LENDWAY, INC. - Quarter Report: 2018 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, 2018
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
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INSIGNIA SYSTEMS,
INC.
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(Exact
name of registrant as specified in its charter)
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Minnesota
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41-1656308
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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8799 Brooklyn Blvd., Minneapolis, MN
55445
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(Address
of principal executive offices; zip code)
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(763) 392-6200
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(Registrant’s
telephone number, including area code)
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Indicate by check
mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes
☑ No
☐
Indicate by check
mark whether the registrant has submitted electronically every
Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Yes
☑ No
☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer”, “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act. (Check one):
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Large
accelerated filer
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☐
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Accelerated
filer
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☐
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Non-accelerated
filer
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☐
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(Do not
check if a smaller reporting
company)
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Smaller
reporting company
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☑
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Emerging
growth company
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☐
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
☐ No ☑
Number
of shares outstanding of Common Stock, $.01 par value, as of
November 9, 2018 was 11,839,774.
Insignia Systems, Inc.
TABLE OF CONTENTS
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Page
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PART I.
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FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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1
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2
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3
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4
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Item 2.
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10
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Item 3.
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15
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Item 4.
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15
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PART II.
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Item 1.
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15
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Item 1A.
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15
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Item 2.
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16
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Item 3.
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16
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Item 4.
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16
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Item 5.
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16
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Item 6.
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17
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PART
I. FINANCIAL
INFORMATION
Item
1. Financial
Statements
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Insignia Systems, Inc.
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CONDENSED BALANCE
SHEETS
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September 30,
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2018
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December 31,
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(Unaudited)
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2017
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ASSETS
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Current Assets:
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Cash
and cash equivalents
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$7,590,000
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$4,695,000
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Accounts
receivable, net
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11,294,000
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11,864,000
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Inventories
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323,000
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301,000
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Income
tax receivable
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94,000
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360,000
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Prepaid
expenses and other
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335,000
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415,000
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Total
Current Assets
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19,636,000
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17,635,000
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Other Assets:
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Property
and equipment, net
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3,049,000
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2,670,000
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Other,
net
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1,078,000
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1,383,000
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Total Assets
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$23,763,000
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$21,688,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current Liabilities:
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Accounts
payable
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3,739,000
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3,232,000
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Accrued
liabilities:
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Compensation
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1,503,000
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1,531,000
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Other
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938,000
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667,000
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Deferred
revenue
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753,000
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372,000
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Total
Current Liabilities
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$6,933,000
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$5,802,000
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Long-Term Liabilities:
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Deferred
tax liabilities
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236,000
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245,000
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Accrued
income taxes
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604,000
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581,000
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Deferred
rent
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173,000
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219,000
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Total
Long-Term Liabilities
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$1,013,000
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$1,045,000
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Commitments and Contingencies
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—
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—
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Shareholders' Equity:
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Common
stock, par value $.01:
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Authorized
shares - 40,000,000
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Issued
and outstanding shares - 11,848,000 at September 30, 2018 and
11,914,000 at December 31, 2017
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118,000
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119,000
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Additional
paid-in capital
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15,345,000
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15,361,000
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Retained
earnings (Accumulated deficit)
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354,000
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(639,000)
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Total
Shareholders' Equity
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15,817,000
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14,841,000
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Total Liabilities and Shareholders' Equity
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$23,763,000
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$21,688,000
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See accompanying notes to financial statements.
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Insignia Systems, Inc.
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CONDENSED STATEMENTS OF
OPERATIONS
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(Unaudited)
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Three Months Ended
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Nine Months Ended
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September 30
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September 30
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2018
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2017
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2018
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2017
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Services
revenues
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$9,069,000
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$7,353,000
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$23,963,000
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$17,169,000
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Products
revenues
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386,000
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370,000
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1,156,000
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1,170,000
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Total
Net Sales
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9,455,000
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7,723,000
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25,119,000
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18,339,000
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Cost
of services
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5,569,000
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4,700,000
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14,937,000
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12,624,000
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Cost
of goods sold
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323,000
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280,000
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868,000
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845,000
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Total
Cost of Sales
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5,892,000
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4,980,000
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15,805,000
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13,469,000
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Gross
Profit
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3,563,000
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2,743,000
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9,314,000
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4,870,000
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Operating Expenses:
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Selling
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908,000
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879,000
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2,530,000
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2,598,000
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Marketing
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703,000
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409,000
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1,873,000
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1,262,000
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General
and administrative
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1,106,000
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1,004,000
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3,580,000
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2,871,000
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Total
Operating Expenses
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2,717,000
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2,292,000
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7,983,000
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6,731,000
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Operating
Income (Loss)
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846,000
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451,000
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1,331,000
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(1,861,000)
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Other
income
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15,000
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2,000
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27,000
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7,000
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Income
(Loss) Before Taxes
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861,000
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453,000
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1,358,000
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(1,854,000)
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Income
tax expense (benefit)
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216,000
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2,000
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365,000
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(580,000)
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Net
Income (Loss)
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$645,000
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$451,000
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$993,000
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$(1,274,000)
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Net
income (loss) per share:
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Basic
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$0.05
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$0.04
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$0.08
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$(0.10)
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Diluted
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$0.05
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$0.04
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$0.08
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$(0.10)
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Shares
used in calculation of net income
(loss) per share:
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Basic
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11,729,000
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11,758,000
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11,784,000
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11,698,000
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Diluted
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12,012,000
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11,777,000
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12,026,000
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11,698,000
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See accompanying notes to financial statements.
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Insignia Systems, Inc.
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CONDENSED STATEMENTS OF CASH
FLOWS
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(Unaudited)
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Nine Months Ended September 30
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2018
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2017
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Operating Activities:
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Net
income (loss)
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$993,000
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$(1,274,000)
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Adjustments
to reconcile net income (loss) to
net cash provided by operating activities:
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Depreciation
and amortization
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860,000
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1,001,000
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Changes
in allowance for doubtful accounts
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(16,000)
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16,000
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Deferred
income tax expense
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(9,000)
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(205,000)
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Stock-based
compensation expense
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277,000
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317,000
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Changes
in operating assets and liabilities:
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Accounts
receivable
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586,000
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(2,040,000)
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Inventories
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(22,000)
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(1,000)
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Income
tax receivable
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266,000
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355,000
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Prepaid
expenses and other
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80,000
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192,000
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Accounts
payable
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408,000
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777,000
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Accrued
liabilities
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253,000
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377,000
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Income
tax payable
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—
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20,000
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Accrued
income taxes
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23,000
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—
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Deferred
revenue
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381,000
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586,000
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Net
cash provided by operating activities
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4,080,000
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121,000
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Investing Activities:
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Purchases
of property and equipment
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(877,000)
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(822,000)
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Net
cash used in investing activities
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(877,000)
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(822,000)
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Financing Activities:
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Cash
dividends paid ($0.70 per share)
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(14,000)
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(8,177,000)
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Proceeds
from issuance of common stock, net
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49,000
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(14,000)
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Repurchase
of common stock upon vesting of restricted stock
awards
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(74,000)
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—
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Repurchase
of common stock, net
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(269,000)
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—
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Net
cash used in financing activities
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(308,000)
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(8,191,000)
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Increase
(decrease) in cash and cash equivalents
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2,895,000
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(8,892,000)
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Cash
and cash equivalents at beginning of period
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4,695,000
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12,267,000
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Cash
and cash equivalents at end of period
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$7,590,000
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$3,375,000
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Supplemental disclosures for cash flow information:
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Cash
paid during the period for income taxes
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$84,000
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$2,000
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Non-cash investing and financing activities:
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Purchases
of property and equipment included in accounts payable
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$96,000
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$115,000
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See accompanying notes to financial statements.
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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 to retailers and consumer packaged
goods manufacturers. The Company operates in a single reportable
segment. The Company’s primary products include the Insignia
Point-of-Purchase Services (POPS®),
freshADSsm
and other retailer approved
promotional services, in-store marketing programs, and custom
adhesive and non-adhesive signage materials directly to our retail
customers.
Basis of
Presentation. The accompanying unaudited financial statements of
the Company have been prepared in accordance with U.S. generally
accepted accounting principles (“GAAP”) for interim
financial information. They do not include all information and
footnotes required by U.S. GAAP for complete financial statements.
However, except as described herein, there has been no material
change in the information disclosed in the notes to financial
statements included in our financial statements as of and for the
year ended December 31, 2017 included in the
Company’s Annual Report on Form 10-K. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full
year.
Recently Adopted Accounting Pronouncements.
Effective January 1,
2018, the Company adopted Financial Accounting Standards Board
Accounting Standards Update (“ASU”) 2014-09
“Revenue from Contracts with Customers” (“Topic
606”). Topic 606 supersedes the revenue recognition
requirements in Topic 605 “Revenue
Recognition,” and requires entities to
recognize revenue when control of the promised goods or services is
transferred to customers at an amount that reflects the
consideration to which the entity expects to be entitled to in
exchange for those goods or services. The adoption of ASU 2014-09,
using the modified retrospective approach, had no significant
impact on our results of operations, cash flows, or financial
position. Revenue continues to be recognized for POPSigns ratably
over the period of service, which is typically a two-week display
cycle, and for sign card sales, at the time the products are
shipped to customers. Additional information and
disclosures required by this new standard are contained in Note
2, “Revenue.”
Inventories.
Inventories are primarily comprised of sign cards, hardware and
roll stock. Inventory is valued at the lower of cost or net
realizable value using the first-in, first-out (FIFO) method, and
consisted of the following as of the dates indicated:
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September
30,
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December
31,
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2018
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2017
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Raw
materials
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$90,000
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$68,000
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Work-in-process
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3,000
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10,000
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Finished
goods
|
230,000
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223,000
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$323,000
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$301,000
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Property
and Equipment. Property and
equipment consisted of the following as of the dates
indicated:
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September
30,
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December
31,
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2018
|
2017
|
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Property and Equipment:
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Production
tooling, machinery and equipment
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$4,087,000
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$4,003,000
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Office
furniture and fixtures
|
329,000
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325,000
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Computer
equipment and software
|
2,726,000
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2,680,000
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Leasehold
improvements
|
577,000
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577,000
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Construction
in-progress
|
995,000
|
206,000
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8,714,000
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7,791,000
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Accumulated
depreciation and amortization
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(5,665,000)
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(5,121,000)
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Net
Property and Equipment
|
$3,049,000
|
$2,670,000
|
Depreciation
expense was approximately $188,000 and $555,000 in the three and
nine months ended September 30, 2018, respectively, and $220,000
and $653,000 in the three and nine months ended September 30, 2017,
respectively.
Stock-Based
Compensation. We measure and recognize compensation expense
for all stock-based payments at fair value. Restricted stock units
and awards are valued at the closing market price of the
Company’s stock on the date of the grant. 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 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.
On November 28, 2016, our Board of Directors
amended the 2003 Incentive Stock Option Plan (the “2003
Plan”) and the 2013 Omnibus Stock and Incentive Plan (the
“2013 Plan”) to permit equitable adjustments to
outstanding awards in the event of an extraordinary cash
dividend. On March 28, 2017, the Board of Directors approved
the modification of all outstanding stock option awards to provide
option holders with substantially equivalent economic value after
the effect of the dividend. The modification resulted in the
issuance of options to purchase 150,476 additional shares. Total
stock-based compensation expense for the modifications was
approximately $79,000, which was recorded during the nine months
ended September 30, 2017.
