Product sales for the year ended December 31, 2008 decreased 12.9% to $2,475,000 compared to $2,842,000 for the year ended December 31, 2007. The decrease was primarily due to decreased sales of both thermal sign card supplies and laser supplies based upon decreased demand for these products from our customers. The Company expects further declines in sales of thermal and laser sign card supplies for the year ending December 31, 2009.
Gross profit from our POPSign program revenues for the year ended December 31, 2008 increased 28.9% to $16,002,000 compared to $12,419,000 for the year ended December 31, 2007. The increase in gross profit of $3,583,000 resulted from $7,342,000 of increased revenues offset by an increase in retailer expenses of $2,652,000 and an increase in all other costs of services (labor, overhead and material) of $1,107,000. Gross profit as a percentage of POPSign program revenues decreased to 55.3% for 2008 compared to 57.5% for 2007, due primarily to lower average revenue per sign combined with higher average cost per sign (primarily retailer expenses) in the 2008 period.
Gross profit from our product sales for the year ended December 31, 2008 decreased 21.5% to $882,000 compared to $1,123,000 for the year ended December 31, 2007. Gross profit as a percentage of product sales decreased to 35.6% for 2008 compared to 39.5% for 2007. The decreases were primarily due to decreased sales and the effect of fixed costs.
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General and Administrative. General and administrative expenses for the year ended December 31, 2008 increased 45.1% to $7,060,000 compared to $4,864,000 for the year ended December 31, 2007, primarily due to increased legal costs related to the News America litigation and increased staffing levels which were partially offset by the receipt of a lease termination payment. The Company received a payment of $400,000 of early termination of its previous facility lease on July 31, 2008. The payment, net of $115,000 of moving expense, is recorded as part of general and administrative expenses. General and administrative expenses as a percentage of total net sales increased to 22.6% in 2008 compared to 19.9% in 2007, primarily due to the factors described above offset partially by the effect of increased sales in 2008. Legal fees were $4,234,000 for the year ended December 31, 2008 compared to $1,883,000 for the year ended December 31, 2007. The legal fees in each year were incurred primarily in connection with two News America lawsuits described elsewhere herein. Legal fees increased in 2008 primarily due to the increased in activity in the News America litigation as the parties prepare to be trial-ready by May 1, 2009. We currently expect the amount of legal fees that will be incurred in connection with the ongoing lawsuit to be significant in 2009 as trial preparation continues and as the trial is conducted. Also, if the Company is required to pay a significant amount in settlement or damages, it will have a material adverse effect on its operations and financial condition. In addition, a negative outcome of this litigation could affect long-term competitive aspects of the Company’s business.
Other Income (Expense). Other income (net) for the year ended December 31, 2008 was $180,000 compared to other income (net) of $153,000 for the year ended December 31, 2007. Included in other income (net) was interest income of $234,000 for the year ended December 31, 2008 versus interest income of $247,000 for the year ended December 31, 2007. Interest income for the 2008 year was lower due to lower interest rates which more than offset the effect of higher average cash balances in 2008. Lower interest expense of $57,000 for the year ended December 31, 2008 versus $95,000 for the year ended December 31, 2007 was primarily due to the expiration of the line of credit on April 30, 2007.
Income Taxes. The Company recorded income tax expense for the year ended December 31, 2008 of $2,138,000 as a result of increasing the valuation allowance against the deferred tax assets by $1,930,000, recording expense of $201,000 from changes in the deferred tax assets and recognizing $7,000 of current income tax expense related to state tax liabilities. The Company recorded an income tax benefit for the year ended December 31, 2007 of $2,109,000 as a result of the reversal of $2,337,000 of the valuation allowance against the deferred tax asset which offset expense from a change in deferred tax assets of $206,000 and $22,000 of current income tax expense related to Federal alternative minimum tax liability and other state tax liabilities.
Net Income (Loss). The net loss for the year ended December 31, 2008 was $(2,257,000) compared to net income of $2,343,000 for the year ended December 31, 2007.
Fiscal 2007 Compared to Fiscal 2006
Net Sales. Net sales for the year ended December 31, 2007 increased 11.6% to $24,431,000 compared to $21,894,000 for the year ended December 31, 2006.
Service revenues from our POPSign programs for the year ended December 31, 2007 increased 12.3% to $21,589,000 compared to $19,219,000 for the year ended December 31, 2006. The increase was primarily due to an increase in the number of POPSign programs sold to consumer packaged goods manufacturers.
Product sales for the year ended December 31, 2007 increased 6.2% to $2,842,000 compared to $2,675,000 for the year ended December 31, 2006. The increase was primarily due to increased sales of laser label supplies which were partially offset by decreased sales of thermal sign card supplies.
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Gross Profit.Gross profit for the year ended December 31, 2007 increased 14.4% to $13,542,000 compared to $11,840,000 for the year ended December 31, 2006. Gross profit as a percentage of total net sales increased to 55.4% for 2007 compared to 54.1% for 2006.
Gross profit from our POPSign program revenues for the year ended December 31, 2007 increased 15.8% to $12,419,000 compared to $10,725,000 for the year ended December 31, 2006. The increase was primarily due to increased sales and the effect of fixed costs. Gross profit as a percentage of POPSign program revenues increased to 57.5% for 2007 compared to 55.8% for 2006, due to the factors discussed above.
Gross profit from our product sales for the year ended December 31, 2007 increased 0.7% to $1,123,000 compared to $1,115,000 for the year ended December 31, 2006. Gross profit as a percentage of product sales decreased to 39.5% for 2007 compared to 41.7% for 2006. The decrease was primarily due to a change in the sales mix toward lower margin products.
Operating Expenses
Selling. Selling expenses (exclusive of selling related warrant expense) for the year ended December 31, 2007 increased 17.1% to $5,664,000 compared to $4,838,000 for the year ended December 31, 2006, primarily due to increased sales commissions as a result of increased sales, increased labor and benefit costs as a result of increased headcount and salary adjustments, and increased travel related costs. Selling expenses as a percentage of total net sales increased to 23.2% in 2007 compared to 22.1% in 2006, primarily due to the factors described above offset partially by the effect of increased sales in 2007.
Marketing. Marketing expenses (exclusive of marketing related warrant expense) for the year ended December 31, 2007 increased 34.3% to $1,412,000 compared to $1,051,000 for the year ended December 31, 2006, primarily due to increased labor and benefit costs (as a result of increased headcount and salary adjustments) and increased data acquisition and analysis costs. Marketing expenses as a percentage of total net sales increased to 5.8% in 2007 compared to 4.8% in 2006, primarily due to the factors described above offset partially by the effect of increased sales in 2007.
Warrant expense (selling and marketing). On July 2, 2007, the Company and Valassis Sales and Marketing Services, Inc. (“Valassis”), entered into Amendment No. 2 (the “Amendment”) to the Exclusive Reseller Agreement between the parties. The Amendment extends the term of the strategic alliance between the parties to December 31, 2017. The Amendment also expands the strategic alliance to increase the role of Valassis in the selling and marketing efforts of developing and expanding the Company’s participating retailer network. Valassis received a five-year warrant to acquire 800,000 shares of the Company’s common stock at a price of $4.04 and will be paid a cash commission by the Company on the revenue the Company realizes from POPS programs the consumer packaged goods manufacturers conduct in the new retail chains. For the year ended December 31, 2007, the Company recorded $1,521,000 of expense related to the fair value of the warrant.
General and Administrative. General and administrative expenses for the year ended December 31, 2007 increased 33.7% to $4,864,000 compared to $3,637,000 for the year ended December 31, 2006, primarily due to increased legal costs and increased labor and benefit costs (resulting from increased headcount, salary adjustments and increased stock-based compensation costs). General and administrative expenses as a percentage of total net sales increased to 19.9% in 2007 compared to 16.6% in 2006, primarily due to the factors described above offset partially by the effect of increased sales in 2007. Legal fees were $1,883,000 for the year ended December 31, 2007 compared to $1,143,000 for the year ended December 31, 2006. The legal fees in each year were incurred primarily in connection with two News America lawsuits described elsewhere herein. Legal fees increased in 2007 primarily due to the increase in activity in the News America litigation as the parties prepared to be trial-ready.
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Other Income (Expense). Other income (net) for the year ended December 31, 2007 was $153,000 compared to other income (net) of $82,000 for the year ended December 31, 2006. Interest income of $247,000 for the year ended December 31, 2007 versus interest income of $123,000 for the year ended December 31, 2006 was the result of higher interest rates and higher cash balances during the 2007 period. Interest expense of $95,000 for the year ended December 31, 2007 versus $146,000 for the year ended December 31, 2006 was primarily due to the expiration of the line of credit on April 30, 2007. Other income for the year ended December 31, 2006 also included $100,000 of income from the sale of certain VALUStix assets. During 2006, the Company ceased all business activities related to VALUStix.
