BLOOMIA HOLDINGS, INC. 10-Q

Item 1. Financial Statements Insignia Systems, Inc. CONDENSED BALANCE SHEETS As Restated June 30, 2021 December 31, (Unaudited) 2020 ASSETS Current Assets: Cash and cash equivalents $ 5,879,000 $ 7,128,000 Restricted cash 85,000 - Accounts receivable, net 4,837,000 5,857,000 Inventories 91,000 85,000 Income tax receivable 242,000 241,000 Prepaid expenses and other 301,000 711,000 Total Current Assets 11,435,000 14,022,000 Other Assets: Property and equipment, net 81,000 75,000 Operating lease right-of-use assets 29,000 37,000 Other, net 37,000 155,000 Total Assets $ 11,582,000 $ 14,289,000 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable 2,516,000 3,148,000 Accrued liabilities: Compensation 474,000 424,000 Sales tax 1,326,000 1,011,000 Other 1,072,000 1,071,000 Current portion of long-term debt - 464,000 Current portion of operating lease liabilities 16,000 56,000 Deferred revenue 275,000 180,000 Total Current Liabilities 5,679,000 6,354,000 Long-Term Liabilities: Accrued income taxes 694,000 677,000 Long-term debt, net of current portion - 590,000 Operating lease liabilities 13,000 Total Long-Term Liabilities 707,000 1,267,000 Commitments and Contingencies - - Shareholders' Equity: Common stock, par value $ .01 : Authorized shares - 5,714,000 Issued and outstanding shares - 1,765,000 at June 30, 2021 and 1,748,000 at December 31, 2020, respectively 18,000 17,000 Additional paid-in capital 16,396,000 16,238,000 Accumulated deficit ( 11,218,000 ) ( 9,587,000 ) Total Shareholders' Equity 5,196,000 6,668,000 Total Liabilities and Shareholders' Equity $ 11,582,000 $ 14,289,000 See accompanying notes to financial statements. 1 Table of contents Insignia Systems, Inc. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended June 30 June 30 As Restated As Restated 2021 2020 2021 2020 Services revenues $ 6,096,000 $ 3,133,000 $ 11,482,000 $ 7,533,000 Products revenues - 214,000 - 460,000 Total Net Sales 6,096,000 3,347,000 11,482,000 7,993,000 Cost of services 4,888,000 2,807,000 9,345,000 6,189,000 Cost of goods sold - 208,000 - 380,000 Impairment loss - services - - - 159,000 Total Cost of Sales 4,888,000 3,015,000 9,345,000 6,728,000 Gross Profit 1,208,000 332,000 2,137,000 1,265,000 Operating Expenses: Selling 465,000 927,000 981,000 1,647,000 Marketing 260,000 243,000 495,000 608,000 General and administrative 1,336,000 992,000 3,273,000 1,996,000 Total Operating Expenses 2,061,000 2,162,000 4,749,000 4,251,000 Operating Loss ( 853,000 ) ( 1,830,000 ) ( 2,612,000 ) ( 2,986,000 ) Other income (expense): Gain on forgiveness of debt and accrued interest - - 1,062,000 - Interest expense ( 33,000 ) ( 18,000 ) ( 60,000 ) ( 33,000 ) Miscellaneous 2,000 16,000 2,000 40,000 Loss Before Taxes ( 884,000 ) ( 1,832,000 ) ( 1,608,000 ) ( 2,979,000 ) Income tax expense (benefit) 10,000 11,000 23,000 ( 211,000 ) Net Loss $ ( 894,000 ) $ ( 1,843,000 ) $ ( 1,631,000 ) $ ( 2,768,000 ) Net loss per share: Basic $ ( 0.51 ) $ ( 1.07 ) $ ( 0.93 ) $ ( 1.60 ) Diluted $ ( 0.51 ) $ ( 1.07 ) $ ( 0.93 ) $ ( 1.60 ) Shares used in calculation of net loss per share: Basic 1,755,000 1,725,000 1,753,000 1,725,000 Diluted 1,755,000 1,725,000 1,753,000 1,725,000 See accompanying notes to financial statements. 2 Table of contents Insignia Systems, Inc. CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) Common Stock Additional Paid-In Shares Amount Capital Accumulated Deficit Total Balance at December 31, 2020, as restated 1,748,000 $ 17,000 $ 16,238,000 $ ( 9,587,000 ) $ 6,668,000 Issuance of common stock, net 6,000 1,000 25,000 - 26,000 Value of stock-based compensation - - 56,000 - 56,000 Net loss, as restated - - - ( 737,000 ) ( 737,000 ) Balance at March 31, 2021, as restated 1,754,000 $ 18,000 $ 16,319,000 $ ( 10,324,000 ) $ 6,013,000 Value of stock-based compensation - - 86,000 - 86,000 Repurchase of common stock upon vesting of restricted stock units 11,000 - ( 9,000 ) - ( 9,000 ) Net loss - - - ( 894,000 ) ( 894,000 ) Balance at June 30, 2021 1,765,000 $ 18,000 $ 16,396,000 $ ( 11,218,000 ) $ 5,196,000 Common Stock Additional Paid-In Shares Amount Capital Accumulated Deficit Total Balance at December 31, 2019, as restated 1,725,000 $ 16,000 $ 16,039,000 $ ( 4,972,000 ) $ 11,083,000 Issuance of common stock, net 5,000 - 20,000 - 20,000 Value of stock-based compensation - - 49,000 - 49,000 Net loss, as restated - - - ( 925,000 ) ( 925,000 ) Balance at March 31, 2020, as restated 1,730,000 $ 16,000 $ 16,108,000 $ ( 5,897,000 ) $ 10,227,000 Value of stock-based compensation - - 59,000 - 59,000 Repurchase of common stock upon vesting of restricted stock units 4,000 - - - - Net loss, as restated - - - ( 1,843,000 ) ( 1,843,000 ) Balance at June 30, 2020, as restated 1,734,000 $ 16,000 $ 16,167,000 $ ( 7,740,000 ) $ 8,443,000 See accompanying notes to financial statements. 