Exhibit 99.1
Ballantyne Strong, Inc.
Unaudited Pro Forma Condensed Consolidated Financial Information
The following unaudited pro forma condensed consolidated financial statements are based upon the historical financial statements of Ballantyne Strong, Inc. (“Ballantyne” or the “Company”) and reflect adjustments to the Company’s historical financial results as reported under generally accepted accounting principles in the United States (GAAP) in connection with certain subsidiaries of the Company entering into the Agreements (as defined in Note 1 to these pro forma financial statements) with Firefly Systems Inc. (“Firefly”) on August 3, 2020.
The unaudited pro forma condensed consolidated balance sheet as of March 31, 2020 gives effect to the Agreements as if they were entered into March 31, 2020, and the unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 2020 and year ended December 31, 2019 give effect to the Agreements as if they were entered into January 1, 2019.
The unaudited pro forma condensed consolidated financial statements and the accompanying notes should be read in conjunction with the historical consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2020, and in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 12, 2020.
The unaudited pro forma condensed consolidated financial statements included herein are being provided for informational purposes only and are not necessarily indicative of the results of operations or financial position that would have resulted if the Agreements had actually been effective on the date indicated and are not intended to project the Company’s results of operations or financial position for any future period. The pro forma adjustments are based on currently available information and certain estimates and assumptions reflecting events directly attributable to the Agreements. Therefore, actual adjustments may differ from the pro forma adjustments. However, management believes the pro forma assumptions provide a reasonable basis for presenting significant effects of the transactions as contemplated and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited consolidated pro forma financial statements. The pro forma adjustments are described in the notes and the unaudited pro forma consolidated financial information should be read in conjunction with their related notes.
Ballantyne Strong, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of March 31, 2020
(In thousands, except par values)
Historical | Pro Forma Adjustments | Notes | Pro Forma | |||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 6,546 | $ | (1,426 | ) | (a) | $ | 5,120 | ||||||||
Restricted cash | 351 | - | 351 | |||||||||||||
Accounts receivable, net | 10,252 | - | 10,252 | |||||||||||||
Inventories, net | 2,794 | - | 2,794 | |||||||||||||
Recoverable income taxes | 262 | - | 262 | |||||||||||||
Other current assets | 2,642 | (754 | ) | (b) | 1,888 | |||||||||||
Total current assets | 22,847 | (2,180 | ) | 20,667 | ||||||||||||
Property, plant and equipment, net | 9,836 | (429 | ) | (c) | 9,407 | |||||||||||
Operating lease right-of-use assets | 5,438 | - | 5,438 | |||||||||||||
Finance lease right-of-use assets | 2,333 | - | 2,333 | |||||||||||||
Investments | 14,368 | 9,284 | (d) | 23,652 | ||||||||||||
Intangible assets, net | 1,453 | - | 1,453 | |||||||||||||
Goodwill | 842 | - | 842 | |||||||||||||
Other assets | 98 | - | 98 | |||||||||||||
Total assets | $ | 57,215 | $ | 6,675 | $ | 63,890 | ||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 5,139 | $ | (167 | ) | (e) | $ | 4,972 | ||||||||
Accrued expenses | 3,830 | - | 3,830 | |||||||||||||
Short-term debt | 3,188 | - | 3,188 | |||||||||||||
Current portion of long-term debt | 1,016 | - | 1,016 | |||||||||||||
Current portion of operating lease obligations | 974 | - | 974 | |||||||||||||
Current portion of finance lease obligations | 1,633 | - | 1,633 | |||||||||||||
Deferred revenue and customer deposits | 3,175 | 1,708 | (f) | 4,883 | ||||||||||||
Total current liabilities | 18,955 | 1,541 | 20,496 | |||||||||||||
Long-term debt, net of current portion and debt issuance costs | 2,757 | - | 2,757 | |||||||||||||
