| 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 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. 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, 2020 or December 31, 2019. 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 time because control
does not transfer to the customer until delivery. 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.
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 its 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 its 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. 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. 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, 2020, $2.5 million
of the $4.4 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 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. Investments in unconsolidated entities in which the Company
is not able to exercise significant influence (“Cost Method Investments”) are accounted for at the Company’s
initial cost, minus any impairment (if any), plus or minus changes resulting from observable price changes in orderly transactions
for the identical or a similar investment of the same issuer. 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 investees as of December 31, 2020 and determined that the Company’s
proportionate economic interest in the investees 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.
Notes 3 and 7 contain additional information on our equity method and cost method investments. 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 $0.6 million of bad debt expense during 2020 as a result of the increased uncertainty related to collection
of trade accounts receivable from these customers. The accounts receivable balances on the consolidated balance sheets are net
of an allowance for doubtful accounts of $1.0 million and $0.3 million as of December 31, 2020 and 2019, respectively. Past due accounts are written
off when our efforts have been unsuccessful in collecting amounts due. Inventories Inventories are stated
at the lower of cost (first-in, first-out) or net realizable value. Inventories include appropriate elements of material, labor
and manufacturing overhead. Inventory balances are net of reserves on slow moving or obsolete inventory based on management’s
review of inventories on hand compared to estimated future usage and sales, technological changes and product pricing. 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, 2020 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 $0.3 million and $0.4 million
for the years ended December 31, 2020 and 2019, 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 $50 thousand and $0.2 million for the years ended December 31, 2020
and 2019, 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, 2020 and 2019. Fair values measured on
a recurring basis at December 31, 2020 (in thousands):
Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 4,435 $ - $ - $ 4,435
Restricted cash 352 - - 352
Notes receivable - - - -
Total $ 4,787 $ - $ - $ 4,787 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 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, 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 $12.8 million at December 31, 2020 (see Note 7). All non-financial assets
that are not recognized or disclosed at fair value in the financial statements on a recurring basis, which include non-financial
long-lived assets, are measured at fair value in certain circumstances (for example, when there is evidence of impairment). 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 restricted stock units. However, because the Company reported
losses from continuing operations in both years presented, there were no differences between weighted-average shares used to compute
basic and diluted loss per share for either of the years ended December 31, 2020 and 2019. Options to purchase 884,500
and 787,000 shares of common stock were outstanding as of December 31, 2020 and 2019, 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 73,868 and 137,578 common stock equivalents related to options and restricted
stock units were excluded for the years ended December 31, 2020 and 2019, 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 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 2020 and 2019. Post-Retirement Benefits The Company recognizes
the overfunded or underfunded position of a defined benefit postretirement plan as an asset or liability in the balance sheet,
measures the plan’s assets and its obligations that determine its funded status as of each balance sheet date and recognizes
the changes in the funded status through comprehensive income (loss) in the year in which the changes occur. Foreign Currency Translation For the Company’s
foreign subsidiary, the environment in which the business conducts operations is considered the functional currency, generally
the local currency. The assets and liabilities of the foreign subsidiary are translated into the United States dollar at the foreign
exchange rates in effect at the end of the period. Revenue and expenses of the Company’s foreign subsidiary are translated
using an average of the foreign exchange rates in effect during the period. Translation adjustments are not included in determining
net earnings but are presented in comprehensive loss within the consolidated statements of comprehensive income (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 statements 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 years ended December
31 (in thousands):
2020 2019
Warranty accrual at beginning of year $ 169 $ 350
Charged to expense (26 ) (73 )
Claims paid, net of recoveries (64 ) (121 )
Foreign currency adjustment - 13
Warranty accrual at end of year $ 79 $ 169 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 August 2018, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, “Intangibles-
Goodwill and Other- Internal Use Software (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement that is a 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 for annual periods beginning after December 15, 2019, and interim periods
within those fiscal years. The adoption of the new standard on January 1, 2020 did not have an impact on the Company’s consolidated
financial statements and related disclosures. In August 2018, the 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 modifying certain disclosure requirements for fair value measurements as part of its disclosure framework project. Entities
will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy,
but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs
for Level 3 fair value measurements. The standard is effective for annual periods beginning after December 15, 2019, and interim
periods within those fiscal years. The adoption of the new standard on January 1, 2020 did not have an impact on the Company’s
consolidated financial 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 was
initially effective for the Company for annual reporting periods beginning after December 15, 2019 and interim periods within those
fiscal years. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives
and Hedging (Topic 815), and Leases (Topic 842): Effective Dates,” which, among other things, defers the effective date of
ASU 2016-13 for public filers that are considered smaller reporting companies as defined by the Securities and Exchange Commission
to fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted. The
Company believes the adoption of this ASU will not significantly impact its results of operations and financial position. 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 early adopted the ASU, effective as of the year ended December 31, 2020. The adoption
did not have a material impact on the Company’s consolidated financial statements. In January 2020, the FASB
issued ASU 2020-01, “Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815.” This ASU clarifies the
interaction between accounting standards related to equity securities, equity method 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 does not expect the adoption of the new standard to have a material impact 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 2020. The Company chose to implement the policy
election provided by the FASB to record rent concessions as if no modifications to leases contracts were made, and thus no changes
to the lease obligations were recorded in respect to these concessions. As of December 31, 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. |
