UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
_______________________________
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended March 31,June 30, 2021
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934for the transition period from ___________ to ____________
Commission File Number: 1-13471
INSIGNIA SYSTEMS |
(Exact name of registrant as specified in its charter) |
Minnesota | 41-1656308 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
7308 Aspen Lane N, Suite 153, Minneapolis, MN 55428 |
(Address of principal executive offices; zip code) |
(763) 392-6200 |
(Registrant’s telephone number, including area code) |
Securities registered to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock, $0.01 par value | ISIG | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.:
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☑ | Smaller reporting company | ☑ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Number of shares outstanding of Common Stock, $.01 par value, as of May 3,August 19, 2021 was 1,754,030.
Insignia Systems, Inc.
TABLE OF CONTENTS
Page | ||
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2 | ||
3 | ||
4 | ||
5 | ||
14 | ||
20 | ||
20 | ||
22 | ||
22 | ||
22 | ||
22 | ||
22 | ||
22 | ||
22 | ||
23 |
i | ||
March 31, | ||
2021 | December 31, | |
(Unaudited) | 2020 | |
| ASSETS | ||
| Current Assets: | ||
| Cash and cash equivalents | $6,838,000 | $7,128,000 |
| Accounts receivable, net | 4,726,000 | 5,628,000 |
| Inventories | 102,000 | 85,000 |
| Income tax receivable | 238,000 | 241,000 |
| Prepaid expenses and other | 628,000 | 711,000 |
| Total Current Assets | 12,532,000 | 13,793,000 |
| Other Assets: | ||
| Property and equipment, net | 74,000 | 75,000 |
| Operating lease right-of-use assets | 33,000 | 37,000 |
| Other, net | 130,000 | 155,000 |
| Total Assets | $12,769,000 | $14,060,000 |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||
| Current Liabilities: | ||
| Accounts payable | $2,580,000 | $3,148,000 |
| Accrued liabilities: | ||
| Compensation | 374,000 | 424,000 |
| Other | 1,280,000 | 827,000 |
| Current portion of long-term debt | — | 464,000 |
| Current portion of operating lease liabilities | 16,000 | 56,000 |
| Deferred revenue | 700,000 | 180,000 |
| Total Current Liabilities | 4,950,000 | 5,099,000 |
| Long-Term Liabilities: | ||
| Accrued income taxes | 685,000 | 677,000 |
| Long-term debt, net of current portion | — | 590,000 |
| Operating lease liabilities | 17,000 | — |
| Total Long-Term Liabilities | 702,000 | 1,267,000 |
| Commitments and Contingencies | ||
| Shareholders' Equity: | ||
| Common stock, par value $.01: | ||
| Authorized shares - 5,714,000 | ||
| Issued and outstanding shares - 1,754,000 at March 31, 2021 and 1,748,000 December 31, 2020 | 18,000 | 17,000 |
| Additional paid-in capital | 16,319,000 | 16,238,000 |
| Accumulated deficit | ( 9,220,000) | ( 8,561,000) |
| Total Shareholders' Equity | 7,117,000 | 7,694,000 |
| Total Liabilities and Shareholders' Equity | $12,769,000 | $14,060,000 |
See accompanying notes to financial statements. | ||
Insignia Systems, Inc. | ||
CONDENSED STATEMENTS OF OPERATIONS | ||
(Unaudited) | ||
| Three Months Ended March 31 | 2021 | 2020 |
| Services revenues | $5,419,000 | $4,436,000 |
| Products revenues | — | 246,000 |
| Total Net Sales | 5,419,000 | 4,682,000 |
| Cost of services | 4,457,000 | 3,382,000 |
| Cost of goods sold | — | 172,000 |
| Impairment loss - services | — | 159,000 |
| Total Cost of Sales | 4,457,000 | 3,713,000 |
| Gross Profit | 962,000 | 969,000 |
| Operating Expenses: | ||
| Selling | 516,000 | 720,000 |
| Marketing | 235,000 | 365,000 |
| General and administrative | 1,919,000 | 993,000 |
| Total Operating Expenses | 2,670,000 | 2,078,000 |
| Operating Loss | ( 1,708,000) | ( 1,109,000) |
| Other income: | ||
| Gain on forgiveness of debt and accrued interest | 1,062,000 | — |
| Miscellaneous | — | 24,000 |
| Loss Before Taxes | ( 646,000) | ( 1,085,000) |
| Income tax expense (benefit) | 13,000 | ( 222,000) |
| Net Loss | $(659,000) | $(863,000) |
| Net loss per share: | ||
| Basic | $(0.38) | $(0.50) |
| Diluted | $(0.38) | $(0.50) |
| Shares used in calculation of net loss per share: | ||
| Basic | 1,751,000 | 1,724,000 |
| Diluted | 1,751,000 | 1,724,000 |
| See accompanying notes to financial statements. | ||
Insignia Systems, Inc. | |||||
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY | |||||
(Unaudited) | |||||
Common Stock | |||||
Shares | Amount | Additional Paid-In Capital | Accumulated Deficit | Total | |
| Balance at December 31, 2020 | 1,748,000 | $17,000 | $16,238,000 | $(8,561,000) | $7,694,000 |
| Issuance of common stock, net | 6,000 | 1,000 | 25,000 | — | 26,000 |
| Value of stock-based compensation | — | — | 56,000 | — | 56,000 |
| Net loss | — | — | — | (659,000) | (659,000) |
| Balance at March 31, 2021 | 1,754,000 | $18,000 | $16,319,000 | $(9,220,000) | $7,117,000 |
Common Stock | |||||
Shares | Amount | Additional Paid-In Capital | Accumulated Deficit | Total | |
| Balance at December 31, 2019 | 1,725,000 | $16,000 | $16,039,000 | $(4,261,000) | $11,794,000 |
| Issuance of common stock, net | 5,000 | — | 20,000 | — | 20,000 |
| Value of stock-based compensation | — | — | 49,000 | — | 49,000 |
| Net loss | — | — | — | (863,000) | (863,000) |
| Balance at March 31, 2020 | 1,730,000 | $16,000 | $16,108,000 | $(5,124,000) | $11,000,000 |
Insignia Systems, Inc. | ||||||||
CONDENSED BALANCE SHEETS | ||||||||
|
|
|
|
| ||||
|
|
|
| As Restated |
| |||
|
| June 30, 2021 |
|
| December 31, |
| ||
|
| (Unaudited) |
|
| 2020 |
| ||
| ASSETS |
|
|
|
|
|
| ||
| Current Assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 5,879,000 |
|
| $ | 7,128,000 |
|
Restricted cash |
|
| 85,000 |
|
|
| 0 |
|
Accounts receivable, net |
|
| 4,837,000 |
|
|
| 5,857,000 |
|
Inventories |
|
| 91,000 |
|
|
| 85,000 |
|
Income tax receivable |
|
| 242,000 |
|
|
| 241,000 |
|
Prepaid expenses and other |
|
| 301,000 |
|
|
| 711,000 |
|
Total Current Assets |
|
| 11,435,000 |
|
|
| 14,022,000 |
|
|
|
|
|
|
|
|
|
|
| Other Assets: |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 81,000 |
|
|
| 75,000 |
|
Operating lease right-of-use assets |
|
| 29,000 |
|
|
| 37,000 |
|
Other, net |
|
| 37,000 |
|
|
| 155,000 |
|
|
|
|
|
|
|
|
|
|
| Total Assets |
| $ | 11,582,000 |
|
| $ | 14,289,000 |
|
|
|
|
|
|
|
|
|
|
| LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
| Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
| 2,516,000 |
|
|
| 3,148,000 |
|
Accrued liabilities: |
|
|
|
|
|
|
|
|
Compensation |
|
| 474,000 |
|
|
| 424,000 |
|
Sales tax |
|
| 1,326,000 |
|
|
| 1,011,000 |
|
Other |
|
| 1,072,000 |
|
|
| 1,071,000 |
|
Current portion of long-term debt |
|
| 0 |
|
|
| 464,000 |
|
Current portion of operating lease liabilities |
|
| 16,000 | �� |
|
| 56,000 |
|
Deferred revenue |
|
| 275,000 |
|
|
| 180,000 |
|
Total Current Liabilities |
|
| 5,679,000 |
|
|
| 6,354,000 |
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities: |
|
|
|
|
|
|
|
|
Accrued income taxes |
|
| 694,000 |
|
|
| 677,000 |
|
Long-term debt, net of current portion |
|
| 0 |
|
|
| 590,000 |
|
Operating lease liabilities |
|
| 13,000 |
|
|
|
|
|
Total Long-Term Liabilities |
|
| 707,000 |
|
|
| 1,267,000 |
|
|
|
|
|
|
|
|
|
|
| Commitments and Contingencies |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
| Shareholders' Equity: |
|
|
|
|
|
|
|
|
Common stock, par value $.01: |
|
|
|
|
|
|
|
|
Authorized shares - 5,714,000 |
|
|
|
|
|
|
|
|
Issued and outstanding shares - 1,765,000 at June 30, 2021 and 1,748,000 at December 31, 2020, respectively |
|
| 18,000 |
|
|
| 17,000 |
|
Additional paid-in capital |
|
| 16,396,000 |
|
|
| 16,238,000 |
|
Accumulated deficit |
|
| (11,218,000 | ) |
|
| (9,587,000 | ) |
Total Shareholders' Equity |
|
| 5,196,000 |
|
|
| 6,668,000 |
|
|
|
|
|
|
|
|
|
|
| Total Liabilities and Shareholders' Equity |
| $ | 11,582,000 |
|
| $ | 14,289,000 |
|
See accompanying notes to financial statements.
| Three Months Ended March 31 | 2021 | 2020 |
| Operating Activities: | ||
| Net loss | $(659,000) | $(863,000) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||
| Depreciation and amortization | 21,000 | 148,000 |
| Impairment loss | - | 159,000 |
| Gain on sale of property and equipment | (7,000) | - |
| Changes in allowance for doubtful accounts | ( 3,000) | 9,000 |
| Stock-based compensation expense | 56,000 | 49,000 |
| Gain on forgiveness of debt and accrued interest | ( 1,062,000) | - |
| Changes in operating assets and liabilities: | ||
| Accounts receivable | 905,000 | 1,351,000 |
| Inventories | ( 17,000) | 9,000 |
| Income tax receivable | 3,000 | ( 119,000) |
| Prepaid expenses and other | 108,000 | 4,000 |
| Accounts payable | ( 568,000) | ( 208,000) |
| Accrued liabilities | 392,000 | ( 501,000) |
| Income tax payable | 8,000 | 9,000 |
| Deferred revenue | 520,000 | 210,000 |
| Net cash provided by (used in) operating activities | ( 303,000) | 257,000 |
| Investing Activities: | ||
| Purchases of property and equipment | ( 29,000) | ( 32,000) |
| Sale of property and equipment | 16,000 | - |
| Net cash used in investing activities | ( 13,000) | ( 32,000) |
| Financing Activities: | ||
| Proceeds from issuance of common stock | 26,000 | 20,000 |
| Net cash provided by financing activities | 26,000 | 20,000 |
| Increase (decrease) in cash and cash equivalents | ( 290,000) | 245,000 |
| Cash and cash equivalents at beginning of period | 7,128,000 | 7,510,000 |
| Cash and cash equivalents at end of period | $6,838,000 | $7,755,000 |
| Supplemental disclosures for cash flow information: | ||
| Cash refunded (paid) during the period for income taxes | $(1,000) | $112,000 |
| Non-cash financing activity: | ||
| Operating lease right-of-use asset obtained in exchange for lease obligation | $33,000 | $- |
| Forgiveness of debt and accrued interest | $1,062,000 | $- |
| See accompanying notes to financial statements. |
| 1 |
| Table of contents |
Insignia Systems, Inc. | ||||||||||||||||
CONDENSED STATEMENTS OF OPERATIONS | ||||||||||||||||
(Unaudited) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30 |
|
| June 30 |
| ||||||||||
|
|
|
| As Restated |
|
|
|
| As Restated |
| ||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
| Services revenues |
| $ | 6,096,000 |
|
| $ | 3,133,000 |
|
| $ | 11,482,000 |
|
| $ | 7,533,000 |
|
| Products revenues |
|
| 0 |
|
|
| 214,000 |
|
|
| 0 |
|
|
| 460,000 |
|
| Total Net Sales |
|
| 6,096,000 |
|
|
| 3,347,000 |
|
|
| 11,482,000 |
|
|
| 7,993,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of services |
|
| 4,888,000 |
|
|
| 2,807,000 |
|
|
| 9,345,000 |
|
|
| 6,189,000 |
|
| Cost of goods sold |
|
| 0 |
|
|
| 208,000 |
|
|
| 0 |
|
|
| 380,000 |
|
| Impairment loss - services |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 159,000 |
|
| Total Cost of Sales |
|
| 4,888,000 |
|
|
| 3,015,000 |
|
|
| 9,345,000 |
|
|
| 6,728,000 |
|
| Gross Profit |
|
| 1,208,000 |
|
|
| 332,000 |
|
|
| 2,137,000 |
|
|
| 1,265,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Selling |
|
| 465,000 |
|
|
| 927,000 |
|
|
| 981,000 |
|
|
| 1,647,000 |
|
| Marketing |
|
| 260,000 |
|
|
| 243,000 |
|
|
| 495,000 |
|
|
| 608,000 |
|
| General and administrative |
|
| 1,336,000 |
|
|
| 992,000 |
|
|
| 3,273,000 |
|
|
| 1,996,000 |
|
| Total Operating Expenses |
|
| 2,061,000 |
|
|
| 2,162,000 |
|
|
| 4,749,000 |
|
|
| 4,251,000 |
|
| Operating Loss |
|
| (853,000 | ) |
|
| (1,830,000 | ) |
|
| (2,612,000 | ) |
|
| (2,986,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gain on forgiveness of debt and accrued interest |
|
| 0 |
|
|
| 0 |
|
|
| 1,062,000 |
|
|
| 0 |
|
| Interest expense |
|
| (33,000 | ) |
|
| (18,000 | ) |
|
| (60,000 | ) |
|
| (33,000 | ) |
| Miscellaneous |
|
| 2,000 |
|
|
| 16,000 |
|
|
| 2,000 |
|
|
| 40,000 |
|
| Loss Before Taxes |
|
| (884,000 | ) |
|
| (1,832,000 | ) |
|
| (1,608,000 | ) |
|
| (2,979,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income tax expense (benefit) |
|
| 10,000 |
|
|
| 11,000 |
|
|
| 23,000 |
|
|
| (211,000 | ) |
| Net Loss |
| $ | (894,000 | ) |
| $ | (1,843,000 | ) |
| $ | (1,631,000 | ) |
| $ | (2,768,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic |
| $ | (0.51 | ) |
| $ | (1.07 | ) |
| $ | (0.93 | ) |
| $ | (1.60 | ) |
| Diluted |
| $ | (0.51 | ) |
| $ | (1.07 | ) |
| $ | (0.93 | ) |
| $ | (1.60 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares used in calculation of net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic |
|
| 1,755,000 |
|
|
| 1,725,000 |
|
|
| 1,753,000 |
|
|
| 1,725,000 |
|
| Diluted |
|
| 1,755,000 |
|
|
| 1,725,000 |
|
|
| 1,753,000 |
|
|
| 1,725,000 |
|
See accompanying unaudited financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. They do not include all information and footnotes required by U.S. GAAP for complete financial statements. However, except as described herein, there has been no material change in the information disclosed in the notes to financial statements included in the Company’sstatements.
