UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended ~~September 30, 2019~~March 31, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from ___________ to ____________

Commission File Number: 1-13471

INSIGNIA SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Minnesota		41-1656308
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

8799 Brooklyn Blvd., Minneapolis, MN 55445

(Address of principal executive offices; zip code)

(763) 392-6200

(Registrant’s telephone number, including area code)

Securities registered to Section 12(b) of the Act:

Title of each class		Trading Symbol		Name of each exchange on which registered
Common Stock, $0.01 par value		ISIG		The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.:

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☑
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Number of shares outstanding of Common Stock, $.01 par value, as of ~~November~~May 11, ~~2019~~2020 was ~~12,074,218.~~12,106,689.

Insignia Systems, Inc.

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION	1

Item 1.	Financial Statements	1

	Condensed Balance Sheets – ~~September 30, 2019~~March 31, 2020 (unaudited) and December 31, ~~2018~~2019	1

	Condensed Statements of Operations – Three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (unaudited)	2

	Condensed Statements of Shareholders’ Equity – ~~Nine~~Three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (unaudited)	3

	Condensed Statements of Cash Flows – ~~Nine~~Three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (unaudited)	4

	Notes to Financial Statements – (unaudited)	5

Item 2.	Management's Discussion and Analysis of Financial Condition and Results	11
	of Operations	12

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	16

Item 4.	Controls and Procedures	16


PART II.	OTHER INFORMATION	17

Item 4.1.	~~Controls and Procedures~~Legal Proceedings	17

~~PART II.~~ Item 1A.	~~OTHER INFORMATION~~Risk Factors	1817

~~Item 1.~~	~~Legal Proceedings~~	18

~~Item 1A.~~	~~Risk Factors~~	18

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	1918

Item 3.	Defaults upon Senior Securities	1918

Item 4.	Mine Safety Disclosures	1918

Item 5.	Other Information	1918

Item 6.	Exhibits	2019

~~PART~~PART I.

FINANCIAL INFORMATION

~~Item~~

Item 1.

Financial Statements

~~Insignia Systems, Inc.~~

~~CONDENSED BALANCE SHEETS~~

September 30,

December 31,

2019

2018

(Unaudited)

ASSETS

Current Assets:

Cash and cash equivalents
$7,780,000
$10,160,000
Accounts receivable, net
  6,438,000
  8,763,000
Inventories
  343,000
  353,000
Income tax receivable
  129,000
  127,000
Prepaid expenses and other
  323,000
  306,000
Total Current Assets
  15,013,000
  19,709,000



Other Assets:


Property and equipment, net
  2,829,000
  3,268,000
Operating lease right-of-use assets, net
  210,000
  —
Other, net
  524,000
  976,000



Total Assets
$18,576,000
$23,953,000



LIABILITIES AND SHAREHOLDERS' EQUITY


Current Liabilities:


Accounts payable:
  2,221,000
  3,334,000
Accrued liabilities:


   Compensation
  329,000
  2,021,000
   Other
  413,000
  701,000
Current portion of operating lease liabilities
  207,000
  —
Deferred revenue
  390,000
  302,000
Total Current Liabilities
  3,560,000
  6,358,000



Long-Term Liabilities:


Deferred tax liabilities
  61,000
  504,000
Accrued income taxes
  636,000
  613,000
Deferred rent
  —
  158,000
Operating lease liabilities
  110,000
  —
Total Long-Term Liabilities
  807,000
  1,275,000



Commitments and Contingencies
  —
  —



Shareholders' Equity:


Common stock, par value $.01:


Authorized shares - 40,000,000


Issued and outstanding shares - 12,074,000 at September 30, 2019 and 11,840,000 at December 31, 2018
  121,000
  118,000
Additional paid-in capital
  15,890,000
  15,442,000
Retained earnings (Accumulated deficit)
  (1,802,000)
  760,000
Total Shareholders' Equity
  14,209,000
  16,320,000



Total Liabilities and Shareholders' Equity
$18,576,000
$23,953,000

~~See accompanying notes to financial statements.~~

Insignia Systems, Inc.
CONDENSED BALANCE SHEETS

	March 31,
	2020	December 31,
	(Unaudited)	2019
ASSETS
Current Assets:
Cash and cash equivalents	$7,755,000	$7,510,000
Accounts receivable, net	6,199,000	7,559,000
Inventories	313,000	322,000
Income tax receivable	245,000	126,000
Prepaid expenses and other	371,000	375,000
Total Current Assets	14,883,000	15,892,000

Other Assets:
Property and equipment, net	496,000	549,000
Operating lease right-of-use assets	143,000	177,000
Other, net	150,000	372,000

Total Assets	$15,672,000	$16,990,000

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable	2,846,000	3,036,000
Accrued liabilities:
Compensation	347,000	539,000
Other	261,000	570,000
Current portion of operating lease liabilities	216,000	212,000
Deferred revenue	350,000	140,000
Total Current Liabilities	4,020,000	4,497,000

Long-Term Liabilities:
Accrued income taxes	652,000	643,000
Operating lease liabilities	—	56,000
Total Long-Term Liabilities	652,000	699,000

Commitments and Contingencies	—	—

Shareholders' Equity:
Common stock, par value $.01:
Authorized shares - 40,000,000
Issued and outstanding shares - 12,107,000 at March 31, 2020 and 12,074,000 at December 31, 2019, respectively	121,000	121,000
Additional paid-in capital	16,003,000	15,934,000
Accumulated deficit	( 5,124,000)	( 4,261,000)
Total Shareholders' Equity	11,000,000	11,794,000

Total Liabilities and Shareholders' Equity	$15,672,000	$16,990,000

See accompanying notes to financial statements.

~~Insignia Systems, Inc.~~

~~CONDENSED STATEMENTS OF OPERATIONS~~

~~(Unaudited)~~

Three Months Ended

Nine Months Ended

September 30

September 30

2019

2018

2019

2018

Services revenues
$4,400,000
$9,069,000
$14,474,000
$23,963,000
Products revenues
  254,000
  386,000
  1,162,000
  1,156,000
Total Net Sales
  4,654,000
  9,455,000
  15,636,000
  25,119,000





Cost of services
  3,514,000
  5,569,000
  11,532,000
  14,937,000
Cost of goods sold
  214,000
  323,000
  939,000
  868,000
Total Cost of Sales
  3,728,000
  5,892,000
  12,471,000
  15,805,000
Gross Profit
  926,000
  3,563,000
  3,165,000
  9,314,000





Operating Expenses:




Selling
  573,000
  908,000
  2,004,000
  2,530,000
Marketing
  559,000
  703,000
  1,809,000
  1,873,000
General and administrative
  865,000
  1,106,000
  2,443,000
  3,580,000
Total Operating Expenses
  1,997,000
  2,717,000
  6,256,000
  7,983,000
Operating Income (Loss)
  (1,071,000)
  846,000
  (3,091,000)
  1,331,000





Other income
  46,000
  15,000
  113,000
  27,000
Income (Loss) Before Taxes
  (1,025,000)
  861,000
  (2,978,000)
  1,358,000





Income tax expense (benefit)
  (47,000)
  216,000
  (416,000)
  365,000
Net Income (Loss)
$(978,000)
$645,000
$(2,562,000)
$993,000





Net income (loss) per share:




Basic
$(0.08)
$0.05
$(0.22)
$0.08
Diluted
$(0.08)
$0.05
$(0.22)
$0.08





Shares used in calculation of net
income (loss) per share:




Basic
  11,986,000
  11,729,000
  11,911,000
  11,784,000
Diluted
  11,986,000
  12,012,000
  11,911,000
  12,026,000

~~See accompanying notes to financial statements.~~

CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)


Three Months Ended March 31	2020	2019
Services revenues	$4,436,000	$4,639,000
Products revenues	246,000	501,000
Total Net Sales	4,682,000	5,140,000

Cost of services	3,382,000	3,974,000
Cost of goods sold	172,000	392,000
Impairment loss	159,000	—
Total Cost of Sales	3,713,000	4,366,000
Gross Profit	969,000	774,000

Operating Expenses:
Selling	720,000	738,000
Marketing	365,000	665,000
General and administrative	993,000	708,000
Total Operating Expenses	2,078,000	2,111,000
Operating Loss	( 1,109,000)	( 1,337,000)

Other income	24,000	37,000
Loss Before Taxes	( 1,085,000)	( 1,300,000)

Income tax benefit	( 222,000)	( 204,000)
Net Loss	$(863,000)	$(1,096,000)

Net loss per share:
Basic	$(0.07)	$(0.09)
Diluted	$(0.07)	$(0.09)

Shares used in calculation of net loss per share:
Basic	12,066,000	11,856,000
Diluted	12,066,000	11,856,000

See accompanying notes to financial statements.