During
the nine months ended September 30, 2018, stock option awards to
purchase up to 119,515 shares were granted by the Company.
The Company estimates the fair value
of these awards using the following weighted average assumptions:
expected life of 6.5 years, expected volatility of 51.21%, dividend
yield of 0% and a risk-free rate interest rate of 2.80%. During the
nine months ended September 30, 2017, no other stock option awards
were granted by the Company beyond the modification discussed
above.
During
the nine months ended September 30, 2018, the Company issued
297,515 restricted stock units under the 2013 Plan and the 2018
Equity Incentive Plan (the “2018 Plan”). The shares
underlying the awards were assigned a value of $1.77 and $1.95 per
share, which was the closing price of our common stock on the date
of grants. These awards are scheduled to vest over three years or
four years with the first vesting in year two. During the nine months ended September 30, 2017,
the Company issued 143,424 restricted stock units under the 2013
Plan. The shares underlying the awards made in 2017 were assigned
weighted average values of $1.13 per share based on the closing
price of our common stock on the applicable dates of grant and are
scheduled to vest over two years.
During
the nine months ended September 30, 2018, no restricted stock was
issued. During the nine months ended September 30, 2017, the
Company issued 60,000 shares of restricted stock under the 2013
Plan. The shares underlying the awards
were assigned a value of $1.09 per share, which was the closing
price of our common stock on the date of grant and are scheduled to
vest over the two years following the date of
grant.
During July 2018,
non-employee members of the Board of Directors received restricted
stock grants totaling 46,152 shares pursuant to the 2018 Plan. The
shares underlying the awards were assigned a value of $1.95 per
share, which was the closing price of our common stock on the date
of grants, for a total value of $90,000, and are scheduled
to vest the day immediately preceding the date of the next annual
shareholder meeting. During June 2017,
non-employee members of the
Board of Directors received grants totaling 72,115 fully vested
shares of common stock pursuant to the 2013 Plan. The shares were
assigned a value of $1.04 per share, based on the closing price on
the grant date, for a total value of $75,000, which is included in
stock-based compensation expense for the nine months ended
September 30, 2017.
Total
stock-based compensation expense recorded for the three and nine
months ended September 30, 2018 was $128,000 and $277,000,
respectively, and for the three and nine months ended September 30,
2017 was $43,000 and $317,000, respectively.
During
the three and nine months ended September 30, 2018, there were
approximately 900 shares issued pursuant to stock option exercises,
for which the Company received proceeds of $1,000. During the three
and nine months ended September 30, 2017, there were no options
exercised. A portion of the stock option exercises in the three and
nine months ended September 30, 2018 were completed on a cashless
basis.
The
Company estimated the fair value of stock-based awards granted
during the nine months ended September 30, 2018, under the
Company’s employee stock purchase plan using the following
weighted average assumptions: expected life of 1.0 years, expected
volatility of 66%, dividend yield of 0% and risk-free interest rate
of 1.83%.
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.
Options
to purchase approximately 305,000 and 265,000 shares of common
stock with a weighted average exercise price of $2.66 and $3.22,
respectively, were outstanding at September 30, 2018 and were not
included in the computation of common stock equivalents for the
three and nine months ended September 30, 2018 because their
exercise prices were higher than the average fair market value of
the common stock during the reporting period.
Options
to purchase approximately 501,000 shares of common stock with a
weighted average exercise price of $2.33 were outstanding at
September 30, 2017 and were not included in the computation of
common stock equivalents for the three months ended September 30,
2017 because their exercise prices were higher than the average
fair market value of the common shares during the reporting period.
Due to the net loss incurred during the nine months ended September
30, 2017 all stock options were anti-dilutive for that
period.
Weighted
average common shares outstanding for the three and nine months
ended September 30, 2018 and 2017 were as follows:
|
|
Three
Months Ended
|
Nine
Months Ended
|
||
|
|
September
30
|
September
30
|
||
|
|
2018
|
2017
|
2018
|
2017
|
|
Denominator
for basic net income (loss) per share -
weighted average shares
|
11,729,000
|
11,758,000
|
11,784,000
|
11,698,000
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
Stock
options and restricted stock units and awards
|
283,000
|
19,000
|
242,000
|
—
|
|
Denominator
for diluted net income (loss) per share -
weighted average shares
|
12,012,000
|
11,777,000
|
12,026,000
|
11,698,000
|
Dividends.
On November 28, 2016, the Board
declared a one-time special dividend of $0.70 per share to
shareholders of record as of December 16, 2016 of $8,233,000, of
which $8,163,000 was paid on January 6, 2017, $14,000 was paid on
May 15, 2017, and an additional $14,000 was paid on May 15,
2018.
2.
Revenue
Recognition. Under Topic 606, revenue is measured based on consideration
specified in the contract with a customer, adjusted for any
applicable estimates of variable consideration and other factors
affecting the transaction price, including noncash
consideration, consideration paid or payable to a customer and
significant financing components. Revenue from all customers is
recognized when a performance obligation is satisfied by
transferring control of a distinct good or service to a customer,
as further described below under “Performance
Obligations.”
Taxes
collected from customers and remitted to governmental authorities
are excluded from revenue on the net basis of
accounting.
The
Company includes shipping and handling fees in revenues. Shipping
and handling costs associated with outbound freight after control
over a product has transferred to a customer are accounted for as a
fulfillment cost and are included in cost of goods
sold.
