Part I [Business](index=2&type=section&id=Item%201.%20Business) Lendway, Inc. has strategically transformed into a specialty agricultural and finance company through divestitures and key acquisitions, now operating in Specialty Ag and Non-bank Lending segments with a near-term focus on Bloomia - Effective August 4, 2023, the company changed its name from Insignia Systems, Inc. to Lendway, Inc. and its stock symbol to "**LDWY**"[11](index=11&type=chunk) - On August 3, 2023, the company sold its legacy In-Store Marketing Business for **$3.5 million**, now reported as discontinued operations[14](index=14&type=chunk)[15](index=15&type=chunk) - On February 22, 2024, the company acquired a majority ownership (**81.4%**) of Bloomia B.V., a leading U.S. producer of fresh cut tulips, for **$47.5 million**[16](index=16&type=chunk)[18](index=18&type=chunk) - The company launched a non-bank lending business, FarmlandCredit.com, in April 2023, initially focusing on loans secured by agricultural real estate[12](index=12&type=chunk)[13](index=13&type=chunk)[41](index=41&type=chunk) [Specialty Ag Segment](index=3&type=section&id=Specialty%20Ag%20Segment) The Specialty Ag segment, comprising Bloomia's operations, is a leading U.S. producer of fresh cut tulips, focusing on domestic hydroponic growing for quality and efficiency - Bloomia produced over **75 million tulip stems annually** in 2023 and 2022[21](index=21&type=chunk) - The U.S. cut flower market is estimated at **$8 billion for 2023**, with tulips representing about **15% of sales**, and Bloomia holding a **20% market share** of U.S.-grown cut tulips[28](index=28&type=chunk) - Three customers accounted for **37.7%, 16.2%, and 10.4%** of Bloomia's U.S. revenue in 2023, indicating significant customer concentration[27](index=27&type=chunk) - Bloomia sources bulbs from the Netherlands, Chile, and New Zealand, enabling year-round production and reducing reliance on importing stems by air[22](index=22&type=chunk)[39](index=39&type=chunk) [Non-Bank Lending Segment](index=5&type=section&id=Non-Bank%20Lending%20Segment) The Non-Bank Lending segment, launched in April 2023, aims to build a scalable collateral-secured lending business, but its near-term growth is constrained by capital allocation to the Bloomia acquisition - The lending business was launched in April 2023 with the hiring of a Senior Vice President of Lending[41](index=41&type=chunk) - Due to capital being allocated to the Bloomia acquisition, the lending business is expected to have minimal revenue and operating losses in 2024[45](index=45&type=chunk) [Human Capital Resources](index=5&type=section&id=Human%20Capital%20Resources) As of March 1, 2024, the company and its subsidiaries employed 156 individuals, including 54 seasonal workers, with a focus on supporting peak demand through temporary worker programs and employee well-being - As of March 1, 2024, the company had **156 employees**, with **54 being seasonal**[50](index=50&type=chunk) - Approximately **50% of hourly workers** in 2023 were hired for seasonal support during the peak period from January to May[50](index=50&type=chunk) [Risk Factors](index=6&type=section&id=Item%201A.%20Risk%20Factors) The company faces substantial risks from its new business model, including high dependency on Bloomia, customer concentration, floating interest rate debt, and operational challenges in agriculture and international management - The company's results are highly dependent on the success of the Bloomia business, as a substantial portion of capital has been committed to it[60](index=60&type=chunk) - In 2023, three customers accounted for approximately **64.3% of Bloomia's revenue**, posing a concentration risk[56](index=56&type=chunk) - The majority of the company's debt carries floating interest rates tied to SOFR, exposing it to interest rate fluctuations[58](index=58&type=chunk) - The Credit Agreement restricts Bloomia's ability to make distributions to Lendway, which may constrain cash available for corporate expenses and the Lending Business[67](index=67&type=chunk) - A significant stockholder group holds approximately **38.9% of outstanding common shares**, which may allow them to exercise a degree of control over stockholder matters[92](index=92&type=chunk) [Cybersecurity](index=10&type=section&id=Item%201C.%20Cybersecurity) Lendway's cybersecurity, primarily managed by an outsourced IT provider, is overseen by the Board and Audit Committee, with Bloomia's IT environment now integrated into corporate oversight following its acquisition - The company's IT operations and cybersecurity were primarily outsourced as of year-end 2023[97](index=97&type=chunk) - The Board of Directors and Audit Committee provide oversight of the cybersecurity risk management program[98](index=98&type=chunk) - Following the acquisition, Bloomia's IT environment will be included in the company's cybersecurity processes and oversight[99](index=99&type=chunk) [Properties](index=10&type=section&id=Item%202.%20Properties) The company's facilities are deemed adequate for current and future needs, including a corporate headquarters in Minneapolis and key leased properties for Bloomia's operations in Virginia, the Netherlands, and South Africa - The company leases its corporate headquarters in Minneapolis, MN (**1,700 sq. ft.**)[103](index=103&type=chunk) - Bloomia's key leased facilities include a **360,000 sq. ft. greenhouse** in Virginia, a **107,000 sq. ft. facility** in the Netherlands, and a **21,000 sq. ft. greenhouse** in South Africa[103](index=103&type=chunk) [Legal Proceedings](index=10&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine legal actions, but their outcomes are not anticipated to materially affect its financial position or operational results - The company states that the outcome of current legal matters is not expected to have a material effect on its financial position or results of operations[106](index=106&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=11&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq under LDWY, with approximately 115 record holders, and a stock repurchase program was approved in August 2023, though regular dividends are not historically paid - The company's common stock is listed on the Nasdaq Capital Market under the symbol **LDWY**[109](index=109&type=chunk) - A stock repurchase authorization for up to **400,000 shares** was approved on August 28, 2023[112](index=112&type=chunk) Share Repurchase Activity (Q4 2023) | Period | Total shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans | Approximate dollar value of shares purchased under the plans | | :--- | :--- | :--- | :--- | :--- | | October 1 - 31, 2023 | 5,546 | $5.09 | 5,546 | $27,864 | | November 1 - 30, 2023 | 3,137 | $4.99 | 3,137 | $16,267 | | December 1 - 31, 2023 | - | - | - | - | | **Total** | **8,683** | | **8,683** | **$44,131** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=11&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The company's FY2023 financial results reflect its strategic transformation, with a net loss from continuing operations offset by gains from discontinued operations, maintaining strong liquidity despite significant post-year-end cash usage for the Bloomia acquisition [Results of Operations](index=12&type=section&id=Results%20of%20Operations) For FY2023, the company reported an increased net loss from continuing operations of $3.02 million, primarily due to higher G&A expenses, while total net income decreased significantly from 2022 due to lower income from discontinued operations Consolidated Statements of Operations Summary (Continuing Operations) | | Year Ended December 31, 2023 | Year Ended December 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | General and administrative | $3,323,000 | $2,442,000 | 36.1% | | Operating loss | ($3,519,000) | ($2,442,000) | 44.1% | | Interest income | $518,000 | $154,000 | 236.4% | | Net loss from continuing operations | ($3,021,000) | ($2,294,000) | 31.7% | | Income from discontinued operations, net of tax | $2,474,000 | $12,340,000 | -80.0% | | Gain from sale of discontinued operations, net of tax | $2,961,000 | - | 100.0% | | **Net income** | **$2,414,000** | **$10,046,000** | **-76.0%** | - The increase in G&A expenses was primarily due to **$926,000** in transaction-related severance and separation benefits for the former CEO[129](index=129&type=chunk) - Interest income increased significantly due to higher invested balances from a 2022 litigation settlement and proceeds from the business sale, coupled with higher interest rates[130](index=130&type=chunk) [Liquidity and Capital Resources](index=13&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2023, the company maintained strong liquidity with $16.1 million in cash, which was subsequently used along with new debt to fund the $47.5 million Bloomia acquisition, ensuring sufficient liquidity for the next 12 months Key Liquidity Metrics (Year-End) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $16,077,000 | $14,524,000 | | Working Capital | $15,525,000 | $13,379,000 | - Net cash used in continuing operating activities was **$2.9 million** in 2023[135](index=135&type=chunk) - The Bloomia acquisition was funded with **$9.2 million** of company cash, a **$22.8 million credit facility**, and **$15.5 million in seller notes**[138](index=138&type=chunk) [Credit Agreement](index=13&type=section&id=Credit%20Agreement) To finance the Bloomia acquisition, the company secured a new credit agreement comprising an $18.0 million term loan and a $6.0 million revolving facility, with interest at Term SOFR plus 3.0% and financial covenants restricting Bloomia's distributions - The credit facility consists of an **$18.0 million term loan** and a **$6.0 million revolving line of credit**[140](index=140&type=chunk) - Interest is charged at **Term SOFR plus 3.0%**[141](index=141&type=chunk) - The agreement includes financial covenants such as a minimum fixed charge coverage ratio of **1.25 to 1.00** and a maximum senior cash flow leverage ratio of **3.0 to 1.0** initially[143](index=143&type=chunk) [Financial Statements and Supplementary Data](index=14&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The consolidated financial statements for 2023 and 2022 reflect the company's strategic shift, showing decreased total assets and liabilities but increased stockholders' equity following the sale of its legacy business Consolidated Balance Sheet Summary | | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $16,621,000 | $20,753,000 | | Total Assets | $16,673,000 | $20,968,000 | | Total Current Liabilities | $1,096,000 | $7,374,000 | | Total Liabilities | $1,141,000 | $7,567,000 | | Total Stockholders' Equity | $15,532,000 | $13,401,000 | Consolidated Statement of Operations Summary | | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net loss from continuing operations | ($3,021,000) | ($2,294,000) | | Income from discontinued operations, net of tax | $2,474,000 | $12,340,000 | | Gain from sale of discontinued operations, net of tax | $2,961,000 | - | | **Net Income** | **$2,414,000** | **$10,046,000** | | **Basic and diluted EPS** | **$1.36** | **$5.61** | [Notes to Consolidated Financial Statements](index=20&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail key accounting policies and significant events, including the $3.04 million gain from the sale of the In-Store Marketing Business, the company's tax situation with NOL carryforwards and a valuation allowance, and the subsequent $47.5 million Bloomia acquisition and its financing - The sale of the In-Store Marketing Business on August 3, 2023 resulted in a pre-tax gain of **$3,044,000**[187](index=187&type=chunk)[188](index=188&type=chunk) - As of Dec 31, 2023, the company had a federal net operating loss (NOL) carryforward of approximately **$1.6 million** and state NOLs of **$2.9 million**[212](index=212&type=chunk) - A valuation allowance of **$645,000** was recorded against deferred tax assets as of Dec 31, 2023, as their realization is not more likely than not[212](index=212&type=chunk)[213](index=213&type=chunk) - Subsequent to year-end, on February 22, 2024, the company acquired Bloomia for **$47.5 million**, financed with cash, a new credit facility, and seller notes[218](index=218&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosures](index=26&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosures) On November 20, 2023, the company changed its independent registered public accounting firm from Baker Tilly US, LLP to Boulay PLLP, reporting no disagreements on accounting or auditing matters - On November 20, 2023, the company changed its independent registered public accounting firm from Baker Tilly US, LLP to Boulay PLLP[227](index=227&type=chunk) - There were no disagreements with the former auditor, Baker Tilly, on accounting or auditing matters[228](index=228&type=chunk) [Controls and Procedures](index=26&type=section&id=Item%209A.%20Controls%20and%20Procedures) As of December 31, 2023, management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective, with no material changes reported in the most recent fiscal quarter - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[229](index=229&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023[230](index=230&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=27&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section outlines the company's executive officers, including Randy D. Uglem (President and CEO), Zackery A. Weber (VP of Finance), and Werner F. Jansen (CEO of Bloomia B.V.), with further details on directors and governance incorporated by reference from the 2024 Proxy Statement - Information regarding directors and corporate governance is incorporated by reference from the 2024 Annual Meeting Proxy Statement[236](index=236&type=chunk) Executive Officers | Name | Age | Position | | :--- | :--- | :--- | | Randy D. Uglem | 46 | President, Chief Executive Officer and Secretary | | Zackery A. Weber | 44 | Vice President of Finance | | Werner F. Jansen | 33 | Chief Executive Officer of Bloomia B.V. | [Executive Compensation](index=28&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive and director compensation is incorporated by reference from the company's definitive proxy statement for its 2024 Annual Meeting of Stockholders - All information related to executive compensation is incorporated by reference from the 2024 Proxy Statement[242](index=242&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=28&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership of certain beneficial owners and management, along with details on equity compensation plans, is incorporated by reference from the company's definitive proxy statement for its 2024 Annual Meeting of Stockholders - All information related to security ownership is incorporated by reference from the 2024 Proxy Statement[243](index=243&type=chunk) [Certain Relationships and Related Transactions and Director Independence](index=28&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%20and%20Director%20Independence) Information regarding related-party transactions and director independence is incorporated by reference from the company's definitive proxy statement for its 2024 Annual Meeting of Stockholders - All information related to certain relationships and director independence is incorporated by reference from the 2024 Proxy Statement[244](index=244&type=chunk) [Principal Accountant Fees and Services](index=28&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the company's definitive proxy statement for its 2024 Annual Meeting of Stockholders - All information related to principal accountant fees and services is incorporated by reference from the 2024 Proxy Statement[245](index=245&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=28&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements from Item 8 and the exhibits filed with the Annual Report on Form 10-K, including key agreements for the sale of the legacy business, the Bloomia acquisition, and the new Credit Agreement - Key exhibits filed include the Asset Purchase Agreement (Exhibit 2.1), the Bloomia Share Purchase Agreement (Exhibit 2.2), and the new Credit Agreement (Exhibit 10.22)[247](index=247&type=chunk)[251](index=251&type=chunk)

