EDGAR 10-K Filing

Company CIK: 946454
Filing Year: 2022
Filename: 946454_10-K_2022_0001493152-22-007686.json

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ITEM 1. BUSINESS
Item 1. Business
Ballantyne Strong, Inc. (“Ballantyne Strong”, the “Company”, “us” or “we”), a Delaware corporation established in 1932, went public in 1995. Our shares are traded on the NYSE American market under the symbol “BTN.” Our website is www.ballantynestrong.com. The inclusion of our Internet address in this Annual Report does not include or incorporate by reference into this Annual Report any information on our website. At our 2021 Annual Meeting of Stockholders, a proposal to approve an amendment and restatement to our Certificate of Incorporation to change our corporate name from Ballantyne Strong, Inc. to FG Group Holdings Inc. was approved. Although we have not yet implemented the change to our corporate name, we intend to do so during the first half of 2022.
We operate Strong Entertainment, which has a leadership position in supplying projection screens and related products and services to the cinema exhibition and entertainment industry. We have capital allocated to equity holdings in three independent companies, one of which is a private venture-backed company and two are publicly traded companies. We also operate a technology incubator and co-working facility in Alpharetta, Georgia where, effective February 1, 2022, we also own the land and buildings.
Our strategic plans contemplate a combination of:
● Expanding our Strong Entertainment operating business, organically and though complimentary transactions following a planned separation and initial public offering;
● Maximizing the value of our holdings by strategically allocating additional capital, monetizing positions, and redeploying capital; and
● Managing public company costs to minimize overhead levels of the Ballantyne Strong holding company.
We believe Strong Entertainment has established a leadership position in the entertainment industry, providing mission critical products and services to cinema exhibitors and entertainment venues for over 80 years. We intend to focus on growing and increasing the scope, scale and value of our Strong Entertainment operating business.
Over the past 18 months, we have been focused on improving operating performance and positioning the group for accelerated growth following a period of COVID-19 related industry disruptions. Entering 2022, management is focused on growth opportunities, including a combination of organic growth and expansion through strategic transactions in the Entertainment business.
As part of that strategy, the Company announced plans to establish the Strong Entertainment business as a separate publicly listed company. Following the planned separation, the operations of the Strong Entertainment operating segment are expected to become part of a newly established British Columbia corporation, Strong Global Entertainment, Inc. (“Strong Global Entertainment”). Strong Global Entertainment plans to file a registration statement with the U.S. Securities and Exchange Commission (“SEC”) and intends to commence an initial public offering of its common shares during 2022 to raise additional capital to support its growth plans. If successful, we expect to apply to have the Strong Global Entertainment common shares trade on the NYSE American under the ticker symbol “SGE” following the initial public offering, and the Company would expect to continue to be the majority shareholder of Strong Global Entertainment.
The Company also continues to evaluate opportunities to allocate capital. As of December 31, 2021, the Company held equity stakes in three separate companies. Firefly Systems, Inc. (“Firefly”) operates a media network and digital advertising solutions on taxi and rideshare vehicles. FG Financial Group, Inc. (“FGF”) operates as a diversified insurance, reinsurance and investment management holding company, and GreenFirst Forest Products Inc (“GreenFirst”), recently completed a series of transactions making it one of the largest producers in the Canadian timber market. In February 2022, subsequent to the end of the year, the Company, through its wholly owned subsidiary, Digital Ignition, LLC, completed the purchase of the land and building housing its Digital Ignition business in Alpharetta, Georgia.
Fundamental Global GP, LLC (“Fundamental Global”), the funds that it manages, its other affiliates, and the directors and officers of the Company and their affiliates together held approximately 33.6% of the Company’s outstanding stock as of March 15, 2022. In some cases, funds managed by Fundamental Global may acquire positions in the same public companies as the Company. Fundamental Global’s funds currently hold positions in FGF and GreenFirst.
Strong Entertainment Overview
As noted above, we recently announced plans to establish the Strong Entertainment business as a separate publicly listed company. Following the planned separation, the operations of our Strong Entertainment operating segment are expected to become part of a newly established British Columbia corporation, Strong Global Entertainment. The information provided below describes the historical operation of our Strong Entertainment business segment, rather than as a standalone operating company.
Overview
Our Strong Entertainment business segment manufactures and distributes premium large format projection screens and provides technical support services and other related products and services to the cinema exhibition industry, theme parks, schools, museums and other entertainment-related markets. We also distribute and support third party products, including digital projectors, servers, library management systems, menu boards and sound systems.
As a manufacturer and distributor of projection screens systems, we have contractual relationships to supply projection screens to major cinema exhibitors, including IMAX Corporation (“IMAX”), AMC Entertainment Holdings (“AMC”), and Cinemark Holdings, Inc. (“Cinemark”), and other cinema operators worldwide. In addition to traditional projection screens, we also manufacture and distribute our Eclipse curvilinear screens, which are specially designed for theme parks, immersive exhibitions, as well as simulation applications.
We also provide maintenance, repair, installation, network support services and other services to cinema operators, primarily in the United States. Many of our customers choose annual managed service arrangements for maintenance and repair services. We also provide maintenance services to customers on a time and materials basis. Our field service and Network Operations Center (“NOC”) staff work hand in hand to monitor and resolve system and other issues for our customers. Our NOC, staffed by software engineers and systems technicians, operates 24/7/365 and monitors our customers’ networked equipment remotely, often providing proactive solutions to systems’ issues before they cause system failures.
We recently launched Strong Studios, Inc., (“Strong Studios”) a Delaware corporation and a wholly owned subsidiary of Strong Technical Services, Inc. (“STS”). The goal in launching Strong Studios is to expand our Entertainment Business to include content creation and production of feature films and series. The launch of Strong Studios is intended to further diversify our revenue streams and increase our addressable markets, while leveraging our existing relationships in the industry.
The coronavirus pandemic (“COVID-19”) and inflationary pressures have been posing and may continue to pose challenges for our business. The COVID-19 global pandemic resulted in a significant impact to our customers and their ability and willingness to purchase our products and services. A significant number of our customers temporarily ceased operations at times during the pandemic, some of which continue to operate under COVID-19 restrictions. As such, we have experienced, and may continue to experience an impact on our results of operations.
Products and Services
Projection Screens and Support Systems - We believe we are the largest manufacturer and distributor of premium large format projection screens to the cinema industry in North America. We have contractual relationships to supply projection screens to major cinema exhibitors, including IMAX Corporation (“IMAX”) and Cinemark Holdings, Inc. (“Cinemark”), and other cinema operators worldwide. We also manufacture innovative screen support structures custom built to adapt to virtually any venue requirement, with a unique self-standing modular construction that allows for easy assembly and adjustable size.
In addition to traditional projection screens, we also manufacture and distribute our Eclipse curvilinear screens, which are specially designed for theme parks, immersive exhibitions, as well as simulation applications. Our Eclipse curvilinear screens are specially designed to provide maximum viewer engagement in media-based attractions and immersive projection environments. The solid surface minimizes light loss to maintain higher resolution at lower lumen output. Patented speaker panels allow selective placement of rear mounted speakers to ensure the audio derives from the source media on screen. Applications include interactive dark rides, 3D/4D theme park rides, flying theaters and motion simulators.
We believe that our screens are the highest quality in the industry providing the highest gain and other characteristics important to the exhibitor and its patrons. Our high quality is driven by our innovative manufacturing process, focus on quality control and our proprietary coatings. We believe we are the only major screen manufacturer that develops and produces its own proprietary coatings, which are critical to the overall quality, increased screen reflectivity and brightness, and continued innovation of our screens.
Technical Services - We provide digital projection equipment installation and after-sale maintenance and network support services to the entertainment industry. Our field service technicians and NOC staff work hand in hand to monitor and resolve system and other issues for our customers. We service many of our customers under recurring revenue contracts providing for maintenance and repair to a wide range of installed digital equipment, providing our customers with a reliable turnkey outsourced service option. We also provide services to customers on a time and materials basis. Our NOC, staffed by software engineers and systems techs, operates 24/7/365 and monitors our customers’ networked equipment remotely, often providing proactive solutions to systems’ issues before they cause system failures.
Content - We recently launched our Strong Studios division, expanding our Entertainment Business to include content creation and production of feature films and series. The launch of Strong Studios further diversifies our revenue streams and increases our addressable markets, while leveraging our existing relationships in the industry. While Strong Studios has not started any substantive operations, it has acquired, from Landmark, an unrelated party, original feature films and television series, as well as been assigned third party rights to content for global multiplatform distribution.
Other Products - We distribute projectors, servers, audio systems and other third-party products including library management systems, lenses and lamps to customers in North and South America.
Markets
We sell our screen systems worldwide, with our primary markets being North America and Asia. Screen systems are primarily sold on a direct basis, although we also use third-party distributors and integrators in some markets.
We have non-exclusive distribution agreements with NEC and Barco that allow us to market digital projectors in North and South America. Recently, we announced that we entered into a preferred commercial relationship with Cinionic, Inc., the world’s leading provider of laser cinema solutions, to enhance the services to operators across North America. We believe this relationship enhances our ability to service our valued customers by providing increased access to technology, better training for our technicians and will strengthen our global reach due to closer relationships with their international sales teams.
We provide technical services in the United States. We market and sell our services both directly to theater owners and other entertainment-related markets and through dealers or Value Added Reseller (“VAR”) networks.
Competition
There are several other companies that manufacture and distribute projection screens. We believe that our primary competitors in the worldwide projection screen market include Harkness Screens International Ltd., Severtson, Screen Solutions, Spectro, MECHANISCHE Weberei BOHEMIA s.r.o. and Galalite Projection Screens. Competitive factors include product performance characteristics, quality, availability, location/shipping logistics and price.
The market for our other digital cinema equipment and technical services is highly competitive, and the industry is fragmented. The primary competitive factors are price, product quality, features and customer support. Competition in the digital cinema equipment market includes other integrators and resellers. Manufacturers may also sell equipment directly to exhibitors, especially for large orders. We believe that our primary competition for installation, after-sale maintenance, and NOC services is Christie Digital Systems USA, Inc., Moving Image Technologies Tri-State Digital Services and Sonic Equipment Company. We also compete with in-house technical resources at some of our larger entertainment customers for services work.
Recent Developments
During February 2022, we launched Strong Studios. Strong Studios has acquired, from Landmark Studios, Inc (“Landmark”), a subsidiary of Chicken Soup of the Soul Entertainment, original feature films and television series, as well as been assigned third party rights to content for global multiplatform distribution.
Equity Holdings
The Company holds equity stakes in two public companies. The Company holds approximately 25% of FG Financial Group, Inc. (Nasdaq: FGF) (“FGF”), a reinsurance and investment management holding company focused on opportunistic collateralized and loss capped reinsurance, while allocating capital to SPAC and SPAC sponsor-related businesses; and approximately 9% of GreenFirst Forest Products Inc. (TSX: GFP) (“GreenFirst”), a forest-first business focused on sustainable forest management and lumber production. The Company also holds preferred shares in a private company, Firefly Systems, Inc. (“Firefly”), which operates a media network and digital advertising solutions on taxi and rideshare vehicles. We sold our Strong Outdoor business to Firefly in August 2020.
Financial Instruments and Credit Risk Concentrations
Our top ten customers accounted for 38% of 2021 consolidated net revenues. Trade accounts receivable from these customers represented 29% of net consolidated receivables at December 31, 2021. None of our customers accounted for more than 10% of both our consolidated net revenues during 2021 and our net consolidated receivables as of December 31, 2021.
Manufacturing
We manufacture cinema screens through Strong/MDI Screen Systems, Inc. (“Strong/MDI”), our subsidiary in Joliette, Quebec, Canada. These manufacturing operations consist of an approximately 80,000 square-foot facility for the manufacture of screen systems. These facilities include PVC welding operations with programmable automations, as well as two 90-foot high screen coating towers with state-of-the-art precision coating application software and painting systems. This world class ISO certified operation has the capability of manufacturing multiple standard screens simultaneously to large format 2D and 3D screens for cinema and special venue applications.
Quality Control
We believe that our quality control procedures and the quality standards for the products that we manufacture, distribute or service have contributed significantly to our reputation for high performance and reliability. The inspection of incoming materials and components as well as the testing of all of our products during various stages of the sales and service cycle are key elements of this program.
Trademarks
We own or otherwise have rights to various trademarks and trade names used in conjunction with the sale of our products. We believe our success will not be dependent upon trademark protection, but rather upon our scientific and engineering capabilities and research and production techniques. We consider the Strong® trademark to be of value to our business.
Human Capital Resources
We employed 159 persons at December 31, 2021, 158 of which were full-time. Of these employees, 74 positions were considered manufacturing or operational, 44 were service related and 41 were considered sales and administrative. We are not a party to any collective bargaining agreement.
The Company believes it complies with all applicable state, local and international laws governing nondiscrimination in employment in every location in which the Company operates. All applicants and employees are treated with the same high level of respect regardless of their gender, ethnicity, religion, national origin, age, marital status, political affiliation, sexual orientation, gender identity, disability or protected veteran status. We continue to monitor our demand for skilled and unskilled labor and provide training and competitive compensation packages in an effort to attract and retain skilled employees.
The Company, including its subsidiaries, remains deeply rooted in cinema screen manufacturing and cinema-focused services. In this regard, we continuously drive our efforts to be the best partner for our customers, investment for our stockholders, neighbor in our community and to provide an empowering work environment for our employees.
Moreover, the Company is committed to the health, safety and wellness of its employees. We have modified our business practices and implemented certain policies at our offices in accordance with best practices to accommodate, and at times mandate, social distancing and remote work practices, including restricting employee travel, modifying employee work locations, implementing social distancing and enhanced sanitary measures in our facilities, and cancelling attendance at events and conferences. In addition, we have invested in employee safety equipment, additional cleaning supplies and measures, re-designed production lines and workplaces as necessary and adapted new processes for interactions with our suppliers and customers to safely manage our operations.
Regulation
We are subject to complex laws, rules and regulations affecting our domestic and international operations relating to, for example, environmental, safety and health requirements; exports and imports; bribery and corruption; tax; data privacy; labor and employment; competition; and intellectual property ownership and infringement. Compliance with these laws, rules and regulations may be onerous and expensive, and if we fail to comply or if we become subject to enforcement activity, our ability to manufacture our products and operate our business could be restricted and we could be subject to fines, penalties or other legal liability. Furthermore, should these laws, rules and regulations be amended or expanded, or new ones enacted, we could incur materially greater compliance costs or restrictions on our ability to manufacture our products and operate our business.
Some of these complex laws, rules and regulations - for example, those related to environmental, safety and health requirements - may particularly affect us in the jurisdictions in which we manufacture products, especially if such laws and regulations require the use of abatement equipment beyond what we currently employ; require the addition or elimination of a raw material or process to or from our current manufacturing processes; or impose costs, fees or reporting requirements on the direct or indirect use of energy, or of materials or gases used or emitted into the environment, in connection with the manufacture of our products. There can be no assurance that in all instances a substitute for a prohibited raw material or process would be available, or be available at reasonable cost.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
Our business and financial performance are subject to various risks and uncertainties, some of which are beyond our control. We discuss in this section some of the risk factors that, if they actually occurred, could materially and adversely affect our business, financial condition and results of operations. In that event, the trading price of our common stock could decline, and you may lose part or all of your investment. You should consider these risk factors in connection with evaluating the forward-looking statements contained in this Annual Report on Form 10-K because these factors could cause our actual results and financial condition to differ materially from those projected in forward-looking statements. We undertake no obligation to revise or update any forward-looking statements contained herein to reflect subsequent events or circumstances or the occurrence of unanticipated events.
The COVID-19 pandemic and ensuing governmental responses have negatively impacted, and could further materially adversely affect, our business, financial condition, results of operations and cash flows.
The COVID-19 pandemic has had, and may continue to have, a widespread and detrimental effect on the global economy as a result of the continued increase in the number of cases, particularly in the United States, and actions by public health and governmental authorities, businesses, other organizations and individuals to address the outbreak, including travel bans and restrictions, quarantines, shelter in place, stay at home or total lock-down orders and business limitations and shutdowns. The COVID-19 pandemic and ensuing governmental responses have materially negatively impacted, and could further materially adversely affect, our business, financial condition, results of operations and cash flows. The ultimate impact of the COVID-19 pandemic on our business and results of operations remains unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the COVID-19 pandemic, including variants thereof and any repeat or cyclical outbreaks, and any additional preventative and protective actions that governments, or we or our customers, may direct, which may result in an extended period of continued business disruption and reduced operations. For instance, some areas of the United States are experiencing new surges in COVID-19 cases and new variants of COVID-19, which has, in some cases, led to the closure of recently re-opened businesses and further postponed opening other businesses, including movie theaters. Any resulting financial impact cannot be reasonably estimated at this time, but we expect it will continue to have a material impact on our business, financial condition and results of operations.
The repercussions of the COVID-19 global pandemic resulted in a significant impact to our customers, specifically those in the entertainment and advertising industries, and their ability and willingness to purchase our products and services, which continues to negatively impact us. A significant number of our customers temporarily ceased operations during the pandemic, some of which continue to be suspended; as such, we have experienced, and anticipate that we will continue to experience at least until our customers have resumed normal operations, a significant decline in our results of operations. For instance, during this time, many movie theaters and other entertainment centers were forced to close or curtail their hours and, correspondingly, have terminated or deferred their non-essential capital expenditures. While some movie theaters and chains have begun to re-open, or announced plans to re-open in the near future, theater operators may continue to experience reduced revenues for an extended period due to, among other things, consumer concerns over safety and social distancing, depressed consumer sentiment due to adverse economic conditions, including job losses, capacity restrictions, and postponed release dates, shortened “release windows” between the release of motion pictures in theaters and an alternative delivery method, or the release of motion pictures directly to alternative delivery methods, bypassing the theater entirely, for certain movies, and continued COVID-19 outbreaks could cause these theaters to suspend operations again. The COVID-19 pandemic has also adversely affected film production and may adversely affect the pipeline of feature films available in the short- or long-term. In addition to decreased business spending by our customers and prospective customers and reduced demand for our products, lower renewal rates by our customers, increased customer losses/churn, increased challenges in or cost of acquiring new customers and increased risk in collectability of accounts receivable may have a material adverse effect on our business and results of operations. We have also experienced other negative impacts; among other actions, we were required to temporarily close our screen manufacturing facility in Canada due to the governmental response to COVID-19, which we were able to re-open on May 11, 2020, and have experienced lower revenues from field services and a reduction in non-recurring time and materials-based services. The completion of our outsourced screen finishing facility in China by a third party was also delayed by the COVID-19 pandemic. We may also experience one or more of the following conditions that could have a material adverse impact on our business operations and financial condition: adverse effects on our strategic partners’ businesses or on the businesses of companies in which we hold equity stakes; impairment charges; extreme currency exchange-rate fluctuations; inability to recover costs from insurance carriers; and business continuity concerns for us, our customers and our third-party vendors.
In response to uncertainties associated with the COVID-19 pandemic, we have taken significant steps to preserve cash and remain in a strong competitive position when the current crisis subsides by eliminating non-essential costs, reducing employee hours and deferring all non-essential capital expenditures to minimum levels. Among other mitigating actions, we implemented targeted furloughs, temporarily curtailed our service and distribution activities in the United States and temporarily reduced compensation of our executive officers and certain other employees, and our board of directors waived its cash compensation for 2020. We have also implemented remote work policies for many employees, and the resources available to such employees may not enable them to maintain the same level of productivity and efficiency. In addition, these and other employees may face additional demands on their time, such as increased responsibilities resulting from school and childcare closures or illness of family members. Our increased reliance on remote access to our information systems also increases our exposures to potential cybersecurity breaches. We cannot provide any assurance that these actions, or any other mitigating actions we may take, will help mitigate the impact of the COVID-19 pandemic on us.
We cannot provide any assurance that our assumptions used to estimate our liquidity requirements will remain accurate due to the unprecedented nature of the disruption to our operations and the unpredictability of the COVID-19 global pandemic. As a consequence, our estimates of the duration of the pandemic and the severity of the impact on our future earnings and cash flows could change and have a material impact on our financial condition and results of operations. Furthermore, we applied for and received wage subsidies, and are in the process of reviewing tax credits and other financial support under the newly enacted COVID-19 relief legislation in the U.S. and Canada. However, the legislation and guidance from the authorities continues to evolve; as such, the amount and timing of support, if any, that we could receive is not determinable at this time, and there can be no guarantees that we will receive financial support through these programs. In addition, certain government benefits that we seek to access have not previously been administered on the present scale or at all. Government or third-party program administrators may be unable to cope with the volume of applications in the near term, and any benefits we receive may not be as extensive as we currently estimate, may impose additional conditions and restrictions on our operations or may otherwise provide less relief than we contemplate. In the event of a sustained market deterioration, and continued declines in net sales, including the impact of such events on the borrowing base under the Strong/MDI credit facilities, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions. We cannot provide any assurance that we will be able to obtain additional sources of financing or liquidity on acceptable terms, or at all.
The ultimate duration and impact of the COVID-19 pandemic on our business, financial condition, results of operations, and cash flows is dependent on future developments, the duration of the pandemic, including repeat or cyclical outbreaks, new and potentially more contagious variants, additional “waves” and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time due to the daily evolution of the COVID-19 pandemic and the global responses to curb its spread. Furthermore, the extent to which our mitigation efforts are successful, if at all, is not presently ascertainable. However, we expect that our results of operations, including revenues, in future periods will continue to be adversely impacted by the COVID-19 pandemic and its negative effects on global economic conditions, which include a global recession, and that, as result of such effects, we may continue to be adversely affected even after the COVID-19 pandemic has subsided.
We have no assurance of future business from any of our customers.
We estimate future revenue associated with customers and customer prospects for purposes of financial planning and measurement of our sales pipeline, but we have limited contractual assurance of future business from our customers. While we do have arrangements with some of our customers, customers are not required to purchase any minimum amounts, and could stop doing business with us. Some customers maintain simultaneous relationships with our competitors, and could shift more of their business away from us if they choose to do so in the future.
There is no guarantee that we will be able to service and retain or renew existing agreements, maintain relationships with any of our customers or business partners on acceptable terms or at all, or collect amounts owed to us from insolvent customers or business partners. The loss of any of our large customers could have a material adverse impact on our business.
Our operating results could be materially harmed if we are unable to accurately forecast demand for our products and services and adequately manage our inventory.
To ensure adequate inventory supply, we forecast inventory needs, place orders and plan personnel levels based on estimates of future demand. Our ability to accurately forecast demand for our products and services is limited and could be affected by many factors, including an increase or decrease in customer demand for our products and services or for products and services of our competitors, product and service introductions by competitors, unanticipated changes in general market conditions, effects of the COVID-19 pandemic and the weakening of economic conditions or consumer confidence in future economic conditions. If we fail to accurately forecast customer demand, we may experience excess inventory levels or a shortage of products available for sale. Conversely, if we underestimate customer demand for our products and services, we may not be able to deliver products to meet requirements, and this could result in damage to our brand and customer relationships and adversely affect our revenue and operating results.
Interruptions of, or higher prices of, components from our suppliers may affect our results of operations and financial performance.
A portion of our revenues are dependent on the distribution of products supplied by various key suppliers. If we fail to maintain satisfactory relationships with our suppliers, or if our suppliers experience significant financial difficulties, we could experience difficulty in obtaining needed goods and services. Some suppliers could also decide to reduce inventories or raise prices to increase cash flow. The loss of any one or more of our suppliers could have an adverse effect on our business, and we may be unable to secure alternative manufacturing arrangements. Even if we are able to obtain alternative manufacturing arrangements, such arrangements may not be on terms similar to our current arrangements, or we may be forced to accept less favorable terms in order to secure a supplier as quickly as possible so as to minimize the impact on our business operations. In addition, any required changes in our suppliers could cause delays in our operations and increase our production costs and new suppliers may not be able to meet our production demands as to volume, quality or timeliness.
Changes in general economic conditions, geopolitical conditions, domestic and foreign trade policies, monetary policies and other factors beyond our control may adversely impact our business and operating results.
Our operations and performance may depend on global, regional, economic and geopolitical conditions. Russia’s invasion and military attacks on Ukraine have triggered significant sanctions from North American and European leaders. These events are currently escalating and creating increasingly volatile global economic conditions. Resulting changes in North American trade policy could trigger retaliatory actions by Russia, its allies and other affected countries, including China, resulting in a “trade war.” A trade war could result in increased costs for raw materials that we use in our manufacturing and could otherwise limit our ability to sell our products abroad. These increased costs would have a negative effect on our financial condition and profitability. Furthermore, the military conflict between Russia and Ukraine may increase the likelihood of supply interruptions and further hinder our ability to find the materials we need to make our products. If the conflict between Russia and Ukraine continues for a long period of time, or if other countries become further involved in the conflict, we could face significant adverse effects to our business and financial condition.
Environmental, social and governance matters may impact our business and reputation.
Increasingly, in addition to the importance of their financial performance, companies are being judged by their performance on a variety of environmental, social and governance (“ESG”) matters, which are considered to contribute to the long-term sustainability of companies’ performance.
A variety of organizations measure the performance of companies on ESG topics, and the results of these assessments are widely publicized. In addition, investment in funds that specialize in companies that perform well in such assessments are increasingly popular, and major institutional investors have publicly emphasized the importance of ESG measures to their investment decisions. Topics taken into account in such assessments include, among others, companies’ efforts and impacts on climate change and human rights, ethics and compliance with law, diversity and the role of companies’ board of directors in supervising various sustainability issues.
ESG goals and values are embedded in our core mission and vision, and we consider their potential impact on the sustainability of our business over time and the potential impact of our business on society. However, in light of investors’ increased focus on ESG matters, there can be no certainty that we will manage such issues successfully, or that we will successfully meet society’s expectations as to our proper role. This could lead to risk of litigation or reputational damage relating to our ESG policies or performance.
Further, possible actions to address ESG issues may not maximize short-term financial results and may yield financial results that conflict with the market’s expectations. We have and may in the future make business decisions that may reduce our short-term financial results if we believe that the decisions are consistent with our ESG goals, which we believe will improve our financial results over the long-term. These decisions may not be consistent with the short-term expectations of our stockholders and may not produce the long-term benefits that we expect, in which case our business, financial condition, and operating results could be harmed.
The markets for our products and services are highly competitive and if market share is lost, we may be unable to lower our cost structure quickly enough to offset the loss of revenue.
The domestic and international markets for our product lines are highly competitive, evolving and subject to rapid technological and other changes. We expect the intensity of competition in each of these areas to continue in the future for a number of reasons including:
● Certain of our competitors in the digital equipment industry have longer operating histories and greater financial, technical, marketing and other resources than we do, which, among other things, may permit them to adopt aggressive pricing policies. As a result, we may suffer from pricing pressures that could adversely affect our ability to generate revenues and our results of operations. Some of our competitors also have greater name and brand recognition and a larger customer base than us.
● Some of our competitors are manufacturing their own digital equipment while we employ a distribution business model through our distribution agreements with NEC Display Solutions of America, Inc. (“NEC”), Barco, Inc. (“Barco”) and certain other suppliers. As a result, we may suffer from pricing pressures that could adversely affect our ability to generate revenues.
● Suppliers could decide to utilize their current sales force to supply their products directly to customers rather than utilizing channels.
In addition, we face competition for consumer attention from other forms of entertainment, including streaming services and other forms of entertainment that may impact the cinema industry. The other forms of entertainment may be more attractive to consumers than those utilizing our technologies, which could harm our business, prospects and operating results.
For these and other reasons, we must continue to enhance our technologies and our existing products and services, and introduce new, high-quality technologies and products and services to meet the wide variety of competitive pressures that we face. If we are unable to compete successfully, our business, prospects and results of operations will be materially adversely impacted.
We depend in part on distributors, dealers and resellers to sell and market our products and services, and our failure to maintain and further develop our sales channels could harm our business.
In addition to our in-house sales force, we sell some of our products and services through distributors, dealers and resellers. As we do not have long-term contracts and these agreements may be cancelled at any time, any changes to our current mix of distributors could adversely affect our gross margin and could negatively affect both our brand image and our reputation. If our distributors, dealers and resellers are not successful in selling our products, our revenue would decrease. Specifically, the shutdowns of local and state economies as a result of the COVID-19 pandemic has and may continue in the future to adversely affect the operations of our dealers and resellers. In addition, our success in expanding and entering into new markets internationally will depend on our ability to establish relationships with new distributors. If we do not maintain our relationship with existing distributors or develop relationships with new distributors, dealers and resellers our ability to grow our business and sell our products and services could be adversely affected and our business may be harmed.
Our capital allocation strategy may not be successful, which could adversely impact our financial condition.
We intend to continue investing part of our cash balances in public and private companies and may engage in mergers, acquisitions and divestitures. We intend our holdings in public companies to be made in circumstances where we believe that we will be able to exercise some degree of influence or control. We may also continue to invest in private companies or other areas, including acquisitions of businesses. Currently, our holdings are highly concentrated in two public companies, FGF and GreenFirst, and one private company, Firefly. In some cases, funds controlled by our affiliate Fundamental Global have, and may in the future, acquire positions in the same public companies as us. These types of holdings are riskier than holding our cash balances as bank deposits or, for example, conservative options such as treasury bonds or money market funds. There can be no assurance that we will be able to maintain or enhance the value or the performance of the companies in which we have invested or may invest in the future, or that we will achieve returns or benefits from these holdings. Under certain circumstances, significant declines in the fair values of these holdings may require the recognition of other-than-temporary impairment losses. We may lose all or part of our holding relating to such companies if their value decreases as a result of their financial performance or for any other reason. If our interests differ from those of other investors in companies over which we do not have control, we may be unable to effect any change at those companies. We are not required to meet any diversification standards, and our holdings may continue to remain concentrated. In addition, we may seek to sell some or all of our existing businesses as part of our holding company strategy.
If our capital allocation strategy is not successful or we achieve less than expected returns from these holdings, it could have a material adverse effect on us. The Board of Directors may also change our capital allocation strategy at any time, and such changes could further increase our exposure, which could adversely impact us.
If we are unable to maintain our brand and reputation, our business, results of operations and prospects could be materially harmed.
