Purse Ho
The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this report. Management's discussion and analysis contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not historical are forward-looking and reflect expectations for future Company performance. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks and uncertainties, including but not limited to those discussed in the "Risk Factors" section contained in Item 1A in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , and the following risks and uncertainties: the negative impact that the COVID-19 pandemic has already had, and may continue to have, on the Company's business and financial condition; the general economic impact of the ongoing military conflict inUkraine , including the impact of related sanctions being imposed by theU.S. Government and the governments of other countries, and the impact of potential reprisals as a consequence of the military conflict inUkraine and any related sanctions; the Company's ability to maintain and expand its revenue streams to compensate for the lower demand for the Company's digital cinema products and installation services; potential interruptions of supplier relationships or higher prices charged by suppliers; the Company's ability to successfully compete and introduce enhancements and new features that achieve market acceptance and that keep pace with technological developments; the Company's ability to successfully execute its capital allocation strategy or achieve the returns it expects from these holdings; the Company's ability to maintain its brand and reputation and retain or replace its significant customers; challenges associated with the Company's long sales cycles; the impact of a challenging global economic environment or a downturn in the markets (such as the current economic disruption and market volatility generated by the ongoing COVID-19 pandemic and the ongoing military conflict inUkraine and related sanctions); economic and political risks of selling products in foreign countries (including tariffs); risks of non-compliance withU.S. and foreign laws and regulations, potential sales tax collections and claims for uncollected amounts; cybersecurity risks and risks of damage and interruptions of information technology systems; the Company's ability to retain key members of management and successfully integrate new executives; the Company's ability to complete acquisitions, strategic investments, entry into new lines of business, divestitures, mergers or other transactions on acceptable terms, or at all; the impact of the COVID-19 pandemic and the ongoing military conflict inUkraine and related sanctions on the companies in which the Company holds equity stakes; the Company's ability to utilize or assert its intellectual property rights, the impact of natural disasters and other catastrophic events (such as the ongoing COVID-19 pandemic or the ongoing military conflict inUkraine ); the adequacy of insurance; the impact of having a controlling stockholder and vulnerability to fluctuation in the Company's stock price. Given the risks and uncertainties, readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results which may not occur as anticipated. Many of the risks listed above have been, and may further be, exacerbated by the COVID-19 pandemic, its impact on the cinema and entertainment industry, the ongoing military conflict inUkraine and related sanctions, and the worsening economic environment. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described herein, as well as others not now anticipated. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except where required by law, the Company assumes no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. Overview Continuing OperationsBallantyne Strong, Inc. ("Ballantyne Strong ," "the Company," "we," "our," and "us") is a holding company with business operations in the entertainment industry and holdings in public and privately held companies. OurStrong Entertainment segment includes one of the largest manufacturers of premium projection screens and customized screen support systems, and we also distribute other products and provide technical support services to the cinema, amusement park and other markets. 28
We recently launched
In connection with the sale of our Strong Outdoor operating business to Firefly inAugust 2020 , we entered into a Master Services Agreement and agreed to provide certain support services to Firefly. In addition, we use our facility inAlpharetta, Georgia for our Digital Ignition technology incubator and co-working facility. Results of those operations are included within "Other" in our results of operations.
We also continue to evaluate capital allocation opportunities to invest in other public or private companies or acquire other businesses, which may be within or outside of the Company's existing markets. During 2021, we completed the divestiture of our Convergent digital signage business and allocated additional capital to increase our positions in GreenFirst and FGF. InFebruary 2022 , we also completed the acquisition of the land and building housing our Digital Ignition incubator and co-working business. Discontinued Operations
Convergent transaction in
As part of a transaction that closed onFebruary 1, 2021 , we divested our Convergent business segment. The purchase price was (i)$15.0 million in cash and (ii)$2.5 million in the form of a subordinated promissory note. Additionally, a portion of the Purchase Price was placed in escrow and a portion of the purchase price was subject to a working capital adjustment. As further consideration, the buyer also assumed approximately$5.7 million of debt, bringing the total enterprise value for Convergent sale to approximately$23.2 million . We recorded a gain of approximately$14.8 million during 2021 related to the sale of Convergent.