Income Taxes. The Company recorded an income tax benefit for the year ended December 31, 2007 of $2,109,000 as a result of the reversal of $2,337,000 of the valuation allowance against the deferred tax asset, change in deferred tax assets of $206,000 and $22,000 of current income tax expense related to Federal alternative minimum tax liability and other state tax liabilities. The Company recorded no income tax expense for the year ended December 31, 2006 primarily due to the deduction for tax purposes in 2006 of the remaining unamortized goodwill associated with the VALUStix acquisition and the full valuation allowance provided against the net deferred tax asset. For financial statement purposes the goodwill was determined to be impaired in 2003 and 2004 and was written-off during those periods. During 2006, the Company ceased all business activities related to VALUStix and abandoned the VALUSTIX trademark.
Net Income. Net income for the year ended December 31, 2007 was $2,343,000 compared to $2,396,000 for the year ended December 31, 2006.
Liquidity and Capital Resources
The Company has financed its operations with proceeds from public and private stock sales and sales of its services and products. At December 31, 2008, working capital was $6,396,000 compared to $7,751,000 at December 31, 2007. During the same period total cash and cash equivalents increased $3,659,000 to $11,052,000.
Net cash provided by operating activities during 2008 was $5,615,000. The increase in cash and cash equivalents resulted from the net loss $(2,257,000), non-cash expense of $2,992,000 (for depreciation, amortization, deferred income tax expense and stock-based compensation) and $4,880,000 of cash provided by changes in operating assets and liabilities. Accounts receivable increased $612,000 during 2008 primarily due to higher net sales in the last two months of 2008 compared to the last two months of 2007. Prepaid expenses decreased by $611,000 during 2008 primarily due to the absence of prepayments to a retailer at December 31, 2008 which were present at December 31, 2007. Accounts payable and accrued liabilities increased $4,073,000 during 2008 primarily as a result of increased commissions, legal expense and retailer expense payable at December 31, 2008. The Company expects accounts receivable, accounts payable and accrued liabilities to fluctuate during future periods depending on the level of quarterly POPSign revenues and legal activity related to the News America litigation.
Net cash of $1,049,000 was used in investing activities in 2008 due to the purchase of property and equipment, primarily the purchase of digital printing equipment, computer hardware and software and leasehold improvements in the new facility. The Company expects that 2009 capital expenditures will at a minimum be $100,000 and could reach $500,000 if the Company decides to proceed with additional purchases of digital printing equipment for increased product quality and lower cost per sign.
Net cash of $907,000 was used in financing activities for the year ended December 31, 2008. The Company used $738,000 (including fees) of cash to repurchase 525,000 shares of common stock as part of the stock repurchase plan adopted in August 2008. The Company also used $267,000 of cash for the payment of long-term liabilities due to a retailer. The Company received $98,000 of proceeds (net of expenses) from the issuance of common stock related to the employee stock purchase plan and exercises of stock options.
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The Company believes that based upon current business conditions, its existing cash balance and future cash from operations will be sufficient for its cash requirements during 2009. However, there can be no assurances that this will occur or that the Company will be able to secure additional financing from public or private stock sales or from other financing agreements if needed.
New Accounting Pronouncements
Fair Value Measurements
In September 2006, the FASB Statement issued FASB No. 157, Fair Value Measurements (SFAS 157) which is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years. This statement defines fair value, establishes a framework for measuring fair value, and expands the related disclosure requirements. However, on December 14, 2007, the FASB issued proposed FSP FAS 157-2 which would delay the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). This proposed FSP partially defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP. Furthermore, in October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for that Asset is Not Active, and was effective upon issuance. Effective for 2008, we adopted SFAS 157 except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in proposed FSP FAS 157-2. The partial adoption of SFAS 157, FSP FAS 157-2 or FSP FAS 157-3 did not have a material impact on our consolidated financial position, results of operations or cash flows and we do not believe the adoption of FSP FAS 157-2 will be material to our consolidated financial statements.
Business Combinations
In December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations (SFAS No. 141 (R)). SFAS No. 141 (R) requires an acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. SFAS No. 141 (R) is effective for fiscal years after December 15, 2008. We expect to adopt SFAS No. 141 (R) on January 1, 2009, and we do not expect it to have a material effect on its financial position or results of operations.
Noncontrolling Interests in Consolidated Financial Statements
In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statement-amendments of ARB No. 51 (SFAS No. 160). SFAS No. 160 states that accounting and reporting for minority interests will be recharacterized as noncontrolling interests and classified as a component of equity. The SFAS No. 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This statement is effective as of the beginning of an entity’s first fiscal year beginning after December 15, 2008, which corresponds to the Company’s year beginning January 1, 2009. The Company currently believes that the adoption of SFAS No. 160 will have no material impact on its financial position or results of operations.
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Contractual Obligations
The following table summarizes the Company’s contractual obligations and commercial commitments as of December 31, 2008:
Payments due by Period
| | | | | | | | | | | | | | | | |
| | Total | | Less than
1 Year | | 2-3
Years | | 4-5
Years | | After
5 years | |
Contractual Obligations: | | | | | | | | | | | | | | | | |
Operating leases, excluding operating costs | | $ | 3,340,000 | | $ | 441,000 | | $ | 902,000 | | $ | 939,000 | | $ | 1,058,000 | |
Payments to retailers* | | | 6,036,000 | | | 2,988,000 | | | 3,048,000 | | | — | | | — | |
Long-term liabilities | | | 422,000 | | | 202,000 | | | 220,000 | | | — | | | — | |
Purchase commitments | | | 300,000 | | | 300,000 | | | — | | | — | | | — | |
|
Total contractual obligations | | $ | 10,098,000 | | $ | 3,931,000 | | $ | 4,170,000 | | $ | 939,000 | | $ | 1,058,000 | |
*On an ongoing basis, the Company negotiates renewals of various retailer agreements, some of which provide for fixed or store-based payments rather than sign placement-based payments. Upon the completion of renewals, the annual commitment amounts could be in excess of the amounts above.
Off-Balance Sheet Transactions
None.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
The following are included on the pages indicated:
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REPORT OFINDEPENDENT REGISTEREDPUBLICACCOUNTING FIRM
To the Board of Directors and Shareholders
Insignia Systems, Inc.
We have audited the accompanying balance sheets of Insignia Systems, Inc. (a Minnesota corporation) (the “Company”) as of December 31, 2008 and 2007, and the related statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Insignia Systems, Inc. as of December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.
| |
| /s/ Grant Thornton LLP |
| |
Minneapolis, Minnesota
March 27, 2009 | |
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Insignia Systems, Inc.
BALANCESHEETS
| | | | | | | |
As of December 31 | | 2008 | | 2007 | |
ASSETS | | | | | | | |
Current Assets: | | | | | | | |
Cash and cash equivalents | | $ | 11,052,000 | | $ | 7,393,000 | |
Accounts receivable, net | | | 2,767,000 | | | 2,155,000 | |
Inventories | | | 442,000 | | | 397,000 | |
Deferred tax assets, net | | | — | | | 164,000 | |
Prepaid expenses and other | | | 238,000 | | | 883,000 | |
Total Current Assets | | | 14,499,000 | | | 10,992,000 | |
| | | | | | | |
Other Assets: | | | | | | | |
Property and equipment, net | | | 1,054,000 | | | 375,000 | |
Non-current deferred tax assets, net | | | — | | | 1,967,000 | |
Other | | | 40,000 | | | 6,000 | |
| | | | | | | |
Total Assets | | $ | 15,593,000 | | $ | 13,340,000 | |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
Current Liabilities: | | | | | | | |
Current maturities of long-term liabilities | | $ | 202,000 | | $ | 266,000 | |
Accounts payable | | | 2,770,000 | | | 1,369,000 | |
Accrued liabilities | | | | | | | |
Compensation | | | 820,000 | | | 622,000 | |
Employee stock purchase plan | | | 65,000 | | | 98,000 | |
Legal | | | 365,000 | | | 208,000 | |
Other commissions | | | 1,742,000 | | | 152,000 | |
Other | | | 981,000 | | | 221,000 | |
Deferred revenue | | | 1,158,000 | | | 305,000 | |
Total Current Liabilities | | | 8,103,000 | | | 3,241,000 | |
| | | | | | | |
Long-Term Liabilities, less current maturities | | | 219,000 | | | 422,000 | |
| | | | | | | |
Commitments and Contingencies | | | — | | | — | |
| | | | | | | |
Shareholders’ Equity: | | | | | | | |
Common stock, par value $.01: | | | | | | | |
Authorized shares – 40,000,000 | | | | | | | |
Issued and outstanding shares – 15,069,000 in 2008 and 15,550,000 in 2007 | | | 151,000 | | | 156,000 | |
Additional paid-in capital | | | 31,881,000 | | | 32,025,000 | |
Accumulated deficit | | | (24,761,000 | ) | | (22,504,000 | ) |
Total Shareholders’ Equity | | | 7,271,000 | | | 9,677,000 | |
| | | | | | | |
Total Liabilities and Shareholders’ Equity | | $ | 15,593,000 | | $ | 13,340,000 | |
See accompanying notes to financial statements.