Our business, results of operations and prospects depend, in part, on maintaining and strengthening our brand and reputation for providing high quality products and services. Reputational value is based in large part on perceptions. Although reputations may take decades to build, any negative incidents can quickly erode trust and confidence, particularly if they result in adverse publicity, governmental investigations or litigation. If problems with our products cause operational disruption or other difficulties, or there are delays or other issues with the delivery of our products or services, our brand and reputation could be diminished. Damage to our reputation could also arise from actual or perceived legal violations, product safety issues, data security breaches, actual or perceived poor employee relations, actual or perceived poor service, actual or perceived poor privacy practices, operational or sustainability issues, actual or perceived ethical issues or other events within or outside of our control that generate negative publicity with respect to us. Any event that has the potential to negatively impact our reputation could lead to lost sales, loss of new opportunities and retention and recruiting difficulties. If we fail to promote and maintain our brand and reputation successfully, our business, results of operations and prospects could be materially harmed.
Our operating margins may decline as a result of increasing product costs.
Our business is subject to pressure on pricing and costs caused by many factors, including supply chain disruption, intense competition, the cost of components used in our products, labor costs, constrained sourcing capacity, inflationary pressure, pressure from customers to reduce the prices we charge for our products and services, and changes in consumer demand. While inflation has been relatively low in recent years, it began to increase in the second half of 2021. Factors including global supply chain disruptions have resulted in shortages in labor, materials and services. Such shortages have resulted in cost increases, particularly for labor, and could continue to increase. Costs for the raw materials used to manufacture our products are affected by, among other things, energy prices, demand, fluctuations in commodity prices and currency, shipping costs and other factors that are generally unpredictable and beyond our control such as the escalating military conflict between Russia and Ukraine. Increases in the cost of raw materials used to manufacture our products or in the cost of labor and other costs of doing business internationally could have an adverse effect on, among other things, the cost of our products, gross margins, operating results, financial condition, and cash flows.
Our sales cycle can be long and timing of orders and shipments unpredictable, particularly with respect to large enterprises, which could harm our business and operating results.
The timing of our sales is difficult to predict, and customers typically order screen and other distribution products with limited advance notice which impacts our ability to forecast revenue and manage operations. For our managed service offerings, the sales cycle can be long and involve educating and achieving buy-in from multiple parts of a customer organization. As a result, the length and variable nature of customer ordering patterns and timing could materially adversely impact our business and results of operations.
We are substantially dependent upon significant customers who could cease purchasing our products at any time.
Our top ten customers accounted for 38% of 2021 net consolidated revenues. Trade accounts receivable from these customers represented 29% of net consolidated receivables at December 31, 2021. Most arrangements with these customers are made by purchase order and are terminable at will by either party. A significant decrease or interruption in business from our significant customers could have a material adverse effect on our business, financial condition and results of operations.
Government agencies in Canada have notified Strong/MDI that certain modifications are required to be made to the Joliette Plant in order to meet safety and emissions standards.
Strong/MDI has been informed by certain government agencies in Canada, including but not limited to, the Joliette Fire Department, and the Quebec Ministry of the Environment, that certain aspects of the Joliette Plant must be modified to fully comply with safety and emissions standards. Strong/MDI has implemented changes to address some, but not all, of the identified requirements.
The required modifications include installing new air evaluator and exhaust chimneys as well as modifying the walls and doors in the paint and coatings area to achieve a 2-hour fire resistance standard. In addition, it was required that we modify certain mezzanine areas to reduce their size and upgrade construction to non-combustible materials, add an additional exterior access, and purchase spill resistant pallets. We estimate that if we were to proceed with implementing the remaining identified requirements, the cost would be approximately CAD$0.3 million to CAD$0.5 million (approximately USD$0.2 million to USD$0.4 million) if undertaken on their own and not as part of a broader plant improvement initiative. Our intention is to address the remaining requirements as one component of an expansion and reorganization of the certain areas of the Joliette Plant. We believe the project would improve production flow in the plant, accommodate growth of the Eclipse product line in addition to addressing the requirements. We estimate that the cost of an expansion and reorganization of the Joliette Plant, which includes the estimated costs to remedy the remaining required modifications, would be approximately CAD$1.0 million to CAD$1.5 million (approximately USD$0.8 million to USD$1.2 million), depending on the final scope of the expansion as well as fluctuations in construction materials and other costs. If we fail to address the requirements, it could be possible that we could incur penalties or production could be interrupted. The expansion could cost more or take longer than our expectations and could result in production disruptions in the facility during the construction process.
Our business is subject to the economic and political risks of selling products in foreign countries.
Sales outside the United States accounted for approximately 17% of consolidated revenues during 2021. We expect that international sales will continue to be important to our business for the foreseeable future. Foreign sales are subject to general political and economic risks, including the adverse impact of changes to international trade and tariff policies, including in the U.S. and China, which have created uncertainty regarding international trade, unanticipated or unfavorable circumstances arising from host country laws or regulations, unfavorable changes in U.S. policies on international trade and investment, the imposition of governmental economic sanctions on countries in which we do business, quotas, capital controls or other trade barriers, whether adopted by individual governments or addressed by regional trade blocks, threats of war, terrorism or governmental instability, currency controls, fluctuating exchange rates with respect to sales not denominated in U.S. dollars, changes in import/export regulations, tariffs and freight rates, potential negative consequences from changes to taxation policies, restrictions on the transfer of funds into or out of a country and the disruption of operations from labor, political and other disturbances, such as the impact of the coronavirus and other public health epidemics or pandemics. Government policies on international trade and investment can affect the demand for our products, impact the competitive position of our products or prevent us from being able to sell or manufacture products in certain countries. The implementation of more restrictive trade policies, such as higher tariffs or new barriers to entry, in countries in which we sell large quantities of products and services could negatively impact our business, financial condition and results of operations. For example, a government’s adoption of “buy national” policies or retaliation by another government against such policies could have a negative impact on our results of operations. If we were unable to navigate the foreign regulatory environment, or if we were unable to enforce our contract rights in foreign countries, our business could be adversely impacted. Any of these events could reduce our sales, limit the prices at which we can sell our products, interrupt our supply chain or otherwise have an adverse effect on our operating performance.
In addition, a portion of our foreign sales are denominated in foreign currencies and amounted to approximately USD$1.5 million in 2021. To the extent that orders are denominated in foreign currencies, our reported sales and earnings are subject to foreign exchange fluctuations. In addition, there can be no assurance that our remaining international customers will continue to accept orders denominated in U.S. dollars. For those sales which are denominated in U.S. dollars, a weakening in the value of foreign currencies relative to the U.S. dollar could have a material adverse impact on us by increasing the effective price of our products in international markets. Certain areas of the world are also more cost conscious than the U.S. market and there are instances where our products are priced higher than local manufacturers. We are also exposed to foreign currency fluctuations between the Canadian and U.S. dollar due to our screen manufacturing facility in Canada where a majority of its sales are denominated in the U.S. dollar while its expenses are denominated in Canadian currency. We cannot predict the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposures and the potential volatility of currency exchange rates.
Any of these factors could adversely affect our foreign activities and our business, financial condition and results of operations.
The risk of non-compliance with U.S. and foreign laws and regulations applicable to our international operations could have a significant impact on our financial condition, results of operations and strategic objectives.
Our global operations subject us to regulation by U.S. federal and state laws and multiple foreign laws, regulations and policies, which could result in conflicting legal requirements. These laws and regulations are complex, change frequently, have tended to become more stringent over time and increase our cost of doing business. These laws and regulations include import and export control, environmental, health and safety regulations, data privacy requirements, international labor laws and work councils and anti-corruption and bribery laws such as the U.S. Foreign Corrupt Practices Act, the U.N. Convention Against Bribery and local laws prohibiting corrupt payments to government officials. We are subject to the risk that we, our employees, our affiliated entities, contractors, agents or their respective officers, directors, employees and agents may take action determined to be in violation of any of these laws. An actual or alleged violation could result in substantial fines, sanctions, civil or criminal penalties, debarment from government contracts, curtailment of operations in certain jurisdictions, competitive or reputational harm, litigation or regulatory action and other consequences that might adversely affect our financial condition, results of operations and strategic objectives.
In addition, we are subject to Canadian and foreign anti-corruption laws and regulations such as the Canadian Corruption of Foreign Public Officials Act. In general, these laws prohibit a company and its employees and intermediaries from bribing or making other prohibited payments to foreign officials or other persons to obtain or retain business or gain some other business advantage. We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing laws might be administered or interpreted. Failure by us or our predecessors to comply with the applicable legislation and other similar foreign laws could expose us and our senior management to civil and/or criminal penalties, other sanctions and remedial measures, legal expenses and reputational damage, all of which could materially and adversely affect our business, financial condition and results of operations. Likewise, any investigation of any alleged violations of the applicable anti-corruption legislation by Canadian or foreign authorities could also have an adverse impact on our business, financial condition and results of operations.
A reversal of the U.S. economic recovery and a return to volatile or recessionary conditions in the United States or abroad could adversely affect our business or our access to capital markets in a material manner.
Worsening economic and market conditions, downside shocks, or a return to recessionary economic conditions could serve to reduce demand for our products and adversely affect our operating results. These economic conditions may also impact the financial condition of one or more of our key suppliers, which could affect our ability to secure product to meet our customers’ demand. In addition, a downturn in the cinema market could impact the valuation and collectability of certain receivables held by us. Our results of operations and the implementation of our business strategy could be adversely affected by general conditions in the global economy, including conditions that are outside of our control, such as the impact of health and safety concerns from the current outbreak of COVID-19 and variants thereof. The most recent global financial crisis caused by the coronavirus resulted in extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn could result in a variety of risks to our business and could have a material adverse effect on us. We could also be adversely affected by such factors as changes in foreign currency rates and weak economic and political conditions in each of the countries in which we sell our products.
We rely extensively on our information technology systems and are vulnerable to damage and interruption.
We rely on our information technology systems and infrastructure to process transactions, summarize results and manage our business, including maintaining client and supplier information. Additionally, we utilize third parties, including cloud providers, to store, transfer and process data. From time to time, we experience cyber-attacks on our information technology systems. Our information technology systems, as well as the systems of our customers, suppliers and other partners, whose systems we do not control, are vulnerable to outages and an increasing risk of continually evolving deliberate intrusions to gain access to company sensitive information. Likewise, data security incidents and breaches by employees and others with or without permitted access to our systems pose a risk that sensitive data may be exposed to unauthorized persons or to the public. A cyber-attack or other significant disruption involving our information technology systems, or those of our customers, suppliers and other partners, could also result in disruptions in critical systems, corruption or loss of data and theft of data, funds or intellectual property. We may be unable to prevent outages or security breaches in our systems. We remain potentially vulnerable to additional known or yet unknown threats as, in some instances, we, our suppliers and our other partners may be unaware of an incident or its magnitude and effects. We also face the risk that we expose our customers or partners to cybersecurity attacks. Any or all of the foregoing could adversely affect our results of operations and cash flows, as well as our business reputation.
Any failure to maintain the security of information relating to our customers, employees and suppliers, whether as a result of cybersecurity attacks or otherwise, could expose us to litigation, government enforcement actions and costly response measures, and could disrupt our operations and adversely affect our business and reputation.
In connection with the sales and marketing of our products and services, we may from time to time transmit confidential information. We also have access to, collect or maintain private or confidential information regarding our customers, employees, and suppliers, as well as our business. We face risks associated with security breaches, whether through cyber-attacks or cyber intrusions over the internet, malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization, and other significant disruptions of our information technology networks and related systems. These risks include operational interruption, private data exposure and damage to our relationship with our customers, among others. Cyber-attacks are rapidly evolving and becoming increasingly sophisticated. It is possible that computer hackers and others might compromise our security measures, or security measures of those parties that we do business with now or in the future, and obtain the personal information of our customers, employees and suppliers or our business information. A security breach of any kind, including physical or electronic break- ins, computer viruses and attacks by hackers, employees or others, could expose us to risks of data loss, litigation, government enforcement actions, regulatory penalties and costly response measures, and could seriously disrupt our operations. Any resulting negative publicity could significantly harm our reputation, which could cause us to lose market share and have an adverse effect on our results of operations.
If we fail to retain key members of management, or successfully integrate new executives, our business may be materially harmed.
Our future success depends, in substantial part, on the efforts and abilities of our current management team. If certain of these individuals were to leave unexpectedly, we could experience substantial loss of institutional knowledge, face difficulty in hiring qualified successors and could experience a loss in productivity while any successor obtains the necessary training and experience. Our loss of services of any of our senior executives, or any failure to effectively integrate new management into our business processes, controls, systems and culture, could have a material adverse effect on us.
There are risks associated with the completion of the planned separation and initial public offering of shares of common stock of our Strong Entertainment operating business.
We plan to conduct an initial public offering of our Strong Entertainment operating business after which the Entertainment business will operate independently as a publicly listed company. There is no assurance we will be able to successfully complete the separation and initial public offering. In the event the Company does not complete the separation and offering, it could incur write-offs related to the legal, tax and regulatory costs of the transaction.
In addition, if the separation and initial public offering is successful, the Entertainment business will then operate as an independent company. Although Ballantyne Strong will be a large shareholder and have the ability to influence operating decisions, it will no longer directly control all day to day decision making or have direct access to the operating cash flows of that business following the separation.
Any potential future acquisitions, strategic investments, entry into new lines of business, divestitures, mergers or joint ventures may subject us to significant risks, any of which could harm our business.
Our long-term strategy may include identifying and acquiring, investing in or merging with suitable candidates on acceptable terms, entry into new lines of business and markets or divesting of certain business lines or activities. In particular, over time, we may acquire, make investments in or merge with providers of product offerings that complement our business or may terminate such activities. Mergers, acquisitions, divestitures and entries into new lines of business include a number of risks and present financial, managerial and operational challenges, including but not limited to:
● diversion of management attention from running our existing business;
● possible material weaknesses in internal control over financial reporting;
● increased expenses including legal, administrative and compensation expenses related to newly hired or terminated employees;
● increased costs to integrate, develop or, in the case of a divestiture, separate the technology, personnel, customer base and business practices of the acquired, new or divested business or assets;
● potential exposure to material liabilities not discovered in the due diligence process;
● potential adverse effects on reported results of operations due to possible write-down of goodwill and other intangible assets associated with acquisitions;
● potential damage to customer relationships or loss of synergies in the case of divestitures; and
● unavailability of acquisition financing or inability to obtain such financing on reasonable terms.
Any acquired business, technology, service or product, or entry into a new line of business could significantly under-perform relative to our expectations, and may not achieve the benefits we expect. For all these reasons, our pursuit of an acquisition, investment, new line of business, divestiture, merger or joint venture could cause our actual results to differ materially from those anticipated.
Failure to effectively utilize or successfully assert intellectual property rights could negatively impact us.
We own or otherwise have rights to various trademarks and trade names used in conjunction with the sale of our products, the most significant of which is Strong®. We rely on trademark laws to protect these intellectual property rights. We cannot assure that these intellectual property rights will be effectively utilized or, if necessary, successfully asserted. There is a risk that we will not be able to obtain and perfect our own intellectual property rights, or, where appropriate, license from others, intellectual property rights necessary to support new product introductions. Our intellectual property rights, and any additional rights we may obtain in the future, may be invalidated, circumvented or challenged in the future. Our failure to perfect or successfully assert intellectual property rights could harm our competitive position and could negatively impact us.
Natural disasters and other catastrophic events beyond our control could adversely affect our business operations and financial performance.
The occurrence of one or more natural disasters, such as fires, hurricanes, tornados, tsunamis, floods and earthquakes; geo-political events, such as civil unrest in a country in which our suppliers are located or terrorist or military activities disrupting transportation, communication or utility systems; or other highly disruptive events, such as nuclear accidents, public health epidemics or pandemics, such as the ongoing COVID-19 pandemic, the impact of which is uncertain and which, if it persists for an extended period of time, could disrupt our global supply chain and result in significant expenses or delays outside of our control, unusual weather conditions or cyber-attacks, could adversely affect our operations and financial performance. For example, the COVID-19 pandemic has impacted and could further impact our operations, customers and suppliers as a result of quarantines, facility closures, and travel and logistics restrictions. The extent to which COVID-19 impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted at this time, and include the duration, severity and scope of the outbreak and the actions taken to contain or treat the coronavirus outbreak. In addition, temporary cinema closures in domestic and foreign markets and delays to movie release schedules may potentially negatively impact our customers’ operations and timing of orders. Further, adverse events such as health-related concerns about working in our offices, the inability to travel and other matters affecting the general work environment could harm our business. In the event of a major disruption caused by the outbreak of epidemics or pandemic diseases such as coronavirus, we may lose the services of our employees or experience system interruptions, which could lead to diminishment of our business operations. Such events could result, among other things, in operational disruptions, physical damage to or destruction or disruption of one or more of our properties or properties used by third parties in connection with the supply of products or services to us, the lack of an adequate workforce in parts or all of our operations and communications and transportation disruptions. We cannot anticipate all the ways in which the current global health crisis and financial market conditions could adversely impact our business. These factors could also cause consumer confidence and spending to decrease or result in increased volatility in the United States and global financial markets and economy. Such occurrences could have a material adverse effect on us and could also have indirect consequences such as increases in the costs of insurance if they result in significant loss of property or other insurable damage.
The insurance that we maintain may not fully cover all potential exposures.
We maintain property, business interruption and casualty insurance but such insurance may not cover all risks associated with the hazards of our business and is subject to limitations, including deductibles and maximum liabilities covered. We are potentially at risk if one or more of our insurance carriers fail. Additionally, severe disruptions in the domestic and global financial markets could adversely impact the ratings and survival of some insurers. In the future, we may not be able to obtain coverage at current levels, and our premiums may increase significantly on coverage that we maintain.
Fundamental Global, with its affiliates, is our largest shareholder, and its interests may differ from the interests of our other stockholders.
The interests of Fundamental Global may differ from the interests of our other stockholders. Fundamental Global and its affiliates hold approximately 30.3% of our outstanding shares of common stock as of March 15, 2022. Mr. Cerminara, the Chief Executive Officer, Co-Founder and Partner of Fundamental Global, serves as our Chairman of our Board of Directors. As a result of its ownership position and Mr. Cerminara’s position with the Company, Fundamental Global could exert influence over matters submitted to stockholder approval, including the election of our directors, and other corporate actions such as amendments to our certificate of incorporation, bylaws, significant stock issuances, mergers and asset sales, and over our business, operations, and management, including the strategic plans for the business. Fundamental Global may have interests that differ from those of our other stockholders and may vote in a way with which our other stockholders disagree and which may be adverse to their interests. Fundamental Global’s ownership position may also have the effect of delaying, preventing or deterring a change of control of the Company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of the Company and might ultimately affect the market price of our common stock.
We are entering a new line of business which could require additional capital.
The production, acquisition and distribution of feature films and series content requires substantial capital. We intend to mitigate risks by pre-selling rights to content and utilizing tax credit incentives in most cases to offset production costs. However, a significant amount of time may elapse between our expenditure of funds and the receipt of revenues after release or distribution of such content. Although we intend to reduce the risks of production exposure through pre-sale of rights, tax credit programs, government and industry programs, co-financiers and other sources, we cannot assure you that we will successfully implement these arrangements or that we will not be subject to substantial financial risks relating to the production, acquisition and distribution of content. Additionally, the production, completion and distribution of motion picture and television content can be subject to a number of uncertainties, including delays and increased expenditures due to disruptions or events beyond our control. As a result, if production incurs substantial budget overruns, we may have to seek additional financing or fund the overrun ourselves. We cannot make assurances regarding the availability of such additional financing on terms acceptable to us, or that we will recoup these costs. For instance, increased costs or budget overruns incurred with respect to a particular film may prevent a picture from being completed or released or may result in a delayed release and the postponement to a potentially less favorable date, all of which could cause a decline in performance, and, thus, the overall financial success of such film. Any of the foregoing could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.
We may incur significant write-offs if our projects do not perform well enough to recoup costs.
We will be required to amortize capitalized content production costs over the expected revenue streams as we recognize revenue from films or other projects. The amount of production costs that will be amortized each quarter depends on, among other things, how much future revenue we expect to receive from each project. Unamortized production costs will be evaluated for impairment each reporting period on a project-by-project basis. If estimated remaining revenue is not sufficient to recover the unamortized production costs, including because of delayed theatrical distribution of films as a result of the COVID-19 global pandemic and its effects, those costs would be written down to fair value. In any given quarter, if we lower our previous forecast with respect to total anticipated revenue from any film or other project, we may be required to accelerate amortization or record impairment charges with respect to the unamortized costs, even if we previously recorded impairment charges for such film or other project. Such impairment charges could adversely impact our business, operating results and financial condition.
Our revenues and results of operations may fluctuate significantly from period to period.
Our revenues and results of operations can vary based on the timing of shipments of our cinema products particularly with regard to the timing of cinema screen shipments and timing of customer orders and shipments of projection equipment. With the launch of Strong Studios, those fluctuations could increase on a quarter-to-quarter basis as timing of revenue and amortization of production costs will depend on timing delivery of content, among other factors. The degree of commercial success of content that we sell, license or distribute, which cannot be predicted with certainty may cause our revenue and earnings results to fluctuate significantly from period to period, and the results of any one period may not be indicative of the results for any future periods.
The price of our common stock may fluctuate significantly, and this may make it difficult for you to resell shares of common stock.
The trading price of our common stock has been highly volatile in the past and could be subject to significant fluctuations in response to variations in quarterly operating results, general conditions in the industries in which we operate and other factors, including the risk factors described in this section. In addition, the stock market is subject to price and volume fluctuations affecting the market price for the stock of many companies generally, which fluctuations often are unrelated to operating performance. These market fluctuations may adversely affect the market price of our common stock, making it difficult for you to resell shares of common stock owned by you at times or prices you find attractive.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
Not applicable.

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ITEM 2. PROPERTIES
Item 2. Properties
Our corporate offices are located at 4201 Congress Street, Suite 175, Charlotte, North Carolina, 28209. Our current corporate office lease expires in June 2022. We have entered into a new two-year lease to move our corporate offices to 5960 Fairview Road, Suite 250, Charlotte, North Carolina, 28210. The new corporate office lease will be effective on the date we take possession of the office space, which we expect to occur prior to the expiration of our current corporate office lease.
In addition, we owned or leased the following facilities as of the date hereof:
● Strong/MDI, one of our subsidiaries, owns an approximate 80,000 square-foot manufacturing plant in Joliette, Quebec, Canada. The facility is used for offices, manufacturing, assembly and distribution of cinema and other screens. We believe this facility is adequate for future needs and are evaluating capital expenditures to expand and improve the facility in 2022.
● STS leases a combined office and warehouse facility in Omaha, Nebraska, which is primarily used for the storage and distribution of third-party products. The lease for this facility expires in February 2027.
● We operate our Digital Ignition technology incubator and co-working facility in a 43,000 square-foot office facility in Alpharetta, Georgia. We leased this facility until February 2022, at which time we entered into an agreement to purchase the real estate and now own the land and building.
We believe these facilities are adequate for future needs. In addition, we do not anticipate any difficulty in retaining occupancy of any leased facilities, either by renewing leases prior to expiration or replacing them with equivalent leased facilities or purchasing these or other facilities in the future.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
In the ordinary course of our business operations, we are involved, from time to time, in certain legal disputes. We and certain of our subsidiaries are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. A majority of the cases involve product liability claims based principally on allegations of past distribution of commercial lighting products containing wiring that may have contained asbestos. Each case names dozens of corporate defendants in addition to us. In our experience, a large percentage of these types of claims have never been substantiated and have been dismissed by the courts. We have not suffered any adverse verdict in a trial court proceeding related to asbestos claims and intends to continue to defend these lawsuits. During 2021, we recorded a loss contingency reserve of approximately $0.3 million, which represents our estimate of our potential losses related to the settlement of open cases. When appropriate, we may settle certain claims. We do not expect the resolution of these cases to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Holders
Our common stock is listed and traded on the NYSE American under the symbol “BTN.”
According to the records of our transfer agent, we had 108 stockholders of record of our common stock on March 15, 2022. Because brokers and other institutions hold many of our shares on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
Stock and Warrant Issuances
Public Offering
On February 3, 2021, we entered into an underwriting agreement (the “Underwriting Agreement”) in connection with a public offering (the “Offering”) pursuant to which we agreed to issue and sell approximately 3.3 million shares of our common stock, at a public offering price of $2.30 per share. The Offering closed on February 8, 2021. The net proceeds from the Offering were approximately $6.7 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
Pursuant to the Underwriting Agreement, we also issued warrants to purchase up to approximately 0.2 million shares of our common stock. The warrants are exercisable at any time, in whole or in part, from August 2, 2021 until February 3, 2026 at a price per share of $2.875. The warrants also provide for one “piggyback” registration right with respect to the registration of the shares of common stock underlying the warrants and customary anti-dilution provisions. The piggyback registration rights last 4.5 years from the initial exercise date of August 2, 2021.
Purchase of Digital Ignition Building
On January 28, 2022, we, through our wholly owned subsidiary, Digital Ignition, LLC, and Metrolina Alpharetta, LLC (“Metrolina”) entered into an agreement pursuant to which we purchased a parcel of land with buildings and improvements in Alpharetta, GA. We previously leased the building and use it for our Digital Ignition technology incubator and co-working facility. The purchase price consisted of (i) $5.8 million, (ii) approximately 0.8 million shares of our common stock (the “Stock Grant”), and (iii) a warrant to purchase an additional 0.1 million shares of our common stock (the “Stock Warrant”).
The Stock Grant was made to Metrolina Capital Investors, LLC, (“Metrolina Capital”) and consisted of approximately 0.8 million shares of our common stock with a value equal to approximately $2.3 million. The number of shares of our stock was determined based upon a price per share equal to the average of the closing price of our on the NYSE American exchange for the 60 most recent trading days prior to February 1, 2022, rounded up to the nearest whole number of shares. Additionally, we issued the Stock Warrant to Metrolina Capital, consisting of a ten-year warrant to purchase up to 0.1 million shares of our common stock at an exercise price per share of $3.00. In connection with the issuance of Stock Warrant, we and Metrolina agreed that other warrants previously granted by us to Metrolina were cancelled and terminated.
Stock Repurchases
On August 20, 2015, we announced that our Board of Directors adopted a stock repurchase program authorizing the repurchase of up to 700,000 shares of our outstanding common stock pursuant to a plan adopted under Rule 10b5-1 of the Exchange Act. The program has no expiration date. The following table provides information about purchases made by us of our common stock for each month included in the fourth quarter of 2021:
Period Total Number of
Shares
Purchased Average Price
Paid Per Share Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs The Maximum
Number of Shares
That May Still be
Purchased Under the
Plans or Programs
October 2021 - $ - - 636,931
November 2021 - - - 636,931
December 2021 - - - 636,931
Quarter Ended December 31, 2021 - $ - $ - 636,931
Dividend Policy
We intend to retain our earnings to assist in financing our business and purchasing equity stakes in other companies and do not anticipate paying cash dividends on our common stock in the foreseeable future. The declaration and payment of dividends by the Company are also subject to the discretion of the Board of Directors. Any determination by the Board of Directors as to the payment of dividends in the future will depend upon, among other things, business conditions, our financial condition and capital requirements, as well as any other factors deemed relevant by the Board. We have not paid cash dividends since we went public in 1995.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Reserved

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. Management’s discussion and analysis contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not historical are forward-looking and reflect expectations for future Company performance. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
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. Given the risks and uncertainties, readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results which may not occur as anticipated. Many of the risks listed above have been, and may be further be, exacerbated by the COVID-19 pandemic, its impact on the cinema and entertainment industry, and the worsening economic environment. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described herein, as well as others not now anticipated. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except where required by law, the Company assumes no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.
Continuing Operations
Our Strong Entertainment segment includes one of the largest manufacturers of premium projection screens and customized screen support systems, and we also distribute other products and provide technical support services to the cinema, amusement park and other markets. We are focused on improving the operating performance as the United States and other countries recover from COVID-19 related business disruptions. We plan to manage the Strong Entertainment business segment to grow market share and organic revenue and improve operating results, with the intent of expanding the ultimate valuation of the business. We intend to separate our Strong Entertainment operating business from the Company and pursue an initial public offering to support the growth plans for that line of business.
In connection with the sale of our Strong Outdoor operating business to Firefly in August 2020, we entered into a Master Services Agreement and agreed to provide certain support services to Firefly. In addition, we use our facility in Alpharetta, Georgia for our Digital Ignition technology incubator and co-working facility. Results of those operations are included within “Other” in our results of operations.
We also continue to evaluate capital allocation opportunities to invest in other public or private companies or acquire other businesses, which may be within or outside of the Company’s existing markets. During 2021, we completed the divestiture of our Convergent digital signage business and allocated additional capital to increase our positions in GreenFirst and FGF. In February 2022, we also completed the acquisition of the land and building housing our Digital Ignition incubator and co-working business.
Discontinued Operations
Convergent Transaction in February 2021
As part of a transaction that closed on February 1, 2021, we divested our Convergent business segment. The purchase price was (i) $15.0 million in cash and (ii) $2.5 million in the form of a subordinated promissory note. Additionally, a portion of the Purchase Price was placed in escrow and a portion of the purchase price was subject to a working capital adjustment. As further consideration, the buyer also assumed approximately $5.7 million of debt, bringing the total enterprise value for Convergent sale to approximately $23.2 million. We recorded a gain of approximately $14.8 million during 2021 related to the sale of Convergent.
Firefly Transaction in August 2020
On August 3, 2020, we sold certain assets of the Strong Outdoor operating business to Firefly, and we continue to make available 300 digital taxi tops to Firefly. Strong Digital Media, LLC (“SDM”), an indirect subsidiary of Ballantyne Strong, retained certain accounts receivable as well as liabilities other than executory obligations under transferred contracts to the extent such liabilities are required to be performed following closing or constitute certain deferred revenue. The transaction closed on the same day.
As a result of these divestitures, we have presented Convergent’s and Strong Outdoor’s operating results as discontinued operations for all periods presented. Note 3 contains additional information regarding these transactions.