Firefly transaction in
OnAugust 3, 2020 , we sold certain assets of the Strong Outdoor operating business to Firefly, and we continue to make available 300 digital taxi tops to Firefly.Strong Digital Media, LLC ("SDM"), an indirect subsidiary ofBallantyne Strong , retained 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.
Following these divestitures, we have presented the operating results of Convergent and Strong Outdoor as discontinued operations for all periods presented. Note 3 contains additional information regarding these transactions.
Impact of COVID-19 Pandemic InDecember 2019 , a novel coronavirus disease ("COVID-19") was initially reported, and inMarch 2020 , theWorld Health Organization characterized COVID-19 as a pandemic. COVID-19 and variants thereof have had a widespread and detrimental effect on the global economy as a result of the continued increase in the number of cases, particularly inthe United States , and actions by public health and governmental authorities, businesses, other organizations and individuals to address the outbreak, including travel bans and restrictions, quarantines, shelter in place, stay at home or total lock-down orders and business limitations and shutdowns. The ultimate impact of the COVID-19 pandemic on our business and results of operations remains unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the COVID-19 pandemic, including repeat or cyclical outbreaks, and any additional preventative and protective actions that governments, or we or our customers, may direct, which may result in an extended period of continued business disruption and reduced operations. For instance, some areas ofthe United States are experiencing new surges in COVID-19 cases, which has, in some cases, led to the closure of recently re-opened businesses and further postponed opening other businesses, including movie theaters. Any resulting financial impact cannot be reasonably estimated at this time, but we expect it will continue to have a material impact on our business, financial condition and results of operations. 29
The repercussions of the COVID-19 global pandemic resulted in a significant impact to our customers, specifically those in the entertainment and advertising industries, and their ability and willingness to spend on our products and services, which continues to negatively impact us. A significant number of our customers temporarily ceased operations during the pandemic, some of which continue to be suspended; as such, we have experienced, and anticipate that we will continue to experience at least until our customers have resumed normal operations, a significant decline in our results of operations. For instance, during this time, many movie theaters and other entertainment centers were forced to close or curtail their hours and, correspondingly, have terminated or deferred their non-essential capital expenditures. While some movie theaters and chains have begun to re-open, or announced plans to re-open in the near future, theater operators may continue to experience reduced revenues for an extended period due to, among other things, consumer concerns over safety and social distancing, depressed consumer sentiment due to adverse economic conditions, including job losses, capacity restrictions, and postponed release dates, shortened "release windows" between the release of motion pictures in theaters and an alternative delivery method, or the release of motion pictures directly to alternative delivery methods, bypassing the theater entirely, for certain movies, and continued COVID-19 outbreaks could cause these theaters to suspend operations again. The COVID-19 pandemic has also adversely affected film production and may adversely affect the pipeline of feature films available in the short- or long-term. In addition to decreased business spending by our customers and prospective customers and reduced demand for our products, lower renewal rates by our customers, increased customer losses/churn, increased challenges in or cost of acquiring new customers and increased risk in collectability of accounts receivable may have a material adverse effect on our business and results of operations. We have also experienced other negative impacts; among other actions, we were required to temporarily close our screen manufacturing facility inCanada due to the governmental response to COVID-19, which we were able to re-open onMay 11, 2020 , and have experienced lower revenues from field services and a reduction in non-recurring time and materials-based services. The completion of our outsourced screen finishing facility inChina by a third party was also delayed by the COVID-19 pandemic. We may also experience one or more of the following conditions that could have a material adverse impact on our business operations and financial condition: adverse effects on our