| Summary of Significant Accounting Policies | 2.
Summary of Significant Accounting Policies Revenue
Recognition The
Company accounts for revenue using the following steps:
● Identify
the contract, or contracts, with a customer;
● Identify
the performance obligations in the contract;
● Determine
the transaction price;
● Allocate
the transaction price to the identified performance obligations; and
● Recognize
revenue when, or as, the Company satisfies the performance obligations. The
Company combines contracts with the same customer into a single contract for accounting purposes when the contracts are entered into
at or near the same time and the contracts are negotiated as a single commercial package, consideration in one contract depends on the
other contract, or the services are considered a single performance obligation. If an arrangement involves multiple performance obligations,
the items are analyzed to determine whether they are distinct, whether the items have value on a standalone basis, and whether there
is objective and reliable evidence of their standalone selling price. The total contract transaction price is allocated to the identified
performance obligations based upon the relative standalone selling prices of the performance obligations. The standalone selling price
is based on an observable price for services sold to other comparable customers, when available, or an estimated selling price using
a cost-plus margin approach. The Company estimates the amount of total contract consideration it expects to receive for variable arrangements
by determining the most likely amount it expects to earn from the arrangement based on the expected quantities of services it expects
to provide and the contractual pricing based on those quantities. The Company only includes a portion of variable consideration in the
transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or when
the uncertainty associated with the variable consideration is subsequently resolved. The Company considers the sensitivity of the estimate,
its relationship and experience with the client and variable services being performed, the range of possible revenue amounts and the
magnitude of the variable consideration to the overall arrangement. As
discussed in more detail below, revenue is recognized when a customer obtains control of promised goods or services under the terms of
a contract and is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing
services. The Company typically does not have any material extended payment terms, as payment is due at or shortly after the time of
the sale. Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded from revenue. The
Company recognizes contract assets or unbilled receivables related to revenue recognized for services completed but not yet invoiced
to the clients. Unbilled receivables are recorded as accounts receivable when the Company has an unconditional right to contract consideration.
A contract liability is recognized as deferred revenue when the Company invoices clients, or receives cash, in advance of performing
the related services under the terms of a contract. Deferred revenue is recognized as revenue when the Company has satisfied the related
performance obligation. The
Company defers costs to acquire contracts, including commissions, incentives and payroll taxes, if they are incremental and recoverable
costs of obtaining a customer contract with a term exceeding one year. Deferred contract costs are reported within other assets and amortized
to selling expense over the contract term, which generally ranges from one to five years. The Company has elected to recognize the incremental
costs of obtaining a contract with a term of less than one year as a selling expense when incurred. The Company did not have any deferred
contract costs as of December 31, 2023 or December 31, 2022. Screen
system sales The
Company typically recognizes revenue on the sale of its screen systems when control of the screen is transferred to the customer, usually
at time of shipment. However, revenue is recognized upon delivery for certain international shipments with longer shipping transit times
because control transfers upon customer delivery. The cost of freight and shipping to the customer is recognized in cost of sales at
the time of transfer of control to the customer. For contracts that are long-term in nature, the Company believes that the use of the
percentage-of-completion method is appropriate as the Company has the ability to make reasonably dependable estimates of the extent of
progress towards completion, contract revenues, and contract costs. Under the percentage-of-completion method, revenue is recorded based
on the ratio of actual costs incurred to total estimated costs expected to be incurred related to the contract. Digital
equipment sales The
Company recognizes revenue on sales of digital equipment when the control of the equipment is transferred, which typically occurs at
the time of shipment from the Company’s warehouse or drop-shipment from a third party. The cost of freight and shipping to the
customer is recognized in cost of sales at the time of transfer of control to the customer. The Company typically records revenue for
drop-shipment orders on a gross basis as the Company (i) is responsible for fulfilling the order, (ii) has inventory risk, (iii) would
be the recipient of any returned items and (iv) has discretion over pricing. The cost of freight and shipping to the customer is recognized
in cost of sales at the time of transfer of control to the customer. Field
maintenance and monitoring services The
Company sells service contracts that provide maintenance and monitoring services to its Strong Entertainment customers. These contracts
are generally 12 months in length. Revenue related to service contracts is recognized ratably over the term of the agreement. In
addition to selling service contracts, the Company also performs discrete time and materials-based maintenance and repair work for customers.
