BLOOMIA HOLDINGS, INC. 10-Q

Item 1. Financial Statements Insignia Systems, Inc. CONDENSED BALANCE SHEETS September 30, 2021 December 31, 2020 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 3,649,000 $ 7,128,000 Restricted cash 85,000 — Accounts receivable, net 4,203,000 5,857,000 Inventories 87,000 85,000 Income tax receivable 242,000 241,000 Prepaid expenses and other 837,000 711,000 Total Current Assets 9,103,000 14,022,000 Other Assets: Property and equipment, net 114,000 75,000 Operating lease right-of-use assets 202,000 37,000 Other, net 37,000 155,000 Total Assets $ 9,456,000 $ 14,289,000 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Accounts payable 1,506,000 3,148,000 Accrued liabilities: Compensation 395,000 424,000 Sales tax 1,275,000 1,011,000 Other 842,000 1,071,000 Current portion of long-term debt — 464,000 Current portion of operating lease liabilities 75,000 56,000 Deferred revenue 211,000 180,000 Total Current Liabilities 4,304,000 6,354,000 Long-Term Liabilities: Accrued income taxes 703,000 677,000 Long-term debt, net of current portion — 590,000 Operating lease liabilities 127,000 — Total Long-Term Liabilities 830,000 1,267,000 Commitments and Contingencies — — Shareholders’ Equity: Common stock, par value $ .01 : Authorized shares - 5,714,000 Issued and outstanding shares - 1,768,000 at September 30, 2021 and 1,748,000 at December 31, 2020, respectively 18,000 17,000 Additional paid-in capital 16,443,000 16,238,000 Accumulated deficit ( 12,139,000 ) ( 9,587,000 ) Total Shareholders’ Equity 4,322,000 6,668,000 Total Liabilities and Shareholders’ Equity $ 9,456,000 $ 14,289,000 See accompanying notes to financial statements. 3 Table of Contents Insignia Systems, Inc. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended September 30 September 30 2021 2020 2021 2020 Services revenues $ 3,493,000 $ 4,317,000 $ 14,975,000 $ 11,850,000 Products revenues — 118,000 — 578,000 Total Net Sales 3,493,000 4,435,000 14,975,000 12,428,000 Cost of services 2,948,000 3,764,000 12,293,000 9,953,000 Cost of goods sold — 112,000 — 492,000 Impairment loss - services — — — 159,000 Total Cost of Sales 2,948,000 3,876,000 12,293,000 10,604,000 Gross Profit 545,000 559,000 2,682,000 1,824,000 Operating Expenses: Selling 425,000 585,000 1,406,000 2,232,000 Marketing 266,000 192,000 761,000 800,000 General and administrative 779,000 840,000 4,052,000 2,836,000 Gain on sale of business — ( 195,000 ) — ( 195,000 ) Total Operating Expenses 1,470,000 1,422,000 6,219,000 5,673,000 Operating Loss ( 925,000 ) ( 863,000 ) ( 3,537,000 ) ( 3,849,000 ) Other income (expense): Gain on forgiveness of debt and accrued interest — — 1,062,000 — Interest income (expense) 14,000 ( 21,000 ) ( 46,000 ) ( 55,000 ) Miscellaneous ( 1,000 ) 6,000 1,000 47,000 Loss Before Taxes ( 912,000 ) ( 878,000 ) ( 2,520,000 ) ( 3,857,000 ) Income tax expense (benefit) 9,000 8,000 32,000 ( 203,000 ) Net Loss $ ( 921,000 ) $ ( 886,000 ) $ ( 2,552,000 ) $ ( 3,654,000 ) Net loss per share: Basic $ ( 0.52 ) $ ( 0.51 ) $ ( 1.45 ) $ ( 2.11 ) Diluted $ ( 0.52 ) $ ( 0.51 ) $ ( 1.45 ) $ ( 2.11 ) Shares used in calculation of net loss per share: Basic 1,766,000 1,740,000 1,757,000 1,730,000 Diluted 1,766,000 1,740,000 1,757,000 1,730,000 See accompanying notes to financial statements. 4 Table of Contents Insignia Systems, Inc. CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) Common Stock Additional Paid-In Accumulated Shares Amount Capital Deficit Total Balance at December 31, 2020 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 — — — ( 737,000 ) ( 737,000 ) Balance at March 31, 2021 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 Value of stock-based compensation — — 56,000 — 56,000 Repurchase of common stock upon vesting of restricted stock units 3,000 — ( 9,000 ) — ( 9,000 ) Net loss — — — ( 921,000 ) ( 921,000 ) Balance at September 30, 2021 1,768,000 $ 18,000 $ 16,443,000 $ ( 12,139,000 ) $ 4,322,000 Common Stock Additional Paid-In Accumulated Shares Amount Capital Deficit Total Balance at December 31, 2019 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 — — — ( 925,000 ) ( 925,000 ) Balance at March 31, 2020 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 — — — ( 1,843,000 ) ( 1,843,000 ) Balance at June 30, 2020 1,734,000 $ 16,000 $ 16,167,000 $ ( 7,740,000 ) $ 8,443,000 Value of stock-based compensation — — 37,000 — 37,000 Vesting of restricted stock units offset by repurchase of common stock upon vesting of retricted stock units and awards 13,000 1,000 ( 2,000 ) — ( 1,000 ) Common stock issued for accrued liabilities 2,000 — 9,000 — 9,000 Net loss — — — ( 886,000 ) ( 886,000 ) Balance at September 30, 2020 1,749,000 $ 17,000 $ 16,211,000 $ ( 8,626,000 ) $ 7,602,000 See accompanying notes to financial statements. 