3 Table of contents Insignia Systems, Inc. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) As Restated Six Months Ended June 30 2021 2020 Operating Activities: Net loss $ ( 1,631,000 ) $ ( 2,768,000 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 32,000 267,000 Impairment loss - services - 159,000 Gain on sale of property and equipment ( 7,000 ) - Changes in allowance for doubtful accounts 53,000 61,000 Stock-based compensation expense 142,000 108,000 Gain on forgiveness of debt and accrued interest ( 1,062,000 ) - Changes in operating assets and liabilities: Accounts receivable 967,000 2,077,000 Inventories ( 6,000 ) 10,000 Income tax receivable ( 1,000 ) ( 121,000 ) Prepaid expenses and other 536,000 ( 109,000 ) Accounts payable ( 647,000 ) ( 851,000 ) Accrued liabilities 361,000 168,000 Income tax payable 17,000 17,000 Deferred revenue 95,000 430,000 Net cash used in operating activities ( 1,151,000 ) ( 552,000 ) Investing Activities: Purchases of property and equipment ( 32,000 ) ( 44,000 ) Proceeds from sale of property and equipment 16,000 - Net cash used in investing activities ( 16,000 ) ( 44,000 ) Financing Activities: Proceeds from issuance of common stock, net 26,000 20,000 Cash dividends paid ($0.70 per share) ( 14,000 ) ( 14,000 ) Repuchase of common stock upon vesting of restricted stock awards and vesting of restricted stock units ( 9,000 ) - Proceeds from PPP loan - 1,054,000 Net cash provided by financing activities 3,000 1,060,000 Increase (decrease) in cash and cash equivalents ( 1,164,000 ) 464,000 Cash and cash equivalents and restricted cash at beginning of period 7,128,000 7,510,000 Cash and cash equivalents and restricted cash at end of period $ 5,964,000 $ 7,974,000 Supplemental disclosures for cash flow information: Cash paid (refunded) during the period for income taxes $ 7,000 $ ( 107,000 ) Non-cash financing activity: Operating lease right-of-use asset obtained in exchange for lease obligation $ 33,000 $ - Forgiveness of debt and accrued interest $ 1,062,000 $ - Purchase of property and equipment included in accounts payable $ 15,000 $ - See accompanying notes to financial statements. 4 Table of contents Insignia Systems, Inc. NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. Summary of Significant Accounting Policies. Description of Business . Insignia Systems, Inc. (the “Company”) is a leading provider of in-store and digital advertising solutions to consumer-packaged goods (“CPG”) manufacturers, retailers, shopper marketing agencies and brokerages. The Company operates in a single reportable segment. The Company’s leadership and employees have extensive industry knowledge with direct experience in both CPG manufacturers and retailers. The Company provides marketing solutions to CPG manufacturers spanning from some of the largest multinationals to new and emerging brands. Reverse Stock Split. Effective December 31, 2020, the Company implemented a seven-for-one reverse stock split. All share and per-share information, including for stock options and restricted stock units, in the financial statements gives retroactive effect to the reverse stock split for all periods presented including the value of Common Stock and Additional Paid-In Capital as of December 31, 2020. Sale of Custom Print Business. In August 2020, the Company sold its custom print business to an existing strategic partner. This divestiture allowed the Company to focus on its core business, selling product solutions to CPGs. The custom print business was not material to operations as a whole and did not represent a strategic shift and therefore is not presented as a discontinued operation. The sale price