Impact of COVID-19 Pandemic
In December 2019, a novel coronavirus disease was initially reported, and in March 2020, the World Health Organization characterized COVID-19 as a pandemic. COVID-19 has had a widespread and detrimental effect on the global economy as a result of the continued increase in the number of cases, particularly in the United States, and actions by public health and governmental authorities, businesses, other organizations and individuals to address the outbreak, including travel bans and restrictions, quarantines, shelter in place, stay at home or total lock-down orders and business limitations and shutdowns. The ultimate impact of the COVID-19 pandemic on our business and results of operations remains unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the COVID-19 pandemic, including repeat or cyclical outbreaks, and any additional preventative and protective actions that governments, or we or our customers, may direct, which may result in an extended period of continued business disruption and reduced operations. For instance, some areas of the United States are experiencing new surges in COVID-19 cases, which has, in some cases, led to the closure of recently re-opened businesses and further postponed opening other businesses, including movie theaters. Any resulting financial impact cannot be reasonably estimated at this time, but we expect it will continue to have a material impact on our business, financial condition and results of operations.
The repercussions of the COVID-19 global pandemic resulted in a significant impact to our customers, specifically those in the entertainment and advertising industries, and their ability and willingness to spend on our products and services, which continues to negatively impact us. A significant number of our customers temporarily ceased operations during the pandemic, some of which continue to be suspended; as such, we have experienced, and anticipate that we will continue to experience at least until our customers have resumed normal operations, a significant decline in our results of operations. For instance, during this time, many movie theaters and other entertainment centers were forced to close or curtail their hours and, correspondingly, have terminated or deferred their non-essential capital expenditures. While some movie theaters and chains have begun to re-open, or announced plans to re-open in the near future, theater operators may continue to experience reduced revenues for an extended period due to, among other things, consumer concerns over safety and social distancing, depressed consumer sentiment due to adverse economic conditions, including job losses, capacity restrictions, and postponed release dates, shortened “release windows” between the release of motion pictures in theaters and an alternative delivery method, or the release of motion pictures directly to alternative delivery methods, bypassing the theater entirely, for certain movies, and continued COVID-19 outbreaks could cause these theaters to suspend operations again. The COVID-19 pandemic has also adversely affected film production and may adversely affect the pipeline of feature films available in the short- or long-term. In addition to decreased business spending by our customers and prospective customers and reduced demand for our products, lower renewal rates by our customers, increased customer losses/churn, increased challenges in or cost of acquiring new customers and increased risk in collectability of accounts receivable may have a material adverse effect on our business and results of operations. We have also experienced other negative impacts; among other actions, we were required to temporarily close our screen manufacturing facility in Canada due to the governmental response to COVID-19, which we were able to re-open on May 11, 2020, and have experienced lower revenues from field services and a reduction in non-recurring time and materials-based services. The completion of our outsourced screen finishing facility in China by a third party was also delayed by the COVID-19 pandemic. We may also experience one or more of the following conditions that could have a material adverse impact on our business operations and financial condition: adverse effects on our strategic partners’ businesses or on the businesses of companies in which we hold equity stakes; impairment charges; extreme currency exchange-rate fluctuations; inability to recover costs from insurance carriers; and business continuity concerns for us, our customers and our third-party vendors.
The Consolidated Appropriations Act extended and expanded the availability of the CARES Act employee retention credit through June 30, 2021. Subsequently, the American Rescue Plan Act of 2021 (‘ARP Act’), enacted on March 11, 2021, extended and expanded the availability of the employee retention credit through December 31, 2021, however, certain provisions apply only after December 31, 2020. This new legislation expanded the group of qualifying business to include businesses with fewer than 500 employees and those who previously qualified for the Paycheck Protection Program (the “PPP Loan”). The employee retention credit is calculated to be equal to 70% of qualified wages paid to employees after December 31, 2020, and before January 1, 2022. During calendar year 2021, a maximum of $10,000 in qualified wages for each employee per qualifying calendar quarter may be counted in determining the 70% credit. Therefore, the maximum tax credit that can be claimed by an eligible employer is $7,000 per employee per qualifying calendar quarter of 2021. We have determined that the qualifications for the credit were met in the first, second and third quarters of 2021. During the nine months ended September 30, 2021, we applied for refunds of a total of $2.1 million of payroll taxes previously paid and recognized a corresponding reduction in compensation expenses. Of the $2.1 million, $1.3 million was recorded within cost of services, $0.5 million was recorded within general and administrative expenses, $0.1 million was recorded within selling expenses, and $0.2 million was recorded within discontinued operations during 2021. The Infrastructure Investment and Jobs Act was signed into law November. 15, 2021, and ended the availability of the employee retention credit for the entire fourth quarter of 2021.
The future and ultimate impact of the COVID-19 pandemic on our business and results of operations beyond the first quarter of fiscal year 2022 is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the COVID-19 pandemic and any additional preventative and protective actions that governments, or we or our customers, may direct, which may result in an extended period of continued business disruption and reduced operations. However, we expect that our results of operations, including revenues, in future periods will continue to be adversely impacted by the COVID-19 pandemic and its negative effects on global economic conditions, which include the possibility of a global recession.
We cannot provide any assurance that our assumptions used to estimate our liquidity requirements will remain accurate due to the unprecedented nature of the disruption to our operations and the unpredictability of the COVID-19 global pandemic. As a consequence, our estimates of the duration of the pandemic and the severity of the impact on our future earnings and cash flows could change and have a material impact on our results of operations and financial condition.
Results of Operations:
The following table sets forth our operating results for the periods indicated:
Year Ended December 31,
$ Change % Change
(dollars in thousands)
Net revenues $ 27,030 $ 21,500 $ 5,530 25.7 %
Cost of revenues 18,820 16,091 2,729 17.0 %
Gross profit 8,210 5,409 2,801 51.8 %
Gross profit percentage 30.4 % 25.2 %
Selling and administrative expenses 11,310 12,035 (725 ) (6.0 )%
Loss on disposal of assets (38 ) (58 ) (34.5 )%
Loss from operations (3,138 ) (6,684 ) 3,546 (53.1 )%
Other income 12,116 2,354 9,762 414.7 %
Income before income taxes and equity method holding loss 8,978 (4,330 ) 13,308 (307.3 )%
Income tax expense (3,236 ) (1,258 ) (1,978 ) 157.2 %
Equity method holding loss (2,371 ) (2,677 ) (11.4 )%
Net income (loss) from continuing operations $ 3,371 $ (8,265 ) $ 11,636 (140.8 )%
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Revenues
Net revenues increased 25.7% to $27.0 million during 2021 from $21.5 million in 2020. The increase in consolidated net revenue was primarily due to the continuing recovery of the Strong Entertainment business from the impact of COVID-19 as demand increased for services, screen systems and equipment.
Year Ended December 31,
$ Change % Change
(dollars in thousands)
Strong Entertainment $ 25,886 $ 20,629 $ 5,257 25.5 %
Other 1,144 31.3 %
Total net revenues $ 27,030 $ 21,500 $ 5,530 25.7 %
Revenue from Strong Entertainment increased 25.5% to $25.9 million in, 2021 from $20.6 million in 2020. The increase from the prior year was due to a $3.6 million increase in product revenue and a $1.6 million increase in service revenue. Demand and revenue from both product sales and service revenue benefited from the continuing recovery from the impact of COVID-19. As restrictions eased and customer demand increased, revenues have increased compared to the same period in 2020. Revenue during 2020 was negatively impacted by the COVID-19 pandemic, including the government-mandated temporary closure of our screen manufacturing facility in Quebec, Canada and lower revenues from equipment sales and field service projects. The impact was particularly acute in the second quarter of 2020 when most entertainment venues across the world were forced to close in response to the pandemic. In the second half of 2020 and throughout 2021, our revenues recovered as many cinemas and theme parks began reopening.
While major markets have eased COVID-19 related restrictions, or lifted them entirely, we expect the pace of recovery of our revenue will continue to be dependent upon the overall measures in place to control COVID-19, and any variants thereof, and the pace at which studios release new feature films to the market. Studios recently resumed releasing major movies to the cinemas and continue to have a backlog of content planned for release in 2022 and 2023. In addition, we believe many of our customers have benefited from government programs such as the Shuttered Venue Operators Grant, which has allocated over $14 billion of assistance to the entertainment industry.
The increase in other revenue primarily related to a full year of services provided to Firefly under the Master Services Agreement during 2021 compared to only five months during 2020.
Gross Profit
Consolidated gross profit increased 51.8% to $8.2 million in 2021 from $5.4 million in 2020. As a percentage of revenue, gross profit increased to 30.4% during 2021 compared to 25.2% for 2020. Excluding the impact of employee retention credits, gross profit during the year ended December 31, 2021 would have been 25.7%, as compared with 25.2% in the prior year.
Year Ended December 31,
$ Change % Change
(dollars in thousands)
Strong Entertainment $ 7,283 $ 4,646 $ 2,637 56.8 %
Other 21.5 %
Total gross profit $ 8,210 $ 5,409 $ 2,801 51.8 %
Gross profit in the Strong Entertainment segment was $7.3 million or 28.1% of revenues for the year ended December 31, 2021 compared to $4.6 million or 22.5% of revenues for the year ended December 31, 2020. The 2021 annual period included a positive impact of $1.3 million as a result of the employee retention credit. Excluding the impact of the employee retention credit, gross profit for the year ended December 31, 2021 would have been 23.2% of revenue. The increase in gross profit was primarily attributable to higher screen, equipment and field service revenue, combined with the favorable impact of the $1.3 million employee retention credit and actions taken to control costs. Gross profit from product sales was $5.6 million or 28.3% of revenues for the year ended December 31, 2021 compared to $5.0 million or 31.3% of revenues for the year ended December 31, 2020. Gross profit from service revenue was $1.7 million or 27.6% of revenues for the year ended December 31, 2021 compared to negative $0.4 million or negative 7.8% of revenues for the year ended December 31, 2020.
Other gross profit increased during 2021 compared to 2020 primarily due to the increased revenue under the Master Services Agreement with Firefly.
Loss From Operations
Consolidated loss from operations was $3.1 million in 2021 compared to $6.7 million during 2020. The improvement in operating results was primarily due to the improvements in the operating performance of the Strong Entertainment segment, combined with reductions in corporate overhead.
Year Ended December 31,
$ Change % Change
(dollars in thousands)
Strong Entertainment $ 2,211 $ 2 $ 2,209 110450.0 %
Other (756 ) (86 ) (670 ) 779.1 %
Total segment operating income (loss) 1,455 (84 ) 1,539 (1832.1 )%
Unallocated administrative expenses (4,593 ) (6,575 ) 1,982 (30.1 )%
Total loss from operations $ (3,138 ) $ (6,659 ) $ 3,521 (52.9 )%
Strong Entertainment’s operating income for the year ended December 31, 2021 was $2.2 million compared to breakeven for the year ended December 31, 2020. The improvement in income from operations was primarily due to the increase in revenue and gross profit discussed above, combined with the benefit of an additional $0.3 million of employee retention credits included in selling and administrative expenses of the Strong Entertainment group.
Unallocated administrative expenses decreased to $4.6 million during 2021 compared to $6.6 million during 2020. The decrease was driven primarily by $0.3 million of employee retention credits, as well as actions taken to reduce compensation expense, board fees, travel, information technology expenses, costs associated with contractors and consultants and audit and tax expenses, all of which were due to our initiatives to reduce overall administrative expenses.
Other Financial Items
Total other income of $12.1 million during 2021 primarily consisted of a $10.6 million unrealized gain on equity holdings, $1.7 million realized gain on equity holdings, a $0.1 million gain on our property and insurance claim for the weather-related incident at our production facility in Quebec, Canada, partially offset by $0.1 million of foreign currency transaction adjustments and $0.2 million of interest expense. Total other income of $2.4 million during 2020 primarily consisted of a $3.1 million gain on our property and casualty and business interruption claims for the weather-related incident at our production facility in Quebec, partially offset by $0.5 million of interest expense and $0.3 million of foreign currency transaction adjustments.
Income tax expense was approximately $3.2 million during 2021 compared to $1.3 million during 2020. Our income tax expense consisted primarily of current and deferred income tax on foreign earnings, which includes the realized and unrealized gains on equity holdings.
We recorded a loss of $2.4 million on our equity method holdings during 2021, consisting of approximately $1.2 million from each of FGF and GreenFirst. The year ended December 31, 2020 included a loss of $2.7 million on our equity method holdings, which consisted of $2.5 million from FGF and $0.2 million from GreenFirst.
As a result of the items outlined above, we generated net income from continuing operations of $3.4 million, or $0.99 per basic and diluted share, during 2021, compared to a net loss from continuing operations of $8.3 million, or $0.56 per basic and diluted share, during 2020.
Liquidity and Capital Resources
During the past several years, we have primarily met our working capital and capital resource needs from our operating cash flows, sales of our common stock and credit facilities. Our primary cash requirements involve operating expenses, working capital, capital expenditures, equity holdings, and other general corporate activities. Our capital expenditures during 2020 included costs incurred in the construction of the Strong Entertainment production facility in Quebec, Canada that sustained damage as a result of inclement weather. During the third quarter of 2021, we increased our equity holding in GreenFirst by exercising 8.3 million rights for a total cost of approximately $10.0 million. The rights were exchanged into common shares of GreenFirst, and after the conversion the Company holds 15.3 million shares of GreenFirst common stock. In the fourth quarter of 2021, we increased our equity holding in FGF by exercising 0.6 million rights for a total cost of $2.4 million. As of December 31, 2021, the combined fair value of our equity holding in GreenFirst and FGF was approximately $28.6 million.
We ended 2021 with total cash and cash equivalents and restricted cash of $8.9 million compared to $4.8 million as of December 31, 2020. Of the $8.9 million as of December 31, 2021, $2.4 million was held by our Canadian subsidiary, Strong/MDI, and $0.2 million was restricted. Strong/MDI makes intercompany loans to the U.S. parent company which do not trigger Canadian withholding taxes if they meet certain requirements. As of December 31, 2021, the parent company had outstanding intercompany loans from Strong/MDI of approximately $34.6 million. In the event those loans are not repaid, or are recharacterized as dividends to the U.S. parent company, we would be required to pay 5% Canadian withholding taxes, which have been fully accrued as of December 31, 2021.
In response to the COVID-19 pandemic and related closures of cinemas, theme parks and entertainment venues, we took decisive actions to conserve cash, reduce operating expenditures, delay capital expenditures, and manage working capital. On June 7, 2021, Strong/MDI entered into a demand credit agreement (the “2021 Credit Agreement”), which amended and restated the demand credit agreement dated as of September 5, 2017. The 2021 Credit Agreement consists of a revolving line of credit for up to CAD$2.0 million subject to a borrowing base requirement, a 20-year installment loan for up to CADN$5.1 million and a 5-year installment loan for up to CAD$0.5 million.
In February 2021, we closed two transactions which further strengthened the Company’s balance sheet, increasing the Company’s cash position and reducing the Company’s debt and lease obligation.
On February 1, 2021, we entered into an Equity Purchase Agreement (together with the other related documents defined therein, the “Purchase Agreement”), and closed the transactions contemplated by the Purchase Agreement, with SageNet LLC (“SageNet”). The Purchase Price pursuant to the Purchase Agreement was (i) $15.0 million in cash and (ii) $2.5 million in the form of a subordinated promissory note delivered by SageNet in our favor (the “SageNet Promissory Note”). Per the terms of the SageNet Promissory Note, we were to receive twelve consecutive equal quarterly payments of principal, plus accrued interest thereon, commencing on March 31, 2022. Subsequent to December 31, 2021, we entered into an amendment to the SageNet Promissory Note. Pursuant to the terms of the amendment, we received a prepayment of $2.3 million plus accrued interest. As a result of the prepayment, all terms of the SageNet Promissory Note have been satisfied. A portion of the Purchase Price was placed in escrow by SageNet, the release of which is contingent upon certain events and conditions specified in the Purchase Agreement. The Purchase Price is also subject to adjustment based on closing working capital of Convergent. As further consideration, SageNet also assumed approximately $5.7 million of third-party debt of Convergent, bringing the total enterprise value for Convergent’s equity interests to approximately $23.2 million.
On February 3, 2021, we entered into an underwriting agreement in connection with a public offering (the “Offering”) pursuant to which we agreed to issue and sell approximately 3.3 million shares of our common stock, at a public offering price of $2.30 per share. The Offering closed on February 8, 2021. The net proceeds from the Offering were approximately $6.3 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
On March 2, 2021, we received a notice of default and demand (the “Default Notice”) from Huntington Technology Finance, Inc. (“Huntington”). The Default Notice alleged the occurrence of an event of default under the terms of the Master Equipment Lease Agreement dated May 19, 2017 (the “Lease Agreement”), pursuant to which our subsidiaries lease certain digital taxi top advertising signs. We have made all required payments to Huntington during the term of the Lease Agreement and expect to continue to make monthly payments on a timely basis. The Default Notice did not allege that we have failed to make any payment or incurred any economic or payment default. Rather, the Default Notice alleged that we violated certain technical covenants in the Lease Agreement. Huntington demanded accelerated payment of the outstanding principal balance plus lessor profit and a fair market value buyout of the assets under lease within ten days of the receipt of the Default Notice. We disputed Huntington’s assertion that an event of default had occurred under the Lease Agreement and believe that many of the assertions made in the Default Notice are false and that the claims made in the Default Notice are therefore baseless. Accordingly, on March 3, 2021, we provided a written response to Huntington detailing our position that Huntington’s allegations of an event of default under the Lease Agreement are unfounded, and asserting our good faith belief that we have abided by the terms, conditions and covenants of the Lease Agreement. In order to resolve the situation and avoid the potential costs of a lengthy legal dispute, on April 2, 2021, we entered into an Agreement of Forbearance and Conditional Sale (the “Settlement Agreement”) with Huntington and CCA Financial, LLC. The amounts payable by us pursuant to the Settlement Agreement include only payments contractually due under the Lease Agreement and do not include any additional penalties, interest, or liquidation damages. We agreed to accelerate payment of the $2.1 million remaining payments contractually due under the Lease Agreement and to exercise our option to purchase the leased assets for $1.0 million. The $2.1 million plus sales tax owed under the Lease Agreement was paid upon execution of the Settlement Agreement and the lease equipment buyout will be paid in twelve monthly installments from June 1, 2021 to May 1, 2022. In December 2021, we satisfied the remaining obligation related to the lease equipment buyout. Upon payment in full, the Lease Agreement and all obligations thereunder terminated.
We believe that our existing sources of liquidity, including cash and cash equivalents, operating cash flow, credit facilities, equity holdings, receivables and other assets will be sufficient to meet our projected capital needs for at least the next twelve months. However, our ability to continue to meet our cash requirements will depend on, among other things, the duration of COVID-19 related restrictions on cinemas, theme parks and other entertainment venues, our ability to achieve anticipated levels of revenues and cash flow from operations, performance of our equity holdings, our ability to manage costs and working capital successfully and the continued availability of financing, if needed. We cannot provide any assurance that our assumptions used to estimate our liquidity requirements will remain accurate due to the unprecedented nature of the disruption to our operations and the unpredictability of the COVID-19 global pandemic. As a consequence, our estimates of the duration of the pandemic and the severity of the impact on our future earnings and cash flows could change and have a material impact on our results of operations and financial condition. In the event of a sustained market deterioration, and continued declines in net sales, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions. We may, depending on a variety of factors, including market conditions for capital raises, the trading price of our common stock and opportunities for uses of any proceeds, engage in additional public or private offerings of equity or debt securities to increase our capital resources. However, financial and economic conditions, including those resulting from the COVID-19 pandemic, could limit our access to credit and impair our ability to raise capital, if needed, on acceptable terms or at all, and we cannot provide any assurance that we will be able to obtain any additional sources of financing or liquidity on acceptable terms, or at all. See Note 12 to the consolidated financial statements for a description of our debt as of December 31, 2021.
Cash Flows from Operating Activities
Net cash provided by operating activities from continuing operations was $1.6 million during 2021 primarily due to the operating income generated by Strong Entertainment and improvements in working capital, partially offset by cash outflows for selling and administrative expense. Net cash used in operating activities from continuing operations was $1.1 million during 2020. Operating losses at Strong Entertainment and cash outflows for selling and administrative expenses were partially offset by changes in working capital.
Cash Flows from Investing Activities
Net cash used in investing activities from continuing operations was $13.9 million during 2021, which consisted of a $10.0 million increase to our equity holding in GreenFirst, $2.4 million to increase our equity holding in FGF and $1.5 million of capital expenditures. Net cash used in investing activities from continuing operations was $4.5 million during 2020, which consisted of a $4.0 million purchase of Firefly preferred shares and capital expenditures of $0.5 million.
Cash Flows from Financing Activities
Net cash provided by financing activities from continuing operations was $3.4 million during 2021, which primarily consisted of $6.3 million of net proceeds from the issuance of our common stock, partially offset by $2.8 million of principal payments on finance leases and short-term debt. Net cash used in financing activities from continuing operations was $1.2 million during 2020, consisting of $0.7 million of net principal payments on debt and capital lease obligations and $0.4 million of deferred stock issuance costs.
Use of Non-GAAP Measures
We prepare our consolidated financial statements in accordance with United States generally accepted accounting principles (“GAAP”). In addition to disclosing financial results prepared in accordance with GAAP, we disclose information regarding Adjusted EBITDA, which differs from the term EBITDA as it is commonly used. In addition to adjusting net income (loss) to exclude income taxes, interest, and depreciation and amortization, Adjusted EBITDA also excludes discontinued operations, share-based compensation, impairment charges, equity method income (loss), fair value adjustments, severance, foreign currency transaction gains (losses), transactional gains and expenses, gains on insurance recoveries and other cash and non-cash charges and gains.
EBITDA and Adjusted EBITDA are not measures of performance defined in accordance with GAAP. However, Adjusted EBITDA is used internally in planning and evaluating our operating performance. Accordingly, management believes that disclosure of these metrics offers investors, bankers and other stakeholders an additional view of our operations that, when coupled with the GAAP results, provides a more complete understanding of our financial results.
EBITDA and Adjusted EBITDA should not be considered as an alternative to net income (loss) or to net cash from operating activities as measures of operating results or liquidity. Our calculation of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures used by other companies, and the measures exclude financial information that some may consider important in evaluating our performance.
EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. Some of these limitations are (i) they do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments, (ii) they do not reflect changes in, or cash requirements for, our working capital needs, (iii) EBITDA and Adjusted EBITDA do not reflect interest expense, or the cash requirements necessary to service interest or principal payments, on our debt, (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements, (v) they do not adjust for all non-cash income or expense items that are reflected in our statements of cash flows, (vi) they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations, and (vii) other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures.
We believe EBITDA and Adjusted EBITDA facilitate operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. These potential differences may be caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). We also present EBITDA and Adjusted EBITDA because (i) we believe these measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry, (ii) we believe investors will find these measures useful in assessing our ability to service or incur indebtedness, and (iii) we use EBITDA and Adjusted EBITDA internally as benchmarks to evaluate our operating performance or compare our performance to that of our competitors.
The following table sets forth reconciliations of net income (loss) under GAAP to EBITDA and Adjusted EBITDA (in thousands):
Years Ended Ended December 31,
Strong
Entertainment Corporate
and Other Discontinued
Operations Consolidated Strong
Entertainment Corporate
and Other Discontinued
Operations Consolidated
Net income (loss) $ 8,492 $ (5,121 ) $ 14,566 $ 17,937 $ 1,319 $ (9,584 ) $ 7,918 $ (347 )
Net income from discontinued operations - - (14,566 ) (14,566 ) - - (7,918 ) (7,918 )
Net income (loss) from continuing operations 8,492 (5,121 ) - 3,371 1,319 (9,584 ) - (8,265 )
Interest expense, net - -
Income tax expense 2,755 - 3,236 1,075 - 1,258
Depreciation and amortization - 1,311 - 1,051
EBITDA 12,264 (4,113 ) - 8,151 3,376 (8,870 ) - (5,494 )
Stock-based compensation expense - - - 1,136 - 1,136
Equity method investment loss 1,150 1,221 - 2,371 2,451 - 2,677
Employee retention credit (1,576 ) (336 ) - (1,912 ) - - - -
Realized gain on investments (1,689 ) - - (1,689 ) - - - -
Unrealized gain on investments (8,838 ) (1,746 ) - (10,584 ) - - - -
Loss on disposal of assets and impairment charges - -
Foreign currency transaction loss - - - -
Gain on property and casualty insurance recoveries (148 ) - - (148 ) (3,107 ) - - (3,107 )
Severance and other - -
Adjusted EBITDA $ 1,245 $ (3,957 ) $ - $ (2,712 ) $ 898 $ (5,251 ) $ - $ (4,353 )
Financial Instruments and Credit Risk Concentrations
Our top ten customers accounted for 38% of 2021 consolidated net revenues. Trade accounts receivable from these customers represented 29% of net consolidated receivables at December 31, 2021. None of our customers accounted for more than 10% of both our consolidated net revenues during 2021 and our net consolidated receivables as of December 31, 2021. While we believe our relationships with such customers are stable, most arrangements are made by purchase order and are terminable at will by either party. A significant decrease or interruption in business from our significant customers could have a material adverse effect on our business, financial condition and results of operations. We could also be adversely affected by such factors as changes in foreign currency rates and weak economic and political conditions in each of the countries in which we sell our products.
Financial instruments that potentially expose us to a concentration of credit risk principally consist of accounts receivable. We sell products to a large number of customers in many different geographic regions. To minimize credit concentration risk, we perform ongoing credit evaluations of our customers’ financial condition or use letters of credit.
Hedging and Trading Activities
Our primary exposure to foreign currency fluctuations pertains to our operations in Canada. In certain instances, we may enter into foreign exchange contracts to manage a portion of this risk. We do not have any trading activities that include non-exchange traded contracts at fair value.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Inflation
We believe that the relatively moderate rates of inflation in recent years have not had a significant impact on our net revenues or profitability. Historically, we have been able to offset any inflationary effects by either increasing prices or improving cost efficiencies. While inflation has been relatively low in recent years, it began to increase in the second half of 2021. Substantial increases in costs and expenses could impact our results of operations to the extent that such increases cannot be offset by price increases and/or increased efficiencies.
Recently Issued Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements for a description of recently issued accounting pronouncements.
Critical Accounting Policies and Estimates
General
The following accounting policies involve judgments and estimates used in preparation of the consolidated financial statements. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements.
Our accounting policies are discussed in Note 2 to the consolidated financial statements in this report. Management believes the following critical accounting policies reflect its more significant estimates and assumptions used in the preparation of the consolidated financial statements.
Revenue Recognition
We account for revenue using the following steps:
● Identify the contract, or contracts, with a customer;
● Identify the performance obligations in the contract;
● Determine the transaction price;
● Allocate the transaction price to the identified performance obligations; and
● Recognize revenue when, or as, the Company satisfies the performance obligations.
We combine contracts with the same customer into a single contract for accounting purposes when the contracts are entered into at or near the same time and the contracts are negotiated as a single commercial package, consideration in one contract depends on the other contract, or the services are considered a single performance obligation. If an arrangement involves multiple performance obligations, the items are analyzed to determine the separate units of accounting, whether the items have value on a standalone basis and whether there is objective and reliable evidence of their standalone selling price. The total contract transaction price is allocated to the identified performance obligations based upon the relative standalone selling prices of the performance obligations. The standalone selling price is based on an observable price for services sold to other comparable customers, when available, or an estimated selling price using a cost plus margin approach. We estimate the amount of total contract consideration we expect to receive for variable arrangements by determining the most likely amount we expect to earn from the arrangement based on the expected quantities of services we expect to provide and the contractual pricing based on those quantities. We only include some or a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is subsequently resolved. We consider the sensitivity of the estimate, our relationship and experience with the client and variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement.
As discussed in more detail in Note 2 to the consolidated financial statements, revenue is recognized when a customer obtains control of promised goods or services under the terms of a contract and is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. We do not have any material extended payment terms, as payment is due at or shortly after the time of the sale. Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded from revenue.
Equity Holdings
We apply the equity method of accounting to equity holdings when we have significant influence, but not controlling interest, in the entity. Judgment regarding the level of influence over each equity method holding includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. We assess equity holdings for impairment whenever events or changes in circumstances indicate that the carrying value of an equity holding may not be recoverable. For equity method holdings in public companies that are actively traded, fair value would generally be determined based on the security’s trading price multiplied by the number of shares held. Determining fair value for equity holdings in thinly traded public companies and privately held entities could require using a valuation model, which would include significant judgment and estimates.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable as we are a “smaller reporting company.”

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No
Report of Independent Registered Public Accounting Firm - Haskell & White LLP (PCAOB ID: 200)
Consolidated Financial Statements
Consolidated Balance Sheets-December 31, 2021 and 2020
Consolidated Statements of Operations-Years Ended December 31, 2021 and 2020
Consolidated Statements of Comprehensive Income-Years Ended December 31, 2021 and 2020
Consolidated Statements of Stockholders’ Equity-Years Ended December 31, 2021 and 2020
Consolidated Statements of Cash Flows-Years Ended December 31, 2021 and 2020
Notes to Consolidated Financial Statements-Years Ended December 31, 2021 and 2020
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Ballantyne Strong, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Ballantyne Strong, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2021 and 2020, and the consolidated results of its operations and its cash flows for each of the years then ended, in conformity with U.S. generally accepted accounting principles.
Emphasis-of-Matters
As summarized in Note 3 to the consolidated financial statements, the Company disposed of its Strong Outdoor operating business in August 2020 and its Convergent operating business in February 2021. As a result of these dispositions, Strong Outdoor and Convergent have been presented as discontinued operations for all periods presented in the accompanying consolidated financial statements. Our opinion is not modified with respect to these matters.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.
Revenue Recognition
Critical Audit Matter Description
The Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company may enter into certain contracts to sell their products and services that contain non-standard terms and conditions and multiple performance obligations. For such contracts, significant interpretation may be required to determine the appropriate accounting, including the identification of all performance obligations, determination of when performance obligations are distinct and when they should be combined, allocation of the transaction price among performance obligations in the arrangement, the timing of the transfer of control of promised goods or services, and agent versus principal considerations.
Our assessment of management’s evaluation of the appropriate accounting for revenue recognition is significant to our audit because the revenue amounts are material to the financial statements, management’s assessment process involves significant judgment, and the application of U.S. generally accepted accounting principles in this area may be complex.
How the Critical Audit Matter Was Addressed in the Audit
Our principal audit procedures related to the Company’s revenue recognition for customer contracts included the following:
● We evaluated management’s significant accounting policies related to revenue from contracts with customers for reasonableness and compliance with U.S. generally accepted accounting principles.
● We tested management’s identification of performance obligations and its assessment of whether or not the performance obligations are distinct.
● We evaluated the reasonableness of management’s estimate of stand-alone selling prices for products and services and the allocation of the transaction price among the identified performance obligations.
● We tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the financial statements.
● We selected a sample of revenue transactions for each of the Company’s significant revenue streams and obtained the related customer agreements and performed the following procedures:
○ Obtained and read source documents for each selection, including master agreements, customer purchase orders, and other documents that were part of the agreement.
○ Tested management’s identification and treatment of the key contract terms.
○ Assessed the terms in the customer agreement and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions.
● We evaluated management’s analysis of whether the Company is a principal (gross reporting of revenues) or an agent (net reporting of revenues) in its revenue transactions.
/s/ Haskell & White LLP
HASKELL & WHITE LLP
We have served as the Company’s auditor since 2019.
Irvine, California
March 24, 2022
Ballantyne Strong, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except par values)
December 31, 2021 December 31, 2020
Assets
Current assets:
Cash and cash equivalents $ 8,731 $ 4,435
Restricted cash
Accounts receivable, net 4,631 5,558
Inventories, net 3,271 2,264
Current assets of discontinued operations - 3,748
Other current assets 4,992 1,452
Total current assets 21,775 17,809
Property, plant and equipment, net 6,226 5,524
Operating lease right-of-use assets 3,975 4,304
Finance lease right-of-use assets -
Note receivable, net of current portion 1,667 -
Equity holdings 41,133 20,167
Intangible assets, net
Goodwill
Long-term assets of discontinued operations - 6,372
Other assets
Total assets $ 75,809 $ 55,499
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 4,245 $ 2,717
Accrued expenses 2,994 2,182
Short-term debt 2,998 3,299
Current portion of long-term debt -
Current portion of operating lease obligations
Current portion of finance lease obligations - 1,015
Deferred revenue and customer deposits 3,292 2,404
Current liabilities of discontinued operations - 3,901
Total current liabilities 14,129 16,137
Operating lease obligations, net of current portion 3,586 3,817
Finance lease obligations, net of current portion - 1,091
Long-term debt, net of current portion -
Deferred income taxes 5,594 3,099
Long-term liabilities of discontinued operations - 4,066
Other long-term liabilities
Total liabilities 23,532 28,433
Commitments, contingencies and concentrations (Note 16) -
Stockholders’ equity:
Preferred stock, par value $.01 per share; authorized 1,000 shares, none outstanding - -
Common stock, par value $.01 per share; authorized 25,000 shares; issued 21,286 and 17,596 shares at December 31, 2021 and December 31, 2020, respectively; outstanding 18,492 and 14,802 shares at December 31, 2021 and December 31, 2020, respectively
Additional paid-in capital 50,807 43,713
Retained earnings 23,591 5,654
Treasury stock, 2,794 shares at cost (18,586 ) (18,586 )
Accumulated other comprehensive loss (3,748 ) (3,891 )
Total stockholders’ equity 52,277 27,066
Total liabilities and stockholders’ equity $ 75,809 $ 55,499
See accompanying notes to consolidated financial statements.
Ballantyne Strong, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
Years Ended December 31,
Net product sales $ 19,631 $ 15,987
Net service revenues 7,399 5,513
Total net revenues 27,030 21,500
Cost of products sold 14,078 10,980
Cost of services 4,742 5,111
Total cost of revenues 18,820 16,091
Gross profit 8,210 5,409
Selling and administrative expenses:
Selling 1,783 1,656
Administrative 9,527 10,379
Total selling and administrative expenses 11,310 12,035
Loss on disposal of assets (38 ) (58 )
Loss from operations (3,138 ) (6,684 )
Other income (expense):
Interest income -
Interest expense (308 ) (462 )
Foreign currency transaction loss (67 ) (292 )
Unrealized gain on equity holdings 10,584 -
Other income, net 1,832 3,108
Total other income 12,116 2,354
Income (loss) from continuing operations before income taxes and equity method holdings loss 8,978 (4,330 )
Income tax expense (3,236 ) (1,258 )
Equity method holding loss (2,371 ) (2,677 )
Net income (loss) from continuing operations 3,371 (8,265 )
Net income from discontinued operations (Note 3) 14,566 7,918
Net income (loss) $ 17,937 $ (347 )
Basic net income (loss) per share
Continuing operations $ 0.19 $ (0.56 )
Discontinued operations 0.81 0.54
Basic net income (loss) per share $ 1.00 $ (0.02 )
Diluted net income (loss) per share
Continuing operations $ 0.19 $ (0.56 )
Discontinued operations 0.80 0.54
Diluted net income (loss) per share $ 0.99 $ (0.02 )
Weighted-average shares used in computing net income (loss) per share:
Basic 18,023 14,722
Diluted 18,192 14,722
See accompanying notes to consolidated financial statements.
Ballantyne Strong, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)
Years Ended December 31,
Net income (loss) $ 17,937 $ (347 )
Adjustment to postretirement benefit obligation
Prior service credit (24 ) (24 )
Net actuarial (loss) gain (34 )
Total adjustment to postretirement benefit obligation (58 ) (17 )
Unrealized loss on available-for-sale securities of equity method holdings, net of tax - (75 )
Currency translation adjustment:
Unrealized net change arising during year
Total other comprehensive income
Comprehensive income $ 18,080 $ 231
See accompanying notes to consolidated financial statements.
Ballantyne Strong, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2021 and 2020
($ and shares in thousands)
Common
Stock
(Shares) Common
Stock
($) Additional
Paid-In
Capital Retained
Earnings Treasury
Stock Accumulated
Other
Comprehensive
Loss Total
Stockholders’
Equity
Balance at December 31, 2019 17,410 $ 174 $ 42,589 $ 6,001 $ (18,586 ) $ (4,469 ) $ 25,709
Net loss - - - (347 ) - - (347 )
Net other comprehensive income - - - - -
Vesting of restricted stock (12 ) - - - (10 )
Stock-based compensation expense - - 1,136 - - - 1,136
Balance at December 31, 2020 17,596 43,713 5,654 (18,586 ) (3,891 ) 27,066
Net income - - - 17,937 - - 17,937
Net other comprehensive income - - - - -
Vesting of restricted stock (84 ) - - - (80 )
Stock option exercise - - - -
Issuance of common stock, net of issuance costs 3,290 6,277 - - - 6,310
Stock-based compensation expense - - - - -
Net income (loss) - - - 17,937 - - 17,937
Balance at December 31, 2021 21,286 $ 213 $ 50,807 $ 23,591 $ (18,586 ) $ (3,748 ) $ 52,277
See accompanying notes to consolidated financial statements.
Ballantyne Strong, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Years Ended December 31,
Cash flows from operating activities:
Net income (loss) from continuing operations $ 3,371 $ (8,265 )
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities:
(Recovery of) provision for doubtful accounts (263 )
Provision for obsolete inventory
Provision for (benefit from) warranty (26 )
Depreciation and amortization 1,306 1,051
Amortization and accretion of operating leases
Equity method holding loss 2,371 2,677
Unrealized gain on equity holdings (10,584 ) -
Loss on disposal of assets
Gain on business interruption claim settlement - (808 )
Deferred income taxes 2,511
Stock-based compensation expense 1,136
Changes in operating assets and liabilities:
Accounts receivable 1,126 1,465
Inventories (1,095 )
Current income taxes
Other assets (2,072 )
Accounts payable and accrued expenses 2,095
Deferred revenue and customer deposits 1,637 (14 )
Operating lease obligations (822 ) (933 )
Net cash provided by (used in) operating activities from continuing operations 1,612 (1,136 )
Net cash provided by operating activities from discontinued operations 8,004
Net cash provided by operating activities 2,039 6,868
Cash flows from investing activities:
Capital expenditures (1,527 ) (545 )
Exercise of GreenFirst Forest Products, Inc. rights (Note 7) (9,981 ) -
Exercise of FG Financial Group, Inc. rights (Note 7) (2,400 ) -
Purchase of preferred shares of Firefly Systems, Inc. (Note 7) - (4,000 )
Net cash used in investing activities from continuing operations (13,908 ) (4,545 )
Net cash provided by (used in) investing activities from discontinued operations 12,761 (333 )
Net cash used in investing activities (1,147 ) (4,878 )
Cash flows from financing activities:
Proceeds from issuance of short-term debt -
Principal payments on short-term debt (728 ) (512 )
Proceeds from stock issuance, net of costs 6,310 -
Payments of withholding taxes related to net share settlement of equity awards (80 ) (10 )
Proceeds from borrowing under credit facility - 5,158
Repayment of borrowing under credit facility - (5,158 )
Proceeds from Paycheck Protection Program Loan - 3,174
Repayment of Paycheck Protection Program Loan - (3,174 )
Deferred stock issuance costs - (443 )
Proceeds from exercise of stock options -
Payments on capital lease obligations (2,106 ) (896 )
Net cash provided by (used in) financing activities from continuing operations 3,405 (1,193 )
Net cash used in financing activities from discontinued operations (155 ) (1,421 )
Net cash provided by (used in) financing activities 3,250 (2,614 )
Effect of exchange rate changes on cash and cash equivalents (48 )
Net decrease in cash and cash equivalents and restricted cash from continuing operations (8,939 ) (6,765 )
Net increase in cash and cash equivalents and restricted cash from discontinued operations 13,033 6,250
Net increase (decrease) in cash and cash equivalents and restricted cash 4,094 (515 )
Cash and cash equivalents and restricted cash at beginning of year 4,787 5,302
Cash and cash equivalents and restricted cash at end of year $ 8,881 $ 4,787
Components of cash and cash equivalents and restricted cash:
Cash and cash equivalents $ 8,731 $ 4,435
Restricted cash
Total cash and cash equivalents and restricted cash $ 8,881 $ 4,787
Supplemental disclosure of cash paid for:
Interest $ 308 $ 462
Income taxes $ 715 $ 908
Supplemental disclosure of non-cash investing activities:
Acquisition of preferred shares of Firefly Systems, Inc. (Note 3) $ - $ 5,284
See accompanying notes to consolidated financial statements.
Ballantyne Strong, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
1. Business Description and Basis of Presentation
Business Description
Ballantyne Strong, Inc. (“Ballantyne Strong,” or the “Company”), a Delaware corporation, is a holding company with business operations in the entertainment industry and holdings in public and privately held companies. The Company historically has conducted its operations primarily through its Strong Entertainment operating segment, which manufactures and distributes premium large format projection screens and provides technical support services and other related products and services to the cinema exhibition industry, theme parks, schools, museums and other entertainment-related markets. Strong Entertainment also distributes and supports third party products, including digital projectors, servers, library management systems, menu boards and sound systems. The Company also operates its Digital Ignition technology incubator and co-working facility in Alpharetta, Georgia. In addition, the Company holds minority positions in one privately held company and two publicly traded companies.
In August 2020, the Company completed the sale of its Strong Outdoor business segment, and in February 2021, the Company completed the sale of its Convergent business segment. As a result of these divestitures, the Company has presented Strong Outdoor’s and Convergent’s operating results as discontinued operations for all periods presented. See Note 3 for additional details.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and all majority owned and controlled domestic and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results and changes in facts and circumstances may alter such estimates and affect results of operations and financial position in future periods.
2. Summary of Significant Accounting Policies
Revenue Recognition
The Company accounts for revenue using the following steps:
● Identify the contract, or contracts, with a customer;
● Identify the performance obligations in the contract;
● Determine the transaction price;
● Allocate the transaction price to the identified performance obligations; and
● Recognize revenue when, or as, the Company satisfies the performance obligations.
The Company combines contracts with the same customer into a single contract for accounting purposes when the contracts are entered into at or near the same time and the contracts are negotiated as a single commercial package, consideration in one contract depends on the other contract, or the services are considered a single performance obligation. If an arrangement involves multiple performance obligations, the items are analyzed to determine whether they are distinct, whether the items have value on a standalone basis, and whether there is objective and reliable evidence of their standalone selling price. The total contract transaction price is allocated to the identified performance obligations based upon the relative standalone selling prices of the performance obligations. The standalone selling price is based on an observable price for services sold to other comparable customers, when available, or an estimated selling price using a cost-plus margin approach. The Company estimates the amount of total contract consideration it expects to receive for variable arrangements by determining the most likely amount it expects to earn from the arrangement based on the expected quantities of services it expects to provide and the contractual pricing based on those quantities. The Company only includes a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is subsequently resolved. The Company considers the sensitivity of the estimate, its relationship and experience with the client and variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement.
As discussed in more detail below, revenue is recognized when a customer obtains control of promised goods or services under the terms of a contract and is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The Company typically does not have any material extended payment terms, as payment is due at or shortly after the time of the sale. Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded from revenue.
The Company recognizes contract assets or unbilled receivables related to revenue recognized for services completed but not yet invoiced to the clients. Unbilled receivables are recorded as accounts receivable when the Company has an unconditional right to contract consideration. A contract liability is recognized as deferred revenue when the Company invoices clients, or receives cash, in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when the Company has satisfied the related performance obligation.
The Company defers costs to acquire contracts, including commissions, incentives and payroll taxes, if they are incremental and recoverable costs of obtaining a customer contract with a term exceeding one year. Deferred contract costs are reported within other assets and amortized to selling expense over the contract term, which generally ranges from one to five years. The Company has elected to recognize the incremental costs of obtaining a contract with a term of less than one year as a selling expense when incurred. The Company did not have any deferred contract costs as of December 31, 2021 or December 31, 2020.
Screen system sales
The Company typically recognizes revenue on the sale of its screen systems when control of the screen is transferred to the customer, usually at time of shipment. However, revenue is recognized upon delivery for certain international shipments with longer shipping transit times because control transfers upon customer delivery. The cost of freight and shipping to the customer is recognized in cost of sales at the time of transfer of control to the customer. For contracts that are long-term in nature, the Company believes that the use of the percentage-of-completion method is appropriate as the Company has the ability to make reasonably dependable estimates of the extent of progress towards completion, contract revenues, and contract costs. Under the percentage-of-completion method, revenue is recorded based on the ratio of actual costs incurred to total estimated costs expected to be incurred related to the contract.
Digital equipment sales
The Company recognizes revenue on sales of digital equipment when the control of the equipment is transferred, which typically occurs at the time of shipment from the Company’s warehouse or drop-shipment from a third party. The cost of freight and shipping to the customer is recognized in cost of sales at the time of transfer of control to the customer.
Field maintenance and monitoring services
The Company sells service contracts that provide maintenance and monitoring services to its Strong Entertainment customers. These contracts are generally 12 months in length. Revenue related to service contracts is recognized ratably over the term of the agreement.
In addition to selling service contracts, the Company also performs discrete time and materials-based maintenance and repair work for customers in the Strong Entertainment segment. Revenue related to time and materials-based maintenance and repair work is recognized at the point in time when the performance obligation has been fully satisfied.
Installation services
The Company performs installation services for its Strong Entertainment customers and recognizes revenue upon completion of the installations.
Extended warranty sales
The Company sells extended warranties to its Strong Entertainment customers. Typically, the Company is the primary obligor, and revenue is recognized on a gross basis ratably over the term of the extended warranty.
Cash and Cash Equivalents
All short-term, highly liquid financial instruments are classified as cash equivalents in the consolidated balance sheets and statements of cash flows. Generally, these instruments have maturities of three months or less from date of purchase. As of December 31, 2021, $2.4 million of the $8.7 million in cash and cash equivalents was held by our foreign subsidiary.
Restricted Cash
Restricted cash represents amounts held in a collateral account for the Company’s corporate travel and purchasing credit card program.
Equity Holdings
The Company applies the equity method of accounting to its holdings when it has significant influence, but not controlling interest, in the entity. Judgment regarding the level of influence over each equity method holding includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. The Company’s proportionate share of the net income (loss) resulting from these equity holdings is reported under the line item captioned “equity method holding income (loss)” in our consolidated statements of operations. The Company’s equity method holdings are reported at cost and adjusted each period for the Company’s share of the entity’s income or loss and dividends paid, if any. The Company’s share of the entity’s income or loss is recorded on a one quarter lag for all equity method holdings. The Company classifies distributions received from equity method holdings using the cumulative earnings approach on the condensed consolidated statements of cash flows. Changes in fair value of holdings in marketable equity securities of unconsolidated entities in which the Company is not able to exercise significant influence (“Fair Value Holdings”) are recognized on the consolidated statement of operations. Equity holdings in nonmarketable unconsolidated entities in which the Company is not able to exercise significant influence (“Cost Method Holdings”) are accounted for at the Company’s initial cost, minus any impairment (if any), plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar holding or security of the same issuer. Dividends on fair value holdings and cost method holdings received are recorded as income.
The Company assesses its equity holdings for impairment whenever events or changes in circumstances indicate that the carrying value of an equity holding may not be recoverable. Management reviewed the underlying net assets of the Company’s equity method holding as of December 31, 2021 and determined that the Company’s proportionate economic interest in the entity indicates that the equity holding was not impaired. There were no observable price changes in orderly transactions for identical or a similar holding or security of the Company’s Cost Method Holding during the year ended December 31, 2021. The carrying value of our equity method, fair value method and cost method holdings is reported as “equity holdings” on the consolidated balance sheets. Notes 3 and 7 contain additional information on our equity method, fair value method and cost method holdings.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company determines the allowance for doubtful accounts based on several factors, including overall customer credit quality, historical write-off experience and a specific analysis that projects the ultimate collectability of the account. As such, these factors may change over time causing the allowance level and bad debt expense to be adjusted accordingly. The accounts receivable balances on the consolidated balance sheets are net of an allowance for doubtful accounts of $0.6 million and $1.0 million as of December 31, 2021 and 2020, respectively.
Past due accounts are written off when our efforts have been unsuccessful in collecting amounts due.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or net realizable value. Inventories include appropriate elements of material, labor and manufacturing overhead. Inventory balances are net of reserves on slow moving or obsolete inventory based on management’s review of inventories on hand compared to estimated future usage and sales, technological changes and product pricing.
The following table details a roll-forward of the inventory reserve during 2021 (in thousands):
Schedule of Inventory Reserve
Inventory reserve balance at December 31, 2020 $ 387
Inventory write-offs during 2021 (15 )
Provision for inventory reserve during 2021
Inventory reserve balance at December 31, 2021 $ 467
Business Combinations
The Company uses the acquisition method of accounting for acquired businesses. Under the acquisition method, the financial statements reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. Significant judgment is often required in estimating the fair value of assets acquired, particularly intangible assets. As a result, in the case of significant acquisitions, the Company normally obtains the assistance of third-party valuation specialists in estimating fair values of tangible and intangible assets. The fair value estimates are based on available historical information and on expectations and assumptions about the future, considering the perspective of marketplace participants. While management believes those expectations and assumptions are reasonable, they are inherently uncertain. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.
Intangible Assets
The Company’s intangible assets consist primarily of costs incurred to develop or obtain software, as well as costs incurred for upgrades and enhancements resulting in new or enhanced functionality. The Company evaluates its intangible assets for impairment when events or circumstances indicate that the carrying amount of these assets may not be recoverable. Intangible assets with definite lives are amortized over their respective estimated useful lives to their estimated residual values. Significant judgments and assumptions are required in the impairment evaluations.
Goodwill
Goodwill is not amortized and is tested for impairment at least annually, or whenever events or changes in circumstances indicate the carrying amount of the asset may be impaired. The annual impairment test is performed as of December 31 each year. Significant judgment is involved in determining if an indicator of impairment has occurred. The Company may consider indicators such as deterioration in general economic conditions, adverse changes in the markets in which the reporting unit operates, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill.
The Company may first review for goodwill impairment by assessing qualitative factors to determine whether any impairment may exist. For a reporting unit in which the Company concludes, based on the qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount (or if the Company elects to skip the optional qualitative assessment), the Company is required to perform a quantitative impairment test, which includes measuring the fair value of the reporting unit and comparing it to the reporting unit’s carrying amount. If the fair value of a reporting unit exceeds its carrying value, the goodwill of the reporting unit is not impaired. If the carrying value of a reporting unit exceeds its fair value, the Company must record an impairment loss for the amount that the carrying value of the reporting unit, including goodwill, exceeds the fair value of the reporting unit.
Goodwill was recorded in connection with the acquisition of Peintures Elite, Inc. in 2013. A qualitative assessment was performed for the year ended December 31, 2021 and it was determined that no events had occurred since the acquisition that would indicate an impairment was more likely than not.
Property, Plant and Equipment
Significant expenditures for the replacement or expansion of property, plant and equipment are capitalized. Depreciation of property, plant and equipment is provided over the estimated useful lives of the respective assets using the straight-line method. For financial reporting purposes, assets are depreciated over the estimated useful lives of 20 years for buildings and improvements, the lesser of the lease term or the estimated useful life for leasehold improvements, 3 to 10 years for machinery and equipment, 7 years for furniture and fixtures and 3 years for computers and accessories. The Company generally uses accelerated methods of depreciation for income tax purposes. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of property, plant and equipment is based on management’s estimates of future undiscounted cash flows and these estimates may vary due to a number of factors, some of which may be outside of management’s control. To the extent that the Company is unable to achieve management’s forecasts of future income, it may become necessary to record impairment losses for any excess of the net book value of property, plant and equipment over their fair value.
The Company incurs maintenance costs on all of its major equipment. Repair and maintenance costs are expensed as incurred.
Income Taxes
Income taxes are accounted for under the asset and liability method. The Company uses an estimate of its annual effective rate at each interim period based on the facts and circumstances at the time while the actual effective rate is calculated at year-end. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing whether the deferred tax assets are realizable, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company’s uncertain tax positions are evaluated in a two-step process, whereby 1) the Company determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and 2) for those tax positions that meet the more likely than not recognition threshold, the Company would recognize the largest amount of tax benefit that is greater than fifty percent likely to be realized upon ultimate settlement with the related tax authority. The Company accrues interest and penalties related to uncertain tax positions in the consolidated statements of operations as income tax expense.
Other Taxes
Sales taxes assessed by governmental authorities, including sales, use and excise taxes, are recorded on a net basis. Such taxes are excluded from revenues and are shown as a liability on the balance sheet until remitted to the appropriate taxing authorities.
Research and Development
Research and development related costs are charged to operations in the period incurred. Such costs amounted to $0.2 million and $0.3 million for the years ended December 31, 2021 and 2020, respectively, and are included within administrative expenses on the consolidated statements of operations.
Advertising Costs
Advertising and promotional costs are expensed as incurred and amounted to approximately $0.1 million and $50 thousand for the years ended December 31, 2021 and 2020, respectively, and are included within selling expenses on the consolidated statements of operations.
Fair Value of Financial and Derivative Instruments
Assets and liabilities measured at fair value are categorized into a fair value hierarchy based upon the observability of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
● Level 1 - inputs to the valuation techniques are quoted prices in active markets for identical assets or liabilities
● Level 2 - inputs to the valuation techniques are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly
● Level 3 - inputs to the valuation techniques are unobservable for the assets or liabilities
The following tables present the Company’s financial assets and liabilities measured at fair value based upon the level within the fair value hierarchy in which the fair value measurements fall, as of December 31, 2021 and 2020.
Fair values measured on a recurring basis at December 31, 2021 (in thousands):
Schedule of Fair Value Measured Financial Assets and Liabilities
Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 8,731 $ - $ - $ 8,731
Restricted cash - -
Fair value method holding 22,467 - - 22,467
Total $ 31,348 $ - $ - $ 31,348
Fair values measured on a recurring basis at December 31, 2020 (in thousands):
Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 4,435 $ - $ - $ 4,435
Restricted cash - -
Total $ 4,787 $ - $ - $ 4,787
The carrying values of all other financial assets and liabilities, including accounts receivable, accounts payable, accrued expenses, short-term debt and long-term debt reported in the consolidated balance sheets equal or approximate their fair values due to the short-term nature of these instruments. Based on quoted market prices, the fair value of the Company’s equity method and fair value method holdings was $28.6 million at December 31, 2021 (see Note 7).
All non-financial assets that are not recognized or disclosed at fair value in the financial statements on a recurring basis, which include non-financial long-lived assets, are measured at fair value in certain circumstances (for example, when there is evidence of impairment).
Income (Loss) Per Common Share
Basic income (loss) per share has been computed on the basis of the weighted average number of shares of common stock outstanding. In periods when the Company reported net income from continuing operations, diluted net income per share has been computed on the basis of the weighted average number of shares of common stock outstanding after giving effect to potential common shares from dilutive stock options and certain non-vested restricted stock units. In periods when the Company reported a net loss from continuing operations, there were no differences between average shares used to compute basic and diluted loss per share as inclusion of stock options and restricted stock units would have been anti-dilutive in those periods.
A total of 73,868 common stock equivalents related to stock options and restricted stock units were excluded for the year ended December 31, 2020 as their inclusion would be anti-dilutive, thereby decreasing the net loss per share.
In addition, options to purchase 339,500 and 884,500 shares of common stock were outstanding as of December 31, 2021 and December 31, 2020, respectively, but were not included in the computation of diluted income (loss) per share as the options’ exercise prices were greater than the average market price of the common shares for each year.
Stock Compensation Plans
The Company recognizes compensation expense for all stock-based payment awards based on estimated fair values on the date of grant. The Company uses the straight-line amortization method over the vesting period of the awards. The Company has historically issued shares upon exercise of stock options or vesting of restricted stock from new stock issuances. The Company estimates the fair value of restricted stock awards based upon the market price of the underlying common stock on the date of grant. The fair value of stock options granted is calculated using the Black-Scholes option pricing model. No stock-based compensation cost was capitalized as a part of inventory in 2021 and 2020.
Post-Retirement Benefits
The Company recognizes the overfunded or underfunded position of a defined benefit postretirement plan as an asset or liability in the balance sheet, measures the plan’s assets and its obligations that determine its funded status as of each balance sheet date and recognizes the changes in the funded status through comprehensive income (loss) in the year in which the changes occur.
Foreign Currency Translation
For the Company’s foreign subsidiary, the environment in which the business conducts operations is considered the functional currency, generally the local currency. The assets and liabilities of the foreign subsidiary are translated into the United States dollar at the foreign exchange rates in effect at the end of the period. Revenue and expenses of the Company’s foreign subsidiary are translated using an average of the foreign exchange rates in effect during the period. Translation adjustments are not included in determining net earnings but are presented in comprehensive loss within the consolidated statements of comprehensive income. Transaction gains and losses that arise from foreign exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the consolidated statements of operations as incurred. If the Company disposes of its holding in a foreign entity, any gain or loss on currency translation balance recorded in accumulated other comprehensive income would be recognized as part of the gain or loss on disposition.
Warranty Reserves
In most instances, digital products are covered by the manufacturing firm’s warranty; however, for certain customers, the Company may grant warranties in excess of the manufacturer’s warranty. In addition, the Company provides warranty coverage on screens it manufactures. The Company accrues for these costs at the time of sale. The following table summarizes warranty activity for the years ended December 31 (in thousands):
Schedule of Product Warranty Liability
Warranty accrual at beginning of year $ 79 $ 169
Charged to expense (28 )
Claims paid, net of recoveries (85 ) (62 )
Foreign currency adjustment -
Warranty accrual at end of year $ 136 $ 79
Contingencies
The Company accrues for contingencies when its assessments indicate that it is probable that a liability has been incurred and an amount can be reasonably estimated. The Company’s estimates are based on currently available facts and its estimates of the ultimate outcome or resolution. Actual results may differ from the Company’s estimates, resulting in an impact, positive or negative, on earnings.
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Account Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU removes certain exceptions for investments, intraperiod allocations and interim tax calculations and adds guidance to reduce complexity in accounting for income taxes. The effective date of the standard is annual periods beginning after December 15, 2020, with early adoption permitted. The various amendments in the standard are applied on a retrospective basis, modified retrospective basis and prospective basis, depending on the amendment. The Company early adopted this ASU effective January 1, 2020. The adoption did not have a material impact on the Company’s consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, “Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815.” This ASU clarifies the interaction between accounting standards related to equity securities, equity method holdings and certain derivatives. The effective date of the standard is annual periods beginning after December 15, 2020, and interim periods within those fiscal years. The adoption did not have a material impact on the Company’s consolidated financial statements.
In April 2020, the FASB issued a question-and-answer document to address stakeholder questions on the application of the lease accounting guidance for lease concessions related to the effects of the COVID-19 pandemic. The guidance allows concessions related to the timing of payments, where the total consideration has not changed, to not be accounted for as lease modifications. Instead, any such concessions can be accounted for as if no change was made to the contract or as variable lease payments. As a result of the COVID-19 pandemic, the Company received certain lease concessions in the form of rent deferrals during 2020. The Company chose to implement the policy election provided by the FASB to record rent concessions as if no modifications to leases contracts were made, and thus no changes to the lease obligations were recorded in respect to these concessions. As of December 31, 2021, the Company did not have any deferred rent outstanding.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU will require the measurement of all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The guidance was initially effective for the Company for annual reporting periods beginning after December 15, 2019 and interim periods within those fiscal years. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates,” which, among other things, defers the effective date of ASU 2016-13 for public filers that are considered smaller reporting companies as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted. The Company believes the adoption of this ASU will not significantly impact its results of operations and financial position.
3. Discontinued Operations
Convergent
As part of a transaction that closed in February 2021, the Company divested its Convergent business segment. The Company’s Convergent business segment delivered digital signage solutions and related services to large multi-location organizations in the United States and Canada.
On February 1, 2021, the Company entered into an Equity Purchase Agreement (together with the other related documents defined therein, the “Purchase Agreement”), and closed the transactions contemplated by the Purchase Agreement, with SageNet LLC (“SageNet”). Pursuant to the Purchase Agreement, a subsidiary of Ballantyne Strong sold 100% of the issued and outstanding limited liability company membership interests (the “Equity Interests”) in Convergent, LLC (“Convergent”) to SageNet. The purchase price for the Equity Interests (the “Purchase Price”) pursuant to the Purchase Agreement was (i) $15.0 million in cash and (ii) $2.5 million in the form of a subordinated promissory note delivered by SageNet in favor of the Company (the “SageNet Promissory Note”). Per the terms of the SageNet Promissory Note, the Company will receive twelve consecutive equal quarterly payments of principal, plus accrued interest thereon, commencing on March 31, 2022. The Company has elected to record the SageNet Promissory Note using its historical cost basis. Additionally, a portion of the Purchase Price was placed in escrow by SageNet, the release of which is contingent upon certain events and conditions specified in the Purchase Agreement. The Purchase Price is also subject to adjustment based on closing working capital of Convergent. As further consideration, SageNet also assumed approximately $5.7 million of third-party debt of Convergent, bringing the total enterprise value for Convergent’s equity interests to approximately $23.2 million. The Company recorded a gain of $14.8 million during 2021 related to the sale of Convergent.
