What changed in this filing

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Item 1. Financial Statements

2022-05-11 compared with 2021-11-05 · 103 added, 183 removed, 194 unchanged (60% of the section changed)

2 unchanged sentences

CONDENSED BALANCE SHEETS

September 30,

Current Assets:

3 unchanged sentences

Income tax receivable

Prepaid expenses and other

Prepaid production costs

Other prepaid expense

Total Current Assets

6 unchanged sentences

Accrued liabilities:

Current portion of long-term debt

Current portion of operating lease liabilities

3 unchanged sentences

Accrued income taxes

Long-term debt, net of current portion

Operating lease liabilities

3 unchanged sentences

Common stock, par value $ 0.01 :

Authorized shares - 5,714,000

Issued and outstanding shares - 1,768,000 at September 30, 2021 and 1,748,000 at December 31, 2020, respectively

Authorized shares - 5,714,000 Issued and outstanding shares - 1,786,000 at March 31, 2022 and 1,782,000 at December 31, 2021

Additional paid-in capital

7 unchanged sentences

CONDENSED STATEMENTS OF OPERATIONS

Three Months Ended

Nine Months Ended

Services revenues

Products revenues

Total Net Sales

Three Months Ended March 31

Net services revenues

Cost of services

Cost of goods sold

Impairment loss - services

Total Cost of Sales

Operating Expenses:

General and administrative

Gain on sale of business

Total Operating Expenses

Operating Loss

( 3,537,000 )

Operating Income (Loss)

( 1,759,000 )

1 unchanged sentence

Gain on forgiveness of debt and accrued interest

Interest income (expense)

Miscellaneous

Loss Before Taxes

( 2,520,000 )

( 3,857,000 )

Income tax expense (benefit)

$ ( 921,000 )

$ ( 886,000 )

$ ( 2,552,000 )

Other expense

Total Other Income (Expense)

Income (Loss) Before Taxes

Income tax expense

Net Income (Loss)

$ ( 737,000 )

Net loss per share:

Shares used in calculation of net loss per share:

Net income (loss) per share:

Shares used in calculation of net income (loss) per share:

See accompanying notes to financial statements.

1 unchanged sentence

CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY

Additional Paid-In

Accumulated Deficit

Balance at December 31, 2021

4 unchanged sentences

$ ( 13,059,000 )

Value of stock-based compensation

Repurchase of common stock upon vesting of restricted stock units

Balance at June 30, 2021

$ ( 11,218,000 )

Value of stock-based compensation

Repurchase of common stock upon vesting of restricted stock units

Balance at September 30, 2021

$ ( 12,139,000 )

Additional Paid-In

Accumulated Deficit

Balance at December 31, 2020

4 unchanged sentences

$ ( 10,324,000 )

Value of stock-based compensation

Repurchase of common stock upon vesting of restricted stock units

( 1,843,000 )

Balance at June 30, 2020

$ ( 7,740,000 )

Value of stock-based compensation

Vesting of restricted stock units offset by repurchase of common stock upon vesting of retricted stock units and awards

Common stock issued for accrued liabilities

Balance at September 30, 2020

$ ( 8,626,000 )

See accompanying notes to financial statements.

1 unchanged sentence

CONDENSED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30

Three Months Ended March 31

Operating Activities:

$ ( 2,552,000 )

Net income (loss)

$ ( 737,000 )

Adjustments to reconcile net loss to net cash used in operating activities:

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation and amortization

Impairment loss

Gain on sale of business

Gain on sale of property and equipment

Changes in allowance for doubtful accounts

4 unchanged sentences

Accounts receivable

( 2,206,000 )

Income tax receivable

1 unchanged sentence

Accounts payable

( 1,655,000 )

Accrued liabilities

3 unchanged sentences

( 3,380,000 )

( 1,647,000 )

Investing Activities:

