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UNITED STATES SECURITIES AND EXCHANGE COMMISSION |
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Washington, D. C. 20549 |
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FORM 10-Q/A |
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x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
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THE SECURITIES EXCHANGE ACT OF 1934 |
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for the quarterly period ended March 31, 2011 |
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or |
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TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES
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for the transition period from ___________________ to _________________ |
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Commission File Number: 1-13471 |
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INSIGNIA SYSTEMS, INC. |
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(Exact name of registrant as specified in its charter) |
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Minnesota |
41-1656308 |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
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8799 Brooklyn Blvd. |
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Minneapolis, MN 55445 |
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(Address of principal executive offices) |
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(763) 392-6200 |
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(Registrants telephone number, including area code) |
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Not applicable. |
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(Former name, former address and former fiscal year if changed since last report) |
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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 report(s), and (2) has been subject to such filing requirements for the past
90 days.
Yes
x
No
o
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted 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 and post such files).
Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller Reporting Company o |
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
x
Number of shares outstanding of Common Stock, $.01 par value, as of September 6, 2011, was 15,025,904.
1
EXPLANATORY NOTE
This Form 10-Q/A is being filed to amend the registrants Form 10-Q for the quarter ended March 31, 2011, to: (1) correct for a miscalculation made related to deferred income taxes, as announced by the Company on August 3, 2011, and (2) modify the portions of Exhibit 10.1 for which confidential treatment is requested, in response to comments received from the Commission on the registrants request for confidential treatment.
2
TABLE OF CONTENTS
3
P ART I. FINANCIAL INFORMATION
Insignia Systems, Inc.
C
ONDENSED BALANCE SHEETS
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(Restated)
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(Restated)
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
90,240,000 |
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$ |
13,196,000 |
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Short-term investments |
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500,000 |
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Accounts receivable, net |
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2,822,000 |
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3,227,000 |
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Inventories |
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433,000 |
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414,000 |
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Deferred tax assets, net |
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151,000 |
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151,000 |
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Prepaid expenses and other |
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658,000 |
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360,000 |
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Total Current Assets |
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94,304,000 |
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17,848,000 |
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Other Assets: |
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Property and equipment, net |
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928,000 |
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975,000 |
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Non-current deferred tax assets, net |
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166,000 |
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5,551,000 |
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Other |
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3,875,000 |
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227,000 |
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Total Assets |
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$ |
99,273,000 |
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$ |
24,601,000 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current Liabilities: |
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Accounts payable |
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2,152,000 |
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2,335,000 |
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Dividend payable |
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31,335,000 |
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Income tax payable |
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25,922,000 |
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Accrued liabilities |
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Compensation |
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1,407,000 |
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809,000 |
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Legal |
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167,000 |
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376,000 |
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Employee stock purchase plan |
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49,000 |
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170,000 |
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Retailer payments |
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37,000 |
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1,119,000 |
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Other |
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284,000 |
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400,000 |
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Deferred revenue |
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159,000 |
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134,000 |
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Total Current Liabilities |
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61,512,000 |
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5,343,000 |
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Long-Term Liabilities: |
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Accrued income taxes |
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400,000 |
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Accrued compensation |
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800,000 |
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Total Liabilities |
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62,712,000 |
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5,343,000 |
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Commitments and Contingencies |
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Shareholders Equity |
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36,561,000 |
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19,258,000 |
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Total Liabilities and Shareholders Equity |
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$ |
99,273,000 |
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$ |
24,601,000 |
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See accompanying notes to financial statements.
4
Insignia Systems, Inc.
S
TATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended March 31 |
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2011 |
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2010 |
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Services revenues |
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$ |
4,374,000 |
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$ |
5,137,000 |
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Products revenues |
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573,000 |
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746,000 |
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Total Net Sales |
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4,947,000 |
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5,883,000 |
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Cost of services |
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2,543,000 |
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2,436,000 |
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Cost of goods sold |
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368,000 |
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517,000 |
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Total Cost of Sales |
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2,911,000 |
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2,953,000 |
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Gross Profit |
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2,036,000 |
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2,930,000 |
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Operating Expenses: |
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Selling |
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1,555,000 |
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1,636,000 |
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Marketing |
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414,000 |
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395,000 |
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General and administrative |
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2,026,000 |
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1,347,000 |
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Gain from litigation settlement, net |
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(89,762,000 |
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Total Operating Expenses |
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(85,767,000 |
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3,378,000 |
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Operating Income (Loss) |
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87,803,000 |
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(448,000 |
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Other Income (Expense): |
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Interest income |
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21,000 |
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18,000 |
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Interest expense |
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(5,000 |
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Total Other Income |
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21,000 |
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13,000 |
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Income (Loss) Before Taxes |
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87,824,000 |
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(435,000 |
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Income tax expense |
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(33,951,000 |
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Net Income (Loss) |
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$ |
53,873,000 |
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$ |
(435,000 |
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Net income (loss) per share: |
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Basic |
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$ |
3.37 |
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$ |
(0.03 |
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Diluted |
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$ |
3.17 |
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$ |
(0.03 |
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Shares used in calculation of net income (loss) per share: |
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Basic |
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15,990,000 |
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15,381,000 |
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Diluted |
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16,986,000 |
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15,381,000 |
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See accompanying notes to financial statements.
5
Insignia Systems, Inc.
S
TATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended March 31 |
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(Restated
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2010 |
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Operating Activities: |
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Net income (loss) |
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$ |
53,873,000 |
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$ |
(435,000 |
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Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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88,000 |
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79,000 |
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Deferred income tax expense |
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5,385,000 |
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Stock-based compensation |
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145,000 |
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113,000 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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405,000 |
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(229,000 |
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Inventories |
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(19,000 |
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(93,000 |
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Prepaid expenses and other |
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54,000 |
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125,000 |
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Accounts payable |
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(183,000 |
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(382,000 |
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Accrued liabilities |
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(130,000 |
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(1,223,000 |
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Income tax payable |
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28,145,000 |
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Accrued income taxes |
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400,000 |
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Excess tax benefits from stock-based payments |
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(2,222,000 |
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Deferred revenue |
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25,000 |
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(247,000 |
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Net cash provided by (used in) operating activities |
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85,966,000 |
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(2,292,000 |
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Investing Activities: |
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Purchases of property and equipment |
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(41,000 |
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(198,000 |
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Acquisition of selling arrangement |
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(4,000,000 |
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Purchases of investments |
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(1,300,000 |
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Proceeds from sale of investments |
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500,000 |
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1,400,000 |
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Net cash provided by (used in) investing activities |
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(3,541,000 |
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(98,000 |
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Financing Activities: |
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Proceeds from issuance of common stock, net |
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3,069,000 |
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638,000 |
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Excess tax benefits from stock-based payments |
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2,222,000 |
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Repurchase of common stock, net |
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(10,672,000 |
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(412,000 |
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Net cash provided by (used in) financing activities |
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(5,381,000 |
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226,000 |
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Increase (decrease) in cash and cash equivalents |
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77,044,000 |
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(2,164,000 |
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Cash and cash equivalents at beginning of period |
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13,196,000 |
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8,797,000 |
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Cash and cash equivalents at end of period |
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$ |
90,240,000 |
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$ |
6,633,000 |
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Supplemental disclosures for cash flow information: |
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Cash paid during period for income taxes |
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$ |
12,000 |
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$ |
40,000 |
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Non-cash investing and financing activities: |
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Dividend payable |
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$ |
31,335,000 |
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$ |
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Cashless exercise of options |
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$ |
800,000 |
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$ |
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See accompanying notes to financial statements.
6
Insignia Systems, Inc.