Revenue related to time and materials-based maintenance and repair work is recognized at the point in time when the performance obligation
has been fully satisfied. Installation
services The
Company performs installation services for its customers and recognizes revenue upon completion of the installations. Extended
warranty sales The
Company sells extended warranties to its customers. Typically, the Company is the primary obligor, and revenue is recognized on a gross
basis ratably over the term of the extended warranty. Cash
and Cash Equivalents All
short-term, highly liquid financial instruments are classified as cash equivalents in the consolidated balance sheets and statements
of cash flows. Generally, these instruments have maturities of three months or less from date of purchase. As of December 31, 2023, $ 0.6 5.5 4.9 Accounts
Receivable Trade
accounts receivable are recorded at the invoiced amount and do not bear interest. The Company determines the allowance for expected credit
losses based on several factors, including overall customer credit quality, historical write-off experience and a specific analysis that
projects the ultimate collectability of the account. As such, these factors may change over time causing the allowance level and bad
debt expense to be adjusted accordingly. The accounts receivable balances on the consolidated balance sheets are net of an allowance
for expected credit losses of $ 0.2 0.3 Inventories Inventories
are stated at the lower of cost (first-in, first-out) or net realizable value. Inventories include appropriate elements of material,
labor and manufacturing overhead. Inventory balances are net of reserves on slow moving or obsolete inventory. The Company reviews its
inventory on hand on an item-by-item basis for obsolete or slow moving inventory. The Company’s management considers various factors
to estimate each item’s net realizable value including recent sales history, industry trends, customer demand, and technological
developments. In instances where net realizable is deemed to be lower than cost, the Company decreases the value of that inventory to
the estimated net realizable value. Business
Combinations The
Company uses the acquisition method of accounting for acquired businesses. Under the acquisition method, the financial statements reflect
the operations of an acquired business starting from the completion of the acquisition. The assets acquired and liabilities assumed are
recorded at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price over the estimated
fair values of the identifiable net assets acquired is recorded as goodwill. Significant judgment is often required in estimating the
fair value of assets acquired, particularly intangible assets. As a result, in the case of significant acquisitions, the Company normally
obtains the assistance of third-party valuation specialists in estimating fair values of tangible and intangible assets. The fair value
estimates are based on available historical information and on expectations and assumptions about the future, considering the perspective
of marketplace participants. While management believes those expectations and assumptions are reasonable, they are inherently uncertain.
Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates
and assumptions. Intangible
Assets The
Company’s intangible assets consist primarily of costs incurred to develop or obtain software, as well as costs incurred for upgrades
and enhancements resulting in new or enhanced functionality. The Company evaluates its intangible assets for impairment when events or
circumstances indicate that the carrying amount of these assets may not be recoverable. Intangible assets with definite lives are amortized
over their respective estimated useful lives to their estimated residual values. Significant judgments and assumptions are required in
the impairment evaluations and in estimating useful lives. Goodwill Goodwill
is not amortized and is tested for impairment at least annually, or whenever events or changes in circumstances indicate the carrying
amount of the asset may be impaired. The annual impairment test is performed as of December 31 each year. Significant judgment is involved
in determining if an indicator of impairment has occurred. The Company may consider indicators such as deterioration in general economic
conditions, adverse changes in the markets in which the reporting unit operates, increases in input costs that have negative effects
on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others. The fair value that could
be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill. The
Company may first review for goodwill impairment by assessing qualitative factors to determine whether any impairment may exist. For