~~Insignia Systems, Inc.~~

~~CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY~~

~~(Unaudited)~~

Insignia Systems, Inc.
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)

	Common Stock		Additional
	Shares	Amount	Paid-In Capital	Accumulated Deficit	Total
Balance at December 31, 2019	12,074,000	$121,000	$15,934,000	$(4,261,000)	$11,794,000
Issuance of common stock, net	33,000	—	20,000	—	20,000
Value of stock-based compensation	—	—	49,000	—	49,000
Net loss	—	—	—	(863,000)	(863,000)
Balance at March 31, 2020	12,107,000 -	$121,000	$16,003,000	$(5,124,000)	$11,000,000

	Common Stock		Additional Paid-In	Retained Earnings (Accumulated		Common Stock		Additional	Retained Earnings
	Shares	Amount	Capital	Deficit)	Total	Shares	Amount	Paid-In Capital	(Accumulated Deficit)	Total
Balance at December 31, 2018	11,840,000	$118,000	$15,442,000	$760,000	$16,320,000	11,840,000	$118,000	$15,442,000	$760,000	$16,320,000
Issuance of common stock, net	107,000	1,000	107,000	—	108,000	107,000	1,000	107,000	—	108,000
Value of stock-based compensation	—		138,000	—	138,000	—		138,000	—	138,000
Net loss	—			(1,096,000)		—			(1,096,000)
Balance at March 31, 2019						11,947,000 -	$119,000	$15,687,000	$(336,000)	$15,470,000

Balance at March 31, 2019	11,947,000	$119,000	$15,687,000	$(336,000)	$15,470,000
Value of stock-based compensation	—		139,000	—	139,000
Repurchase of common stock upon vesting of restricted stock units	98,000	1,000	(10,000)	—	(9,000)
Net loss	—			(488,000)

Balance at June 30, 2019	12,045,000	$120,000	$15,816,000	$(824,000)	$15,112,000
Value of stock-based compensation	—		101,000	—	101,000
Repurchase of common stock upon vesting of restricted stock units	29,000	1,000	(27,000)	—	(26,000)
Net loss	—			(978,000)
Balance at September 30, 2019	12,074,000	$121,000	$15,890,000	$(1,802,000)	$14,209,000
See accompanying notes to financial statements.						See accompanying notes to financial statements.

Common Stock

Additional Paid-In

Retained Earnings (Accumulated

Shares

Amount

Capital

Deficit)

Total

Balance at December 31, 2017
  11,914,000
$119,000
$15,361,000
$(639,000)
$14,841,000
Issuance of common stock, net
  49,000
  —
  49,000
  —
  49,000
Value of stock-based compensation
  —
  —
  67,000
  —
  67,000
Net income
  —
  —
  —
  164,000
  164,000






Balance at March 31, 2018
  11,963,000
$119,000
$15,477,000
$(475,000)
$15,121,000
Value of stock-based compensation
  —
  —
  82,000
  —
  82,000
Repurchase of common stock upon vesting of restricted stock units
  (9,000)
  —
  (14,000)
  —
  (14,000)
Repurchase of common stock, net
  (103,000)
  —
  (187,000)
  —
  (187,000)
Net income
  —
  —
  —
  184,000
  184,000






Balance at June 30, 2018
  11,851,000
$119,000
$15,358,000
$(291,000)
$15,186,000
Value of stock-based compensation
  —
  —
  128,000
  —
  128,000
Repurchase of common stock upon vesting of restricted stock units
  42,000
  —
  (60,000)
  —
  (60,000)
Repurchase of common stock, net
  (45,000)
  (1,000)
  (81,000)
  —
  (82,000)
Net income
  —
  —
  —
  645,000
  645,000
Balance at September 30, 2018
  11,848,000
$118,000
$15,345,000
$354,000
$15,817,000

~~See accompanying notes to financial statements.~~

~~Insignia Systems, Inc.~~

~~CONDENSED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

Nine Months Ended September 30

2019

2018

Operating Activities:

Net income (loss)
$(2,562,000)
$993,000

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:


Depreciation and amortization
  1,192,000
  860,000
Changes in allowance for doubtful accounts
  1,000
  (16,000)
Deferred income tax expense
  (443,000)
  (9,000)
Stock-based compensation expense
  378,000
  277,000
Changes in operating assets and liabilities:


Accounts receivable
  2,324,000
  586,000
Inventories
  10,000
  (22,000)
Income tax receivable
  (2,000)
  266,000
Prepaid expenses and other
  (17,000)
  80,000
Accounts payable
  (1,039,000)
  408,000
Accrued liabilities
  (2,031,000)
  253,000
Accrued income taxes
  23,000
  23,000
Deferred revenue
  88,000
  381,000
Net cash provided by (used in) operating activities
  (2,078,000)
  4,080,000



Investing Activities:


Purchases of property and equipment
  (361,000)
  (877,000)
Purchase of investments
  (4,981,000)
  —
Proceeds from sale of held to maturity investments
  4,981,000
  —
Net cash used in investing activities
  (361,000)
  (877,000)



Financing Activities:


Cash dividends paid ($0.70 per share)
  (14,000)
  (14,000)
Proceeds from issuance of common stock, net
  108,000
  49,000
Repurchase of common stock upon vesting of restricted


stock awards
  (35,000)
  (74,000)
Repurchase of common stock, net
  —
  (269,000)
Net cash provided by (used in) financing activities
  59,000
  (308,000)



Increase (decrease) in cash and cash equivalents
  (2,380,000)
  2,895,000



Cash and cash equivalents at beginning of period
  10,160,000
  4,695,000
Cash and cash equivalents at end of period
$7,780,000
$7,590,000



Supplemental disclosures for cash flow information:


Cash paid during the period for income taxes
$6,000
$84,000



Non-cash investing and financing activities:


Purchases of property and equipment included in accounts payable
$—
$96,000

~~See accompanying notes to financial statements.~~

Insignia Systems, Inc.
CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)


Three Months Ended March 31	2020	2019
Operating Activities:
Net loss	$(863,000)	$(1,096,000)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	148,000	335,000
Impairment loss	159,000	-
Changes in allowance for doubtful accounts	9,000	( 3,000)
Deferred income tax benefit	-	( 214,000)
Stock-based compensation expense	49,000	138,000
Accrued interest on held to maturity investments	-	( 13,000)
Changes in operating assets and liabilities:
Accounts receivable	1,351,000	2,406,000
Inventories	9,000	( 25,000)
Income tax receivable	( 119,000)	2,000
Prepaid expenses and other	4,000	39,000
Accounts payable	( 208,000)	( 1,263,000)
Accrued liabilities	( 501,000)	( 1,900,000)
Income tax payable	9,000	8,000
Deferred revenue	210,000	500,000
Net cash provided by (used in) operating activities	257,000	( 1,086,000)

Investing Activities:
Purchases of property and equipment	( 32,000)	( 235,000)
Purchase of investments	-	( 4,981,000)
Net cash used in investing activities	( 32,000)	( 5,216,000)

Financing Activities:
Proceeds from issuance of common stock	20,000	108,000
Net cash provided by financing activities	20,000	108,000

Increase (decrease) in cash and cash equivalents	245,000	( 6,194,000)

Cash and cash equivalents at beginning of period	7,510,000	10,160,000
Cash and cash equivalents at end of period	$7,755,000	$3,966,000

Supplemental disclosures for cash flow information:
Cash refunded during the year for income taxes	$112,000	$-

Non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable	$-	$35,000

See accompanying notes to financial statements.

Insignia Systems, Inc.

Notes To Financial Statements

(Unaudited)

Summary of Significant Accounting Policies.

Description of Business. Insignia Systems, Inc. (the “Company”) ~~markets~~is a leading provider of in-store and digital advertising ~~products, programs~~solutions to consumer-packaged goods (“CPG”) manufacturers, retailers, shopper marketing agencies and ~~services to retailers and consumer packaged goods manufacturers.~~brokerages. The Company operates in a single reportable segment. The Company’s ~~primary products include the Insignia Point-of-Purchase Services (POPS~~®~~) in-store signage solution,~~leadership and ~~other retailer approved promotional services, in-store~~employees have extensive industry knowledge with direct experience in both CPG manufacturers and retailers. The Company provides marketing solutions to CPG manufacturers spanning from some of the largest multinationals to new and ~~custom adhesive and non-adhesive signage materials directly to our retail customers.~~emerging brands.

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, ~~2018~~2019 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, 2019, the Company adopted Financial Accounting Standards Board Accounting Standards Update (“ASU”) 2016-02,“Leases” (“Topic 842”)~~ under which lessees will recognize most leases on the balance sheet. At the date of adoption of the standard the Company recorded a right of use asset with a value of $305,000, reduced deferred rent by $158,000 and recorded a lease liability of $463,000. The Company elected the option under Topic 842 not to restate comparative periods in the transition. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard which allowed it to carry forward the historical lease classification. Additional required disclosures for Topic 842 are contained in Note 5.

Inventories. Inventories are primarily comprised of sign cards ~~hardware~~ and ~~roll stock.~~hardware. 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:

	September 30,	December 31,	March 31,	December 31,
	2019	2018	2020	2019
Raw materials	$56,000	$80,000	$45,000	$47,000
Work-in-process	25,000	12,000	11,000	16,000
Finished goods	262,000	261,000	257,000	259,000
	$343,000	$353,000	$313,000	$322,000

Property and Equipment. Property and equipment consisted of the following as of the dates indicated:

	September 30,	December 31,	March 31,	December 31,
	2019	2018	2020	2019
Property and Equipment:
Production tooling, machinery and equipment	$3,728,000	$3,694,000	$3,685,000
Office furniture and fixtures	385,000		425,000	393,000
Computer equipment and software	4,190,000	2,743,000	1,426,000
Leasehold improvements	577,000
Construction in-progress	—	1,179,000
	8,880,000	8,578,000	5,536,000	5,504,000
Accumulated depreciation and amortization	(6,051,000)	(5,310,000)	( 5,040,000)	( 4,955,000)
Net Property and Equipment	$2,829,000	$3,268,000	$496,000	$549,000

Depreciation expense was approximately ~~$300,000~~$85,000 and ~~$740,000~~$181,000 in the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~respectively, and was $188,000 and $555,000 in the three and nine months ended September 30, 2018,~~ respectively.

Stock-Based Compensation. ~~We measure~~The Company measures and ~~recognize~~recognizes 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 as of the date of the grant. ~~We use~~The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options and employee stock purchase plan rights. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as by assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ no stock option awards were granted by the Company.