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Insignia Systems, Inc.
| | | | | | | | | | |
Year Ended December 31 | | 2008 | | 2007 | | 2006 | |
Services revenues | | $ | 28,931,000 | | $ | 21,589,000 | | $ | 19,219,000 | |
Products sold | | | 2,475,000 | | | 2,842,000 | | | 2,675,000 | |
Total Net Sales | | | 31,406,000 | | | 24,431,000 | | | 21,894,000 | |
| | | | | | | | | | |
Cost of services | | | 12,929,000 | | | 9,170,000 | | | 8,494,000 | |
Cost of goods sold | | | 1,593,000 | | | 1,719,000 | | | 1,560,000 | |
Total Cost of Sales | | | 14,522,000 | | | 10,889,000 | | | 10,054,000 | |
Gross Profit | | | 16,884,000 | | | 13,542,000 | | | 11,840,000 | |
| | | | | | | | | | |
Operating Expenses: | | | | | | | | | | |
Selling | | | 8,521,000 | | | 5,664,000 | | | 4,838,000 | |
Marketing | | | 1,602,000 | | | 1,412,000 | | | 1,051,000 | |
Warrant expense | | | — | | | 1,521,000 | | | — | |
General and administrative | | | 7,060,000 | | | 4,864,000 | | | 3,637,000 | |
Total Operating Expenses | | | 17,183,000 | | | 13,461,000 | | | 9,526,000 | |
Operating Income (Loss) | | | (299,000 | ) | | 81,000 | | | 2,314,000 | |
| | | | | | | | | | |
Other Income (Expense): | | | | | | | | | | |
Interest income | | | 234,000 | | | 247,000 | | | 123,000 | |
Interest expense | | | (57,000 | ) | | (95,000 | ) | | (146,000 | ) |
Other income | | | 3,000 | | | 1,000 | | | 105,000 | |
Total Other Income | | | 180,000 | | | 153,000 | | | 82,000 | |
Income (Loss) Before Taxes | | | (119,000 | ) | | 234,000 | | | 2,396,000 | |
Income tax (expense) benefit | | | (2,138,000 | ) | | 2,109,000 | | | — | |
Net Income (Loss) | | $ | (2,257,000 | ) | $ | 2,343,000 | | $ | 2,396,000 | |
| | | | | | | | | | |
Net income (loss) per share: | | | | | | | | | | |
Basic | | $ | (0.15 | ) | $ | 0.15 | | $ | 0.16 | |
Diluted | | $ | (0.15 | ) | $ | 0.14 | | $ | 0.15 | |
| | | | | | | | | | |
Shares used in calculation of net income (loss) per share: | | | | | | | | | | |
Basic | | | 15,484,000 | | | 15,411,000 | | | 15,093,000 | |
Diluted | | | 15,484,000 | | | 16,186,000 | | | 15,556,000 | |
See accompanying notes to financial statements.
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Insignia Systems, Inc.
STATEMENTS OFSHAREHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | |
| |
Common Stock
| | Additional
Paid-In
Capital | | Accumulated
Deficit | | | | |
| | Shares | | Amount | | | | Total | |
|
Balance at December 31, 2005 | | | 15,002,000 | | $ | 150,000 | | $ | 29,165,000 | | $ | (27,243,000 | ) | $ | 2,072,000 | |
Issuance of common stock, net | | | 150,000 | | | 2,000 | | | 133,000 | | | — | | | 135,000 | |
Value of stock-based compensation | | | — | | | — | | | 259,000 | | | — | | | 259,000 | |
Net income | | | — | | | — | | | — | | | 2,396,000 | | | 2,396,000 | |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2006 | | | 15,152,000 | | | 152,000 | | | 29,557,000 | | | (24,847,000 | ) | | 4,862,000 | |
Issuance of common stock, net | | | 398,000 | | | 4,000 | | | 471,000 | | | — | | | 475,000 | |
Value of stock-based compensation | | | — | | | — | | | 476,000 | | | — | | | 476,000 | |
Value of warrants issued for services | | | — | | | — | | | 1,521,000 | | | — | | | 1,521,000 | |
Net income | | | — | | | — | | | — | | | 2,343,000 | | | 2,343,000 | |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2007 | | | 15,550,000 | | | 156,000 | | | 32,025,000 | | | (22,504,000 | ) | | 9,677,000 | |
Issuance of common stock, net | | | 44,000 | | | — | | | 98,000 | | | | | | 98,000 | |
Repurchase of common stock, net | | | (525,000 | ) | | (5,000 | ) | | (733,000 | ) | | | | | (738,000 | ) |
Value of stock-based compensation | | | — | | | — | | | 491,000 | | | | | | 491,000 | |
Net loss | | | — | | | — | | | — | | | (2,257,000 | ) | | (2,257,000 | ) |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2008 | | | 15,069,000 | | $ | 151,000 | | $ | 31,881,000 | | $ | (24,761,000 | ) | $ | 7,271,000 | |
See accompanying notes to financial statements.
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Insignia Systems, Inc.
STATEMENTS OF CASH FLOWS
| | | | | | | | | | |
Year Ended December 31 | | 2008 | | 2007 | | 2006 | |
Operating Activities: | | | | | | | | | | |
Net income (loss) | | $ | (2,257,000 | ) | $ | 2,343,000 | | $ | 2,396,000 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | |
Depreciation and amortization | | | 370,000 | | | 266,000 | | | 207,000 | |
Deferred income tax expense (benefit) | | | 2,131,000 | | | (2,131,000 | ) | | — | |
Provision for bad debt expense | | | — | | | — | | | (31,000 | ) |
Stock-based compensation | | | 491,000 | | | 476,000 | | | 259,000 | |
Warrant expense | | | — | | | 1,521,000 | | | — | |
Changes in operating assets and liabilities: | | | | | | | | | | |
Accounts receivable | | | (612,000 | ) | | 770,000 | | | (600,000 | ) |
Inventories | | | (45,000 | ) | | 55,000 | | | (4,000 | ) |
Prepaid expenses and other | | | 611,000 | | | 55,000 | | | (133,000 | ) |
Accounts payable | | | 1,401,000 | | | 24,000 | | | (425,000 | ) |
Accrued liabilities | | | 2,672,000 | | | 476,000 | | | (132,000 | ) |
Deferred revenue | | | 853,000 | | | (131,000 | ) | | (176,000 | ) |
Net cash provided by operating activities | | | 5,615,000 | | | 3,724,000 | | | 1,361,000 | |
| | | | | | | | | | |
Investing Activities: | | | | | | | | | | |
Purchases of property and equipment | | | (1,049,000 | ) | | (164,000 | ) | | (275,000 | ) |
Net cash used in investing activities | | | (1,049,000 | ) | | (164,000 | ) | | (275,000 | ) |
| | | | | | | | | | |
Financing Activities: | | | | | | | | | | |
Net change in line of credit | | | — | | | (186,000 | ) | | 54,000 | |
Payment of long-term liabilities | | | (267,000 | ) | | (241,000 | ) | | (201,000 | ) |
Proceeds from issuance of common stock, net | | | 98,000 | | | 475,000 | | | 135,000 | |
Repurchase of common stock, net | | | (738,000 | ) | | — | | | — | |
Net cash provided by (used in) financing activities | | | (907,000 | ) | | 48,000 | | | (12,000 | ) |
Increase in cash and cash equivalents | | | 3,659,000 | | | 3,608,000 | | | 1,074,000 | |
Cash and cash equivalents at beginning of year | | | 7,393,000 | | | 3,785,000 | | | 2,711,000 | |
Cash and cash equivalents at end of year | | $ | 11,052,000 | | $ | 7,393,000 | | $ | 3,785,000 | |
| | | | | | | | | | |
Supplemental disclosures for cash flow information: | | | | | | | | | | |
Cash paid during the year for interest | | $ | 17,000 | | $ | 53,000 | | $ | 103,000 | |
Cash paid during the year for income taxes | | $ | 8,000 | | $ | 60,000 | | $ | — | |
See accompanying notes to financial statements.
