Blueprint
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF
1934
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For the fiscal year ended December
31, 2018
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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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(IRS 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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Securities Registered Pursuant to
Section 12(b) of the Act:
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Title of each
class:
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Name of each exchange on which
registered:
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Common Stock, $.01 par
value
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The Nasdaq Stock
Market
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Securities Registered Pursuant to
Section 12(g) of the Act: None
_____________________________________________________________________
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act. Yes ☐ No ☑
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13
or Section 15(d) of the Act. Yes ☐ No
☑
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 report(s), 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 if
disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, a smaller reporting company, or 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):
Large accelerated filer ☐
Accelerated filer ☐ Non-accelerated filer ☐ Smaller
reporting company ☑ Emerging growth company
☐
If an emerging growth company,
indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act. ☐
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes ☐ No ☑
The aggregate market value of the
voting and non-voting common equity held by non-affiliates of the
registrant as of the last business day of the registrant’s
most recently completed second fiscal quarter (June 30, 2018) was
approximately $12,570,000 based upon the price of the
registrant’s Common Stock on such date.
Number of shares outstanding of
Common Stock, $.01 par value, as of March 1, 2019 was
11,947,485.
DOCUMENTS
INCORPORATED BY REFERENCE:
Portions of the
registrant’s definitive proxy for its 2019 Annual Meeting of
Shareholders are incorporated into Part
III.
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PART
I.
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PART
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PART
III.
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PART
IV.
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PART I.
General
Insignia
Systems, Inc. (“Insignia,” “we,”
“us,” “our” and the “Company”)
was incorporated in 1990, as a Minnesota corporation. Insignia is a
leading provider of in-store marketing solutions to our partners
and clients which consist of consumer-packaged goods (“CPG”)
manufacturers, retailers and marketing
agencies and digital. We believe our products and services are
attractive to CPG manufacturers because of our speed to market,
ability to customize advertising programs at store level and our
deep industry knowledge. We have leaders and employees with
extensive industry knowledge with direct experience in CPG
manufacturers and retailers. During 2018, Insignia provided
advertising solutions to CPG manufacturers spanning from some of
the largest multinationals to new and emerging
brands.
Our relationships with retailers are forged through executional
excellence, flexible processes and our ability to connect retailer
messaging with our CPG manufacturer’s message. During 2018,
Insignia ran in-store advertising programs at national and regional
US retailers who are leaders in their respective
channels.
Our relationships with marketing agencies continue to grow through
our agility, responsiveness, custom production and execution
capabilities, and our ability to respond to their client’s
needs with precision and efficiency.
Insignia’s
primary solution has been the Point-Of-Purchase Services
(POPS®) in-store
signage solution. The Insignia POPS solution is a national,
account-specific, shelf-edge advertising and promotion tactic.
Internal testing has indicated the solution is capable of
delivering incremental sales for the featured brand. Participation
in the POPS solution allows CPG 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
manufacturers 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.
Over the past several years, we have developed and now offer
promotional, merchandising and digital solutions in addition to our
core business of in-store signage solutions. Our expanded portfolio
of solutions allows us to more completely meet the needs of CPG
manufacturers, retailers and their agents as their business
strategies evolve behind an ever-changing retail
landscape.
The
Company’s internet address is
www.insigniasystems.com. The
Company makes all the reports it files with the Securities and
Exchange Commission (SEC) available free of charge on its website.
The Company’s website is not incorporated by reference into
this Annual Report on Form 10-K. Copies of reports can also be
obtained free of charge by requesting them from Insignia Systems,
Inc., 8799 Brooklyn Boulevard, Minneapolis, Minnesota 55445;
Attention: CFO; telephone 763-392-6200.
Industry and Market Background
Our
industry is rapidly evolving in several ways:
(1)
Brand loyalty:
consumer brand loyalty is shifting from established CPG
manufacturers to emerging brands, who often have distribution
outside our core syndicated network and are looking for solutions
to help them with immediate trial and awareness.
(2)
Retailer
fragmentation: consumers are driving retailer fragmentation,
including online purchases, as a result CPG manufacturer are
diversifying their advertising dollars across an omnichannel
envirnment.
(3)
Financial
justification: CPG manufacturers are increasingly focused on top
and bottom line financial metrics which drives increased pressure
to generate positive advertising return on
investments.
(4)
Competition shift:
Digital advertising spend is reducing spend on traditional media,
including in-store advertising, driving increased competition from
direct competitors, retailer led marketing programs, and digital
media companies.
Despite
rapid growth in e-commerce both retailers and CPG manufacturers are
actively seeking to grow their brands in physical stores. On the
retail side, many of the top US retailers have either opened new
stores, introduced new formats or invested heavily in major store
renovations. As a result, retailers are actively seeking solutions
that can help drive traffic into the store. Retailers seek
companies like Insignia to help build in-store solutions that
navigate active shoppers to strategic parts of the store. We
believe retailers are continuing to seek ways to connect their
online strategies with their in-store strategies to build shopper
loyalty and to develop solutions to enhance the shopper's in-store
experience. On the CPG manufacturer side, brand consolidation,
shrinking advertising budgets among CPG manufacturers and overall
commodity uncertainties continue to place significant pressure on
our industry. We believe CPG manufacturers are increasingly looking
for opportunities to reinforce their brand equity as close as
possible to the point of purchase or to expand the number of
locations where they are offered in store to ensure they are
selected over competition. We believe emerging brands are looking
for ways to tell shoppers their story and explain their unique
features, benefits and points of difference. These trends along
with new developments in shopper analytics are opening
opportunities for innovative companies to develop new products and
new ways of helping retailers and brands connect with shoppers.
Insignia is usually engaged as part of
an overall, mixed-media, brand marketing campaign. Our
solutions offer CPG manufacturers the unique features not available
to other marketing services providers and help their brands
“close the sale” at the point of purchase and across
other areas of the in-store retail environment.
Product Solutions
Since
our inception in 1990, Insignia has worked closely with CPG
manufacturers and retailers to understand their evolving needs and
introduce solutions that help them achieve their business
strategies. Over most of the past decade, Insignia’s core
product has been In-Store Signage Solutions, namely POPS. Over the
past year, we have significantly expanded our offered solutions to
develop a portfolio designed to more holistically meet the needs of
our clients and partners. For example, our In-Store Signage
Solutions represented approximately 79% of our total net sales for
2018, compared to 92% of the Company’s total net sales in
2017.
1.
In-Store Signage
Solutions
●
Our signage
solutions help brands achieve a variety of objectives that include
awareness and sales lift. POPS signs are placed perpendicular to
the shelf and attract the attention of the shopper even before they
arrive in front of the shelf to consider a product. Attractive
equity and engaging creative helps convert the shopper from
considering a product into purchasing the product.
●
Because of existing
arrangements with our primary competitors, POPS is the only
in-store signage solution available in the U.S. market that is able
to present store-level pricing in conjunction with CPG and retailer
brand messaging. Additionally, signs are installed in close
proximity to the CPG manufacturer’s product in participating
stores.
●
CPG manufacturers
pay marketing program rates based upon the directed number of
cycles and retailer/store count. We collect and organize data from
the CPG manufacturers and participating retailers, design and print
the signage, and deliver signage to specified retailers. Depending
on the agreement with the retailer, either a third-party
professional installer or store personnel use placement
instructions to install the correct signage at the shelf during the
correct timeframe.
2.
Merchandising
Solutions
●
These solutions
help brands deliver additional awareness and drive impulse
purchases via a secondary placement of their products. Retailers
selectively award brands incremental temporary space in the store
to showcase their products. Our merchandising solution delivers a
variety of creative corrugate displays, side caps and power panels
that brands leverage to grow their sales.
●
Our promotion
solutions are typically placed on the product package. These
solutions can drive impulse purchases, sales and capture share
within a very short period. Examples include coupons, recipes, and
cross-promotions.
●
Our digital
solutions currently consist of mobile and programmatic advertising.
Most CPG manufacturers are relying on digital advertising for
promoting their products to consumers. As part of an integrated
marketing plan, Insignia develops and executes digital advertising
and in-store marketing in cadence with brand plans and
expectations.
5.
Custom Print
Solutions
●
Our custom print
solutions offer small and large format print solutions and
cardstock to retailers. These solutions help them increase
awareness of store events and other marketing
programs.
Marketing and Sales
Our
highly skilled direct sales and marketing teams have deep knowledge
of our CPG manufacturers and retailers and represent a major asset
for the organization. Our sales organization is split into two
separate groups:
1.
Sales to CPG
manufacturers. This group is dedicated to understanding the
challenges faced by both large and small brands and helping develop
solutions that address their needs. During 2018, they worked with
over 100 CPG manufacturers.
2.
Sales to retailers.
This group is responsible for understanding each retailer’s
unique needs and build solutions to address them. During 2018, this
team worked with retailers that own or represent thousands of
national and regional retail stores.
Marketing
is focused on the following:
●
Increasing
awareness of our corporate brand;
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Analyzing the
effectiveness of executed offerings;
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Developing and
commercializing new solutions; and
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Enhancing and
marketing existing solutions.
We are
authorized to sell in-store solutions into a network of retailers
that is managed and maintained through direct relationships, and
through a contract with News America Marketing In-Store, LLC
(“News America”). During the majority of 2018, we also
accessed certain retailers in the Dollar Channel, which did not
account for a material amount of our sales in 2018, through an
agreement with Valassis Sales and Marketing Services, Inc. In
December 2018, Valassis announced its exit from in-store marketing
generally and our agreement was terminated.
During
2018 and 2017, foreign sales accounted for less than 1% of total
net sales each year. The Company expects sales to foreign
distributors will remain less than 1% of total net sales in
2019.
Competition
Insignia
faces increasingly intense competition for the marketing
expenditures of CPG manufacturers for at-shelf advertising-related
signage. We have observed increased competition in growing and
maintaining our network of retailers into which we are authorized
to sell solutions as competitors continue to purchase new or extend
exclusive arrangements with retailers for that purpose. We are
party to an agreement with News America that entitles us to
opportunities to sell signs with price in specific parts of News
America’s retail network through February 2021, but we have
experienced limited success gaining additional access to News
America’s retail network. Furthermore, we face increased
competition for advertising dollars with News America’s other
at-shelf advertising and promotional signage
offerings.
Our
In-Store Signage Solutions are subject to increasing pressures from
alternatives to traditional in-store signage, including digital and
merchandising solutions offered by competitors including Vestcom,
Menasha, Valassis Digital and Quotient.
We
believe the primary competitive strengths of the Company
include:
●
Working with CPG
manufacturers to help achieve sales lift, create brand awareness,
generate program ROI, or support of retailer
programs;
●
Managing and
providing turn-key access to a national network of retailers in
support of objectives listed above; including smaller regional or
independent retailers, which tend to be under-served by our
competitors and difficult to aggregate at the national
level;
●
Variable messaging
capabilities including bi-lingual targeting; and
●
Shorter lead times
on marketing program execution.
Intellectual Property: Patents and Trademarks
The
Company has developed and uses a number of trademarks, service
marks, slogans, logos and other commercial symbols to advertise and
sell its products. The Company owns U.S. registered trademarks for
Insignia POPS®, Insignia
POPSign®, Insignia
ShelfPOPS®,
Stylus®,
freshADSsm,
Impulse®,
DuraSign®,
I-Care®, Color
POPSign®,
BannerPOPS®,
BrandPOPS®,
EquityPOPS®, and
ShapePOPS®.
Certain
employees are required to enter into nondisclosure and invention
assignment agreements. Customers, vendors and other third parties
also must agree to nondisclosure restrictions to prevent
unauthorized disclosure of our trade secrets or other confidential
or proprietary information.
Service and Solution Development
New
services, solutions and enhancements to existing offerings are
developed internally and externally and include proprietary data
management, operations systems, and design guidance. Over the past
12-months, we have significantly expanded our offered solutions and
have developed a portfolio designed to more holistically meet the
needs of our clients and partners.
