costs and other lease information (dollars in thousands):
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| Schedule of Future Minimum Lease Payments |
The following table presents a maturity analysis of the Company’s finance and operating lease liabilities as of September 30, 2019 (in thousands):
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| Schedule of Maturity Analysis of Long-term Subleases |
The following table presents a maturity analysis of the Company’s long-term subleases (in thousands):
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Intangible Assets (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Intangible Assets |
Intangible assets consisted of the following at September 30, 2019 (dollars in thousands):
Intangible assets consisted of the following at December 31, 2018 (dollars in thousands):
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| Schedule of Intangible Assets Future Amortization Expense |
The following table shows the Company’s estimated future amortization expense related to intangible assets currently subject to amortization for the next five years (in thousands):
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Summary of Significant Accounting Policies - Schedule of Fair Value Measured Financial Assets and Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
Sep. 30, 2018 |
|---|---|---|---|
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
| Cash and cash equivalents | $ 4,388 | $ 6,698 | |
| Restricted cash | 350 | 350 | $ 350 |
| Notes receivable | 1,812 | 3,965 | |
| Total | 6,550 | 11,013 | |
| Level 1 [Member] | |||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
| Cash and cash equivalents | 4,388 | 6,698 | |
| Restricted cash | 350 | 350 | |
| Notes receivable | |||
| Total | 4,738 | 7,048 | |
| Level 2 [Member] | |||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
| Cash and cash equivalents | |||
| Restricted cash | |||
| Notes receivable | |||
| Total | |||
| Level 3 [Member] | |||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
| Cash and cash equivalents | |||
| Restricted cash | |||
| Notes receivable | 1,812 | 3,965 | |
| Total | $ 1,812 | $ 3,965 |
Inventories |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Inventories |
5. Inventories
Inventories consist of the following (in thousands):
The inventory balances are net of reserves of approximately $1.4 million as of both September 30, 2019 and December 31, 2018, respectively. |
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Warranty Reserves |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Extended Product Warranty Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warranty Reserves |
9. Warranty Reserves
In most instances, the Company’s digital projection products are covered by the manufacturing firm’s original warranty; however, for certain customers the Company may grant warranties in excess of the manufacturer’s warranty. In addition, the Company provides warranty coverage on screens it manufactures. The Company accrues for these costs at the time of sale. The following table summarizes warranty activity for the three and nine months ended September 30, 2019 and 2018 (in thousands):
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Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
|
| Total net revenues | $ 16,846 | $ 16,453 | $ 45,421 | $ 46,458 |
| Total cost of revenues | 11,033 | 12,923 | 33,730 | 38,788 |
| Gross profit | 5,813 | 3,530 | 11,691 | 7,670 |
| Selling and administrative expenses: | ||||
| Selling | 1,373 | 1,139 | 3,823 | 3,638 |
| Administrative | 4,371 | 3,384 | 12,597 | 12,301 |
| Total selling and administrative expenses | 5,744 | 4,523 | 16,420 | 15,939 |
| Loss on disposal of assets | (3) | (799) | (105) | (2,130) |
| Income (loss) from operations | 66 | (1,792) | (4,834) | (10,399) |
| Other income (expense): | ||||
| Interest income | 1 | 3 | ||
| Interest expense | (263) | (180) | (568) | (267) |
| Fair value adjustment to notes receivable | (845) | 802 | (2,153) | 953 |
| Foreign currency transaction gain (loss) | 66 | (67) | (154) | 41 |
| Other income (expense), net | 414 | 6 | 868 | (9) |
| Total other (expense) income | (627) | 561 | (2,004) | 718 |
| Loss before income taxes and equity method investment (loss) income | (561) | (1,231) | (6,838) | (9,681) |
| Income tax expense | 731 | 497 | 1,295 | 1,837 |
| Equity method investment (loss) income | (496) | 507 | (1,223) | (244) |
| Net loss | $ (1,788) | $ (1,221) | $ (9,356) | $ (11,762) |
| Basic loss per share | $ (0.12) | $ (0.08) | $ (0.65) | $ (0.82) |
| Diluted loss per share | $ (0.12) | $ (0.08) | $ (0.65) | $ (0.82) |
| Weighted-average shares used in computing net loss per share: | ||||
| Basic | 14,494,000 | 14,392,000 | 14,476,000 | 14,366,000 |
| Diluted | 14,494,000 | 14,392,000 | 14,476,000 | 14,366,000 |
| Product [Member] | ||||
| Total net revenues | $ 9,192 | $ 8,417 | $ 20,840 | $ 24,602 |
| Total cost of revenues | 5,603 | 5,102 | 17,526 | 16,572 |
| Service [Member] | ||||
| Total net revenues | 7,654 | 8,036 | 24,581 | 21,856 |
| Total cost of revenues | $ 5,430 | $ 7,821 | $ 16,204 | $ 22,216 |
Debt - Schedule of Long-term Debt Maturities (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
|---|---|---|
| Debt Disclosure [Abstract] | ||
| Remainder of 2019 | $ 239 | |
| 2020 | 1,002 | |
| 2021 | 1,079 | |
| 2022 | 1,146 | |
| 2023 | 786 | |
| Thereafter | 19 | |
| Total | $ 4,271 | $ 11,167 |
Investments - Summarized Financial Information (Details) - USD ($) $ in Thousands |
9 Months Ended | ||||
|---|---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
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| Equity Method Investments and Joint Ventures [Abstract] | |||||
| Revenue | [1] | $ 16,713 | $ 11,711 | ||
| Operating (loss) income | [1] | (910) | 2,130 | ||
| Net (loss) income | $ (5,490) | $ 2,500 | |||
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Goodwill - Summary of Changes in Carrying Amount of Goodwill (Details) $ in Thousands |
9 Months Ended |
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Sep. 30, 2019
USD ($)
| |
| Goodwill and Intangible Assets Disclosure [Abstract] | |
| Balance | $ 875 |
| Foreign currency translation | 27 |
| Balance | $ 902 |
Leases - Schedule of Maturity Analysis of Long-term Subleases (Details) $ in Thousands |
Sep. 30, 2019
USD ($)
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|---|---|
| Leases [Abstract] | |
| Remainder 2019 | $ 54 |
| 2020 | 163 |
| 2021 | 137 |
| 2022 | 23 |
| 2023 | |
| Thereafter | |
| Total sublease payments | $ 377 |