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Table of Contents
Insignia Systems, Inc.
NOTES TO FINANCIAL STATEMENTS
| |
1. | Summary of Significant Accounting Policies. |
| Description of Business. Insignia Systems, Inc. (the “Company”) markets in-store advertising products, programs and services to retailers and consumer packaged goods manufacturers. The Company’s products include the Insignia Point-of-Purchase Services (POPS) in-store advertising program, thermal sign card supplies for the Company’s SIGNright and Impulse systems, Stylus software and laser printable cardstock and label supplies. |
| |
| Revenue Recognition. The Company recognizes revenue from Insignia POPSigns ratably over the period of service. The Company recognizes revenue related to equipment, software and sign card sales at the time the products are shipped to customers. Revenue associated with maintenance agreements is recognized ratably over the life of the contract. Revenue that has been billed and not yet earned is reflected as deferred revenue on the Balance Sheet. Revenues are recognized by the Company when persuasive evidence of an arrangement exists, shipment has occurred, the price is fixed, and collectability is reasonably assured. |
| |
| Cash and Cash Equivalents. The Company considers all highly liquid investments with an original maturity date of three months or less to be cash equivalents. Cash equivalents are stated at cost, which approximates fair value. At December 31, 2008, $213,000 was invested in an overnight repurchase account, $7,000,000 was invested in certificates of deposit and $3,858,000 was invested in a short-term money market account. At December 31, 2007, $1,345,000 was invested in an overnight repurchase account, $6,000,000 was invested in certificates of deposit and $5,000 was invested in a short-term money market account. |
| |
| Fair Value of Financial Instruments. The financial statements include the following financial instruments: cash and cash equivalents, accounts receivable, accounts payable and long-term liabilities. The fair value of the long-term liabilities is estimated based on the use of discounted cash flow analysis using interest rates for other debt offered to the Company. The Company estimates the carrying value of the long-term liabilities approximates fair value. All other financial instruments approximate fair value because of the short-term nature of these instruments. |
| |
| Accounts Receivable. The majority of the Company’s accounts receivable is due from companies in the consumer packaged goods industry. Credit is extended based on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are due within 30-60 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts receivable outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. |
| |
| Changes in the Company’s allowance for doubtful accounts are as follows: |
| | | | | | | |
December 31 | | 2008 | | 2007 | |
Beginning balance | | $ | 10,000 | | $ | 10,000 | |
Bad debt provision (recovery) | | | — | | | — | |
Accounts written-off | | | (3,000 | ) | | — | |
|
Ending balance | | $ | 7,000 | | $ | 10,000 | |
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Table of Contents
| |
| Inventories. Inventories are primarily comprised of parts and supplies for Impulse and SIGNright machines, sign cards, and rollstock. Inventory is valued at the lower of cost or market using the first-in, first-out (FIFO) method, and consists of the following: |
| | | | | | | |
December 31 | | 2008 | | 2007 | |
Raw materials | | $ | 107,000 | | $ | 82,000 | |
Work-in-process | | | 64,000 | | | 36,000 | |
Finished goods | | | 271,000 | | | 279,000 | |
| | | | | | | |
| | $ | 442,000 | | $ | 397,000 | |
| |
| Property and Equipment. Property and equipment is recorded at cost. Significant additions or improvements extending asset lives are capitalized, while repairs and maintenance are charged to expense when incurred. Depreciation is provided in amounts sufficient to relate the cost of assets to operations over their estimated useful lives. The straight-line method of depreciation is used for financial reporting purposes and accelerated methods are used for tax purposes. Estimated useful lives of the assets are as follows: |
| | |
| Production tooling | 1-3 years |
| Machinery and equipment | 5 years |
| Office furniture and fixtures | 3 years |
| Computer equipment and software | 3 years |
| |
| Leasehold improvements are amortized over the shorter of the remaining term of the lease or estimated life of the asset. |
| |
| Impairment of Long-Lived Assets.The Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. Impaired assets are then recorded at their estimated fair market value. There were no impairments during the years ended December 31, 2008, 2007 and 2006. |
| |
| Income Taxes. Income taxes are accounted for under the liability method. Deferred income taxes are provided for temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred taxes are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of the enactment. It is the Company’s policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. |
| |
| Stock-Based Compensation. Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R,Share-Based Payment (SFAS 123R), which requires companies to measure and recognize compensation expense for all stock-based payments at fair value. We use the Black-Scholes option pricing model to determine the weighted average fair value of options and employee stock purchase plan rights. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as by assumptions regarding a number of highly complex and subjective variables. 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. |
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| |
| The expected terms of the options and employee stock purchase plan rights are based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at grant date. Volatility is based on historical and expected future volatility of the Company’s stock. The Company has not historically issued any dividends and does not expect to in the future. SFAS 123R requires forfeitures to be estimated at the time of the grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates. |
| |
| If factors change and we employ different assumptions in the application of SFAS 123R to grants in future periods, the related compensation expense that we record under SFAS 123R may differ significantly from what we have recorded in the current periods. |
| |
| Advertising Costs. Advertising costs are charged to operations as incurred. Advertising expenses were approximately $11,000, $9,000 and $8,000 during the years ended December 31, 2008, 2007 and 2006. |
| |
| 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 dilutive effects of options, warrants and convertible securities. Diluted net income per share gives effect to all diluted potential common shares outstanding during the year. Options and warrants to purchase approximately 2,186,000, 1,396,000 and 1,086,000 shares of common stock with weighted average exercise prices of $4.89, $5.81 and $6.29 were outstanding at December 31, 2008, 2007 and 2006 and were not included in the computation of common stock equivalents because their exercise prices were higher than the average fair market value of the common shares during the reporting periods. |
| |
| For the year ended December 31, 2008, the effect of options and warrants was anti-dilutive due to the net loss incurred during the period. Had net income been achieved, approximately 381,000 of common stock equivalents would have been included in the computation of diluted net income per share for the year ended December 31, 2008. |
| |
| Weighted average common share outstanding for the years ended December 31, 2008, 2007 and 2006 were as follows: |
| | | | | | | | | | |
Year ended December 31 | | 2008 | | 2007 | | 2006 | |
Denominator for basic net income (loss) per share – weighted average shares | | | 15,484,000 | | | 15,411,000 | | | 15,093,000 | |
| | | | | | | | | | |
Effect of dilutive securities: | | | | | | | | | | |
Stock options | | | — | | | 775,000 | | | 460,000 | |
Denominator for diluted net income (loss) per share – adjusted weighted average shares | | | 15,484,000 | | | 16,186,000 | | | 15,556,000 | |
| |
| Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. |
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| |
| New Accounting Pronouncements. |
| Fair Value Measurements: In September 2006, the FASB Statement issued FASB No. 157, Fair Value Measurements (SFAS 157) which is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years. This statement defines fair value, establishes a framework for measuring fair value, and expands the related disclosure requirements. However, on December 14, 2007, the FASB issued proposed FSP FAS 157-2 which would delay the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). This proposed FSP partially defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP. Furthermore, in October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for that Asset is Not Active, and was effective upon issuance. Effective for 2008, we adopted SFAS 157 except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in proposed FSP FAS 157-2. The partial adoption of SFAS 157, FSP FAS 157-2 or FSP FAS 157-3 did not have a material impact on our consolidated financial position, results of operations or cash flows and we do not believe the adoption of FSP FAS 157-2 will be material to our consolidated financial statements. |