strategic partners' businesses or on the businesses of companies in which we hold equity stakes; impairment charges; extreme currency exchange-rate fluctuations; inability to recover costs from insurance carriers; and business continuity concerns for us, our customers and our third-party vendors. The future and ultimate impact of the COVID-19 pandemic on our business and results of operations beyond the second quarter of fiscal year 2022 is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the COVID-19 pandemic and any additional preventative and protective actions that governments, or we or our customers, may direct, which may result in an extended period of continued business disruption and reduced operations. However, we expect that our results of operations, including revenues, in future periods will continue to be adversely impacted by the COVID-19 pandemic and its negative effects on global economic conditions, which include the possibility of a global recession. We cannot provide any assurance that our assumptions used to estimate our liquidity requirements will remain accurate due to the unprecedented nature of the disruption to our operations and the unpredictability of the COVID-19 global pandemic. As a consequence, our estimates of the duration of the pandemic and the severity of the impact on our future earnings and cash flows could change and have a material impact on our results of operations and financial condition. The Consolidated Appropriations Act extended and expanded the availability of the CARES Act employee retention credit throughJune 30, 2021 . Subsequently, the American Rescue Plan Act of 2021 ("ARP Act"), enacted onMarch 11, 2021 , extended and expanded the availability of the employee retention credit throughDecember 31, 2021 , however, certain provisions apply only afterDecember 31, 2020 . This new legislation expanded the group of qualifying business to include businesses with fewer than 500 employees and thosewho previously qualified for the Paycheck Protection Program (the "PPP Loan"). The employee retention credit is calculated to be equal to 70% of qualified wages paid to employees afterDecember 31, 2020 , and beforeJanuary 1, 2022 . During calendar year 2021, a maximum of$10,000 in qualified wages for each employee per qualifying calendar quarter may be counted in determining the 70% credit. Therefore, the maximum tax credit that can be claimed by an eligible employer is$7,000 per employee per qualifying calendar quarter of 2021. We have determined that the qualifications for the credit were met in the first and second quarters of 2021. InJuly 2021 , we applied for a refund of$1.5 million of payroll taxes previously paid and recognized a corresponding reduction in compensation expenses during the three months endingJune 30, 2021 . 30 Results of Operations The following table sets forth our operating results for the periods indicated: Three Months Ended June 30, 2022 2021 $ Change % Change (dollars in thousands) Net revenues$ 9,143 $ 6,094 $ 3,049 50.0 % Cost of revenues 6,723 3,630 3,093 85.2 % Gross profit 2,420 2,464 (44 ) (1.8 )% Gross profit percentage 26.5 % 40.4 % Selling and administrative expenses 3,305 2,448 857 35.0 % (Loss) income from operations (885 ) 16 (901 ) (5631.3 )% Other expense (4,056 ) (369 ) (3,687 ) 999.2 % Loss before income taxes and equity method holding loss (4,941 ) (353 ) (4,588 ) 1299.7 % Income tax benefit (expense) 303 (23 ) 326 (1417.4 )% Equity method holding loss (960 ) (376 ) (584 ) 155.3 % Net loss from continuing operations$ (5,598 ) $ (752 ) $ (4,846 ) 644.4 % Six Months Ended June 30, 2022 2021 $ Change % Change (dollars in thousands) Net revenues$ 19,169 $ 10,866 $ 8,303 76.4 % Cost of revenues 14,237 7,241 6,996 96.6 % Gross profit 4,932 3,625 1,307 36.1 % Gross profit percentage 25.7 % 33.4 % Selling and administrative expenses 6,579 5,366 1,213 22.6 % Loss from operations (1,647 ) (1,741 ) 94 (5.4 )% Other expense (2,925 ) (288 ) (2,637 ) 915.6 % Loss before income taxes and equity method holding loss (4,572 ) (2,029 ) (2,543 ) 125.3 % Income tax expense (47 ) (92 ) 45 (48.9 )% Equity method holding loss (1,780 ) (1,145 ) (635 ) 55.5 % Net loss from continuing operations$ (6,399 ) $ (3,266 ) $ (3,133 ) 95.9 %
Three months completed