During the ~~nine~~three months ended September 30, 2019, no stock option awards were granted. During the nine months ended September 30, 2018, options to purchase up to 119,515 shares of common stock were granted to employees by the Company under the 2018 Equity Incentive Plan (the “2018 Plan”). ~~The Company estimated 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%~~March 31, 2020 and ~~a risk-free rate interest rate of 2.80%.~~

~~During the nine months ended September 30,~~ 2019, no restricted stock units were ~~granted. During~~issued by the nine months ended September 30, 2018, the Company issued a total of 297,515 restricted stock units to employees under the 2013 Omnibus Stock and Incentive Plan and the 2018 Plan, with each unit representing the right to receive one share of common stock. The shares underlying the awards were assigned values of $1.77 and $1.95 per share, which represent the closing prices of our common stock on the dates of grant. These awards are scheduled to vest over three years or four years with the first vesting scheduled to occur in year two.

In June 2019, non-employee directors received a total of 70,755 restricted stock units pursuant to the 2018 Plan, with each unit representing the right to receive one share of common stock. The shares underlying the awards were assigned a value of $1.06 per share, which was the closing price of our common stock on the date of grant, for a total value of $75,000, and are scheduled to vest the day immediately preceding the date of the 2020 annual meeting of shareholders. In July 2018, non-employee directors received a total of 46,152 restricted stock units 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 grant, for a total value of $90,000. The restricted stock units granted to directors in 2018 vested and settled into an equivalent number of shares of common stock on June 5, 2019, the day immediately preceding the date of our 2019 annual meeting of shareholders.Company.

The Company estimated the fair value of stock-based awards granted during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020, under the Company’s employee stock purchase plan using the following weighted average assumptions: expected life of 1.0 ~~year,~~years, expected volatility of ~~57%~~58.5%, dividend yield of 0% and risk-free interest rate of ~~2.60%~~1.56%.

Our non-employee directors are eligible to participate in our director deferred compensation plan, which allows a director to make voluntary deferrals of up to 100% of their annual cash retainers relating to board or committee chair service. During the nine months ended September 30, 2019, elected to defer aThe Company recorded total of $46,000 in fees pursuant to the director referred compensation plan. During June 2019, the Company issued 8,370 shares of common stock in settlement of $9,000 of total deferred fees due to a non-employee director’s departure from the board.

~~Total~~ stock-based compensation expense ~~recorded~~of $49,000 and $138,000 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~was $101,000 and $378,000, respectively, and for the three and nine months ended September 30, 2018 was $128,000 and $277,000,~~ respectively.

Net ~~Income (Loss)~~Loss per Share. Basic net ~~income (loss)~~loss per share is computed by dividing net ~~income (loss)~~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)~~loss per share gives effect to all ~~dilutive~~diluted potential common shares outstanding during the period.

Due to the net loss incurred during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 all outstanding stock options were anti-dilutive for that 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.periods.

Weighted average common shares outstanding for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ were as follows:

Three Months Ended

Nine Months Ended

September 30

September 30

2019

2018

2019

2018

Denominator for basic net income (loss) per share - weighted average shares
  11,986,000
  11,729,000
  11,911,000
  11,784,000
Effect of dilutive securities:




Stock options and restricted stock units
  —
  283,000
  —
  242,000
Denominator for diluted net income (loss) per share - weighted average shares
  11,986,000
  12,012,000
  11,911,000
  12,026,000

Three months ended March 31	2020	2019
Denominator for basic net loss per share - weighted average shares	12,066,000	11,856,000
Effect of dilutive securities:
Stock options, restricted stock and restricted stock units	—	—
Denominator for diluted net loss per share - weighted average shares	12,066,000	11,856,000

Investments. As of ~~September 30, 2019~~March 31, 2020, the Company ~~no longer carries~~did not have any investments. ~~Prior to September 30,~~During 2019, the Company had invested its excess cash in debt securities, with an average maturity of approximately six months, and were classified as held to maturity within current assets in accordance with Accounting Standards Codification (“ASC”) 320-10, “Investments – Debt and Equity Securities.”

Revenue Recognition. Under ~~ASU~~Accounting Standards Update 2014-09 Revenue from Contracts with Customers (“Topic 606”), revenue is measured based on consideration specified in the contract with a customer, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price, including noncash consideration, consideration paid or payable to a customer and significant financing components. Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer, as further described below under “Performance Obligations.”

Taxes collected from customers and remitted to governmental authorities are excluded from revenue on the net basis of accounting.

The Company includes shipping and handling fees in ~~revenue.~~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 ~~(“CPG”)~~ 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~~ the Company’s performance obligations included in ~~our~~its primary revenue streams and the timing or method of revenue recognition for each:

In-Store Signage Solution ~~Services~~.Services. The Company’s ~~Our~~ primary source of revenue is from executing in-store advertising solutions and services primarily to CPG manufacturers. ~~We provide~~The Company provides a service of displaying promotional signs in close proximity to the manufacturer’s product in participating stores, which ~~we maintain~~ the Company maintains in two-to-four-week cycle increments.

Each of the individual activities under ~~our~~ the Company’s services, including production activities, are inputs to an integrated sign display service. Customers receive and consume the benefits from the promotional displays over the duration of the contracted display cycle. Additionally, the display of the signs does not have an alternative use to us the Company and ~~we have~~the Company has an enforceable right to payment for services performed to date. As a result, ~~we recognize~~ the Company recognizes the transaction price for ~~our POPS solution~~its Point-Of-Purchase Services (POPS®) service performance obligations as revenue over time. Given the nature of ~~our~~ the Company’s performance obligations is to provide a display service over the duration of a specified period or periods, ~~we recognize~~ the Company recognizes revenue on a straight-line basis over the display service period as it best reflects the timing of transfer of ~~our~~its POPS ~~service solution~~services.

Other Service Revenues. The Company also supplies CPG manufacturers with other retailer approved promotional services and sign solutions. These services are more customized than the POPS ~~solution~~solutions 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. The Company We also ~~sell~~sells custom ~~adhesive and non-adhesive signage materials~~print solutions directly to ~~our~~its customers. Each such product is a distinct performance obligation. Revenue is recognized at a point in time upon shipment, when control of the goods transfers to the customer.

Disaggregation of Revenue

In the following table, revenue is disaggregated by major revenue stream and timing of revenue recognition.

	Three months ended September 30, 2019			Nine months ended September 30, 2019			Three months ended March 31, 2020
	Services Revenues	Products Revenue	Total Revenue	Services Revenues	Products Revenue	Total Revenue	Services Revenues	Products Revenue	Total Revenue
Timing of revenue recognition:
Products and services transferred over time	$3,401,000	$-	$3,401,000	$11,099,000	$-	$11,099,000	$3,344,000	$-	$3,344,000
Products and services transferred at a point in time	999,000	$254,000	1,253,000	3,375,000	$1,162,000	4,537,000	1,092,000	246,000	1,338,000
Total	$4,400,000	$254,000	$4,654,000	$14,474,000	$1,162,000	$15,636,000	$4,436,000	$246,000	$4,682,000

	Three months ended September 30, 2018			Nine months ended September 30, 2018			Three months ended March 31, 2019
	Services Revenues	Products Revenue	Total Revenue	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	$3,555,000	$-	$3,555,000
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	1,084,000	501,000	1,585,000
Total	$9,069,000	$386,000	$9,455,000	$23,963,000	$1,156,000	$25,119,000	$4,639,000	$501,000	$5,140,000

Contract Costs

Sales commissions that are paid to internal or external sales representatives are eligible for capitalization as they are incremental costs that would not have been incurred without entering into a specific sales arrangement and are recoverable through the expected margin on the transaction. The Company is applying the practical expedient in ASC 340-40-25-4 that allows the incremental costs of obtaining a contract to be recorded as an expense when incurred when the amortization period of the asset that would have otherwise been recognized is one year or less. These costs are included in selling expenses.

Deferred Revenue

Significant changes in deferred revenue during the period are as follows:

Balance at December 31, ~~2018~~2019	$~~302,000~~140,000
Reclassification of beginning deferred revenue to revenue, as a result of performance obligations satisfied	(~~302,000~~ 140,000)
Cash received in advance and not recognized as revenue	~~390,000~~350,000
Balance at ~~September 30, 2019~~March 31, 2020	$~~390,000~~350,000

Transaction Price Allocated to Remaining Performance Obligations

The Company applies the practical expedient in paragraph ~~ASC~~ 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~~its performance obligations. This practical expedient is being applied to arrangements for certain incomplete services and unshipped custom signage materials. ~~Of those~~At March 31, 2020, there were no contracts with an expected duration of greater than one year, we estimate that revenue of $631,000 and $2,000,000 related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2019 will be recognized during the remainder of 2019 and in 2020, respectively.year.

Selling Arrangement. In 2011, the Company paid to News America Marketing In-Store, ~~L.L.C. (“News America Marketing”)~~LLC (News America) $4,000,000 in exchange for a 10-year arrangement to sell signs with price into News ~~America Marketing’s~~America’s network of retailers as ~~its~~News America’s exclusive agent. The $4,000,000 iswas being amortized over the 10-year term of the arrangement. ~~Amortization expense was $150,000 and $450,000 in~~In 2019, the ~~three and nine months ended September 30, 2019. Amortization expense was $100,000 and $300,000 in~~Company accelerated the ~~three and nine months ended September 30, 3018. Amortization expense is expected to be $600,000 in 2019, $262,000 in 2020 and $55,000 in the year ending December 31, 2021. The acceleration of~~ amortization ~~in 2019 is~~ based on the anticipated recovery period over the remaining term of the contract due to the loss of a significant retailer ~~which~~that exited the Company’s retailer network in the first half of 2019 as a result of competitive pressures. During the three months ended March 31, 2020 the impact of COVID-19 was determinded to be a triggering event requiring an impairment review. 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 that this agreement affords the Company access to. As a result, an impairment of $159,000 was recognized as of March 31, 2020. The Company also shortened the useful life of the underlying asset from March 31, 2021 to December 31, 2020 and will record remaining amortization expense on a straight-line basis over the remainder of 2020. Amortization expense without the impairment was $61,000 and $150,000 in the three months ended March 31, 2020 and 2019, respectively. Amortization expense is expected to be $97,000 for the remainder of 2020. The net carrying amount of the selling arrangement as of March 31, 2020 is $97,000 and is recorded within other assets on the Company’s balance sheet.

