What changed in LENDWAY, INC.'s 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of LENDWAY, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+122 added−147 removedSource: 10-K (2023-03-09) vs 10-K (2022-03-09)
Top changes in LENDWAY, INC.'s 2023 10-K
122 paragraphs added · 147 removed · 87 edited across 5 sections
- Item 7. Management's Discussion & Analysis+46 / −57 · 35 edited
- Item 1A. Risk Factors+29 / −46 · 19 edited
- Item 1. Business+43 / −40 · 30 edited
- Item 5. Market for Registrant's Common Equity+2 / −3 · 2 edited
- Item 2. Properties+2 / −1 · 1 edited
Item 1. Business
Business — how the company describes what it does
30 edited+13 added−10 removed14 unchanged
Item 1. Business
Business — how the company describes what it does
30 edited+13 added−10 removed14 unchanged
2022 filing
2023 filing
Biggest changeOur sales historically have fluctuated from period to period, primarily because of: · Brand determinations to purchase solutions from us versus competitor solutions; · Promotional timing and new product launches by brands; · Brand budget fluctuations and amounts allocated to in-store or digital tactics versus other tactics; · Quantity and quality of retailer locations into which we are authorized to execute our in-store solutions; · Changes in the salability and breadth of our retailer network; and · Category seasonality of in-store executions. 6 Table of Contents Environmental Matters We believe our operations follow all applicable environmental regulations within the jurisdictions in which we operate.
Biggest changeOur sales historically have fluctuated from period to period, primarily because of: · Sales cycles within the retailers that our display solutions execute; · Brand determinations to purchase solutions from us versus competitor solutions; · Promotional timing and new product launches by brands; · Brand budget fluctuations and amounts allocated to in-store tactics versus other tactics; and · Category seasonality of in-store executions.
Supply Chain Disruptions and Commodity Price Increases: Primarily because of COVID-19 our clients and vendor partners have experienced longer than normal lead-times on shipping and fulfillment as well as overall cost increases on raw materials for inputs. We expect these trends to continue in 2022.
Supply Chain Disruptions and Commodity Price Increases: Primarily because of COVID-19 our clients and vendor partners have experienced longer than normal lead-times on shipping and fulfillment as well as overall cost increases on raw materials for inputs. We expect these trends to continue in 2023.
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. Product Solutions Since the Company’s inception in 1990, we have worked closely with our clients to understand their evolving needs and introduce solutions that help them achieve their business strategies.
These trends are opening opportunities for innovative companies to develop new products and new ways of helping retailers and brands connect with shoppers. Product Solutions Since the Company’s inception in 1990, we have worked closely with our clients to understand their evolving needs and introduce solutions that help them achieve their business strategies.
We expect sales to foreign distributors will remain less than 1% of total net sales in 2022. Competition As we have diversified our portfolio, our competition has as well. Historically on our in-store signage business, we had one main competitor, News America (which has been sold to Neptune Retail Solutions).
We expect sales to foreign distributors will remain less than 1% of total net sales in 2023. Competition As we have diversified our portfolio, our competition has become more diverse as well. Historically on our in-store signage business, we had one main competitor, News America (which has been sold to Neptune Retail Solutions).
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. 4 Table of Contents Marketing and Sales Our highly skilled direct sales and marketing teams are a major asset for the organization with their deep knowledge of brands and retailers.
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. 4 Table of Contents Sales and Design Our highly skilled sales and design teams are a major asset for the organization with their deep knowledge of the industry.
These solutions help our clients connect, engage, and build better relationships with their consumers to increase awareness, trial, sales and loyalty. Many of these brands are fast moving with products that would be found in grocery, mass and drug channels. During 2021, two CPG manufacturers accounted for 15% and 12% of our total net sales, respectively.
These solutions help our clients connect, engage, and build better relationships with their consumers to increase awareness, trial, sales and loyalty. Many of these brands are fast moving with products that would be found in grocery, mass and drug channels. During 2022, three CPG manufacturers accounted for 19%, 11% and 11% of our total net sales, respectively.
In 2021, we reemphasized our focus when we were recognized by Minnesota Census of Women in Corporate Leadership for diversity in both our boardroom and executive leadership teams.
In 2022, we reemphasized our focus when we were recognized by Minnesota Census of Women in Corporate Leadership for diversity in both our boardroom and executive leadership teams. · Compensation and Benefits. We provide robust compensation and benefits.
We provide marketing solutions to brands spanning from some of the largest multinationals to new and emerging brands. For retailers and brands working in an environment that is tighter, more competitive, and more complex every day, Insignia positions itself as the shopper marketing ally that combines best-in-class execution with imagination, responsiveness, and hunger to help move business forward.
For retailers and brands working in an environment that is tighter, more competitive, and more complex every day, Insignia positions itself as the shopper marketing ally that combines best-in-class execution with imagination, responsiveness, and hunger to help move business forward.
Our mailing address is 7308 Aspen Lane North, Suite 153, Minneapolis, Minnesota 55428; telephone 763-392-6200. 3 Table of Contents Industry and Market Background Our industry continues to rapidly evolve in several ways: 1. Shopper Behavior: Even prior to the start of the pandemic, shopper behavior was evolving.
Our mailing address is 212 Third Avenue N, Suite 356, Minneapolis, MN 55401; telephone 763-392-6200. 3 Table of Contents Industry and Market Background Our industry continues to rapidly evolve in several ways: 1. Shopper Behavior: Even prior to the start of the pandemic, shopper behavior was evolving.
Ultimately, this promotes retention and the overall success of our organization. · Talent Development. We have all our employees participate in annual development plans where we focus on both employee strengths and opportunities. In 2021, 15% of our employees advanced their careers with earned promotions based on their development and performance.
We have all our employees participate in annual development plans where we focus on both employee strengths and opportunities. In 2022, 9% of our employees advanced their careers with earned promotions based on their development and performance.
During 2020, one CPG manufacturer accounted for 14% of our total net sales. At December 31, 2021, two CPG manufacturers represented 25% and 19% of the Company’s total accounts receivable, respectively. At December 31, 2020, two CPG manufacturers represented 17% and 10% of the Company’s total accounts receivable, respectively.
During 2021, two CPG manufacturers accounted for 15% and 12% of our total net sales, respectively. At December 31, 2022, three CPG manufacturers represented 20%, 19% and 11% of the Company’s total accounts receivable, respectively. At December 31, 2021, two CPG manufacturers represented 25% and 19% of the Company’s total accounts receivable, respectively.
The lawsuit is described further in Item 3 of Part I of this report. With our expanded merchandising and on-pack solutions, the competitive landscape is much more diverse and broad and our results vary based on what the client’s priority is whether that is price, design or execution.
With our expanded display and on-pack solutions, the competitive landscape is much more diverse and broad and our sales results vary based on what the client’s priority is whether that is price, design or execution.
The Company owns U.S. registered trademarks for Insignia ® , Insignia POPS ® , Insignia POPSign ® , Insignia ShelfPOPS ® , Stylus ® , freshADS ® , DuraSign ® , I-Care ® , BannerPOPS ® , BrandPOPS ® , EquityPOPS ® , ShapePOPS ® , and Boxtalk TM .