Revenues Net revenues during the quarter endedJune 30, 2022 increased 50.0% to$9.1 million from$6.1 million during the quarter endedJune 30, 2021 . The increase in consolidated net revenue was primarily due to the continuing recovery of theStrong Entertainment business from the impact of COVID-19 as demand increased for services and screens. Three Months Ended June 30, 2022 2021 $ Change % Change (dollars in thousands) Strong Entertainment$ 8,822 $ 5,828 $ 2,994 51.4 % Other 321 266 55 20.7 % Total net revenues$ 9,143 $ 6,094 $ 3,049 50.0 % 31 Strong Entertainment Revenue fromStrong Entertainment increased 51.4% to$8.8 million in the second quarter of 2022 from$5.8 million in the second quarter of 2021. The increase from the prior year was due to a$2.5 million increase in product revenue and a$0.5 million increase in service revenue. Demand and revenue from products and services benefited from the continuing recovery in the cinema industry as restrictions eased and studios began accelerating the release of new content to the cinemas. Studios recently resumed releasing major movies to the cinemas and continue to have a backlog of content planned for release in 2022 and 2023. We expect the pace of recovery of our revenue will continue to be dependent upon the overall measures in place to control COVID-19, and any variants thereof, and the pace at which studios release new feature films to the market. Gross Profit
Consolidated gross margin decreased
Excluding the impact of employee retention credits, which favorably impacted the prior year period, gross profit during the quarter endedJune 30, 2021 would have been 26.6% as compared to 26.5% in the current period. Three Months Ended June 30, 2022 2021 $ Change % Change (dollars in thousands) Strong Entertainment$ 2,098 $ 2,386 $ (288 ) (12.1 )% Other 322 78 244 312.8 % Total gross profit$ 2,420 $ 2,464 $ (44 ) (1.8 )% Strong Entertainment
Gross profit in theStrong Entertainment segment was$2.1 million or 23.8% of revenues in the second quarter of 2022. Gross profit in theStrong Entertainment segment was$2.4 million or 40.9% of revenues in the second quarter of 2021, which included a positive impact of$0.8 million from employee retention credits. Excluding the impact of the employee retention credit, gross profit would have been 26.5% of revenue as compared to 23.8% in the current period. Gross profit from product sales was$1.8 million or 27.7% of revenues for the second quarter of 2022 compared to$1.4 million or 34.1% of revenues for the second quarter of 2021. During the current period, we experienced increased costs for materials, packaging and shipping, which partially offset the favorable impact of higher revenue levels. Gross profit from service revenue was$0.2 million or 11.6% of revenues for the second quarter of 2022 compared to$1.0 million or 58.4% of revenues for the second quarter of 2021. Excluding the impact of the employee retention credit, gross profit from service revenue for the second quarter of 2021 would have been$0.1 million or 5.0% of revenue. 32 Loss From Operations
Consolidated loss from operations was$0.9 million in the second quarter of 2022 compared to breakeven in the second quarter of 2021. Excluding the impact of employee retention credits, which favorably impacted the prior year period, loss from operations during the quarter endedJune 30, 2021 would have been$1.3
million.
Three Months Ended
June 30,
2022 2021 $ Change % Change
(dollars in thousands)
Strong Entertainment $ 180 $ 1,369 $ (1,189 ) (86.9 )%
Other (36 ) (401 ) 365 (91.0 )%
Total segment operating income 144 968 (824 ) (85.1 )% Unallocated administrative expenses (1,029 ) (952 ) (77 ) 8.1 % Total (loss) income from operations$ (885 ) $ 16 $ (901
) (5631.3 )%Strong Entertainment generated income from operations of$0.2 million in the second quarter of 2022 compared to operating income of$1.4 million in the second quarter of 2021. The decrease in income from operations was primarily due to the favorable impact on the prior year period of$1.0 million of employee retention credits and$0.1 million bad debt recovery, which did not recur in the current period. In addition, there were also increases to selling and administrative expenses due to higher compensation and benefits, marketing and travel and entertainment expenses related to the increased revenue and business activity in the current period as compared to the prior year. Unallocated administrative expenses was$1.0 million in both the second quarter of 2022 and 2021. The recognition of employee retention credits of$0.2 million in the prior year was partially offset by lower compensation and benefits expenses in the current period. Other Financial Items Total other expense of$4.1 million during the second quarter of 2022 primarily consisted of a$4.2 million unrealized loss on equity holdings and$0.1 million of interest expense, partially offset by$0.2 million of foreign currency transaction adjustments. Total other expense of$0.4 million during the second quarter of 2021 primarily consisted of$0.2 million of foreign currency transaction adjustments and$0.2 million of interest expense. Income tax benefit was$0.3 million during the second quarter of 2022 compared to expense of$23 thousand during the second quarter of 2021. Our income tax benefit during the second quarter of 2022 consisted primarily of current and deferred income tax on foreign earnings, which includes the unrealized loss
on equity holdings.
