What changed in this filing

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Item 1A. Risk Factors

2023-03-09 compared with 2022-03-09 · 33 added, 67 removed, 69 unchanged (59% of the section changed)

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COMPETITIVE AND REPUTATIONAL RISKS

We Face Significant Competition

We Face Competition

We compete against other providers of advertising, marketing and merchandising products and services, and providers of point-of-purchase and other in-store solutions, as well as other marketing products and services.

Competition is based on, among other things, rates, availability of markets, quality of products and services provided and their effectiveness, store coverage and other factors.

We face significant competition from News America (which has been sold to Neptune Retail Solutions), the primary provider of at-shelf advertising and promotional signage for a significant majority of retailers.

We continue to compete for advertising dollars with News America’s at-shelf advertising and promotional signage offerings.

News America has significantly greater market presence and financial resources that can be used to market their products and purchase exclusive access to retailers and CPG manufacturers.

Because our competition has continued to develop and extend their exclusive relationships with both our current as well as prospective retailers our revenues and related operations have been adversely affected.

We Have Been, and Are, Party to Significant Litigation

We were involved in significant litigation with News America between 2003 and 2011.

In 2011, we entered into a Settlement Agreement with News America to resolve the antitrust and false advertising lawsuit that had been outstanding for several years.

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

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.

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.

News America’s summary judgment motion remains pending.

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

We believe our positioning and offering in the marketplace is unique with our end-to-end capabilities, however brands and retailers can single-source their needs by working with others in the industry individually.

We realize that by working with Insignia, we cannot always offer the lowest price in the marketplace versus a direct manufacturer, however, we can provide continuity and consistency along the entire project journey while managing the entire project for our clients, whereas they would need to source out design, production and execution individually.

We Have Been Party to Significant Litigation with a Competitor

We were involved in significant litigation with News America Marketing In-Store, Inc.

between 2003 and 2011, which ended with a settlement.

Again, on July 1, 2022, we entered into a $20 million settlement agreement with News America.

The agreement memorializes the amicable settlement of the Company’s lawsuit against News America, which was initially filed in 2019.

While we are not currently party to any significant litigation, the Company is subject to various legal proceedings in the normal course of business.

Further, we could incur significant expenses asserting or defending future claims that could adversely affect our business, financial condition and operating results.

An adverse resolution of any lawsuit or claim in favor of a third party against us, including those we become involved in through mergers and acquisitions transactions, may require us to pay substantial damages or impose restrictions on how we conduct business, either of which could adversely affect our business, financial condition and operating results.

STRATEGIC RISKS

Our Growth Is Dependent on Our Ability to Successfully Develop and Design Solution Offerings that Meet Client Demands

The Growth of our Business Is Dependent on Our Ability to Successfully Develop and Design Solution Offerings that Meet Client Demands

Our ability to retain, increase and engage our customers and to increase our revenues will depend partially on our ability to create successful solutions and the ability to secure and maintain access to retailer locations that are appealing to CPG manufacturers.

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We Face a Number of Risks Associated with Potential Strategic Alternatives

As announced in December 2021, we have commenced a formal process to explore strategic options to maximize shareholder value.

We intend to use reasonable efforts to identify and evaluate potential transactions.

As announced in December 2021, we are conducting a formal process to explore strategic options to maximize shareholder value.

We intend to use reasonable efforts to identify and evaluate potential transactions, and new business opportunities.

Such activities are accompanied by risks commonly encountered in pursuing and completing such transactions, including, but not limited to, increased expenses associated with the process.

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Additionally, our revenues and results of operations may be subject to fluctuations based upon general economic conditions inclusive of the dynamic global trade environment.

Recent inflation has increased our costs and we may be limited in our ability to pass cost increase along in pricing to our customers.

Another economic downturn, whether because of the COVID-19 pandemic or otherwise, may reduce demand or depress pricing for our products and services and have an adverse effect on our results of operations.

In addition, if we are unable to successfully anticipate changing economic conditions, we may be unable to effectively plan for and respond to those changes, and our business could be negatively affected.

Current and Future Pandemics Are Likely to Impact Our Business

The COVID-19 pandemic has significantly and adversely impacted our operations and the operations of our CPG customers and retailers as a result of quarantines, illnesses, and travel and logistics restrictions and it is likely to continue to adversely affect our business indefinitely.