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 30-150 days and are stated at amounts due
from customers, net of an allowance for doubtful
accounts.
Performance Obligations
A
performance obligation is a promise in a contract to transfer a
distinct good or service to the customer and is the unit of account
under Topic 606. A contract’s transaction price is allocated
to each distinct performance obligation and recognized as revenue
when, or as, the performance obligation is satisfied. The following
is a description of our performance obligations included in our
primary revenue streams and the timing or method of revenue
recognition for each:
POPSign
Services. Our primary source of
revenue is from marketing in-store advertising programs and
services primarily to consumer-packaged goods (“CPG”)
manufacturers. We provide a service of displaying promotional signs
in close proximity to the manufacturer’s product in
participating stores, which we maintain in two-to-four-week cycle
increments. Our in-store marketing programs include POPSigns and
freshADS (together referred to herein as “POPSign
services”).
Each of the individual activities under our
POPSign services, including production activities, are inputs to an
integrated sign display service. As such, each POPSign service
represents a single performance obligation. Customers receive and
consume the benefits from the promotional displays over the
duration of the contracted display cycle. Additionally, the display
of the signs does not have an alternative use to us and we have an
enforceable right to payment for services performed to date. As a
result, we recognize the transaction price for our POPSign service
performance obligations as revenue over time. Given the nature of
our performance obligations is to provide a display service over
the duration of a specified period or periods, we recognize revenue
on a straight-line basis over the display service period as it best
reflects the timing of transfer of our POPSign
services.
Other
Service Revenues. The Company
also supplies CPG manufactures with other miscellaneous retailer
approved promotional services and sign solutions. These services
are more customized than the POPSign program, consisting of
variable durations and variable specifications. Due to the variable
nature of these services, revenue recognition is a mix of over time
and point in time recognition.
Products.
We also sell custom adhesive and
non-adhesive signage materials directly to our customers. Each such
product is a distinct performance obligation. Revenue is recognized
at a point in time upon shipment, when control of the goods
transfers to the customer.
Disaggregation of Revenue
In the
following table, revenue is disaggregated by major revenue stream
and timing of revenue recognition.
|
|
Three
months ended September 30, 2018
|
Nine
months ended September 30, 2018
|
||||
|
|
Services
Revenues
|
Products
Revenue
|
Total
Revenue
|
Services
Revenues
|
Products
Revenue
|
Total
Revenue
|
|
Timing of revenue recognition:
|
|
|
|
|
|
|
|
Products
and services transferred over time
|
$8,016,000
|
—
|
$8,016,000
|
$21,883,000
|
—
|
$21,883,000
|
|
Products
and services transferred at a point in time
|
$1,053,000
|
$386,000
|
$1,439,000
|
$2,080,000
|
$1,156,000
|
$3,236,000
|
|
Total
|
$9,069,000
|
$386,000
|
$9,455,000
|
$23,963,000
|
$1,156,000
|
$25,119,000
|
Sales
commissions that are paid to internal or external sales
representatives are eligible for capitalization as they are
incremental costs that would not have been incurred without
entering into a specific sales arrangement and are recoverable
through the expected margin on the transaction. The Company is
applying the practical expedient in Accounting Standards
Codification 340-40-25-4 that allows the incremental costs of
obtaining a contract to be recorded as an expense when incurred
when the amortization period of the asset that would have otherwise
been recognized is one year or less. These costs are included in
selling expenses.
Deferred Revenue
Significant changes
in deferred revenue during the period are as follows:
|
Balance
at December 31, 2017
|
$372,000
|
|
Reclassification
of beginning deferred revenue to revenue, as a result of
performance obligations satisfied
|
(122,000)
|
|
Cash
received in advance and not recognized as revenue
|
503,000
|
|
Cumulative
catch-up from a change in the timeframe for recognition of revenue
arising from deferred revenue
|
—
|
|
Balance
at September 30, 2018
|
$753,000
|
Transaction Price Allocated to Remaining Performance
Obligations
The
Company applies the practical expedient in paragraph 606-10-50-14
and does not disclose information about remaining performance
obligations that have original expected durations of one year or
less, which reflect the majority of our performance obligations.
This practical expedient is being applied to arrangements for
certain uncompleted POPSign services and unshipped custom signage
materials. Of those contracts with an expected duration of greater
than one year, we estimate that revenue of $11,000 and $3,989,000
related to performance obligations that are unsatisfied (or
partially unsatisfied) as of September 30, 2018 will be recognized
during the remainder of fiscal 2018 and in fiscal 2019 or beyond,
respectively.
3.
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,
2018 and 2017, respectfully, and is expected to be $400,000 per
year in 2019 and 2020 and $117,000 in the year ending December 31,
2021, is recorded within cost of services in the Company’s
statements of operations and comprehensive income (loss). The net
carrying amount of the selling arrangement is recorded within other
assets on the Company’s condensed balance sheet.
4.
Income Taxes. For the three and
nine months ended September 30, 2018, the Company recorded income
tax expense of $216,000 and $365,000 or 25.1% and 26.9% of income
before taxes, respectively. For the three and nine months ended
September 30, 2017, the Company recorded income tax expense
(benefit) of $2,000 and $(580,000), or 0.4% and 31.3% of income or
loss before taxes, respectively. The income tax expense for the
three and nine months ended September 30, 2018 and 2017 is
comprised of federal and state income
taxes. The primary
differences between the Company’s September 30, 2018 and 2017
effective tax rates and the statutory federal rate are expenses
related to stock-based compensation and nondeductible meals and
entertainment and for the three and nine months ended September 30,
2017, a valuation allowance was recognized as it was determined
that it is more likely than not that the Company will not realize
the full amount of its net deferred tax assets. There was no impact
for income taxes related to the valuation allowance for the three
and nine months ended September 30, 2018. The Company’s
statutory federal rate decreased to 21% in 2018 from 35% in 2017
due to the Tax Cuts and Jobs Act enacted in 2017. The Company
reassesses its effective rate each reporting period and adjusts the
annual effective rate if deemed necessary, based on projected
annual taxable income (loss).