The Company owns U.S. registered trademarks for Insignia ® , Insignia POPS ® , Insignia POPSign ® , Insignia ShelfPOPS ® , Stylus ® , freshADS ® , DuraSign ® , I-Care ® , BannerPOPS ® , EquityPOPS ® , ShapePOPS ® , and Boxtalk TM . Certain employees are required to enter into nondisclosure and invention assignment agreements.
Our merchandising solutions include a variety of fully customized temporary, semi-permanent and permanent displays, that brands leverage to grow their sales. 2. 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. 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. 3. Our In-Store Signage Solutions , which include POPS signs, help brands achieve a variety of objectives that include awareness and sales lift.
Historically, our core product has been in-store signage solutions, namely the Insignia Point-of Purchase Services (POPS®). Over the past several years, our net sales from sign solutions have declined primarily due to competitive pressures while our non-POPS solutions have significantly expanded as we have developed our portfolio to meet the needs of our clients and execution partners more holistically.
Over the past several years, our net sales from sign solutions have declined primarily due to competitive pressures, market contraction and reduced spending post the COVID-19 pandemic while our non-POPS solutions have significantly expanded as we have developed our portfolio to meet the needs of our clients and execution partners more holistically.
Collaborate with retail partners with an optimized investment approach. 4. Invest in our Future . Continue to recruit and retain top talent. Thoughtfully invest in strategic resources that result in employee development, customer satisfaction and increased revenues.
Partner with industry leading merchandising partners in order to deliver superior results to our clients. 4. Invest in our Future . Continue to recruit and retain top talent. Thoughtfully invest in strategic resources that result in employee development, customer satisfaction and increased revenues.
The rise of surrogate shopper services, drive-up pick-up services or pick-up in store have put the shopper in the driver seat to shop when, where and how they want. Retailers are competing on convenience more than ever and brands are increasingly fighting to stand out from their competition. 2.
The rise of surrogate shopper services, drive-up pick-up services or pick-up in store have put the shopper in the driver seat to shop when, where and how they want. As a result retailers are competing on convenience more than ever. They are also struggling to manage overall labor needs as a result of the shoppers’ various ways of shopping. 2.
Our 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.
Our 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.
Our expanded portfolio allows us to meet the needs of brands, retailers and their agents as their business strategies evolve behind an ever-changing retail landscape.
Our expanded portfolio now allows us to meet the needs of brands, retailers and their agents as their business strategies evolve behind an ever-changing retail landscape. Since expanding our portfolio of solutions in 2018, our business results, investments and overall team capabilities are primarily focused on our display and on-pack solutions.
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 meet the needs of our clients and execution partners more holistically.
Over the past several years, we have significantly expanded our offered solutions and have developed a portfolio designed to meet the needs of our clients and execution partners more holistically.
The costs and effects of compliance with these regulations have not been and are not expected to become material. Human Capital Resources and Management We had 32 employees, of which 31 were full-time employees, as of March 8, 2022. We believe relationships are our focus and our future, and that begins with our own team.
Human Capital Resources and Management We had 31 employees, of which 30 were full-time employees, as of March 7, 2023. We believe relationships are our focus and our future, and that begins with our own team. We believe in creating an environment where our employees have opportunities to grow and develop professionally.
We believe in regular engagement with our full team, whether that is starting off our week together in our Monday Huddle meetings, celebrating nominated employees for quarterly recognition or enjoying events our Employee Engagement committee plans. We also take employees’ feedback and concerns to heart and leverage this to help enhance our employee experience.
We also strive to create a work environment that employees are proud to be a part of. 6 Table of Contents · Employee Engagement. We believe in regular engagement with our full team, whether that is starting off our week together in our Monday Huddle meetings or enjoying events our Employee Engagement committee plans.
We believe our products and services are attractive to our clients because of our ability to navigate the complex retail landscape, to customize our solutions down to store level, to execute with excellence and the results our solutions deliver. Our leadership and employees have extensive industry knowledge, including direct experience through former positions at consumer-packaged goods (“CPG”) manufacturers and retailers.
We believe our products and services are attractive to our clients because of our ability to navigate the complex retail landscape, to customize our solutions for both our brand and retail partners, to execute with excellence and the results our solutions deliver.
We believe our primary competitive strengths include: · Best-in-class execution across our portfolio of product solutions; · Broad client-base of brands inclusive of large Fortune 500 companies, and emerging start-ups; · Managing and providing turn-key access to a national network of retailers; · Imagination, responsiveness, and hunger to help move our clients’ business forward; and · Our extensive broad retail and brand expertise. 5 Table of Contents 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.
We believe our primary competitive strengths include: · Best-in-class execution results across our portfolio of product solutions; · Broad client-base of brands inclusive of large Fortune 500 companies, e-commerce, and emerging start-ups; · Imagination, responsiveness, and hunger to help move our clients’ business forward; · Our extensive broad retail and brand expertise; · Innovative retailer specific design and creative; and · Seamless end-to-end project management.
For example, our in-store signage solutions represented approximately 25% of our total net sales for 2021, compared to 44% of our total net sales in 2020. 1. 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 Display 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 display solutions include a variety of fully customized temporary, semi-permanent and permanent displays, that brands leverage to grow their sales. 2.
Primarily as a result of competitive pressures and most recently due to COVID-19, our in-store signage business has declined and become less of a focus in our growth. Beginning in 2018 we began developing and offering an expanded portfolio of solutions including on-pack, merchandising and digital solutions in addition to our core business.
Primarily because of competitive pressures, market contraction and reduced spending post the COVID-19 pandemic, our POPS business has declined and will be wound down in 2023. Beginning in 2018 we began developing and offering an expanded portfolio of solutions including on-pack and displays in addition to what was our core business of Insignia POPS.
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.
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. 5 Table of Contents Service and Solution Development New services, solutions and enhancements to existing offerings are developed either internally or externally and may include proprietary data management and design guidance.
Our sales team is focused on: · Building and sustaining client relationships; · Increasing overall sales pipeline and revenue; and · Continued retail and brand expertise. Our marketing team 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 Sales team is focused on: · Building and sustaining client relationships; · Increasing overall sales pipeline and revenue; and · Expanding our retail footprint.
Enhance internal capabilities for added client benefit. 2. Grow On-Pack . Increase overall product offerings via innovation. Broaden overall market reach with strategic partners and clients. 3. Streamline Signage . Optimize sales with targeted outreach and strategic clients. Continue to streamline overall day-to-day operations with outsourced manufacturing partners and execution process.
Enhance internal capabilities for added client benefit. Continue to invest in design and creative resources in order to bring our clients the most innovative concepts. 2. Grow On-Pack . Continue to provide turnkey product offerings that fit both brand and retailer needs. Increase overall market potential with increased outreach and leveraging strategic partners. 3. Executional Excellence .
Based on our employees’ needs, we can provide them a wide range of both formal and informal development opportunities. As an example, in 2021, we invested in new software for our design and creative team to further enhance our capabilities and output to our clients. · Focus on Safety. The safety of our employees is a priority.
Based on our employees’ needs, we can provide them with a wide range of both formal and informal development opportunities. · Diversity, Equity and Inclusion. We recognize that our best performance comes when we have a team built off of diversity, equity and inclusion.
