UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2019~~2020

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

For the transition period from to

Commission File Number: 1-13906

BALLANTYNE STRONG, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		47-0587703
(State or Other Jurisdiction of		(IRS Employer
Incorporation or Organization)		Identification Number)

4201 Congress Street, Suite 175 Charlotte, North Carolina		28209
(Address of Principal Executive Offices)		(Zip Code)

(704) 994-8279

(Registrant’s telephone number, including area code)

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

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered
Common Shares, $.01 par value		BTN		NYSE American

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

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

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

Large accelerated filer	[ ]	Accelerated filer	[ ]
Non-accelerated filer	[X]	Smaller reporting company	[X]
		Emerging growth company	[ ]

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

Class		Outstanding as of ~~October 29, 2019~~August 5, 2020
Common Stock, $.01 par value		~~14,518,756~~14,790,374 shares

TABLE OF CONTENTS

		Page No.

	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets, ~~September~~June 30, ~~2019~~2020 (Unaudited) and December 31, ~~2018~~2019	3

	Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, 2020 and 2019 ~~and 2018~~ (Unaudited)	4

	Condensed Consolidated Statements of Comprehensive Loss for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, 2020 and 2019 ~~and 2018~~ (Unaudited)	5

	Condensed Consolidated Statements of Stockholders’ Equity for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, 2020 and 2019 ~~and 2018~~ (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, 2020 and 2019 ~~and 2018~~ (Unaudited)	7

	Notes to the Condensed Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3031

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4045

Item 4.	Controls and Procedures	4045

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	4045

Item 1A.	Risk Factors	4045

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40 47

Item 5.	Other Information	48

Item 6.	Exhibits	4148

	Signatures	4249

PART I. Financial Information

Item 1. Financial Statements

Ballantyne Strong, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except par values)

	September 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
	(unaudited)						(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	4,388		$	6,698		$	6,470		$	4,951
Restricted cash		350			350			352			351
Accounts receivable (net of allowance for doubtful accounts of $1,409 and $1,832, respectively)		13,304			13,841
Accounts receivable (net of allowance for doubtful accounts of $1,084 and $1,291, respectively)								7,248			12,898
Inventories, net		3,395			3,490			3,010			2,879
Recoverable income taxes		55			281			267			190
Other current assets		1,965			1,663			3,243			1,754
Total current assets		23,457			26,323			20,590			23,023
Property, plant and equipment (net of accumulated depreciation of $9,602 and $9,046, respectively)		11,078			14,483
Property, plant and equipment (net of accumulated depreciation of $11,089 and $10,238, respectively)								9,956			10,560
Operating lease right-of-use assets		5,603			-			5,206			5,581
Finance lease right-of-use assets		2,037			692			2,138			2,563
Investments		14,060			11,167			13,249			13,311
Intangible assets, net		1,601			1,795			1,329			1,534
Goodwill		902			875			876			919
Notes receivable		1,812			3,965
Other assets		230			337			99			142
Total assets	$	60,780		$	59,637		$	53,443		$	57,633
Liabilities and Stockholders' Equity

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	6,064		$	4,724		$	4,470		$	3,273
Accrued expenses		3,342			2,782			3,602			4,416
Short-term debt		3,123			3,152			3,888			3,080
Current portion of long-term debt		979			1,094			853			998
Current portion of operating lease obligations		939			-			951			971
Current portion of finance lease obligations		1,317			160			1,732			1,586
Deferred revenue and customer deposits		3,376			2,310			2,820			2,981
Total current liabilities		19,140			14,222			18,316			17,305
Long-term debt, net of current portion and debt issuance costs		3,275			10,053			2,832			3,019
Operating lease obligations, net of current portion		4,894			-			4,414			4,809
Finance lease obligations, net of current portion		3,794			427			3,387			3,988
Deferred revenue and customer deposits, net of current portion		1,152			1,167			27			38
Deferred income taxes		2,476			2,516			2,933			2,649
Other accrued expenses, net of current portion		91			254
Other long-term liabilities								110			116
Total liabilities		34,822			28,639			32,019			31,924
Commitments and contingencies (Note 14)
Stockholders' equity:
Commitments, contingencies and concentrations (Note 13)
Stockholders’ equity:
Preferred stock, par value $.01 per share; authorized 1,000 shares, none outstanding		-			-			-			-
Common stock, par value $.01 per share; authorized 25,000 shares; issued 17,313 and 17,237 shares at September 30, 2019 and December 31, 2018, respectively; outstanding 14,519 and 14,443 shares at September 30, 2019 and December 31, 2018, respectively		169			169
Common stock, par value $.01 per share; authorized 25,000 shares; issued 17,552 and 17,410 shares at June 30, 2020 and December 31, 2019, respectively; outstanding 14,758 and 14,616 shares at June 30, 2020 and December 31, 2019, respectively								176			174
Additional paid-in capital		42,272			41,474			43,072			42,589
Retained earnings		6,748			13,319			1,826			6,001
Less 2,794 of common shares in treasury, at cost		(18,586	)		(18,586	)		(18,586	)		(18,586	)
Accumulated other comprehensive loss		(4,645	)		(5,378	)		(5,064	)		(4,469	)
Total stockholders' equity		25,958			30,998
Total liabilities and stockholders' equity	$	60,780		$	59,637
Total stockholders’ equity								21,424			25,709
Total liabilities and stockholders’ equity							$	53,443		$	57,633

See accompanying notes to unaudited condensed consolidated financial statements.

Ballantyne Strong, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019

(In thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Net product sales	$	9,192		$	8,417		$	20,840		$	24,602		$	2,232		$	6,082		$	8,635		$	11,648
Net service revenues		7,654			8,036			24,581			21,856			4,214			8,187			11,385			16,927
Total net revenues		16,846			16,453			45,421			46,458			6,446			14,269			20,020			28,575
Cost of products sold		5,603			5,102			17,526			16,572			1,864			3,747			6,569			9,781
Cost of services		5,430			7,821			16,204			22,216			3,119			7,288			7,737			12,915
Total cost of revenues		11,033			12,923			33,730			38,788			4,983			11,035			14,306			22,696
Gross profit		5,813			3,530			11,691			7,670			1,463			3,234			5,714			5,879
Selling and administrative expenses:
Selling		1,373			1,139			3,823			3,638			614			1,222			1,958			2,450
Administrative		4,371			3,384			12,597			12,301			2,956			4,297			7,786			8,226
Total selling and administrative expenses		5,744			4,523			16,420			15,939			3,570			5,519			9,744			10,676
Loss on disposal of assets		(3	)		(799	)		(105	)		(2,130	)		-			(38	)		-			(102	)
Income (loss) from operations		66			(1,792	)		(4,834	)		(10,399	)
Other income (expense):
Interest income		1			-			3			-
Loss from operations														(2,107	)		(2,323	)		(4,030	)		(4,899	)
Other (expense) income:
Interest expense		(263	)		(180	)		(568	)		(267	)		(268	)		(186	)		(540	)		(305	)
Fair value adjustment to notes receivable		(845	)		802			(2,153	)		953			-			(797	)		-			(1,307	)
Foreign currency transaction gain (loss)		66			(67	)		(154	)		41
Other income (expense), net		414			6			868			(9	)
Foreign currency transaction (loss) gain														(303	)		(77	)		185			(220	)
Other income, net														535			418			825			453
Total other (expense) income		(627	)		561			(2,004	)		718			(36	)		(642	)		470			(1,379	)
Loss before income taxes and equity method investment (loss) income		(561	)		(1,231	)		(6,838	)		(9,681	)
Loss before income taxes and equity method investment loss														(2,143	)		(2,965	)		(3,560	)		(6,278	)
Income tax expense		731			497			1,295			1,837			(96	)		(423	)		(496	)		(564	)
Equity method investment (loss) income		(496	)		507			(1,223	)		(244	)
Equity method investment loss														(1,489	)		(30	)		(120	)		(727	)
Net loss	$	(1,788	)	$	(1,221	)	$	(9,356	)	$	(11,762	)	$	(3,728	)	$	(3,418	)	$	(4,176	)	$	(7,569	)

Basic loss per share	$	(0.12	)	$	(0.08	)	$	(0.65	)	$	(0.82	)	$	(0.25	)	$	(0.24	)	$	(0.28	)	$	(0.52	)
Diluted loss per share	$	(0.12	)	$	(0.08	)	$	(0.65	)	$	(0.82	)	$	(0.25	)	$	(0.24	)	$	(0.28	)	$	(0.52	)

Weighted-average shares used in computing net loss per share:
Basic		14,494			14,392			14,476			14,366			14,680			14,494			14,653			14,467
Diluted		14,494			14,392			14,476			14,366			14,680			14,494			14,653			14,467

See accompanying notes to unaudited condensed consolidated financial statements.

Ballantyne Strong, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019

(In thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Net loss	$	(1,788	)	$	(1,221	)	$	(9,356	)	$	(11,762	)	$	(3,728	)	$	(3,418	)	$	(4,176	)	$	(7,569	)
Adjustment to postretirement benefit obligation		-			6			2			15			-			-			(4	)		2
Unrealized gain (loss) on available-for-sale securities of equity method investments, net of tax		166			(33	)		407			(203	)		-			332			(76	)		241
Currency translation adjustment:
Unrealized net change arising during period		(26	)		245			324			(585	)		690			93			(515	)		350
Total other comprehensive income (loss)		140			218			733			(773	)		690			425			(595	)		593
Comprehensive loss	$	(1,648	)	$	(1,003	)	$	(8,623	)	$	(12,535	)	$	(3,038	)	$	(2,993	)	$	(4,771	)	$	(6,976	)

See accompanying notes to unaudited condensed consolidated financial statements.

Ballantyne Strong, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019

(In thousands)

(Unaudited)

The following summarizes the changes in stockholders’ equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019:~~2020:

Common Stock
Additional
Paid-In
Capital
Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss
Total
Stockholders’ Equity

Balance at December 31, 2018 $ 169 $ 41,474 $ 13,319 $ (18,586 ) $ (5,378 ) $ 30,998
Net loss - - (4,150 ) - - (4,150 )
Net other comprehensive income - - - - 168 168
Cumulative effect of adoption of ASC 842 - - 2,785 - - 2,785
Stock-based compensation expense - 243 - - - 243
Balance at March 31, 2019 169 41,717 11,954 (18,586 ) (5,210 ) 30,044
Net loss - - (3,418 ) - - (3,418 )
Net other comprehensive income - - - - 425 425
Stock-based compensation expense - 221 - - - 221
Balance at June 30, 2019 169 41,938 8,536 (18,586 ) (4,785 ) 27,272
Net loss - - (1,788 ) - - (1,788 )
Net other comprehensive income - - - - 140 140
Stock-based compensation expense - 334 - - - 334
Balance at September 30, 2019 $ 169 $ 42,272 $ 6,748 $ (18,586 ) $ (4,645 ) $ 25,958
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 - - - (447 ) - - (447 )
Net other comprehensive loss - - - - - (1,285 ) (1,285 )
Vesting of restricted stock 35 - - - - - -
Stock-based compensation expense - - 273 - - - 273
Balance at March 31, 2020 17,445 174 42,862 5,554 (18,586 ) (5,754 ) 24,250
Net loss - - - (3,728 ) - - (3,728 )
Net other comprehensive income - - - - - 690 690
Vesting of restricted stock 107 2 (2 ) - - - -
Stock-based compensation expense - - 212 - - - 212
Balance at June 30, 2020 17,552 $ 176 $ 43,072 $ 1,826 $ (18,586 ) $ (5,064 ) $ 21,424

The following summarizes the changes in stockholders’ equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018:~~2019:

Common Stock
Additional
Paid-In
Capital
Retained Earnings Treasury Stock
Accumulated Other
Comprehensive Loss

Total
Stockholders’ Equity

Balance at December 31, 2017 $ 169 $ 40,565 $ 25,570 $ (18,586 ) $ (3,596 ) $ 44,122
Net loss - - (3,785 ) - - (3,785 )
Net other comprehensive loss - - - - (510 ) (510 )
Cumulative effect of adoption of ASC 606 - - 76 - - 76
Stock-based compensation expense - 255 - - - 255
Balance at March 31, 2018 169 40,820 21,861 (18,586 ) (4,106 ) 40,158
Net loss - - (6,755 ) - - (6,755 )
Net other comprehensive loss - - - - (481 ) (481 )
Issuance of warrants to purchase 100 shares of common stock, net of issuance costs - 75 - - - 75
Stock-based compensation expense - 227 - - - 227
Balance at June 30, 2018 169 41,122 15,106 (18,586 ) (4,587 ) 33,224
Net loss - - (1,221 ) - - (1,221 )
Net other comprehensive income - - - - 218 218
Adjustment to issuance of warrants to purchase 100 shares of common stock, net of issuance costs - (4 ) - - - (4 )
Stock-based compensation expense - 166 - - - 166
Balance at September 30, 2018 $ 169 $ 41,284 $ 13,885 $ (18,586 ) $ (4,369 ) $ 32,383
Common Stock (Shares) Common Stock  ($) Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders’ Equity
Balance at December 31, 2018 17,237 $ 172 $ 41,471 $ 13,319 $ (18,586 ) $ (5,378 ) $ 30,998
Net loss - - - (4,150 ) - - (4,150 )
Net other comprehensive income - - - - - 168 168
Cumulative effect of adoption of ASC 842 - - - 2,785 - - 2,785
Vesting of restricted stock 76 1 (1 ) - - - -
Stock-based compensation expense - - 243 - -               -        243
Balance at March 31, 2019 17,313 173 41,713 11,954 (18,586 ) (5,210 ) 30,044
Net loss - - - (3,418 ) - - (3,418 )
Net other comprehensive income - - - - - 425 425
Stock-based compensation expense - - 221 - - - 221
Balance at June 30, 2019 17,313 $ 173 $ 41,934 $ 8,536 $ (18,586 ) $ (4,785 ) $ 27,272

See accompanying notes to unaudited condensed consolidated financial statements.
6
Ballantyne Strong, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019
(In thousands)
(Unaudited)

Nine Months Ended September 30, Six Months Ended June 30,
2019 2018 2020 2019
Cash flows from operating activities:
Net loss $ (9,356 ) $ (11,762 ) $ (4,176 ) $ (7,569 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
(Recovery of) provision for doubtful accounts (509 ) 381
Provision for (recovery of) doubtful accounts 699 (404 )
Provision for obsolete inventory 245 412 37 96
Provision for warranty 24 83 39 25
Depreciation and amortization 2,537 1,953 1,969 1,644
Amortization and accretion of operating leases 1,434 - 616 1,132
Fair value adjustment to notes receivable 2,153 (953 ) - 1,307
Equity method investment loss 1,223 244 120 727
Recognition of contract acquisition costs - 29
Loss on disposal of assets 105 2,130 - 102
Gain on Firefly transaction (Note 6) (220 ) - (702 ) (220 )
Deferred income taxes (129 ) (146 ) 72 (198 )
Impairment of operating lease - 209
Impairment of contract acquisition costs - 59
Stock-based compensation expense 798 648 485 464
Dividends received from investee - 817
Changes in operating assets and liabilities:
Accounts receivable 1,148 (4,244 ) 4,789 2,691
Inventories (96 ) 413 (254 ) (19 )
Current income taxes 229 178 (83 ) (144 )
Other assets (214 ) (1,021 ) (376 ) 120
Accounts payable and accrued expenses 1,568 415 234 (316 )
Deferred revenue and customer deposits 1,043 1,359 (260 ) (438 )
Operating lease obligations (1,567 ) - (657 ) (1,234 )
Net cash provided by (used in) operating activities 416 (8,796 ) 2,552 (2,234 )

(Continued on following page)

See accompanying notes to unaudited condensed consolidated financial statements.
7
Ballantyne Strong, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows - Continued
~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019
(In thousands)
(Unaudited)

Nine Months Ended September 30, Six Months Ended June 30,
2019 2018 2020 2019
Cash flows from investing activities:
Proceeds from sale of equity securities $ - $ 4,531
Proceeds from sale of property, plant and equipment 121 - $ - $ 86
Dividends received from investee in excess of cumulative earnings - 69
Capital expenditures (1,717 ) (1,220 ) (572 ) (1,136 )
Net cash (used in) provided by investing activities (1,596 ) 3,380
Net cash used in investing activities (572 ) (1,050 )

Cash flows from financing activities:
Proceeds from issuance of long-term debt 237 - - 237
Proceeds from issuance of short-term debt - 3,205
Proceeds from sale-leaseback financing - 7,000
Principal payments on short-term debt (323 ) (1,097 ) (299 ) (200 )
Principal payments on long-term debt (725 ) (2,278 ) (330 ) (491 )
Payment of debt issuance costs - (22 )
Proceeds from borrowing under credit facility 3,411 -
Repayments of borrowings under credit facility (2,562 ) -
Proceeds from Paycheck Protection Program Loan 3,174 -
Repayment of Paycheck Protection Program Loan (3,174 ) -
Payments on capital lease obligations (420 ) (147 ) (776 ) (137 )
Other - (8 )
Net cash (used in) provided by financing activities (1,231 ) 6,653
Net cash used in financing activities (556 ) (591 )
Effect of exchange rate changes on cash and cash equivalents 101 (98 ) 96 46
Net (decrease) increase in cash and cash equivalents and restricted cash (2,310 ) 1,139
Net increase (decrease) in cash and cash equivalents and restricted cash 1,520 (3,829 )
Cash and cash equivalents and restricted cash at beginning of period 7,048 4,870 5,302 7,048
Cash and cash equivalents and restricted cash at end of period $ 4,738 $ 6,009 $ 6,822 $ 3,219

Components of cash and cash equivalents and restricted cash:
Cash and cash equivalents $ 4,388 $ 5,659 $ 6,470 $ 2,869
Restricted cash 350 350 352 350
Total cash and cash equivalents and restricted cash $ 4,738 $ 6,009 $ 6,822 $ 3,219

Supplemental disclosure of non-cash investing and financing activities:
Term loan borrowings to finance equipment purchases $ 364 $ 4,121 $ - $ 364
Capital lease obligations for property and equipment $ 1,613 $ -
Finance lease obligations for property and equipment $ 320 $ 710
Short-term borrowings to finance insurance $ 235 $ 114
Investment in Firefly Systems, Inc. (Note 6) $ 3,614 $ - $ - $ 3,614
Short-term borrowings to finance insurance $ 46 $ -

See accompanying notes to unaudited condensed consolidated financial statements.
8
Ballantyne Strong, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

1. Nature of Operations

Ballantyne Strong, Inc. (“Ballantyne” or the “Company”), a Delaware corporation, is a holding company with diverse business activities focused on serving the ~~cinema,~~entertainment, retail ~~financial,~~and advertising ~~and government~~ markets. The Company, and its wholly owned subsidiaries Strong Technical Services, Inc., Strong/MDI Screen Systems, Inc. (“Strong/MDI”), Convergent Media Systems Corporation (“Convergent”) and Strong Digital Media, LLC (“SDM”), design, integrate and install technology solutions for a broad range of applications; develop and deliver out-of-home messaging, advertising and communications; manufacture projection screens; and provide managed services including monitoring of networked equipment to our customers.

Effective August 8, 2019, the Company’s Board of Directors approved the relocation of Ballantyne’s headquarters from 11422 Miracle Hills Drive, Suite 300, Omaha, Nebraska to 4201 Congress Street, Suite 175, Charlotte, North Carolina 28209.
2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and all majority owned and controlled domestic and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The condensed consolidated financial statements included in this report are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America (also referred to as “GAAP”) for annual reporting purposes or those made in the Company’s Annual Report on Form 10-K. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019.

The condensed consolidated balance sheet as of December 31, ~~2018~~2019 was derived from the Company’s audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary to present a fair statement of the financial position and the results of operations and cash flows for the respective interim periods. Certain prior period balances have been reclassified to conform to current period presentation. The results for interim periods are not necessarily indicative of trends or results expected for a full year.

Unless otherwise indicated, all references to “dollars” and “$” in this Quarterly Report on Form 10-Q are to, and amounts are presented in, U.S. dollars.

Use of Management Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results and changes in facts and circumstances may alter such estimates and affect results of operations and financial position in future periods.
There is significant ongoing uncertainty surrounding the COVID-19 global pandemic and the extent and duration of the impacts that it may have on the Company, as well as its customers, suppliers, and employees. There is heightened potential for future reserves against trade receivables, inventory write downs and impairments of long-lived assets, goodwill, intangible assets and investments. In the current environment, assumptions about future financial and operational performance, supply chain pricing and availability and customer creditworthiness have greater variability than normal, which could in the future significantly affect the valuation of the Company’s assets, both financial and non-financial. As an understanding of the longer-term impacts of COVID-19 on the Company’s customers and business develops, there is heightened potential for changes in these views over the remainder of 2020, and potentially beyond.
9
Restricted Cash
Restricted cash represents amounts held in a collateral account for the Company’s corporate travel and purchasing credit card program.

Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company determines the allowance for doubtful accounts based on several factors, including overall customer credit quality, historical write-off experience and a specific analysis that projects the ultimate collectability of the account. As such, these factors may change over time causing the allowance level and bad debt expense to be adjusted accordingly. Since many of Strong Entertainment’s customers have been negatively impacted by COVID-19, the Company recorded $0.5 million of bad debt expense during the first half of 2020 as a result of the increased uncertainty related to collection of trade accounts receivable from these customers.
Investments

~~We apply~~The Company applies the equity method of accounting to investments when ~~we have~~it has significant influence, but not controlling interest, in the investee. Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. The Company’s proportionate share of the net income (loss) resulting from these investments is reported under the line item captioned “equity method investment income (loss)” in our condensed consolidated statements of operations. The Company’s equity method investments are reported at cost and adjusted each period for the Company’s share of the investee’s income or loss and dividend paid, if any. The Company’s share of the investee’s income or loss is recorded on a one quarter lag for all equity method investments. The Company classifies distributions received from equity method investments using the cumulative earnings approach on the condensed consolidated statements of cash flows. ~~We apply~~The Company applies the cost method of accounting to investments when ~~we do~~it does not have significant influence or a controlling interest in the investee and the fair value of the investment is not readily determinable. Dividends on cost method investments received are recorded as income.

The Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable. Management reviewed the underlying net assets of the ~~investments during the three and nine months ended September~~investees as of June 30, ~~2019~~2020 and determined that the Company’s proportionate economic interest in the ~~investments~~investees indicate that the investments were not other than temporarily impaired. The carrying value of our equity method and cost method investments is reported inas “investments” inon the condensed consolidated balance sheets. Note 6 contains additional information on our equity method and cost method investments.

Fair Value of Financial Instruments

Assets and liabilities measured at fair value are categorized into a fair value hierarchy based upon the observability of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

● Level 1 – inputs to the valuation techniques are quoted prices in active markets for identical assets or liabilities
● Level 2 – inputs to the valuation techniques are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly
● Level 3 – inputs to the valuation techniques are unobservable for the assets or liabilities

10
The following tables present the Company’s financial assets measured at fair value based upon the level within the fair value hierarchy in which the fair value measurements are classified, as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.
Fair values measured on a recurring basis at ~~September~~June 30, ~~2019~~2020 (in thousands):

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 4,388 $ - $ - $ 4,388 $ 6,470 $ - $ - $ 6,470
Restricted cash 350 - - 350 352 - - 352
Notes receivable - - 1,812 1,812 -        -        - -
Total $ 4,738 $ - $ 1,812 $ 6,550 $ 6,822 $ - $ - $ 6,822

Fair values measured on a recurring basis at December 31, ~~2018~~2019 (in thousands):

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 6,698 $ - $ - $ 6,698 $ 4,951 $ - $ - $ 4,951
Restricted cash 350 - 350 351 - - 351
Notes receivable - - 3,965 3,965 -       -       - -
Total $ 7,048 $ - $ 3,965 $ 11,013 $ 5,302 $ - $ - $ 5,302

The following table reconciles the beginning and ending balance of the Company’s notes receivable at fair value (in thousands):

Nine Months Ended September 30,
2019 2018
Notes receivable balance, beginning of period $ 3,965 $ 2,815
Fair value adjustment (2,153 ) 953
Notes receivable balance, end of period $ 1,812 $ 3,768
~~Quantitative information about the Company’s level 3 fair value measurements at September 30, 2019 is set forth below (in thousands):~~
Fair value at September 30, 2019 Valuation technique Unobservable input Value
Notes receivable $ 1,812 Discounted cash flow Default percentage 72 %
Discount rate 18 %
Six Months Ended June 30,
2020 2019
Notes receivable balance, beginning of period $ - $ 3,965
Fair value adjustment - (1,307 )
Notes receivable balance, end of period $ - $ 2,658

During 2011, the Company entered into certain unsecured notes receivable arrangements with CDF2 Holdings, LLC pertaining to the sale and installation of digital projection equipment. The notes receivable accrue interest at a rate of 15% per annum. Interest not paid in any particular year is added to the principal and also accrues interest at 15%. In connection with this transaction, the Company also entered into an agreement with one of its customers, pursuant to which the Company is obligated to provide up to $1.1 million of credits against any amounts due to the Company from the customer based on cash collected on the notes receivable. In the event the Company does not have any outstanding balances due from the customer, the Company would be obligated to remit up to the first $1.1 million collected on the notes receivable directly to the customer.
The notes receivable are recorded at estimated fair value. ~~In order to estimate~~The significant unobservable inputs used in the fair value ~~the Company reviews the financial position and estimated cash flows~~measurement of the ~~debtor of the~~Company’s notes receivable ~~on a quarterly basis. The Company recorded a decrease to~~are the discount rate and percentage of default. Significant increases (decreases) in any of these inputs in isolation would result in significantly lower (higher) fair value of the notes receivable of $2.2 million during the nine months ended September 30, 2019 and an increase to the fair value of the notes receivable of $1.0 million during the nine months ended September 30, 2018. The adjustmentsmeasurements. Adjustments to the fair value of the notes receivable are included in other (expense) income on the Company’s condensed consolidated statements of operations.

~~The significant unobservable inputs used in~~In order to estimate the fair value, ~~measurement~~the Company reviews the financial position and estimated cash flows of the ~~Company’s~~debtor of the notes receivable. During the year ended December 31, 2019, the Company adjusted the carrying value of the notes receivable ~~are discount rate~~to $0 based on management’s review of the debtor’s financial statements and ~~percentage~~changes in the underlying trend of ~~default. Significant increases (decreases) in any~~historical and projected cash flows available to service the notes. The related $1.1 million contingent liability was also adjusted during the year ended December 31, 2019, based on the Company’s expectation that cash flow from the notes receivable will not be available. As of ~~these inputs in isolation would result in a significantly lower (higher)~~June 30, 2020, management estimated the fair value ~~measurement.~~of the notes receivable to be $0.
11

The Company’s short-term and long-term debt is recorded at historical cost. As of ~~September~~June 30, ~~2019,~~2020, the Company’s long-term debt, including current maturities, had a carrying value of ~~$4.3~~$3.7 million. Based on discounted cash flows using current quoted interest rates (Level 2 of the fair value hierarchy), the estimated fair value at ~~September~~June 30, ~~2019~~2020 was ~~$3.8~~$3.4 million.
The carrying values of all other financial assets and liabilities, including accounts receivable, accounts payable, accrued expenses and short-term debt, reported in the condensed consolidated balance sheets equal or approximate their fair values due to the short-term nature of these instruments. Note 6 includes fair value information related to our equity and cost method investments. All non-financial assets that are not recognized or disclosed at fair value in the financial statements on a recurring basis, which include non-financial long-lived assets, are measured at fair value in certain circumstances (for example, when there is evidence of impairment). During the three and nine months ended September 30, 2018, the Company recorded impairment charges of $0.8 million and $2.1 million, respectively, related to the abandonment of internally developed software intangible assets as a loss on disposal of assets in the condensed consolidated statement of operations. Other than the intangible asset impairment, theThe Company did not have any significant non-recurring measurements of non-financial assets or liabilities during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 or ~~2018.~~2019.

Recently Adopted Accounting Pronouncements

In ~~February 2016,~~August 2018, the Financial Accounting Standards Board (“FASB”) issued ~~ASU 2016-02, “Leases~~Accounting Standards Update (“ASU”) 2018-15, “Intangibles- Goodwill and Other- Internal Use Software (Topic ~~842),” which was further clarified by ASU 2018-11, “Leases – Targeted Improvements,” issued~~350): Customer’s Accounting for Implementation Costs Incurred in ~~July 2018. ASU 2016-02 requires lessees to recognize~~ a ~~lease liability and~~Cloud Computing Arrangement that is a ~~right-to-use asset for all leases, including operating leases, with a term greater than twelve months, on its balance sheet.~~Service Contract.” This ASU requires customers in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal use software guidance in ASC 350-40 to determine which implementation costs to capitalize or expense. The standard is effective ~~in fiscal years~~for annual periods beginning after December 15, ~~2018~~2019, and ~~initially required a modified retrospective transition method under which entities would initially apply Topic 842 at the beginning~~interim periods within those fiscal years. The adoption of the earliest period presented in the financial statements. ASU 2018-11 added an additional optional transition method allowing entities to apply Topic 842 as of the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted Topic 842 using the optional transition method from ASU 2018-11 as ofnew standard on January 1, ~~2019. Upon adoption,~~2020 did not have an impact on the ~~Company recorded a balance sheet gross-up of approximately $4.7 million to record operating lease liabilities~~Company’s consolidated financial statements and related right-of-use assets. In addition, the sale-leaseback of the Company’s Alpharetta, Georgia office facility in June 2018, which did not qualify for sale-leaseback accounting under the previous lease accounting standard, qualified for sale-leaseback accounting under Topic 842, as Topic 842 eliminated the concept of continuing involvement by the seller-lessee precluding sale-leaseback accounting. Upon adoption, the Company recorded a cumulative effect adjustment increasing retained earnings by approximately $2.8 million, which represents the gain on the sale of the facility. The Company also derecognized approximately $4.0 million of net land and building assets and approximately $6.8 million of debt associated with the previous accounting as a failed sale-leaseback and recorded approximately $5.0 million of operating lease right-of-use assets and liabilities for the leaseback under Topic 842. See Note 11 for more information about the Company’s leases.disclosures.

In August 2018, the ~~Securities~~FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU improves the effectiveness of fair value measurement disclosures by eliminating, adding and ~~Exchange Commission (the “SEC”) adopted the final rule under SEC Release No. 33-10532, “Disclosure Update and Simplification,” amending~~modifying certain disclosure requirements ~~that were redundant, duplicative, overlapping, outdated or superseded. In addition,~~for fair value measurements as part of its disclosure framework project. Entities will no longer be required to disclose the ~~amendments expanded the disclosure requirements on the analysis~~amount of ~~stockholders’ equity~~and reasons for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliationtransfers between Level 1 and Level 2 of the ~~beginning balance to the ending balance of each period for which a statement of comprehensive income is~~fair value hierarchy, but public companies will be required to ~~be filed.~~disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The ~~final rule~~standard is effective for all filings made on and after November 5, 2018. Given the effective date and proximity to most filers’ quarterly reports, the SEC did not object to filers deferring the presentation of changes in stockholders’ equity in their quarterly reports on Forms 10-Q until the quarter beginning after November 5, 2018. The Company elected to provide the required disclosure in a separate statement of stockholders’ equity beginning with Form 10-Q for the quarter ended March 31, 2019.
In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The new guidance eliminates Step 2 of the goodwill impairment testing which requires the fair value of individual assets and liabilities of a reporting unit to be determined when measuring goodwill impairment. The new guidance may result in different amounts of impairment that could be recognized compared to existing guidance. In addition, failing step 1 of the impairment test may not result in impairment under existing guidance. However, under the revised guidance, failing step 1 will always result in a goodwill impairment. ASU 2017-04 is to be applied prospectively for goodwill impairment testing performed in yearsannual periods beginning after December 15, 2019, ~~with early~~and interim periods within those fiscal years. The adoption ~~permitted. The Company adopted ASU 2017-04 in~~of the ~~first quarter of 2019. Adoption of ASU 2017-04~~new standard on January 1, 2020 did not ~~significantly~~have an impact on the Company’s ~~results of operations or~~consolidated financial ~~position.~~statements and related disclosures.
Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU will require the measurement of all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The guidance iswas initially effective for the Company for annual reporting periods beginning after December 15, 2019 and interim periods within those fiscal years. In ~~July~~November 2019, the FASB ~~announced its intention to propose an extended effective date of January 1, 2023 for adoption of the~~issued ASU ~~by smaller reporting companies. In October 2019, the FASB voted in favor of finalizing its proposal to defer~~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 ~~this standard. Subject~~ASU 2016-13 for public filers that are considered smaller reporting companies as defined by the Securities and Exchange Commission to ~~any additional guidance or clarification from the FASB or the SEC, management believes the Company will qualify for this proposed deferral.~~fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted. The Company believes the adoption of this ASU will not significantly impact its results of operations and financial position.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU removes certain exceptions for investments, intraperiod allocations and interim tax calculations and adds guidance to reduce complexity in accounting for income taxes. The effective date of the standard will be for annual periods beginning after December 15, 2020, with early adoption permitted. The various amendments in the standard are applied on a retrospective basis, modified retrospective basis and prospective basis, depending on the amendment. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements.
12
In January 2020, the FASB issued ASU 2020-01, “Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815.” This ASU clarifies the interaction between accounting standards related to equity securities, equity method investments and certain derivatives. The effective date of the standard will be for annual periods beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of the new standard on its condensed consolidated financial statements and related disclosures.
In April 2020, the FASB issued a question-and-answer document to address stakeholder questions on the application of the lease accounting guidance for lease concessions related to the effects of the COVID-19 pandemic. The guidance will allow concessions related to the timing of payments, where the total consideration has not changed, to not be accounted for as lease modifications. Instead, any such concessions can be accounted for as if no change was made to the contract or as variable lease payments. As a result of the COVID-19 pandemic, the Company received certain lease concessions in the form of rent deferrals during the three months ended June 30, 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 June 30, 2020, the Company had outstanding deferred rent of $0.1 million, the majority of which will be paid over the remaining term of the leases.

3. Revenue

The Company accounts for revenue using the following steps:

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

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

As discussed in more detail below, revenue is recognized when a customer obtains control of promised goods or services under the terms of a contract and is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The Company does not have any material extended payment terms, as payment is due at or shortly after the time of the sale. Observable prices are used to determine the standalone selling price of separate performance obligations, or a cost plus margin approach is used when observable prices are not available. Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded from revenue.

13
The Company recognizes contract assets or unbilled receivables related to revenue recognized for services completed but not yet invoiced to the clients. Unbilled receivables are recorded as accounts receivable when the Company has an unconditional right to contract consideration. A contract liability is recognized as deferred revenue when the Company invoices clients in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when the Company has satisfied the related performance obligation.
~~Deferred contract acquisition costs are included in other assets.~~
The Company defers costs to acquire contracts, including commissions, incentives and payroll taxes, if they are incremental and recoverable costs of obtaining a customer contract with a term exceeding one year. Deferred contract costs are reported within other assets and amortized to selling expense over the contract term, which generally ranges from one to five years. The Company has elected to recognize the incremental costs of obtaining a contract with a term of less than one year as a selling expense when incurred. The Company did not have any deferred contract costs as of ~~September~~June 30, ~~2019~~2020 or December 31, ~~2018.~~2019.

The following tables disaggregate the Company’s revenue by major source and by operating segment for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 (in thousands):

Three Months Ended September 30, 2019 Three Months Ended June 30, 2020
Strong Cinema Convergent Strong Outdoor Other Total Strong Entertainment Convergent Strong Outdoor Other Total
Screen system sales $ 4,441 $ - $ - $ - $ 4,441 $ 980 $ - $ - $ - $ 980
Digital equipment sales 3,285 757 - - 4,042 688 231 - - 919
Extended warranty sales 197 - - - 197 149 - - - 149
Other product sales 512 - - - 512             184                 -          -            - 184
Total product sales 8,435 757 - - 9,192 2,001 231 - - 2,232
Field maintenance and monitoring services 1,969 3,078 58 - 5,105 350 3,295 4 - 3,649
Installation services 473 611 - - 1,084 74 121 - - 195
Advertising - - 1,173 - 1,173 - - 238 - 238
Other service revenues 51 86 65 90 292 42 - - 90 132
Total service revenues 2,493 3,775 1,296 90 7,654 466 3,416 242 90 4,214
Total $ 10,928 $ 4,532 $ 1,296 $ 90 $ 16,846 $ 2,467 $ 3,647 $ 242 $ 90 $ 6,446

Nine Months Ended September 30, 2019 Six Months Ended June 30, 2020
Strong Cinema Convergent Strong Outdoor Other Total Strong Entertainment Convergent Strong Outdoor Other Total
Screen system sales $ 10,370 $ - $ - $ - $ 10,370 $ 3,936 $ - $ - $ - $ 3,936
Digital equipment sales 6,396 2,248 - - 8,644 2,336 1,403 - - 3,739
Extended warranty sales 582 - - - 582 308 - - - 308
Other product sales 1,238 6 - - 1,244             652              -               - - 652
Total product sales 18,586 2,254 - - 20,840 7,232 1,403 - - 8,635
Field maintenance and monitoring services 6,060 8,637 286 - 14,983 2,155 6,709 32 - 8,896
Installation services 1,540 4,194 - - 5,734 332 478 - - 810
Advertising - - 3,127 - 3,127 - - 1,407 - 1,407
Other service revenues 219 119 111 288 737 62 19 - 191 272
Total service revenues 7,819 12,950 3,524 288 24,581 2,549 7,206 1,439 191 11,385
Total $ 26,405 $ 15,204 $ 3,524 $ 288 $ 45,421 $ 9,781 $ 8,609 $ 1,439 $ 191 $ 20,020
14
The following tables disaggregate the Company’s revenue by major source and by operating segment for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 (in thousands):

Three Months Ended September 30, 2018 Three Months Ended June 30, 2019
Strong Cinema Convergent Strong Outdoor Other Total Strong Entertainment Convergent Strong Outdoor Other Total
Screen system sales $ 5,024 $ - $ - $ - $ 5,024 $ 3,110 $ - $ - $ - $ 3,110
Digital equipment sales 2,126 586 - - 2,712 1,631 866 - - 2,497
Extended warranty sales 213 - - - 213 151 - - - 151
Other product sales 450 18 - - 468            324               - - - 324
Total product sales 7,813 604 - - 8,417 5,216 866 - - 6,082
Field maintenance and monitoring services 2,838 1,806 - - 4,644 2,122 2,786 175 - 5,083
Installation services 712 1,069 - - 1,781 397 1,464 - - 1,861
Advertising - - 1,480 - 1,480 - - 914 - 914
Other service revenues 68 - - 63 131 144 19 46 120 329
Total service revenues 3,618 2,875 1,480 63 8,036 2,663 4,269 1,135 120 8,187
Total $ 11,431 $ 3,479 $ 1,480 $ 63 $ 16,453 $ 7,879 $ 5,135 $ 1,135 $ 120 $ 14,269

Nine Months Ended September 30, 2018
Strong Cinema Convergent Strong Outdoor Other Total
Screen system sales $ 13,288 $ - $ - $ - $ 13,288
Digital equipment sales 7,198 1,742 - - 8,940
Extended warranty sales 804 - - - 804
Other product sales 1,552 18 - - 1,570
Total product sales 22,842 1,760 - - 24,602
Field maintenance and monitoring services 8,666 6,409 - - 15,075
Installation services 1,420 3,057 - - 4,477
Advertising - - 1,948 - 1,948
Other service revenues 165 - - 191 356
Total service revenues 10,251 9,466 1,948 191 21,856
Total $ 33,093 $ 11,226 $ 1,948 $ 191 $ 46,458
Six Months Ended June 30, 2019
Strong Entertainment Convergent Strong Outdoor Other Total
Screen system sales $ 5,930 $ - $ - $ - $ 5,930
Digital equipment sales 3,115 1,491 - - 4,606
Extended warranty sales 385 - - - 385
Other product sales            721        6 - - 727
Total product sales 10,151 1,497 - - 11,648
Field maintenance and monitoring services 4,088 5,559 228 - 9,875
Installation services 1,067 3,582 - - 4,649
Advertising - - 1,955 - 1,955
Other service revenues 173 32 46 197 448
Total service revenues 5,328 9,173 2,229 197 16,927
Total $ 15,479 $ 10,670 $ 2,229 $ 197 $ 28,575
Screen system sales

The Company recognizes revenue on the sale of its screen systems when control of the screen is transferred to the customer, usually at time of shipment. However, revenue is recognized upon delivery for certain international shipments with longer shipping transit time because control does not transfer to the customer until delivery. The cost of freight and shipping to the customer is recognized in cost of sales at the time of transfer of control to the customer.

Digital equipment sales

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

Field maintenance and monitoring services

The Company sells service contracts that provide maintenance and monitoring services to Strong ~~Cinema~~Entertainment and Convergent customers. In the Strong ~~Cinema~~Entertainment segment, these contracts are generally 12 months in length, while the term for service contracts in the Convergent segment can be for multiple years. Revenue related to service contracts is recognized ratably over the term of the ~~agreement in proportion to the costs incurred in fulfilling performance obligations under the contract.~~agreement.
~~In addition to selling service contracts, the~~
15
The Company also performs discrete time and materials-based maintenance and repair work for customers in the Strong ~~Cinema~~Entertainment and Convergent segments. Revenue related to time and materials-based maintenance and repair work is recognized at the point in time when the performance obligation has been fully satisfied.

Installation services

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

Extended warranty sales

The Company sells extended warranties to its Strong ~~Cinema~~Entertainment customers. When the Company is the primary obligor, revenue is recognized on a gross basis ratably over the term of ~~the extended warranty in proportion to the costs incurred in fulfilling performance obligations under~~ the extended warranty. In third party extended warranty sales, the Company is not the primary obligor, and revenue is recognized on a net basis at the time of the sale.

Advertising

Strong Outdoor sells advertising space on top of taxicabs. Advertising revenue is recognized ratably over the contracted advertising periods.

Timing of Revenue Recognition

The following tables disaggregate the Company’s revenue by the timing of transfer of goods or services to the customer for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 (in thousands):
Three Months Ended September 30, 2019
Strong Cinema Convergent Strong Outdoor Other Total
Point in time $ 9,364 $ 1,518 $ 123 $ 49 $ 11,054
Over time 1,564 3,014 1,173 41 5,792
Total $ 10,928 $ 4,532 $ 1,296 $ 90 $ 16,846

Nine Months Ended September 30, 2019 Three Months Ended June 30, 2020
Strong Cinema Convergent Strong Outdoor Other Total Strong Entertainment Convergent Strong Outdoor Other Total
Point in time $ 21,746 $ 6,918 $ 397 $ 164 $ 29,225 $ 2,078 $ 427 $ 242 $ - $ 2,747
Over time 4,659 8,286 3,127 124 16,196 389 3,220 - 90 3,699
Total $ 26,405 $ 15,204 $ 3,524 $ 288 $ 45,421 $ 2,467 $ 3,647 $ 242 $ 90 $ 6,446
Six Months Ended June 30, 2020
Strong Entertainment Convergent Strong Outdoor Other Total
Point in time $ 7,794 $ 2,221 $ 1,439 $ 4 $ 11,458
Over time 1,987 6,388 - 187 8,562
Total $ 9,781 $ 8,609 $ 1,439 $ 191 $ 20,020
The following tables disaggregate the Company’s revenue by the timing of transfer of goods or services to the customer for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 (in thousands):

Three Months Ended September 30, 2018 Three Months Ended June 30, 2019
Strong Cinema Convergent Strong Outdoor Other Total Strong Entertainment Convergent Strong Outdoor Other Total
Point in time $ 9,743 $ 1,875 $ - $ - $ 11,618 $ 6,340 $ 2,408 $ 1,135 $ - $ 9,883
Over time 1,688 1,604 1,480 63 4,835 1,539 2,727 - 120 4,386
Total $ 11,431 $ 3,479 $ 1,480 $ 63 $ 16,453 $ 7,879 $ 5,135 $ 1,135 $ 120 $ 14,269

16

Nine Months Ended September 30, 2018 Six Months Ended June 30, 2019
Strong Cinema Convergent Strong Outdoor Other Total Strong Entertainment Convergent Strong Outdoor Other Total
Point in time $ 27,814 $ 5,710 $ - $ - $ 33,524 $ 12,384 $ 5,400 $ 2,229 $ - $ 20,013
Over time 5,279 5,516 1,948 191 12,934 3,095 5,270 - 197 8,562
Total $ 33,093 $ 11,226 $ 1,948 $ 191 $ 46,458 $ 15,479 $ 10,670 $ 2,229 $ 197 $ 28,575

At ~~September~~June 30, ~~2019,~~2020, the unearned revenue amount associated with maintenance and monitoring services, extended warranty sales and advertising services in which the Company is the primary obligor was ~~$2.7~~$1.7 million. The Company expects to recognize ~~$1.1~~$1.6 million of unearned revenue amounts throughout the rest of ~~2019, $1.6~~2020, $0.1 million during ~~2020~~2021 and immaterial amounts during ~~2021-2023.~~2022 and 2023.