| 2 |
| Table of contents |
Insignia Systems, Inc. | ||||||||||||||||||||
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Common Stock |
|
| Additional Paid-In |
|
|
|
|
|
|
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Accumulated Deficit |
|
| Total |
| |||||
| Balance at December 31, 2020, as restated |
|
| 1,748,000 |
|
| $ | 17,000 |
|
| $ | 16,238,000 |
|
| $ | (9,587,000 | ) |
| $ | 6,668,000 |
|
| Issuance of common stock, net |
|
| 6,000 |
|
|
| 1,000 |
|
|
| 25,000 |
|
|
| 0 |
|
|
| 26,000 |
|
| Value of stock-based compensation |
|
| - |
|
|
| 0 |
|
|
| 56,000 |
|
|
| 0 |
|
|
| 56,000 |
|
| Net loss, as restated |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (737,000 | ) |
|
| (737,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at March 31, 2021, as restated |
|
| 1,754,000 |
|
| $ | 18,000 |
|
| $ | 16,319,000 |
|
| $ | (10,324,000 | ) |
| $ | 6,013,000 |
|
| Value of stock-based compensation |
|
| - |
|
|
| 0 |
|
|
| 86,000 |
|
|
| 0 |
|
|
| 86,000 |
|
| Repurchase of common stock upon vesting of restricted stock units |
|
| 11,000 |
|
|
| 0 |
|
|
| (9,000 | ) |
|
| 0 |
|
|
| (9,000 | ) |
| Net loss |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (894,000 | ) |
|
| (894,000 | ) |
| Balance at June 30, 2021 |
|
| 1,765,000 |
|
| $ | 18,000 |
|
| $ | 16,396,000 |
|
| $ | (11,218,000 | ) |
| $ | 5,196,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Stock |
|
|
| Additional Paid-In |
|
|
|
|
|
|
|
|
| |||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Accumulated Deficit |
|
| Total |
| |||||
| Balance at December 31, 2019, as restated |
|
| 1,725,000 |
|
| $ | 16,000 |
|
| $ | 16,039,000 |
|
| $ | (4,972,000 | ) |
| $ | 11,083,000 |
|
| Issuance of common stock, net |
|
| 5,000 |
|
|
| 0 |
|
|
| 20,000 |
|
|
| 0 |
|
|
| 20,000 |
|
| Value of stock-based compensation |
|
| - |
|
|
| 0 |
|
|
| 49,000 |
|
|
| 0 |
|
|
| 49,000 |
|
| Net loss, as restated |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (925,000 | ) |
|
| (925,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at March 31, 2020, as restated |
|
| 1,730,000 |
|
| $ | 16,000 |
|
| $ | 16,108,000 |
|
| $ | (5,897,000 | ) |
| $ | 10,227,000 |
|
| Value of stock-based compensation |
|
| - |
|
|
| 0 |
|
|
| 59,000 |
|
|
| 0 |
|
|
| 59,000 |
|
| Repurchase of common stock upon vesting of restricted stock units |
|
| 4,000 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
| Net loss, as restated |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,843,000 | ) |
|
| (1,843,000 | ) |
| Balance at June 30, 2020, as restated |
|
| 1,734,000 |
|
| $ | 16,000 |
|
| $ | 16,167,000 |
|
| $ | (7,740,000 | ) |
| $ | 8,443,000 |
|
See accompanying notes to financial statements as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the periods presented are not necessarily indicative of the resultsstatements.
| 3 |
| Table of contents |
Insignia Systems, Inc. | ||||||||
CONDENSED STATEMENTS OF CASH FLOWS | ||||||||
(Unaudited) | ||||||||
|
|
|
|
| As Restated |
| ||
| Six Months Ended June 30 |
| 2021 |
|
| 2020 |
| ||
| Operating Activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (1,631,000 | ) |
| $ | (2,768,000 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 32,000 |
|
|
| 267,000 |
|
Impairment loss - services |
|
| 0 |
|
|
| 159,000 |
|
Gain on sale of property and equipment |
|
| (7,000 | ) |
|
| 0 |
|
Changes in allowance for doubtful accounts |
|
| 53,000 |
|
|
| 61,000 |
|
Stock-based compensation expense |
|
| 142,000 |
|
|
| 108,000 |
|
Gain on forgiveness of debt and accrued interest |
|
| (1,062,000 | ) |
|
| 0 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 967,000 |
|
|
| 2,077,000 |
|
Inventories |
|
| (6,000 | ) |
|
| 10,000 |
|
Income tax receivable |
|
| (1,000 | ) |
|
| (121,000 | ) |
Prepaid expenses and other |
|
| 536,000 |
|
|
| (109,000 | ) |
Accounts payable |
|
| (647,000 | ) |
|
| (851,000 | ) |
Accrued liabilities |
|
| 361,000 |
|
|
| 168,000 |
|
Income tax payable |
|
| 17,000 |
|
|
| 17,000 |
|
Deferred revenue |
|
| 95,000 |
|
|
| 430,000 |
|
Net cash used in operating activities |
|
| (1,151,000 | ) |
|
| (552,000 | ) |
|
|
|
|
|
|
|
|
|
| Investing Activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (32,000 | ) |
|
| (44,000 | ) |
Proceeds from sale of property and equipment |
|
| 16,000 |
|
|
| 0 |
|
Net cash used in investing activities |
|
| (16,000 | ) |
|
| (44,000 | ) |
|
|
|
|
|
|
|
|
|
| Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net |
|
| 26,000 |
|
|
| 20,000 |
|
Cash dividends paid ($0.70 per share) |
|
| (14,000 | ) |
|
| (14,000 | ) |
Repuchase of common stock upon vesting of restricted stock awards and vesting of restricted stock units |
|
| (9,000 | ) |
|
| 0 |
|
Proceeds from PPP loan |
|
| 0 |
|
|
| 1,054,000 |
|
Net cash provided by financing activities |
|
| 3,000 |
|
|
| 1,060,000 |
|
|
|
|
|
|
|
|
|
|
| Increase (decrease) in cash and cash equivalents |
|
| (1,164,000 | ) |
|
| 464,000 |
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents and restricted cash at beginning of period |
|
| 7,128,000 |
|
|
| 7,510,000 |
|
| Cash and cash equivalents and restricted cash at end of period |
| $ | 5,964,000 |
|
| $ | 7,974,000 |
|
|
|
|
|
|
|
|
|
|
| Supplemental disclosures for cash flow information: |
|
|
|
|
|
|
|
|
Cash paid (refunded) during the period for income taxes |
| $ | 7,000 |
|
| $ | (107,000 | ) |
|
|
|
|
|
|
|
|
|
| Non-cash financing activity: |
|
|
|
|
|
|
|
|
Operating lease right-of-use asset obtained in exchange for lease obligation |
| $ | 33,000 |
|
| $ | 0 |
|
Forgiveness of debt and accrued interest |
| $ | 1,062,000 |
|
| $ | 0 |
|
Purchase of property and equipment included in accounts payable |
| $ | 15,000 |
|
| $ | 0 |
|
See accompanying notes to be expected for the full year.
March 31, 2021 | December 31, 2020 | |
| Raw materials | $- | $32,000 |
| Work-in-process | 2,000 | 2,000 |
| Finished goods | 100,000 | 51,000 |
$102,000 | $85,000 |
March 31, 2021 | Decmeber 31, 2020 | |
| Property and Equipment: | ||
| Production tooling, machinery and equipment | $27,000 | $2,349,000 |
| Office furniture and fixtures | 88,000 | 425,000 |
| Computer equipment and software | 704,000 | 1,447,000 |
| Construction in-progress | — | 17,000 |
819,000 | 4,238,000 | |
| Accumulated depreciation and amortization | ( 745,000) | ( 4,163,000) |
| Net Property and Equipment | $74,000 | $75,000 |
Three months ended March 31 | 2021 | 2020 |
| Denominator for basic net loss per share - weighted average shares | 1,751,000 | 1,724,000 |
| Effect of dilutive securities: | ||
| Stock options, restricted stock and restricted stock units | — | — |
| Denominator for diluted net loss per share - weighted average shares | 1,751,000 | 1,724,000 |
Three months ended March 31, 2021 | |||
Services Revenues | Products Revenue | Total Revenue | |
| Timing of revenue recognition: | |||
| Products and services transferred over time | $2,028,000 | $- | $2,028,000 |
| Products and services transferred at a point in time | 3,391,000 | - | 3,391,000 |
| Total | $5,419,000 | $- | $5,419,000 |
Three months ended March 31, 2020 | |||
Services Revenues | Products Revenue | Total Revenue | |
| Timing of revenue recognition: | |||
| Products and services transferred over time | $3,344,000 | $- | $3,344,000 |
| Products and services transferred at a point in time | 1,092,000 | 246,000 | 1,338,000 |
| Total | $4,436,000 | $246,000 | $4,682,000 |
| 4 |
| Table of contents |
Insignia Systems, Inc.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. | Summary of Significant Accounting Policies. |
Description of Business.Insignia Systems, Inc. (the “Company”) is a leading provider of in-store and digital advertising solutions to consumer-packaged goods (“CPG”) manufacturers, retailers, shopper marketing agencies and brokerages. The Company operates in a single reportable segment. The Company’s leadership and employees have extensive industry knowledge with direct experience in both CPG manufacturers and retailers. The Company provides marketing solutions to CPG manufacturers spanning from some of the largest multinationals to new and emerging brands. Reverse Stock Split. Effective December 31, 2020, the Company implemented a seven-for-one reverse stock split. All share and per-share information, including for stock options and restricted stock units, in the financial statements gives retroactive effect to the reverse stock split for all periods presented including the value of Common Stock and Additional Paid-In Capital as of December 31, 2020. Sale of Custom Print Business. In August 2020, the Company sold its custom print business to an existing strategic partner. This divestiture allowed the Company to focus on its core business, selling product solutions to CPGs. The custom print business was not material to operations as a whole and did not represent a strategic shift and therefore is not presented as a discontinued operation. The sale price was $300,000 resulting in a gain on the sale of $195,000. On the date of the sale, the Company received $200,000 of cash and recorded a short-term receivable of $75,000 and a long-term receivable of $25,000. Basis of Presentation. The accompanying unaudited financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. They do not include all information and footnotes required by U.S. GAAP for complete financial statements. However, except as described herein, there has been no material change in the information disclosed in the notes to financial statements included in the Company’s financial statements as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K/A. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. 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: |