Our future bookings may be negatively impacted during the COVID-19 pandemic.

Factors deriving from the COVID-19 response that have impacted or we believe are likely to negatively impact sales and operating results in the future include, but are not limited to:

reduced or delayed levels of CPG spending;

reduced levels of staffing with our execution partners;

limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to remain at home;

and limitations on the ability of our customers to pay us on a timely basis.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders.

Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts on our business as a result of any economic recession or depression that has occurred or may occur in the future.

We are unable to determine or predict the nature, duration or scope of the overall impact the COVID-19 pandemic will have on our business, results of operations, liquidity or capital resources.

As a result, the financial impact to our operating results cannot be reasonably estimated;

however, it could be material and last for an extended period of time.

Future Pandemics May Impact Our Business

A public health crisis, if sufficiently widespread as to affect economic activity, could negatively impact our business.

To the extent that efforts to mitigate the effects of the crisis result in a reduction in demand, inefficiencies due to workplace accommodations, reduced availability of personnel, supply chain disruption, or constraints on materials availability, among other difficulties, our financial condition could be negatively impacted.

In any such event, the severity, duration, and extent of the crisis can be difficult to predict, which can make it difficult to predict or anticipate the magnitude and length of the impact on our sales, profits, and/or cash flow.

We experienced these effects with the onset of the COVID-19 pandemic in early 2020, when our operations and the operations of our CPG customers and retailers were impacted by quarantines, illnesses, and travel and logistics restrictions.

In 2020, the financial impact of COVID-19 was significant as a significant number of programs originally slated for execution in the second quarter were cancelled, in addition to incremental costs incurred due to reduced levels of staffing with our execution partners.

COVID-19 did not have any meaningful direct impact on our financial results in 2022.

However, COVID-19 infections continue, and we cannot predict the severity and duration of additional outbreaks, new variants of the virus, or the future availability of effective medical treatments and vaccines.

We also cannot predict the severity or duration of the financial impact of COVID-19 or any other public health event on our operating results.

OPERATIONAL RISKS

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Our inability to attract and retain such personnel could have an adverse effect on our business, results of operations and financial condition.

We Have Identified Material Weaknesses in Our Internal Control Over Financial Reporting During the Past Three Years.

If We Fail to Establish and Maintain Effective Internal Control over Financial Reporting, We May Not Be Able to Accurately or Timely Report Our Financial Condition or Results of Operations, Which May Adversely Affect Our Business and the Market Price of Our Common Stock.

The Sarbanes-Oxley Act of 2002 requires that we maintain effective internal control over financial reporting and disclosure controls and procedures.

We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting.

This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting, such as the material weaknesses as described below.

The Company had a material weakness at December 31, 2020 related to sales tax accounting that was remediated as of December 31, 2021 and had a material weakness at December 31, 2019 related to impairment testing that we performed in accordance with ASC 360, Property, Plant, and Equipment that was remediated as of December 31, 2020.

In connection with the material weakness identified related to sales tax accounting, we restated our financial statements for the years ended December 31, 2020 and 2019 as described in the Explanatory Paragraph and in Note 2 to our annual financial statements for the year ended December 31, 2020.

Company management is responsible for establishing and maintaining effective internal controls designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.

Any internal control system, no matter how well designed and operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met.

Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

Because of the inherent limitations in all internal control systems, internal control over business processes and financial reporting may not prevent or detect fraud or misstatements.

The existence of one or more material weaknesses precludes a conclusion by management that a company’s internal control over financial reporting is effective.

In response to these identified material weaknesses, our management, with the oversight of the Audit Committee of our Board of Directors, has dedicated significant resources, including the involvement of outside advisors, in efforts to improve our internal control over financial reporting.

If we fail to maintain effective control over financial reporting in the future, it could result in a material misstatement of our financial statements that would not be prevented or detected on a timely basis.

For example, the Company previously identified a material weakness at December 31, 2020 related to sales tax accounting that was remediated as of December 31, 2021.

We cannot assure you that the measures we have taken to date, and actions we may take in the future, will prevent or avoid potential future material weaknesses.