4. Loss Per Common Share

Basic loss per share has been computed on the basis of the weighted average number of shares of common stock outstanding. Diluted loss per share would be computed on the basis of the weighted average number of shares of common stock outstanding after giving effect to potential common shares from dilutive stock options and certain non-vested shares of restricted stock and restricted stock units. However, because the Company reported losses in all periods presented, there were no differences between average shares used to compute basic and diluted loss per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~June 30, 2019. The following table summarizes the weighted average shares used to compute basic and diluted loss per ~~share:~~share (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,
Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018 2020 2019 2020 2019
Weighted average shares outstanding:
Basic weighted average shares outstanding 14,494 14,392 14,476 14,366 14,680 14,494 14,653 14,467
Dilutive effect of stock options and certain non-vested restricted stock awards - - - - - - - -
Diluted weighted average shares outstanding 14,494 14,392 14,476 14,366 14,680 14,494 14,653 14,467

~~For the three and nine months ended September 30, 2019, options~~Options to purchase ~~772,000~~927,000 and 762,500 shares of common stock were outstanding as of June 30, 2020 and June 30, 2019, respectively, but were not included in the computation of diluted loss per share as the ~~option’s~~options’ exercise ~~price was~~prices were greater than the average market price of the common shares for each period. An additional ~~165,206 and 146,461~~4,882 common stock equivalents related to ~~options~~restricted stock awards were excluded for the six months ended June 30, 2020 as their inclusion would be anti-dilutive, thereby decreasing the net losses per share. An additional 104,879 and 70,236 common stock equivalents related to restricted stock awards were excluded for the three and ~~nine~~six months ended ~~September~~June 30, 2019, respectively, as their inclusion would be anti-dilutive, thereby decreasing the net losses per share. For the three and nine months ended September 30, 2018, options to purchase 330,000 shares of common stock were outstanding but were not included in the computation of diluted loss per share as the option’s exercise price was greater than the average market price of the common shares for each period. An additional 63,398 and 166,391 common stock equivalents related to options and restricted stock awards were excluded for the three and nine months ended September 30, 2018, respectively, as their inclusion would be anti-dilutive, thereby decreasing the net losses per share.
17

5. Inventories

Inventories consist of the following (in thousands):

September 30, 2019 December 31, 2018 June 30, 2020 December 31, 2019
Raw materials and components $ 1,656 $ 1,422 $ 1,533 $ 1,584
Work in process 351 - 233 211
Finished goods 1,388 2,068 1,244 1,084
$ 3,395 $ 3,490 $ 3,010 $ 2,879

The inventory balances are net of reserves of approximately ~~$1.4~~$0.7 million and $0.9 million as of ~~both September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.
17

6. Investments

The following summarizes our investments (dollars in thousands):

September 30, 2019 December 31, 2018 June 30, 2020 December 31, 2019
Carrying Amount Economic Interest Carrying Amount Economic Interest Carrying Amount Economic Interest Carrying Amount Economic Interest
Equity Method Investments
1347 Property Insurance Holdings, Inc. $ 7,523 17.3 % $ 7,738 17.3 % $ 6,819 17.1 % $ 6,897 17.2 %
Itasca Capital, Ltd. 2,923 32.3 % 3,429 32.3 %
Itasca Capital Ltd. 2,816 32.3 % 2,800 32.3 %
Total Equity Method Investments 10,446 11,167 9,635 9,697

Cost Method Investment
Firefly Systems, Inc. 3,614 - 3,614 3,614
Total Investments $ 14,060 $ 11,167 $ 13,249 $ 13,311

Equity Method Investments

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

Three Months Ended
September 30,

Nine Months Ended
September 30,
Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018 2020 2019 2020 2019
Entity
1347 Property Insurance Holdings, Inc. $ (783 ) $ 23 $ (622 ) $ 603 $ (1,420 ) $ 17 $ (3 ) $ 161
Itasca Capital, Ltd. 287 (28 ) (601 ) (967 )
BK Technologies Corporation - 512 - 120
Itasca Capital Ltd. (69 ) (47 ) (117 ) (888 )
Total $ (496 ) $ 507 $ (1,223 ) $ (244 ) $ (1,489 ) $ (30 ) $ (120 ) $ (727 )

1347 Property Insurance Holdings, Inc. (“PIH”) is a publicly traded company that ~~provides property~~is implementing business plans to operate as a diversified holding company of insurance, reinsurance and ~~casualty insurance in the States of Louisiana, Texas~~investment management businesses. The Company’s Chairman and ~~Florida. The Company’s~~former Chief Executive Officer is the chairman of the board of directors of PIH, and ~~controls~~the Company’s Co-Chairman is co-chairman of the board of directors of PIH. As of June 30, 2020, they controlled entities that, when combined with the Company’s ownership in PIH, own greater than ~~20%~~50% of PIH. Since PIH ~~providing~~does not depend on the Company for continuing financial support to maintain operations, the Company has determined that PIH is not a variable interest entity, and therefore, the Company is not required to consolidate PIH. The equity method loss from PIH during the three months ended June 30, 2020 was primarily the result of PIH’s non-cash losses associated with ~~significant influence over PIH, but not controlling interest.~~the change in fair value of its investment in the common stock of FedNat Holding Company (Nasdaq: FNHC). The Company did not receive dividends from PIH during the three and ~~nine~~six months ended September 30, 2019 or 2018. On February 25, 2019, PIH announced a definitive agreement pursuant to which FedNat Holding Company will acquire substantially all of PIH’s homeowners’ insurance operations. PIH intends to maintain its Nasdaq listing and utilize the proceeds from the transaction to launch a new growth strategy focused on reinsurance, investment management and new investment opportunities. PIH intends to provide additional details on the rollout of this strategy prior to the closing of the transaction. On June 10, 2019, PIH held a special meeting of stockholders at which PIH’s stockholders approved the transaction. In addition, regulatory approvals have been obtained, subject to compliance with the consent orders issued by the insurance regulators, and the transaction is currently expected to close in December 2019. During the quarter ended June 30, ~~2019, as a result of the planned sale, PIH classified its homeowners’ insurance operations as discontinued operations.~~2020 or 2019. Based on quoted market prices, the market value of the Company’s ownership in PIH was $4.6 million at ~~September~~June 30, ~~2019.~~2020.
Itasca Capital Ltd. (“Itasca”) is a publicly traded Canadian company that is an investment vehicle seeking transformative strategic investments. The Company’s Chairman and former Chief Executive Officer is chairman of the board of directors of Itasca, and the Company’s Co-Chairman is also a member of the board of directors of Itasca. ~~This~~These board ~~seat,~~seats, combined with the Company’s 32.3% ownership of Itasca, provide the Company with significant influence over Itasca, but not controlling interest. The Company did not receive dividends from Itasca during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 or ~~2018.~~2019. Based on quoted market prices, the market value of the Company’s ownership in Itasca was ~~$1.7~~$2.5 million at ~~September~~June 30, ~~2019.~~
BK Technologies Corporation (“BKTI”) is a publicly traded holding company that, through its wholly-owned operating subsidiary BK Technologies, Inc., designs, manufactures and markets two-way land mobile radios, repeaters, base stations and related components and subsystems. BK Technologies Corporation became the parent company of BK Technologies, Inc. following the completion of a holding company reorganization on March 28, 2019. On September 9, 2018, the Company entered into an agreement with Fundamental Global Investors, LLC (“FGI”), a related party, where the Company sold its shares of common stock of BKTI to FGI. Due to the Company’s significant influence, but not controlling interest, in BKTI, the Company’s investment in BKTI was accounted for using the equity method. Prior to the sale of the BKTI common stock, the Company received dividends of $23 thousand and $0.1 million during the three and nine months ended September 30, 2018, respectively.2020.

As of ~~September~~June 30, ~~2019,~~2020, the Company’s retained earnings included an accumulated deficit from its equity method investees of ~~$0.6~~approximately $1.5 million.
18

The summarized financial information presented below reflects the financial information of the Company’s equity method investees for the ~~nine~~six months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ consistent with the Company’s recognition of the results of its equity method investments on a one-quarter lag (in thousands):

For the nine months ended June 30, 2019 2018

Revenue (1) $ 16,713 $ 11,711
Operating (loss) income (1) $ (910 ) $ 2,130
Net (loss) income $ (5,490 ) $ 2,500
For the six months ended March 31, 2020 2019

Revenue (1) $ (4,337 ) $ 808
Operating loss $ (4,534 ) $ (387 )
Net loss $ (393 ) $ (1,835 )
(1) ~~Except for~~PIH records realized and unrealized gains and losses on investments in net investment income (loss), which is included in the ~~three month periods ended December 31, 2018 and 2017, these amounts have been restated to reflect PIH’s reclassification of a significant portion of its business to discontinued operations.~~revenue line above.
Cost Method Investment

On May 21, 2019, SDM entered into a Taxicab Advertising Collaboration Agreement (the “Commercial Agreement”) and a Unit Purchase Agreement (the “Unit Purchase Agreement”) with Firefly Systems, Inc. (“Firefly”), pursuant to which SDM has agreed to make available to Firefly 300 digital taxi tops and the parties have agreed to coordinate the fulfilling of SDM’s agreements with the Metropolitan Taxicab Board of Trade, Inc. (“MTBOT”) and Creative Mobile Media, LLC (“CMM”), each dated February 8, 2018. Firefly has agreed to fulfill the digital taxi top advertising obligations under the MTBOT agreement and CMM agreement, and SDM has agreed to fulfill the non-digital taxi top advertising obligations under the MTBOT agreement and CMM agreement. The Company is a party to the Unit Purchase Agreement and has agreed to guarantee the payment obligations of SDM under the Commercial Agreement. As consideration for entering into these agreements, the Company received $4.8 million of Firefly’s Series A-2 preferred shares (“Firefly Shares”). ~~The~~As of June 30, 2020, the Firefly Shares, including those subsequently issued pursuant to an earn-out provision, ~~(if any), will be~~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 ~~a condition~~ of ~~the transaction, SDM has agreed to hold~~June 30, 2020, the Firefly Shares were held in an investment fund managed by Fundamental Global Investors, LLC, the controlling stockholder of the Company, that is wholly owned by SDM.
The 300 digital tops the Company has made available to Firefly are subject to a master equipment lease agreement the Company entered into during 2017. Pursuant to the master lease agreement and the Unit Purchase Agreement, the Company will remain the primary obligor until such time as the lease expires. In addition, of the $4.8 million of Firefly Shares received, $1.2 million are eligible for repurchase by Firefly if the Company does not exercise the purchase option contained within the master lease agreement. Accordingly, the Company has deferred recognizing an investment related to these Firefly Shares eligible for repurchase until such time it is reasonably certain the Company will exercise the purchase option. The transaction, in effect, transferred control of the underlying asset to Firefly. Therefore, the Company accounted for the transaction as a sales-type lease resulting in the derecognition of the $3.4 million right-of-use asset related to the master lease agreement and a selling profit of $0.2 million, which is recorded within other income (expense) on the condensed consolidated statement of operations. As additional consideration for the right to use the digital taxi tops, Firefly has agreed to pay for certain of Company’s operating expenses associated with the non-digital taxi tops. The Company concluded the payments that Firefly will make on its behalf are considered variable payments and were not included in the calculation of the selling profit. Therefore, the Company will record the benefit and the related operating expenses in the period when the changes in facts and circumstances on which the variable lease payments are based occur.

The Unit Purchase Agreement contains an earnout provision pursuant to which SDM could obtain additional Firefly Shares. The earnout period was from May 22, 2019 through June 30, 2020. SDM was eligible to earn additional Firefly Shares equivalent to the cash collections under certain digital top contracts that were in place at the closing of the transaction. In connection with the additional Firefly Shares that were expected to be received, the Company recorded an additional $0.4 million and $0.7 million gain on the Firefly transaction during the three and six months ended June 30, 2020, respectively.
Subsequent to June 30, 2020, SDM entered into an Asset Purchase Agreement with Firefly, pursuant to which SDM agreed to sell substantially all of the assets primarily related to its Strong Outdoor operating business to Firefly and continue to make available 300 digital taxi tops to Firefly. As a result of the transaction, among other things, the Firefly Shares pursuant to the earnout provision were delivered to SDM in August 2020 and the Taxicab Advertising Collaboration Agreement dated May 21, 2019 was terminated, which relieved the Company of its obligation to exercise the purchase option contained within the master lease agreement. The Company will recognize an additional $1.2 million investment related to the Firefly Shares that were previously eligible for repurchase by Firefly during the third quarter of 2020. See Note 15 for additional details.
19
7. Intangible Assets

Intangible assets consisted of the following ~~at September~~as of June 30, ~~2019~~2020 (dollars in thousands):

Useful life Gross Accumulated Amortization Net Useful life Gross Accumulated Amortization Net
(Years) (Years)
Intangible assets not yet subject to amortization:
Software in development $ 194 $ - $ 194 $ 229 $ - $ 229
Intangible assets subject to amortization:
Software in service 5 2,319 (966 ) 1,353 5 2,413 (1,355 ) 1,058
Product formulation 10 462 (408 ) $ 54 10 448 (406 ) 42
Total $ 2,975 $ (1,374 ) $ 1,601 $ 3,090 $ (1,761 ) $ 1,329

Intangible assets consisted of the following atas of December 31, ~~2018~~2019 (dollars in thousands):

Useful life Gross Accumulated Amortization Net Useful life Gross Accumulated Amortization Net
(Years) (Years)
Intangible assets not yet subject to amortization:
Software in development $ 119 $ - $ 119 $ 203 $ - $ 203
Intangible assets subject to amortization:
Software in service 5 2,188 (595 ) 1,593 5 2,362 (1,087 ) 1,275
Product formulation 10 447 (364 ) 83 10 471 (415 ) 56
Total $ 2,754 $ (959 ) $ 1,795 $ 3,036 $ (1,502 ) $ 1,534

Amortization expense relating to intangible assets was ~~$0.1~~$0.2 million during each of the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019 and $0.4 million ~~and $0.5 million~~ during each of the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and 2018, respectively. During the nine months ended September 30, 2018, the Company also recorded an impairment charge of $1.3 million related to abandoned software in service in the Convergent segment as a loss on disposal of assets in the condensed consolidated statement of operations.2019.
The following table shows the Company’s estimated future amortization expense related to intangible assets currently subject to amortization for the next five years (in thousands):

Remainder 2019 $ 131
2020 515
Remainder of 2020 $ 280
2021 476 519
2022 230 244
2023 55 57
2024 -
Thereafter - -
Total $ 1,407 $ 1,100
20

8. Goodwill

The following represents a summary of changes in the Company’s carrying amount of goodwill for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 (in thousands):

Balance as of December 31, 2018 $ 875
Foreign currency translation 27
Balance as of September 30, 2019 $ 902
Balance as of December 31, 2019 $ 919
Foreign currency translation adjustment (43 )
Balance as of June 30, 2020 $ 876

9. ~~Warranty Reserves~~
In most instances, the Company’s digital projection products are covered by the manufacturing firm’s original warranty; however, for certain customers the Company may grant warranties in excess of the manufacturer’s warranty. In addition, the Company provides warranty coverage on screens it manufactures. The Company accrues for these costs at the time of sale. The following table summarizes warranty activity for the three and nine months ended September 30, 2019 and 2018 (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Warranty accrual at beginning of period $ 328 $ 449 $ 350 $ 521
Charged to expense (1 ) 18 24 83
Claims paid, net of recoveries (16 ) (26 ) (70 ) (142 )
Foreign currency adjustment 2 8 9 (13 )
Warranty accrual at end of period $ 313 $ 449 $ 313 $ 449
~~10.~~ Debt

The Company’s debt ~~consists~~consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):

September 30, 2019 December 31, 2018 June 30, 2020 December 31, 2019
Short-term debt:
Strong/MDI installment loan $ 3,077 $ 3,152 $ 2,825 $ 3,080
Strong/MDI revolving credit facility 828 -
Insurance note payable 46 - 235 -
Current portion of long-term debt 979 1,094 853 998
Total short-term debt 4,102 4,246 4,741 4,078
Long-term debt:
Sale-leaseback financing - 6,769
Equipment term loans 4,271 4,398 3,699 4,031
Total principal balance of long-term debt 4,271 11,167 3,699 4,031
Less: current portion (979 ) (1,094 ) (853 ) (998 )
Less: unamortized debt issuance costs (17 ) (20 ) (14 ) (14 )
Total long-term debt 3,275 10,053 2,832 3,019
Total short-term and long-term debt $ 7,377 $ 14,299 $ 7,573 $ 7,097
Equipment Term Loans

On May 22, 2018, ~~the Company’s subsidiary,~~ Convergent entered into an installment payment agreement with an equipment financing company in order to purchase media players and related equipment in an aggregate amount of up to approximately $4.4 million. ~~Installment payments under~~In each ~~contract for purchase~~ of the equipment are due monthly for a period of 60 months. The financing provided in the agreement is secured by the equipment, and the obligations under the agreement are recorded as long-term debt on the Company’s condensed consolidated balance sheet. In December 2018 ~~Convergent entered into additional installment payment agreements with other financing companies in order to purchase additional media players~~ and ~~related equipment. This round of financing totaled approximately $0.6 million. In~~ June 2019, Convergent entered into additional installment payment agreements with other financing companies in order to purchase additional media players and related ~~equipment. This~~equipment, with each round of financing ~~totaled~~totaling approximately $0.6 million and $0.2 ~~million.~~million, respectively. Installment payments under each contract are due monthly for a period of 60 months. The financing under each of the agreements is secured by the respective equipment. The borrowings under the agreements are recorded as long-term debt on the Company’s consolidated balance sheet. Collectively, the Company had ~~$4.3~~$3.7 million of outstanding borrowings under equipment term loan agreements at ~~September~~June 30, ~~2019,~~2020, which ~~bear~~bore interest at a weighted-average fixed rate of 7.6%.

21
Strong/MDI Installment Loan and Revolving Credit Facility

On September 5, 2017, the Company’s Canadian subsidiary, Strong/MDI, entered into a demand credit agreement, as amended and restated May 15, 2018, with a bank consisting of a revolving line of credit for up to CDN$3.5 million subject to a borrowing base requirement, a 20-year installment loan for up to CDN$6.0 million and a 5-year installment loan for up to CDN$500,000. Amounts outstanding under the line of credit are payable on demand and bear interest at the prime rate established by the lender. Amounts outstanding under the installment loans bear interest at the lender’s prime rate plus 0.5% and are payable in monthly installments, including interest, over their respective borrowing periods. The lender may also demand repayment of the installment loans at any time. The Strong/MDI credit facilities are secured by a lien on Strong/MDI’s Quebec, Canada facility and substantially all of Strong/MDI’s assets. The credit agreement requires Strong/MDI to maintain a ratio of liabilities to “effective equity” (tangible stockholders’ equity, less amounts receivable from affiliates and equity method investments) not exceeding 2 to 1, a current ratio (excluding amounts due from related parties) of at least 1.5 to 1 and minimum “effective equity” of CDN$8.0 million. On April 24, 2018, the Company borrowed CDN$3.5 million on the 20-year installment loan. There was CDN$~~4.1~~3.9 million, or approximately $2.8 million, of principal outstanding on the 20-year installment loan as of ~~September~~June 30, ~~2019,~~2020, which bears variable interest at ~~4.45%~~2.95%. There was CDN$1.1 million, or approximately $0.8 million, of principal outstanding on Strong/MDI’s revolving credit facility as of June 30, 2020, which bears variable interest at 2.45%. Strong/MDI was in compliance with its debt covenants as of ~~September~~June 30, ~~2019.~~
~~Sale-leaseback Financing~~
On June 29, 2018, the Company and Convergent completed a sale-leaseback of Convergent’s Alpharetta, Georgia office facility. The transaction did not qualify for sale-leaseback accounting under the previous lease accounting standard and was accounted for as a financing liability. Upon adoption of ASC 842 during the first quarter of 2019, the Company derecognized approximately $6.8 million of debt associated with the previous accounting as a failed sale-leaseback. See Note 2 for additional details.2020.

Scheduled repayments are as follows for the Company’s long-term debt outstanding as of ~~September~~June 30, ~~2019~~2020 (in thousands):

Remainder of 2019 $ 239
2020 1,002
Remainder of 2020 $ 344
2021 1,079 1,054
2022 1,146 1,122
2023 786 1,149
2024 30
Thereafter 19 -
Total $ 4,271 $ 3,699

~~11.~~Paycheck Protection Program
On April 14, 2020, the Company entered into a promissory note evidencing a loan of $3.2 million (the “Loan”) under the U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) of the CARES Act. The Company intended to use the Loan for qualifying payroll, rent and utility expenses in accordance with the terms of the CARES Act. At the time the Company applied for the Loan, the Company believed it qualified to receive the funds pursuant to the PPP.
On April 23, 2020, the SBA, in consultation with the Department of Treasury, issued new guidance that created additional uncertainty regarding the qualification requirements for a PPP loan for public companies. The Company has less than 300 employees and continues to be severely impacted by the disruption to the cinema, theme park and advertising industries as a result of COVID-19. However, out of an abundance of caution and in light of the new guidance, the Company repaid the full amount of the Loan plus accrued interest to the lender on May 5, 2020.
10. Leases

The Company and its subsidiaries lease plant and office facilities and equipment under operating and finance leases expiring through 2028. The Company determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset.

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

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

22
The Company elected, as a lessee, for all classes of underlying assets, to not separate nonlease components from lease components and instead to account for each separate lease component and the nonlease components associated with that lease component as a single lease component.
The following tables present the Company’s lease costs and other lease information (dollars in thousands):

Lease cost
Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019 Three Months Ended
June 30, 2020 Three Months Ended
June 30, 2019 Six Months Ended
June 30, 2020 Six Months Ended
June 30, 2019
Lease cost
Finance lease cost:
Amortization of right-of-use assets $ 282 $ 420 $ 395 $ 88 $ 776 $ 137
Interest on lease liabilities 142 184 153 23 317 42
Operating lease cost 421 1,751 390 746 792 1,432
Short-term lease cost 12 21 15 3 29 9
Sublease income (120 ) (313 ) (89 ) (106 ) (205 ) (192 )
Net lease cost $ 737 $ 2,063 $ 864 $ 754 $ 1,709 $ 1,428

Other information
Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Three Months Ended
June 30, 2020

Three Months Ended
June 30, 2019
Six Months Ended June 30, 2020 Six Months Ended June 30, 2019
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases $ 142 $ 184 $ 153 $ 23 $ 317 $ 42
Operating cash flows from operating leases $ 333 $ 1,567 $ 350 $ 644 $ 691 $ 1,234
Financing cash flows from finance leases $ 282 $ 420 $ 395 $ 88 $ 776 $ 137
Right-of-use assets obtained in exchange for new finance lease liabilities $ 902 $ 1,613 $ 320 $ 478 $ 320 $ 710
Right-of-use assets obtained in exchange for new operating lease liabilities $ - $ 644 $ - $ - $ 109 $ 644
Derecognition of right-of-use asset in connection with Firefly transaction $ - $ 3,394 $ - $ 3,394 $ - $ 3,394

As of
~~September~~June 30, ~~2019~~2020

Weighted-average remaining lease term - finance leases (years) ~~3.5~~2.8
Weighted-average remaining lease term - operating leases (years) ~~7.5~~6.9
Weighted-average discount rate - finance leases ~~12.6~~12.1 %
Weighted-average discount rate - operating leases ~~5.0~~4.9 %
23

The following table presents a maturity analysis of the Company’s finance and operating lease liabilities as of ~~September~~June 30, ~~2019~~2020 (in thousands):
Operating Leases Finance Leases
Remainder 2019 $ 322 $ 476
2020 1,159 1,882
2021 1,061 1,882
2022 721 1,650
2023 656 353
Thereafter 3,116 87
Total lease payments 7,035 6,330
Less: Amount representing interest (1,202 ) (1,219 )
Present value of lease payments 5,833 5,111
Less: Current maturities (939 ) (1,317 )
Lease obligations, net of current portion $ 4,894 $ 3,794
Operating Leases Finance Leases
Remainder of 2020 $ 606 $ 1,129
2021 1,172 2,258
2022 823 2,052
2023 660 437
2024 669 172
Thereafter 2,446 36
Total lease payments 6,376 6,084
Less: Amount representing interest (1,011 ) (965 )
Present value of lease payments 5,365 5,119
Less: Current maturities (951 ) (1,732 )
Lease obligations, net of current portion $ 4,414 $ 3,387
The Company subleases certain office and warehouse space and equipment to third parties. Sublease income is included in net service revenues in the condensed consolidated statements of operations. The following table presents a maturity analysis of the Company’s long-term subleases (in thousands):
Remainder 2019 $ 54
2020 163
2021 137
2022 23
2023 -
Thereafter -
Total sublease payments $ 377

Remainder of 2020 $ 94
2021 189
2022 49
2023 -
2024 -
Thereafter -
Total sublease payments $ 332

The Company leases certain equipment to customers as a component of its Digital Signage as a Service (“DSaaS”) offering. Under DSaaS, the Company provides support, maintenance and content management services in addition to the use of a media player to the customer. The Company elected, as a lessor, for all classes of underlying assets, to not separate nonlease components from lease components and, instead, to account for each separate lease component and the nonlease components associated with that lease component as a single component if the nonlease components otherwise would be accounted for under Accounting Standards Codification Topic 606 on revenue from contracts with customers, and both of the following conditions are met: 1) the timing and pattern of transfer for the lease component and nonlease components associated with that lease component are the same and 2) the lease component, if accounted for separately, would be classified as an operating lease in accordance with Topic 842. The combined component is accounted for as a single performance obligation under Topic 606 if the nonlease component or components are the predominant component(s) of the combined component. Otherwise, if the lease component is the predominant component, the combined component is accounted for as an operating lease under ASC 842. In the case of the Company’s DSaaS contracts, the nonlease components are predominant; therefore, revenue from DSaaS contracts is accounted for under Topic 606 and is included in net service revenues in the condensed consolidated statements of operations.

24
~~12.~~11. Income Taxes

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. The Company considers the scheduled reversal of taxable temporary differences, projected future taxable income and tax planning strategies in making this assessment. A cumulative loss in a particular tax jurisdiction in recent years is a significant piece of evidence with respect to the realizability that is difficult to overcome. Based on the available objective evidence, including recent updates to the taxing jurisdictions generating income, the Company concluded that a valuation allowance should be recorded against all of the Company’s U.S. tax jurisdiction deferred tax assets as of ~~September~~June 30, ~~2019~~2020 and December 31, 2019.
The Tax Cuts and Jobs Act of 2017 provides for a territorial tax system, which began in 2018. It includes the global intangible low-taxed income (“GILTI”) provision. The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. As a result of the GILTI provisions, the Company’s inclusion of taxable income was incorporated into the overall net operating loss and valuation allowance for the three and six months ended June 30, 2020 and June 30, 2019.
Changes in tax laws may affect recorded deferred tax assets and liabilities and the Company’s effective tax rate in the future. On March 27, 2020, The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. The CARES Act made significant changes to Federal tax laws, including certain changes that are retroactive to the prior year. The effects of these changes relate to deferred tax assets and net operating losses; all of which are offset by valuation allowance.

The Company is subject to possible examinations not yet initiated for Federal purposes for fiscal years ~~2015~~2016 through ~~2018.~~2019. In most cases, the Company is subject to possible examinations by state or local jurisdictions based on the particular jurisdiction’s statute of limitations.

~~13.~~12. Stock Compensation

The Company recognizes compensation expense for all stock-based payment awards made to employees and directors based on estimated grant date fair values. Stock-based compensation expense included in selling and administrative expenses ~~approximated $0.3 million and~~was $0.2 million for each of the three months ended ~~September~~June 30, 2020 and 2019, and ~~2018, respectively, and $0.8 million and $0.6~~$0.5 million for the ~~nine~~each of the six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018, respectively.~~2019.
The Company’s 2017 Omnibus Equity Compensation Plan (“2017 Plan”) was approved by the Company’s stockholders and provides the Compensation Committee of the Board of Directors with the discretion to grant stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares, performance units and other stock-based awards and cash-based awards. Vesting terms vary with each grant and may be subject to vesting upon a “change in control” of the Company. ~~The total~~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 ~~is 1,371,189~~by 1,975,000 shares ~~with 391,778~~and (ii) extend the expiration date of the 2017 Plan by approximately two years, until October 27, 2029. As of June 30, 2020, 2,546,778 shares ~~remaining~~were available for ~~grant at September 30, 2019.~~issuance under the amended and restated 2017 Plan.
25

Stock Options
The Company granted a total of 295,000 and 387,500 stock options during the nine months ended September 30, 2019 and 2018, respectively. Options to purchase shares of common stock were granted with exercise prices equal to the fair value of the common stock on the date of grant.
The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2019 and 2018 was $2.91 and $1.82, respectively. The fair value of each stock option granted was estimated on the date of grant using a Black-Scholes valuation model with the following weighted average assumptions:
2019 2018
Expected dividend yield at date of grant 0.00% 0.00%
Risk-free interest rate 1.62% - 1.98% 2.49%
Expected stock price volatility 47.9% - 50.6% 35.6%
Expected life of options (in years) 6.0 6.0
The risk-free interest rate assumptions were based on the U.S. Treasury yield curve in effect at the time of the grant. Expected volatility is based on historical daily price changes of the Company’s stock for six years prior to the date of grant. The expected life of options is the average number of years the Company estimates that stock options will be outstanding.

The following table summarizes stock option activity for the ~~nine~~six months ended ~~September~~June 30, ~~2019:~~2020:

Number of
Options Weighted
Average
Exercise
Price
Per Share Weighted
Average
Remaining
Contractual
Term (Years) Aggregate
Intrinsic Value
(in thousands) Number of Options Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2018 867,000 $ 5.06 8.3 $ -
Outstanding at December 31, 2019 1,107,000 $ 4.47 7.9 $ 148
Granted 295,000 2.91 -
Exercised - - -
Forfeited (41,500 ) 5.29 (74,000 ) 4.82
Expired (13,500 ) 5.38 (106,000 ) 5.22
Outstanding at September 30, 2019 1,107,000 $ 4.47 8.1 $ 104
Exercisable at September 30, 2019 294,000 $ 5.18 7.0 $ -
Outstanding at June 30, 2020 927,000 $ 4.36 7.5 $ -
Exercisable at June 30, 2020 441,000 $ 4.79 6.8 $ -

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

As of ~~September~~June 30, ~~2019, 813,000~~2020, 486,000 stock option awards were non-vested. Unrecognized compensation cost related to non-vested stock ~~option awards~~options was approximately ~~$1.2~~$0.8 million, which is expected to be recognized over a weighted average period of ~~3.4~~2.9 years.
Restricted Stock Shares and Restricted Stock Units

The Company granted a total of 417,378 and 147,500 restricted stock units during the nine months ended September 30, 2019 and 2018, respectively. The Company estimates the fair value of restricted stock awards based upon the market price of the underlying common stock on the date of grant.
~~The~~ following table summarizes restricted stock share activity for the ~~nine~~six months ended ~~September~~June 30, ~~2019:~~2020:

Number of Restricted
Stock Shares Weighted Average Grant
Date Fair Value Number of Restricted Stock Shares Weighted Average Grant Date Fair Value
Non-vested at December 31, 2018 46,667 $ 6.50
Non-vested at December 31, 2019 23,334 $ 6.50
Granted - - -
Shares vested (23,333 ) 6.50 (23,334 ) 6.50
Shares forfeited - - -
Non-vested at September 30, 2019 23,334 $ 6.50
Non-vested at June 30, 2020 -

The following table summarizes restricted stock unit activity for the ~~nine~~six months ended ~~September~~June 30, ~~2019:~~2020:

Number of Restricted
Stock Units Weighted Average Grant
Date Fair Value Number of Restricted Stock Units Weighted Average Grant Date Fair Value
Non-vested at December 31, 2018 277,498 $ 3.33
Non-vested at December 31, 2019 522,379 $ 3.14
Granted 417,378 2.95 -
Shares vested (75,833 ) 3.87 (142,497 ) 3.36
Shares forfeited - - -
Non-vested at September 30, 2019 619,043 $ 2.10
Non-vested at June 30, 2020 379,882 $ 3.06

As of ~~September~~June 30, ~~2019,~~2020, the total unrecognized compensation cost related to non-vested restricted stock unit awards was approximately ~~$1.5~~$0.9 million, which is expected to be recognized over a weighted average period of ~~2.3~~1.8 years.

26
~~14.~~13. Commitments, Contingencies and Concentrations

Litigation

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

Concentrations

The Company’s top ten customers accounted for approximately ~~59%~~65% and ~~53%~~54% of ~~total~~ consolidated net revenues ~~for~~during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively. Trade accounts receivable from these customers represented approximately ~~53%~~42% of net consolidated receivables at ~~September~~June 30, ~~2019. The~~2020. In addition, the Company had one customer account for more than 10% of both its consolidated net revenues during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019. In addition, the Company had two customers account for more than 10% of~~2020 and its net consolidated receivables ~~at September~~as of June 30, ~~2019.~~2020. While the Company believes its relationships with such customers are stable, most arrangements are made by purchase order and are terminable at will by either party. A significant decrease or interruption in business from the Company’s significant customers could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company could also be adversely affected by such factors as the impact of COVID-19 on its customers, changes in foreign currency rates and weak economic and political conditions in each of the countries in which the Company sells its products.
Financial instruments that potentially expose the Company to a concentration of credit risk principally consist of accounts receivable. The Company sells product to a large number of customers in many different geographic regions. To minimize credit risk, the Company performs ongoing credit evaluations of its customers’ financial condition.

Insurance Recoveries

During February 2019, one portion of Strong/MDI’s Quebec, Canada facility sustained damage as a result of inclement weather. The Company has property and casualty and business interruption insurance and has been working with its insurance carrier with regard to the insurance claims for reimbursement of incurred costs of the affected portion of the facility and compensation for the Company’s business interruption losses.

The insurance company has informed the Company that it has established preliminary loss reserves for both property and casualty claims and business interruption claims. However, those claims reserves are estimates based on preliminary information and are subject to change asThrough June 30, 2020, the insurance carrier completes its analyses and continues its claims review process over the next several months. The ultimate amount of insurance proceeds to be received by the Company could be significantly different than the insurance company’s reserve estimates. During the nine months ended September 30, 2019, the insurance carrierhas advanced ~~$1.8~~$3.1 million of insurance proceeds to the Company, which ~~includes $1.2~~included $2.0 million related to the property and casualty claim and ~~the remaining $0.6~~$1.1 million related to our business interruption claim. Any additional future claims payments are at the discretion of the insurance carrier based on its continuing claims analysis.

For the ~~nine~~six months ended ~~September~~June 30, 2020 and June 30, 2019, the Company recorded total insurance recoveries of its incurred costs totaling ~~$0.8 million. Of the $0.8~~$0.2 million ~~of insurance recoveries during the nine months ended September 30, 2019,~~and $0.6 million, related to the property and casualty claim and $0.2 million related to the business interruption claim. Those recoveries offset the operating costs detailed above, and effectively offset the incremental costs incurred by therespectively. The Company ~~in the first nine months of 2019. During the nine months ended September 30, 2019, the Company recorded a gain of $0.7 million related to its property and casualty claim. The remaining $0.4~~has also deferred $0.8 million of proceeds received in connection with the business interruption claim ~~has been recorded~~ within accrued expenses on the condensed consolidated balance sheet as of ~~September~~June 30, ~~2019.~~2020. Recovery of lost profit under the business interruption coverage will be reflected in future periods as contingencies are resolved and the amounts are confirmed with the insurer.

27
~~15.~~
Consulting Agreement
On May 19, 2020, the Company entered into a Financial and Consulting Services Agreement (the “Itasca Financial Agreement”) with Itasca Financial LLC (“Itasca Financial”), pursuant to which Itasca Financial agreed to advise the Company on aspects of its strategic direction. In exchange for Itasca Financial’s services, the Company agreed to pay Itasca Financial a retainer fee of $50,000, payable in two installments of $25,000, and a monthly fee of $20,000. The Itasca Financial Agreement may not be terminated for a period of three months from May 19, 2020, after which time it may be terminated by either party at any time with prior written notice of at least 30 calendar days. As of the date of this report, the Company has paid $110,000 to Itasca Financial. Upon termination of the Itasca Financial Agreement by either party, the Company has agreed to pay Itasca Financial a termination fee of $100,000, which can be payable in a combination of cash and stock at the Company’s discretion, and if any such fee is paid in stock, then the Company has agreed to grant Itasca Financial unlimited piggyback registration rights for such stock. The Itasca Financial Agreement also includes expense reimbursement provisions and indemnification provisions in favor of Itasca Financial and its affiliates. This description of the Itasca Financial Agreement is a summary only and is qualified by reference to full text of the Itasca Financial Agreement, which is filed as an exhibit to this report.
Fundamental Global Investors, LLC, with its affiliates (collectively, “Fundamental Global”), is the controlling stockholder of the Company. D. Kyle Cerminara, the Chief Executive Officer, Co-Founder and Partner of Fundamental Global Investors, LLC, is the Chairman of the Company’s board of directors and former Chief Executive Officer of the Company, and Lewis M. Johnson, the President, Co-Founder and Partner of Fundamental Global Investors, LLC, is Co-Chairman of the Company’s board of directors. Fundamental Global is the controlling stockholder of PIH, and Larry G. Swets, Jr. serves as Interim Chief Executive Officer and principal executive officer of PIH and as a member of PIH’s Board of Directors. In addition, Mr. Swets founded and serves as the managing member of Itasca Financial, which provides services to the Company, as described above, as well as to other companies affiliated with Fundamental Global.
14. Business Segment Information

The Company conducts its operations through three primary business segments: Strong ~~Cinema,~~Entertainment (formerly known as Strong Cinema), Convergent and Strong Outdoor. The Strong ~~Cinema~~Entertainment segment name change is to the name only and had no impact on the Company’s historical financial position, results of operations, cash flow or segment level results previously reported. Strong Entertainment is one of the largest manufacturers of premium projection screens and also manufactures customized screen support systems, distributes other products and provides technical support services to the cinema, amusement park and other markets. Convergent delivers digital signage solutions and related services to large multi-location organizations in the United States and Canada. Strong Outdoor provides outdoor advertising and experiential marketing to advertising agencies and corporate ~~customers.~~accounts, primarily in New York City. The Company’s operating segments were determined based on the manner in which management organizes segments for making operating decisions and assessing performance. ~~During~~As a result of the ~~fourth quarter 2018,~~sale of substantially all of the assets of the Strong Outdoor operating segment in August 2020 (see Note 15 for additional details), the Company ~~separated~~is evaluating how its ~~former Digital Media segment into separate Convergent and Strong Outdoor segments. All prior periods have been recast~~business segments will be reported in ~~our segment reporting to reflect the current segment organization.~~future periods.
28
Summary by Business Segments
Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(in thousands) (in thousands)
Net revenues
Strong Cinema $ 10,928 $ 11,431 $ 26,405 $ 33,093
Convergent 4,532 3,479 15,204 11,226
Strong Outdoor 1,296 1,480 3,524 1,948
Other 90 63 288 191
Total net revenues 16,846 16,453 45,421 46,458

Gross profit (loss)
Strong Cinema 3,669 4,415 8,621 11,015
Convergent 1,469 (51 ) 4,622 580
Strong Outdoor 585 (897 ) (1,839 ) (4,116 )
Other 90 63 287 191
Total gross profit 5,813 3,530 11,691 7,670

Operating income (loss)
Strong Cinema 2,230 3,383 4,646 7,681
Convergent 394 (1,413 ) 1,467 (5,170 )
Strong Outdoor (224 ) (1,175 ) (3,829 ) (4,951 )
Other (206 ) (57 ) (603 ) (202 )
Total segment operating income (loss) 2,194 738 1,681 (2,642 )
Unallocated administrative expenses (2,128 ) (1,712 ) (6,515 ) (6,939 )
Unallocated loss on disposal of assets - (818 ) - (818 )
Income (loss) from operations 66 (1,792 ) (4,834 ) (10,399 )
Other (expense) income, net (627 ) 561 (2,004 ) 718
Loss before income taxes and equity method investment loss $ (561 ) $ (1,231 ) $ (6,838 ) $ (9,681 )
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
(in thousands) (in thousands)
Net revenues
Strong Entertainment $ 2,467 $ 7,879 $ 9,781 $ 15,479
Convergent 3,647 5,135 8,609 10,670
Strong Outdoor 242 1,135 1,439 2,229
Other 90 120 191 197
Total net revenues 6,446 14,269 20,020 28,575

Gross profit (loss)
Strong Entertainment 47 2,537 1,880 4,953
Convergent 1,601 1,584 3,585 3,153
Strong Outdoor (275 ) (1,007 ) 58 (2,424 )
Other 90 120 191 197
Total gross profit 1,463 3,234 5,714 5,879

Operating (loss) income
Strong Entertainment (478 ) 1,256 (814 ) 2,415
Convergent 591 321 1,448 1,073
Strong Outdoor (680 ) (1,593 ) (1,056 ) (3,605 )
Other (108 ) (159 ) (224 ) (396 )
Total segment operating loss (675 ) (175 ) (646 ) (513 )
Unallocated administrative expenses (1,432 ) (2,148 ) (3,384 ) (4,386 )
Loss from operations (2,107 ) (2,323 ) (4,030 ) (4,899 )
Other (expense) income, net (36 ) (642 ) 470 (1,379 )
Loss before income taxes and equity method investment loss $ (2,143 ) $ (2,965 ) $ (3,560 ) $ (6,278 )

(In thousands) September 30, 2019 December 31, 2018 June 30, 2020 December 31, 2019
Identifiable assets
Strong Cinema $ 21,385 $ 27,009
Strong Entertainment $ 18,378 $ 18,135
Convergent 16,824 14,024 12,017 15,797
Strong Outdoor 3,306 3,454 2,695 3,737
Corporate assets 19,265 15,150 20,353 19,964
Total $ 60,780 $ 59,637 $ 53,443 $ 57,633

Summary by Geographical Area
Three Months Ended
September 30, Nine Months Ended
September 30, Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2019 2018 2019 2018 2020 2019 2020 2019
Net revenue
Net revenues
United States $ 13,691 $ 12,495 $ 38,519 $ 36,196 $ 5,892 $ 11,877 $ 17,572 $ 24,742
Canada 1,111 1,234 2,664 4,148 323 754 1,064 1,553
China 633 1,581 1,763 2,867 67 918 268 1,130
Mexico 65 206 70 1,293 - 1 78 5
Latin America 275 256 574 659 52 269 327 298
Europe 521 456 1,058 809 30 257 224 537
Asia (excluding China) 348 160 515 337 55 110 313 167
Other 202 65 258 149 27 83 174 143
Total $ 16,846 $ 16,453 $ 45,421 $ 46,458 $ 6,446 $ 14,269 $ 20,020 $ 28,575

(In thousands) September 30, 2019 December 31, 2018
Identifiable assets
United States $ 43,813 $ 42,780
Canada 16,967 16,857
Total $ 60,780 $ 59,637
29
(In thousands) June 30, 2020 December 31, 2019
Identifiable assets
United States $ 35,634 $ 37,508
Canada 17,809 20,125
Total $ 53,443 $ 57,633

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

15. Subsequent Event
On August 3, 2020, SDM entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Firefly, pursuant to which SDM agreed to sell substantially all of the assets primarily related to its Strong Outdoor operating business to Firefly and continue to make available 300 digital taxi tops to Firefly. SDM is retaining certain accounts receivable as well as liabilities other than executory obligations under transferred contracts to the extent such liabilities are required to be performed following closing or constitute certain deferred revenue. The transaction closed on the same day.
As consideration for entering into the Asset Purchase Agreement, SDM received approximately $0.6 million in cash consideration and approximately $3.2 million of Firefly’s Series A-3 preferred shares.
In connection with the closing of the transactions contemplated by the Asset Purchase Agreement, (i) SDM received approximately $1.1 million of Firefly’s Series A-2 preferred shares, which constituted the remaining shares to be issued pursuant to the Unit Purchase Agreement, (ii) Firefly no longer has an option to repurchase any of the Series A-2 preferred shares issued to SDM, (iii) accounts payable to Firefly were cancelled and forgiven, and (iv) the Taxicab Advertising Collaboration Agreement dated May 21, 2019 was terminated, which relieved the Company of its obligation to exercise the purchase option contained within the master lease agreement. As of the filing date of this report SDM held approximately $5.7 million of Firefly Series A-2 preferred shares, which included the shares issued to SDM as part of the May 2019 transaction. The Company will recognize an additional $1.2 million investment related to the Firefly Shares that were previously eligible for repurchase by Firefly.
The Company expects to record a gain of approximately $5.0 million during the third quarter of 2020 as a result of the transaction.
As contemplated by the Asset Purchase Agreement, the newly issued Series A-2 preferred shares of Firefly will be held by SDM, and the previously issued Series A-2 preferred shares of Firefly held by Fundamental Global Venture Partners, LP (“FGVP”), an investment fund managed by Fundamental Global Advisors, LLC in which SDM is the sole limited partner, were transferred to SDM. The Asset Purchase Agreement includes customary representations and warranties. SDM is indemnifying Firefly for excluded liabilities related to the transferred business.
Convergent entered into a Master Services Agreement (the “Master Services Agreement”) with Firefly, pursuant to which Convergent agreed to provide certain support services to Firefly, including remote equipment monitoring and diagnostics of screens until no later than December 31, 2022 and transition advertising instruction and integration services, content management services, ad-hoc reporting and analysis, wireless service, advertising content management services, and mapping data until no later than six months from closing. As consideration for entering into the Master Services Agreement, Convergent received $2.0 million in cash consideration.
On August 3, 2020, Strong/MDI entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Firefly, pursuant to which MDI agreed to purchase $4.0 million of Firefly’s Series A-3 preferred shares at the initial closing, which took place on the same day, and the Company or its affiliated entities may purchase an additional $2.0 million of Firefly’s Series A-3 preferred shares at a second closing subject to certain conditions. As contemplated by the Stock Purchase Agreement and ancillary investment agreements, the Company and its affiliated entities will have the right to designate a director to be elected to the board of directors of Firefly, subject to holding, together with its affiliates, approximately $7.2 million of Firefly’s Series A-3 preferred shares and other conditions. The Company and its affiliated entities currently hold $7.2 million of Series A-3 preferred shares and have designated Kyle Cerminara, Chairman of the Company’s board of directors and a principal of the Company’s largest shareholder, to Firefly’s board of directors.
2930

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Forward-looking statements involve a number of risks and uncertainties, including but not limited to those discussed in the “Risk Factors” section contained in Item 1A in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018~~2019 and Item 1A of this Quarterly Report on Form 10-Q and the following risks and uncertainties: the negative impact that the COVID-19 pandemic has already had, and may continue to have, on the Company’s business and financial condition, the Company’s ability to maintain and expand its revenue streams to compensate for the lower demand for the Company’s digital cinema products and installation services, potential interruptions of supplier relationships or higher prices charged by suppliers, the Company’s ability to successfully compete and introduce enhancements and new features that achieve market acceptance and that keep pace with technological developments, the Company’s access to capital, the Company’s ability to successfully execute its capital allocation strategy, the Company’s ability to maintain its brand and reputation and retain or replace its significant customers, challenges associated with the Company’s long sales cycles, the impact of a challenging global economic environment or a downturn in the markets (such as the current economic disruption and recession and market volatility generated by the ongoing COVID-19 pandemic), economic and political risks of selling products in foreign countries (including tariffs), risks of non-compliance with U.S. and foreign laws and regulations, potential sales tax collections and claims for uncollected amounts, cybersecurity risks and risks of damage and interruptions of information technology systems, the Company’s ability to retain key members of management and successfully integrate new executives, the Company’s ability to complete acquisitions, strategic investments, entry into new lines of business, divestitures, mergers or other transactions on acceptable terms or at all, the impact of the COVID-19 pandemic on the companies in which the Company holds investments, the Company’s ability to utilize or assert its intellectual property rights, the impact of natural disasters and other catastrophic events (such as the ongoing COVID-19 pandemic), the adequacy of insurance, ~~and~~ the impact of having a controlling ~~stockholder.~~stockholder and vulnerability to fluctuation in the Company’s stock price. Given the risks and uncertainties, readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results which may not occur as anticipated. Many of the risks listed above have been, and may further be, exacerbated by the 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.

Overview

Ballantyne Strong, Inc. (“BTN”, “Ballantyne”, “the Company”, “we”, “our” and “us”) is a holding company with diverse business activities focused on serving the ~~cinema,~~entertainment, retail ~~financial,~~and advertising ~~and government~~ markets. The Company and its subsidiaries design, integrate and install technology solutions for a broad range of applications; develop and deliver out-of-home messaging, advertising and communications; manufacture projection screens; and provide managed services including monitoring of networked equipment to our customers. We add value through our design, engineering, manufacturing excellence and customer service.

Effective August 8, 2019, the Company’s Board of Directors approved the relocation of our headquarters from 11422 Miracle Hills Drive, Suite 300, Omaha, Nebraska to 4201 Congress Street, Suite 175, Charlotte, North Carolina 28209.
Also on August 8, 2019, the Company’s Board of Directors approved the unwinding of StrongVest Global Advisors, LLC, a wholly-owned subsidiary of the Company that served as advisor to an exchange-traded fund issued by the StrongVest ETF Trust. On August 9, 2019, the StrongVest ETF Trust’s Board of Directors also approved the shutdown. In connection with the unwinding, the Company recorded expenses of $0.1 million during the third quarter of 2019.
We conduct our operations through three ~~primary business~~operating segments: Strong ~~Cinema,~~Entertainment (formerly known as Strong Cinema), Convergent and Strong Outdoor. The Strong Entertainment segment name change is to the name only and had no impact on our historical financial position, results of operations, cash flow or segment level results previously reported. Our Strong ~~Cinema~~Entertainment business is one of the largest manufacturers of premium projection screens. We also manufacture customized screen support systems, distribute other products and provide technical support services to the cinema, amusement park and other markets. Convergent delivers digital signage solutions and related services to large multi-location organizations in the United States and Canada. Strong Outdoor provides outdoor advertising and experiential marketing to advertising agencies and corporate ~~customers. Strong Outdoor started operations in the second half of 2018 and began selling advertising on taxicab signs~~accounts, primarily in New York City.
31

Our segments were determined based on the manner in which management organizes segments for making operating decisions and assessing performance. Approximately ~~58%~~49% of our revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 were from Strong ~~Cinema,~~Entertainment, approximately ~~34%~~43% were from Convergent and approximately 8% were from Strong Outdoor. During the fourth quarter 2018, we separated our former Digital Media segment into separate Convergent and Strong Outdoor segments. All prior periods have been recast in our segment reporting to reflect the current segment organization. Additional information related to our reporting segments can be found in Note 1514 in the notes to the condensed consolidated financial statements.

Firefly Transaction in August 2020
On August 3, 2020, SDM entered into an Asset Purchase Agreement with Firefly, pursuant to which SDM agreed to sell substantially all of the assets primarily related to its Strong Outdoor operating business to Firefly and continue to make available 300 digital taxi tops to Firefly. SDM is retaining 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. Note 15 contains additional information regarding this transaction. Additionally, as a result of this sale, we are evaluating how our business segments will be reported in future periods.
Impact of COVID-19 Pandemic
In December 2019, a novel coronavirus disease (“COVID-19”) 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; many advertisers began to reduce, postpone, or cancel their advertising campaigns as social distancing measures, including closures of schools and non-essential businesses, and restrictions around the free movement of people were implemented; and a number of events during which our experiential marketing services may have been provided, such as Coachella, have been postponed, cancelled or shifted to virtual venues. 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 was also delayed by the COVID-19 pandemic, and we are currently evaluating the timing of when we will be able to commence operations at the facility in light of current travel restrictions. 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 investments; 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.
32
In response to uncertainties associated with the COVID-19 pandemic, we have taken, and are continuing to take, 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 have 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 the first half of 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.
In addition, we have undertaken new initiatives as a result of the COVID-19 pandemic, including our BrightNight program, which converts movie theater and other parking lots into temporary drive-in theaters, and a Theatre Readiness Program, which includes an auditorium quality assurance service visit in advance of customers returning to movie theaters. While we believe these programs will provide an additional source of revenue during the COVID-19 pandemic, we cannot provide any assurance that these programs will provide the anticipated benefits to our business.
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 second quarter of 2020, management decided to draw down CDN$2.9 million, or approximately $2.1 million, under Strong/MDI’s credit facility, of which CDN$2.5 million, or approximately $1.8 million, was repaid during the second quarter of 2020 in order to remain in compliance with the credit facility since our accounts receivable decreased during the second quarter of 2020 due to cash collections and low sales. Furthermore, we have 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 facility, 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, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic, including repeat or cyclical outbreaks, 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.
33
Results of ~~Operations:~~Operations

The following table sets forth our operating results for the periods ~~indicated, the percentage of net revenues represented by certain items reflected in our condensed consolidated statements of operations.~~indicated:

Three Months Ended June 30,
2020 2019 $ Change % Change
(dollars in thousands)
Net revenues $ 6,446 $ 14,269 $ (7,823 ) (54.8 )%
Cost of revenues 4,983 11,035 (6,052 ) (54.8 )%
Gross profit 1,463 3,234 (1,771 ) (54.8 )%
Gross profit percentage 22.7 % 22.7 %
Selling and administrative expenses 3,570 5,519 (1,949 ) (35.3 )%
Loss on disposal of assets - (38 ) 38 (100.0 )%
Loss from operations (2,107 ) (2,323 ) 216 (9.3 )%
Other (expense) income (36 ) (642 ) 606 (94.4 )%
Loss before income taxes and equity method investment loss (2,143 ) (2,965 ) 822 (27.7 )%
Income tax expense (96 ) (423 ) 327 (77.3 )%
Equity method investment loss (1,489 ) (30 ) (1,459 ) 4863.3 %
Net loss $ (3,728 ) $ (3,418 ) $ (310 ) 9.1 %
Six Months Ended June 30,
Three Months Ended
September 30, Nine Months Ended
September 30, 2020 2019 $ Change % Change
2019 2018 2019 2018 (dollars in thousands)
Net revenues 100.0 % 100.0 % 100.0 % 100.0 % $ 20,020 $ 28,575 $ (8,555 ) (29.9 )%
Cost of revenues 65.5 78.5 74.3 83.5 14,306 22,696 (8,390 ) (37.0 )%
Gross profit 34.5 21.5 25.7 16.5 5,714 5,879 (165 ) (2.8 )%
Gross profit percentage 28.5 % 20.6 %
Selling and administrative expenses 34.1 27.5 36.2 34.3 9,744 10,676 (932 ) (8.7 )%
Income (loss) from operations 0.4 (10.9 ) (10.6 ) (22.4 )
Loss on disposal of assets - (102 ) 102 (100.0 )%
Loss from operations (4,030 ) (4,899 ) 869 (17.7 )%
Other income (expense) 470 (1,379 ) 1,849 (134.1 )%
Loss before income taxes and equity method investment loss (3,560 ) (6,278 ) 2,718 (43.3 )%
Income tax expense (496 ) (564 ) 68 (12.1 )%
Equity method investment loss (120 ) (727 ) 607 (83.5 )%
Net loss (10.6 ) (7.4 ) (20.6 ) (25.3 ) $ (4,176 ) $ (7,569 ) $ 3,393 (44.8 )%

Three Months Ended ~~September~~June 30, ~~2019~~2020 Compared to the Three Months Ended ~~September~~June 30, ~~2018~~2019

Revenues

Net revenues during the quarter ended ~~September~~June 30, ~~2019 increased 2.4%~~2020 decreased 54.8% to ~~$16.8~~$6.4 million from ~~$16.5~~$14.3 million during the quarter ended ~~September~~June 30, ~~2018.~~2019. The decrease in consolidated net revenue was primarily due to the impact of COVID-19 on our Strong Entertainment and Strong Outdoor businesses. At Convergent, robust growth in services revenue was offset by the effect of large non-recurring installation projects in the prior year period on the comparisons.

Three Months Ended September 30,
2019 2018 $ Change % Change
(dollars in thousands)
Strong Cinema $ 10,928 $ 11,431 $ (503 ) (4.4 )%
Convergent 4,532 3,479 1,053 30.3 %
Strong Outdoor 1,296 1,480 (184 ) (12.4 )%
Other 90 63 27 42.9 %
Total net revenues $ 16,846 $ 16,453 $ 393 2.4 %
Three Months Ended June 30,
2020 2019 $ Change % Change
(dollars in thousands)
Strong Entertainment $ 2,467 $ 7,879 $ (5,412 ) (68.7 )%
Convergent 3,647 5,135 (1,488 ) (29.0 )%
Strong Outdoor 242 1,135 (893 ) (78.7 )%
Other 90 120 (30 ) (25.0 )%
Total net revenues $ 6,446 $ 14,269 $ (7,823 ) (54.8 )%
34

Strong ~~Cinema~~Entertainment

~~Sales of Cinema products and services~~Revenue from Strong Entertainment decreased ~~4.4%~~68.7% to ~~$10.9~~$2.5 million in the ~~third~~second quarter of ~~2019~~2020 from ~~$11.4~~$7.9 million in the ~~third~~second quarter of ~~2018.~~2019. The decrease was primarily due to the ~~result~~impact of ~~a weather-related incident affecting~~the COVID-19 pandemic, including the government mandated temporary closure of our ~~production~~screen manufacturing facility in Quebec and ~~a decrease in screen support systems, installation services~~lower revenues from equipment sales and ~~time and materials-based services, partially offset~~field service projects. Revenue during the second quarter of 2019 was impacted by ~~an increase in non-recurring audio and projection system sales. As a result of excessive snow pack on the~~ roof ~~a portion of the Quebec facility suffered~~ damage that caused the screen facility in Quebec to temporarily halt operations for ~~several weeks in~~a portion of the ~~first and~~ second quarter of ~~2019~~2019.
In March 2020, the Quebec government ordered the closure of all non-essential businesses, including our Quebec facility. We reopened our facility on May 11, 2020. In addition, while we originally expected to have our outsourced screen finishing facility in China up and ~~relocate~~running in the ~~affected operations to temporary areas~~second quarter of 2020, the ~~plant. While operations resumed, we continued to experience inefficiencies while the affected portion~~outbreak of ~~the building was demolished and rebuilt. The improved facility and new production equipment, which were covered by our insurance programs, are nearing completion~~COVID-19 in China delayed those plans, and we ~~expect~~are currently evaluating the timing of when we will ~~resume production~~be able to commence operations at the facility in light of current travel restrictions.
Some cinemas, theme parks and other entertainment venues have begun to re-open their doors in recent weeks. We have seen an uptick in customer demand for both screen systems for international markets and services domestically to support those reopening initiatives in late June 2020 and continuing into July 2020. We continue to closely monitor the ~~fourth quarter~~regulatory environment and the status of ~~2019.~~our customers’ operations in managing the pace at which we ramp back up our operations.
Convergent

~~Sales of~~Revenue from Convergent ~~products and services increased 30.3%~~decreased 29.0% to ~~$4.5~~$3.6 million in the ~~third~~second quarter of ~~2019~~2020 from ~~$3.5~~$5.1 million in the ~~third~~second quarter of ~~2018. The increase was driven primarily by the~~2019. Convergent’s service revenues increased ~~recurring revenue and installation~~approximately $0.6 million on growth in DSaaS customer installations, while revenue from non-recurring installation work and equipment sales decreased approximately $1.8 million due to a large non-recurring installation project during the ~~rollout~~second quarter of 2019. Convergent experienced a moderate negative revenue impact from COVID-19 during the ~~DSaaS program~~second quarter of 2020 and continues to ~~large enterprise customers. Revenue from the installation~~support its retail customers, many of ~~other products also increased from the prior year due the timing of customer installation projects~~whom provide essential services and ~~the increase~~remain in ~~new business.~~operation.

Strong Outdoor

~~Revenues~~Revenue from ~~advertising services were $1.3~~Strong Outdoor was $0.2 million during the three months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$1.5~~$1.1 million during the three months ended ~~September~~June 30, ~~2018. The decrease in~~2019. Strong Outdoor’s advertising revenues have been significantly impacted by COVID-19 as its primary advertising market is New York City, which has been largely closed since April 2020. If the May 2019 Firefly transaction had been effective as of January 1, 2019, and the digital taxitops transferred to Firefly as of that date, revenue during the quarter ended September 30, 2019 was due to the Firefly transaction as the digital taxitop revenues are no longer included in Strong Outdoors’s results of operations, which was partially offset by higher revenue from static taxitops during the thirdsecond quarter of ~~2019.~~2019 would have been lower by $0.3 million.
35

Gross Profit

~~Gross~~Consolidated gross profit ~~during the quarter ended September 30, 2019 was $5.8 million compared~~decreased 54.8% to ~~$3.5~~$1.5 million during the quarter ended ~~September~~June 30, ~~2018.~~2020 from $3.2 million during the quarter ended June 30, 2019. As a percentage of revenue, gross profit ~~improved~~was 22.7% for each of the quarters ended June 30, 2020 and 2019. Consolidated gross profit as a percentage of revenue was flat, despite the significant decline in revenue, due to ~~34.5% for~~a combination of the ~~quarter ended September 30, 2019 compared~~margin expansion at Convergent related to ~~21.5% for~~ the ~~third quarter~~growth in the DSaaS service business and the cost reductions actions taken to mitigate the impact of ~~2018.~~COVID-19.

Three Months Ended September 30, Three Months Ended June 30,
2019 2018 $ Change % Change 2020 2019 $ Change % Change
(dollars in thousands) (dollars in thousands)
Strong Cinema $ 3,669 $ 4,415 $ (746 ) (16.9 )%
Strong Entertainment $ 47 $ 2,537 $ (2,490 ) (98.1 )%
Convergent 1,469 (51 ) 1,520 (2,980.4 )% 1,601 1,584 17 1.1 %
Strong Outdoor 585 (897 ) 1,482 (165.2 )% (275 ) (1,007 ) 732 (72.7 )%
Other 90 63 27 42.9 % 90 120 (30 ) (25.0 )%
Total gross profit $ 5,813 $ 3,530 $ 2,283 64.7 % $ 1,463 $ 3,234 $ (1,771 ) (54.8 )%

Strong ~~Cinema~~Entertainment

Gross profit in the ~~Cinema~~Strong Entertainment segment was ~~$3.7 million~~$47 thousand or ~~33.6%~~1.9% of revenues in the ~~third~~second quarter of ~~2019~~2020 compared to ~~$4.4~~$2.5 million or ~~38.6%~~32.2% of revenues in the ~~third~~second quarter of ~~2018.~~2019. The decrease in gross profit dollars is primarily due to the decline in screen, equipment and field service revenues related to COVID-19. The impact of significantly lower revenues was somewhat mitigated by actions taken to control costs, including the furlough of production employees and ~~changes in product mix.~~technicians, management salary reductions, payroll subsidies received from the Canadian government and other similar actions taken to manage costs during the quarter.

