INSIGNIA SYSTEMS,
INC.
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(Exact
name of registrant as specified in its charter)
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Minnesota
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41-1656308
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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8799 Brooklyn Blvd., Minneapolis, MN
55445
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(Address
of principal executive offices; zip code)
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(763) 392-6200
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(Registrant’s
telephone number, including area code)
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Large
accelerated filer
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☐
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Accelerated
filer
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☐
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Non-accelerated
filer
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☐
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(Do not
check if a smaller reporting
company)
|
Smaller
reporting company
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☑
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Emerging
growth company
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☐
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Page
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PART I.
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FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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1
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2
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3
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4
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Item 2.
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10
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Item 3.
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15
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Item 4.
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15
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PART II.
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Item 1.
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15
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Item 1A.
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15
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Item 2.
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16
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Item 3.
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16
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Item 4.
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16
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Item 5.
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16
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Item 6.
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17
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Insignia Systems, Inc.
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CONDENSED BALANCE
SHEETS
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||
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September 30,
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2018
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December 31,
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(Unaudited)
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2017
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ASSETS
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Current Assets:
|
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Cash
and cash equivalents
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$7,590,000
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$4,695,000
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Accounts
receivable, net
|
11,294,000
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11,864,000
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Inventories
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323,000
|
301,000
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Income
tax receivable
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94,000
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360,000
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Prepaid
expenses and other
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335,000
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415,000
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Total
Current Assets
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19,636,000
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17,635,000
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Other Assets:
|
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Property
and equipment, net
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3,049,000
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2,670,000
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Other,
net
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1,078,000
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1,383,000
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Total Assets
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$23,763,000
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$21,688,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current Liabilities:
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Accounts
payable
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3,739,000
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3,232,000
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Accrued
liabilities:
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Compensation
|
1,503,000
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1,531,000
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Other
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938,000
|
667,000
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Deferred
revenue
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753,000
|
372,000
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Total
Current Liabilities
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$6,933,000
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$5,802,000
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Long-Term Liabilities:
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Deferred
tax liabilities
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236,000
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245,000
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Accrued
income taxes
|
604,000
|
581,000
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Deferred
rent
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173,000
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219,000
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Total
Long-Term Liabilities
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$1,013,000
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$1,045,000
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Commitments and Contingencies
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—
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—
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Shareholders' Equity:
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Common
stock, par value $.01:
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Authorized
shares - 40,000,000
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Issued
and outstanding shares - 11,848,000 at September 30, 2018 and
11,914,000 at December 31, 2017
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118,000
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119,000
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Additional
paid-in capital
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15,345,000
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15,361,000
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Retained
earnings (Accumulated deficit)
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354,000
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(639,000)
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Total
Shareholders' Equity
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15,817,000
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14,841,000
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Total Liabilities and Shareholders' Equity
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$23,763,000
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$21,688,000
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See accompanying notes to financial statements.
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Insignia Systems, Inc.
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||||
CONDENSED STATEMENTS OF
OPERATIONS
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||||
(Unaudited)
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||||
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Three Months Ended
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Nine Months Ended
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September 30
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September 30
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2018
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2017
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2018
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2017
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Services
revenues
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$9,069,000
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$7,353,000
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$23,963,000
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$17,169,000
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Products
revenues
|
386,000
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370,000
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1,156,000
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1,170,000
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Total
Net Sales
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9,455,000
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7,723,000
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25,119,000
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18,339,000
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Cost
of services
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5,569,000
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4,700,000
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14,937,000
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12,624,000
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Cost
of goods sold
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323,000
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280,000
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868,000
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845,000
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Total
Cost of Sales
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5,892,000
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4,980,000
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15,805,000
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13,469,000
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Gross
Profit
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3,563,000
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2,743,000
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9,314,000
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4,870,000
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Operating Expenses:
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Selling
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908,000
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879,000
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2,530,000
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2,598,000
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Marketing
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703,000
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409,000
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1,873,000
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1,262,000
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General
and administrative
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1,106,000
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1,004,000
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3,580,000
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2,871,000
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Total
Operating Expenses
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2,717,000
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2,292,000
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7,983,000
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6,731,000
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Operating
Income (Loss)
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846,000
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451,000
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1,331,000
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(1,861,000)
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Other
income
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15,000
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2,000
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27,000
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7,000
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Income
(Loss) Before Taxes
|
861,000
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453,000
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1,358,000
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(1,854,000)
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Income
tax expense (benefit)
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216,000
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2,000
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365,000
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(580,000)
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Net
Income (Loss)
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$645,000
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$451,000
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$993,000
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$(1,274,000)
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Net
income (loss) per share:
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Basic
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$0.05
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$0.04
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$0.08
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$(0.10)
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Diluted
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$0.05
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$0.04
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$0.08
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$(0.10)
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Shares
used in calculation of net income
(loss) per share:
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Basic
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11,729,000
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11,758,000
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11,784,000
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11,698,000
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Diluted
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12,012,000
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11,777,000
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12,026,000
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11,698,000
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See accompanying notes to financial statements.
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Insignia Systems, Inc.
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CONDENSED STATEMENTS OF CASH
FLOWS
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(Unaudited)
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Nine Months Ended September 30
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2018
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2017
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Operating Activities:
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Net
income (loss)
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$993,000
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$(1,274,000)
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Adjustments
to reconcile net income (loss) to
net cash provided by operating activities:
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Depreciation
and amortization
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860,000
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1,001,000
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Changes
in allowance for doubtful accounts
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(16,000)
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16,000
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Deferred
income tax expense
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(9,000)
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(205,000)
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Stock-based
compensation expense
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277,000
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317,000
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Changes
in operating assets and liabilities:
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Accounts
receivable
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586,000
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(2,040,000)
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Inventories
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(22,000)
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(1,000)
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Income
tax receivable
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266,000
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355,000
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Prepaid
expenses and other
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80,000
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192,000
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Accounts
payable
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408,000
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777,000
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Accrued
liabilities
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253,000
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377,000
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Income
tax payable
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—
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20,000
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Accrued
income taxes
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23,000
|
—
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Deferred
revenue
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381,000
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586,000
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Net
cash provided by operating activities
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4,080,000
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121,000
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Investing Activities:
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Purchases
of property and equipment
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(877,000)
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(822,000)
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Net
cash used in investing activities
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(877,000)
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(822,000)
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Financing Activities:
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Cash
dividends paid ($0.70 per share)
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(14,000)
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(8,177,000)
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Proceeds
from issuance of common stock, net
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49,000
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(14,000)
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Repurchase
of common stock upon vesting of restricted stock
awards
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(74,000)
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—
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Repurchase
of common stock, net
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(269,000)
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—
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Net
cash used in financing activities
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(308,000)
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(8,191,000)
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Increase
(decrease) in cash and cash equivalents
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2,895,000
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(8,892,000)
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Cash
and cash equivalents at beginning of period
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4,695,000
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12,267,000
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Cash
and cash equivalents at end of period
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$7,590,000
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$3,375,000
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Supplemental disclosures for cash flow information:
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Cash
paid during the period for income taxes
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$84,000
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$2,000
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Non-cash investing and financing activities:
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Purchases
of property and equipment included in accounts payable
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$96,000
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$115,000
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See accompanying notes to financial statements.
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September
30,
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December
31,
|
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2018
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2017
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Raw
materials
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$90,000
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$68,000
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Work-in-process
|
3,000
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10,000
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Finished
goods
|
230,000
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223,000
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$323,000
|
$301,000
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September
30,
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December
31,
|
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2018
|
2017
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Property and Equipment:
|
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Production
tooling, machinery and equipment
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$4,087,000
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$4,003,000
|
Office
furniture and fixtures
|
329,000
|
325,000
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Computer
equipment and software
|
2,726,000
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2,680,000
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Leasehold
improvements
|
577,000
|
577,000
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Construction
in-progress
|
995,000
|
206,000
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8,714,000
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7,791,000
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Accumulated
depreciation and amortization
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(5,665,000)
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(5,121,000)
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Net
Property and Equipment
|
$3,049,000
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$2,670,000
|
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Three
Months Ended
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Nine
Months Ended
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||
|
September
30
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September
30
|
||
|
2018
|
2017
|
2018
|
2017
|
Denominator
for basic net income (loss) per share -
weighted average shares
|
11,729,000
|
11,758,000
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11,784,000
|
11,698,000
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Effect
of dilutive securities:
|
|
|
|
|
Stock
options and restricted stock units and awards
|
283,000
|
19,000
|
242,000
|
—
|
Denominator
for diluted net income (loss) per share -
weighted average shares
|
12,012,000
|
11,777,000
|
12,026,000
|
11,698,000
|
|
Three
months ended September 30, 2018
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Nine
months ended September 30, 2018
|
||||
|
Services
Revenues
|
Products
Revenue
|
Total
Revenue
|
Services
Revenues
|
Products
Revenue
|
Total
Revenue
|
Timing of revenue recognition:
|
|
|
|
|
|
|
Products
and services transferred over time
|
$8,016,000
|
—
|
$8,016,000
|
$21,883,000
|
—
|
$21,883,000
|
Products
and services transferred at a point in time
|
$1,053,000
|
$386,000
|
$1,439,000
|
$2,080,000
|
$1,156,000
|
$3,236,000
|
Total
|
$9,069,000
|
$386,000
|
$9,455,000
|
$23,963,000
|
$1,156,000
|
$25,119,000
|
Balance
at December 31, 2017
|
$372,000
|
Reclassification
of beginning deferred revenue to revenue, as a result of
performance obligations satisfied
|
(122,000)
|
Cash
received in advance and not recognized as revenue
|
503,000
|
Cumulative
catch-up from a change in the timeframe for recognition of revenue
arising from deferred revenue
|
—
|
Balance
at September 30, 2018
|
$753,000
|
|
Three
Months Ended
|
Nine
Months Ended
|
||
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September
30
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September
30
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||
|
2018
|
2017
|
2018
|
2017
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Net
sales
|
100.0%
|
100.0%
|
100.0%
|
100.0%
|
Cost
of sales
|
62.3
|
64.5
|
63.0
|
73.4
|
Gross
profit
|
37.7
|
35.5
|
37.0
|
26.6
|
Operating
expenses:
|
|
|
|
|
Selling
|
9.6
|
11.4
|
10.1
|
14.2
|
Marketing
|
7.4
|
5.3
|
7.5
|
6.9
|
General
and administrative
|
11.7
|
13.0
|
14.2
|
15.6
|
Total
operating expenses
|
28.7
|
29.7
|
31.8
|
36.7
|
Operating
income (loss)
|
9.0
|
5.8
|
5.2
|
(10.1)
|
Other
income
|
0.1
|
0.0
|
0.2
|
0.0
|
Income
(loss) before taxes
|
9.1
|
5.8
|
5.4
|
(10.1)
|
Income
tax expense (benefit)
|
2.3
|
0.0
|
1.4
|
(3.2)
|
Net
income (loss)
|
6.8%
|
5.8%
|
4.0%
|
(6.9)%
|
Period
|
Total number of shares purchased
|
Average price paid per share
|
Total number of shares purchased as part of publicly announced
plans or programs
|
Maximum number (or approximate dollar value) of shares that may yet
be purchased under the plans or programs
|
July
1–31, 2018
|
16,005
|
$1.68
|
118,768
|
$2,789,403
|
August
1–31, 2018
|
7,620(a)
|
$1.84
|
124,526
|
$2,778,791
|
September
1–30, 2018
|
51,117(b)
|
$1.80
|
147,998
|
$2,736,563
|
Total
|
74,742
|
$1.77
|
|
|
Exhibit
Number
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Description
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|
Method of
Filing
|
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3.1
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Incorporated by
Reference
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3.2
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Incorporated by
Reference
|
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10.1*
|
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Incorporated by
Reference
|
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10.2*
|
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Incorporated by
Reference
|
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10.3*
|
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Incorporated by
Reference
|
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31.1
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Filed
Electronically
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31.2
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Filed
Electronically
|
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32
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Furnished
Electronically
|
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|
101
|
|
The following
materials from Insignia Systems, Inc.’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2018, formatted in
XBRL (eXtensible Business Reporting Language): (i) Condensed
Balance Sheets; (ii) Condensed Statements of Operations; (iii)
Condensed Statements of Cash Flows; and (iv) Notes to Financial
Statements.
|
|
Filed
Electronically
|
|
INSIGNIA
SYSTEMS, INC.
|
|
|
|
|
|
|
|
Dated:
November 14, 2018
|
/s/
Kristine A. Glancy
|
|
|
Kristine
A. Glancy
|
|
|
President
and Chief Executive Officer
|
|
|
(on
behalf of registrant)
|
|
|
|
|
Dated: November
14, 2018
|
/s/
Jeffrey A. Jagerson
|
|
|
Jeffrey
A. Jagerson
|
|
|
Chief
Financial Officer and Treasurer
|
|
|
(principal
financial and accounting officer)
|
|
Date:
November 14, 2018
|
/s/
Kristine A. Glancy
|
|
|
Kristine
A. Glancy
|
|
|
President
and Chief Executive Officer
|
|
|
(principal
executive officer)
|
|
Date:
November 14, 2018
|
/s/
Jeffrey A. Jagerson
|
|
|
Jeffrey
A. Jagerson
|
|
|
Chief
Financial Officer and Treasurer
|
|
|
(principal
financial and accounting officer)
|
|
Date:
November 14, 2018
|
/s/
Kristine A. Glancy
|
|
|
Kristine
A. Glancy
|
|
|
President
and Chief Executive Officer
|
|
|
(principal
executive officer)
|
|
|
|
|
Date:
November 14, 2018
|
/s/
Jeffrey A. Jagerson
|
|
|
Jeffrey
A. Jagerson
|
|
|
Chief
Financial Officer and Treasurer
|
|
|
(principal
financial and accounting officer)
|
|
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Nov. 09, 2018 |
|
Document and Entity Information | ||
Entity Registrant Name | INSIGNIA SYSTEMS INC/MN | |
Entity Central Index Key | 0000875355 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity Common Stock, Shares Outstanding | 11,839,774 | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q3 |
CONDENSED BALANCE SHEETS (Parenthetical) - $ / shares |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 40,000,000 | 40,000,000 |
Common stock, shares issued | 11,848,000 | 11,914,000 |
Common stock, shares outstanding | 11,848,000 | 11,914,000 |
CONDENSED STATEMENTS OF OPERATIONS - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Income Statement [Abstract] | ||||
Services revenues | $ 9,069,000 | $ 7,353,000 | $ 23,963,000 | $ 17,169,000 |
Products revenues | 386,000 | 370,000 | 1,156,000 | 1,170,000 |
Total Net Sales | 9,455,000 | 7,723,000 | 25,119,000 | 18,339,000 |
Cost of services | 5,569,000 | 4,700,000 | 14,937,000 | 12,624,000 |
Cost of goods sold | 323,000 | 280,000 | 868,000 | 845,000 |
Total Cost of Sales | 5,892,000 | 4,980,000 | 15,805,000 | 13,469,000 |
Gross Profit | 3,563,000 | 2,743,000 | 9,314,000 | 4,870,000 |
Operating Expenses: | ||||
Selling | 908,000 | 879,000 | 2,530,000 | 2,598,000 |
Marketing | 703,000 | 409,000 | 1,873,000 | 1,262,000 |
General and administrative | 1,106,000 | 1,004,000 | 3,580,000 | 2,871,000 |
Total Operating Expenses | 2,717,000 | 2,292,000 | 7,983,000 | 6,731,000 |
Operating Income (Loss) | 846,000 | 451,000 | 1,331,000 | (1,861,000) |
Other income | 15,000 | 2,000 | 27,000 | 7,000 |
Income (Loss) Before Taxes | 861,000 | 453,000 | 1,358,000 | (1,854,000) |
Income tax expense (benefit) | 216,000 | 2,000 | 365,000 | (580,000) |
Net Income (Loss) | $ 645,000 | $ 451,000 | $ 993,000 | $ (1,274,000) |
Net income (loss) per share: | ||||
Basic | $ 0.05 | $ 0.04 | $ 0.08 | $ (0.10) |
Diluted | $ 0.05 | $ 0.04 | $ 0.08 | $ (0.10) |
Shares used in calculation of net income (loss) per share: | ||||
Basic | 11,729,000 | 11,758,000 | 11,784,000 | 11,698,000 |
Diluted | 12,012,000 | 11,777,000 | 12,026,000 | 11,698,000 |
Summary of Significant Accounting Policies |
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Summary of Significant Accounting Policies | Description of Business. Insignia Systems, Inc. (the “Company”) markets in-store advertising products, programs and services to retailers and consumer packaged goods manufacturers. The Company operates in a single reportable segment. The Company’s primary products include the Insignia Point-of-Purchase Services (POPS®), freshADSsm and other retailer approved promotional services, in-store marketing programs, and custom adhesive and non-adhesive signage materials directly to our retail customers.
Basis of Presentation. The accompanying unaudited financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. They do not include all information and footnotes required by U.S. GAAP for complete financial statements. However, except as described herein, there has been no material change in the information disclosed in the notes to financial statements included in our financial statements as of and for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.
Recently Adopted Accounting Pronouncements. Effective January 1, 2018, the Company adopted Financial Accounting Standards Board Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers” (“Topic 606”). Topic 606 supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition,” and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The adoption of ASU 2014-09, using the modified retrospective approach, had no significant impact on our results of operations, cash flows, or financial position. Revenue continues to be recognized for POPSigns ratably over the period of service, which is typically a two-week display cycle, and for sign card sales, at the time the products are shipped to customers. Additional information and disclosures required by this new standard are contained in Note 2, “Revenue.”
Inventories. Inventories are primarily comprised of sign cards, hardware and roll stock. Inventory is valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method, and consisted of the following as of the dates indicated:
Property and Equipment. Property and equipment consisted of the following as of the dates indicated:
Depreciation expense was approximately $188,000 and $555,000 in the three and nine months ended September 30, 2018, respectively, and $220,000 and $653,000 in the three and nine months ended September 30, 2017, respectively.
Stock-Based Compensation. We measure and recognize compensation expense for all stock-based payments at fair value. Restricted stock units and awards are valued at the closing market price of the Company’s stock on the date of the grant. We use the Black-Scholes option pricing model to determine the weighted average fair value of options and employee stock purchase plan rights. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as by assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
On November 28, 2016, our Board of Directors amended the 2003 Incentive Stock Option Plan (the “2003 Plan”) and the 2013 Omnibus Stock and Incentive Plan (the “2013 Plan”) to permit equitable adjustments to outstanding awards in the event of an extraordinary cash dividend. On March 28, 2017, the Board of Directors approved the modification of all outstanding stock option awards to provide option holders with substantially equivalent economic value after the effect of the dividend. The modification resulted in the issuance of options to purchase 150,476 additional shares. Total stock-based compensation expense for the modifications was approximately $79,000, which was recorded during the nine months ended September 30, 2017.
During the nine months ended September 30, 2018, stock option awards to purchase up to 119,515 shares were granted by the Company. The Company estimates the fair value of these awards using the following weighted average assumptions: expected life of 6.5 years, expected volatility of 51.21%, dividend yield of 0% and a risk-free rate interest rate of 2.80%. During the nine months ended September 30, 2017, no other stock option awards were granted by the Company beyond the modification discussed above.
During the nine months ended September 30, 2018, the Company issued 297,515 restricted stock units under the 2013 Plan and the 2018 Equity Incentive Plan (the “2018 Plan”). The shares underlying the awards were assigned a value of $1.77 and $1.95 per share, which was the closing price of our common stock on the date of grants. These awards are scheduled to vest over three years or four years with the first vesting in year two. During the nine months ended September 30, 2017, the Company issued 143,424 restricted stock units under the 2013 Plan. The shares underlying the awards made in 2017 were assigned weighted average values of $1.13 per share based on the closing price of our common stock on the applicable dates of grant and are scheduled to vest over two years.
During the nine months ended September 30, 2018, no restricted stock was issued. During the nine months ended September 30, 2017, the Company issued 60,000 shares of restricted stock under the 2013 Plan. The shares underlying the awards were assigned a value of $1.09 per share, which was the closing price of our common stock on the date of grant and are scheduled to vest over the two years following the date of grant.
During July 2018, non-employee members of the Board of Directors received restricted stock grants totaling 46,152 shares pursuant to the 2018 Plan. The shares underlying the awards were assigned a value of $1.95 per share, which was the closing price of our common stock on the date of grants, for a total value of $90,000, and are scheduled to vest the day immediately preceding the date of the next annual shareholder meeting. During June 2017, non-employee members of the Board of Directors received grants totaling 72,115 fully vested shares of common stock pursuant to the 2013 Plan. The shares were assigned a value of $1.04 per share, based on the closing price on the grant date, for a total value of $75,000, which is included in stock-based compensation expense for the nine months ended September 30, 2017.
Total stock-based compensation expense recorded for the three and nine months ended September 30, 2018 was $128,000 and $277,000, respectively, and for the three and nine months ended September 30, 2017 was $43,000 and $317,000, respectively.
During the three and nine months ended September 30, 2018, there were approximately 900 shares issued pursuant to stock option exercises, for which the Company received proceeds of $1,000. During the three and nine months ended September 30, 2017, there were no options exercised. A portion of the stock option exercises in the three and nine months ended September 30, 2018 were completed on a cashless basis.
The Company estimated the fair value of stock-based awards granted during the nine months ended September 30, 2018, under the Company’s employee stock purchase plan using the following weighted average assumptions: expected life of 1.0 years, expected volatility of 66%, dividend yield of 0% and risk-free interest rate of 1.83%.
Net Income (Loss) per Share. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding and excludes any potential dilutive effects of stock options and restricted stock units and awards. Diluted net income (loss) per share gives effect to all diluted potential common shares outstanding during the period.
Options to purchase approximately 305,000 and 265,000 shares of common stock with a weighted average exercise price of $2.66 and $3.22, respectively, were outstanding at September 30, 2018 and were not included in the computation of common stock equivalents for the three and nine months ended September 30, 2018 because their exercise prices were higher than the average fair market value of the common stock during the reporting period.
Options to purchase approximately 501,000 shares of common stock with a weighted average exercise price of $2.33 were outstanding at September 30, 2017 and were not included in the computation of common stock equivalents for the three months ended September 30, 2017 because their exercise prices were higher than the average fair market value of the common shares during the reporting period. Due to the net loss incurred during the nine months ended September 30, 2017 all stock options were anti-dilutive for that period.
Weighted average common shares outstanding for the three and nine months ended September 30, 2018 and 2017 were as follows:
Dividends. On November 28, 2016, the Board declared a one-time special dividend of $0.70 per share to shareholders of record as of December 16, 2016 of $8,233,000, of which $8,163,000 was paid on January 6, 2017, $14,000 was paid on May 15, 2017, and an additional $14,000 was paid on May 15, 2018.
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Revenue Recognition |
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Revenue Recognition [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue Recognition | Under Topic 606, revenue is measured based on consideration specified in the contract with a customer, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price, including noncash consideration, consideration paid or payable to a customer and significant financing components. Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer, as further described below under “Performance Obligations.”
Taxes collected from customers and remitted to governmental authorities are excluded from revenue on the net basis of accounting.
The Company includes shipping and handling fees in revenues. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.
The majority of the Company’s accounts receivable is due from companies in the consumer-packaged goods industry. Credit is extended based on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are due within 30-150 days and are stated at amounts due from customers, net of an allowance for doubtful accounts.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account under Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The following is a description of our performance obligations included in our primary revenue streams and the timing or method of revenue recognition for each:
POPSign Services. Our primary source of revenue is from marketing in-store advertising programs and services primarily to consumer-packaged goods (“CPG”) manufacturers. We provide a service of displaying promotional signs in close proximity to the manufacturer’s product in participating stores, which we maintain in two-to-four-week cycle increments. Our in-store marketing programs include POPSigns and freshADS (together referred to herein as “POPSign services”).
Each of the individual activities under our POPSign services, including production activities, are inputs to an integrated sign display service. As such, each POPSign service represents a single performance obligation. Customers receive and consume the benefits from the promotional displays over the duration of the contracted display cycle. Additionally, the display of the signs does not have an alternative use to us and we have an enforceable right to payment for services performed to date. As a result, we recognize the transaction price for our POPSign service performance obligations as revenue over time. Given the nature of our performance obligations is to provide a display service over the duration of a specified period or periods, we recognize revenue on a straight-line basis over the display service period as it best reflects the timing of transfer of our POPSign services.
Other Service Revenues. The Company also supplies CPG manufactures with other miscellaneous retailer approved promotional services and sign solutions. These services are more customized than the POPSign program, consisting of variable durations and variable specifications. Due to the variable nature of these services, revenue recognition is a mix of over time and point in time recognition.
Products. We also sell custom adhesive and non-adhesive signage materials directly to our customers. Each such product is a distinct performance obligation. Revenue is recognized at a point in time upon shipment, when control of the goods transfers to the customer.
Disaggregation of Revenue
In the following table, revenue is disaggregated by major revenue stream and timing of revenue recognition.
Contract Costs
Sales commissions that are paid to internal or external sales representatives are eligible for capitalization as they are incremental costs that would not have been incurred without entering into a specific sales arrangement and are recoverable through the expected margin on the transaction. The Company is applying the practical expedient in Accounting Standards Codification 340-40-25-4 that allows the incremental costs of obtaining a contract to be recorded as an expense when incurred when the amortization period of the asset that would have otherwise been recognized is one year or less. These costs are included in selling expenses.
Deferred Revenue
Significant changes in deferred revenue during the period are as follows:
Transaction Price Allocated to Remaining Performance Obligations
The Company applies the practical expedient in paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less, which reflect the majority of our performance obligations. This practical expedient is being applied to arrangements for certain uncompleted POPSign services and unshipped custom signage materials. Of those contracts with an expected duration of greater than one year, we estimate that revenue of $11,000 and $3,989,000 related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2018 will be recognized during the remainder of fiscal 2018 and in fiscal 2019 or beyond, respectively.
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Selling Arrangement |
9 Months Ended |
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Sep. 30, 2018 | |
Selling Arrangement | |
Selling Arrangement | In 2011, the Company paid News America Marketing In-Store, LLC (“News America”) $4,000,000 in exchange for a 10-year arrangement to sell signs with price into News America’s network of retailers as News America’s exclusive agent. The $4,000,000 is being amortized on a straight-line basis over the 10-year term of the arrangement. Amortization expense, which was $100,000 and $300,000 in both of the three and nine months ended September 30, 2018 and 2017, respectfully, and is expected to be $400,000 per year in 2019 and 2020 and $117,000 in the year ending December 31, 2021, is recorded within cost of services in the Company’s statements of operations and comprehensive income (loss). The net carrying amount of the selling arrangement is recorded within other assets on the Company’s condensed balance sheet. |
Income Taxes |
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Sep. 30, 2018 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | For the three and nine months ended September 30, 2018, the Company recorded income tax expense of $216,000 and $365,000 or 25.1% and 26.9% of income before taxes, respectively. For the three and nine months ended September 30, 2017, the Company recorded income tax expense (benefit) of $2,000 and $(580,000), or 0.4% and 31.3% of income or loss before taxes, respectively. The income tax expense for the three and nine months ended September 30, 2018 and 2017 is comprised of federal and state income taxes. The primary differences between the Company’s September 30, 2018 and 2017 effective tax rates and the statutory federal rate are expenses related to stock-based compensation and nondeductible meals and entertainment and for the three and nine months ended September 30, 2017, a valuation allowance was recognized as it was determined that it is more likely than not that the Company will not realize the full amount of its net deferred tax assets. There was no impact for income taxes related to the valuation allowance for the three and nine months ended September 30, 2018. The Company’s statutory federal rate decreased to 21% in 2018 from 35% in 2017 due to the Tax Cuts and Jobs Act enacted in 2017. The Company reassesses its effective rate each reporting period and adjusts the annual effective rate if deemed necessary, based on projected annual taxable income (loss).
Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. In providing for deferred taxes, we consider tax regulations of the jurisdictions in which we operate, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustment to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria. At both December 31, 2017 and September 30, 2018, the Company had a valuation allowance of approximately $108,000 as a result of certain capital losses and state net operating losses carried forward which the Company does not believe are more likely than not to be realized.
As of September 30, 2018 and December 31, 2017, the Company had unrecognized tax benefits totaling $604,000 and $581,000, respectively, including interest, which relates to state nexus issues. The amount of the unrecognized tax benefits, if recognized, that would affect the effective income tax rates of future periods is $604,000. Due to the current statute of limitations regarding the unrecognized tax benefits, the unrecognized tax benefits and associated interest is not expected to change significantly in 2018.
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Concentrations |
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Sep. 30, 2018 | |
Risks and Uncertainties [Abstract] | |
Concentrations | During the nine months ended September 30, 2018 two customers accounted for 24% and 22%, respectively, of the Company’s total net sales. During the nine months ended September 30, 2017, one customer accounted for 27% of the Company’s total net sales. At September 30, 2018, three customers accounted for 24%, 17% and 15%, respectively, of the Company’s total accounts receivable. At December 31, 2017, three customers represented 29%, 12% and 11%, respectively, of the Company’s total accounts receivable.
Although there are a number of customers that the Company sells to, the loss of a major customer could adversely affect operating results. Additionally, the loss of a major retailer from the Company’s retail network could adversely affect operating results.
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Recently Issued Accounting Pronouncements |
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Sep. 30, 2018 | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
Recently Issued Accounting Pronouncements | In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases, under which lessees will recognize most leases on the balance sheet. This will generally increase reported assets and liabilities. This ASU is effective for the Company’s annual and interim periods beginning January 1, 2019. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which includes an option to not restate comparative periods in transition and elect to use the effective date of ASC 842, Leases, as the date of initial application of transition. Based on the effective date, this guidance will apply and the Company will adopt this ASU beginning on January 1, 2019 using the transition option provided under ASU 2018-11The Company has performed a review of the requirements of the new guidance and has identified which of its leases will be within the scope of ASU 2016-02. The Company is working through an adoption plan which includes a review of lease contracts, applying the new standard to the lease contracts and comparing the results to our current accounting. As part of this, we are assessing changes that might be necessary to processes, and internal controls to capture new data and address changes in financial reporting. Effective January 1, 2019, the Company will be revising its lease accounting policy disclosures to reflect the requirements of ASU 2016-02. The Company estimates the impact of the adoption will be an increase of approximately $450,000 to $500,000 to both assets and liabilities on the balance sheet, with no material net impact to the statement of operations. We also expect additional qualitative and quantitative disclosures will be required upon adoption. |
Summary of Significant Accounting Policies (Policies) |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Description of Business | Insignia Systems, Inc. (the “Company”) markets in-store advertising products, programs and services to retailers and consumer packaged goods manufacturers. The Company operates in a single reportable segment. The Company’s primary products include the Insignia Point-of-Purchase Services (POPS®), freshADSsm and other retailer approved promotional services, in-store marketing programs, and custom adhesive and non-adhesive signage materials directly to our retail customers.
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Basis of Presentation | The accompanying unaudited financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. They do not include all information and footnotes required by U.S. GAAP for complete financial statements. However, except as described herein, there has been no material change in the information disclosed in the notes to financial statements included in our financial statements as of and for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.
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Recently Adopted Accounting Pronouncements | Effective January 1, 2018, the Company adopted Financial Accounting Standards Board Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers” (“Topic 606”). Topic 606 supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition,” and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The adoption of ASU 2014-09, using the modified retrospective approach, had no significant impact on our results of operations, cash flows, or financial position. Revenue continues to be recognized for POPSigns ratably over the period of service, which is typically a two-week display cycle, and for sign card sales, at the time the products are shipped to customers. Additional information and disclosures required by this new standard are contained in Note 2, “Revenue.”
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Inventories | Inventories are primarily comprised of sign cards, hardware and roll stock. Inventory is valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method, and consisted of the following as of the dates indicated:
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Property and Equipment | Property and equipment consisted of the following as of the dates indicated:
Depreciation expense was approximately $188,000 and $555,000 in the three and nine months ended September 30, 2018, respectively, and $220,000 and $653,000 in the three and nine months ended September 30, 2017, respectively.
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Stock-Based Compensation | Stock-Based Compensation. We measure and recognize compensation expense for all stock-based payments at fair value. Restricted stock units and awards are valued at the closing market price of the Company’s stock on the date of the grant. We use the Black-Scholes option pricing model to determine the weighted average fair value of options and employee stock purchase plan rights. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as by assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
On November 28, 2016, our Board of Directors amended the 2003 Incentive Stock Option Plan (the “2003 Plan”) and the 2013 Omnibus Stock and Incentive Plan (the “2013 Plan”) to permit equitable adjustments to outstanding awards in the event of an extraordinary cash dividend. On March 28, 2017, the Board of Directors approved the modification of all outstanding stock option awards to provide option holders with substantially equivalent economic value after the effect of the dividend. The modification resulted in the issuance of options to purchase 150,476 additional shares. Total stock-based compensation expense for the modifications was approximately $79,000, which was recorded during the nine months ended September 30, 2017.
During the nine months ended September 30, 2018, stock option awards to purchase up to 119,515 shares were granted by the Company. The Company estimates the fair value of these awards using the following weighted average assumptions: expected life of 6.5 years, expected volatility of 51.21%, dividend yield of 0% and a risk-free rate interest rate of 2.80%. During the nine months ended September 30, 2017, no other stock option awards were granted by the Company beyond the modification discussed above.
During the nine months ended September 30, 2018, the Company issued 297,515 restricted stock units under the 2013 Plan and the 2018 Equity Incentive Plan (the “2018 Plan”). The shares underlying the awards were assigned a value of $1.77 and $1.95 per share, which was the closing price of our common stock on the date of grants. These awards are scheduled to vest over three years or four years with the first vesting in year two. During the nine months ended September 30, 2017, the Company issued 143,424 restricted stock units under the 2013 Plan. The shares underlying the awards made in 2017 were assigned weighted average values of $1.13 per share based on the closing price of our common stock on the applicable dates of grant and are scheduled to vest over two years.
During the nine months ended September 30, 2018, no restricted stock was issued. During the nine months ended September 30, 2017, the Company issued 60,000 shares of restricted stock under the 2013 Plan. The shares underlying the awards were assigned a value of $1.09 per share, which was the closing price of our common stock on the date of grant and are scheduled to vest over the two years following the date of grant.
During July 2018, non-employee members of the Board of Directors received restricted stock grants totaling 46,152 shares pursuant to the 2018 Plan. The shares underlying the awards were assigned a value of $1.95 per share, which was the closing price of our common stock on the date of grants, for a total value of $90,000, and are scheduled to vest the day immediately preceding the date of the next annual shareholder meeting. During June 2017, non-employee members of the Board of Directors received grants totaling 72,115 fully vested shares of common stock pursuant to the 2013 Plan. The shares were assigned a value of $1.04 per share, based on the closing price on the grant date, for a total value of $75,000, which is included in stock-based compensation expense for the nine months ended September 30, 2017.
Total stock-based compensation expense recorded for the three and nine months ended September 30, 2018 was $128,000 and $277,000, respectively, and for the three and nine months ended September 30, 2017 was $43,000 and $317,000, respectively.
During the three and nine months ended September 30, 2018, there were approximately 900 shares issued pursuant to stock option exercises, for which the Company received proceeds of $1,000. During the three and nine months ended September 30, 2017, there were no options exercised. A portion of the stock option exercises in the three and nine months ended September 30, 2018 were completed on a cashless basis.
The Company estimated the fair value of stock-based awards granted during the nine months ended September 30, 2018, under the Company’s employee stock purchase plan using the following weighted average assumptions: expected life of 1.0 years, expected volatility of 66%, dividend yield of 0% and risk-free interest rate of 1.83%. |
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Net Income (Loss) per Share | Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding and excludes any potential dilutive effects of stock options and restricted stock units and awards. Diluted net income (loss) per share gives effect to all diluted potential common shares outstanding during the period.
Options to purchase approximately 305,000 and 265,000 shares of common stock with a weighted average exercise price of $2.66 and $3.22, respectively, were outstanding at September 30, 2018 and were not included in the computation of common stock equivalents for the three and nine months ended September 30, 2018 because their exercise prices were higher than the average fair market value of the common stock during the reporting period.
Options to purchase approximately 501,000 shares of common stock with a weighted average exercise price of $2.33 were outstanding at September 30, 2017 and were not included in the computation of common stock equivalents for the three months ended September 30, 2017 because their exercise prices were higher than the average fair market value of the common shares during the reporting period. Due to the net loss incurred during the nine months ended September 30, 2017 all stock options were anti-dilutive for that period.
Weighted average common shares outstanding for the three and nine months ended September 30, 2018 and 2017 were as follows:
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Dividends | On November 28, 2016, the Board declared a one-time special dividend of $0.70 per share to shareholders of record as of December 16, 2016 of $8,233,000, of which $8,163,000 was paid on January 6, 2017, $14,000 was paid on May 15, 2017, and an additional $14,000 was paid on May 15, 2018.
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Summary of Significant Accounting Policies (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Inventories |
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Schedule of Property and Equipment |
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Schedule Of Weighted Average Common Shares Outstanding |
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Revenue Recognition (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue Recognition Tables Abstract | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of Revenue |
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Schedule of Changes in Deferred Revenue |
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Summary of Significant Accounting Policies (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Inventories | ||
Raw materials | $ 90,000 | $ 68,000 |
Work-in-process | 3,000 | 10,000 |
Finished goods | 230,000 | 223,000 |
Inventories | $ 323,000 | $ 301,000 |
Summary of Significant Accounting Policies (Details 1) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Property, Plant and Equipment [Line Items] | ||
Gross property and equipment | $ 8,714,000 | $ 7,791,000 |
Accumulated depreciation and amortization | (5,665,000) | (5,121,000) |
Net property and equipment | 3,049,000 | 2,670,000 |
Production tooling, machinery and equipment [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Gross property and equipment | 4,087,000 | 4,003,000 |
Office furniture and fixtures [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Gross property and equipment | 329,000 | 325,000 |
Computer equipment and software [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Gross property and equipment | 2,726,000 | 2,680,000 |
Leasehold improvements [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Gross property and equipment | 577,000 | 577,000 |
Construction in-progress [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Gross property and equipment | $ 995,000 | $ 206,000 |
Summary of Significant Accounting Policies (Details 2) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Summary Of Significant Accounting Policies | ||||
Denominator for basic net income (loss) per share - weighted average shares | 11,729,000 | 11,758,000 | 11,784,000 | 11,698,000 |
Effect of dilutive securities: Stock options and restricted stock units and awards | $ 283,000 | $ 19,000 | $ 242,000 | $ 0 |
Denominator for diluted net income (loss) per share - weighted average shares | 12,012,000 | 11,777,000 | 12,026,000 | 11,698,000 |
Revenue Recognition (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Services revenues | $ 9,069,000 | $ 7,353,000 | $ 23,963,000 | $ 17,169,000 |
Products revenues | 386,000 | 370,000 | 1,156,000 | 1,170,000 |
Total Net Sales | 9,455,000 | $ 7,723,000 | 25,119,000 | $ 18,339,000 |
Products and services transferred over time | ||||
Services revenues | 8,016,000 | 21,883,000 | ||
Products revenues | 0 | 0 | ||
Total Net Sales | 8,016,000 | 21,883,000 | ||
Products and services transferred at a point in time | ||||
Services revenues | 1,053,000 | 2,080,000 | ||
Products revenues | 386,000 | 1,156,000 | ||
Total Net Sales | $ 1,439,000 | $ 3,236,000 |
Revenue Recognition (Details 1) |
9 Months Ended |
---|---|
Sep. 30, 2018
USD ($)
| |
Revenue Recognition Details Abstract | |
Deferred revenue, beginning | $ 372,000 |
Reclassification of beginning deferred revenue to revenue, as a result of performance obligations satisfied. | (122,000) |
Cash received in advance and not recognized as revenue | 503,000 |
Cumulative catch-up from a change in the timeframe for recognition of revenue arising from deferred revenue | 0 |
Deferred revenue, ending | $ 753,000 |
Revenue Recognition (Details Narrative) |
Sep. 30, 2018
USD ($)
|
---|---|
2018 | |
Performance obligation revenue to be recognized | $ 11,000 |
2019 | |
Performance obligation revenue to be recognized | $ 3,989,000 |
Selling Arrangement (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2011 |
|
Finite-Lived Intangible Assets [Line Items] | |||||
Payments for arrangements to sell signs | $ 4,000,000 | ||||
Term of arrangement | 10 years | ||||
Customer Contracts [Member] | |||||
Finite-Lived Intangible Assets [Line Items] | |||||
Amortization expense | $ 100,000 | $ 100,000 | $ 300,000 | $ 300,000 | |
2019 | 400,000 | 400,000 | |||
2020 | 400,000 | 400,000 | |||
2021 | $ 117,000 | $ 117,000 |
Income Taxes (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
Income Tax Disclosure [Abstract] | |||||
Income tax expense (benefit) | $ 216,000 | $ 2,000 | $ 365,000 | $ (580,000) | |
Income tax rate, percentage | 25.10% | 0.40% | 26.90% | 31.30% | |
Deferred tax asset valuation allowance | $ 108,000 | $ 108,000 | $ 108,000 | ||
Unrecognized tax benefits | $ 604,000 | $ 604,000 | $ 581,000 |
Concentrations (Details Narrative) |
9 Months Ended | 12 Months Ended | |
---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
Sales Revenue Net [Member] | Customer One [Member] | |||
Concentration Risk [Line Items] | |||
Customer's concentration risk percentage | 24.00% | 27.00% | |
Sales Revenue Net [Member] | Customer Two [Member] | |||
Concentration Risk [Line Items] | |||
Customer's concentration risk percentage | 22.00% | ||
Accounts Receivable [Member] | Customer One [Member] | |||
Concentration Risk [Line Items] | |||
Customer's concentration risk percentage | 24.00% | 29.00% | |
Accounts Receivable [Member] | Customer Two [Member] | |||
Concentration Risk [Line Items] | |||
Customer's concentration risk percentage | 17.00% | 12.00% | |
Accounts Receivable [Member] | Customer Three [Member] | |||
Concentration Risk [Line Items] | |||
Customer's concentration risk percentage | 15.00% | 11.00% |
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