Purchases of property and equipment

Proceeds from sale of custom print business

Proceeds from sale of property and equipment

Net cash provided by (used in) investing activities

Sale of property and equipment

Net cash used in investing activities

Financing Activities:

Cash dividends paid ($0.70 per share)

Proceeds from issuance of common stock, net

Repurchase of common stock upon vewsting of restricted stock awards

Proceeds from PPP loan

Net cash provided by (used in) financing activities

Decrease in cash and cash equivalents

Proceeds from issuance of common stock

Net cash provided by financing activities

Decrease in cash and cash equivalents and restricted cash

( 3,370,000 )

2 unchanged sentences

Supplemental disclosures for cash flow information:

Cash refunded during the period for income taxes

Non-cash investing and financing activities:

Purchases of property and equipment included in accounts payable

Common stock issued for accrued liabilities

Receivables recorded from sale of cusom print business

Operating lease right of use asset obtained in exchange for lease obligations

Cash paid during the year for income taxes

Non-cash financing activity:

Purchase of property and equipment included in accounts payable

Operating lease right-of-use asset obtained in exchange for lease obligation

Forgiveness of debt and accrued interest

4 unchanged sentences

Description of Business .

Insignia Systems, Inc.

(the “Company”) is a leading provider of in-store advertising solutions to consumer-packaged goods (“CPG”) manufacturers, retailers, shopper marketing agencies and brokerages.

Insignia (the “Company”) is a leading provider of in-store solutions to consumer-packaged goods (“CPG”) manufacturers, retailers, shopper marketing agencies and brokerages.

The Company operates in a single reportable segment.

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The Company provides marketing solutions to CPG manufacturers spanning from some of the largest multinationals to new and emerging brands.

Reverse Stock Split.

Effective December 31, 2020, the Company implemented a seven-for-one reverse stock split.

All share and per-share information, including for stock options and restricted stock units, in the financial statements gives retroactive effect to the reverse stock split for all periods presented including the value of Common Stock and Additional Paid-In Capital as of December 31, 2020.

Sale of Custom Print Business.

In August 2020, the Company sold its custom print business to an existing strategic partner.

This divestiture allowed the Company to focus on its core business, selling product solutions to CPGs.

The custom print business was not material to operations as a whole and did not represent a strategic shift and therefore is not presented as a discontinued operation.

The sale price was $ 300,000 resulting in a gain on the sale of $ 195,000 .

On the date of the sale, the Company received $ 200,000 of cash and recorded a short-term receivable of $ 75,000 and a long-term receivable of $ 25,000 .

The Company’s primary solutions are merchandising solutions, on-pack solutions and signage.

Basis of Presentation .

The accompanying unaudited financial statements of the Company have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) for interim financial information.

The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Securities and Exchange Commission (“SEC”) Regulation S-X.

They do not include all information and footnotes required by U.S.

GAAP for complete financial statements.

However, except as described herein, there has been no material change in the information disclosed in the notes to financial statements included in the Company’s financial statements as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K/A.

However, except as described herein, there has been no material change in the information disclosed in the notes to financial statements included in the Company’s financial statements as of and for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 9, 2022 (the Form 10-K).

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.

The accompanying condensed balance sheet as of December 31, 2021 has been derived from the audited balance sheet as of December 31, 2021 contained in the Form 10-K.

Cash and Cash Equivalents and Restricted Cash.

The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the statement of cash flows:

September 30,

Cash and cash equivalents

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Total cash, cash equivalents and restricted cash

Restricted Cash.

The Company’s restricted cash consists of cash the Company is contractually obligated to maintain in accordance with the terms of its lease signed in April 2021 for its headquarters space in Minneapolis.

See Note 4 for further discussion.

Inventories .

Inventories are primarily comprised of sign cards and hardware.

Inventory is valued at the lower of cost or net realizable value using the first-in, first-out method, and consisted of the following as of the dates indicated:

September 30,

Work-in-process

Finished goods

Inventory is valued at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method.