Convergent

Gross profit in the Convergent segment was ~~$1.5~~$1.6 million or ~~32.4%~~43.9% of revenues in the ~~third~~second quarter of ~~2019~~2020 compared to ~~a gross loss of $0.1~~$1.6 million or ~~1.5%~~30.8% of revenues in the ~~third~~second quarter of ~~2018.~~2019. The increase in gross profit margins was driven primarily by the increase in higher margin DSaaS revenue combined with positive impact of the cost reduction initiatives implemented in mid-2018. In addition, we incurred inventory write-offs and other non-recurring charges in 2018 related to the repositioning of the business and exiting of certain facilities and lines of business.revenue.
32
Strong Outdoor

Gross profit in the Strong Outdoor ~~generated a~~segment was negative $0.3 million in the second quarter of 2020 compared negative gross profit of ~~$0.6~~$1.0 million in the ~~third~~second quarter of 2019. Revenue and gross profit were both significantly impacted by COVD-19 related closures in the New York City market. Despite the reduction in revenue, gross profit improved compared with the second quarter of 2019 ~~compared~~as a result of actions taken to ~~a gross~~reduce costs in the current year combined with lower fixed costs following the Firefly transaction in May 2019. If the May 2019 Firefly transaction had been effective as of January 1, 2019, Strong Outdoor’s costs of sales would have been reduced by $1.0 million during the second quarter of 2019.
36
Operating (Loss) Income
Consolidated operating loss ~~of $0.9~~was $2.1 million in the ~~third~~second quarter of ~~2018. Gross profit improved during the third quarter of 2019 due~~2020 compared to ~~increased revenue from static tops and lower fixed operating costs, partially offset by reduced revenue from digital tops following the Firefly transaction.~~
~~Operating Income (Loss)~~
~~We generated operating income of $0.1~~$2.3 million in the ~~third~~second quarter of ~~2019 compared~~2019. Consolidated operating loss was essentially flat with the prior year period, despite the significant decline in revenue, due to a combination of the margin expansion at Convergent related to the growth in the DSaaS service business and the cost reduction actions taken to mitigate the impact of COVID-19 during the second quarter of 2020.
Three Months Ended June 30,
2020 2019 $ Change % Change
(dollars in thousands)
Strong Entertainment $ (478 ) $ 1,256 $ (1,734 ) (138.1 )%
Convergent 591 321 270 84.1 %
Strong Outdoor (680 ) (1,593 ) 913 (57.3 )%
Other (108 ) (159 ) 51 (32.1 )%
Total segment operating income (loss) (675 ) (175 ) (500 ) 285.7 %
Unallocated administrative expenses (1,432 ) (2,148 ) 716 (33.3 )%
Total operating loss $ (2,107 ) $ (2,323 ) $ 216 (9.3 )%
Strong Entertainment generated an operating loss of ~~$1.8~~$0.5 million in the ~~third~~second quarter of ~~2018.~~
Three Months Ended September 30,
2019 2018 $ Change % Change
(dollars in thousands)
Strong Cinema $ 2,230 $ 3,383 $ (1,153 ) (34.1 )%
Convergent 394 (1,413 ) 1,807 (127.9 )%
Strong Outdoor (224 ) (1,175 ) 951 (80.9 )%
Other (206 ) (57 ) (149 ) 261.4 %
Total segment operating income 2,194 738 1,456 197.3 %
Unallocated administrative expenses (2,128 ) (1,712 ) (416 ) 24.3 %
Unallocated loss on disposal of assets - (818 ) 818 (100.0 )%
Total operating income (loss) $ 66 $ (1,792 ) $ 1,858 (103.7 )%
~~Strong Cinema generated~~2020 compared to operating income of ~~$2.2~~$1.3 million in the ~~third~~second quarter of ~~2019 compared to $3.4 million in the third quarter of 2018.~~2019. The decrease in operating income was primarily due to the decline in revenues as discussed ~~above.~~above, partially offset by actions taken to reduce operating expenses, including furloughs, headcount reductions, temporary salary cuts and wage subsidies, and lower travel and entertainment expenses.

Convergent generated operating income of ~~$0.4~~$0.6 million in the ~~third~~second quarter of ~~2019~~2020 compared to ~~an operating loss of $1.4~~$0.3 million in the ~~third~~second quarter of ~~2018. We restructured Convergent’s operations in mid-2018~~2019. Operating income during the second quarter of 2020 increased as a result of our investment to ~~reduce operating costs, eliminate low/negative margin products, and to invest in growing our~~grow the higher margin recurring revenue business ~~lines.~~lines, as well as lower selling expenses, including costs related to compensation, commissions, travel and entertainment and trade shows.

Strong Outdoor generated an operating loss of ~~$0.2~~$0.7 million in the ~~third~~second quarter of ~~2019~~2020 compared to ~~an operating loss of $1.2~~$1.6 million in the ~~third~~second quarter of ~~2018.~~2019. The ~~decrease~~improvement in operating ~~loss~~results was ~~driven~~ primarily ~~by increased gross profit margins discussed above,~~due to actions taken to reduce costs in the current year combined with lower fixed costs following the May 2019 Firefly transaction, partially offset by ~~increased overhead and selling costs as the management and sales teams were brought on board~~an increase in ~~early 2019.~~bad debt expense.

Unallocated administrative expenses ~~increased~~decreased to $1.4 million in the second quarter of 2020 compared to $2.1 million in the ~~third~~second quarter of ~~2019 compared to $1.7 million in the third quarter of 2018.~~2019. The ~~increase~~decrease was driven primarily by ~~higher stock-based~~actions taken to reduce compensation expense, board of director fees and ~~employee compensation, partially offset by~~travel and entertainment expenses, which resulted from cost-saving measures implemented in response to COVID-19, as well as lower ~~professional fees. Unallocated loss on disposal~~information technology expenses, costs associated with contractors and consultants and audit and tax expenses, all of ~~assets consisted primarily of a $0.8 million loss on abandonment of an internally-developed software intangible asset in the third quarter of 2018.~~which were due to our initiatives to reduce overall administrative expenses.

Other Financial Items

Total other expense during the second quarter of 2020 primarily consisted of foreign currency transaction adjustments of $0.3 million and $0.3 million of interest expense, partially offset by $0.4 million gain related to the earnout provision associated with the May 2019 Firefly transaction and a $0.1 million gain on our property and insurance claim for the weather-related incident at our production facility in Quebec. For the ~~third~~second quarter of 2019, total other expense of $0.6 million primarily consisted of a $0.8 million fair value adjustment to ~~our~~ notes receivable, $0.1 million of foreign currency transaction adjustments and ~~$0.3~~$0.2 million of interest expense, partially offset by a $0.4 million gain on our property and insurance claim for the weather-related incident at our production facility in Quebec and $0.1 million of foreign currency transaction adjustments. For the third quarter of 2018, total other income of $0.6 million primarily consisted of a $0.8 million fair value adjustment to our notes receivable, partially offset by $0.2 million of interest expense. The estimated fair market value of the notes receivable is subject to upward and downward revisions each quarter as more information becomes available to estimate the ultimate cash proceeds to be received by the Company in the future.
The third quarter of 2019 included equity method investment loss of $0.5 million, which consisted of a $0.8 million loss from PIH, partially offset by $0.3 million in income from Itasca. The losses from PIH were primarily the result of write-downs related to the reclassification of its homeowners’ insurance operations as discontinued operations. The income from Itasca was a result of a change in the market value of its investment in Limbach Holdings, Inc. (“Limbach”). The third quarter of 2018 included equity method investment income of $0.5 million, which primarily consisted of a gain of $0.4 million on the sale of BKTI common stock.
As a result of the items outlined above, we generated a net loss of $1.8 million and basic and diluted loss per share of $0.12 in the third quarter of 2019, compared to a net loss of $1.2 million and basic and diluted loss per share of $0.08 in the third quarter of 2018.
~~Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September 30, 2018~~
~~Revenues~~
~~Net revenues during the nine months ended September 30, 2019 decreased 2.2% to $45.4 million from $46.5 million during the nine months ended September 30, 2018.~~
Nine Months Ended September 30,
2019 2018 $ Change % Change
(dollars in thousands)
Strong Cinema $ 26,405 $ 33,093 $ (6,688 ) (20.2 )%
Convergent 15,204 11,226 3,978 35.4 %
Strong Outdoor 3,524 1,948 1,576 80.9 %
Other 288 191 97 50.8 %
Total net revenues $ 45,421 $ 46,458 $ (1,037 ) (2.2 )%
~~Strong Cinema~~
Sales of Cinema products and services decreased 20.2% to $26.4 million during the nine months ended September 30, 2019 from $33.1 million during the nine months ended September 30, 2018. The decrease was primarily the result of a weather-related incident affecting our production facility in Quebec and a decrease in non-recurring audio and projection system sales. As a result of excessive snow pack on the roof, a portion of the Quebec facility suffered damage that caused the facility to temporarily halt operations for several weeks in the first nine months of 2019. The facility resumed operations in March and is producing and shipping product to its customers, although we continue to experience inefficiencies while the affected portion of the building is being repaired. In addition, revenues from field service and equipment sales decreased due to large non-recurring projects in the first nine months of 2018 that did not repeat in 2019, as well as a reduction in non-recurring time and materials-based services.
~~Convergent~~
Sales of Convergent products and services increased 35.4% to $15.2 million during the nine months ended September 30, 2019 from $11.2 million during the nine months ended September 30, 2018. The increase was driven primarily by the increased recurring revenue and installation revenue from the rollout of the DSaaS program to large enterprise customers. Revenue from the installation of other products also increased from the prior year due the timing of customer installation projects and the increase in new business.
~~Strong Outdoor~~
Strong Outdoor was a start-up business in 2018 and began generating meaningful advertising revenue in mid-2018. Revenues from advertising services were $3.5 million during the nine months ended September 30, 2019 compared to $1.9 million during the nine months ended September 30, 2018. If the Firefly transaction was effective on January 1, 2019, Strong Outdoor revenue recognized during the first nine months of 2019 would have been reduced by $0.9 million.
~~Gross Profit~~
Gross profit during the nine months ended September 30, 2019 was $11.7 million compared to $7.7 million during the nine months ended September 30, 2018. As a percentage of revenue, gross profit improved to 25.7% for the nine months ended September 30, 2019 compared to 16.5% during the nine months ended September 30, 2018.
Nine Months Ended September 30,
2019 2018 $ Change % Change
(dollars in thousands)
Strong Cinema $ 8,621 $ 11,015 $ (2,394 ) (21.7 )%
Convergent 4,622 580 4,042 696.9 %
Strong Outdoor (1,839 ) (4,116 ) 2,277 (55.3 )%
Other 287 191 96 50.3 %
Total gross profit $ 11,691 $ 7,670 $ 4,021 52.4 %
~~Strong Cinema~~
Gross profit in the Cinema segment was $8.6 million or 32.6% of revenues during the nine months ended September 30, 2019 compared to $11.0 million or 33.3% of revenues during the nine months ended September 30, 2018. The decrease in gross profit dollars is primarily due to the short-term disruption in our manufacturing operations and related lower revenues as discussed above.
~~Convergent~~
Gross profit in the Convergent segment was $4.6 million or 30.4% of revenues during the nine months ended September 30, 2019 compared to $0.6 million or 5.2% of revenues during the nine months ended September 30, 2018. The increase in gross profit was driven primarily by the increase in higher margin DsaaS revenue combined with positive impact of the cost reduction initiatives implemented in mid-2018. In addition, we incurred inventory write-offs and other non-recurring charges in 2018 related to the repositioning of the business and exiting of certain facilities and lines of business.
~~Strong Outdoor~~
Strong Outdoor generated a gross loss of $1.8 million during the nine months ended September 30, 2019 compared to $4.1 million during the nine months ended September 30, 2018. The improvement in gross profit was due to increased revenue from static tops and lower fixed operating costs, partially offset by reduced revenue from digital tops following the Firefly transaction. If the Firefly transaction was effective on January 1, 2019, Strong Outdoor cost of sales would have been reduced by approximately $2.4 million.
35
~~Operating Income (Loss)~~
~~We generated an operating loss of $4.8 million during the nine months ended September 30, 2019 compared to operating loss of $10.4 million during the nine months ended September 30, 2018.~~
Nine Months Ended September 30,
2019 2018 $ Change % Change
(dollars in thousands)
Strong Cinema $ 4,646 $ 7,681 $ (3,035 ) (39.5 )%
Convergent 1,467 (5,170 ) 6,637 (128.4 )%
Strong Outdoor (3,829 ) (4,951 ) 1,122 (22.7 )%
Other (603 ) (202 ) (401 ) 198.5 %
Total segment operating income (loss) 1,681 (2,642 ) 4,323 (163.6 )%
Unallocated administrative expenses (6,515 ) (6,939 ) 424 (6.1 )%
Unallocated loss on disposal of assets - (818 ) 818 (100.0 )%
Total operating loss $ (4,834 ) $ (10,399 ) $ 5,565 (53.5 )%
Strong Cinema generated operating income of $4.6 million during the nine months ended September 30, 2019 compared to $7.7 million during the nine months ended September 30, 2018. The decrease in operating income was primarily due to the disruption in our manufacturing operations and related revenues as discussed above.
Convergent generated operating income of $1.5 million during the nine months ended September 30, 2019 compared to an operating loss of $5.2 million during the nine months ended September 30, 2018. We restructured Convergent’s operations in mid-2018 to reduce operating costs, eliminate low/negative margin products, and to invest in growing our higher margin recurring revenue business lines. In addition, operating income during the nine months ended September 30, 2019 was favorably impacted by approximately $0.5 million due to the settlement and collection of a customer account that had previously been fully reserved as uncollectible.
Strong Outdoor generated an operating loss of $3.8 million during the nine months ended September 30, 2019 compared to an operating loss of $5.0 million during the nine months ended September 30, 2018. The decrease in operating loss was driven primarily by increased revenues and resulting margins being offset by increased overhead and selling costs.
Unallocated administrative expenses decreased to $6.5 million during the nine months ended September 30, 2019 compared to $6.9 million during the nine months ended September 30, 2018. The decrease was driven primarily by lower professional fees and employee compensation.
~~Other Financial Items~~
For the nine months ended September 30, 2019, total other expense of $2.0 million primarily consisted of a $2.2 million fair value adjustment to notes receivable, $0.2 million of foreign currency transaction adjustments and $0.6 million of interest expense, partially offset by a $0.6 million gain on our property and insurance claim for the weather-related incident at our production facility in Quebec and a $0.2 million gain related to the May 2019 Firefly transaction. For the nine months ended September 30, 2018, total other income of $0.7 million primarily consisted of a $1.0 million fair value adjustment to our notes receivable, partially offset by interest expense of $0.3 million. The estimated fair market value of the notes receivable is inherently volatile by its nature and subject to upward and downward revisions each quarter as more information becomes available to estimate the ultimate cash proceeds to be received by the Company in the future.

Income tax expense was approximately $0.1 million during the second quarter of 2020 compared to $0.4 million during the second quarter of 2019. Our income tax expense consisted primarily of income tax on foreign earnings.
~~The nine months ended September 30, 2019 included~~
We recorded an equity method investment loss of ~~$1.2~~$1.5 million ~~which consisted~~in the second quarter of ~~losses~~2020, consisting of $1.4 million from ~~Itasca~~PIH and $0.1 million from Itasca. The equity method loss from PIH ~~of $0.6 million each. The losses from Itasca were a~~was primarily the result of PIH’s unrealized holding losses associated with the change in ~~the market~~fair value of its investment in ~~Limbach.~~the common stock of FedNat Holding Company (Nasdaq: FNHC). The ~~losses from PIH were primarily the result~~second quarter of ~~write-downs related to the reclassification of its homeowners’ insurance operations as discontinued operations. The nine months ended September 30, 2018~~2019 included an equity method investment loss of ~~$0.2 million, primarily consisting of an other-than-temporary impairment charge of $0.7 million related to Itasca,~~$30 thousand, which included a $47 thousand loss ~~of $0.2 million~~ from ~~Itasca and loss of $0.4 million from BKTI,~~PIH, partially offset by $17 thousand in income ~~of $0.6 million~~ from ~~PIH and a gain on the sale of BKTI common stock of $0.4 million.~~Itasca.
37
As a result of the items outlined above, we generated a net loss of ~~$9.4~~$3.7 million, ~~and~~or $0.25 per basic and diluted ~~loss per~~ share, in the second quarter of ~~$0.65 during the nine months ended September 30, 2019,~~2020, compared to a net loss of ~~$11.8~~$3.4 million, ~~and~~or $0.24 per basic and diluted ~~loss per~~ share, in the second quarter of ~~$0.82~~2019.
Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019
Revenues
Net revenues during the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2020 decreased 29.9% to $20.0 million from $28.6 million during the six months ended June 30, 2019. The decrease in consolidated net revenue was primarily due to the impact of COVID-19 on our Strong Entertainment and Strong Outdoor businesses. At Convergent, robust growth in services revenue was offset by the effect of large non-recurring installation projects in the prior year period.

Six Months Ended June 30,
2020 2019 $ Change % Change
(dollars in thousands)
Strong Entertainment $ 9,781 $ 15,479 $ (5,698 ) (36.8 )%
Convergent 8,609 10,670 (2,061 ) (19.3 )%
Strong Outdoor 1,439 2,229 (790 ) (35.4 )%
Other 191 197 (6 ) (3.0 )%
Total net revenues $ 20,020 $ 28,575 $ (8,555 ) (29.9 )%
Strong Entertainment
Revenue from Strong Entertainment decreased 36.8% to $9.8 million in the first half of 2020 from $15.5 million in the first half of 2019. The decrease was primarily due to the impact of the COVID-19 pandemic, including the government mandated temporary closure of our screen manufacturing facility in Quebec and lower revenues from equipment sales and field service projects. Revenue during the six months ended June 30, 2019 was impacted by roof damage that caused the screen facility to temporarily halt operations for a portion of the first six months of 2019.
In March 2020, the Quebec government ordered the closure of all non-essential businesses, including our Quebec facility. We reopened our facility on May 11, 2020. In addition, while we originally expected to have our outsourced screen finishing facility in China up and running in the second quarter of 2020, the outbreak of COVID-19 in China delayed those plans, and we are currently evaluating the timing of operations there in light of current travel restrictions.
Cinemas, theme parks and other entertainment venues have begun to re-open their doors in recent weeks. We have seen an uptick in customer demand for both screen systems for international markets and services domestically to support those reopening initiatives in late June 2020 and continuing into July 2020. We continue to closely monitor the regulatory environment and the status of our customers’ operations in managing the pace at which we ramp back up our operations.
Convergent
Revenue from Convergent decreased 19.3% to $8.6 million during the six months ended June 30, 2020 from $10.7 million during the six months ended June 30, 2019. Convergent’s service revenues increased approximately $1.0 million on growth in DSaaS customer installations, while revenue from non-recurring installation work and equipment sales decreased approximately $3.8 million due to a large non-recurring installation project during the second quarter of 2019. Convergent experienced a moderate negative revenue impact from COVID-19 during the first six months of 2020 and continues to support its retail customers, many of whom provide essential services and remain in operation.
38
Strong Outdoor
Revenue from Strong Outdoor was $1.4 million during the six months ended June 30, 2020 compared to $2.2 million during the six months ended June 30, 2019. Strong Outdoor’s advertising revenues have been significantly impacted by COVID-19 as its primary advertising market is New York City, which has been largely closed since April. If the May 2019 Firefly transaction had been effective as of January 1, 2019, and the digital taxitops transferred to Firefly as of that date, revenue during the second quarter of 2019 would have been lower by $0.9 million.
Gross Profit
Consolidated gross profit decreased 2.8% to $5.7 million during the six months ended June 30, 2020 from $5.9 million during the six months ended June 30, 2019. As a percentage of revenue, gross profit improved to 28.5% for the six months ended June 30, 2020 compared to 20.6% for the six months ended June 30, 2019. Consolidated gross profit as a percentage of revenue improved, despite the significant decline in revenue, due to a combination of the margin expansion at Convergent related to the growth in the DSaaS service business and the cost reduction actions taken to mitigate the impact of COVID-19 during the first half of 2020.
Six Months Ended June 30,
2020 2019 $ Change % Change
(dollars in thousands)
Strong Entertainment $ 1,880 $ 4,953 $ (3,073 ) (62.0 )%
Convergent 3,585 3,153 432 13.7 %
Strong Outdoor 58 (2,424 ) 2,482 (102.4 )%
Other 191 197 (6 ) (3.0 )%
Total gross profit $ 5,714 $ 5,879 $ (165 ) (2.8 )%
Strong Entertainment
Gross profit in the Strong Entertainment segment was $1.9 million or 19.2% of revenues in the first half of 2020 compared to $5.0 million or 32.0% of revenues in the first half of 2019. The decrease in gross profit dollars is primarily due to the decline in screen, equipment and field service revenues related to COVID-19 and changes in product mix. The impact of significantly lower revenues was somewhat mitigated by actions taken to control costs, including the furlough of production employees and technicians, management salary reductions, payroll subsidies received from the Canadian government and other similar actions taken to manage costs.
Convergent
Gross profit in the Convergent segment was $3.6 million or 41.6% of revenues in the first half of 2020 compared to $3.2 million or 29.6% of revenues in the first half of 2019. The increase in gross profit was driven primarily by the increase in higher margin DSaaS revenue.
Strong Outdoor
Gross profit in the Strong Outdoor segment was $58 thousand during the six months ended June 30, 2020 compared negative gross profit of $2.4 million during the six months ended June 30, 2019. Gross profit improved during the six months ended June 30, 2020 due to increased revenue from experiential marketing campaigns and lower fixed operating costs, partially offset by reduced revenue from digital tops following the May 2019 Firefly transaction. Revenue and gross profit were both significantly impacted by COVD-19 related closures in the New York City market. Despite the reduction in revenue, gross profit was favorable compared with the first half of 2019 as a result of actions taken to reduce costs in the current year combined with lower fixed costs following the Firefly transaction in May 2019. If the May 2019 Firefly transaction had been effective as of January 1, 2019, Strong Outdoor’s costs of sales would have been reduced by $2.4 million during the first half of 2019.
39
Operating Income (Loss)
Consolidated operating loss was $4.0 million in the first half of 2020 compared to $4.9 million in the first half of 2019. Consolidated operating loss improved from the prior year period despite the significant decline in revenue, due to a combination of the margin expansion at Convergent related to the growth in the DSaaS service business and the cost reductions actions taken to mitigate the impact of COVID-19.
Six Months Ended June 30,
2020 2019 $ Change % Change
(dollars in thousands)
Strong Entertainment $ (814 ) $ 2,415 $ (3,229 ) (133.7 )%
Convergent 1,448 1,073 375 34.9 %
Strong Outdoor (1,056 ) (3,605 ) 2,549 (70.7 )%
Other (224 ) (396 ) 172 (43.4 )%
Total segment operating income (loss) (646 ) (513 ) (133 ) 25.9 %
Unallocated administrative expenses (3,384 ) (4,386 ) 1,002 (22.8 )%
Total operating loss $ (4,030 ) $ (4,899 ) $ 869 (17.7 )%
Strong Entertainment generated an operating loss of $0.8 million during the six months ended June 30, 2020 compared to operating income of $2.4 million during the six months ended June 30, 2019. The decrease in operating income was primarily due to the decline in revenues as discussed above, partially offset by actions taken to reduce compensation related expenses, including furloughs, headcount reductions, temporary salary cuts and wage subsidies, as well as lower travel and entertainment expenses. In addition, since many of Strong Entertainment’s customers have been negatively impacted by COVID-19, we recorded $0.5 million of bad debt expense during the six months ended June 30, 2020 as a result of the increased uncertainty related to collection of trade accounts receivable.
Convergent generated operating income of $1.4 million in the first half of 2020 compared to $1.1 million in the first half of 2019. Operating income during the first half of 2020 increased as a result of our investment to grow the higher margin recurring revenue business lines, as well as lower selling expenses, including costs related to compensation, commissions, travel and entertainment and trade shows. The increased gross margin and higher operating income from recurring revenue was partially offset by a $0.5 million favorable bad debt recovery during the first half of 2019.
Strong Outdoor generated an operating loss of $1.1 million in the first half of 2020 compared to $3.6 million in the first half of 2019. The improvement in operating results was primarily due to actions taken to reduce costs in the current year combined with lower fixed costs following the Firefly transaction in May 2019, the increased gross profit mentioned above, as well as lower compensation expenses and sales commissions, partially offset by an increase in bad debt expense.
Unallocated administrative expenses decreased to $3.4 million during the six months ended June 20, 2020 compared to $4.4 million during the six months ended June 30, 2019. The decrease was driven primarily by 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.
40
Other Financial Items
Total other income of $0.5 million during the six months ended June 30, 2020 primarily consisted of foreign currency transaction adjustments of $0.2 million, a $0.6 million gain related to the earnout provision associated with the May 2019 Firefly transaction and a $0.1 million gain on our property and insurance claim for the weather-related incident at our production facility in Quebec, partially offset by $0.5 million of interest expense. For the six months ended June 30, 2019, total other expense of $1.4 million primarily consisted of a $1.3 million fair value adjustment to notes receivable, $0.2 million of foreign currency transaction adjustments and $0.3 million of interest expense, partially offset by a $0.2 million gain on our property and insurance claim for the weather-related incident at our production facility in Quebec and a $0.2 million gain related to the May 2019 Firefly transaction.
Income tax expense was approximately $0.5 million during the first half of 2020 compared to $0.6 million during the first half of 2019. Our income tax expense consisted primarily of income tax on foreign earnings.
We recorded equity method investment loss of $0.1 million during the six months ended June 30, 2020, consisting primarily of equity method investment losses from Itasca. The six months ended June 30, 2019 included equity method investment loss of $0.7 million, primarily consisting of losses from Itasca of $0.9 million, partially offset by income from PIH of $0.2 million.
As a result of the items outlined above, we generated a net loss of $4.2 million, or $0.28 per basic and diluted share, during the six months ended June 30, 2020, compared to a net loss of $7.6 million, or $0.52 per basic and diluted share, during the six months ended June 30, 2019.
Liquidity and Capital Resources