We recorded a loss on our investment using the equity method of
As a result of the items outlined above, we generated a net loss from continuing operations of$5.6 million , or$0.29 per basic and diluted share, in the second quarter of 2022, compared to a net loss from continuing operations of$0.7 million , or$0.04 per basic and diluted share, in the second quarter of 2021. 33
Semester completed
Revenues Net revenues during the six months endedJune 30, 2022 increased 76.4% to$19.2 million from$10.9 million during the six months endedJune 30, 2021 . The increase in consolidated net revenue was primarily due to the continuing recovery of theStrong Entertainment business from the impact of COVID-19 as demand increased for services and screens. Six Months Ended June 30, 2022 2021 $ Change % Change (dollars in thousands) Strong Entertainment$ 18,543 $ 10,301 $ 8,242 80.0 % Other 626 565 61 10.8 % Total net revenues$ 19,169 $ 10,866 $ 8,303 76.4 % Strong Entertainment Revenue fromStrong Entertainment increased 80.0% to$18.5 million in the first half of 2022 from$10.3 million in the first half of 2021. The increase from the prior year was due to a$6.7 million increase in product revenue and a$1.5 million increase in service revenue. Demand and revenue from products and services benefited from the continuing recovery in the cinema industry as restrictions eased and studios began accelerating the release of new content to the cinemas. Studios recently resumed releasing major movies to the cinemas and continue to have a backlog of content planned for release in 2022 and 2023. We expect the pace of recovery of our revenue will continue to be dependent upon the overall measures in place to control COVID-19, and any variants thereof, and the pace at which studios release new feature films to the market.. Gross Profit Consolidated gross profit increased to$4.9 million during the six months endedJune 30, 2022 from$3.6 million during the six months endedJune 30, 2021 . As a percentage of revenue, gross profit was 25.7% and 33.4% for the six months endedJune 30, 2022 andJune 30, 2021 , respectively. Excluding the impact of the employee retention credit, gross profit during the six months endedJune 30, 2021 would have been 22.4%. Six Months Ended June 30, 2022 2021 $ Change % Change (dollars in thousands) Strong Entertainment$ 4,304 $ 3,276 $ 1,028 31.4 % Other 628 349 279 79.9 % Total gross profit$ 4,932 $ 3,625 $ 1,307 36.1 % Strong Entertainment
Gross profit in theStrong Entertainment segment was$4.3 million or 22.7% of revenues in the first half of 2022. Gross profit in theStrong Entertainment segment was$3.3 million or 31.8% of revenues in the first half of 2021, which included a positive impact of$0.8 million from employee retention credits. Excluding the impact of the employee retention credit, gross profit would have been 23.6% of revenue as compared to 22.7% in the current period. 34 Gross profit from product sales was$3.7 million or 25.7% of revenues for the first half of 2022 compared to$2.5 million or 32.6% of revenues for the first half of 2021. During the current period, we experienced increased costs for materials, packaging and shipping which partially the favorable impact of increasing revenue levels. Gross profit from service revenue was$0.6 million or 14.7% of revenues for the first half of 2022 compared to$0.8 million or 31.7% of revenues for the first half of 2021. Excluding the impact of the employee retention credit, gross profit from service revenue for the first half of 2021 would have been breakeven. Loss From Operations Consolidated loss from operations was$1.6 million in the first half of 2022 compared to$1.7 million in the first half of 2021. Excluding the impact of employee retention credits, which favorably impacted the prior year period, loss from operations during the six months endedJune 30, 2021 would have been$3.0 million . Six Months Ended June 30, 2022 2021 $ Change % Change (dollars in thousands) Strong Entertainment$ 790 $ 1,122 $ (332 ) (29.6 )% Other (170 ) (433 ) 263 (60.7 )%
Total segment operating income 620 689 (69 ) (10.0 )% Unallocated administrative expenses (2,267 ) (2,430 ) 163
(6.7 )% Total loss from operations$ (1,647 ) $ (1,741 ) $ 94 (5.4 )%Strong Entertainment generated income from operations of$0.8 million in the first half of 2022 compared to operating income of$1.1 million in the first half of 2021. The decrease in income from operations was primarily due to the favorable impact on the prior year period of$1.0 million of employee retention credits and$0.1 million bad debt recovery, which did not recur in the current period. In addition, there were also increases to selling and administrative expenses due to higher compensation and benefits, marketing and travel and entertainment expenses related to the increased revenue and business activity in the current period as compared to the prior year. Unallocated administrative expenses decreased to$2.3 million in the first half of 2022 compared to$2.4 million in the first half of 2021. Compensation and benefits expenses decreased in the current period as compared to prior year but were partially offset by the recognition of employee retention credits of$0.2 million recognized in the prior year. Other Financial Items