Removed
Over the course of 2021 based on client feedback, business results and expanded team capabilities our primary focus is now on in-store solutions, resulting in our decision to exit digital solutions in addition to right-sizing our in-store signage portfolio. With our diversification of business, we recognized over 75% of our revenue from these recently developed solutions in 2021.
Added
Our leadership and employees have extensive industry knowledge, including direct experience through former positions at consumer-packaged goods (“CPG”) manufacturers and retailers. We provide marketing solutions to brands spanning from some of the largest multinationals to new and emerging brands.
Removed
In the last half of 2020 we outsourced most of our printing and IT operations. In 2021 we relocated our headquarters and operations, both to smaller, more efficient leased spaces.
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With our diversification of business, we now recognized over 90% of our revenue from these recently developed solutions in 2022 and expect this percentage to grow in 2023. Over the last two years we have significantly reduced operating costs and retailer commitments.
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These changes have allowed us to not only significantly reduce lease expense but also adapt to a hybrid work environment due to COVID-19 and move closer in proximity to multiple clients and vendor partners. The new office spaces also enhance our ability to recruit top talent based on the overall proximity and appeal of our locations.
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In 2021 we relocated our headquarters and operations, both to smaller, more efficient leased spaces, and also restructured operations in December 2021. These changes contributed to reduced expenses in 2022 compared to 2021. On July 1, 2022, we entered into a $20 million settlement agreement with News Corporation, News America Marketing FSI L.L.C., and News America Marketing In-Store Services L.L.C.
Removed
Brand Fragmentation: Consumer loyalty is shifting from established to emerging brands, who often are launching in retail for the first time and are looking for solutions to help them be discovered. 3.
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(collectively, “News America”). The agreement memorializes the amicable settlement of our outstanding lawsuit against News America. The agreement resulted in net proceeds before income tax of $12,000,000, which was recorded as a net pretax gain from litigation settlement in operations. We are also continuing to explore strategic options to maximize shareholder value.
Removed
Our In-Store Signage Solutions , which include POPS signs, help brands achieve a variety of objectives that include awareness and sales lift.
Added
Potential strategic alternatives that may be evaluated include, but are not limited to, an acquisition, merger, business combination, in-licensing, start-up of new business or other strategic transaction. There can be no assurance that this process will result in any transaction or other changes. Our internet address is www.insigniasystems.com.
Removed
We observed increased competition in growing and maintaining our network of retailers into which we are authorized to sell solutions as a result of our competitor continuing to purchase new exclusive arrangements or extend existing exclusive arrangements with retailers for that purpose.
Added
We make all reports we file with the Securities and Exchange Commission (SEC), including our annual reports on Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K; and amendments to those reports, if any, available free of charge on its website, as soon as reasonably practicable after electronically filing such materials with, or furnishing them to the SEC.
Removed
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”). In short, the Company 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.
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Brand Crossover: While the number of e-commerce and social media led brands has skyrocketed, many of these brands are also fighting for space at retail. Retailers are leveraging these brands as exclusive offerings to stand out from the competition and give shoppers a reason to continue coming back. 3.
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We believe in creating an environment where our employees have opportunities to grow and develop professionally. We also strive to create a work environment that employees are proud to be a part of. · Employee Engagement.
Added
Historically, our core product has been in-store signage solutions, namely the Insignia Point-of Purchase Services (POPS®).
Removed
In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees, that included giving many of our employees the flexibility to work from home. · Diversity, Equity and Inclusion. We recognize that our best performance comes when we have a team built off of diversity, equity and inclusion.
Added
Due to the shift away from signage our POPS business will be wound down in 2023, we will still have the ability to sell signs into certain retailers in the Mass Merchant and Grocery Channel. 1.
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In addition, we selected Strive Publishing, a local publisher whose mission is to inspire community collaboration in publishing stories to heal, teach, learn, and earn while building an ecosystem that embodies a rich Black culture and heritage for a donation around Juneteenth. · Compensation and Benefits. We provide robust compensation and benefits.
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Our Design team is focused on the following: · Creating innovative stand-out solutions for our brands; · Designing concepts that are fully executable in-stores; and · Collaborating with our production partners to bring their designs to life.
Added
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.
Added
These factors have historically resulted in our first quarter being our largest revenue quarter. Environmental Matters We believe our operations follow 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.
Added
We believe in providing our employees a flexible work environment that allows them to work where they feel they can get their best work done. We also take employees’ feedback and concerns to heart and leverage this to help enhance our employee experience. Ultimately, this promotes retention and the overall success of our organization. · Talent Development.
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
19 edited+10 added−27 removed17 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
19 edited+10 added−27 removed17 unchanged
2022 filing
2023 filing
Biggest changeSTRATEGIC RISKS Our Growth Is Dependent on Our Ability to Successfully Develop and Design 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 solutions and the ability to secure and maintain access to retailer locations that are appealing to CPG manufacturers.
Biggest changeAn adverse resolution of any lawsuit or claim in favor of a third party against us, including those we become involved in through mergers and acquisitions transactions, may require us to pay substantial damages or impose restrictions on how we conduct business, either of which could adversely affect our business, financial condition and operating results. 7 Table of Contents STRATEGIC RISKS The Growth of our Business Is Dependent on Our Ability to Successfully Develop and Design 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 solutions and the ability to secure and maintain access to retailer locations that are appealing to CPG manufacturers.
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.
These threats, and a failure to maintain security protocols, 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.
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.
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, strategic alternative exploration, 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.
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. 11 Table of Contents
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.
We Face a Number of Risks Associated With Potential Strategic Alternatives As announced in December 2021, we have commenced a formal process to explore strategic options to maximize shareholder value. We intend to use reasonable efforts to identify and evaluate potential transactions.
We Face a Number of Risks Associated with Potential Strategic Alternatives As announced in December 2021, we are conducting a formal process to explore strategic options to maximize shareholder value. We intend to use reasonable efforts to identify and evaluate potential transactions, and new business opportunities.
We are and will continue to be one of many participants in the pool of companies exploring strategic alternatives. A large number of established and well-financed entities, including special purpose acquisition companies, other public companies and venture capital firms, are active in mergers and acquisitions of companies that may be competing for similar opportunities or desirable target candidates as us.
A large number of established and well-financed entities, including special purpose acquisition companies, other public companies and venture capital firms, are active in mergers and acquisitions of companies that may be competing for similar opportunities or desirable target candidates as us.
Investment in Our Stock Could Result in Fluctuating Returns During 2021, the sale prices of our common stock as reported by The Nasdaq Stock Market ranged from a low of $4.76 to a high of $35.50.
Investment in Our Stock Could Result in Fluctuating Returns During 2022, the sale prices of our common stock as reported by The Nasdaq Stock Market ranged from a low of $5.48 to a high of $28.80.
Our Outsourcing Arrangements May Not Yield the Desired Efficiencies Within Our Planned Timeline, If At All We have arrangements with third parties for them to operate certain software applications and significant portions of our information technology infrastructure, as well as most of our production operations that are necessary to conduct our business.