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1. |
Summary of Significant Accounting Policies. |
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Description of Busines s. Insignia Systems, Inc. (the Company) markets in-store advertising products, programs and services to consumer packaged goods manufacturers (customers) and retailers. The Company has been in business since 1990. The Companys products and services includes the Insignia POPSign® program, thermal sign card supplies for the Companys SIGNright and Impulse systems, Stylus software and laser printable cardstock and label supplies. Since 1998, the Company has been focusing on providing in-store services through the Insignia Point-of- Purchase Services (Insignia POPS®) in-store advertising program. |
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Basis of Presentatio n. Financial statements for the interim periods included herein are unaudited; however, they contain all adjustments, including normal recurring accruals, which in the opinion of management, are necessary to present fairly the financial position of the Company at March 31, 2011, and its results of operations and cash flows for the three months ended March 31, 2011 and 2010. Results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. |
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The financial statements do not include certain footnote disclosures and financial information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America and, therefore, should be read in conjunction with the financial statements and notes included in the Companys Annual Report on Form 10-K/A for the year ended December 31, 2010. |
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The Summary of Significant Accounting Policies in the Companys 2010 Annual Report on Form 10-K/A describes the Companys accounting policies. |
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Inventories . Inventories are primarily comprised of parts and supplies for Impulse and SIGNright machines, sign cards, rollstock and POPSign supplies. Inventory is valued at the lower of cost or market using the first-in, first-out (FIFO) method, and consists of the following: |
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March 31,
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December 31,
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Raw materials |
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$ |
93,000 |
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$ |
132,000 |
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Work-in-process |
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31,000 |
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25,000 |
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Finished goods |
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309,000 |
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257,000 |
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$ |
433,000 |
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$ |
414,000 |
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7
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Property and Equipment . Property and equipment consists of the following: |
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March 31,
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December 31,
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Property and Equipment: |
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Production tooling, machinery and equipment |
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$ |
2,346,000 |
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$ |
2,344,000 |
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Office furniture and fixtures |
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258,000 |
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258,000 |
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Computer equipment and software |
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975,000 |
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936,000 |
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Web site |
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38,000 |
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38,000 |
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Leasehold improvements |
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351,000 |
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351,000 |
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3,968,000 |
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3,927,000 |
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Accumulated depreciation and amortization |
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(3,040,000 |
) |
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(2,952,000 |
) |
Net Property and Equipment
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$ |
928,000 |
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$ |
975,000 |
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Stock-Based Compensation . The Company measures and recognizes compensation expense for all stock-based payments at fair value using the Black-Scholes option pricing model to determine the weighted average fair value of options and employee stock purchase plan rights. The Company recognizes stockbased compensation expense on a straight-line method over the requisite service period of the award. |
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There were no stock option awards granted during the three months ended March 31, 2011. The Company used the Black-Scholes option pricing model to estimate the fair value of stock-based rights granted during the three months ended March 31, 2011, under the employee stock purchase plan using the following weighted average assumptions: expected life of 1 year, expected volatility of 30%, dividend yield of 0% and risk-free interest rate of 0.30%. Total stock-based compensation expense recorded for the three months ended March 31, 2011 and 2010, was $145,000 and $113,000, respectively. |
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Dividend Payable . On February 22, 2011, the Board of Directors approved a special $2.00 per common share dividend totaling $31,335,000. The dividend was accrued at March 31, 2011, and paid on May 2, 2011. |
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Net Income (Loss) Per Share . Basic net income (loss) per share is computed by dividing net income by the weighted average shares outstanding and excludes any dilutive effects of options, warrants and convertible securities. Diluted net income (loss) per share gives effect to all diluted potential common shares outstanding during the period. Options and warrants to purchase approximately 315,000 and 438,000 shares of common stock with weighted average exercise prices of $8.80 and $8.01 were outstanding at March 31, 2011 and 2010 and were not included in the computation of common stock equivalents for the three months ended March 31, 2011 and 2010 because their exercise prices were higher than the average fair market value of the common shares during the reporting period. During the three months ended March 31, 2010, the effect of options and warrants outstanding was anti-dilutive due to the net loss incurred during the period. Had net income been achieved, approximately 1,324,000 of common stock equivalents would have been included in the computation of diluted net income per share. |
8
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Weighted average common shares outstanding for the three months ended March 31, 2011 and 2010 were as follows: |
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Three Months Ended March 31 |
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2011 |
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2010 |
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Denominator for basic net income (loss) per share - weighted average shares |
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15,990,000 |
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15,381,000 |
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Effect of dilutive securities: |
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Stock options and warrants |
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996,000 |
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Denominator for diluted net income (loss) per share - weighted average shares |
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|
16,986,000 |
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15,381,000 |
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2. |
Restatement. The Company has determined that there was an error made in connection with state income taxes payable as of March 31, 2011 as a result of disqualifying dispositions of incentive stock options and other exercises of nonqualified stock options. The amount of the restatement was to decrease income taxes payable by $58,000 and increase shareholders equity by $58,000. |
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3. |
Commitments and Contingencies. |
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Legal . On September 23, 2004, the Company brought suit against News America and Albertsons Inc. (Albertsons) in Federal District Court in Minneapolis, Minnesota, for violations of federal and state antitrust and false advertising laws, alleging that News America has acquired and maintained monopoly power through various wrongful acts designed to harm the Company in the in-store advertising and promotion products and services market. The suit sought injunctive relief sufficient to prevent further antitrust injury and an award of treble damages for the harm caused to the Company. On September 20, 2006, the State of Minnesota through its Attorney General intervened as a co-plaintiff in the business disparagement portion of the case. In December 2006, News America filed counterclaims in the case that included claims of alleged interference with contracts and alleged libel and slander against Insignia and one of its officers. On February 4, 2008, the Court approved a consent decree entered into by News America and the State of Minnesota under which News America agreed to not violate Minnesotas statutes prohibiting commercial disparagement. On July 29, 2008, the Company and Albertsons entered into a settlement agreement and mutual release, in which they each agreed to release all claims against the other, and the Company agreed to dismiss its lawsuit against Albertsons. |
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On February 7, 2011, trial in the Companys lawsuit against News America commenced in U.S. District Court for the District of Minnesota. On February 9, 2011, the Company and News America entered into a Settlement Agreement to settle the lawsuit. Pursuant to the Settlement Agreement, News America paid the Company $125,000,000, and the Company paid News America $4,000,000 in exchange for a 10-year arrangement to sell signs with price into News Americas network of retailers as News Americas exclusive agent. The Settlement Agreement included the dismissal with prejudice of the Companys lawsuit against News America. The definitive agreement for the 10-year arrangement was approved by the U.S. District Court on June 6, 2011, and signed by both parties. Certain issues have arisen since then in connection with the implementation of the definitive agreement. On August 25, 2011, the Magistrate Judge issued a supplemental Order defining and clarifying the business operations between the Company and News America relative to the definitive agreement. The Company expects that the definitive agreement and the supplemental Order will aid the Company in increasing its sale of signs-with-price to consumer packaged goods customers, but there is no guarantee that the definitive agreement will result in increased sales. |