|
| June 30, |
|
| December 31, |
| ||
|
| 2021 | ||||||
| Cash and cash equivalents | $ | 5,879,000 | $ | 7,128,000 | ||||
| Restricted cash | 85,000 |
| ||||||
| Total cash, cash equivalents and retricted cash |
| $ | 5,964,000 |
|
| $ | 7,128,000 |
|
Restricted Cash.The Company’s restricted cash consists of cash the Company is contractually obligated to maintain in accordance with the terms of its lease signed in April 2021 for headquarters space in Minneapolis. See Note 9 for further discussion. |
| Table of |
Inventories. Inventories are primarily comprised of sign cards and hardware. Inventory is valued at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method, and consisted of the following as of the dates indicated: |
|
| June 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
| Raw materials |
| $ | 0 |
|
| $ | 0 |
|
| Work-in-process |
|
| 3,000 |
|
|
| 2,000 |
|
| Finished goods |
|
| 88,000 |
|
|
| 83,000 |
|
|
| $ | 91,000 |
|
| $ | 85,000 |
|
Property and Equipment. Property and equipment consisted of the following as of the dates indicated: |
|
| June 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
| Property and Equipment: |
|
|
|
|
|
| ||
Production tooling, machinery and equipment |
| $ | 27,000 |
|
| $ | 2,349,000 |
|
Office furniture and fixtures |
|
| 88,000 |
|
|
| 425,000 |
|
Computer equipment and software |
|
| 714,000 |
|
|
| 1,447,000 |
|
Construction in-progress |
|
| 8,000 |
|
|
| 17,000 |
|
|
|
| 837,000 |
|
|
| 4,238,000 |
|
Accumulated depreciation and amortization |
|
| (756,000 | ) |
|
| (4,163,000 | ) |
Net Property and Equipment |
| $ | 81,000 |
|
| $ | 75,000 |
|
Depreciation expense was approximately $11,000 and $32,000 in the three and six months ended June 30, 2021, respectively, and was $85,000 and $170,000 in the three and six months ended June 30, 2020, respectively. Stock-Based Compensation. The Company measures and recognizes compensation expense for all stock-based payments at fair value. Restricted stock units and awards are valued at the closing market price of the Company’s stock as of the date of the grant. The Company uses the Black-Scholes option pricing model to During the six-month periods ended June 30, 2021 and 2020 no equity awards were issued by the Company, except those awarded to non-employee members of the Board of Directors. In June 2021, non-employee members of the Board of Directors received restricted stock grants totaling 5,514 shares pursuant to the 2018 Equity Incentive Plan (the “2018 Plan”). The shares underlying the awards were assigned a value of $8.16 per share, which was the closing price of the Company’s common stock on the date of grant, for a total grant date value of $45,000, the shares are schedule to vest the day immediately preceding the date of the next annual shareholder meeting. The awards granted to directors in December 2020 vested in full on the day immediately preceding the date of the 2021 annual shareholder meeting, June 9, 2021. The Company estimated the fair value of stock-based awards granted during the six months ended June 30, 2021 under the Company’s employee stock purchase plan using the following weighted average assumptions: expected life of 1.0 year, expected volatility of 142.2%, dividend yield of 0% and risk-free interest rate of 0.1%. |
| 6 |
| Table of contents |
Total stock-based compensation expense recorded for the three and six months ended June 30, 2021 was $86,000 and $141,000, respectively, and for the three and six months ended June 30, 2020 was $59,000 and $108,000, 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 diluted potential common shares outstanding during the period. Due to the net loss incurred during the three and six months ended June 30, 2021 and 2020 all outstanding stock options were anti-dilutive for those periods. Weighted average common shares outstanding for the three and six months ended June 30, 2021 and 2020 were as follows: |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30 |
|
| June 30 |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Denominator for basic net loss per share - weighted average shares |
|
| 1,755,000 |
|
|
| 1,725,000 |
|
|
| 1,753,000 |
|
|
| 1,725,000 |
|
| Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock units |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Denominator for diluted net loss per share - weighted average shares |
|
| 1,755,000 |
|
|
| 1,725,000 |
|
|
| 1,753,000 |
|
|
| 1,725,000 |
|
2. | Restatement of Previously Issued Financial Statements. The financial statements for the three and six months ended June 30, 2020 have been restated to reflect the correction of misstatements. The Company also restated all amounts impacted within the notes to the financial statements. A description of the adjustments and their impact on the previously issued financial statements are included below. Description of Restatement Adjustments. Commencing in the second quarter of 2021, the Company conducted a review of its sales tax positions, and related accounting, with the assistance of outside consultants. As a result of As described in additional detail in the Explanatory Note in our Annual Report on Form 10-K/A for the year ended December 31, 2020, the Company restated its audited financial statements for the years ended December 31, 2020 and 2019, and its unaudited financial statements for the quarterly periods ended March 31, 2020 and 2019, June 30, 2020 and 2019, and September 30, 2020 and 2019. The Company also filed a Quarterly Report on Form 10-Q/A for the three months ended March 31, 2021 to restate its unaudited financial statements for the three months ended March 31, 2021 and 2020. As a result of the misstatements, the Company restated our interim financial statements for the three and six months ended June 30, 2020. |
| Table of contents |
| A summary of the impact of the misstatements is as follows: |
|
| June 30, 2020 |
| |||||||||||||
|
| Three months |
|
| Six months |
| ||||||||||
| Three Months Ended |
| As previously reported |
|
| Restated |
|
| As previously reported |
|
| Restated |
| ||||
| Total Net Sales |
| $ | 3,388,000 |
|
| $ | 3,347,000 |
|
| $ | 8,070,000 |
|
| $ | 7,993,000 |
|
| Operating Loss |
|
| (1,777,000 | ) |
|
| (1,830,000 | ) |
|
| (2,886,000 | ) |
|
| (2,986,000 | ) |
| Net Loss |
|
| (1,772,000 | ) |
|
| (1,843,000 | ) |
|
| (2,635,000 | ) |
|
| (2,768,000 | ) |
|
| June 30, 2020 |
| |||||
| As of |
| As previously reported |
|
| Restated |
| ||
| Shareholders' equity |
| $ | 9,287,000 |
|
| $ | 8,444,000 |
|
The categories of restatement adjustments and their impact on previously reported financial statements are described below: | ||
(a) | Sales Tax and Related Misstatements – Sales tax on sales to customers who were subject to sales tax that was not previously accrued by the Company is corrected by an increase to accrued liabilities on the balance sheets and a reduction of net sales on the statements of operations. The Company also determined on which past sales the Company would bill for sales tax and corrected by increasing accounts receivable, net of an allowance for doubtful collectability, on the balance sheets and increasing net sales on the statements of operations. Estimated penalties on the related sales tax are corrected by an increase to accrued liabilities on the balance sheets and an increase to general and administrative expenses on the statements of operations. Estimated interest on the related sales tax is corrected by an increase to accrued liabilities on the balance sheets and an increase to interest expense within other income on the statement of operations. | |
(b) | Related Income Tax Impact - Any impact on income tax benefit from the impact on loss before taxes due to the correction in | |
The following is a summary of the impact of the correction of the sales tax error for the periods previously reported for the three and six months ended June 30, 2020. | ||
The following table sets forth the corrections in each of the individual line items affected in the statements of operations: | ||
|
| June 30, 2020 |
| |||||
|
| Three months |
|
| Six months |
| ||
Reduction of net sales |
| $ | 41,000 |
|
| $ | 77,000 |
|
Increase in general and administrative expense for penalties |
|
| 12,000 |
|
|
| 23,000 |
|
Increase in interest expense |
|
| 18,000 |
|
|
| 33,000 |
|
Total effect of restatement items |
| $ | 71,000 |
|
| $ | 133,000 |
|
| 8 |
| Table of contents |
|
| June 30, 2020 |
| |||||||||||||
|
| Three months |