was $ 300,000 resulting in a gain on the sale of $ 195,000 . On the date of the sale, the Company received $ 200,000 of cash and recorded a short-term receivable of $ 75,000 and a long-term receivable of $ 25,000 . Basis of Presentation . The accompanying unaudited financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. They do not include all information and footnotes required by U.S. GAAP for complete financial statements. However, except as described herein, there has been no material change in the information disclosed in the notes to financial statements included in the Company’s financial statements as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K/A. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. Cash and Cash Equivalents and Restricted Cash. The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the statement of cash flows: June 30, December 31, 2021 Cash and cash equivalents $ 5,879,000 $ 7,128,000 Restricted cash 85,000 Total cash, cash equivalents and retricted cash $ 5,964,000 $ 7,128,000 Restricted Cash. The Company’s restricted cash consists of cash the Company is contractually obligated to maintain in accordance with the terms of its lease signed in April 2021 for headquarters space in Minneapolis. See Note 9 for further discussion. 5 Table of contents Inventories . Inventories are primarily comprised of sign cards and hardware. Inventory is valued at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method, and consisted of the following as of the dates indicated: June 30, December 31, 2021 2020 Raw materials $ - $ - Work-in-process 3,000 2,000 Finished goods 88,000 83,000 $ 91,000 $ 85,000 Property and Equipment . Property and equipment consisted of the following as of the dates indicated: June 30, December 31, 2021 2020 Property and Equipment: Production tooling, machinery and equipment $ 27,000 $ 2,349,000 Office furniture and fixtures 88,000 425,000 Computer equipment and software 714,000 1,447,000 Construction in-progress 8,000 17,000 837,000 4,238,000 Accumulated depreciation and amortization ( 756,000 ) ( 4,163,000 ) Net Property and Equipment $ 81,000 $ 75,000 Depreciation expense was approximately $ 11,000 and $ 32,000 in the three and six months ended June 30, 2021, respectively, and was $ 85,000 and $ 170,000 in the three and six months ended June 30, 2020, respectively. Stock-Based Compensation . The Company measures and recognizes compensation expense for all stock-based payments at fair value. Restricted stock units and awards are valued at the closing market price of the Company’s stock as of the date of the grant. The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options and employee stock purchase plan rights. The determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as by assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. During the six-month periods ended June 30, 2021 and 2020 no equity awards were issued by the Company, except those awarded to non-employee members of the Board of Directors. In June 2021, non-employee members of the Board of Directors received restricted stock grants totaling 5,514 shares pursuant to the 2018 Equity Incentive Plan (the “2018 Plan”). The shares underlying the awards were assigned a value of $ 8.16 per share, which was the closing price of the Company’s common stock on the date of grant, for a total grant date value of $ 45,000 , the shares are schedule to vest the day immediately preceding the date of the next annual shareholder meeting. The awards granted to directors in December 2020 vested in full on the day immediately preceding the date of the 2021 annual shareholder meeting, June 9, 2021. The Company estimated the fair value of stock-based awards granted during the six months ended June 30, 2021 under the Company’s employee stock purchase plan using the following weighted average assumptions: expected life of 1.0 year, expected volatility of 142.2 %, dividend yield of 0 % and risk-free interest rate of 0.1 %. 6 Table of contents Total stock-based compensation expense recorded for the three and six months ended June 30, 2021 was $ 86,000 and $ 141,000 , respectively, and for the three and six months ended June 30, 2020 was $ 59,000 and $ 108,000 , respectively. Net Loss per Share . Basic net loss per share is computed by dividing net loss by the weighted average shares outstanding and excludes any potential dilutive effects of stock options and restricted stock units and awards. Diluted net loss per share gives effect to all diluted potential common shares outstanding during the period. Due to the net loss incurred during the three and six months ended June 30, 2021 and 2020 all outstanding stock options were anti-dilutive for those periods. Weighted average common shares outstanding for the three and six months ended June 30, 2021 and 2020 were as follows: Three Months Ended Six Months Ended June 30 June 30 2021 2020 2021 2020 Denominator for basic net loss per share - weighted average shares 1,755,000 1,725,000 1,753,000 1,725,000 Effect of dilutive securities: Stock options and restricted stock units - - - - Denominator for diluted net loss per share - weighted average shares 1,755,000 1,725,000 1,753,000 1,725,000 2. Restatement of Previously Issued Financial Statements. The financial statements for the three and six months ended June 30, 2020 have been restated to reflect the correction of misstatements. The Company also restated all amounts impacted within the notes to the financial statements. A description of the adjustments and their impact on the previously issued financial statements are included below. Description of Restatement Adjustments. Commencing in 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 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. The misstatements in the previously issued financial statements are considered material and are described below. As described in additional detail in the Explanatory Note in our Annual Report on Form 10-K/A for the year ended December 31, 2020, the Company restated its audited financial statements for the years ended December 31, 2020 and 2019, and its unaudited financial statements for the quarterly periods ended March 31, 2020 and 2019, June 30, 2020 and 2019, and September 30, 2020 and 2019. The Company also filed a Quarterly Report on Form 10-Q/A for the three months ended March 31, 2021 to restate its unaudited financial statements for the three months ended March 31, 2021 and 2020. As a result of the misstatements, the Company restated our interim financial statements for the three and six months ended June 30, 2020. 7 Table of contents A summary of the impact of the misstatements is as follows: June 30, 2020 Three months Six months Three Months Ended As previously reported Restated As previously reported Restated Total Net Sales $ 3,388,000 $ 3,347,000 $ 8,070,000 $ 7,993,000 Operating Loss ( 1,777,000 ) ( 1,830,000 ) ( 2,886,000 ) ( 2,986,000 ) Net Loss ( 1,772,000 ) ( 1,843,000 ) ( 2,635,000 ) ( 2,768,000 ) June 30, 2020 As of As previously reported Restated Shareholders' equity $ 9,287,000 $ 8,444,000 The categories of restatement adjustments and their impact on previously reported financial statements are described below: (a) Sales Tax and Related Misstatements – Sales tax on sales to customers who were subject to sales tax that was not previously accrued by the Company is corrected by an increase to accrued liabilities on the balance sheets and a reduction of net sales on the statements of operations. The Company also determined on which past sales the Company would bill for sales tax and corrected by increasing accounts receivable, net of an allowance for doubtful collectability, on the balance sheets and increasing net sales on the statements of operations. Estimated penalties on the related sales tax are corrected by an increase to accrued liabilities on the balance sheets and an increase to general and administrative expenses on the statements of operations. Estimated interest on the related sales tax is corrected by an increase to accrued liabilities on the balance sheets and an increase to interest expense within other income on the statement of operations. (b) Related Income Tax Impact - Any impact on income tax benefit from the impact on loss before taxes due to the correction in (a) above is reflected as a change in deferred tax asset or liability on the balance sheet and a change in income tax benefit on the statements of operations. The following is a summary of the impact of the correction