5 Table of Contents Insignia Systems, Inc. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30 2021 2020 Operating Activities: Net loss $ ( 2,552,000 ) $ ( 3,654,000 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 46,000 386,000 Impairment loss — 159,000 Gain on sale of business ( 7,000 ) ( 195,000 ) Changes in allowance for doubtful accounts 34,000 112,000 Stock-based compensation expense 198,000 145,000 Gain on forgiveness of debt and accrued interest ( 1,062,000 ) — Changes in operating assets and liabilities: Accounts receivable 1,620,000 1,810,000 Inventories ( 2,000 ) 80,000 Income tax receivable ( 1,000 ) ( 121,000 ) Prepaid expenses and other ( 27,000 ) ( 148,000 ) Accounts payable ( 1,655,000 ) ( 768,000 ) Accrued liabilities 28,000 346,000 Accrued income taxes 26,000 25,000 Deferred revenue 31,000 176,000 Net cash used in operating activities ( 3,323,000 ) ( 1,647,000 ) Investing Activities: Purchases of property and equipment ( 81,000 ) ( 56,000 ) Proceeds from sale of custom print business — 200,000 Proceeds from sale of property and equipment 16,000 — Net cash provided by (used in) investing activities ( 65,000 ) 144,000 Financing Activities: Cash dividends paid ($0.70 per share) ( 14,000 ) ( 14,000 ) Proceeds from issuance of common stock, net 26,000 20,000 Repurchase of common stock upon vewsting of restricted stock awards ( 18,000 ) ( 1,000 ) Proceeds from PPP loan — 1,054,000 Net cash provided by (used in) financing activities ( 6,000 ) 1,059,000 Decrease in cash and cash equivalents ( 3,394,000 ) ( 444,000 ) 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 $ 3,734,000 $ 7,066,000 Supplemental disclosures for cash flow information: Cash refunded during the period for income taxes $ 6,000 $ 107,000 Non-cash investing and financing activities: Purchases of property and equipment included in accounts payable $ 13,000 $ 22,000 Common stock issued for accrued liabilities $ — $ 9,000 Receivables recorded from sale of cusom print business $ — $ 100,000 Operating lease right of use asset obtained in exchange for lease obligations $ 219,000 $ — Forgiveness of debt and accrued interest $ 1,062,000 $ — See accompanying notes to financial statements. 6 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 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. 7 Table of Contents 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: September 30, December 31, 2021 2020 Cash and cash equivalents $ 3,649,000 $ 7,128,000 Restricted cash 85,000 — Total cash, cash equivalents and restricted cash $ 3,734,000 $ 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 its headquarters space in Minneapolis. See Note 4 for further discussion. 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 method, and consisted of the following as of the dates indicated: September 30, December 31, 2021 2020 Work-in-process $ 2,000 $ 2,000 Finished goods 85,000 83,000 $ 87,000 $ 85,000 Property and Equipment . Property and equipment consisted of the following as of the dates indicated: September 30, December 31, 2021 2020 Property and Equipment: Production tooling, machinery and equipment $ 26,000 $ 2,349,000 Office furniture and fixtures 95,000 425,000 Computer equipment and software 740,000 1,447,000 Leasehold improvements 19,000 — Construction in-progress 4,000 17,000 884,000 4,238,000 Accumulated depreciation and amortization ( 770,000 ) ( 4,163,000 ) Net Property and Equipment $ 114,000 $ 75,000 Depreciation expense was approximately $ 14,000 and $ 46,000 in the three and nine months ended September 30, 2021, respectively, and was $ 85,000 and $ 255,000 in the three and nine months ended September 30, 2020, respectively. 8 Table of Contents 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 nine months ended September 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 scheduled 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. In July 2020, the Company issued 11,053 shares of common stock in settlement of $ 9,000 of total deferred fees as a result of a non-employee director’s departure from the Board of Directors. The Company’s non-employee directors are eligible to participate in a director deferred compensation plan, which allows a director to make voluntary deferrals of up to 100% of their annual cash retainers relating to Board and committee service. The Company estimated the fair value of stock-based awards granted during the nine months ended September 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 %. Total stock-based compensation expense recorded for the three and nine months ended September 30, 2021 was $ 56,000 and $ 198,000 , respectively, and for the three and nine months ended September 30, 2020 was $ 37,000 and $ 145,000 , 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 dilutive potential common shares outstanding during the period. Due to the net loss incurred during the three and nine months ended September 30, 2021 and 2020 all outstanding stock options were anti-dilutive for the periods. Weighted average common shares outstanding for the three and nine months ended September 30, 2021 and 2020 were as follows: Three Months Ended Nine Months Ended September 30 September 30 2021 2020 2021 2020 Denominator for basic net loss per share - weighted average shares 1,766,000 1,740,000 1,757,000 1,730,000 Effect of dilutive securities: Stock options and restricted stock units — — — — Denominator for diluted net loss per share - weighted average shares 1,766,000 1,740,000 1,757,000 1,730,000 2. 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 “.” 9 Table of Contents 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 been passed 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. 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 September 30, 2021 Nine months ended September 30, 2021 Services Revenues Products Revenue Total Revenue Services Revenues Products Revenue Total Revenue Timing of revenue recognition: Products and services transferred over time $ 1,482,000 $ - $ 1,482,000 $ 5,366,000 $ - $ 5,366,000 Products and services transferred at a point in time 2,011,000 - 2,011,000 9,609,000 - 9,609,000 Total $ 3,493,000 $ - $ 3,493,000 $ 14,975,000 $ - $ 14,975,000 Three months ended September 30, 2020 Nine months ended September 30, 2020 Services Revenues Products Revenue Total Revenue Services Revenues Products Revenue Total Revenue Timing of revenue recognition: Products and services transferred over time $ 2,024,000 $ - $ 2,024,000 $ 7,366,000 $ - $ 7,366,000 Products and services transferred at a point in time 2,293,000 118,000 2,411,000 4,484,000 578,000 5,062,000 Total $ 4,317,000 $ 118,000 $ 4,435,000 $ 11,850,000 $ 578,000 $ 12,428,000 10 Table of Contents 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 179,000 Balance at September 30, 2021 $ 211,000 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 $ 29,000 , $ 116,000 and $ 60,000 related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2021 will be recognized during the remainder of fiscal 2021, 2022 and 2023, respectively. 3. 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 $ 34,000 and $ 131,000 in the three and nine months ended September 30, 2020. The selling arrangement was fully amortized as of September 30, 2021 and December 31, 2020. 11 Table of Contents 4. Leases. As of September 30, 2021 the Company leases space under two non-cancelable operating leases for our corporate headquarters and for warehouse space. Both leases have escalating lease payment terms but neither contains a contingent rent provision. The Company also had a lease for additional office space under an operating lease that expired August 31, 2021. The leases for both the Company’s corporate headquarters and its warehouse include both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. The headquarters lease required the Company to provide a letter of credit, which is supported by $ 85,000 which is reflected as restricted cash on the balance sheet. The Company’s leases include options to renew. The exercise of lease renewal options is at the Company’s sole discretion. Therefore, the renewals to extend the lease terms are not included in the Company’s right of use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. The Company used its incremental borrowing rate in determining the present value of the lease payments based on the information available at the lease commencement date. The cost components of the Company’s operating leases were as follows for the periods ended September 30, 2021: Three months ended September 30, 2021 Prior Corporate Corporate Additional Operating Headquarters Headquarters Office Space Warehouse Leases Operating lease cost $ — $ 11,000 $ — $ 4,000 $ 11,000 Variable lease cost — 7,000 — 4,000 7,000 Short-term lease cost — — 7,000 — 7,000 Total $ — $ 18,000 $ 7,000 $ 8,000 $ 25,000 Nine months ended September 30, 2021 Prior Corporate Corporate Additional Operating Headquarters Headquarters Office Space Warehouse Leases Operating lease cost $ 38,000 $ 11,000 $ — $ 9,000 $ 58,000 Variable lease cost 24,000 7,000 — 9,000 40,000 Short-term lease cost — — 28,000 — 28,000 Total $ 62,000 $ 18,000 $ 28,000 $ 18,000 $ 126,000 Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs which are paid based on actual costs incurred by the lessor. 12 Table of Contents Maturities of the Company’s lease liabilities for is corporate headquarters and its warehouse operating leases are as follows as of September 30, 2021: Maturity of Lease Liabilities Operating Leases 2021 $ 21,000 2022 83,000 2023 72,000 2024 40,000 Total lease payments $ 216,000 Less: Interest 14,000 Present value of lease liabilities $ 202,000 The remaining lease terms as of September 30, 2021 for the Company’s corporate headquarters and its warehouse leases were 2.8 years and 1.5 years, respectively. The discount rate for both leases is 4.75 %. The cash outflow for operating leases for the three and nine months ended September 30, 2021 was $ 15,000 and $ 76,000 , respectively. The cash outflow for operating leases for the three and nine months ended September 30, 2020 was $ 86,000 and $ 178,000 , respectively. Operating lease liabilities and right-of-use assets were increased for new non-cash leases by $ 219,000 for the nine months ended September 30, 2021. 5. Income Taxes. 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 and nondeductible meals and entertainment and increases in the Company’s valuation allowance against its deferred tax assets and nondeductible penalties for September 30, 2021, and forgiveness for the loan under the Paycheck Protection Program (“PPP”) of the CARES Act administered by the U.S. Small Business Administration (the “SBA”). 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 we operate, 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 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. 13 Table of Contents 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. 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 nine months ended September 30, 2021, two customers accounted for 16 % and 10 % respectively, of the Company’s total net sales. During the nine months ended September 30, 2020, two customers accounted for 13 % and 11 % respectively, of the Company’s total net sales. At September 30, 2021, two customers represented 16 % and 13 % respectively, of the Company’s total accounts receivable. At December 31, 2020, two customers represented 17 % and 10 % of the Company’s total accounts receivable. 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. Following the close of discovery, on August 27, 2021, News America moved for summary judgment on Insignia’s claims. On September 17, 2021, Insignia filed its response opposing summary judgment. On October 1, 2021, News America filed its reply brief. The court is scheduled to hear argument on the motion on January 26, 2022. 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 PPP. 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 nine months ended September 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. 14 Table of Contents