Subsequent to December 31, 2021, the Company entered into an amendment to the SageNet Promissory Note. Pursuant to the terms of the amendment, the Company received a prepayment of $2.3 million plus accrued interest. As a result of the prepayment, all terms of the SageNet Promissory Note have been satisfied.
Strong Outdoor
As part of transactions in May 2019 and August 2020, the Company divested its Strong Outdoor business segment. The Company’s Strong Outdoor business segment provided outdoor advertising and experiential marketing to advertising agencies and corporate accounts, primarily in New York City.
On May 21, 2019, SDM entered into a Taxicab Advertising Collaboration Agreement (the “Commercial Agreement”) and a Unit Purchase Agreement (the “Unit Purchase Agreement”) with Firefly Systems, Inc. (“Firefly”), pursuant to which SDM agreed to make available to Firefly 300 digital taxi tops. Additionally, the parties agreed to coordinate the fulfilling of SDM’s agreements with the Metropolitan Taxicab Board of Trade, Inc. (“MTBOT”) and Creative Mobile Media, LLC (“CMM”), each dated February 8, 2018. Firefly agreed to fulfill the digital taxi top advertising obligations under the MTBOT agreement and CMM agreement, and SDM agreed to fulfill the non-digital taxi top advertising obligations under the MTBOT agreement and CMM agreement. Ballantyne Strong is a party to the Unit Purchase Agreement and agreed to guarantee the payment obligations of SDM under the Commercial Agreement. As consideration for entering into these agreements, Ballantyne Strong received $4.8 million worth of Firefly’s Series A-2 preferred shares, which were subsequently renamed Firefly Series B-1 Shares (the “Firefly Series B-1 Shares”). The Firefly Series B-1 Shares, including those subsequently issued pursuant to an earn-out provision, were subject to a repurchase option for a period of three years to cover SDM’s indemnity obligations and other post-closing covenants under the Commercial Agreement and the Unit Purchase Agreement. As part of the Asset Purchase Agreement (as defined and described below), Firefly no longer has an option to repurchase any of the Firefly Series B-1 Shares held by SDM.
The 300 digital tops the Company has made available to Firefly are subject to a master equipment lease agreement which 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 worth of Firefly Series B-1 Shares received, $1.2 million worth of such shares were eligible for repurchase by Firefly if the Company did not exercise the purchase option contained within the master lease agreement. Accordingly, the Company had deferred recognizing an equity holding related to these Firefly Series B-1 Shares eligible for repurchase until such time it was reasonably certain the Company would exercise the purchase option. The transaction, in effect, transferred control of the underlying asset to Firefly. As additional consideration for the right to use the digital taxi tops, Firefly agreed to pay for certain of Company’s operating expenses associated with the non-digital taxi tops. The Company concluded the payments that Firefly made on its behalf were variable payments and were not included in the calculation of the selling profit. Therefore, the Company recorded the benefit and the related operating expenses in the period when the changes in facts and circumstances on which the variable lease payments were based occurred. As part of the Asset Purchase Agreement (as defined and described below) the Taxicab Advertising Collaboration Agreement dated May 21, 2019 was terminated, which relieved the Company of its obligation to exercise the purchase option contained within the master lease agreement. As a result, the Company recognized an additional $1.2 million equity holding during the year ended December 31, 2020 related to the Firefly Series B-1 Shares that were previously eligible for repurchase by Firefly.
The Unit Purchase Agreement contained an earnout provision pursuant to which SDM obtained additional Firefly Series A-2 Shares. The earnout period was from May 22, 2019 through June 30, 2020. SDM was eligible to earn additional Firefly Series B-1 Shares equivalent to the cash collections under certain digital top contracts that were in place at the closing of the transaction. Ballantyne Strong received the shares earned pursuant to the earnout provision on August 3, 2020. In connection with the additional Firefly Series B-1 Shares that were received pursuant to the earnout, Ballantyne Strong recorded an additional $0.7 million gain on the Firefly transaction during the year ended December 31, 2020.
On August 3, 2020, SDM entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Firefly, pursuant to which SDM agreed to sell certain assets primarily related to its Strong Outdoor operating business to Firefly and continue to make available 300 digital taxi tops to Firefly. SDM retained certain accounts receivable as well as liabilities other than executory obligations under transferred contracts to the extent such liabilities are required to be performed following closing or constitute certain deferred revenue. The transaction closed on the same day.
As consideration for entering into the Asset Purchase Agreement, SDM received approximately $0.6 million in cash consideration and approximately $3.2 million worth of Firefly Series A-3 preferred shares (the “Firefly Series A-3 Shares”). In connection with the closing of the transactions contemplated by the Asset Purchase Agreement, (i) SDM received approximately $1.1 million worth of Firefly’s Series B-1 Shares, which constituted the remaining shares to be issued pursuant to the Unit Purchase Agreement; (ii) Firefly no longer had an option to repurchase any of the Series A-2 Shares held by SDM; (iii) all accounts payable to Firefly were cancelled and forgiven; and (iv) the Commercial Agreement dated May 21, 2019 was terminated, which relieved Ballantyne Strong of its obligation to exercise the purchase option contained within the master lease agreement. Ballantyne Strong recorded a gain of approximately $5.3 million during the third quarter of 2020 as a result of the transaction. As of September 30, 2021, SDM held approximately $5.7 million worth of Firefly Series B-1 Shares, which included the shares issued to SDM as part of the May 2019 transaction and $7.4 million worth of Firefly Series B-2 Shares (as defined below).
As contemplated by the Asset Purchase Agreement, Firefly Series B-1 Shares are held by SDM. The Asset Purchase Agreement includes customary representations and warranties. In connection with the Asset Purchase Agreement, SDM agreed to indemnify Firefly for excluded liabilities related to the transferred business.
Ballantyne Strong entered into a Master Services Agreement (the “Master Services Agreement”) with Firefly, pursuant to which Ballantyne Strong agreed to provide certain support services to Firefly, including remote equipment monitoring and diagnostics of screens, until no later than December 31, 2022, and to provide transition advertising instruction and integration services, content management services, ad-hoc reporting and analysis, wireless service, advertising content management services, and mapping data until no later than six months from closing. As consideration for entering into the Master Services Agreement, Ballantyne Strong received $2.0 million in cash consideration which the Company is recognizing as revenue ratably through the end of 2022
The major classes of assets and liabilities included as part of discontinued operations are as follows (in thousands):
Schedule of Financial Results of Discontinued Operations
Convergent Strong Outdoor Total
December 31, 2020
Convergent Strong Outdoor Total
Accounts receivable, net $ 3,065 $ - $ 3,065
Inventories, net -
Other current assets -
Total current assets of discontinued operations 3,748 - 3,748
Property, plant and equipment, net 3,172 - 3,172
Intangible assets, net -
Operating lease right-of-use assets -
Finance lease right-of-use assets 2,235 - 2,235
Total long-term assets of discontinued operations 6,372 - 6,372
Total assets of discontinued operations $ 10,120 $ - $ 10,120
Accounts payable $ 449 $ - $ 449
Accrued expenses -
Current portion of long-term debt 1,075 - 1,075
Current portion of operating lease obligation -
Current portion of finance lease obligation -
Deferred revenue and customer deposits -
Total current liabilities of discontinued operations 3,901 - 3,901
Long-term debt, net of current portion 2,340 - 2,340
Operating lease obligation, net of current portion -
Finance lease obligation, net of current portion 1,530 - 1,530
Other long-term liabilities -
Total long-term liabilities of discontinued operations 4,066 - 4,066
Total liabilities of discontinued operations $ 7,967 $ - $ 7,967
The major line items constituting the net income from discontinued operations are as follows (in thousands):
Convergent Strong Outdoor Total Convergent Strong Outdoor Total
Year Ended December 31, 2021 Year Ended December 31, 2020
Convergent Strong Outdoor Total Convergent Strong Outdoor Total
Net revenues $ 1,472 $ - $ 1,472 $ 18,330 $ 1,587 $ 19,917
Cost of revenues - 9,927 1,488 11,415
Gross profit - 8,403 8,502
Selling and administrative expenses 1,241 - 1,241 4,206 1,661 5,867
Loss on disposal of assets - - - (33 ) (64 ) (97 )
(Loss) income from operations (515 ) - (515 ) 4,164 (1,626 ) 2,538
Gain on Convergent transaction 14,814 - 14,814 - - -
Gain on Firefly transaction - - - - 5,264 5,264
Other income (expense) - (584 )
Income from discontinued operations 14,494 - 14,494 3,580 4,336 7,916
Income tax benefit - -
Total net income from discontinued operations $ 14,566 $ - $ 14,566 $ 3,582 $ 4,336 $ 7,918
4. Revenue
The following tables disaggregate the Company’s revenue by major source for the years ended December 31, 2021 and December 31, 2020 (in thousands):
Schedule of Disaggregation of Revenue
Strong
Entertainment Other Total Strong
Entertainment Other Total
Year Ended December 31, 2021 Year Ended December 31, 2020
Strong
Entertainment Other Total Strong
Entertainment Other Total
Screen system sales $ 9,292 $ - $ 9,292 $ 8,929 $ - $ 8,929
Digital equipment sales 8,264 - 8,264 5,174 - 5,174
Extended warranty sales - -
Other product sales 1,825 - 1,825 1,418 - 1,418
Total product sales 19,631 - 19,631 15,987 - 15,987
Field maintenance and monitoring services 5,113 - 5,113 3,763 - 3,763
Installation services - -
Other service revenues 1,144 1,299 1,022
Total service revenues 6,255 1,144 7,399 4,642 5,513
Total $ 25,886 $ 1,144 $ 27,030 $ 20,629 $ 871 $ 21,500
The following tables disaggregate the Company’s revenue by the timing of transfer of goods or services to the customer for the years ended December 31, 2021 and December 31, 2020 (in thousands):
Schedule of Disaggregation of Revenue
Strong
Entertainment Other Total Strong
Entertainment Other Total
Year Ended December 31, 2021 Year Ended December 31, 2020
Strong
Entertainment Other Total Strong
Entertainment Other Total
Point in time $ 22,218 $ 40 $ 22,258 $ 17,214 $ - $ 17,214
Over time 3,668 1,104 4,772 3,415 4,286
Total $ 25,886 $ 1,144 $ 27,030 $ 20,629 $ 871 $ 21,500
At December 31, 2021, the unearned revenue amount associated with maintenance and monitoring services and extended warranty sales in which the Company is the primary obligor was $1.5 million. The Company expects to recognize $1.5 million of unearned revenue amounts during 2022 and immaterial amounts during 2023. The amount expected to be recorded during 2022 includes $0.4 million related to long-term projects that the Company’s uses the percentage-of-completion method to recognize revenue.
5. Inventories
Schedule of Inventories
December 31, 2021 December 31, 2020
Raw materials and components $ 1,680 $ 1,584
Work in process
Finished goods 1,192
Inventories, net $ 3,271 $ 2,264
The inventory balances are net of reserves of approximately $0.5 million and $0.4 million as of December 31, 2021 and December 31, 2020, respectively. The inventory reserves primarily related to the Company’s finished goods inventory. A rollforward of the inventory reserve for 2021 is provided in Note 2.
6. Property, Plant and Equipment
Property, plant and equipment include the following (in thousands):
Schedule of Property, Plant and Equipment
December 31, 2021 December 31, 2020
Land $ 51 $ 51
Buildings and improvements 6,886 6,824
Machinery and other equipment 5,992 4,635
Office furniture and fixtures
Construction in progress
Total properties, cost 14,159 12,610
Less: accumulated depreciation (7,933 ) (7,086 )
Property, plant and equipment, net $ 6,226 $ 5,524
Depreciation expense approximated $1.0 million and $0.8 million for the years ended December 31, 2021 and December 31, 2020, respectively.
7. Equity Holdings
The following summarizes our equity holdings (dollars in thousands):
Summary of Investments
December 31, 2021 December 31, 2020
Carrying Amount Economic Interest Carrying Amount Economic Interest
Equity Method Holdings
FG Financial Group, Inc. $ 5,549 25.2 % $ 4,370 20.9 %
GreenFirst Forest Products Inc. -
2,697 29.6 %
Total Equity Method Investments 5,549
7,067
Fair Value Method Holding
GreenFirst Forest Products Inc. 22,467 8.6 % -
Cost Method Holding
Firefly Systems, Inc. 13,117
13,100
Total Equity Holdings $ 41,133
$ 20,167
The following summarizes the loss of equity method holdings reflected in the consolidated statements of operations (in thousands):
Summary of Income (Loss) of Equity Method Investees
Year Ended December 31,
Entity
FG Financial Group, Inc. $ (1,221 ) $ (2,451 )
GreenFirst Forest Products Inc. (1,150 ) (226 )
Total $ (2,371 ) $ (2,677 )
Equity Method Holding
FG Financial Group, Inc. (“FGF”) (formerly 1347 Property Insurance Holdings, Inc.) is a reinsurance and investment management holding company focused on opportunistic collateralized and loss capped reinsurance, while allocating capital to special purpose acquisition companies (each, a “SPAC”) and SPAC sponsor-related businesses.
The Company’s Chairman, D. Kyle Cerminara, is the chairman of the board of directors of FGF. Mr. Cerminara is affiliated with entities that, when combined with the Company’s ownership in FGF, own greater than 50% of FGF. Since FGF does not depend on the Company for continuing financial support to maintain operations, the Company has determined that FGF is not a variable interest entity, and therefore, the Company is not required to determine the primary beneficiary of FGF for potential consolidation. The Company did not receive dividends from FGF during the year ended December 31, 2021 or 2020. Based on quoted market prices, the fair value of the Company’s ownership in FGF was approximately $6.2 million at December 31, 2021.
In October 2021, FGF announced the closing of a public offering of common stock of 652,174 shares at a price of $4.00 per share. FGF also announced the commencement of a rights offering to holders of its common stock distributing one right to purchase up to 0.15 shares of common stock for each share outstanding as of October 25, 2021, entitling shareholders to purchase up to 757,720 shares of common stock at $4.00 per share. In November 2021, the Company elected to exercise 100% of the subscription rights distributed to it to purchase 155,761 shares of FGF common stock at a purchase price of $4.00 per share. Also in November 2021, the Company elected to exercise its over-subscription privilege to purchase 444,239 additional shares of FGF common stock. Following the issuance of the 600,000 additional shares of FGF common stock from the subscription rights offering, the Company’s FGF holdings total approximately 1.6 million shares of FGF common stock.
Fair Value Method Holding
GreenFirst Forest Products Inc. (“GreenFirst”) (formerly Itasca Capital Ltd.) is a publicly-traded Canadian company focused on environmentally sustainable forest management and lumber production. On April 12, 2021, GreenFirst announced that it had entered into an asset purchase agreement (the “GreenFirst Purchase Agreement”) pursuant to which it would acquire a portfolio of forest and paper product assets (the “Assets”) at a purchase price of approximately USD$214 million. GreenFirst filed a prospectus to conduct a backstopped rights offering (the “Rights Offering”) to finance a portion of the purchase price for the Assets. Pursuant to the prospectus, GreenFirst issued three rights (each a “Right”) for each of its outstanding shares of common stock (each a “Common Share”) with each Right being exercisable, at a subscription price of CAD$1.50, to acquire a subscription receipt (each a “Subscription Receipt”). On July 12, 2021, the Company received 21.1 million Rights. During July 2021, the Company sold 12.9 million Rights, which generated proceeds of approximately CAD$2.1 million, or approximately USD$1.7 million. In connection with the sale of the 12.9 million Rights, the Company recorded a USD$1.7 million realized gain on its equity holding in GreenFirst within other income, net on the condensed consolidated statement of operations during the third quarter of 2021. On July 30, 2021, the Company utilized the USD$1.7 million generated from the sale of Rights and approximately USD$8.3 million of cash on hand to exercise the remaining 8.3 million Rights and acquired Subscription Receipts for a total cost of CADN$12.4 million. On August 30, 2021, GreenFirst announced that it had completed the acquisition of the Assets. Upon the closing of the transactions contemplated by the Agreement, and without any further consideration, each Subscription Receipt was automatically exchanged into a Common Share. Following the exchange of the Subscription Receipts for Common Shares and the issuance of approximately 28.7 million Common Shares to the seller of the Assets, GreenFirst had a total of approximately 177.6 million Common Shares issued and outstanding. After the Subscription Receipts were exchanged into Common Shares, the Company holds approximately 15.3 million common shares of GreenFirst.
The Company’s Chairman, Mr. Cerminara, served as a member of the board of directors of GreenFirst from June 2016 to October 2021, and was also appointed Chairman of GreenFirst from June 2018 to June 2021. Prior to the closing of the acquisition of the Assets, the Company held a 20.7% ownership position in GreenFirst. The Company’s 20.7% ownership of GreenFirst, combined with Mr. Cerminara’s board seat, provided the Company with significant influence over GreenFirst, but not a controlling interest. Accordingly, the Company applied the equity method of accounting to its equity holding in GreenFirst. Following GreenFirst’s acquisition of the Assets and issuance of additional Common Shares, as described above, the Company’s ownership percentage decreased to 8.6%. As a result, the Company is no longer able to exercise significant influence and the equity holding in GreenFirst no longer qualifies for equity method accounting. Beginning in the third quarter of 2021, the carrying amount of the Company’s equity holding in GreenFirst is determined using its fair value. As a result of applying the fair value method of accounting, the Company recorded an unrealized gain on equity holdings of approximately $10.6 million during the year ended December 31, 2021. Based on quoted market prices, the fair value of the Company’s ownership in GreenFirst was $22.5 million as of December 31, 2021.
The Company did not receive dividends from GreenFirst during the year ended December 31, 2021 or 2020.
As of December 31, 2021, the Company’s retained earnings included an accumulated deficit from its equity method investees of approximately $6.4 million.
The summarized financial information presented below reflects the aggregated financial information of FGF and GreenFirst as of and for the twelve months ended September 30 of each year, consistent with the Company’s policy to recognize the results of its equity method holdings on a one quarter lag. The summarized financial information is presented only for the periods when the Company owned its equity holding and an equity holding is included for the periods when the equity holding was classified as an equity method holding. Because FGF does not present a classified balance sheet, major components of its assets and liabilities are presented instead of current and noncurrent assets and liabilities. Dollar amounts presented below are in thousands.
Summarized Financial Information
For the year ended September 30,
Revenue (1) $ 4,916 $ (12,573 )
Operating loss $ (10,376 ) $ (18,012 )
Net loss $ (10,347 ) $ (12,873 )
(1) FGF records realized and unrealized gains and losses on investments in net investment income (loss), which is included in the revenue line above.
As of September 30,
Cash and cash equivalents - FGF $ 8,929 $ 15,233
Equity and other investments - FGF 18,387 18,387
Other assets - FGF 3,336 3,336
Current assets - GFP - 10,086
Total assets $ 30,652 $ 47,042
Other liabilities - FGF $ 6,082 $ 562
Current liabilities - GFP -
Total liabilities $ 6,082 $ 1,111
Cost Method Holding
The Company received preferred shares of Firefly in connection with the transactions with Firefly in May 2019 and August 2020. See Note 3 for additional details. In addition, on August 3, 2020, the Company’s Canadian subsidiary, Strong/MDI Screen Systems, Inc. (“Strong/MDI”) entered into a Stock Purchase Agreement with Firefly, pursuant to which Strong/MDI agreed to purchase $4.0 million worth of Firefly Series A-3 Shares, which were subsequently renamed Firefly Series B-2 Shares (the “Firefly Series B-2 Shares”). The Company and its affiliated entities have designated Kyle Cerminara, Chairman of the Company’s board of directors and a principal of the Company’s largest shareholder, to Firefly’s board of directors.
8. Intangible Assets
Intangible assets consisted of the following at December 31, 2021 (dollars in thousands):
Schedule of Intangible Assets
Useful
life Gross Accumulated
Amortization Net
(Years)
Software in service $ 1,303 $ (1,251 ) $ 52
Product formulation (465 )
Total
$ 1,785 $ (1,716 ) $ 69
Intangible assets consisted of the following at December 31, 2020 (dollars in thousands):
Useful
life Gross Accumulated
Amortization Net
(Years)
Software in service $ 1,248 $ (928 ) $ 320
Product formulation (444 )
Total
$ 1,725 $ (1,372 ) $ 353
Intangible assets with definite lives are amortized over their useful lives. The Company recorded amortization expense relating to intangible assets of $0.3 million during each of the years ended December 31, 2021 and 2020.
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):
Schedule of Intangible Assets Future Amortization Expense
$ 63
-
-
-
Thereafter -
Total $ 69
9. Goodwill
All of the Company’s goodwill is related to the Strong Entertainment segment. The following represents a summary of changes in the Company’s carrying amount of goodwill (in thousands):
Summary of Changes in Carrying Amount of Goodwill
Balance as of December 31, 2020 $ 938
Foreign currency translation adjustment
Balance as of December 31, 2021 $ 942
10. Accrued Expenses
The major components of current accrued expenses are as follows (in thousands):
Schedule of Accrued Expenses
December 31, 2021 December 31, 2020
Employee-related $ 1,538 $ 1,520
Legal and professional fees
Warranty obligation
Interest and taxes
Post-retirement benefit obligation
Other
Total $ 2,994 $ 2,182
The major components of other long-term liabilities are as follows (in thousands):
Schedule of Long Term Accrued Liabilities
December 31, 2021 December 31, 2020
Post-retirement benefit obligation $ 108 $ 96
Deferred revenue
Deferred payroll taxes -
Total $ 118 $ 223
11. Income Taxes
Income (loss) from continuing operations before income taxes consists of (in thousands):
Schedule of Income Before Income Tax, Domestic and Foreign
Years Ended December 31,
United States $ (4,758 ) $ (12,046 )
Foreign 11,365 5,039
Total $ 6,607 $ (7,007 )
Income tax expense from continuing operations consists of (in thousands):
Schedule of Components of Income Tax Expense (Benefit)
Years Ended December 31,
Federal:
Current $ - $ -
Federal current $ - $ -
Deferred - -
Federal deferred - -
Total - -
Federal total - -
State:
Current
State current
Deferred - -
State deferred - -
Total
State total
Foreign:
Current 1,040
Foreign current 1,040
Deferred 2,477
Foreign deferred 2,477
Total 3,190 1,244
Foreign total 3,190 1,244
Total $ 3,236 $ 1,258
Income tax expense from continuing operations differed from the amounts computed by applying the U.S. Federal income tax rate to pretax income (loss) from continuing operations as follows (in thousands):
Schedule of Effective Income Tax Rate Reconciliation
Years Ended December 31,
Expected federal income tax expense (benefit) $ 1,388 $ (1,477 )
State income taxes, net of federal benefit
Foreign tax rate differential
Change in state tax rate (713 )
Change in valuation allowance 2,084 2,279
GILTI inclusion
Return to provision (314 ) (417 )
Foreign dividend inclusion
Deferred tax adjustments (333 ) -
Other (188 ) (183 )
Total $ 3,236 $ 1,258
Deferred tax assets and liabilities were comprised of the following (in thousands):
Schedule of Deferred Tax Assets and Liabilities
December 31, 2021 December 31, 2020
Deferred tax assets:
Deferred revenue $ 415 $ 536
Non-deductible accruals
Inventory reserves
Stock compensation expense
Warranty reserves
Uncollectible receivable reserves
Net operating losses 8,561 9,770
Fair value adjustment to notes receivable
Tax credits 1,699 1,699
Disallowed interest expense
Equity in income of equity method holdings (1,262 )
Other
Total deferred tax assets 12,528 15,765
Valuation allowance (13,640 ) (15,143 )
Net deferred tax assets after valuation allowance (1,112 )
Deferred tax liabilities:
Depreciation and amortization 1,618 1,295
Cash repatriation 2,864 2,426
Total deferred tax liabilities 4,482 3,721
Net deferred tax liability $ (5,594 ) $ (3,099 )
During the year ended December 31, 2020, the Company sold the assets of its Strong Outdoor business segment, and in the year ended December 31, 2021, the Company sold its Convergent business segment. See Note 3 for additional details. The tax expense/benefit for these business segments have been allocated to discontinued operations; however, the Company has sufficient net operating losses to offset taxable income/loss from these discontinued operations, all of which is offset by a valuation allowance.
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. The Company considers the scheduled reversal of taxable temporary differences, projected future taxable income and tax planning strategies in making this assessment. A cumulative loss in a particular jurisdiction in recent years is a significant piece of evidence with respect to the realizability that is difficult to overcome. Based on the available objective evidence including recent updates to the taxing jurisdictions generating income, the Company concluded that a valuation allowance of $13.6 million and $15.1 million should be recorded against the Company’s U.S. tax jurisdiction deferred tax assets as of December 31, 2021 and 2020, respectively. The overall change in valuation allowance was a reduction of $1.5 million; however some changes in valuation allowance were allocated to discontinued operations. The effective tax rate above relates only to continuing operations.
The Company recorded a deferred tax liability related to withholding tax on the repatriation of earnings from its Canadian subsidiary of $2.9 million and $2.4 million as of December 31, 2021 and 2020, respectively.
A provision of Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) was the implementation of the Global Intangible-Low Taxed Income Tax, or “GILTI.” The Company has elected to account for the impact of GILTI in the period in which the tax actually applies to the Company. During the year ended December 31, 2021, the Company incurred an estimated $1.0 million of additional taxable income as a result of this provision. This increase in taxable income was incorporated into the overall net operating loss and valuation allowance.
The Company’s gross net operating loss carryforwards for Federal tax purposes total approximately $35.5 million and $41.9 million at December 31, 2021 and 2020 respectively, expiring at various times in 2033 through 2037 for Federal losses generated through December 31, 2017. As a result of the 2017 Tax Act, all Federal net operating losses that are generated beginning January 1, 2018 and beyond will carryforward indefinitely. The Company has foreign tax credit carryforwards of approximately $1.7 million as of December 31, 2021, that expire in 2024. Utilization of these losses may be limited in the event certain changes in ownership occur.
In March of 2020, The Coronavirus Aid, Relief, and Economic Security Act was enacted and made significant changes to Federal tax laws, including certain changes that were retroactive to the 2019 tax year. Changes in tax laws are accounted for in the period of enactment and the retroactive effects are recognized in these financial statements. There were no material income tax consequences of this enacted legislation on the reporting period of these financial statements.
The Company is subject to possible examinations not yet initiated for Federal purposes for the fiscal years 2018, 2019 and 2020. In most cases, the Company has examinations open for state or local jurisdictions based on the particular jurisdiction’s statute of limitations.
Estimated amounts related to underpayment of income taxes, including interest and penalties, are classified as a component of income tax expense in the consolidated statements of operations and were not material for the years ended December 31, 2021 and 2020. Amounts accrued for estimated underpayment of income taxes were zero as of December 31, 2021 and 2020.
12. Debt
The Company’s short-term and long-term debt consist of the following (in thousands):
Schedule of Short term and Long term Debt
December 31, 2021 December 31, 2020
Short-term debt:
$ 2,682 $ 2,906
Strong/MDI 20-year installment loan $ 2,682 $ 2,906
Strong/MDI 5-year equipment loan
Total short-term debt $ 2,998 $ 3,299
Long-term debt:
Tenant improvement loan $ 128 $ -
Less: current portion (23 ) -
Long-term debt, net of current portion $ 105 $ -
Strong/MDI Installment Loans
On September 5, 2017, the Company’s Canadian subsidiary, Strong/MDI, entered into a demand credit agreement, as amended and restated May 15, 2018, with a bank consisting of a revolving line of credit for up to CAD$3.5 million, subject to a borrowing base requirement, a 20-year installment loan for up to CAD$6.0 million and a 5-year installment loan for up to CAD$0.5 million. On June 7, 2021, Strong/MDI entered into a demand credit agreement (the “2021 Credit Agreement”), which amended and restated the demand credit agreement dated as of September 5, 2017. The 2021 credit agreement consists of a revolving line of credit for up to CAD$2.0 million subject to a borrowing base requirement, a 20-year installment loan for up to CAD$5.1 million and a 5-year installment loan for up to CAD$0.5 million. Amounts outstanding under the line of credit are payable on demand and bear interest at the prime rate established by the lender. Amounts outstanding under the installment loans bear interest at the lender’s prime rate plus 0.5% and are payable in monthly installments, including interest, over their respective borrowing periods. The lender may also demand repayment of the installment loans at any time. The Strong/MDI credit facilities are secured by a lien on Strong/MDI’s Quebec, Canada facility and substantially all of Strong/MDI’s assets. The 2021 Credit Agreement requires Strong/MDI to maintain a ratio of liabilities to “effective equity” (tangible stockholders’ equity, less amounts receivable from affiliates and equity method holdings) not exceeding 2.5 to 1, a current ratio (excluding amounts due from related parties) of at least 1.3 to 1 and minimum “effective equity” of CAD$4.0 million. As of December 31, 2021, there was CAD$3.4 million, or approximately $2.7 million, of principal outstanding on the 20-year installment loan, which bears variable interest at 2.95%. As of December 31, 2021, there was CAD$0.4 million, or approximately $0.3 million, of principal outstanding on the 5-year installment loan, which also bears variable interest at 2.95%. Strong/MDI was in compliance with its debt covenants as of December 31, 2021.
Tenant Improvement Loan
During the fourth quarter of 2021, the Company entered into a lease for a combined office and warehouse in Omaha, Nebraska, which replaces the warehouse lease that expires in May 2022. The Company expects to incur total costs of approximately $0.4 million to complete the build-out of the new combined office and warehouse facility. The landlord has agreed to fund approximately 50% of the build-out costs, and the Company is required to repay the portion funded by the landlord in equal monthly installments through the end of the initial lease term in February 2027. Through the end of 2021, the Company has incurred approximately $0.2 million of total costs to build out the facility, of which approximately $0.1 million has been funded by the landlord. The Company expects to complete the build-out during the first quarter of 2022.