9
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A reconciliation of the settlement proceeds to the gain from litigation settlement recognized in the statement of operations is as follows: |
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Three Months Ended
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|
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2011 |
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2010 |
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Settlement proceeds |
|
$ |
125,000,000 |
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$ |
|
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Less contingent attorneys fees |
|
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(31,250,000 |
) |
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|
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Less bonuses paid to employees |
|
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(3,988,000 |
) |
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Gain from litigation settlement, net |
|
$ |
89,762,000 |
|
$ |
|
|
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During the quarter ended March 31, 2011, the Company incurred legal fees of $32,076,000 in connection with the News America lawsuit. A contingent fee payment of $31,250,000 was made to the Companys lead trial counsel out of the settlement proceeds. Additional legal fees of $826,000 were incurred in connection with the lawsuit as the Company prepared for trial, worked through settlement discussions, and post settlement activities. Management does not expect significant legal fees and expenses in future periods after post-settlement activities are concluded. Legal fees and expenses are expensed as incurred and are included in general and administrative expenses in the statements of operations, except for the contingent fee which was included as a reduction of the gain from the litigation settlement. |
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The Company is subject to various other legal proceedings in the normal course of business. Management believes the outcome of these proceedings will not have a material adverse effect on the Companys financial position or results of operations. |
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|
4. |
Income Taxes. As a result of the taxable income generated by the settlement proceeds, $5,385,000 of the Companys deferred tax assets was utilized during the first three months of 2011. For the three months ended March 31, 2011, the provision for income taxes was $33,951,000, or 38.7% of income before income taxes. The income tax provision during the three months ended March 31, 2011, is comprised of federal and state taxes. The primary difference between the Companys March 31, 2011, effective tax rate and the statutory federal rate is due to state income taxes. For the three months ended March 31, 2010, no provision for income taxes or tax benefit was recorded as a full valuation allowance existed on the Companys deferred tax assets. |
|
|
|
As of March 31, 2011, the Company had unrecognized tax benefits totaling $400,000 excluding interest which relate 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 $400,000. Due to the current statute of limitations regarding the unrecognized tax benefits, the unrecognized tax benefits and associated interest is not expected to decrease significantly in 2011. |
|
|
5. |
Concentrations. During the three months ended March 31, 2011, Nestle Co. and Valassis Sales and Marketing Services, Inc. accounted for 29% and 18%, respectively, of the Companys total net sales. At March 31, 2011, these two customers represented 26% and 12%, respectively, of the Companys total accounts receivable. During the three months ended March 31, 2010, General Mills, Inc., Valassis Sales and Marketing Services, Inc., and Nestle Co. accounted for 23%, 13% and 13%, respectively, of the Companys total net sales. At March 31, 2010 these three customers represented 14%, 14% and 15%, respectively, of the Companys total accounts receivable. Valassis Sales and Marketing Services, Inc. is a reseller of the Companys POPSign program to consumer packaged goods manufacturers. |
|
|
|
Although there are a number of customers that the Company sells to, the loss of a major customer could adversely affect operating results. Additionally, the loss of a major retailer from the Companys retail network could adversely affect operating results. |
10
|
|
6. |
New Accounting Pronouncements . In October 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2009-13, Multiple-Deliverable Revenue Arrangementsa consensus of the FASB Emerging Issues Task Force , that provides amendments to the criteria for separating consideration in multiple-deliverable arrangements. As a result of these amendments, multiple-deliverable revenue arrangements will be separated in more circumstances than under previous U.S. GAAP. The ASU does this by establishing a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence (VSOE) if available, third-party evidence if VSOE is not available, or estimated selling price if neither VSOE nor third-party evidence is available. A vendor will be required to determine its best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis. This ASU also eliminates the residual method of allocation and will require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the overall arrangement proportionally to each deliverable based on its relative selling price. This standard became effective for the Company in January 2011 and did not have a material impact on the Companys results of operations or financial condition. |
|
|
|
In October 2009, the FASB issued ASU 2009-14, Certain Revenue Arrangements That Include Software Elements a consensus of the FASB Emerging Issues Task Force . This ASU removes tangible products containing software components and nonsoftware components that function together to deliver the tangible products essential functionality from the scope of the software revenue guidance in Subtopic 985-605 of the Codification. Additionally, ASU 2009-14 provides guidance on how a vendor should allocate arrangement consideration to deliverables in an arrangement that includes both tangible products and software that is not essential to the products functionality. This standard became effective for the Company in January 2011 and did not have a material impact on the Companys results of operations or financial condition. |
|
|
|
In December 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-06, Fair Value Measurements and Disclosures Topic 820 Improving Disclosures about Fair Value Measurements. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASBs objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Some of the new disclosures were effective for reporting periods beginning after December 15, 2009, with the remaining new disclosures effective for reporting periods beginning after December 15, 2010. The Company adopted the amended guidance and it did not have a significant impact on the Companys financial statements. |
|
|
|
In July 2010, the FASB issued ASU No. 2010-20, Receivables Topic 310 Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, to enhance the disclosures required for financing receivables (for example, loans, trade accounts receivable, notes receivable, and receivables relating to a lessors leveraged, direct financing, and sales-type leases) and allowances for credit losses. The amended disclosures are designed to provide more information to financial statement users regarding the credit quality of a creditors financing receivables and the adequacy of its allowance for credit losses. The amended guidance is effective for period-end balances beginning with the first interim or annual reporting period ending on or after December 15, 2010. The amended guidance is effective for activity during a reporting period beginning on or after December 15, 2010. The Company adopted the amended guidance and it did not have a significant impact on the Companys financial statements. |
|
|
|
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU provides a consistent definition of fair value between U.S. GAAP and International Financial Reporting Standards. Additionally, the ASU changes certain fair value measurement principles and expands the disclosures for fair value measurements. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and is to be applied prospectively. The adoption of this ASU is not expected to have a material impact on the Companys financial statements. |
11
I tem 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
Insignia Systems, Inc. (the Company) markets in-store advertising products, programs and services to consumer packaged goods manufacturers (customers) and retailers. The Companys products and services includes the Insignia POPSign® program, thermal sign card supplies for the Companys SIGNright and Impulse systems, Stylus software and laser printable cardstock and label supplies.
Results of Operations
The following table sets forth, for the periods indicated, certain items in the Companys Statements of Operations as a percentage of total net sales.
|
|
|
|
|
|
|
|
Three Months Ended March 31 |
|
2011 |
|
2010 |
|
||
Net sales |
|
|
100.0 |
% |
|
100.0 |
% |
Cost of Sales |
|
|
58.8 |
|
|
50.2 |
|
Gross Profit |
|
|
41.2 |
|
|
49.8 |
|
Operating expenses: |
|
|
|
|
|
|
|
Selling |
|
|
31.4 |
|
|
27.8 |
|
Marketing |
|
|
8.4 |
|
|
6.7 |
|
General and administrative |
|
|
41.0 |
|
|
22.9 |
|
Gain from litigation settlement, net |
|
|
(1,814.5 |
) |
|
|
|
Total operating expenses |
|
|
(1,733.7 |
) |
|
57.4 |
|
Operating income (loss) |
|
|
1,774.9 |
|
|
(7.6 |
) |
Other income |
|
|
0.4 |
|
|
0.2 |
|
Income (loss) before taxes |
|
|
1,775.3 |
|
|
(7.4 |
) |
Income tax expense |
|
|
(686.3 |
) |
|
|
|
Net income (loss) |
|
|
1,089.0 |
% |
|
(7.4 |
)% |
Decreased net sales in the first three months of 2011 compared to the first three months of 2010, combined with the effect of fixed costs in the costs of sales, resulted in a decrease in gross profit in the 2011 period. The decrease in gross profit and increased operating expenses in the 2011 period were dramatically offset by the litigation settlement, resulting in significant net income in 2011 as compared to a net loss in the 2010 period. See the non-GAAP financial measures information which follows later in this section for a comparison of the 2011 and 2010 periods non-GAAP net losses.
Three Months ended March 31, 2011, Compared to Three Months Ended March 31, 2010
Net Sales. Net sales for the three months ended March 31, 2011 decreased 15.9% to $4,947,000 compared to $5,883,000 for the three months ended March 31, 2010.
Service revenues from our POPSign programs for the three months ended March 31, 2011 decreased 14.9% to $4,374,000 compared to $5,137,000 for the three months ended March 31, 2010. The decrease was primarily due to a 12.0% decrease in the average sign price as well as a 5.7% decrease in the number of POPS signs displayed for customers at stores in the Companys retail network. The decrease in the number of signs displayed in the 2011 period was primarily related to the expiration of the Kroger retailer contract at the end of 2010. During the three months ended March 31, 2010, revenue recognized by advertising in Kroger stores was $1,706,000.