| |
| Business Combinations: In December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations (SFAS No. 141 (R)). SFAS No. 141 (R) requires an acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. SFAS No. 141 (R) is effective for fiscal years after December 15, 2008. We expect to adopt SFAS No. 141 (R) on January 1, 2009, and we do not expect it to have a material effect on its financial position or results of operations. |
| |
| Noncontrolling Interests in Consolidated Financial Statements: In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statement-amendments of ARB No. 51 (SFAS No. 160). SFAS No. 160 states that accounting and reporting for minority interests will be recharacterized as noncontrolling interests and classified as a component of equity. The SFAS No. 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This statement is effective as of the beginning of an entity’s first fiscal year beginning after December 15, 2008, which corresponds to the Company’s year beginning January 1, 2009. The Company currently believes that the adoption of SFAS No. 160 will have no material impact on its financial position or results of operations. |
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| |
2. | Property and Equipment. Property and equipment consists of the following at December 31: |
| | | | | | | |
| | 2008 | | 2007 | |
Property and Equipment: | | | | | | | |
Production tooling, machinery and equipment | | $ | 2,115,000 | | $ | 1,725,000 | |
Office furniture and fixtures | | | 250,000 | | | 191,000 | |
Computer equipment and software | | | 719,000 | | | 698,000 | |
Web site | | | 38,000 | | | — | |
Leasehold improvements | | | 255,000 | | | 368,000 | |
| | | 3,377,000 | | | 2,982,000 | |
Accumulated depreciation and amortization | | | (2,323,000 | ) | | (2,607,000 | ) |
Net Property and Equipment | | $ | 1,054,000 | | $ | 375,000 | |
| |
3. | Line of Credit. The Company had a Financing Agreement, Security Agreement and Revolving Note (collectively, “the Credit Agreement”) with Marquette Business Credit, Inc. which was in effect through April 30, 2007. The Company did not renew the Credit Agreement and all borrowings were repaid as of April 30, 2007. |
| |
4. | Long-Term Liabilities. In prior periods, the Company reached an agreement with a retailer for the deferred payment of certain obligations on an interest-free basis. These obligations are recorded as long-term liabilities with an imputed annual interest rate of 10.0%. |
| | | | | | | |
December 31 | | 2008 | | 2007 | |
Uncollateralized three year liability, payable in monthly installments | | $ | 23,000 | | $ | 290,000 | |
Uncollateralized liability, due December 31, 2009 | | | 179,000 | | | 179,000 | |
Uncollateralized liability, due December 31, 2010 | | | 219,000 | | | 219,000 | |
Total | | | 421,000 | | | 688,000 | |
Less current maturities | | | (202,000 | ) | | (266,000 | ) |
|
| | $ | 219,000 | | $ | 422,000 | |
| |
5. | Commitments and Contingencies. |
| Operating Leases. The Company conducts its operations in a leased facility. In October 2007 the Company entered into agreements to terminate its previous facility lease and sublease effective July 31, 2008. On March 27, 2008, the Company entered into an operating lease for its current facility which is in effect from August 2008 through February 2016. The Company also leases equipment under operating lease agreements effective through September 2009. Rent expense under all of these leases, net of sub-lease rental income, was approximately $546,000, $527,000 and $527,000 for the years ended December 31, 2008, 2007 and 2006. |
| |
| Minimum future lease obligations under these leases, excluding operating costs, are approximately as follows for the years ending December 31: |
| | | | |
2009 | | $ | 441,000 | |
2010 | | | 446,000 | |
2011 | | | 456,000 | |
2012 | | | 465,000 | |
2013 | | | 474,000 | |
Thereafter | | | 1,058,000 | |
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Table of Contents
| |
| Legal. In August 2000, News America Marketing In-Store, Inc. (News America), brought suit against the Company in U.S. District Court in New York, New York. The case was settled in November 2002. The terms of the settlement agreement are confidential. The settlement did not impact the Company’s operating results. |
| |
| In October 2003, News America brought suit against the Company in U.S. District Court in New York, New York, alleging that the Company has engaged in deceptive acts and practices, has interfered with existing business relationships with retailers and prospective economic advantage, and has engaged in unfair competition. The suit sought unspecified damages and injunctive relief. In February 2007 the U.S. District Court in New York transferred this action to Minnesota where the claims became part of the lawsuit the Company filed against News America and Albertson’s Inc. in 2004 (described below), and the New York action was subsequently dismissed. |
| |
| On September 23, 2004, the Company brought suit against News America and Albertson’s Inc. (Albertson’s) in Federal District Court in Minneapolis, Minnesota, for violations of federal and state antitrust and false advertising laws, alleging that News America has acquired and maintained monopoly power through various wrongful acts designed to harm the Company in the in-store advertising and promotion products and services market. The suit seeks injunctive relief sufficient to prevent further antitrust injury and an award of treble damages to be determined at trial for the harm caused to the Company. On June 30, 2006 the Court denied the motions of News America and Albertson’s to dismiss the suit. On September 20, 2006, the State of Minnesota through its Attorney General intervened as a co-plaintiff in the business disparagement portion of the Minnesota case. In December 2006, News America filed counterclaims in the Minnesota case that included claims similar to those in its New York action against Insignia and one of its officers, plus claims for damages for two alleged incidents of libel and slander. Motions to dismiss the counterclaims were argued in June 2007, and on September 28, 2007 the Court denied the motions to dismiss the counterclaims. The parties are now engaged in pre-trial discovery. Pursuant to Court order, all discovery and pre-trial matters must be completed by May 1, 2009. On February 4, 2008, the Court approved a consent decree entered into by News America and the State of Minnesota under which News America agreed to not violate Minnesota’s statutes prohibiting commercial disparagement. On July 29, 2008, the Company and Albertson’s entered into a settlement agreement and mutual release, in which they each agreed to release all claims against the other, and the Company agreed to dismiss its lawsuit against Albertson’s. |
| |
| The Company filed claims in December 2006 and January 2007 with its director’s and officer’s liability and general liability insurers related to the defense costs and insurance coverage for claims asserted against the Company and one of its officers in News America’s counterclaims. On August 9, 2007, the Company filed a complaint against the insurers in Hennepin County District Court, State of Minnesota requesting a declaratory judgment that the insurers owe the Company and its officer such defense costs and insurance coverage. In December 2007, the Company settled its claim against one of the insurers, and in March 2009, the Company settled with the other insurer and received a payment of $1,387,000 as part of the settlement. |
| |
| Although management believes that News America’s counterclaims are without merit, an evaluation of the likelihood of an unfavorable outcome and an estimate of the potential liability cannot be rendered at this time. If the Company is required to pay a significant amount in settlement or damages, it will have a material adverse effect on its operations and financial condition. In addition, a negative outcome of this litigation could affect long-term competitive aspects of the Company’s business. |
| |
| Management currently expects the amount of legal fees and expenses that will be incurred in connection with the ongoing lawsuits to be significant throughout 2009. During the year ended December 31, 2008, the Company incurred legal fees and expenses of $4,086,000 related to the ongoing lawsuits. Legal fees and expenses are expensed as incurred and are included in general and administrative expenses in the statements of operations. |
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| |
| The Company is subject to various other legal proceedings in the normal course of business. Management believes the outcome of these proceedings will not have a material adverse effect on the Company’s financial position or results of operations. |
| |
| Retailer Agreements. The Company has contracts in the normal course of business with various retailers, some of which provide for fixed or store-based payments rather than sign placement-based payments. During the years ended December 31, 2008, 2007 and 2006, the Company incurred $4,935,000, $3,730,000 and $3,502,000 of costs related to fixed and store-based payments. The amounts were recorded in Cost of Services in the Statements of Operations. |
| |
| Aggregate commitment amounts under agreements with retailers are approximately as follows for the years ending December 31: |