Loss Per Common Share (Details Narrative) - shares |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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| Stock Option In Which Exercise Price Exceeds The Average Market Price of Common Shares [Member] | ||||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
| Anti-dilutive securities excluded from computation of earnings per share | 772,000 | 330,000 | 772,000 | 330,000 |
| Common Stock Equivalents [Member] | ||||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
| Anti-dilutive securities excluded from computation of earnings per share | 165,206 | 63,398 | 146,461 | 166,391 |
Summary of Significant Accounting Policies - Summary of Quantitative Information About Company's Level 3 Fair Value Measurements (Details) - USD ($) $ in Thousands |
9 Months Ended | |
|---|---|---|
Sep. 30, 2019 |
Dec. 31, 2018 |
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| Note receivable | $ 1,812 | $ 3,965 |
| Valuation Technique | Discounted cash flow | |
| Default Percentage [Member] | ||
| Unobservable input | 72.00% | |
| Discount Rate [Member] | ||
| Unobservable input | 18.00% |
Investments (Tables) |
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| Equity Method Investments and Joint Ventures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Investments |
The following summarizes our investments (dollars in thousands):
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| Summary of Income (Loss) of Equity Method Investees |
The following summarizes the (loss) income of equity method investees reflected in the condensed consolidated statements of operations (in thousands):
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| Summarized Financial Information |
The summarized financial information presented below reflects the financial information of the Company’s equity method investees for the nine months ended June 30, 2019 and 2018, consistent with the Company’s recognition of the results of its equity method investments on a one-quarter lag (in thousands):
(1) Except for the three month periods ended December 31, 2018 and 2017, these amounts have been restated to reflect PIH’s reclassification of a signifcant portion of its business to discontinued operations. |
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Stock Compensation |
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| Share-based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Compensation |
13. Stock Compensation
The Company recognizes compensation expense for all stock-based payment awards made to employees and directors based on estimated grant date fair values. Stock-based compensation expense included in selling and administrative expenses approximated $0.3 million and $0.2 million for the three months ended September 30, 2019 and 2018, respectively, and $0.8 million and $0.6 million for the nine months ended September 30, 2019 and 2018, respectively.
The Company’s 2017 Omnibus Equity Compensation Plan (“2017 Plan”) was approved by the Company’s stockholders and provides the Compensation Committee of the Board of Directors with the discretion to grant stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares, performance units and other stock-based awards and cash-based awards. Vesting terms vary with each grant and may be subject to vesting upon a “change in control” of the Company. The total number of shares authorized for issuance under the 2017 Plan is 1,371,189 shares, with 391,778 shares remaining available for grant at September 30, 2019.
Stock Options
The Company granted a total of 295,000 and 387,500 stock options during the nine months ended September 30, 2019 and 2018, respectively. Options to purchase shares of common stock were granted with exercise prices equal to the fair value of the common stock on the date of grant.
The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2019 and 2018 was $2.91 and $1.82, respectively. The fair value of each stock option granted was estimated on the date of grant using a Black-Scholes valuation model with the following weighted average assumptions:
The risk-free interest rate assumptions were based on the U.S. Treasury yield curve in effect at the time of the grant. Expected volatility is based on historical daily price changes of the Company’s stock for six years prior to the date of grant. The expected life of options is the average number of years the Company estimates that stock options will be outstanding.
The following table summarizes stock option activity for the nine months ended September 30, 2019:
The aggregate intrinsic value in the table above represents the total that would have been received by the option holders if all in-the-money options had been exercised and sold on the date indicated.
As of September 30, 2019, 813,000 stock option awards were non-vested. Unrecognized compensation cost related to stock option awards was approximately $1.2 million, which is expected to be recognized over a weighted average period of 3.4 years.
Restricted Stock Shares and Restricted Stock Units
The Company granted a total of 417,378 and 147,500 restricted stock units during the nine months ended September 30, 2019 and 2018, respectively. The Company estimates the fair value of restricted stock awards based upon the market price of the underlying common stock on the date of grant.
The following table summarizes restricted stock share activity for the nine months ended September 30, 2019:
The following table summarizes restricted stock unit activity for the nine months ended September 30, 2019:
As of September 30, 2019, the total unrecognized compensation cost related to non-vested restricted stock awards was approximately $1.5 million, which is expected to be recognized over a weighted average period of 2.3 years. |
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Summary of Significant Accounting Policies (Tables) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair Value Measured Financial Assets and Liabilities |
Fair values measured on a recurring basis at September 30, 2019 (in thousands):
Fair values measured on a recurring basis at December 31, 2018 (in thousands):
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| Summary of Notes Receivable Reconciliation |
The following table reconciles the beginning and ending balance of the Company’s notes receivable at fair value (in thousands):
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| Summary of Quantitative Information About Company's Level 3 Fair Value Measurements |
Quantitative information about the Company’s level 3 fair value measurements at September 30, 2019 is set forth below (in thousands):
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