LENDWAY, INC.
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
For the
fiscal year ended December 31, 2019
|
Commission
File Number 1-13471
|
|
INSIGNIA
SYSTEMS, INC.
|
|
(Exact
name of registrant as specified in its charter)
|
|
Minnesota
|
41-1656308
|
|
(State
or other jurisdiction of incorporation or
organization)
|
(IRS
Employer Identification No.)
|
|
8799
Brooklyn Blvd., Minneapolis, MN 55445
|
|
(Address
of principal executive offices; zip code)
|
|
(763)
392-6200
|
|
(Registrant’s
telephone number, including area code)
|
Securities
Registered Pursuant to Section 12(b) of the Act:
|
Title of each class
|
|
Trading Symbol
|
|
Name of each exchange on which registered
|
|
Common
Stock, $0.01 par value
|
|
ISIG
|
|
The
Nasdaq Stock Market LLC
|
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 reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes
☑ No ☐
Indicate by check
mark whether the registrant has submitted electronically every
Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes
☑ No ☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, 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.
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, 2019) was approximately $6,744,000 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
9, 2020 was 12,106,689.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions
of the registrant’s definitive proxy for its 2020 Annual
Meeting of Shareholders are incorporated by reference into Part
III.
TABLE OF CONTENTS
|
PART I.
|
|
Page
|
|
|
|
|
|
PART II.
|
|
|
|
|
|
|
|
PART III.
|
|
|
|
|
|
|
|
PART IV.
|
|
|
i
PART I.
Item 1.
B
usiness
General
Insignia
Systems, Inc. (“Insignia,” “we,”
“us,” “our” and the “Company”)
was incorporated in Minnesota in 1990. We are a leading provider of
in-store and digital advertising solutions to
consumer-packaged goods
(“CPG”)
manufacturers, retailers, shopper
marketing agencies and brokerages. We believe our products and
services are attractive to our customers because of our speed to
market, ability to customize our solutions down to store level and
the results our solutions deliver. Our leadership and employees
have extensive industry knowledge, including direct experience
through former positions at CPG manufacturers and retailers. We
provide marketing solutions to CPG manufacturers spanning from some
of the largest multinationals to new and emerging
brands.
Our relationships with retailers are forged through our
retailer-centric mindset, ability to create solutions specific to
their objectives to achieve overall executional excellence and
incremental revenue lift, and ability to integrate both retailer
and CPG manufacturer messaging into our solutions. During 2019, our
in-store solutions executed programs in retailers spanning from
some of the largest national retailers to regional US wholesalers
and independents who are leaders in their respective channels and
geographies.
Our relationships with shopper marketing agencies and brokerages
continue to grow through our agility, responsiveness, custom
production and execution capabilities, and our overall customer
service in responding to their needs.
Our
primary solution has been the Point-Of-Purchase Services
(POPS
®
). The Insignia
POPS solution is a national, account-specific, shelf-edge
advertising and promotion tactic. External and internal testing has
validated the solution can deliver 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 an innovative “call to
action” that draws attention to the featured brand and
triggers a purchase decision. CPG manufacturers benefit from our
nimble operational capabilities, which include short lead times,
in-house graphic design capabilities and post-program
analytics.
Over the past couple years, we have developed and now offer
on-pack, merchandising and digital solutions in addition to our
core business of in-store signage solutions. Our expanded portfolio
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 traditional syndicated in-store network and are looking
for solutions to help them be discovered.
(2)
Retailer
fragmentation: consumer habits are driving retailer fragmentation,
including the growth of e-commerce and surrogate shoppers, as a
result CPG manufacturers are diversifying their marketing dollars
across an omnichannel environment.
(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 and by
working with companies that can execute programs.
(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.
1
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 are
seeking companies with our capabilities and experience to help
build in-store solutions that inspire, educate and ultimately
convert active shoppers while they are shopping. 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 and overall commodity uncertainties continue to
place significant pressure on our industry. We have observed that
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 get discovered and
tell shoppers their story. 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.
We
are is usually engaged as part of an overall, mixed-media, brand
marketing campaign.
Product Solutions
Since
the Company’s inception in 1990, we have 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, our core product has been
in-store signage solutions, namely the Insignia Point-of Purchase
Services (POPS®). Over the past several years, 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 68% of our total net sales for 2019, compared to 83%
of our total net sales in 2018.
1.
Our
In-Store Signage
Solutions
, which include POPS signs, help brands achieve a
variety of objectives that include awareness and sales lift. The
in-store signage solutions are placed perpendicular to the shelf
and are designed to attract the attention of the shopper even
before they arrive in front of the shelf to consider the purchase
of a product. Our POPS signs offer attractive equity and engaging
creative along with our unique ability to include retailer logo and
price helps convert the shopper from considering a product into
purchasing the product.
●
Primarily as a
result of a settlement with our primary competitor, we offer the
only in-store signage solution in the U.S. that can present
store-level pricing in conjunction with CPG manufacturer and
retailer brand messaging. Our customers typically average a 3:1
return on investment with our in-store POPS signage solution driven
by the power of retailer endorsement and price inclusion on the
signs.
●
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 signage at the shelf.
2.
Our
Merchandising
Solutions
are designed to help brands get discovered, build
awareness and drive impulse purchases via a secondary or often
permanent placement of their products. Our merchandising solutions
include a variety of creative corrugate displays, side caps, free
standing shippers and full customized end-cap solutions that brands
leverage to grow their sales.
3.
Our
On-Pack Solutions
appear on the individual product package and are designed to drive
awareness, impulse purchases and capture market share within a very
short period. On-pack solutions include BoxTalk
TM
, coupons, recipes,
and cross-promotions.
4.
Our
Digital Solutions
consist of mobile programmatic advertising. Most CPG manufacturers
are relying on digital advertising for promoting their products to
consumers. We have invested behind our proprietary targeting
process, that brings product, store and shopper data together to
identify consumers with the strongest propensity to buy. Our
innovative targeting approach allows brands to cast a wider net in
identifying potential buyers of their product by focusing on
relevant attributes for a specific brand. As part of an integrated
marketing plan, we can develop and execute digital advertising and
in-store marketing in cadence with brand plans and
expectations.
2
5.
Our
Custom Print
Solutions
offer small- and large-format print solutions,
labels and cardstock, primarily to retailers. These solutions help
our customers increase awareness of store events and other
marketing programs.
Marketing and Sales
Our
highly skilled direct sales and marketing teams are a major asset
for the organization with their deep knowledge of CPG manufacturers
and retailers. 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 established brands and small
emerging brands and developing solutions that address their
needs.
2.
Sales to retailers
.
This group is responsible for understanding each retailer’s
unique needs and build solutions to address them.
Our
marketing is focused on the following:
●
Increasing
awareness of our corporate brand;
●
Analyzing the
effectiveness of executed offerings; and
●
Developing and
commercializing new and existing solutions.
Our
in-store signage solutions are available for sale into a network of
retailers that is managed and maintained through direct
relationships and supplemented through a contract with News America
Marketing FSI L.L.C., and News America Marketing In-Store Services
L.L.C. for our POPS signs, or can be sold to certain retailers in
the Mass Merchant Channel, which is not currently a part of our
syndicated network.
During
each of the last two most recently completed fiscal years, foreign
sales accounted for less than 1% of total net sales each year. We
expect sales to foreign distributors will remain less than 1% of
total net sales in 2020.
Competition
We face
increasingly intense competition for the marketing expenditures of
CPG manufacturers for in-store signage. We have observed increased
competition in growing and maintaining our network of retailers
into which we are authorized to sell solutions as competitors
continue to purchase new or extend exclusive arrangements with
retailers for that purpose. 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. We are
currently party to legal proceedings involving News Corporation,
News America Marketing FSI L.L.C., and News America Marketing
In-Store Services L.L.C. (collectively, “News
America”). The lawsuit is described further in Item 3 of Part
I of this report.
Our
solutions are also subject to increasing pressures from
alternatives to traditional in-store signage, including digital and
merchandising solutions offered by competitors including Vestcom,
Menasha, West Rock, Valassis Digital and Quotient.
We
believe our primary competitive strengths include:
●
Solutions across
our portfolio focused on driving conversion and overall positive
return on investment;
●
Broad client-base
of CPG manufacturers inclusive of large Fortune 500 companies,
small regionals and emerging start-ups;
●
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 the ability to execute store specific
solutions; and
3
●
Our speed to market
on 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
®
,
freshADS
sm
,
Impulse
®
,
DuraSign
®
,
I-Care
®
, Color
POPSign
®
,
BannerPOPS
®
,
BrandPOPS
®
,
EquityPOPS
®
,
ShapePOPS
®
, and
Boxtalk
TM
.
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 the Company’s trade secrets or
other confidential or proprietary information.
Service and Solution Development
New
services, solutions and enhancements to existing offerings are
developed either internally or externally and may include
proprietary data management, operations systems, and design
guidance. Over the past several years, we have significantly
expanded our offered solutions and have developed a portfolio
designed to more holistically meet the needs of our clients and
partners.
Business Plan
Our
strategic plan, seeks to differentiate Insignia from our
competition, situate Insignia for growth within our industry and
better insulate Insignia to competitive response through our
overall portfolio diversification. The strategic plan consists
of:
1.
Build the Base
. Increase the salability
of our syndicated retail network.
2.
Change the Game
. Focus on continuing to
drive growth with our expanded in-store solutions and leveraging
retailer specific offerings with the goal of creating a meaningful
point-of-difference for our organization in the
industry.
3.
Capture new Brand Dollars.
Expand beyond
the store with our new mobile programmatic solution and proprietary
targeting process.
4.
Create Advocates
. Continue to create
scale and growth with existing and new alliances, and
partnerships.
5.
Invest in our Future
. Continue to
recruit and retain top talent, invest in training and development
and strengthening our capabilities.
Our
strategic plan acknowledges 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.
We are
a leading provider of in-store and digital advertising solutions to
consumer-packaged goods
(“CPG”)
manufacturers,
retailers, shopper marketing agencies and brokerages.
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 brands with products that would be found in grocery, mass
and drug channels.
During
2019, two CPG manufacturers accounted for 13% and 12%,
respectively, of our total net sales. During 2018, two CPG
manufacturers accounted for 24% and 20%, respectively, of our total
net sales. At December 31, 2019, four CPG manufacturers
represented 17%, 12%, 12% and 10% of the Company’s total
accounts receivable, respectively. At December 31, 2018, two
CPG manufacturers represented 31% and 16% of the Company’s
total accounts receivable, respectively.
Our
sales historically have fluctuated from period to period, primarily
because of;
●
CPG manufacturer
determinations to purchase solutions from us versus competitor
solutions;
●
Promotional timing
and new product launches by CPG manufacturers;
●
Underlying
performance and quality of featured products promoted 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;
●
New solution
acceptance by CPG manufacturers and retailers; and
●
Changes in the
salability and breadth of our retailer network.
4
Environmental Matters
We
believe our operations are in compliance with all applicable
environmental regulations within the jurisdictions in which we
operate. The costs and effects of compliance with these regulations
have not been, and are not expected to become,
material.
Employees
As of
March 9, 2020, the Company had 54 employees, including 52 full-time
employees and two part-time employees. We believe relations with
our employees are good.
Segment Reporting
The
Company operates in a single reportable segment.
Item 1A.
R
isk Factors
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.
We Face Significant Competition
We face
significant competition from News America, the primary provider of
at-shelf advertising and promotional signage for a significant
majority of retailers. Despite our status as exclusive agent for
selling signs with price into the News America network, we 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 market their products and purchase
exclusive access to retailers and CPG manufacturers. Should our
competition succeed in obtaining more of the at-shelf advertising
business from our current CPG manufacturers, develop or extend
exclusive relationships with our current retailers, our revenues
and related operations would be adversely affected.
We also
compete 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, which
would have an adverse effect on sales
and our financial results.
Our Results Are Dependent on Our CPG Manufacturing Partners’
Continued Use of Our POPS Solution
Our
financial results have been historically dependent on the success
of our Insignia POPS point-of-purchase in-store signage solution,
which is purchased primarily by CPG manufacturers. Our POPS
solution represented approximately 54% of our total net sales in
2019. We also continue to have a concentrated CPG customer base for
our POPS solution. Our top two CPG customers together accounted for
approximately 25% of our total net sales in 2019.
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 further decreases in POPS sales. In
addition, volatility in CPG manufacturer spend has resulted from
shrinking advertising budgets, expanded product solutions, and
increased competition.
5
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 or a significant
change in our retailer network our business and results of
operations would be adversely affected due to our heavy dependence
on this solution.
The Viability of Our In-Store Signage Solutions and Our Results Are
Dependent on Our Ongoing Business Relationships with
Retailers
To execute our POPS solution, we have entered into arrangements
with retailers that provide us with access to place signs on
shelves in their stores for our CPG manufacturing customers. We
have also accessed a portion of our retailer relationships through
third parties. During 2019, our top three retailer relationships
provided distribution for 17% of our total net sales.
As
previously announced, a significant retailer exited our retailer
network in the first half of 2019. The impacts of the loss of this
retailer is reflected in our results for 2019. Our ability to sell
our in-store 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 a continuing adverse effect on sales of our in-store signage
solutions and our 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. Further decreases in the size or
quality of our retail distribution network, including the loss of
another significant retailer, would have an adverse effect on sales
of our in-store signage solutions
and our financial results.
Our In-Store Signage Solutions 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, our
ability to sell and execute signs with price under that arrangement
is substantially dependent on News America’s cooperation and
we have not gained any additional access to News America’s
retail network during 2019. Further, the agreement that provides
for our exclusive agency for signs with price is scheduled to
expire in February 2021. Disputes with News America regarding the
operational aspects of that agreement or the termination or
expiration of contracts relating to signs with price are likely to
have an adverse effect on our results. For example, we are
currently party to legal proceedings involving News America, which
are described further in Item 3 of Part I of this
report.
Our Growth Is Dependent on Our Ability to Successfully Develop and
Introduce New Solution Offerings that Meet Client
Demands
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 or have the necessary
scale to be profitable.
We Have Been, and Are, Party to Significant Litigation
We monitor the competitive practices of those in our industry for
fairness which may lead to disputes that could have adverse effects
on our Company or its business.
We were involved in
significant litigation with News America between 2003 and 2011. In
2011, we and News America entered into a Settlement Agreement to
resolve the antitrust and false advertising lawsuit that had been
outstanding for several years.
In July
2019, we brought suit against News America in the U.S. District
Court in Minnesota, alleging violations of federal and state
antitrust and tortious interference laws by News America. The
complaint alleges that News America has monopolized the relevant
market through various wrongful acts designed to harm the Company,
its last significant competitor, in the third-party in-store
advertising and promotion products and services market. The suit
seeks, among other relief, an injunction sufficient to prevent
further antitrust injury and an award of treble damages to be
determined at trial for the harm caused to our Company. For further
description of our legal proceedings, see Item 3 in Part I of this
report.
6
We
cannot be assured that we will succeed in asserting our claims or,
if we are successful, that our recovery (if any) will be adequate
to cover the damages incurred. It is also possible that we may be
unsuccessful in defending against any counterclaims, that a
judgement will not be entered against us or that reserves (if any)
we may set aside will be adequate to cover any such judgments. In
addition, we may incur significant expenses during the litigation
while recovery is uncertain or pending.
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
2019, the sale prices of our common stock as reported by The Nasdaq
Stock Market ranged from a low of $0.67 to a high of $1.68. 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.
7
Nasdaq may Delist Our Common Stock, which Could Limit Your Ability
to Make Transactions in Our Securities and Subject Our Common Stock
to Additional Restrictions
On December 31, 2019, we received a letter from the Nasdaq
Stock Market (“Nasdaq”) stating that the closing bid
price of our company’s common stock was below the minimum bid
price of $1.00 per share required by Listing Rule 5550(a)(2) (the
“Minimum Bid Price Requirement”) for at least 30
consecutive business days. In accordance with Listing Rule
5810(c)(3)(A), our Company has a compliance period of 180 days, or
until June 29, 2020, to regain compliance with the Minimum Bid
Price Requirement. In order to regain compliance, our common stock
must maintain a consolidated bid price of $1.00 or greater for a
minimum of ten consecutive business days during the compliance
period.
If compliance with the Minimum Bid Price Requirement cannot be
demonstrated by June 29, 2020, then our Company may be
eligible for a second 180-day period to regain compliance. To be
eligible, our Company will be required to meet continued listing
requirements for market value of publicly held shares and all other
initial listing standards for The Nasdaq Capital Market (except the
Minimum Bid Price Requirement) and we will need to provide Nasdaq
with written notice of our intention to cure the deficiency during
the second compliance period, which may take the form of a reverse
stock split. If we do not regain compliance with the Minimum Bid
Price Requirement prior to June 29, 2020 and are not eligible
for the second compliance period, or if it appears to the Nasdaq
staff that our Company will not be able to regain compliance, then
our common stock will be subject to delisting. At such time, we may
have an opportunity to appeal Nasdaq’s delisting
determination.
The
notice from Nasdaq has no immediate effect on the trading of our
common stock and our common stock is expected to remain listed on
Nasdaq during the compliance period(s).
If the
bid price of our common stock fails to regain compliance it may be
subject to delisting. Our common stock would likely then trade only
in the over-the-counter market. If our common stock were to trade
on the over-the-counter market, selling our common stock could be
more difficult because smaller quantities of shares would likely be
bought and sold, transactions could be delayed, and we could face
significant material adverse consequences, including: a limited
availability of market quotations for our securities; reduced
liquidity with respect to our securities; a determination that our
shares are a “penny stock,” which will require brokers
trading in our securities to adhere to more stringent rules,
possibly resulting in a reduced level of trading activity in the
secondary trading market for our securities; a reduced amount of
news for our Company.
We May be Impacted if Our 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.
Item 1B.
U
nresolved Staff
Comments
None.
8
Item 2.
P
roperties
The
Company has leased approximately 24,000 square feet of office and
warehouse space in suburban Minneapolis, Minnesota, through March
31, 2021. We will be examining available options to meet our
foreseeable needs.
Item 3.
L
egal Proceedings
In July
2019, we brought suit against News America in the U.S. District
Court in Minnesota, alleging violations of federal and state
antitrust and tort laws by News America. The complaint alleges that
News America has monopolized the national market for third-party
in-store advertising and promotion products and services through
various wrongful acts designed to harm the Company, its last
significant competitor. The suit seeks, among other relief, an
injunction sufficient to prevent further antitrust injury and an
award of treble damages to be determined at trial for the harm
caused to our Company.
In
August 2019, News America filed an answer and
counterclaim. In October 2019, News America moved for a
judgment on the pleadings. Management believes that the
counterclaim is without merit, and we filed a response brief on
November 11, 2019. We also moved to dismiss the counterclaim
against us. The Court heard oral arguments from both parties on
January 14, 2020, and a decision is outstanding.
Discovery
is underway and trial has been scheduled for June 2021. Due to the
early nature of these proceedings, we are unable to determine the
likelihood of an unfavorable outcome or estimate any potential
resulting liability at this time.
Item 4.
M
ine Safety
Disclosures
Not
applicable.
PART
II.
Item 5.
M
arket for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
The
Company’s common stock is listed on the Nasdaq Capital Market
under the symbol ISIG.
As of
March 9, 2020, the Company had one class of Common Stock held by
approximately 111 holders of record.