| | | | |
2009 | | $ | 2,988,000 | |
2010 | | | 2,907,000 | |
2011 | | | 141,000 | |
| |
| On an ongoing basis the Company negotiates renewals of various retailer agreements. Upon the completion of future contract renewals, the annual commitment amounts for 2009 and thereafter could be in excess of the amounts above. |
| |
6. | Shareholders’ Equity. |
| |
| Private Placements and Warrants. On December 18, 2002, the Company closed a private placement of $7,500,000 of common stock to a small group of accredited investors at a price of $9.19 per share, pursuant to a Securities Purchase Agreement. The price represented a 15% discount from the average closing bid price of the Company’s common stock over the five days prior to the closing. As part of this offering, the Company also issued warrants to the investors entitling them to purchase an additional 244,827 shares of the Company’s common stock at an initial exercise price of $12.44 per share for a five-year period. Additionally, a warrant to purchase 40,805 shares with the same terms was issued to the Placement Agent. The warrant agreements were amended, effective December 29, 2003, to adjust the exercise price of the warrants to $2.75 per share in exchange for certain terms of the warrant agreement being deleted in their entirety. During the year ended December 31, 2007, 110,122 of the warrants were exercised and the remaining 175,510 warrants expired on December 18, 2007. |
| |
| On July 2, 2007, the Company issued a warrant to purchase 800,000 shares of the Company’s common stock to Valassis Sales and Marketing Services, Inc. (“Valassis”) at a price of $4.04 for a term of five years. The warrant was issued for services to develop and expand the Company’s participating retailer network in conjunction with Amendment No. 2 to the Exclusive Reseller Agreement which defines the terms of the strategic sales alliance between the Company and Valassis. The Company recorded $1,521,000 of expense related to the fair value of the warrant. The Black-Scholes option-pricing model was used to estimate the fair value of the warrant using an expected life of 5 years, volatility of 40%, a dividend yield of 0% and a risk-free interest rate of 4.9%. At December 31, 2008, the entire warrant was outstanding and exercisable. |
| |
| Stock-Based Compensation. The Company’s stock-based compensation plans are administered by the Compensation Committee of the Board of Directors, which selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures and other provisions of the award. |
| |
| Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R,Share-Based Payment (SFAS 123R), which requires companies to measure and recognize compensation expense for all stock-based payments at fair value. SFAS 123R is being applied on the modified prospective basis. Under the modified prospective approach, SFAS 123R applies to new awards and to awards that were outstanding on January 1, 2006 that are subsequently modified, repurchased or cancelled. |
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Table of Contents
| |
| Under the modified prospective approach, compensation cost recognized beginning in the first quarter of fiscal 2006 includes compensation cost for all share-based payments granted prior to, but not yet vested on January 1, 2006, and compensation cost for all share-based payments granted subsequent to January 1, 2006 based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. Prior periods were not restated to reflect the impact of adopting the new standard. |
| |
| The following table summarizes the stock-based compensation expense which was recognized in the Statements of Operations for the years ended December 31, 2008, 2007 and 2006: |
| | | | | | | | | | |
Year ended December 31 | | 2008 | | 2007 | | 2006 | |
Cost of sales | | $ | 86,000 | | $ | 91,000 | | $ | 61,000 | |
Selling | | | 95,000 | | | 80,000 | | | 55,000 | |
Marketing | | | 65,000 | | | 58,000 | | | 32,000 | |
General and administrative | | | 245,000 | | | 247,000 | | | 111,000 | |
| | $ | 491,000 | | $ | 476,000 | | $ | 259,000 | |
| |
| The Company uses the Black-Scholes option-pricing model to estimate fair value of stock-based awards with the following weighted average assumptions: |
| | | | | | | | | | |
| | 2008 | | 2007 | | 2006 | |
Stock Options: | | | | | | | | | | |
Expected life (years) | | | 3.38 | | | 3.92 | | | 2.64 | |
Expected volatility | | | 75 | % | | 40 | % | | 63 | % |
Dividend yield | | | 0 | % | | 0 | % | | 0 | % |
Risk-free interest rate | | | 2.67 | % | | 4.77 | % | | 4.91 | % |
| |
| The Company uses the straight-line attribution method to recognize expense for unvested options. The amount of share-based compensation recognized during a period is based on the value of the awards that are ultimately expected to vest. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company will re-evaluate the forfeiture rate annually and adjust it as necessary. |
| |
| As of December 31, 2008, there was $273,000 of total unrecognized compensation costs related to the outstanding stock options which is expected to be recognized over a weighted average period of 1.0 years. |
| |
| Stock Options. Prior to 2003 the Company had a stock option plan (the “1990 Plan”) for its employees and directors under which substantially all of the shares reserved for issuance had been issued. During May 2003, the Company’s shareholders approved the 2003 Incentive Stock Option Plan (the “2003 Plan”) and an aggregate of 350,000 shares of common stock were reserved for issuance. The shareholders approved an additional 650,000 shares for issuance in May of 2004, an additional 625,000 shares for issuance in May of 2005, an additional 250,000 for issuance in May of 2007 and an additional 500,000 for issuance in May of 2008. The 2003 Plan replaced the 1990 Plan. Options granted under the 1990 Plan will remain in effect until they are exercised or expire according to their terms. All current option grants are made under the 2003 Plan. |
| |
| Under the terms of the stock option plans, the Company grants incentive or non-qualified stock options to employees and directors generally at an exercise price at or above 100% of fair market value at the close of business on the date of grant. The stock options expire five or ten years after the date of grant and generally vest over three years. |
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| |
| The following table summarizes activity under the Option Plans: |
| | | | | | | | | | | | | |
| | Plan Shares
Available
for Grant | | Plan
Options
Outstanding | | Weighted
Average Exercise
Price Per Share | | Aggregate
Intrinsic
Value | |
| |
Balance at December 31, 2005 | | | 563,366 | | | 1,859,329 | | $ | 4.22 | | | | |
Reserved | | | — | | | — | | | — | | | | |
Granted | | | (615,100 | ) | | 615,100 | | | 1.24 | | | | |
Exercised | | | — | | | (113,331 | ) | | 1.52 | | $ | 179,000 | |
Cancelled – 2003 Plan | | | 252,934 | | | (252,934 | ) | | 2.44 | | | | |
Cancelled – 1990 Plan | | | — | | | (61,066 | ) | | 7.66 | | | | |
| |
Balance at December 31, 2006 | | | 201,200 | | | 2,047,098 | | | 3.59 | | | | |
Reserved | | | 250,000 | | | — | | | — | | | | |
Granted | | | (513,100 | ) | | 513,100 | | | 3.74 | | | | |
Exercised | | | — | | | (142,616 | ) | | 1.23 | | $ | 478,000 | |
Cancelled – 2003 Plan | | | 96,968 | | | (96,968 | ) | | 1.60 | | | | |
Cancelled – 1990 Plan | | | — | | | (66,400 | ) | | 8.17 | | | | |
| |
Balance at December 31, 2007 | | | 35,068 | | | 2,254,214 | | | 3.73 | | | | |
Reserved | | | 500,000 | | | — | | | — | | | | |
Granted | | | (321,000 | ) | | 321,000 | | | 1.93 | | | | |
Exercised | | | — | | | (4,367 | ) | | 1.24 | | $ | 3,000 | |
Cancelled – 2003 Plan | | | 49,936 | | | (49,936 | ) | | 2.47 | | | | |
Cancelled – 1990 Plan | | | — | | | (23,200 | ) | | 6.10 | | | | |
| |
Balance at December 31, 2008 | | | 264,004 | | | 2,497,711 | | $ | 3.50 | | | | |
| | | | |
The numbers of options exercisable under the Option Plans were: |
December 31, 2006 | | | 1,242,487 | |
December 31, 2007 | | | 1,372,417 | |
December 31, 2008 | | | 1,751,837 | |
| |
| The following table summarizes information about the stock options outstanding at December 31, 2008: |
| | | | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable | |
Ranges of
Exercise
Prices | | Number
Outstanding | | Weighted
Average
Remaining
Contractual Life | | Weighted
Average
Exercise Price
Per Share | | Number
Exercisable | | Weighted
Average
Exercise Price
Per share | |
| |
$0.58 | – | $ | 0.96 | | 310,401 | | | 6.51 years | | | $ | 0.91 | | | 302,067 | | | | $ | 0.91 | | |
0.97 | – | | 1.31 | | 656,433 | | | 6.70 years | | | | 1.24 | | | 511,305 | | | | | 1.25 | | |
1.32 | – | | 1.95 | | 350,547 | | | 8.91 years | | | | 1.92 | | | 67,047 | | | | | 1.94 | | |
1.96 | – | | 3.32 | | 42,067 | | | 4.71 years | | | | 3.09 | | | 29,406 | | | | | 3.19 | | |
3.33 | – | | 4.28 | | 551,331 | | | 7.58 years | | | | 3.80 | | | 255,745 | | | | | 3.86 | | |
4.29 | – | | 5.80 | | 84,999 | | | 4.27 years | | | | 5.74 | | | 84,334 | | | | | 5.75 | | |
5.81 | – | | 8.90 | | 309,933 | | | 1.81 years | | | | 7.82 | | | 309,933 | | | | | 7.82 | | |
8.91 | – | | 11.36 | | 192,000 | | | 2.72 years | | | | 9.61 | | | 192,000 | | | | | 9.61 | | |
|
$0.58 | – | $ | 11.36 | | 2,497,711 | | | 6.15 years | | | $ | 3.50 | | | 1,751,837 | | | | $ | 3.93 | | |
| |