[Company Overview and Strategic Transformation](index=1&type=section&id=Company%20Overview%20and%20Strategic%20Transformation) Lendway has strategically transformed into a specialty agriculture and finance company, focusing on agricultural investments and marking a key growth moment with the Bloomia acquisition, with seamless integration as the immediate priority [Strategic Business Operations Update](index=1&type=section&id=Strategic%20Business%20Operations%20Update) Lendway has strategically transformed into a specialty agriculture and finance company, focusing on agricultural investments and marking a key growth moment with the Bloomia acquisition, with seamless integration as the immediate priority - The company has strategically evolved into a specialty agriculture and finance company over the past 12 months, with operations focused on its agricultural investments[3](index=3&type=chunk) - The acquisition of a majority stake in Bloomia B.V., one of the largest fresh-cut tulip producers in the U.S., for **$47.5 million**, marks a pivotal moment in the company's growth trajectory[3](index=3&type=chunk)[4](index=4&type=chunk) - In the short term, the company's primary focus remains the successful integration of Bloomia[3](index=3&type=chunk) [Key Strategic Milestones](index=1&type=section&id=EXHIBIT%2099.1) Lendway experienced significant strategic milestones from 2023 to early 2024, including launching non-bank lending, selling its in-store marketing business, rebranding, and becoming the majority owner of Bloomia - April 2023: The company launched its lending business by hiring Randy Uglem, aiming to build a scalable non-bank lending operation[7](index=7&type=chunk) - August 2023: The company completed the sale of assets and liabilities related to its in-store marketing business, reported as discontinued operations, rebranded as Lendway, Inc., reincorporated in Delaware, and changed its ticker to LDWY[7](index=7&type=chunk) - February 2024: The company became the majority owner of Bloomia B.V. and its affiliated entities, one of the largest fresh-cut tulip producers in the U.S.[7](index=7&type=chunk) [About Lendway, Inc.](index=2&type=section&id=About%20Lendway%2C%20Inc.) Lendway, Inc. is a specialty agriculture and finance company focused on managing agricultural investments domestically and internationally, fully owning FarmlandCredit.com, and holding a majority stake in Bloomia - Lendway, Inc. is a specialty agriculture and finance company focused on making and managing its agricultural investments in the U.S. and internationally[13](index=13&type=chunk) - The company wholly owns and operates FarmlandCredit.com, a non-bank lending business designed to purchase existing loans and/or originate and fund new loans domestically[13](index=13&type=chunk) - The company is also the majority owner of Bloomia, one of the largest fresh-cut tulip producers in the U.S.[13](index=13&type=chunk) [Business Segment Updates](index=1&type=section&id=Business%20Segment%20Updates) Lendway has acquired a majority stake in Bloomia, a major U.S. fresh-cut tulip producer, which reported strong Q1 2024 momentum due to automation investments, while its non-bank lending business faces limited capital and expected operating losses for the remainder of 2024 [Specialty Ag Business Update (Bloomia)](index=1&type=section&id=Specialty%20Ag%20Business%20Update) Lendway acquired a majority stake in Bloomia, a major U.S. fresh-cut tulip producer, which reported preliminary unaudited net sales of approximately **$45 million** in 2023 and **$43 million** in 2022, showing strong Q1 2024 momentum due to automation investments - Lendway acquired a majority stake in Bloomia B.V., one of the largest fresh-cut tulip producers in the U.S., for **$47.5 million**[4](index=4&type=chunk) Bloomia Preliminary Unaudited Net Sales | Year | Net Sales (approx.) | | :--- | :------------------ | | 2023 | $45.0 million | | 2022 | $43.0 million | - Bloomia's CEO reported a strong start to Q1 2024, with strategic automation investments yielding significant improvements in operational quality, productivity, and efficiency[6](index=6&type=chunk) [Non-Bank Lending Business Update](index=2&type=section&id=Non-Bank%20Lending%20Business%20Update) The company aims to develop a scalable non-bank lending business but completed no loan transactions in 2023, with minimal revenue and operating losses expected for the remainder of 2024 due to capital allocation to Bloomia - The company is committed to building a scalable non-bank lending business but, despite negotiations with multiple prospective clients, did not close any loan transactions in 2023[8](index=8&type=chunk) - Capital and management resources available for developing the non-bank lending business are limited in the short term due to the allocation of capital to the Bloomia acquisition and operations[8](index=8&type=chunk) - The lending business is expected to generate minimal revenue and incur operating losses for the remainder of 2024[10](index=10&type=chunk) [Financial Results](index=2&type=section&id=Financial%20Results) Lendway reported a full-year 2023 net income of **$2,414,000**, a significant decrease from 2022, primarily due to reduced income from discontinued operations, while net loss from continuing operations increased and total liabilities significantly decreased [Financial Results Overview](index=2&type=section&id=Financial%20Results%20Overview) Lendway reported operating expenses from continuing operations (lending business) and significant income from discontinued operations, including a gain from the 2023 sale of its in-store marketing business, with **$16.077 million** in cash and cash equivalents at year-end 2023 subsequently used for the Bloomia acquisition Operating Expenses from Continuing Operations (Lending Business) | Period | Amount | | :----------- | :--------- | | Q4 2023 | $536,000 | | Full Year 2023 | $3,519,000 | Net Income from Discontinued Operations (After Tax) | Year | Amount | | :--- | :------------ | | 2023 | $2,474,000 | | 2022 | $12,340,000 | - In 2023, the company recorded a pre-tax gain of **$3,044,000** from the sale of discontinued operations[11](index=11&type=chunk) - As of December 31, 2023, Lendway's cash and cash equivalents totaled **$16,077,000**, subsequently reduced by the Bloomia acquisition, which was financed through **$9.2 million** in cash, **$22.8 million** in new credit facility borrowings, and a **$15.5 million** seller note payable[12](index=12&type=chunk) [Condensed Statements of Operations](index=3&type=section&id=CONDENSED%20STATEMENTS%20OF%20OPERATIONS) Lendway reported a full-year 2023 net income of **$2,414,000**, a significant decrease from **$10,046,000** in 2022, primarily due to reduced income from discontinued operations, while net loss from continuing operations increased Condensed Statements of Operations (Selected Data) | Metric | Q4 2023 | Q4 2022 | Full Year 2023 | Full Year 2022 | | :-------------------------------------- | :----------- | :----------- | :------------- | :------------- | | Operating Loss | $(536,000)$ | $(779,000)$ | $(3,519,000)$ | $(2,442,000)$ | | Net Loss from Continuing Operations | $(367,000)$ | $(681,000)$ | $(3,021,000)$ | $(2,294,000)$ | | Net Income (Loss) from Discontinued Operations, After Tax | $52,000$ | $(52,000)$ | $2,474,000$ | $12,340,000$ | | Gain (Loss) on Sale of Discontinued Operations, After Tax | $(9,000)$ | — | $2,961,000$ | — | | Net (Loss) Income | $(324,000)$ | $(733,000)$ | $2,414,000$ | $10,046,000$ | | Basic and Diluted Earnings Per Share | $(0.19)$ | $(0.41)$ | $1.36$ | $5.61$ | - Full-year 2023 net income was **$2,414,000**, a significant decrease from **$10,046,000** in 2022, primarily due to reduced income from discontinued operations[16](index=16&type=chunk) - Net loss from continuing operations increased from **($2,294,000)** in 2022 to **($3,021,000)** in 2023[16](index=16&type=chunk) [Selected Balance Sheet Data](index=3&type=section&id=SELECTED%20BALANCE%20SHEET%20DATA) As of December 31, 2023, Lendway's cash and cash equivalents and restricted cash increased to **$16.077 million**, shareholder equity rose to **$15.532 million**, while total liabilities significantly decreased Selected Balance Sheet Data | Metric | December 31, 2023 | December 31, 2022 | Year-over-Year Change | | :-------------------------------------- | :---------------- | :---------------- | :-------------------- | | Cash and Cash Equivalents and Restricted Cash | $16,077,000 | $14,524,000 | +$1,553,000 | | Working Capital | $15,525,000 | $13,379,000 | +$2,146,000 | | Total Assets | $16,673,000 | $20,968,000 | -$4,295,000 | | Total Liabilities | $1,141,000 | $7,567,000 | -$6,426,000 | | Shareholders' Equity | $15,532,000 | $13,401,000 | +$2,131,000 | - Total liabilities significantly decreased from **$7,567,000** in 2022 to **$1,141,000** in 2023[18](index=18&type=chunk) - Shareholders' equity increased by **$2,131,000**, reaching **$15,532,000** at the end of 2023[18](index=18&type=chunk) [Cautionary Statement Regarding Forward-Looking Statements](index=2&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) This section provides standard cautionary language regarding forward-looking statements, highlighting various risks and uncertainties that could cause actual results to differ materially from projections, including business integration challenges, market competition, interest rate fluctuations, and capital availability [Forward-Looking Statements](index=2&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) This section provides standard cautionary language regarding forward-looking statements, highlighting various risks and uncertainties that could cause actual results to differ materially from projections, including business integration challenges, market competition, interest rate fluctuations, and capital availability - Statements in this press release regarding the short-term and long-term benefits of the Bloomia acquisition, potential growth, allocation of capital resources between businesses, and timing of future financial reporting are forward-looking statements[14](index=14&type=chunk) - Factors that could cause actual results to differ materially from estimates and assumptions include the ability to successfully integrate and operate the Bloomia business, competitive capabilities, changes in interest rates, ability to comply with credit agreements, limited history of the lending business, market conditions, and availability of additional capital[14](index=14&type=chunk) - Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release and are based on current information that may change rapidly[14](index=14&type=chunk)

[Explanatory Note](index=2&type=section&id=EXPLANATORY%20NOTE) This section provides key information regarding Lendway, Inc.'s name change, reincorporation, the sale of its In-Store Marketing Business, and its strategic shift to a non-bank lending model - **Lendway, Inc.** (formerly Insignia Systems, Inc.) changed its name and reincorporated from Minnesota to Delaware on August 4, 2023, with its common stock now trading under **'LDWY' on Nasdaq**[7](index=7&type=chunk)[25](index=25&type=chunk) - On August 3, 2023, the company sold its In-Store Marketing Business for **$3.5 million** (subject to post-closing adjustment), and its operations are now presented as discontinued[8](index=8&type=chunk)[9](index=9&type=chunk)[26](index=26&type=chunk) - The company is building a scalable **non-bank lending business** focused on purchasing or originating collateral-secured loans[10](index=10&type=chunk)[25](index=25&type=chunk) [PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, with detailed explanatory notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets | ASSETS / LIABILITIES AND SHAREHOLDERS' EQUITY | September 30, 2023 (Unaudited) | December 31, 2022 | | :-------------------------------------------- | :----------------------------- | :------------------ | | **ASSETS** | | | | Cash and cash equivalents | $ 14,954,000 | $ 14,439,000 | | Other current assets related to discontinued operations | $ 2,199,000 | $ 6,171,000 | | Total Current Assets | $ 17,587,000 | $ 20,753,000 | | Total Assets | $ 17,638,000 | $ 20,968,000 | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | Current liabilities related to discontinued operations | $ 547,000 | $ 6,666,000 | | Total Current Liabilities | $ 1,695,000 | $ 7,374,000 | | Total Shareholders' Equity | $ 15,902,000 | $ 13,401,000 | | Total Liabilities and Shareholders' Equity | $ 17,638,000 | $ 20,968,000 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations | Item | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss from continuing operations | $ (1,511,000) | $ (434,000) | $ (2,654,000) | $ (1,613,000) | | (Loss) Income from discontinued operations, net of tax | $ (333,000) | $ 12,235,000 | $ 2,422,000 | $ 12,392,000 | | Gain from sale of discontinued operations, net of tax | $ 2,970,000 | $ - | $ 2,970,000 | $ - | | Net Income | $ 1,126,000 | $ 11,801,000 | $ 2,738,000 | $ 10,779,000 | | Basic and diluted earnings per share | $ 0.63 | $ 6.58 | $ 1.53 | $ 6.02 | [Condensed Consolidated Statements of Stockholders' Equity](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Condensed Consolidated Statements of Stockholders' Equity | Item | December 31, 2022 | September 30, 2023 | | :---------------------------------- | :---------------- | :----------------- | | Total Shareholders' Equity (Balance) | $ 13,401,000 | $ 15,902,000 | | Net income (9 months ended Sep 30, 2023) | | $ 2,738,000 | | Repurchase of common stock (9 months ended Sep 30, 2023) | | $ (437,000) | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows | Cash Flow Activity (Nine Months Ended September 30) | 2023 | 2022 | | :-------------------------------------------------- | :------------ | :------------- | | Net cash used in operating activities of continuing operations | $ (2,325,000) | $ (2,142,000) | | Net cash provided by operating activities of discontinued operations | $ 1,735,000 | $ 12,530,000 | | Net cash (used in) provided by operating activities | $ (590,000) | $ 10,388,000 | | Net cash provided by investing activities of continuing operations | $ 1,557,000 | $ - | | Net cash provided by (used in) investing activities | $ 1,533,000 | $ (25,000) | | Net cash (used in) provided by financing activities | $ (428,000) | $ 39,000 | | Increase in cash and cash equivalents and restricted cash | $ 515,000 | $ 10,402,000 | | Cash and cash equivalents and restricted cash at end of period | $ 15,039,000 | $ 14,253,000 | [Notes to Condensed Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [Note 1. Description of Business and Basis of Presentation](index=6&type=section&id=Note%201.%20Description%20of%20Business%20and%20Basis%20of%20Presentation) This note describes Lendway, Inc.'s strategic shift to a scalable non-bank lending business, its recent name change and reincorporation, and the reclassification of its former In-Store Marketing Business as discontinued operations - **Lendway, Inc.** is building a scalable **non-bank lending business** to purchase existing loans or originate and fund new loans, all secured by collateral[25](index=25&type=chunk) - The company changed its name from **"Insignia Systems, Inc."** and reincorporated from Minnesota to Delaware on **August 4, 2023**[25](index=25&type=chunk) - The **In-Store Marketing Business** was sold on **August 3, 2023**, and its operations are presented as discontinued in the financial statements[26](index=26&type=chunk)[28](index=28&type=chunk) [Note 2. Sale of In-Store Marketing Business and Presentation as Discontinued Operations](index=6&type=section&id=Note%202.