~~Leases.~~ ~~The Company~~ leases space under a non-cancelable operating lease for our corporate headquarters. This lease has escalating lease terms and also includes a tenant incentive that was recorded at the time the lease was originally entered into. The lease does not contain contingent rent provisions. The Company also has a lease for additional office space under an operating lease. The lease for our corporate headquarters includes both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g., common-area or other maintenance costs) which are accounted for as a single lease component as we have elected the practical expedient to group lease and non-lease components for all leases. The lease for our additional office space is non-cancelable with a lease term of less than one year and therefore, we have elected the practical expedient to exclude this short-term lease from our right-of-use assets and lease liabilities.

Our leases include options to renew. The exercise of lease renewal options is at our sole discretion. Therefore, the renewals to extend the lease terms are not included in our right of use assets and lease liabilities as they are not reasonably certain of exercise. We regularly evaluate the renewal options and when they are reasonably certain of exercise, we include the renewal period in our lease term.

~~We used our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments.~~

~~The cost components of our operating leases were as follows for the periods ended September 30, 2019:~~

Three months ended September 30, 2019

Nine months ended September 30, 2019

Corporate

Additional

Operating

Corporate

Additional

Operating

Headquarters

Office Space

Leases

Headquarters

Office Space

Leases

Operating lease cost
$38,000
$-
$38,000
$113,000
$-
$113,000
Variable lease cost
  26,000
  -
  26,000
  80,000
  -
  80,000
Short-term lease cost
  -
  9,000
  9,000
  -
  28,000
  28,000
Total
$64,000
$9,000
$73,000
$193,000
$28,000
$221,000

Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs for our leased corporate headquarters which are paid based on actual costs incurred by the lessor.

~~Maturities of our lease liabilities for our corporate headquarters operating lease were as follows as of September 30, 2019:~~

Maturity of Lease Liabilities

Operating Leases

2019
$54,000
2020
  222,000
2021
  57,000
Total lease payments
$333,000
Less: Interest
  16,000
Present value of lease liabilities
$317,000

The remaining lease term as of September 30, 2019 was 1.5 years and the discount rate was 6%. The cash outflow for operating leases for the three and nine months ended September 30, 2019 was $55,000 and $163,000, respectively.

~~The following table presents future minimum lease payments for our operating leases at December 31, 2018 under ASC 840 and is being presented for comparative purposes:~~

2019
$217,000
2020
222,000
2021
57,000

~~Rent expense under these leases was approximately $70,000 and $205,000 for the three and nine months ended September 30, 2018, respectively.~~

Income Taxes. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020, the Company recorded income tax benefit of $222,000, or 20.5% of loss before taxes. For the three months ended March 31, 2019, the Company recorded income tax benefit of ~~$47,000 and $416,000,~~$204,000, or ~~4.6% and 14.0%~~15.7% of loss before ~~taxes, respectively. 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.~~taxes. The income tax benefit ~~or expense~~ for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ is comprised of federal and state taxes. The primary differences between the Company’s ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ effective tax rates and the statutory federal rate are ~~expenses related to~~nondeductible stock-based compensation, ~~and~~ nondeductible meals and entertainment ~~as well as for the three~~ and ~~nine months ended September 30, 2019 an increase~~increases in the Company’s valuation allowance against its deferred tax assets. In addition, for the three months ended March 31, 2020, the Company recognized a decrease in its valuation allowance against certain net operating losses which the Company now expects to be able to carry back to prior years with respect to federal income taxes.

The Company reassesses its effective tax rate each reporting period and adjusts the annual effective tax rate if deemed necessary, based on projected annual taxable income ~~or loss.~~

(loss).

Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of enacted tax laws. In providing for deferred taxes, ~~we consider~~the Company considers tax regulations of the jurisdictions in which ~~we operate,~~it operates, estimates of future taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, 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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company had a valuation allowance of approximately ~~$287,000~~$886,000 and ~~$79,000,~~$848,000, respectively, ~~as a result of certain capital losses, credits and net operating losses carried forward which~~against its entire deferred tax asset because the Company does not believe ~~are~~it is more likely than not ~~to be realized.~~that it will realize its deferred tax asset.

As of ~~September 30, 2019,~~March 31, 2020, and December 31, ~~2018,~~2019, the Company had unrecognized tax benefits totaling ~~$636,000~~$652,000 and ~~$613,000,~~$643,000, 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 ~~$636,000.~~$652,000. Due to the current statute of limitations regarding the unrecognized tax benefits, the unrecognized tax benefits and associated interest ~~are~~is not expected to change significantly in ~~2019.~~2020.

On March 27, 2020, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act. The CARES Act, among other provisions, allows for companies to carry back federal net operating losses (NOLs) generated in 2018, 2019 and 2020 for up to five years for refunds of federal taxes paid. This provision created an opportunity for the Company to utilize NOLs not previously expected to be utilized. Thus, the Company has reversed approximately $215,000 of its valuation allowance against the NOLs in its deferred tax assets which the Company will carry back for a refund of federal taxes paid. As the Company expects to receive the tax refund from the ability to carry back the NOL’s within the next 12 months, this discrete benefit has been recorded within income taxes receivable on the balance sheet. In addition, to the $215,000 recognized, an additional $17,000 was also included as a discrete tax benefit for the quarter and included in income taxes receivable related to the NOL carry back due to differences in the federal tax rate utilized for the deferred tax asset compared to the rates in effect for the years in which the NOL is being carried back.

7.6.

Concentrations. During the ~~nine~~three months ended ~~September 30, 2019, two customers~~March 31, 2020, one customer accounted for ~~15% and 12% respectively,~~16% of the Company’s total net sales. During the ~~nine~~three months ended ~~September 30, 2018, two customers~~March 31, 2019, one customer accounted for ~~24% and 22%, respectively,~~16% of the Company’s total net sales. At ~~September 30, 2019, one customer~~March 31, 2020, two customers represented ~~20% respectively,~~15% and 10% of the Company’s total accounts receivable. At December 31, ~~2018, two~~2019, four customers represented ~~31%~~17%, 12%, 12% and ~~16%~~10%, respectively of the Company’s total accounts receivable.

Although there are a number of customers that the Company sells to, the loss of ~~an additional significant~~a major customer could adversely affect operating results. Additionally, the loss of ~~an additional~~a major retailer from the Company’s retail network could further adversely affect operating results.

8.7.

Share Repurchases. On April 5, 2018, the Board ~~of Directors~~ authorized the repurchase of up to $3,000,000 of the Company’s common stock on or before March 31, 2020. The plan ~~allows~~allowed the repurchases to be made in open market or privately negotiated transactions. The plan ~~does~~did not obligate the Company to repurchase any particular number of shares and may be suspended at any time at the Company’s discretion. During the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~there was no share repurchase activity under the plan. During the nine months ended September 30, 2018~~ the Company ~~repurchased and retired approximately 148,000 shares, at a total cost of $269,000.~~did not repurchase any shares.

9.8.

Legal Proceedings. OnIn July ~~11,~~ 2019, the Company brought suit against News ~~Corporation, News~~ America ~~Marketing FSI L.L.C., and News America Marketing In-Store Services L.L.C. (collectively, “News America”)~~ in the U.S. District Court in Minnesota, alleging violations of federal and state antitrust and ~~tortious interference~~tort laws by News America. The complaint alleges that News America has monopolized the ~~relevant~~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, in the third-party in-store advertising and promotion products and services market.~~competitor. The suit seeks, among other relief, an injunction sufficient to prevent further antitrust injury and an award of treble damages to be determined at trial for the harm caused to ~~the~~our Company.

In August 2019, News America filed an answer ~~which included a counterclaim against the Company alleging breach of the existing Settlement Agreement between the Company~~ and ~~News America and seeking recovery of amounts paid to the Company under that Agreement or enforcement of the agreement in a manner that could prevent certain of the Company’s initial claims.~~counterclaim. In October 2019, News America moved for a judgment on the ~~pleadings and to dismiss Insignia’s complaint based on the Company’s alleged breach of the existing Settlement Agreement.~~pleadings. Management believes that the counterclaim is without merit, and the Company filed ~~its~~a response brief on November 11, 2019. The Company also moved to dismiss ~~News’s counterclaim.~~the counterclaim against us. The Court heard oral arguments from both parties on January 14, 2020, subsequently denied both motions. Further dispositive motions on News America's counterclaim are due by June 15, 2020.

~~The Court~~Discovery is underway and trial has ~~denied News America’s request to stay discovery and discovery has begun. A hearing on the parties’ motions is~~been scheduled for December ~~17, 2019.~~2021. Due to the early nature of these proceedings, ~~we are~~the Company is unable to determine the likelihood of an unfavorable outcome or estimate any potential resulting liability at this time.

Subsequent Events. On April 22, 2020, the Company entered into a promissory note (the “Note”) with Alerus Financial, N.A. The Note evidences a loan to the Company in the amount of $1,054,200 pursuant to the Paycheck Protection Program (the “PPP”) of the CARES Act administered by the U.S. Small Business Administration (the “SBA”).

In accordance with the requirements of the CARES Act, the Company expects to use the proceeds from the loan exclusively for qualified expenses under the PPP, including payroll costs, rent and utility costs, as further detailed in the CARES Act and applicable guidance issued by the SBA. Interest will accrue on the outstanding balance of the Note at a rate of 1.00% per annum. However, the Company expects to apply for forgiveness of up to all amounts due under the Note, in an amount equal to the sum of qualified expenses under the PPP during the eight weeks following disbursement. Notwithstanding the Company’s eligibility to apply for forgiveness, no assurance can be given that the Company will obtain forgiveness of all or any portion of amounts due under the Note.

