Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. INSIGNIA SYSTEMS INC/MN (875355) 10-K/A published on Aug 23, 2021 at 4:06 pm
Reporting Period: Dec 30, 2020
Insignia Systems, Inc. (“we”, “us”, “our” and the “Company”) is filing this Amendment No. 1 on Form 10-K/A (the “Amendment”) to amend its Annual Report on Form 10-K for the fiscal year ended December 31, 2020, originally filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 11, 2021 (the “Original Report”). In filing this amendment, the Company is restating its previously issued audited financial statements for the years ended December 31, 2020 and 2019 to account for misstatements related to sales taxes. Those previously issued financial statements should no longer be relied upon. Except as described below, all other information in, and the exhibits to, the Original Report remain unchanged. Accordingly, this Amendment should be read in conjunction with the Original Report and with our filings with the SEC made after the Original Report. This Amendment speaks as of the date of the Original Report and the Company has not updated the Original Report to reflect events occurring subsequent to the date of the Original Report.
As disclosed in a current report on Form 8-K filed with the SEC on August 13, 2021, commencing in the second quarter of 2021, management conducted a review of the Company’s sales tax positions and related accounting, with the assistance of outside consultants. As a result of the review, it was determined that certain non-POPs services/products sales were subject to sales tax and that the Company had not assessed sales tax on sales of those services/products to customers. Company management then undertook a process to obtain documentation from significant customers to determine if each was exempt from sales tax assessments during the applicable periods. Based on responses received from these customers, the Company determined that it did not properly accrue sales tax and accrued the estimated sales tax incurred. The Company has identified the misstatements described below, and this Amendment restates the previously issued financial statements of the Company (the “Restated Financial Statements”) and certain other related disclosure, that were included in the Original Report.
The misstatements that appeared in the previously issued financial statements of the Company were material. For sales to the Company’s customers that were not exempt, the Company recorded a sales tax accrual, plus related estimated interest and penalties. The Company also determined on which past sales the Company would bill for sales tax and seek to collect from customers that were not tax exempt. The Company recorded accounts receivable deemed probable of collection. A summary of the impact of the misstatements is as follows:
Management has reassessed its evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2020 as further described in item 9A of this Amendment, and concluded that a material weakness existed and that disclosure controls and procedures were not effective. Management’s previous annual report on internal control over financial reporting should no longer be relied upon. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial reports will not be prevented or detected on a timely basis. The existence of one or more material weaknesses precludes a conclusion by management that a company’s disclosure controls and procedures and internal control over financial reporting are effective. Management has taken, and is taking additional steps, as described under “Remediation Plan and Status” in Item 9A of this Amendment, to remediate the material weakness in our internal control over financial reporting. For more information regarding the restatement and its impact on our financial statements, refer to Note 2, Restatement of Previously Issued Financial Statements of the Notes to the Financial Statements included within this Amendment.
Investing Activities: Net cash provided by investing activities during the year ended December 31, 2020 was $139,000. The Company sold its custom print business for $300,000 resulting in a gain on the sale of $195,000. The Company received $200,000 of cash and recorded a short-term receivable of $75,000 and a long-term receivable of $25,000. Purchases of property and equipment of $61,000 in 2020 decreased in comparison to 2019 due to completion of a technology system project in the first half of 2019. With the commencement of outsourcing of most information technology and printing operations, the Company anticipates minimal purchases of property and equipment for that purpose in 2021. The Company does not anticipate significant cash outlays for leasehold improvements in connection with new facility leases anticipated in the first part of 2021.The monthly payments under the new leases are anticipated to be significantly less than the monthly payments under expiring leases. During December 2020, in connection with the outsourcing of most printing operations, the Company sold property and equipment with a net book value of $230,000, for $195,000, resulting in a loss on sale of $35,000. The proceeds were in the form of receivables due in four equal amounts due in June and December 2021 and June and December 2022.
As described in Note 2 to the financial statements, the Company restated its financial statements for the years ended 2020 and 2019 as a result of incorrect accounting for sales taxes. See also the “Restatement of Previously Issued Financial Statements” section of our report. During the second quarter of 2021, the Company conducted a review of its sales tax positions and related accounting, with the assistance of outside consultants. As a result of the review, it was determined that certain services and products sales were subject to sales tax and that the Company had not assessed sales tax on sales of those services and products to customers. The Company then undertook a process to obtain documentation from significant customers to determine if any was exempt from sales tax assessments during the applicable periods. Based on the responses received from these customers, the Company determined that it did not properly accrue sales tax. The Company accrued the estimated sales taxes due in the amounts of $1,011,000 and $594,000, and interest and penalties of $244,000 and $117,000, as of December 31, 2020 and 2019, respectively. For certain customers, the Company expects to bill and collect the related sales taxes that are due. The Company has estimated such amounts to be $229,000 as of December 31, 2020. The Company was required to apply judgment regarding the determination of the tax status of the customers that did not respond to managements’ inquiries, as well as in the estimation of sales tax rates, interest and penalties accruals, and of the sales tax amounts expected to be billed and collected.