%20Sale%20of%20In-Store%20Marketing%20Business%20and%20Presentation%20as%20Discontinued%20Operations) This note details the sale of the In-Store Marketing Business for $3.5 million, including the calculation of the gain on sale and the reclassification of its financial results as discontinued operations, also highlighting a significant litigation settlement in the prior year's discontinued operations - The **In-Store Marketing Business** was sold on **August 3, 2023**, for **$3.5 million** to **TIMIBO LLC**, subject to a post-closing adjustment and a **$200,000** escrow[31](index=31&type=chunk) Gain on Sale of In-Store Marketing Business | Item | Amount | | :---------------------------------------- | :---------- | | Sale price | $ 3,500,000 | | Carrying value of assets sold, less liabilities | $ (247,000) | | Transaction costs not previously expensed | $ (209,000) | | Gain on sale of In-Store Marketing Business | $ 3,044,000 | - Transaction-related severance, retention awards, and employee bonuses totaled approximately **$1,923,000** in Q3 2023, with **$949,000** recorded in discontinued operations[33](index=33&type=chunk)[72](index=72&type=chunk) Results of Discontinued Operations (Selected Items) | Item | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :-------------------------------------------- | :------------------------------ | :------------------------------ | | Net services revenues | $ 1,976,000 | $ 4,869,000 | | Gross Profit | $ 408,000 | $ 838,000 | | Operating Income (Loss) | $ (354,000) | $ 12,027,000 | | (Loss) income from discontinued operations, net of tax | $ (333,000) | $ 12,235,000 | | Gain from sale of discontinued operations, net of tax | $ 2,970,000 | $ - | - The 2022 income from discontinued operations included a **$12,000,000** gain from a litigation settlement with **News America**[37](index=37&type=chunk) [Note 3. Summary of Significant Accounting Policies](index=8&type=section&id=Note%203.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's accounting policies for cash, restricted cash, stock-based compensation, and net (loss) income per share, highlighting the release of restricted cash post-period and the anti-dilutive nature of stock awards due to continuing operational losses Cash, Cash Equivalents and Restricted Cash | Item | September 30, 2023 | December 31, 2022 | | :-------------------------------------- | :----------------- | :---------------- | | Cash and cash equivalents | $14,954,000 | $14,439,000 | | Restricted cash | $85,000 | $85,000 | | Total cash, cash equivalents and restricted cash | $15,039,000 | $14,524,000 | - The restriction on cash was released after **September 30, 2023**, as it was related to a lease transferred to the buyer of the **In-Store Marketing Business**[40](index=40&type=chunk) Stock-Based Compensation Expense | Period | 2023 | 2022 | | :------------------------------------ | :------ | :------ | | Three months ended September 30 | $ 7,000 | $ 32,000 | | Nine months ended September 30 | $ 43,000 | $ 91,000 | - Due to a net loss from continuing operations, all outstanding stock awards were considered **anti-dilutive** for the three and nine months ended September 30, 2023 and 2022[48](index=48&type=chunk)[50](index=50&type=chunk) - The Company recorded **$926,000** in severance and separation benefits for its prior CEO, Kristine A. Glancy, who departed on **August 31, 2023**, with **$650,000** remaining to be paid as of September 30, 2023[52](index=52&type=chunk) [Note 4. Leases](index=10&type=section&id=Note%204.%20Leases) This note describes the company's current lease arrangements, noting the termination of a significant lease and the assignment of the headquarters lease as part of the In-Store Marketing Business sale, with the company now operating under a month-to-month lease with a related party - As part of the **In-Store Marketing Business** sale, the headquarters lease was assigned to the buyer, and another significant lease was terminated[53](index=53&type=chunk) - The Company now has a **month-to-month operating lease** with a related party, with monthly payments of **$375**[53](index=53&type=chunk) Total Operating Lease Costs (Continuing Operations) | Period | 2023 | 2022 | | :------------------------------------ | :------ | :------ | | Three months ended September 30 | $ 6,000 | $ 3,000 | | Nine months ended September 30 | $ 15,000 | $ 11,000 | [Note 5. Income Taxes](index=10&type=section&id=Note%205.%20Income%20Taxes) This note details the income tax (benefit) expense for continuing operations, the effective tax rates, and the impact of valuation allowances and unrecognized tax benefits, also providing an update on the company's Federal Net Operating Loss (NOL) carryforwards Income Tax (Benefit) Expense from Continuing Operations | Period | 2023 | 2022 | | :------------------------------------ | :---------- | :--------- | | Three months ended September 30 | $ (11,000) | $ 1,000 | | Nine months ended September 30 | $ (4,000) | $ 5,000 | Effective Federal Income Tax Rate Reconciliation (Nine Months Ended September 30) | Item | 2023 | 2022 | | :------------------------ | :---- | :---- | | Federal statutory rate | 21.0% | 21.0% | | Valuation allowance | (24.5)% | (24.6)% | | Effective federal income tax rate | 0.1% | (0.3)% | - Unrecognized tax benefits totaled **$41,000** as of September 30, 2023, a decrease from **$53,000** at December 31, 2022[58](index=58&type=chunk) - Estimated Federal NOL carryforwards decreased from approximately **$2,900,000** at December 31, 2022, to approximately **$1,390,000** at September 30, 2023[59](index=59&type=chunk) [Note 6. Stock Repurchase Plan](index=11&type=section&id=Note%206.%20Stock%20Repurchase%20Plan) This note outlines the Board's authorization of a stock repurchase plan for up to 400,000 shares and details the repurchase activity during the three months ended September 30, 2023 - The Board of Directors authorized the repurchase of up to **400,000 shares** of common stock on **August 28, 2023**[60](index=60&type=chunk) - During the three months ended September 30, 2023, the company repurchased **75,345 shares** for **$437,000**[61](index=61&type=chunk) [Note 7. Legal Proceedings](index=11&type=section&id=Note%207.%20Legal%20Proceedings) This note states that the company is subject to various legal matters in the normal course of business, but their outcome is not expected to have a material effect on its financial position or results of operations - The company is involved in routine legal matters, but their outcome is not expected to **materially affect** its financial position or results of operations[62](index=62&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=11&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and operational results, emphasizing the new lending business and discontinued operations [Company Overview](index=11&type=section&id=Company%20Overview) - The company is building a scalable **non-bank lending business** (Lending Business) to purchase or originate collateral-secured loans, launched in **April 2023**[64](index=64&type=chunk) - Initial focus is on **real estate-secured loans**, primarily for agricultural purposes, with plans to expand product offerings[65](index=65&type=chunk) - Primary revenue sources are expected to be **interest income** on secured loans (net of funding costs) and **fee income** from origination and servicing[66](index=66&type=chunk) - Competition includes commercial/investment banks, insurance companies, Farm Credit System institutions, and financial funds[67](index=67&type=chunk) - The company anticipates minimal revenue and losses from continuing operations for the remainder of **2023**[68](index=68&type=chunk) [Recent Developments](index=12&type=section&id=Recent%20Developments) - On **August 4, 2023**, the company changed its name to **Lendway, Inc.** and reincorporated from Minnesota to Delaware, with its common stock now trading under **'LDWY'**[70](index=70&type=chunk) - The **In-Store Marketing Business** was sold on **August 3, 2023**, for **$3.5 million**, with a post-closing adjustment reducing the cash consideration by **$1.5 million**[71](index=71&type=chunk) - Transaction-related severance, retention awards, and bonuses totaled **$1,923,000** in Q3 2023, with **$974,000** attributed to continuing operations and **$949,000** to discontinued operations[72](index=72&type=chunk) [Results of Operations](index=13&type=section&id=Results%20of%20Operations) - Continuing operations (the **Lending Business**) had **no revenue** for the three and nine months ended September 30, 2023[73](index=73&type=chunk)[76](index=76&type=chunk) Operating Expenses (Continuing Operations) | Operating Expenses (Continuing Operations) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Sales and marketing | $ 69,000 | $ - | $ 134,000 | $ - | | General and administrative | $ 1,564,000 | $ 488,000 | $ 2,849,000 | $ 1,663,000 | | Total operating expenses | $ 1,633,000 | $ 488,000 | $ 2,983,000 | $ 1,663,000 | - General and administrative expenses increased by **220.5%** for the three months and **71.3%** for the nine months ended September 30, 2023, primarily due to **$926,000** in severance for the former CEO[79](index=79&type=chunk) Interest Income (Continuing Operations) | Interest Income (Continuing Operations) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Interest income | $ 111,000 | $ 55,000 | $ 325,000 | $ 55,000 | - Interest income increased significantly due to higher invested balances (including **$12 million** litigation proceeds from July 2022) and higher interest rates on short-term treasury bills[80](index=80&type=chunk) Net Loss from Continuing Operations | Net Loss from Continuing Operations | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :---------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net Loss from continuing operations | $ (1,511,000) | $ (434,000) | $ (2,654,000) | $ (1,613,000) | [Liquidity and Capital Resources](index=14&type=section&id=Liquidity%20and%20Capital%20Resources) - Working capital increased by **$2,513,000** to **$15,892,000** at September 30, 2023, from **$13,379,000** at December 31, 2022[76](index=76&type=chunk)[87](index=87&type=chunk) - Cash and cash equivalents and restricted cash increased by **$515,000** to **$15,039,000** at September 30, 2023, primarily from collections of accounts receivable from discontinued operations and proceeds from its sale[76](index=76&type=chunk)[87](index=87&type=chunk) - Net cash used in continuing operating activities for the nine months ended September 30, 2023, was **$2,325,000**, largely due to severance-related payments[88](index=88&type=chunk) - Net cash provided by investing activities from continuing operations was **$1,557,000**, primarily from the proceeds of the **In-Store Marketing Business** sale[89](index=89&type=chunk) - Net cash used in financing activities was **$428,000**, mainly due to common stock repurchases[90](index=90&type=chunk) - The company believes its current cash and cash equivalents will be sufficient for its cash requirements for at least the next **12 months**[91](index=91&type=chunk) - The Board authorized the repurchase of up to **400,000 shares** of common stock on **August 28, 2023**; **75,345 shares** were repurchased for **$437,000** in Q3 2023[92](index=92&type=chunk) - Future growth of the **Lending Business** may require additional equity or debt financing, which could dilute stockholders or impose restrictive covenants[93](index=93&type=chunk) [Critical Accounting Estimates](index=15&type=section&id=Critical%20Accounting%20Estimates) - The company's most critical accounting estimates include allowance for doubtful accounts, sales taxes, income taxes, and stock-based compensation expense[96](index=96&type=chunk) [Cautionary Statement Regarding Forward-Looking Statements](index=15&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) - Forward-looking statements in the report involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially[95](index=95&type=chunk) - Key risks include the availability of strategic alternatives, the limited history of the **Lending Business**, substantial risk of loss in lending, market conditions, ability to develop necessary processes and controls, reliance on a small number of employees, and potential adverse classifications[97](index=97&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=16&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section states that there are no quantitative and qualitative disclosures about market risk applicable to the company - This item is **not applicable**[98](index=98&type=chunk) [Item 4. Controls and Procedures](index=16&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms that the company's disclosure controls and procedures were effective as of September 30, 2023, and that no material changes in internal control over financial reporting occurred during the third quarter - Management concluded that the company's disclosure controls and procedures were **effective** as of **September 30, 2023**[100](index=100&type=chunk) - No changes in the company's internal control over financial reporting occurred during the third quarter of 2023 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[101](index=101&type=chunk) [PART II. OTHER INFORMATION](index=16&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=16&type=section&id=Item%201.%20Legal%20Proceedings) This section states that there are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, that would significantly impact the company's financial position or results of operations - There are no material pending legal proceedings expected to have a **material effect** on the company's financial position or results of operations[104](index=104&type=chunk) [Item 1A. Risk Factors](index=16&type=section&id=Item%201A.%20Risk%20Factors) This section updates the risk factors, emphasizing those related to the company's new lending business, the broader economic and market conditions, and operational challenges inherent in its new strategic direction [Risks Relating to Our Business](index=16&type=section&id=RISKS%20RELATING%20TO%20OUR%20BUSINESS) - The new **Non-Bank Lending business** has limited operating history and has generated **no revenues** through September 30, 2023, making it difficult to evaluate future prospects and risks[106](index=106&type=chunk) - Non-bank lending involves a **substantial risk of loss** from borrower defaults, which could materially and adversely affect operations if collateral value does not cover exposure[107](index=107&type=chunk) [Risks Relating to Economy and Market Conditions](index=17&type=section&id=RISKS%20RELATING%20TO%20ECONOMY%20AND%20MARKET%20CONDITIONS) - Operating results can be materially and adversely affected by external factors such as disruptions in debt or equity capital markets, competitive pressures, changes in interest rates, and market or customer perception of the company's reputation[108](index=108&type=chunk)[112](index=112&type=chunk) [Operational Risks](index=17&type=section&id=OPERATIONAL%20RISKS) - The **Lending Business** requires the development of new processes and controls, exposing it to risks from inadequate systems, failed execution, internal control failures, or external events like cyber incidents[109](index=109&type=chunk)[113](index=113&type=chunk) - The success of the **Lending Business** initially depends on a small number of employees, posing a risk if the company cannot retain and attract motivated and qualified personnel[110](index=110&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=17&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) This section details the company's common stock repurchase program, including the Board's authorization and the actual repurchase activity during the third quarter of 2023 - On **August 28, 2023**, the Board of Directors authorized the repurchase of up to **400,000 shares** of the company's common stock[111](index=111&type=chunk) Common Stock Repurchase Activity (Three Months Ended September 30, 2023) | Period | Total number of shares purchased | Average price paid per share | Total dollar value of shares purchased | Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs | | :--------------------- | :------------------------------- | :--------------------------- | :------------------------------------- | :----------------------------------------------------------------------------- | | July 1 - 31, 2023 | - | $ - | $ - | 400,000 | | August 1 - 31, 2023 | 66,108 | $ 5.76 | $ 380,782 | 333,892 | | September 1 - 30, 2023 | 9,237 | $ 5.94 | $ 54,868 | 324,655 | | **Total** | **75,345** | | **$ 435,650** | | [Item 3. Defaults upon Senior Securities](index=18&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) This section states that there were no defaults upon senior securities during the period - None[115](index=115&type=chunk) [Item 4. Mine Safety Disclosures](index=18&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company - Not applicable[116](index=116&type=chunk) [Item 5. Other Information](index=18&type=section&id=Item%205.%20Other%20Information) This section reports that no director or officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended September 30, 2023 - No director or officer adopted, modified, or terminated a **Rule 10b5-1** or non-**Rule 10b5-1** trading arrangement during the three months ended September 30, 2023[117](index=117&type=chunk) [Item 6. Exhibits](index=18&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including key agreements, corporate documents, certifications, and XBRL data - Exhibits include the **Asset Purchase Agreement**, **Certificate of Incorporation**, **Bylaws**, **Letter Agreements**, **Certifications of Principal Executive and Financial Officers**, and **XBRL data**[118](index=118&type=chunk)