12
Product sales for the three months ended March 31, 2011 decreased 23.2% to $573,000 compared to $746,000 for the three months ended March 31, 2010. This was primarily due to lower sales volume of laser printer supplies.
Gross Profit. Gross profit for the three months ended March 31, 2011 decreased 30.5% to $2,036,000 compared to $2,930,000 for the three months ended March 31, 2010. Gross profit as a percentage of total net sales decreased to 41.2% for 2011 compared to 49.8% for 2010.
Gross profit from our POPSign program revenues for the three months ended March 31, 2011 decreased 32.2% to $1,831,000 compared to $2,701,000 for the three months ended March 31, 2010. The decrease was primarily due to decreased sales in 2011 combined with the effect of fixed costs. Gross profit as a percentage of POPSign program revenues decreased to 41.9% for 2011 compared to 52.6% for 2010, primarily due to the effect of fixed costs against decreased revenues.
Gross profit from our product sales for the three months ended March 31, 2011 decreased 10.5% to $205,000 compared to $229,000 for the three months ended March 31, 2010. The decrease was primarily due to decreased sales. Gross profit as a percentage of product sales increased to 35.8% for 2011 compared to 30.7% for 2010. The decreased laser printer supplies in 2011 were lower margin products which resulted in the higher gross profit percentage in 2011.
Operating Expenses
Selling. Selling expenses for the three months ended March 31, 2011 decreased 5.0% to $1,555,000 compared to $1,636,000 for the three months ended March 31, 2010, primarily due to decreased sales commissions in 2011 due to decreased sales. Selling expenses as a percentage of total net sales increased to 31.4% in 2011 compared to 27.8% in 2010, primarily due to the effect of decreased sales.
Marketing. Marketing expenses for the three months ended March 31, 2011 increased 4.8% to $414,000 compared to $395,000 for the three months ended March 31, 2010. Marketing expenses as a percentage of total net sales increased to 8.4% in 2011 compared to 6.7% in 2010, due to the effect of decreased sales.
General and administrative. General and administrative expenses for the three months ended March 31, 2011 increased 50.4% to $2,026,000 compared to $1,347,000 for the three months ended March 31, 2010. General and administrative expenses as a percentage of total net sales increased to 41.0% in 2011 compared to 22.9% in 2010, due to increased legal expense in 2011. Legal fees were $989,000 for the three months ended March 31, 2011, compared to $523,000 for the three months ended March 31, 2010. The legal fees in each quarter were incurred primarily in connection with the News America lawsuit described in Note 2 to the financial statements. Management does not expect significant legal fees and expenses in future periods in connection with post-settlement activities.
Gain from litigation settlement. On February 9, 2011, the Company entered into a Settlement Agreement in its lawsuit against News America. As part of the Settlement Agreement, News America paid the Company $125,000,000. Netted against this payment was a contingent fee payment of $31,250,000 to the Companys lead trial counsel as well as performance bonus payments of $3,988,000 to certain employees in connection with the settlement, resulting in a net pre-tax gain of $89,762,000.
Other Income. Other income for the three months ended March 31, 2011 was $21,000 compared to $13,000 for the three months ended March 31, 2010. The difference was due to increased interest income in the 2011 period due to higher cash, cash equivalents and short-term investment balances, partially offset by lower interest rates, and a decrease in interest expense in 2011.
Income Taxes. As a result of the taxable income generated by the settlement proceeds, $5,385,000 of the Companys deferred tax assets were utilized during the first three months of 2011. For the three months ended March 31, 2011, the provision for income taxes was $33,951,000, or 38.7% of income before income taxes. The provision for income taxes during the three months ended March 31, 2011, is comprised of federal and state taxes. The primary difference between the Companys March 31, 2011, effective tax rate and the statutory federal rate is state income taxes. The lack of profitability in the first quarter of 2010, and the full valuation allowance against the Companys deferred tax assets, resulted in no provision for taxes or tax benefit for the 2010 period.
13
Net Income (Loss). Our net income for the three months ended March 31, 2011 was $53,873,000 compared to a net loss of $(435,000) for the three months ended March 31, 2010.
Non-GAAP Financial Measures
To supplement the Companys financial statements presented in accordance with GAAP, the Company has provided certain non-GAAP financial measures of financial performance in prior public announcements. These non-GAAP measures include:
|
|
|
|
|
net income (loss) before gain from litigation settlement (net of tax), and |
|
|
net income before News America related legal fee expense. |
The Companys reference to these non-GAAP measures should be considered in addition to results prepared under current accounting standards, but are not a substitute for, or superior to, GAAP results.
These non-GAAP measures are provided to enhance investors overall understanding of the Companys current financial performance and ability to generate cash flows. In many cases non-GAAP financial measures are used by analysts and investors to evaluate the Companys performance. Reconciliation to the nearest GAAP measure can be found in the financial table included below.
|
|
|
|
|
|
|
|
Three Months Ended March 31 |
|
2011 |
|
2010 |
|
||
Net income (loss) |
|
$ |
53,873,000 |
|
$ |
(435,000 |
) |
Adjustment: |
|
|
|
|
|
|
|
Gain from litigation settlement (net of tax) ( see below) |
|
|
(55,062,000 |
) |
|
|
|
Non-GAAP net loss before gain from litigation settlement (net of tax) |
|
|
(1,189,000 |
) |
|
(435,000 |
) |
Adjustment: |
|
|
|
|
|
|
|
News America related legal expense |
|
|
826,000 |
|
|
404,000 |
|
Non-GAAP net loss before gain from litigation settlement (net of tax) and News America related legal expense |
|
$ |
(363,000 |
) |
$ |
(31,000 |
) |
|
|
|
|
|
|
|
|
Gain from litigation settlement (net of tax) |
|
|
|
|
|
|
|
Settlement proceeds |
|
$ |
125,000,000 |
|
|
|
|
Less contingent attorneys fees |
|
|
(31,250,000 |
) |
|
|
|
Less bonuses paid to employees |
|
|
(3,988,000 |
) |
|
|
|
|
|
|
89,762,000 |
|
|
|
|
Less settlement related income taxes |
|
|
(34,700,000 |
) |
|
|
|
Gain from litigation settlement (net of tax) |
|
$ |
55,062,000 |
|
|
|
|
Liquidity and Capital Resources
The Company has financed its operations with proceeds from public and private stock sales and sales of its services and products. At March 31, 2011, working capital was $32,792,000 compared to $12,505,000 at December 31, 2010. During the three months ended March 31, 2011, cash, cash equivalents and short-term investments increased $76,544,000 from $13,696,000 at December 31, 2010 to $90,240,000 at March 31, 2011.
14
On February 9, 2011, the Company entered into a settlement agreement in its lawsuit against News America. As part of the settlement agreement, News America paid the Company $125,000,000 less $4,000,000 related to a 10-year business arrangement. Litigation counsel for the Company received a contingent fee payment of $31,250,000 which resulted in net cash to the Company of $89,750,000 after the contingent fee.
On February 22, 2011, the Board of Directors approved a series of actions. First, the Board of Directors authorized a special $2.00 per common share dividend which resulted in in a payment to shareholders of $31,335,000 on May 2, 2011. Second, the Board approved a Performance Bonus Plan, providing for the payment of $3,988,000 to certain employees of the Company. Third, the Board authorized the repurchase of up to $15,000,000 of the Companys common stock on or before January 31, 2012. The plan does not obligate the Company to repurchase any particular number of shares, and may be suspended at any time at the Companys discretion. On May 25, 2011, the Board amended the plan to increase the maximum share purchase amount from $15,000,000 to $20,000,000.