Property and Equipment .

Property and equipment consisted of the following as of the dates indicated:

September 30,

Property and Equipment:

5 unchanged sentences

Accumulated depreciation and amortization

( 4,163,000 )

Net Property and Equipment

Depreciation expense was approximately $ 14,000 and $ 46,000 in the three and nine months ended September 30, 2021, respectively, and was $ 85,000 and $ 255,000 in the three and nine months ended September 30, 2020, respectively.

Depreciation expense was approximately $ 16,000 and $ 21,000 in the three months ended March 31, 2022 and 2021, respectively.

Stock-Based Compensation .

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These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

During the nine months ended September 30, 2021 and 2020, no equity awards were issued by the Company, except those awarded to non-employee members of the Board of Directors.

In June 2021, non-employee members of the Board of Directors received restricted stock grants totaling 5,514 shares pursuant to the 2018 Equity Incentive Plan (the “2018 Plan”).

The shares underlying the awards were assigned a value of $ 8.16 per share, which was the closing price of the Company’s common stock on the date of grant, for a total grant date value of $ 45,000 .

The shares are scheduled to vest the day immediately preceding the date of the next annual shareholder meeting.

The awards granted to directors in December 2020 vested in full on the day immediately preceding the date of the 2021 annual shareholder meeting, June 9, 2021.

In July 2020, the Company issued 11,053 shares of common stock in settlement of $ 9,000 of total deferred fees as a result of a non-employee director’s departure from the Board of Directors.

The Company’s non-employee directors are eligible to participate in a director deferred compensation plan, which allows a director to make voluntary deferrals of up to 100% of their annual cash retainers relating to Board and committee service.

The Company estimated the fair value of stock-based awards granted during the nine months ended September 30, 2021 under the Company’s employee stock purchase plan using the following weighted average assumptions:

During the three months ended March 31, 2022 and 2021, no stock options or restricted stock were issued by the Company.

The Company estimated the fair value of stock-based awards granted during the three months ended March 31, 2022, under the Company’s employee stock purchase plan using the following weighted average assumptions:

expected life of 1.0 year, expected volatility of 168.7 %, dividend yield of 0 % and risk-free interest rate of 0.4 %.

Total stock-based compensation expense recorded for the three and nine months ended September 30, 2021 was $ 56,000 and $ 198,000 , respectively, and for the three and nine months ended September 30, 2020 was $ 37,000 and $ 145,000 , respectively.

Net Loss per Share .

Basic net loss per share is computed by dividing net loss by the weighted average shares outstanding and excludes any potential dilutive effects of stock options and restricted stock units and awards.

Diluted net loss per share gives effect to all dilutive potential common shares outstanding during the period.

Due to the net loss incurred during the three and nine months ended September 30, 2021 and 2020 all outstanding stock options were anti-dilutive for the periods.

Weighted average common shares outstanding for the three and nine months ended September 30, 2021 and 2020 were as follows:

Three Months Ended

Nine Months Ended

Denominator for basic net loss per share - weighted average shares

The Company recorded total stock-based compensation expense of $ 30,000 and $ 56,000 for the three months ended March 31, 2022 and 2021, respectively.

Net Income (Loss) per Share .

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding and excludes any potential dilutive effects of stock options and restricted stock units and awards.

Diluted net income (loss) per share gives effect to all dilutive potential common shares outstanding during the period.

Options to purchase approximately 14,000 shares of common stock with a weighted average exercise price of 12.60 , were outstanding at March 31, 2022 and were not included in the computation of common stock equivalents for the three months ended March 31, 2022 because their exercise prices were higher than the average fair market value of the common stock during the reporting period.

Due to the net loss incurred during the three months ended March 31, 2021 all outstanding stock options were anti-dilutive for the periods.