|
| Six months |
| ||||||||||
| Six Months Ended |
| As previously reported |
|
| Restated |
|
| As previously reported |
|
| Restated |
| ||||
| Services revenues |
| $ | 3,174,000 |
|
| $ | 3,133,000 |
|
| $ | 7,610,000 |
|
| $ | 7,533,000 |
|
| Products revenues |
|
| 214,000 |
|
|
| 214,000 |
|
|
| 460,000 |
|
|
| 460,000 |
|
| Total Net Sales |
|
| 3,388,000 |
|
|
| 3,347,000 |
|
|
| 8,070,000 |
|
|
| 7,993,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of services |
|
| 2,807,000 |
|
|
| 2,807,000 |
|
|
| 6,189,000 |
|
|
| 6,189,000 |
|
| Cost of goods sold |
|
| 208,000 |
|
|
| 208,000 |
|
|
| 380,000 |
|
|
| 380,000 |
|
| Impairment loss |
|
| 0 |
|
|
| 0 |
|
|
| 159,000 |
|
|
| 159,000 |
|
| Total Cost of Sales |
|
| 3,015,000 |
|
|
| 3,015,000 |
|
|
| 6,728,000 |
|
|
| 6,728,000 |
|
| Gross Profit |
|
| 373,000 |
|
|
| 332,000 |
|
|
| 1,342,000 |
|
|
| 1,265,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Selling |
|
| 927,000 |
|
|
| 927,000 |
|
|
| 1,647,000 |
|
|
| 1,647,000 |
|
| Marketing |
|
| 243,000 |
|
|
| 243,000 |
|
|
| 608,000 |
|
|
| 608,000 |
|
| General and administrative |
|
| 980,000 |
|
|
| 992,000 |
|
|
| 1,973,000 |
|
|
| 1,996,000 |
|
| Total Operating Expenses |
|
| 2,150,000 |
|
|
| 2,162,000 |
|
|
| 4,228,000 |
|
|
| 4,251,000 |
|
| Operating Loss |
|
| (1,777,000 | ) |
|
| (1,830,000 | ) |
|
| (2,886,000 | ) |
|
| (2,986,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expense |
|
| 0 |
|
|
| (18,000 | ) |
|
| 0 |
|
|
| (33,000 | ) |
| Miscellaneous |
|
| 16,000 |
|
|
| 16,000 |
|
|
| 40,000 |
|
|
| 40,000 |
|
| Loss Before Taxes |
|
| (1,761,000 | ) |
|
| (1,832,000 | ) |
|
| (2,846,000 | ) |
|
| (2,979,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income tax benefit |
|
| 11,000 |
|
|
| 11,000 |
|
|
| (211,000 | ) |
|
| (211,000 | ) |
| Net Loss |
| $ | (1,772,000 | ) |
| $ | (1,843,000 | ) |
| $ | (2,635,000 | ) |
| $ | (2,768,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic |
| $ | (1.03 | ) |
| $ | (1.07 | ) |
| $ | (1.53 | ) |
| $ | (1.60 | ) |
| Diluted |
| $ | (1.03 | ) |
| $ | (1.07 | ) |
| $ | (1.53 | ) |
| $ | (1.60 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares used in calculation of net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic |
|
| 1,725,000 |
|
|
| 1,725,000 |
|
|
| 1,725,000 |
|
|
| 1,725,000 |
|
| Diluted |
|
| 1,725,000 |
|
|
| 1,725,000 |
|
|
| 1,725,000 |
|
|
| 1,725,000 |
|
| The following table sets forth the corrections in each of the individual line items affected in the balance sheet: |
|
| June 30, 2020 |
| |||||||||
|
| As previously reported |
|
| Error correction |
|
| Restated |
| |||
| Accounts receivable, net |
| $ | 5,319,000 |
|
| $ | 102,000 |
|
| $ | 5,421,000 |
|
| Accrued liabilities - sales tax |
| $ | 0 |
|
| $ | 773,000 |
|
| $ | 773,000 |
|
| Accrued liabilities - other |
| $ | 597,000 |
|
| $ | 172,000 |
|
| $ | 769,000 |
|
| Accumulated deficit |
| $ | 6,896,000 |
|
| $ | 844,000 |
|
| $ | 7,740,000 |
|
| 9 |
| Table of contents |
| The following table sets forth the corrections to retained earnings (accumulated deficit) and total shareholders’ equity in the statements of shareholders’ equity. |
SHAREHOLDERS' EQUITY | ||||||||
|
|
|
|
| ||||
|
| Accumulated Deficit |
|
| Total Shareholders' Equity |
| ||
| June 30, 2020 |
|
|
|
|
|
| ||
As reported |
| $ | (6,896,000 | ) |
| $ | 9,287,000 |
|
Adjustment due to cumulative error correction |
|
| (844,000 | ) |
|
| (844,000 | ) |
As restated |
| $ | (7,740,000 | ) |
| $ | 8,443,000 |
|
| The Company did not present tables for adjustments within the statement of cash flows, since all of the foregoing adjustments were within the operating activities section of the cash flows. These adjustments did not affect total cash flows from operating activities, financing activities or investing activities for the three and six month periods ended June 30, 2020. |
3. | Revenue Recognition. Under Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (“Topic 606”), revenue is measured based on consideration specified in the contract with a customer, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price, including noncash consideration, consideration paid or payable to a customer and significant financing components. Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer, as further described below under “Performance Obligations.” | |
| Taxes collected from customers and remitted to governmental authorities are excluded from revenue on the net basis of accounting. | ||
| 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 goods sold. | ||
| Performance Obligations | ||
| A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue | ||
| In-Store Signage Solution Services. The Company provides a service of displaying promotional signs in close proximity to the CPG manufacturer’s product in participating stores, which the Company maintains in two-to-four-week cycle increments. | ||
| Each of the individual activities under the Company’s services, including production activities, are inputs to an integrated sign display service. Customers receive and consume the benefits from the promotional displays over the duration of the contracted display cycle. Additionally, the display of the signs does not have an alternative use to the Company and the Company has an enforceable right to payment for services performed to date. As a result, the Company recognizes the transaction price for service performance obligations as revenue over time. Given the nature of the Company’s performance obligations is to provide a display service over the duration of a specified period or periods, the Company recognizes revenue on a straight-line basis over the display service period as it best reflects the timing of transfer of its sign solutions. | ||
| Non-POPS Solutions. The Company also supplies CPG manufacturers with other retailer approved promotional services, such as signage, on-pack, merchandising and digital solutions. These services are more customized than POPS, consisting of variable durations and variable specifications. Due to the variable nature of these services, revenue recognition is a mix of over-time and point-in-time recognition. |
| 10 |
| Table of contents |
| Products. Prior to the August 2020 sale of the Company’s custom print business, the Company also sold custom print solutions directly to its customers. Each such product was a distinct performance obligation. Revenue was recognized at a point-in-time upon shipment when control of the goods transferred to the customer. | |
| Disaggregation of Revenue | |
| In the following table, revenue is disaggregated by major revenue stream and timing of revenue recognition. |
|
| Three months ended June 30, 2021 |
|
| Six months ended June 30, 2021 |
| ||||||||||||||||||
|
| Services Revenues |
|
| Products Revenue |
|
| Total Revenue |
|
| Services Revenues |
|
| Products Revenue |
|
| Total Revenue |
| ||||||
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Products and services transferred over time |
| $ | 1,861,000 |
|
| $ | 0 |
|
| $ | 1,861,000 |
|
| $ | 3,884,000 |
|
| $ | 0 |
|
| $ | 3,884,000 |
|
Products and services transferred at a point in time |
|
| 4,235,000 |
|
|
| 0 |
|
|
| 4,235,000 |
|
|
| 7,598,000 |
|
|
| 0 |
|
|
| 7,598,000 |
|
Total |
| $ | 6,096,000 |
|
| $ | 0 |
|
| $ | 6,096,000 |
|
| $ | 11,482,000 |
|
| $ | 0 |
|
| $ | 11,482,000 |
|
|
| As Restated |
| |||||||||||||||||||||
|
| Three months ended June 30, 2020 |
|
| Six months ended June 30, 2020 |
| ||||||||||||||||||
|
| Services Revenues |
|
| Products Revenue |
|
| Total Revenue |
|
| Services Revenues |
|
| Products Revenue |
|
| Total Revenue |
| ||||||
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Products and services transferred over time |
| $ | 2,012,000 |
|
| $ | 0 |
|
| $ | 2,012,000 |
|
| $ | 5,343,000 |
|
| $ | 0 |
|
| $ | 5,343,000 |
|
Products and services transferred at a point in time |
|
| 1,121,000 |
|
|
| 214,000 |
|
|
| 1,335,000 |
|
|
| 2,190,000 |
|
|
| 460,000 |
|
|
| 2,650,000 |
|
Total |
| $ | 3,133,000 |
|
| $ | 214,000 |
|
| $ | 3,347,000 |
|
| $ | 7,533,000 |
|
| $ | 460,000 |
|
| $ | 7,993,000 |
|
| 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. 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. These costs are included in selling expenses. | |
| Deferred Revenue | |
| Significant changes in deferred revenue during the period are as follows: |
| Balance at December 31, 2020 |
| $ | 180,000 |
|
| Reclassification of beginning deferred revenue to revenue, as a result of performance obligations satisfied |
|
| (148,000 | ) |
| Cash received in advance and not recognized as revenue |
|
| 243,000 |
|
| Balance at June 30, 2021 |
| $ | 275,000 |
|
| Transaction Price Allocated to Remaining Performance Obligations | |
| The Company applies the practical expedient in paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less, which reflect the majority of its performance obligations. 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 $38,000, $116,000 and $60,000 related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2021 will be recognized during the remainder of fiscal 2021, 2022 and 2023, respectively. |