Subject to any forgiveness granted under the PPP, the Note is scheduled to mature on April 22, 2022 and requires 18 equal monthly payments of principal and interest beginning November 22, 2020. The Note may be prepaid at any time prior to maturity with no prepayment penalties. The Note provides for customary events of default, including, among others, those relating to failure to make payments, bankruptcy, breaches of representations, significant changes in ownership, and material adverse effects. The Company’s obligations under the Note are not secured by any collateral.

~~Item~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Company’s financial statements and related notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated due to various factors discussed under “Cautionary Statement Regarding Forward-Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q and the “Risk Factors” described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, our Current Reports on Form 8-K and our other SEC filings.

Company Overview

Insignia Systems, Inc. ~~(referred to in this Quarterly Report on Form 10-Q as~~(“Insignia,” “we,” “us,” “our” orand the “Company”) is a leading provider of in-store ~~marketing~~ and digital advertising solutions to ~~our partners and clients which consist of CPG~~consumer-packaged goods (“CPG”) manufacturers, retailers, shopper marketing agencies and ~~marketing agencies.~~brokerages. We believe our products and services are attractive to ~~CPG manufacturers~~our customers because of our speed to market, ability to customize ~~advertising programs at~~our solutions down to store level and the results our ~~deep industry knowledge. We have leaders~~solutions deliver. Our leadership and employees ~~with~~have extensive industry knowledge, ~~and~~including direct experience ~~working with~~through former positions at CPG manufacturers and retailers. ~~The Company provides advertising~~We provide marketing solutions to CPG manufacturers spanning from some of the largest multinationals to new and emerging brands.

Our relationships with retailers are forged through our retailer-centric mindset, ability to create solutions specific to their objectives to achieve overall executional excellence ~~flexible processes~~ and ~~our~~incremental revenue lift, and ability to ~~connect~~integrate both retailer and CPG manufacturer messaging ~~with~~into our ~~CPG manufacturer’s message. The Company runs~~solutions. Our in-store ~~advertising~~solutions execute programs atin retailers spanning from some of the largest national ~~and~~retailers to regional US ~~retailers~~wholesalers and independents who are leaders in their respective ~~channels.~~channels and geographies.

Our relationships with shopper marketing agencies and brokerages continue to grow through our agility, responsiveness, custom production and execution capabilities, and our ~~ability to respond~~overall customer service in responding to their ~~client’s needs with precision and efficiency.~~needs.

~~The Company’s~~Historically, our primary solution has been the Point-Of-Purchase Services (POPS®) ~~in-store signage solution.~~. The ~~Company’s~~Insignia POPS solution is a national, account-specific, shelf-edge advertising and promotion tactic. ~~Internal~~External and internal testing has ~~indicated~~validated the solution ~~is capable of delivering~~can deliver incremental sales for the featured brand. Participation in the POPS solution allows CPG manufacturers to deliver vital product information to consumers at the point-of-purchase, and to leverage the local retailer brand and store-specific prices to provide ~~a unique~~an innovative “call to action” that draws attention to the featured brand and triggers a purchase decision. CPG manufacturers benefit from ~~the Company’s~~our nimble operational capabilities, which include short lead times, in-house graphic design capabilities and post-program ~~analytics, and micro-marketing capabilities such as variable or bilingual messaging.~~analytics.

Over the past ~~several~~couple years, we have developed and now offer ~~promotional,~~on-pack, merchandising and digital solutions in addition to our core business of in-store signage solutions. Our expanded portfolio ~~of solutions~~ allows us to more completely meet the needs of CPG manufacturers, retailers and their agents as their business strategies evolve behind an ever-changing retail landscape.

Impacts and Potential Future Impacts of COVID-19 on Our Business

The COVID-19 pandemic has resulted, and is likely to continue to result, in significant economic disruption and has and will likely continue to adversely affect our business for an indefinite period. As of the date of this filing, significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic. While we have been able to continue to operate and maintain our continuity with our clients by working remotely, the retail landscape in which our 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. The financial impact of COVID-19 through the end of the first quarter was minimal. Our future bookings for 2020 have been negatively impacted and may continue to be negatively impacted until the COVID-19 pandemic moderates. 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.

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. While 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, we believe that it is important to share where our company stands today, how our response to COVID-19 is progressing and how our operations and financial condition may change as the fight against COVID-19 progresses.

Business Overview

Summary of Financial Results

For the quarter ended ~~September 30, 2019,~~March 31, 2020, the Company generated revenues of ~~$4,654,000,~~$4,682,000, as compared with revenues of ~~$9,455,000~~$5,140,000 for the quarter ended ~~September 30, 2018. For the nine months ended September 30, 2019, the Company generated revenues of $15,636,000, as compared with revenues of $25,119,000 in the nine months ended September 30, 2018.~~March 31, 2019. Net loss for the quarter ended ~~September 30, 2019~~March 31, 2020 was ~~$978,000,~~$863,000, as compared to a net ~~income~~loss of ~~$645,000~~$1,096,000 for the quarter ended September 30, 2018. Net loss for the nine months ended September 30, 2019 was $2,562,000, as compared to net income of $993,000 for the nine months ended September 30, 2018. Competitive pressure caused changes in our retail and CPG networks during 2019, including the exit of a significant retailer during the first half of 2019, and has adversely impacted our results compared to prior periods.March 31, 2019. We ~~continue to~~ expect ongoing competitive pressure and COVID-19 to challenge our business results for the remainder of ~~the year. However,~~2020, however we are diligently pursuing a variety of efforts ~~designed to drive~~around innovation, client ~~acquisitions~~acquisition and retailer ~~expansions.~~

expansion.

During the ~~nine months~~quarter ended ~~September 30, 2019,~~March 31, 2020, cash and cash equivalents ~~decreased $2,380,000~~increased $245,000 from ~~$10,160,000~~$7,510,000 at December 31, ~~2018,~~2019, to ~~$7,780,000~~$7,755,000 at ~~September 30, 2019.~~March 31, 2020. The increase was primarily driven by accounts receivable collections. The Company had no ~~long-term~~ debt other than its lease obligations as of ~~September 30, 2019.~~March 31, 2020.

Results of Operations

The following table sets forth, for the periods indicated, certain items in our Condensed Statements of Operations as a percentage of total net sales.

	Three Months Ended		Nine Months Ended
	September 30
	2019	2018	2019	2018
Net sales	100.0%				100.0%
Cost of sales	80.1	62.3	79.8	63.0	79.3	84.9
Gross profit	19.9	37.7	20.2	37.0	20.7	15.1
Operating expenses:
Selling	12.3	9.6	12.8	10.1	15.4	14.4
Marketing	12.0	7.4	11.6	7.5	7.8	12.9
General and administrative	18.6	11.7	15.6	14.2	21.2	13.8
Total operating expenses	42.9	28.7	40.0	31.8	44.4	41.1
Operating income (loss)	(23.0)	9.0	(19.8)	5.2
Operating loss					(23.7)	(26.0)
Other income	1.0	0.1	0.8	0.2	0.5	0.7
Income (loss) before taxes	(22.0)	9.1	(19.0)	5.4
Income tax expense (benefit)	(1.0)	2.3	(2.6)	1.4
Net income (loss)	(21.0)%	6.8%	(16.4)%	4.0%
Loss before taxes					(23.2)	(25.3)
Income tax benefit					(4.8)	(4.0)
Net loss					(18.4)%	(21.3)%

Three ~~and Nine months~~Months Ended ~~September 30, 2019~~March 31, 2020 Compared to Three ~~and Nine months~~Months Ended ~~September 30, 2018~~March 31, 2019

Net Sales. Net sales for the three months ended ~~September 30, 2019~~March 31, 2020 decreased ~~50.8%~~8.9% to ~~$4,654,000~~$4,682,000 compared to ~~$9,455,000~~$5,140,000 for the three months ended ~~September 30, 2018. Net sales for the nine months ended September 30, 2019 decreased 37.8% to $15,636,000 compared to $25,119,000 for the nine months ended September 30, 2018.~~March 31, 2019.

Service revenues for the three months ended ~~September 30, 2019~~March 31, 2020 decreased ~~51.5%~~4.4% to ~~$4,400,000~~$4,436,000 compared to ~~$9,069,000~~$4,639,000 for the three months ended ~~September 30, 2018. Service revenues for the nine months ended September 30, 2019 decreased 39.6% to $14,474,000 compared to $23,963,000 for the nine months ended September 30, 2018.~~March 31, 2019. The ~~decreases were primarily~~decrease was due to ~~68.8% and 57.3% decreases~~21.4% decrease in POPS ~~solution~~solutions revenue, ~~for the three and nine months ended September 30, 2019, respectively,~~ partially offset by ~~12.6% and 44.7% increases~~a 28.7% increase in innovation ~~solutions revenue for the three and nine months ended September 30, 2019, respectively.~~initiatives revenue. The decrease in POPS ~~solution~~solutions revenue was primarily due to ~~decreases~~a decrease in the number of signs placed and a decrease in average price per sign, which ~~were~~was due to competitive pressures and the loss of a significant retailer ~~and a significant CPG manufacturer both as a result~~that took place in the first half of ~~competitive pressures, and the~~ ~~completion of a non-recurring favorable CPG contract~~.2019.