Net cash provided by operating activities during the three months ended March 31, 2011, was $85,966,000. Net income of $53,873,000, plus non-cash adjustments of $5,618,000 and changes in operating assets and liabilities of $26,475,000 resulted in the $85,966,000 of cash provided by operating activities. The net non-cash adjustments of $5,618,000 consisted of depreciation and amortization expense, deferred income tax expense, and stock-based compensation expense. The most significant component of the $26,475,000 change in operating assets and liabilities was income taxes. Income tax payable increased by $28,145,000, before the excess tax benefit of $2,222,000, primarily due to taxable income related to the litigation settlement. Accrued retailer payments decreased $1,082,000 primarily related to the payment to one of our retailers, and accrued compensation increased $1,398,000 primarily due to the terms of the performance bonus plan related to the News America settlement. The Company expects accounts receivable, accounts payable, accrued liabilities and deferred revenue to fluctuate during future periods depending on the level of POPSign revenues and related business activity as well as billing arrangements with customers and payment terms with retailers.
Net cash of $3,541,000 was used in investing activities during the three months ended March 31, 2011. Proceeds from the sale of investments were more than offset by the purchase of property and equipment and the payment of $4,000,000 in exchange for a 10-year business arrangement. Proceeds of $500,000 during the first quarter consisted entirely of redemptions of twenty-six week certificates of deposit. Capital expenditures of $41,000 during the quarter consisted primarily of information technology equipment and software. The Company expects to make capital expenditures of approximately $2,000,000 for the remainder of 2011.
Net cash of $5,381,000, which includes the excess tax benefit of $2,222,000, was used in financing activities during the three months ended March 31, 2011. The repurchase of common stock of $10,672,000, pursuant to a plan adopted on February 22, 2011 and amended on May 25, 2011, was partially offset by $3,069,000 of proceeds from the issuance of common stock from the exercise of employee stock options and the employee stock purchase plan.
The Company believes that based upon current business conditions, its existing cash balance and future cash from operations will be sufficient for its cash requirements for the remainder of 2011 and for the next twelve months thereafter. However, there can be no assurances that this will occur or that the Company will be able to secure additional financing from public or private stock sales or from other financing agreements if needed.
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.
15
Our significant accounting policies are described in Note 1 to the annual financial statements as of and for the year ended December 31, 2010, included in our Form 10-K/A filed with the Securities and Exchange Commission on September 9, 2011. We believe our most critical accounting policies and estimates include the following:
|
|
|
|
|
revenue recognition; |
|
|
allowance for doubtful accounts; |
|
|
accounting for deferred income taxes; and |
|
|
stock-based compensation. |
Cautionary Statement Regarding Forward Looking Information
Statements made in this quarterly report on Form 10-Q/A, in the Companys other SEC filings, in press releases and in oral statements to shareholders and securities analysts, which 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 which 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 believes, expects, anticipates, seeks and similar expressions identify forward looking statements. 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 risks and uncertainties include, but are not limited to, the risks presented in our Annual Report on Form 10-K/A for the year ended December 31, 2010, and updated in Part II, Item 1A of this Quarterly Report on Form 10-Q/A.
Ite m 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
It em 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Companys management carried out an evaluation, under the supervision and with the participation of the Companys Chief Executive Officer and the Companys Chief Financial Officer, of the effectiveness of the design and operation of the Companys 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 the end of the period covered by this report, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, including the circumstances surrounding the recently announced amendment of the 2010 Form 10-K, the Companys Chief Executive Officer and the Companys Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective as of the end of the period covered by this report. Disclosure controls and procedures ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and are designed to ensure that information required to be disclosed by us in these reports is accumulated and communicated to the Companys management, including its Chief Executive Office and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosures.
(b) Changes in Internal Controls Over Financial Reporting
There was no change in our internal controls over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, other than the Companys hiring of a new chief financial officer effective June 13, 2011.
16
On September 23, 2004, the Company brought suit against News America and Albertsons Inc. (Albertsons) in Federal District Court in Minneapolis, Minnesota, for violations of federal and state antitrust and false advertising laws, alleging that News America has acquired and maintained monopoly power through various wrongful acts designed to harm the Company in the in-store advertising and promotion products and services market. The suit sought injunctive relief sufficient to prevent further antitrust injury and an award of treble damages for the harm caused to the Company. On September 20, 2006, the State of Minnesota through its Attorney General intervened as a co-plaintiff in the business disparagement portion of the case. In December 2006, News America filed counterclaims in the case that included claims of alleged interference with contracts and alleged libel and slander against Insignia and one of its officers. On February 4, 2008, the Court approved a consent decree entered into by News America and the State of Minnesota under which News America agreed to not violate Minnesotas statutes prohibiting commercial disparagement. On July 29, 2008, the Company and Albertsons entered into a settlement agreement and mutual release, in which they each agreed to release all claims against the other, and the Company agreed to dismiss its lawsuit against Albertsons.
On February 7, 2011, trial in the Companys lawsuit against News America commenced in U.S. District Court for the District of Minnesota. On February 9, 2011, the Company and News America entered into a Settlement Agreement to settle the lawsuit. Pursuant to the Settlement Agreement, News America paid the Company $125,000,000, and the Company paid News America $4,000,000 in exchange for a 10-year arrangement to sell signs with price into News Americas network of retailers as News Americas exclusive agent. The Settlement Agreement included the dismissal with prejudice of the Companys lawsuit against News America. The definitive agreement for the 10-year arrangement was approved by the U.S. District Court on June 6, 2011, and signed by both parties. Certain issues have arisen since then in connection with the implementation of the definitive agreement. On August 25, 2011, the Magistrate Judge issued a supplemental Order defining and clarifying the business operations between the Company and News America relative to the definitive agreement. The Company expects that the definitive agreement and the supplemental Order will aid the Company in increasing its sale of signs-with-price to consumer packaged goods customers, but there is no guarantee that the definitive agreement will result in increased sales.
Legal fees of $826,000 were incurred in connection with the News America lawsuit as the Company prepared for trial, worked through settlement discussions, and post settlement activities. Additionally, during the quarter ended March 31, 2011, the Company made a contingent fee payment of $31,250,000 to the lead trial counsel out of the News America lawsuit settlement proceeds. Management does not expect significant legal fees and expenses in future periods after post-settlement activities are concluded. Legal fees and expenses are expensed as incurred and are included in general and administrative expenses in the statements of operations, except for the contingent fee which was included as a reduction of the gain from the litigation settlement.
The Company is subject to various other legal proceedings in the normal course of business. Management believes the outcome of these proceedings will not have a material adverse effect on the Companys financial position or results of operations.
We described the most significant risk factors applicable to the Company in Part I, Item 1A Risk Factors of our Annual Report on Form 10-K/A for the year ended December 31, 2010. We believe there have been no material changes from the risk factors disclosed on Form 10-K/A.
17
It em 2. Unregistered Sales of Equity Securities and Use of Proceeds
On February 23, 2010, the Board of Directors authorized the repurchase of up to $2,000,000 of the Companys common stock on or before January 31, 2011. The plan has now expired with no shares repurchased in 2011.
On February 22, 2011, the Board of Directors authorized the repurchase of up to $15,000,000 of the Companys common stock on or before January 31, 2012, under a new plan. The plan does not obligate the Company to repurchase any particular number of shares, and may be suspended at any time at the Companys discretion. On May 25, 2011, the Board amended the plan to increase the maximum share purchase amount from $15,000,000 to $20,000,000.
Our share repurchase program activity for the three months ended March 31, 2011, under the new plan was:
Ite m 3. Defaults upon Senior Securities
None.
None.
