What changed in this filing

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Item 1. Financial Statements

2023-05-11 compared with 2022-11-10 · 101 added, 156 removed, 179 unchanged (59% of the section changed)

2 unchanged sentences

CONDENSED BALANCE SHEETS

September 30,

Current Assets:

2 unchanged sentences

Accounts receivable, net

Income taxes receivable

Income tax 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 - 1,796,000 at September 30, 2022 and 1,782,000 at December 31, 2021, respectively

Issued and outstanding shares - 1,798,000 at March 31, 2023 and 1,797,000 December 31, 2022

Additional paid-in capital

4 unchanged sentences

Total Liabilities and Shareholders' Equity

See accompanying notes to financial statements.

See accompanying notes to the condensed financial statements.

Insignia Systems, Inc.

CONDENSED STATEMENTS OF OPERATIONS

Three Months Ended

Nine Months Ended

Three Months Ended March 31

Net services revenues

3 unchanged sentences

Total Operating Expenses

Gain from litigation settlement, net

Operating Income (Loss)

( 3,537,000 )

Operating Income

Other Income (Expense)

Gain on forgiveness of debt and accrued interest

Other income (expense)

Total Other Income

Income (Loss) Before Taxes

( 2,520,000 )

Income tax (benfit) expense

Net Income (Loss)

$ ( 921,000 )

$ ( 2,552,000 )

Net income (loss) per share:

Shares used in calculation of net

income (loss) per share:

See accompanying notes to financial statements.

Total Other Income (Expense)

Income Before Taxes

Income tax expense

Net income per share:

Shares used in calculation of net income per share:

See accompanying notes to the condensed financial statements.

Insignia Systems, Inc.

6 unchanged sentences

$ ( 1,427,000 )

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 )

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, 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 )

See accompanying notes to financial statements.

See accompanying notes to the condensed financial statements.

Insignia Systems, Inc.

CONDENSED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30

Three Months Ended March 31

Operating Activities:

Net income (loss)

$ ( 2,552,000 )

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

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

Depreciation and amortization

Gain on sale of property and equipment

Changes in allowance for doubtful accounts

Stock-based compensation expense

Gain on forgiveness of debt and accrued interest

( 1,062,000 )

Changes in operating assets and liabilities:

Accounts receivable

Income taxes receivable

( 3,770,000 )

( 2,206,000 )

Income tax receivable

Prepaid expenses and other

Accounts payable

( 1,084,000 )

Accounts payable

Accrued liabilities

Income taxes payable

Accrued income taxes

Accured income taxes

Deferred revenue

Net cash provided by (used in) operating activities

Net cash used in operating activities

( 3,846,000 )

( 3,380,000 )

Investing Activities:

Purchases of property and equipment

Sale of property and equipment

Net cash used in investing activities

Financing Activities:

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 (used in) financing activities

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

Proceeds from issuance of common stock

Net cash provided by financing activities

Decrease in cash and cash equivalents and restricted cash

( 3,844,000 )

( 3,370,000 )

Cash and cash equivalents and restricted cash at beginning of period

Cash and cash equivalents and restricted cash at end of period

Supplemental disclosures for cash flow information:

Cash paid during the period for income taxes

Non-cash financing activity:

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.

Purchase of property and equiment included in accounts payable

See accompanying notes to the condensed financial statements.

Insignia Systems, Inc.

Notes To Financial Statements

Notes To Condensed Financial Statements

Summary of Significant Accounting Policies.

6 unchanged sentences

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

On April 7, 2023, Insignia announced the launch of the Company’s non-bank lending platform.

Basis of Presentation .

6 unchanged sentences

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

Due to sales cycles within the retailers that our display and on-pack solutions execute we anticipate seasonality in sales, with those sales being relatively stronger in the first quarter of the year.

We expect the remaining quarters in 2023 to have significantly less revenue than this first quarter and also expect operating losses in the remaining quarters of the year.

The accompanying condensed balance sheet as of December 31, 2022 has been derived from the audited balance sheet as of December 31, 2022 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

$ 10,595,000 $ 14,439,000

Restricted cash

85,000 85,000

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 .

$ 10,680,000 $ 14,524,000

Inventories .

2 unchanged sentences

Property and Equipment .

Property and equipment consisted of the following:

September 30,

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

Property and Equipment:

Production tooling, machinery and equipment

$ 14,000 $ 27,000

Office furniture and fixtures

94,000 95,000

Computer equipment and software

580,000 771,000

Leasehold improvements

19,000 19,000

Construction in-progress

713,000 915,000

Accumulated depreciation and amortization

( 649,000 ) ( 844,000 )

Net Property and Equipment

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.

$ 64,000 $ 71,000

Depreciation expense was approximately $ 14,000 and $ 16,000 in the three months ended March 31, 2023 and 2022, 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 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 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

Nine Months Ended

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

During the three months ended March 31, 2023 and 2022, 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, 2023, under the Company’s employee stock purchase plan using the following weighted average assumptions:

expected life of 1.0 year, expected volatility of 95.2 %, dividend yield of 0 % and risk-free interest rate of 4.7 %.

