LENDWAY, INC. - Quarter Report: 2016 September (Form 10-Q)
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 September 30, 2016
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the
transition period from ___________________ to
_________________
Commission
File Number: 1-13471
|
INSIGNIA SYSTEMS, INC.
|
|
(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.)
|
|
8799 Brooklyn Blvd., Minneapolis, MN 55445
|
|
(Address
of principal executive offices; zip code)
|
|
(763) 392-6200
|
|
(Registrant’s
telephone number, including area code)
|
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 and posted
on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted 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 and post such files).
Yes
☒ No ☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange
Act.
|
Large
accelerated filer ☐
|
Accelerated
filer ☐
|
|
Non-accelerated
filer ☐ (Do not check if a smaller reporting
company)
|
Smaller
Reporting Company ☒
|
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
October 24, 2016 was 11,727,803.
Insignia Systems, Inc.
TABLE OF CONTENTS
|
PART I.
|
FINANCIAL INFORMATION
|
Page
|
|
|
|
|
|
Item 1.
|
Financial Statements
|
1
|
|
|
|
|
|
|
Condensed Balance Sheets –
September 30, 2016 (unaudited) and December 31, 2015
|
1
|
|
|
|
|
|
|
Statements of Comprehensive Income
(Loss) – Three and nine months ended
September
30, 2016 and 2015 (unaudited)
|
2
|
|
|
|
|
|
|
Statements of Cash Flows –
Nine months ended September 30, 2016 and 2015
(unaudited)
|
3
|
|
|
|
|
|
|
Notes to Financial
Statements –
(unaudited)
|
4
|
|
|
|
|
|
Item 2.
|
8
|
|
|
|
|
|
|
Item 3.
|
14
|
|
|
|
|
|
|
Item 4.
|
14
|
|
|
|
|
|
|
|
|
|
|
PART II.
|
OTHER INFORMATION
|
|
|
|
|
|
|
Item 1.
|
14
|
|
|
|
|
|
|
Item 1A.
|
14
|
|
|
|
|
|
|
Item 2.
|
15
|
|
|
|
|
|
|
Item 3.
|
15
|
|
|
|
|
|
|
Item 4.
|
15
|
|
|
|
|
|
|
Item 5.
|
15
|
|
|
|
|
|
|
Item 6.
|
16
|
i
PART
I.
FINANCIAL INFORMATION
|
Insignia Systems, Inc.
|
||
|
CONDENSED BALANCE
SHEETS
|
||
|
|
|
|
|
|
September 30,
|
|
|
|
2016
|
December 31,
|
|
|
(Unaudited)
|
2015
|
|
ASSETS
|
|
|
|
Current Assets:
|
|
|
|
Cash
and cash equivalents
|
$11,412,000
|
$8,523,000
|
|
Available
for sale investments
|
3,430,000
|
9,490,000
|
|
Accounts
receivable, net
|
8,013,000
|
8,392,000
|
|
Inventories
|
575,000
|
391,000
|
|
Income
tax receivable
|
325,000
|
1,000
|
|
Prepaid
expenses and other
|
983,000
|
492,000
|
|
Total
Current Assets
|
24,738,000
|
27,289,000
|
|
|
|
|
|
Other Assets:
|
|
|
|
Property
and equipment, net
|
1,530,000
|
1,584,000
|
|
Other,
net
|
2,094,000
|
2,841,000
|
|
|
|
|
|
Total Assets
|
$28,362,000
|
$31,714,000
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
Current Liabilities:
|
|
|
|
Accounts
payable
|
$2,084,000
|
$3,355,000
|
|
Accrued
liabilities:
|
|
|
|
Compensation
|
789,000
|
1,494,000
|
|
Other
|
310,000
|
715,000
|
|
Income
tax payable
|
80,000
|
264,000
|
|
Deferred
revenue
|
36,000
|
164,000
|
|
Total
Current Liabilities
|
3,299,000
|
5,992,000
|
|
|
|
|
|
Long-Term Liabilities:
|
|
|
|
Deferred
tax liabilities
|
199,000
|
199,000
|
|
Accrued
income taxes
|
528,000
|
528,000
|
|
Deferred
rent
|
287,000
|
275,000
|
|
Total
Long-Term Liabilities
|
1,014,000
|
1,002,000
|
|
|
|
|
|
Commitments and Contingencies
|
—
|
—
|
|
|
|
|
|
Shareholders' Equity:
|
|
|
|
Common
stock, par value $.01:
|
|
|
|
Authorized
shares - 40,000,000
|
|
|
|
Issued
shares - 11,802,000 at September 30, 2016 and 11,721,000 at
December 31, 2015
|
|
|
|
Outstanding
shares - 11,632,000 at September 30, 2016 and 11,633,000 at
December 31, 2015
|
116,000
|
116,000
|
|
Additional
paid-in capital
|
17,704,000
|
17,810,000
|
|
Retained
earnings
|
6,229,000
|
6,805,000
|
|
Accumulated
other comprehensive loss
|
—
|
( 11,000)
|
|
Total
Shareholders' Equity
|
24,049,000
|
24,720,000
|
|
|
|
|
|
Total Liabilities and Shareholders' Equity
|
$28,362,000
|
$31,714,000
|
|
|
|
|
|
See accompanying notes to financial statements.
|
||
1
|
Insignia Systems, Inc.
