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Item 1. Financial Statements

2022-11-10 compared with 2022-08-10 · 101 added, 81 removed, 234 unchanged (44% of the section changed)

Financial Statements

Insignia Systems, Inc.

CONDENSED BALANCE SHEETS

September 30,

Current Assets:

2 unchanged sentences

Accounts receivable, net

Income tax receivable

Income taxes receivable

Prepaid production costs

8 unchanged sentences

Accrued liabilities:

Income taxes payable

Current portion of operating lease liabilities

9 unchanged sentences

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

Issued and outstanding shares - 1,796,000 at September 30, 2022 and 1,782,000 at December 31, 2021, respectively

Additional paid-in capital

8 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Net services revenues

3 unchanged sentences

Total Operating Expenses

Operating Loss

( 1,101,000 )

( 1,028,000 )

Gain from litigation settlement, net

Operating Income (Loss)

( 3,537,000 )

2 unchanged sentences

Other income (expense)

Total Other Income (expense)

Loss before Taxes

( 1,070,000 )

( 1,000,000 )

( 1,608,000 )

Income tax expense

$ ( 1,084,000 )

Total Other Income

Income (Loss) Before Taxes

( 2,520,000 )

Income tax (benfit) expense

Net Income (Loss)

$ ( 921,000 )

$ ( 2,552,000 )

Net loss per share:

Net income (loss) per share:

Shares used in calculation of net

loss per share:

income (loss) per share:

See accompanying notes to financial statements.

1 unchanged sentence

CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY

Additional Paid-In

Balance at December 31, 2021

11 unchanged sentences

$ ( 14,143,000 )

Additional Paid-In

Value of stock-based compensation

Issuance of common stock upon vesting of restricted stock units

Balance at September 30, 2022

$ ( 2,342,000 )

Balance at December 31, 2020

8 unchanged sentences

$ ( 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 )

See accompanying notes to financial statements.

1 unchanged sentence

CONDENSED STATEMENTS OF CASH FLOWS

Six Months Ended June 30

Nine Months Ended September 30

Operating Activities:

$ ( 1,022,000 )

Net income (loss)

$ ( 2,552,000 )

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

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

Depreciation and amortization

6 unchanged sentences

Accounts receivable

Income tax receivable

Income taxes receivable

Prepaid expenses and other

2 unchanged sentences

Accrued liabilities

( 1,170,000 )

Income tax payable

Income taxes payable

Accrued income taxes

Deferred revenue

Net cash used in operating activities

( 1,475,000 )

Net cash provided by (used in) operating activities

( 3,323,000 )

1 unchanged sentence

Purchases of property and equipment

Proceeds from sale of property and equipment

Sale of property and equipment

Net cash used in investing activities

3 unchanged sentences

Repuchase of common stock upon vesting of restricted stock awards

Net cash provided by financing activities

Decrease in cash and cash equivalents and restricted cash

( 1,464,000 )

Net cash provided by (used in) financing activities

Increase (decrease) in cash and cash equivalents and restricted cash

( 3,394,000 )

12 unchanged sentences

Description of Business .

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

Insignia Systems, Inc.

(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.

11 unchanged sentences

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.

As discussed in Note 6, the Company settled a lawsuit and recorded a net pre-tax gain from litigation settlement of $ 12,000,000 in operations in the three months ended September 30, 2022.

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

1 unchanged sentence

Total cash, cash equivalents and restricted cash

Included in cash and cash equivalents is a U.S.

Treasury Bill with a carrying value of $ 11,100,000 .

Inventories .

2 unchanged sentences

Property and Equipment .

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

Property and equipment consisted of the following:

September 30,

Property and Equipment:

6 unchanged sentences

Net Property and Equipment

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.

Depreciation expense was approximately $ 15,000 and $ 46,000 in the three and nine months ended September 30, 2022, respectively, and was $ 14,000 and $ 46,000 in the three and nine months ended September 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 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.

During the nine months ended September 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 August 2022 and in June 2021.

In August 2022, non-employee members of the Board of Directors received restricted stock grants totaling 6,248 shares pursuant to the 2018 Equity Incentive Plan (the “2018 Plan”).

The shares underlying the awards were assigned a value of $ 9.60 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 $ 60,000 .