Weighted average common shares outstanding for the three months ended March 31, 2022 and 2021 were as follows:

Three months ended March 31

Denominator for basic net income (loss) per share - weighted average shares

Effect of dilutive securities:

Stock options and restricted stock units

Denominator for diluted net loss per share - weighted average shares

Stock options, restricted stock and restricted stock units

Denominator for diluted net income (loss) per share - weighted average shares

Revenue Recognition .

Under Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (“Topic 606”), revenue is measured based on consideration specified in the contract with a customer, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price, including noncash consideration, consideration paid or payable to a customer and significant financing components.

Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer, as further described below under “.”

Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer, as further described below under “ Performance Obligations .”

Taxes collected from customers and remitted to governmental authorities are excluded from revenue on the net basis of accounting.

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The following is a description of the Company’s performance obligations included in its primary revenue streams and the timing or method of revenue recognition for each:

In-Store Signage Solution Services.

Merchandising, On-Pack, and Non-POPS Signage Solutions .

The Company supplies CPG manufacturers with retailer approved promotional services, such as merchandising, on-pack, and signage solutions.

These services are more customized than POPS, consisting of variable durations and variable specifications.

Due to the variable nature of these services, revenue recognition is a mix of over-time and point-in-time recognition.

POPS Signage Solution Services.

The Company provides a service of displaying promotional signs in close proximity to the CPG manufacturer’s product in participating stores, which the Company maintains in two-to-four-week cycle increments.

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Given the nature of the Company’s performance obligations is to provide a display service over the duration of a specified period or periods, the Company recognizes revenue on a straight-line basis over the display service period as it best reflects the timing of transfer of its sign solutions.

Non-POPS Solutions .

The Company also supplies CPG manufacturers with other retailer approved promotional services, such as signage, on-pack, merchandising and digital solutions.

These services are more customized than POPS, consisting of variable durations and variable specifications.

Due to the variable nature of these services, revenue recognition is a mix of over-time and point-in-time recognition.

Prior to the August 2020 sale of the Company’s custom print business, the Company also sold custom print solutions directly to its customers.

Each such product was a distinct performance obligation.

Revenue was recognized at a point-in-time upon shipment when control of the goods transferred to the customer.

Disaggregation of Revenue

In the following table, revenue is disaggregated by major revenue stream and timing of revenue recognition.

Three months ended September 30, 2021

Nine months ended September 30, 2021

In the following table, revenue is disaggregated by timing of revenue recognition.

Three months ended March 31, 2022

Services Revenues

Timing of revenue recognition:

Products and services transferred over time

Products and services transferred at a point in time

Three months ended September 30, 2020

Nine months ended September 30, 2020

Services transferred over time

Services transferred at a point in time

Three months ended March 31, 2021

Services Revenues

Timing of revenue recognition:

Products and services transferred over time

Products and services transferred at a point in time

Services transferred over time

Services transferred at a point in time

Contract Costs

Sales commissions that are paid to internal or external sales representatives are eligible for capitalization as they are incremental costs that would not have been incurred without entering into a specific sales arrangement and are recoverable through the expected margin on the transaction.

Sales commissions paid to internal or external sales representatives are eligible for capitalization because they are incremental costs that would not have been incurred without entering into a specific sales arrangement and are recoverable through the expected margin on the transaction.

The Company is applying the practical expedient in Accounting Standards Codification 340-40-25-4 that allows the incremental costs of obtaining a contract to be recorded as an expense when incurred when the amortization period of the asset that would have otherwise been recognized is one year or less.

1 unchanged sentence

Deferred Revenue

Deferred revenues represent amounts collected from customers in advance of the satisfaction of performance obligations.

Significant changes in deferred revenue during the period are as follows:

2 unchanged sentences

Cash received in advance and not recognized as revenue

Balance at September 30, 2021

Balance at March 31, 2022

Transaction Price Allocated to Remaining Performance Obligations

1 unchanged sentence

This practical expedient is being applied to arrangements for certain incomplete services and unshipped custom signage materials.