Total other expense of$2.9 million during the first half of 2022 primarily consisted of a$2.5 million unrealized loss on equity holdings, a$0.2 million adjustment to the carrying value of the SageNet Promissory Note in connection with a prepayment, and$0.1 million of interest expense, and$0.1 million of foreign currency transaction adjustments. Total other expense of$0.3 million during the first half of 2021 primarily consisted of$0.2 million of foreign currency transaction adjustments and$0.3 million of interest expense, partially offset by a$0.1 million gain on our property and insurance claim for the weather-related incident at our production facility inQuebec, Canada . Income tax expense was approximately$47 thousand during the first half of 2022 compared to$0.1 million during the first half of 2021. Our income tax expense consisted primarily of current and deferred income tax on foreign earnings, which includes unrealized loss on equity holdings. We recorded a loss on our equity method holding of$1.8 million during the first half of 2022. We recorded an equity method investment loss of$1.1 million during the first half of 2021, consisting of$0.7 million from GreenFirst and$0.4 million from FGF. 35 As a result of the items outlined above, we generated a net loss from continuing operations of$6.4 million , or$0.33 per basic and diluted share, in the first half of 2022, compared to a net loss from continuing operations of$3.2 million , or$0.18 per basic and diluted share, in the first half of 2021.
Cash and capital resources
During the past several years, we have primarily met our working capital and capital resource needs from our operating cash flows, sales of our common stock and credit facilities. Our primary cash requirements involve operating expenses, working capital, capital expenditures, equity holdings, and other general corporate activities. We ended the second quarter of 2022 with total cash and cash equivalents and restricted cash of$4.6 million compared to$8.9 million as ofDecember 31, 2021 . Of the$4.6 million as ofJune 30, 2022 ,$1.7 million was held by our Canadian subsidiary, Strong/MDI, and$0.2 million was restricted. Strong/MDI makes intercompany loans to theU.S. parent company which do not trigger Canadian withholding taxes if they meet certain requirements. As ofJune 30, 2022 , the parent company had outstanding intercompany loans from Strong/MDI of approximately$38.6 million . In the event those loans are not repaid, or are recharacterized as dividends to theU.S. parent company, we would be required to pay 5% Canadian withholding taxes, which have been fully accrued as of June
30, 2022.
In response to the COVID-19 pandemic and related closures of movie theatres, theme parks and entertainment venues, we have taken decisive action to conserve cash, reduce operating expenses, delay capital expenditures and manage working capital.
OnJune 7, 2021 , Strong/MDI entered into a demand credit agreement (the "2021 Credit Agreement"), which amended and restated the demand credit agreement dated as ofSeptember 5, 2017 . The 2021 Credit Agreement consists of a revolving line of credit for up toCDN$2.0 million subject to a borrowing base requirement, a 20-year installment loan for up toCDN$5.1 million and a 5-year installment loan for up toCDN$0.5 million . These borrowings are due on demand by the lender and total$2.8 million as ofJune 30, 2022 . We believe that our existing sources of liquidity, including cash and cash equivalents, operating cash flow, credit facilities, equity holdings, receivables and other assets will be sufficient to meet our projected capital needs for at least the next twelve months. However, our ability to continue to meet our cash requirements will depend on, among other things, the duration of COVID-19 related restrictions on cinemas, theme parks and other entertainment venues, our ability to achieve anticipated levels of revenues and cash flow from operations, performance of our equity holdings, our ability to manage costs and working capital successfully and the continued availability of financing, if needed. We cannot provide any assurance that our assumptions used to estimate our liquidity requirements will remain accurate due to the unprecedented nature of the disruption to our operations and the unpredictability of the COVID-19 global pandemic. As a consequence, our estimates of the duration of the pandemic and the severity of the impact on our future earnings and cash flows could change and have a material impact on our results of operations and financial condition. In the event of a sustained market deterioration, and continued declines in net sales, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions. We may, depending on a variety of factors, including market conditions for capital raises, the trading price of our common stock and opportunities for uses of any proceeds, engage in additional public or private offerings of equity or debt securities to increase our capital resources. However, financial and economic conditions, including those resulting from the COVID-19 pandemic, could limit our access to credit and impair our ability to raise capital, if needed, on acceptable terms or at all, and we cannot provide any assurance that we will be able to obtain any additional sources of financing or liquidity on acceptable terms, or at all. See Note 11 to the condensed consolidated financial statements for a description of our debt as ofJune 30, 2022 .