|
||||
|
STATEMENTS
OF COMPREHENSIVE INCOME (LOSS)
|
||||
|
(Unaudited)
|
||||
|
|
|
|
|
|
|
|
Three Months Ended
|
Nine Months Ended
|
||
|
|
September 30
|
September 30
|
||
|
|
2016
|
2015
|
2016
|
2015
|
|
Services
revenues
|
$6,050,000
|
$7,098,000
|
$17,830,000
|
$19,356,000
|
|
Products
revenues
|
419,000
|
450,000
|
1,334,000
|
1,406,000
|
|
Total
Net Sales
|
6,469,000
|
7,548,000
|
19,164,000
|
20,762,000
|
|
|
|
|
|
|
|
Cost
of services
|
4,171,000
|
3,734,000
|
12,153,000
|
10,494,000
|
|
Cost
of goods sold
|
298,000
|
315,000
|
928,000
|
981,000
|
|
Total
Cost of Sales
|
4,469,000
|
4,049,000
|
13,081,000
|
11,475,000
|
|
Gross
Profit
|
2,000,000
|
3,499,000
|
6,083,000
|
9,287,000
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
Selling
|
917,000
|
962,000
|
3,061,000
|
3,451,000
|
|
Marketing
|
242,000
|
468,000
|
769,000
|
1,254,000
|
|
General
and administrative
|
879,000
|
1,145,000
|
3,149,000
|
3,110,000
|
|
Total
Operating Expenses
|
2,038,000
|
2,575,000
|
6,979,000
|
7,815,000
|
|
Operating
Income (Loss)
|
(38,000)
|
924,000
|
(896,000)
|
1,472,000
|
|
|
|
|
|
|
|
Other
income
|
12,000
|
19,000
|
44,000
|
56,000
|
|
Income
(Loss) Before Taxes
|
(26,000)
|
943,000
|
(852,000)
|
1,528,000
|
|
|
|
|
|
|
|
Income
tax expense (benefit)
|
141,000
|
382,000
|
(276,000)
|
621,000
|
|
Net
Income (Loss)
|
$(167,000)
|
$561,000
|
$(576,000)
|
$907,000
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
Unrealized
gain on available for sale securities
|
—
|
—
|
11,000
|
7,000
|
|
Comprehensive
Income (Loss)
|
$(167,000)
|
$561,000
|
$(565,000)
|
$914,000
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
Basic
|
$(0.01)
|
$0.05
|
$(0.05)
|
$0.07
|
|
Diluted
|
$(0.01)
|
$0.05
|
$(0.05)
|
$0.07
|
|
|
|
|
|
|
|
Shares
used in calculation of net
income
(loss) per share:
|
|
|
|
|
|
Basic
|
11,642,000
|
12,107,000
|
11,626,000
|
12,177,000
|
|
Diluted
|
11,642,000
|
12,241,000
|
11,626,000
|
12,351,000
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
|
|
|
||
2
|
Insignia Systems, Inc.
|
||
|
STATEMENTS OF
CASH FLOWS
|
||
|
|
|
|
|
(Unaudited)
|
||
|
|
|
|
|
Nine Months Ended September 30
|
2016
|
2015
|
|
Operating Activities:
|
|
|
|
Net
income (loss)
|
$(576,000)
|
$907,000
|
|
Adjustments
to reconcile net income (loss) to
net cash provided by (used in) operating activities:
|
|
|
|
Depreciation
and amortization
|
1,101,000
|
851,000
|
|
Changes
in allowance for doubtful accounts
|
41,000
|
(19,000)
|
|
Deferred
income tax expense
|
—
|
119,000
|
|
Stock-based
compensation expense
|
150,000
|
267,000
|
|
Gain
on sale of property and equipment
|
(5,000)
|
(25,000)
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
338,000
|
457,000
|
|
Inventories
|
(184,000)
|
55,000
|
|
Income
tax receivable
|
(324,000)
|
277,000
|
|
Prepaid
expenses and other
|
(266,000)
|
118,000
|
|
Accounts
payable
|
(1,271,000)
|
(379,000)
|
|
Accrued
liabilities
|
(1,098,000)
|
498,000
|
|
Income
tax payable
|
(184,000)
|
159,000
|
|
Excess
tax benefit from stock-based awards
|
—
|
(4,000)
|
|
Deferred
revenue
|
(128,000)
|
456,000
|
|
Net
cash provided by (used in) operating activities
|
(2,406,000)
|
3,737,000
|
|
|
|
|
|
Investing Activities:
|
|
|
|
Purchases
of property and equipment
|
(524,000)
|
(137,000)
|
|
Purchases
of investments
|
—
|
(4,513,000)
|
|
Proceeds
from sale or maturity of investments
|
6,071,000
|
4,308,000
|
|
Proceeds
received from sale of property and equipment
|
5,000
|
25,000
|
|
Net
cash provided by (used in) investing activities
|
5,552,000
|
(317,000)
|
|
|
|
|
|
Financing Activities:
|
|
|
|
Proceeds
from issuance of common stock, net
|
44,000
|
48,000
|
|
Excess
tax benefit from stock-based awards
|
—
|
4,000
|
|
Repurchase
of common stock, net
|
(301,000)
|
(1,614,000)
|
|
Net
cash used in financing activities
|
(257,000)
|
(1,562,000)
|
|
|
|
|
|
Increase
in cash and cash equivalents
|
2,889,000
|
1,858,000
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
8,523,000
|
7,237,000
|
|
Cash
and cash equivalents at end of period
|
$11,412,000
|
$9,095,000
|
|
|
|
|
|
Supplemental disclosures for cash flow information:
|
|
|
|
Cash
paid during the period for income taxes
|
$238,000
|
$243,000
|
|
|
|
|
|
See accompanying notes to financial statements.
|
|
|
3
Insignia Systems, Inc.
Notes To
Financial Statements
(Unaudited)
1.
Summary of
Significant Accounting Policies.
Description
of Business. Insignia Systems,
Inc. (the “Company”) markets in-store advertising
products, programs and services primarily to consumer packaged
goods manufacturers. The Company’s products include the
Insignia Point-of-Purchase Services (POPS) in-store marketing
program, thermal sign card supplies for the Company’s Impulse
Retail System, and laser printable cardstock and label supplies. In
October 2014, the Company announced the introduction of a new
product, The Like MachineTM
(“TLM”). The Company
previously licensed this product from TLM Holdings, LLC
(“TLMH”), a company in which Insignia’s former
Chief Sales and Marketing Officer, Tim Halfmann, is the majority
owner and serves as a principal. In March 2016, the Company and
TLMH signed a new distribution agreement for the sale of The Like
Machine to Insignia’s customers. This distribution agreement
replaced the Company’s prior license agreement with TLMH. Mr.
Halfmann resigned from Insignia, effective April 30, 2016, in order
to focus his efforts more fully on the TLM product and its
evolution going forward.
Basis of
Presentation. Financial statements for the interim periods
included herein are unaudited; however, they contain all
adjustments, including normal recurring accruals, which in the
opinion of management, are necessary to present fairly the
financial position of the Company at September 30, 2016, and its
results of operations for the three and nine months ended September
30, 2016 and 2015, and its cash flows for the nine months ended
September 30, 2016 and 2015. Results of operations for the periods
presented are not necessarily indicative of the results to be
expected for the full year.
The
financial statements do not include certain footnote disclosures
and financial information normally included in financial statements
prepared in accordance with accounting principles generally
accepted in the United States of America and, therefore, should be
read in conjunction with the financial statements and notes
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2015.