Among our contracts with an expected duration of greater than one year, we anticipate that revenue of $ 29,000 , $ 116,000 and $ 60,000 related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2021 will be recognized during the remainder of fiscal 2021, 2022 and 2023, respectively.

Selling Arrangement.

In 2011, the Company paid to News America Marketing In-Store, L.L.C.

(“News America”) $4,000,000 in exchange for a 10-year arrangement to sell signs with price into News America’s network of retailers as News America’s exclusive agent .

The $ 4,000,000 was being amortized over the 10 -year term of the arrangement.

In 2019, the Company accelerated the amortization based on the anticipated recovery period over the remaining term of the contract due to the loss of a significant retailer.

During the three months ended March 31, 2020, the impact of COVID-19 was determined to be a triggering event requiring an impairment review of long-lived assets.

As of March 31, 2020, the Company determined the asset was impaired based upon continued revenue declines driven by changes in market conditions due to COVID-19 within the stores covered by the agreement.

As a result, an impairment of $ 159,000 was recognized as of March 31, 2020.

The Company also shortened the remaining useful life of the underlying asset from March 31, 2021 to December 31, 2020 and recorded remaining amortization expense on a straight-line basis over the remainder of 2020.

Amortization expense without the impairment was $ 34,000 and $ 131,000 in the three and nine months ended September 30, 2020.

The selling arrangement was fully amortized as of September 30, 2021 and December 31, 2020.

As of September 30, 2021 the Company leases space under two non-cancelable operating leases for our corporate headquarters and for warehouse space.

Among our contracts with an expected duration of greater than one year, we anticipate that revenue of $ 84,000 and $ 57,000 related to performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2022 will be recognized during the remainder of fiscal 2022 and 2023, respectively.

As of March 31, 2022 the Company leases space under two non-cancelable operating leases for its corporate headquarters and for warehouse space.

Both leases have escalating lease payment terms but neither contains a contingent rent provision.

1 unchanged sentence

The leases for both the Company’s corporate headquarters and its warehouse include both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases.

The headquarters lease required the Company to provide a letter of credit, which is supported by $ 85,000 which is reflected as restricted cash on the balance sheet.

The headquarters lease required the Company to provide a letter of credit, which is supported by $ 85,000 reflected as restricted cash on the balance sheet.

The Company’s leases include options to renew.

2 unchanged sentences

The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term.

The Company used its incremental borrowing rate in determining the present value of the lease payments based on the information available at the lease commencement date.

The cost components of the Company’s operating leases were as follows for the periods ended September 30, 2021:

Three months ended September 30, 2021

The Company used its incremental borrowing rate of approximately 4.8 % in determining the present value of the lease payments based on the information available at the lease commencement date.

The cost components of the Company’s operating leases were as follows for the periods ended March 31, 2022 and 2021:

Three months ended March 31, 2022

Prior Corporate

Operating lease cost

Variable lease cost

Short-term lease cost

Nine months ended September 30, 2021

Three months ended March 31, 2021

Prior Corporate

Operating lease cost

2 unchanged sentences

Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs which are paid based on actual costs incurred by the lessor.

Maturities of the Company’s lease liabilities for is corporate headquarters and its warehouse operating leases are as follows as of September 30, 2021:

Maturities of the Company’s lease liabilities for its corporate headquarters and its warehouse operating leases are as follows as of March 31, 2022:

Maturity of Lease Liabilities

1 unchanged sentence

Present value of lease liabilities

The remaining lease terms as of September 30, 2021 for the Company’s corporate headquarters and its warehouse leases were 2.8 years and 1.5 years, respectively.

The discount rate for both leases is 4.75 %.

The cash outflow for operating leases for the three and nine months ended September 30, 2021 was $ 15,000 and $ 76,000 , respectively.

The cash outflow for operating leases for the three and nine months ended September 30, 2020 was $ 86,000 and $ 178,000 , respectively.