13. Stock Compensation
The Company recognizes compensation expense for all stock-based payment awards based on estimated grant date fair values. Stock-based compensation expense included in selling and administrative expenses approximated $0.9 million and $1.1 million for the years ended December 31, 2021 and December 31, 2020, respectively.
The Company’s 2017 Omnibus Equity Compensation Plan (“2017 Plan”) was approved by the Company’s stockholders and provides the Compensation Committee of the Board of Directors with the discretion to grant stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares, performance units and other stock- based awards and cash-based awards. Vesting terms vary with each grant and may be subject to vesting upon a “change in control” of the Company. On December 17, 2019, the Company’s stockholders approved the amendment and restatement of the 2017 Plan to (i) increase the number of shares of the Company’s common stock authorized for issuance under the 2017 Plan by 1,975,000 shares and (ii) extend the expiration date of the 2017 Plan by approximately two years, until October 27, 2029. As of December 31, 2021, 2,413,740 shares were available for issuance under the amended and restated 2017 Plan.
Stock Options
The Company did not grant stock options during the year ended December 31, 2021 and granted a total of 125,000 stock options during the year ended December 31, 2020. Options to purchase shares of common stock were granted with exercise prices equal to the fair value of the common stock on the date of the grant.
The weighted average grant date fair value of stock options granted during the year ended December 31, 2020 was $0.84. The fair value of each stock option granted is estimated on the date of grant using a Black-Scholes valuation model with the following weighted average assumptions:
Schedule of Weighted Average Assumptions for Fair Value of Stock Options Granted During the Period
Expected dividend yield at date of grant 0.00 %
Risk-free interest rate 0.45 %
Expected stock price volatility 57.7 %
Expected life of options (in years) 6.0
The risk-free interest rate assumptions were based on the U.S. Treasury yield curve in effect at the time of the grant. The expected volatility was based on historical daily price changes of the Company’s stock for six years prior to the date of grant. The expected life of options is the average number of years the Company estimates that options will be outstanding.
The following table summarizes stock option activity for 2021:
Summary of Stock Options Activities
Number of Options Weighted
Average
Exercise Price
Per Share Weighted
Average
Remaining
Contractual
Term (Years) Aggregate
Intrinsic Value
(in thousands)
Outstanding at December 31, 2020 1,009,500 $ 3.99 7.3 $ 51
Granted -
Exercised (4,000 ) 2.25
Forfeited (156,000 ) 4.10
Expired (190,000 ) 5.03
Outstanding at December 31, 2021 659,500 $ 3.68 6.6 $ 187
Exercisable at December 31, 2021 362,500 $ 4.22 5.9 $ 48
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 December 31, 2021, 297,000 stock option awards were non-vested. Unrecognized compensation costs related to all stock options outstanding amounted to $0.3 million at December 31, 2021, which is expected to be recognized over a weighted-average period of 2.4 years.
Restricted Stock Shares and Restricted Stock Units
The Company awarded a total of 122,609 and 315,634 restricted stock units during the years ended December 31, 2021 and 2020, respectively. The Company estimates the fair value of restricted stock awards based upon the market price of the underlying common stock on the date of grant. The weighted average grant date fair value of restricted stock units granted during the years ended December 31, 2021 and 2020 was $3.00 and $1.58, respectively. The fair value of restricted stock awards that vested during each of the years ended December 31, 2021 and 2020 was $0.4 million.
The following table summarizes restricted stock unit activity for 2021:
Summary of Restricted Stock Activity
Number of Restricted
Stock Units Weighted Average Grant
Date Fair Value
Non-vested at December 31, 2020 604,687 $ 2.38
Granted 122,609 3.00
Shares vested (413,217 ) 2.51
Shares forfeited -
Non-vested at December 31, 2021 314,079 $ 2.45
As of December 31, 2021, the total unrecognized compensation cost related to non-vested restricted stock awards was approximately $0.4 million, which is expected to be recognized over a weighted average period of 1.0 years.
14. Compensation and Benefit Plans
Retirement Plan
The Company sponsors a defined contribution 401(k) plan (the “Plan”) for all eligible employees. Pursuant to the provisions of the Plan, employees may defer up to 100% of their compensation. The Company will match 50% of the amount deferred up to 6% of their compensation. The contributions made to the Plan by the Company were approximately $0.1 million for each of the years ended December 31, 2021 and 2020.
15. Leases
As of December 31, 2021, the Company and its subsidiaries leased 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 operations on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.
The Company elected, as a lessee, for all classes of underlying assets, to not separate nonlease components from lease components and instead to account for each separate lease component and the nonlease components associated with that lease component as a single lease component.
The following tables present the Company’s lease costs and other lease information (dollars in thousands):
Schedule of Lease Costs and Other Lease Information
December 31, 2021 December 31, 2020
Lease cost Year Ended
December 31, 2021 December 31, 2020
Finance lease cost:
Amortization of right-of-use assets $ 3 $ 892
Interest on lease liabilities
Operating lease cost 1,269
Short-term lease cost
Sublease income (335 ) (342 )
Net lease cost $ 898 $ 2,215
December 31, 2021 December 31, 2020
Other information Year Ended
December 31, 2021 December 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases $ 292 $ 338
Operating cash flows from operating leases $ 819 $ 1,036
Financing cash flows from finance leases $ 2,106 $ 896
Right-of-use assets obtained in exchange for new
operating lease liabilities $ 291 $ -
Right-of-use assets obtained in exchange for new operating lease liabilities $ 291 $ -
As of
December 31, 2021
Weighted-average remaining lease term - operating leases (years)
6.3
Weighted-average discount rate - operating leases
4.9 %
The following table presents a maturity analysis of the Company’s operating lease liabilities as of December 31, 2021 (in thousands):
Schedule of Future Minimum Lease Payments
Operating Leases
$ 768
Thereafter 1,082
Total lease payments 4,868
Less: Amount representing interest (705 )
Present value of lease payments 4,163
Less: Current maturities (577 )
Lease obligations, net of current portion $ 3,586
On March 2, 2021, the Company received a notice of default and demand (the “Default Notice”) from Huntington Technology Finance, Inc. (“Huntington”). The Default Notice alleged the occurrence of an event of default under the terms of the Master Equipment Lease Agreement dated May 19, 2017 (the “Lease Agreement”), pursuant to which the Company’s subsidiaries lease certain digital taxi top advertising signs. The Company made all required payments to Huntington during the term of the Lease Agreement. The Default Notice did not allege that the Company has failed to make any payment or incurred any economic or payment default. Rather, the Default Notice alleged that the Company violated certain technical covenants in the Lease Agreement. Huntington demanded accelerated payment of the outstanding principal balance plus lessor profit and a fair market value buyout of the assets under lease within ten days of the receipt of the Default Notice. The Company disputed Huntington’s assertion that an event of default had occurred under the Lease Agreement and believes that many of the assertions made in the Default Notice are false, and that the claims made in the Default Notice are therefore baseless. Accordingly, on March 3, 2021, the Company provided a written response to Huntington detailing the Company’s position that Huntington’s allegations of an event of default under the Lease Agreement are unfounded, and asserting the Company’s good faith belief that the Company has abided by the terms, conditions, and covenants of the Lease Agreement. In order to resolve the situation and avoid the potential costs of a lengthy legal dispute, on April 2, 2021, the Company entered into an Agreement of Forbearance and Conditional Sale (the “Settlement Agreement”) with Huntington and CCA Financial, LLC. The amounts payable by the Company pursuant to the Settlement Agreement include only payments contractually due under the Lease Agreement and do not include any additional penalties, interest, or liquidation damages. The Company agreed to accelerate payment of the $2.1 million remaining payments contractually due under the Lease Agreement and to exercise its option to purchase the leased assets for $1.0 million. The $2.1 million plus sales tax owed under the Lease Agreement was paid upon execution of the Settlement Agreement and the lease equipment buyout was expected to be paid in twelve monthly installments from June 1, 2021 to May 1, 2022. In December 2021, the Company satisfied the remaining obligation related to the lease equipment buyout. Upon payment in full, the Lease Agreement and all obligations thereunder were terminated.
16. Commitments, Contingencies and Concentrations
Concentrations
The Company’s top ten customers accounted for approximately 38% of 2021 consolidated net revenues. Trade accounts receivable from these customers represented approximately 29% of net consolidated receivables at December 31, 2021. None of the Company’s customers accounted for more than 10% of both its consolidated net revenues during 2021 and its net consolidated receivables as of December 31, 2021. While the Company believes its relationships with such customers are stable, most arrangements are made by purchase order and are terminable at will by either party. A significant decrease or interruption in business from the Company’s significant customers could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company could also be adversely affected by such factors as changes in foreign currency rates and weak economic and political conditions in each of the countries in which the Company sells its products.
Litigation
The Company is involved, from time to time, in certain legal disputes in the ordinary course of business. No such disputes, individually or in the aggregate, are expected to have a material effect on the Company’s business or financial condition.
The Company and certain of its subsidiaries are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. A majority of the cases involve product liability claims based principally on allegations of past distribution of commercial lighting products containing wiring that may have contained asbestos. Each case names dozens of corporate defendants in addition to Ballantyne Strong. In the Company’s experience, a large percentage of these types of claims have never been substantiated and have been dismissed by the courts. The Company has not suffered any adverse verdict in a trial court proceeding related to asbestos claims and intends to continue to defend these lawsuits. During 2021, the Company recorded a loss contingency reserve of approximately $0.3 million, which represents the Company’s estimate of its potential losses related to the resolution of open cases. When appropriate, Ballantyne Strong settle certain claims. The Company does not expect the resolution of these cases to have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.
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 made claims for reimbursement of incurred costs of the affected portion of the facility and compensation for the Company’s business interruption losses. During the third quarter of 2020, the Company reached a settlement with its insurance company which resolved all contingencies related to its business interruption claim, which resulted in an insurance recovery gain of approximately $2.7 million, which is included within Other income, net on the condensed consolidated statement of operations.
17. Business Segment Information
The Company conducts its operations primarily through its Strong Entertainment business segment which manufactures and distributes premium large format projection screens and provides technical support services and other related products and services to the cinema exhibition industry, theme parks, schools, museums and other entertainment-related markets. Strong Entertainment also distributes and supports third party products, including digital projectors, servers, library management systems, menu boards and sound systems. The Company’s operating segments were determined based on the manner in which management organizes segments for making operating decisions and assessing performance.
Summary by Business Segments
Schedule of Segment Reporting Information by Segment
Years Ended December 31,
(in thousands)
Net revenues
Strong Entertainment $ 25,886 $ 20,629
Other 1,144
Total net revenues 27,030 21,500
Gross profit
Strong Entertainment 7,283 4,646
Other
Total gross profit 8,210 5,409
Operating income (loss)
Strong Entertainment 2,211
Other (756 ) (86 )
Total segment operating income (loss) 1,455 (84 )
Unallocated administrative expenses (4,593 ) (6,575 )
Unallocated loss on disposal of assets (38 ) (25 )
Loss from operations (3,138 ) (6,684 )
Other income, net 12,116 2,354
Income (loss) from continuing operations before income taxes and equity method holding loss $ 8,978 $ (4,330 )
Years Ended December 31,
(in thousands)
Capital expenditures:
Strong Entertainment $ 394 $ 468
Unallocated 1,133
Total capital expenditures from continuing operations $ 1,527 $ 545
Depreciation, amortization and impairment:
Strong Entertainment $ 907 $ 870
Unallocated
Total depreciation, amortization and impairment from continuing operations $ 1,306 $ 1,051
Reconciliation of Assets from Segment to Consolidated
(In thousands) December 31, 2021 December 31, 2020
Identifiable assets
Strong Entertainment $ 38,518 $ 21,408
Corporate assets 37,291 23,971
Discontinued operations - 10,120
Total $ 75,809 $ 55,499
Summary by Geographical Area
Schedule of Segment Reporting Information by Geographic Area
(In thousands)
Years December 31,
(In thousands)
Net revenues
United States $ 22,462 $ 17,603
Canada 1,600 1,010
China
Mexico
Latin America
Europe
Asia (excluding China)
Other
Total $ 27,030 $ 21,500
Summary of Identifiable Assets by Geographical Area
(In thousands) December 31, 2021 December 31, 2020
Identifiable assets
United States $ 46,585 $ 34,924
Canada 29,224 20,575
Total $ 75,809 $ 55,499
Net revenues by business segment are to unaffiliated customers. Identifiable assets by geographical area are based on location of facilities. Net sales by geographical area are based on destination of sales.
18. Subsequent Events
Purchase of Digital Ignition Building
On January 28, 2022, the Company, through its wholly owned subsidiary, Digital Ignition, LLC, and Metrolina Alpharetta, LLC (“Metrolina”) entered into an agreement pursuant to which the Company purchased a parcel of land with buildings and improvements in Alpharetta, GA. The Company previously leased the building and uses it for its Digital Ignition technology incubator and co-working facility. The purchase price consisted of (i) $5.8 million, (ii) approximately 0.8 million shares of the Company’s common stock (the “Stock Grant”), and (iii) a warrant to purchase an additional 0.1 million shares of the Company’s common stock (the “Stock Warrant”).
The Stock Grant was made to Metrolina Capital Investors, LLC, (“Metrolina Capital”) and consisted of approximately 0.8 million shares of the Company’s common stock with a value equal to approximately $2.3 million. The number of shares of the Company’s stock was determined based upon a price per share equal to the average of the closing price of our on the NYSE American exchange for the 60 most recent trading days prior to February 1, 2022, rounded up to the nearest whole number of shares. Additionally, the Company issued the Stock Warrant to Metrolina Capital, consisting of a ten-year warrant to purchase up to 0.1 million shares of the Company’s common stock at an exercise price per share of $3.00. In connection with the issuance of Stock Warrant, the Company and Metrolina agreed that other warrants previously granted by the Company to Metrolina were cancelled and terminated.
Strong Studios
On March 3, 2022, the Company, Strong Studios, Inc. a wholly owned subsidiary of STS, (“Strong Studios”), and Landmark Studio Group LLC (“Landmark”) entered into (a) an Assignment and Attachment Agreement (the “AA Agreement”), pursuant to which Landmark agreed to assign and transfer its rights in certain television series projects to Strong Studios in return for certain future executive production and development fees, 7.5% of certain future net proceeds, plus warrants to purchase 150,000 common shares in the Company post IPO; and (b) a Purchase Agreement (the “Purchase Agreement”), pursuant to which Landmark agreed to sell to Strong Studios, and Strong Studios agreed to purchase from Landmark certain rights in certain motion picture and television projects in return for certain future production fees, the guaranteed payment of approximately $1.7 million and 10% of the Net Proceeds (as defined therein) from the those projects. Together, the AA Agreement and the Purchase Agreement are referred to as the “Agreements.”
AA Agreement
Pursuant to the AA Agreement, Landmark agreed to assign, transfer and covey to Strong Studios all of Seller’s right, title, and interest in (a) certain agreements (the “AA Underlying Agreements”) listed in the AA Agreement under which the Seller acquired rights, title, or interests in the television series projects “Flagrant” and “Safehaven” (the “AA Projects”), (b) all literary and dramatic material transferred or generated under the AA Underlying Agreements, and (c) all of the Seller’s other interests in the AA Projects, as described more fully in the AA Agreement.
In consideration for such assignment, and in the event that Strong Studios develops a production of any of the AA Projects in any media, Strong Studios agreed to pay Landmark: (a) an executive fee for each episode of an AA Project produced, which shall be $20,000 per episode for Safehaven and $30,000 per episode for Flagrant, (b) one-time lump sum development fees for each AA Project which shall be $200,000 for Safehaven and $200,000 for Flagrant, (c) a fee for 7.5% of net proceeds from future sequels, spinoffs, and other derivatives of the AA Projects, and a warrant for the purchase 150,000 common shares of the Company, exercisable for 5 years as of six months from the date of the consummation of the initial public offering of the Company. The exercise price of the warrant would be equal to the per-share offering price to the public in the Company’s initial public offering. In the event that an initial public offering of the Company does not occur within a specified time, Landmark would have the right to surrender the warrant in exchange for 2.5% ownership in the Company.
As a condition precedent to entry into the AA Agreement, Strong Studios agreed to enter into distribution agreements for the AA Projects (the “AA Distribution Agreements”) with Screen Media Ventures, LLC (“SMV”). Pursuant to the AA Distribution Agreements, SMV agreed to make an aggregate of $9.0 million in advances to Strong Studios in return for the right to distribute the AA Projects as more fully provided under such AA Distribution Agreements.
AA Purchase Agreement
In consideration for the sale, of the rights to certain the motion picture and television projects under the AA Purchase Agreement, Strong Studios agreed to pay to Landmark approximately $1.7 million in four separate payments (the “Guaranteed Payments”), subject to certain limitations, reductions, and setoffs as more fully set forth in the Purchase Agreement, together with 10% of the Net Proceeds (as defined therein) from those projects. Pursuant to the Purchase Agreement, Ballantyne unconditionally guaranteed the full and timely payment of Guaranteed Payments of Strong Studios to Landmark.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e), and internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.
Internal Control over Financial Reporting
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s internal control over financial reporting. The Company’s management used the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to perform this evaluation. Based on that evaluation, the Company’s management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2021.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting for the three months ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
BOARD OF DIRECTORS
Set forth below is certain information regarding the members of the Company’s Board of Directors, including the year in which each current director became a director of the Company. Each director is entitled to serve until the 2022 annual meeting of the Company’s stockholders and until a successor is duly elected and qualified or until his earlier retirement, resignation or removal. The age and business experience of each director are reported as of December 31, 2021.
D. Kyle Cerminara, age 44, has served as a director of Ballantyne Strong since February 2015 and the Chairman of the Company’s Board of Directors since May 2015. Mr. Cerminara previously served as the Company’s Chief Executive Officer from November 2015 to April 2020. Mr. Cerminara has over 20 years’ experience as an institutional investor, asset manager, director, chief executive, founder and operator of multiple financial services and technology businesses. Mr. Cerminara co-founded Fundamental Global in 2012 and serves as its Chief Executive Officer. Mr. Cerminara is a member of the board of directors of a number of companies focused in the reinsurance, investment management, technology and communication sectors, including FG Financial Group, Inc. (NASDAQ: FGF) (formerly known as 1347 Property Insurance Holdings, Inc.), which operates as a diversified reinsurance and investment management company, since December 2016; BK Technologies Corporation (NYSE American: BKTI), a provider of two-way radio communications equipment, since July 2015; Ballantyne, since February 2015; and Firefly Systems Inc., a venture- backed digital advertising company, since August 2020. Mr. Cerminara is President and will serve as a director of FG New America Acquisition II Corp., a special purpose acquisition company currently in the process of completing its initial public offering and which is focused on searching for a target company in the financial services and insurance industries, and he is also the chairperson of the board of directors of FG Acquisition Corp., a Canadian special purpose acquisition company currently in the process of completing its initial public offering and which is focused on searching for a target company in the financial services sector. In addition, Mr. Cerminara has served as a Senior Advisor to FG Merger Corp. (NASDAQ: FGMC), a special purpose acquisition company, since February 2022. Mr. Cerminara was appointed Chairman of FG Financial Group, Inc. in May 2018 and served as its Principal Executive Officer from March 2020 to June 2020. From April 2021 to December 2021, Mr. Cerminara served as a director of Aldel Financial Inc. (NYSE: ADF), a special purpose acquisition company co-sponsored by Fundamental Global, which merged with Hagerty, (NYSE: HGTY) a leading specialty insurance provider focused on the global automotive enthusiast market. From July 2020 to July 2021, Mr. Cerminara served as Director and President of FG New America Acquisition Corp. (NYSE: FGNA), a special purpose acquisition company, which merged with OppFi Inc. (NYSE: OPFI), a leading financial technology platform that powers banks to help everyday consumers gain access to credit. Mr. Cerminara has served as the Chairman of Ballantyne since May 2015 and previously served as its Chief Executive Officer from November 2015 through April 2020. Mr. Cerminara was the Chairman of BK Technologies Corporation from March 2017 until April 2020. He served on the board of directors of GreenFirst Forest Products Inc. (TSXV: GFP) (formerly Itasca Capital Ltd.), a public company focused on investments in the forest products industry, from June 2016 to October 2021 and was appointed Chairman from June 2018 to June 2021; Limbach Holdings, Inc. (NASDAQ: LMB), a company which provides building infrastructure services, from March 2019 to March 2020; Iteris, Inc. (NASDAQ: ITI), a publicly-traded, applied informatics company, from August 2016 to November 2017; Magnetek, Inc., a publicly-traded manufacturer, in 2015; and blueharbor bank, a community bank, from October 2013 to January 2020. He served as a Trustee and President of StrongVest ETF Trust, which was an open-end management investment company, from July 2016 to March 2021. Previously, Mr. Cerminara served as the Co-Chief Investment Officer of CWA Asset Management Group, LLC, a position he held from January 2013 to December 2020. Prior to these roles, Mr. Cerminara was a Portfolio Manager at Sigma Capital Management, an independent financial adviser, from 2011 to 2012, a Director and Sector Head of the Financials Industry at Highside Capital Management from 2009 to 2011, and a Portfolio Manager and Director at CR Intrinsic Investors from 2007 to 2009. Before joining CR Intrinsic Investors, Mr. Cerminara was a Vice President, Associate Portfolio Manager and Analyst at T. Rowe Price (NASDAQ: TROW) from 2001 to 2007, where he was named amongst Institutional Investor’s Best of the Buy Side Analysts in November 2006, and an Analyst at Legg Mason from 2000 to 2001. Mr. Cerminara received an MBA degree from the Darden Graduate School of Business at the University of Virginia and a B.S. in Finance and Accounting from the Smith School of Business at the University of Maryland, where he was a member of Omicron Delta Kappa, an NCAA Academic All American and Co-Captain of the men’s varsity tennis team. He also completed a China Executive Residency at the Cheung Kong Graduate School of Business in Beijing, China. Mr. Cerminara holds the Chartered Financial Analyst (CFA) designation. Mr. Cerminara brings to the Board of Directors the perspective of the Company’s largest stockholder. He also has extensive experience in the financial industry, including investing, capital allocation, finance and financial analysis of public companies, and operational experience as our former Chief Executive Officer, which qualify him to serve on our Board of Directors.
William J. Gerber, age 63, has served as a director of Ballantyne Strong since May 2015. Mr. Gerber served as Chief Financial Officer of TD Ameritrade Holding Corporation (Nasdaq: AMTD) (“TD Ameritrade”), a provider of securities brokerage services and related technology-based financial services to retail investors, traders and independent registered investment advisors, from October 2006 to October 2015. In May 2007, he was named Executive Vice President of TD Ameritrade. In his role as Chief Financial Officer, he oversaw investor relations, business development, certain treasury functions and finance operations, including accounting, business planning and forecasting, external and internal reporting, tax and competitive intelligence. From May 1999 until October 2006, he served as the Managing Director of Finance at TD Ameritrade, during which time he played a significant role in evaluating merger and acquisition opportunities. Prior to joining TD Ameritrade, he served as Vice President of Acceptance Insurance Companies, Inc. (“Acceptance”), where he was responsible for all aspects of mergers and acquisitions, investment banking activity, banking relationships, investor communications and portfolio management. Prior to joining Acceptance, Mr. Gerber spent eight years with Coopers & Lybrand, now known as PricewaterhouseCoopers, serving as an audit manager primarily focusing on public company clients. Mr. Gerber was named to Institutional Investor Magazine’s All-America Executive Team as one of the top three CFOs in the Brokerage, Asset Managers and Exchanges category (2012 and 2013). He was also named a member of the CNBC CFO Council (2013 and 2014). Since January 2017, he has served on the Board of Directors of Northwestern Mutual Series Fund, Inc., a mutual fund company. He has also served on the Board of Directors of the U.S. holding company for the Royal Bank of Canada since July 2016 and Streck, Inc., a privately held company, since March 2015. He previously served on the Boys Town National Board of Trustees and the Board of Directors for CTMG Inc., a privately held pharmaceutical testing company. Mr. Gerber holds a B.B.A. in Accounting from the University of Michigan. Mr. Gerber is also a Certified Public Accountant in the State of Michigan. Mr. Gerber served as Executive Vice President and Chief Financial Officer of TD Ameritrade, an online brokerage business, for more than eight years and has extensive financial experience, bringing valuable skills to our Board of Directors.
Charles T. Lanktree, age 72, has served as a director of Ballantyne Strong since May 2015. Since January 2022, Mr. Lanktree has served as an advisor to Eggland’s Best, LLC, a joint venture between Eggland’s Best, Inc. and Land O’Lakes, Inc. distributing nationally branded eggs. Mr. Lanktree served as Chief Executive Officer of Eggland’s Best, LLC from 2012 to December 2021 and also served as its President from 2012 to 2018. From 1997 to December 2021, Mr. Lanktree served as President and Chief Executive Officer of Eggland’s Best, Inc., a franchise-driven consumer egg business, where he previously served as the President and Chief Operating Officer from 1995 to 1996 and Executive Vice President and Chief Operating Officer from 1990 to 1994. Mr. Lanktree currently serves on the Board of Directors of Eggland’s Best, Inc. and several of its affiliates. He has also served on the board of directors of BK Technologies Corporation (NYSE American: BKTI), a holding company with a wholly-owned operating subsidiary that manufactures high-specification communications equipment, since March 2017. From 2010 to 2013, he served on the Board of Directors of Eurofresh Foods, Inc., a privately held company, and, from 2004 to 2013, he was on the Board of Directors of Nature’s Harmony Foods, Inc. Prior to joining Eggland’s Best, Inc., Mr. Lanktree served as the President and Chief Executive Officer of American Mobile Communications, Inc. from 1987 to 1990 and as the President and Chief Operating Officer of Precision Target Marketing, Inc. from 1985 to 1987. From 1974 to 1985, he held various executive-level marketing positions with The Grand Union Company, Beech-Nut Foods Corporation (Nestle) and Unilever. Mr. Lanktree received an MBA from the University of Notre Dame and a B.S. in Food Marketing from St. Joseph’s College. He also served in the U.S. Army and U.S. Army Reserves from 1971 to 1977. Mr. Lanktree’s almost 40 years of experience in consumer marketing and retail operations and his extensive experience as a Chief Executive Officer, coupled with his knowledge and insight of the retail industry, including distribution and franchising operations, qualifies him to serve on our Board of Directors.
Michael C. Mitchell, age 42, has served as a director of Ballantyne Strong since October 2021. Mr. Mitchell most recently served as a Partner at Locust Wood Capital, which he retired from in 2019 after nine years with the firm in analytical positions in the consumer, industrial, real estate and media industries. From 2006 to 2011, Mr. Mitchell was a senior analyst at Breeden Capital LP, working with former SEC Chairman Richard C. Breeden, where Mr. Mitchell was primarily focused on consumer business and was actively involved in board engagements at Applebee’s, a then-Nasdaq-listed restaurant operating company and franchisor and Zale Corporation, a then-NYSE-listed leading specialty retailer of fine jewelry as an advisor to the board. From 2005 to 2006, Mr. Mitchell worked as an analyst for Kellogg Capital Group, LLC, the private investment firm founded by Peter Kellogg. From 2004 to 2005, Mr. Mitchell served as an equity research analyst at Jefferies and Company, Inc. covering post-reorganization equities. Mr. Mitchell is currently the Chief Operating Officer of Children’s Eye Care of Northern Colorado, P.C., a Pediatric Ophthalmology practice based in Fort Collins, CO, which he cofounded and operates with his wife Dr. Carolyn G. Mitchell. Additionally, Mr. Mitchell serves on the advisory board of the Michael F. Price College of Business at the University of Oklahoma. Mr. Mitchell received an MBA from the Michael F. Price College of Business at the University of Oklahoma and a B.S. in Marketing from the Spears College of Business at Oklahoma State University. We believe Mr. Mitchell is qualified to serve on our Board of Directors as he offers the Board valuable insights obtained through his extensive experience in the financial industry, including investing, capital allocation, finance and financial analysis of public companies.
Robert J. Roschman, age 56, has served as a director of Ballantyne Strong since May 2015. Mr. Roschman has been an owner of Triple R. Associates, Ltd., a real estate firm with over 100 properties leased to fast food, distribution and retail tenants, since 1992. Mr. Roschman also holds ownership interests in several development properties throughout Florida. Mr. Roschman previously served on the Board of Directors of Giant Holdings, Inc., a privately held federally chartered bank with an Internet division, which he founded in 1998 and which merged into Home BancShares, Inc. (Nasdaq: HOMB) in February 2017. From 1987 to 2000, Mr. Roschman was a Co-Founder and Vice President of Snapps Restaurants, Inc., a 76-store fast food restaurant which merged into Rally’s Hamburgers, Inc. From 1983 until 1997, he served as a shareholder of Charter Bank in Delray Beach, Florida, which merged into Southtrust Bank in 1997. Mr. Roschman received a B.S. from Florida State University. Mr. Roschman brings over 30 years of experience as an investor in multiple lines of business, including real estate, franchising, distribution, banking and retail. Mr. Roschman’s extensive experience as an investor and in managing and overseeing multiple businesses is valuable for evaluating strategic opportunities and qualifies him to serve on our Board of Directors.
Ndamukong Suh, age 34, has served as a director of Ballantyne Strong since January 2016. Mr. Suh is an independent private investor and holds ownership interests in several real estate development projects across Michigan, Nebraska, Oregon and Colorado. Mr. Suh is the Founder and a director of the Suh Family Foundation. He is also a professional athlete and has been a member of the Tampa Bay Buccaneers of the National Football League (“NFL”) since 2019, becoming a Super Bowl champion in February 2021. He previously was with the NFL’s Los Angeles Rams from 2018 to 2019, Miami Dolphins from 2015 to 2017 and Detroit Lions from 2010 to 2014. He currently serves on the Board of Advisors of Ember Technologies, a privately held manufacturer and designer of patented temperature adjustable dishware and drinkware. Mr. Suh holds a Bachelor’s degree in Engineering focused on Construction Management from the University of Nebraska. Our Board of Directors believes that Mr. Suh’s well cultivated business and personal network adds unique value to the Company, which, coupled with his extensive experience as an investor, allows him to evaluate strategic opportunities and qualifies him to serve on our Board of Directors.