Our Outsourcing Arrangements May Make Us Vulnerable to Third Party Failures We have arrangements with third parties for them to operate certain software applications and significant portions of our information technology infrastructure, as well as most of our production operations that are necessary to conduct our business.
Another economic downturn, whether because of the COVID-19 pandemic or otherwise, may reduce demand or depress pricing for our products and services and have an adverse effect on our results of operations.
Recent inflation has increased our costs and we may be limited in our ability to pass cost increase along in pricing to our customers. Another economic downturn, whether because of the COVID-19 pandemic or otherwise, may reduce demand or depress pricing for our products and services and have an adverse effect on our results of operations.
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.
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.
Such activities are accompanied by risks commonly encountered in pursuing and completing such transactions, including, but not limited to, increased expenses associated with the process.
Such activities are accompanied by risks commonly encountered in pursuing and completing such transactions, including, but not limited to, increased expenses associated with the process. Failure to manage the process to a desirable outcome could harm our business, our strategy and our operating results in a material way.
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.
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. 8 Table of Contents Future Pandemics May Impact Our Business A public health crisis, if sufficiently widespread as to affect economic activity, could negatively impact our business.
Further, we may not fully realize on a timely basis the anticipated economic and other benefits of the outsourcing projects or other relationships we entered into with these third parties, which could result in substantial costs or other operational or financial problems for the Company. 10 Table of Contents RISKS RELATED TO OUR COMMON STOCK 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 customers or changes in timing and amount of our customers’ spending with us; · the timing of seasonal events for customers; · costs of evaluating and developing new products, and customers accepting new products; · the timing of additional selling, marketing and general and administrative expenses; · competitive conditions in our industry; and · the addition or loss of contracts with retailers.
We are vulnerable to third party failures to satisfy their obligations to us, including as a result of their nonperformance, performance at standards that are not acceptable to us or our customers, changes in their methods of operation or financial condition, and other matters outside of our control. 9 Table of Contents RISKS RELATED TO OUR COMMON STOCK 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 customers or changes in timing and amount of our customers’ spending with us; · the timing of seasonal events for customers; · costs of evaluating and developing new products, and customers accepting new products; · the timing of additional selling, marketing and general and administrative expenses; · competitive conditions in our industry; · the addition or loss of contracts with retailers; and · the impact of strategic alternatives activities.
The existence of one or more material weaknesses precludes a conclusion by management that a company’s internal control over financial reporting is effective.
The existence of one or more material weaknesses precludes a conclusion by management that a company’s internal control over financial reporting is effective. For example, the Company previously identified a material weakness at December 31, 2020 related to sales tax accounting that was remediated as of December 31, 2021.
Failure to manage the process to a desirable outcome could harm our business, our strategy and our operating results in a material way. 8 Table of Contents We are in a highly competitive market for a small number of business opportunities, which could reduce the likelihood of consummating one or more strategic alternatives.
We are in a highly competitive market for a small number of business opportunities, which could reduce the likelihood of consummating one or more strategic alternatives. We are and will continue to be one of many participants in the pool of companies exploring strategic alternatives.
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. 7 Table of Contents COMPETITIVE AND REPUTATIONAL RISKS We Face Significant Competition We 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.
COMPETITIVE AND REPUTATIONAL RISKS We Face Competition We 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. We face significant competition from News America (which has been sold to Neptune Retail Solutions), the primary provider of at-shelf advertising and promotional signage for a significant majority of retailers.
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. We believe our positioning and offering in the marketplace is unique with our end-to-end capabilities, however brands and retailers can single-source their needs by working with others in the industry individually.
Item 1A. Risk Factors Our business is subject to many risks.
Item 1A. Risk 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.
Current and Future Pandemics Are Likely to Impact Our Business The COVID-19 pandemic has significantly and adversely impacted our operations and the operations of our CPG customers and retailers as a result of quarantines, illnesses, and travel and logistics restrictions and it is likely to continue to adversely affect our business indefinitely.
We experienced these effects with the onset of the COVID-19 pandemic in early 2020, when our operations and the operations of our CPG customers and retailers were impacted by quarantines, illnesses, and travel and logistics restrictions.
Removed
We continue to compete for advertising dollars with News America’s 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.
Added
We realize that by working with Insignia, we cannot always offer the lowest price in the marketplace versus a direct manufacturer, however, we can provide continuity and consistency along the entire project journey while managing the entire project for our clients, whereas they would need to source out design, production and execution individually.
Removed
Because our competition has continued to develop and extend their exclusive relationships with both our current as well as prospective retailers our revenues and related operations have been adversely affected. We Have Been, and Are, Party to Significant Litigation We were involved in significant litigation with News America between 2003 and 2011.
Added
We Have Been Party to Significant Litigation with a Competitor We were involved in significant litigation with News America Marketing In-Store, Inc. between 2003 and 2011, which ended with a settlement. Again, on July 1, 2022, we entered into a $20 million settlement agreement with News America.
Removed
In 2011, we entered into a Settlement Agreement with News America to resolve the antitrust and false advertising lawsuit that had been outstanding for several years. In July 2019, the Company 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.
Added
The agreement memorializes the amicable settlement of the Company’s lawsuit against News America, which was initially filed in 2019. While we are not currently party to any significant litigation, the Company is subject to various legal proceedings in the normal course of business.
Removed
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.
Added
Further, we could incur significant expenses asserting or defending future claims that could adversely affect our business, financial condition and operating results.
Removed
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.
Added
To the extent that efforts to mitigate the effects of the crisis result in a reduction in demand, inefficiencies due to workplace accommodations, reduced availability of personnel, supply chain disruption, or constraints on materials availability, among other difficulties, our financial condition could be negatively impacted.
Removed
Management believes that the counterclaim is without merit, and the Company filed a response brief on November 11, 2019. The Company also moved to dismiss the counterclaim. The court heard oral arguments from both parties on January 14, 2020, and subsequently denied both motions. On July 10, 2020 the parties cross-moved for summary judgment on the counterclaim.
Added
In any such event, the severity, duration, and extent of the crisis can be difficult to predict, which can make it difficult to predict or anticipate the magnitude and length of the impact on our sales, profits, and/or cash flow.
Removed
On December 7, 2020, the Court granted News America’s motion for summary judgment on the counterclaim in part, requiring Insignia to strike certain allegations from its complaint and finding News America’s request for attorneys’ fees and costs premature. Following the close of discovery, on August 27, 2021, News America moved for summary judgment on Insignia’s claims.
Added
In 2020, the financial impact of COVID-19 was significant as a significant number of programs originally slated for execution in the second quarter were cancelled, in addition to incremental costs incurred due to reduced levels of staffing with our execution partners. COVID-19 did not have any meaningful direct impact on our financial results in 2022.
Removed
On September 17, 2021, Insignia filed its response opposing summary judgment. On October 1, 2021, News America filed its reply brief. The court cancelled a hearing on the motion originally scheduled for January 26, 2022, and referred the case to mediation. News America’s summary judgment motion remains pending.
Added
However, COVID-19 infections continue, and we cannot predict the severity and duration of additional outbreaks, new variants of the virus, or the future availability of effective medical treatments and vaccines. We also cannot predict the severity or duration of the financial impact of COVID-19 or any other public health event on our operating results.