The following exhibits are included herewith :
|
|
10.1 |
Settlement Agreement and Release with News America Marketing In-Store, LLC, dated February 9, 2011, including exhibits (confidential treatment requested) |
31.1 |
Certification of Principal Executive Officer |
31.2 |
Certification of Principal Financial Officer |
32 |
Section 1350 Certification |
18
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.
|
|
Dated: September 9, 2011 |
Insignia Systems, Inc. |
|
(Registrant) |
|
|
|
/s/ Scott F. Drill |
|
Scott F. Drill |
|
President and Chief Executive Officer (principal executive officer) |
|
|
|
/s/ John C. Gonsior |
|
John C. Gonsior |
|
Vice President, Finance and |
|
Chief Financial Officer |
|
(principal financial officer) |
19
EXHIBIT INDEX
|
|
|
10.1 |
Settlement Agreement and Release with News America Marketing In-Store, LLC, dated February 9, 2011, including exhibits (confidential treatment requested) |
|
31.1 |
Certification of Principal Executive Officer |
|
31.2 |
Certification of Principal Financial Officer |
|
32 |
Section 1350 Certification |
20
EXHIBIT 10.1
SETTLEMENT AGREEMENT AND RELEASE
This Settlement Agreement and Mutual Release (Agreement) is dated as of February 9, 2011 between Plaintiff Insignia Systems, Inc. (Plaintiff), Scott Drill (Drill) and Defendant News America Marketing In-Store L.L.C. (sued in the Action (as defined below) as News America Marketing In-Store, Inc.) (Defendant). Plaintiff, Drill and Defendant are collectively referred to herein as the Parties.
RECITALS
WHEREAS , Plaintiff filed a lawsuit against Defendant captioned Insignia Systems, Inc. v. News America Marketing In-Store, Inc. , United States District Court for Minnesota, Civil No. 04-4213, to collect damages and seek injunctive relief for, inter alia , alleged violations of federal and state antitrust laws, unfair competition, and federal and state disparagement laws. Defendant filed a counter-claim against Plaintiff and Drill. Collectively, the complaint, included as amended, and the counterclaim are referred to herein as the Action;
WHEREAS , all claims by Plaintiff against Defendant, and by Defendant against Plaintiff and Drill, have been vigorously contested, with all Parties denying any and all liability to each other;
WHEREAS, the Parties hereto desire to forever put to rest all disputes and claims through the date of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual promises hereinafter set forth, the receipt and adequacy of which are hereby acknowledged, the Parties agree as follows:
1. Defendant shall pay Plaintiff the sum of One Hundred Twenty Five Million Dollars ($125,000,000) (Settlement Amount), less the Four Million Dollar ($4,000,000) payment owed by Plaintiff to Defendant under the Exclusive Selling Agreement (as defined below) for a net payment to Plaintiff of One Hundred Twenty Million Dollars ($121,000,000) (the Net Amount). The Net Amount is payable by the Defendants as follows: the Net Amount shall be paid on February 10, 2011, by wire transfer to [ * ] .
*Indicates confidential information which has been omitted and filed separately with the Commission under Rule 24b-2.
21
2. Insignia and News America shall enter into an exclusive selling arrangement consistent with the terms attached hereto as Joint Exhibit A (the Exclusive Selling Agreement). The Settlement Amount is not part of the consideration for the Exclusive Selling Agreement. This Agreement, and any and all releases and covenants not to sue, shall survive and remain in full force and effect and be considered final and binding even if a dispute arises regarding the Exclusive Selling Agreement, including but not limited to a dispute in which there are claims that the Exclusive Selling Agreement has been breached, claims that the Exclusive Selling Agreement should be declared void or claims that the Exclusive Selling Agreement lacks consideration.
3. Defendant shall not seek to enforce any right of first refusal and/or right of last refusal provision contained in any of its current agreements with retailers and shall not include right of first refusal and/or right of last refusal provisions in any agreement it reaches with any retailer in the future. Similarly, Plaintiff shall not include right of first refusal and/or right of last refusal provisions in any agreement it reaches with retailers in the future.
4. The Parties mutually agree that they shall not do or say anything at any time which is falsely disparaging to the other Parties.
5. On or before February 9, 2011, Plaintiff shall provide Defendant with a stipulated order in the form of Exhibit B, dismissing the action with prejudice and without costs. The Parties shall take all reasonable steps to have the order on the stipulation entered.
6. Each Party shall bear its own expenses and attorneys fees in connection with the Action.
7. The Parties agree that the United States District Court for Minnesota shall retain jurisdiction over the Action to enforce this Agreement. Pursuant to 28 U.S.C. § 636, Fed.R.Civ.P. 53 and Local Rule 72.1, the Parties further agree and consent to the appointment of the Honorable Arthur Boylan as the master to resolve all disputes in accordance with procedures established by him. Accordingly, concurrent with the execution of this Agreement, the Parties will exchange executed copies of the stipulation substantially in the form attached hereto as Exhibit C and Defendant will promptly file it with the Court. The Parties shall take all reasonable steps to have the order on the stipulation entered.
8. The terms of the Protective Order as originally entered in the Action on or about December 28, 2006 (the Protective Order) shall survive dismissal of the Action and are hereby reaffirmed, including the provision that all Confidential Material (as that term is defined in the Protective Order) shall be destroyed. For the avoidance of doubt, the Parties agree that all Confidential Material (including but not limited to discovery responses, documents and things produced, depositions, summaries of the foregoing, and motion papers filed with the Court consisting of, incorporating or attaching Confidential Material) that are in the possession, custody or control of the Parties, their attorneys and/or their experts and consultants shall be destroyed on or before March 30, 2011, except that outside counsel for the respective parties shall retain for a period of six (6) years a copy of documents which formed a part of the court record in the Action.
22
9. Except for the Parties obligations under this Agreement and the Exclusive Selling Agreement, each of Plaintiff and the Plaintiff Released Parties (as defined below) hereby releases, remises, acquits, and forever discharges Defendant or any of its past or present members, related or affiliated companies and any or all of its respective officers, directors, shareholders, partners, servants, employees, members, attorneys, accountants, agents, representatives, affiliates, subsidiaries, parents, successors and assigns, whether in their individual capacity or as principal or agent (collectively, the Defendant Released Parties), from any and all manner of actions and causes of action, suits, debts, obligations, contracts, torts, covenants, claims, rights of contribution and/or indemnification, rights of subrogation, sums of money, judgments, executions, liabilities, damages, interest, costs, expenses, attorneys fees and legal costs, demands and rights whatsoever, contingent or noncontingent, in law or in equity, known or unknown, of any kind or character, from the beginning of time up to the date of this Agreement (collectively, the Released Matters). Each of Plaintiff and the Plaintiff Released Parties further promises, covenants and agrees not to sue, attempt to introduce as evidence, or otherwise assert any of the Released Matters and/or the underlying facts or conduct supporting the Released Matters against the Defendant or the Defendant Released Parties in any court, governmental or regulatory body or other proceedings.
10. Except for the Parties obligations under this Agreement and the Exclusive Selling Agreement, each of Defendant and the Defendant Released Parties hereby releases, remises, acquits and forever discharges Plaintiff or any of its past or present members, related or affiliated companies and any or all of its respective officers, directors, shareholders, partners, servants, employees, members, attorneys, accountants, agents, representatives, affiliates, subsidiaries, parents, successors and assigns, whether in their individual capacity or as principal or agent (collectively, the Plaintiff Released Parties), from any and all manner of actions and causes of action, suits, debts, obligations, contracts, torts, covenants, claims, rights of contribution and/or indemnification, rights of subrogation, sums of money, judgments, executions, liabilities, damages, interest, costs, expenses, attorneys fees and legal costs, demands and rights whatsoever, contingent or noncontingent, in law or in equity, known or unknown, of any kind or character, from the beginning of time up to the date of this Agreement (collectively, Released Matters). Each of Defendant and the Defendant Released Parties further promises, covenants and agrees not to sue, attempt to introduce as evidence, or otherwise assert any of the Released Matters and/or the underlying facts or conduct supporting the Released Matters against Plaintiff or Plaintiff Released Parties in any court, governmental or regulatory body or other proceedings.