Larry G. Swets, Jr., age 47, has served as a director of Ballantyne Strong since October 2021. Mr. Swets has served as the Chief Executive Officer of FG Financial Group, Inc. (Nasdaq: FGF) (“FG Financial”), a diversified reinsurance, investment management and real estate holding company, since November 2020, after having served as Interim CEO from June 2020 to November 2020. Mr. Swets founded Itasca Financial LLC (“Itasca Financial”), an advisory and investment firm, in 2005 and has served as its managing member since inception. Mr. Swets is a member of the board of directors of FG Financial since November 2013; GreenFirst Forest Products Inc. (TSXV: GFP) (“GreenFirst”), a public company focused on investments in the forest products industry, since June 2016; Harbor Custom Development, Inc. (Nasdaq: HCDI) since February 2020; Insurance Income Strategies Ltd. since October 2017; Alexian Brothers Foundation since March 2018; and Unbounded Media Corporation since June 2019. Previously, Mr. Swets served as a Director and Chief Executive Officer of FG New America Acquisition Corp. (NYSE: FGNA), a special purpose acquisition company which merged with OppFi Inc. (NYSE: OPFI), a leading financial technology platform that powers banks to help everyday consumers gain access to credit, from July 2020 to July 2021. Mr. Swets served as Chief Executive Officer of GreenFirst from June 2016 to June 2021. Mr. Swets served as the Chief Executive Officer of Kingsway Financial Services Inc. (NYSE: KFS) (“Kingsway”) from July 2010 to September 2018, including as its President from July 2010 to March 2017. He served as Chief Executive Officer and a director of 1347 Capital Corp., a special purpose acquisition company, from April 2014 to July 2016 when the company completed its initial business combination to form Limbach Holdings, Inc. (Nasdaq: LMB) (“Limbach”). Mr. Swets also previously served as a member of the board of directors of Limbach from July 2016 to August 2021; Kingsway from September 2013 to December 2018; Atlas Financial Holdings, Inc. (Nasdaq: AFH) from December 2010 to January 2018; FMG Acquisition Corp. (Nasdaq: FMGQ) from May 2007 to September 2008; United Insurance Holdings Corp. from 2008 to March 2012; and Risk Enterprise Management Ltd. from November 2007 to May 2012. Prior to founding Itasca Financial, Mr. Swets served as an insurance company executive and advisor, including the role of director of investments and fixed income portfolio manager for Lumbermens Mutual Casualty Company, formerly known as Kemper Insurance Companies. Mr. Swets began his career in insurance as an intern in the Kemper Scholar program in 1994. Mr. Swets earned a Master’s Degree in Finance from DePaul University in 1999 and a Bachelor’s Degree from Valparaiso University in 1997. He is a member of the Young Presidents’ Organization and holds the Chartered Financial Analyst (CFA) designation. Mr. Swets’ 25 years of experience within financial services and extensive financial experience qualifies him to serve on our Board of Directors.
EXECUTIVE OFFICERS
The following is a list of the names and ages of the executive officers of the Company, their business history and their term of office with the Company. The age and business experience of each executive officer is reported as of December 31, 2021. All officers serve at the discretion of our Board of Directors.
Name
Age
Position and Principal Occupation
Officer
Since
Mark D. Roberson
Chief Executive Officer since April 2020 and Executive Vice President, Chief Financial Officer and Treasurer from November 2018 to April 2020. Mr. Roberson brings an extensive background in executive leadership, operations, corporate finance, SEC reporting, treasury, and mergers and acquisitions. He previously served as Chief Operations Officer of Chanticleer Holdings, Inc., a Nasdaq-listed restaurant operating company, from May 2015 to November 2018, and as Chief Executive Officer of PokerTek, Inc., a then Nasdaq-listed gaming technology company, from February 2010 to October 2014 (having served as Acting Chief Executive Officer from May 2009 until February 2010). He also served as Chief Financial Officer and Treasurer of PokerTek, Inc. from October 2007 until October 2014. Mr. Roberson previously held positions of increasing responsibility at Curtiss-Wright, Inc., a NYSE-listed aerospace and defense contractor, Krispy Kreme Doughnut Corporation, a then NYSE-listed fast-casual restaurant franchisor and operator, and LifeStyle Furnishings International, a $2 billion private equity backed furniture manufacturer. Mr. Roberson is a Certified Public Accountant who started his career with Ernst & Young and PricewaterhouseCoopers. He earned an MBA from Wake Forest University, a B.S. in Accounting from UNC-Greensboro and a B.S. in Economics from Southern Methodist University. He has served on the Board of Directors of CynergisTek, Inc. (NYSE American: CTEK), a cybersecurity and information management consulting firm, since May 2016, where he chairs the Audit Committee and is a member of the Compensation Committee, which be previously chaired.
Todd R. Major
Chief Financial Officer, Secretary and Treasurer since April 2020 and Senior Vice President, Finance from April 2019 to April 2020. Mr. Major previously served as Senior Director, Financial and SEC Reporting of Bojangles, Inc., a then Nasdaq-listed restaurant operating company and franchisor, from March 2015 to April 2019, as Director, Financial Reporting of Premier, Inc. (Nasdaq: PINC), a healthcare performance improvement company, from September 2014 to February 2015, and as Senior Director, Financial Reporting of Horizon Lines, Inc, a then NYSE-traded transportation and logistics company from November 2006 to September 2014. From June 2003 to November 2006, Mr. Major previously held positions of increasing responsibility at Nabi Biopharmaceuticals, Inc., a then Nasdaq-listed biopharmaceutical company engaged in the development and commercialization of proprietary products. Mr. Major is a Certified Public Accountant and earned an MBA from Queens University of Charlotte and a B.A. in Accounting from Flagler College.
Ray F. Boegner
President of Strong Entertainment; previously Senior Vice President and Senior Vice President of Sales; Vice President of Sales prior to November 1996; joined the Company in 1985.
CORPORATE GOVERNANCE
Code of Ethics
Our Board of Directors has adopted the Code of Ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. The Code of Ethics is posted on our Internet website, www.ballantynestrong.com/investors, under the “Corporate Governance” tab, and is available free of charge, upon request to Corporate Secretary, 4201 Congress Street, Suite 175, Charlotte, North Carolina 28209; telephone number: (704) 994-8279.
Any amendment to, or waiver from, the Code of Ethics applicable to our directors and executive officers will be disclosed in a current report on Form 8-K within four business days following the date of the amendment or waiver unless the rules of the NYSE American then permit website posting of such amendments and waivers, in which case we would post such disclosures on our Internet website.
Audit Committee
The Audit Committee of the Board of Directors consists of Messrs. Gerber (Chair), Mitchell and Roschman, each of whom is independent for purposes of serving on the committee under the SEC’s rules and NYSE American’s listing requirements. For the majority of 2021, the Audit Committee had two members, Messrs. Gerber and Roschman, as permitted for smaller reporting companies. Mr. Mitchell was appointed to the Audit Committee on November 16, 2021. The Audit Committee acts under a written charter adopted by the Board of Directors. All Audit Committee members are financially literate. The Board of Directors has determined that Mr. Gerber is an “audit committee financial expert” as defined by Item 407(d)(5)(ii) of Regulation S-K under the Exchange Act.
Stockholder Nominees
There have been no material changes to the procedures by which stockholders of the Company may recommend nominees to the Company’s Board of Directors.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Legal Proceedings
No director or executive officer has been involved in any legal proceeding during the past ten years that is material to an evaluation of his or her ability or integrity.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires the Company’s executive officers and directors, and persons who beneficially own more than 10% of the Company’s stock, to file initial reports of ownership and reports of changes in ownership with the SEC. Ballantyne Strong believes that all persons subject to these reporting requirements filed the required reports on a timely basis during 2021.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
EXECUTIVE COMPENSATION
Introduction
In this section, we disclose our executive compensation for our named executive officers (the “Named Executive Officers”), consisting of our principal executive officer during 2021 and the two other individuals who were serving as executive officers at the end of 2021. Our Named Executive Officers for 2021 were as follows:
● Mark D. Roberson, Chief Executive Officer (as of April 2020) and former Executive Vice President and Chief Financial Officer;
● Todd R. Major, Chief Financial Officer (as of April 2020); and
● Ray F. Boegner, President of Strong Entertainment.
Base Salaries
Effective as of August 16, 2021, Messrs. Roberson and Major receive an annual salary of $295,000 and $230,000 respectively. Effective as of March 1, 2017, Mr. Boegner receives an annual base salary of $275,000.
Prior to August 16, 2021, Mr. Roberson received a base salary of $250,000, which salary was negotiated as part of his employment agreement at the time of his hiring as Executive Vice President and Chief Financial Officer of the Company, effective November 16, 2018. Prior to August 16, 2021, Mr. Major received a base salary of $200,000, which salary was negotiated as part of his employment agreement at the time of his hiring as Senior Vice President of Finance of the Company, effective March 20, 2019.
In response to the impact of the COVID-19 pandemic on the Company, the economy, and the industry, each executive officer of the Company agreed to four temporary reductions in the base salaries otherwise payable to the executive officers, which were expected to be temporary until the Company resumes normal operations. On April 29, 2020, as approved by the Board on April 30, 2020, Messrs. Roberson and Boegner agreed to a 60% reduction in each of their salaries, and Mr. Major agreed to a 25% reduction in his salary, which reductions were effective from April 13, 2020, until June 30, 2020. On July 8, 2020, the Board approved, and Messrs. Roberson, Boegner and Major agreed to, a 25% reduction in each of their salaries, which reductions were effective from July 1, 2020, until and including July 31, 2020. On August 17, 2020, as approved by the Board on August 18, 2020, Messrs. Roberson, Boegner and Major agreed to a 25% reduction in each of their salaries, which reductions were effective from August 1, 2020, until and including August 31, 2020. On September 15, 2020, the Board approved, and Messrs. Roberson, Boegner and Major agreed to, a 25% reduction in each of their salaries, which reductions were effective from September 1, 2020, until and including September 30, 2020.
Discretionary Bonuses
In March 2021, the Compensation Committee approved the payment of performance bonuses to Messrs. Roberson and Major of $262,500 and $112,500, respectively, for extra time and effort given by such employees in connection with the successful completion of the sale of our Convergent operating business. In October 2020, the Compensation Committee approved the payment of performance bonuses to Messrs. Roberson and Major of $75,000 and $25,000, respectively, for extra time and effort given by such employees in connection with the successful completion of the sale of our Strong Outdoor operating business.
Long-Term Incentives
We use long-term incentive equity awards as a part of our executive compensation program, in order to incentivize and reward the achievement of longer-term strategic objectives and align the financial interests of the Company’s executive officers with those of the Company’s stockholders. The Company’s long-term incentive program for its Named Executive Officers has consisted of restricted stock awards, restricted stock units and nonqualified stock options. Each such type of award, and the reasons it is used, is described below. At the Company’s 2017 Annual Meeting of Stockholders, the Company’s stockholders approved the 2017 Plan (prior to its amendment and restatement) as the successor to our 2010 Long-Term Incentive Plan (the “2010 Plan”) and 2014 Non-Employee Directors’ Restricted Stock Plan, and long-term incentive awards granted after the 2017 Annual Meeting of Stockholders have been made under the 2017 Plan. In addition, stockholders approved an amendment and restatement of the 2017 Plan at the 2019 Annual Meeting of Stockholders.
Restricted Stock Awards. Restricted stock awards represent the transfer of ownership of a certain number of shares of the Company’s common stock, subject to restrictions on transfer and a substantial risk of forfeiture based on the recipient’s continued employment by the Company during the applicable vesting period set out in the award agreement. Restricted stock awards are designed primarily to encourage retention of executive officers and key employees.
Restricted Stock Units. RSUs represent a right to receive a specific number of units at the end of the specified period. Each recipient of RSUs has no rights as a stockholder through such RSUs during the restriction period of the RSUs. Settlement of an RSU award is made in cash, shares of stock or some combination thereof, as specified in the applicable award agreement. RSUs are designed to provide retention incentives to our executive officers and key employees.
Nonqualified Stock Options. Nonqualified stock options represent an option to purchase shares of the Company’s common stock at an option price equal to the closing price on the NYSE American of the Company’s common stock on the grant date. The stock options are designed to motivate executives to increase stockholder value as the stock options will only have value if our stockholders also benefit from increasing stock prices.
Equity Grants
The Compensation Committee did not approve grants of stock options or RSUs to our Named Executive Officers during 2021.
Equity Grants
On October 9, 2020, the Compensation Committee approved grants of stock options and RSUs to Messrs. Roberson, Major and Boegner. Messrs. Roberson, Major and Boegner received options to purchase 20,000, 10,000 and 15,000 shares of the Company’s common stock, respectively, at an exercise price of $1.60 per share, pursuant to the 2017 Plan. The stock options have a ten-year term, and become exercisable in one-fifth annual installments, beginning on the first anniversary of the grant date, subject to continued employment.
Messrs. Roberson, Major and Boegner also received 40,000, 20,000 and 30,000 RSUs, respectively, pursuant to the 2017 Plan. These RSUs vest in one-third annual installments, beginning on the first anniversary of the grant date, subject to continued employment.
401(k) Retirement Plan
The Company’s executive officers are able to participate in the Company’s Retirement and Savings 401(k) Plan (the “401(k) Plan”), which is a combination savings and profit-sharing plan designed to qualify under Section 401 of the U.S. Internal Revenue Code. Participation in the 401(k) Plan is generally available to all Ballantyne Strong employees on the same terms. Each participant may defer up to 100% of his or her compensation. The Company may make a discretionary matching contribution equal to a uniform percentage of salary. Each year the Company determines the amount of the discretionary percentage. In 2020 and 2019, the Company matched 50% of the amount deferred up to 6% of each participating employee’s contribution. Employee contributions to the 401(k) Plan are non-forfeitable. Employer contributions vest annually over three years on the employee’s employment anniversary. Benefits may be distributed to participants or their beneficiaries, as the case may be, in the event of a participant’s death, retirement or other termination of service, or, if the participant so requests, on reaching age 59½. Participants may be eligible to withdraw benefits in case of hardship.
Contributions to the 401(k) Plan made by the Company on behalf of the Named Executive Officers are included in the 2021 Summary Compensation Table.
Employment Agreements
The Company currently has written employment agreements with Messrs. Boegner, Roberson and Major. The material provisions of these employment agreements are discussed below.
Mr. Boegner’s employment agreement with the Company, which was entered into on February 14, 2012, provides for a base salary, subject to annual review and adjustment, and Mr. Boegner’s eligibility to participate in and/or receive other benefits under compensation plans provided to other executive employees of the Company. He is eligible for performance-based compensation in the form of an annual bonus and is eligible to receive awards, in the Compensation Committee’s discretion, under the Company’s long-term incentive plans. Pursuant to his employment agreement, in the event that his employment is terminated by Ballantyne Strong without cause or by Mr. Boegner for good reason, as these terms are defined in the agreement, then he will receive his base salary for a period equal to three (3) weeks for each year that he was employed by the Company. On April 26, 2021, the Company amended Mr. Boegner’s employment agreement to limit this severance period to three (3) weeks for each year that he was employed by the Company up to and including October 2020. In addition, the Company will pay for, or reimburse Mr. Boegner for, the cost of health insurance during this same period. For more information on the terms of Mr. Boegner’s employment agreement, see “Potential Payments Upon Termination or Change in Control - Employment Agreements.”
Mr. Roberson’s employment agreement with the Company, which was entered into as of November 6, 2018, provides for a base salary, subject to annual review and adjustment, and he is eligible for performance-based compensation in the form of an annual bonus targeted at $150,000, payable partly in cash and partly through equity awards as determined by the Compensation Committee. The bonus will be subject to the achievement of performance metrics and other criteria as determined by the Compensation Committee. Mr. Roberson is also eligible to participate in the Company’s 401(k), medical, dental and vision plans and certain other benefits available generally to employees of the Company. The employment agreement also contains customary non-competition and non-solicitation covenants. If Mr. Roberson’s employment is terminated by the Company without Cause (as defined in the Amendment), Mr. Roberson will be entitled to severance equal to one year of his base salary payable over a period of twelve months following the termination date in accordance with the Company’s regular payroll practices and, if Mr. Roberson timely and properly elects continuation health coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company will pay Mr. Roberson’s COBRA premiums for a period of twelve months following the termination date.
Mr. Major’s employment agreement with the Company, which was entered into as of March 20, 2019, provides for a base salary, subject to annual review and adjustment, and he is eligible for performance-based compensation in the form of an annual bonus targeted at 25% of base salary, payable in a combination in cash and equity, as determined by the Compensation Committee. The bonus will be subject to the achievement of performance metrics and other criteria as determined by the Compensation Committee. As a signing bonus, the Company granted Mr. Major 30,000 RSUs (equal to $90,000 of common stock, as determined based on the trading price of the Company’s common stock on the date of grant) pursuant to the 2017 Plan, vesting over a period of three years from the date of grant. The Company also paid a cash signing bonus of $30,000. Mr. Major is also eligible to participate in the Company’s 401(k), medical, dental and vision plans and certain other benefits available generally to employees of the Company. The employment agreement also contains customary non-competition and non-solicitation covenants. Mr. Major is entitled to severance equal to one year of his base salary in the event of a change in control that results in his termination or if the Senior Vice President of Finance position is eliminated without Mr. Major being offered a mutually-agreed comparable opportunity at an affiliate of the Company.
Executive Compensation Tables
The following table sets forth information regarding all forms of compensation earned by the Company’s Named Executive Officers during the last two fiscal years. Messrs. Roberson and Boegner were employed by the Company during all of fiscal 2021 and 2020. Mr. Roberson served as Chief Financial Officer from November 16, 2018, to April 13, 2020, and was appointed as the Company’s Chief Executive Officer on April 13, 2020. Mr. Major served as Senior Vice President, Finance from April 8, 2019, to April 13, 2020, and was appointed as the Company’s Chief Financial Officer on April 13, 2020.
Summary Compensation Table
Name and Principal
Position Year Salary
($) Bonus
($)(3) Stock
Awards
($)(4) Option
Awards
($)(4) Non-Equity
Incentive
Plan
Compensation
($) All Other
Compensation
($)(7) Total
($)
Mark D. Roberson (1) 265,577 262,500 - - - 9,821 537,898
CEO and Former CFO 201,250 75,000 64,000 (5) 16,800 (6) - 7,080 364,130
Todd R. Major (2) 210,385 112,500 - - - 8,227 331,112
CFO 176,346 25,000 32,000 (5) 8,400 (6) - 6,621 248,367
Ray F. Boegner
President of 275,000 - - - - 9,913 284,913
Strong Entertainment 221,375 - 48,000 (5) 12,600 (6) - 7,762 289,737
(1) Mr. Roberson served as our Executive Vice President and Chief Financial Officer from November 16, 2018, to April 13, 2020, and was appointed as our Chief Executive Officer effective April 13, 2020.
(2) Mr. Major served as our Senior Vice President, Finance from April 8, 2019, to April 13, 2020, and was appointed as our Chief Financial Officer effective April 13, 2020.
(3) In October 2020 and March 2021, the Compensation Committee approved the payment of transaction-related bonuses to Messrs. Roberson and Major for extra time and effort given by such employees in connection with the successful completion of the sale of certain portions of our operating businesses.
(4) The amounts in these columns represent the aggregate grant date fair value calculated in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 718. For additional information relating to the assumptions made in valuing and expensing these awards refer to Note 13 to the consolidated financial statements.
(5) Consists of the grant date fair value of the October 9, 2020 grant of 40,000, 20,000 and 30,000 restricted stock units (“RSUs”) granted to Messrs. Roberson, Major and Boegner, respectively, pursuant to Ballantyne’s 2017 Omnibus Equity Compensation Plan. The RSUs are to be settled in shares of Ballantyne’s common stock on a one-for-one basis as soon as practicable following the applicable vesting date. The RSUs vest in one-third annual installments, beginning on the first anniversary of the grant date, subject to continued employment.
(6) Consists of the grant date fair value of the June 6, 2019 grant of 65,000 and 40,000 RSUs granted to Messrs. Roberson and Boegner, respectively, pursuant to Ballantyne’s 2017 Omnibus Equity Compensation Plan. The RSUs are to be settled in shares of Ballantyne’s common stock on a one-for-one basis as soon as practicable following the applicable vesting date. The RSUs vest in one-third annual installments, beginning on the first anniversary of the grant date, subject to continued employment with Ballantyne.
(7) Ballantyne provides its executives with certain employee benefits. These benefits include excess life and disability insurance and contributions made by Ballantyne under the 401(k) Plan. The amounts reported for each Named Executive Officer as All Other Compensation for 2021 are identified and quantified below.
Mr. Roberson Mr. Major Mr. Boegner
Employer match on 401(k) Plan $ 7,906 $ 6,312 $ 8,250
Excess life and disability insurance 1,915 1,915 1,663
Total All Other Compensation $ 9,821 $ 8,227 $ 9,913
The following table sets forth information concerning outstanding equity awards for each of the Company’s Named Executive Officers as of the end of the last completed fiscal year.
Option Awards Stock Awards
Name Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable Option
Exercise
Price
($) Option
Expiration
Date Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#) Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)(*)
Mark D. Roberson 24,000 16,000 (1) 2.25 12/4/2028 - -
12,000 18,000 (2) 2.89 6/6/2029 - -
4,000 16,000 (3) 1.60 10/9/2030 - -
- - - - 21,667 (8) 62,618
- - - - 26,667 (9) 77,068
Todd R. Major 2,000 8,000 (3) 1.60 10/9/2030 - -
- - - - 10,000 (10) 28,900
- - - - 13,334 (9) 38,535
Ray F. Boegner 5,000 - (5) 4.70 1/11/2022 - -
32,000 - (6) 4.33 11/22/2025 - -
32,000 8,000 (7) 6.50 2/28/2027 - -
30,000 20,000 (4) 4.70 1/26/2028 - -
8,000 12,000 (2) 2.89 6/6/2029 - -
3,000 12,000 (3) 1.60 10/9/2030 - -
- - - - 13,334 (8) 38,535
- - - - 20,000 (9) 57,800
* Based on the closing stock price of our common stock of $2.89 on December 31, 2021, the last trading day of the 2021 fiscal year.
(1) The 40,000 stock options granted to Mr. Roberson on December 4, 2018, pursuant to the 2017 Plan become exercisable in five equal annual installments beginning on December 4, 2019, and thereafter on December 4 of each year through 2023.
(2) The 30,000 and 20,000 stock options granted to Messrs. Roberson and Boegner, respectively, on June 6, 2019, pursuant to the 2017 Plan become exercisable in five equal annual installments beginning on June 6, 2020, and thereafter on June 6 of each year through 2024.
(3) The 20,000, 10,000 and 15,000 stock options granted to Messrs. Roberson, Major and Boegner, respectively, on October 9, 2020, pursuant to the 2017 Plan become exercisable in five equal annual installments beginning on October 9, 2021, and thereafter on October 9 of each year through 2025.
(4) The 50,000 stock options granted to Mr. Boegner on January 26, 2018, pursuant to the 2017 Plan become exercisable in five equal annual installments beginning on January 26, 2019, and thereafter on January 26 of each year through 2023.
(5) The 30,000 stock options granted to Mr. Boegner on January 11, 2012, pursuant to the 2010 Plan became exercisable in four equal installments beginning on January 11, 2013, and thereafter on January 11 of each year through 2016. On both August 11, 2016, and August 30, 2016, Mr. Boegner exercised options from this grant to acquire 5,000 shares of our common stock. On June 8, 2017, Mr. Boegner exercised options from this grant to acquire 7,000 shares of our common stock. On August 10, 2017, Mr. Boegner exercised options from this grant to acquire 8,000 shares of our common stock.
(6) The 40,000 stock options granted to Mr. Boegner on November 22, 2015, pursuant to the 2010 Plan became exercisable in five equal annual installments beginning on November 22, 2016, and thereafter on November 22 of each year through 2020. On November 23, 2016, Mr. Boegner exercised options from this grant to acquire 8,000 shares of our common stock at an exercise price of $4.33 per share.
(7) The 40,000 stock options granted to Mr. Boegner on February 28, 2017, pursuant to the 2010 Plan become exercisable in five equal annual installments beginning on February 28, 2018, and thereafter on February 28 of each year through 2022.
(8) Represents RSUs to be settled in shares of our common stock on a one-for-one basis as soon as practicable following the applicable vesting date. The RSUs vest June 6, 2022.
(9) Represents RSUs to be settled in shares of our common stock on a one-for-one basis as soon as practicable following the applicable vesting date. The RSUs vest in equal annual installments on October 9, 2022 and October 9, 2023.
(10) Represents RSUs to be settled in shares of our common stock on a one-for-one basis as soon as practicable following the applicable vesting date. The RSUs vest on May 31, 2022.
Potential Payments Upon Termination or Change-in-Control
Employment Agreements
Pursuant to Mr. Boegner’s employment agreement with the Company, in the event Mr. Boegner’s employment is terminated by the Company without cause or by Mr. Boegner for good reason, then he will receive his base salary for a period equal to three (3) weeks for each year that he has been employed by the Company and all existing insurance benefits shall remain in force until the last day of the month in which the severance period expires, subject to Mr. Boegner’s continued compliance with certain restrictive covenants set forth in the employment agreement (including confidentiality and non-solicitation covenants) and his execution of the Company’s standard form of general release. On April 26, 2021, the Company amended Mr. Boegner’s employment agreement to limit the severance period to three (3) weeks for each year that he was employed by the Company up to and including October 2020. In addition, Mr. Boegner would be entitled to receive any earned and unpaid amounts owed to him under the employment agreement and such other accrued benefits as may be provided for under the agreement. For purposes of Mr. Boegner’s employment agreement, “good reason” means a material breach by the Company of its obligations to Mr. Boegner under the agreement. In addition, for purposes of the agreement, “cause” exists if Mr. Boegner (i) acted dishonestly or incompetently or engaged in willful misconduct in performance of his executive duties, (ii) breached fiduciary duties owed to the Company, (iii) intentionally failed to perform reasonably assigned duties, (iv) willfully violated any law, rule or regulation, or court order (other than minor traffic violations or similar offenses), or otherwise committed any act which would have a material adverse impact on the business of the Company, and/or (v) is in breach of his obligations under the agreement and fails to cure such breach within thirty (30) days after receiving notice of the breach from the Company.
We are also obligated under Mr. Boegner’s employment agreement to provide certain payments to Mr. Boegner in the event of his death or termination by reason of his incapacity. In the event of Mr. Boegner’s death, we are obligated to pay his estate all accrued sums due and owing to Mr. Boegner with respect to his salary and such other benefits as may be provided under his agreement. In addition, in the event we terminate Mr. Boegner’s employment by reason of his incapacity, Mr. Boegner is entitled to any accrued amounts due and owing to him with respect to his salary and such other benefits as may be provided under his agreement.
Pursuant to Mr. Major’s employment agreement with the Company, in the event of a change in control that results in Mr. Major being terminated, or if the Senior Vice President of Finance position is eliminated without Mr. Major being offered a mutually-agreed comparable opportunity at an affiliate of the Company, Mr. Major will be entitled to severance equal to one year of his base salary.
If Mr. Roberson’s employment is terminated by the Company without Cause (as defined in the Amendment), Mr. Roberson will be entitled to severance equal to one year of his base salary payable over a period of twelve months following the termination date in accordance with the Company’s regular payroll practices and, if Mr. Roberson timely and properly elects continuation health coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company will pay Mr. Roberson’s COBRA premiums for a period of twelve months following the termination date.
Omnibus Equity Compensation Plan - Change in Control Provisions
Our 2017 Plan, which was initially approved by our stockholders on June 15, 2017, with the amendment and restatement of the 2017 Plan, effective as of October 28, 2019, approved by our stockholders on December 17, 2019, generally provides for “double-trigger” vesting of equity awards in connection with a change in control of the Company, as described below.
To the extent that outstanding awards granted under the 2017 Plan are assumed in connection with a change in control, except as otherwise provided in the applicable award agreement or in another written agreement with the participant, all outstanding awards will continue to vest and become exercisable (as applicable) based on continued service during the remaining vesting period, with performance-based awards being converted to service-based awards at the “target” level. Vesting and exercisability (as applicable) of awards that are assumed in connection with a change in control generally would be accelerated in full on a “double-trigger” basis, if, within two years after the change in control, the participant’s employment is involuntarily terminated without cause, or by the participant for “good reason.” Any stock options or stock appreciation rights (“SARs”) that become vested on a “double-trigger” basis generally would remain exercisable for the full duration of the term of the applicable award.
To the extent outstanding awards granted under the 2017 Plan are not assumed in connection with a change in control, then such awards generally would become vested in full on a “single-trigger” basis, effective immediately prior to the change in control, with performance-based awards becoming vested at the “target” level. Any stock options or SARs that become vested on a “single-trigger” basis generally would remain exercisable for the full duration of the term of the applicable award.
The Compensation Committee has the discretion to determine whether or not any outstanding awards granted under the 2017 Plan will be assumed by the resulting entity in connection with a change in control, and the Compensation Committee has the authority to make appropriate adjustments in connection with the assumption of any awards. The Compensation Committee also has the right to cancel any outstanding awards in connection with a change in control, in exchange for a payment in cash or other property (including shares of the resulting entity) in an amount equal to the excess of the fair market value of the shares subject to the award over any exercise price related to the award, including the right to cancel any “underwater” stock options and SARs without payment therefor.
For purposes of the 2017 Plan, subject to the exceptions set forth in the 2017 Plan, a “change in control” generally includes (a) the acquisition of more than 50% of the voting power or value of the Company’s stock; (b) the incumbent board of directors ceasing to constitute a majority of the board of directors during a twelve-month period; and (c) the acquisition of 50% or more of the gross fair market value of the Company’s assets over a twelve-month period. The full definition of “change in control” is set out in the 2017 Plan.
For purposes of the 2017 Plan, unless otherwise defined in a written agreement with the participant or an applicable severance plan, “cause”, as a reason for the Company’s termination of a participant’s employment, generally means that the participant (a) acted dishonestly or incompetently or engaged in willful misconduct in performance of his or her duties; (b) breached fiduciary duties owed to the Company; (c) intentionally failed to perform reasonably assigned duties, which the participant did not satisfactorily correct within 30 calendar days following written notification; (d) was convicted or entered a plea of guilty or nolo contendere of any felony crime involving dishonesty; or (e) otherwise committed any act which could have a material adverse impact on the business of the Company.