Deferred income
taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax basis of assets
and liabilities given the provisions of enacted tax laws. In
providing for deferred taxes, we consider tax regulations of the
jurisdictions in which we operate, estimates of future taxable
income, and available tax planning strategies. If tax regulations,
operating results or the ability to implement tax-planning
strategies vary, adjustment to the carrying value of deferred tax
assets and liabilities may be required. Valuation allowances are
recorded related to deferred tax assets based on the “more
likely than not” criteria. At both December 31, 2017 and
September 30, 2018, the Company had a valuation allowance of
approximately $108,000 as a result of certain capital losses and
state net operating losses carried forward which the Company does
not believe are more likely than not to be realized.
As of
September 30, 2018 and December 31, 2017, the Company had
unrecognized tax benefits totaling $604,000 and $581,000,
respectively, including interest, which relates to state nexus
issues. The amount of the unrecognized tax benefits, if recognized,
that would affect the effective income tax rates of future periods
is $604,000. 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
2018.
5.
Concentrations. During the nine months
ended September 30, 2018 two customers accounted for 24% and 22%,
respectively, of the Company’s total net sales. During the
nine months ended September 30, 2017, one customer accounted for
27% of the Company’s total net sales. At September 30, 2018,
three customers accounted for 24%, 17% and 15%, respectively, of
the Company’s total accounts receivable. At December 31,
2017, three customers represented 29%, 12% and 11%, respectively,
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.
6.
Recently Issued Accounting
Pronouncements. In February 2016, the FASB issued Accounting
Standards Update (“ASU”) 2016-02, Leases, under which lessees will
recognize most leases on the balance sheet. This will generally
increase reported assets and liabilities. This ASU is effective for
the Company’s annual and interim periods beginning January 1,
2019. The original guidance required application on a modified
retrospective basis with the earliest period presented. In August
2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which
includes an option to not restate comparative periods in transition
and elect to use the effective date of ASC 842, Leases, as the date of initial
application of transition. Based on the effective date, this
guidance will apply and the Company will adopt this ASU beginning
on January 1, 2019 using the transition option provided under ASU
2018-11. The Company has performed a review of the requirements of
the new guidance and has identified which of its leases will be
within the scope of ASU 2016-02. The Company is working
through an adoption plan which includes a review of lease
contracts, applying the new standard to the lease contracts and
comparing the results to our current accounting. As part of
this, we are assessing changes that might be necessary to
processes, and internal controls to capture new data and address
changes in financial reporting. Effective January 1, 2019, the
Company will be revising its lease accounting policy disclosures to
reflect the requirements of ASU 2016-02. The Company estimates the
impact of the adoption will be an increase of approximately
$450,000 to $500,000 to both assets and liabilities on the balance
sheet, with no material net impact to the statement of operations.
We also expect additional qualitative and quantitative disclosures
will be required 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,
2017, 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” or the
“Company”) markets in-store advertising products,
programs and services to retailers and consumer packaged goods
(“CPG”) manufacturers. Insignia has provided in-store
media solutions in over 20,000 retail outlets, inclusive of
grocery, mass merchants and dollar
over the course of 2018. We partner with over 300 consumer packaged
goods manufacturers across various categories including center
store, refrigerated, frozen and the perimeter. 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 has been 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.
Business Overview
Summary of Financial Results
For the
quarter ended September 30, 2018, the Company generated net sales
of $9,455,000, as compared with net sales of $7,723,000 for the
quarter ended September 30, 2017. For the nine months ended
September 30, 2018, the Company generated net sales of $25,119,000,
as compared with net sales of $18,339,000 in the nine months ended
September 30, 2017. Net income for the quarter ended September 30,
2018 was $645,000, as compared to $451,000 for the quarter ended
September 30, 2017. Net income for the nine months ended September
30, 2018 was $993,000, as compared to a net loss of $1,274,000 for
the nine months ended September 30, 2017.
During
the nine months ended September 30, 2018, cash and cash equivalents
increased $2,895,000 from $4,695,000 at December 31, 2017, to
$7,590,000 at September 30, 2018. The Company had no long-term debt
as of September 30, 2018 and 2017.
The
retailer and CPG volatility in the Company's POPS program make its
future results difficult to predict. Increased competition will
change its retail network and the mix of its customers resulting in
downward pressure on its financial results early in 2019. The
Company remains focused on maintaining its current clients while
also pursuing new clients within its core business. The Company is
generating successful results with its new products and will
continue to aggressively push its pipeline with greater focus in
the areas its clients are most often requesting and where the
Company can build scale. As the Company introduces innovation,
these products and services may have lower margin rates than its
core business.
