| 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 the separate units of accounting, whether the items have value on a standalone basis and whether there
is objective and reliable evidence of their standalone selling price. The total contract transaction price is allocated to the
identified performance obligations based upon the relative standalone selling prices of the performance obligations. The standalone
selling price is based on an observable price for services sold to other comparable customers, when available, or an estimated
selling price using a cost plus margin approach. The Company estimates the amount of total contract consideration it expects to
receive for variable arrangements by determining the most likely amount it expects to earn from the arrangement based on the expected
quantities of services it expects to provide and the contractual pricing based on those quantities. The Company only includes some
or a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of
cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is subsequently
resolved. The Company considers the sensitivity of the estimate, its relationship and experience with the client and variable services
being performed, the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement. As discussed in more detail
below, revenue is recognized when a customer obtains control of promised goods or services under the terms of a contract and is
measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services.
The Company does not have any material extended payment terms, as payment is due at or shortly after the time of the sale. Observable
prices are used to determine the standalone selling price of separate performance obligations, or a cost plus margin approach is
used when observable prices are not available. Sales, value-added and other taxes collected concurrently with revenue producing
activities are excluded from revenue. The Company recognizes
contract assets or unbilled receivables related to revenue recognized for services completed but not yet invoiced to the clients.
Unbilled receivables are recorded as accounts receivable when the Company has an unconditional right to contract consideration.
A contract liability is recognized as deferred revenue when the Company invoices clients in advance of performing the related services
under the terms of a contract. Deferred revenue is recognized as revenue when the Company has satisfied the related performance
obligation. Deferred contract acquisition
costs are included in other assets. The Company defers costs to acquire contracts, including commissions, incentives and payroll
taxes, if they are incremental and recoverable costs of obtaining a customer contract with a term exceeding one year. Deferred
contract costs are reported within other assets and amortized to selling expense over the contract term, which generally ranges
from one to five years. The Company has elected to recognize the incremental costs of obtaining a contract with a term of less
than one year as a selling expense when incurred. The Company did not have any deferred contract costs as of December 31, 2019
or December 31, 2018. 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 Entertainment and Convergent customers. In the Strong 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 addition to selling
service contracts, the Company also performs discrete time and materials-based maintenance and repair work for customers in the
Strong 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 Entertainment and Convergent customers and recognizes revenue upon completion of the installations. Extended warranty sales The Company sells extended
warranties to its Strong 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 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. 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, 2019, $2.8 million
of the $5.0 million in cash and cash equivalents was held by our foreign subsidiary. Restricted Cash Restricted cash represents
amounts held in a collateral account for the Company’s corporate travel and purchasing credit card program. Investments The Company applies the
equity method of accounting to investments when 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 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 consolidated statements of cash flows. The Company applies the cost method of accounting to investments
when 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 year ended December 31, 2019 and determined that the
Company’s proportionate economic interest in the investments indicate that the investments were not other than temporarily
impaired. The carrying value of our equity method and cost method investments is reported as “investments” on the consolidated
balance sheets. Note 6 contains additional information on our equity method and cost method investments. Accounts and Notes Receivable Trade accounts receivable
are recorded at the invoiced amount and do not bear interest. The Company determines the allowance for doubtful accounts based
on several factors, including overall customer credit quality, historical write-off experience and a specific analysis that projects
the ultimate collectability of the account. As such, these factors may change over time, causing the allowance level and bad debt
expense to be adjusted accordingly. The accounts receivable balances on the consolidated balance sheets are net of an allowance
for doubtful accounts of $1.3 million and $1.8 million as of December 31, 2019 and 2018, respectively. The Company elected the
fair value option on its notes receivable. See “ Fair Value of Financial and Derivative Instruments . Past due accounts are written
off for accounts and notes receivable when our efforts have been unsuccessful in collecting amounts due. Inventories Inventories are stated
at the lower of cost (first-in, first-out) or net realizable value. Inventories include appropriate elements of material, labor
and manufacturing overhead. Inventory balances are net of reserves on slow moving or obsolete inventory based on management’s
review of inventories on hand compared to estimated future usage and sales, technological changes and product pricing. Business Combinations The Company uses the acquisition
method of accounting for acquired businesses. Under the acquisition method, the financial statements reflect the operations of
an acquired business starting from the completion of the acquisition. The assets acquired and liabilities assumed are recorded
at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price over the estimated fair
values of the identifiable net assets acquired is recorded as goodwill. Significant judgment is often required in estimating the
fair value of assets acquired, particularly intangible assets. As a result, in the case of significant acquisitions, the Company
normally obtains the assistance of third-party valuation specialists in estimating fair values of tangible and intangible assets.