of the sales tax error for the periods previously reported for the three and six months ended June 30, 2020. The following table sets forth the corrections in each of the individual line items affected in the statements of operations: June 30, 2020 Three months Six months Reduction of net sales $ 41,000 $ 77,000 Increase in general and administrative expense for penalties 12,000 23,000 Increase in interest expense 18,000 33,000 Total effect of restatement items $ 71,000 $ 133,000 8 Table of contents June 30, 2020 Three months Six months Six Months Ended As previously reported Restated As previously reported Restated Services revenues $ 3,174,000 $ 3,133,000 $ 7,610,000 $ 7,533,000 Products revenues 214,000 214,000 460,000 460,000 Total Net Sales 3,388,000 3,347,000 8,070,000 7,993,000 Cost of services 2,807,000 2,807,000 6,189,000 6,189,000 Cost of goods sold 208,000 208,000 380,000 380,000 Impairment loss - - 159,000 159,000 Total Cost of Sales 3,015,000 3,015,000 6,728,000 6,728,000 Gross Profit 373,000 332,000 1,342,000 1,265,000 Operating Expenses: Selling 927,000 927,000 1,647,000 1,647,000 Marketing 243,000 243,000 608,000 608,000 General and administrative 980,000 992,000 1,973,000 1,996,000 Total Operating Expenses 2,150,000 2,162,000 4,228,000 4,251,000 Operating Loss ( 1,777,000 ) ( 1,830,000 ) ( 2,886,000 ) ( 2,986,000 ) Other income (expense): Interest expense - ( 18,000 ) - ( 33,000 ) Miscellaneous 16,000 16,000 40,000 40,000 Loss Before Taxes ( 1,761,000 ) ( 1,832,000 ) ( 2,846,000 ) ( 2,979,000 ) Income tax benefit 11,000 11,000 ( 211,000 ) ( 211,000 ) Net Loss $ ( 1,772,000 ) $ ( 1,843,000 ) $ ( 2,635,000 ) $ ( 2,768,000 ) Net loss per share: Basic $ ( 1.03 ) $ ( 1.07 ) $ ( 1.53 ) $ ( 1.60 ) Diluted $ ( 1.03 ) $ ( 1.07 ) $ ( 1.53 ) $ ( 1.60 ) Shares used in calculation of net loss per share: Basic 1,725,000 1,725,000 1,725,000 1,725,000 Diluted 1,725,000 1,725,000 1,725,000 1,725,000 The following table sets forth the corrections in each of the individual line items affected in the balance sheet: June 30, 2020 As previously reported Error correction Restated Accounts receivable, net $ 5,319,000 $ 102,000 $ 5,421,000 Accrued liabilities - sales tax $ - $ 773,000 $ 773,000 Accrued liabilities - other $ 597,000 $ 172,000 $ 769,000 Accumulated deficit $ 6,896,000 $ 844,000 $ 7,740,000 9 Table of contents The following table sets forth the corrections to retained earnings (accumulated deficit) and total shareholders’ equity in the statements of shareholders’ equity. SHAREHOLDERS' EQUITY Accumulated Deficit Total Shareholders' Equity June 30, 2020 As reported $ ( 6,896,000 ) $ 9,287,000 Adjustment due to cumulative error correction ( 844,000 ) ( 844,000 ) As restated $ ( 7,740,000 ) $ 8,443,000 The Company did not present tables for adjustments within the statement of cash flows, since all of the foregoing adjustments were within the operating activities section of the cash flows. These adjustments did not affect total cash flows from operating activities, financing activities or investing activities for the three and six month periods ended June 30, 2020. 3. Revenue Recognition. Under Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (“Topic 606”), revenue is measured based on consideration specified in the contract with a customer, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price, including noncash consideration, consideration paid or payable to a customer and significant financing components. Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer, as further described below under “ Performance Obligations .” Taxes collected from customers and remitted to governmental authorities are excluded from revenue on the net basis of accounting. The Company includes shipping and handling fees in revenues. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The following is a description of the Company’s performance obligations included in its primary revenue streams and the timing or method of revenue recognition for each: In-Store Signage Solution Services. The Company provides a service of displaying promotional signs in close proximity to the CPG manufacturer’s product in participating stores, which the Company maintains in two-to-four-week cycle increments. Each of the individual activities under the Company’s services, including production activities, are inputs to an integrated sign display service. Customers receive and consume the benefits from the promotional displays over the duration of the contracted display cycle. Additionally, the display of the signs does not have an alternative use to the Company and the Company has an enforceable right to payment for services performed to date. As a result, the Company recognizes the transaction price for service performance obligations as revenue over time. Given the nature of the Company’s performance obligations is to provide a display service over the duration of a specified period or periods, the Company recognizes revenue on a straight-line basis over the display service period as it best reflects the timing of transfer of its sign solutions. Non-POPS Solutions . The Company also supplies CPG manufacturers with other retailer approved promotional services, such as signage, on-pack, merchandising and digital solutions. These services are more customized than POPS, consisting of variable durations and variable specifications. Due to the variable nature of these services, revenue recognition is a mix of over-time and point-in-time recognition. 10 Table of contents Products . Prior to the August 2020 sale of the Company’s custom print business, the Company also sold custom print solutions directly to its customers. Each such product was a distinct performance obligation. Revenue was recognized at a point-in-time upon shipment when control of the goods transferred to the customer. Disaggregation of Revenue In the following table, revenue is disaggregated by major revenue stream and timing of revenue recognition. Three months ended June 30, 2021 Six months ended June 30, 2021 Services Revenues Products Revenue Total Revenue Services Revenues Products Revenue Total Revenue Timing of revenue recognition: Products and services transferred over time $ 1,861,000 $ - $ 1,861,000 $ 3,884,000 $ - $ 3,884,000 Products and services transferred at a point in time 4,235,000 - 4,235,000 7,598,000 - 7,598,000 Total $ 6,096,000 $ - $ 6,096,000 $ 11,482,000 $ - $ 11,482,000 As Restated Three months ended June 30, 2020 Six months ended June 30, 2020 Services Revenues Products Revenue Total Revenue Services Revenues Products Revenue Total Revenue Timing of revenue recognition: Products and services transferred over time $ 2,012,000 $ - $ 2,012,000 $ 5,343,000 $ - $ 5,343,000 Products and services transferred at a point in time 1,121,000 214,000 1,335,000 2,190,000 460,000 2,650,000 Total $ 3,133,000 $ 214,000 $ 3,347,000 $ 7,533,000 $ 460,000 $ 7,993,000 Contract Costs Sales commissions that are paid to internal or external sales representatives are eligible for capitalization as they are incremental costs that would not have been incurred without entering into a specific sales arrangement and are recoverable through the expected margin on the transaction. The Company is applying the practical expedient in Accounting Standards Codification 340-40-25-4 that allows the incremental costs of obtaining a contract to be recorded as an expense when incurred when the amortization period of the asset that would have otherwise been recognized is one year or less. These costs are included in selling expenses. Deferred Revenue Significant changes in deferred revenue during the period are as follows: Balance at December 31, 2020 $ 180,000 Reclassification of beginning deferred revenue to revenue, as a result of performance obligations satisfied ( 148,000 ) Cash received in advance and not recognized as revenue 243,000 Balance at June 30, 2021 $ 275,000 Transaction Price Allocated to Remaining Performance Obligations The Company applies the practical expedient in paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less, which reflect the majority of its performance obligations. This practical expedient is being applied to arrangements for certain incomplete services and unshipped custom signage materials. Among our contracts with an expected duration of greater than one year, we anticipate that revenue of $ 38,000 , $ 116,000 and $ 60,000 related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2021 will be recognized during the remainder of fiscal 2021, 2022 and 2023, respectively. 