Product revenues for the three months ended ~~September 30, 2019~~March 31, 2020 decreased ~~34.2%~~50.9% to ~~$254,000~~$246,000 compared to ~~$386,000~~$501,000 for the three months ended ~~September 30, 2018.~~March 31, 2019. The decrease was primarily due to ~~lower sales~~the loss of ~~sign card supplies~~two customers due to bankruptcy and lower customer demand. ~~Product revenues for the nine months ended September 30, 2019 increased 0.5% to $1,162,000 compared to $1,156,000 for the nine months ended September 30, 2018.~~

Gross Profit. Gross profit for the three months ended ~~September 30, 2019 decreased 74.0%~~March 31, 2020 increased 25.2% to ~~$926,000~~$969,000, inclusive of $159,000 impairment charge, compared to ~~$3,563,000~~$774,000 for the three months ended ~~September 30, 2018.~~March 31, 2019. Gross profit as a percentage of total net sales ~~decreased~~increased to ~~19.9%~~20.7% for the three months ended ~~September 30, 2019~~March 31, 2020, compared to ~~37.7%~~15.1% for the three months ended September 30, 2018. Gross profit for the nine months ended September 30, 2019 decreased 66.0% to $3,165,000 compared to $9,314,000 for the nine months ended September 30, 2018. Gross profit as a percentage of total net sales decreased to 20.2% for the nine months ended September 30, 2019 compared to 37.0% for the nine months ended September 30, 2018.March 31, 2019.

Service revenues. Gross profit from our service revenues for the three months ended ~~September 30, 2019 decreased 74.7%~~March 31, 2020 increased 34.6% to ~~$886,000~~$895,000 compared to ~~$3,500,000~~$665,000 for the three months ended ~~September 30, 2018.~~March 31, 2019. The ~~decrease~~increase in gross profit was primarily due to ~~a decrease in POPS solution sales~~ asless fixed obligations to our ~~gross profit is highly dependent on sales levels~~retailers, improved margin rates from innovation initiatives and less depreciation due to ~~the relatively fixed nature of a portion of our payments to retailers,~~ ~~combined with the decrease in average price per sign due to the completion of a non-recurring favorable contract, partially offset by~~an increase in revenue and gross profit from innovation solutions. Gross profit from our service revenues for the nine months ended September 30, 2019 decreased 67.4% to $2,942,000 compared to $9,026,000 for the nine months ended September 30, 2018. The decrease was primarily due to the factors described above.impairment taken on December 31, 2019.

The Company put into service the new IT operating infrastructure system in the second quarter of 2019, as a result, the Company incurred no ~~additional~~ development costs ~~were incurred~~ during the three months ended ~~September 30, 2019~~March 31, 2020, compared to approximately ~~$166,000~~$118,000 for the three months ended ~~September 30, 2018. For~~March 31, 2019. The Company will continue to enhance the ~~nine months ended September 30, 2019, the Company incurred costs of approximately $193,000 associated with the development of its~~implemented software solutions to further support new IT operating infrastructure compared to approximately $436,000 for the nine months ended September 30, 2018. Additional technology investments may be needed to support the Company’s new solution initiatives.product solutions

Gross profit as a percentage of service revenues for the three months ended ~~September 30, 2019 decreased~~March 31, 2020 increased to ~~20.1%~~20.2% compared to ~~38.6%~~14.3% for the three months ended ~~September 30, 2018. Gross profit as a percentage of service revenues for the nine months ended September 30, 2019 decreased to 20.3% compared to 37.7% for the nine months ended September 30, 2018.~~March 31, 2019. The ~~decreases for both periods were~~increase was primarily due to the factors described above.

Impairment Loss. Impairment loss for the three months ended March 31, 2020 was $159,000 driven by the impairment of the Company’s selling agreement with News America, a long-lived asset. The impairment charge is described further in footnote 4. There was no impairment loss during the three months ended March 31, 2019.

Product revenues. Gross profit from our product revenues for the three months ended ~~September 30, 2019~~March 31, 2020 decreased ~~36.5%~~32.1% to ~~$40,000~~$74,000 compared to ~~$63,000~~$109,000 for the three months ended ~~September 30, 2018.~~March 31, 2019. The decrease was primarily due to ~~increased production related costs and product mix. Gross profit from our product revenues for the nine months ended September 30, 2019~~ decreased ~~22.6% to $223,000 compared to $288,000 for the nine months ended September 30, 2018. The decrease was primarily due to the factors described above.~~

sales volume. Gross profit as a percentage of product revenues ~~decreased~~increased to ~~15.7%~~30.1% for the three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~16.3%~~21.8% for the three months ended ~~September 30, 2018. Gross profit as a percentage~~March 31, 2019, due to the mix of ~~product revenues was 19.2% for the nine months ended September 30, 2019 compared to 24.9% for the nine months ended September 30, 2018.~~customers and products sold.

Operating Expenses

Selling. Selling expenses for the three months ended ~~September 30, 2019~~March 31, 2020 decreased ~~36.9%~~2.4% to ~~$573,000~~$720,000 compared to ~~$908,000~~$738,000 for the three months ended ~~September 30, 2018. Selling expenses for~~March 31, 2019. Decreased selling expense was primarily the ~~nine months ended September 30, 2019~~result of decreased ~~20.8% to $2,004,000 compared to $2,530,000 for the nine months ended September 30, 2018. The decreases for both periods were primarily due to reduced~~ variable staff related ~~expenses.~~

expense. Selling expenses as a percentage of total net sales increased to ~~12.3%~~15.4% for the three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~9.6%~~14.4% for the three months ended ~~September 30, 2018. Selling expenses as a percentage of net sales increased to 12.8% for the nine months ended September 30, 2019 compared to 10.1% for the nine months ended September 30, 2018.~~March 31, 2019. The ~~increases for both periods were~~increase was primarily due to decreased sales, partially offset by the ~~reduced variable staff related expenses.~~factors described above.

Marketing. Marketing expenses for the three months ended ~~September 30, 2019~~March 31, 2020 decreased ~~20.5%~~45.1% to ~~$559,000~~$365,000 compared to ~~$703,000~~$665,000 for the three months ended ~~September 30, 2018. Marketing~~March 31, 2019. Decreased marketing expense ~~for the nine months ended September 30, 2019 decreased 3.4% to $1,809,000 compared to $1,873,000 for the nine months ended September 30, 2018. The decreases for both periods were~~was primarily the result of decreased staffing and ~~variable staff related expenses, partially offset by increased~~decreased consulting expenses.

Marketing expenses as a percentage of total net sales ~~increased~~decreased to ~~12.0%~~7.8% for the three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~7.4%~~12.9% for the three months ended ~~September 30, 2018. Marketing expenses as a percentage of net sales increased to 11.6% for the nine months ended September 30, 2019 compared to 7.5% for the nine months ended September 30, 2018.~~March 31, 2019. The ~~increases for both periods were~~decrease was primarily due to ~~decreased sales and consulting expenses,~~the factors described above, partially offset by ~~the~~ decreased ~~staffing and variable staff related expenses.~~

sales.

General and administrative. General and administrative expenses for the three months ended ~~September 30, 2019 decreased 21.8%~~March 31, 2020 increased 40.3% to ~~$865,000~~$993,000 compared to ~~$1,106,000~~$708,000 for the three months ended ~~September 30, 2018.~~March 31, 2019. The ~~decrease~~increase was primarily due to ~~reduced variable staff related expenses. General~~litigation expenses and ~~administrative expenses for~~collection of reserved accounts receivable balance that occurred in the ~~nine~~first three months ended September 30, 2019 decreased 31.8% to $2,443,000 compared to $3,580,000 for the nine months ended September 30, 2018. The decrease of $1,137,000 includes $460,000 of expense during the nine months ended September 30, 2018 related to the negotiation and satisfaction of obligations under the May 2018 Cooperation Agreement. The remainder of the decrease was primarily due to variable staff related expenses.March 31, 2019.

General and administrative expenses as a percentage of total net sales increased to ~~18.6%~~21.2% for the three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~11.7%~~13.8% for the three months ended ~~September 30, 2018.~~March 31, 2019. The increase was primarily due to ~~decreased sales, partially offset by~~ the ~~reduced variable staff related expenses. General~~factors described above and administrative expenses as a percentage of net sales increased to 15.6% for the nine months ended September 30, 2019 compared to 14.2% for the nine months ended September 30, 2018. The increase was primarily due to decreased ~~sales, partially offset by the May 2018 Cooperation Agreement, as described above and also due to the reduced variable staff related expenses.~~sales.

Other Income. Other income for the three months ended ~~September 30, 2019 increased~~March 31, 2020 decreased to ~~$46,000~~$24,000 compared to ~~$15,000~~$37,000 for the three months ended September 30, 2018. Other income for the nine months ended September 30, 2019 was $113,000 compared to $27,000 for the nine months ended September 30, 2018. The increase is due to interest generated from held to maturity investments.March 31, 2019.

Income Taxes. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020, the Company recorded income tax benefit of $222,000, or 20.5% of loss before taxes. For the three months ended March 31, 2019, the Company recorded income tax benefit of ~~$47,000 and $416,000,~~$204,000, or ~~4.6% and 14.0%~~15.7% of loss before ~~taxes, respectively. 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.~~taxes. The income tax benefit ~~or expense~~ for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ is comprised of federal and state taxes. The primary differences between the Company’s ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ effective tax rates and the statutory federal rate are ~~expenses related to~~nondeductible stock-based compensation, ~~and~~ nondeductible meals and entertainment as well as ~~for the three and nine months ended September 30, 2019,~~ an increase in the Company’s valuation allowance against its deferred tax assets. In addition, for the three months ended March 31, 2020, the Company recognized a decrease in its valuation allowance against certain net operating losses carried forward for federal income tax purposes, which the Company now expects to be able to carry back to prior years and seek a refund of federal taxes paid.

The Company reassesses its effective tax rate each reporting period and adjusts the annual effective tax rate if deemed necessary, based on projected annual taxable income ~~or loss.~~(loss).