a reporting unit in which the Company concludes, based on the qualitative assessment, that it is more likely than not that the fair value
of the reporting unit is less than its carrying amount (or if the Company elects to skip the optional qualitative assessment), the Company
is required to perform a quantitative impairment test, which includes measuring the fair value of the reporting unit and comparing it
to the reporting unit’s carrying amount. If the fair value of a reporting unit exceeds its carrying value, the goodwill of the
reporting unit is not impaired. If the carrying value of a reporting unit exceeds its fair value, the Company must record an impairment
loss for the amount that the carrying value of the reporting unit, including goodwill, exceeds the fair value of the reporting unit. Goodwill
was recorded in connection with the acquisition of Peintures Elite, Inc. in 2013. A qualitative assessment was performed as of December
31, 2023 and it was determined that no events had occurred that would indicate an impairment was more likely than not. Property,
Plant and Equipment Significant
expenditures for the replacement or expansion of property, plant and equipment are capitalized. Depreciation of property, plant and equipment
is provided over the estimated useful lives of the respective assets using the straight-line method. For financial reporting purposes,
assets are depreciated over the estimated useful lives of 20 three ten seven years three years The
Company incurs maintenance costs on all of its major equipment. Repair and maintenance costs are expensed as incurred. Income
Taxes Income
taxes are accounted for under the asset and liability method. The Company uses an estimate of its annual effective rate at each interim
period based on the facts and circumstances at the time while the actual effective rate is calculated at year-end. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. In assessing whether the deferred tax assets are realizable, management considers
whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The
Company’s uncertain tax positions are evaluated in a two-step process, whereby 1) the Company determines whether it is more likely
than not that the tax positions will be sustained based on the technical merits of the position and 2) for those tax positions that meet
the more likely than not recognition threshold, the Company would recognize the largest amount of tax benefit that is greater than fifty
percent likely to be realized upon ultimate settlement with the related tax authority. The Company accrues interest and penalties related
to uncertain tax positions in the consolidated statements of operations as income tax expense. Other
Taxes Sales
taxes assessed by governmental authorities, including sales, use and excise taxes, are recorded on a net basis. Such taxes are excluded
from revenues and are shown as a liability on the balance sheet until remitted to the appropriate taxing authorities. Research
and Development Research
and development related costs are charged to operations in the period incurred. Such costs amounted to $ 0.3 Advertising
Costs Advertising
and promotional costs are expensed as incurred and amounted to approximately $ 0.3 0.2 Net
Income (Loss) Per Share Basic
net income (loss) per share has been computed on the basis of the weighted average number of shares of common stock outstanding. In periods
when the Company reported a net loss from continuing operations, there were no differences between average shares used to compute basic
and diluted loss per share as inclusion of stock options and restricted stock units would have been anti-dilutive in those periods. The
weighted average number of shares outstanding for the basic and diluted net income (loss) per share for the periods prior to the completion
of the IPO is based on the number of shares of the Company’s common stock outstanding on May 15, 2023, the effective date of the
registration statement relating to the IPO. On that date, the Company issued 5,999,999 6,000,000 SCHEDULE
OF NET INCOME LOSS PER SHARE
2023 2022
Year Ended December 31,
2023 2022
Weighted average shares outstanding:
Basic weighted average shares outstanding 6,922 6,000
Dilutive effect of stock options and certain non-vested restricted stock units 56 -
Diluted weighted average shares outstanding 6,978 6,000 Options
to purchase 156,000 Stock
Compensation Plans Prior
to the Separation, the Company’s employees participated in FG Group Holdings’ stock-based compensation plans. Stock-based
compensation expense has been allocated to the Company based on the awards and terms previously granted to FG Group Holdings’ employees.
The Company measures stock-based compensation at the grant date based on the fair value of the award. The fair value of stock options
is estimated using the Black-Scholes option pricing model. Estimated compensation cost relating to RSUs is based on the closing fair
market value of FG Group Holdings’ common stock on the date of grant. The
Company recognizes compensation expense for all stock-based payment awards based on estimated fair values on the date of grant. The Company
uses the straight-line amortization method over the vesting period of the awards. The Company has historically issued shares upon exercise
of stock options or vesting of restricted stock from new stock issuances. The Company estimates the fair value of restricted stock awards
based upon the closing market price of the underlying Common Shares on the date of grant. The fair value of stock options granted is
calculated using the Black-Scholes option pricing model. No stock-based compensation cost was capitalized as a part of inventory in 2023
and 2022. Fair
Value of Financial and Derivative Instruments Assets
and liabilities measured at fair value are categorized into a fair value hierarchy based upon the observability of inputs to the valuation
of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing
the asset or liability, including assumptions about risk. The categorization within the valuation hierarchy is based upon the lowest
level of input that is significant to the fair value measurement. Financial assets and liabilities carried at fair value are classified
and disclosed in one of the following three categories:
● Level
1 — inputs
to the valuation techniques are quoted prices in active markets for identical assets or liabilities
● Level
2 — inputs
to the valuation techniques are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly
● Level
3 — inputs
to the valuation techniques are unobservable for the assets or liabilities The
following tables present the Company’s financial assets and liabilities measured at fair value based upon the level within the
fair value hierarchy in which the fair value measurements fall, as of December 31, 2023 and 2022. Fair
values measured on a recurring basis at December 31, 2023 (in thousands): SCHEDULE
OF FAIR VALUE MEASURED ON RECURRING BASIS
Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 5,470 $ - $ - $ 5,470
Total $ 5,470 $ - $ - $ 5,470 Fair
values measured on a recurring basis at December 31, 2022 (in thousands):
Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 3,615 $ - $ - $ 3,615
Total $ 3,615 $ - $ - $ 3,615 The
Company’s short-term debt is recorded at historical cost. The carrying values of all other financial assets and liabilities, including
accounts receivable, accounts payable, and short-term debt reported in the consolidated balance sheets equal or approximate their fair
values due to the short-term nature of these instruments. 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). Foreign
Currency Translation For
Strong/MDI, the environment in which the business conducts operations is considered the functional currency, generally the local currency,
which is the Canadian dollar. The assets and liabilities of Strong/MDI are translated into the United States dollar at the foreign exchange
rates in effect at the end of the period. Revenue and expenses of Strong/MDI are translated using an average of the foreign exchange
rates in effect during the period. Translation adjustments are not included in determining net earnings but are presented in comprehensive
loss within the consolidated statements of comprehensive income. Transaction gains and losses that arise from foreign exchange rate fluctuations
on transactions denominated in a currency other than the functional currency are included in the consolidated statements of income as
incurred. If the Company disposes of its investment in a foreign entity, any gain or loss on currency translation balance recorded in
accumulated other comprehensive income would be recognized as part of the gain or loss on disposition. Warranty
Reserves In
most instances, digital products sold to customers are covered by the manufacturing firm’s warranty; however, for certain customers,
the Company may grant warranties in excess of the manufacturer’s warranty. In addition, the Company provides warranty coverage
on screens it manufactures. The Company accrues for these costs at the time of sale. The following table summarizes warranty activity
for the years ended December 31 (in thousands): SCHEDULE OF WARRANTY RESERVES
2023 2022
Warranty accrual at beginning of year $ 309 $ 136
Charged to expense 347 299
Claims, net of recoveries (192 ) (117 )
Foreign currency adjustment 11 (9 )
Warranty accrual at end of year $ 475 $ 309 Contingencies The
Company accrues for contingencies when its assessments indicate that it is probable that a liability has been incurred and an amount
can be reasonably estimated. The Company’s estimates are based on currently available facts and its estimates of the ultimate outcome
or resolution. Actual results may differ from the Company’s estimates, resulting in an impact, positive or negative, on earnings. Recently
Adopted Accounting Pronouncements In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments.” This ASU requires 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 Company adopted this ASU effective January 1, 2023. Upon adoption the Company recorded a cumulative effect adjustment decreasing
net parent investment by $ 24,000 |
