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Summary of Significant Accounting Policies (Policies)
 12 Months Ended
Dec. 31, 2022
Summary of Significant Accounting Policies  
Description of Business

Description of Business.  Insignia (the “Company”) is a leading provider of in-store solutions to consumer-packaged goods (“CPG”) manufacturers, retailers, shopper marketing agencies and brokerages. The Company operates in a single reportable segment. The Company’s leadership and 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 emerging brands. The Company’s primary solutions are merchandising solutions, on-pack solutions and signage.
Revenue Recognition

Revenue Recognition.  Revenue from merchandising and on-pack solutions is recognized primarily at a point in time. The Company recognizes revenue from signage solutions ratably over the period of service, which is typically a two-to-four-week display cycle. Revenue that has been billed and not yet recognized is reflected as deferred revenue on the Company’s balance sheet.
Cash and Cash Equivalents

Cash and Cash Equivalents and Restricted Cash. The Company considers all highly liquid investments with an original maturity date of three months or less to be cash equivalents. Cash equivalents are stated at cost, which approximates fair value. Cash and cash equivalents of $14,521,000 and $3,849,000 were invested in bank accounts, an insured sweep account, a U.S. Treasury bill and a money market account, at December 31, 2022 and 2021, respectively. At December 31, 2022, cash equivalents included a short-term U.S. Treasury bill which matures in March 2023. The balances in cash accounts, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. Amounts held in checking accounts and in insured cash sweep accounts during the years ended December 31, 2022 and 2021 were fully insured under the Federal Deposit Insurance Corporation.

 

December 31

 

2022

 

 

2021

 

Cash and cash equivalents

 

$14,439,000

 

 

$3,766,000

 

Restricted cash

 

 

85,000

 

 

 

85,000

 

Total cash and cash equivalents and restricted cash

 

$14,524,000

 

 

$3,851,000

 
Restricted Cash

Restricted Cash.  The Company’s restricted cash consists of cash the Company is contractually obligated to maintain in accordance with the terms of the lease for its headquarters space in Minneapolis. See Note 4 for further discussion.
Fair Value of Financial Instruments

Fair Value of Financial Instruments. Fair value is defined as the exit price, or the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants as of the measurement date. Accounting Standards Codification (“ASC”) 820-10 also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect management’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances.

 

The hierarchy is divided into three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. As of December 31, 2022 and 2021, the Company had no financial assets or liabilities measured at a fair value on a recurring basis.

The Company records certain financial assets and liabilities at their carrying amounts that approximate fair value, based on their short-term nature. These financial assets and liabilities included cash and cash equivalents, accounts receivable, and accounts payable.

Accounts Receivable

Accounts Receivable. The majority of the Company’s accounts receivable is due from companies in the consumer-packaged goods industry. Credit is extended based on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are due within 30-150 days and are stated at amounts due from customers, net of an allowance for doubtful accounts. Accounts receivable outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. 

 

Changes in the Company’s allowance for doubtful accounts are as follows:

 

December 31

 

2022

 

 

2021

 

Beginning balance

 

$355,000

 

 

$268,000

 

Bad debt provision

 

 

(44,000)

 

 

103,000

 

Accounts written-off

 

 

(299,000

)

 

 

(111,000

)

Recoveries

 

 

92,000

 

 

95,000

Ending balance

 

$104,000

 

 

$355,000

 
Inventories

Inventories.  Inventories are primarily comprised of sign cards and hardware.  Inventory is valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method.
Prepaid Production Costs

Prepaid Production Costs.  For merchandise and on-pack solutions, the Company incurs third party costs for design and materials prior to providing the solution to the customer.  These costs are included in prepaid production costs until the revenue is recognized.
Property and Equipment

Property and Equipment.  Property and equipment is recorded at cost. Significant additions or improvements extending asset lives are capitalized, while repairs and maintenance are charged to expense when incurred. Expenditures are capitalized for all development activities, while expenditures related to planning, training, and maintenance are expensed. Depreciation is provided in amounts sufficient to relate the cost of assets to operations over their estimated useful lives. The straight-line method of depreciation is used for financial reporting purposes and accelerated methods are used for tax purposes. Estimated useful lives of the assets are as follows:

 

Production tooling, machinery and equipment

 

1 – 6 years

Office furniture and fixtures

 

1 – 3 years

Computer equipment and software

 

3 – 5 years

Leasehold improvements

 