During the past several years, we have primarily met our working capital and capital resource needs from our operating cash flows and credit facilities. Our primary cash requirements involve operating expenses, working capital fluctuations, capital expenditures, and other general corporate activities. We incurred operating losses and negative operating cash flow in our Convergent business for the first three quarters of 2018, as we executed our plans to restructure that business to reduce operating costs and invest in higher margin recurring revenue. Convergent’s financial performance has improved significantly as a result of those actions and is now generating positive operating income and cash from operations. The startup of Strong Outdoor negatively impacted our cash flow as we invested in building that business. We expect the sale of our Strong Outdoor business during August 2020 to have a positive impact on future cash flows since Strong Outdoor has generated operating losses since the startup of the business. Cash flow from Strong ~~Cinema~~Entertainment and Convergent during 2019 was ~~historically~~ used to fund our corporate operating expenses and ~~startup costs in our other lines of business during 2018.~~Strong Outdoor. Our capital expenditures during 2019 ~~include~~and the first half of 2020 included costs incurred in the construction of the Strong ~~Cinema~~Entertainment production facility in Quebec that sustained damage as a result of inclement weather. The purchase of equipment in connection with the expansion of our Convergent business operations has recently been funded via term loan borrowings and capital leases, and we may continue to do so.

AsWe ended the second quarter of ~~September 30, 2019, we had~~2020 with total cash and cash equivalents and restricted cash of ~~$4.7~~$6.8 million compared to ~~$7.0~~$5.3 million atas of December 31, ~~2018.~~2019. Of the ~~$4.7~~$6.8 million ~~$1.5~~as of June 30, 2020, $3.8 million was held by our Canadian subsidiary, Strong/MDI, and $0.4 million was restricted. Strong/MDI also makes intercompany loans to the U.S. parent company which do not trigger Canadian withholding taxes if they meet certain requirements. As of June 30, 2020, 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 Canadian withholding taxes, which have been fully accrued as of June 30, 2020.
In response to the COVID-19 pandemic and related closures of cinemas, theme parks and entertainment venues, we have taken steps to conserve cash, reduce operating expenditures, delay capital expenditures, and to manage working capital. We have also implemented targeted furloughs, headcount reductions and temporary salary cuts for our executive officers and certain other employees, and our board of directors waived its cash compensation for the first half of 2020 in order to reduce expenses. In the second quarter of 2020, management decided to draw down CDN$2.9 million, or approximately $2.1 million, under Strong/MDI’s revolving credit facility, to provide additional liquidity. CDN$2.5 million, or approximately $1.8 million, was repaid during the second quarter of 2020 in order to remain in compliance with the credit facility since our accounts receivable decreased during the second quarter of 2020 due to cash collections and low sales.
41

We believe that our existing sources of liquidity, including cash and cash equivalents, operating cash flow, credit facilities, equity investments, receivables and other assets will be sufficient to meet our projected capital needs for the ~~foreseeable future.~~at least the next twelve months. However, our ability to continue to meet our ~~capital~~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, 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 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 ~~10, Debt~~9 to the condensed consolidated financial statements for a description of our debt as of ~~September~~June 30, ~~2019.~~2020.

Cash Flows from Operating Activities

Net cash provided by operating activities was ~~$0.4~~$2.6 million during the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. Cash flows generated by ~~Strong Cinema and~~ Convergent and ~~improvements~~changes in working capital were partially offset by the operating loss generated by Strong Entertainment and Strong Outdoor ~~and~~as well as cash outflows for selling and administrative expenses. Net cash used in operating activities was ~~$8.8~~$2.2 million ~~during~~in the ~~nine~~first six months ~~ended September 30, 2018.~~of 2019. The operating loss generated by Strong Outdoor and ~~Convergent,~~ cash outflows for selling and administrative expenses ~~and changes in working capital~~ were partially offset by the operating income and cash flows generated by Strong ~~Cinema.~~Entertainment and Convergent and improvements in working capital.

Cash Flows from Investing Activities

Net cash used in investing activities was ~~$1.6~~$0.6 million during the ~~nine~~six months ended ~~September~~June 30, 2020, consisting entirely of capital expenditures. Net cash used in investing activities was $1.1 million in the first six months of 2019, consisting of ~~$1.7~~$1.1 million of capital expenditures, partially offset by $0.1 million of proceeds received from the disposal of assets. Net cash provided by investing activities was $3.4 million in the nine months of 2018, consisting primarily of $4.5 million of proceeds from our sale of BKTI common stock, partially offset by $1.2 million of capital expenditures.

Cash Flows from Financing Activities

Net cash used in financing activities was ~~$1.2~~$0.6 million during the ~~nine~~six months ended ~~September~~June 30, 2020, consisting of principal payments on debt and capital lease obligations, partially offset by net borrowings under Strong/MDI’s revolving credit facility. Net cash used in financing activities was $0.6 million during the six months ended June 30, 2019, primarily consisting of ~~$1.5~~$0.8 million of principal payments on debt and capital lease obligations, partially offset by $0.2 million of proceeds from the issuance of ~~long-term~~ debt. Net cash provided by financing activities during the nine months ended September 30, 2018 was $6.7 million, consisting primarily of $7.0 million of proceeds from the sale-leaseback of our Alpharetta, Georgia office facility and $3.2 million of proceeds from the issuance of short-term debt, partially offset by $3.5 million of principal payments on debt and capital lease obligations, including approximately $3.0 million of short-term and long-term debt previously secured by the office facility that was repaid in conjunction with the sale-leaseback transaction.
Use of Non-GAAP Measures

We prepare our ~~condensed~~ consolidated financial statements in accordance with United States generally accepted accounting principles (“GAAP”). In addition to disclosing financial results prepared in accordance with GAAP, the Company discloses information regarding Adjusted EBITDA, which differs from the term EBITDA as it is commonly used. In addition to adjusting net income (loss) to exclude income taxes, interest, and depreciation and amortization, Adjusted EBITDA also excludes share-based compensation, impairment charges, equity method ~~income/loss,~~income (loss), fair value adjustments, severance, foreign currency transaction gains (losses), transactional gains and ~~transactional~~ expenses, gains on insurance recoveries and other cash and non-cash ~~charges.~~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 the Company’s operating performance. Accordingly, management believes that disclosure of these metrics offers investors, bankers and other stakeholders an additional view of the Company’s operations that, when coupled with the GAAP results, provides a more complete understanding of the Company’s financial results.
42

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

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

We believe EBITDA and Adjusted EBITDA facilitate operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. These potential differences may be caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). We also present EBITDA and Adjusted EBITDA because (i) we believe these measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry, (ii) we believe investors will find these measures useful in assessing our ability to service or incur indebtedness, and (iii) we use EBITDA and Adjusted EBITDA internally as benchmarks to evaluate our operating performance or compare our performance to that of our competitors.
43
The following table sets forth reconciliations of net loss under GAAP to EBITDA and Adjusted EBITDA (in thousands):

Quarters Ended September 30, Three Months Ended June 30,
2019 2018 2020 2019
Strong Cinema Convergent Strong Outdoor Corporate and Other Consolidated Strong Cinema Convergent Strong Outdoor Corporate and Other Consolidated Strong Entertainment Convergent Strong Outdoor Corporate and Other Consolidated Strong Entertainment Convergent Strong Outdoor Corporate and Other Consolidated
Net income (loss) $ 1,265 $ 386 $ (332 ) $ (3,107 ) $ (1,788 ) $ 3,736 $ (1,727 ) $ (1,176 ) $ (2,054 ) $ (1,221 )
Net (loss) income $             (865 )           402 $ (336 )       (2,929 ) $ (3,728 ) $             202 120 $ (1,410 ) (2,330 ) $       (3,418 )
Interest expense, net 35 120 106 1 262 29 151 - - 180 34 139 88 7 268 35 111 38 2 186
Income tax expense 827 (96 ) - - 731 423 74 - - 497
Income tax expense (benefit) 78 56 - (38 ) 96 288 101 - 34 423
Depreciation and amortization 226 492 124 54 896 219 343 77 71 710 231 589 110 48 978 220 472 100 55 847
EBITDA 2,353 902 (102 ) (3,052 ) 101 4,407 (1,159 ) (1,099 ) (1,983 ) 166 (522 ) 1,186 (138 ) (2,912 ) (2,386 ) 745 804 (1,272 ) (2,239 ) (1,962 )
Stock-based compensation expense - - - 334 334 - - - 166 166 - - - 212 212 - - - 221 221
Fair value adjustment to notes receivable 845 - - - 845 (802 ) - - - (802 ) - - - - - 797 - - - 797
Equity method investment (income) loss (287 ) - - 783 496 28 - - (535 ) (507 )
Loss on disposal of assets 3 - - - 3 - (19 ) - 818 799
Equity method investment loss (income) 69 - - 1,420 1,489 47 - - (17 ) 30
Loss on disposal of assets and impairment charges - - - - - - - 38 - 38
Foreign currency transaction loss (gain) 304 (1 ) - - 303 87 (10 ) - - 77
Gain on Firefly transaction, net of transaction costs - - (356 ) - (356 ) - - (126 ) - (126 )
Gain on property and casualty insurance recoveries (97 ) - - - (97 ) (226 ) - - - (226 )
Severance and other - 4 27 8 39 - 428 - - 428 78 16 2 7 103 - - - - -
Adjusted EBITDA $ 2,914 $ 906 $ (75 ) $ (1,927 ) $ 1,818 $ 3,633 $ (750 ) $ (1,099 ) $ (1,534 ) $ 250 $ (168 ) $ 1,201 $ (492 ) $ (1,273 ) $ (732 ) $ 1,450 $ 794 $ (1,360 ) $ (2,035 ) $ (1,151 )

Nine Months Ended September 30, Six Months Ended June 30,
2019 2018 2020 2019
Strong Cinema Convergent Strong Outdoor Corporate and Other Consolidated Strong Cinema Convergent Strong Outdoor Corporate and Other Consolidated Strong Entertainment Convergent Strong Outdoor Corporate and Other Consolidated Strong Entertainment Convergent Strong Outdoor Corporate and Other Consolidated
Net income (loss) $ 1,120 $ 1,085 $ (3,776 ) $ (7,785 ) $ (9,356 ) $ 6,333 $ (5,865 ) $ (4,951 ) $ (7,279 ) $ (11,762 ) $          (1,022 ) 1,018 $ (537 ) (3,635 ) $ (4,176 ) $           (145 ) 699 $ (3,444 ) (4,679 ) $        (7,569 )
Interest expense, net 105 322 166 (28 ) 565 44 178 - 45 267 66 283 183 8 540 72 202 59 (28 ) 305
Income tax expense 1,137 72 - 86 1,295 1,516 321 - - 1,837 365 114 - 17 496 310 169 - 85 564
Depreciation and amortization 665 1,387 323 162 2,537 662 823 190 175 1,850 462 1,191 220 96 1,969 440 896 200 108 1,644
EBITDA 3,027 2,866 (3,287 ) (7,565 ) (4,959 ) 8,555 (4,543 ) (4,761 ) (7,059 ) (7,808 ) (129 ) 2,606 (134 ) (3,514 ) (1,171 ) 677 1,966 (3,185 ) (4,514 ) (5,056 )
Stock-based compensation expense - - - 798 798 - - - 648 648 - - - 485 485 - - - 464 464
Fair value adjustment to notes receivable 2,153 - - - 2,153 (953 ) - - - (953 ) - - - - - 1,307 - - - 1,307
Equity method investment loss (income) 601 - - 622 1,223 968 - - (724 ) 244 117 - - 3 120 888 - - (161 ) 727
Loss on disposal of assets 66 1 38 - 105 2 1,310 - 818 2,130
Loss on disposal of assets and impairment charges - - - - - 63 1 38 - 102
Foreign currency transaction (gain) loss (224 ) 39 - - (185 ) 216 4 - - 220
Gain on Firefly transaction, net of transaction costs - - (626 ) - (626 ) - - (117 ) - (117 )
Gain on property and casualty insurance recoveries (114 ) - - - (114 ) (226 ) - - - (226 )
Severance and other - 4 27 8 39 - 529 - 33 562 78 16 2 7 103 - - - - -
Adjusted EBITDA $ 5,847 $ 2,871 $ (3,222 ) $ (6,137 ) $ (641 ) $ 8,572 $ (2,704 ) $ (4,761 ) $ (6,284 ) $ (5,177 ) $ (272 ) $ 2,661 $ (758 ) $ (3,019 ) $ (1,388 ) $ 2,925 $ 1,971 $ (3,264 ) $ (4,211 ) $ (2,579 )

Hedging and Trading Activities

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

Seasonality

Generally, our revenue and earnings fluctuate moderately from quarter to quarter. As we increase our sales in our current markets, and as we expand into new markets in different geographies, it is possible we may experience different seasonality patterns in our business. As a result, the results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 are not necessarily indicative of the results that may be expected for an entire fiscal year.

Recently Issued Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies to the condensed consolidated financial statements for a description of recently issued accounting pronouncements.
44

Critical Accounting Policies and Estimates

In preparing our consolidated financial statements in conformity with U.S. generally accepted accounting principles, management must make a variety of decisions which impact the reported amounts and the related disclosures. These decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In making these decisions, management applies its judgment based on its understanding and analysis of the relevant circumstances and our historical experience.
Our accounting policies and estimates that are most critical to the presentation of our results of operations and financial condition, and which require the greatest use of judgments and estimates by management, are designated as our critical accounting policies. See further discussion of our critical accounting policies under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for our year ended December 31, ~~2018.~~2019. We periodically re-evaluate and adjust our critical accounting policies as circumstances change. ~~Other than policies related to the adoption of ASC 842 as described in Note 2 to the condensed consolidated financial statements, there~~There were no significant changes in our critical accounting policies during the ~~nine~~three months ended ~~September~~June 30, ~~2019.~~2020.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective at ensuring that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 (as amended) is (1) accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures and (2) recorded, processed, summarized and reported within the time periods specified in the ~~SEC’s~~Securities and Exchange Commission’s rules and forms. There have been no changes in the Company’s internal control over financial reporting during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, such internal control over financial reporting. The Company determined that no material changes to its internal control over financial reporting occurred or were required in response to the measures it has taken related to the COVID-19 pandemic, including remote working arrangements for many of its employees. The Company is continually monitoring and assessing the impact of COVID-19 on its internal controls in an effort to ensure that its internal controls respond to any changes in its operating environment.

PART II. Other Information

Item 1. Legal Proceedings

In the ordinary course of business operations, we are involved, from time to time, in certain legal disputes. No such disputes, individually or in the aggregate, are expected to have a material effect on our business or financial condition.

Item 1A. Risk Factors

Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 includes a detailed discussion of the Company’s risk factors. There have been no material changes to the risk factors as previously ~~disclosed.~~disclosed, except as set forth below. However, many of the risk factors disclosed in Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 have been, and we expect will continue to be further, heightened or exacerbated by the impact of the COVID-19 pandemic.
45
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.
In December 2019, COVID-19 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; many advertisers began to reduce, postpone, or cancel their advertising campaigns as social distancing measures, including closures of schools and non-essential businesses, and restrictions around the free movement of people were implemented; and a number of events during which our experiential marketing services may have been provided, such as Coachella, have been postponed, cancelled or shifted to virtual venues. 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 was also delayed by the COVID-19 pandemic, and we are currently evaluating the timing of when we will be able to commence operations at the facility in light of current travel restrictions. 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 investments; 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.
46
In response to uncertainties associated with the COVID-19 pandemic, we have taken, and are continuing to take, 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 have 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 the first half of 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.
In addition, we have undertaken new initiatives as a result of the COVID-19 pandemic, including our BrightNight program, which converts movie theater and other parking lots into temporary drive-in theaters, and a Theatre Readiness Program, which includes an auditorium quality assurance service visit in advance of customers returning to movie theaters. While we believe these programs will provide an additional source of revenue during the COVID-19 pandemic, we cannot provide any assurance that these programs will provide the anticipated benefits to our business.
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 second quarter of 2020, management decided to draw down CDN$2.9 million, or approximately $2.1 million, under Strong/MDI’s credit facility, of which CDN$2.5 million, or approximately $1.8 million, was repaid during the second quarter of 2020 in order to remain in compliance with the credit facility since our accounts receivable decreased during the second quarter of 2020 due to cash collections and low sales. Furthermore, we have 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 facility, 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, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic, including repeat or cyclical outbreaks, 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On August 20, 2015, we announced that our Board of Directors adopted a stock repurchase program authorizing the repurchase of up to 700,000 shares of our outstanding Common Stock pursuant to a plan adopted under Rule 10b5-1 of the Securities Exchange Act of 1934 (as amended). The repurchase program has no expiration date. There were no repurchases during the three months ended ~~September~~June 30, ~~2019.~~2020. As of ~~September~~June 30, ~~2019,~~2020, there were 636,931 shares that may yet be purchased under the stock repurchase program.