Results
of Operations
The following table
sets forth, for the periods indicated, certain items in the
Company’s Statements of Operations as a percentage of total
net sales.
|
|
Three
Months Ended
|
Nine
Months Ended
|
||
|
|
September
30
|
September
30
|
||
|
|
2018
|
2017
|
2018
|
2017
|
|
Net
sales
|
100.0%
|
100.0%
|
100.0%
|
100.0%
|
|
Cost
of sales
|
62.3
|
64.5
|
63.0
|
73.4
|
|
Gross
profit
|
37.7
|
35.5
|
37.0
|
26.6
|
|
Operating
expenses:
|
|
|
|
|
|
Selling
|
9.6
|
11.4
|
10.1
|
14.2
|
|
Marketing
|
7.4
|
5.3
|
7.5
|
6.9
|
|
General
and administrative
|
11.7
|
13.0
|
14.2
|
15.6
|
|
Total
operating expenses
|
28.7
|
29.7
|
31.8
|
36.7
|
|
Operating
income (loss)
|
9.0
|
5.8
|
5.2
|
(10.1)
|
|
Other
income
|
0.1
|
0.0
|
0.2
|
0.0
|
|
Income
(loss) before taxes
|
9.1
|
5.8
|
5.4
|
(10.1)
|
|
Income
tax expense (benefit)
|
2.3
|
0.0
|
1.4
|
(3.2)
|
|
Net
income (loss)
|
6.8%
|
5.8%
|
4.0%
|
(6.9)%
|
Three Months and Nine Months Ended September 30, 2018 Compared to
Three Months and Nine Months Ended September 30, 2017
Net Sales. Net sales for the three months ended September
30, 2018 increased 22.4% to $9,455,000 compared to $7,723,000 for
the three months ended September 30, 2017. Net sales for the nine
months ended September 30, 2018 increased 37.0% to $25,119,000,
compared to $18,339,000 for the nine months ended September 30,
2017.
Service
revenues for the three months ended September 30, 2018 increased
23.3% to $9,069,000 compared to $7,353,000 for the three months
ended September 30, 2017. Service revenues for the nine months
ended September 30, 2018 increased 39.6% to $23,963,000 compared to
$17,169,000 for the nine months ended September 30,
2017.
The
increase in sales for the three months ended September 30, 2018 was
primarily due to an increase in innovation initiatives. POPS
program revenue was relatively flat with a decrease in the number
of signs placed partially offset by an increase in average price
per sign, which was the result of a favorable mix of CPG clients
and contracts. Service revenues inclusive of POPS program and
innovation revenue increased during the three months ended
September 30, 2018, up 23.3% from the three months ended September
30, 2017. The increase in sales for the nine months ended September
30, 2018 was due to an increase in average price per sign, which
was the result of a favorable mix of CPG clients and contracts, an
increase in the number of signs placed, mostly due to increased
signs placed from new and existing CPG customers, and also due to
innovation initiatives.
Product
revenues for the three months ended September 30, 2018 increased
4.3% to $386,000 compared to $370,000 for the three months ended
September 30, 2017. Product revenues for the nine months ended
September 30, 2018 decreased 1.2% to $1,156,000 compared to
$1,170,000 for the nine months ended September 30, 2017. The
increase in the three-month period was primarily due to higher
sales of sign card supplies due to sales to new and existing
customers. The decrease in the nine-month period was primarily due
to lower sales of sign card supplies due to lower customer
demand.
Gross Profit. Gross profit for the three months
ended September 30, 2018 increased 29.9% to $3,563,000, or 37.7% as
a percentage of net sales, compared to $2,743,000, or 35.5% as a
percentage of net sales, for the three months ended September 30,
2017. Gross profit for the nine months ended September 30, 2018
increased 91.3% to $9,314,000, or 37.0% as a percentage of net
sales, compared to $4,870,000, or 26.6% as a percentage of net
sales, for the nine months ended September 30, 2017.
Service revenues:
Gross profit from our service revenues for the three months ended
September 30, 2018 increased 31.9% to $3,500,000 compared to
$2,653,000 for the three months ended September 30, 2017. The
higher gross profit was primarily the result of increased sales,
and product mix combined with an increased average price per sign
from a favorable mix of CPG clients and contracts, and an increase
in revenue from innovation initiatives. The Company incurred costs
of approximately $166,000 associated with the implementation of its
new IT operating infrastructure during the three months ended
September 30, 2018 compared to approximately $109,000 for the three
months ended September 30, 2017. For the nine months ended
September 30, 2018, the Company incurred costs of approximately
$436,000 associated with the development of its new IT operating
infrastructure compared to approximately $263,000 for the nine
months ended September 30, 2017. The project is expected to achieve
a major milestone in the fourth quarter of 2018, with estimated
additional expense of $200,000 in 2018. Gross profit from our
service revenues for the nine months ended September 30, 2018
increased 98.6% to $9,026,000 compared to $4,545,000 for the nine
months ended September 30, 2017. The increase was primarily due to
the factors described above.
Gross
profit as a percentage of service revenues for the three months
ended September 30, 2018 increased to 38.6% compared to 36.1% for
the three months ended September 30, 2017. The increase was
primarily due to the factors described above. Gross profit as a
percentage of service revenues for the nine months ended September
30, 2018 increased to 37.7% compared to 26.5% for the nine months
ended September 30, 2017. The increase was primarily due to the
factors described above.
Product revenues:
Gross profit from our product revenues for the three months ended
September 30, 2018 decreased 30.0% to $63,000 compared to $90,000
for the three months ended September 30, 2017. The decrease was
primarily due to increased
production related costs and product mix. Gross profit from our
product revenues for the nine months ended September 30, 2018
decreased 11.4% to $288,000 compared to $325,000 for the nine
months ended September 30, 2017. The decrease was primarily due to
the factors described above.
Gross
profit as a percentage of product revenues was 16.3% for the three
months ended September 30, 2018 compared to 24.3% for the three
months ended September 30, 2017. The decrease was primarily due to
the factors described above. Gross profit as a percentage of
product revenues was 24.9% for the nine months ended September 30,
2018 compared to 27.8% for the nine months ended September 30,
2017. The decrease was primarily due to the factors described
above.