The Company recorded total stock-based compensation expense of $ 22,000 and $ 30,000 for the three months ended March 31, 2023 and 2022, respectively.

Net Income per Share .

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

Diluted net income 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 $ 11.95 , were outstanding at March 31, 2023 and were not included in the computation of common stock equivalents for the three months ended March 31, 2023 because their exercise prices were higher than the average fair market value of the common stock during the reporting 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.

Weighted average common shares outstanding for the three months ended March 31, 2023 and 2022 were as follows:

Three months ended March 31

Denominator for basic net income per share - weighted average shares

1,798,000 1,786,000

Effect of dilutive securities:

Stock options and restricted stock units

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

Stock options, restricted stock and restricted stock units

Denominator for diluted net income per share - weighted average shares

1,802,000 1,794,000

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 transferred to a customer are accounted for as a fulfillment cost and are included in cost of services.

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.

Performance Obligations

2 unchanged sentences

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:

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.

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

The Company supplies CPG manufacturers with retailer approved promotional services, such as display, 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.

Due to the variable nature of these services, revenue recognition is primarily at a point-in-time recognition.

POPS Signage Solution Services.

6 unchanged sentences

Disaggregation of Revenue

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

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

Three months ended March 31

Timing of revenue recognition:

2 unchanged sentences

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.

5 unchanged sentences

Reclassification of beginning deferred revenue to revenue, as a result of performance obligations satisfied

( 2,062,000 )

Cash received in advance and not recognized as revenue

Balance at September 30, 2022

Balance at March 31, 2023

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 $ 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.

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 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.

Among our contracts with an expected duration of greater than one year, we anticipate that revenue of $ 30,000 related to performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2023 will be recognized during the remainder of fiscal 2023.

As of March 31, 2023, the Company leases space under a non-cancelable operating lease for its corporate headquarters, which has been renewed through December 31, 2026.

The Company also had a lease for warehouse space which expired March 31, 2023.

The warehouse lease has been extended on a month-to-month basis effective April 1, 2023.

The corporate headquarters lease has escalating lease payment terms but does not contain a contingent rent provision.

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 reflected as restricted cash on the balance sheet.

The Company’s leases include options to renew.

The exercise of lease renewal options is at the Company’s sole discretion.

Therefore, the renewals to extend the lease terms are not included in the Company’s right of use assets and lease liabilities as they are not reasonably certain of exercise.

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 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:

Three months ended September 30, 2022

Nine months ended September 30, 2022

Operating lease cost

Variable lease cost

Three months ended September 30, 2021

In December 2022, the Company decided to exercise the lease renewal option for its corporate headquarters, extending the lease term through December 31, 2026.

The Company used its incremental borrowing rate of approximately 7.0 % in determining the present value of the extended lease payments.

The cost components of the Company’s operating leases were as follows for the periods ended March 31, 2023 and 2022:

Three months ended March 31, 2023

Operating lease cost

Variable lease cost

Short-term lease cost

Nine months ended September 30, 2021

Prior Corporate

Three months ended March 31, 2022

Operating lease cost

Variable lease cost

Short-term lease cost

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, 2022:

Maturity of Lease Liabilities

Maturities of the Company’s lease liabilities for its corporate headquarters and its warehouse operating leases are as follows as of March 31, 2023:

Total lease payments

Present value of lease liabilities

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.

The remaining lease term as of March 31, 2023 for the Company’s corporate headquarters lease was 3.75 years.

The cash outflows for operating leases for the three months ended March 31, 2023 and March 31, 2022 were $ 10,000 and $ 21,000 , respectively.

Income Taxes.

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,

For the three months ended March 31, 2023, the Company recorded income tax expense of $ 3,000 , or 0.2 % of income before 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.

The income tax expense for the three months ended March 31, 2023 and 2022 is comprised of federal and state taxes.

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).

The actual tax expense attributable to income before taxes differs from the expected tax expense computed by applying the U.S.

federal corporate income tax rate of 21.0 % as follows:

Three months ended March 31,

Federal statutory rate

2 unchanged sentences

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 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, 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.

As of March 31, 2023, and December 31, 2022, the Company had unrecognized tax benefits totaling $ 54,000 and $ 53,000 , 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 $ 54,000 .

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, 2022, the Company had Federal net operating loss (NOL) to carry forward of approximately $ 2,900,000 .

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.

As of March 31, 2023, the Company estimates remaining Federal NOL carryforwards to be approximately $ 1,200,000 .

Federal NOL utilization is limited to 80 % of estimated taxable income.

The estimated NOL carry forward will be adjusted at year end for actual results.

Concentrations.

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.

During the three months ended March 31, 2023, three customers accounted for 20 %, 17 % and 13 %, respectively, of the Company’s total net sales.

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

At March 31, 2023, two customers accounted for 47 % and 19 %, respectively, of the Company’s total accounts receivable.

At December 31, 2022, three customers represented 20 %, 19 % and 11 %, respectively, of the Company’s total accounts receivable.

Legal Proceedings.

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

The outcome of these matters is not expected to have a material effect on the Company’s financial position or results of operations.

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.

3 unchanged sentences

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

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.

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 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.

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 during the three months ended September 30, 2022.

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