11 Table of contents 4. Selling Arrangement. In 2011, the Company paid to News America Marketing In-Store, L.L.C. (“News America”) $4,000,000 in exchange for a 10-year arrangement to sell signs with price into News America’s network of retailers as News America’s exclusive agent. The $ 4,000,000 was being amortized over the 10 -year term of the arrangement. In 2019, the Company accelerated the amortization based on the anticipated recovery period over the remaining term of the contract due to the loss of a significant retailer. During the three months ended March 31, 2020, the impact of COVID-19 was determined to be a triggering event requiring an impairment review of long-lived assets. As of March 31, 2020, the Company determined the asset was impaired based upon continued revenue declines driven by changes in market conditions due to COVID-19 within the stores covered by the agreement. As a result, an impairment of $ 159,000 was recognized as of March 31, 2020. The Company also shortened the remaining useful life of the underlying asset from March 31, 2021 to December 31, 2020 and recorded remaining amortization expense on a straight-line basis over the remainder of 2020. Amortization expense without the impairment was $ 36,000 and $ 97,000 in the three and six months ended June 30, 2020. The selling arrangement was fully amortized as of June 30, 2021 and December 31, 2020. 5. Income Taxes. For the three and six months ended June 30, 2021, the Company recorded income tax expense of $ 10,000 and $ 23,000 , respectively, or ( 1.1 )% and ( 1.4 )% of loss before taxes, respectively. For the three and six months ended June 30, 2020, the Company recorded income tax expense of $ 11,000 and an income tax benefit of $211,000, respectively, or ( 0.6 )% and 7.1 % of loss before taxes, respectively. The income tax benefit or expense for the three and six months ended June 30, 2021 and 2020 is comprised of federal and state taxes. The primary differences between the Company’s June 30, 2021 and 2020 effective tax rates and the statutory federal rate are nondeductible stock-based compensation, nondeductible meals and entertainment and increases in the Company’s valuation allowance against its deferred tax assets and nondeductible penalties for June 30, 2021, and loan forgiveness from the Paycheck Protection Program (PPP) loan. The Company reassesses its effective rate each reporting period and adjusts the annual effective rate if deemed necessary, based on projected annual taxable income (loss). Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of enacted tax laws. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which it operates, estimates of future taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustment to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria. At June 30, 2021 and December 31, 2020, the Company had a valuation allowance of approximately $ 2,586,000 and $ 1,946,000 , respectively, against its entire deferred tax asset because the Company does not believe it is more likely than not that it will realize its deferred tax asset. As of June 30, 2021, and December 31, 2020, the Company had unrecognized tax benefits totaling $ 694,000 and $ 677,000 , respectively, including interest, which relates to state nexus issues. The amount of the unrecognized tax benefits, if recognized, that would affect the effective income tax rates of future periods is $ 694,000 . The Company believes that it is reasonably possible that a decrease of up to $ 650,000 in unrecognized tax benefits related to state exposures may be necessary within the coming year, which would reduce accrued income taxes and increase income tax benefit. In March 2020, Congress passed the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. The CARES Act, among other provisions, allows for companies to carry back federal NOLs generated in 2018, 2019 and 2020 for up to five years for refunds of federal taxes paid. This provision created an opportunity for the Company to utilize NOLs not previously expected to be utilized. Thus, in 2020 the Company reversed approximately $ 215,000 of its valuation allowance against the NOLs in its deferred tax assets which the Company carried back to claim a refund of federal taxes paid. As the Company expects to receive the tax refund from the ability to carry back the NOLs within the next 12 months, this discrete benefit has been recorded within income taxes receivable on the balance sheet. In addition to the $ 215,000 recognized, $ 17,000 was included as a discrete tax benefit for 2020 and included in income taxes receivable related to the NOL carry back due to differences in the federal tax rate utilized for the deferred tax asset compared to the rates in effect for the years in which the NOL is being carried back. 6. Concentrations. During the six months ended June 30, 2021, three customers accounted for 15 %, 12 % and 11 %, respectively of the Company’s total net sales. During the six months ended June 30, 2020, one customer accounted for 19 % of the Company’s total net sales. At June 30, 2021, two customers represented 17 % and 14 %, respectively of the Company’s total accounts receivable. At December 31, 2020, two customers represented 17 % and 10 %, respectively, of the Company’s total accounts receivable. 12 Table of contents 7. Legal Proceedings. In July 2019, the Company brought suit against News America in the U.S. District Court in Minnesota, alleging violations of federal and state antitrust and tort laws by News America. The complaint alleges that News America has monopolized the national market for third-party in-store advertising and promotion products and services through various wrongful acts designed to harm the Company, its last significant competitor. The suit seeks, among other relief, an injunction sufficient to prevent further antitrust injury and an award of treble damages to be determined at trial for the harm caused to our Company. In August 2019, News America filed an answer and counterclaim. In October 2019, News America moved for a judgment on the pleadings. Management believes that the counterclaim is without merit, and the Company filed a response brief on November 11, 2019. The Company also moved to dismiss the counterclaim against it. The court heard oral arguments from both parties on January 14, 2020, and subsequently denied both motions. On July 10, 2020 the parties cross-moved for summary judgment on the counterclaim. On December 7, 2020, the Court granted News America’s motion for summary judgment on the counterclaim in part, requiring Insignia to strike certain allegations from its complaint and finding News America’s request for attorneys’ fees and costs premature. Discovery is underway and trial has been scheduled for December 2021. At this stage of the proceedings, the Company is unable to determine the likelihood of an unfavorable outcome or estimate any potential resulting liability. 8. Loan. In April 2020, the Company entered into a promissory note (the “Note”) with Alerus Financial, N.A. The Note evidenced a loan to the Company in the amount of $ 1,054,000 pursuant to the Paycheck Protection Program (the “PPP”) of the CARES Act administered by the U.S. Small Business Administration (the “SBA”). In accordance with the requirements of the CARES Act, the Company used the proceeds from the loan exclusively for qualified expenses under the PPP, including payroll costs, rent and utility costs, as further detailed in the CARES Act and applicable guidance issued by the SBA. Interest was accrued on the outstanding balance of the Note at a rate of 1.00 % per annum. The Note was scheduled to mature on April 22, 2022 and required 18 equal monthly payments of principal and interest. The Company’s application for forgiveness of the entire principal amount and all accrued interest under the Note was approved by the SBA on January 29, 2021. Accordingly, for the six months ended June 30, 2021 the debt of $ 1,054,000 , plus accrued interest of $ 8,000 , was eliminated with a gain on debt forgiveness and accrued interest included in other income. 9. Subsequent Event. The Company signed a lease for its headquarters space in Minneapolis for a three-year term commencing in July 2021 with monthly payments of approximately $ 8,300 , inclusive of common area maintenance costs. A right-of-use asset and lease liability of approximately $ 183,000 will be recorded during the three months ended September 30, 2021. 13 Table of contents