Cash flow from operating activities
Net cash used in operating activities from continuing operations was$3.0 million during the six months endedJune 30, 2022 , primarily due to cash outflows for selling and administrative expenses and reductions in working capital, partially offset by the operating income generated byStrong Entertainment . Net cash used in operating activities from continuing operations was$3.5 million during the six months endedJune 30, 2021 primarily due to cash outflows for selling and administrative expense and reductions in working capital which was primarily a result of the recognition of a receivable of$1.5 million in connection with filing for the employee retention credits, partially offset by the operating income generated byStrong Entertainment . 36
Cash flow from investing activities
Net cash used in investing activities from continuing operations was$0.9 million during the six months endedJune 30, 2022 , which consisted of a$2.0 million purchase of common stock of FGF,$0.8 million of capital expenditures and$0.3 million outflow related to the acquisition of film and television programming rights, partially offset by the$2.3 million receipt of theSageNet Promissory Note. Net cash used in investing activities from continuing operations was$0.3 million during the six months endedJune 30, 2021 , which consisted entirely of capital expenditures.
Cash flow from financing activities
Net cash used in financing activities from continuing operations was$0.4 million during the six months endedJune 30, 2022 , which primarily consisted of principal payments on short-term and long-term debt. Net cash provided by financing activities from continuing operations was$3.8 million during the six months endedJune 30, 2021 , which consisted of$6.3 million of net proceeds from the issuance of our common stock, partially offset by$2.4 million of principal payments on finance leases and short-term debt. Use of Non-GAAP Measures
We prepare our consolidated financial statements in accordance withUnited States generally accepted accounting principles ("GAAP"). In addition to disclosing financial results prepared in accordance with GAAP, we disclose information regarding Adjusted EBITDA, which differs from the term EBITDA as it is commonly used. In addition to adjusting net income (loss) to exclude income taxes, interest, and depreciation and amortization, Adjusted EBITDA also excludes discontinued operations, share-based compensation, impairment charges, equity method income (loss), fair value adjustments, severance, foreign currency transaction gains (losses), transactional gains and expenses, gains on insurance recoveries and other cash and non-cash charges and gains. EBITDA and Adjusted EBITDA are not measures of performance defined in accordance with GAAP. However, Adjusted EBITDA is used internally in planning and evaluating our operating performance. Accordingly, management believes that disclosure of these metrics offers investors, bankers and other stakeholders an additional view of our operations that, when coupled with the GAAP results, provides a more complete understanding of our financial results. EBITDA and Adjusted EBITDA should not be considered as an alternative to net income (loss) or to net cash from operating activities as measures of operating results or liquidity. Our calculation of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures used by other companies, and the measures exclude financial information that some may consider important in evaluating our performance. EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. Some of these limitations are (i) they do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments, (ii) they do not reflect changes in, or cash requirements for, our working capital needs, (iii) EBITDA and Adjusted EBITDA do not reflect interest expense, or the cash requirements necessary to service interest or principal payments, on our debt, (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements, (v) they do not adjust for all non-cash income or expense items that are reflected in our statements of cash flows, (vi) they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations, and (vii) other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures. We believe EBITDA and Adjusted EBITDA facilitate operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. These potential differences may be caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). We also present EBITDA and Adjusted EBITDA because (i) we believe these measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry, (ii) we believe investors will find these measures useful in assessing our ability to service or incur indebtedness, and (iii) we use EBITDA and Adjusted EBITDA internally as benchmarks to evaluate our operating performance or compare our performance to that of our competitors. 37