23
11. Except for the Parties obligations under this Agreement, Drill hereby releases, remises, acquits, and forever discharges Defendant and the Defendant Released Parties from any and all manner of actions and causes of action, suits, debts, obligations, contracts, torts, covenants, claims, rights of contribution and/or indemnification, rights of subrogation, sums of money, judgments, executions, liabilities, damages, interest, costs, expenses, attorneys fees and legal costs, demands and rights whatsoever, contingent or noncontingent, in law or in equity, known or unknown, of any kind or character, from the beginning of time up to the date of this Agreement (collectively, Released Matters). Drill further promises, covenants and agrees not to sue, attempt to introduce as evidence, or otherwise assert any of the Released Matters and/or the underlying facts or conduct supporting the Released Matters against Defendant or any Defendant Released Parties in any court, governmental or regulatory body or other proceedings.
12. Except for the Parties obligations under this Agreement, each of Defendant and Defendant Released Parties hereby releases, remises, acquits and forever discharges Drill from any and all manner of actions and causes of action, suits, debts, obligations, contracts, torts, covenants, claims, rights of contribution and/or indemnification, rights of subrogation, sums of money, judgments, executions, liabilities, damages, interest, costs, expenses, attorneys fees and legal costs, demands and rights whatsoever, contingent or noncontingent, in law or in equity, known or unknown, of any kind or character, from the beginning of time up to the date of this Agreement (collectively, Released Matters). Each of Defendant and Defendant Released Parties further promises, covenants and agrees not to sue, attempt to introduce as evidence, or otherwise assert any of the Released Matters and/or the underlying facts or conduct supporting the Released Matters against Drill in any court, governmental or regulatory body or other proceedings.
13. Plaintiff and Defendant hereby warrant and represent to the other that they have not assigned or transferred, or purported to assign or transfer, to any person or entity, any rights, claims, counterclaims, obligations, demands, damages, actions or causes of action that they may have against the other, including but not limited to rights, claims or damages arising out of or related in any way to the Action. Plaintiff and Defendant hereby represent and warrant that there are no other pending actions or claims by Plaintiff against Defendant, or by Defendant against Plaintiff.
14. Drill and Defendant hereby warrant and represent to the other that they have not assigned or transferred, or purported to assign or transfer, to any person or entity, any rights, claims, counterclaims, obligations, demands, damages, actions or causes of action that they may have against the other, including but not limited to rights, claims or damages arising out of or related in any way to the Action. Drill and Defendant hereby represent and warrant that there are no other pending actions or claims by Drill against Defendant, or by Defendant against Drill.
24
15. The Parties understand and agree that this Agreement, and the Parties obligations and payments made hereunder, are entered into and done solely to compromise disputed claims, and shall not constitute an admission of liability on the part of any Party. Further, this Agreement, the Parties obligations hereunder, and payments made hereunder, shall not be offered into evidence in any proceedings by any Party hereto, except as necessary in an action to enforce the terms hereof.
16. This Agreement, including the exhibits hereto, is the entire, integrated agreement between the Parties, and any and all discussions, understandings, and agreements heretofore had by the Parties with respect to the subject matter hereof are merged into this Agreement, which alone fully and completely expresses the Parties agreement, except as set forth in the other documents executed by the Parties. No amendments, waivers, or termination can be made except in a writing signed by each of the Parties.
17. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota, without regard to the conflicts of law provisions thereof.
18. Other than to announce that the parties have amicably settled the Action, neither party hereto nor its attorneys shall disclose to any third party any information with respect to the terms and provisions of this Agreement except: (i) to the extent necessary to comply with the law or a valid order of a court of competent jurisdiction, in which event(s) the party making such disclosure shall so notify the other as promptly as practicable (if possible, prior to making such disclosure), and shall seek confidential treatment of such information and/or in camera review, (ii) to the extent necessary to comply with the S.E.C. or other regulatory authorities or similar disclosure requirements under any applicable laws, (iii) as part of its normal business activities or reporting or review procedures to its parent and affiliated companies (other than Valassis), banks, auditors, attorneys, accountants, insurers and similar professionals, provided, however, that such companies, banks, auditors, attorneys, accountants, insurers and similar professionals agree to be bound by the provisions of this paragraph, (iv) as required by the Internal Revenue Service or by any state tax authority, and (v) in any proceeding to enforce this Agreement.
19. All confidential information that the parties disclose to each other pursuant to the Settlement Agreement or Exclusive Selling Agreement, including but not limited to the terms of their respective agreements with retailers, shall be kept confidential by the receiving party and not shared with any competitors, including Valassis. The receiving party shall treat the other partys confidential information with the same care and take the same precautions that the receiving party uses to maintain the confidentiality of their own confidential and competitively sensitive documents and information.
25
20. No provision of this Agreement may be waived, amended, supplemented, terminated or repealed in whole or in part, except only by the written consent of all Parties. Any waiver, amendment or supplement agreed to by the Parties will apply only to the instance or circumstance expressly provided therein, and not to any other instance or circumstance, whether similar or dissimilar.
21. The Parties each represent and warrant to the other that the persons executing this Agreement on their respective behalves are authorized to do so. All terms and conditions of this Agreement are binding upon and will inure to the benefit of the Parties and their respective members, transferees, successors and assigns. Plaintiff acknowledges that it sought and obtained approval to enter into this settlement from its board of directors. Defendants acknowledge that they sought and obtained approval to enter into this settlement from the board of directors of News Corp. No provision of this Agreement gives any third persons any right of subrogation or action against any party hereto. All representations, warranties, indemnities, covenants and agreements in this Agreement shall survive execution and delivery of this Agreement and continue to be binding.
22. It is agreed that this Agreement was prepared by counsel for each of the Parties hereto. Each of the Parties acknowledges that each signed this document voluntarily, without duress, undue influence or oppression and each represents to the other that it acts voluntarily and with full advice of counsel. Each Party recognizes and acknowledges that its knowledge may not be full and complete. Each Party elects to assume the risk of partial knowledge and elects to settle on the terms stated herein. Each Party further acknowledges to the other that it does not rely upon any representations of any kind or character made by or on behalf of the other, including by way of illustration and not of limitation, any representation about the nature or extent of any claims, demands, damages, rights or defenses which one Party may have against the other Parties, and that no Party relies upon any representations of the other Parties, its officers, agents, directors, employees or attorneys in entering into this Agreement, except as set forth in this Agreement. Each Party acknowledges that the consideration received has been actual and adequate. This Agreement may be executed in counterparts and facsimile copies of signatures shall be treated as originals for all purposes.
26
IN WITNESS WHEREOF, this Agreement was executed the 9th day of February, 2011.
INSIGNIA SYSTEMS, INC.
By: /s/ Scott Drill
Its: CEO
SCOTT DRILL
/s/ Scott Drill
NEWS AMERICA MARKETING IN-STORE SERVICES L.L.C.
By: /s/ Eugenie Gavencek
Its: Senior Vice President
27
|
|
|
FOR SETTLEMENT PURPOSES ONLY |
EXHIBIT A |
|
CONFIDENTIAL TO BE DISTRIBUTED ON AN AS NEEDED BASIS ONLY
INSIGNIA NEWS AMERICA MARKETING
TERM SHEET
February 9, 2011
|
|
1. |
Exclusive Selling Agent . Insignia will purchase the exclusive selling rights for placement of a sign with price (including NAMs Price Pop Guaranteed product ) for the Term (defined below) in NAMs network of retailers for a purchase price equal to $4,000,000. The amount of $4,000,000 may be subtracted from the settlement payment. |
|
|
[ * ] |
|
|
|
2. |
Term . The initial term (Term) of the agreement shall be for a period of ten (10) years. The term may be extended upon mutual agreement of the parties. |
|
|
[ * ] |
*Indicates confidential information which has been omitted and filed separately with the Commission under Rule 24b-2.