The
Summary of Significant Accounting Policies in the Company’s
2015 Annual Report on Form 10-K describes the Company’s
accounting policies.
Inventories.
Inventories are primarily comprised of parts and supplies for
Impulse machine, sign cards, rollstock and TLM devices. Inventory
is valued at the lower of cost or market using the first-in,
first-out (FIFO) method, and consisted of the following as of the
dates indicated:
|
|
September
30,
|
December
31,
|
|
|
2016
|
2015
|
|
Raw
materials
|
$91,000
|
$69,000
|
|
Work-in-process
|
14,000
|
4,000
|
|
Finished
goods
|
470,000
|
318,000
|
|
|
$575,000
|
$391,000
|
4
Property
and Equipment. Property and
equipment consisted of the following as of the dates
indicated:
|
|
September
30,
2016 |
December
31,
2015
|
|
Property and Equipment:
|
|
|
|
Production
tooling, machinery and equipment
|
$3,596,000
|
$3,722,000
|
|
Office
furniture and fixtures
|
322,000
|
145,000
|
|
Computer
equipment and software
|
1,280,000
|
1,233,000
|
|
Web
site
|
40,000
|
40,000
|
|
Leasehold
improvements
|
577,000
|
—
|
|
Construction
in-progress
|
220,000
|
616,000
|
|
|
6,035,000
|
5,756,000
|
|
Accumulated
depreciation and amortization
|
(4,505,000)
|
(4,172,000)
|
|
Net
Property and Equipment
|
$1,530,000
|
$1,584,000
|
Depreciation
expense was approximately $187,000 and $577,000 in the three and
nine months ended September 30, 2016,
respectively, and $160,000 and $482,000 in the three and nine
months ended September 30, 2015, respectively.
Stock-Based
Compensation. The Company measures and recognizes
compensation expense for all stock-based awards at fair value using
the Black-Scholes option pricing model to determine the weighted
average fair value of options and employee stock purchase plan
rights. The Company recognizes stock-based compensation expense on
a graded-attribution method
over the requisite service period of the award.
The
Company issued options to purchase an aggregate of 20,000 shares of
common stock under its 2013 Omnibus Stock and Incentive Plan, as
amended (the “2013 Plan”), with a weighted average
exercise price of $2.90, during the nine months ended September 30,
2016. The Company estimated the fair value of these awards using
the following weighted average assumptions: expected life of 2.5
years, expected volatility of 41%, dividend yield of 0% and
risk-free interest rate of 1.00%. The Company issued options to
purchase an aggregate of 200,000 shares of common stock under the
2013 Plan, as amended, with a weighted average exercise price of
$2.82, during the nine months ended September 30, 2015. The Company
estimated the fair value of these awards using the following
weighted average assumptions: expected life of 3.4 years, expected
volatility of 45%, dividend yield of 0% and risk-free interest rate
of 1.18%.
During
the nine months ended September 30, 2016, the Company issued
100,000 shares of restricted stock under the 2013 Plan. The shares
underlying the award were assigned a value of $2.33 per share,
which was the closing price of our common stock on the date of
grant, and is scheduled to vest over the five years following the
date of grant. No restricted stock was issued during the nine
months ended September 30, 2015.
During
the nine months ended September 30, 2016, the Company issued 11,719
performance-based restricted stock units under the 2013 Plan. Each
unit represents the right to acquire one share of the
Company’s common stock. The units were assigned a weighted
average value of $0.85 per unit, based on market condition
assumptions, and are scheduled to vest with respect to 80% of the
units if the price of the Company’s common stock during the
applicable measurement period exceeds a minimum performance
threshold or 100% if a maximum performance threshold is exceeded.
No performance-based restricted stock units were issued during the
nine months ended September 30, 2015.
During
the nine months ended September 30, 2016, the Company issued 43,625
restricted stock units under the 2013 Plan. The units were assigned
a weighted average value of $2.14 per share, based on the closing
price of our common stock on the applicable dates of grant, and are
scheduled to vest over the two years. During the nine months ended
September 30, 2015, the Company issued 99,000 restricted stock
units. The units were assigned a weighted average value of $2.71
per share, based on the closing price of our common stock on the
applicable dates of grant, and are scheduled to vest over a
weighted average of 2.3 years. Each of the foregoing restricted
stock units represents the right to acquire one share of the
Company’s common stock.
The
Company estimated the fair value of stock-based awards granted
during the nine months ended September 30, 2016, under the
Company’s employee stock purchase plan using the following
weighted average assumptions: expected life of 1.0 years, expected
volatility of 31%, dividend yield of 0% and risk-free interest rate
of 0.61%.
During
May and June 2016, members of the Board of Directors received
grants totaling 54,036 fully vested shares of common stock pursuant
to the 2013 Plan. The shares were assigned a weighted average value
of $2.19 per share, based on the stock prices on the applicable
grant dates, for a total value of $119,000, of which $109,000 is
included in stock-based compensation expense for the nine months
ended September 30, 2016 and $10,000 was accrued for and expensed
in the prior year. In June 2015, members of the Board of
Directors received similar grants totaling 37,233 shares pursuant
to the 2013 Plan. The shares were assigned a value of $2.82 per
share, based on the stock price on the date of grant, for a total
value of $105,000, which is included in stock-based compensation
expense for the nine months ended September 30, 2015.
5
Total
stock-based compensation (benefit) expense recorded for the three
and nine months ended September 30, 2016 was $42,000 and $150,000,
respectively, and for the three and nine months ended September 30,
2015 was $(11,000) and $267,000, respectively.
During
the three and nine months ended September 30, 2016, there were
approximately 54,700 shares and 115,700 shares issued pursuant to
stock option exercises, for which the Company received proceeds of
$0 and $16,000, respectively. During the three and nine months
ended September 30, 2015, there were approximately 80,000 shares
and 113,000 shares issued pursuant to stock option exercises, for
which the Company received proceeds of $0 and $2,000, respectively.
A portion of the stock option exercises in the three and nine
months ended September 30, 2016 and 2015 were completed on a
cashless basis.
Net Income
(Loss) per Share. Basic net income (loss) per share is computed by
dividing net income (loss) by the weighted average shares
outstanding and excludes any potential dilutive effects of stock
options and restricted stock units and awards. Diluted net income
(loss) per share gives effect to all diluted potential common
shares outstanding during the period.