As a result of the Company’s future outlook, management has reviewed its deferred tax assets and concluded that the uncertainties related to the realization of its deferred tax assets have become unfavorable. Management has considered positive and negative evidence for the potential utilization of the deferred tax assets and has concluded that it is more likely than not that ~~the~~ Company will not realize the full amount of its net deferred tax assets. At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company had a valuation allowance of approximately ~~$287,000~~$886,000 and ~~$79,000,~~$848,000, respectively, ~~as a result of certain capital losses, credits carried forward and net operating losses carried forward which~~against its entire deferred tax asset because the Company does not believe ~~are~~it is more likely than not that it will realize its deferred tax asset.

On March 27, 2020, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act. The CARES Act, among other provisions, allows for companies to carry back federal net operating losses (NOLs) generated in 2018, 2019 and 2020 for up to five years for refunds of federal taxes paid. This provision created an opportunity for the Company to utilize NOLs not previously expected to be ~~realized. During the three months ended September 30, 2019,~~utilized. Thus, the Company ~~recorded an increase~~has reversed approximately $215,000 of ~~approximately $188,000 in~~ its valuation allowance against the NOLs in its deferred tax ~~assets.~~assets which the Company will carry back for a refund of federal taxes paid. As the Company expects to receive the tax refund from the ability to carry back the NOL’s within the next 12 months, this discrete benefit has been recorded within income taxes receivable on the balance sheet. In addition, to the $215,000 recognized, an additional $17,000 was also included as a discrete tax benefit for the quarter and included in income taxes receivable related to the NOL carry back due to differences in the federal tax rate utilized for the deferred tax asset compared to the rates in effect for the years in which the NOL is being carried back.

Net ~~Income (Loss).~~Loss. For the reasons stated above, net loss for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 was ~~$978,000 and $2,562,000, respectively,~~$863,000, compared to a net ~~income~~loss of ~~$645,000 and $993,000, respectively,~~$1,096,000 for the three ~~and nine~~ months ending ~~September 30, 2018.~~March 31, 2019.

Liquidity and Capital Resources

The Company historically has financed its operations with proceeds from stock sales and sales of its services and products. At ~~September 30, 2019,~~March 31, 2020, working capital was ~~$11,453,000~~$10,863,000 (defined as current assets less current liabilities) compared to ~~$13,351,000~~$11,395,000 at December 31, ~~2018.~~2019. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, cash and cash equivalents ~~decreased $2,380,000~~increased $245,000 from ~~$10,160,000~~$7,510,000 at December 31, ~~2018,~~2019, to ~~$7,780,000~~$7,755,000 at ~~September 30, 2019.~~

March 31, 2020. Subsequent to March 31, 2020 the company received $1,054,200 pursuant to the PPP of the CARES Act administered by the U.S. SBA.

Operating Activities. Net cash ~~used~~provided by operating activities during the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, was ~~$2,078,000.~~$257,000. Net loss of ~~$2,562,000,~~$863,000, plus non-cash adjustments of ~~$1,128,000, less~~$365,000, plus changes in operating assets and liabilities of ~~$644,000~~$755,000 resulted in the ~~$2,078,000~~$257,000 of cash ~~used~~provided by operating activities. The largest component of the change in operating assets and liabilities was accounts receivable which decreased ~~$2,324,000 from December 31, 2018,~~$1,351,000, which ~~is expected to~~will fluctuate based on normal business conditions, and partially reflects lower sales in the quarter. The non-cash adjustments consisted of depreciation and amortization expense, impairment loss, changes in allowance for

doubtful accounts, ~~deferred income tax benefit,~~ and stock-based compensation expense. In the normal course of business, our accounts receivable, accounts payable, accrued liabilities and deferred revenue will fluctuate depending on the level of revenues and related business activity, as well as billing arrangements with customers and payment terms with retailers.

Investing Activities. Net cash used in investing activities during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 was ~~$361,000.~~$32,000. This was primarily related to ~~investing in~~ the ~~IT operating infrastructure project, which consisted~~purchase of ~~hardware, purchased software~~property and ~~capitalization of costs for internally developed software.~~equipment.

Financing Activities. Net cash provided by financing activities during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 was ~~$59,000,~~$20,000, which ~~primarily~~ related to proceeds received from issuance of common stock under the employee stock purchase plan.

The Company believes that based upon current business conditions and plans, its existing cash balance and future cash generated from operations will be sufficient for its cash requirements for at least the next twelve months.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in Note 1 to the annual financial statements as of and for the year ended December 31, ~~2018,~~2019, included in our Form 10-K filed with the Securities and Exchange Commission on March ~~7, 2019. Our policy related to the adoption on January 1, 2019 of Topic 842, leases, is included in Note 1 within this Form 10-Q.~~10, 2020. We believe our most critical accounting policies and estimates include the following:

●

revenue recognition;

●

allowance for doubtful accounts;

●

impairment of long-lived assets;

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income taxes; and

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stock-based compensation.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements made in this Quarterly Report on Form 10-Q, in the Company’s other SEC filings, in press releases and in oral statements to shareholders and securities analysts that are not statements of historical or current facts are “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance of the Company to be materially different from the results or performance expressed or implied by such forward-looking statements. The words ~~“alleges,”~~ “anticipates,” “believes,” ~~“estimates,”~~ “expects,” ~~“future,” “intends,” “likely,” “may,” “seeks,” “will”~~“seeks” and similar expressions identify forward-looking statements. Forward-looking statements include statements expressing the intent, belief or current expectations of the Company and members of our management team regarding, for instance: (i) our belief that our cash balance and cash generated by operations will provide adequate liquidity and capital resources for at least the next twelve months; and (ii) that we expect fluctuations in accounts receivable and payable, accrued liabilities, and revenue deferrals. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. These statements are subject to the risks and uncertainties that could cause actual results to differ materially and adversely from the forward-looking statements. These forward-looking statements are based on current information, which we have assessed and which by its nature is dynamic and subject to rapid and even abrupt changes.

Factors that could cause our estimates and assumptions as to future performance, and our actual results, to differ materially include the following: (i) the impacts of the COVID-19 pandemic; (ii) the risk that management may be unable to fully or successfully implement its business plan to achieve and maintain increased sales and resultant profitability in the future; ~~(ii)~~(iii) the risk that the Company will not be able to develop and implement new product offerings, including mobile, digital or other new offerings, in a successful manner; ~~(iii)~~(iv) prevailing market conditions, including pricing and other competitive pressures, in the in-store advertising industry and, intense competition for agreements with retailers and consumer packaged goods manufacturers; ~~(iv)~~(v) potentially incorrect assumptions by management with respect to the financial effect of current strategic decisions, the effect of current sales trends on fiscal year ~~2019~~2020 results and the benefit of our relationship with News ~~America Marketing; (v)~~America; (vi) termination of all or a major portion of, or a significant change in terms and conditions of, a material agreement with a consumer packaged goods manufacturer, retailer, or News ~~America Marketing; (vi)~~America; (vii) other economic, business, market, financial, competitive and/or regulatory factors affecting the Company’s business generally; ~~(vii)~~(viii) our ability to successfully implement our new IT operating infrastructure; ~~(viii)~~and (ix) our ability to attract and retain highly qualified managerial, operational and sales ~~personnel; and (ix) the outcome of the legal proceedings involving News America.~~personnel. Our risks and uncertainties also include, but are not limited to, the risks presented in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019 and this Quarterly Report on Form 10-Q, and any additional risks presented in our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K. We undertake no obligation (and expressly disclaim any such obligation) to update forward-looking statements made in this Form 10-Q to reflect events or circumstances after the date of this Form 10-Q or to update reasons why actual results would differ from those anticipated in any such forward-looking statements, other than as required by law.

~~Item~~Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

~~Item~~Item 4. Controls and Procedures

~~(a)~~ Evaluation of Disclosure Controls and Procedures

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’sCompany maintains disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) ~~as of~~that are designed to ensure that information required to be disclosed by the ~~end of~~Company in reports that it files or submits under the ~~period covered by this report, pursuant to~~ Exchange Act ~~Rule 13a-15. Based upon that evaluation,~~is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, ~~concluded that~~as appropriate to allow timely decisions regarding required disclosure.

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer (principal executive officer) and the Company’s Chief Financial Officer (principal financial officer), of the effectiveness of the design and operation of the disclosure controls and procedures, ~~were effective~~as defined in Rules 13a – 15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this report. ~~Disclosure~~Based upon that evaluation, management identified a material weakness in our internal control over financial reporting which was also disclosed in our Annual Report on the Form 10-K. As a result of this material weakness, management concluded that our disclosure controls and procedures ~~ensure that information required to be disclosed by us in reports~~were not effective.

Long-lived Asset Impairment Testing. Based on management’s testing and evaluation, we determined that we ~~file or submit under~~did not design and maintain effective internal control over the ~~Exchange Act is recorded, processed, summarized~~impairment testing that we performed in accordance with ASC 360, Property, Plant, and ~~reported within~~Equipment, as of December 31, 2019. Specifically, the ~~time periods specified~~Company did not appropriately evaluate the indicators of impairment primarily related to its review of the impact of operating losses and negative cash flows attributable to the asset group which included the Company’s internally developed software as well as consideration of the decline in the ~~rules and forms~~Company's market capitalization during the fourth quarter of ~~the SEC, and are designed to ensure that information required to be disclosed by us in these reports is accumulated and communicated to our management,~~2019 as ~~appropriate to allow timely decisions regarding disclosures.~~an indicator of impairment.

~~(b)~~ Changes in Internal Control Over Financial Reporting

No changes in the Company’s internal control over financial reporting occurred during the ~~third~~first quarter of ~~2019~~2020 that have materially affected, or are ~~reasonably~~reasonable likely to materially affect, the Company’s internal control over financial reporting.

~~PART~~Implemented or Planned Remedial Actions in Response to Material Weaknesses

To address the previously identified material weakness, we are in the process of implementing new review controls to assess the long-lived asset impairment analyses to ensure they are completed in a timely manner and in enough detail to operate at a sufficient level of precision to identify improper assumptions.