1 – 3 years
Leases

Leases.  The Company determines if an arrangement contains a lease at inception. Operating leases are included in our operating lease right-of-use (ROU) assets, the current portion of operating lease liabilities, and the operating lease liabilities on the balance sheets. The ROU assets represent our right to control the use of an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date and date of any lease modification based on the present value of lease payments over the lease term. The operating lease ROU assets also include any prepaid lease payments made and exclude lease incentives. Lease expense is recognized on a straight-line basis over the lease term. The Company has elected the practical expedient to exclude short-term leases (one year or less) from our ROU assets and lease liabilities. 
Impairment of Long-Lived Assets

Impairment of Long-Lived Assets. The Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. Impaired assets are then recorded at their estimated fair value.
Restructuring

Restructuring. The Company implemented a plan to restructure its operations in December 2021, including workforce reductions and other cost-saving initiatives. As part of this restructuring plan, the Company reduced its workforce by approximately 19%. A pre-tax restructuring charge of $201,000 was recorded during the year ended December 31, 2021. The Company recorded $81,000 of this charge within cost of sales and $120,000 within operating expenses in the Company’s statement of operations. As of December 31, 2021, the $201,000 pre-tax restructuring charge was included in accrued compensation and was paid in 2022.
Sales Taxes

Sales Taxes. The Company accrues sales taxes based on determination of which of its products/services are subject to sales tax, and in which states and jurisdictions the tax applies. Further, the Company must determine which of its customers are exempt from the Company charging sales tax because the customer is a reseller or self-assesses and direct pays to states and other jurisdictions on purchases the customer makes from the Company. These determinations contain estimates and are subject to judgment and interpretation by taxing authorities in various states and other jurisdictions, which could result in recognizing materially different amounts in future periods.
Income Taxes

Income Taxes. Income taxes are accounted for under the liability method. Deferred income taxes are provided for temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred taxes are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or the entire deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of the enactment. It is the Company’s policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense (benefit).
Stock-Based Compensation

Stock-Based Compensation. The Company measures and recognizes compensation expense for all stock-based awards at fair value. Restricted stock units and awards are valued at the closing market price of the Company’s stock on the date of the grant. The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options and employee stock purchase plan rights. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as by assumptions regarding several complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

 

The expected lives of the options and employee stock purchase plan rights are based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected term at grant date. Volatility is based on historical and expected future volatility of the Company’s stock. The Company has not historically issued any dividends beyond one-time dividends declared in 2011 and 2016 and does not expect to in the future.
Advertising Costs

Advertising Costs. Advertising costs are charged to operations as incurred. Advertising expenses were approximately $41,000 and $34,000 during the years ended December 31, 2022 and 2021, respectively.
Net Income (Loss) Per Share

Net Income (Loss) Per Share. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding and excludes any dilutive effects of stock options and restricted stock units and awards. Diluted net income (loss) per share gives effect to all diluted potential common shares outstanding during the year.

Weighted average common shares outstanding for the years ended December 31, 2022 and 2021 were as follows:

 

Year ended December 31

 

2022

 

 

2021

 

Denominator for basic net income (loss) per share - weighted average shares

 

 

1,791,000

 

 

 

1,760,000

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Stock options, restricted stock units and restricted stock awards

 

 

5,000

 

 

 

-

 

Denominator for diluted net income (loss) per share - weighted average shares

 

 

1,796,000

 

 

 

1,760,000

 

 

For the year ended December 31, 2022, the Company excluded stock awards where the market price of the Company’s stock was less than the exercise price of the outstanding stock award.

 

Options to purchase approximately 45,000 shares of common stock with a weighted average exercise price of $11.91, were outstanding at December 31, 2022 and were not included in the computation of common stock equivalents for the year ended December 31, 2022 because their exercise prices were higher than the average fair market value of the common stock during the reporting period.

 

Options to purchase approximately 22,000 shares of common stock with a weighted average exercise price of $12.64, were outstanding at December 31, 2021 and were not included in the computation of common stock equivalents for the year ended December 31, 2021 because their exercise prices were higher than the average fair market value of the common stock during the reporting period.  For the year ended December 31, 2021, all stock awards were anti-dilutive for the period due to the net loss.
Use of Estimates

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.
New Accounting Pronouncements

New Accounting Pronouncements. In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments, which changes the way entities recognize impairment of most financial assets. This update is effective for the Company for the year ending December 31, 2023 and interim periods within that year.

 

Short-term and long-term financial assets, as defined by the standard, are impacted by immediate recognition of estimated credit losses in the financial statements, reflecting the net amount expected to be collected. We have evaluated the requirements of this standard on our financial assets and have concluded that the adoption of this ASU, beginning January 1, 2023, will have an immaterial impact on our financial statements.