The fair value estimates are based on available historical information and on expectations and assumptions about the future, considering
the perspective of marketplace participants. While management believes those expectations and assumptions are reasonable, they
are inherently uncertain. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy
or validity of the estimates and assumptions. Intangible Assets The Company’s intangible
assets consist primarily of costs incurred to develop or obtain software, as well as costs incurred for upgrades and enhancements
resulting in new or enhanced functionality. The Company evaluates its intangible assets for impairment when events or circumstances
indicate that the carrying amount of these assets may not be recoverable. Intangible assets with definite lives are amortized over
their respective estimated useful lives to their estimated residual values. Significant judgments and assumptions are required
in the impairment evaluations. Goodwill Goodwill is not amortized
and is tested for impairment at least annually, or whenever events or changes in circumstances indicate the carrying amount of
the asset may be impaired. The annual impairment test is performed as of December 31 each year. Significant judgment is involved
in determining if an indicator of impairment has occurred. The Company may consider indicators such as deterioration in general
economic conditions, adverse changes in the markets in which the reporting unit operates, increases in input costs that have negative
effects on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others. The fair
value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill. The Company may first review
for goodwill impairment by assessing qualitative factors to determine whether any impairment may exist. For a reporting unit in
which the Company concludes, based on the qualitative assessment, that it is more likely than not that the fair value of the reporting
unit is less than its carrying amount (or if the Company elects to skip the optional qualitative assessment), the Company is required
to perform a quantitative impairment test, which includes measuring the fair value of the reporting unit and comparing it to the
reporting unit’s carrying amount. If the fair value of a reporting unit exceeds its carrying value, the goodwill of the reporting
unit is not impaired. If the carrying value of a reporting unit exceeds its fair value, the Company must record an impairment loss
for the amount that the carrying value of the reporting unit, including goodwill, exceeds the fair value of the reporting unit. Goodwill was recorded in
connection with the acquisition of Peintures Elite, Inc. in 2013. A qualitative assessment was performed for the year ended December
31, 2019 and it was determined that no events had occurred since the acquisition that would indicate an impairment was more likely
than not. Property, Plant and Equipment Significant expenditures
for the replacement or expansion of property, plant and equipment are capitalized. Depreciation of property, plant and equipment
is provided over the estimated useful lives of the respective assets using the straight-line method. For financial reporting purposes,
assets are depreciated over the estimated useful lives of 20 years for buildings and improvements, the lesser of the lease term
or the estimated useful life for leasehold improvements, 3 to 10 years for machinery and equipment, 7 years for furniture and fixtures
and 3 years for computers and accessories. The Company generally uses accelerated methods of depreciation for income tax purposes.
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The recoverability of property, plant and equipment is based on management’s estimates
of future undiscounted cash flows and these estimates may vary due to a number of factors, some of which may be outside of management’s
control. To the extent that the Company is unable to achieve management’s forecasts of future income, it may become necessary
to record impairment losses for any excess of the net book value of property, plant and equipment over their fair value. The Company incurs maintenance
costs on all of its major equipment. Repair and maintenance costs are expensed as incurred. Income Taxes Income taxes are accounted
for under the asset and liability method. The Company uses an estimate of its annual effective rate at each interim period based
on the facts and circumstances at the time while the actual effective rate is calculated at year-end. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. In assessing whether the deferred tax assets are realizable,
management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company’s uncertain
tax positions are evaluated in a two-step process, whereby 1) the Company determines whether it is more likely than not that the
tax positions will be sustained based on the technical merits of the position and 2) for those tax positions that meet the more
likely than not recognition threshold, the Company would recognize the largest amount of tax benefit that is greater than fifty
percent likely to be realized upon ultimate settlement with the related tax authority. The Company accrues interest and penalties
related to uncertain tax positions in the consolidated statements of operations as income tax expense. Other Taxes Sales taxes assessed by
governmental authorities, including sales, use and excise taxes, are recorded on a net basis. Such taxes are excluded from revenues