Inherent Limitations on Control Systems

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be or have been detected. These inherent limitations include the realities that judgments in decision making can by faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

PART II. OTHER INFORMATION

~~Item~~

Item 1.

Legal Proceedings

OnIn July ~~11,~~ 2019, the Company brought suit against News ~~Corporation, News~~ America ~~Marketing FSI L.L.C., and News America Marketing In-Store Services L.L.C. (collectively, “News America”)~~ in the U.S. District Court in Minnesota, alleging violations of federal and state antitrust and ~~tortious interference~~tort laws by News America. The complaint alleges that News America has monopolized the ~~relevant~~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, in the third-party in-store advertising and promotion products and services market.~~competitor. The suit seeks, among other relief, an injunction sufficient to prevent further antitrust injury and an award of treble damages to be determined at trial for the harm caused to ~~the~~our Company.

Such litigation may be costly and the amount of legal expense that will be incurred in connection with the foregoing legal proceedings may be significant through the remainder of ~~2019~~2020 and beyond. ~~During the quarter ended September 30, 2019, the Company incurred nominal legal expense related to the litigation.~~

~~Item~~

Item 1A.

Risk Factors

~~We Are Party to Significant Litigation~~

~~On July 11, 2019,~~The Negative Effects of the ~~Company brought suit against News America alleging violations~~COVID-19 Pandemic on the Markets in which We Compete and Our Business May Remain Significant for the Foreseeable Future

The COVID-19 pandemic has significantly impacted worldwide economic conditions and could have a material adverse effect on our operations and business. The present coronavirus (or COVID-19) pandemic began to impact our operations late in the first quarter of ~~federal~~2020 and ~~state antitrust~~is likely to continue to affect our business, including as government authorities impose mandatory closures, work-from-home orders and ~~tortious interference laws by News America. All litigation is subject to inherent risks~~social distancing protocols, and ~~uncertainties that may cause actual results to differ materially from our expectations.~~seek voluntary facility closures or impose other restrictions. While we ~~cannot assure you that we will prevail~~have been able to continue to operate, the retail landscape in ~~any lawsuit, we intend~~which our customers operate has changed substantially, as has our ability to ~~vigorously seek judicial enforcement~~execute programs due to both limited access to your retailers and reduced levels of staffing with our ~~rights to freely operate our business.~~execution partners. Our future

bookings for 2020 have been negatively impacted and may continue to be negatively impacted until the COVID-19 pandemic moderates. Factors deriving from the COVID-19 response that ~~could cause litigation~~have or we believe are likely to negatively impact sales and operating results ~~to differ~~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 ~~discovery~~pandemic or local, state, or federal orders requiring employees to remain at home; and limitations on the ability of ~~previously unknown facts, changes in~~our customers to pay us on a timely basis. As we cannot predict the ~~law~~duration or inscope of the ~~interpretation of laws,~~COVID-19 pandemic, the anticipated negative financial impact to our operating results cannot be reasonably estimated, but could be material and ~~uncertainties associated with the judicial decision-making process. Litigation, including antitrust litigation, can be complex, can extend~~last for ~~a protracted~~an extended period of time, and can be very expensive even if we are successful in asserting our claims. Litigation initiated by us can also result in counter-claims against us, which could increase the associated costs and result in our payment of damages or other judgments against us.time.

Such litigation may be costly, may divert the attention of key personnel, may affect our business relationships with third-parties, including CPG manufacturers and retailers, and could result in adverse outcomes, any of which could adversely affect our ability to compete, our business, and our results of operations and financial condition.

~~Other than the above there have been no material changes to the Company’s risk factors as disclosed in Part~~ I ~~Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018.~~

tem 2.

~~Item 2.~~ Unregistered Sales of Equity Securities and Use of Proceeds

On April 5, 2018, the Board of Directors authorized the repurchase of up to $3,000,000 of the Company’s common stock on or before ~~June 30,~~March 31, 2020. The plan ~~allows~~allowed the repurchases to be made in open market or privately negotiated transactions. The plan ~~does~~did not obligate the Company to repurchase any particular number of shares and may be suspended at any time at the Company’s discretion. During the three months ended ~~September 30, 2019,~~March 31, 2020, there was no share repurchase ~~activity under the plan.~~

~~Our share repurchase activity for the three months ended September 30, 2019, was as follows:~~

~~Issuer Purchases of Equity Securities~~

Period

Total number of shares purchased

Average price paid per share

Total number of shares purchased as part of publicly announced plans or programs

Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs

July 1–31, 2019
  —
  —
  —
$2,702,000
August 1–31, 2019
  —
  —
  —
$2,702,000
September 1–30, 2019
  11,859(a)
$1.04
  —
$2,702,000
Total
  11,859
$1.04


activity.

~~(a)~~ Item 3.

The shares surrendered to the Company were to satisfy minimum statutory federal, state, and local tax withholding obligations arising from the vesting of a restricted stock award. The shares were forfeited pursuant to the participant’s instructions in accordance with the terms of the applicable award agreement and the 2013 Plan and are not part of any publicly announced stock repurchase program.

~~Item 3.~~ Defaults upon Senior Securities

None.

~~Item~~

Item 4.

Mine Safety Disclosures

Not applicable.

~~Item~~

Item 5.

Other Information

None.

~~Item~~

Item 6.

Exhibits

~~Unless otherwise indicated, all documents incorporated herein by reference to a document filed with the SEC pursuant to the Exchange Act are located under SEC file number 001-13471.~~

Exhibit Number	Description	Method of Filing

3.1	Composite Articles of Incorporation of Registrant, as amended through July 31, 2008 (incorporated by reference to Exhibit 3.1 to annual report on Form 10-K for the year ended December 31, 2015)	Incorporated by Reference

3.2	Composite Bylaws of Registrant, as amended through December 5, 2015 (incorporated by reference to Exhibit 3.2 to annual report on Form 10-K for the year ended December 31, 2015)	Incorporated by Reference

10.1	Promissory Note with Alerus Financial, N.A., dated April 22, 2020	Exhibit 10.1 of the Registrant’s Form 8-K filed April 28, 2020

31.1	Certification of Principal Executive Officer	Filed Electronically

31.2	Certification of Principal Financial and Accounting Officer	Filed Electronically

32	Section 1350 Certification	Furnished Electronically

101	The following materials from Insignia Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2019,~~March 31, 2020, formatted in XBRL ~~(extensible~~(eXtensible Business Reporting Language): (i) Condensed Balance Sheets; (ii) Condensed Statements of Operations; (iii) Condensed Statements of Shareholders’ Equity; (iv) Condensed Statements of Cash Flows; and (v) Notes to Financial Statements.	Filed Electronically

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	INSIGNIA SYSTEMS, INC.
	(Registrant)

Dated: ~~November 13, 2019~~May 14, 2020	/s/ Kristine A. Glancy
	Kristine A. Glancy
	President and Chief Executive Officer
	(on behalf of registrant)

Dated: ~~November 13, 2019~~May 14, 2020	/s/ Jeffrey A. Jagerson
	Jeffrey A. Jagerson
	Chief Financial Officer and Treasurer
	(principal financial and accounting officer)

2120

Nine Months Ended September 30	2019	2018
Operating Activities:
Net income (loss)	$(2,562,000)	$993,000
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	1,192,000	860,000
Changes in allowance for doubtful accounts	1,000	(16,000)
Deferred income tax expense	(443,000)	(9,000)
Stock-based compensation expense	378,000	277,000
Changes in operating assets and liabilities:
Accounts receivable	2,324,000	586,000
Inventories	10,000	(22,000)
Income tax receivable	(2,000)	266,000
Prepaid expenses and other	(17,000)	80,000
Accounts payable	(1,039,000)	408,000
Accrued liabilities	(2,031,000)	253,000
Accrued income taxes	23,000	23,000
Deferred revenue	88,000	381,000
Net cash provided by (used in) operating activities	(2,078,000)	4,080,000

Investing Activities:
Purchases of property and equipment	(361,000)	(877,000)
Purchase of investments	(4,981,000)	—
Proceeds from sale of held to maturity investments	4,981,000	—
Net cash used in investing activities	(361,000)	(877,000)

Financing Activities:
Cash dividends paid ($0.70 per share)	(14,000)	(14,000)
Proceeds from issuance of common stock, net	108,000	49,000
Repurchase of common stock upon vesting of restricted
stock awards	(35,000)	(74,000)
Repurchase of common stock, net	—	(269,000)
Net cash provided by (used in) financing activities	59,000	(308,000)

Increase (decrease) in cash and cash equivalents	(2,380,000)	2,895,000

Cash and cash equivalents at beginning of period	10,160,000	4,695,000
Cash and cash equivalents at end of period	$7,780,000	$7,590,000

Supplemental disclosures for cash flow information:
Cash paid during the period for income taxes	$6,000	$84,000

Non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable	$—	$96,000

	Three months ended September 30, 2019			Nine months ended September 30, 2019
	Corporate	Additional	Operating	Corporate	Additional	Operating
	Headquarters	Office Space	Leases	Headquarters	Office Space	Leases
Operating lease cost	$38,000	$-	$38,000	$113,000	$-	$113,000
Variable lease cost	26,000	-	26,000	80,000	-	80,000
Short-term lease cost	-	9,000	9,000	-	28,000	28,000
Total	$64,000	$9,000	$73,000	$193,000	$28,000	$221,000

Maturity of Lease Liabilities	Operating Leases
2019	$54,000
2020	222,000
2021	57,000
Total lease payments	$333,000
Less: Interest	16,000
Present value of lease liabilities	$317,000

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, 2019	—	—	—	$2,702,000
August 1–31, 2019	—	—	—	$2,702,000
September 1–30, 2019	11,859(a)	$1.04	—	$2,702,000
Total	11,859	$1.04