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Ballantyne Strong Reports Financial Results for Second Quarter 2018

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Ballantyne
Strong, Inc.
(NYSE:BTN), a holding company with
diverse business activities focused on serving the cinema, retail,
financial, advertising and government markets, today reported financial
results for the second quarter ended June 30, 2018.

Net revenues were $14.2 million in the second quarter of 2018, compared
with $19.4 million in the same period of the prior year. Loss from
operations was ($5.5) million in the second quarter of 2018, compared
with ($0.8) million in the same period of the prior year. Net loss from
continuing operations was ($6.8) million, or ($0.47) per share, in the
second quarter of 2018 compared with net loss from continuing operations
of ($1.9) million, or ($0.14) per share, in the same period of the prior
year.

Kyle Cerminara, Chairman and CEO of Ballantyne Strong, Inc., commented,
"During the second quarter, we continued to make significant investments
in our Strong Digital Media taxi-top advertising business, with much of
the revenue expected to begin in the second half of 2018. We also began
a large Digital Signage as a Service (DSaaS) implementation for a
significant new customer that is expected to add over $1.0 million per
quarter of incremental recurring revenue beginning in the next few
months. We completed a sale-leaseback of our Alpharetta, Georgia office
building for $7.0 million, and a portion of the proceeds was used to
retire existing debt. Lastly, we experienced some notable charges in the
quarter, including a $1.3 million software impairment charge, a $0.7
million impairment charge to the carrying value of our Itasca investment
based on the purchase price paid by our affiliate, Fundamental Global,
for a large block of stock in Itasca and a $0.5 million inventory
obsolescence charge. Our efforts in the second half of 2018 will be
heavily focused on executing against our strategy in the Digital Media
segment, while continuing to focus on optimal capital allocation among
our businesses and creating long-term value for our shareholders."

Q2 2018 Financial Summary
Cinema revenues were $10.4 million
in the second quarter of 2018, compared with $13.2 million in the same
period of the prior year. The decrease was driven by decreased lamp
sales, as the Company terminated its distributorship for certain cinema
lamp products in July 2017 due to the very low margins earned on those
products, and decreased sales of screens and projectors.

Digital Media revenues were $3.8 million in the second quarter of 2018,
compared with $6.3 million in the same period of the prior year. This
decrease was driven primarily by decreased non-recurring digital signage
installation sales. Smaller decreases in sales of recurring contract
maintenance services, digital signage equipment and non-recurring
maintenance services were partially offset by increased digital signage
as a service ("DSaaS") revenues and revenue in the current year from our
taxicab advertising business, which did not exist in the prior year. We
expect DSaaS revenues to continue to increase during the second half of
the year as we implement DSaaS for a new customer during the third
quarter, which we expect to generate over $1.0 million of DSaaS revenues
per quarter when fully implemented. We also expect taxicab advertising
revenues to gradually increase during the second half of the year.

Consolidated gross profit was $1.3 million in the second quarter of
2018, compared with $5.3 million in the same quarter of the prior year.
Gross margin was 9.1% in the second quarter of 2018, compared with 27.2%
in the same quarter of the prior year. The decrease in gross margin
percentage was driven primarily by an increase in fixed costs in the
Digital Media segment associated with the new Strong Digital Media
taxicab advertising business. Excluding the new taxicab advertising
business, gross profit was $3.2 million, or 23.6% gross margin.
Advertising revenues are expected to gradually increase throughout 2018,
absorbing a larger portion of those fixed costs until the business
generates a positive gross profit in late 2018 or early 2019.

Selling and administrative expenses were $5.5 million in the second
quarter of 2018, compared with $6.1 million in the same quarter of the
prior year. The decrease was driven by a decreases in consulting
expenses of $0.2 million and bad debt expense of $0.4 million.

Balance Sheet
Ballantyne's cash and cash equivalents balance
at June 30, 2018 was $6.8 million, compared to $4.9 million at December
31, 2017. The increase in cash was primarily driven by the net proceeds
from a sale-leaseback of the Company's Alpharetta, Georgia office
facility during the second quarter of 2018. This increase was partially
offset by the cash impact of operating losses. Equity method investments
had a book value of $16.8 million and a market value of $15.0 million as
of June 30, 2018.

About Ballantyne Strong, Inc. (www.ballantynestrong.com)
Ballantyne
Strong and its subsidiaries engage in diverse business activities
including the design, integration and installation of technology
solutions for a broad range of applications; development and delivery of
out-of-home messaging, advertising and communications; manufacturing of
projection screens; and providing managed services including monitoring
of networked equipment. The Company focuses on serving the cinema,
retail, financial, advertising and government markets.

Forward-Looking Statements
Except for the historical
information in this press release, it includes forward-looking
statements which 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 ended December 31, 2017 and the following risks and uncertainties:
the Company's ability to expand its revenue streams, 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, the Company's
ability to retain or replace its significant customers, the impact of a
challenging global economic environment or a downturn in the markets,
economic and political risks of selling products in foreign countries,
risks of non-compliance with U.S. and foreign laws and regulations,
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 Company's ability to assert its
intellectual property rights, the impact of natural disasters and other
catastrophic events, the adequacy of insurance and the impact of having
a controlling stockholder. 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. 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.