and are shown as a liability on the balance sheet until remitted to the appropriate taxing authorities. Research and Development Research and development
related costs are charged to operations in the period incurred. Such costs amounted to $0.4 million and $0.1 million for the years
ended December 31, 2019 and 2018, respectively, and are included within administrative expenses on the consolidated statements
of operations. Advertising Costs Advertising and promotional
costs are expensed as incurred and amounted to approximately $0.2 million and $0.3 million for the years ended December 31, 2019
and 2018, respectively, and are included within selling expenses on the consolidated statements of operations. Fair Value of Financial and Derivative
Instruments Assets and liabilities
measured at fair value are categorized into a fair value hierarchy based upon the observability of inputs to the valuation of an
asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing
the asset or liability, including assumptions about risk. The categorization within the valuation hierarchy is based upon the lowest
level of input that is significant to the fair value measurement. Financial assets and liabilities carried at fair value are classified
and disclosed in one of the following three categories:
● Level 1 — inputs to the valuation techniques are quoted prices in active markets for identical assets or liabilities
● Level 2 — inputs to the valuation techniques are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly
● Level 3 — inputs to the valuation techniques are unobservable for the assets or liabilities The following tables present
the Company’s financial assets and liabilities measured at fair value based upon the level within the fair value hierarchy
in which the fair value measurements fall, as of December 31, 2019 and 2018. Fair values measured on
a recurring basis at December 31, 2019 (in thousands):
Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 4,951 $ - $ - $ 4,951
Restricted cash 351 - - 351
Notes receivable - - - -
Total $ 5,302 $ - $ - $ 5,302 Fair values measured on
a recurring basis at December 31, 2018 (in thousands):
Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 6,698 $ - $ - $ 6,698
Restricted cash 350 - 350
Notes receivable - - 3,965 3,965
Total $ 7,048 $ - $ 3,965 $ 11,013 Quantitative information
about the Company’s level 3 fair value measurements at December 31, 2019 is set forth below (dollars in thousands):
Fair value at December 31, 2019 Valuation technique Unobservable input Value
Notes receivable $ - Discounted cash flow Default percentage 100 %
Discount rate 18 % During 2011, the Company
entered into certain unsecured notes receivable arrangements with CDF2 Holdings, LLC pertaining to the sale and installation of
digital projection equipment. The notes receivable accrue interest at a rate of 15% per annum. Interest not paid in any particular
year is added to the principal and also accrues interest at 15%. 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. The significant unobservable inputs used in the fair value measurement of the Company’s
notes receivable are the discount rate and percentage of default. Significant increases (decreases) in any of these inputs in isolation
would result in a significantly lower (higher) fair value measurements. Adjustments to the fair value of the notes receivable are
included in other (expense) income on the Company’s consolidated statements of operations. In order to estimate the
fair value, the Company reviews the financial position and estimated cash flows of the debtor of the notes receivable. The Company
recorded a decrease to the fair value of the notes receivable of $2.9 million during the year ended December 31, 2019 and an increase
to the fair value of the notes receivable of $1.2 million during the year ended December 31, 2018. The changes to the estimated
fair value of the notes in 2019 were based on management’s review of the debtor’s financial statements and changes
in the underlying trend of 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. The significant unobservable
inputs used in the fair value measurement of the Company’s notes receivable are the discount rate and percentage of default.
Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower (higher) fair value
measurement. The following table reconciles
the beginning and ending balance of the Company’s notes receivable at fair value (in thousands):
Years Ended December 31,
2019 2018
Notes receivable balance, beginning of year $ 3,965 $ 2,815
Fair value adjustment (2,857 ) 1,150
Derecognition of contingent liability (1,108 ) -
Notes receivable balance, end of year $ - $ 3,965 The Company’s short-term
and long-term debt is recorded at historical cost. As of December 31, 2019, the Company’s long-term debt, including current
maturities, had a carrying value of $4.0 million. Based on discounted cash flows using current quoted interest rates (Level 2 of
the fair value hierarchy), the estimated fair value at December 31, 2019 was $3.7 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 consolidated balance sheets equal or approximate their fair values due to the short-term nature of these instruments.
Based on quoted market prices, the fair value of the Company’s equity method investments was $8.3 million at December 31,
2019 (see Note 6). 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
2018, the Company recorded other-than-temporary impairment charges totaling $0.7 million related to its equity method investments.
During 2018, the Company recorded an impairment charge of $2.1 million, included within loss on disposal of assets on the consolidated
statements of operations, related to groups of long-lived assets after the Company determined the carrying amount of the assets
was not recoverable, and adjusted the carrying amount of the related assets to $0. 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 earnings 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. However, because the Company reported
losses in both years presented, there were no differences between average shares used to compute basic and diluted loss per share
for either of the years ended December 31, 2019 and 2018. Options to purchase 787,000
and 645,000 shares of common stock were outstanding as of December 31, 2019 and 2018, respectively, but were not included in the
computation of diluted loss per share as the exercise price of such options was greater than the average market price of the common
shares for the respective periods. An additional 137,578 and 80,855 common stock equivalents related to options and restricted
stock units were excluded for the years ended December 31, 2019 and 2018, respectively, as their inclusion would be anti-dilutive,
thereby decreasing the net losses per share. Stock Compensation Plans The Company recognizes
compensation expense for all stock-based payment awards made to employees and directors based on estimated fair values on the date
of grant. The Company uses the straight-line amortization method over the vesting period of the awards. The Company has historically
issued shares upon exercise of stock options or vesting of restricted stock from new stock issuances. The Company estimates the
fair value of restricted stock awards based upon the market price of the underlying common stock on the date of grant. The fair
value of stock options granted is calculated using the Black-Scholes option pricing model. No stock-based compensation cost was
capitalized as a part of inventory in 2019 and 2018. Post-Retirement Benefits The Company recognizes
the overfunded or underfunded position of a defined benefit postretirement plan as an asset or liability in the balance sheet,
measures the plan’s assets and its obligations that determine its funded status as of each balance sheet date and recognizes
the changes in the funded status through comprehensive income (loss) in the year in which the changes occur. Foreign Currency Translation For the Company’s
foreign subsidiary, the environment in which the business conducts operations is considered the functional currency, generally
the local currency. The assets and liabilities of the foreign subsidiary are translated into the United States dollar at the foreign
exchange rates in effect at the end of the period. Revenue and expenses of the Company’s foreign subsidiary are translated
using an average of the foreign exchange rates in effect during the period. Translation adjustments are not included in determining
net earnings but are presented in comprehensive loss within the consolidated statements of comprehensive loss. 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 statement of operations 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 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 two years ended
December 31 (in thousands):
2019 2018
Warranty accrual at beginning of year $ 350 $ 521
Charged to expense (73 ) 208
Claims paid, net of recoveries (121 ) (349 )
Foreign currency adjustment 13 (30 )
Warranty accrual at end of year $ 169 $ 350 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 February 2016, the Financial
Accounting Standards Board (“FASB”) issued ASU 2016-02, “Leases (Topic 842),” which was further clarified
by ASU 2018-11, “Leases – Targeted Improvements,” issued in July 2018. ASU 2016-02 requires lessees to recognize
a lease liability and a right-to-use asset for all leases, including operating leases, with a term greater than twelve months,
on its balance sheet. This ASU is effective in fiscal years beginning after December 15, 2018 and initially required a modified
retrospective transition method under which entities would initially apply Topic 842 at the beginning of the earliest period presented
in the financial statements. ASU 2018-11 added an additional optional transition method allowing entities to apply Topic 842 as
of the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of
adoption. The Company adopted Topic 842 using the optional transition method from ASU 2018-11 as of January 1, 2019. Upon adoption,
the Company recorded a balance sheet gross-up of approximately $4.7 million to record operating lease liabilities and related right-of-use
assets. In addition, the sale-leaseback of the Company’s Alpharetta, Georgia office facility in June 2018, which did not
qualify for sale-leaseback accounting under the previous lease accounting standard, qualified for sale-leaseback accounting under
Topic 842, as Topic 842 eliminated the concept of continuing involvement by the seller-lessee precluding sale-leaseback accounting.
Upon adoption, the Company recorded a cumulative effect adjustment increasing retained earnings by approximately $2.8 million,
which represents the gain on the sale of the facility. The Company also derecognized approximately $4.0 million of net land and
building assets and approximately $6.8 million of debt associated with the previous accounting as a failed sale-leaseback and recorded
approximately $5.0 million of operating lease right-of-use assets and liabilities for the leaseback under Topic 842. See Note 14
for more information about the Company’s leases. In August 2018, the Securities
and Exchange Commission (the “SEC”) adopted the final rule under SEC Release No. 33-10532, “Disclosure Update
and Simplification,” amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or
superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for
interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented
in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning
balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The final rule
is effective for all filings made on and after November 5, 2018. Given the effective date and proximity to most filers’ quarterly
reports, the SEC did not object to filers deferring the presentation of changes in stockholders’ equity in their qua |