| 11 |
| Table of contents |
| 4. | Selling Arrangement. In 2011,the Company paid to News America Marketing In-Store, L.L.C. (“News America”) $4,000,000 in exchange for a 10-year arrangement to sell signs with price into News America’s network of retailers as News America’s exclusive agent. The $4,000,000 was being amortized over the 10-year term of the arrangement. In 2019, the Company accelerated the amortization based on the anticipated recovery period over the remaining term of the contract due to the loss of a significant retailer. During the three months ended March 31, 2020, the impact of COVID-19 was determined to be a triggering event requiring an impairment review of long-lived assets. As of March 31, 2020, the Company determined the asset was impaired based upon continued revenue declines driven by changes in market conditions due to COVID-19 within the stores covered by the agreement. As a result, an impairment of $159,000 was recognized as of March 31, 2020. The Company also shortened the remaining useful life of the underlying asset from March 31, 2021 to December 31, 2020 and recorded remaining amortization expense on a straight-line basis over the remainder of 2020. Amortization expense without the impairment was $36,000 and $97,000 in the three and six months ended June 30, 2020. The selling arrangement was fully amortized as of June 30, 2021 and December 31, 2020. |
5. | |
| 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. 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 June 30, 2021 and December 31, 2020, the Company had a valuation allowance of approximately $2,586,000 and $1,946,000, respectively, against its entire deferred tax asset because the Company does not believe it is more likely than not that it will realize its deferred tax asset. | |
| As of June 30, 2021, and December 31, 2020, the Company had unrecognized tax benefits totaling $694,000 and $677,000, 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 $694,000. The Company believes that it is reasonably possible that a decrease of up to $650,000 in unrecognized tax benefits related to state exposures may be necessary within the coming year, which would reduce accrued income taxes and increase income tax benefit. | |
| In March 2020, Congress passed the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. The CARES Act, among other provisions, allows for companies to carry back federal NOLs generated in 2018, 2019 and 2020 for up to five years for refunds of federal taxes paid. This provision created an opportunity for the Company to utilize NOLs not previously expected to be utilized. Thus, in 2020 the Company reversed approximately $215,000 of its valuation allowance against the NOLs in its deferred tax assets which the Company carried back to claim a refund of federal taxes paid. As the Company expects to receive the tax refund from the ability to carry back the NOLs within the next 12 months, this discrete benefit has been recorded within income taxes receivable on the balance sheet. In addition to the $215,000 recognized, $17,000 was included as a discrete tax benefit for 2020 and included in income taxes receivable related to the NOL carry back due to differences in the federal tax rate utilized for the deferred tax asset compared to the rates in effect for the years in which the NOL is being carried back. |
6. | Concentrations. During the six months ended June 30, 2021, three customers accounted for 15%, 12% and 11%, respectively of the Company’s total net sales. During the six months ended June 30, 2020, one customer accounted for 19% of the Company’s total net sales. At June 30, 2021, two customers represented 17% and 14%, respectively of the Company’s total accounts receivable. At December 31, 2020, two customers represented 17% and 10%, respectively, of the Company’s total accounts receivable. |
| 12 |
| Table of contents |
7. | Legal Proceedings. 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 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. | |
| Discovery is underway and trial has been scheduled for December 2021. At this stage of the proceedings, the Company is unable to determine the likelihood of an unfavorable outcome or estimate any potential resulting liability. |
8. | Loan. 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, as further detailed in the CARES Act and applicable guidance issued by the SBA. Interest was accrued on the outstanding balance of the Note at a rate of 1.00% per annum. The Note was scheduled to mature on April 22, 2022 and required 18 equal monthly payments of principal and interest. | |
| The Company’s application for forgiveness of the entire principal amount and all accrued interest under the Note was approved by the SBA on January 29, 2021. Accordingly, for the six months ended June 30, 2021 the debt of $1,054,000, plus accrued interest of $8,000, was eliminated with a gain on debt forgiveness and accrued interest included in other income. |
9. | Subsequent Event. The Company signed a lease for its headquarters space in Minneapolis for a three-year term commencing in July 2021 with monthly payments of approximately $8,300, inclusive of common area maintenance costs. A right-of-use asset and lease liability of approximately $183,000 will be recorded during the three months ended September 30, 2021. |
| 13 |
| Table of contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Company’s financial statements and related notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated due to various factors discussed under “Cautionary Statement Regarding Forward-Looking Statements” and elsewhere, including Part II, Item 1A, in this Quarterly Report on Form 10-Q and the “Risk Factors” described in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, our Current Reports on Form 8-K and our other SEC filings.
Restatement
The accompanying Management’s Discussion and Analysis (“MD&A”) gives effect to certain adjustments made to the previously reported financial statements for the three and six months ended June 30, 2020. Refer to Note 2, “Restatement of Financial Statements” in the accompanying financial statements for further details related to the restatement and impact on our financial statements.
Company Overview
Insignia Systems, Inc. (“Insignia,” “we,” “us,” “our” and the “Company”) is a leading provider of in-store and digital advertising solutions to consumer-packaged goods (“CPG”) manufacturers, retailers, shopper marketing agencies and brokerages (“clients”). We believe our products and services are attractive to our clients because of our speed to market, ability to customize our solutions down to store level and the results our solutions deliver. Our leadership and employees have extensive industry knowledge, including direct experience through former positions at CPG manufacturers and retailers. We provide marketing solutions to CPG manufacturers spanning from some of the largest multinationals to new and emerging brands.
For retailers and CPG manufacturers working in an environment that is tighter, more competitive, and more complex every day, Insignia positions itself as the shopper marketing ally that combines best-in-class execution with imagination, responsiveness, and hunger to help move business forward. We focus on relationships with our clients and installation and print production vendors (“execution partners”) as we believe they are our future. These relationships are built with our brand-led, retailer centric mindset, our ability to be nimble and flexible to the ever-changing industry landscape and by delivering superior customer service that our clients deserve. Our in-store solutions execute in retailers spanning from some of the largest national retailers to regional US wholesalers and independents who are leaders in their respective channels and geographies.
We have faced increasingly intense competition for the marketing expenditures of CPG manufacturers for in-store signage. We have observed increased competition in growing and maintaining our network of retailers into which we are authorized to sell solutions as competitors continue to purchase new or extend exclusive arrangements with retailers for that purpose. New product investments by large and emerging CPG manufacturers give us optimism that our product portfolio is relevant to our clients.
Over the past several years, we have diversified our portfolio through a significant expansion of our offered solutions and development of a portfolio designed to more holistically meet the needs of our clients and execution partners. This diversification has resulted in non-POPS solutions revenue growing 97%182% and 137% for the three and six months ended March 31,June 30, 2021 compared to the three and six months ended March 31, 2020.June 30, 2020, respectively. Our non-POPS revenue has grown year over year since we began the expansion of our offered solutions in 2017. We remain committed to further refining and enhancing our solutions and broadening our retailer relationships.