PART I. FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed consolidated financial statements for June 30, 2023, reflect the company's financial position, operational results, and cash flows, highlighting its strategic shift to non-bank lending [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2023, total assets decreased to **$19.76 million** from **$20.97 million** at year-end 2022, while shareholders' equity increased to **$15.06 million** from **$13.40 million** Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $11,419,000 | $14,439,000 | | Accounts receivable, net | $7,583,000 | $5,557,000 | | Total Current Assets | $19,556,000 | $20,753,000 | | Total Assets | $19,760,000 | $20,968,000 | | Total Current Liabilities | $4,525,000 | $7,374,000 | | Total Shareholders' Equity | $15,057,000 | $13,401,000 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the six months ended June 30, 2023, the company achieved net income of **$1.61 million**, a significant improvement from a **$1.02 million** net loss year-over-year, driven by increased net services revenues Statement of Operations Summary (Unaudited) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net services revenues | $6,211,000 | $3,254,000 | $19,042,000 | $9,402,000 | | Gross Profit | $1,623,000 | $416,000 | $4,543,000 | $1,696,000 | | Operating (Loss) Income | ($167,000) | ($1,101,000) | $1,372,000 | ($1,028,000) | | Net (Loss) Income | ($36,000) | ($1,084,000) | $1,612,000 | ($1,022,000) | | Diluted EPS | ($0.02) | ($0.61) | $0.89 | ($0.57) | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2023, net cash used in operating activities was **$3.01 million**, leading to a **$3.02 million** decrease in cash, ending at **$11.50 million** Cash Flow Summary for Six Months Ended June 30 (Unaudited) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($3,009,000) | ($1,475,000) | | Net cash used in investing activities | ($19,000) | ($28,000) | | Net cash provided by financing activities | $8,000 | $39,000 | | **Decrease in cash** | **($3,020,000)** | **($1,464,000)** | | Cash at end of period | $11,504,000 | $2,387,000 | [Notes to Condensed Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail significant corporate changes, including the company's reincorporation as Lendway, Inc., the **$3.5 million** sale of its legacy business, and accounting policies, including a **$1.3 million** Federal NOL carryforward - Effective August 4, 2023, the company changed its name to **Lendway, Inc.**, reincorporated to Delaware, and is now focused on building a non-bank lending business[24](index=24&type=chunk) - On August 3, 2023, the company sold its legacy in-store advertising business for **$3.5 million** to TIMIBO LLC, with operations to be presented as discontinued starting Q3 2023[25](index=25&type=chunk)[28](index=28&type=chunk) - For the six months ended June 30, 2023, two customers accounted for **27%** and **18%** of legacy business net sales, with one customer representing **70%** of total accounts receivable at period-end[65](index=65&type=chunk) - As of June 30, 2023, the company estimates approximately **$1.3 million** in Federal net operating loss (NOL) carryforwards are available to offset future taxable income[65](index=65&type=chunk)[105](index=105&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=13&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's strategic transformation to a non-bank lending business, highlighting strong legacy business revenue growth, a shift to profitability, and the sufficiency of its **$11.5 million** cash position for the next 12 months [Company Overview and Recent Developments](index=14&type=section&id=Company%20Overview%20and%20Recent%20Developments) The company is building a non-bank lending business focused on agricultural real estate, following the **$3.5 million** sale of its legacy advertising business and its reincorporation as Lendway, Inc - The company is launching a non-bank lending business focused on purchasing, originating, and funding collateral-secured loans, initially targeting agricultural real estate[72](index=72&type=chunk)[73](index=73&type=chunk) - On August 3, 2023, the company sold its legacy in-store advertising business for **$3.5 million** cash to TIMIBO LLC[78](index=78&type=chunk) - The asset sale incurred approximately **$350,000** in transaction costs and **$1.54 million** in severance and separation benefits, to be expensed in Q3 2023[82](index=82&type=chunk) [Results of Operations](index=15&type=section&id=Results%20of%20Operations) Net sales for H1 2023 increased **102.5%** to **$19.0 million**, driven by a large display program, significantly improving gross profit margins to **23.9%** for the period, despite increased operating expenses Financial Performance Comparison | Metric | Q2 2023 | Q2 2022 | Y/Y Change | H1 2023 | H1 2022 | Y/Y Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | $6,211,000 | $3,254,000 | +90.9% | $19,042,000 | $9,402,000 | +102.5% | | Gross Profit | $1,623,000 | $416,000 | +290.1% | $4,543,000 | $1,696,000 | +167.9% | | Gross Margin | 26.1% | 12.8% | +13.3pp | 23.9% | 18.0% | +5.9pp | - General and administrative expenses in Q2 2023 increased **19.1%** to **$1.13 million**, driven by **$339,000** in legacy business sale costs and **$101,000** for the new lending business[97](index=97&type=chunk) - Interest income significantly increased in 2023 due to higher invested balances from the **$12 million** litigation settlement received in July 2022 and higher interest rates[99](index=99&type=chunk) [Supplemental Operating Results on a Pro Forma Basis](index=17&type=section&id=Supplemental%20Operating%20Results%20on%20a%20Pro%20Forma%20Basis) Pro forma results for continuing operations (new lending business) show no revenue and a **$422,000** loss before taxes for Q2 2023, with minimal revenue and continued losses anticipated for the remainder of the year Pro Forma Results for Continuing Operations (Q2) | Metric | 2023 Pro Forma | 2022 Pro Forma | | :--- | :--- | :--- | | General and administrative | $557,000 | $432,000 | | Operating loss from continuing operations | ($557,000) | ($432,000) | | Interest income | $135,000 | $31,000 | | Loss before taxes from continuing operations | ($422,000) | ($401,000) | - The increase in pro forma G&A expenses was primarily due to **$101,000** in incremental expenses for the new non-bank lending business in Q2 2023[111](index=111&type=chunk) - The company anticipates minimal revenue and continued losses from its continuing non-bank lending operations for the rest of the year[106](index=106&type=chunk)[113](index=113&type=chunk) [Liquidity and Capital Resources](index=18&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2023, the company had **$15.0 million** in working capital and **$11.5 million** in cash, deemed sufficient for the next 12 months, though future growth may require additional capital - At June 30, 2023, the company had **$11.5 million** in cash and cash equivalents plus restricted cash[118](index=118&type=chunk) - Working capital increased to **$15.0 million** at June 30, 2023, from **$13.4 million** at December 31, 2022[114](index=114&type=chunk) - The company believes its current cash balances will be sufficient for its cash requirements for at least the next 12 months[118](index=118&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=20&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section is not applicable for the reporting period - The company has indicated that quantitative and qualitative disclosures about market risk are not applicable[125](index=125&type=chunk) [Controls and Procedures](index=20&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with new controls implemented for the non-bank lending business - The company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of June 30, 2023[127](index=127&type=chunk) - The company implemented new controls related to its non-bank lending business during the quarter[128](index=128&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=20&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no material pending legal proceedings beyond ordinary routine litigation incidental to its business - There are no material pending legal proceedings to which the company is a party[130](index=130&type=chunk) [Risk Factors](index=20&type=section&id=Item%201A.%20Risk%20Factors) The company highlights new risk factors for its non-bank lending business, including limited operating history, substantial loss risk, market restrictions, operational development needs, and dependence on key employees - The new non-bank lending business has a limited operating history, making future prospects and risks difficult to evaluate[132](index=132&type=chunk) - Non-bank lending involves a substantial risk of loss from borrower defaults, potentially materially affecting business operations and financial condition[134](index=134&type=chunk) - The new business requires developing new processes, systems, and controls, exposing it to operational risks such as failed execution or fraud[136](index=136&type=chunk)[141](index=141&type=chunk) - The success of the lending business will initially depend on a small number of key employees[137](index=137&type=chunk) [Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=21&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) There were no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities during the reporting period - None reported for the period[138](index=138&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended March 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ___________ to ____________ Commission File Number: 1-13471 INSIGNIA SYSTEMS INC/MN (Exact name of registrant as specified in its charter) (State or other jurisdiction ...

PART I [Item 1. Business](index=3&type=section&id=Item%201.%20Business) Insignia Systems transitions from traditional POPS® signage to an expanded portfolio of display and on-pack solutions, settled a $20 million lawsuit, and explores strategic options to maximize shareholder value [General](index=3&type=section&id=General) Insignia Systems is winding down its POPS® signage business to focus on display and on-pack solutions, settled a $20 million lawsuit, and explores strategic options - Business transition: Winding down POPS® signage in 2023, focusing on display and on-pack solutions[13](index=13&type=chunk) - Revenue diversification: Over **90% of 2022 revenue** from new display and on-pack solutions[13](index=13&type=chunk) - Litigation settlement: **$20 million settlement** with News America in July 2022, resulting in **$12 million net pre-tax gain**[15](index=15&type=chunk) - Strategic options: Actively exploring acquisitions, mergers, business combinations, or other strategic transactions[16](index=16&type=chunk) [Industry and Market Background](index=3&type=section&id=Industry%20and%20Market%20Background) The in-store advertising industry faces evolving shopper behavior, e-commerce brand entry, demand for ROI, and supply chain pressures, driving demand for innovative solutions - Industry trends: Evolving shopper behavior (convenience, multi-service), e-commerce brands entering physical retail, demand for measurable ROI, and supply chain/cost pressures[18](index=18&type=chunk)[19](index=19&type=chunk) - Market opportunity: Retailers and brands seek in-store solutions to inspire, educate, and convert shoppers, reinforcing brand equity at the point of purchase[19](index=19&type=chunk) [Product Solutions](index=4&type=section&id=Product%20Solutions) Insignia diversifies from declining POPS® signage to focus on Display Solutions and On-Pack Solutions for brand discovery and impulse purchases - Product shift: POPS® signage declining and winding down in 2023[20](index=20&type=chunk) - New focus: Display Solutions (customized temporary, semi-permanent, permanent displays) and On-Pack Solutions (BoxTalk™, coupons, recipes, cross-promotions)[25](index=25&type=chunk) [Sales and Design](index=4&type=section&id=Sales%20and%20Design) Sales focuses on client relationships and retail expansion, while design creates innovative solutions, with foreign sales remaining minimal - Sales team focus: Client relationships, sales pipeline, retail footprint expansion[26](index=26&type=chunk) - Design team focus: Innovative, executable designs, collaboration with production partners[26](index=26&type=chunk) - Foreign sales: **Less than 1% of total net sales** in 2022 and 2021, expected to remain so in 2023[24](index=24&type=chunk) [Competition](index=5&type=section&id=Competition) Insignia faces diverse competition in display and on-pack solutions, differentiating through end-to-end capabilities and project management rather than lowest price - Competitive landscape: More diverse with expanded display and on-pack solutions, compared to a single main competitor for signage[27](index=27&type=chunk) - Competitive strengths: Best-in-class execution, broad client-base, imagination, retail/brand expertise, innovative design, seamless project management[32](index=32&type=chunk) [Intellectual Property: Patents and Trademarks](index=5&type=section&id=Intellectual%20Property%3A%20Patents%20and%20Trademarks) Insignia protects its brands like Insignia® and BoxTalk™ with U.S. registered trademarks and safeguards trade secrets through agreements - Trademarks: Owns U.S. registered trademarks like Insignia®, Insignia POPS®, and Boxtalk™[28](index=28&type=chunk) - Protection: Uses nondisclosure and invention assignment agreements for employees and third parties[28](index=28&type=chunk) [Service and Solution Development](index=5&type=section&id=Service%20and%20Solution%20Development) Insignia develops new services and enhancements internally and externally, significantly expanding its portfolio to meet evolving client needs - Development: New services and enhancements developed internally or externally, including proprietary data management and design guidance[29](index=29&type=chunk) - Portfolio