| Options outstanding under the Option Plans expire at various dates during the period October 2009 through May 2018. Options outstanding at December 31, 2008 had a weighted average remaining life of 6.15 years and an aggregate intrinsic value of $21,000. Options exercisable at December 31, 2008 had a weighted average remaining life of 5.13 years and an aggregate intrinsic value of $21,000. The weighted average grant-date fair value of options granted during the years ended December 31, 2008, 2007 and 2006, were $1.01, $1.38 and $0.52. |
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| |
| Employee Stock Purchase Plan.The Company has an Employee Stock Purchase Plan (the “Plan”) that enables employees to contribute up to 10% of their compensation toward the purchase of the Company’s common stock at 85% of market value. During the years ended December 31, 2008, 2007 and 2006, employees purchased 39,914, 164,040 and 57,460 shares under the Plan. At December 31, 2008, 155,663 shares are reserved for future employee purchases of common stock under the Plan. For the year ended December 31, 2008, the Company recognized $67,000 of stock-based compensation expense related to the Plan. |
| |
7. | Income Taxes. The (provision) benefit for income taxes consists of the following: |
| | | | | | | | | | |
Year Ended December 31 | | 2008 | | 2007 | | 2006 | |
Current taxes - Federal | | $ | — | | $ | (7,000 | ) | $ | — | |
Current taxes - State | | | (7,000 | ) | | (15,000 | ) | | — | |
Deferred taxes - Federal | | | (185,000 | ) | | (189,000 | ) | | — | |
Deferred taxes - State | | | (16,000 | ) | | (17,000 | ) | | — | |
(Expense) benefit from adjustment of valuation allowance | | | (1,930,000 | ) | | 2,337,000 | | | — | |
| |
(Provision) benefit for income taxes | | $ | (2,138,000 | ) | $ | 2,109,000 | | $ | — | |
| |
| Significant components of the deferred taxes are as follows: |
| | | | | | | |
As of December 31 | | | 2008 | | | 2007 | |
| |
Current Deferred Tax Assets: | | | | | | | |
Net operating loss carryforwards | | $ | — | | $ | 550,000 | |
Accrued expenses | | | 99,000 | | | 96,000 | |
Inventory reserve | | | 27,000 | | | 27,000 | |
Other | | | 2,000 | | | 4,000 | |
Current deferred tax assets before valuation allowance | | | 128,000 | | | 677,000 | |
Less valuation allowance | | | (128,000 | ) | | (513,000 | ) |
| |
Current deferred tax assets | | $ | — | | $ | 164,000 | |
| | | | | | | |
Long -Term Deferred Tax Assets: | | | | | | | |
Net operating loss carryforwards | | $ | 7,632,000 | | $ | 7,182,000 | |
Warrant expense | | | 563,000 | | | 563,000 | |
Accrued expenses | | | 147,000 | | | 215,000 | |
Depreciation | | | 31,000 | | | 96,000 | |
Stock options | | | 78,000 | | | 52,000 | |
Alternative minimum tax credits | | | 34,000 | | | 31,000 | |
Other | | | 1,000 | | | — | |
Long-term deferred tax assets before valuation allowance | | | 8,486,000 | | | 8,139,000 | |
Less valuation allowance | | | (8,486,000 | ) | | (6,172,000 | ) |
| |
Long-term deferred tax assets | | $ | — | | $ | 1,967,000 | |
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| |
| At December 31, 2008, the Company had net operating loss carryforwards of approximately $21,463,000, which are available to offset future taxable income. The Company has determined that these carryforwards are not currently subject to the limitations of Internal Revenue Code Section 382 which provides limitations on the availability of net operating losses to offset current taxable income if an ownership change has occurred. These carryforwards will begin expiring in 2010. |
| |
| At December 31, 2008, the Company had indefinite-lived alternative minimum tax credit carryforwards of $34,000. |
| |
| The Company has established a valuation allowance due to uncertainties regarding the realization of deferred tax assets. During the year ended December 31, 2008, the Company recorded a $1,930,000 net increase to the valuation allowance due to changes in the Company’s expectations regarding its ability to realize certain deferred tax assets, which resulted from a determination that it was more likely than not that none of the deferred tax assets would be realized. During the year ended December 31, 2007, the Company recorded a $2,337,000 net release to the valuation allowance due to changes in the Company’s expectations regarding its ability to realize certain deferred tax assets, which resulted from a determination that it was more likely than not that a portion of the net deferred tax assets would be realized. The Company evaluates all significant available positive and negative evidence, including the existence of losses in recent years and its forecast of future taxable income, in assessing the need for a valuation allowance. The underlying assumptions the Company uses in forecasting future taxable income require significant judgment and take into account the Company’s recent performance. |
| |
| The Company will continue to assess the valuation allowance and to the extent it is determined that said allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized in the future. Included as part of the Company’s net operating loss carryforwards are approximately $2,700,000 in tax deductions that resulted from the exercise of stock options. When these loss carryforwards are realized the corresponding changes in the valuation allowance will be recorded as additional paid-in capital. |
| |
| The actual tax expense attributable to income from continuing operations differs from the expected tax expense (benefit) computed by applying the U.S. federal corporate income tax rate of 34% to the net income (loss) as follows: |
| | | | | | | | | | |
Year Ended December 31 | | 2008 | | 2007 | | 2006 | |
Federal statutory rate | | | (34.0 | )% | | 34.0 | % | | 34.0 | % |
| | | | | | | | | | |
Change in valuation allowance | | | 1,618.3 | | | (961.0 | ) | | (48.2 | ) |
Stock options | | | 116.5 | | | 56.8 | | | 0.5 | |
State taxes | | | 79.9 | | | (41.9 | ) | | (0.4 | ) |
Meals & entertainment | | | 21.0 | | | 9.4 | | | 0.8 | |
Expiration of carryforwards | | | — | | | — | | | 13.3 | |
| |
Effective federal income tax rate | | | 1,801.7 | % | | (902.7 | )% | | 0.0 | % |
| |
| On January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No 109” (FIN 48). As a result of implementation of FIN 48, the Company has determined that no liability is required to be recognized. The Company files income tax returns in the United States and numerous state and local tax jurisdictions. Tax years that are open for examination and assessment by the Internal Revenue Service are 2005 through 2008. With limited exceptions, tax years prior to 2004 are no longer open in major state and local tax jurisdictions. |
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| |
8. | Employee Benefit Plans. The Company has a Retirement Profit Sharing and Savings Plan under Section 401(k) of the Internal Revenue Code. The plan allows employees to defer up to 50% of their wages, subject to Federal limitations, on a pre-tax basis through contributions to the plan. During the years ended December 31, 2008 and 2007 the Company made a matching contribution of $71,000 and $66,000, respectively. During the year ended December 31, 2006 the Company made no matching contributions. |
|
9. | Concentrations. |
| Major Customers. During the year ended December 31, 2008, four customers accounted for 19%, 13%, 11% and 10% of the Company’s total net sales. At December 31, 2008, these four customers represented 12%, 2%, 7% and 24% of the Company’s total accounts receivable. During the year ended December 31, 2007, two customers accounted for 15% and 11% of the Company’s total net sales. At December 31, 2007, these two customers represented 23% and 4% of the Company’s total accounts receivable. |
| |
| Although there are a number of customers that the Company sells to, the loss of a major customer could adversely affect operating results. Additionally, the loss of a major retailer from the Company’s retail network could adversely affect operating results. |
| |
| Export Sales. Export sales accounted for less than 1% of total net sales during the years ended December 31, 2008, 2007 and 2006. |
| |
10. | Quarterly Financial Data. (Unaudited) |
| Quarterly data for the years ended December 31, 2008 and 2007 was as follows: |
| | | | | | | | | | | | | |
Year Ended December 31, 2008 | | 1st Quarter | | 2nd Quarter | | 3 rd Quarter | | 4th Quarter | |
Net sales | | $ | 6,563,000 | | $ | 7,578,000 | | $ | 8,597,000 | | $ | 8,668,000 | |
Gross profit | | | 3,534,000 | | | 4,294,000 | | | 4,499,000 | | | 4,557,000 | |
Net income (loss) | | | (240,000 | ) | | 410,000 | | | (254,000 | ) | | (2,173,000 | ) |
Net income (loss) per share: | | | | | | | | | | | | | |
Basic | | $ | (0.02 | ) | $ | 0.03 | | $ | (0.02 | ) | $ | (0.14 | ) |
Diluted | | $ | (0.02 | ) | $ | 0.03 | | $ | (0.02 | ) | $ | (0.14 | ) |
| | | | | | | | | | | | | |
Year Ended December 31, 2007 | | 1st Quarter | | 2nd Quarter | | 3 rd Quarter | | 4th Quarter | |
Net sales | | $ | 6,065,000 | | $ | 6,969,000 | | $ | 6,461,000 | | $ | 4,936,000 | |
Gross profit | | | 3,358,000 | | | 4,160,000 | | | 3,608,000 | | | 2,416,000 | |
Net income (loss) | | | 427,000 | | | 1,198,000 | | | (907,000 | ) | | 1,625,000 | |
Net income (loss) per share: | | | | | | | | | | | | | |
Basic | | $ | 0.03 | | $ | 0.08 | | $ | (0.06 | ) | $ | 0.10 | |
Diluted | | $ | 0.03 | | $ | 0.07 | | $ | (0.06 | ) | $ | 0.10 | |
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures
Not applicable.