The following table provides reconciliations of GAAP net loss to EBITDA and Adjusted EBITDA (in thousands):
Quarters Ended June 30,
2022 2021
Corporate Corporate
Strong and Discontinued Strong and Discontinued
Entertainment Other
Activities Consolidated Entertainment Other activities Consolidated Net income (loss)
$ (1,371 ) $ (4,227 ) $ -$ (5,598 ) $ 641$ (1,393 ) $ 324 $ (428 ) Net income from discontinued operations - - - - - - (324 ) (324 ) Net (loss) income from continuing operations (1,371 ) (4,227 ) - (5,598 ) 641 (1,393 ) - (752 ) Interest expense, net 29 58 - 87 36 111 - 147
Income tax (benefit) expense (271 ) (32 ) - (303 ) 17 6 - 23 Depreciation and amortization 154 182
- 336 235 131 - 366 EBITDA (1,459 ) (4,019 ) - (5,478 ) 929 (1,145 ) - (216 )
Stock-based compensation expense - 175 - 175 - 159 - 159 Equity method holding loss (income) - 960 - 960 383 (7 ) - 376 Unrealized loss on equiity holdings 1,932 2,246 - 4,178 - - - - Foreign currency transaction (income) loss (206 ) - - (206 ) 234 - - 234 Employee retention credit - -
- - (1,049 ) (245 ) - (1,294 ) Adjusted EBITDA $ 267$ (638 ) $ - $ (371 ) $ 497$ (1,238 ) $ - $ (741 ) Six Months Ended June 30, 2022 2021 Corporate Corporate Strong and Discontinued Strong and Discontinued Entertainment Other
Activities Consolidated Entertainment Other activities Consolidated Net income (loss)
$ (637 )$ (5,762 ) $ -$ (6,399 ) $ 33$ (3,299 ) $ 14,649 $ 11,383 Net income from discontinued operations - - - - - - (14,649 ) (14,649 ) Net (loss) income from continuing operations (637 ) (5,762 ) - (6,399 ) 33 (3,299 ) - (3,266 ) Interest expense, net 53 87 - 140 60 164 - 224 Income tax expense 40 7 - 47 79 13 - 92
Depreciation and amortization 367 335
- 702 471 169 - 640 EBITDA (177 ) (5,333 ) - (5,510 ) 643 (2,953 ) - (2,310 )
Stock-based compensation expense - 369 - 369 - 473 - 473 Equity method holding loss - 1,780 - 1,780 736 409 - 1,145 Employee retention credit - - - - (1,049 ) (245 ) - (1,294 ) Unrealized loss on equiity holdings 1,064 1,387 - 2,451 - - - - Foreign currency transaction loss 134 2 - 136 218 - - 218 Gain on property and casualty insurance recoveries - - - - (148 ) - - (148 ) Severance and other - 222 - 222 15 87 - 102 Adjusted EBITDA $ 1,021$ (1,573 ) $ - $ (552 ) $ 415$ (2,229 ) $ -$ (1,814 )
Hedging and trading activities
Our primary exposure to foreign currency fluctuations pertains to our subsidiary inCanada . In certain instances, we may enter into a foreign exchange contract to manage a portion of this risk. We do not have any trading activities that include non-exchange traded contracts at fair value. 38 Seasonality Generally, our revenue and earnings fluctuate moderately from quarter to quarter. As we increase our sales in our current markets, and as we expand into new markets in different geographies, it is possible we may experience different seasonality patterns in our business. As a result, the results of operations for the three and six months endedJune 30, 2022 are not necessarily indicative of the results that may be expected for an entire fiscal year.
Recently published accounting pronouncements
See Note 2, Summary of Significant Accounting Policies, to the condensed consolidated financial statements for a description of recently issued accounting pronouncements.
Significant Accounting Policies and Estimates
In preparing our consolidated financial statements in conformity withU.S. generally accepted accounting principles, management must make a variety of decisions which impact the reported amounts and the related disclosures. These decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In making these decisions, management applies its judgment based on its understanding and analysis of the relevant circumstances and our historical experience. Our accounting policies and estimates that are most critical to the presentation of our results of operations and financial condition, and which require the greatest use of judgments and estimates by management, are designated as our critical accounting policies. See further discussion of our critical accounting policies under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for our year endedDecember 31, 2021 . We periodically re-evaluate and adjust our critical accounting policies as circumstances change. There were no significant changes in our critical accounting policies during the three months endedJune 30, 2022 .
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