expansion: Significant expansion to meet client and partner needs more holistically[29](index=29&type=chunk) [Business Plan](index=5&type=section&id=Business%20Plan) Insignia's strategic plan aims for differentiation and growth through portfolio diversification, focusing on display, on-pack, execution, and talent investment - Strategic pillars: Accelerate Display, Grow On-Pack, Executional Excellence, Invest in our Future (talent, resources)[33](index=33&type=chunk) - Goal: Differentiate, grow, and protect from competitive response through portfolio diversification[30](index=30&type=chunk) [Customers](index=5&type=section&id=Customers) Insignia serves CPG manufacturers and retailers, with significant revenue concentration from three customers in 2022, and sales fluctuate due to various market factors - Customer base: CPG manufacturers, retailers, shopper marketing agencies, brokerages[11](index=11&type=chunk)[34](index=34&type=chunk) Customer Concentration (2022) | Metric | Customer 1 | Customer 2 | Customer 3 | | :-------------------- | :--------- | :--------- | :--------- | | % of Total Net Sales | 19% | 11% | 11% | | % of Total A/R | 20% | 19% | 11% | - Sales fluctuations: Influenced by sales cycles, brand decisions, promotional timing, budget, and seasonality[36](index=36&type=chunk) [Environmental Matters](index=6&type=section&id=Environmental%20Matters) The company's operations comply with environmental regulations, and compliance costs are not expected to be material - Compliance: Operations follow all applicable environmental regulations[37](index=37&type=chunk) - Impact: Costs and effects of compliance are not material[37](index=37&type=chunk) [Human Capital Resources and Management](index=6&type=section&id=Human%20Capital%20Resources%20and%20Management) Insignia had 31 employees as of March 2023, prioritizing engagement, talent development, diversity, and comprehensive compensation and benefits - Employee count: **31 employees** (**30 full-time**) as of March 7, 2023[38](index=38&type=chunk) - HR initiatives: Employee engagement, talent development (**9% promotions in 2022**), Diversity, Equity, and Inclusion (recognized for diversity in leadership), comprehensive compensation and benefits[44](index=44&type=chunk) [Segment Reporting](index=6&type=section&id=Segment%20Reporting) The company operates in a single reportable segment - Single segment: Operates in one reportable segment[40](index=40&type=chunk) [Item 1A. Risk Factors](index=7&type=section&id=Item%201A.%20Risk%20Factors) Insignia faces risks from intense competition, strategic development, economic conditions, operational challenges, stock price volatility, and cybersecurity threats [COMPETITIVE AND REPUTATIONAL RISKS](index=7&type=section&id=COMPETITIVE%20AND%20REPUTATIONAL%20RISKS) Insignia faces intense competition based on various factors and has settled significant litigation, with future legal actions posing potential risks - Competition: Intense, based on rates, market availability, quality, and store coverage[45](index=45&type=chunk) - Differentiation: Unique end-to-end capabilities and project management, but not always lowest price[46](index=46&type=chunk) - Litigation: Settled a significant lawsuit with News America in 2022; future litigation could be costly[47](index=47&type=chunk) [STRATEGIC RISKS](index=7&type=section&id=STRATEGIC%20RISKS) Growth depends on successful solution development and retailer access, while exploring strategic alternatives involves expenses, competition, and no guaranteed success - Growth dependency: Ability to develop successful solutions and secure retailer access[48](index=48&type=chunk) - Strategic alternatives risks: Increased expenses, highly competitive market for opportunities, no guarantee of successful transaction or favorable terms[49](index=49&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) [RISKS RELATED TO ECONOMY AND MARKET CONDITIONS](index=8&type=section&id=RISKS%20RELATED%20TO%20ECONOMY%20AND%20MARKET%20CONDITIONS) Revenues are sensitive to marketing spend and economic conditions, with inflation increasing costs and future downturns potentially reducing demand and affecting performance - Economic sensitivity: Revenues affected by CPG/retailer marketing spend and general economic conditions[53](index=53&type=chunk) - Inflation impact: Increased costs, limited ability to pass on price increases[53](index=53&type=chunk) - Pandemic risk: Future public health crises could reduce demand, cause inefficiencies, and disrupt supply chains, impacting financial condition[54](index=54&type=chunk) [OPERATIONAL RISKS](index=8&type=section&id=OPERATIONAL%20RISKS) Success relies on attracting talent, maintaining internal controls, and managing third-party outsourcing, with failures in these areas posing significant risks - Talent retention: Critical for success, intense competition for personnel[55](index=55&type=chunk) - Internal controls: Risk of inaccurate financial reporting, market price decline, and regulatory sanctions if internal controls are ineffective[56](index=56&type=chunk)[58](index=58&type=chunk) - Outsourcing reliance: Vulnerability to third-party failures in software, IT, and production operations[59](index=59&type=chunk)[61](index=61&type=chunk) [RISKS RELATED TO OUR COMMON STOCK](index=9&type=section&id=RISKS%20RELATED%20TO%20OUR%20COMMON%20STOCK) Operating results and stock price are subject to volatility due to customer changes, seasonality, market acceptance, strategic activities, and limited trading volume - Operating results volatility: Fluctuations due to customer changes, seasonality, new product acceptance, expenses, competition, contracts, and strategic activities[62](index=62&type=chunk)[66](index=66&type=chunk) - Stock price volatility: Influenced by operating results, market acceptance, strategic alternative exploration, limited trading volume, and general market conditions[63](index=63&type=chunk) [TECHNOLOGY AND CYBERSECURITY RISKS](index=9&type=section&id=TECHNOLOGY%20AND%20CYBERSECURITY%20RISKS) Reliance on IT systems and increasing cybersecurity threats pose risks of data misuse, theft, disruptions, and litigation, materially affecting the business - IT reliance: Dependence on internal and outsourced IT systems for business activities and sensitive data[64](index=64&type=chunk) - Cybersecurity threats: Increasing frequency and sophistication of attacks (user error, targeted attacks)[64](index=64&type=chunk) - Potential impact: Misuse of information, theft, data manipulation, production disruptions, privacy breaches, litigation, regulatory action, material adverse effect on business[64](index=64&type=chunk) [Item 1B. Unresolved Staff Comments](index=10&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) As a smaller reporting company, Insignia Systems is not required to provide disclosure regarding unresolved staff comments - Disclosure exemption: Not required for smaller reporting companies[65](index=65&type=chunk) [Item 2. Properties](index=10&type=section&id=Item%202.%20Properties) The company leases its corporate headquarters in Minneapolis through 2026 and warehouse space on a month-to-month basis - Corporate HQ: Leased **2,850 sq ft** in Minneapolis, lease renewed through Dec 31, 2026[67](index=67&type=chunk) - Warehouse: Leased **2,560 sq ft** in Minneapolis suburb, month-to-month lease from April 1, 2023[67](index=67&type=chunk) [Item 3. Legal Proceedings](index=10&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine legal actions, but their outcome is not expected to materially affect its financial position or results - Routine legal matters: Engaged in ordinary course legal actions[68](index=68&type=chunk) - Material effect: Not expected to have a material effect on financial position or results[68](index=68&type=chunk) [Item 4. Mine Safety Disclosures](index=10&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable: The company does not have mine safety disclosures[69](index=69&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=11&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Insignia's common stock is listed on Nasdaq under ISIG with 113 holders, and the company has not historically paid regular dividends [Market Information and Holders](index=11&type=section&id=Market%20Information%20and%20Holders) Insignia's common stock is listed on the Nasdaq Capital Market under ISIG, with approximately 113 holders of record as of March 7, 2023 - Listing: Nasdaq Capital Market, symbol **ISIG**[71](index=71&type=chunk) - Holders: Approximately **113 holders of record** as of March 7, 2023[72](index=72&type=chunk) [Dividends](index=11&type=section&id=Dividends) The company has not paid regular dividends, only two one-time special dividends, and the Board periodically evaluates future payments - Dividend history: No regular dividends, only one-time special dividends in 2011 and 2016[73](index=73&type=chunk) - Future outlook: Board evaluates dividend payments based on financial condition and business plans[73](index=73&type=chunk) [Item 6. [Reserved]](index=11&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information - Reserved: No content provided for this item[74](index=74&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=11&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Insignia's 2022 net income of $10 million was driven by a litigation settlement, with improved liquidity and sufficient cash for the next twelve months [Overview](index=11&type=section&id=Overview) Insignia diversifies its in-store advertising portfolio, with non-POPS solutions growing 22% in 2022, while POPS declines, and explores strategic options - Portfolio diversification: Non-POPS solutions revenue grew **22% in 2022**[76](index=76&type=chunk) - POPS decline: POPS signage revenue declined to **~5% of total net sales in 2022** (from 24% in 2021) and will be wound down in 2023[76](index=76&type=chunk) - Strategic exploration: Continuing to explore strategic options (acquisition, merger, etc.) to maximize shareholder value[77](index=77&type=chunk) [Results of Operations](index=11&type=section&id=Results%20of%20Operations) Net income of $10.046 million in 2022, up from a $3.534 million loss in 2021, was primarily due to a $12 million litigation settlement gain Financial Performance Summary | Metric | 2022 ($) | 2021 ($) | Change | | :-------------------------------- | :----------- | :----------- | :----------- | | Net Sales | 18,800,000 | 19,503,000 | -3.6% | | Gross Profit | 3,301,000 | 3,230,000 | +2.2% | | Operating Income (Loss) | 9,606,000 | (4,791,000) | N/A | | Net Income (Loss) | 10,046,000 | (3,534,000) | N/A | | Gain from litigation settlement | 12,000,000 | - | N/A | | Net income (loss) per share (Basic) | 5.61 | (2.01) | N/A | | Net income (loss) per share (Diluted) | 5.59 | (2.01) | N/A | [Year Ended December 31, 2022 Compared to Year Ended December 31, 2021](index=11&type=section&id=Year%20Ended%20December%2031,%202022%20Compared%20to%20Year%20Ended%20December%2031,%202021) [Net Sales](index=11&type=section&id=Net%20Sales) Net sales decreased by 3.6% to $18.8 million in 2022 due to an 81.5% decline in POPS solutions, partially offset by a 21.5% increase in non-POPS revenue Net Sales Performance | Metric | 2022 ($) | 2021 ($) | Change | | :-------------------- | :----------- | :----------- | :----------- | | Total Net Sales | 18,800,000 | 19,503,000 | -3.6% | | POPS Solutions Revenue | 880,000 | N/A | -81.5% | | Non-POPS Revenue | N/A | N/A | +21.5% | - POPS revenue expected to continue declining in 2023[80](index=80&type=chunk) [Gross Profit](index=11&type=section&id=Gross%20Profit) Gross profit increased by 2.2% to $3.301 million in 2022, with the margin improving to 17.6% due to decreased fixed costs Gross Profit Performance | Metric | 2022 ($) | 2021 ($) | Change | | :-------------------- | :----------- | :----------- | :----------- | | Gross Profit | 3,301,000 | 3,230,000 | +2.2% | | Gross Profit Margin | 17.6% | 16.5% | +1.1 pp | [Operating Expenses](index=11&type=section&id=Operating%20Expenses) Total operating expenses decreased significantly in 2022, driven by a 34.4% reduction in general and administrative expenses due to lower litigation costs Operating Expenses Summary | Expense Category | 2022 ($) | 2021 ($) | Change | | :------------------------ | :----------- | :----------- | :----------- | | Selling Expenses | 1,325,000 | 1,931,000 | -31.4% | | Marketing Expenses | 1,050,000 | 1,032,000 | +1.7% | | General and Administrative | 3,320,000 | 5,058,000 | -34.4% | - Decrease in G&A primarily due to lower litigation expenses post-settlement, partially offset by strategic alternative exploration costs[85](index=85&type=chunk) [Gain from litigation settlement](index=12&type=section&id=Gain%20from%20litigation%20settlement) The company recorded a $12 million net pre-tax gain from the News America lawsuit settlement on July 1, 2022 - Litigation Settlement Gain: **$12,000,000 net pre-tax gain** recorded in 2022[86](index=86&type=chunk) [Other Income](index=12&type=section&id=Other%20Income) Other income decreased to $222,000 in 2022 from $1.299 million in 2021, primarily due to non-recurring PPP loan forgiveness and ERC benefits in 2021 Other Income | Metric | 2022 ($) | 2021 ($) | | :-------------------------- | :----------- | :----------- | | Total Other Income | 222,000 | 1,299,000 | | PPP Loan Forgiveness (2021) | - | 1,062,000 | | Employee Retention Credit (2021) | - | 273,000 | | Interest Income (2022) | Primary source | N/A | [Income Taxes](index=12&type=section&id=Income%20Taxes) The company recorded an income tax benefit of $218,000 in 2022, with a (2.2)% effective tax rate, influenced by a $1.971 million valuation allowance decrease Income Tax Performance | Metric | 2022 ($) | 2021 ($) | | :-------------------------- | :----------- | :----------- | | Income Tax (Benefit) Expense | (218,000) | 42,000 | | Effective Tax Rate | (2.2)% | (1.2)% | | Valuation Allowance Change | (1,971,000) | 1,200,000 | - Valuation allowance decrease in 2022 primarily related to utilization of net operating loss carryforward[88](index=88&type=chunk) [Net Income (Loss)](index=12&type=section&id=Net%20Income%20(Loss)) Net income was $10.046 million in 2022, a significant turnaround from a $3.534 million loss in 2021, driven by the litigation settlement gain Net Income (Loss) | Metric | 2022 ($) | 2021 ($) | | :-------------------- | :----------- | :----------- | | Net Income (Loss) | 10,046,000 | (3,534,000) | - Key drivers: Pre-tax gain from litigation settlement in 2022 and gain on PPP loan forgiveness in 2021[89](index=89&type=chunk) [Liquidity and Capital Resources](index=12&type=section&id=Liquidity%20and%20Capital%20Resources) Working capital and cash significantly increased in 2022 to $13.379 million and $14.524 million respectively, primarily due to the $12 million litigation settlement proceeds Liquidity Metrics | Metric | Dec 31, 2022 ($) | Dec 31, 2021 ($) | | :------------------------------------------ | :----------- | :----------- | | Working Capital | 13,379,000 | 3,716,000 | | Cash & Equivalents + Restricted Cash | 14,524,000 | 3,851,000 | - Primary driver for increased liquidity: **$12,000,000 net proceeds** from litigation settlement[90](index=90&type=chunk)[93](index=93&type=chunk) - Liquidity outlook: Sufficient cash for at least 12 months, but strategic alternatives may require additional financing (equity/debt) with potential dilution or covenants[93](index=93&type=chunk)[94](index=94&type=chunk) [Operating Activities](index=12&type=section&id=Operating%20Activities) Net cash provided by operating activities was $10.663 million in 2022, driven by net income and a $1.585 million increase in deferred revenue - Net cash from operating activities: **$10,663,000 provided in 2022**[91](index=91&type=chunk) - Key contributors: Net income (**$10,046,000**) and increase in deferred revenue (**$1,585,000**)[91](index=91&type=chunk) [Investing