Due to
the net loss incurred during the three and nine months ended
September 30, 2016, all stock awards were anti-dilutive for the
period. Options to purchase approximately 660,000 and 653,000
shares of common stock with a weighted average exercise price of
$3.64 and $3.80, respectively, were outstanding at September 30,
2015 and were not included in the computation of common stock
equivalents for the three and nine months ended September 30, 2015
because their exercise prices were higher than the average fair
market value of the common shares during the reporting
period.
Weighted
average common shares outstanding for the three and nine months
ended September 30, 2016 and 2015 were as follows:
|
|
Three
Months Ended
|
Nine
Months Ended
|
||
|
|
September
30
|
September
30
|
||
|
|
2016
|
2015
|
2016
|
2015
|
|
Denominator
for basic net income (loss) per share -
weighted average shares
|
11,642,000
|
12,107,000
|
11,626,000
|
12,177,000
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
Stock
options and restricted stock units and awards
|
—
|
134,000
|
—
|
174,000
|
|
Denominator
for diluted net income (loss) per share -
weighted average shares
|
11,642,000
|
12,241,000
|
11,626,000
|
12,351,000
|
2.
Restructuring. The Company
implemented a plan to restructure its operations in September 2016,
including workforce reductions and other cost-saving initiatives,
as well as, adding certain positions. As part of this restructuring
plan, the Company reduced its workforce by approximately 12%. A
pre-tax restructuring charge of $121,000 was recorded during the
three and nine months ended September 30, 2016 and is accrued for
and included in accrued compensation as of September 30, 2016. The
Company recorded $41,000 of this charge within cost of sales and
$80,000 within operating expenses in the Company’s statement
of comprehensive income (loss).
3.
Investments. The Company carries certain investments
intended to increase the yield on available cash balances. The
Company has classified all investments as current assets, as they
are available to fund current operations. These investments are in
debt securities, with an average maturity of approximately one
year, and are classified as available-for-sale.
These investments are accounted for
in accordance with Accounting Standards Codification
(“ASC”) 320-10, “Investments – Debt and
Equity Securities.” At September 30, 2016 and December 31,
2015, the Company’s investment balances consisted solely of
available-for-sale securities and were carried at fair value in
accordance with ASC 820-10 and were valued using Level 2
inputs.
6
4.
Selling
Arrangement. In 2011, the Company paid News America
Marketing In-Store, LLC (“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 is being amortized on a
straight-line basis over the 10-year term of the arrangement.
Amortization expense, which was $100,000 and $300,000 in both of
the three and nine months ended September 30, 2016 and 2015,
respectively, and is expected to be $400,000 per year over the next
four years and $117,000 in the year ending December 31, 2021, is
recorded within cost of services in the Company’s statements
of comprehensive income (loss). The net carrying amount of the
selling arrangement is recorded within other assets on the
Company’s condensed balance sheet.
5.
Income Taxes. For the three
and nine months ended September 30, 2016, the Company recorded
income tax expense (benefit) of $141,000 and $(276,000), or
(542.3%) and 32.4% of loss before taxes, respectively. For the
three and nine months ended September 30, 2015, the Company
recorded income tax expense of $382,000 and $621,000, or 40.5% and
40.6% of income before taxes, respectively. The income tax
provision (benefit) for the three and nine months ended September
30, 2016 and 2015 is composed of federal and state taxes. The
primary differences between the Company’s September 30,
2016 and 2015 effective tax rates and the statutory federal rate
are expenses related to stock-based compensation and nondeductible
meals and entertainment. At relatively low levels of projected
income (loss) before income taxes, these differences can result in
large swings in the effective rate which resulted in an income tax
expense for the three months ended September 30, 2016 despite a
pre-tax loss. The Company reassesses its effective rate each
reporting period and adjusts the annual effective rate if deemed
necessary, based on projected annual taxable income
(loss).
As of
September 30, 2016 and December 31, 2015, the Company had
unrecognized tax benefits totaling $528,000, including interest,
which relate 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 $528,000. Due to the current statute
of limitations regarding the unrecognized tax benefits, the
unrecognized tax benefits and associated interest is not expected
to change significantly in 2016.
6.
Concentrations. During the
nine months ended September 30, 2016, one customer accounted for
33% of the Company’s total net sales. During the nine months
ended September 30, 2015, one customer accounted for 35% of the
Company’s total net sales. At September 30, 2016, one
customer accounted for 34% of the Company’s total accounts
receivable. At December 31, 2015, one customer accounted for 62% of
the Company’s total accounts receivable.
Although there are
a number of customers that the Company sells to, the loss of either
a major customer or a major retailer, from the Company’s
retail network, could adversely affect operating
results.
7.
Share Repurchase. On October 30, 2015, the Board of
Directors authorized the repurchase of up to $5,000,000 of the
Company’s common stock on or before October 30, 2017. The
plan allows the repurchases to be made in open market or privately
negotiated transactions. The plan does not obligate the Company to
repurchase any particular number of shares, and may be suspended at
any time at the Company’s discretion. For the three and nine
months ended September 30, 2016, the Company repurchased
approximately 23,000 and 123,000 shares, respectively, at a total
cost of $54,000 and $301,000. As of September 30, 2016, the
approximate dollar value of shares that may yet be purchased by the
Company under the plan was $4,687,000.
Under a
prior plan that expired November 3, 2015, for the three and nine
months ended September 30, 2015, the Company repurchased
approximately 577,000 and 609,000 shares, respectively, at a total
cost of $1,515,000 and $1,614,000.
7
8.
Recently Issued Accounting
Pronouncements. In May 2014, the Financial Accounting
Standards Board (FASB) issued guidance creating Accounting
Standards Codification (“ASC”) Section 606,
“Revenue from Contracts with Customers”. The new
section will replace Section 605, “Revenue Recognition”
and creates modifications to various other revenue accounting
standards for specialized transactions and industries. The section
is intended to conform revenue accounting principles with a
concurrently issued International Financial Reporting Standards
with previously differing treatment between United States practice
and those of much of the rest of the world, as well as, to enhance
disclosures related to disaggregated revenue information. The
updated guidance is effective for annual reporting periods
beginning on or after December 15, 2017, and interim periods within
those annual periods. Early application is permitted only as of
annual reporting periods beginning after December 15, 2016,
including interim periods within that reporting period. We are in
the process of determining the impact that the updated accounting
guidance will have on our financial statements upon
adoption.