28
EXHIBIT B
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
|
|
|
|
: |
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INSIGNIA SYSTEMS, INC., |
: |
Civil No. 04 4213 (JRT/AJB) |
|
: |
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Plaintiff, |
: |
|
|
: |
STIPULATED ORDER DISMISSING CASE WITH PREJUDICE |
v. |
: |
|
|
: |
Judge: Hon. John R. Tunheim |
NEWS AMERICA MARKETING |
: |
|
IN-STORE, INC., |
: |
Complaint Filed: Sept. 23, 2004 |
|
: |
Trial Date: February 7, 2011 |
Defendant. |
: |
|
|
: |
|
STIPULATION TO DISMISS CASE WITH PREJUDICE
Plaintiff Insignia Systems, Inc., on the one hand, and Defendant News America Marketing In-Store L.L.C. (sued in the Action as News America Marketing In-Store, Inc.), on the other hand, by and through their attorneys of record (collectively, the Parties), hereby AGREE AND STIPULATE that the above-captioned case, together with all of Plaintiffs claims against Defendant which are contained therein or which could have been contained therein as of the date of this Stipulation, is hereby DISMISSED WITH PREJUDICE, with each party to bear its own costs.
The Parties further AGREE AND STIPULATE that the Protective Order filed in the above-captioned case shall remain in effect and govern the conduct of the Parties, including the provision that all Confidential Material (as that term is defined in the Protective Order) shall be destroyed. For the avoidance of doubt, the Parties STIPULATE AND AGREE that all Confidential Material (including but not limited to discovery responses, documents and things produced, depositions, summaries of the foregoing, and motion papers filed with the Court incorporating or attaching Confidential Material) that are in the possession, custody or control of the Parties, their attorneys and/or their experts and consultants shall be destroyed on or before March 30, 2011.
29
I STIPULATE TO ENTRY OF THE ABOVE ORDER:
|
|
|
Dated:
February
9, 2011
|
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Dated:
February
9, 2011
|
30
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
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|
|
|
: |
|
INSIGNIA SYSTEMS, INC., |
: |
Civil No. 04 4213 (JRT/AJB) |
|
: |
|
Plaintiff, |
: |
|
|
: |
STIPULATED ORDER DISMISSING CASE WITH PREJUDICE |
v. |
: |
|
|
: |
Judge: Hon. John R. Tunheim |
NEWS AMERICA MARKETING |
: |
|
IN-STORE, INC., |
: |
|
|
: |
Complaint Filed: Sept. 23, 2004 |
Defendant. |
: |
Trial Date: February 7, 2011 |
|
: |
|
ORDER DISMISSING CASE WITH PREJUDICE
IT IS HEREBY ORDERED that that the above-captioned case, together with all of Plaintiffs claims against Defendant which are contained therein or which could have been contained therein as of the date of this Stipulation, is hereby DISMISSED WITH PREJUDICE, with each party to bear its own costs.
IT IS FURTHER ORDERED that the Protective Order filed in the above-captioned case shall remain in effect and govern the conduct of the Parties. Confidential Material (including but not limited to discovery responses, documents and things produced, depositions, summaries of the foregoing, and motion papers filed with the Court incorporating or attaching Confidential Material) that are in the possession, custody or control of the Parties, their attorneys and/or their experts and consultants shall be destroyed on or before March 30, 2011.
IT IS SO ORDERED.
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Date: February 10, 2011 |
|
s/ John R. Tunheim |
at Minneapolis, Minnesota. |
|
JOHN R. TUNHEIM |
|
|
United States District Judge |
31
EXHIBIT C
UNITED
STATES DISTRICT COURT
DISTRICT OF MINNESOTA
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|
|
|
: |
|
INSIGNIA SYSTEMS, INC., |
: |
Civil No. 04 4213 (JRT/AJB) |
|
: |
|
Plaintiff, |
: |
|
|
: |
STIPULATION TO APPOINT MASTER |
v. |
: |
|
|
: |
Judge: Hon. John R. Tunheim |
NEWS AMERICA MARKETING |
: |
|
IN-STORE, INC., |
: |
|
|
: |
Complaint Filed: Sept. 23, 2004 |
Defendant. |
: |
Trial Date: February 7, 2011 |
|
: |
|
STIPULATION TO APPOINT MASTER
Plaintiff Insignia Systems, Inc. and former counter-defendant Scott Drill, on the one hand, and Defendant News America Marketing In-Store, Inc., on the other hand, by and through their attorneys of record (collectively, the Parties), hereby AGREE AND STIPULATE, subject to the approval of the Court, that the United States District Court of Minnesota shall retain jurisdiction to enforce the Parties settlement agreement and Exclusive Selling Agreement entered on February 9, 2011, and the Honorable Arthur J. Boylan shall serve as a special master pursuant to 28 U.S.C. § 636, Fed.R.Civ.P. 53 and Local Rule 72.1 to enforce and interpret the Parties settlement agreement and Exclusive Selling Agreement attached as Exhibit A to the parties settlement agreement.
32
I STIPULATE TO ENTRY OF THE ABOVE ORDER:
|
|
|
Dated:
February
9, 2011
|
|
Dated:
February
9, 2011
|
33
UNITED
STATES DISTRICT COURT
DISTRICT OF MINNESOTA
|
|
|
|
: |
|
INSIGNIA SYSTEMS, INC., |
: |
Civil No. 04 4213 (JRT/AJB) |
|
: |
|
Plaintiff, |
: |
|
|
: |
STIPULATED ORDER TO APPOINT SPECIAL MASTER |
v. |
: |
|
|
: |
Judge: Hon. John R. Tunheim |
NEWS AMERICA MARKETING |
: |
|
IN-STORE, INC., |
: |
|
|
: |
Complaint Filed: Sept. 23, 2004 |
Defendant. |
: |
Trial Date: February 7, 2011 |
|
: |
|
ORDER APPOINTING MASTER
IT IS ORDERED that the United States District Court for Minnesota shall retain jurisdiction to enforce the Parties settlement agreement and Exclusive Selling Agreement entered on February 9, 2011, and pursuant to 28 U.S.C. § 636, Fed.R.Civ.P. 53 and Local Rule 72.1, the Honorable Arthur J. Boylan is hereby designated to serve as a special master for any disputes that arises between the parties regarding enforcement or interpretation of the Parties settlement agreement and Exclusive Selling Agreement appended as Exhibit A to the parties settlement agreement.
IT IS SO ORDERED.
|
|
|
Date: February 10, 2011 |
|
s/ John R. Tunheim |
at Minneapolis, Minnesota. |
|
JOHN R. TUNHEIM |
|
|
United States District Judge |
34
|
|
Date: September 9, 2011 |
/s/ Scott F. Drill |
|
Scott F. Drill |
|
President and Chief Executive Officer |
|
(principal executive officer) |
35
|
|
Date: September 9, 2011 |
/s/ John C. Gonsior |
|
John C. Gonsior |
|
Vice President, Finance and |
|
Chief Financial Officer |
|
(principal financial officer) |
36
Exhibit 32
SECTION 1350 CERTIFICATION
The undersigned certify that:
(1) The accompanying Quarterly Report on Form 10-Q/A for the period ended March 31, 2011, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the accompanying Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
Date: September 9, 2011 |
/s/ Scott F. Drill |
|
Scott F. Drill |
|
President and Chief Executive Officer |
|
(principal executive officer) |
|
|
Date: September 9, 2011 |
/s/ John C. Gonsior |
|
John C. Gonsior |
|
Vice President, Finance and |
|
Chief Financial Officer |
|
(principal financial officer) |
37