Activities](index=12&type=section&id=Investing%20Activities) Net cash used in investing activities was $29,000 in 2022, primarily for the purchase of property and equipment - Net cash used in investing activities: **$29,000 in 2022**[92](index=92&type=chunk) - Purpose: Purchase of property and equipment[92](index=92&type=chunk) [Financing Activities](index=12&type=section&id=Financing%20Activities) Net cash provided by financing activities was $39,000 in 2022, from common stock issuance under the ESPP and exercised stock options - Net cash from financing activities: **$39,000 provided in 2022**[92](index=92&type=chunk) - Source: Proceeds from common stock issuance (ESPP and stock options)[92](index=92&type=chunk) [Critical Accounting Estimates](index=13&type=section&id=Critical%20Accounting%20Estimates) Financial statements rely on critical accounting estimates for doubtful accounts, sales taxes, income taxes, and stock-based compensation, involving significant judgment and uncertainty - Key estimates: Allowance for doubtful accounts, sales taxes, income taxes, stock-based compensation expense[96](index=96&type=chunk) - Nature: Involve significant estimation uncertainty and judgment[96](index=96&type=chunk) [Allowance for Doubtful Accounts](index=13&type=section&id=Allowance%20for%20Doubtful%20Accounts) An allowance for uncollectible accounts receivable is based on various factors, and unexpected changes could lead to materially different amounts - Factors: Past due status, loss history, customer payment ability, economic conditions[97](index=97&type=chunk) - Risk: Unexpected changes could result in materially different amounts[97](index=97&type=chunk) Allowance for Doubtful Accounts | Metric | 2022 ($) | 2021 ($) | | :-------------------- | :--------- | :--------- | | Beginning balance | 355,000 | 268,000 | | Bad debt provision | (44,000) | 103,000 | | Accounts written-off | (299,000) | (111,000) | | Recoveries | 92,000 | 95,000 | | Ending balance | 104,000 | 355,000 | [Sales Taxes](index=13&type=section&id=Sales%20Taxes) Sales tax accruals involve estimates and interpretations by taxing authorities, which could result in material differences in future periods - Complexity: Determining taxability, jurisdiction, and customer exemptions[98](index=98&type=chunk) - Risk: Subject to judgment and interpretation by taxing authorities, potentially leading to material differences[98](index=98&type=chunk) [Income Taxes](index=13&type=section&id=Income%20Taxes) Deferred income taxes are based on future tax effects and taxable income, with valuation allowances applied when realization of deferred tax assets is uncertain - Deferred taxes: Based on temporary differences, tax laws, future income, and planning strategies[100](index=100&type=chunk) - Valuation allowances: Recorded based on "more likely than not" criteria for deferred tax asset realization[100](index=100&type=chunk) - Tax position recognition: Only when more likely than not to be sustained by tax authorities[101](index=101&type=chunk) [Stock-Based Compensation Expense](index=13&type=section&id=Stock-Based%20Compensation%20Expense) Stock-based compensation is measured at fair value using complex models like Black-Scholes, requiring subjective assumptions that can significantly alter recorded expense - Valuation methods: Restricted stock at closing market price; options/ESPP using Black-Scholes model[102](index=102&type=chunk) - Key assumptions: Stock price volatility, expected term, risk-free interest rate[102](index=102&type=chunk) - Risk: Changes in assumptions could significantly alter recorded compensation expense[103](index=103&type=chunk) [Forward-Looking Statements](index=14&type=section&id=Forward-Looking%20Statements) The report contains forward-looking statements subject to dynamic information, known and unknown risks, and uncertainties, with no obligation to update except as required by law - Nature: Statements not of historical fact, identified by words like "anticipates," "expects," "will"[105](index=105&type=chunk) - Subject to risks: Based on dynamic information, involve known and unknown risks and uncertainties[105](index=105&type=chunk) - Disclaimer: Actual results may differ materially; no obligation to update except as required by law[105](index=105&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=15&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Insignia Systems is not required to provide disclosure regarding quantitative and qualitative market risk - Disclosure exemption: Not required for smaller reporting companies[106](index=106&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=16&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited financial statements for 2022 and 2021, including Balance Sheets, Statements of Operations, Shareholders' Equity, Cash Flows, and Notes, with an unqualified audit opinion [INDEX TO FINANCIAL STATEMENTS](index=16&type=section&id=INDEX%20TO%20FINANCIAL%20STATEMENTS) This section provides an index to the audited financial statements and accompanying notes - Contents: Lists the primary financial statements and accompanying notes[108](index=108&type=chunk) [REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM](index=17&type=section&id=REPORT%20OF%20INDEPENDENT%20REGISTERED%20PUBLIC%20ACCOUNTING%20FIRM) Baker Tilly US, LLP issued an unqualified opinion on Insignia's 2022 and 2021 financial statements, identifying no critical audit matters - Auditor: Baker Tilly US, LLP[115](index=115&type=chunk) - Opinion: Unqualified opinion on financial statements for 2022 and 2021[109](index=109&type=chunk) - Critical Audit Matters: None identified[114](index=114&type=chunk) [BALANCE SHEETS](index=18&type=section&id=BALANCE%20SHEETS) Total assets and shareholders' equity significantly increased from 2021 to 2022, driven by a substantial rise in cash and net income Balance Sheet Summary | Metric | Dec 31, 2022 ($) | Dec 31, 2021 ($) | Change | | :-------------------------- | :----------- | :----------- | :----------- | | Total Current Assets | 20,753,000 | 10,354,000 | +100.4% | | Total Assets | 20,968,000 | 10,650,000 | +96.9% | | Total Current Liabilities | 7,374,000 | 6,638,000 | +11.1% | | Total Long-Term Liabilities | 193,000 | 819,000 | -76.4% | | Total Shareholders' Equity | 13,401,000 | 3,193,000 | +319.7% | [STATEMENTS OF OPERATIONS](index=19&type=section&id=STATEMENTS%20OF%20OPERATIONS) The statements reflect a significant turnaround to $10.046 million net income in 2022 from a loss in 2021, primarily due to a $12 million litigation settlement gain Statements of Operations Summary | Metric | 2022 ($) | 2021 ($) | | :-------------------------------- | :----------- | :----------- | | Net services revenues | 18,800,000 | 19,503,000 | | Cost of services | 15,499,000 | 16,273,000 | | Gross Profit | 3,301,000 | 3,230,000 | | Total Operating Expenses | 5,695,000 | 8,021,000 | | Gain from litigation settlement, net | 12,000,000 | - | | Operating Income (Loss) | 9,606,000 | (4,791,000) | | Total Other Income | 222,000 | 1,299,000 | | Income (Loss) Before Taxes | 9,828,000 | (3,492,000) | | Income tax (benefit) expense | (218,000) | 42,000 | | Net Income (Loss) | 10,046,000 | (3,534,000) | | Basic EPS | 5.61 | (2.01) | | Diluted EPS | 5.59 | (2.01) | [STATEMENTS OF SHAREHOLDERS' EQUITY](index=20&type=section&id=STATEMENTS%20OF%20SHAREHOLDERS'%20EQUITY) Shareholders' equity significantly increased to $13.401 million in 2022, primarily driven by the $10.046 million net income reported for the year Shareholders' Equity Summary | Metric | Dec 31, 2022 ($) | Dec 31, 2021 ($) | | :-------------------------- | :----------- | :----------- | | Total Shareholders' Equity | 13,401,000 | 3,193,000 | | Net Income (Loss) | 10,046,000 | (3,534,000) | | Issued & Outstanding Shares | 1,797,000 | 1,782,000 | [STATEMENTS OF CASH FLOWS](index=21&type=section&id=STATEMENTS%20OF%20CASH%20FLOWS) Net cash provided by operating activities was $10.663 million in 2022, leading to a substantial increase in cash and cash equivalents and restricted cash by $10.673 million, reaching $14.524 million at year-end 2022 Cash Flow Summary | Activity | 2022 ($) | 2021 ($) | | :------------------------------------------ | :----------- | :----------- | | Net cash provided by (used in) operating activities | 10,663,000 | (3,000,000) | | Net cash used in investing activities | (29,000) | (90,000) | | Net cash provided by (used in) financing activities | 39,000 | (187,000) | | Increase (decrease) in cash and cash equivalents and restricted cash | 10,673,000 | (3,277,000) | | Cash and cash equivalents and restricted cash at end of year | 14,524,000 | 3,851,000 | [Notes to Financial Statements](index=22&type=section&id=Notes%20to%20Financial%20Statements) The Notes detail Insignia's accounting policies, revenue recognition, cash management, lease obligations, stock-based compensation, income taxes, and customer concentrations [1. Summary of Significant Accounting Policies](index=22&type=section&id=1.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines Insignia's business, revenue recognition, cash, fair value, accounts receivable, inventories, property, leases, impairment, taxes, and stock-based compensation policies - Business: Provider of in-store solutions to CPG manufacturers, retailers, etc[129](index=129&type=chunk) - Revenue Recognition: Point-in-time for merchandising/on-pack; ratable over service period for signage[130](index=130&type=chunk) - Cash & Restricted Cash: **$14,524,000 total** at Dec 31, 2022, including **$85,000 restricted for lease**[132](index=132&type=chunk) - ASU 2016-13: Adoption in 2023 expected to have immaterial impact on financial statements[155](index=155&type=chunk) [Description of Business](index=22&type=section&id=Description%20of%20Business) Insignia is a leading provider of in-store solutions to CPG manufacturers, retailers, shopper marketing agencies, and brokerages, operating in a single reportable segment - Business: Leading provider of in-store solutions[129](index=129&type=chunk) - Clients: CPG manufacturers, retailers, shopper marketing agencies, brokerages[129](index=129&type=chunk) - Solutions: Merchandising, on-pack, and signage[129](index=129&type=chunk) [Revenue Recognition](index=22&type=section&id=Revenue%20Recognition) Revenue from merchandising and on-pack solutions is recognized at a point in time, while signage solutions revenue is recognized ratably over the display cycle - Merchandising/On-pack: Revenue recognized at a point in time[130](index=130&type=chunk) - Signage: Revenue recognized ratably over service period (2-4 weeks)[130](index=130&type=chunk) [Cash and Cash Equivalents and Restricted Cash](index=22&type=section&id=Cash%20and%20Cash%20Equivalents%20and%20Restricted%20Cash) Cash equivalents are highly liquid investments with original maturities of three months or less, with total cash and cash equivalents and restricted cash at $14.524 million at December 31, 2022 Cash and Cash Equivalents and Restricted Cash | Metric | Dec 31, 2022 ($) | Dec 31, 2021 ($) | | :------------------------------------------ | :----------- | :----------- | | Cash and cash equivalents | 14,439,000 | 3,766,000 | | Restricted cash | 85,000 | 85,000 | | Total cash and cash equivalents and restricted cash | 14,524,000 | 3,851,000 | - Restricted cash of **$85,000** is for the headquarters lease[132](index=132&type=chunk) [Fair Value of Financial Instruments](index=23&type=section&id=Fair%20Value%20of%20Financial%20Instruments) Short-term financial assets and liabilities are recorded at carrying amounts approximating fair value, with no recurring fair value measurements as of December 31, 2022 - Fair value approximation: Short-term assets/liabilities (cash, A/R, A/P) recorded at carrying amounts[135](index=135&type=chunk) - No recurring fair value measurements: As of Dec 31, 2022 and 2021[135](index=135&type=chunk) [Accounts Receivable](index=23&type=section&id=Accounts%20Receivable) Accounts receivable are primarily from CPG manufacturers, with an allowance for doubtful accounts based on past due status, loss history, and economic conditions - Primary source: CPG manufacturers[136](index=136&type=chunk) - Allowance factors: Past due status, loss history, customer payment ability, economic conditions[136](index=136&type=chunk) [Inventories](index=23&type=section&id=Inventories) Inventories, mainly sign cards and hardware, are valued at the lower of cost or net realizable value using the FIFO method - Components: Sign cards and hardware[137](index=137&type=chunk) - Valuation: Lower of cost or net realizable value, FIFO method[137](index=137&type=chunk) [Prepaid Production Costs](index=23&type=section&id=Prepaid%20Production%20Costs) Third-party costs for design and materials for merchandise and on-pack solutions are recorded as prepaid production costs until revenue is recognized - Definition: Third-party design and material costs for merchandising/on-pack solutions[138](index=138&type=chunk) - Recognition: Capitalized until revenue is recognized[138](index=138&type=chunk) [Property and Equipment](index=23&type=section&id=Property%20and%20Equipment) Property and equipment are recorded at cost, with significant additions capitalized and repairs expensed, and depreciation calculated using the straight-line method - Accounting: Recorded at cost, capitalized additions, expensed repairs[139](index=139&type=chunk) - Depreciation: Straight-line method over **1-6 years**[139](index=139&type=chunk) [Leases](index=23&type=section&id=Leases) Operating leases for corporate headquarters and warehouse space are recognized as right-of-use (ROU) assets and lease liabilities, valued using the incremental borrowing rate - Accounting: Operating leases as ROU assets and lease liabilities[139](index=139&type=chunk) - Valuation: Present value of lease payments using incremental borrowing rate[139](index=139&type=chunk) [Impairment of Long-Lived Assets](index=24&type=section&id=Impairment%20of%20Long-Lived%20Assets) Impairment losses on long-lived assets are recorded when indicators are present and undiscounted cash flows are less than the carrying amount, with impaired assets then recorded at fair value - Trigger: Indicators of impairment and undiscounted cash flows < carrying amount[140](index=140&type=chunk) - Measurement: Impaired assets recorded at estimated fair value[140](index=140&type=chunk) [Restructuring](index=24&type=section&id=Restructuring) In December 2021, the company restructured operations, including a 19% workforce reduction, incurring a pre-tax charge of $201,000 which was paid in 2022 - Restructuring (2021): **19% workforce reduction**[141](index=141&type=chunk) - Charge: **$201,000 pre-tax restructuring charge** in 2021, paid in 2022[141](index=141&type=chunk) [Sales Taxes](index=24&type=section&id=Sales%20Taxes) Sales tax accruals involve estimates and judgment regarding taxability, jurisdiction, and customer exemptions, which are subject to interpretation by taxing authorities - Estimates: Taxability, jurisdiction, customer exemptions[142](index=142&type=chunk) - Risk: Subject to taxing authority interpretation, potential for material differences[142](index=142&type=chunk) [Income Taxes](index=24&type=section&id=Income%20Taxes) Deferred income taxes account for temporary differences between financial reporting and tax bases, with valuation allowances applied to deferred tax assets if realization is not "more likely than not" - Deferred taxes: Account for temporary differences[143](index=143&type=chunk) - Valuation allowance: Applied when deferred tax asset realization is not "more likely than not"[143](index=143&type=chunk) - Uncertain tax positions: Recognized if "more likely than not" to be sustained[143](index=143&type=chunk) [Stock-Based Compensation](index=24&type=section&id=Stock-Based%20Compensation) Stock-based compensation expense is measured at fair value, with restricted stock valued at grant date closing market price and options/ESPP using the Black-Scholes model - Measurement: Fair value for all stock-based awards[144](index=144&type=chunk) - Valuation models: Closing market price for restricted stock, Black-Scholes for options/ESPP[144](index=144&type=chunk) - Assumptions: Expected stock price volatility, expected term, risk-free rate[144](index=144&type=chunk)[145](index=145&type=chunk) [Advertising Costs](index=25&type=section&id=Advertising%20Costs) Advertising costs are expensed as incurred, totaling $41,000 in 2022 and $34,000 in 2021 - Accounting: Expensed as incurred[146](index=146&type=chunk) Advertising Expenses | Year | Amount ($) | | :--- | :------- | | 2022 | 41,000 | | 2021 | 34,000 | [Net Income (Loss) Per Share](index=25&type=section&id=Net%20Income%20(Loss)%20Per%20Share) Basic net income (loss) per share is calculated by dividing net income (loss) by weighted average shares outstanding, while diluted EPS includes dilutive potential common shares - Basic EPS: Net income (loss) / weighted average shares outstanding[147](index=147&type=chunk) - Diluted EPS: Includes dilutive potential common shares[147](index=147&type=chunk) - Anti-dilutive: All stock awards were anti-dilutive in 2021 due to net loss[152](index=152&type=chunk) [Use of Estimates](index=25&type=section&id=Use%20of%20Estimates) The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts, and actual results may differ from these estimates - Nature: Financial statements rely on management estimates and assumptions[153](index=153&type=chunk) - Risk: Actual results may differ from estimates[153](index=153&type=chunk) [New Accounting Pronouncements](index=25&type=section&id=New%20Accounting%20Pronouncements) The adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments, effective January 1, 2023, is expected to have an immaterial impact on the company's financial statements - ASU 2016-13: Effective Jan 1, 2023[154](index=154&type=chunk) - Impact: Expected to be immaterial[155](index=155&type=chunk) [2. Revenue Recognition](index=25&type=section&id=2.