In
February 2016, FASB issued ASU 2016-2, Leases, under which lessees will
recognize most leases on the balance sheet. This will generally
increase reported assets and liabilities. For public entities, this
ASU is effective for annual and interim periods in fiscal years
beginning after December 15, 2018. ASU 2016-2 mandates a modified
retrospective transition method for all entities. We are in the
process of determining the impact that the updated accounting
guidance will have on our financial statements.
In
March 2016, the FASB issued ASU 2016-9, Compensation - Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting,
which simplifies several aspects of the accounting for share-based
payment transactions, including the income tax consequences,
classification of awards as either equity or liabilities, and
classification on the statement of cash flows. For public entities,
this ASU is effective for annual periods beginning after December
15, 2016, and interim periods within those annual periods. The
Company does not believe the standard will have a material impact
on its financial statements upon adoption.
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 in this Quarterly Report on Form
10-Q and the "Risk Factors" described in Item 1A of our Annual
Report on Form 10-K for the fiscal year ended December 31, 2015,
our Current Reports on Form 8-K and our other SEC
filings.
Company Overview
Insignia Systems,
Inc. (referred to in this Quarterly Report on Form 10-Q as
“Insignia,” “we,” “us,”
“our” and the “Company”) is a developer and
marketer of innovative in-store products, programs and services
that help consumer packaged goods (“CPG”) manufacturers
and retail partners drive sales at the point of purchase. The
Company was incorporated in 1990. Since 1998, the Company has
focused on managing a retail network, made up of over 22,000 store
locations, for the primary purpose of providing turn-key at-shelf
market access for CPG manufacturers’ marketing programs.
Insignia provides participating retailers with benefits including
incremental revenue, incremental sales opportunities, increased
shopper engagement in-store, and custom creative development and
other in-kind services.
Insignia’s
primary product is the Point-Of-Purchase Services (POPS®) in-store
marketing program. Insignia POPS program is a national,
account-specific, shelf-edge advertising and promotional tactic.
Internal testing has indicated the program delivers incremental
sales for the featured brand. The program allows manufacturers to
deliver vital product information to consumers at the
point-of-purchase, and to leverage the local retailer brand and
store-specific prices to provide a unique “call to
action” that draws attention to the featured brand and
triggers a purchase decision. CPG customers benefit from
Insignia’s nimble operational capabilities, which include
short lead times, in-house graphic design capabilities,
post-program analytics, and micro-marketing capabilities such as
variable or bilingual messaging.
8
In
October 2014, the Company announced the introduction of a new
product, The Like MachineTM, which is an
innovative new media that harnesses the power of social media,
consumer engagement, and word-of-mouth recommendation at the point
of purchase. The Company previously licensed this product from TLM
Holdings, LLC (“TLMH”), a company in which
Insignia’s former Chief Sales and Marketing Officer, Tim
Halfmann, is the majority owner and serves as a principal. In March
2016, the Company and TLMH signed a new distribution agreement for
the sale of The Like Machine to Insignia’s customers. This
distribution agreement replaced the Company’s prior license
agreement with TLMH. Mr. Halfmann resigned from Insignia, effective
April 30, 2016, in order to focus his efforts more fully on the TLM
product and its evolution going forward.
The Company implemented a plan to restructure its operations in
September 2016, including workforce reductions and other
cost-saving initiatives, as well as, adding certain positions. As
part of this restructuring plan, the Company reduced its workforce
by approximately 12%. A pre-tax restructuring charge of $121,000
was recorded during the three and nine months ended September 30,
2016 and is accrued for and included in accrued compensation as of
September 30, 2016. The Company recorded $41,000 of this charge
within cost of sales and $80,000 within operating expenses in the
Company’s statement of comprehensive income (loss). The
Company anticipates $82,000 of additional restructuring charges for
the year ended December 31, 2016.
2016 Business Overview
Summary of Financial Results
For the
quarter ended September 30, 2016, the Company generated revenues of
$6,469,000, as compared with revenues of $7,548,000 for the quarter
ended September 30, 2015. For the nine months ended September 30,
2016, the Company generated total net sales of $19,164,000, as
compared with total net sales of $20,762,000 in the nine months
ended September 30, 2015. Net loss for the quarter ended September
30, 2016 was $167,000, as compared to net income of $561,000 for
the quarter ended September 30, 2015. Net loss for the nine months
ended September 30, 2016 was $576,000, as compared to net income of
$907,000 for the nine months ended September 30, 2015.
During
the nine months ended September 30, 2016, cash and cash equivalents
increased $2,889,000 from $8,523,000 at December 31, 2015, to
$11,412,000 at September 30, 2016. Available-for-sale investments
decreased to $3,430,000 at September 30, 2016, compared to
$9,490,000 at December 31, 2015. We had no debt as of September 30,
2016.
Results
of Operations
The
following table sets forth, for the periods indicated, certain
items in the Company’s Statements of Comprehensive Income
(Loss) as a percentage of total net sales.
|
|
Three
Months Ended
|
Nine
Months Ended
|
||
|
|
September
30
|
September
30
|
||
|
|
2016
|
2015
|
2016
|
2015
|
|
Net
sales
|
100.0%
|
100.0%
|
100.0%
|
100.0%
|
|
Cost
of sales
|
69.1
|
53.7
|
68.2
|
55.2
|
|
Gross
profit
|
30.9
|
46.3
|
31.8
|
44.8
|
|
Operating
expenses:
|
|
|
|
|
|
Selling
|
14.2
|
12.7
|
16.0
|
16.6
|
|
Marketing
|
3.7
|
6.2
|
4.0
|
6.0
|
|
General
and administrative
|
13.6
|
15.1
|
16.5
|
15.0
|
|
Total
operating expenses
|
31.5
|
34.0
|
36.5
|
37.6
|
|
Operating
income (loss)
|
(0.6)
|
12.3
|
(4.7)
|
7.2
|
|
Other
income
|
0.2
|
0.2
|
0.3
|
0.2
|
|
Income
(loss) before taxes
|
(0.4)
|
12.5
|
(4.4)
|
7.4
|
|
Income
tax expense (benefit)
|
2.2
|
5.1
|
(1.4)
|
3.0
|
|
Net
income (loss)
|
(2.6)%
|
7.4%
|
(3.0)%
|
4.4%
|
9
Three
and Nine Months Ended September 30, 2016 Compared to Three and Nine
Months Ended September 30, 2015
Net Sales. Net sales
for the three months ended September 30, 2016 decreased 14.3% to
$6,469,000, compared to $7,548,000 for the three months ended
September 30, 2015. Total net sales for the nine months ended
September 30, 2016 decreased 7.7% to $19,164,000, compared to
$20,762,000 for the nine months ended September 30,
2015.