If we are unable to maintain effective internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected, investors could lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, we could be subject to sanctions or investigations by the Nasdaq Stock Market, the SEC or other regulatory authorities, and our ability to access the capital markets could be limited.

We May Not Be Able to Generate Enough Cash or Secure Enough Capital to Execute Our Future Business Plans

The Company has experienced net losses and used significant cash in operations in each of the last three years and there is uncertainty regarding our ability to achieve and maintain profitability.

Although the Company is continuing to explore strategic alternatives to maximize shareholder value and management has taken actions to reduce cash use, we cannot be sure these actions will sufficiently reduce or eliminate future losses.

While we believe the Company has adequate cash to meet its liquidity needs for at least the next 12 months, if cash flows from operations together with cash and cash equivalents are not sufficient to fund our operations and any necessary capital expenditures in the longer term, and we are unable to secure alternative sources of financing on terms acceptable to us, then our results of operations, financial condition and liquidity would be materially adversely affected.

We may pursue debt, equity or other forms of financing to supplement our current capital resources.

Our ability to obtain additional financing will depend upon a number of factors, including our future performance and financial results, the status of the strategic alternatives exploration process and our pending litigation, and general economic and capital market conditions.

We may not be able to maintain adequate capital or raise additional capital on reasonable terms or at all, if needed.

Our Outsourcing Arrangements May Not Yield the Desired Efficiencies Within Our Planned Timeline, If At All

Our Outsourcing Arrangements May Make Us Vulnerable to Third Party Failures

We have arrangements with third parties for them to operate certain software applications and significant portions of our information technology infrastructure, as well as most of our production operations that are necessary to conduct our business.

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We are vulnerable to third party failures to satisfy their obligations to us, including as a result of their nonperformance, performance at standards that are not acceptable to us or our customers, changes in their methods of operation or financial condition, and other matters outside of our control.

Further, we may not fully realize on a timely basis the anticipated economic and other benefits of the outsourcing projects or other relationships we entered into with these third parties, which could result in substantial costs or other operational or financial problems for the Company.

RISKS RELATED TO OUR COMMON STOCK

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the addition or loss of contracts with retailers;

the impact of strategic alternatives activities.

Due to these factors, our quarterly and annual net sales, expenses and results of operations could vary significantly in the future and this could adversely affect the market price of our common stock.

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During 2022, the sale prices of our common stock as reported by The Nasdaq Stock Market ranged from a low of $5.48 to a high of $28.80.

We believe factors such as the fluctuations in our quarterly and annual operating results described above, the market’s acceptance of our services and products, the performance of our business relative to market expectations, as well as limited daily trading volume of our stock and general volatility in the securities markets, could cause the market price of our common stock to fluctuate substantially.

We believe factors such as the fluctuations in our quarterly and annual operating results described above, the market’s acceptance of our services and products, the performance of our business relative to market expectations, strategic alternative exploration, as well as limited daily trading volume of our stock and general volatility in the securities markets, could cause the market price of our common stock to fluctuate substantially.

In addition, the stock markets have experienced price and volume fluctuations, resulting in changes in the market prices of the stock of many companies, which may not have been directly related to the operating performance of those companies.

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Attacks may range from random attempts to coordinated and targeted attacks, including sophisticated computer crime and advanced persistent threats.

These threats pose a risk to the security of our systems, networks and products and the confidentiality, availability and integrity of the data we process and maintain.

These threats, and a failure to maintain security protocols, pose a risk to the security of our systems, networks and products and the confidentiality, availability and integrity of the data we process and maintain.

Establishing systems and processes to address these threats and changes in legal requirements relating to data collection and storage may increase our costs.

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Smaller reporting companies are not required to provide disclosure pursuant to this Item.

The Company has a lease for its corporate headquarters in downtown Minneapolis, Minnesota which expires July 31, 2024, and a lease for warehouse space in a suburb of Minneapolis which expires March 31, 2023.

The headquarters lease is for 2,850 square feet and the warehouse lease is for 2,560 square feet.

Legal Proceedings

See Item 8, Footnote 5.

Risk Factors of this report for a detailed description of the Company’s lawsuit with News America.

Mine Safety Disclosures

Not applicable.

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-K

Item 1A. Risk Factors