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Item 9A. Controls and Procedures
Disclosure Controls and Procedures
The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer (principal financial officer), of the effectiveness of the design and operation of the Company’s 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) as of December 31, 2008, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer (principal financial officer) concluded that the Company’s disclosure controls and procedures as of December 31, 2008 were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and are designed to ensure that information required to be disclosed by us in these reports is accumulated and communicated to our management, as appropriate to allow timely decisions regarding disclosures.
We will consider further actions and continue to evaluate the effectiveness of our disclosure controls and internal controls and procedures on an ongoing basis, taking corrective action as appropriate. Management does not expect that disclosure controls and procedures or internal controls can prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable and not absolute assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. While management believes that its disclosure controls and procedures provide reasonable assurance that fraud can be detected and prevented, 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, have been detected.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2008. In conducting its evaluation, our management used the criteria set forth by the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management believes our internal control over financial reporting was effective as of December 31, 2008.
The certification of the Company’s Principal Executive Officer and Principal Financial Officer attached as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K include, in paragraph 4 of such certifications, information concerning the Company’s disclosure controls and procedures and internal controls over financial reporting. Such certifications should be read in conjunction with the information contained in the Item 9A for a more complete understanding of the matters covered by such certifications.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
No changes in the Company’s internal control over financial reporting have occurred during the fourth quarter of 2008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
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PART III.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Item 10 concerning the directors and executive officers of the Company and corporate governance is incorporated herein by reference to the Company’s proxy statement for its 2009 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed.
Item 11. Executive Compensation
The information required by Item 11 is incorporated herein by reference to the Company’s proxy statement for its 2009 Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 is incorporated herein by reference to the Company’s proxy statement for its 2009 Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by Item 13 is incorporated herein by reference to the Company’s proxy statement for its 2009 Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed.
Item 14. Principal Accounting Fees and Services
The information required by Item 14 is incorporated herein by reference to the Company’s proxy statement for its 2009 Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed.
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Item 15. Exhibits and Financial Statement Schedules
The following financial statements of Insignia Systems, Inc. are included in Item 8:
| |
| Report of Independent Registered Public Accounting Firm |
| Balance Sheets as of December 31, 2008 and 2007 |
| Statements of Operations for the years ended December 31, 2008, 2007 and 2006 |
| Statements of Shareholders’ Equity for the years ended December 31, 2008, 2007 and 2006 |
| Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006 |
| Notes to Financial Statements |
| | | | |
Exhibit
Number | | Description | | Incorporation By Reference To |
|
3.1 | | Articles of Incorporation of Registrant, as amended to date | | Exhibit 3.1 of the Registrant’s Registration Statement on Form S-18, Reg. No. 33-40765C |
| | | | |
3.2 | | Bylaws, as amended to date | | Exhibit 3.1 of the Registrant’s Form 8-K filed February 23, 2007 |
| | | | |
4.1 | | Specimen Common Stock Certificate of Registrant | | Exhibit 4.1 of the Registrant’s Registration Statement on Form S-18, Reg. No. 33-40765C |
| | | | |
10.1 | | The Company’s 1990 Stock Plan, as amended | | Exhibit 10.3 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001 |
| | | | |
10.2 | | Employee Stock Purchase Plan, as amended | | Exhibit 4.1 of the Registrants Registration Statement on Form S-8, Reg. No. 333-136591 |
| | | | |
10.3 | | The Company’s 2003 Incentive Stock Option Plan, as amended | | Exhibit 4.1 of the Registrant’s Registration Statement on Form S-8, Reg. No. 333-153031 |
| | | | |
10.4 | | Amended Change in Control Severance Agreement with Scott F. Drill dated December 20, 2005 | | Exhibit 10.10 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005 |
| | | | |
10.5 | | Amended Change in Control Severance Agreement with Justin W. Shireman dated December 20, 2005 | | Exhibit 10.11 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005 |
| | | | |
10.6 | | Consulting Agreement, effective February 1, 2006, between Gary L. Vars and the Company | | Exhibit 4.1 of the Registrant’s Form 8-K filed February 1, 2006 |
| | | | |
10.7 | | Nonqualified Stock Option Agreement, effective February 1, 2006, between Gary L. Vars and the Company | | Exhibit 4.2 of the Registrant’s Form 8-K filed February 1, 2006 |
| | | | |
10.8 | | Exclusive Reseller Agreement between Valassis Sales & Marketing Services, Inc. and the Company entered into as of June 12, 2006 | | Exhibit 10.1 of the Registrant’s Form 10-Q for the quarterly period ended June 30, 2006 |
| | | | |
10.9 | | Amended Change in Control Severance Agreement with Scott J. Simcox dated February 20, 2007 | | Exhibit 10.1 of the Registrant’s Form 8-K filed February 23, 2007 |
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| | | | |
Exhibit
Number | | Description | | Incorporation By Reference To |
10.10 | | Amended Change in Control Severance Agreement with Alan Jones dated May 23, 2007 | | Exhibit 10.1 of the Registrant’s Form 8-K filed May 30, 2007 |
| | | | |
10.11 | | Amended Change in Control Severance Agreement with A. Thomas Lucas dated May 23, 2007 | | Exhibit 10.2 of the Registrant’s Form 8-K filed May 30, 2007 |
| | | | |
10.12 | | Amendment #2 dated July 2, 2007 to Exclusive Reseller Agreement dated June 12, 2006 between Valassis Sales & Marketing Services, Inc. and the Company | | Exhibit 10.1 of the Registrant’s Form 10-Q for the quarterly period ended June 30, 2007 |
| | | | |
10.13 | | Form of Warrant dated July 2, 2007 to purchase shares of common stock issued to Valassis Sales & Marketing Services, Inc. by the Company per Amendment #2 to the Exclusive Reseller Agreement | | Exhibit 10.2 of the Registrant’s Form 10-Q for the quarterly period ended June 30, 2007 |
| | | | |
10.14 | | Lease Termination Agreement between the Company and the Landlord, dated October 12, 2007 | | Exhibit 10.20 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 |
| | | | |
10.15 | | Sublease Termination Agreement between the Company and the Sublessee dated October 12, 2007 | | Exhibit 10.21 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 |
| | | | |
10.16 | | Lease Agreement between the Company and the Landlord (Opus Northwest L.L.C.) dated March 27, 2008 (Exhibits Omitted) | | Exhibit 10.22 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 |
| | | | |
10.17 | | 2008 CEO Bonus Plan | | Exhibit 10.23 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 |
| | | | |
10.18 | | 2008 Executive Bonus Plan | | Exhibit 10.24 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 |
| | | | |
10.19 | | Senior Management Litigation Incentive Plan | | Exhibit 10.1 of the Registrant’s Form 8-K filed May 23, 2008 |
| | | | |
14 | | Code of Ethics | | Exhibit 14 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003 |
| | | | |
23.1 | | Consent of Independent Registered Public Accounting Firm | | Filed herewith |
| | | | |
31.1 | | Certification of Principal Executive Officer | | Filed herewith |
| | | | |
31.2 | | Certification of Principal Financial Officer | | Filed herewith |
| | | | |
32 | | Section 1350 Certification | | Filed herewith |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| | | |
| By: | /s/ Scott F. Drill | |
| | Scott F. Drill | |
| | President and CEO |
Dated: March 27, 2009 | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated.
| | | | |
Signature | | Title | | Date |
| | | | |
/s/ Scott F. Drill | | President, Chief Executive Officer (principal executive officer) Secretary and Director | | March 27, 2009 |
Scott F. Drill | | | |
| | | | |
/s/ Justin W. Shireman | | Vice President of Finance, Chief Financial Officer (principal financial and accounting officer) and Treasurer | | March 27, 2009 |
Justin W. Shireman | | |
| | | | |
/s/ Peter V. Derycz | | Director | | March 27, 2009 |
Peter V. Derycz | | | | |
| | | | |
/s/ Donald J. Kramer | | Director | | March 27, 2009 |
Donald J. Kramer | | | | |
| | | | |
/s/ Reid V. MacDonald | | Director | | March 27, 2009 |
Reid V. MacDonald | | | | |
| | | | |
/s/ Gordon F. Stofer | | Director | | March 27, 2009 |
Gordon F. Stofer | | | | |
45