Service
revenues for the three months ended September 30, 2016 decreased
14.8% to $6,050,000, compared to $7,098,000 for the three months
ended September 30, 2015. The decrease was primarily due to a 9.6%
decrease in the number of signs placed, partially due to a 2015
sales promotion which was not repeated in 2016, and a 6.7% decrease
in average price per sign, which was a result of competitive
pressures and changes in CPG spending patterns. Service revenues
for the nine months ended September 30, 2016 decreased 7.9% to
$17,830,000, compared to $19,356,000 for the nine months ended
September 30, 2015. The decrease was primarily due to a 5.8%
decrease in average price per sign, which was a result of
competitive pressures and changes in CPG spending patterns, and a
2.7% decrease in the number of signs placed, partially due to a
2015 sales promotion which was not repeated in 2016. The 2015 sales
promotion, which was not repeated in 2016, is also expected to have
an impact on fourth quarter 2016.
Product
revenues for the three months ended September 30, 2016 decreased
6.9% to $419,000, compared to $450,000 for the three months ended
September 30, 2015. The decrease was primarily due to lower sales
of sign card supplies. Product revenues for the nine months ended
September 30, 2016 decreased 5.1% to $1,334,000, compared to
$1,406,000 for the nine months ended September 30, 2015. The
decrease was primarily due to lower sales of sign card
supplies.
Gross
Profit. Gross
profit for the three months ended September 30, 2016 decreased
42.8% to $2,000,000, compared to $3,499,000 for the three months
ended September 30, 2015. Gross profit for the nine months ended
September 30, 2016 decreased 34.5% to $6,083,000, compared to
$9,287,000 for the nine months ended September 30, 2015. Gross
profit as a percentage of total net sales decreased to 30.9% for
the three months ended September 30, 2016, compared to 46.3% for
the three months ended September 30, 2015. Gross profit as a
percentage of total net sales decreased to 31.8% for the nine
months ended September 30, 2016, compared to 44.8% for the nine
months ended September 30, 2015.
Service revenues:
Gross profit from our service revenues for the three months ended
September 30, 2016 decreased 44.1% to $1,879,000, compared to
$3,364,000 for the three months ended September 30, 2015. The
decrease was primarily due to a decrease in sales, as our gross
profit percentage is highly dependent on sales levels, combined
with a decreased average price per sign, and increased costs
associated with retail network growth initiatives and costs
associated with the implementation project for our new IT operating
infrastructure, partially offset by decreased facilities costs. We
estimate that the implementation of this new IT operating
infrastructure will increase 2016 expense by approximately
$400,000, including approximately $120,000 in the fourth quarter of
2016. The project is expected to be completed in mid-2017, with
estimated incremental expense of $900,000 in 2016 and 2017. Gross
profit from our service revenues for the nine months ended
September 30, 2016 decreased 35.9% to $5,677,000, compared to
$8,862,000 for the nine months ended September 30, 2015. The
decrease was primarily due to the factors described
above.
Gross
profit as a percentage of service revenues for the three months
ended September 30, 2016 decreased to 31.1%, compared to 47.4% for
the three months ended September 30, 2015. The decrease was
primarily due to the factors described above. Gross profit as a
percentage of service revenues for the nine months ended September
30, 2016 decreased to 31.8%, compared to 45.8% for the nine months
ended September 30, 2015. The decrease was primarily due to the
factors described above.
Product revenues:
Gross profit from our product revenues for the three months ended
September 30, 2016 decreased 10.4% to $121,000, compared to
$135,000 for the three months ended September 30, 2015. The
decrease was primarily due to a decrease in sales. Gross profit
from our product revenues for the nine months ended September 30,
2016 decreased 4.5% to $406,000, compared to $425,000 for the nine
months ended September 30, 2015. The decrease was primarily due to
a decrease in sales, partially offset by decreased facilities,
production, and tooling costs.
10
Gross
profit as a percentage of product revenues was 28.9% for the three
months ended September 30, 2016, compared to 30.0% for the three
months ended September 30, 2015. The decrease was primarily due to
a decrease in sales. Gross profit as a percentage of product
revenues was 30.4% for the nine months ended September 30, 2016,
compared to 30.2% for the nine months ended September 30, 2015. The
increase was primarily due to decreased facilities, production, and
tooling costs, partially offset by a decrease in
sales.
Operating Expenses
Selling. Selling
expenses for the three months ended September 30, 2016 decreased
4.7% to $917,000, compared to $962,000 for the three months ended
September 30, 2015. The decrease was primarily due to lower
variable compensation related to lower sales, and other sales
related expenses, partially offset by costs relating to
restructuring. Selling expenses for the nine months ended September
30, 2016 decreased 11.3% to $3,061,000, compared to $3,451,000 for
the nine months ended September 30, 2015. The decrease was
primarily due to decreased staffing and staffing-related costs,
combined with lower variable compensation and other sales related
expenses, partially offset by costs relating to
restructuring.
Selling
expenses as a percentage of total net sales increased to 14.2% for
the three months ended September 30, 2016 compared to 12.7% for the
three months ended September 30, 2015. The increase was primarily
due decreased sales, combined with costs relating to restructuring,
partially offset by lower variable compensation related to lower
sales, and other sales related expenses. Selling expenses as a
percentage of total net sales decreased to 16.0% for the nine
months ended September 30, 2016 compared to 16.6% for the nine
months ended September 30, 2015. The decrease was primarily due to
lower staffing and staffing-related costs, combined with lower
variable compensation and other sales related expenses, partially
offset by decreased sales and costs relating to
restructuring.
Marketing. Marketing
expenses for the three months ended September 30, 2016 decreased
48.3% to $242,000, compared to $468,000 for the three months ended
September 30, 2015. Decreased marketing expense was primarily due
to decreased staffing and staff related costs, partially due to
open positions, combined with decreased consulting fees. Marketing
expenses for the nine months ended September 30, 2016 decreased
38.7% to $769,000, compared to $1,254,000 for the nine months ended
September 30, 2015. The decrease was primarily due to the factors
described above.
Marketing expenses
as a percentage of total net sales decreased to 3.7% for the three
months ended September 30, 2016, compared to 6.2% for the three
months ended September 30, 2015. The decrease was primarily due to
the factors described above, partially offset by decreased sales.
Marketing expenses as a percentage of total net sales decreased to
4.0% for the nine months ended September 30, 2016, compared to 6.0%
for the nine months ended September 30, 2015. The decrease was
primarily due to the factors described above, partially offset by
decreased sales.
General and
administrative. General and administrative expenses for the
three months ended September 30, 2016 decreased 23.2% to $879,000,
compared to $1,145,000 for the three months ended September 30,
2015. The decrease was primarily due to costs associated with the
resignation of the Company’s former Chief Executive Officer
in 2015. General and administrative expenses for the nine months
ended September 30, 2016 increased 1.3% to $3,149,000, compared to
$3,110,000 for the nine months ended September 30, 2015. The
increase was primarily due to increased legal fees, partially
offset by decreased staffing and staff related costs and the costs
associated with the resignation of the Company’s former Chief
Executive Officer in 2015.
General
and administrative expenses as a percentage of total net sales
decreased to 13.6% for the three months ended September 30, 2016,
compared to 15.1% for the three months ended September 30, 2015.
The decrease was primarily due to the factors described above,
partially offset by decreased sales. General and administrative
expenses as a percentage of total net sales increased to 16.5% for
the nine months ended September 30, 2016, compared to 15.0% for the
nine months ended September 30, 2015. The increase was primarily
due to the factors described above combined with decreased
sales.
11
Other Income. Other
income for the three months ended September 30, 2016 was $12,000,
compared to $19,000 for the three months ended September 30, 2015.
Other income for the nine months ended September 30, 2016 was
$44,000, compared to $56,000 for the nine months ended September
30, 2015. Other income is composed of interest earned on cash, cash
equivalents, and available-for-sale investment
balances.
Income Taxes.
For the three and nine
months ended September 30, 2016, the Company recorded income tax
expense (benefit) of $141,000 and $(276,000), or (542.3%) and 32.4%
of loss before taxes, respectively. For the three and nine months
ended September 30, 2015, the Company recorded income tax expense
of $382,000 and $621,000, or 40.5% and 40.6% of income before
taxes, respectively. The income tax provision (benefit) for the
three and nine months ended September 30, 2016 and 2015 is composed
of federal and state taxes. The primary differences between the
Company’s September 30, 2016 and 2015 effective tax
rates and the statutory federal rate are expenses related to
stock-based compensation and nondeductible meals and entertainment.
At relatively low levels of projected income (loss) before income
taxes, these differences can result in large swings in the
effective rate which resulted in an income tax expense for the
three months ended September 30, 2016 despite a pre-tax loss. The
Company reassesses its effective rate each reporting period and
adjusts the annual effective rate if deemed necessary, based on
projected annual taxable income (loss).
Net Income (Loss).
For the reasons stated above, net loss for the three and nine
months ended September 30, 2016 was $167,000 and $576,000,
respectively, compared to net income of $561,000 and $907,000,
respectively, for the three and nine months ending September 30,
2015.
Other Comprehensive
Income. Other comprehensive income is composed of unrealized
gains and losses, net of tax, from available-for-sale
investments.
Liquidity
and Capital Resources
The
Company has financed its operations with proceeds from stock sales
and sales of its services and products. At September 30, 2016,
working capital was $21,439,000, compared to $21,297,000 at
December 31, 2015. During the nine months ended September 30, 2016,
cash and cash equivalents increased $2,889,000 from $8,523,000 at
December 31, 2015 to $11,412,000 at September 30, 2016, while
available-for-sale investments decreased $6,060,000 from $9,490,000
at December 31, 2015 to $3,430,000 at September 30,
2016.
Operating Activities: Net cash
used in operating activities during the nine months ended September
30, 2016 was $2,406,000. Net loss of $576,000, plus non-cash
adjustments of $1,287,000 and changes in operating assets and
liabilities of $(3,117,000) resulted in the $2,406,000 of cash used
in operating activities. The largest component of the change in
operating assets and liabilities was accounts payable and accrued
liabilities, which decreased $2,369,000 and fluctuates based on
normal business conditions. The non-cash adjustments consisted of
depreciation and amortization expense, changes in allowance for
doubtful accounts, stock-based compensation expense, and gain on
sale of property and equipment. In the normal course of business,
our accounts receivable, accounts payable, accrued liabilities and
deferred revenue will fluctuate depending on the level of revenues
and related business activity, as well as billing arrangements with
customers and payment terms with retailers.
Investing Activities: Net cash
provided by investing activities during the nine months ended
September 30, 2016 was $5,552,000. This was related to the proceeds
from sale or maturity of investments of $6,071,000 and proceeds
received from the sale of property and equipment of $5,000,
partially offset by the purchase of property and equipment of
$524,000.
Financing Activities: Net cash
used in financing activities during the nine months ended September
30, 2016 was $257,000, which related to the repurchase of common
stock under the Company’s share repurchase plan of $301,000,
partially offset by proceeds received from issuance of common stock
under the employee stock purchase plan and stock option exercises
of $44,000.
The
Company anticipates capital expenditures to be approximately $1.5
million in 2016, of which approximately $1.0 million will be in the
fourth quarter of 2016; primarily related to investment in
production equipment and the continuing implementation of our new
IT operating infrastructure.
12
The
Company believes that based upon current business conditions and
plans, its existing cash and investment balances 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, 2015, included in our Form 10-K filed with the Securities and
Exchange Commission on March 18, 2016. We believe our most critical
accounting policies and estimates include the
following:
●
revenue
recognition;
●
allowance for
doubtful accounts;
●
impairment of
long-lived assets;
●
income taxes;
and
●
stock-based
compensation.
Cautionary
Statement Regarding Forward-Looking Statements
Certain
statements made in this Quarterly Report on Form 10-Q 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 which 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
“believes,” “expects,”
“anticipates,” “seeks” 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; (ii)
that we expect fluctuations in accounts receivable and payable,
accrued liabilities, and deferred revenue; and (iii) plans to
repurchase Company stock. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as
of the date of this statement was made. 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.
Factors
that could cause our estimates and assumptions as to future
performance, and our actual results, to differ materially include
the following: (i) the risk that management may be unable to fully
or successfully implement its business plan to achieve and maintain
increased sales and resultant profitability in the future; (ii) the
risk that the Company will not be able to develop and implement new
product offerings, including mobile, digital or other new
offerings, in a successful manner; (iii) prevailing market
conditions, including pricing and other competitive pressures, in
the in-store advertising industry and, intense competition for
agreements with retailers and consumer packaged goods
manufacturers; (iv) potentially incorrect assumptions by management
with respect to the financial effect of current strategic
decisions, the effect of current sales trends on fiscal year 2016
results and the benefit of our relationship with News America; (v)
termination of all or a major portion of, or a significant change
in terms and conditions of, a material agreement with a consumer
packaged goods manufacturer, retailer, or News America; (vi) other
economic, business, market, financial, competitive and/or
regulatory factors affecting the Company’s business
generally; (vii) our ability to successfully implement our new IT
operating infrastructure; and (viii) our ability to attract and
retain highly qualified managerial, operational and sales
personnel. 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,
2015, 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.
13
Item
3. Quantitative and
Qualitative Disclosures about Market Risk
Not
applicable.
Item 4. Controls and Procedures
(a)
Evaluation of Disclosure Controls and Procedures
The
Company’s management carried out an evaluation, under the
supervision and with the participation of the Company’s
principal executive officer and 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 the end of the period covered by this
report, pursuant to Exchange Act Rule 13a-15. Based upon that
evaluation, the Company’s principal executive officer and
principal financial officer concluded that the Company’s
disclosure controls and procedures were effective as of the end of
the period covered by this report. Disclosure controls and
procedures ensure that information required to be disclosed by us
in 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,
including our principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding
disclosures.
(b)
Changes in Internal Control Over Financial Reporting
There
was no change in our internal control over financial reporting that
occurred during the fiscal quarter covered by this report that has
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART
II. OTHER INFORMATION
Item
1. Legal
Proceedings
None.
Item
1A. Risk
Factors
We
described the most significant risk factors applicable to the
Company in Part I, Item 1A “Risk Factors” of our Annual
Report on Form 10-K for the year ended December 31, 2015. We
believe there have been no material changes from the risk factors
disclosed in that Form 10-K.
14
On
October 30, 2015, the Board of Directors authorized the repurchase
of up to $5,000,000 of the Company’s common stock on or
before October 30, 2017. The plan allows the repurchases to be made
in open market or privately negotiated transactions. The plan does
not obligate the Company to repurchase any particular number of
shares, and may be suspended at any time at the Company’s
discretion.
Our
share repurchase activity for the three months ended September 30,
2016, was as follows:
|
|
Total
Number of Shares Repurchased
|
Average
Price Paid Per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
Approximate
Dollar Value of Shares That May Yet Be Purchased Under the
Plans
|
|
July
1 – 31, 2016
|
8,644(1)
|
$2.22
|
1,700
|
$4,736,000
|
|
August
1 – 31, 2016
|
7,965
|
$2.29
|
7,965
|
$4,718,000
|
|
September
1 – 30, 2016
|
13,544
|
$2.28
|
13,544
|
$4,687,000
|
|
Total
|
30,153
|
$2.28
|
|
|
(1)
Includes 6,944
shares surrendered to the Company to satisfy minimum tax
withholding obligations in connection with the vesting of
restricted stock units. These shares were not purchased under the
Board of Directors authorization described above.
Item
3. Defaults
upon Senior Securities
None.
Item
4. Mine Safety
Disclosures
Not
applicable.
Item
5. Other
Information
None.
15
Item
6. Exhibits
Unless
otherwise indicated, all documents incorporated herein by reference
to a document filed with the SEC pursuant to the Exchange Act are
located under SEC file number 001-13471.
|
Exhibit
Number
|
|
Description
|
|
|
|
|
|
|
|
3.1
|
|
Composite
Articles of Incorporation of Registrant, as amended through
July 31, 2008 (incorporated by reference to Exhibit 3.1
to annual report on Form 10-K for the year ended December 31,
2015)
|
|
|
|
|
|
|
|
3.2
|
|
Composite
Bylaws of Registrant, as amended through December 5, 2015
(incorporated by reference to Exhibit 3.2 to annual report on
Form 10-K for the year ended December 31, 2015)
|
|
|
|
|
|
|
|
31.1
|
|
Certification
of Principal Executive Officer
|
|
|
|
|
|
|
|
31.2
|
|
Certification
of Principal Accounting and Financial Officer
|
|
|
|
|
|
|
|
32
|
|
Section
1350 Certification
|
|
|
|
|
|
|
|
101
|
|
The
following materials from Insignia Systems, Inc.’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2016,
formatted in XBRL (eXtensible Business Reporting Language): (i)
Condensed Balance Sheets; (ii) Statements of Comprehensive Income
(Loss); (iii) Statements of Cash Flows; and (iv) Notes to Financial
Statements.
|
|
16
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.
|
|
|
|
|
|
|
|
Dated: October
27, 2016
|
By:
|
/s/
Kristine A. Glancy
|
|
|
|
|
Kristine
A. Glancy
|
|
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
(on
behalf of registrant)
|
|
|
|
|
|
|
|
Dated: October
27, 2016
|
By:
|
/s/
Mark Cherrey
|
|
|
|
|
Mark
Cherrey
|
|
|
|
|
Director
of Finance and Controller
|
|
|
|
|
(interim
principal accounting and financial officer)
|
|
EXHIBIT INDEX
|
Exhibit
Number
|
|
Description
|
|
Method
of Filing
|
|
|
|
|
|
|
|
3.1
|
|
Composite
Articles of Incorporation of Registrant, as amended through
July 31, 2008
|
|
Incorporated
by Reference
|
|
|
|
|
|
|
|
3.2
|
|
Composite
Bylaws of Registrant, as amended through December 5,
2015
|
|
Incorporated
by Reference
|
|
|
|
|
|
|
|
31.1
|
|
|
Filed
Electronically
|
|
|
|
|
|
|
|
|
31.2
|
|
|
Filed
Electronically
|
|
|
|
|
|
|
|
|
32
|
|
|
Furnished
Electronically
|
|
|
|
|
|
|
|
|
101
|
|
The
following materials from Insignia Systems, Inc.’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2016,
formatted in XBRL (eXtensible Business Reporting Language): (i)
Condensed Balance Sheets; (ii) Statements of Comprehensive Income
(Loss); (iii) Statements of Cash Flows; and (iv) Notes to Financial
Statements.
|
|
Filed
Electronically
|