Operating lease obligations, net of current portion | 4,632 | - | 4,632 | |||||||||||||
Finance lease obligations, net of current portion | 3,561 | - | 3,561 | |||||||||||||
Deferred revenue and customer deposits, net of current portion | 32 | - | 32 | |||||||||||||
Deferred income taxes | 2,918 | - | 2,918 | |||||||||||||
Other long-term liabilities | 110 | - | 110 | |||||||||||||
Total liabilities | 32,965 | 1,541 | 34,506 | |||||||||||||
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 17,445 shares; outstanding 14,651 shares | 174 | - | 174 | |||||||||||||
Additional paid-in capital | 42,862 | - | 42,862 | |||||||||||||
Retained earnings | 5,554 | 5,134 | (g) | 10,688 | ||||||||||||
Less 2,794 of common shares in treasury, at cost | (18,586 | ) | - | (18,586 | ) | |||||||||||
Accumulated other comprehensive loss | (5,754 | ) | - | (5,754 | ) | |||||||||||
Total stockholders’ equity | 24,250 | 5,134 | 29,384 | |||||||||||||
Total liabilities and stockholders’ equity | $ | 57,215 | $ | 6,675 | $ | 63,890 |
Ballantyne Strong, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Three Months Ended March 31, 2020
(In thousands, except per share amounts)
Historical | Pro Forma Adjustments | Notes | Pro Forma | |||||||||||||
Net product sales | $ | 6,404 | $ | - | $ | 6,404 | ||||||||||
Net service revenues | 7,171 | (1,018 | ) | (a) | 6,153 | |||||||||||
Total net revenues | 13,575 | (1,018 | ) | 12,557 | ||||||||||||
Cost of products sold | 4,695 | - | 4,695 | |||||||||||||
Cost of services | 4,627 | (864 | ) | (b) | 3,763 | |||||||||||
Total cost of revenues | 9,322 | (864 | ) | 8,458 | ||||||||||||
Gross profit | 4,253 | (154 | ) | 4,099 | ||||||||||||
Selling and administrative expenses: | ||||||||||||||||
Selling | 1,344 | (328 | ) | (c) | 1,016 | |||||||||||
Administrative | 4,830 | (263 | ) | (d) | 4,567 | |||||||||||
Total selling and administrative expenses | 6,174 | (591 | ) | 5,583 | ||||||||||||
Loss on disposal of assets | - | - | - | |||||||||||||
Loss from operations | (1,921 | ) | 437 | (1,484 | ) | |||||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (272 | ) | - | (272 | ) | |||||||||||
Fair value adjustment to notes receivable | - | - | - | |||||||||||||
Foreign currency transaction gain | 488 | - | 488 | |||||||||||||
Other income, net | 289 | (270 | ) | (e) | 19 | |||||||||||
Total other income | 505 | (270 | ) | 235 | ||||||||||||
Loss before income taxes and equity method investment income | (1,416 | ) | 167 | (1,249 | ) | |||||||||||
Income tax expense | (400 | ) | - | (400 | ) | |||||||||||
Equity method investment income | 1,369 | - | 1,369 | |||||||||||||
Net loss | $ | (447 | ) | $ | 167 | $ | (280 | ) | ||||||||
Basic loss per share | $ | (0.03 | ) | $ | (0.02 | ) | ||||||||||
Diluted loss per share | $ | (0.03 | ) | $ | (0.02 | ) | ||||||||||
Weighted-average shares used in computing net loss per share: | ||||||||||||||||
Basic | 14,625 | 14,625 | ||||||||||||||
Diluted | 14,625 | 14,625 |
Ballantyne Strong, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statement of Comprehensive Loss
Three Months Ended March 31, 2020
(In thousands)
Historical | Pro Forma Adjustments | Notes | Pro Forma | |||||||||||||
Net loss | $ | (447 | ) | $ | 167 | (a) | $ | (280 | ) | |||||||
Adjustment to postretirement benefit obligation | (4 | ) | - | (4 | ) | |||||||||||
Unrealized loss on available-for-sale securities of equity method investments, net of tax | (76 | ) | - | (76 | ) | |||||||||||
Currency translation adjustment: | ||||||||||||||||
Unrealized net change arising during period | (1,205 | ) | - | (1,205 | ) | |||||||||||
Total other comprehensive loss | (1,285 | ) | - | (1,205 | ) | |||||||||||
Comprehensive loss | $ | (1,732 | ) | $ | 167 | $ | (1,485 | ) |
Ballantyne Strong, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 2019
(In thousands, except per share amounts)
Historical | Pro Forma Adjustments | Notes | Pro Forma | |||||||||||||
Net product sales | $ | 29,436 | $ | - | $ | 29,436 | ||||||||||
Net service revenues | 33,114 | (4,262 | ) | (a) | 28,852 | |||||||||||
Total net revenues | 62,550 | (4,262 | ) | 58,288 | ||||||||||||
Cost of products sold | 19,403 | - | 19,403 | |||||||||||||
Cost of services | 24,674 | (6,010 | ) | (b) | 18,664 | |||||||||||
Total cost of revenues | 44,077 | (6,010 | ) | 38,067 | ||||||||||||
Gross profit | 18,473 | 1,748 | 20,221 | |||||||||||||
Selling and administrative expenses: | ||||||||||||||||
Selling | 5,281 | (1,280 | ) | (c) | 4,001 | |||||||||||
Administrative | 17,085 | (920 | ) | (d) | 16,165 | |||||||||||
Total selling and administrative expenses | 22,366 | (2,200 | ) | 20,166 | ||||||||||||
Loss on disposal of assets | (107 | ) | 38 | (69 | ) | |||||||||||
Loss from operations | (4,000 | ) | 3,986 | (14 | ) | |||||||||||
Other income (expense): | ||||||||||||||||
Interest income | 3 | - | 3 | |||||||||||||
Interest expense | (823 | ) | - | (823 | ) | |||||||||||
Fair value adjustment to notes receivable | (2,857 | ) | - | (2,857 | ) | |||||||||||
Foreign currency transaction loss | (265 | ) | - | (265 | ) | |||||||||||
Other income, net | 2,132 | (429 | ) | (e) | 1,703 | |||||||||||
Total other expense | (1,810 | ) | (429 | ) | (2,242 | ) | ||||||||||
Loss before income taxes and equity method investment loss | (5,810 | ) | 3,557 | (2,253 | ) | |||||||||||
Income tax expense | (2,282 | ) | - | (2,282 | ) | |||||||||||
Equity method investment loss | (2,011 | ) | - | (2,011 | ) | |||||||||||
Net loss | $ | (10,103 | ) | $ | 3,557 | $ | (6,546 | ) | ||||||||
Basic loss per share | $ | (0.70 | ) | $ | (0.45 | ) | ||||||||||
Diluted loss per share | $ | (0.70 | ) | $ | (0.45 | ) | ||||||||||
Weighted-average shares used in computing net loss per share: | ||||||||||||||||
Basic | 14,488 | 14,488 | ||||||||||||||
Diluted | 14,488 | 14,488 |
Ballantyne Strong, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statement of Comprehensive Loss
Year Ended December 31, 2019
(In thousands)
Historical | Pro Forma Adjustments | Notes | Pro Forma | |||||||||||||
Net loss | $ | (10,103 | ) | $ | 3,557 | (a) | $ | (6,546 | ) | |||||||
Adjustment to postretirement benefit obligation | (36 | ) | - | (36 | ) | |||||||||||
Unrealized gain on available-for-sale securities of equity method investments, net of tax | 391 | - | 391 | |||||||||||||
Currency translation adjustment: | ||||||||||||||||
Unrealized net change arising during period | 554 | - | 554 | |||||||||||||
Total other comprehensive income | 909 | - | 554 | |||||||||||||
Comprehensive loss | $ | (9,194 | ) | $ | 3,557 | $ | (5,992 | ) |
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
(in thousands, except per share information)
Note 1: Description of Transaction
On August 3, 2020, Strong Digital Media, LLC (“SDM”), an indirect subsidiary of Ballantyne, 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.
In May 2019, Ballantyne transferred its digital taxi-top advertising business to Firefly and became an investor in Firefly. With the current transaction, Ballantyne transferred all of its remaining taxi-top advertising business to Firefly.
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 dated May 21, 2019 (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. SDM currently holds approximately $5.7 million of Firefly Series A-2 preferred shares, which includes the shares issued to SDM as part of the May 2019 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 Media Systems Corporation (“Convergent”), an indirect subsidiary of Ballantyne, 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 Screen Systems, Inc. (“MDI”), a direct subsidiary of Ballantyne, entered into a Stock Purchase Agreement (the “Stock Purchase Agreement” and, collectively with the Asset Purchase Agreement and the Master Services Agreement, the “Agreements”) 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 Ballantyne and 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, Ballantyne 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. Ballantyne and its affiliated entities intend to designate Kyle Cerminara, Chairman of Ballantyne’s board of directors and a principal of Ballantyne’s largest shareholder, to Firefly’s board of directors.