4047

Item 5. Other Information
On May 19, 2020, the Company entered into a Financial and Consulting Services Agreement (the “Itasca Financial Agreement”) with Itasca Financial LLC (“Itasca Financial”), pursuant to which Itasca Financial agreed to advise the Company on aspects of its strategic direction. In exchange for Itasca Financial’s services, the Company agreed to pay Itasca Financial a retainer fee of $50,000, payable in two installments of $25,000, and a monthly fee of $20,000. The Itasca Financial Agreement may not be terminated for a period of three months from May 19, 2020, after which time it may be terminated by either party at any time with prior written notice of at least 30 calendar days. As of the date of this report, the Company has paid $110,000 to Itasca Financial. Upon termination of the Itasca Financial Agreement by either party, the Company has agreed to pay Itasca Financial a termination fee of $100,000, which can be payable in a combination of cash and stock at the Company’s discretion, and if any such fee is paid in stock, then the Company has agreed to grant Itasca Financial unlimited piggyback registration rights for such stock. The Itasca Financial Agreement also includes expense reimbursement provisions and indemnification provisions in favor of Itasca Financial and its affiliates. This description of the Itasca Financial Agreement is a summary only and is qualified by reference to full text of the Itasca Financial Agreement, which is filed as an exhibit to this report.
Fundamental Global Investors, LLC, with its affiliates (collectively, “Fundamental Global”), is the controlling stockholder of the Company. D. Kyle Cerminara, the Chief Executive Officer, Co-Founder and Partner of Fundamental Global Investors, LLC, is the Chairman of the Company’s board of directors and former Chief Executive Officer of the Company, and Lewis M. Johnson, the President, Co-Founder and Partner of Fundamental Global Investors, LLC, is Co-Chairman of the Company’s board of directors. Fundamental Global is the controlling stockholder of PIH, and Larry G. Swets, Jr. serves as Interim Chief Executive Officer and principal executive officer of PIH and as a member of PIH’s Board of Directors. In addition, Mr. Swets founded and serves as the managing member of Itasca Financial, which provides services to the Company, as described above, as well as to other companies affiliated with Fundamental Global.
Item 6. Exhibits

~~Incorporated by Reference~~
~~Exhibit~~
~~Number~~ ~~Document Description~~ ~~Form~~ ~~Exhibit~~ ~~Filing~~
~~Date~~ ~~Filed~~
~~Herewith~~
~~31.1~~ ~~Rule 13a-14(a) Certification of Chief Executive Officer.~~ X
~~31.2~~ ~~Rule 13a-14(a) Certification of Chief Financial Officer.~~ X
32.1* ~~18 U.S.C. Section 1350 Certification of Chief Executive Officer.~~ X
32.2* ~~18 U.S.C. Section 1350 Certification of Chief Financial Officer.~~ X
~~101~~ The following materials from Ballantyne Strong, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Loss, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows and (vi) the Notes to the Condensed Consolidated Financial Statements. X
Incorporated by Reference
Exhibit
Number
Document Description Form Exhibit
Filing
Date

Filed
Herewith
2.1†
Asset Purchase Agreement, dated August 3, 2020, by and between Strong Digital Media, LLC and Firefly Systems Inc.
8-K 2.1 August 4, 2020

4.1 Form of Indenture S-3 4.2 May 28, 2020

10.1*
Letter Agreement, dated as of April 29, 2020, by and between the Company and Mark D. Roberson.
8-K 10.1 April 30, 2020

10.2*
Letter Agreement, dated as of April 29, 2020, by and between the Company and Ray F. Boegner.
8-K 10.2 April 30, 2020

10.3*
Letter Agreement, dated as of April 29, 2020, by and between the Company and Todd R. Major.
8-K 10.3 April 30, 2020

10.4 Financial and Consulting Services Agreement, dated May 19, 2020, by and between the Company and Itasca Financial LLC X

10.5* Letter Agreement, dated as of July 8, 2020, by and between the Company and Mark D. Roberson. 8-K 10.1 July 8, 2020

10.6* Letter Agreement, dated as of July 8, 2020, by and between the Company and Ray F. Boegner. 8-K 10.2 July 8, 2020

10.7* Letter Agreement, dated as of July 8, 2020, by and between the Company and Todd R. Major. 8-K 10.3 July 8, 2020

10.8†
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

31.1 Rule 13a-14(a) Certification of Chief Executive Officer. X

31.2 Rule 13a-14(a) Certification of Chief Financial Officer. X

32.1** 18 U.S.C. Section 1350 Certification of Chief Executive Officer. X

32.2** 18 U.S.C. Section 1350 Certification of Chief Financial Officer. X

101 The following materials from Ballantyne Strong, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Loss, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows and (vi) the Notes to the Condensed Consolidated Financial Statements. X

† Exhibits and schedules have been omitted pursuant to Item 601 of Regulation S-K and will be supplementally provided to the Securities and Exchange Commission upon request.
* Management contract or compensatory plan.
** Furnished herewith.
48

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

BALLANTYNE STRONG, INC.

By: ~~/s/D. Kyle Cerminara~~ ~~By:~~
/s/ MARK D. ROBERSON
By:
/s/ TODD R. MAJOR

Mark D. ~~Kyle Cerminara,~~Roberson
~~Chairman of the Board of Directors and~~ Chief Executive Officer ~~(Principal~~
(Principal Executive Officer)

~~Mark D. Roberson,~~
~~Executive Vice President and~~
Todd R. Major
Chief Financial Officer ~~(Principal~~
(Principal Financial Officer and
Principal Accounting Officer)

Date: ~~November~~August 12, ~~2019~~2020 Date: ~~November~~August 12, ~~2019~~2020
49

	Common Stock		Additional Paid-In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance at December 31, 2018	$	169	$	41,474	$	13,319		$	(18,586	)	$	(5,378	)	$	30,998
Net loss		-		-		(4,150	)		-			-			(4,150	)
Net other comprehensive income		-		-		-			-			168			168
Cumulative effect of adoption of ASC 842		-		-		2,785			-			-			2,785
Stock-based compensation expense		-		243		-			-			-			243
Balance at March 31, 2019		169		41,717		11,954			(18,586	)		(5,210	)		30,044
Net loss		-		-		(3,418	)		-			-			(3,418	)
Net other comprehensive income		-		-		-			-			425			425
Stock-based compensation expense		-		221		-			-			-			221
Balance at June 30, 2019		169		41,938		8,536			(18,586	)		(4,785	)		27,272
Net loss		-		-		(1,788	)		-			-			(1,788	)
Net other comprehensive income		-		-		-			-			140			140
Stock-based compensation expense		-		334		-			-			-			334
Balance at September 30, 2019	$	169	$	42,272	$	6,748		$	(18,586	)	$	(4,645	)	$	25,958

	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		-		-		-			(447	)		-			-			(447	)
Net other comprehensive loss		-		-		-			-			-			(1,285	)		(1,285	)
Vesting of restricted stock		35		-		-			-			-			-			-
Stock-based compensation expense		-		-		273			-			-			-			273
Balance at March 31, 2020		17,445		174		42,862			5,554			(18,586	)		(5,754	)		24,250
Net loss		-		-		-			(3,728	)		-			-			(3,728	)
Net other comprehensive income		-		-		-			-			-			690			690
Vesting of restricted stock		107		2		(2	)		-			-			-			-
Stock-based compensation expense		-		-		212			-			-			-			212
Balance at June 30, 2020		17,552	$	176	$	43,072		$	1,826		$	(18,586	)	$	(5,064	)	$	21,424

	Common Stock (Shares)		Common Stock ($)		Additional Paid-In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance at December 31, 2018		17,237	$	172	$	41,471		$	13,319		$	(18,586	)	$	(5,378	)	$	30,998
Net loss		-		-		-			(4,150	)		-			-			(4,150	)
Net other comprehensive income		-		-		-			-			-			168			168
Cumulative effect of adoption of ASC 842		-		-		-			2,785			-			-			2,785
Vesting of restricted stock		76		1		(1	)		-			-			-			-
Stock-based compensation expense		-		-		243			-			-			-			243
Balance at March 31, 2019		17,313		173		41,713			11,954			(18,586	)		(5,210	)		30,044
Net loss		-		-		-			(3,418	)		-			-			(3,418	)
Net other comprehensive income		-		-		-			-			-			425			425
Stock-based compensation expense		-		-		221			-			-			-			221
Balance at June 30, 2019		17,313	$	173	$	41,934		$	8,536		$	(18,586	)	$	(4,785	)	$	27,272

	Nine Months Ended September 30,						Six Months Ended June 30,
	2019			2018			2020			2019
Cash flows from operating activities:
Net loss	$	(9,356	)	$	(11,762	)	$	(4,176	)	$	(7,569	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
(Recovery of) provision for doubtful accounts		(509	)		381
Provision for (recovery of) doubtful accounts								699			(404	)
Provision for obsolete inventory		245			412			37			96
Provision for warranty		24			83			39			25
Depreciation and amortization		2,537			1,953			1,969			1,644
Amortization and accretion of operating leases		1,434			-			616			1,132
Fair value adjustment to notes receivable		2,153			(953	)		-			1,307
Equity method investment loss		1,223			244			120			727
Recognition of contract acquisition costs		-			29
Loss on disposal of assets		105			2,130			-			102
Gain on Firefly transaction (Note 6)		(220	)		-			(702	)		(220	)
Deferred income taxes		(129	)		(146	)		72			(198	)
Impairment of operating lease		-			209
Impairment of contract acquisition costs		-			59
Stock-based compensation expense		798			648			485			464
Dividends received from investee		-			817
Changes in operating assets and liabilities:
Accounts receivable		1,148			(4,244	)		4,789			2,691
Inventories		(96	)		413			(254	)		(19	)
Current income taxes		229			178			(83	)		(144	)
Other assets		(214	)		(1,021	)		(376	)		120
Accounts payable and accrued expenses		1,568			415			234			(316	)
Deferred revenue and customer deposits		1,043			1,359			(260	)		(438	)
Operating lease obligations		(1,567	)		-			(657	)		(1,234	)
Net cash provided by (used in) operating activities		416			(8,796	)		2,552			(2,234	)

	●	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

	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	4,388	$	-	$	-	$	4,388	$	6,470	$	-	$	-	$	6,470
Restricted cash		350		-		-		350		352		-		-		352
Notes receivable		-		-		1,812		1,812		-		-		-		-
Total	$	4,738	$	-	$	1,812	$	6,550	$	6,822	$	-	$	-	$	6,822

	Fair value at September 30, 2019		Valuation technique	Unobservable input	Value
Notes receivable	$	1,812	Discounted cash flow	Default percentage		72	%
				Discount rate		18	%

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

	Three Months Ended September 30, 2019										Three Months Ended June 30, 2020
	Strong Cinema		Convergent		Strong Outdoor		Other		Total		Strong Entertainment		Convergent		Strong Outdoor		Other		Total
Screen system sales	$	4,441	$	-	$	-	$	-	$	4,441	$	980	$	-	$	-	$	-	$	980
Digital equipment sales		3,285		757		-		-		4,042		688		231		-		-		919
Extended warranty sales		197		-		-		-		197		149		-		-		-		149
Other product sales		512		-		-		-		512		184		-		-		-		184
Total product sales		8,435		757		-		-		9,192		2,001		231		-		-		2,232
Field maintenance and monitoring services		1,969		3,078		58		-		5,105		350		3,295		4		-		3,649
Installation services		473		611		-		-		1,084		74		121		-		-		195
Advertising		-		-		1,173		-		1,173		-		-		238		-		238
Other service revenues		51		86		65		90		292		42		-		-		90		132
Total service revenues		2,493		3,775		1,296		90		7,654		466		3,416		242		90		4,214
Total	$	10,928	$	4,532	$	1,296	$	90	$	16,846	$	2,467	$	3,647	$	242	$	90	$	6,446

	Nine Months Ended September 30, 2019										Six Months Ended June 30, 2020
	Strong Cinema		Convergent		Strong Outdoor		Other		Total		Strong Entertainment		Convergent		Strong Outdoor		Other		Total
Screen system sales	$	10,370	$	-	$	-	$	-	$	10,370	$	3,936	$	-	$	-	$	-	$	3,936
Digital equipment sales		6,396		2,248		-		-		8,644		2,336		1,403		-		-		3,739
Extended warranty sales		582		-		-		-		582		308		-		-		-		308
Other product sales		1,238		6		-		-		1,244		652		-		-		-		652
Total product sales		18,586		2,254		-		-		20,840		7,232		1,403		-		-		8,635
Field maintenance and monitoring services		6,060		8,637		286		-		14,983		2,155		6,709		32		-		8,896
Installation services		1,540		4,194		-		-		5,734		332		478		-		-		810
Advertising		-		-		3,127		-		3,127		-		-		1,407		-		1,407
Other service revenues		219		119		111		288		737		62		19		-		191		272
Total service revenues		7,819		12,950		3,524		288		24,581		2,549		7,206		1,439		191		11,385
Total	$	26,405	$	15,204	$	3,524	$	288	$	45,421	$	9,781	$	8,609	$	1,439	$	191	$	20,020

	Three Months Ended September 30, 2018										Three Months Ended June 30, 2019
	Strong Cinema		Convergent		Strong Outdoor		Other		Total		Strong Entertainment		Convergent		Strong Outdoor		Other		Total
Screen system sales	$	5,024	$	-	$	-	$	-	$	5,024	$	3,110	$	-	$	-	$	-	$	3,110
Digital equipment sales		2,126		586		-		-		2,712		1,631		866		-		-		2,497
Extended warranty sales		213		-		-		-		213		151		-		-		-		151
Other product sales		450		18		-		-		468		324		-		-		-		324
Total product sales		7,813		604		-		-		8,417		5,216		866		-		-		6,082
Field maintenance and monitoring services		2,838		1,806		-		-		4,644		2,122		2,786		175		-		5,083
Installation services		712		1,069		-		-		1,781		397		1,464		-		-		1,861
Advertising		-		-		1,480		-		1,480		-		-		914		-		914
Other service revenues		68		-		-		63		131		144		19		46		120		329
Total service revenues		3,618		2,875		1,480		63		8,036		2,663		4,269		1,135		120		8,187
Total	$	11,431	$	3,479	$	1,480	$	63	$	16,453	$	7,879	$	5,135	$	1,135	$	120	$	14,269

	Nine Months Ended September 30, 2018
	Strong Cinema		Convergent		Strong Outdoor		Other		Total
Screen system sales	$	13,288	$	-	$	-	$	-	$	13,288
Digital equipment sales		7,198		1,742		-		-		8,940
Extended warranty sales		804		-		-		-		804
Other product sales		1,552		18		-		-		1,570
Total product sales		22,842		1,760		-		-		24,602
Field maintenance and monitoring services		8,666		6,409		-		-		15,075
Installation services		1,420		3,057		-		-		4,477
Advertising		-		-		1,948		-		1,948
Other service revenues		165		-		-		191		356
Total service revenues		10,251		9,466		1,948		191		21,856
Total	$	33,093	$	11,226	$	1,948	$	191	$	46,458

	Six Months Ended June 30, 2019
	Strong Entertainment		Convergent		Strong Outdoor		Other		Total
Screen system sales	$	5,930	$	-	$	-	$	-	$	5,930
Digital equipment sales		3,115		1,491		-		-		4,606
Extended warranty sales		385		-		-		-		385
Other product sales		721		6		-		-		727
Total product sales		10,151		1,497		-		-		11,648
Field maintenance and monitoring services		4,088		5,559		228		-		9,875
Installation services		1,067		3,582		-		-		4,649
Advertising		-		-		1,955		-		1,955
Other service revenues		173		32		46		197		448
Total service revenues		5,328		9,173		2,229		197		16,927
Total	$	15,479	$	10,670	$	2,229	$	197	$	28,575

For the nine months ended June 30,	2019			2018

Revenue (1)	$	16,713		$	11,711
Operating (loss) income (1)	$	(910	)	$	2,130
Net (loss) income	$	(5,490	)	$	2,500

For the six months ended March 31,	2020			2019

Revenue (1)	$	(4,337	)	$	808
Operating loss	$	(4,534	)	$	(387	)
Net loss	$	(393	)	$	(1,835	)

	Useful life		Gross		Accumulated Amortization			Net		Useful life		Gross		Accumulated Amortization			Net
	(Years)									(Years)
Intangible assets not yet subject to amortization:
Software in development			$	194	$	-		$	194			$	229	$	-		$	229
Intangible assets subject to amortization:
Software in service		5		2,319		(966	)		1,353		5		2,413		(1,355	)		1,058
Product formulation		10		462		(408	)	$	54		10		448		(406	)		42
Total			$	2,975	$	(1,374	)	$	1,601			$	3,090	$	(1,761	)	$	1,329

Remainder 2019	$	131
2020		515
Remainder of 2020			$	280
2021		476		519
2022		230		244
2023		55		57
2024				-
Thereafter		-		-
Total	$	1,407	$	1,100

Balance as of December 31, 2018	$	875
Foreign currency translation		27
Balance as of September 30, 2019	$	902

Balance as of December 31, 2019	$	919
Foreign currency translation adjustment		(43	)
Balance as of June 30, 2020	$	876

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Warranty accrual at beginning of period	$	328		$	449		$	350		$	521
Charged to expense		(1	)		18			24			83
Claims paid, net of recoveries		(16	)		(26	)		(70	)		(142	)
Foreign currency adjustment		2			8			9			(13	)
Warranty accrual at end of period	$	313		$	449		$	313		$	449

Remainder of 2019	$	239
2020		1,002
Remainder of 2020			$	344
2021		1,079		1,054
2022		1,146		1,122
2023		786		1,149
2024				30
Thereafter		19		-
Total	$	4,271	$	3,699

Lease cost
	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019			Three Months Ended June 30, 2020			Three Months Ended June 30, 2019			Six Months Ended June 30, 2020			Six Months Ended June 30, 2019
Lease cost
Finance lease cost:
Amortization of right-of-use assets	$	282		$	420		$	395		$	88		$	776		$	137
Interest on lease liabilities		142			184			153			23			317			42
Operating lease cost		421			1,751			390			746			792			1,432
Short-term lease cost		12			21			15			3			29			9
Sublease income		(120	)		(313	)		(89	)		(106	)		(205	)		(192	)
Net lease cost	$	737		$	2,063		$	864		$	754		$	1,709		$	1,428

	As of ~~September~~June 30, ~~2019~~2020
Weighted-average remaining lease term - finance leases (years)		~~3.5~~2.8
Weighted-average remaining lease term - operating leases (years)		~~7.5~~6.9
Weighted-average discount rate - finance leases		~~12.6~~12.1	%
Weighted-average discount rate - operating leases		~~5.0~~4.9	%

	Operating Leases			Finance Leases
Remainder 2019	$	322		$	476
2020		1,159			1,882
2021		1,061			1,882
2022		721			1,650
2023		656			353
Thereafter		3,116			87
Total lease payments		7,035			6,330
Less: Amount representing interest		(1,202	)		(1,219	)
Present value of lease payments		5,833			5,111
Less: Current maturities		(939	)		(1,317	)
Lease obligations, net of current portion	$	4,894		$	3,794

	2019		2018
Expected dividend yield at date of grant		0.00%		0.00%
Risk-free interest rate		1.62% - 1.98%		2.49%
Expected stock price volatility		47.9% - 50.6%		35.6%
Expected life of options (in years)		6.0		6.0

	Number of Options			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in thousands)		Number of Options			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2018		867,000		$	5.06		8.3	$	-
Outstanding at December 31, 2019											1,107,000		$	4.47		7.9	$	148
Granted		295,000			2.91						-
Exercised		-			-						-
Forfeited		(41,500	)		5.29						(74,000	)		4.82
Expired		(13,500	)		5.38						(106,000	)		5.22
Outstanding at September 30, 2019		1,107,000		$	4.47		8.1	$	104
Exercisable at September 30, 2019		294,000		$	5.18		7.0	$	-
Outstanding at June 30, 2020											927,000		$	4.36		7.5	$	-
Exercisable at June 30, 2020											441,000		$	4.79		6.8	$	-

	Number of Restricted Stock Shares			Weighted Average Grant Date Fair Value		Number of Restricted Stock Shares			Weighted Average Grant Date Fair Value
Non-vested at December 31, 2018		46,667		$	6.50
Non-vested at December 31, 2019							23,334		$	6.50
Granted		-			-		-
Shares vested		(23,333	)		6.50		(23,334	)		6.50
Shares forfeited		-			-		-
Non-vested at September 30, 2019		23,334		$	6.50
Non-vested at June 30, 2020							-

	Number of Restricted Stock Units			Weighted Average Grant Date Fair Value		Number of Restricted Stock Units			Weighted Average Grant Date Fair Value
Non-vested at December 31, 2018		277,498		$	3.33
Non-vested at December 31, 2019							522,379		$	3.14
Granted		417,378			2.95		-
Shares vested		(75,833	)		3.87		(142,497	)		3.36
Shares forfeited		-			-		-
Non-vested at September 30, 2019		619,043		$	2.10
Non-vested at June 30, 2020							379,882		$	3.06

(In thousands)	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Identifiable assets
Strong Cinema	$	21,385	$	27,009
Strong Entertainment					$	18,378	$	18,135
Convergent		16,824		14,024		12,017		15,797
Strong Outdoor		3,306		3,454		2,695		3,737
Corporate assets		19,265		15,150		20,353		19,964
Total	$	60,780	$	59,637	$	53,443	$	57,633

	Quarters Ended September 30,																														Three Months Ended June 30,
	2019															2018															2020															2019
	Strong Cinema			Convergent			Strong Outdoor			Corporate and Other			Consolidated			Strong Cinema			Convergent			Strong Outdoor			Corporate and Other			Consolidated			Strong Entertainment			Convergent			Strong Outdoor			Corporate and Other			Consolidated			Strong Entertainment			Convergent			Strong Outdoor			Corporate and Other			Consolidated
Net income (loss)	$	1,265		$	386		$	(332	)	$	(3,107	)	$	(1,788	)	$	3,736		$	(1,727	)	$	(1,176	)	$	(2,054	)	$	(1,221	)
Net (loss) income																															$	(865	)		402		$	(336	)		(2,929	)	$	(3,728	)	$	202			120		$	(1,410	)		(2,330	)	$	(3,418	)
Interest expense, net		35			120			106			1			262			29			151			-			-			180			34			139			88			7			268			35			111			38			2			186
Income tax expense		827			(96	)		-			-			731			423			74			-			-			497
Income tax expense (benefit)																																78			56			-			(38	)		96			288			101			-			34			423
Depreciation and amortization		226			492			124			54			896			219			343			77			71			710			231			589			110			48			978			220			472			100			55			847
EBITDA		2,353			902			(102	)		(3,052	)		101			4,407			(1,159	)		(1,099	)		(1,983	)		166			(522	)		1,186			(138	)		(2,912	)		(2,386	)		745			804			(1,272	)		(2,239	)		(1,962	)
Stock-based compensation expense		-			-			-			334			334			-			-			-			166			166			-			-			-			212			212			-			-			-			221			221
Fair value adjustment to notes receivable		845			-			-			-			845			(802	)		-			-			-			(802	)		-			-			-			-			-			797			-			-			-			797
Equity method investment (income) loss		(287	)		-			-			783			496			28			-			-			(535	)		(507	)
Loss on disposal of assets		3			-			-			-			3			-			(19	)		-			818			799
Equity method investment loss (income)																																69			-			-			1,420			1,489			47			-			-			(17	)		30
Loss on disposal of assets and impairment charges																																-			-			-			-			-			-			-			38			-			38
Foreign currency transaction loss (gain)																																304			(1	)		-			-			303			87			(10	)		-			-			77
Gain on Firefly transaction, net of transaction costs																																-			-			(356	)		-			(356	)		-			-			(126	)		-			(126	)
Gain on property and casualty insurance recoveries																																(97	)		-			-			-			(97	)		(226	)		-			-			-			(226	)
Severance and other		-			4			27			8			39			-			428			-			-			428			78			16			2			7			103			-			-			-			-			-
Adjusted EBITDA	$	2,914		$	906		$	(75	)	$	(1,927	)	$	1,818		$	3,633		$	(750	)	$	(1,099	)	$	(1,534	)	$	250		$	(168	)	$	1,201		$	(492	)	$	(1,273	)	$	(732	)	$	1,450		$	794		$	(1,360	)	$	(2,035	)	$	(1,151	)