%20Revenue%20Recognition) Revenue is recognized under Topic 606 when performance obligations are satisfied, distinguishing between point-in-time and over-time recognition for different solutions - Standard: Topic 606, revenue recognized when performance obligation satisfied[156](index=156&type=chunk) - Shipping/Handling: Included in revenues, costs in cost of services[157](index=157&type=chunk) [Performance Obligations](index=25&type=section&id=Performance%20Obligations) Display, On-Pack, and Non-POPS Signage Solutions are recognized at a point in time, while POPS Signage Services are recognized ratably over the display cycle - Display, On-Pack, Non-POPS: Point-in-time recognition due to variable nature[159](index=159&type=chunk) - POPS Signage: Over-time recognition on a straight-line basis over 2-4 week display cycle[160](index=160&type=chunk)[162](index=162&type=chunk) [Disaggregation of Revenue](index=26&type=section&id=Disaggregation%20of%20Revenue) In 2022, $1.763 million of revenue was recognized over time and $17.037 million at a point in time, reflecting the decline in POPS services Revenue by Timing of Recognition | Timing of Recognition | 2022 ($) | 2021 ($) | | :-------------------------- | :----------- | :----------- | | Services transferred over time | 1,763,000 | 6,659,000 | | Services transferred at a point in time | 17,037,000 | 12,844,000 | | Total | 18,800,000 | 19,503,000 | [Contract Costs](index=26&type=section&id=Contract%20Costs) Sales commissions are expensed as incurred, utilizing a practical expedient for costs with an amortization period of one year or less - Sales commissions: Expensed as incurred[165](index=165&type=chunk) - Practical expedient: Applied for amortization periods of one year or less[165](index=165&type=chunk) [Deferred Revenue](index=26&type=section&id=Deferred%20Revenue) Deferred revenue increased to $2.427 million in 2022, primarily due to $2.076 million in cash received in advance for services not yet recognized Deferred Revenue | Metric | Dec 31, 2022 ($) | Dec 31, 2021 ($) | | :-------------------------- | :----------- | :----------- | | Balance | 2,427,000 | 842,000 | | Cash received in advance | 2,076,000 | N/A | - Driver: **$2,076,000 cash received in advance**[166](index=166&type=chunk) [Transaction Price Allocated to Remaining Performance Obligations](index=26&type=section&id=Transaction%20Price%20Allocated%20to%20Remaining%20Performance%20Obligations) The company uses a practical expedient for short-term obligations, with $57,000 of revenue anticipated in 2023 from longer-term unsatisfied obligations - Disclosure exemption: For obligations with duration of one year or less[167](index=167&type=chunk) - Long-term obligations: **$57,000 revenue expected in 2023** from unsatisfied obligations as of Dec 31, 2022[167](index=167&type=chunk) [3. Property and Equipment](index=27&type=section&id=3.%20Property%20and%20Equipment) Net property and equipment decreased to $71,000 in 2022, with computer equipment and software being the largest component, and depreciation expense was $59,000 Property and Equipment (Net) | Metric | Dec 31, 2022 ($) | Dec 31, 2021 ($) | | :-------------------------- | :----------- | :----------- | | Net Property and Equipment | 71,000 | 113,000 | | Depreciation Expense | 59,000 | 60,000 | [4. Leases](index=27&type=section&id=4.%20Leases) The company leases its corporate headquarters (lease renewed through 2026) and warehouse space (month-to-month from April 2023), with ROU assets and liabilities recognized based on present value of lease payments - Lease types: Two non-cancelable operating leases (corporate HQ, warehouse)[170](index=170&type=chunk) - HQ Lease: Renewed through Dec 31, 2026[172](index=172&type=chunk) - Warehouse Lease: Month-to-month from April 1, 2023[174](index=174&type=chunk) Lease Liabilities (Dec 31, 2022) | Metric | Amount ($) | | :-------------------------- | :------- | | Total Lease Payments | 170,000 | | Present Value of Lease Liabilities | 144,000 | | Cash Outflow for Operating Leases (2022) | 84,000 | [5. Commitments and Contingencies](index=28&type=section&id=5.%20Commitments%20and%20Contingencies) Routine legal matters are not expected to be material, and the News America lawsuit settled for $12 million net pre-tax proceeds in 2022, eliminating fixed retailer commitments - Legal: Routine matters not material[176](index=176&type=chunk) - News America Lawsuit: Settled July 1, 2022, for **$20M**, resulting in **$12M net pre-tax proceeds**[178](index=178&type=chunk) - Retailer Agreements: Fixed payment commitments eliminated due to POPS decline[179](index=179&type=chunk) [6. Shareholders' Equity](index=28&type=section&id=6.%20Shareholders'%20Equity) This section details stock-based compensation plans and expenses, with $123,000 in 2022, and outlines outstanding stock options and unrecognized compensation costs Stock-Based Compensation Expense | Year | Amount ($) | | :--- | :------- | | 2022 | 123,000 | | 2021 | 232,000 | Stock Options Outstanding (Dec 31, 2022) | Number | Weighted Average Exercise Price ($) | | :----- | :------------------------------ | | 14,086 | 14.17 | - Unrecognized Compensation Costs (Dec 31, 2022): Approximately **$32,000** for restricted stock/units, expected to be recognized over **0.6 years**[191](index=191&type=chunk) - Dividends: No regular dividends, may consider special dividends in the future[193](index=193&type=chunk) [7. Income Taxes](index=29&type=section&id=7.%20Income%20Taxes) The company recorded a $218,000 income tax benefit in 2022, with federal and state NOLs, and a decrease in valuation allowance due to NOL utilization Income Tax Summary | Metric | 2022 ($) | 2021 ($) | | :-------------------------- | :----------- | :----------- | | Income Tax (Benefit) Expense | (218,000) | 42,000 | | Effective Tax Rate | (2.2)% | (1.2)% | | Federal NOLs (Dec 31, 2022) | 2,900,000 | N/A | | State NOLs (Dec 31, 2022) | 3,500,000 | N/A | | Valuation Allowance Change | (1,971,000) | 1,200,000 | | Uncertain Tax Positions Liability | 53,000 | 711,000 | - Valuation allowance decrease in 2022 primarily related to utilization of net operating loss carryforward[196](index=196&type=chunk) - Uncertain tax positions liability decreased due to a **$678,000 decrease** related to state exposure[197](index=197&type=chunk) [8. Employee Benefit Plans](index=29&type=section&id=8.%20Employee%20Benefit%20Plans) The company sponsors a 401(k) plan, with matching contributions expense of $53,000 in 2022 and $41,000 in 2021 - 401(k) Plan: Company sponsors a Retirement Profit Sharing and Savings Plan[200](index=200&type=chunk) Matching Contributions Expense | Year | Amount ($) | | :--- | :------- | | 2022 | 53,000 | | 2021 | 41,000 | [9. Concentrations](index=29&type=section&id=9.%20Concentrations) In 2022, three major customers accounted for significant portions of total net sales (19%, 11%, 11%) and accounts receivable (20%, 19%, 11%), while export sales remained less than 1% Customer Concentration (2022) | Metric | Customer 1 | Customer 2 | Customer 3 | | :-------------------- | :--------- | :--------- | :--------- | | % of Total Net Sales | 19% | 11% | 11% | | % of Total A/R | 20% | 19% | 11% | - Export Sales: **Less than 1% of total net sales** in 2022 and 2021[203](index=203&type=chunk) [10. Loan](index=29&type=section&id=10.%20Loan) The $1.054 million PPP loan was forgiven on January 29, 2021, resulting in a $1.062 million gain on debt extinguishment recorded in other income - PPP Loan: **$1,054,000 loan** obtained in April 2020[204](index=204&type=chunk) - Forgiveness: Approved Jan 29, 2021, resulting in **$1,062,000 gain on debt extinguishment** in 2021[205](index=205&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=35&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) This section incorporates by reference information from the 2023 Proxy Statement regarding director elections, corporate governance, and Section 16(a) reports, and details executive officers - Incorporated by reference: Information from 2023 Proxy Statement[215](index=215&type=chunk) [Information about our Executive Officers](index=35&type=section&id=Information%20about%20our%20Executive%20Officers) Key executive officers include Kristine A. Glancy (CEO), Adam D. May (Chief Growth Officer), and Zackery A. Weber (VP of Finance), bringing extensive industry and finance experience - Executive Officers: Kristine A. Glancy (President, CEO), Adam D. May (Chief Growth Officer), Zackery A. Weber (VP of Finance)[216](index=216&type=chunk)[217](index=217&type=chunk)[218](index=218&type=chunk) - Experience: Extensive CPG, retail, sales, and finance backgrounds[216](index=216&type=chunk)[217](index=217&type=chunk)[218](index=218&type=chunk) [Code of Ethics/Code of Conduct](index=35&type=section&id=Code%20of%20Ethics%2FCode%20of%20Conduct) The company maintains a Code of Ethics for senior financial management, available on its website, with disclosures for any amendments or waivers - Code of Ethics: Applicable to senior financial management[220](index=220&type=chunk) - Availability: On company website, disclosures for amendments/waivers[220](index=220&type=chunk) [Item 11. Executive Compensation](index=36&type=section&id=Item%2011.%20Executive%20Compensation) This section incorporates by reference information from the Proxy Statement regarding executive and non-employee director compensation - Incorporated by reference: Information from Proxy Statement on executive and non-employee director compensation[221](index=221&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=36&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section incorporates by reference information from the Proxy Statement regarding equity compensation plan details and security ownership - Incorporated by reference: Information from Proxy Statement on equity compensation plans and security ownership[222](index=222&type=chunk) [Item 13. Certain Relationships and Related Transactions and Director Independence](index=36&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%20and%20Director%20Independence) This section incorporates by reference information from the Proxy Statement regarding related-party transactions and director independence - Incorporated by reference: Information from Proxy Statement on related-party transactions and director independence[223](index=223&type=chunk) [Item 14. Principal Accountant Fees and Services](index=36&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) This section incorporates by reference information from the Proxy Statement regarding principal accountant fees and services - Incorporated by reference: Information from Proxy Statement on principal accountant fees and services[224](index=224&type=chunk) PART IV [Item 15. Exhibits and Financial Statement Schedules](index=37&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This item lists financial statements from Item 8 and provides a detailed table of exhibits, including corporate governance documents and the News America settlement agreement - Contents: Lists financial statements and detailed exhibit index[226](index=226&type=chunk)[227](index=227&type=chunk)[229](index=229&type=chunk)[230](index=230&type=chunk) [(a) Exhibits](index=37&type=section&id=(a)%20Exhibits) This section lists exhibits filed with the Form 10-K, including corporate governance documents, stock incentive plans, and the News America settlement agreement - Exhibit types: Corporate governance documents, stock incentive plans, employment agreements, and the News America settlement agreement[227](index=227&type=chunk)[229](index=229&type=chunk) [Item 16. Form 10-K Summary](index=39&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item indicates that no Form 10-K summary is provided - No summary: Form 10-K Summary is not provided[232](index=232&type=chunk) [SIGNATURES](index=40&type=section&id=SIGNATURES) The report is signed by Kristine A. Glancy (CEO), Zackery A. Weber (VP Finance), and Board members, certifying its submission on March 9, 2023 - Signatories: Kristine A. Glancy (CEO), Zackery A. Weber (VP Finance), and Board of Directors[235](index=235&type=chunk)[236](index=236&type=chunk) - Date: March 9, 2023[235](index=235&type=chunk)