Impacts and Potential Future Impacts of COVID-19 on Our Business
Evaluating the second quarter of 2021 is challenging given the dramatic impacts of the COVID-19 pandemic has adversely impactedon the Company in the six months ended June 30, 2020. In the second quarter of 2020, the pandemic substantially reduced our operations andsales due to the operationsdeferral and/or cancelation of our CPG customers and retailers as a resultlarge number of quarantines, illnesses, and travel and logistics restrictions and it may continueprograms that were originally slated for execution in the second quarter of 2020. In contrast to adversely affectmuch of the preceding 12 to 15 months, we are currently seeing a limited direct impact on our business indefinitely. Whilerelated to the pandemic. However, while we have continued to operate and maintain our continuity with our clients by working remotely, the retail landscape in which CPG manufacturers and retailers operate has changed substantially, as has our ability to execute programs due to both limited access to our retailers and reduced levels of staffing with our execution partners. The financial impact of COVID-19 for the three months ended March 31, 2021 was not as significant as it had been in 2020 which is reflected in the increased revenue for the quarter ended March 31, 2021 compared to the quarter ended March 31, 2020. Our future bookings may be negatively impacted due to these ongoing changes in the retail landscape and evolution of shoppers'shoppers’ behavior in response to COVID-19. The permanence of these changes is unknown. 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 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. Even after
| 14 |
| Table of contents |
Further, it is possible the COVID-19 pandemic, has subsided, we may continue to experience adverse impacts onparticularly in light of variant strains of the virus, could further impact our businessoperations and the operations of customers and retailers as a result of anyquarantines, facility closures, illnesses, and travel and logistics restrictions. The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the resumption of high levels of infection and hospitalization, the resulting impact on our customers, suppliers, and vendors and the overall retail landscape, the remedial actions and stimulus measures adopted by federal, state, and local governments, and to what extent normal economic recession or depression that has occurred or may occur in the future.and operating conditions are impacted. Therefore, we cannot reasonably estimate the full extent of the impact on our results of operation and financial condition, but it could be material and last for an extended period of time. We continue to monitor our liquidity, including frequent cost and spending assessments and reductions across our organization.
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. While weWe 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. However, we believe that it is important to share where our company stands today, how our response to COVID-19 is progressing and how our operations and financial condition may change as the fight against COVID-19 progresses.
Business Overview
Summary of Financial Results
For the quarter ended March 31,June 30, 2021, the Company generated revenues of $5,419,000,$6,096,000, as compared with revenues of $4,682,000$3,347,000 for the quarter ended March 31,June 30, 2020. For the six months ended June 30, 2021, the Company generated revenues of $11,482,000, as compared with revenues of $7,993,000 in the six months ended June 30, 2020. Net loss for the quarter ended March 31,June 30, 2021 was $659,000,$894,000, as compared to a net loss of $863,000$1,843,000 for the quarter ended March 31, 2020, while the operatingJune 30, 2020. Net loss was $1,708,000 for the quartersix months ended March 31,June 30, 2021 was $1,631,000, as compared to $1,109,000a net loss of $2,768,000 for the comparable quarter insix months ended June 30, 2020. The COVID-19 pandemic negatively impacted revenue and net loss for the prior year. three and six months ended June 30, 2020.
Revenue from our non-POPS solutions has increased significantly for the three and six months ended March 31,June 30, 2021 compared to the three and six months ended March 31,June 30, 2020, partially offset by continued declines in our signage business due to competitive pressure. We continue to pursue a variety of efforts designed to drive innovation, client acquisitions and retailer expansions. During the first quartersix months of 2021, litigation expenses increased significantly compared to prior quarters. We also recognized a gain of $1,062,000 on the forgiveness of our PPP loan during the first quarter.
During the quartersix months ended March 31,June 30, 2021, cash and cash equivalents and restricted cash decreased $290,000by $1,164,000 from $7,128,000 at December 31, 2020, to $6,838,000$5,964,000 at March 31,June 30, 2021. The decrease was primarily driven by the net loss for the quartersix months ended March 31,June 30, 2021. We haveThe Company had no long-term debt other than ourits lease obligations at March 31,as of June 30, 2021.
| 15 |
| Table of contents |
Results of Operations
The following table sets forth, for the periods indicated, certain items in our Condensed Statements of Operations as a percentage of total net sales.
| For the Three Months Ended March 31 | 2021 | 2020 |
| Net sales | 100.0% | 100.0% |
| Cost of sales | 82.2 | 79.3 |
| Gross profit | 17.8 | 20.7 |
| Operating expenses: | ||
| Selling | 9.5 | 15.4 |
| Marketing | 4.3 | 7.8 |
| General and administrative | 35.5 | 21.2 |
| Total operating expenses | 49.3 | 44.4 |
| Operating loss | (31.5) | (23.7) |
| Other income | 19.6 | 0.5 |
| Loss before taxes | (11.9) | (23.2) |
| Income tax expense (benefit) | 0.2 | (4.8) |
| Net loss | (12.1)% | (18.4)% |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30 |
|
| June 30 |
| ||||||||||
|
|
|
| As Restated |
|
|
|
| As Restated |
| ||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
| Net sales |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
| Cost of sales |
|
| 80.2 |
|
|
| 90.1 |
|
|
| 81.4 |
|
|
| 84.2 |
|
| Gross profit |
|
| 19.8 |
|
|
| 9.9 |
|
|
| 18.6 |
|
|
| 15.8 |
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Selling |
|
| 7.6 |
|
|
| 27.7 |
|
|
| 8.5 |
|
|
| 20.6 |
|
| Marketing |
|
| 4.3 |
|
|
| 7.3 |
|
|
| 4.3 |
|
|
| 7.6 |
|
General and administrative |
|
| 21.9 |
|
|
| 29.6 |
|
|
| 28.5 |
|
|
| 25.0 |
|
| Total operating expenses |
|
| 33.8 |
|
|
| 64.6 |
|
|
| 41.3 |
|
|
| 53.2 |
|
| Operating loss |
|
| (14.0 | ) |
|
| (54.7 | ) |
|
| (22.7 | ) |
|
| (37.4 | ) |
| Other income (expense) |
|
| (0.5 | ) |
|
| 0.0 |
|
|
| 8.7 |
|
|
| 0.1 |
|
| Loss before taxes |
|
| (14.5 | ) |
|
| (54.7 | ) |
|
| (14.0 | ) |
|
| (37.3 | ) |
| Income tax expense (benefit) |
|
| 0.2 |
|
|
| 0.3 |
|
|
| 0.2 |
|
|
| (2.7 | ) |
| Net loss |
|
| (14.7 | )% |
|
| (55.0 | )% |
|
| (14.2 | )% |
|
| (34.6 | )% |
Three and Six Months Ended March 31,June 30, 2021 Compared to Three and Six Months Ended March 31,June 30, 2020
Net Sales.
Net sales for the three months endedService revenues
. Service revenues for the three months endedProduct revenues.
Gross Profit.
Gross profit for the three months endedService revenues.
Gross profit from our service revenues for the three months ended| 16 |
| Table of contents |
Gross profit as a percentage of service revenues for the three months ended June 30, 2021 increased to 19.8% compared to 10.4% for the three months ended June 30, 2020. Gross profit as a percentage of service revenues for the six months ended June 30, 2021 increased to 18.6% compared to 17.8% for the six months ended June 30, 2020. The increases for both periods were primarily due to the factors described above, partially offset by reduced gross profit rates on non-POPS solutions due to the Company’s decision to make an investment in the execution of a large non-POPS program.
Product revenues.
Due to the August 2020 sale of the custom print business, there was no gross profit for the three and six months endedImpairment Loss.
Impairment loss for theOperating Expenses
Selling.
Selling expenses for the three months endedSelling expenses as a percentage of total net sales decreased to 9.5%7.6% for the three months ended March 31,June 30, 2021 compared to 15.4%27.7% for the three months ended March 31,June 30, 2020. Selling expenses as a percentage of net sales decreased to 8.5% for the six months ended June 30, 2021 compared to 20.6% for the six months ended June 30, 2020. The decrease wasdecreases for both periods were primarily due to the factorsdecreased expense described above, in addition to increased sales.
Marketing.
Marketing expenses for the three months endedMarketing expenses as a percentage of total net sales decreased to 4.3% for the three months ended March 31,June 30, 2021 compared to 7.8%7.3% for the three months ended March 31,June 30, 2020. Marketing expenses as a percentage of net sales decreased to 4.3% for the six months ended June 30, 2021 compared to 7.6% for the six months ended June 30, 2020. The decrease was primarilydecreases for both periods were due to increased sales, in addition to the factors described above, in addition to increased sales.
General and administrative.
General and administrative expenses for the three months endedGeneral and administrative expenses as a percentage of total net sales decreased to 21.9% for the three months ended June 30, 2021 compared to 29.6% for the three months ended June 30, 2020 due to increased sales, partially offset by expenses incurred as a result of the litigation with News America. General and administrative expenses as a percentage of total net sales increased to 35.5%28.5% for the six months ended June 30, 2021 compared to 25.0% for the six months ended June 30, 2020, the increase was due to expenses incurred as a result of the litigation with News America, partially offset by increased sales.
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Other Income (Expense). Other expense for the three months ended March 31,June 30, 2021 was $31,000 compared to 21.2%$2,000 for the three months ended March 31,June 30, 2020. The increase was primarily due to the factors described above, partially offset by increased sales.