 
Ballantyne Strong, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
  June 30, 2018   December 31, 2017
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 6,847 $ 4,870
Accounts receivable, net 10,751 10,766
Inventories, net 3,651 4,821
Other current assets   2,202   1,785
Total current assets 23,451 22,242
Property, plant and equipment, net 11,926 10,826
Equity method investments 16,811 18,053
Goodwill and intangible assets, net 3,580 4,924
Other assets   3,446   2,969
Total assets $ 59,214 $ 59,014
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 7,758 $ 6,496
Short-term debt, including current portion of long-term 3,128 565
Deferred revenue and customer deposits 2,781 1,619
Other current liabilities   152   -
Total current liabilities 13,819 8,680
Long-term debt, net of current portion and debt issuance costs 7,993 1,870
Other liabilities   4,178   4,342
Total liabilities 25,990 14,892
Stockholders' equity   33,224   44,122
Total liabilities and stockholders' equity $ 59,214 $ 59,014
 
Ballantyne Strong, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
  Three Months Ended June 30,   Six Months Ended June 30,
2018   2017   2018   2017
Net product sales $ 7,450 $ 12,917 $ 16,089 $ 25,493
Net service revenues   6,728     6,483     13,916     11,832  
Total net revenues 14,178 19,400 30,005 37,325
Cost of products sold 5,420 10,429 11,232 20,817
Cost of services   7,466     3,697     14,632     6,795  
Total cost of revenues   12,886     14,126     25,864     27,612  
Gross profit 1,292 5,274 4,141 9,713
Selling and administrative expenses:
Selling 1,274 1,419 2,500 2,909
Administrative   4,208     4,688     8,917     8,234  
Total selling and administrative expenses 5,482 6,107 11,417 11,143
Loss on disposal of assets   (1,331 )   -     (1,331 )   -  
Loss from operations (5,521 ) (833 ) (8,607 ) (1,430 )
Other income (expense):
Interest income - - - 22
Interest expense (42 ) (28 ) (87 ) (38 )
Foreign currency transaction gain (loss) 3 (107 ) 107 (104 )
Fair value adjustment to notes receivable 192 - 150 -
Other (expense) income, net   (5 )   7     (11 )   10  
Total other income (expense)   148     (128 )   159     (110 )
Loss before income taxes and equity method investment (loss) income (5,373 ) (961 ) (8,448 ) (1,540 )
Income tax expense 642 776 1,339 2,269
Equity method investment (loss) income   (740 )   (212 )   (751 )   2,269  
Net loss from continuing operations (6,755 ) (1,949 ) (10,538 ) (1,540 )
Net loss from discontinued operations, net of tax   -     (26 )   -     (49 )
Net loss $ (6,755 ) $ (1,975 ) $ (10,538 ) $ (1,589 )
Net loss per share - basic
Net loss from continuing operations $ (0.47 ) $ (0.14 ) $ (0.73 ) $ (0.11 )
Net loss from discontinued operations - (0.00 ) - (0.00 )
Net loss (0.47 ) (0.14 ) (0.73 ) (0.11 )
Net loss per share - diluted
Net loss from continuing operations $ (0.47 ) $ (0.14 ) $ (0.73 ) $ (0.11 )
Net loss from discontinued operations - (0.00 ) - (0.00 )
Net loss (0.47 ) (0.14 ) (0.73 ) (0.11 )
 
Ballantyne Strong, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
  Six Months Ended June 30,
2018   2017
Cash flows from operating activities:
Net loss $ (10,538 ) $ (1,589 )
Net loss from discontinued operations, net of tax   -     (49 )
Net loss from continuing operations (10,538 ) (1,540 )
Non-cash expenses, net 2,479 2,661
Fair value adjustment to notes receivable (150 ) -
Equity method investment loss (income) 751 (2,269 )
Loss on disposal of assets 1,331 -
Changes in operating assets and liabilities, net   1,962     (1,037 )
Net cash flows used in operating activities - continuing operations (4,165 ) (2,185 )
Net cash flows used in operating activities - discontinued operations   -     (146 )
Net cash used in operating activities (4,165 ) (2,331 )
 
Cash flows from investing activities:
Purchase of equity securities - (2,525 )
Dividends received from investee in excess of cumulative earnings 46 103
Capital expenditures (887 ) (2,103 )
Proceeds from sale of business   -     60  
Net cash used in investing activities (841 ) (4,465 )
 
Cash flows from financing activities:
Proceeds from sale-leaseback financing 7,000 -
Proceeds from issuance of debt 3,234 2,000
Principal payments on debt (3,013 ) (2 )
Other   (121 )   (239 )
Net cash provided by financing activities 7,100 1,759
Effect of exchange rate changes on cash and cash equivalents   (117 )   66  
Net increase (decrease) in cash and cash equivalents 1,977 (4,971 )
Discontinued operations activity included above:
Add: Cash balance included in assets held for sale at beginning of
period
- 175
Less: Cash balance included in assets held for sale at end of period - -
Cash and cash equivalents at beginning of period   4,870     7,596  
Cash and cash equivalents at end of period $ 6,847   $ 2,800  
Supplemental disclosure of non-cash investing and financing
activities:
Term loan borrowings to finance equipment purchases $ 1,608 $ -
Issuance of short-term progress payment note payable $ - $ 2,500

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