For purposes of the 2017 Plan, unless otherwise defined in a written agreement with the participant or an applicable severance plan, “good reason”, as a reason for a participant’s termination of his or her employment, generally means the occurrence of any of the following without the participant’s consent (and unless timely cured by the Company following notice from the participant): (a) any material diminution in the participant’s compensation or benefits, unless generally applicable to all similarly situated employees of the Company; (b) the assignment to the participant of any duties inconsistent with, or substantially adverse to, his or her status and duties, or a reduction in title; (c) a material breach by the Company or a subsidiary of its obligations under the participant’s employment agreement, if any; or (d) the relocation of the participant’s primary work location to a location more than fifty miles away from the current location.
Except as described above with respect to a change in control, unexercisable stock options, unvested restricted shares and unvested RSUs generally become forfeited upon termination of employment. The stock options that are exercisable at the time of termination of employment expire within the earlier of thirty days after such termination or the expiration date of the options. Upon termination for “cause,” all options, whether or not exercisable, are generally automatically forfeited.
Awards granted under the 2017 Plan may be subject to forfeiture or recoupment as determined by the Compensation Committee in the event of certain detrimental activity, such as a participant’s breach of applicable restrictive covenants. Awards granted under the 2017 Plan also may be subject to forfeiture or recoupment as provided pursuant to any compensation recovery (or “clawback”) policy that the Company may adopt or maintain from time to time.
Long-Term Incentive Plan - Change in Control Provisions
The 2010 Plan provides that no acceleration of an award shall occur upon or after a “change in control” unless such acceleration is provided for in the applicable award agreement and determined by the Compensation Committee on a grant-by-grant basis or as may be provided in an after written agreement between the Company and the grantee. The award agreements for the stock options and restricted shares granted to Messrs. Cerminara and Boegner under the 2010 Plan provide for accelerated vesting of all unvested options and restricted shares upon the occurrence of a “change in control” while the grantee is employed by the Company or a subsidiary of the Company as of the date of the change in control.
For purposes of the 2010 Plan, subject to the exceptions set forth in the 2010 Plan, a “change in control” generally includes (i) the acquisition of more than 50% of the Company’s common stock; (ii) over a twelve-month period, the acquisition of more than 50% of the Company’s common stock or the replacement of a majority of the board of directors by directors not endorsed by the persons who were members of the board before the new directors’ appointment; and (iii) the acquisition of more than 50% of the total gross fair market value of all the assets of the Company over a twelve-month period.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors consists of Messrs. Lanktree (Chair), Gerber and Roschman, none of whom has been at any time an executive officer or employee of the Company, or has any relationship requiring disclosure under Item 404 of Regulation S-K. None of our executive officers serves, or in the past has served, on the board of directors, or as a member of the compensation committee (or other committee performing an equivalent function) of the board of directors of any entity that has one or more executive officers who serve as members of our Board of Directors or Compensation Committee.
Compensation Committee Report
The following report of the Compensation Committee shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall this report be incorporated by reference into any filing made by the Company under the Securities Act of 1933, as amended, or the Exchange Act.
The Compensation Committee has reviewed and discussed the executive compensation, as disclosed above, with management. Based on this review and those discussions, the Compensation Committee recommended that the executive compensation be included in this report.
By the Compensation Committee
Charles T. Lanktree (Chair)
William J. Gerber
Robert J. Roschman
March 24, 2022
DIRECTOR COMPENSATION
The following table sets forth the compensation paid to the Company’s directors in fiscal 2021.
Fees
Earned
Or
Paid in
Cash
($)(1)
Stock
Awards
($)(2)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
Nonqualified
Deferred
Compensation
Earnings
($)
All Other
Compensation
($)
Total
($)
D. Kyle Cerminara
65,000
49,999
-
-
-
-
114,999
William J. Gerber
58,000
39,998
-
-
-
-
97,998
Lewis M. Johnson (3)
-
-
-
-
-
-
-
Charles T. Lanktree
50,750
39,998
-
-
-
-
90,748
Michael C. Mitchell (4)
10,302
-
-
-
-
-
10,302
Robert J. Roschman
50,750
39,998
-
-
-
-
90,748
Ndamukong Suh
43,000
39,998
-
-
-
-
82,998
Larry G. Swets, Jr. (5)
9,674
-
9,674
(1) Although not included in the above table, the directors are reimbursed for their out-of-pocket expenses of attending meetings of the Board of Directors.
(2) On July 1, 2021, Mr. Cerminara was granted 10,504 RSUs under the 2017 Plan, and Messrs. Gerber, Lanktree, Roschman and Suh were each granted 8,403 RSUs under the 2017 Plan. The RSUs vest on the one-year anniversary of the grant date, provided that, if the director makes himself available and consents to be nominated by the Company for continued service as a director of the Company, but is not nominated to the Board of Directors for election by stockholders, other than for good reason as determined by the Board of Directors in its discretion, then the RSUs will vest in full as of the director’s last date of service as a director of the Company. Each RSU represents a contingent right to receive one share of common stock of the Company. The amounts shown in this column include the fair value of the annual RSU award on the date of grant, which was $4.76 per share. For additional information relating to the assumptions made in valuing and expensing these awards for 2021, refer to Note 13 in the Company’s consolidated financial statements.
The aggregate number of unvested RSU awards outstanding as of December 31, 2021, for each of Messrs. Gerber, Lanktree, Roschman and Suh was 32,366. The aggregate number of unvested RSU awards outstanding as of December 31, 2021 for Mr. Cerminara was 54,612.
(3) Mr. Johnson resigned from our Board of Directors on March 9, 2021.
(4) Mr. Mitchell was appointed to our Board of Directors on October 4, 2021 and was appointed to the Audit Committee on November 16, 2021.
(5) Mr. Swets was appointed to our Board of Directors on October 4, 2021.
On March 31, 2021, we modified the compensation program for all non-employee directors which was effective for fiscal year 2021. The program was adopted to remain competitive in attracting and retaining qualified Board members and to better align director compensation to other public companies of comparable size to the Company. The terms of the new program are as follows:
● The Chairman of the Board of Directors is entitled to receive an annual cash retainer of $65,000, and each other non-employee director is entitled to receive an annual cash retainer of $40,000, paid in quarterly installments;
● The Chairman of the Audit Committee is entitled to receive an additional annual cash retainer of $10,000 and each other member of the Audit Committee is entitled to receive an additional cash retainer of $3,000, paid in quarterly installments;
● The Chairman of the Compensation Committee as well as the Chairman of the Nominating and Corporate Governance Committee are each entitled to receive an additional cash retainer of $10,000, and each other member of the Compensation Committee as well as each other member of the Nominating and Corporate Governance Committee are entitled to receive and annual cash retainer of $3,000, paid in quarterly installments;
● The Chairman of the Board of Directors receives an annual grant of RSUs with a value of $50,000, and each other non-employee director receives an annual grant of RSUs with a value of $40,000, vesting on the one-year anniversary of the grant date, provided that, if the director makes himself available and consents to be nominated by the Company for continued service as a director of the Company, but is not nominated to the Board of Directors for election by stockholders, other than for good reason as determined by the Board of Directors in its discretion, then the RSUs will vest in full as of the director’s last date of service as a director of the Company; and
● Each non-employee director receives reimbursement for reasonable out-of-pocket expenses for attending meetings of the Board of Directors and its committees.
The 2017 Plan includes a limit on the amount of compensation payable to our non-employee directors. Specifically, the 2017 Plan provides that the aggregate grant date fair value of all awards granted to any single non-employee director during any single calendar year (determined as of the applicable grant date(s) under applicable financial accounting rules), when taken together with any cash fees paid to the non-employee director during the same calendar year, may not exceed $200,000.
Director Compensation
On July 1, 2021, Mr. Cerminara was granted 10,504 RSUs under the 2017 Plan, and Messrs. Gerber, Lanktree, Roschman and Suh were each granted 8,403 RSUs under the 2017 Plan. The RSUs vest on the one-year anniversary of the grant date, provided that, if the director makes himself available and consents to be nominated by the Company for continued service as a director of the Company, but is not nominated to the Board of Directors for election by stockholders, other than for good reason as determined by the Board of Directors in its discretion, then the RSUs will vest in full as of the director’s last date of service as a director of the Company. Each RSU represents a contingent right to receive one share of common stock of the Company.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Largest Owners of Ballantyne Shares
The following table shows each person or entity that Ballantyne knows to be the beneficial owner of more than five percent of the Company’s outstanding common stock as of March 15, 2022:
Name and Address of Beneficial Owner Amount and Nature of
Beneficial Ownership(1) Percent of Class(2)
Fundamental Global GP, LLC
108 Gateway Blvd., Suite 204
Mooresville, NC 28117 5,836,402 (3) 30.3 %
Par Sanda and Sand Capital Associates
501 N. Birch Rd, Unit 3
Fort Lauderdale, FL 33304 1,045,716 (4) 5.4 %
(1) This information is based on a Schedule 13G, as amended, and a Form 4 filed with the SEC. Fundamental Global Investors, LLC (“Fundamental Global Investors”) filed a Form 4 on May 28, 2021, and Par Sanda and Sand Capital Associates, LLC filed a Schedule 13G on January 12, 2022. On August 1, 2021, the investment management agreements for Fundamental Global Partners Master Fund, LP (“FGPM”), Fundamental Activist Fund I, LP (“FAFI”) and Fundamental Global Holdings, LP (“FGHP”) were assigned to Fundamental Global GP, LLC (“Fundamental Global”). The investment management agreements for FGI Global Asset Allocation Master Fund, LP (“FGGM”) and Fundamental Global Capital Appreciation Fund, LP (“FGCA”) were assigned to CW Institutional, LLC and EverStar Asset Management, LLC, respectively, and Fundamental Global has no management authority over the 270,123 and 59,211 shares of the Company’s Common Stock that were previously reported by FGGM and FGCA, respectively.
(2) Based upon 19,252,335 shares outstanding on March 15, 2022.
(3) Fundamental Global has shared voting and dispositive power over 4,835,453 shares, representing approximately 25.1% of the Company’s outstanding shares of common stock. Mr. Cerminara, Chairman of our Board of Directors and our former Chief Executive Officer, serves as Chief Executive Officer, Co-Founder and Partner of Fundamental Global. Mr. Cerminara beneficially owns an additional 364,658 shares (including 42,000 shares purchasable pursuant to stock options held by Mr. Cerminara exercisable within 60 days of March 15, 2022). Joseph H. Moglia serves as Chairman, Co-Founder and Partner of Fundamental Global and beneficially owns an additional 636,291 shares, thus increasing the total number of shares beneficially owned by Fundamental Global to 5,836,402 shares, or approximately 30.3% of the Company’s outstanding shares of common stock.
(4) Par Sanda and Sand Capital Associates, LLC reported sole dispositive power over 182,553 shares, shared dispositive power over 863,163 shares, and aggregate beneficial ownership of 1,045,716 shares, or approximately 5.4% of the Company’s outstanding shares of common stock.
Share Ownership of Directors and Officers
The following chart sets forth, as of the close of business on March 15, 2022, certain information concerning beneficial ownership of common stock by each director of the Company, each of the Named Executive Officers, and all current directors and executive officers as a group. The address for each director and executive officer listed is: c/o Ballantyne Strong, Inc., 4201 Congress Street, Suite 175, Charlotte, North Carolina 28209.
Name Number of Shares
Beneficially
Owned(1)
Percent of
Common
Stock(2)
Mark D. Roberson, Chief Executive Officer 137,279 (3) *
Todd R. Major, Chief Financial Officer 25,711 (4) *
Ray F. Boegner, President of Strong Entertainment 310,866 (5) 1.6 %
D. Kyle Cerminara, Chairman 5,200,111 (6) 27.0 %
William J. Gerber, Director 67,248 (7) *
Charles T. Lanktree, Director 72,261 (8) *
Michael C. Mitchell 50,111 (9) *
Robert J. Roschman, Director 76,661 (10) *
Ndamukong Suh, Director 63,247 (11) *
Larry G. Swets, Jr. 50,000 (12) *
All current directors and executive officers as a group (10 persons) 6,053,495 (13) 31.1 %
* Less than 1% of common stock outstanding.
(1) Each director and Named Executive Officer listed in the table owns all outstanding shares directly and has sole voting and investment power over such shares unless otherwise specified below.
(2) Based upon 19,252,335 shares of common stock outstanding as of March 15, 2022. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such persons have voting or investment power with respect to the securities. Each named person is deemed to be the beneficial owner of shares of common stock that may be acquired within 60 days of March 15, 2022, upon the exercise of stock options and vesting of restricted stock units (sometimes referred to as “RSUs”). Accordingly, the number of shares and percentage set forth next to the name of such person, and all current directors and executive officers as a group, includes shares of directly owned common stock (including shares of restricted common stock, if any), shares of common stock purchasable pursuant to stock options exercisable within 60 days of March 15, 2022 and shares of common stock potentially issuable upon the vesting of restricted stock units within 60 days of March 15, 2022. However, the shares of common stock so issuable upon the exercise of stock options or vesting of restricted stock units held by any such person are not included in calculating the percentage of common stock beneficially owned by any other stockholder.
(3) Includes 97,279 shares of common stock directly owned by Mr. Roberson and 40,000 shares purchasable pursuant to stock options exercisable within 60 days of the March 15, 2022. Does not include (i) 21,667 shares potentially issuable upon the vesting of RSUs granted on June 6, 2019, (ii) 26,667 shares potentially issuable upon the vesting of RSUs granted on October 9, 2020, (iii) 16,000 shares potentially issuable upon the exercise of stock options granted on December 4, 2018, (iv) 18,000 shares potentially issuable upon the exercise of stock options granted on June 6, 2019, and (v) 16,000 shares potentially issuable upon the exercise of stock options granted on October 9, 2020.
(4) Includes 23,711 shares of common stock directly owned by Mr. Major and 2,000 purchasable pursuant to stock options exercisable within 60 days of March 15, 2022. Does not include (i) 10,000 shares potentially issuable upon the vesting of RSUs granted on May 31, 2019, (ii) 13,334 shares potentially issuable upon the vesting of RSUs granted on October 9, 2020, and (iii) 8,000 shares potentially issuable upon the exercise of stock options granted on October 9, 2020.
(5) Includes 200,866 shares of common stock directly owned by Mr. Boegner and 110,000 shares purchasable pursuant to stock options exercisable within 60 days of March 15, 2022. Does not include (i) 13,334 shares potentially issuable upon the vesting of RSUs granted on June 6, 2019, (ii) 20,000 shares potentially issuable upon the vesting of RSUs granted on October 9, 2020, (iii) 8,000 shares potentially issuable upon the exercise of stock options granted on February 28, 2017, (iv) 20,000 shares potentially issuable upon the exercise of stock options granted on January 26, 2018, (v) 12,000 shares potentially issuable upon the exercise of stock options granted on June 6, 2019, and (vi) 12,000 shares potentially issuable upon the exercise of stock options granted on October 9, 2020.
(6) Includes 299,678 shares of common stock directly owned by Mr. Cerminara, 7,540 shares held in Mr. Cerminara’s 401(k) plan, 15,440 shares held by Mr. Cerminara’s wife and children and 42,000 shares purchasable pursuant to stock options exercisable within 60 days of March 15, 2022. Also includes 4,835,453 shares of common stock beneficially owned by Fundamental Global, which, with its affiliates, is the largest stockholder of the Company. Mr. Cerminara, as Chief Executive Officer, Co-Founder and Partner of Fundamental Global, is deemed to have shared voting and dispositive power over the shares beneficially owned by Fundamental Global. Mr. Cerminara disclaims beneficial ownership of the shares beneficially owned by Fundamental Global. Does not include (i) 25,000 shares potentially issuable pursuant to RSUs granted on June 6, 2019, (ii) 19,108 shares potentially issuable pursuant to RSUs granted on July 1, 2020, (iii) 10,504 shares potentially issuable pursuant to RSUs granted on July 1, 2021, (iv) 20,000 shares potentially issuable upon the exercise of stock options granted on January 26, 2018, and (v) 18,000 shares potentially issuable upon the exercise of stock options granted on June 6, 2019.
(7) Includes shares of common stock directly owned by Mr. Gerber. Does not include (i) 4,855 shares potentially issuable upon the vesting of RSUs granted on July 1, 2019, (ii) 19,108 shares potentially issuable upon the vesting of RSUs granted on July 1, 2020, and (iii) 8,403 shares potentially issuable upon the vesting of RSUs granted on July 1, 2021.
(8) Includes 64,761 shares of common stock directly owned by Mr. Lanktree and 7,500 shares directly owned by the Donna B. Lanktree Family Trust, the trustee of which is Donna B. Lanktree, the spouse of Mr. Lanktree. Does not include (i) 4,855 shares potentially issuable upon the vesting of RSUs granted on July 1, 2019, (ii) 19,108 shares potentially issuable upon the vesting of RSUs granted on July 1, 2020, and (iii) 8,403 shares potentially issuable upon the vesting of RSUs granted on July 1, 2021.
(9) Includes shares of common stock directly owned by Mr. Mitchell.
(10) Includes shares of common stock directly owned by Mr. Roschman. Does not include (i) 4,855 shares potentially issuable upon the vesting of RSUs granted on July 1, 2019, and (ii) 19,108 shares potentially issuable upon the vesting of RSUs granted on July 1, 2020, and (iii) 8,403 shares potentially issuable upon the vesting of RSUs granted on July 1, 2021.
(11) Includes shares of common stock directly owned by Mr. Suh. Does not include (i) 4,855 shares potentially issuable upon the vesting of RSUs granted on July 1, 2019, and (ii) 19,108 shares potentially issuable upon the vesting of RSUs granted on July 1, 2020, and (iii) 8,403 shares potentially issuable upon the vesting of RSUs granted on July 1, 2021.
(12) Includes shares of common stock directly owned by Mr. Swets.
(13)
Includes 993,562 shares directly owned by all current directors and executive officers as a group, 7,540 shares held in Mr. Cerminara’s 401(k) plan, 15,440 shares held by Mr. Cerminara’s wife and children, 7,500 shares held by the Donna B. Lanktree Family Trust, 194,000 shares purchasable pursuant to stock options exercisable within 60 days of March 15, 2022, and 4,835,453 shares held by Fundamental Global.
EQUITY COMPENSATION PLANS
The following table sets forth information regarding our equity compensation plans as of December 31, 2021.
Plan Category Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights Weighted average
exercise price of
outstanding options,
warrants and rights Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(a) (b) (c)
Equity compensation plans approved by security holders 973,579 (1) $ 3.68 2,413,740 (2)
Equity compensation plans not approved by security holders - - -
Total 973,579 $ 3.68 2,413,740
(1) Includes 137,000 securities to be issued upon exercise of outstanding options under the 2010 Plan; and 522,500 securities to be issued upon exercise of outstanding options and 314,079 securities to be issued upon vesting of restricted stock units under the 2017 Plan.
(2) All shares available for future issuance are under the 2017 Plan.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
RELATED PERSON TRANSACTIONS
The Company’s Audit Committee Charter requires the Audit Committee to review policies and procedures regarding transactions between the Company and officers, directors and other related parties that are not a normal part of the Company’s business. There are no formal written policies or procedures used by Board of Directors or the Audit Committee to review, approve or ratify related party transactions. Rather, the Board of Directors or the Audit Committee reviews all related party transactions on a case-by-case basis for potential conflict of interest situations on an ongoing basis and uses its discretion in approving all such transactions. The Board of Directors or the Audit Committee will apply the standards of Item 404(a) of Regulation S-K when evaluating certain relationships and related transactions.
On an annual basis, the Company determines whether there are any related party transactions that need to be evaluated and approved by the Board of Directors or the Audit Committee based on the responses received from each director and executive officer based on an annual questionnaire completed by the director or executive officer. While there are no formal written policies or procedures used, the Board of Directors or the Audit Committee may consider the following factors in evaluating related party transactions:
● the nature of the related person’s interest in the transaction;
● the presence of standard prices, rates, charges or terms otherwise consistent with arms-length dealings with unrelated third parties;
● the materiality of the transaction to each party;
● the reasons for the Company entering into the transaction with the related person;
● the potential effect of the transaction on the status of a director as an independent, outside or disinterested director or committee member; and
● any other factors the Board of Directors or the Audit Committee may deem relevant.
All of the arrangements discussed below were approved by the Audit Committee and/or the independent members of our Board of Directors.
Itasca Financial, LLC
Mr. Swets founded and serves as the managing member of Itasca Financial, which provided services related to the strategic direction of the Company. On May 19, 2020, the Company entered into a Financial and Consulting Services Agreement with Itasca Financial. During the year ended December 31, 2020, the Company paid $130,000 to Itasca Financial. The Company and Itasca Financial have agreed to terminate the Financial and Consulting Services Agreement, and the Company does not expect to make any additional payments pursuant to the agreement.
Indemnification Agreements
On September 1, 2020, the Company entered into indemnification agreements with each of its directors and executive officers. Under the terms of the indemnification agreements, subject to certain exceptions specified in the indemnification agreements, the Company will, among other things, indemnify its directors and executive officers to the fullest extent permitted by law in the event such director or executive officer becomes subject to or a participant in certain claims or proceedings as a result of his service as a director or officer. The Company will also, subject to certain exceptions and repayment conditions, advance to such director or executive officer specified indemnifiable expenses incurred in connection with such claims or proceedings.
DIRECTOR INDEPENDENCE
The Board of Directors is composed of a majority of independent directors as defined by the listing requirements of the NYSE American. The Board of Directors has determined that Messrs. Gerber, Lanktree, Mitchell, Roschman and Suh are independent directors of the Company under the listing standards adopted by the NYSE American. In making these independence determinations, the Board of Directors considered all of the factors that automatically compromise director independence as specified in the NYSE American’s listing standards and determined that none of those conditions existed. In addition, the Board of Directors considered whether any direct or indirect material relationship, beyond those factors that automatically compromise director independence, existed between those directors, their immediate family members, or their affiliated entities, on the one hand, and us and our subsidiaries, on the other hand. The Board of Directors determined, for those directors identified as independent above, that any relationship that existed was not material and did not compromise that director’s independence. Our independent directors meet in an executive session at least once per year. All standing committee members are independent for the purpose of the committees on which they serve.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
Haskell & White has served as the Company’s independent registered public accounting firm since April 11, 2019. The following table sets forth the aggregate fees for professional services rendered by Haskell & White for the years ended December 31, 2021 and December 31, 2020:
Audit Fees(1)
$ 236,300
$ 238,000
Audit-Related Fees(2)
28,000
26,257
Tax Fees
-
-
All Other Fees(3)
296,000
-
Total
$ 560,300
$ 264,267
(1) Includes fees for professional services rendered during the fiscal year for the audit of our annual financial statements and for reviews of the financial statements included in our quarterly reports on Form 10-Q.
(2)
Includes fees for services that generally only the independent registered public accounting firm can be reasonably expected to provide, including comfort letters, consents, and review of registration statements filed with the SEC.
(3) As noted elsewhere in this Annual Report, Strong Global Entertainment plans to file a registration statement with the SEC and intends to commence an initial public offering of its common shares during 2022 to raise additional capital to support its growth plans. Includes fees for professional services rendered during the fiscal year for the audit of Strong Global Entertainment’s annual financial statements for 2019, 2020 and 2021 and for reviews of interim financial statements to be included in the registration statement.
The Audit Committee has implemented pre-approval procedures consistent with the rules adopted by the SEC. All audit and permitted non-audit services are pre-approved by the Audit Committee. The Audit Committee has delegated the responsibility of approving proposed non-audit services that arise between Audit Committee meetings to the Audit Committee Chairman, provided that the decision to approve the services is presented for ratification at the next scheduled Audit Committee meeting.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules
a. The following documents are filed as part of this report on Form 10-K:
1. Consolidated Financial Statements:
An Index to the Consolidated Financial Statements is filed as a part of Item 8.
2. Exhibit list.
EXHIBIT INDEX
Incorporated by Reference
Exhibit Number
Document Description
Form
Exhibit
Filing Date
Filed
Herewith
3.1
Certificate of Incorporation of Ballantyne of Omaha, Inc.
X
3.1.1
Certificate of Amendment to the Certificate of Incorporation of Ballantyne of Omaha, Inc.
X
3.1.2
Certificate of Amendment to the Certificate of Incorporation of Ballantyne of Omaha, Inc.
X
3.1.3
Certificate of Amendment to the Certificate of Incorporation of Ballantyne of Omaha, Inc.
X
3.1.4
Certificate of Amendment of Certificate of Incorporation of Ballantyne Strong, Inc.
X
3.1.5
Certificate of Amendment of Certificate of Incorporation of Ballantyne Strong, Inc.
X
3.2
Ballantyne of Omaha, Inc. Bylaws
S-8
3.2
December 7, 2006
3.2.1
First Amendment to Bylaws of Ballantyne of Omaha, Inc.
S-8
3.2.1
December 7, 2006
3.2.2
Second Amendment to Bylaws of Ballantyne of Omaha, Inc.
S-8
3.2.2
December 7, 2006
3.2.3
Third Amendment to Bylaws of Ballantyne of Omaha, Inc.
S-8
3.2.3
December 7, 2006
3.2.4
Fourth Amendment to Bylaws of Ballantyne of Omaha, Inc.
8-K
99.1
May 1, 2007
3.2.5
Fifth Amendment to Bylaws of Ballantyne Strong, Inc.
S-8
4.11
May 16, 2014
4.1
Description of the Securities of Ballantyne Strong, Inc.
X
10.1
Authorized Reseller Agreement, dated as of January 21, 2010, between Ballantyne Strong, Inc. and NEC Display Solutions of America, Inc.
10-K
10.1
March 23, 2010
10.2*
Ballantyne Strong, Inc. 2017 Omnibus Equity Compensation Plan (Amended and Restated effective October 28, 2019)
8-K
10.1
December 17, 2019
Incorporated by Reference
Exhibit Number
Document Description
Form
Exhibit
Filing Date
Filed
Herewith
10.3*
Form of Stock Option Agreement under the Ballantyne Strong, Inc. Omnibus Equity Compensation Plan
S-8
4.13
June 15, 2017
10.4*
Form of Restricted Share Agreement under the Ballantyne Strong, Inc. Omnibus Equity Compensation Plan
S-8
4.14
June 15, 2017
10.5*
Form of Restricted Share Unit Agreement under the Ballantyne Strong, Inc. Omnibus Equity Compensation Plan
S-8
4.15
June 15, 2017
10.6*
Form of Non-Employee Director Restricted Share Unit Agreement under the Ballantyne Strong, Inc. Omnibus Equity Compensation Plan
10-Q
10.1
August 14, 2019
10.7*
Ballantyne Strong, Inc. 2010 Long-Term Incentive Plan (as amended and restated)
8-K
10.1
May 20, 2014
10.8*
Form of Stock Option Agreement under the Ballantyne Strong, Inc. 2010 Long-Term Incentive Plan
8-K
10.1
November 27, 2015
10.9*
Form of Restricted Stock Agreement under the Ballantyne Strong, Inc. 2010 Long-Term Incentive Plan
8-K
10.2
November 27, 2015
10.10*
Executive Employment Agreement, dated February 14, 2012, between Ballantyne Strong, Inc. and Ray F. Boegner
10-Q
10.27
May 4, 2012
10.11*
Executive Employment Agreement, dated November 7, 2018, between Ballantyne Strong, Inc. and Mark D. Roberson
8-K
10.1
November 7, 2018
10.11.1 *
Amendment to Executive Employment Agreement, executed as of September 3, 2021, by and between Ballantyne Strong, Inc., and Mark Roberson
8-K
10.1
September 8, 2021
10.13*
Employment Agreement, dated March 20, 2019, between Ballantyne Strong, Inc. and Todd R. Major
10-Q
10.1
May 12, 2020
10.15
Progress Payment Note and Reimbursement Agreement between Convergent Media Systems Corporation and Huntington Technology Finance, Inc., effective as of June 22, 2017
8-K
10.2
June 27, 2017
10.16+
Demand Credit Agreement, executed as of June 7, 2021, by and between Strong/MDI Screen Systems, Inc., as Borrower, and Canadian Imperial Bank of Commerce, as Lender
10-Q
10.1
August 10, 2021
10.17
Contract of Sale, dated January 28, 2022, by and among Digital Ignition, LLC, as Buyer and Metrolina Alpharetta, LLC, as Seller
8-K
10.1
February 3, 2022
10.18
Stock Grant Agreement, dated February 1, 2022, by and between Ballantyne Strong, Inc. and Metrolina Capital Investors
8-K
10.2
February 3, 2022
Incorporated by Reference
Exhibit Number
Document Description
Form
Exhibit
Filing Date
Filed
Herewith
10.19
Stock Warrant, dated February 1, 2022, by and between Ballantyne Strong, Inc. and Metrolina Capital Investors
8-K
10.3
February 3, 2022
10.20
Commercial Loan Agreement, dated February 1, 2022, by and among Ballantyne Strong, Inc., Digital Ignition, LLC and Community First Bank
8-K
10.4
February 3, 2022
10.21
Promissory Note dated February 1, 2022, by and among Ballantyne Strong, Inc., Digital Ignition, LLC and Community First Bank
8-K
10.5
February 3, 2022
10.22
Form of Representative’s Warrant, to be issued by Ballantyne Strong, Inc.
8-K
4.1
February 8, 2021
10.23+
Equity Purchase Agreement, dated February 1, 2021, by and among SageNet LLC, Ballantyne Strong, Inc., SDM Holdco, Inc. and Convergent LLC
8-K
2.1
February 2, 2021
10.24
Master Services Agreement, dated August 3, 2020, by and between Convergent Media Systems Corporation and Firefly Systems Inc.
8-K
10.1
August 4, 2020
Subsidiaries of the Registrant
X
23.1
Consent of Haskell & White LLP
X
31.1
Principal Executive Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2
Principal Financial Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
32.1**
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
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
X
The following materials from Ballantyne Strong, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2021, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Loss; (iv) the Consolidated Statements of Stockholders’ Equity; (v) the Consolidated Statements of Cash Flows; and (vi) the Notes to Consolidated Financial Statements
X
*
Management contract or compensatory plan.
**
Furnished herewith.
+
The exhibits and schedules to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish copies of such exhibits and schedules to the Securities and Exchange Commission upon request.