Operating lease liabilities and right-of-use assets were increased for new non-cash leases by $ 219,000 for the nine months ended September 30, 2021.

The remaining lease terms as of March 31, 2022 for the Company’s corporate headquarters and its warehouse leases were 2.3 years and 1 .0 years, respectively.

The cash outflows for operating leases for the three months ended March 31, 2022 and March 31, 2021 were $ 21,000 and $ 68,000 , respectively.

Income Taxes.

For the three and nine months ended September 30, 2021, the Company recorded income tax expense of $ 9,000 and $ 32,000 , or 1.0 % and 1.3 % of loss before taxes, respectively.

For the three and nine months ended September 30, 2020, the Company recorded income tax expense and an income tax benefit, respectively, of $ 8,000 and $203,000, or 0.9 % and ( 5.3 %) of loss before taxes, respectively.

The income tax expense or benefit for the three and nine months ended September 30, 2021 and 2020 is comprised of federal and state taxes.

The primary differences between the Company’s September 30, 2021 and 2020 effective tax rates and the statutory federal rate are expenses related to stock-based compensation and nondeductible meals and entertainment and increases in the Company’s valuation allowance against its deferred tax assets and nondeductible penalties for September 30, 2021, and forgiveness for the loan under the Paycheck Protection Program (“PPP”) of the CARES Act administered by the U.S.

Small Business Administration (the “SBA”).

For the three months ended March 31, 2022, the Company recorded income tax expense of $ 8,000 , or 11.4 % of income before taxes.

For the three months ended March 31, 2021, the Company recorded income tax expense of $ 13,000 , or ( 1.8 %) of loss before taxes.

The income tax expense for the three months ended March 31, 2022 and 2021 is comprised of federal and state taxes.

The primary differences between the Company’s March 31, 2022 and 2021 effective tax rates and the statutory federal rate are nondeductible stock-based compensation, nondeductible meals and entertainment and changes in the Company’s valuation allowance against its deferred tax assets.

The Company reassesses its effective rate each reporting period and adjusts the annual effective rate if deemed necessary, based on projected annual taxable income (loss).

Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of enacted tax laws.

In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which we operate, estimates of future taxable income and available tax planning strategies.

In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which it operates, estimates of future taxable income and available tax planning strategies.

If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustment to the carrying value of deferred tax assets and liabilities may be required.

Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria.

At September 30, 2021 and December 31, 2020, the Company had a valuation allowance of approximately $ 2,811,000 and $ 1,946,000 , respectively, against its entire net deferred tax asset because the Company does not believe it is more likely than not that it will realize its net deferred tax asset.

As of September 30, 2021, and December 31, 2020, the Company had unrecognized tax benefits totaling $ 703,000 and $ 677,000 , respectively, including interest, which relates to state nexus issues.

As of March 31, 2022, and December 31, 2021, the Company had unrecognized tax benefits totaling $ 721,000 and $ 711,000 , respectively, including interest, which relates to state nexus issues.

The amount of the unrecognized tax benefits, if recognized, that would affect the effective income tax rates of future periods is $ 721,000 .

The Company believes that it is reasonably possible that a decrease of up to $ 650,000 in unrecognized tax benefits related to state exposures may be necessary within the coming year, which would reduce accrued income taxes and increase income tax benefit.

In March 2020, Congress passed the Coronavirus Aid, Relief and Economic Security (“CARES”) Act.

The CARES Act, among other provisions, allows for companies to carry back federal NOLs generated in 2018, 2019 and 2020 for up to five years for refunds of federal taxes paid.

This provision created an opportunity for the Company to utilize NOLs not previously expected to be utilized.

Thus, in 2020 the Company reversed approximately $ 215,000 of its valuation allowance against the NOLs in its deferred tax assets which the Company carried back to claim a refund of federal taxes paid.

As the Company expects to receive the tax refund from the ability to carry back the NOLs within the next 12 months, this discrete benefit has been recorded within income taxes receivable on the balance sheet.

