What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-05 compared with 2021-08-23 · 96 added, 83 removed, 108 unchanged (62% of the section changed)

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This discussion contains forward-looking statements that involve risks and uncertainties.

Our actual results could differ materially from those anticipated due to various factors discussed under “Cautionary Statement Regarding Forward-Looking Statements” and elsewhere, including Part II, Item 1A, in this Quarterly Report on Form 10-Q and the “Risk Factors” described in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, our Current Reports on Form 8-K and our other SEC filings.

The accompanying Management’s Discussion and Analysis (“MD&A”) gives effect to certain adjustments made to the previously reported financial statements for the three and six months ended June 30, 2020.

Refer to Note 2, “Restatement of Financial Statements” in the accompanying financial statements for further details related to the restatement and impact on our financial statements.

Our actual results could differ materially from those anticipated due to various factors discussed under “Cautionary Statement Regarding Forward-Looking Statements” and elsewhere, including Part II, Item 1A, in this Quarterly Report on Form 10-Q and the “Risk Factors” described in Part I, Item 1A, of our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2020, our Current Reports on Form 8-K and our other SEC filings.

Company Overview

Insignia Systems, Inc.

(“Insignia,” “we,” “us,” “our” and 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 (“clients”).

(“Insignia,” “we,” “us,” “our” and the “Company”) is a leading provider of in-store solutions to consumer-packaged goods (“CPG”) manufacturers, retailers, shopper marketing agencies and brokerages (“clients”).

We believe our products and services are attractive to our clients because of our speed to market, ability to customize our solutions down to store level and the results our solutions deliver.

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We have observed increased competition in growing and maintaining our network of retailers into which we are authorized to sell solutions as competitors continue to purchase new or extend exclusive arrangements with retailers for that purpose.

The increased competition has caused POPs sales to decline and we expect continued declines.

New product investments by large and emerging CPG manufacturers give us optimism that our product portfolio is relevant to our clients.

Over the past several years, we have diversified our portfolio through a significant expansion of our offered solutions and development of a portfolio designed to more holistically meet the needs of our clients and execution partners.

This diversification has resulted in non-POPS solutions revenue growing 182% and 137% for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020, respectively.

This diversification has resulted in non-POPS solutions revenue growing 70% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

For the three months ended September 30, 2021, non-POPs solutions revenue declined 18% compared to the three months ended September 30, 2020 primarily due to an unusually strong third quarter of 2020 as programs deferred in the second quarter of 2020 due to Covid were executed and included in revenue in the third quarter of 2020.

Our non-POPS revenue has grown year over year since we began the expansion of our offered solutions in 2017.

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Impacts and Potential Future Impacts of COVID-19 on Our Business

Evaluating the second quarter of 2021 is challenging given the dramatic impacts of the COVID-19 pandemic on the Company in the six months ended June 30, 2020.

In the second quarter of 2020, the pandemic substantially reduced our sales due to the deferral and/or cancelation of a large number of programs that were originally slated for execution in the second quarter of 2020.

Evaluating the third quarter of 2021 is challenging given the dramatic impacts of the COVID-19 pandemic on the Company in the three and nine months ended September 30, 2020.

In contrast to much of the preceding 15 to 18 months, we are currently seeing a limited direct impact on our business related to the pandemic.

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Summary of Financial Results

For the quarter ended June 30, 2021, the Company generated revenues of $6,096,000, as compared with revenues of $3,347,000 for the quarter ended June 30, 2020.

For the six months ended June 30, 2021, the Company generated revenues of $11,482,000, as compared with revenues of $7,993,000 in the six months ended June 30, 2020.

Net loss for the quarter ended June 30, 2021 was $894,000, as compared to a net loss of $1,843,000 for the quarter ended June 30, 2020.

Net loss for the six months ended June 30, 2021 was $1,631,000, as compared to a net loss of $2,768,000 for the six months ended June 30, 2020.