Income Taxes.
For the three and six months endedThe Company reassesses its effective tax 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, we consider 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 a result of the Company’s future outlook, management has reviewed its deferred tax assets and concluded that the uncertainties related to the realization of its deferred tax assets have become unfavorable. Management has considered positive and negative evidence for the potential utilization of the deferred tax assets and has concluded that it is more likely than not that Company will not realize the full amount of its net deferred tax assets. At March 31,June 30, 2021 and December 31, 2020, the Company had a valuation allowance of approximately $1,881,000$2,586,000 and $1,723,000,$1,946,000, respectively, against its entire deferred tax asset because the Company does not believe it is more likely than not that it will realize its deferred tax asset.
In March 2020, Congress passed the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. The CARES Act, among other provisions, allows for companies to carry back federal NOLs generated in 2018, 2019 and 2020 for up to five years for refunds of federal taxes paid. This provision created an opportunity for the Company to utilize NOLs not previously expected to be utilized. Thus, the Company has reversed approximately $215,000 of its valuation allowance against the NOLs in its deferred tax assets which
the Company carried back to claim a refund of federal taxes paid. As the Company expects to receive the tax refund from the ability to carry back the NOLs within the next 12 months, this discrete benefit has been recorded within income taxes receivable on the balance sheet. In addition to the $215,000 recognized, $17,000 was included as a discrete tax benefit for the year and included in income taxes receivable related to the NOL carry back due to differences in the federal tax rate utilized for the deferred tax asset compared to the rates in effect for the years in which the NOL is being carriedNet Loss.
For the reasons stated above, net loss for the three and six months endedLiquidity and Capital Resources
The Company has financed its operations with proceeds from stock sales and sales of its services and products. At March 31,June 30, 2021, working capital was $7,582,000$5,756,000 (defined as current assets less current liabilities) compared to $8,694,000$7,668,000 at December 31, 2020. During the threesix months ended March 31,June 30, 2021, cash and cash equivalents and restricted cash decreased $290,000$1,164,000 from $7,128,000 at December 31, 2020 to $6,838,000$5,964,000 at March 31,June 30, 2021.
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Operating Activities
. Net cash usedInvesting Activities
. Net cash used in investing activities during theFinancing Activities
The Company believes that based upon current business conditions and plans, its existing cash balance and future cash generated from operations will be sufficient for its cash requirements for at least the next twelve months.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are described in Note 1 to the annual financial statements as of and for the year ended December 31, 2020, included in our Form 10-K10-K/A filed with the Securities and Exchange Commission on March 11, 2021. We believe our most critical accounting policies and estimates include the following:
· | revenue recognition; | |
· | allowance for doubtful accounts; | |
· | sales taxes; | |
· | income taxes; and | |
· | stock-based compensation. |
Cautionary Statement Regarding Forward-Looking Statements
Certain statements made in this Quarterly Report on Form 10-Q, in the Company’s other SEC filings, in press releases and in oral statements to shareholders and securities analysts that are not statements of historical or current facts are “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance of the Company to be materially different from the results or performance expressed or implied by such forward-looking statements. The words “anticipates,” “believes,” “estimates,” “expects,” “future,” “likely,” “may,” “projects,” “seeks,” “will” and similar expressions identify forward-looking statements. Forward-looking statements include statements expressing the intent, belief or current expectations of the Company and members of our management team regarding, for instance: (i) our belief that our cash balance and cash generated by operations will provide adequate liquidity and capital resources for at least the next twelve months; and (ii) that we expect fluctuations in accounts receivable and payable, accrued liabilities, and revenue deferrals. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. These statements are subject to the risks and uncertainties that could cause actual results to differ materially and adversely from the forward-looking statements. These forward-looking statements are based on current information, which we have assessed and which by its nature is dynamic and subject to rapid and even abrupt changes.
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Factors that could cause our estimates and assumptions as to future performance, and our actual results, to differ materially include the following: (i) the impacts of the COVID-19 pandemic including the duration, spread, severity, and any recurrence of the COVID-19 pandemic, the duration and scope of related government orders and restrictions, the impact on our employees, and the extent of the impact of the COVID-19 pandemic on overall demand for our products and services; (ii) local, regional, national, and international economic conditions that have deterioratedare impacted as a result of the COVID-19 pandemic including the risks of a global recession or a recession in one or more of our key markets, and the impact they may have on us and our customers and our assessment of that impact; (iii) management’s ability to fully or successfully implement its business plan to achieve and maintain increased sales and resultant profitability in the future; (iv) the Company’s success in developing and implementing new product offerings, including mobile, digital or other new offerings, in a successful manner; (v) prevailing market conditions, including pricing and other competitive pressures, in the in-store advertising industry and, intense competition for agreements with CPG retailers and manufacturers; (vi) potentially incorrect assumptions by management with respect to the financial effect of current strategic decisions and the effect of current sales trends on fiscal year 2021 results; (vii) termination of all or a major portion of, or a significant change in terms and conditions of, a material agreement with a CPG manufacturer or retailer, ;retailer; (viii) other economic, business, market, financial, competitive and/or regulatory factors affecting the Company’s business generally; (ix) our ability to successfully manage our new IT operating infrastructure outsourcing arrangement; (x) our ability to attract and retain highly qualified managerial, operational and sales personnel; and (xi) the final outcome of our litigation with News America. Our risks and uncertainties also include, but are not limited to, the risks presented in our Annual Report on Form 10-K for the year ended December 31, 2020, as amended, and this Quarterly Report on Form 10-Q, and any additional risks presented in our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K. We undertake no obligation (and expressly disclaim any such obligation) to update forward-looking statements made in this Form 10-Q to reflect events or circumstances after the date of this Form 10-Q or to update reasons why actual results would differ from those anticipated in any such forward-looking statements, other than as required by law.
Not applicable.
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s principalChief Executive Officer (principal executive officerofficer) and interim principalthe Company’s Chief Financial Officer (principal financial officer and its interim principal accounting officer,officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, (as such term isas defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this pursuant to Exchange Act Rule 13a-15.report. Based upon that evaluation, management identified a material weakness in our internal control over financial reporting which was also disclosed in our Annual Report on the Company’s principal executive officer and the interim principal accounting officerForm 10-K/A. As a result of this material weakness, management concluded that the Company’sour disclosure controls and procedures were not effective as of March 31, 2021 were effective.
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Remediation Plan and Status for Material Weakness
In response to the identified material weakness, our management, with the oversight of the Audit Committee of our Board of Directors, has dedicated significant resources, including the involvement of outside advisors, and efforts to improve our internal control over financial reporting and has taken immediate action to remediate the material weakness identified. Certain remedial actions have been completed including ongoing involvement of outside advisors, review of taxability of new products and services and obtaining of appropriate documentation of exempt status from customers. The Company will further enhance these controls over the remainder of 2021.
Changes in Internal Control Over Financial Reporting
Except as noted above, no changes in the Company’s internal control over financial reporting occurred during the firstsecond quarter of 2021 that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations on Control Systems
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be or have been detected. These inherent limitations include the realities that judgments in decision making can by faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
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PART II. OTHER INFORMATION
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 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.
Discovery is underway and trial has been scheduled for December 2021. At this stage of the proceedings, the Company is unable to determine the likelihood of an unfavorable outcome or estimate any potential resulting liability at this time.
The amount of legal expense that will be incurred in connection with the foregoing legal proceedings may be significant through the remainder of 2021 and beyond.
There have been no material changes in our risk factors from those previously disclosed in Item 1A of Part 1 of our Annual Report on Form 10-K10-K/A for the year ended December 31, 2020.
None.
None.
Not applicable.
None.
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Item 6. Exhibits
Exhibit Number | Description | Method of Filing | ||||
Restated Articles of Incorporation, | 2021 (incorporated by reference to Exhibit 3.2 to | Incorporate by Reference | ||||
| (incorporated by reference to Exhibit 3.2 to | Incorporated by Reference | |||||
Filed Electronically | ||||||
Filed Electronically | ||||||
Furnished Electronically | ||||||
101 | The following materials from Insignia Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended | Filed Electronically |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
INSIGNIA SYSTEMS, INC. | ||
(Registrant) | ||
Dated: | /s/ Kristine A. Glancy | |
Kristine A. Glancy | ||
President and Chief Executive Officer | ||
(on behalf of registrant and as interim principal financial officer) | ||
Dated: | /s/ Zackery A. Weber | |
Zackery A. Weber | ||
Senior Director of Financial Planning and Analysis | ||
(interim principal accounting officer) |
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