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

In June 2021, non-employee members of the Board of Directors received restricted stock grants totaling 5,514 shares pursuant to 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 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:

Total stock-based compensation expense recorded for the three and nine months ended September 30, 2022 was $ 32,000 and $ 91,000 , respectively, and for the three and nine months ended September 30, 2021 was $ 56,000 and $ 198,000 , 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 14,086 shares of common stock with a weighted average exercise price of $ 11.91 and $ 11.98 , respectively, were outstanding at September 30, 2022 and were not included in the computation of common stock equivalents for the three and nine months ended September 30, 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 and nine months ended September 31, 2021 all outstanding stock options were anti-dilutive for those periods.

As of September 30, 2021 the Company had options to purchase 21,741 shares of common stock and 32,410 restricted stock units, each representing the contingent right to receive one share of common stock, outstanding.

Weighted average common shares outstanding:

Three Months Ended

Six Months Ended

Denominator for basic net loss per share - weighted average shares

Nine Months Ended

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

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

Revenue Recognition.

20 unchanged sentences

Disaggregation of Revenue

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

Three months ended June 30

Six months ended June 30

Services Revenues

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

Three months ended September 30

Nine months ended September 30

Timing of revenue recognition:

11 unchanged sentences

Cash received in advance and not recognized as revenue

Balance at June 30, 2022

Balance at September 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 $ 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.

Among our contracts with an expected duration of greater than one year, we anticipate that revenue of $ 28,000 and $ 57,000 related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2022 will be recognized during the remainder of fiscal 2022 and 2023, respectively.

As of September 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.

7 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 three and six month periods ended June 30, 2022 and 2021:

Three months ended June 30, 2022

Six months ended June 30, 2022

The cost components of the Company’s operating leases were as follows:

Three months ended September 30, 2022

Nine months ended September 30, 2022

Operating lease cost

Variable lease cost

Three months ended June 30, 2021

Six months ended June 30, 2021

Three months ended September 30, 2021

Operating lease cost

Variable lease cost

Short-term lease cost

Nine months ended September 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 June 30, 2022:

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

Maturity of Lease Liabilities

1 unchanged sentence

Present value of lease liabilities

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.

The remaining lease terms as of September 30, 2022 for the Company’s corporate headquarters and its warehouse leases were 1.8 years and 0.5 years, respectively.

The discount rate for both leases is 4.8%.

The cash outflow for operating leases for the three and nine months ended September 30, 2022 was $ 21,000 and $ 62,000 , respectively.

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

Income Taxes.

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.

For the three and nine months ended September 30, 2022, the Company recorded income tax benefit of $ 190,000 and $ 168,000 , or ( 1.6 )% and ( 1.6 )% of income before taxes, respectively.

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.

The income tax expense or benefit for the three and nine months ended September 30, 2022 and 2021 is comprised of federal and state taxes.

The primary differences between the Company’s September 30, 2022 and 2021 effective tax rates and the statutory federal rate are nondeductible stock-based compensation, nondeductible penalties and for 2021 increases in the Company’s valuation allowance against its deferred tax assets and for 2022 decreases in the Company’s valuation allowance against its deferred tax assets and decreases in the Company’s reserve for unrecognized tax benefits.

Nine months ended September 30,

Federal statutory rate

Stock-based awards

Impact of uncertain tax positions

Valuation allowance

PPP forgiveness

Effective federal income tax rate

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 it operates, 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 we operate, 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.

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.

At September 30, 2022, and December 31, 2021, the Company had unrecognized tax benefits totaling $ 52,000 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 $ 52,000 .

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.

The Company recorded a decrease of approximately $ 679,000 in unrecognized tax benefits related to state income tax exposure in the third quarter of 2022, which reduced accrued income taxes and increased income tax benefit.

The Company has determined it is no longer more likely than not that the Company will realize the tax expense.

At December 31, 2021, the Company had Federal net operating loss (NOL) to carry forward of approximately $ 9,700,000 .

As of September 30, 2022 the Company estimates remaining Federal NOL carryforwards to be approximately $ 2,000,000 .

The federal NOL utilization was limited to 80 % of estimated taxable income.

The estimated NOL carry-forward will be adjusted at year end for fourth quarter results.

Concentrations.

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.

During the nine months ended September 30, 2022, three customers accounted for 19 %, 12 % and 11 % respectively, of the Company’s total net sales.

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

At September 30, 2022, two customers represented 20 % and 12 % respectively, of the Company’s total accounts receivable.

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

Legal Proceedings.

2 unchanged sentences

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

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

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.

The agreement resulted in net proceeds before income tax of $ 12,000,000 for the Company, which was recorded as a gain on litigation settlement in operations in the three months ended September 30, 2022.

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