Removed
At this stage of the proceedings, the Company is unable to determine the likelihood of an unfavorable outcome or estimate any potential resulting liability.
Added
Company management is responsible for establishing and maintaining effective internal controls designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance. Any internal control system, no matter how well designed and operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met.
Removed
Our future bookings may be negatively impacted during the COVID-19 pandemic.
Added
Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all internal control systems, internal control over business processes and financial reporting may not prevent or detect fraud or misstatements.
Removed
Factors deriving from the COVID-19 response that have impacted or we believe are likely to negatively impact sales and operating results in the future include, but are not limited to: reduced or delayed levels of CPG spending; reduced levels of staffing with our execution partners; limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to remain at home; and limitations on the ability of our customers to pay us on a timely basis.
Removed
We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders.
Removed
Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts on our business as a result of any economic recession or depression that has occurred or may occur in the future.
Removed
We are unable to determine or predict the nature, duration or scope of the overall impact the COVID-19 pandemic will have on our business, results of operations, liquidity or capital resources. As a result, the financial impact to our operating results cannot be reasonably estimated; however, it could be material and last for an extended period of time.
Removed
Our inability to attract and retain such personnel could have an adverse effect on our business, results of operations and financial condition. 9 Table of Contents We Have Identified Material Weaknesses in Our Internal Control Over Financial Reporting During the Past Three Years.
Removed
The Sarbanes-Oxley Act of 2002 requires that we maintain effective internal control over financial reporting and disclosure controls and procedures. We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting.
Removed
This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting, such as the material weaknesses as described below.
Removed
The Company had a material weakness at December 31, 2020 related to sales tax accounting that was remediated as of December 31, 2021 and had a material weakness at December 31, 2019 related to impairment testing that we performed in accordance with ASC 360, Property, Plant, and Equipment that was remediated as of December 31, 2020.
Removed
In connection with the material weakness identified related to sales tax accounting, we restated our financial statements for the years ended December 31, 2020 and 2019 as described in the Explanatory Paragraph and in Note 2 to our annual financial statements for the year ended December 31, 2020.
Removed
In response to these identified material weaknesses, our management, with the oversight of the Audit Committee of our Board of Directors, has dedicated significant resources, including the involvement of outside advisors, in efforts to improve our internal control over financial reporting.
Removed
If we fail to maintain effective control over financial reporting in the future, it could result in a material misstatement of our financial statements that would not be prevented or detected on a timely basis.
Removed
We May Not Be Able to Generate Enough Cash or Secure Enough Capital to Execute Our Future Business Plans The Company has experienced net losses and used significant cash in operations in each of the last three years and there is uncertainty regarding our ability to achieve and maintain profitability.
Removed
Although the Company is continuing to explore strategic alternatives to maximize shareholder value and management has taken actions to reduce cash use, we cannot be sure these actions will sufficiently reduce or eliminate future losses.
Removed
While we believe the Company has adequate cash to meet its liquidity needs for at least the next 12 months, if cash flows from operations together with cash and cash equivalents are not sufficient to fund our operations and any necessary capital expenditures in the longer term, and we are unable to secure alternative sources of financing on terms acceptable to us, then our results of operations, financial condition and liquidity would be materially adversely affected.
Removed
We may pursue debt, equity or other forms of financing to supplement our current capital resources. Our ability to obtain additional financing will depend upon a number of factors, including our future performance and financial results, the status of the strategic alternatives exploration process and our pending litigation, and general economic and capital market conditions.
Removed
We may not be able to maintain adequate capital or raise additional capital on reasonable terms or at all, if needed.
Removed
We are vulnerable to third party failures to satisfy their obligations to us, including as a result of their nonperformance, performance at standards that are not acceptable to us or our customers, changes in their methods of operation or financial condition, and other matters outside of our control.
Item 2. Properties
Properties — owned and leased real estate
1 edited+1 added−0 removed0 unchanged
Item 2. Properties
Properties — owned and leased real estate
1 edited+1 added−0 removed0 unchanged
2022 filing
2023 filing
Biggest changeItem 2. Properties The Company has a lease for its corporate headquarters in downtown Minneapolis, Minnesota which expires July 31, 2024, and a lease for warehouse space in a suburb of Minneapolis which expires March 31, 2023. The headquarters lease is for 2,850 square feet and the warehouse lease is for 2,560 square feet.
Biggest changeItem 2. Properties The Company has a lease for its corporate headquarters in downtown Minneapolis, Minnesota which has been renewed through December 31, 2026. The headquarters lease is for 2,850 square feet. The Company also has lease for warehouse space in a suburb of Minneapolis which expires March 31, 2023, for 2,560 square feet.
Added
The warehouse lease has been extended on a month-to-month basis effective April 1, 2023.
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
2 edited+0 added−1 removed0 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
2 edited+0 added−1 removed0 unchanged
2022 filing
2023 filing
Biggest changeDividends The Company has not historically paid dividends, other than two one-time special dividends declared in 2011 and 2016. The Board of Directors periodically evaluates our ability to pay dividends in light of our financial condition.
Biggest changeDividends The Company has not historically paid dividends, other than two one-time special dividends declared in 2011 and 2016. The Board of Directors periodically evaluates our ability to pay dividends in light of our financial condition and business plans. Item 6. [Reserved]
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information and Holders The Company’s common stock is listed on the Nasdaq Capital Market under the symbol ISIG. As of March 8, 2022, our common stock was held by approximately 109 holders of record.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information and Holders The Company’s common stock is listed on the Nasdaq Capital Market under the symbol ISIG. As of March 7, 2023, our common stock was held by approximately 113 holders of record.
Removed
The Company intends to retain earnings from operations for use in advancing our business strategy; however, we may consider special dividends in the future depending on outcomes of actions such as legal proceedings. Item 6. [Reserved] Not applicable.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
35 edited+11 added−22 removed20 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
35 edited+11 added−22 removed20 unchanged
2022 filing
2023 filing
Biggest changeThe increase was due to the gain on forgiveness of debt and accrued interest of $1,062,000 from the SBA forgiving the Company of its promissory note (the “Note”) with Alerus Financial, N.A. entered into pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, as well as a $273,000 benefit received under the Employee Retention Credit for the third quarter of 2021, see Item 8, Footnote 1, partially offset by interest expense related to sales tax accrued.
Biggest changeThe decrease was due to two items in 2021 that did not recur in 2022, the gain on forgiveness of debt and accrued interest of $1,062,000 from the SBA forgiving the Company of its loan pursuant to the Paycheck Protection Program, as well as a $273,000 benefit received under the Employee Retention Credit.
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. 17 Table of Contents Stock-Based Compensation Expense . The Company measures and recognizes compensation expense for all stock-based payments at fair value.
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.
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. Overview We are a leading provider of in-store advertising solutions to brands, retailers, shopper marketing agencies and brokerages (“clients”).
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. 11 Table of Contents Overview We are a leading provider of in-store advertising solutions to brands, retailers, shopper marketing agencies and brokerages (“clients”).
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 loss for the period. Net Loss.
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 or loss for the period. Net Income (Loss).
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.
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 several complex and subjective variables.
On an ongoing basis, we evaluate our estimates and assumptions, including those related to allowance for doubtful accounts, impairment of long-lived assets, income taxes, sales tax, 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.
On an ongoing basis, we evaluate our estimates and assumptions, including those related to allowance for doubtful accounts, income taxes, sales tax, 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.
These determinations contain estimates and are subject to judgment and interpretation by taxing authorities in various states and other jurisdictions, which could result in recognizing materially different amounts in future periods. Income Taxes .
These determinations contain estimates and are subject to judgment and interpretation by taxing authorities in various states and other jurisdictions, which could result in recognizing materially different amounts in future periods. 14 Table of Contents Income Taxes .
In the normal course of business, our accounts receivable, accounts payable, accrued liabilities, deferred revenue and prepaid production costs 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, 2021 was $90,000.
In the normal course of business, our accounts receivable, accounts payable, accrued liabilities, deferred revenue and prepaid production costs will fluctuate depending on the level of revenues and related business activity, as well as billing arrangements with customers and payment terms with retailers. 13 Table of Contents Investing Activities: Net cash used in investing activities during the year ended December 31, 2022 was $29,000.
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, 2021, working capital (current assets less current liabilities) was $3,716,000 compared to $7,668,000 at December 31, 2020.
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, 2022, working capital (current assets less current liabilities) was $13,379,000 compared to $3,716,000 at December 31, 2021.
Marketing expenses as a percentage of total net sales decreased to 5.3% in 2021, compared to 5.8% in 2020, primarily due to relatively flat expense over increased sales in 2021. General and Administrative. General and administrative expenses for the year ended December 31, 2021 increased 26.5% to $5,058,000, compared to $3,998,000 for the year ended December 31, 2020.
Marketing expenses for the year ended December 31, 2022 increased 1.7% to $1,050,000, compared to $1,032,000 for the year ended December 31, 2021. Marketing expenses as a percentage of total net sales increased to 5.6% in 2022, compared to 5.3% in 2021, primarily due to relatively flat expense over decreased sales in 2022. General and Administrative.
Statements made in this report regarding, for instance, the ongoing exploration of strategic alternatives, changes in composition of retailer and CPG manufacturer networks, innovation and transformation of the Company’s business, cost savings from restructuring activities, the nature or impact of pending legal proceedings, benefits of outsourcing arrangements, are forward-looking statements.
Statements made in this report regarding, for instance, the ongoing exploration of strategic alternatives, changes in composition of retailer and CPG manufacturer networks, innovation and transformation of the Company’s business, benefits of outsourcing arrangements, are forward-looking statements.
For the Years Ended December 31 2021 2020 Net sales 100.0 % 100.0 % Cost of sales 83.5 83.7 Gross profit 16.5 16.3 Operating expenses: Selling 9.9 16.5 Marketing 5.3 5.8 General and administrative 25.9 22.8 Gain on sale — (1.1 ) Total operating expenses 41.1 44.0 Operating loss (24.6 ) (27.7 ) Other income 6.7 0.2 Loss before taxes (17.9 ) (27.5 ) Income tax expense (benefit) 0.2 (1.1 ) Net loss (18.1 )% (26.4 )% 14 Table of Contents Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 Net Sales.
For the Years Ended December 31 2022 2021 Net sales 100.0 % 100.0 % Cost of sales 82.4 83.5 Gross profit 17.6 16.5 Operating expenses: Selling 7.0 9.9 Marketing 5.6 5.3 General and administrative 17.7 25.9 Total operating expenses 30.3 41.1 Gain from litigation settlement, net 63.8 - Operating income (loss) 51.1 (24.6 ) Other income 1.2 6.7 Income (loss) before taxes 52.3 (17.9 ) Income tax (benefit) expense (1.1 ) 0.2 Net income (loss) 53.4 % (18.1 )% Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Net Sales.
For the reasons stated above, including the gain on debt forgiveness of the PPP loan and accrued interest of $1,062,000, the net loss for the year ended December 31, 2021 was $3,534,000 compared to a net loss of $4,615,000 for the year ended December 31, 2020.
For the reasons stated above including the pre-tax gain from litigation settlement in 2022, and the gain on debt forgiveness of the PPP loan and accrued interest of $1,062,000 in 2021, the net income for the year ended December 31, 2022 was $10,046,000 compared to a net loss of $3,534,000 for the year ended December 31, 2021.
Selling expenses as a percentage of total net sales decreased to 9.9% in 2021, compared to 16.5% in 2020, primarily due to decreased expense described above, in addition to increased sales for the year ended December 31, 2021. Marketing.
Selling expenses as a percentage of total net sales decreased to 7.0% in 2022, compared to 9.9% in 2021, primarily due to decreased expense described above, partially offset by decreased net sales for the year ended December 31, 2022. Marketing.
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.
There can be no assurance that this process will result in any transaction. 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.
New product investments by large and emerging CPG manufacturers give us optimism that our product portfolio is relevant to our clients. 13 Table of Contents 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 execution partners which has diversified our portfolio.
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 execution partners which has diversified our portfolio.
Our focus on portfolio diversification resulted in our 2021 non-POPS solutions revenue growing 61% versus 2020, and also resulted in our POPS signage solutions declining to approximately 24% of our total net sales for 2021, compared to 44% of our total net sales in 2020. We remain committed to further refining and enhancing our solutions and broadening our retailer relationships.
Our focus on portfolio diversification resulted in our 2022 non-POPS solutions revenue growing 22% versus 2021, and also resulted in our POPS signage solutions declining to approximately 5% of our total net sales for 2022, compared to 24% of our total net sales in 2021. In 2023 we will be winding down our POPS signage solution.
This was related to the purchase of property and equipment, partially offset by proceeds from the sale of property and equipment. Financing Activities: Net cash used in financing activities during the year ended December 31, 2021 was $187,000, which primarily related to the repurchase of common stock upon vesting of restricted stock.
This was related to the purchase of property and equipment. Financing Activities: Net cash provided by financing activities during the year ended December 31, 2022 was $39,000, which related to proceeds from the issuance of common stock under the employee stock purchase plan and exercised stock options.
The primary differences between the Company’s December 31, 2021 and 2020 effective tax rates and the statutory federal rates are expenses related to stock-based compensation in the amounts of $277,000 and $152,000, respectively, forgiveness of the Company’s PPP loan of $1,062,000 in 2021 and a change in the Company’s valuation allowance against its deferred assets of $1,200,000 and $943,000, respectively.
The primary differences in 2021 were due to the forgiveness of the Company’s PPP loan of $1,062,000 and a change in the Company’s valuation allowance against its deferred assets of $1,200,000.
We provide marketing solutions to brands spanning from some of the largest multinationals to new and emerging brands.
We provide marketing solutions to brands spanning from some of the largest multinationals to new and emerging brands. New product investments by large and emerging CPG manufacturers give us optimism that our product portfolio is relevant to our clients.
These changes will contribute significant savings to our 2022 plan. We are also continuing to explore strategic options to maximize shareholder value. Potential strategic alternatives that may be evaluated include, but are not limited to, an acquisition, merger, business combination, in-licensing, or other strategic transaction. There can be no assurance that this process will result in any transaction.