The COVID-19 pandemic negatively impacted revenue and net loss for the three and six months ended June 30, 2020.

Revenue from our non-POPS solutions has increased significantly for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020, partially offset by continued declines in our signage business due to competitive pressure.

For the quarter ended September 30, 2021, the Company generated net sales of $3,493,000, as compared with revenues of $4,435,000 for the quarter ended September 30, 2020.

For the nine months ended September 30, 2021, the Company generated revenues of $14,975,000, as compared with revenues of $12,428,000 in the nine months ended September 30, 2020.

Net loss for the quarter ended September 30, 2021 was $921,000, as compared to net loss of $886,000 for the quarter ended September 30, 2020.

Net loss for the nine months ended September 30, 2021 was $2,552,000, as compared to net loss of $3,654,000 for the nine months ended September 30, 2020.

The COVID-19 pandemic negatively impacted revenue and net loss for the three and nine months ended September 30, 2020.

Revenue from our non-POPS solutions has increased significantly for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

This increase was partially offset by continued declines in our signage business due to competitive pressure, which we expect to continue.

We are investing in both people and resources to support the growth of non-POPS, while also shifting resources away from signage.

We continue to pursue a variety of efforts designed to drive innovation, client acquisitions and retailer expansions.

During the first six months of 2021, litigation expenses increased significantly compared to prior quarters.

During the first nine months of 2021, litigation expenses increased significantly compared to prior quarters.

We also recognized a gain of $1,062,000 on the forgiveness of our PPP loan during the first quarter of 2021.

During the six months ended June 30, 2021, cash and cash equivalents and restricted cash decreased by $1,164,000 from $7,128,000 at December 31, 2020, to $5,964,000 at June 30, 2021.

The decrease was primarily driven by the net loss for the six months ended June 30, 2021.

The Company had no long-term debt other than its lease obligations as of June 30, 2021.

During the nine months ended September 30, 2021, cash and cash equivalents and restricted cash decreased $3,394,000 from $7,128,000 at December 31, 2020, to $3,734,000 at September 30, 2021.

The Company had no long-term debt other than its lease obligations as of September 30, 2021.

Results of Operations

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Three Months Ended

Six Months Ended

Nine Months Ended

Cost of sales

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Income tax expense (benefit)

Three and Six Months Ended June 30, 2021 Compared to Three and Six Months Ended June 30, 2020

Net sales for the three months ended June 30, 2021 increased 82.1% to $6,096,000 compared to $3,347,000 for the three months ended June 30, 2020.

Net sales for the six months ended June 30, 2021 increased 43.7% to $11,482,000 compared to $7,993,000 for the six months ended June 30, 2020.

Three and Nine months Ended September 30, 2021 Compared to Three and Nine months Ended September 30, 2020

Net sales for the three months ended September 30, 2021 decreased 21.2% to $3,493,000 compared to $4,435,000 for the three months ended September 30, 2020.

Net sales for the nine months ended September 30, 2021 increased 20.5% to $14,975,000 compared to $12,428,000 for the nine months ended September 30, 2020.

Service revenues .

Service revenues for the three months ended June 30, 2021 increased 94.6% to $6,096,000 compared to $3,133,000 for the three months ended June 30, 2020.

Service revenues for the six months ended June 30, 2021 increased 52.4% to $11,482,000 compared to $7,533,000 for the six months ended June 30, 2020.

The increases were due to 182.2% and 137.2% increases in non-POPS revenue, partially offset by decreases in POPS solutions revenue of 9.4% and 29.0% for the three and six months ended June 30, 2021, respectively.

For the three and six months ended June 30, 2021, non-POPS revenue has increased due to both sales to new CPGs and an increase in sales to existing CPGs as well as the comparison to sales being depressed by the impact of COVID-19 in the three and six months ended June 30, 2020.

Competitive pressures have resulted in decreased POPS solutions revenue for three and six months ended June 30, 2021 versus the three and six months ended June 30, 2020.

Service revenues for the three months ended September 30, 2021 decreased 19.1% to $3,493,000 compared to $4,317,000 for the three months ended September 30, 2020.

The decrease is primarily due to the comparison with the strong sales in the third quarter of 2020 which resulted from the deferral of programs from the second quarter of 2020 to the third quarter of 2020 due to COVID-19.

Due to sales cycles within the retailers that our non-POPS solutions execute we anticipate some seasonality in sales, with those sales relatively stronger in the first half of the year.

Further declines in service revenue for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 are due to continued declines in POPS solutions revenue of 21.5%.

Service revenues for the nine months ended September 30, 2021 increased 26.4% to $14,975,000 compared to $11,850,000 for the nine months ended September 30, 2020.

The increase was due to a 69.7% increase in non-POPS revenue, partially offset by a decrease in POPS solutions revenue of 26.9% for the nine months ended September 30, 2021.

For the nine months ended September 30, 2021, non-POPS revenue has increased due to both sales to new CPGs and an increase in sales to existing CPGs as well as the comparison to sales being depressed by the impact of COVID-19 in the nine months ended September 30, 2020.

Competitive pressures have resulted in decreased POPS solutions revenue for the three and nine months ended September 30, 2021 versus the three and nine months ended September 30, 2020.

We will continue to have increased pressure on our POPS business in 2021, including the impacts from the expiration in April 2021 of our 10-year selling agreement with News America Marketing In-Store (“News America”).

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Product revenues.

Due to the August 2020 sale of the custom print business, there were no product sales for the three and six months ended June 30, 2021 compared to $214,000 and $460,000 for the three and six months ended June 30, 2020, respectively.

Due to the August 2020 sale of the custom print business, there were no product sales for the three and nine months ended September 30, 2021 compared to $118,000 and $578,000 for the three and nine months ended September 30, 2020, respectively.

Gross Profit.

Gross profit for the three months ended June 30, 2021 increased 263.9%% to $1,208,000 compared to $332,000 for the three months ended June 30, 2020.

Gross profit as a percentage of total net sales increased to 19.8% for the three months ended June 30, 2021 compared to 9.9% for the three months ended June 30, 2020.

Gross profit for the six months ended June 30, 2021 increased 68.9% to $2,137,000 compared to $1,265,000 for the six months ended June 30, 2020.

Gross profit as a percentage of total net sales increased to 18.6% for the six months ended June 30, 2021 compared to 15.8% for the six months ended June 30, 2020.

Gross profit for the three months ended September 30, 2021 decreased 2.5% to $545,000 compared to $559,000 for the three months ended September 30, 2020.

Gross profit as a percentage of total net sales increased to 15.6% for the three months ended September 30, 2021 compared to 12.6% for the three months ended September 30, 2020.

Gross profit for the nine months ended September 30, 2021 increased 47.0% to $2,682,000 compared to $1,824,000 for the nine months ended September 30, 2020.

Gross profit as a percentage of total net sales increased to 17.9% for the nine months ended September 30, 2021 compared to 14.6% for the nine months ended September 30, 2020.

Service revenues.

Gross profit from our service revenues for the three months ended June 30, 2021 increased 270.6% to $1,208,000 compared to $326,000 for the three months ended June 30, 2020.

The increase in gross profit was primarily due to POPS solutions margin as the Company reduced guaranteed payment obligations by renegotiating several fixed or store-based retail payment contracts to sign placement-based payment contracts during 2020.

Gross profit from our service revenue for the six months ended June 30, 2021 increased 59.0% to $2,137,000 compared to $1,344,000 for the six months ended June 30, 2020.

The increase was primarily due to the factors described above.

Gross profit as a percentage of service revenues for the three months ended June 30, 2021 increased to 19.8% compared to 10.4% for the three months ended June 30, 2020.

Gross profit as a percentage of service revenues for the six months ended June 30, 2021 increased to 18.6% compared to 17.8% for the six months ended June 30, 2020.

The increases for both periods were primarily due to the factors described above, partially offset by reduced gross profit rates on non-POPS solutions due to the Company’s decision to make an investment in the execution of a large non-POPS program.

Gross profit from our service revenues for the three months ended September 30, 2021 decreased 1.4% to $545,000 compared to $553,000 for the three months ended September 30, 2020.

The decrease in gross profit was primarily due to the decrease in non-POPS solution sales in comparison to 2020 which were strong due to the deferral of programs from the second quarter of 2020 to the third quarter of 2020 because of COVID-19, partially offset by POPS solutions margin as the Company reduced guaranteed payment obligations by renegotiating several fixed or store-based retail payment contracts to sign placement-based payment contracts during 2020.

Gross profit from our service revenues for the nine months ended September 30, 2021 increased 54.3% to $2,682,000 compared to $1,738,000 for the nine months ended September 30, 2020.

The increase was primarily due to the POPS solutions margin as described above, in addition to a 69.7% increase in non-POPS solutions revenue for the nine months ended September 30, 2021 compared to the nine months ended September 30,2020.

Gross profit as a percentage of service revenues for the three months ended September 30, 2021 increased to 15.6% compared to 12.8% for the three months ended September 30, 2020.

Gross profit as a percentage of service revenues for the nine months ended September 30, 2021 increased to 17.9% compared to 14.7% for the nine months ended September 30, 2020.

Product revenues.

Due to the August 2020 sale of the custom print business, there was no gross profit for the three and six months ended June 30, 2021 compared to $6,000 and $80,000 for the three and six months ended June 30, 2020, respectively.

Gross profit as a percentage of product revenues for the three and six months ended June 30, 2020 was 2.8% and 17.4%, respectively.

Due to the August 2020 sale of the custom print business, there was no gross profit for the three and nine months ended September 30, 2021 compared to $6,000 and $86,000 for the three and nine months ended September 30, 2020, respectively.

Gross profit as a percentage of product revenues for the three and nine months ended September 30, 2020 was 5.1% and 14.9%, respectively.

Impairment Loss.

Impairment loss for the six months ended June 30, 2020 was $159,000 as a result of the impairment during the first quarter of the Company’s selling agreement with News America, a long-lived asset.

Impairment loss for the nine months ended September 30, 2020 was $159,000 as a result of the impairment during the first quarter of the Company’s selling agreement with News America, a long-lived asset.

The impairment charge is described further in Note 3 of our accompanying unaudited financial statements.

There was no impairment loss during the three and six months ended June 30, 2021.

There was no impairment loss during the three and nine months ended September 30, 2021.

Operating Expenses

Selling expenses for the three months ended June 30, 2021 decreased 49.8% to $465,000 compared to $927,000 for the three months ended June 30, 2020.

Selling expenses for the six months ended June 30, 2021 decreased 40.4% to $981,000 compared to $1,647,000 for the six months ended June 30, 2020.

Selling expenses for the three months ended September 30, 2021 decreased 27.4% to $425,000 compared to $585,000 for the three months ended September 30, 2020.

Selling expenses for the nine months ended September 30, 2021 decreased 37.0% to $1,406,000 compared to $2,232,000 for the nine months ended September 30, 2020.

The decreases for both periods were primarily due to reductions in staffing incurred in 2020 and other decreased staff related expenses.

Selling expenses as a percentage of total net sales decreased to 7.6% for the three months ended June 30, 2021 compared to 27.7% for the three months ended June 30, 2020.

Selling expenses as a percentage of net sales decreased to 8.5% for the six months ended June 30, 2021 compared to 20.6% for the six months ended June 30, 2020.

The decreases for both periods were primarily due to decreased expense described above, in addition to increased sales.

Marketing expenses for the three months ended June 30, 2021 increased 7.0% to $260,000 compared to $243,000 for the three months ended June 30, 2020.

The increase was primarily due to staff related expenses.

Marketing expense for the six months ended June 30, 2021 decreased 18.6% to $495,000 compared to $608,000 for the six months ended June 30, 2020.

The decreases was primarily the result of decreased consulting expenses.

Marketing expenses as a percentage of total net sales decreased to 4.3% for the three months ended June 30, 2021 compared to 7.3% for the three months ended June 30, 2020.

Marketing expenses as a percentage of net sales decreased to 4.3% for the six months ended June 30, 2021 compared to 7.6% for the six months ended June 30, 2020.

The decreases for both periods were due to increased sales, in addition to the factors described above.

Selling expenses as a percentage of total net sales decreased to 12.2% for the three months ended September 30, 2021 compared to 13.2% for the three months ended September 30, 2020.

Selling expenses as a percentage of net sales decreased to 9.4% for the nine months ended September 30, 2021 compared to 17.9% for the nine months ended September 30, 2020.

The decreases for both periods were primarily due to decreased expense described above, in addition to increased sales for the nine months ended September 30, 2021.

Marketing expenses for the three months ended September 30, 2021 increased 38.5% to $266,000 compared to $192,000 for the three months ended September 30, 2020.

The increase was due to an increase in non-POPS solutions promotional activities.

Marketing expense for the nine months ended September 30, 2021 decreased 4.9% to $761,000 compared to $800,000 for the nine months ended September 30, 2020.

The decreases was primarily the result of decreased consulting expenses, partially offset by the increased promotional activities described above.

Marketing expenses as a percentage of total net sales increased to 7.6% for the three months ended September 30, 2021 compared to 4.3% for the three months ended September 30, 2020.

The increase was due to the factors described above.

Marketing expenses as a percentage of net sales decreased to 5.1% for the nine months ended September 30, 2021 compared to 6.4% for the nine months ended September 30, 2020.

The decrease was due to increased sales, in addition to the factors described above.

General and administrative.

General and administrative expenses for the three months ended June 30, 2021 increased 34.7% to $1,336,000 compared to $992,000 for the three months ended June 30, 2020.

General and administrative expenses for the six months ended June 30, 2021 increased 64.0% to $3,273,000 compared to $1,996,000 for the six months ended June 30, 2020.

The increases for both periods were primarily due to expenses incurred as a result of the litigation with News America, partially offset by a reduction in staff related expenses.

General and administrative expenses as a percentage of total net sales decreased to 21.9% for the three months ended June 30, 2021 compared to 29.6% for the three months ended June 30, 2020 due to increased sales, partially offset by expenses incurred as a result of the litigation with News America.

General and administrative expenses as a percentage of net sales increased to 28.5% for the six months ended June 30, 2021 compared to 25.0% for the six months ended June 30, 2020, the increase was due to expenses incurred as a result of the litigation with News America, partially offset by increased sales.

General and administrative expenses for the three months ended September 30, 2021 decreased 7.3% to $779,000 compared to $840,000 for the three months ended September 30, 2020.

The decrease was due to decreased staffing.

General and administrative expenses for the nine months ended September 30, 2021 increased 42.9% to $4,052,000 compared to $2,836,000 for the nine months ended September 30, 2020.

The increase was primarily due to expenses incurred as a result of the litigation with News America, partially offset by a reduction in staff related expenses.

General and administrative expenses as a percentage of total net sales increased to 22.3% for the three months ended September 30, 2021 compared to 19.0% for the three months ended September 30, 2020.

The increase was primarily due to decreased sales, partially offset by decreased staffing.

General and administrative expenses as a percentage of net sales increased to 27.0% for the nine months ended September 30, 2021 compared to 22.8% for the nine months ended September 30, 2020.

The increase was due to expenses incurred as a result of the litigation with News America, partially offset by increased sales.

Gain on sale.

Gain on sale for the three and nine months ended September 30, 2020 was $195,000 as a result of the sale of our custom print business.

Other Income (Expense).

Other expense for the three months ended June 30, 2021 was $31,000 compared to $2,000 for the three months ended June 30, 2020.

Other income for the six months ended June 30, 2021 was $1,004,000 compared to $7,000 for the six months ended June 30, 2020.

The increase for the six months ended June 30, 2021 was due to the gain on debt extinguishment of $1,062,000 from the SBA forgiving the Company of its Note entered into pursuant to the PPP of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, partially offset of interest expense related to sales tax accrued.

Other income for the three months ended September 30, 2021 was $13,000 compared to other expense of $15,000 for the three months ended September 30, 2020.

Other income for the nine months ended September 30, 2021 was $1,017,000 compared to other expense of $8,000 for the nine months ended September 30, 2020.

The increase for the nine months ended September 30, 2021 was due to the gain on forgiveness of debt and accrued interest of $1,062,000 from the SBA forgiving the Company of its Note entered into pursuant to the PPP of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, partially offset of interest expense related to sales tax accrued.

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 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 expenses related to stock-based compensation, nondeductible meals and entertainment and an increase in the Company’s valuation allowance against its deferred tax assets and for June 30, 2021, nondeductible penalties and loan forgiveness from the Paycheck Protection Program (PPP) loan.

For the three and nine months ended September 30, 2021, the Company recorded income tax expense of $9,000 and $32,000, or 1.0% and 1.3% of loss before taxes, respectively.

For the three and nine months ended September 30, 2020, the Company recorded income tax expense and an income tax benefit, respectively, of $8,000 and $203,000, or 0.9% and (5.3%) of loss before taxes, respectively.

The income tax expense or benefit for the three and nine months ended September 30, 2021 and 2020 is comprised of federal and state taxes.

The primary differences between the Company’s September 30, 2021 and 2020 effective tax rates and the statutory federal rate are expenses related to stock-based compensation, nondeductible meals and entertainment and an increase in the Company’s valuation allowance against its deferred tax assets and for September 30, 2021, non-deductible penalties and loan forgiveness from the PPP loan.

The Company reassesses its effective tax rate each reporting period and adjusts the annual effective rate if deemed necessary, based on projected annual taxable income (loss).

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Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria.

As of September 30, 2021, and December 31, 2020, the Company had unrecognized tax benefits totaling $703,000 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 $703,000.

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.

As a result of the Company’s future outlook, management has reviewed its deferred tax assets and concluded that the uncertainties related to the realization of its deferred tax assets have become unfavorable.

Management has considered positive and negative evidence for the potential utilization of the deferred tax assets and has concluded that it is more likely than not that Company will not realize the full amount of its net deferred tax assets.

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.

In March 2020, Congress passed the Coronavirus Aid, Relief and Economic Security (“CARES”) Act.

At September 30, 2021 and December 31, 2020, the Company had a valuation allowance of approximately $2,811,000 and $1,946,000, respectively, against its entire net deferred tax asset because the Company does not believe it is more likely than not that it will realize its net deferred tax asset.

In March 2020, Congress passed the 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, the Company has 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 the year 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.

For the reasons stated above, net loss for the three and six months ended June 30, 2021 was $894,000 and $1,631,000, respectively, compared to net loss of $1,843,000 and $2,768,000, respectively, for the three and six months ending June 30, 2020.

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 was 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.

For the reasons stated above, net loss for the three and nine months ended September 30, 2021 was $921,000 and $2,552,000, respectively, compared to net loss of $886,000 and $3,654,000, respectively, for the three and nine months ending September 30, 2020.

Liquidity and Capital Resources

The Company has financed its operations with proceeds from stock sales and sales of its services and products.

At June 30, 2021, working capital was $5,756,000 (defined as current assets less current liabilities) compared to $7,668,000 at December 31, 2020.

During the six months ended June 30, 2021, cash and cash equivalents and restricted cash decreased $1,164,000 from $7,128,000 at December 31, 2020 to $5,964,000 at June 30, 2021.

At September 30, 2021, working capital was $4,799,000 (defined as current assets less current liabilities) compared to $7,668,000 at December 31, 2020.

During the nine months ended September 30, 2021, cash and cash equivalents and restricted cash decreased $3,394,000 from $7,128,000 at December 31, 2020, to $3,734,000 at September 30, 2021.

Operating Activities .

Net cash used by operating activities during the six months ended June 30, 2021, was $1,151,000.

Net cash used in operating activities during the nine months ended September 30, 2021, was $3,323,000.

Net loss of $2,552,000, less non-cash adjustments of $789,000, plus changes in operating assets and liabilities of $20,000 resulted in the $3,323,000 of cash used by operating activities.

The largest component of the change in operating assets and liabilities was accounts receivable, which decreased by $967,000 from December 31, 2020, as a result of normal fluctuations based on business and market conditions.

The largest components of the change in operating assets and liabilities were accounts receivable which decreased $1,620,000 from December 31, 2020 and accounts payable, which decreased $1,655,000 from December 31, 2020, this decrease was a result of lower sales in the third quarter of 2021 which resulted in lower accounts receivable and which led to reduced amounts owed to POPS retailers and for execution costs on non-POPS solutions.

The non-cash adjustments consisted of depreciation and amortization expense, gain on sale of property and equipment, changes in allowance for doubtful accounts, gain on forgiveness of PPP loan and accrued interest and stock-based compensation expense.

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Investing Activities .

Net cash used in investing activities during the six months ended June 30, 2021 was $16,000.

Net cash used in investing activities during the nine months ended September 30, 2021 was $65,000.

This was related to the purchase of property and equipment, partially offset by proceeds from the sale of property and equipment.

Financing Activities .

Net cash provided by financing activities during the six months ended June 30, 2021 was $3,000, which relates to proceeds received from issuance of common stock under the employee stock purchase plan.

Net cash provided by financing activities during the six months ended June 30, 2020 was $1,060,000, which primarily related to proceeds received from our PPP loan.

Net cash used in financing activities during the nine months ended September 30, 2021 was $6,000, which relates the repurchase of common stock upon the vesting of restricted stock awards, partially offset by proceeds received from issuance of common stock under the employee stock purchase plan.

Net cash provided by financing activities during the nine months ended September 30, 2020 was $1,059,000, which primarily related to proceeds received from our PPP loan.

The Company believes that based upon current business conditions and plans, its existing cash balance and future cash generated from operations will be sufficient for its cash requirements for at least the next twelve months.

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Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in Note 1 to the annual financial statements as of and for the year ended December 31, 2020, included in our Form 10-K/A filed with the Securities and Exchange Commission on March 11, 2021.

We believe our most critical accounting policies and estimates include the following:

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(iii) management’s ability to fully or successfully implement its business plan to achieve and maintain increased sales and resultant profitability in the future;

(iv) the Company’s success in developing and implementing new product offerings, including mobile, digital or other new offerings, in a successful manner;

(iv) the Company’s success in developing and implementing new product offerings in a successful manner;

(v) prevailing market conditions, including pricing and other competitive pressures, in the in-store advertising industry and, intense competition for agreements with CPG retailers and manufacturers;

(vi) potentially incorrect assumptions by management with respect to the financial effect of current strategic decisions and the effect of current sales trends on fiscal year 2021 results;

(vii) termination of all or a major portion of, or a significant change in terms and conditions of, a material agreement with a CPG manufacturer or retailer;

(vii) termination of all or a major portion of, or a significant change in terms and conditions of, a material agreement with a CPG manufacturer;

(viii) other economic, business, market, financial, competitive and/or regulatory factors affecting the Company’s business generally;

(ix) our ability to successfully manage our new IT operating infrastructure outsourcing arrangement;

(ix) our ability to successfully manage our IT operating infrastructure outsourcing arrangement;

(x) our ability to attract and retain highly qualified managerial, operational and sales personnel;

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis