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Item 1. Financial Statements

2022-08-10 compared with 2022-05-11 · 96 added, 78 removed, 219 unchanged (44% of the section changed)

Financial Statements

Insignia Systems, Inc.

CONDENSED BALANCE SHEETS

24 unchanged sentences

Common stock, par value $.01:

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

Authorized shares - 5,714,000

Issued and outstanding shares - 1,793,000 at June 30, 2022 and 1,782,000 at December 31, 2021, respectively

Additional paid-in capital

7 unchanged sentences

CONDENSED STATEMENTS OF OPERATIONS

Three Months Ended March 31

Three Months Ended

Six Months Ended

Net services revenues

3 unchanged sentences

Total Operating Expenses

Operating Income (Loss)

Operating Loss

( 1,101,000 )

( 1,028,000 )

( 2,612,000 )

Other Income (Expense):

Gain on forgiveness of debt and accrued interest

Other expense

Other income (expense)

Total Other Income (expense)

Income (Loss) Before Taxes

Loss before Taxes

( 1,070,000 )

( 1,000,000 )

( 1,608,000 )

Income tax expense

Net Income (Loss)

$ ( 1,084,000 )

Net income (loss) per share:

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

$ ( 894,000 )

$ ( 1,022,000 )

$ ( 1,631,000 )

Net loss per share:

Shares used in calculation of net

loss per share:

See accompanying notes to financial statements.

2 unchanged sentences

Additional Paid-In

Accumulated Deficit

Balance at December 31, 2021

4 unchanged sentences

$ ( 13,059,000 )

Issuance of common stock, net

Value of stock-based compensation

Issuance of common stock upon vesting of restricted stock units

( 1,084,000 )

Balance at June 30, 2022

$ ( 14,143,000 )

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

Balance at June 30, 2021

$ ( 11,218,000 )

See accompanying notes to financial statements.

1 unchanged sentence

CONDENSED STATEMENTS OF CASH FLOWS

Three Months Ended March 31

Six Months Ended June 30

Operating Activities:

Net income (loss)

$ ( 1,022,000 )

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

$ ( 1,631,000 )

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

Depreciation and amortization

6 unchanged sentences

Accounts receivable

( 2,206,000 )

Income tax receivable

1 unchanged sentence

Accounts payable

( 1,208,000 )

Accrued liabilities

Accrued income taxes

( 1,170,000 )

Income tax payable

Deferred revenue

1 unchanged sentence

( 1,475,000 )

( 1,151,000 )

Investing Activities:

Purchases of property and equipment

Sale of property and equipment

Proceeds from sale of property and equipment

Net cash used in investing activities

Financing Activities:

Proceeds from issuance of common stock

Proceeds from issuance of common stock, net

Cash dividends paid ($0.70 per share)

Repuchase of common stock upon vesting of restricted stock awards

Net cash provided by financing activities

1 unchanged sentence

( 1,464,000 )

( 1,164,000 )

Cash and cash equivalents and restricted cash at beginning of period

1 unchanged sentence

Supplemental disclosures for cash flow information:

Cash paid during the year for income taxes

Cash paid during the period 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

Purchase of property and equipment included in accounts payable

See accompanying notes to financial statements.

35 unchanged sentences

Net Property and Equipment

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

Depreciation expense was approximately $ 15,000 and $ 31,000 in the three and six months ended June 30, 2022, respectively, and was $ 11,000 and $ 32,000 in the three and six months ended June 30, 2021, respectively.

Stock-Based Compensation .

4 unchanged sentences

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 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 %.

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

During the six-month periods ended June 30, 2022 and 2021 no equity awards were issued by the Company, except those awarded to non-employee members of the Board of Directors in June 2021.

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 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 vested on June 1, 2022.

Total stock-based compensation expense recorded for the three and six months ended June 30, 2022 was $ 29,000 and $ 59,000 , respectively, and for the three and six months ended June 30, 2021 was $ 86,000 and $ 142,000 , 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 six months ended June 30, 2022 and 2021 all outstanding stock awards were anti-dilutive for those periods.

As of June 30, 2022, the Company had 14,086 options and 3,396 restricted units outstanding.

As of June 30, 2021, the Company had 21,741 options and 37,879 restricted units outstanding.

Weighted average common shares outstanding for the three and six months ended June 30, 2022 and 2021 were as follows:

Three Months Ended

Six Months Ended

Denominator for basic net loss per share - weighted average shares

Effect of dilutive securities:

Stock options, restricted stock and restricted stock units

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

Stock options and restricted stock units

Denominator for diluted net loss per share - weighted average shares

Revenue Recognition.

3 unchanged sentences

The Company includes shipping and handling fees in revenues.

Shipping and handling costs associated with outbound freight after control over a product has been passed to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.

Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of services.

Performance Obligations

15 unchanged sentences

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

Three months ended March 31, 2022

Three months ended June 30

Six months ended June 30

Services Revenues

Timing of revenue recognition:

Services transferred over time

Services transferred at a point in time

Three months ended March 31, 2021

Services Revenues

Timing of revenue recognition:

2 unchanged sentences

Contract Costs

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.