We remain committed to further refining and enhancing our solutions and broadening our retailer relationships. We are also continuing to explore strategic options to maximize shareholder value. Potential strategic alternatives that may be evaluated include, but are not limited to, an acquisition, merger, business combination, in-licensing, start-up of new business, or other strategic transaction.
The increase was due to a 60.9% increase in non-POPS revenue, partially offset by a decrease in POPS solutions revenue of 38.6% for the year ended December 31, 2021. For the year ended December 31, 2021, non-POPS revenue increased due to both sales to new CPGs and an increase in sales to existing CPGs.
Net sales for the year ended December 31, 2022 decreased 3.6% to $18,800,000, compared to $19,503,000 for the year ended December 31, 2021. The decrease was due to an 81.5% decrease in POPS solutions revenue, partially offset by an increase in non-POPS revenue of 21.5%.
Gain on sale for the year ended December 31, 2020 was $195,000 as a result of the sale of our custom print business. Other Income. Other income for the year ended December 31, 2021 was $1,299,000 compared to other expense of $33,000 for the year ended December 31, 2020.
Other income for the year ended December 31, 2022 was $222,000 compared to other income of $1,299,000 for the year ended December 31, 2021.
The impairment charge is described further in Item 8, Footnote 1. Operating Expenses Selling. Selling expenses for the year ended December 31, 2021 decreased 32.9% to $1,931,000, compared to $2,877,000 for the year ended December 31, 2020, primarily due to reductions in staffing in 2020 and other decreased staff related expenses.
Selling expenses for the year ended December 31, 2022 decreased 31.4% to $1,325,000, compared to $1,931,000 for the year ended December 31, 2021, primarily due to decreased staff and staff related expenses.
Gross profit from service revenues for the year ended December 31, 2021 increased 14.9% to $3,230,000, compared to $2,811,000 for the year ended December 31, 2020. The increase in gross profit was primarily due to the POPS solutions margin, in addition to a 60.9% increase in non-POPS solutions revenue for the year ended December 31, 2021.
We expect POPS revenue will continue to decline in 2023 in comparison to 2022. Gross Profit. Gross profit for the year ended December 31, 2022 increased 2.2% to $3,301,000, compared to $3,230,000 for the year ended December 31, 2021. The increase in gross profit was primarily due to decreased fixed costs within gross margin from staff and staff related expenses.
General and administrative expenses as a percentage of total net sales increased to 25.9% in 2021, compared to 22.8% in 2020, primarily due to the increases in expense as described above, partially offset by increased sales. 15 Table of Contents Gain on sale. There was no gain on sale during the year ended December 31, 2021.
General and administrative expenses as a percentage of total net sales decreased to 17.7% in 2022, compared to 25.9% in 2021, primarily due to the decreases in expense as described above. Gain from litigation settlement.
The largest component of the change in operating assets and liabilities was accrued liabilities which increased $665,000 from December 31, 2020. The increase was a result of prepaid production costs.
The non-cash adjustments consisted of depreciation expense, changes in allowance for doubtful accounts, and stock-based compensation expense. The largest component of the change in operating assets and liabilities was deferred revenue which increased $1,585,000 from December 31, 2021. The increase was a result of an increase in prepaid revenue from our customers.
Net loss of $3,534,000, less non-cash adjustments of $689,000, plus changes in operating assets and liabilities of $1,223,000 resulted in the $3,000,000 of cash used in operating activities.
Operating Activities: Net cash provided by operating activities during the year ended December 31, 2022 was $10,663,000. Net income of $10,046,000, less non-cash adjustments of $69,000, plus changes in operating assets and liabilities of $686,000 resulted in the $10,663,000 of cash provided by operating activities.
Income Taxes. During the year ended December 31, 2021, the Company recorded an income tax expense of $42,000, compared to an income tax benefit of $191,000 for the year ended December 31, 2020. The effective tax rate was (1.2)% and 4.0% for the years ended December 31, 2021 and 2020, respectively.
Other income in 2022 consisted primarily of interest income from investment in short-term treasury bills. Income Taxes. For the year ended December 31, 2022, the Company recorded an income tax benefit of $218,000, compared to an income expense of $42,000 for the year ended December 31, 2021.
At December 31, 2021, the remaining balance of long-lived assets on the Company’s balance sheet was $296,000 inclusive of $183,000 for operating lease right-of-use assets. Sales Taxes . Sales taxes are based on determination of which of the Company’s products/services are subject to sales tax, and in which of various states and other jurisdictions the tax applies.
Unexpected changes in the aforementioned factors could result in materially different amounts. Sales Taxes . Sales taxes are based on determination of which of the Company’s products/services are subject to sales tax, and in which of various states and other jurisdictions the tax applies.
We believe that based upon these actions, current business conditions and plans, our existing cash balance will be sufficient for our cash requirements for at least the next twelve months. 16 Table of Contents Critical Accounting 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.
If we are unable to raise additional funds when needed we may not be able to complete transactions related to the strategic alternatives process. Critical Accounting 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.
Competitive pressures have resulted in decreased POPS solutions revenue for the year ended December 31, 2021 versus the year ended December 31, 2020. We expect POPS revenue will continue to decline in 2022 as we have reduced the number of stores in our network due to competitive pressures.
Competitive pressures, including the expiration in April 2021 of our 10-year selling agreement with News America and management’s decision to prioritize resources to growth opportunities in non-POPS solutions, have resulted in decreased POPS solutions revenue for the year ended December 31, 2022 versus the year ended December 31, 2021.
The increase was primarily due to expenses incurred as a result of the litigation with News America, partially offset by a reduction in staff related expenses. 2022 litigation expenses are expected to decrease in comparison to 2021 and to be similar to 2020 expenses.
General and administrative expenses for the year ended December 31, 2022 decreased 34.4% to $3,320,000, compared to $5,058,000 for the year ended December 31, 2021. The decrease was primarily due to higher expenses incurred in the year ended December 31, 2021 as a result of litigation with News America.
Gross profit for the year ended December 31, 2021 increased 13.1% to $3,230,000, compared to $2,856,000 for the year ended December 31, 2020. Gross profit as a percentage of total net sales increased to 16.5% for the year ended December 31, 2021, compared to 16.3% for the year ended December 31, 2020. Service revenues.
Gross profit as a percentage of total net sales increased to 17.6% for the year ended December 31, 2022, compared to 16.5% for the year ended December 31, 2021. The increase was primarily due to reduction of fixed expense as discussed above, partially offset by decreased net sales. 12 Table of Contents Operating Expenses Selling.
During the year ended December 31, 2021, cash and cash equivalents and restricted cash decreased $3,277,000 from $7,128,000 at December 31, 2020, to $3,851,000 at December 31, 2021. Operating Activities: Net cash used in operating activities during the year ended December 31, 2021 was $3,000,000.
During the year ended December 31, 2022, cash and cash equivalents and restricted cash increased $10,673,000 from $3,851,000 at December 31, 2021, to $14,524,000 at December 31, 2022. These increases were the result of the net proceeds of $12,000,000 from the litigation settlement. The Company has invested a significant portion of its cash and cash equivalents in short-term Treasury Bills.