Note 2: Pro Forma Adjustments
The pro forma adjustments are preliminary, subject to further revision as additional information becomes available and additional analysis are performed and have been made solely for the purpose of providing unaudited pro forma condensed financial statements. Differences between these preliminary estimates and the final accounting may occur, and these differences could have a material effect on the accompanying unaudited pro forma condensed financial statements. Pursuant to the Agreements, the Company retained certain assets and liabilities associated with Strong Outdoor, and, accordingly, those are not reflected as pro forma adjustments. The following adjustments have been reflected in the unaudited pro forma condensed consolidated financial information:
Adjustments to the Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2020
(a) This adjustment represents MDI’s purchase of $4.0 million of Firefly’s Series A-3 preferred shares pursuant to the Stock Purchase Agreement, partially offset by the receipt of $0.6 million cash consideration pursuant to the Asset Purchase Agreement and $2.0 million cash consideration pursuant to the Master Services Agreement.
(b) This adjustment reflects the receipt of Firefly’s Series A-2 preferred shares in connection with the earnout provision of the Unit Purchase Agreement that was recorded within Other current assets until the receipt of the shares, the write-off of deferred contract acquisition costs and the transfer of certain prepaid expenses to Firefly.
(c) This adjustment reflects the transfer of certain equipment to Firefly.
(d) This adjustment represents the increase to the Company’s investment in Firefly as a result of MDI’s purchase of $4.0 million of Firefly’s Series A-3 preferred shares, receipt of $3.2 million of Firefly’s Series A-3 preferred shares in connection with the Asset Purchase Agreement, receipt of $0.9 million of Firefly’s Series A-2 preferred shares in connection with the earnout provision of the Unit Purchase Agreement and the recognition of $1.2 million of Firefly’s Series A-2 preferred shares in connection with the release of the Company’s obligation to exercise the purchase option contained within the master lease agreement related to the digital tops the Company has made available to Firefly.
(e) This adjustment reflects the accounts payable to Firefly that were cancelled and forgiven.
(f) This adjustment reflects the receipt of $2.0 cash consideration pursuant to the Master Services Agreement, partially offset by the deferred revenue transferred to Firefly.
(g) This adjustment reflects the estimated gain arising from the Agreements. This estimated gain has not been reflected in the pro forma unaudited condensed consolidated statements of operations as it is considered to be nonrecurring in nature.
Adjustments to the Unaudited Pro Forma Condensed Consolidated Statement of Operations for the three months ended March 31, 2020
(a) This adjustment reflects the reversal of all Net service revenues directly attributable to Strong Outdoor, partially offset by Net service revenues in connection with the Master Services Agreement.
(b) This adjustment reflects the reversal of all Cost of services directly attributable to Strong Outdoor.
(c) This adjustment reflects the reversal of all Selling expenses directly attributable to Strong Outdoor.
(d) This adjustment reflects the reversal of the portion of Administrative expenses directly attributable to the operations of Strong Outdoor that were sold to Firefly.
(e) This adjustment reflects the reversal of the gain on the May 2019 transaction with Firefly.
Adjustments to the Unaudited Pro Forma Condensed Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2020
(a) This adjustment reflects the change to Net loss as presented in the Unaudited Pro Forma Condensed Consolidated Statement of Operations for the three months ended March 31, 2020.
Adjustments to the Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2019
(a) This adjustment reflects the reversal of Net service revenues directly attributable to Strong Outdoor, partially offset by Net service revenues in connection with the Master Services Agreement.
(b) This adjustment reflects the reversal of Cost of services directly attributable to Strong Outdoor.
(c) This adjustment reflects the reversal of Selling expenses directly attributable to Strong Outdoor.
(d) This adjustment reflects the reversal of the portion of Administrative expenses directly attributable to the operations of Strong Outdoor that were sold to Firefly.
(e) This adjustment reflects the reversal of the gain on the May 2019 transaction with Firefly.
Adjustments to the Unaudited Pro Forma Condensed Consolidated Statement of Comprehensive Loss for the year ended December 31, 2019
(a) This adjustment reflects the change to Net loss as presented in the Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2019.