PART I. FINANCIAL INFORMATION This section presents the company's condensed financial statements and management's discussion and analysis for the period ended September 30, 2022 [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) The financial statements for the period ended September 30, 2022, show significant financial improvement, primarily driven by a **$12 million** litigation settlement gain [Condensed Balance Sheets](index=2&type=section&id=Condensed%20Balance%20Sheets) The balance sheet as of September 30, 2022, shows significant strengthening, with total assets nearly doubling to **$20.1 million** and shareholders' equity increasing to **$14.1 million** Condensed Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 (Unaudited) | Dec 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $14,168 | $3,766 | | Total Current Assets | $19,857 | $10,354 | | Total Assets | $20,067 | $10,650 | | **Liabilities & Equity** | | | | Total Current Liabilities | $5,857 | $6,638 | | Total Liabilities | $5,965 | $7,457 | | Accumulated deficit | $(2,342) | $(13,121) | | Total Shareholders' Equity | $14,102 | $3,193 | [Condensed Statements of Operations](index=3&type=section&id=Condensed%20Statements%20of%20Operations) The company achieved significant profitability in Q3 and 9M 2022, primarily due to a **$12 million** litigation settlement gain, reversing prior-year losses - A net gain from a litigation settlement of **$12 million** was recognized in the third quarter of 2022, which was the primary driver of profitability[14](index=14&type=chunk) Statements of Operations Summary (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net services revenues | $4,869 | $3,493 | $14,271 | $14,975 | | Gross Profit | $838 | $545 | $2,534 | $2,682 | | Operating Income (Loss) | $11,539 | $(925) | $10,511 | $(3,537) | | Net Income (Loss) | $11,801 | $(921) | $10,779 | $(2,552) | | Diluted EPS | $6.57 | $(0.52) | $6.00 | $(1.45) | [Condensed Statements of Shareholders' Equity](index=4&type=section&id=Condensed%20Statements%20of%20Shareholders%27%20Equity) Shareholders' equity significantly increased to **$14.1 million** by September 30, 2022, driven by **$10.8 million** in net income, reducing the accumulated deficit - The accumulated deficit was reduced from **$(13.1 million)** at the beginning of the year to **$(2.3 million)** at the end of Q3 2022, primarily due to the net income of **$11.8 million** in the third quarter[16](index=16&type=chunk) [Condensed Statements of Cash Flows](index=5&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) Operating activities generated **$10.4 million** in cash for the nine months ended September 30, 2022, a significant reversal from the prior year, driven by net income Cash Flow Summary (in thousands) | Cash Flow Activity | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $10,388 | $(3,323) | | Net cash used in investing activities | $(25) | $(65) | | Net cash provided by (used in) financing activities | $39 | $(6) | | **Increase (decrease) in cash** | **$10,402** | **$(3,394)** | [Notes to Financial Statements](index=6&type=section&id=Notes%20to%20Financial%20Statements) Key notes detail the **$12 million** litigation settlement gain, customer concentration, a shift in revenue recognition, and an income tax benefit - On July 1, 2022, the company entered into a **$20 million** settlement agreement with News America, resulting in net proceeds of **$12 million** before income tax, which was recorded as a gain[57](index=57&type=chunk)[62](index=62&type=chunk) - For the nine months ended September 30, 2022, three customers accounted for **19%**, **12%**, and **11%** of the company's total net sales, indicating significant customer concentration[62](index=62&type=chunk) - The company recorded a decrease of approximately **$679 thousand** in unrecognized tax benefits related to state income tax exposure in Q3 2022, which reduced accrued income taxes and increased the income tax benefit[54](index=54&type=chunk) Disaggregation of Revenue (in thousands) | Timing of Revenue Recognition | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | | Services transferred over time | $1,355 | $5,366 | | Services transferred at a point in time | $12,916 | $9,609 | | **Total** | **$14,271** | **$14,975** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=11&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes improved Q3 2022 results to a **$12 million** litigation gain, with non-POPS solutions driving revenue growth and a strong cash position supporting future operations - The company's primary focus is now on in-store solutions, having exited digital solutions, with over **90%** of revenue in the first nine months of 2022 coming from recently developed non-POPS solutions[63](index=63&type=chunk) - A **$20 million** settlement agreement with News America resulted in net proceeds of **$12 million**, which was recorded as a gain in Q3 2022[65](index=65&type=chunk)[81](index=81&type=chunk) - The company is exploring strategic options to maximize shareholder value, which could include an acquisition, merger, or other strategic transaction[66](index=66&type=chunk) Revenue Change by Solution Type | Period | Non-POPS Revenue Change | POPS Revenue Change | Total Net Sales Change | | :--- | :--- | :--- | :--- | | **Q3 2022 vs Q3 2021** | +100.7% | -81.4% | +39.4% | | **9M 2022 vs 9M 2021** | +22.0% | -82.3% | -4.7% | - General and administrative expenses for the nine months ended September 30, 2022, decreased by **43.0%** to **$2.3 million**, primarily due to lower litigation expenses following the settlement with News America[79](index=79&type=chunk) - The company's cash and cash equivalents plus restricted cash increased to **$14.3 million** at September 30, 2022, which management believes is sufficient to fund operations for at least the next twelve months[94](index=94&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=16&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section is not applicable to the company for this reporting period - Not applicable[99](index=99&type=chunk) [Item 4. Controls and Procedures](index=16&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal controls - Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[101](index=101&type=chunk) - No changes occurred in the company's internal control over financial reporting during Q3 2022 that have materially affected, or are reasonably likely to materially affect, these controls[104](index=104&type=chunk) PART II. OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=17&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 6 of the Notes to Condensed Financial Statements, detailing the settlement of the lawsuit against News America - Information regarding legal proceedings is contained in Note 6 of the Notes to Condensed Financial Statements[105](index=105&type=chunk) [Item 1A. Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes in risk factors from those disclosed in the 2021 Annual Report on Form 10-K[106](index=106&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=17&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities during the reporting period - None[107](index=107&type=chunk) [Item 3. Defaults upon Senior Securities](index=17&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) There were no defaults upon senior securities during the reporting period - None[108](index=108&type=chunk) [Item 4. Mine Safety Disclosures](index=17&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not applicable[109](index=109&type=chunk) [Item 5. Other Information](index=17&type=section&id=Item%205.%20Other%20Information) There is no other information to report for this period - None[110](index=110&type=chunk) [Item 6. Exhibits](index=17&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the News America settlement and various certifications - Key exhibits filed include the Confidential Settlement Agreement with News America dated July 1, 2022, and certifications by the Principal Executive, Financial, and Accounting Officers[112](index=112&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 _______________________________ FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended June 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ___________ to ____________ Commission File Number: 1-13471 INSIGNIA SYSTEMS INC/MN. (Exact name of registrant as specified in its charte ...

PART I. FINANCIAL INFORMATION [Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed financial statements, highlighting a shift to profitability in Q1 2022 despite a substantial decrease in cash [Condensed Balance Sheets](index=2&type=section&id=Condensed%20Balance%20Sheets) Total assets decreased to **$8,880 thousand** from **$10,650 thousand**, primarily due to reduced cash, while equity slightly increased Condensed Balance Sheet Summary (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $396 | $3,766 | | Accounts receivable, net | $7,465 | $5,247 | | Total Current Assets | $8,609 | $10,354 | | **Total Assets** | **$8,880** | **$10,650** | | **Liabilities & Equity** | | | | Total Current Liabilities | $4,758 | $6,638 | | Total Liabilities | $5,567 | $7,457 | | Total Shareholders' Equity | $3,313 | $3,193 | | **Total Liabilities and Shareholders' Equity** | **$8,880** | **$10,650** | [Condensed Statements of Operations](index=3&type=section&id=Condensed%20Statements%20of%20Operations) The company achieved a net income of **$62 thousand** in Q1 2022, a significant turnaround from a **$737 thousand** net loss in Q1 2021 Condensed Statement of Operations (in thousands) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net services revenues | $6,148 | $5,386 | | Gross Profit | $1,280 | $929 | | Total Operating Expenses | $1,207 | $2,688 | | Operating Income (Loss) | $73 | ($1,759) | | Net Income (Loss) | $62 | ($737) | | Basic EPS | $0.03 | ($0.42) | | Diluted EPS | $0.03 | ($0.42) | [Condensed Statements of Shareholders' Equity](index=3&type=section&id=Condensed%20Statements%20of%20Shareholders'%20Equity) Shareholders' equity increased to **$3,313 thousand** at March 31, 2022, driven by net income and stock-based compensation - Total Shareholders' Equity increased to **$3,313 thousand** at March 31, 2022, from **$3,193 thousand** at the end of 2021, driven by net income and stock-based compensation[19](index=19&type=chunk) [Condensed Statements of Cash Flows](index=4&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) Cash used in operating activities totaled **$3,380 thousand** in Q1 2022, primarily due to a **$2,206 thousand** increase in accounts receivable Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($3,380) | ($303) | | Net cash used in investing activities | ($18) | ($13) | | Net cash provided by financing activities | $28 | $26 | | **Decrease in cash and cash equivalents** | **($3,370)** | **($290)** | - The significant cash used in operations was largely due to a **$2,206 thousand** increase in accounts receivable, reflecting higher sales in Q1 2022 compared to Q4 2021[22](index=22&type=chunk)[82](index=82&type=chunk) [Notes to Financial Statements](index=4&type=section&id=Notes%20to%20Financial%20Statements) Notes detail accounting policies, revenue recognition shifts, high customer concentration, and ongoing legal proceedings against News America Disaggregation of Revenue by Timing (in thousands) | Timing of Revenue Recognition | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Services transferred over time | $456 | $2,025 | | Services transferred at a point in time | $5,692 | $3,361 | | **Total** | **$6,148** | **$5,386** | - In Q1 2022, three customers accounted for **27%**, **23%**, and **11%** of total net sales, respectively. At March 31, 2022, three customers represented **23%**, **19%**, and **17%** of total accounts receivable[55](index=55&type=chunk) - The company is involved in an antitrust lawsuit against News America, filed in July 2019. The outcome and potential liability are currently indeterminable[54](index=54&type=chunk)[57](index=57&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=8&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the strategic shift to in-store solutions, increased net sales, reduced operating expenses, and significant cash usage in Q1 2022 [Company Overview](index=8&type=section&id=Company%20Overview) Insignia has strategically shifted to in-store solutions, comprising over **95%** of Q1 2022 revenue, alongside significant cost reductions and exploration of strategic alternatives - The company has strategically shifted its focus to in-store solutions, with recently developed offerings now comprising over **95%** of revenue for the three months ended March 31, 2022[63](index=63&type=chunk) - Significant cost-cutting measures were implemented, including outsourcing printing/IT, relocating headquarters to a smaller space, and restructuring operations in December 2021[64](index=64&type=chunk) - The company is actively exploring strategic alternatives, which could include an acquisition, merger, or other business combination, to maximize shareholder value[65](index=65&type=chunk) [Results of Operations](index=9&type=section&id=Results%20of%20Operations) Net sales increased by **14.1%** to **$6,148 thousand**, driven by non-POPS revenue growth and a **55.1%** reduction in operating expenses, leading to profitability Comparison of Operations for the Three Months Ended March 31 | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $6,148,000 | $5,386,000 | +14.1% | | Gross Profit | $1,280,000 | $929,000 | +37.8% | | Gross Margin | 20.8% | 17.2% | +3.6pp | | Selling Expenses | $342,000 | $516,000 | -33.7% | | G&A Expenses | $606,000 | $1,937,000 | -68.7% | | Operating Income (Loss) | $73,000 | ($1,759,000) | N/A | - The increase in net sales was due to a **48.0%** increase in non-POPS revenue, partially offset by an **83.0%** decrease in POPS solutions revenue due to competitive pressures[70](index=70&type=chunk) - The significant decrease in General and Administrative expenses was primarily due to lower expenses from the litigation with News America[74](index=74&type=chunk) [Liquidity and Capital Resources](index=10&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and cash equivalents decreased significantly by **$3,370 thousand** in Q1 2022, primarily due to cash used in operations driven by increased accounts receivable - Cash and cash equivalents (including restricted cash) decreased by **$3,370 thousand** during the quarter, from **$3,851 thousand** at year-end 2021 to **$481 thousand** at March 31, 2022[81](index=81&type=chunk) - Net cash used in operating activities was **$3,380 thousand**, largely due to a **$2,206 thousand** increase in accounts receivable resulting from higher sales[82](index=82&type=chunk) - While management believes cash is adequate for the next 12 months, they note uncertainty regarding the ability to achieve and maintain profitability and that alternative financing may be required in the longer term[84](index=84&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=11&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section is not applicable to the company - The company states that this item is not applicable[90](index=90&type=chunk) [Controls and Procedures](index=11&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal controls - Based on an evaluation as of the end of the reporting period, the company's principal executive officer and principal accounting officer concluded that disclosure controls and procedures were effective[92](index=92&type=chunk) - There were no changes in the company's internal control over financial reporting during the first quarter of 2022 that have materially affected, or are reasonably likely to materially affect, these controls[93](index=93&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=11&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 6 of the financial statements, detailing the ongoing antitrust lawsuit against News Corporation - The company's legal proceedings are described in Note 6 of the financial statements, referencing the antitrust lawsuit against News America[95](index=95&type=chunk)[54](index=54&type=chunk) [Risk Factors](index=11&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the company's risk factors from those disclosed in its 2021 Annual Report on Form 10-K - There have been no material changes to the risk factors disclosed in the company's 2021 Annual Report on Form 10-K[98](index=98&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=12&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None[99](index=99&type=chunk) [Defaults upon Senior Securities](index=12&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) The company reported no defaults upon senior securities - None[100](index=100&type=chunk) [Mine Safety Disclosures](index=12&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not applicable[101](index=101&type=chunk) [Other Information](index=12&type=section&id=Item%205.%20Other%20Information) The company reported no other information required to be disclosed in this section - None[102](index=102&type=chunk) [Exhibits](index=12&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including officer certifications and XBRL data files - Lists exhibits filed with the report, including officer certifications (31.1, 31.2, 32) and XBRL data (101, 104)[104](index=104&type=chunk)

(Exact name of registrant as specified in its charter) Minnesota 41-1656308 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 Commission File Number 001-13471 INSIGNIA SYSTEMS INC/MN (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) 212 Third Avenue N, Suite 356, Minneapolis, MN 55401 Securities Registe ...