Removed
We continue to optimize costs on our core signage business. The Company implemented a plan to restructure its operations in December 2021, including workforce reductions and other cost-saving initiatives. These changes are expected to result in approximately $500,000 of savings in 2022. We have also worked with our retail partners to optimize our overall fixed expenses on our POPS business.
Added
The increase in non-POPS revenue is due to both new client acquisition as well as repeat business from existing clients. POPS sales for the year ended December 31, 2022 were $880,000.
Removed
Impacts and Potential Future Impacts of COVID-19 on Our Business The COVID-19 pandemic has significantly and adversely impacted our operations and the operations of our CPG customers and retailers because of quarantines, illnesses, and travel and logistics restrictions. It is likely to continue to adversely affect our business indefinitely.
Added
Following the litigation settlement on July 1, 2022, the Company does not expect to incur further expenses related to the legal proceedings with News America. The decrease in litigation expenses was partially offset by increase in expenses related to exploring strategic alternatives.
Removed
While we have continued to operate and maintain our continuity with our clients by working remotely, the retail landscape in which CPG manufacturers and retailers operate has changed substantially, as has our ability to execute programs due to both limited access to our retailers and reduced levels of staffing with our execution partners.
Added
On July 1, 2022, the Company entered into the settlement agreement with News America, with net proceeds after expenses of $12,000,000, which was recorded as a gain on litigation settlement in operations in the three months ended September 30, 2022. Other Income.
Removed
The financial impact of COVID-19 for 2020 was significant. A significant number of programs originally slated for execution in the second quarter were cancelled. While the impact of COVID-19 moderated to some extent in 2021, we believe it negatively impacted our business in the current year. Our future bookings may be negatively impacted until the COVID-19 pandemic subsides.
Added
The effective tax rate was 2.2% and (1.2)% for the years ended December 31, 2022 and 2021, respectively. The primary differences between the Company’s 2022 effective tax rate and the statutory federal rates were the reversal of non-deductible penalties, the reversal of unrecognized tax benefits, and a change in the Company’s valuation allowance against its deferred assets of ($1,971,000).
Removed
Factors deriving from the COVID-19 response that have impacted or we believe are likely to negatively impact sales and operating results in the future include, but are not limited to: reduced or delayed levels of CPG spending; reduced levels of staffing with our execution partners; limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to remain at home; and limitations on the ability of our customers to pay us on a timely basis.
Added
The valuation allowance decrease in 2022 was primarily related to the utilization of the Company’s net operating loss carryforward against the Company’s taxable income. Such utilization was limited to 80% of the Company’s taxable income for the year.
Removed
Even if the COVID-19 pandemic moderates further, we may continue to experience adverse impacts on our business because of any economic recession or depression that has occurred or may occur.
Added
Primarily as a result of the net proceeds from the litigation settlement of $12 million, cash and cash equivalents plus restricted cash at December 31, 2022 was $14.5 million.
Removed
Therefore, we cannot reasonably estimate the full extent of the impact on our results of operation and financial condition, but it could be material and last for an extended period of time. We continue to monitor our liquidity, including frequent cost and spending assessments and reductions across our organization.
Added
The Company believes that based upon current business conditions and plans, its cash and cash equivalents balances will be sufficient for its cash requirements for at least the twelve-month period subsequent to the filing of this Form 10-K. Depending on the outcome our strategic alternative process we may be required to finance this process through equity offerings or debt financings.
Removed
Net sales for the year ended December 31, 2021 increased 11.6% to $19,503,000, compared to $17,482,000 for the year ended December 31, 2020. Service revenues. Service revenues for the year ended December 31, 2021 increased 15.4% to $19,503,000, compared to $16,904,000 for the year ended December 31, 2020.
Added
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders will be diluted, and the terms of those securities may include liquidation or other preferences that adversely affect the rights of our shareholders.
Removed
While the negative impact from COVID-19 has lessened compared to 2020, future impacts are unknown as CPG manufacturers and retailers react to changes in shoppers’ behavior. Product revenues. Product revenues were from the custom print business which was sold in August 2020. Gross Profit.
Added
Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
Removed
The increase in POPS solutions margin was from the Company reducing guaranteed payment obligations by renegotiating several fixed or store-based retail payment contracts to sign placement-based payment contracts during 2020. Gross profit as a percentage of service revenues decreased to 16.5% for the year ended December 31, 2021, compared to 16.6% for the year ended December 31, 2020.
Added
Additional capital may not be available when needed, on reasonable terms, or at all, and our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the U.S. and worldwide resulting from the ongoing COVID-19 pandemic.
Removed
The decrease was primarily due to decreased revenue from non-POPS signage solutions which tend to have higher margin rates, partially offset by increased margin rates from POPS signage due to negotiating reduced retail payment contracts, as discussed above. Product revenues. Gross profit from product sales was from the custom print business which was sold in August 2020.
Added
Critical accounting estimates are those estimates made in accordance with GAAP which involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations.
Removed
Impairment Loss – Services. There was no impairment loss impacting gross profit during the year ended December 31, 2021. Gross profit for the year ended December 31, 2020 was negatively impacted as a result of an impairment loss resulting from the impairment charge of $159,000 on the value of the Company’s selling agreement with News America, a long-lived asset.
Removed
Marketing expenses for the year ended December 31, 2021 increased 1.7% to $1,032,000, compared to $1,015,000 for the year ended December 31, 2020. The increase was due to an increase in non-POPS solutions promotional activities, partially offset by decreased consulting expenses.
Removed
The non-cash adjustments consisted of depreciation expense, impairment loss, gain on sale of business, gain on sale of property and equipment, changes in allowance for doubtful accounts, gain on forgiveness of PPP loan and accrued interest of $1,062,000 and stock-based compensation expense.
Removed
The Company used net cash in operating activities during the year ended December 31, 2021 of $3,000,000. Management has taken actions to reduce the cash use, including a restructuring in December 2021 which reduced its work force by 19% and is expected to reduce operating expenses by approximately $500,000 in 2022.
Removed
The Company incurred significant litigation costs in 2021 in preparing for trial in its litigation against News America. The Company expects significantly lower litigation expenses in 2022.
Removed
Unexpected changes in the aforementioned factors could result in materially different amounts. Impairment of Long-Lived Assets. The Company periodically evaluates the carrying value of its long-lived assets for impairment indicators.
Removed
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.
Removed
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. In 2011, we paid News America Marketing $4,000,000 in exchange for a 10-year arrangement to sell signs with price into News America Marketing’s network of retailers as News America Marketing’s exclusive agent.
Removed
The $4,000,000 was being amortized over the 10-year term of the arrangement. During the three months ended March 31, 2020, the impact of COVID-19 was determined to be a triggering event requiring an impairment review of long-lived assets.
Removed
As of March 31, 2020, the Company determined the asset was impaired based upon continued revenue declines driven by changes in market conditions due to COVID-19 within the stores covered by the agreement. As a result, an impairment of $159,000 was recognized as of March 31, 2020.
Removed
We also shortened the end of the useful life of the underlying asset from March 31, 2021 to December 31, 2020 and recorded remaining amortization expense on a straight-line basis over the remainder of 2020. Amortization expense without the impairment was $158,000 for the year ended December 31, 2020.