Operating Expenses
Selling. Selling expenses for the three months ended
September 30, 2018 increased 3.3% to $908,000 compared to $879,000
for the three months ended September 30, 2017. The increase was
primarily due to increased staff
related expenses. Selling expenses for the nine months ended
September 30, 2018 decreased 2.6% to $2,530,000 compared to
$2,598,000 for the nine months ended September 30, 2017. The
decrease was primarily due staff
related expenses.
Selling
expenses as a percentage of net sales decreased to 9.6% for the
three months ended September 30, 2018 compared to 11.4% for the
three months ended September 30, 2017. The decrease was primarily
due to increased sales, partially offset by the factors described
above. Selling expenses as a percentage of net sales decreased to
10.1% for the nine months ended September 30, 2018 compared to
14.2% for the nine months ended September 30, 2017. The decrease
was primarily due to increased sales, in addition to the factors
described above.
Marketing. Marketing expenses for the three months ended
September 30, 2018 increased 71.9% to $703,000 compared to $409,000
for the three months ended September 30, 2017. Increased marketing
expenses were primarily due to increased staffing and staff related
costs, promotional activities, and an increase in new product
innovation activities. Marketing expenses for the nine months ended
September 30, 2018 increased 48.4% to $1,873,000 compared to
$1,262,000 for the nine months ended September 30, 2017. The
increase was primarily due to the factors described
above.
Marketing
expenses as a percentage of net sales increased to 7.4% for the
three months ended September 30, 2018 compared to 5.3% for the
three months ended September 30, 2017. The increase was primarily
due to the factors described above, partially offset by increased
sales. Marketing expenses as a percentage of net sales increased to
7.5% for the nine months ended September 30, 2018 compared to 6.9%
for the nine months ended September 30, 2017. The increase was
primarily due to the factors described above, partially offset by
increased sales.
General and administrative. General and administrative
expenses for the three months ended September 30, 2018 increased
10.2% to $1,106,000 compared to $1,004,000 for the three months
ended September 30, 2017. The increase was primarily due to
consulting and legal services. General and administrative expenses
for the nine months ended September 30, 2018 increased 24.7% to
$3,580,000 compared to $2,871,000 for the nine months ended
September 30, 2017. The increase of $709,000 includes $460,000 of
expense related to the negotiation and satisfaction of obligations
under the Cooperation Agreement that was announced in May 2018 and
is in effect into 2020.
General
and administrative expenses as a percentage of net sales decreased
to 11.7% for the three months ended September 30, 2018 compared to
13.0% for the three months ended September 30, 2017. The decrease
was primarily due to increased sales, partially offset by the
factors described above. General and administrative expenses as a
percentage of net sales decreased to 14.2% for the nine months
ended September 30, 2018 compared to 15.6% for the nine months
ended September 30, 2017. The decrease was primarily due to
increased sales, partially offset by the factors described
above.
Other Income. Other income for the three months ended
September 30, 2018 was $15,000 compared to $2,000 for the three
months ended September 30, 2017. Other income for the nine months
ended September 30, 2018 was $27,000 compared to $7,000 for the
nine months ended September 30, 2017. The increase was primarily
due to higher average cash and cash equivalent balances in 2018.
Other income is comprised of interest earned on cash and cash
equivalents.
Income Taxes. For the
three and nine months ended September 30, 2018, the Company
recorded income tax expense of $216,000 and $365,000 or 25.1% and
26.9% of income before taxes, respectively. For the three and nine
months ended September 30, 2017, the Company recorded income tax
expense (benefit) of $2,000 and $(580,000), or 0.4% and 31.3% of
income or loss before taxes, respectively. The income tax expense
(benefit) for the three and nine months ended September 30, 2018
and 2017 is comprised of federal and state income taxes. The
primary differences between the Company’s September 30, 2018
and 2017 effective tax rates and the statutory federal rate
are expenses related to stock-based
compensation, nondeductible meals and entertainment and for the
three and nine months ended September 30, 2017, a valuation
allowance was recognized as it was determined that it is more
likely than not that the Company will not realize the full amount
of its net deferred tax assets. There was no impact for income
taxes related to the valuation allowance for the three and nine
months ended September 30, 2018. The Company’s statutory
federal rate decreased to 21% in 2018 from 35% in 2017 due to the
Tax Cuts and Jobs Act enacted in 2017. The Company reassesses its
effective rate each reporting period and adjusts the annual
effective rate if deemed necessary, based on projected annual
taxable income (loss).
Deferred
income taxes are determined based on the estimated future tax
effects of differences between the financial statement and tax
basis of assets and liabilities given the provisions of enacted tax
laws. In providing for deferred taxes, we consider tax regulations
of the jurisdictions in which we operate, estimates of future
taxable income, and available tax planning strategies. If tax
regulations, operating results or the ability to implement
tax-planning strategies vary, adjustment to the carrying value of
deferred tax assets and liabilities may be required. Valuation
allowances are recorded related to deferred tax assets based on the
“more likely than not” criteria. At both December 31,
2017 and September 30, 2018, the Company had a valuation allowance
of approximately $108,000 as a result of certain capital losses and
state net operating losses carried forward which the Company does
not believe are more likely than not to be realized.
Net Income (Loss). For the reasons stated above, net income
for the three and nine months ended September 30, 2018 was $645,000
and $993,000, respectively, compared to $451,000 for the three
months ended September 30, 2017 and a net loss of $1,274,000 for
the nine months ended September 30, 2017.
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, 2018,
working capital (current assets less current liabilities) was
$12,703,000 compared to $11,833,000 at December 31, 2017. During
the nine months ended September 30, 2018, cash and cash equivalents
increased $2,895,000 from $4,695,000 at December 31, 2017, to
$7,590,000 at September 30, 2018.
Operating Activities: Net cash
provided by operating activities during the nine months ended
September 30, 2018, was $4,080,000. Net income of $993,000, plus
non-cash adjustments of $1,112,000 and changes in operating assets
and liabilities of $1,975,000 resulted in the $4,080,000 of cash
provided by operating activities. The largest component of the
change in operating assets and liabilities was accounts receivable
which decreased
$586,000, which
will fluctuate based on normal business conditions. The non-cash
adjustments consisted of depreciation and amortization expense,
changes in allowance for doubtful accounts, deferred income tax
benefits, and stock-based compensation expense. 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
used in investing activities during the nine months ended September
30, 2018 was $877,000, which was related primarily to the IT
operating infrastructure project, and consisted of hardware,
purchased software and capitalization of costs for internally
developed software.
Financing Activities: Net cash
used in financing activities during the nine months ended September
30, 2018 was $308,000, which was primarily related to stock
repurchases.
The
Company believes that based upon current business conditions and
plans, its existing cash balance and future cash generated from
operations will be sufficient for its cash requirements for at
least the next twelve months.
Critical Accounting Policies
The
discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been
prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these
financial statements requires us to make estimates and judgments
that affect the reported amounts of assets and liabilities,
revenues and expenses, and related disclosure of contingent assets
and liabilities at the date of our financial statements. Actual
results may differ from these estimates under different assumptions
or conditions.
Our
significant accounting policies are described in Note 1 to the
annual financial statements as of and for the year ended December
31, 2017, included in our Form 10-K filed with the Securities and
Exchange Commission on March 15, 2018. Our policy related to the
adoption of Topic 606 on January 1, 2018, the accounting policies
for revenue recognition, is included in Note 2 within this Form
10-Q. 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
“anticipates,” “believes,”
“expects,” “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 2018 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,
2017, 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.
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
Effective January 1, 2018, we implemented ASU
2014-09 Revenue from Contracts with
Customers (Topic 606). Although
the adoption of the new revenue standard had no significant impact
on our results of operations, cash flows, or financial position, we
did implement changes to our controls related to revenue. These
included the development of new policies based on the five-step
model provided in the new revenue standard, enhanced contract
review requirements, and other ongoing monitoring activities. These
controls were designed to provide assurance at a reasonable level
of the fair presentation of our financial statements and related
disclosures. There was no other change in our internal control over
financial reporting during our most recently completed fiscal
quarter 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, 2017. We
believe there have been no material changes from the risk factors
disclosed in that Form 10-K.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
On
April 5, 2018, the Board of Directors authorized the repurchase of
up to $3,000,000 of the Company’s common stock on or before
March 31, 2020. 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,
2018, was as follows:
Issuer Purchases of Equity Securities
|
Period
|
Total number of shares purchased
|
Average price paid per share
|
Total number of shares purchased as part of publicly announced
plans or programs
|
Maximum number (or approximate dollar value) of shares that may yet
be purchased under the plans or programs
|
|
July
1–31, 2018
|
16,005
|
$1.68
|
118,768
|
$2,789,403
|
|
August
1–31, 2018
|
7,620(a)
|
$1.84
|
124,526
|
$2,778,791
|
|
September
1–30, 2018
|
51,117(b)
|
$1.80
|
147,998
|
$2,736,563
|
|
Total
|
74,742
|
$1.77
|
|
|
(a)
Includes 1,862
shares surrendered to the Company to satisfy statutory federal,
state, and local tax withholding obligations arising from the
vesting of a restricted stock awards. The shares were forfeited
pursuant to the participant’s instructions in accordance with
the terms of the applicable award agreement and the 2013 Plan and
are not part of any publicly announced stock repurchase
program.
(b)
Includes 27,645
shares surrendered to the Company to satisfy statutory federal,
state, and local tax withholding obligations arising from the
vesting of a restricted stock awards. The shares were forfeited
pursuant to the participant’s instructions in accordance with
the terms of the applicable award agreement and the 2013 Plan and
are not part of any publicly announced stock repurchase
program.
Item
3. Defaults upon
Senior Securities
None.
Item
4. Mine
Safety Disclosures
Not
applicable.
Item
5. Other
Information
None.
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
|
|
Method of
Filing
|
|
|
|
|
|
|
|
3.1
|
|
|
Incorporated by
Reference
|
|
|
|
|
|
|
|
|
3.2
|
|
|
Incorporated by
Reference
|
|
|
|
|
|
|
|
|
10.1*
|
|
|
Incorporated by
Reference
|
|
|
|
|
|
|
|
|
10.2*
|
|
|
Incorporated by
Reference
|
|
|
|
|
|
|
|
|
10.3*
|
|
|
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, 2018, formatted in
XBRL (eXtensible Business Reporting Language): (i) Condensed
Balance Sheets; (ii) Condensed Statements of Operations; (iii)
Condensed Statements of Cash Flows; and (iv) Notes to Financial
Statements.
|
|
Filed
Electronically
|
* Management
contract or compensation plan or arrangement required to be filed
as an exhibit to this quarterly report on Form 10-Q.
17
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:
November 14, 2018
|
/s/
Kristine A. Glancy
|
|
|
|
Kristine
A. Glancy
|
|
|
|
President
and Chief Executive Officer
|
|
|
|
(on
behalf of registrant)
|
|
|
|
|
|
|
Dated: November
14, 2018
|
/s/
Jeffrey A. Jagerson
|
|
|
|
Jeffrey
A. Jagerson
|
|
|
|
Chief
Financial Officer and Treasurer
|
|
|
|
(principal
financial and accounting officer)
|
|
18