Strategic Plan
Insignia’s
strategic plan, launched early in 2018, seeks to build on recent
success, situate Insignia for growth within our industry, and
differentiate Insignia from our competition. The strategic plan
consists of:
1.
Build the Base. Future success is
dependent on increasing the salability of our retail network,
heightened focus on end-to-end execution, and continued focus on
our cost structure.
2.
Change the Game. Increased competition
requires change. Insignia is focused on continued diversification
of our product portfolio, amplifying our insights and analytics,
and leveraging retailer centric offerings.
3.
Create Advocates. Insignia has increased
its presence within the industry. This will continue within our
strategic plan as Insignia will continue to cultivate new
alliances, build our corporate awareness, and strive to be the
first call.
4.
Invest in our future. Achieving our
strategic plan requires Insignia to continue to recruit and retain
top talent, invest in training and development and strengthening
our capabilities.
Our
strategic plan addresses the challenges we face within our
industry, given the rapid evolution of change, we continue to be
faced with risk of short-to-intermediate term volatility in our
operating and financial performance.
Customers
The
Company provides solutions to a wide variety of CPG manufacturers
ranging from large Fortune 500 manufacturers to new brands who have
just secured initial distribution. These solutions help brands and
retailers connect, engage and build better relationships with their
consumers to increase awareness, trial, sales and loyalty. Many of
these CPG manufacturers are fast moving consumer packaged goods
with products that would be found in grocery, mass and drug
channels.
During
2018, two CPG manufacturers accounted for 24% and 20%,
respectively, of our total net sales. During 2017, one CPG
manufacturer accounted for 26% of our total net sales. At December
31, 2018, two CPG manufacturers represented 31% and 16% of the
Company’s total accounts receivable. At December 31, 2017,
three CPG manufacturers represented 29%, 12% and 11% of the
Company’s total accounts receivable.
Our
sales historically have fluctuated from period to period, primarily
because of;
●
CPG manufacturer
determinations to purchase solutions from the Company versus
competitor solutions;
●
Promotional timing
chosen by CPG manufacturers;
●
Underlying
performance and quality of featured products chosen by CPG
manufacturers;
●
CPG manufacturer
budget fluctuations and amounts allocated to in-store tactics vs.
other tactics;
●
Quantity and
quality of retailer locations into which we are authorized to sell
in-store solutions; and
●
New solution
acceptance by CPG manufacturers and retailers.
Environmental Matters
We
believe our operations are in compliance with all applicable
environmental regulations within the jurisdictions in which we
operate. The costs of compliance with these regulations have not
been, and are not expected to become, material.
Employees
As of
March 1, 2019, the Company had 57 employees, including 56 full-time
employees and one part-time employee. We believe relations with our
employees are good.
Segment Reporting
The
Company operates in a single reportable segment.
Our
business is subject to many risks. The
following are significant factors known to us that could materially
adversely affect our business, reputation, operating results,
industry, financial position, or future financial
performance.
Our Results Are Dependent on Our CPG Manufacturing Partners’
Continued Use of Our POPS Solution
Our
financial results are currently largely dependent on the success of
our Insignia POPS point-of-purchase in-store marketing solution
which is sold primarily to CPG manufacturers. In-Store Signage
Solutions represented approximately 79% of our total net sales in
2018. We also continue to have a concentrated CPG customer base for
our POPS solution. Our top two CPG customers together accounted for
approximately 44% of our total net sales in 2018.
During
late 2018, we saw changes in the CPG manufacturers who participate
in our solutions that have adversely impacted POPS sales, through
CPG manufacturers both forgoing new contracts and reducing forward
participation. We also have seen increased competitive activities
that are expected to lead to decreased POPS sales. In addition,
volatility in CPG manufacturer spend has resulted from shrinking
advertising budgets, expanded product solutions, and increased
competition.
Should
changes in economic conditions result in reductions in advertising
and promotional expenditures by CPG manufacturers that lead to a
slower rate of growth or a decrease in spending for the in-store
advertising services we offer or we are unable to acquire business
from new CPG manufacturers or should any one of the manufacturers
who account for a significant amount of our POPS revenues terminate
or reduce its participation in the POPS solution, our business and
results of operations would be adversely affected due to our heavy
dependence on this solution.
The Success of Our POPS Solution and Our Results Are Dependent on
Our Ongoing Business Relationships with Retailers
To execute our POPS solution, we enter into arrangements with
retailers that provide us with access to place signs on shelves in
their stores for our CPG manufacturing customers. We may also
access a portion of our retailer relationships through third
parties. During 2018, our top three retailer relationships provided
distribution for 31% of our total net sales.
A
significant retailer has notified us of its intent to exit our
retailer network in the first half of 2019. Our ability to sell our
solutions is substantially dependent on the quantity and quality of
the retailer locations in our network. If we are unable secure new
retailers that resonate with our CPGs it would have an adverse
effect on our In-Store Signage Solutions sales and financial
results.
Our retailer contracts generally have terms of one to three years
and we are negotiating the renewal of these contracts on an ongoing
basis. The future renewal of these contracts on profitable terms is
not free from doubt. For instance, some of our retailer contracts
require us to guarantee minimum payments and we may be unable to
profitably offer a guarantee at the level required by a retailer
during renewal negotiations. The failure to renew a significant
retailer arrangement, a decrease in the size or quality of our
retail distribution network or if our retailers would fail to
continue to maintain our signage solutions in their stores would
have an adverse effect on our In-Store Signage Solutions
sales and financial
results.
Our Results Are Dependent on The Success of Our Business
Relationship with News America
Our
results depend, in part, on the success of our sales and marketing
efforts as News America’s exclusive agent for signs with
price into the News America network of retailers and upon our
ability to successfully sell solutions into this network.
Notwithstanding the terms of our agreement with News America, we
have had limited success gaining additional access to News
America’s retail network and we are facing increased
competition for advertising dollars with News America’s other
at-shelf advertising and promotional signage offerings.
Additionally, if disputes with News America arise in the future
regarding the operational aspects of our agreement or if contracts
were to end it would allow for increased exclusivity and/or
increased competition and could have an adverse effect on the
Company.
We Face Significant Competition
We face
significant competition from News America, the primary provider of
at-shelf advertising and promotional signage. Although we are party
to a contract with News America granting us certain limited rights
through February 2021, even as News America’s exclusive agent
for signs with price under that contract, we will continue to
compete for advertising dollars with News America’s other
at-shelf advertising and promotional signage offerings. News
America has significantly greater market presence and financial
resources that can be used to develop and market their products.
Should our competition succeed in obtaining more of the at-shelf
advertising business from our current CPG manufacturers, or develop
or extend exclusive relationships with our partners, our revenues
and related operations would be adversely affected.
Additionally,
Insignia competes against other providers of advertising, marketing
and merchandising products and services, and providers of
point-of-purchase and other in-store solutions, as well as other
marketing products and services. Competition is based on, among
other things, rates, availability of markets, quality of products
and services provided and their effectiveness, store coverage and
other factors. The increasing popularity of digital media among
consumers is driving a corresponding shift in advertising from
traditional in-store tactics to digital. The development of new
devices and technologies, as well as higher consumer engagement
with other forms of digital media such as online and mobile social
networking, are increasing the number of media choices and formats
available to audiences, resulting in audience fragmentation and
increased competition for advertising. The range of advertising
choices across digital products and platforms and the large
inventory of available digital advertising space have historically
resulted in significantly lower rates for digital advertising than
for in-store advertising. As a result, increasing consumer reliance
on mobile devices may add additional pricing pressure.
Our Growth Is Dependent on Our Ability to Successfully Introduce
New Solution Offerings that Meet Customer Demands and the Ability
to Secure and Maintain Relationships with Retailers that Resonate
with CPG Manufacturers
Our
ability to retain, increase and engage our customers and to
increase our revenues will depend partially on our ability to
create successful new products and the ability to secure and
maintain access to retailer locations that are appealing to CPG
manufacturers. We may modify our existing products or develop and
introduce new and unproven products, including acquired products.
If new or enhanced products fail to engage consumers, we may fail
to attract or retain customers or to generate sufficient revenues,
margins, or other value to justify our investments and our business
may be adversely affected. In the future, we may invest in new
products and initiatives to generate revenue, but there is no
guarantee these approaches will be successful. If we are unable to
gain retailer approval for new products we may be unable to grow
revenues from new products. If we are not successful with these new
approaches, we may not be able to maintain or grow our revenues or
recover any associated product development costs, and our financial
results could be adversely affected.
We May be Subject to Major Litigation
The Company continually monitors the competitive practices of those
in our industry for fairness which may lead to disputes that could
have adverse effects on our Company. We were involved in
major litigation with News America between 2003 and 2011. In 2011,
the Company and News America entered into a settlement agreement to
resolve the antitrust and false advertising lawsuit that had been
outstanding for several years. Although the Company obtained a
significant settlement in 2011, if future disputes with News
America, or other companies arise, it could have an adverse effect
on our Company.
Our Customers May Be Affected by Changes in Economic
Conditions
Our
revenues are affected by CPG manufacturers’ and
retailers’ marketing and advertising spending and our
revenues and results of operations may be subject to fluctuations
based upon general economic conditions inclusive of the dynamic
global trade environment. Another economic downturn may reduce
demand for our products and services or depress pricing of those
products and services and have an adverse effect on our results of
operations. Retailers may be impacted by changes in consumer
spending as well, which may adversely impact our ability to renew
contracts with our existing retailers as well as contract with new
retailers on terms that are acceptable to us. In addition, if we
are unable to successfully anticipate changing economic conditions,
we may be unable to effectively plan for and respond to those
changes, and our business could be negatively
affected.
Our Ability to Attract and Retain Key Employees Is Critical to Our
Success
Given
the unique business we operate and the importance of customer
relationships to our business, our future success is dependent, in
large part, upon our ability to attract and retain highly qualified
managerial, operational and sales personnel. Competition for
talented personnel is intense, and we cannot be certain that we can
retain our managerial, operational and sales personnel or that we
can attract, assimilate or retain such personnel in the future. Our
inability to attract and retain such personnel could have an
adverse effect on our business, results of operations and financial
condition.
Our Results of Operations Have Been and May Be Subject to
Significant Fluctuations
Our
quarterly and annual operating results have fluctuated in the past
and may vary in the future due to a wide variety of factors
including:
●
the addition or
loss of contracts with retailers;
●
the addition or
loss of customers or changes in timing and amount of our
customers’ spending with us;
●
the timing of
seasonal events for customers;
●
the timing of new
retail stores being added or removed;
●
costs of evaluating
and developing new products, and customers accepting new
products;
●
the timing of
additional selling, marketing and general and administrative
expenses; and
●
competitive
conditions in our industry.
Due to
these factors, our quarterly and annual net sales, expenses and
results of operations could vary significantly in the future and
this could adversely affect the market price of our common
stock.
Investment in Our Stock Could Result in Fluctuating
Returns
During
2018, the sale prices of our common stock as reported by The Nasdaq
Stock Market ranged from a low of $1.13 to a high of $2.40. We
believe factors such as the fluctuations in our quarterly and
annual operating results described above, the market’s
acceptance of our services and products, the performance of our
business relative to market expectations, as well as limited daily
trading volume of our stock and general volatility in the
securities markets, could cause the market price of our common
stock to fluctuate substantially. In addition, the stock markets
have experienced price and volume fluctuations, resulting in
changes in the market prices of the stock of many companies, which
may not have been directly related to the operating performance of
those companies.
The Company May be Impacted if its Information Systems Are
Attacked
We rely
upon information technology systems and networks in connection with
a variety of business activities, some of which are managed by
third parties. Additionally, we collect and store data that is
sensitive to Insignia and its employees, customers, retailer
network and suppliers. The secure operation of these information
technology systems and networks, and the processing and maintenance
of this data, is critical to our business operations and strategy.
Information technology security threats—from user error to
attacks designed to gain unauthorized access to our systems,
networks and data—are increasing in frequency and
sophistication. Attacks may range from random attempts to
coordinated and targeted attacks, including sophisticated computer
crime and advanced persistent threats. These threats pose a risk to
the security of our systems, networks and products and the
confidentiality, availability and integrity of the data we process
and maintain. Establishing systems and processes to address these
threats and changes in legal requirements relating to data
collection and storage may increase our costs. Should such an
attack succeed, it could expose us and our employees, customers,
retailer network and suppliers to misuse of information or systems,
the compromising of confidential information, theft of assets,
manipulation and destruction of data, defective products,
production downtimes and operations disruptions, and breach of
privacy, which may require notification under data privacy and
other applicable laws. The occurrence of any of these events could
have a material adverse effect on our reputation, business,
financial condition, results of operations and cash flows. In
addition, such breaches in security could result in litigation,
regulatory action and potential liability and the costs and
operational consequences of implementing further data protection
measures.
Our IT Operating Infrastructure Project May Not Function as
Anticipated
We
expect to implement in early 2019 a portion of the new IT operating
infrastructure system, while relying on portions of the legacy
system. This implementation may not function as designed and
tested. If it does not function as designed, it could lead to a
material impairment of the capitalized software cost. In addition,
additional technology initiatives may be needed to support the
Company’s new solution initiatives.
Item 1B. Unresolved Staff
Comments
None.
The
Company has leased approximately 24,000 square feet of office and
warehouse space in suburban Minneapolis, Minnesota, through March
31, 2021. The Company believes that its currently leased space will
meet its foreseeable needs.
Item 3. Legal Proceedings
From
time to time, the Company is subject to various legal matters in
the normal course of business.
Item 4. Mine Safety Disclosures
Not
applicable.
PART
II.
Item 5. Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
The
Company’s common stock trades on the Nasdaq Capital
Market® under the
symbol ISIG.
As of
March 1, 2019, the Company had one class of Common Stock held by
approximately 113 holders of record.
Dividends
We have
not historically paid dividends, other than one-time special
dividends declared in 2011 and 2016. Most recently, shareholders of
record as of December 16, 2016, received a special dividend of
$0.70 per share on January 6, 2017. Outside of these special
dividends, the Board of Directors intends to retain earnings for
use in the Company’s business and does not anticipate paying
cash dividends in the foreseeable future.
Share Repurchase Program
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 December 31,
2018, was as follows:
Issuer Purchases of Equity Securities
|
|
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
or Programs
|
|
October
1-31, 2018
|
18,272(a)
|
$1.77
|
14,768
|
$2,710,384
|
|
November
1-30, 2018
|
1,750
|
1.79
|
1,750
|
$2,707,252
|
|
December
1-31, 2018
|
-
|
-
|
-
|
$2,707,252
|
(a)
Includes 3,504
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 share repurchase
program.
Item 6. Selected Financial Data
Smaller
reporting companies are not required to provide disclosure pursuant
to this Item.
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
The
following discussion should be read in conjunction with the
financial statements and the related notes included in this Annual
Report. This Annual Report contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ
materially from those in such forward-looking statements as a
result of many factors, including those discussed in
“Forward-Looking Statements” and elsewhere in this
Annual Report.
Overview
Insignia
Systems, Inc. markets in-store advertising solutions to CPG
manufacturers and retailers. We
provided in-store media solutions in over 20,000 retail outlets,
inclusive of grocery, mass merchants and dollar over the course of
2018. We executed in-store marketing programs for over 100 consumer
packaged goods manufacturers across various categories including
center store, refrigerated, frozen and the perimeter in
2018. 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.
Retailer
and CPG volatility in our In-Store Signage Solutions are making our
future results difficult to predict. While we have decreased
our reliance on our top customers through our innovation
development, any changes in their performance will still have an
adverse impact on our business. The loss of both a significant
retailer and CPG manufacturer is expected to result in operating
losses in the 1st half of 2019. We
are aggressively pursuing opportunities to replace the gap created
from these lost customers via continued focus against our new
solutions introduced in 2018, continued portfolio expansion and new
retailer acquisition opportunities. We will manage our overall
business by aligning both costs and strategic investments while
also identifying new sales drivers to remain relevant in the
industry.
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.
|
For the Years Ended December 31
|
|
|
|
Net
sales
|
100.0%
|
100.0%
|
|
Cost
of sales
|
62.2
|
68.2
|
|
Gross
profit
|
37.8
|
31.8
|
|
Operating
expenses:
|
|
|
|
Selling
|
10.3
|
13.4
|
|
Marketing
|
8.0
|
6.5
|
|
General
and administrative
|
14.0
|
15.3
|
|
Total
operating expenses
|
32.3
|
35.2
|
|
Operating
income (loss)
|
5.5
|
(3.4)
|
|
Other
income
|
0.2
|
0.0
|
|
Income
(loss) before taxes
|
5.7
|
(3.4)
|
|
Income
tax expense (benefit)
|
1.5
|
(1.0)
|
|
Net
income (loss)
|
4.2%
|
(2.4)%
|
Year Ended December 31, 2018 Compared to Year Ended December 31,
2017
Net Sales. Net sales for the year ended December 31, 2018
increased 25.8% to $33,236,000, compared to $26,430,000 for the
year ended December 31, 2017.
Service
revenues for the year ended December 31, 2018 increased 26.9% to
$31,623,000, compared to $24,911,000 for the year ended December
31, 2017. The increase was due to 71.8% increase in innovation
initiatives as well as a 28.2% increase in POPS solutions revenue.
The POPS solutions revenue increase was due to an increase in
average price per sign partially offset by a decrease in the number
of signs placed, which was the result of a favorable mix of CPG
clients and contracts.
Product
revenues for the year ended December 31, 2018 increased 6.2% to
$1,613,000, compared to $1,519,000 for the year ended December 31,
2017. The increase was primarily due to higher sales of sign card
supplies and other print solutions due to sales to new and existing
customers.
Gross Profit. Gross profit for the year ended
December 31, 2018 increased 49.5% to $12,561,000, compared to
$8,401,000 for the year ended December 31, 2017. Gross profit as a
percentage of total net sales increased to 37.8% for the year ended
December 31, 2018, compared to 31.8% for the year ended December
31, 2017.
Gross
profit from our service revenues for the year ended December 31,
2018 increased 52.4% to $12,156,000, compared to $7,976,000 for the
year ended December 31, 2017. The increase in gross profit was
primarily due to an increase in the average price per sign due to a
favorable mix of CPG manufacturers and contracts and an increase in
revenue from innovation initiatives. In 2018, the costs of
developing and implementing the new IT operating infrastructure
were $553,000. The project is expected to be completed in mid-2019
with estimated additional expense of $250,000 in 2019. The Company
expects to continue to invest in technology initiatives. Gross
profit as a percentage of service revenues increased to 38.4% for
the year ended December 31, 2018, compared to 32.0% for the year
ended December 31, 2017. The increase was
primarily due to increased POPS solutions revenue, as our gross
profit is highly dependent on sales levels due to the relatively
fixed nature of a portion of our payment to retailers, offset by
increased revenue from innovation initiatives which have lower
margins than POPS solutions revenue.
Gross
profit from our product sales for the year ended December 31, 2018
decreased 4.7% to $405,000, compared to $425,000 for the year ended
December 31, 2017. Gross profit as a percentage of product sales
decreased to 25.1% for 2018, compared to 28.0% for 2017. The
decrease was primarily due to increased production related costs
and product mix.
Operating Expenses
Selling. Selling expenses for the year ended December 31,
2018 decreased 3.1% to $3,429,000, compared to $3,539,000 for the
year ended December 31, 2017, primarily due to decreased staff
related expenses. Selling expenses as a percentage of total net
sales decreased to 10.3% in 2018, compared to 13.4% in 2017,
primarily due to the factors described above, as well as increased
revenues.
Marketing. Marketing expenses for the year ended December
31, 2018 increased 55.8% to $2,674,000, compared to $1,716,000 for
the year ended December 31, 2017. The increase was primarily due to
increased staffing and staff related costs, promotional activities,
and an increase in new product innovation activities. Marketing
expenses as a percentage of total net sales increased to 8.0% in
2018, compared to 6.5% in 2017, primarily due to the factors
described above, partially offset by increased
revenues.
General and Administrative. General and administrative
expenses for the year ended December 31, 2018 increased 14.1% to
$4,626,000, compared to $4,054,000 for the year ended December 31,
2017. The increase of $572,000 includes $460,000 of expenses
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 total net sales decreased to 14.0% in 2018, compared
to 15.3% in 2017, primarily due to increased revenues, partially
offset by the factors described above.
Other Income (Loss). Other income for the year ended
December 31, 2018 was $51,000, compared to a loss of $1,000 for the
year ended December 31, 2017. Other income primarily results from
interest income.
Income Taxes. During the year ended December 31, 2018, the
Company recorded an income tax expense of $484,000, compared to an
income tax benefit of $270,000 for the year ended December 31,
2017. The effective tax rate was 25.7% and 29.7% for the years
ended December 31, 2018 and 2017, respectively. The primary
differences between the Company’s December 31, 2018 and 2017
effective tax rates and the statutory federal rates are expenses
related to stock-based compensation in the amounts of $10,000 and
$64,000, respectively, nondeductible meals and entertainment of
$13,000 and $16,000, respectively, and a change in the
Company’s valuation allowance against its deferred assets of
($29,000) and $77,000, respectively. In 2017, the effective tax
rate was also impacted by the tax impact of The Tax Cut and Jobs
Act of 2017 (“Tax Reform Act”) of ($134,000). Our
effective tax rate fluctuates between periods based on the level of
permanent differences and other discrete items relative to the
level of pre-tax income (loss) for the period.
The Tax
Reform Act was enacted on December 22, 2017 and reduced certain
federal corporate income tax rates and changes other provisions.
The Company’s tax benefit for 2017 included a one-time
benefit of $134,000 related to the favorable impact of revaluing
the deferred taxes by reducing the long term deferred tax
liabilities.
Net Income (Loss). For the reasons stated above, the net
income for the year ended December 31, 2018 was $1,399,000 compared
to a net loss of $639,000 for the year ended December 31,
2017.
Liquidity and Capital Resources
The
Company has financed its operations with proceeds from stock sales
and sales of its services and products. At December 31, 2018,
working capital (current assets less current liabilities) was
$13,351,000 compared to $11,833,000 at December 31, 2017. During
the year ended December 31, 2018, cash and cash equivalents
increased $5,465,000 from $4,695,000 at December 31, 2017, to
$10,160,000 at December 31, 2018.
Operating Activities: Net cash provided by operating
activities during the year ended December 31, 2018 was $7,111,000.
Net income of $1,399,000, plus non-cash adjustments of $1,610,000,
plus changes in operating assets and liabilities of $4,102,000
resulted in the $7,111,000 of cash provided by operating
activities. The non-cash adjustments consisted of depreciation and
amortization expense, changes in the allowance for doubtful
accounts, deferred income tax expense, gain on sale of property and
equipment, and stock-based compensation expense. The largest
components of the change in operating assets and liabilities were
accounts receivable, which increased cash by $3,292,000, and
accrued liabilities, which increased cash by $463,000. 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 year ended December 31, 2018 was $1,302,000, which was
primarily related to the IT operating infrastructure project, and
consisted of hardware, purchased software and capitalization of
costs for internally developed software, and production equipment.
The Company does not have material property and equipment
commitments beyond the operating infrastructure project of
approximately $400,000 in 2019.
Financing Activities: Net cash used in financing activities
during the year ended December 31, 2018 was $344,000, which was
related primarily 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 and Estimates
Our
discussion of our financial condition and results of operations is
based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States of America. During the preparation of these financial
statements, we are required to make estimates and assumptions that
affect the reported amounts of assets, liabilities, net sales,
costs and expenses and related disclosures. On an ongoing basis, we
evaluate our estimates and assumptions, including those related to
revenue recognition, allowance for doubtful accounts, impairment of
long-lived assets, income taxes, and stock-based compensation
expense. We base our estimates on historical experience and on
various other assumptions that we believe are reasonable under the
circumstances. The results of our analysis form the basis for
making assumptions about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different
assumptions or conditions, and the impact of such differences may
be material to our financial statements.
We
believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our
financial statements:
Revenue Recognition. The Company recognizes revenue from
Insignia In-Store Signage Solutions ratably over the period of
service, which is typically a two-week display cycle. We recognize
revenue related to equipment and sign card sales at the time the
products are shipped to customers. Revenue associated with
maintenance agreements is recognized ratably over the life of the
contract. Revenue from innovation initiatives or other retailer approved promotional services and
sign solutions is recognized with a mix of over-time and point in
time recognition dependent on type of service performed.
Revenue that has been billed and not yet recognized is reflected as
deferred revenue on our balance sheet.
Allowance for Doubtful Accounts. An allowance is established for
estimated uncollectible accounts receivable. The Company determines
its allowance by considering a number of factors, including the
length of time trade accounts receivable are past due, the
Company’s previous loss history, the customer’s current
ability to pay its obligation to the Company, the condition of the
general economy and the industry as a whole and other relevant
facts and circumstances. Unexpected changes in the aforementioned
factors could result in materially different amounts.
Impairment of Long-Lived Assets. The Company periodically evaluates the carrying
value of its long-lived assets for impairment indicators. If
indicators of impairment are present, we evaluate the carrying
value of the assets in relation to the future undiscounted cash
flows of the underlying assets to assess recoverability of the
assets. The estimates of these future cash flows are based on
assumptions and projections believed by management to be reasonable
and supportable. They require management’s subjective
judgments and take into account assumptions about revenue and
expense growth rates. Impaired assets are then recorded at their
estimated fair market value. There were no material impairment
losses during the years ended December 31, 2018 and
2017.
Income Taxes. 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. Deferred
income tax provisions and benefits are based on changes to the
assets or liabilities from year to year. 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, adjustments 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.
We recognize the financial statement benefit of a tax position only
after determining that the relevant tax authority would more likely
than not sustain the position following an audit. For tax positions
meeting the more-likely-than-not threshold, the amount recognized
in the financial statements is the largest benefit that has a
greater than 50 percent likelihood of being realized upon ultimate
settlement with the relevant tax authority.
Stock-Based Compensation Expense. We measure and recognize compensation
expense for all stock-based payments at fair value. Restricted
stock awards and restricted stock units 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. The expected terms of the options and employee
stock purchase plan rights are based on evaluations of historical
and expected future employee exercise behavior. The risk-free
interest rate is based on the U.S. Treasury rates at the date of
grant with maturity dates approximately equal to the expected life
at grant date. Volatility is based on historical volatility
of the Company’s stock. The Company has not historically
issued any dividends beyond the one-time dividends declared in 2011
and 2016 and does not expect to in the future. Forfeitures are
estimated at the time of the grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from
estimates.
If
factors change and we employ different assumptions in the valuation
of grants in future periods, the compensation expense that we
record may differ significantly from what we have recorded in the
current period.
New Accounting Pronouncements
A
description of new accounting pronouncements is contained in Note 1
of the Notes to Financial Statements.
Off-Balance Sheet Transactions
None.
Forward-Looking Statements
Statements
made in this Annual Report on Form 10-K, in the Company’s
other SEC filings, in press releases and in oral statements to
shareholders and securities analysts that are not statements of
historical or current facts are “forward-looking
statements.” Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause
the actual results or performance of the Company to be materially
different from the results or performance expressed or implied by
such forward-looking statements. The words
“anticipates,” “believes,”
“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; and (ii)
that we expect fluctuations in accounts receivable and payable,
accrued liabilities, and revenue deferrals. Readers are cautioned
not to place undue reliance on these forward-looking statements,
which speak only as of the date the statement was made. These
statements are subject to the risks and uncertainties that could
cause actual results to differ materially and adversely from the
forward-looking statements. These forward-looking statements are
based on current information, which we have assessed and which by
its nature is dynamic and subject to rapid and even abrupt
changes.
Our
business faces significant risks, including the risks described
below. If any of the events or circumstances described in the
following risks occurs, our business, financial condition or
results of operations could suffer, and the trading price of our
common stock could decline.
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk
Smaller
reporting companies are not required to provide disclosure pursuant
to this Item.
Item 8. Financial Statements and
Supplementary Data
Index to Financial Statements
The
following are included on the pages indicated:
Report of Independent Registered
Public Accounting Firm
To the
shareholders and the board of directors of Insignia Systems,
Inc.:
Opinion on the Financial Statements
We have
audited the accompanying balance sheets of Insignia Systems, Inc.
(the "Company") as of December 31, 2018 and 2017, the related
statements of operations, shareholders’ equity and cash
flows, for each of the two years in the period ended December 31,
2018, and the related notes (collectively referred to as the
"financial statements"). In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Company as of December 31, 2018 and 2017, and the results of
its operations and its cash flows for each of the two years in the
period ended December 31, 2018, in conformity with accounting
principles generally accepted in the United States of
America.
Basis for Opinion
These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express
no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/
Baker Tilly Virchow Krause, LLP
We have
served as the Company's auditor since 2011.
Minneapolis,
Minnesota
March
7, 2019
|
|
|
|
|
|
|
|
|
As of December 31
|
|
|
|
ASSETS
|
|
|
|
Current Assets:
|
|
|
|
Cash
and cash equivalents
|
$10,160,000
|
$4,695,000
|
|
Accounts
receivable, net
|
8,763,000
|
11,864,000
|
|
Inventories
|
353,000
|
301,000
|
|
Income
tax receivable
|
127,000
|
360,000
|
|
Prepaid
expenses and other
|
306,000
|
415,000
|
|
Total
Current Assets
|
19,709,000
|
17,635,000
|
|
|
|
|
|
Other Assets:
|
|
|
|
Property
and equipment, net
|
3,268,000
|
2,670,000
|
|
Other,
net
|
976,000
|
1,383,000
|
|
|
|
|
|
Total Assets
|
$23,953,000
|
$21,688,000
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
Current Liabilities:
|
|
|
|
Accounts
payable:
|
|
|
|
Other
|
3,334,000
|
3,232,000
|
|
Accrued
liabilities:
|
|
|
|
Compensation
|
2,021,000
|
1,531,000
|
|
Other
|
701,000
|
667,000
|
|
Deferred
revenue
|
302,000
|
372,000
|
|
Total
Current Liabilities
|
6,358,000
|
5,802,000
|
|
|
|
|
|
Long-Term Liabilities:
|
|
|
|
Deferred
tax liabilities
|
504,000
|
245,000
|
|
Accrued
income taxes
|
613,000
|
581,000
|
|
Deferred
rent
|
158,000
|
219,000
|
|
Total
Long-Term Liabilities
|
1,275,000
|
1,045,000
|
|
|
|
|
|
Commitments and Contingencies
|
—
|
—
|
|
|
|
|
|
Shareholders' Equity:
|
|
|
|
Common
stock, par value $.01:
|
|
|
|
Authorized
shares - 40,000,000
|
|
|
|
Issued
and outstanding shares - 11,840,000 in 2018 and 11,914,000 in
2017
|
118,000
|
119,000
|
|
Additional
paid-in capital
|
15,442,000
|
15,361,000
|
|
Retained
earnings (Accumulated deficit)
|
760,000
|
(639,000)
|
|
Total
Shareholders' Equity
|
16,320,000
|
14,841,000
|
|
|
|
|
|
Total Liabilities and Shareholders' Equity
|
$23,953,000
|
$21,688,000
|
|
|
|
|
See accompanying notes to financial statements.
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
Services
revenues
|
$31,623,000
|
$24,911,000
|
|
Products
revenues
|
1,613,000
|
1,519,000
|
|
Total
Net Sales
|
33,236,000
|
26,430,000
|
|
|
|
|
|
Cost
of services
|
19,467,000
|
16,935,000
|
|
Cost
of goods sold
|
1,208,000
|
1,094,000
|
|
Total
Cost of Sales
|
20,675,000
|
18,029,000
|
|
Gross
Profit
|
12,561,000
|
8,401,000
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
Selling
|
3,429,000
|
3,539,000
|
|
Marketing
|
2,674,000
|
1,716,000
|
|
General
and administrative
|
4,626,000
|
4,054,000
|
|
Total
Operating Expenses
|
10,729,000
|
9,309,000
|
|
Operating
Income (Loss)
|
1,832,000
|
(908,000)
|
|
|
|
|
|
Other
income (loss)
|
51,000
|
(1,000)
|
|
Income
(Loss) Before Taxes
|
1,883,000
|
(909,000)
|
|
|
|
|
|
Income
tax expense (benefit)
|
484,000
|
(270,000)
|
|
Net
Income (Loss)
|
$1,399,000
|
$(639,000)
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
Basic
|
$0.12
|
$(0.06)
|
|
Diluted
|
$0.12
|
$(0.06)
|
|
|
|
|
|
Shares
used in calculation of net income (loss) per share:
|
|
|
|
Basic
|
11,776,000
|
11,717,000
|
|
Diluted
|
12,007,000
|
11,717,000
|
|
|
|
|
See accompanying notes to financial statements.
|
|
|
STATEMENTS OF SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2017
|
11,761,000
|
$118,000
|
$14,991,000
|
$-
|
$15,109,000
|
|
Repurchase of
common stock upon vesting of restricted stock awards and vesting of
restricted stock units, net
|
21,000
|
-
|
(16,000)
|
-
|
(16,000)
|
|
Value of
stock-based compensation
|
72,000
|
1,000
|
386,000
|
-
|
387,000
|
|
Restricted
stock award issuance
|
60,000
|
-
|
-
|
-
|
-
|
|
Net
loss
|
-
|
-
|
-
|
(639,000)
|
(639,000)
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
11,914,000
|
$119,000
|
$15,361,000
|
$(639,000)
|
$14,841,000
|
|
Issuance of
common stock, net
|
49,000
|
1,000
|
48,000
|
-
|
49,000
|
|
Repurchase of
common stock, net
|
(164,000)
|
(2,000)
|
(296,000)
|
-
|
(298,000)
|
|
Repurchase of
common stock upon vesting of restricted stock awards and vesting of
restricted stock units, net
|
(22,000)
|
-
|
(81,000)
|
-
|
(81,000)
|
|
Value of
stock-based compensation
|
-
|
-
|
410,000
|
-
|
410,000
|
|
Restricted
stock award issuance
|
63,000
|
-
|
-
|
-
|
-
|
|
Net
income
|
-
|
-
|
-
|
1,399,000
|
1,399,000
|
|
Balance at December 31, 2018
|
11,840,000
|
$118,000
|
$15,442,000
|
$760,000
|
$16,320,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
Operating activities:
|
|
|
|
Net
income (loss)
|
$1,399,000
|
$(639,000)
|
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
Depreciation
and amortization
|
1,167,000
|
1,348,000
|
|
Changes
in allowance for doubtful accounts
|
(191,000)
|
72,000
|
|
Deferred
income tax expense
|
259,000
|
40,000
|
|
Stock-based
compensation
|
410,000
|
387,000
|
|
Gain
on sale of property and equipment
|
(35,000)
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
3,292,000
|
(2,057,000)
|
|
Inventories
|
(52,000)
|
24,000
|
|
Income
tax receivable
|
233,000
|
415,000
|
|
Prepaid
expenses and other
|
109,000
|
274,000
|
|
Accounts
payable
|
95,000
|
697,000
|
|
Accrued
liabilities and deferred rent
|
463,000
|
882,000
|
|
Accrued
income taxes
|
32,000
|
27,000
|
|
Deferred
revenue
|
(70,000)
|
310,000
|
|
Net
cash provided by operating activities
|
7,111,000
|
1,780,000
|
|
|
|
|
|
Investing activities:
|
|
|
|
Purchases
of property and equipment
|
(1,337,000)
|
(1,159,000)
|
|
Proceeds
from sale of property and equipment
|
35,000
|
-
|
|
Net
cash used in investing activities
|
(1,302,000)
|
(1,159,000)
|
|
|
|
|
|
Financing activities:
|
|
|
|
Cash
dividends paid ($0.70 per share)
|
(14,000)
|
(8,177,000)
|
|
Proceeds
from issuance of common stock, net
|
49,000
|
-
|
|
Repurchase
of common stock upon vesting of restricted stock awards and vesting
of restricted stock units
|
(81,000)
|
(16,000)
|
|
Repurchase
of common stock, net
|
(298,000)
|
-
|
|
Net
cash used in financing activities
|
(344,000)
|
(8,193,000)
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
5,465,000
|
(7,572,000)
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
4,695,000
|
12,267,000
|
|
Cash
and cash equivalents at end of year
|
$10,160,000
|
$4,695,000
|
|
|
|
|
|
Supplemental disclosures for cash flow information:
|
|
|
|
Cash
refunded during the year for income taxes
|
$(39,000)
|
$(743,000)
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
Cash
dividends declared included in accounts payable
|
$42,000
|
$56,000
|
|
Purchases
of property and equipment included in accounts payable
|
$60,000
|
$39,000
|
|
|
|
|
|
See accompanying notes to financial statements.
|
Insignia Systems, Inc.
Notes to Financial Statements
1.
Summary of Significant Accounting
Policies.
Description of
Business. Insignia Systems,
Inc. (the “Company”) markets in-store advertising
products, programs and services to retailers and consumer packaged
goods manufacturers. The Company operates in a single reportable
segment. The Company’s primary products include the Insignia
Point-of-Purchase Services (POPS®), and other
retailer approved promotional services, in-store marketing
solutions, and custom adhesive and non-adhesive signage materials
directly to our retail customers.
Revenue Recognition.
The Company recognizes revenue from its In-Store Signage Solutions
ratably over the period of service. Other service revenue from
innovation initiatives or other
retailer approved promotional services and sign solutions is
recognized with a mix of over-time and point in time recognition
dependent on type of service performed. The Company
recognizes revenue related to equipment and sign card sales at the
time the products are shipped to customers. Revenue associated with
maintenance agreements is recognized ratably over the life of the
contract. Revenue that has been billed and not yet earned is
reflected as deferred revenue on the balance sheet. We account for
taxes collected for customers on a net basis.
Cash and Cash
Equivalents. The Company considers all highly liquid
investments with an original maturity date of three months or less
to be cash equivalents. Cash equivalents are stated at cost, which
approximates fair value. At December 31, 2018 and 2017, $9,393,000
and $4,846,000 was invested in an insured sweep account,
respectively. The balances in cash accounts, at times, may exceed
federally insured limits. The Company has not experienced any
losses in such accounts and believes it is not exposed to any
significant credit risk on cash and cash equivalents. Amounts held
in checking accounts and in insured cash sweep accounts during the
years ended December 31, 2018 and 2017 were fully insured under the
Federal Deposit Insurance Corporation.
Fair Value of Financial
Measurements. Fair
value is defined as the exit price, or the amount that would be
received to sell an asset, or paid to transfer a liability, in an
orderly transaction between market participants as of the
measurement date. Accounting Standards Codification
(“ASC”) 820-10 also establishes a hierarchy for inputs
used in measuring fair value that maximizes the use of observable
inputs and minimizes the use of unobservable inputs by requiring
that the most observable inputs be used when
available. Observable inputs are inputs market participants
would use in valuing the asset or liability, developed based on
market data obtained from sources independent of the
Company. Unobservable inputs are inputs that reflect
management’s assumptions about the factors market
participants would use in valuing the asset or liability developed
based upon the best information available in the
circumstances.
The
hierarchy is divided into three levels. Level 1 inputs are
quoted prices (unadjusted) in active markets for identical assets
or liabilities. Level 2 inputs include quoted prices for
similar assets or liabilities in active markets, quoted prices for
identical or similar assets or liabilities in markets that are not
active and inputs (other than quoted prices) that are observable
for the asset or liability, either directly or
indirectly. Level 3 inputs are unobservable inputs for the
asset or liability. Categorization within the valuation hierarchy
is based upon the lowest level of input that is significant to the
fair value measurement.
The
Company records certain financial assets and liabilities at their
carrying amounts that approximate fair value, based on their
short-term nature. These financial assets and liabilities
included cash and cash equivalents, accounts receivable and
accounts payable.
Accounts
Receivable. The majority
of the Company’s accounts receivable is due from companies in
the consumer-packaged goods industry. Credit is extended based on
evaluation of a customer’s financial condition and,
generally, collateral is not required. Accounts receivable are due
within 30-150 days and are stated at amounts due from customers,
net of an allowance for doubtful accounts. Accounts receivable
outstanding longer than the contractual payment terms are
considered past due. The Company determines its allowance by
considering a number of factors, including the length of time trade
accounts receivable are past due, the Company’s previous loss
history, the customer’s current ability to pay its obligation
to the Company, and the condition of the general economy and the
industry as a whole. The Company writes-off accounts receivable
when they become uncollectible, and payments subsequently received
on such receivables are credited to the allowance for doubtful
accounts.
Changes
in the Company’s allowance for doubtful accounts are as
follows:
|
December 31
|
|
|
|
Beginning
balance
|
$213,000
|
$141,000
|
|
Bad
debt provision
|
6,000
|
72,000
|
|
Accounts
written-off
|
(197,000)
|
-
|
|
Ending
balance
|
$22,000
|
$213,000
|
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
consists of the following:
|
December 31
|
|
|
|
Raw
materials
|
$80,000
|
$68,000
|
|
Work-in-process
|
12,000
|
10,000
|
|
Finished
goods
|
261,000
|
223,000
|
|
|
$353,000
|
$301,000
|
Property and
Equipment. Property and equipment is recorded at cost.
Significant additions or improvements extending asset lives are
capitalized, while repairs and maintenance are charged to expense
when incurred. Internally developed software is capitalized upon
completion of preliminary project stage and when it is probable the
project will be completed. Expenditures are capitalized for all
development activities, while expenditures related to planning,
training, and maintenance are expensed. Depreciation is provided in
amounts sufficient to relate the cost of assets to operations over
their estimated useful lives. The straight-line method of
depreciation is used for financial reporting purposes and
accelerated methods are used for tax purposes. Estimated useful
lives of the assets are as follows:
|
Production
tooling, machinery and equipment
|
1 - 6
years
|
|
Office
furniture and fixtures
|
3
years
|
|
Computer
equipment and software
|
3 - 5
years
|
Leasehold
improvements are amortized over the shorter of the remaining term
of the lease or estimated life of the asset. Internally developed
software is amortized over the estimated life of the asset, which
is five years.
Impairment of Long-Lived
Assets. The Company records impairment losses on long-lived
assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those
assets are less than the assets’ carrying amount. Impaired
assets are then recorded at their estimated fair value. There were
no material impairment losses during the years ended December 31,
2018 and 2017.
Income Taxes. Income
taxes are accounted for under the liability method. Deferred income
taxes are provided for temporary differences between the financial
reporting and tax basis of assets and liabilities. Deferred taxes
are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or the
entire deferred tax asset will not be realized. Deferred tax assets
and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of the enactment. It is the Company’s
policy to provide for uncertain tax positions and the related
interest and penalties based upon management’s assessment of
whether a tax benefit is more likely than not to be sustained upon
examination by tax authorities. The Company recognizes interest and
penalties accrued on any unrecognized tax benefits as a component
of income tax expense (benefit).
Stock-Based
Compensation. The
Company measures and recognizes compensation expense for all
stock-based awards 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. The Company uses 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.
The expected lives of the options and employee
stock purchase plan rights are based on evaluations of historical
and expected future employee exercise behavior. The risk-free
interest rate is based on the U.S. Treasury rates at the date of
grant with maturity dates approximately equal to the expected term
at grant date. Volatility is based on historical and
expected future volatility of the Company’s stock. The
Company has not historically issued any dividends beyond one-time
dividends declared in 2011 and 2016 and does not expect to in the
future. Forfeitures are estimated at the time of the grant and
revised, if necessary, in subsequent periods if actual forfeitures
differ from estimates.
Advertising Costs.
Advertising costs are charged to operations as incurred.
Advertising expenses were approximately $207,000 and $59,000 during
the years ended December 31, 2018 and 2017,
respectively.
Net Income (Loss) Per
Share. Basic net income (loss) per share is computed by
dividing net income (loss) by the weighted average shares
outstanding and excludes any 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 year.
Weighted average
common shares outstanding for the years ended December 31, 2018 and
2017 were as follows:
|
Year ended December 31
|
|
|
|
Denominator
for basic net income (loss) per share - weighted average
shares
|
11,776,000
|
11,717,000
|
|
Effect
of dilutive securities:
|
|
|
|
Stock
options, restricted stock units and restricted stock
awards
|
231,000
|
-
|
|
Denominator
for diluted net income (loss) per share - weighted average
shares
|
12,007,000
|
11,717,000
|
Options
to purchase approximately 284,000 shares of common stock
outstanding for the year ended December 31, 2018 were not included
in the computation of common stock equivalents because their
exercise prices were higher than the average fair market value of
the common shares during the year. Restricted stock units of
approximately 45,000 shares for the year ended December 31, 2018
are antidilutive due to the amount of weighted-average unrecognized
compensation related to these grants. Due to the net loss incurred
during the year ended December 31, 2017, all stock awards were
anti-dilutive for this period.
Use of Estimates.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these
estimates.
Recently Adopted Accounting Pronouncement. Effective
January 1, 2018, the Company adopted Financial Accounting Standards
Board (“FASB”) 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 the Company’s results of operations, cash flows, or
financial position. Revenue continues to be recognized for In-Store
Signage Solutions 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.”
Recently
Issued Accounting Pronouncement. In February 2016, the FASB
issued ASU 2016-02, Leases,
under which lessees will recognize most leases on the balance
sheet. The Company will adopt this ASU for its annual and interim
periods beginning January 1, 2019, and elected not to restate
comparative periods in transition. The Company performed a review
of the requirements of the new guidance and identified which of its
leases will be within the scope of ASU 2016-02. The Company
completed its adoption plan which included 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 plan, the Company determined no significant changes were
necessary to processes and internal controls to capture new data
and address changes in financial reporting. Effective for our
quarter ending March 31, 2019, the Company will revise 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 $305,000 to both assets and
liabilities on the balance sheet, with no net impact to the
statements of operations or cash flows. The Company also expects
additional qualitative and quantitative disclosures will be
required upon adoption.
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.
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:
In-Store
Signage Solution Services. Our
primary source of revenue is from executing in-store advertising
solutions and services primarily to 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.
Each of the individual activities under our
services, including production activities, are inputs to an
integrated sign display service. Customers receive and consume the
benefits from the promotional displays over the duration of the
contracted display cycle. Additionally, the display of the signs
does not have an alternative use to 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 manufacturers with other retailer approved
promotional services and sign solutions. These services are more
customized than the POPS solutions program, consisting of variable
durations and variable specifications. Due to the variable nature
of these services, revenue recognition is a mix of amortized 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.
|
|
Year ended December 31, 2018
|
|
|
|
|
|
|
Timing of revenue recognition:
|
|
|
|
|
Products
and services transferred over time
|
$28,598,000
|
—
|
$28,598,000
|
|
Products
and services transferred at a point in time
|
$3,025,000
|
$1,613,000
|
$4,638,000
|
|
Total
|
$31,623,000
|
$1,613,000
|
$33,236,000
|
Contract Costs
Sales
commissions that are paid to internal or external sales
representatives are eligible for capitalization as they are
incremental costs that would not have been incurred without
entering into a specific sales arrangement and are recoverable
through the expected margin on the transaction. The Company is
applying the practical expedient in Accounting Standards
Codification 340-40-25-4 that allows the incremental costs of
obtaining a contract to be recorded as an expense when incurred
when the amortization period of the asset that would have otherwise
been recognized is one year or less. These costs are included in
selling expenses.
Deferred Revenue
Significant changes
in deferred revenue during the period are as follows:
|
Balance
at December 31, 2017
|
$372,000
|
|
Reclassification
of beginning deferred revenue to revenue, as a result of
performance obligations satisfied
|
( 372,000)
|
|
Cash
received in advance and not recognized as revenue
|
302,000
|
|
Balance
at December 31, 2018
|
$302,000
|
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 incomplete services and unshipped custom signage materials.
Of those contracts with an expected duration of greater than one
year, we estimate that revenue of $1,984,000 related to performance
obligations that are unsatisfied (or partially unsatisfied) as of
December 31, 2018 will be recognized in fiscal 2020 or
beyond.
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
over the 10-year term of the arrangement. Amortization expense was
$400,000 for each of the years ended December 31, 2018 and 2017
based on straight-line amortization over the term of the
arrangement and is recorded within cost of services in the
Company’s statement of operations. Amortization expense is
expected to be $600,000 in 2019, $262,000 in 2020 and $55,000 in
the year ending December 31, 2021, respectively. The acceleration
of amortization in 2019 is based on the anticipated recovery period
over the remaining term of the contract due to the loss of a
significant retailer. The net carrying amount of the selling
arrangement is recorded within other assets on the Company’s
balance sheet. A summary of the carrying amount of this selling
arrangement is as follows as of December 31:
|
|
|
|
|
Gross
cost
|
$4,000,000
|
$4,000,000
|
|
Accumulated
amortization
|
(3,083,000)
|
(2,683,000)
|
|
Net
carrying amount
|
$917,000
|
$1,317,000
|
5.
Retail Access and Distribution
Agreement. On February 21,
2014, the Company and Valassis Sales and Marketing Services, Inc.
(“Valassis”) entered into the Retail Access and
Distribution Agreement (the “New Valassis Agreement”)
that replaced all prior agreements. As a result of this new
agreement, Valassis was no longer a reseller of the Company’s
services and the Company regained access to all CPG manufacturers
for the sale of in-store signage. The net amount paid to Valassis
by the Company was $250,000, which was being amortized over the
original term of the New Valassis Agreement, which was
approximately four years. As of December 31, 2017, this agreement
has been fully amortized. Amortization expense related to this
agreement was approximately $64,000 during the year ended December
31, 2017 .
6.
Property and Equipment. Property and
equipment consists of the following at December 31:
|
Year ended December 31
|
|
|
|
Property and Equipment:
|
|
|
|
Production
tooling, machinery and equipment
|
$3,694,000
|
$4,003,000
|
|
Office
furniture and fixtures
|
385,000
|
325,000
|
|
Computer
equipment and software
|
2,743,000
|
2,680,000
|
|
Leasehold
improvements
|
577,000
|
577,000
|
|
Construction
in-progress
|
1,179,000
|
206,000
|
|
|
8,578,000
|
7,791,000
|
|
Accumulated
depreciation and amortization
|
(5,310,000)
|
(5,121,000)
|
|
Net
Property and Equipment
|
$3,268,000
|
$2,670,000
|
Depreciation
expense for the years ended December 31, 2018 and 2017 was $761,000
and $868,000, respectively.
7.
Commitments
and Contingencies.
Operating Leases.
The Company’s lease for its headquarters is through
March 31, 2021. Rent expense under this lease, excluding
operating costs, was approximately $150,000 for the years ended
December 31, 2018 and December 31, 2017.
The
Company’s lease agreement for additional office space was
entered into in April 2018, which is a 12-month lease agreement.
Rent expense under this lease was approximately $34,000 for the
year ended December 31, 2018.
Minimum
future lease obligations under the Company’s headquarters
lease, excluding operating costs, are approximately as follows for
the years ending December 31:
|
2019
|
$217,000
|
|
2020
|
222,000
|
|
2021
|
57,000
|
Retailer
Agreements. The Company has
contracts in the normal course of business with various retailers,
some of which provide for fixed or store-based payments rather than
sign placement-based payments resulting in minimum commitments each
year in order to maintain the agreements. During the years ended
December 31, 2018 and 2017, the Company incurred $4,846,000 and
$5,203,000 of costs related to fixed and store-based payments,
respectively. The amounts are recorded in cost of services in the
Company’s statements of operations.
Aggregate
commitment amounts under agreements with retailers are
approximately as follows for the years ending December
31:
|
2019
|
$2,907,000
|
|
2020
|
2,614,000
|
|
2021
|
1,871,000
|
|
2022
|
525,000
|
|
2023
|
279,000
|
On an
ongoing basis the Company negotiates renewals of various agreements
with retailers, retailer contracts
generally have terms of one to three years. To the extent
contracts with existing retailers are renewed the annual commitment
amounts for 2019 and thereafter are expected to be in excess of the
amounts above.
Legal. The Company is
subject to various legal matters in the normal course of business.
The outcome of these matters is not expected to have a material
effect on the Company’s financial position or results of
operations.
Stock-Based
Compensation. The Company’s stock-based compensation
plans are administered by the Compensation Committee of the Board
of Directors, which, subject to approval by the Board of Directors,
selects persons to receive awards and determines the number of
shares subject to each award and the terms, conditions, performance
measures and other provisions of the award.
The
following table summarizes the stock-based compensation expense
that was recognized in the Company’s statements of operations
and comprehensive loss for the years ended December 31, 2018 and
2017:
|
Year ended December 31
|
|
|
|
Cost
of sales
|
$11,000
|
$52,000
|
|
Selling
|
102,000
|
75,000
|
|
Marketing
|
71,000
|
51,000
|
|
General
and administrative
|
226,000
|
209,000
|
|
|
$410,000
|
$387,000
|
The
Company uses the Black-Scholes option pricing model to estimate
fair value of stock-based awards with the following weighted
average assumptions:
|
|
|
|
|
Stock Options:
|
|
|
|
Expected
life (years)
|
6.5
|
2.0
|
|
Expected
volatility
|
51%
|
46%
|
|
Dividend
yield
|
0%
|
0%
|
|
Risk-free
interest rate
|
2.8%
|
1.0%
|
|
|
|
|
|
Stock Purchase Plan Options:
|
|
|
|
Expected
life (years)
|
1.0
|
1.0
|
|
Expected
volatility
|
66%
|
51%
|
|
Dividend
yield
|
0%
|
0%
|
|
Risk-free
interest rate
|
1.8%
|
0.9%
|
The
Company uses the graded attribution method to recognize expense for
unvested stock-based awards. The amount of stock-based compensation
recognized during a period is based on the value of the awards that
are ultimately expected to vest. Forfeitures are estimated at the
time of grant and revised, if necessary, in subsequent periods if
actual forfeitures differ from those estimates. The Company
re-evaluates the forfeiture rate annually and adjusts it as
necessary.
Stock Options, Restricted
Stock, Restricted Stock Units, and Other Stock-Based Compensation
Awards. The Company maintains the 2003 Incentive Stock
Option Plan (the “2003 Plan”), the 2013 Omnibus Stock
and Incentive Plan (the “2013 Plan”) and the 2018
Equity Incentive Plan (the “2018 Plan”). The 2018 Plan
replaced the 2013 Plan upon its ratification by shareholders in
July 2018. The 2013 Plan had replaced the 2003 Plan upon its
ratification by shareholders in 2013. Awards granted under the 2003
Plan and 2013 Plan will remain in effect until they are exercised
or expire according to their terms.
Under
the terms of the 2018 Plan, the number of shares of our common
stock that may be the subject of awards and issued under the 2018
Plan was initially 900,000 plus any shares remaining available for
future grants under the 2013 Plan on the effective date of the 2018
Plan. Since August 2018, all equity awards have been made under the
2018 Plan.
Under
the terms of the 2018 Plan, the Company may grant awards in a
variety of instruments including stock options, restricted stock
and restricted stock units to employees, consultants and directors
generally at an exercise price at or above 100% of fair market
value at the close of business on the date of grant. Stock options
expire 10 years after the date of grant and generally vest over
three years. The Company issues new shares of common stock upon
grant of restricted stock, when stock options are exercised, and
when restricted stock units are vested and/or settled.
On November 28, 2016, our Board of Directors
amended the 2003 Plan and 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 12 months
ended December 31, 2017.
The
following table summarizes activity under the 2003, 2013 and 2018
Plans:
|
|
Plan Shares Available for Grant
|
|
Weighted Average Exercise Price Per Share
|
Aggregate
Intrinsic Value
|
|
Balance
at January 1, 2017
|
501,622
|
419,162
|
$3.18
|
|
|
Shares
reserved
|
—
|
—
|
|
|
|
Options
granted for modification
|
( 61,814)
|
150,474
|
|
|
|
Stock
awards granted
|
( 72,115)
|
—
|
|
|
|
Restricted
stock units and awards granted
|
( 203,424)
|
—
|
|
|
|
Stock
options granted
|
—
|
—
|
|
|
|
Stock
options exercised
|
—
|
—
|
|
|
|
Cancelled
or forfeited - 2013 Plan options
|
103,349
|
( 103,349)
|
2.20
|
|
|
Cancelled
or forfeited - 2013 Plan
restricted stock and restricted stock units
|
29,382
|
—
|
2.01
|
|
|
Cancelled
or forfeited - 2003 Plan options
|
—
|
( 99,941)
|
2.20
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2017
|
297,000
|
366,346
|
2.41
|
|
|
|
|
|
|
|
|
Shares
reserved
|
900,000
|
—
|
|
|
|
Restricted
stock units and awards granted - 2013 Plan
|
( 178,000)
|
—
|
|
|
|
Restricted
stock units and awards granted - 2018 Plan
|
( 165,667)
|
—
|
|
|
|
Stock
options granted - 2018 Plan
|
( 119,515)
|
119,515
|
1.95
|
|
|
Stock
options exercised
|
—
|
( 2,276)
|
1.18
|
$705
|
|
Cancelled
or forfeited - 2013 Plan options
|
51,230
|
( 51,230)
|
2.17
|
|
|
Cancelled
or forfeited - 2013 Plan
restricted stock and restricted stock units
|
39,884
|
—
|
1.22
|
|
|
Cancelled
or forfeited - 2003 Plan options
|
—
|
( 59,428)
|
2.09
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2018
|
824,932
|
372,927
|
2.36
|
|
The
number of options exercisable under the Plans was:
|
December
31, 2018
|
253,412
|
|
December
31, 2017
|
366,346
|
The
following table summarizes information about the stock options
outstanding at December 31, 2018:
|
|
|
|
Ranges of Exercise Prices
|
|
Weighted Average Remaining Contractual Life
|
Weighted Average Exercise Price Per Share
|
|
Weighted Average Exercise Price Per Share
|
|
$1.18 - $2.04
|
179,620
|
7.73 years
|
$1.77
|
60,105
|
$1.40
|
|
$2.05 - $3.09
|
144,125
|
3.43 years
|
2.52
|
144,125
|
2.52
|
|
$4.02
|
49,182
|
1.4 years
|
4.02
|
49,182
|
4.02
|
|
|
372,927
|
5.23 years
|
$2.36
|
253,412
|
$2.55
|
Options
outstanding under the Plans expire at various dates during the
period from May 2019 through August 2028. Options outstanding at
December 31, 2018 had an aggregate intrinsic value of $12,779.
Options exercisable at December 31, 2018 had a weighted average
remaining life of 3.15 years and an aggregate intrinsic value of
$12,779. The weighted average grant-date fair value of options
granted during the year ended December 31, 2018 was $1.04. No
options were granted in 2017.
During
the year ended December 31, 2018, the Company issued 297,515
restricted stock units under the 2013 Plan and the 2018 Plan. The
shares underlying the awards were assigned a weighted average value
of $1.84 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 at the end of year
two. During the year ended December
31, 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 year ended December 31, 2018, no restricted stock was issued.
During the year ended December 31, 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.
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 year ended December 31,
2018.
Restricted stock
and restricted stock unit transactions during the years ended
December 31, 2018 and 2017 are summarized as follows:
|
|
|
Weighted average
grant date fair value
|
|
Unvested
shares at January 1, 2017
|
204,875
|
$2.16
|
|
Granted
|
203,424
|
1.12
|
|
Vested
|
(56,438)
|
1.05
|
|
Forfeited
or surrendered
|
(29,382)
|
2.01
|
|
Unvested
shares at December 31, 2017
|
322,479
|
$1.69
|
|
Granted
|
343,667
|
1.86
|
|
Vested
|
(132,940)
|
1.47
|
|
Forfeited
or surrendered
|
(39,884)
|
1.22
|
|
Unvested
shares at December 31, 2018
|
493,322
|
$1.90
|
As
of December 31, 2018, there was approximately $107,000 of total
unrecognized compensation costs related to outstanding stock
options, which is expected to be recognized over a weighted average
period of 3.61 years.
As
of December 31, 2018, there was approximately $549,000 of total
unrecognized compensation costs related to restricted stock and
restricted stock units, which is expected to be recognized over a
weighted average period of 1.89 years.
Employee Stock Purchase
Plan. The Company has an Employee Stock Purchase Plan (the
“ESPP”) that enables employees to contribute up to 10%
of their base compensation toward the purchase of the
Company’s common stock at 85% of its market value on the
first or last day of the year. As of the most recent amendment and
restatement of the ESPP approved by shareholders on July 20, 2018,
300,000 shares were added to the total pool of shares available
under the ESPP. During the year ended December 31, 2018, employees
purchased 107,341 shares under the ESPP. During the year ended
December 31, 2017, employees purchased 48,320 shares under the
ESPP. At December 31, 2018, 278,380 shares were reserved for future
employee purchases of common stock under the ESPP. For the years
ended December 31, 2018 and 2017, the Company recognized $58,000
and $29,000, respectively, of stock-based compensation expense
related to the ESPP.
Share Repurchase
Programs. On April 5, 2018, the Board authorized the
repurchase of up to $3,000,000 of the Company’s common stock
on or before March 31, 2020. The plan allowed the repurchases to be
made in open market or privately negotiated transactions. The plan
did 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
year ended December 31, 2018, the Company repurchased approximately
164,000 shares at a total cost of approximately
$298,000.
Dividends. We have
not historically paid dividends, other than one-time dividends
declared in 2011 and 2016. 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, paid on January 6, 2017. Outside of
these special dividends, the Board of Directors intends to retain
earnings for use in the Company’s business and does not
anticipate paying cash dividends in the foreseeable
future.
9.
Income Taxes. Income tax expense (benefit) consists of the
following:
|
Year Ended December 31
|
|
|
|
Current
taxes - Federal
|
$177,000
|
$(316,000)
|
|
Current
taxes - State
|
48,000
|
6,000
|
|
Deferred
taxes - Federal
|
227,000
|
(23,000)
|
|
Deferred
taxes - State
|
32,000
|
63,000
|
|
|
|
|
|
Income
tax expense (benefit)
|
$484,000
|
$(270,000)
|
The
actual tax expense (benefit) attributable to income (loss) before
taxes differs from the expected tax expense (benefit) computed by
applying the U.S. federal corporate income tax rate of 21% for 2018
or 34% for 2017 as follows:
|
Year Ended December 31
|
|
|
|
Federal
statutory rate
|
21.0%
|
(34.0)%
|
|
|
|
|
|
Stock-based
awards
|
0.6
|
7.0
|
|
State
taxes
|
2.8
|
(1.5)
|
|
Other
permanent differences
|
0.7
|
1.8
|
|
Impact
of uncertain tax positions
|
1.7
|
3.0
|
|
Valuation
allowance
|
(1.6)
|
8.5
|
|
Tax
rate change
|
0.0
|
(14.7)
|
|
Other
|
0.5
|
0.2
|
|
|
|
|
|
Effective
federal income tax rate
|
25.7%
|
(29.7)%
|
Components of
resulting noncurrent deferred tax assets (liabilities) are as
follows:
|
As of December 31
|
|
|
|
Deferred tax assets
|
|
|
|
Accrued
expenses
|
$129,000
|
$183,000
|
|
Inventory
reserve
|
3,000
|
42,000
|
|
Stock-based
awards
|
78,000
|
52,000
|
|
Reserve
for bad debts
|
5,000
|
50,000
|
|
Net
operating loss and credit carryforwards
|
39,000
|
61,000
|
|
Other
|
23,000
|
25,000
|
|
Valuation
allowance
|
(79,000)
|
(108,000)
|
|
|
|
|
|
Total
deferred tax assets
|
$198,000
|
$305,000
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
Depreciation
|
$(635,000)
|
$(465,000)
|
|
Prepaid
expenses
|
(67,000)
|
(85,000)
|
|
|
|
|
|
Total
deferred tax liabilities
|
(702,000)
|
(550,000)
|
|
|
|
|
|
Net
deferred income tax liabilities
|
$(504,000)
|
$(245,000)
|
The
Company evaluates all significant available positive and negative
evidence, including the existence of losses in prior years and its
forecast of future taxable income, in assessing the need for a
valuation allowance. The underlying assumptions the Company uses in
forecasting future taxable income require significant judgment and
take into account the Company’s recent performance. The
change in the valuation allowance for the years ended December 31,
2018 and 2017 was $(29,000) and $77,000, respectively. The
valuation allowance as of December 31, 2018 and 2017 was the result
of certain capital losses, state income tax credits, and state net
operating losses carried forward which the Company does not believe
are more likely than not to be realized.
The
Company has recorded a liability of $613,000 and $581,000 for
uncertain tax positions taken in tax returns in previous years as
of December 31, 2018 and 2017, respectively. This liability is
reflected as accrued income taxes on the Company’s balance
sheets. The Company files income tax returns in the United States
and numerous state and local tax jurisdictions. Tax years 2015 and
forward are open for examination and assessment by the Internal
Revenue Service. With limited exceptions, tax years prior to 2015
are no longer open in major state and local tax jurisdictions. The
Company does not anticipate that the total unrecognized tax
benefits will change significantly prior to December 31,
2019.
A
reconciliation of the beginning and ending amount of the liability
for uncertain tax positions is as follows:
|
Balance
at January 1, 2017
|
$554,000
|
|
Increases
due to interest
|
27,000
|
|
Balance
at December 31, 2017
|
581,000
|
|
Increases
due to interest and state tax
|
32,000
|
|
Balance
at December 31, 2018
|
$613,000
|
10.
Employee Benefit Plans. The Company
sponsors a Retirement Profit Sharing and Savings Plan under Section
401(k) of the Internal Revenue Code. The plan allows employees to
defer up to 50% of their wages, subject to Federal limitations, on
a pre-tax basis through contributions to the plan. During the years
ended December 31, 2018 and 2017, the Company made matching
contributions of $68,000 and $58,000, respectively.
Major
Customers. During the
year ended December 31, 2018, two customers accounted for 24% and
20% of the Company’s total net sales. At December 31, 2018,
two customers represented 31% and 16% of the Company’s total
accounts receivable. During the year ended December 31, 2017, one
customer accounted for 26% of the Company’s total net sales.
At December 31, 2017, three customers represented 29%, 12% and 11%
of the Company’s total accounts receivable.
Although there are
a number of customers that the Company sells to, the loss of a
major customer could adversely affect operating results.
Additionally, the loss of a major retailer from the Company’s
retail network could adversely affect operating results.
Export Sales. Export
sales accounted for less than 1% of total net sales during the
years ended December 31, 2018 and 2017.
12.
Quarterly Financial Data.
(Unaudited)
Quarterly data for
the years ended December 31, 2018 and 2017 was as
follows:
|
Year Ended December 31, 2018
|
|
|
|
|
|
Net
sales
|
$7,419,000
|
$8,245,000
|
$9,455,000
|
$8,117,000
|
|
Gross
profit
|
2,746,000
|
3,005,000
|
3,563,000
|
3,247,000
|
|
Net
income
|
164,000
|
184,000
|
645,000
|
406,000
|
|
Net
income per share:
|
|
|
|
|
|
Basic
|
$0.01
|
$0.02
|
$0.05
|
$0.04
|
|
Diluted
|
$0.01
|
$0.02
|
$0.05
|
$0.04
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
Net
sales
|
$4,767,000
|
$5,849,000
|
$7,723,000
|
$8,091,000
|
|
Gross
profit
|
629,000
|
1,498,000
|
2,743,000
|
3,531,000
|
|
Net
income (loss)
|
(1,191,000)
|
(534,000)
|
451,000
|
635,000
|
|
Net
income (loss) per share:
|
|
|
|
|
|
Basic
|
$(0.10)
|
$(0.05)
|
$0.04
|
$0.05
|
|
Diluted
|
$(0.10)
|
$(0.05)
|
$0.04
|
$0.05
|
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosures
None.
Item 9A. Controls and
Procedures
Disclosure Controls and Procedures
The
Company’s management carried out an evaluation, under the
supervision and with the participation of the Company’s Chief
Executive Officer (principal executive officer) and the
Company’s Chief Financial Officer (principal financial
officer), of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of December 31, 2018, 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 as of December 31, 2018 were effective. Disclosure
controls and procedures ensure that information required to be
disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the SEC, and
are designed to ensure that information required to be disclosed by
us in these reports is accumulated and communicated to our
management, as appropriate to allow timely decisions regarding
disclosures.
Management’s Annual Report on Internal Control Over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
control over financial reporting, as such term is defined in Rule
13a-15(f) of the Exchange Act. Under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, we conducted an evaluation of
the effectiveness of our internal control over financial reporting
as of December 31, 2018. In conducting its evaluation, our
management used the criteria set forth by the framework in the 2013
Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
Based on that evaluation, management believes our internal control
over financial reporting was effective as of December 31,
2018.
This
Annual Report does not include an attestation report of the
Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s
registered public accounting firm pursuant to rules of the
Securities and Exchange Commission that permit the Company to
provide only management’s report in this Annual
Report.
Changes in Internal Control Over Financial Reporting
No
changes in the Company’s internal control over financial
reporting occurred during the fourth quarter of 2018 that have
materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial
reporting.
Item 9B. Other Information
None.
PART
III.
Item 10. Directors, Executive Officers and
Corporate Governance
Incorporated
into this Item by reference is the information appearing under the
headings “Proposal One – Election of Directors,”
“Section 16(a) Beneficial Ownership Reporting
Compliance,” “Corporate Governance and Board
Matters” and “Submission of Shareholder Proposals and
Nominations” in our Proxy Statement for our 2019 Annual
Meeting of Shareholders we intend to file with the SEC (the
“Proxy Statement”), which is expected to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days after the close of the fiscal year for which this
report is filed.
Executive Officers of the Registrant
As of
the date of filing this Form 10-K, the following individuals were
executive officers of the Registrant:
|
Name
|
|
Age
|
|
Position
|
|
Kristine
A. Glancy
|
|
41
|
|
President,
Chief Executive Officer and Secretary
|
|
Jeffrey
A. Jagerson
|
|
52
|
|
Vice
President of Finance, Chief Financial Officer and
Treasurer
|
Kristine A. Glancy has been our President and Chief
Executive Officer since May 2016, and a member of the Board of
Directors since June 2017. Prior to joining the Company, Ms. Glancy
served in various roles at The Kraft Heinz Company from 1999 to
2016, most recently as Customer Vice President from May 2013 to
April 2016. She held the positions of Director of Sales from June
2012 to May 2013 and National Customer Manager from November 2010
to June 2012. Her more than 19 years as a sales and marketing
executive provide the necessary skills to the Board and Company in
the areas of sales, product strategy, customer relations, business
and brand development. Ms. Glancy
holds a Bachelor of Arts degree in Marketing and International
Business from Saint Mary’s University and an MBA from Fordham
University, New York City.
Jeffrey A. Jagerson has been
our Vice President of Finance, Chief Financial Officer and
Treasurer since July 2017. Prior to joining the Company, Mr.
Jagerson served as Chief Financial Officer at Christensen Farms
from March 2014 to March 2017. He previously served as Vice
President of Finance and Accounting at Digital River from July 2009
to March 2014 and served as the Corporate Controller from February
2008 to July 2009. Mr. Jagerson also served in various executive
and financial roles at ADC Telecommunications from May 1995 to
February 2008 and Honeywell from June 1988 to May 1995. His more
than 30 years as an Accounting and Finance professional and
executive provides the necessary skills to the Board and Company in
the areas public company financial reporting, tax, audit, and
treasury management. Mr. Jagerson holds a Bachelor of Science
degree in Accounting from Minnesota State University, Mankato and
an MBA from the Carlson School of Business at the University of
Minnesota.
Executive
officers are elected annually by the Board and serve for a one-year
period. There are no family relationships among any of the
executive officers and directors of the Company.
Code of Ethics/Code of Conduct
We have
in place a “code of ethics” within the meaning of Rule
406 of Regulation S-K, which is applicable to our senior financial
management, including specifically our principal executive officer
and principal financial officer. A copy of the Code of Ethics is
available on our website (www.insigniasystems.com)
under the “Investor Relations - Corporate Governance”
caption. We intend to satisfy our disclosure obligations regarding
any amendment to, or a waiver from, a provision of this code of
ethics by posting such information on the same
website.
Item 11. Executive
Compensation
The
information appearing under the headings “Executive
Compensation” and “Corporate Governance and Board
Matters – Compensation of Non-Employee Directors” in
the Proxy Statement is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
The
information appearing under the headings “Equity Compensation
Plan Information” and “Security Ownership of Certain
Beneficial Owners and Management” and in the Proxy Statement
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions and
Director Independence
The
information appearing under the heading “Certain
Relationships and Related-Party Transactions” and regarding
director independence appearing under the heading “Corporate
Governance and Board Matters” in the Proxy Statement is
incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information regarding principal accounting fees and
services appearing under the heading “Proposal Three –
Ratification of Appointment of Independent Registered Public
Accounting Firm” in the Proxy Statement is incorporated
herein by reference.
PART IV.
Item 15. Exhibits and Financial Statement
Schedules
The
following financial statements of Insignia Systems, Inc. are
included in Item 8:
Report
of Independent Registered Public Accounting Firm
Balance
Sheets as of December 31, 2018 and 2017
Statements of
Operations for the years ended December 31, 2018 and
2017
Statements of
Shareholders’ Equity for the years ended December 31, 2018
and 2017
Statements of Cash
Flows for the years ended December 31, 2018 and 2017
Notes
to Financial Statements
Unless
otherwise indicated, all documents incorporated into this Annual
Report on Form 10-K by reference to a document filed with the SEC
pursuant to the Exchange Act are located under SEC file number
1-13471.
|
Exhibit
Number
|
|
Description
|
|
Incorporated by Reference To
|
|
|
|
|
|
|
|
|
|
Composite
Articles of Incorporation of Registrant, as amended through July
31, 2008
|
|
Exhibit
3.1 of the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
Composite
stated Bylaws of Registrant, as amended through December 5,
2015
|
|
Exhibit
3.2 of the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
2003
Incentive Stock Option Plan, as amended
|
|
Exhibit
10.1 of the Registrant’s Form 8-K filed December 2,
2016
|
|
|
|
|
|
|
|
|
|
Form of
Incentive Stock Option Agreement under 2003 Incentive Stock Option
Plan
|
|
Exhibit
10.1 of the Registrant’s Form 8-K filed January 16,
2013
|
|
|
|
|
|
|
|
|
|
2013
Omnibus Stock and Incentive Plan, as amended
|
|
Exhibit
10.2 of the Registrant’s Form 8-K filed December 2,
2016
|
|
|
|
|
|
|
|
|
|
Form of
Incentive Stock Option Agreement under 2013 Omnibus Stock and
Incentive Plan
|
|
Exhibit
10.1 of the Registrant’s Form 8-K filed August 23,
2013
|
|
|
|
|
|
|
|
|
|
Form of
Non-Qualified Stock Option Agreement for Non-Employee Directors
under 2013 Omnibus Stock and Incentive Plan
|
|
Exhibit
10.2 of the Registrant’s Form 8-K filed August 23,
2013
|
|
|
|
|
|
|
|
|
|
Form of
Stock Grant Agreement for Non-Employee Directors under 2013 Omnibus
Stock and Incentive Plan
|
|
Exhibit
10.1 of the Registrant’s Form 8-K filed December 16,
2013
|
|
|
|
|
|
|
|
|
|
Form of
Restricted Stock Unit Agreement for Employees under 2013 Omnibus
Stock and Incentive Plan
|
|
Exhibit
10.1 of the Registrant’s Form 8-K filed May 28,
2014
|
|
|
|
|
|
|
|
|
|
Form of
Restricted Stock Award Agreement for Employees under the 2013
Omnibus Stock and Incentive Plan
|
|
Exhibit
10.1 of the Registrant’s Form 10-Q for the quarterly period
ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
Description
|
|
Incorporated By
Reference To
|
|
|
|
2018
Equity Incentive Plan
|
|
Exhibit
99.1 of the Registrant’s Registration Statement on Form S-8,
Reg. No. 333-226670
|
|
|
|
|
|
|
|
|
|
Form of
Non-Qualified Stock Option Agreement under 2018 Equity Incentive
Plan
|
|
Exhibit
10.1 of the Registrant’s Form 8-K filed August 14,
2018
|
|
|
|
|
|
|
|
|
|
Form of
Restricted Stock Unit Agreement under 2018 Equity Incentive
Plan
|
|
Exhibit
10.2 of the Registrant’s Form 8-K filed August 14,
2018
|
|
|
|
|
|
|
|
|
|
Employee
Stock Purchase Plan, as amended
|
|
Exhibit
99.2 of the Registrant’s Registration Statement on Form S-8,
Reg. No. 333-226670
|
|
|
|
|
|
|
|
*10.13
|
|
Deferred
Compensation Plan for Directors
|
|
Exhibit
10.1 of the Registrant’s Form 10-Q for the quarterly period
ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
Employment
Agreement with Kristine Glancy dated April 8, 2016
|
|
Exhibit
10.1 of the Registrant’s Form 8-K filed April 13,
2016
|
|
|
|
|
|
|
|
|
|
Change
in Control Severance Agreement with Kristine Glancy dated April 8,
2016
|
|
Exhibit
10.2 of the Registrant’s Form 8-K filed April 13,
2016
|
|
|
|
|
|
|
|
|
|
Employment
Agreement with Jeffrey Jagerson dated July 17, 2017
|
|
Exhibit
10.1 of the Registrant’s Form 8-K filed June 30,
2017
|
|
|
|
|
|
|
|
|
|
Change
in Control Agreement with Jeffrey Jagerson dated July 17,
2017
|
|
Exhibit
10.2 of the Registrant’s Form 8-K filed June 30,
2017
|
|
|
|
|
|
|
|
|
|
Industrial/Warehouse
Lease Agreement with James Campbell Company LLC dated September 14,
2015
|
|
Exhibit
10.1 of the Registrant’s Form 10-Q for the quarterly period
ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
Exclusive
Agreement for Sale and Implementation of Specified Signs with Price
approved June 6, 2011
|
|
Exhibit
10.2 of the Registrant’s Form 10-Q for the quarterly period
ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
Settlement
Agreement and Release with News America Marketing In-Store, LLC,
dated February 9, 2011, including exhibits
|
|
Exhibit
10.1 of the Registrant’s Form 10-Q/A for the quarterly period
ended March 31, 2011
|
|
|
|
|
|
|
|
|
|
Retail
Access and Distribution Agreement with Valassis Sales and Marketing
Services, Inc. dated February 21, 2014
|
|
Exhibit
10.1 of the Registrant’s Form 10-Q for the quarterly period
ended March 31, 2014
|
|
|
|
|
|
|
|
|
|
Registration
and Standstill Agreement with Sardar Biglari, The Lion Fund II,
L.P. and Biglari Capital Corp. dated November 9, 2017
|
|
Exhibit
10.1 of the Registrant’s Form 8-K dated November 13,
2017
|
|
|
|
|
|
|
|
|
|
Cooperation
Agreement with Nick Swenson, Air T, and Groveland Capital LLC,
dated May 17, 2018
|
|
Exhibit
10.1 of the Registrant’s Form 8-K filed May 18,
2018
|
|
|
|
|
|
|
|
|
|
Consent
of Independent Registered Public Accounting Firm
|
|
|
|
|
|
|
|
|
|
|
|
Powers
of Attorney
|
|
|
|
|
|
|
|
|
|
|
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
|
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
|
|
Section
1350 Certifications
|
|
|
|
|
|
|
|
|
|
+101.1
|
|
The
following materials from Insignia Systems, Inc.’s Annual
Report on Form 10-K for the year ending December 31, 2018 are filed
herewith, formatted in XBRL (Extensible Business
Reporting
Language):
(i) Balance Sheets, (ii) Statements of Operations, (iii) Statements
of Shareholders’ Equity (iv) Statements of Cash Flows, and
(v) Notes to Financial Statements
|
|
|
* Denotes a
management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Annual Report pursuant to Item 15(b)
of Form 10-K.
^
Portions of this
exhibit are treated as confidential pursuant to a request for
confidential treatment filed by Insignia with the SEC.
Item 16. Form 10-K Summary
None.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
Insignia Systems,
Inc.
|
|
|
|
|
|
|
|
Dated: March 7,
2019
|
By:
|
/s/
Kristine A.
Glancy
|
|
|
|
|
Kristine A.
Glancy |
|
|
|
|
President and Chief
Executive Officer |
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the
registrant in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
Kristine A. Glancy
|
|
President,
Chief Executive Officer, Secretary and Director
|
|
March
7, 2019
|
|
Kristine A.
Glancy
|
|
(principal
executive officer)
|
|
|
|
|
|
|
|
|
|
/s/
Jeffrey A. Jagerson
|
|
Vice
President of Finance, Chief Financial Officer and
Treasurer
|
|
March
7, 2019
|
|
Jeffrey A.
Jagerson
|
|
(principal
financial and accounting officer)
|
|
|
|
|
|
|
|
|
|
*
|
|
Chairman
of the Board, Director
|
|
March
7, 2019
|
|
Jacob J.
Berning
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
March
7, 2019
|
|
Suzanne
L. Clarridge
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
March
7, 2019
|
|
Loren
A. Unterseher
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
March
7, 2019
|
|
Rachael
B. Vegas
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
March
7, 2019
|
|
Steven
R. Zenz
|
|
|
|
|
*
Kristine A. Glancy, by signing her name hereto, does hereby sign
this document on behalf of each of the above-named directors of the
registrant pursuant to Powers of Attorney duly executed by such
persons.
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Kristine A.
Glancy
|
|
|
|
|
Kristine A.
Glancy |
|
|
|
|
|
|