Dividends
The
Company has not historically paid dividends, other than two
one-time special dividends declared in 2011 and 2016, respectively.
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.
During the three months ended December 31, 2019, there was no share
repurchase activity. As of December 31, 2019, $2,702,000 remained
available for repurchase under the existing
authorization.
Item 6.
S
elected Financial
Data
Smaller
reporting companies are not required to provide disclosure pursuant
to this Item.
Item 7.
M
anagement’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 on Form 10-K. This 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
report.
9
Overview
We are
a leading provider of in-store and digital advertising solutions to
consumer-packaged goods
(“CPG”)
manufacturers,
retailers, shopper marketing agencies and brokerages. We believe
our products and services are attractive to our clients because of
our speed to market, ability to customize our solutions down to
store level and the results our solutions deliver. We have leaders
and employees with extensive industry knowledge with direct
experience in both CPG manufacturers and retailers. We provide
marketing solutions to CPG manufacturers spanning from some of the
largest multinationals to new and emerging
brands.
We face
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. New product
investments by large and emerging CPG manufacturers give us
optimism that our product portfolio is relevant to our
clients.
Over
the past several years, we have significantly expanded our offered
solutions and have developed a portfolio designed to more
holistically meet the needs of our clients and partners which will
diversify our portfolio. Our focus on portfolio diversification
resulted in our 2019 Non-POPS revenue growing 53% versus full-year
2018. We remain committed to further refining and enhancing our
solutions and broadening our retailer partnerships to support our
CPG clients.
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
|
2019
|
2018
|
|
Net
sales
|
100.0
%
|
100.0
%
|
|
Cost
of sales
|
78.3
|
62.2
|
|
Gross
profit
|
21.7
|
37.8
|
|
Operating
expenses:
|
|
|
|
Selling
|
12.1
|
10.3
|
|
Marketing
|
10.9
|
8.0
|
|
General
and administrative
|
15.1
|
14.0
|
|
Impairment
loss
|
9.2
|
-
|
|
Total
operating expenses
|
47.3
|
32.3
|
|
Operating
income (loss)
|
(25.6
)
|
5.5
|
|
Other
income
|
0.6
|
0.2
|
|
Income
(loss) before taxes
|
(25.0
)
|
5.7
|
|
Income
tax expense (benefit)
|
(2.1
)
|
1.5
|
|
Net
income (loss)
|
(22.9
)%
|
4.2
%
|
Year Ended December 31, 2019 Compared to Year Ended December 31,
2018
Net Sales.
Net sales for the year ended December 31, 2019
decreased 33.9% to $21,954,000, compared to $33,236,000 for the
year ended December 31, 2018.
Service
revenues for the year ended December 31, 2019 decreased 36.0% to
$20,229,000, compared to $31,623,000 for the year ended December
31, 2018. The decrease was primarily due to a $14,330,000, or
54.8%, decrease in POPS solution revenue, partially offset by a
$2,936,000, or 53.4%, increase in innovation solutions revenue.
The decrease in POPS solution revenue
was primarily due to decreases in the number of signs
placed
and
average price per sign, which were due to the loss of a significant
retailer and a significant CPG manufacturer both as a result of
competitive pressures, and the
completion of a non-recurring
favorable CPG contract.
10
Product
revenues for the year ended December 31, 2019 increased 6.9% to
$1,725,000, compared to $1,613,000 for the year ended December 31,
2018. The increase was primarily due to higher sales of custom
print solutions due to sales to new and existing
customers.
Gross Profit.
Gross profit for the year ended
December 31, 2019 decreased 62.1% to $4,761,000, compared to
$12,561,000 for the year ended December 31, 2018. Gross profit as a
percentage of total net sales decreased to 21.7% for the year ended
December 31, 2019, compared to 37.8% for the year ended December
31, 2018.
Gross
profit from service revenues for the year ended December 31, 2019
decreased 63.2% to $4,473,000, compared to $12,156,000 for the year
ended December 31, 2018.
The decrease in gross profit was
primarily due to a decrease in POPS solution sales
as gross profit is highly dependent on sales
levels due to the relatively fixed nature of a portion of payments
to retailers,
combined with the decrease in average price
per sign due to the completion of a non-recurring favorable
contract, and was
partially offset
by
an increase in revenue and gross profit from sign
solutions excluding POPS signage solution.
The
Company put into service the new IT operating infrastructure system
in the second quarter of 2019, as a result, the Company incurred
costs of approximately $193,000 associated with the development of
its new IT operating infrastructure during 2019 compared to
approximately $553,000 for 2018. The Company will continue to
enhance the implemented software solutions to further support new
product solutions.
Gross
profit as a percentage of service revenues decreased to 22.1% for
the year ended December 31, 2019, compared to 38.4% for the year
ended December 31, 2018. The decrease was primarily due to the
factors described above.
Gross
profit from our product sales for the year ended December 31, 2019
decreased 28.9% to $288,000, compared to $405,000 for the year
ended December 31, 2018. Gross profit as a percentage of product
sales decreased to 16.7% for 2019, compared to 25.1% for 2018. The
decrease was primarily due to increased production related costs
and product mix.
Operating Expenses
Selling.
Selling expenses for the year ended December 31,
2019 decreased 22.5% to $2,658,000, compared to $3,429,000 for the
year ended December 31, 2018, primarily due to reduced variable
staff related expenses. Selling expenses as a percentage of total
net sales increased to 12.1% in 2019, compared to 10.3% in 2018,
primarily due to decreased sales, partially offset by the reduced
variable staff related expenses.
Marketing.
Marketing expenses for the year ended December
31, 2019 decreased 10.5% to $2,394,000, compared to $2,674,000 for
the year ended December 31, 2018. The decrease was primarily the
result of decreased staffing and variable staff related expenses,
partially offset by increased consulting expenses. Marketing
expenses as a percentage of total net sales increased to 10.9% in
2019, compared to 8.0% in 2018, primarily due to decreased sales,
partially offset by the reduced variable staff related
expenses.
General and Administrative.
General and administrative
expenses for the year ended December 31, 2019 decreased 28.1% to
$3,324,000, compared to $4,626,000 for the year ended December 31,
2018. The decrease of $1,302,000 reflects the $460,000 of expenses
in 2018 related to the negotiation and satisfaction of obligations
under the Cooperation Agreement with Nick Swenson, Air T, Inc. and
Groveland Capital LLC, dated May 17, 2018. The remainder of the
decrease was primarily due to reductions in variable staff related
expenses. General and administrative expenses as a percentage of
total net sales increased to 15.1% in 2019, compared to 14.0% in
2018, primarily due to decreased sales, partially offset by items
identified above.
Impairment Loss.
Impairment loss for the year ended December
31, 2019 was $2,014,000 driven by a long-lived asset impairment
charge which is described further in Item 8, footnote 1. There was
no impairment loss during 2018.
Other Income.
Other income for the year ended December 31,
2019 increased to $142,000, compared to $51,000 for the year ended
December 31, 2018. The increase was due to interest generated from
held to maturity investments for a portion of 2019 and money market
funds.
Income Taxes.
During the year ended December 31, 2019, the
Company recorded an income tax benefit of $466,000, compared to an
income tax expense of $484,000 for the year ended December 31,
2018. The effective tax rate was 8.5% and 25.7% for the years ended
December 31, 2019 and 2018, respectively. The primary differences
between the Company’s December 31, 2019 and 2018 effective
tax rates and the statutory federal rates are expenses related to
stock-based compensation in the amounts of $172,000 and $44,000,
respectively, nondeductible meals and entertainment of $32,000 and
$56,000, respectively, and a change in the Company’s
valuation allowance against its deferred assets of $769,000 and
($29,000), respectively. The 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.
11
Net Income (Loss).
For the reasons stated above, the net
loss for the year ended December 31, 2019 was $5,021,000 compared
to a net income of $1,399,000 for the year ended December 31,
2018.
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, 2019,
working capital (current assets less current liabilities) was
$11,395,000 compared to $13,351,000 at December 31, 2018. During
the year ended December 31, 2019, cash and cash equivalents
decreased $2,650,000 from $10,160,000 at December 31, 2018, to
$7,510,000 at December 31, 2019.
Operating Activities
: Net cash used in operating activities
during the year ended December 31, 2019 was $2,311,000. Net loss of
$5,021,000, plus non-cash adjustments of $3,622,000, less changes
in operating assets and liabilities of $912,000 resulted in the
$2,311,000 of cash used in operating activities. The non-cash
adjustments consisted of depreciation and amortization expense,
impairment loss, changes in allowance for doubtful accounts,
deferred income tax benefit, and stock-based compensation expense.
The largest components of the change in operating assets and
liabilities were accrued liabilities, which decreased cash by
$1,680,000, and accounts receivable, which increased cash by
$1,161,000. In the normal course of business, 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, 2019 was $398,000, which was
primarily related to investing in the IT operating infrastructure
project, which consisted of hardware, purchased software and
capitalization of costs for internally developed software. The
Company does not have material property and equipment commitments
in 2020.
Financing Activities
: Net cash provided by financing
activities during the year ended December 31, 2019 was $59,000,
which primarily related to proceeds received from issuance of
common stock under the employee stock purchase plan.
We
believe that based upon current business conditions and plans, its
existing cash balance and future cash generated from operations
will be sufficient for our 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-to-four-week display cycle. The
Company recognizes revenue related to custom print solutions and
sign card sales at the time the products are shipped to customers.
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 the Company’s 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.
12
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.
The
Company identified indicators of impairment due to the current year
operating loss, cash flows used in operations and the excess of the
book value of the Company compared to its market capitalization,
which became a significant difference during the last two months of
2019. Due to these indicators of impairment, the Company completed
an impairment analysis on its long-lived assets by first reviewing
the expected undiscounted cash flows compared to the carrying value
over the primary asset’s remaining useful life to determine
if further impairment testing was required. The Company prepared an
undiscounted cash flow analysis related to its selling agreement
which is a separate asset group and as the undiscounted cash flows
exceeded the carrying value, no further impairment testing was
required. For the property and equipment asset group, the
undiscounted cash flows were less than carrying value and
therefore, a fair value assessment was required to determine the
amount of the impairment. Due to the nature of the primary asset
(internally developed software), the most readily available fair
market value related to the asset is the market capitalization of
the Company which is considered a level 1 measurement (quoted
market price). After allocating the Company’s market
capitalization to its working capital, there was no remaining value
to allocate to long-lived assets which included the internally
developed software recently placed in service. The Company utilized
other level 3 inputs to determine the fair value of other tangible
long-lived assets, including appraised values of production
tooling, machinery and equipment. As a result, the Company recorded
a long-lived asset impairment charge totaling $2,014,000 during the
4
th
quarter 2019 which is described further in Item 8, footnote
1.
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, the Company considers tax regulations of the jurisdictions
in which it operates, estimates of future taxable income, and
available tax planning strategies. If tax regulations, operating
results or the ability to implement tax-planning strategies vary,
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.
The Company recognizes 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
.
The Company measures and recognizes
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. 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 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 the Company employs different assumptions in the
valuation of grants in future periods, the compensation expense
that the Company records may differ significantly from what it has
recorded in the current period.
13
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 in this report that are not statements of historical or
current facts are considered forward-looking statements within the
meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, as amended. The words
“anticipates,” “believes,”
“estimates,” “expects,”
“future,” “intends,” “likely,”
“may,” “seeks,” “will,”
“should” and similar expressions may identify
forward-looking statements. Readers are cautioned not to place
undue reliance on these or any forward-looking statements, which
speak only as of the date of this report. Statements made in this
report regarding, for instance, anticipated future growth, changes
in composition of retailer and CPG manufacturer networks,
innovation and transformation of the Company’s business, and
the nature or impact of pending legal proceedings, are
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.
As such, actual results may differ materially from the results or
performance expressed or implied by such forward-looking
statements. Forward-looking statements involve known and unknown
risks, uncertainties and other factors, including those set forth
in this report and additional risks, if any, identified in our
Quarterly Reports on Form 10-Q and our Current Reports on Forms 8-K
filed with the SEC. Such forward-looking statements should be read
in conjunction with the Company's filings with the SEC. Insignia
assumes no responsibility to update the forward-looking statements
contained in this report or the reasons why actual results would
differ from those anticipated in any such forward-looking
statement, other than as required by law.
Our
business faces significant risks, including the risks described
above. 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.
Q
uantitative and Qualitative
Disclosures About Market Risk
Smaller
reporting companies are not required to provide disclosure pursuant
to this Item.
14
Item 8.
F
inancial Statements and
Supplementary Data
Index to Financial Statements
The
following are included on the pages indicated:
|
Report
of Independent Registered Public Accounting Firm
|
16
|
|
|
|
|
Balance
Sheets as of December 31, 2019 and 2018
|
17
|
|
|
|
|
Statements
of Operations for the years ended December 31, 2019 and
2018
|
18
|
|
|
|
|
Statements
of Shareholders’ Equity for the years ended December 31, 2019
and 2018
|
19
|
|
|
|
|
Statements
of Cash Flows for the years ended December 31, 2019 and
2018
|
20
|
|
|
|
|
Notes
to Financial Statements
|
21
|
15
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, 2019 and 2018, the related
consolidated statements of operations, shareholders’ equity,
and cash flows, for each of the two years in the period ended
December 31, 2019, 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, 2019 and 2018, and the
results of its operations and its cash flows for each of the two
years in the period ended December 31, 2019, 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
10, 2020
16
|
Insignia Systems, Inc.
|
||
|
BALANCE SHEETS
|
||
|
|
|
|
|
As of December 31
|
2019
|
2018
|
|
ASSETS
|
|
|
|
Current Assets:
|
|
|
|
Cash
and cash equivalents
|
$
7,510,000
|
$
10,160,000
|
|
Accounts
receivable, net
|
7,559,000
|
8,763,000
|
|
Inventories
|
322,000
|
353,000
|
|
Income
tax receivable
|
126,000
|
127,000
|
|
Prepaid
expenses and other
|
375,000
|
306,000
|
|
Total
Current Assets
|
15,892,000
|
19,709,000
|
|
|
|
|
|
Other Assets:
|
|
|
|
Property
and equipment, net
|
549,000
|
3,268,000
|
|
Operating
lease right-of-use assets
|
177,000
|
-
|
|
Other,
net
|
372,000
|
976,000
|
|
|
|
|
|
Total Assets
|
$
16,990,000
|
$
23,953,000
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
Current Liabilities:
|
|
|
|
Accounts
payable:
|
|
|
|
Other
|
3,036,000
|
3,334,000
|
|
Accrued
liabilities:
|
|
|
|
Compensation
|
539,000
|
2,021,000
|
|
Other
|
570,000
|
701,000
|
|
Current
portion of operating lease liabilities
|
212,000
|
-
|
|
Deferred
revenue
|
140,000
|
302,000
|
|
Total
Current Liabilities
|
4,497,000
|
6,358,000
|
|
|
|
|
|
Long-Term Liabilities:
|
|
|
|
Deferred
tax liabilities
|
-
|
504,000
|
|
Accrued
income taxes
|
643,000
|
613,000
|
|
Deferred
rent
|
-
|
158,000
|
|
Operating
lease liabilities
|
56,000
|
-
|
|
Total
Long-Term Liabilities
|
699,000
|
1,275,000
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
Shareholders' Equity:
|
|
|
|
Common
stock, par value $.01:
|
|
|
|
Authorized
shares - 40,000,000
|
|
|
|
Issued
and outstanding shares - 12,074,000 in 2019 and 11,840,000 in
2018
|
121,000
|
118,000
|
|
|
15,934,000
|
15,442,000
|
|
Retained
earnings (Accumulated deficit)
|
(4,261,000
)
|
760,000
|
|
Total
Shareholders' Equity
|
11,794,000
|
16,320,000
|
|
|
|
|
|
Total Liabilities and Shareholders' Equity
|
$
16,990,000
|
$
23,953,000
|
|
|
|
|
|
See accompanying notes to financial statements.
|
||
17
|
Insignia Systems, Inc.
|
||
|
STATEMENTS OF OPERATIONS
|
||
|
|
|
|
|
Year Ended December 31
|
2019
|
2018
|
|
Services
revenues
|
$
20,229,000
|
$
31,623,000
|
|
Products
revenues
|
1,725,000
|
1,613,000
|
|
Total
Net Sales
|
21,954,000
|
33,236,000
|
|
|
|
|
|
Cost
of services
|
15,756,000
|
19,467,000
|
|
Cost
of goods sold
|
1,437,000
|
1,208,000
|
|
Total
Cost of Sales
|
17,193,000
|
20,675,000
|
|
Gross
Profit
|
4,761,000
|
12,561,000
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
Selling
|
2,658,000
|
3,429,000
|
|
Marketing
|
2,394,000
|
2,674,000
|
|
General
and administrative
|
3,324,000
|
4,626,000
|
|
Impairment
loss
|
2,014,000
|
-
|
|
Total
Operating Expenses
|
10,390,000
|
10,729,000
|
|
Operating
Income (Loss)
|
(5,629,000
)
|
1,832,000
|
|
|
|
|
|
Other
income
|
142,000
|
51,000
|
|
Income
(Loss) Before Taxes
|
(5,487,000
)
|
1,883,000
|
|
|
|
|
|
Income
tax expense (benefit)
|
(466,000
)
|
484,000
|
|
Net
Income (Loss)
|
$
(5,021,000
)
|
$
1,399,000
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
Basic
|
$
(0.42
)
|
$
0.12
|
|
Diluted
|
$
(0.42
)
|
$
0.12
|
|
|
|
|
|
Shares
used in calculation of net income (loss) per share:
|
|
|
|
Basic
|
11,941,000
|
11,776,000
|
|
Diluted
|
11,941,000
|
12,007,000
|
|
|
|
|
|
See accompanying notes to financial statements.
|
||
18
|
Insignia Systems, Inc.
|
|||||||||||
|
STATEMENTS OF SHAREHOLDERS' EQUITY
|
|
|
Common Stock
|
Additional Paid-In
|
Retained Earnings
|
|
|
|
|
Shares
|
Amount
|
Capital
|
(Accumulated Deficit)
|
Total
|
|
Balance at January 1, 2018
|
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
|
|
Issuance of
common stock, net
|
107,000
|
1,000
|
107,000
|
-
|
108,000
|
|
Repurchase of
common stock upon vesting of restricted stock
units
|
(20,000
)
|
2,000
|
(37,000
)
|
-
|
(35,000
)
|
|
Value of
stock-based compensation
|
-
|
-
|
422,000
|
-
|
422,000
|
|
Restricted
stock award issuance
|
147,000
|
-
|
-
|
-
|
|
|
Net
loss
|
-
|
-
|
-
|
(5,021,000
)
|
(5,021,000
)
|
|
Balance at December 31, 2019
|
12,074,000
|
$
121,000
|
$
15,934,000
|
$
(4,261,000
)
|
$
11,794,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
|
|
|
|
||
19
|
|
|
|
|
|
|
Insignia Systems, Inc.
|
||||
|
STATEMENTS OF CASH FLOWS
|
||||
|
|
|
|
|
|
|
Year Ended December 31
|
2019
|
2018
|
|
Operating activities:
|
|
|
|
Net
income (loss)
|
$
(5,021,000
)
|
$
1,399,000
|
|
Adjustments
to reconcile net income (loss) to
net cash provided by (used in) operating activities:
|
|
|
|
Depreciation
and amortization
|
1,647,000
|
1,167,000
|
|
Impairment
loss
|
2,014,000
|
-
|
|
Changes
in allowance for doubtful accounts
|
43,000
|
(191,000
)
|
|
Deferred
income tax expense (benefit)
|
(504,000
)
|
259,000
|
|
Stock-based
compensation
|
422,000
|
410,000
|
|
Gain
on sale of property and equipment
|
-
|
(35,000
)
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
1,161,000
|
3,292,000
|
|
Inventories
|
31,000
|
(52,000
)
|
|
Income
tax receivable
|
1,000
|
233,000
|
|
Prepaid
expenses and other
|
(69,000
)
|
109,000
|
|
Accounts
payable
|
(224,000
)
|
95,000
|
|
Accrued
liabilities
|
(1,680,000
)
|
463,000
|
|
Accrued
income taxes
|
30,000
|
32,000
|
|
Deferred
revenue
|
(162,000
)
|
(70,000
)
|
|
Net
cash provided by (used in) operating activities
|
(2,311,000
)
|
7,111,000
|
|
|
|
|
|
Investing activities:
|
|
|
|
Purchases
of property and equipment
|
(398,000
)
|
(1,337,000
)
|
|
Proceeds
from sale of property and equipment
|
-
|
35,000
|
|
Purchase
of held to maturity investments
|
(4,981,000
)
|
-
|
|
Proceeds
from sale of held to maturity investments
|
4,981,000
|
-
|
|
Net
cash used in investing activities
|
(398,000
)
|
(1,302,000
)
|
|
|
|
|
|
Financing activities:
|
|
|
|
Cash
dividends paid ($0.70 per share)
|
(14,000
)
|
(14,000
)
|
|
Proceeds
from issuance of common stock, net
|
108,000
|
49,000
|
|
Repurchase
of common stock upon vesting of restricted stock awards and vesting
of restricted stock units
|
(35,000
)
|
(81,000
)
|
|
Repurchase
of common stock, net
|
-
|
(298,000
)
|
|
Net
cash provided by (used in) financing activities
|
59,000
|
(344,000
)
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
(2,650,000
)
|
5,465,000
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
10,160,000
|
4,695,000
|
|
Cash
and cash equivalents at end of year
|
$
7,510,000
|
$
10,160,000
|
|
|
|
|
|
Supplemental disclosures for cash flow information:
|
|
|
|
Cash
paid (refunded) during the year for income taxes
|
$
8,000
|
$
(39,000
)
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
Cash
dividends declared included in accounts payable
|
$
28,000
|
$
42,000
|
|
Purchases
of property and equipment included in accounts payable
|
$
-
|
$
60,000
|
|
|
|
|
|
See accompanying notes to financial statements.
|
|
|
20
Insignia Systems, Inc.
Notes to Financial Statements
1.
Summary of Significant Accounting
Policies
.
Description of
Business
.
Insignia
(the “Company”) is a leading provider of in-store and
digital advertising solutions to
consumer-packaged goods
(“CPG”)
manufacturers, retailers, shopper
marketing agencies and brokerages. The Company operates in a single
reportable segment. The Company has leaders and employees with
extensive industry knowledge with direct experience in both CPG
manufacturers and retailers. The Company provides marketing
solutions to CPG manufacturers spanning from some of the largest
multinationals to new and emerging brands.
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 custom print solutions and sign card
sales at the time the products are shipped to customers. Revenue
that has been billed and not yet earned is reflected as deferred
revenue on the balance sheet. The Company accounts 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, 2019 and 2018, $7,333,000
and $9,393,000 was invested in an insured sweep account and money
market 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, 2019 and 2018
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.
21
Changes
in the Company’s allowance for doubtful accounts are as
follows:
|
December 31
|
2019
|
2018
|
|
Beginning
balance
|
$
22,000
|
$
213,000
|
|
Bad
debt provision
|
47,000
|
6,000
|
|
Accounts
written-off
|
(4,000
)
|
(197,000
)
|
|
Ending
balance
|
$
65,000
|
$
22,000
|
Inventories
.
Inventories are primarily comprised of sign cards and hardware.
Inventory is valued at the lower of cost or net realizable value
using the first-in, first-out (FIFO) method, and consists of the
following:
|
December 31
|
2019
|
2018
|
|
Raw
materials
|
$
47,000
|
$
80,000
|
|
Work-in-process
|
16,000
|
12,000
|
|
Finished
goods
|
259,000
|
261,000
|
|
|
$
322,000
|
$
353,000
|
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
|
1 - 3
years
|
|
Computer
equipment and software
|
3 - 5
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.
A
hierarchy for inputs used in measuring fair value is in place that
distinguishes market data between observable independent market
inputs and unobservable market assumptions by the reporting entity.
The hierarchy is intended to maximize the use of observable inputs
and minimize the use of unobservable inputs by requiring that the
most observable inputs be used when
available.
The
Company identified indicators of impairment due to the current year
operating loss, cash flows used in operations and the excess of the
book value of the Company compared to its market capitalization,
which became a significant difference during the last two months of
2019. Due to these indicators of impairment, the Company completed
an impairment analysis on its long-lived assets by first reviewing
the expected undiscounted cash flows compared to the carrying value
over the primary asset’s remaining useful life to determine
if further impairment testing was required. The Company prepared an
undiscounted cash flow analysis related to its selling agreement
(see Note 3) which is a separate asset group and as the
undiscounted cash flows exceeded the carrying value, no further
impairment testing was required. For the property and equipment
asset group, the undiscounted cash flows were less than carrying
value and therefore, a fair value assessment was required to
determine the amount of the impairment. Due to the nature of the
primary asset (internally developed software), the most readily
available fair market value related to the asset is the market
capitalization of the Company which is considered a level 1
measurement (quoted market price). After allocating the
Company’s market capitalization to its working capital, there
was no remaining value to allocate to long-lived assets which
included the internally developed software recently placed in
service. The Company utilized other level 3 inputs to determine the
fair value of other tangible long-lived assets, including appraised
values of production tooling, machinery and equipment. As a result,
the Company recorded a long-lived asset impairment charge totaling
$2,014,000 during the 4
th
quarter
2019.
22
|
Property and Equipment, net:
|
|
|
Balance
prior to impairment
|
$
2,563,000
|
|
Impairment
charge
|
(2,014,000
)
|
|
Ending
balance
|
$
549,000
|
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 $133,000 and $207,000
during the years ended December 31, 2019 and 2018,
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.
23
Weighted average
common shares outstanding for the years ended December 31, 2019 and
2018 were as follows:
|
Year ended December 31
|
2019
|
2018
|
|
Denominator
for basic net income (loss) per share - weighted average
shares
|
11,941,000
|
11,776,000
|
|
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
|
11,941,000
|
12,007,000
|
Due to
the net loss incurred during the year ended December 31, 2019, all
stock awards were anti-dilutive for the period. 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 were anti-dilutive due
to the amount of weighted-average unrecognized compensation related
to these grants.
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, 2019, the Company adopted
Financial Accounting Standards Board Accounting Standards Update
(“ASU”) 2016-02,
“Leases
”
(“Topic 842”)
under which lessees will recognize
most leases on the balance sheet. At the date of adoption of the
standard the Company recorded a right of use asset with a value of
$305,000, reduced deferred rent by $158,000 and recorded a lease
liability of $463,000. The Company elected the option under Topic
842 not to restate comparative periods in the transition. In
addition, the Company elected the package of practical expedients
permitted under the transition guidance within the new standard
which allowed it to carry forward the historical lease
classification. Additional required disclosures for Topic 842 are
contained in Note 5.
2.
Investments
. As of December 31, 2019,
the Company did not have any investments. Prior to December 31,
2019, the Company had invested its excess cash in debt securities,
with an average maturity of approximately six months, and were
classified as held to maturity within current assets in accordance
with Accounting Standards Codification (“ASC”) 320-10,
“Investments – Debt and Equity
Securities.”
3.
Revenue Recognition.
Under ASU 2014-09
Revenue from Contracts with
Customers
(“Topic 606”),
revenue is measured based on consideration
specified in the contract with a customer, adjusted for any
applicable estimates of variable consideration and other factors
affecting the transaction price, including noncash consideration,
consideration paid or payable to a customer and significant
financing components. Revenue from all customers is recognized when
a performance obligation is satisfied by transferring control of a
distinct good or service to a customer, as further described below
under “
Performance
Obligations
.”
Taxes
collected from customers and remitted to governmental authorities
are excluded from revenue on the net basis of
accounting.
The
Company includes shipping and handling fees in revenues. Shipping
and handling costs associated with outbound freight after control
over a product has transferred to a customer are accounted for as a
fulfillment cost and are included in cost of goods
sold.
Performance Obligations
A performance obligation is a promise in a
contract to transfer a distinct good or service to the customer and
is the unit of account under Topic 606. A contract’s
transaction price is allocated to each distinct performance
obligation and recognized as revenue when, or as, the performance
obligation is satisfied. The following is a description of
t
he Company’s
performance
obligations included in its primary revenue streams and the timing
or method of revenue recognition for each:
24
In-Store
Signage Solution Services.
The Company’s
primary source of revenue is from executing
in-store advertising solutions and services primarily to CPG
manufacturers. T
he Company
provides a service of displaying promotional signs
in close proximity to the manufacturer’s product in
participating stores, which
the Company
maintains in two-to-four-week cycle
increments.
Each of the individual activities under t
he
Company’s
services, including
production activities, are inputs to an integrated sign display
service. Customers receive and consume the benefits from the
promotional displays over the duration of the contracted display
cycle. Additionally, the display of the signs does not have an
alternative use to
the Company
and t
he Company
has an enforceable right to payment for services
performed to date. As a result,
the Company
recognizes the transaction price for its POPS
service performance obligations as revenue over time. Given the
nature of
the Company’s
performance obligations is to provide a display
service over the duration of a specified period or periods,
the Company
recognizes revenue on a
straight-line basis over the display service period as it best
reflects the timing of transfer of its POPS
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
.
The Company
also sells custom print solutions directly to its
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, 2019
|
||
|
|
Services Revenues
|
Products Revenue
|
Total Revenue
|
|
Timing of revenue recognition:
|
|
|
|
|
Products
and services transferred over time
|
$
15,172,000
|
$
-
|
$
15,172,000
|
|
Products
and services transferred at a point in time
|
5,057,000
|
1,725,000
|
6,782,000
|
|
Total
|
$
20,229,000
|
$
1,725,000
|
$
21,954,000
|
|
|
Year ended December 31, 2018
|
||
|
|
Services Revenues
|
Products Revenue
|
Total Revenue
|
|
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.
25
Deferred Revenue
Significant changes
in deferred revenue during the period are as follows:
|
Balance
at December 31, 2018
|
$
302,000
|
|
Reclassification
of beginning deferred revenue to revenue, as a result of
performance obligations satisfied
|
(302,000
)
|
|
Cash
received in advance and not recognized as revenue
|
140,000
|
|
Balance
at December 31, 2019
|
$
140,000
|
Transaction Price Allocated to Remaining Performance
Obligations
The
Company applies the practical expedient in paragraph 606-10-50-14
and does not disclose information about remaining performance
obligations that have original expected durations of one year or
less, which reflect the majority of its performance obligations.
This practical expedient is being applied to arrangements for
certain incomplete services and unshipped custom signage materials.
At December 31, 2019, there were no contracts with an expected
duration of greater than one year.
4.
Selling
Arrangement
.
In 2011, the Company paid 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 in the
year ended December 31, 2018. Amortization expense was $600,000 in
the year ended December 31, 2019. The acceleration of amortization
in 2019 was based on the anticipated recovery period over the
remaining term of the contract due to the loss of a significant
retailer. Amortization expense is expected to be $262,000 in 2020
and $55,000 in the year ending December 31, 2021. 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:
|
|
2019
|
2018
|
|
Gross
cost
|
$
4,000,000
|
$
4,000,000
|
|
Accumulated
amortization
|
(3,683,000
)
|
(3,083,000
)
|
|
Net
carrying amount
|
$
317,000
|
$
917,000
|
5
.
Property and Equipment.
Property and
equipment consists of the following at December 31:
|
Year ended December 31
|
2019
|
2018
|
|
Property and Equipment:
|
|
|
|
Production
tooling, machinery and equipment
|
$
3,685,000
|
$
3,694,000
|
|
Office
furniture and fixtures
|
393,000
|
385,000
|
|
Computer
equipment and software
|
1,426,000
|
2,743,000
|
|
Leasehold
improvements
|
-
|
577,000
|
|
Construction
in-progress
|
-
|
1,179,000
|
|
|
5,504,000
|
8,578,000
|
|
Accumulated
depreciation and amortization
|
(4,955,000
)
|
(5,310,000
)
|
|
Net
Property and Equipment
|
$
549,000
|
$
3,268,000
|
26
Depreciation
expense for the years ended December 31, 2019 and 2018 was
$1,044,000 and $761,000, respectively.
6.
Leases.
The
Company
leases space under a
non-cancelable operating lease for its corporate headquarters. This
lease has escalating lease terms and also includes a tenant
incentive that was recorded at the time the lease was originally
entered into. The lease does not contain contingent rent
provisions. The Company also has a lease for additional office
space under an operating lease. The lease for
the
Company’s
corporate headquarters
includes both lease (e.g., fixed payments including rent, taxes,
and insurance costs) and non-lease components (e.g., common-area or
other maintenance costs) which are accounted for as a single lease
component as we have elected the practical expedient to group lease
and non-lease components for all leases. The lease for t
he
Company’s
additional office
space is non-cancelable with a lease term of less than one
year and therefore, we have elected the practical expedient to
exclude this short-term lease from
the Company’s
right-of-use assets and lease
liabilities
.
The
Company’s
leases include options
to renew. The exercise of lease renewal options is at our sole
discretion. Therefore, the renewals to extend the lease terms are
not included in
the Company’s
right of use assets and lease liabilities as they
are not reasonably certain of exercise. We regularly evaluate the
renewal options and when they are reasonably certain of exercise,
we include the renewal period in our lease
term
.
We used t
he Company’s
incremental borrowing rate based on the
information available at the lease commencement date in determining
the present value of the lease payments
.
The cost components of
the Company’s
operating leases were as follows for
the period ended December 31, 2019:
|
|
Year ended December 31, 2019
|
||
|
|
Corporate
|
Additional
|
Operating
|
|
|
Headquarters
|
Office Space
|
Leases
|
|
Operating
lease cost
|
$
150,000
|
$
-
|
$
150,000
|
|
Variable
lease cost
|
106,000
|
-
|
106,000
|
|
Short-term
lease cost
|
-
|
38,000
|
38,000
|
|
Total
|
$
256,000
|
$
38,000
|
$
294,000
|
Variable lease costs consist primarily of taxes,
insurance, and common area or other maintenance costs for
t
he Company’s
leased
corporate headquarters which are paid based on actual costs
incurred by the lessor.
Maturities of
the Company’s
lease liabilities for its corporate
headquarters operating lease were as follows as of December 31,
2019:
|
Maturity of Lease Liabilities
|
Operating Leases
|
|
2020
|
$
222,000
|
|
2021
|
57,000
|
|
Total
lease payments
|
$
279,000
|
|
Less:
Interest
|
11,000
|
|
Present
value of lease liabilities
|
$
268,000
|
The
remaining lease term as of December 31, 2019 was 1.25 years and the
discount rate was 6%. The cash outflow for operating leases for the
year ended December 31, 2019 was $217,000.
27
The
following table presents future minimum lease payments for the
Company’s operating leases at December 31, 2018 under ASC 840
and is being presented for comparative purposes:
|
2019
|
$
217,000
|
|
2020
|
222,000
|
|
2021
|
57,000
|
Rent
expense under these leases was approximately $184,000 for the year
ended December 31, 2018.
7.
Commitments
and Contingencies.
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, 2019 and 2018, the Company incurred $3,356,000 and
$4,846,000 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:
|
2020
|
$
2,534,000
|
|
2021
|
1,793,000
|
|
2022
|
518,000
|
|
2023
|
275,000
|
On an
ongoing basis the Company negotiates renewals of various agreements
with retailers, r
etailer contracts
generally have terms of one to three years.
To the extent
contracts with existing retailers are renewed the annual commitment
amounts for 2020 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.
In July
2019, we brought suit against News America in the U.S. District
Court in Minnesota, alleging violations of federal and state
antitrust and tort laws by News America. The complaint alleges that
News America has monopolized the national market for third-party
in-store advertising and promotion products and services through
various wrongful acts designed to harm the Company, its last
significant competitor. The suit seeks, among other relief, an
injunction sufficient to prevent further antitrust injury and an
award of treble damages to be determined at trial for the harm
caused to our Company.
In
August 2019, News America filed an answer and
counterclaim. In October 2019, News America moved for a
judgment on the pleadings. Management believes that the
counterclaim is without merit, and we filed a response brief on
November 11, 2019. We also moved to dismiss the counterclaim
against us. The Court heard oral arguments from both parties on
January 14, 2020, and a decision is outstanding.
Discovery is
underway and trial has been scheduled for June 2021. Due to the
early nature of these proceedings, we are unable to determine the
likelihood of an unfavorable outcome or estimate any potential
resulting liability at this time.
8.
Shareholders’ Equity
.
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.
28
The
following table summarizes the stock-based compensation expense
that was recognized in the Company’s statements of operations
for the years ended December 31, 2019 and 2018:
|
Year ended December 31
|
2019
|
2018
|
|
Cost
of sales
|
$
14,000
|
$
11,000
|
|
Selling
|
121,000
|
102,000
|
|
Marketing
|
12,000
|
71,000
|
|
General
and administrative
|
275,000
|
226,000
|
|
|
$
422,000
|
$
410,000
|
The
Company uses the Black-Scholes option pricing model to estimate
fair value of stock-based awards with the following weighted
average assumptions:
|
|
|
|
|
|
|
2018
|
|
Stock Options:
|
|
|
|
Expected
life (years)
|
|
6.5
|
|
Expected
volatility
|
|
51
%
|
|
Dividend
yield
|
|
0
%
|
|
Risk-free
interest rate
|
|
2.8
%
|
|
|
|
|
|
|
2019
|
2018
|
|
Stock Purchase Plan Options:
|
|
|
|
Expected
life (years)
|
1.0
|
1.0
|
|
Expected
volatility
|
57
%
|
66
%
|
|
Dividend
yield
|
0
%
|
0
%
|
|
Risk-free
interest rate
|
2.6
%
|
1.8
%
|
There
were no options granted during the year ended December 31,
2019.
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. No further awards may be granted under the 2013 Plan or
the 2003 Plan. 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. All equity awards made during 2019 were 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.
29
The
following table summarizes activity under the 2003, 2013 and 2018
Plans:
|
|
Plan Shares Available for Grant
|
Plan Options Outstanding
|
Weighted Average Exercise Price Per Share
|
Aggregate
Intrinsic Value
|
|
Balance
at January 1, 2018
|
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
|
|
|
|
|
|
|
|
|
Restricted
stock units and awards granted - 2018 Plan
|
( 70,755
)
|
—
|
|
|
|
Cancelled
or forfeited - 2018 Plan options
|
13,570
|
( 13,570
)
|
1.95
|
|
|
Cancelled
or forfeited - 2018 Plan
restricted stock and restricted stock units
|
13,570
|
—
|
1.95
|
|
|
Cancelled
or forfeited - 2013 Plan options
|
20,492
|
( 20,492
)
|
2.10
|
|
|
Cancelled
or forfeited - 2013 Plan
restricted stock and restricted stock units
|
21,748
|
—
|
1.72
|
|
|
Cancelled
or forfeited - 2003 Plan options
|
—
|
( 41,666
)
|
2.46
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2019
|
823,557
|
297,199
|
2.38
|
|
The
number of options exercisable under the Plans was:
|
December
31, 2019
|
191,254
|
|
|
December
31, 2018
|
253,412
|
|
The
following table summarizes information about the stock options
outstanding at December 31, 2019:
|
|
Options
Outstanding
|
Options
Exercisable
|
|||
|
Ranges
of Exercise Prices
|
Number
Outstanding
|
Weighted
Average Remaining Contractual Life
|
Weighted
Average Exercise Price Per Share
|
Number
Exercisable
|
Weighted
Average Exercise Price Per Share
|
|
$
1.18 - $2.04
|
148,291
|
6.93 years
|
$
1.74
|
42,346
|
$
1.22
|
|
$
2.05 - $3.09
|
106,557
|
3.05 years
|
2.61
|
106,557
|
2.61
|
|
$
4.02
|
42,351
|
0.40 years
|
4.02
|
42,351
|
4.02
|
|
|
297,199
|
4.61 years
|
$
2.38
|
191,254
|
$
2.61
|
Options
outstanding under the Plans expire at various dates during the
period from May 2020 through August 2028. Options outstanding at
December 31, 2019 had no intrinsic value. Options exercisable at
December 31, 2019 had a weighted average remaining life of 2.39
years and no intrinsic value. No options were granted in 2019. The
weighted average grant-date fair value of options granted during
the year ended December 31, 2018 was $1.04.
30
No
restricted stock or restricted stock unit awards were granted in
2019 to employees. 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 the Company’s 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
June 2019, non-employee members of the Board of Directors received
restricted stock grants totaling 70,755 shares pursuant to the 2018
Plan. The shares underlying the awards were assigned a value of
$1.06 per share, which was the closing price of the Company’s
common stock on the date of grants, for a total value of $75,000,
and are scheduled to vest the day immediately preceding the date of
the next annual shareholder meeting. 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 the Company’s common stock on
the date of grants, for a total value of $90,000, and vested on
June 5, 2019, the date of the 2019 annual shareholder
meeting.
Restricted stock
and restricted stock unit transactions during the years ended
December 31, 2019 and 2018 are summarized as follows:
|
|
Number of Shares
|
Weighted average
grant date fair value
|
|
Unvested
shares at January 1, 2018
|
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
|
|
Granted
|
70,755
|
1.06
|
|
Vested
|
(210,742
)
|
1.59
|
|
Forfeited
or surrendered
|
(37,973
)
|
1.84
|
|
Unvested
shares at December 31, 2019
|
315,362
|
$
1.92
|
As
of December 31, 2019, there was approximately $58,000 of total
unrecognized compensation costs related to outstanding stock
options, which is expected to be recognized over a weighted average
period of 2.61 years.
As
of December 31, 2019, there was approximately $230,000 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 1.68 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. During the years ended
December 31, 2019 and 2018, respectively, participants
purchased 32,471 and 107,341 shares under the ESPP. At December 31,
2019, 245,909 shares were reserved for future employee purchases of
common stock under the ESPP. For the years ended December 31, 2019
and 2018, the Company recognized $55,000 and $58,000, 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 allows the repurchases to be
made in open market or privately negotiated transactions. The plan
does not obligate the Company to repurchase any particular number
of shares and may be suspended at any time at the Company’s
discretion. For the year ended December 31, 2019, the Company did
not repurchase any shares.
Dividends.
The
Company has not historically paid dividends, other than one-time
dividends declared in 2011 and 2016. 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.
31
9.
Income Taxes
. Income tax expense (benefit) consists of the
following:
|
Year Ended December 31
|
2019
|
2018
|
|
Current
taxes - Federal
|
$
-
|
$
177,000
|
|
Current
taxes - State
|
38,000
|
48,000
|
|
Deferred
taxes - Federal
|
(437,000
)
|
227,000
|
|
Deferred
taxes - State
|
(67,000
)
|
32,000
|
|
|
|
|
|
Income
tax expense (benefit)
|
$
(466,000
)
|
$
484,000
|
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% as
follows:
|
Year Ended December 31
|
2019
|
2018
|
|
Federal
statutory rate
|
21.0
%
|
21.0
%
|
|
|
|
|
|
Stock-based
awards
|
(0.8
)
|
0.6
|
|
State
taxes
|
3.2
|
2.8
|
|
Other
permanent differences
|
(0.1
)
|
0.7
|
|
Impact
of uncertain tax positions
|
(0.6
)
|
1.7
|
|
Valuation
allowance
|
(14.0
)
|
(1.6
)
|
|
Other
|
(0.2
)
|
0.5
|
|
|
|
|
|
Effective
federal income tax rate
|
8.5
%
|
25.7
%
|
Components of
resulting noncurrent deferred tax assets (liabilities) are as
follows:
|
As of December 31
|
2019
|
2018
|
|
Deferred tax assets
|
|
|
|
Accrued
expenses
|
$
105,000
|
$
129,000
|
|
Inventory
reserve
|
5,000
|
3,000
|
|
Stock-based
awards
|
88,000
|
78,000
|
|
Reserve
for bad debts
|
16,000
|
5,000
|
|
Net
operating loss and credit carryforwards
|
715,000
|
39,000
|
|
Other
|
26,000
|
23,000
|
|
Valuation
allowance
|
(848,000
)
|
(79,000
)
|
|
|
|
|
|
Total
deferred tax assets
|
$
107,000
|
$
198,000
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
Depreciation
|
$
(18,000
)
|
$
(635,000
)
|
|
Prepaid
expenses
|
(89,000
)
|
(67,000
)
|
|
|
|
|
|
Total
deferred tax liabilities
|
(107,000
)
|
(702,000
)
|
|
|
|
|
|
Net
deferred income tax liabilities
|
$
-
|
$
(504,000
)
|
As of
December 31, 2019, the Company had a Federal net operating loss
(NOL) to carry forward of approximately $2,764,000 and state NOLs
of $2,076,000 to carry forward. The Federal NOLs can be carried
forward indefinitely. The expiration of state NOLs carried forward
varies by taxing jurisdiction. Future utilization of NOLs carried
forward may be subject to certain limitations under Section 382 of
the Internal Revenue Code.
32
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 consideration the Company’s recent performance. The
change in the valuation allowance for the years ended December 31,
2019 and 2018 was $769,000 and ($29,000),
respectively.
The
Company has recorded a liability of $643,000 and $613,000 for
uncertain tax positions taken in tax returns in previous years as
of December 31, 2019 and 2018, 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 2016 and
forward are open for examination and assessment by the Internal
Revenue Service. With limited exceptions, tax years prior to 2016
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,
2020.
A
reconciliation of the beginning and ending amount of the liability
for uncertain tax positions is as follows:
|
Balance
at January 1, 2018
|
$
581,000
|
|
Increases
due to interest and state tax
|
32,000
|
|
Balance
at December 31, 2018
|
613,000
|
|
Increases
due to interest and state tax
|
30,000
|
|
Balance
at December 31, 2019
|
$
643,000
|
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, 2019 and 2018, the Company made matching
contributions of $72,000 and $68,000, respectively.
11.
Concentrations.
Major
Customers
.
During the
year ended December 31, 2019, two customers accounted for 13% and
12%, respectively of the Company’s total net sales. At
December 31, 2019, four customers represented 17%, 12%, 12% and
10%, respectively of the Company’s total accounts receivable.
During the year ended December 31, 2018, two customers accounted
for 24% and 20%, respectively of the Company’s total net
sales. At December 31, 2018, two customers represented 31% and 16%,
respectively of the Company’s total accounts
receivable.
Although there are
a number of customers that the Company sells to, the loss of a
major customer could adversely affect operating results.
Additionally, the loss of a major retailer from the Company’s
retail network could adversely affect operating results
.
Export Sales
. Export
sales accounted for less than 1% of total net sales during the
years ended December 31, 2019 and 2018.
33
12.
Quarterly Financial Data
.
(Unaudited)
Quarterly data for
the years ended December 31, 2019 and 2018 was as
follows:
|
Year Ended December 31, 2019
|
1st Quarter
|
2nd Quarter
|
3rd Quarter
|
4th Quarter
|
|
Net
sales
|
$
5,140,000
|
$
5,842,000
|
$
4,654,000
|
$
6,318,000
|
|
Gross
profit
|
774,000
|
1,465,000
|
926,000
|
1,596,000
|
|
Net
loss
|
(1,096,000
)
|
(488,000
)
|
(978,000
)
|
(2,459,000
)
|
|
Net
loss per share:
|
|
|
|
|
|
Basic
|
$
(0.09
)
|
$
(0.04
)
|
$
(0.08
)
|
$
(0.21
)
|
|
Diluted
|
$
(0.09
)
|
$
(0.04
)
|
$
(0.08
)
|
$
(0.21
)
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
1st Quarter
|
2nd Quarter
|
3rd Quarter
|
4th Quarter
|
|
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
|
Item 9.
C
hanges in and Disagreements
with Accountants on Accounting and Financial
Disclosures
None.
Item 9A.
C
ontrols and
Procedures
Evaluation of Disclosure Controls and Procedures
The
Company’s management carried out an evaluation, under the
supervision and with the participation of the Company’s 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, 2019, pursuant
to Exchange Act Rule 13a-15. Based upon that evaluation, management
identified a material weakness in our internal control over
financial reporting. As a result of this material weakness,
management concluded that our disclosure controls and procedures
were not effective.
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, 2019. 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.
Long-lived Asset Impairment Testing.
Based on management’s testing and
evaluation, we determined that we did not design and maintain
effective internal control over the impairment testing that we
performed in accordance with ASC 360,
Property, Plant, and
Equipment
, as of December 31,
2019. Specifically,
the Company did not appropriately
evaluate the indicators of impairment primarily related to its
review of the impact of operating losses and negative cash flows
attributable to the asset group which included the Company’s
internally developed software as well as consideration of the
decline in the Company's market capitalization during the fourth
quarter of 2019 as an indicator of impairment.
34
Implemented or Planned Remedial Actions in Response to Material
Weaknesses
To address the above, we are in the process of designing new review
controls to assess the long-lived asset impairment analyses to
ensure they are completed in a timely manner and in enough detail
to operate at a sufficient level of precision to identify improper
assumptions.
Inherent Limitations on Control Systems
Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, will be or have been
detected. These inherent limitations include the realities that
judgments in decision making can by faulty, and that breakdowns can
occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the
control. The design of any system of controls also is based in part
upon certain assumptions about the likelihood of future events and
there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may
deteriorate.
Changes in Internal Control Over Financial Reporting
Except
as noted above, no changes in the Company’s internal control
over financial reporting occurred during the Company’s most
recently completed fiscal quarter that have materially affected, or
are reasonably likely to materially affect, the Company’s
internal control over financial reporting.
This Annual Report on Form 10-K 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 on Form 10-K.
Item 9B.
O
ther
Information
None.
PART
III.
Item 10.
D
irectors, Executive Officers
and Corporate Governance
Incorporated
into this Item by reference is the information appearing under the
headings “Proposal One – Election of Directors,”
“Corporate Governance and Board Matters,”
“Submission of Shareholder Proposals and Nominations”
and, if any, “Delinquent Section 16(a) Reports,” in our
Proxy Statement for our 2020 Annual Meeting of Shareholders we
intend to file with the SEC (the “Proxy
Statement”).
Executive Officers of the Registrant
As of
the date of filing this Form 10-K, the following individuals were
executive officers of the Company:
|
Name
|
|
Age
|
|
Position
|
|
Kristine
A. Glancy
|
|
42
|
|
President,
Chief Executive Officer and Secretary
|
|
Jeffrey
A. Jagerson
|
|
53
|
|
Vice
President of Finance, Chief Financial Officer and
Treasurer
|
|
Adam D.
May
|
|
36
|
|
Chief
Growth Officer
|
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.
35
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.
Adam D. May
, has been our Chief
Growth Officer since January 2020. He served as Senior Vice
President of Sales from July 2017 to December 2019. Mr. May has 10
years of CPG sales and business development experience at Mars,
Incorporate and The Kraft Heinz Company. Most recently Mr. May
served as Associate Director from September 2016 to July 2017. He
held several Customer Business Lead roles from November 2012 to
September 2016. Before joining The Kraft Heinz Company, Mr. May
held several Sales positions at Mars Petcare from March 2008 to
November 2012. His 10 plus years of experience provides necessary
skills to the Company in the areas of Sales, Sales Strategy and
Business Development. Mr. May holds a Bachelor of Science in
Business Administration and Management from Indiana
University.
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.
E
xecutive
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.
S
ecurity 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” in the Proxy Statement is
incorporated herein by reference.
Item 13.
C
ertain 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.
36
Item 14.
P
rincipal 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.
E
xhibits 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, 2019 and 2018
Statements of
Operations for the years ended December 31, 2019 and
2018
Statements of
Shareholders’ Equity for the years ended December 31, 2019
and 2018
Statements of Cash
Flows for the years ended December 31, 2019 and 2018
Notes
to Financial Statements
(a)
Exhibits
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
|
|
|
|
|
|
|
|
|
+
4.1
|
|
Description
of Securities
|
|
Filed
Electronically
|
|
|
|
|
|
|
|
*
10.1
|
|
2003
Incentive Stock Option Plan, as amended
|
|
Exhibit
10.1 of the Registrant’s Form 8-K filed December 2,
2016
|
|
|
|
|
|
|
|
*
10.2
|
|
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
|
|
|
|
|
|
|
|
*
10.3
|
|
2013
Omnibus Stock and Incentive Plan, as amended
|
|
Exhibit
10.2 of the Registrant’s Form 8-K filed December 2,
2016
|
|
|
|
|
|
|
|
*
10.4
|
|
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
|
|
*
10.5
|
|
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
|
|
|
|
|
|
|
|
*
10.6
|
|
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
|
|
|
|
|
|
|
37
|
Exhibit
Number
|
|
Description
|
|
Incorporated by Reference To
|
|
*
10.7
|
|
2018
Equity Incentive Plan
|
|
Exhibit
99.1 of the Registrant’s Registration Statement on Form S-8,
Reg. No. 333-226670
|
|
|
|
|
|
|
|
*
10.8
|
|
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
|
|
|
|
|
|
|
|
*
10.9
|
|
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
|
|
|
|
|
|
|
|
*
10.10
|
|
Form of
Restricted Stock Unit Agreement for Non-Employee Directors under
the 2018 Equity Incentive Plan
|
|
Exhibit
10.1 of the Registrant’s Form 10-Q for the quarterly period
ended June 30, 2019
|
|
|
|
|
|
|
|
*
10.11
|
|
Employee
Stock Purchase Plan, as amended
|
|
Exhibit
99.2 of the Registrant’s Registration Statement on Form S-8,
Reg. No. 333-226670
|
|
|
|
|
|
|
|
*
10.12
|
|
Deferred
Compensation Plan for Directors
|
|
Exhibit
10.1 of the Registrant’s Form 10-Q for the quarterly period
ended March 31, 2018
|
|
|
|
|
|
|
|
*
10.13
|
|
Employment
Agreement with Kristine Glancy dated April 8, 2016
|
|
Exhibit
10.1 of the Registrant’s Form 8-K filed April 13,
2016
|
|
|
|
|
|
|
|
*
10.14
|
|
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
|
|
|
|
|
|
|
|
*
10.15
|
|
First
Amendment to Change in Control Agreement with Kristine A. Glancy
dated April 28, 2018
|
|
Exhibit
10.1 of the Registrant’s Form 10-Q for the quarterly period
ended March 31, 2019
|
|
|
|
|
|
|
|
*
10.16
|
|
Employment
Agreement with Jeffrey Jagerson dated July 17, 2017
|
|
Exhibit
10.1 of the Registrant’s Form 8-K filed June 30,
2017
|
|
|
|
|
|
|
|
*
10.17
|
|
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
|
|
|
|
|
|
|
|
+*
10.18
|
|
Employment
Agreement with Adam May dated December 20, 2019
|
|
Filed
Electronically
|
|
|
|
|
|
|
|
+*
10.19
|
|
Change
in Control Agreement with Adam May dated December 20,
2019
|
|
Filed
Electronically
|
|
|
|
|
|
|
|
|
Industrial/Warehouse
Lease Agreement between the Company and Opus Northwest L.L.C. dated
March 27, 2008**
|
|
Exhibit 10.22 of
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2007
|
|
|
|
|
|
|
|
|
|
First
Amendment to Industrial/Warehouse Lease Agreement with James
Campbell Company LLC (as successor in interest to Opus Northwest
L.L.C.) dated September 14, 2015
|
|
Exhibit
10.1 of the Registrant’s Form 10-Q for the quarterly period
ended September 30, 2015
|
|
^
10.22
|
|
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
|
|
|
|
|
|
|
38
|
Exhibit
Number
|
|
Description
|
|
Incorporated by Reference To
|
|
^
10.23
|
|
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
|
|
|
|
|
|
|
|
|
Cooperation
Agreement with Nick Swenson, Air T, Inc. and Groveland Capital LLC,
dated May 17, 2018
|
|
Exhibit
10.1 of the Registrant’s Form 8-K filed May 18,
2018
|
|
|
|
|
|
|
|
|
+
23.1
|
|
Consent
of Independent Registered Public Accounting Firm
|
|
|
|
|
|
|
|
|
|
+
24.1
|
|
Powers
of Attorney
|
|
|
|
|
|
|
|
|
|
+
31.1
|
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
+
31.2
|
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
++
32
|
|
Section
1350 Certifications
|
|
|
|
|
|
|
|
|
|
+101.1
|
|
The
following materials from Insignia Systems, Inc.’s Annual
Report on Form 10-K for the year ended December 31, 2019 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 report pursuant to Item 15(b) of
Form 10-K.
**Schedules and
exhibits to the agreement have been omitted pursuant to Item
601(a)(5) of Regulation S-K. A copy of any omitted schedule or
exhibit will be furnished to the SEC upon
request.
+
Filed
herewith.
++
Furnished
herewith.
^
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
S
ummary
None.
39
S
IGNATURES
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 10,
2020
|
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 10,
2020
|
|
Kristine A.
Glancy
|
|
(principal
executive officer)
|
|
|
|
|
|
|
|
|
|
/s/ Jeffrey A.
Jagerson
|
|
Vice President of
Finance, Chief Financial Officer and Treasurer
|
|
March 10,
2020
|
|
Jeffrey A.
Jagerson
|
|
(principal
financial and accounting officer)
|
|
|
|
|
|
|
|
|
|
*
|
|
Chairman of the
Board, Director
|
|
March 10,
2020
|
|
Jacob J.
Berning
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
March 10,
2020
|
|
Chad B. Johnson
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
March 10,
2020
|
|
Loren A.
Unterseher
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
March 10,
2020
|
|
Rachael B.
Vegas
|
|
|
|
|
*
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
Attorney-in-fact
|
|
|
|
|
||
40
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosuresItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement SchedulesItem 16. Form 10-k Summary