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.

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.

6 unchanged sentences

Cash received in advance and not recognized as revenue

Balance at March 31, 2022

Balance at June 30, 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 $ 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.

Among our contracts with an expected duration of greater than one year, we anticipate that revenue of $ 56,000 and $ 57,000 related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2022 will be recognized during the remainder of fiscal 2022 and 2023, respectively.

As of June 30, 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.

The Company also had a lease for additional office space under an operating lease that expired August 31, 2021.

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 leases for both the Company’s corporate headquarters and its warehouse include both lease 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 reflected as restricted cash on the balance sheet.

4 unchanged sentences

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

The cost components of the Company’s operating leases were as follows for the three and six month periods ended June 30, 2022 and 2021:

Three months ended June 30, 2022

Six months ended June 30, 2022

Operating lease cost

Variable lease cost

Three months ended March 31, 2021

Three months ended June 30, 2021

Six months ended June 30, 2021

Prior Corporate

3 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 its corporate headquarters and its warehouse operating leases are as follows as of March 31, 2022:

Maturities of the Company’s lease liabilities for its corporate headquarters and its warehouse operating leases are as follows as of June 30, 2022:

Maturity of Lease Liabilities

1 unchanged sentence

Present value of lease liabilities

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.

The remaining lease terms as of June 30, 2022 for the Company’s corporate headquarters and its warehouse leases were 2.0 years and 0.8 years, respectively.

The cash outflows for operating leases were $ 20,000 and $ 41,000 for the three and six months ended June 30, 2022, respectively, and were $ 4,000 and $ 72,000 for the three and six months ended June 30, 2021, respectively.

Income Taxes.

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.

For the three and six months ended June 30, 2022, the Company recorded income tax expense of $ 14,000 and $ 22,000 , respectively, or 1.3 % and 2.2 % of loss before taxes, respectively.

For the three and six months ended June 30, 2021, the Company recorded income tax expense of $ 10,000 and $ 23,000 , respectively, or 1.1 % and 1.4 % of loss before taxes, respectively.

The income tax expense for the three and six months ended June 30, 2022 and 2021 is comprised of federal and state taxes.

The primary differences between the Company’s June 30, 2022 and 2021 effective tax rates and the statutory federal rate are nondeductible stock-based compensation, nondeductible meals and entertainment, nondeductible penalties and increases in the Company’s valuation allowance against its deferred tax assets;

and for the period ended June 30, 2021, loan forgiveness from the Paycheck Protection Program (PPP) loan.

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).

3 unchanged sentences

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

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.

As of June 30, 2022, and December 31, 2021, the Company had unrecognized tax benefits totaling $ 730,000 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 $ 730,000 .

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.

Due to the current statute of limitations regarding the unrecognized tax benefits, the Company expects to record a decrease of approximately $ 695,000 in unrecognized tax benefits related to state exposures in the third quarter of 2022, which will reduce accrued income taxes and increase income tax benefit.

Concentrations.

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.

During the six months ended June 30, 2022, three customers accounted for 22 %, 15 % and 10 %, respectively of the Company’s total net sales.

During the six months ended June 30, 2021, three customers accounted for 15 %, 12 % and 11 %, respectively of the Company’s total net sales.

At June 30, 2022, two customers represented 32 % and 10 %, 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.

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.

1 unchanged sentence

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

The complaint alleges that News America has monopolized the national market for third-party in-store advertising and promotion products and services through various wrongful acts designed to harm the Company, its last significant competitor.

The suit seeks, among other relief, an injunction sufficient to prevent further antitrust injury and an award of treble damages to be determined at trial for the harm caused to our Company.

In August 2019, News America filed an answer and counterclaim.

In October 2019, News America moved for a judgment on the pleadings.

Management believes that the counterclaim is without merit, and the Company filed a response brief on November 11, 2019.

The Company also moved to dismiss the counterclaim against it.

The court heard oral arguments from both parties on January 14, 2020, and subsequently denied both motions.

On July 10, 2020 the parties cross-moved for summary judgment on the counterclaim.

On December 7, 2020, the Court granted News America’s motion for summary judgment on the counterclaim in part, requiring Insignia to strike certain allegations from its complaint and finding News America’s request for attorneys’ fees and costs premature.

Following the close of discovery, on August 27, 2021, News America moved for summary judgment on Insignia’s claims.

On September 17, 2021, Insignia filed its response opposing summary judgment.

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

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.

Subsequent to the end of the quarter, on July 1, 2022, the Company entered into a $ 20 million settlement agreement with News America.

The agreement memorializes the amicable settlement of the Company’s outstanding lawsuit against News America.

The agreement is expected to result in net proceeds before income tax of between $ 11,500,000 and $ 12,000,000 for the Company, which will be recorded as pretax income in the quarter ending September 30, 2022.

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

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

6 unchanged sentences

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.

Subsequent Event.

Subsequent to June 30, 2022, the Company entered into a Confidential Settlement Agreement and Mutual Release with News America.

See Note 6 for details.

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