In addition to the $ 215,000 recognized, $ 17,000 was included as a discrete tax benefit for 2020 and included in income taxes receivable related to the NOL carry back due to differences in the federal tax rate utilized for the deferred tax asset compared to the rates in effect for the years in which the NOL is being carried back.

The Company believes that it is probable that a decrease of up to $ 665,000 in unrecognized tax benefits related to state exposures may be necessary in the third quarter of 2022, which would reduce accrued income taxes and increase income tax benefit.

Concentrations.

During the nine months ended September 30, 2021, two customers accounted for 16 % and 10 % respectively, of the Company’s total net sales.

During the nine months ended September 30, 2020, two customers accounted for 13 % and 11 % respectively, of the Company’s total net sales.

At September 30, 2021, two customers represented 16 % and 13 % respectively, of the Company’s total accounts receivable.

At December 31, 2020, two customers represented 17 % and 10 % of the Company’s total accounts receivable.

During the three months ended March 31, 2022, three customers accounted for 27 %, 23 % and 11 %, respectively, of the Company’s total net sales.

During the three months ended March 31, 2021, two customers accounted for 17 % and 14 %, respectively, of the Company’s total net sales.

At March 31, 2022, three customers accounted for 23 %, 19 % and 17 %, respectively, of the Company’s total accounts receivable.

At December 31, 2021, two customers represented 25 % and 19 %, respectively, of the Company’s total accounts receivable.

Legal Proceedings.

In July 2019, the Company brought suit against News America in the U.S.

The Company is subject to various legal matters in the normal course of business.

In July 2019, the Company filed suit against News Corporation, News America Marketing FSI L.L.C., and News America Marketing In-Store Services L.L.C.

(collectively, “News America”) in the U.S.

District Court in Minnesota, alleging violations of federal and state antitrust and tort laws by News America.

11 unchanged sentences

On October 1, 2021, News America filed its reply brief.

The court is scheduled to hear argument on the motion on January 26, 2022.

The court cancelled a hearing on the motion originally scheduled for January 26, 2022, and referred the case to mediation.

The court has rescheduled the hearing on News America’s summary judgment motion for June 22, 2022.

At this stage of the proceedings, the Company is unable to determine the likelihood of an unfavorable outcome or estimate any potential resulting liability.

In April 2020, the Company entered into a promissory note (the “Note”) with Alerus Financial, N.A.

The Note evidenced a loan to the Company in the amount of $ 1,054,000 pursuant to PPP.

In accordance with the requirements of the CARES Act, the Company used the proceeds from the loan exclusively for qualified expenses under the PPP, including payroll costs, rent and utility costs, as further detailed in the CARES Act and applicable guidance issued by the SBA.

The Note evidenced a loan to the Company in the amount of $ 1,054,000 pursuant to the Paycheck Protection Program (the “PPP”) of the CARES Act administered by the U.S.

Small Business Administration (the “SBA”).

In accordance with the requirements of the CARES Act, the Company used the proceeds from the loan exclusively for qualified expenses under the PPP, including payroll costs, rent and utility costs.

Interest was accrued on the outstanding balance of the Note at a rate of 1.00 % per annum.

The Note was scheduled to mature on April 22, 2022 and required 18 equal monthly payments of principal and interest.

The Company’s application for forgiveness of the entire principal amount and all accrued interest under the Note was approved by the SBA on January 29, 2021.

Accordingly, for the nine months ended September 30, 2021 the debt of $ 1,054,000 , plus accrued interest of $ 8,000 , was eliminated with a gain on debt forgiveness and accrued interest included in other income.

The Company’s application for forgiveness of the amount due under the Note, including accrued interest, was approved by the SBA on January 29, 2021.

Accordingly, for the year ended December 31, 2021 the debt of $ 1,054,000 , plus accrued interest of $ 8,000 was eliminated with a gain on debt extinguishment included in other income.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements