BLOOMIA HOLDINGS, INC. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS The following are included on the pages indicated: Report of Independent Registered Public Accounting Firm (PCAOB ID 23 ) 20 Balance Sheets as of December 31, 2021 and 2020 21 Statements of Operations for the years ended December 31, 2021 and 2020 22 Statements of Shareholders’ Equity for the years ended December 31, 2021 and 2020 23 Statements of Cash Flows for the years ended December 31, 2021 and 2020 24 Notes to Financial Statements 25 19 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the board of directors of Insignia Systems, Inc.: Opinion on the Financial Statements We have audited the accompanying balance sheets of Insignia Systems, Inc. (the "Company") as of December 31, 2021 and 2020, the related statements of operations, shareholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Accounting for sales taxes Critical Audit Matter Description The Company previously conducted a review of its sales tax positions and related accounting, with the assistance of outside consultants. As a result of the review, it was determined that certain services and products sales were subject to sales tax and that the Company had not assessed sales tax on sales of those services and products to customers. The Company then undertook a process to obtain documentation from significant customers to determine if any was exempt from sales tax assessments during the applicable periods. The Company accrued the estimated sales taxes due in the amounts of $1,007,000 and $1,011,000, and interest and penalties of $313,000 and $244,000, as of December 31, 2021 and 2020, respectively. For certain customers, the Company expects to bill and collect the related sales taxes that are due. The Company has estimated such amounts to be $135,000 and $266,000 as of December 31, 2021 and 2020, respectively. The Company was required to apply judgment regarding the determination of the tax status of the customers that did not respond to management’s inquiries, as well as in the estimation of sales tax rates, interest and penalties accruals, and of the sales tax amounts expected to be billed and collected. The accounting for sales taxes is complex as each state has specific rules and regulations regarding the taxability of products and services. The Company’s evaluation of the estimated sales taxes accrual required the use of a complex model and the assistance of outside professionals that are experienced in accounting for sales taxes. There is significant judgment involved in determining the specific strategy to apply for estimating the accrual for sales taxes, including the judgment of taxability of customers who did not respond to the Company’s requests for documentation of the customers’ taxability, sales tax rates in each jurisdiction, and estimated interest and penalties. Judgment is also required to determine the Company’s ability to bill and collect from certain customers past sales taxes that are due. How We Addressed the Matter in Our Audit The primary procedures we performed to address this critical audit matter included: · Testing the accuracy and completeness of the products and services sales transactions that were included in the sales tax analysis. · Testing a sample of customer responses received by the Company to validate the completeness of the accrual. · Evaluating the process management used to estimate the sales tax liability for customers who did not respond to management’s inquiries regarding taxability. · Involving internal sales tax professionals to assist in assessing each type of product and service to determine whether or not it is taxable, as well as the sales tax rates utilized and related interest and penalty calculations. · Evaluating the process that management used to estimate the sales tax liability and the estimate regarding the collectability related to proposed billings to customers of sales tax by reviewing underlying documentation analyzed by the Company to support its estimates. · Testing the mathematical accuracy of the model used by management to calculate estimated sales tax, interest and penalties. /s/ Baker Tilly US, LLP We have served as the Company's auditor since 2011. Minneapolis, Minnesota March 9, 2022 20 Table of Contents Insignia Systems, Inc. BALANCE SHEETS As of December 31 2021 2020 ASSETS Current Assets: Cash and cash equivalents $ 3,766,000 $ 7,128,000 Restricted cash 85,000 — Accounts receivable, net 5,247,000 5,857,000 Inventories 19,000 85,000 Income tax receivable 4,000 241,000 Prepaid production costs 867,000 376,000 Other prepaid expense 366,000 335,000 Total Current Assets 10,354,000 14,022,000 Other Assets: Property and equipment, net 113,000 75,000 Operating lease right-of-use assets 183,000 37,000 Other, net — 155,000 Total Assets $ 10,650,000 $ 14,289,000 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Accounts payable 2,539,000 3,148,000 Accrued liabilities: Compensation 464,000 424,000 Sales tax 1,287,000 1,011,000 Other 1,430,000 1,071,000 Current portion of long-term debt — 464,000 Current portion of operating lease liabilities 76,000 56,000 Deferred revenue 842,000 180,000 Total Current Liabilities 6,638,000 6,354,000 Long-Term Liabilities: Accrued income taxes 711,000 677,000 Long-term debt — 590,000 Operating lease liabilities 108,000 — Total Long-Term Liabilities 819,000 1,267,000 Commitments and Contingencies — — Shareholders’ Equity: Common stock, par value $.01: Authorized shares - 5,714,000 Issued and outstanding shares - 1,782,000 and 1,748,000 at December 31, 2021 and 2020, respectively 18,000 17,000 Additional paid-in capital 16,296,000 16,238,000 Accumulated deficit ( 13,121,000 ) ( 9,587,000 ) Total Shareholders’ Equity 3,193,000 6,668,000 Total Liabilities and Shareholders’ Equity $ 10,650,000 $ 14,289,000 See accompanying notes to financial statements. 21 Table of Contents Insignia Systems, Inc. STATEMENTS OF OPERATIONS Year Ended December 31 2021 2020 Services revenues $ 19,503,000 $ 16,904,000 Products revenues — 578,000 Total Net Sales 19,503,000 17,482,000 Cost of services 16,273,000 13,934,000 Cost of goods sold — 533,000 Impairment loss - services — 159,000 Total Cost of Sales 16,273,000 14,626,000 Gross Profit 3,230,000 2,856,000 Operating Expenses: Selling 1,931,000 2,877,000 Marketing 1,032,000 1,015,000 General and administrative 5,058,000 3,998,000 Gain on sale of business — ( 195,000 ) Total Operating Expenses 8,021,000 7,695,000 Operating Loss ( 4,791,000 ) ( 4,839,000 ) Other income (expense) Gain on forgiveness of debt and accrued interest 1,062,000 — Benefit from Employee Retention Credit 273,000 — Interest expense, net ( 36,000 ) ( 32,000 ) Miscellaneous — 65,000 Other income 1,299,000 33,000 Loss Before Taxes ( 3,492,000 ) ( 4,806,000 ) Income tax expense (benefit) 42,000 ( 191,000 ) Net Loss $ ( 3,534,000 ) $ ( 4,615,000 ) Net loss per share: Basic $ ( 2.01 ) $ ( 2.66 ) Diluted $ ( 2.01 ) $ ( 2.66 ) Shares used in calculation of net loss per share: Basic 1,760,000 1,734,000 Diluted 1,760,000 1,734,000 See accompanying notes to financial statements. 22 Table of Contents Insignia Systems, Inc. STATEMENTS OF SHAREHOLDERS’ EQUITY Common Stock Additional Paid-In Accumulated Shares Amount Capital Deficit Total Balance at January 1, 2020 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 Vesting of restricted stock units offset by repurchase of common stock upon vesting of restricted stock units and awards 16,000 1,000 ( 2,000 ) — ( 1,000 ) Value of stock-based compensation — — 172,000 — 172,000 Common stock issued for accrued liabilities — — 9,000 9,000 Restricted stock award issuance 2,000 — — — — Net loss — — — ( 4,615,000 ) ( 4,615,000 ) 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 26,000 — 27,000 Repurchase of common stock upon vesting of restricted stock units 28,000 — ( 200,000 ) — ( 200,000 ) Value of stock-based compensation — — 232,000 — 232,000 Net loss — — — ( 3,534,000 ) ( 3,534,000 ) Balance at December 31, 2021 1,782,000 $ 18,000 $ 16,296,000 $ ( 13,121,000 ) $ 3,193,000 See accompanying notes to financial statements. 23 Table of Contents Insignia Systems, Inc. STATEMENTS OF CASH FLOWS Year Ended December 31 2021 2020 Operating activities: Net loss $ ( 3,534,000 ) $ ( 4,615,000 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 60,000 477,000 Impairment loss — 159,000 Gain on sale of business — ( 195,000 ) (Gain) Loss on sale of property and equipment ( 6,000 ) 35,000 Changes in allowance for doubtful accounts 87,000 203,000 Stock-based compensation expense 232,000 172,000 Gain on forgiveness of debt and accrued interest ( 1,062,000 ) — Changes in operating assets and liabilities: Accounts receivable 523,000 1,679,000 Inventories 66,000 135,000 Income tax receivable 237,000 ( 115,000 ) Prepaid production cost, and other ( 392,000 ) ( 327,000 ) Accounts payable ( 572,000 ) 115,000 Accrued liabilities 665,000 623,000 Accrued income taxes 34,000 34,000 Deferred revenue 662,000 40,000 Net cash used in operating activities ( 3,000,000 ) ( 1,580,000 ) Investing activities: Purchases of property and equipment ( 106,000 ) ( 61,000 ) 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 ( 90,000 ) 139,000 Financing activities: Cash dividends paid ($0.70 per share) ( 14,000 ) ( 14,000 ) Proceeds from issuance of common stock, net 27,000 20,000 Repurchase of common stock upon vesting of restricted stock awards and vesting of restricted stock units ( 200,000 ) ( 1,000 ) Proceeds from PPP Loan — 1,054,000 Net cash provided by (used in) financing activities ( 187,000 ) 1,059,000 Decrease in cash and cash equivalents and restricted cash ( 3,277,000 ) ( 382,000 ) Cash and cash equivalents and restricted cash at beginning of year 7,128,000 7,510,000 Cash and cash equivalents and restricted cash at end of year $ 3,851,000 $ 7,128,000 Supplemental disclosures for cash flow information: Cash (paid) refunded during the year for income taxes $ 230,000 $ ( 112,000 ) Non-cash investing and financing activities: Purchase of property and equipment included in accounts payable $ 13,000 $ 11,000 Common stock issued for accrued liabilities — $ 9,000 Receivables recorded from sale of custom print business — $ 100,000 Receivables recorded from sale of property and equipment — $ 195,000 Operating lease right of use asset obtained in exchange for lease obligations $ 219,000 — 24 Table of Contents Insignia Systems, Inc. NOTES TO FINANCIAL STATMENTS 1. Summary of Significant Accounting Policies . Description of Business . Insignia (the “Company”) is a leading provider of in-store 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. The Company’s primary solutions are merchandising solutions, on-pack solutions and signage. Sale of Custom Print Business. In August 2020, the Company sold its custom print business to an existing strategic partner. This divestiture has 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 . The Company received $ 200,000 of cash and recorded a short-term receivable of $ 75,000 and a long-term receivable of 25,000 . At December 31, 2021, the remaining receivable balance is $ 25,000 . Revenue Recognition . Revenue from merchandising and on-pack solutions is recognized with a mix of over-time and point in time recognition dependent on type of service performed. The Company recognizes revenue from Insignia In-Store Signage Solutions ratably over the period of service, which is typically a two-to-four-week display cycle. The Company recognized revenue related to custom print solutions and sign card sales at the time the products are shipped to customers. Revenue that has been billed and not yet recognized is reflected as deferred revenue on the Company’s balance sheet. Cash and Cash Equivalents and Restricted Cash . The Company considers all highly liquid investments with an original maturity date of three months or less to be cash equivalents. Cash equivalents are stated at cost, which approximates fair value. Cash and cash equivalents of $ 3,849,000 and $ 7,113,000 were invested in bank accounts, an insured sweep account and a money market account, at December 31, 2021 and 2020, respectively. The balances in cash accounts, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. Amounts held in checking accounts and in insured cash sweep accounts during the years ended December 31, 2021 and 2020 were fully insured under the Federal Deposit Insurance Corporation. December 31, 2021 December 31, 2020 Cash and cash equivalents $ 3,766,000 $ 7,128,000 Restricted cash 85,000 — Total cash and cash equivalents and restricted cash $ 3,851,000 $ 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. Fair Value of Financial Measurements . Fair value is defined as the exit price, or the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants as of the measurement date. Accounting Standards Codification (“ASC”) 820-10 also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect management’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. 25 Table of Contents The hierarchy is divided into three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company records certain financial assets and liabilities at their carrying amounts that approximate fair value, based on their short-term nature. These financial assets and liabilities included cash and cash equivalents, accounts receivable, and accounts payable. Accounts Receivable . The majority of the Company’s accounts receivable is due from companies in the consumer-packaged goods industry. Credit is extended based on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are due within 30-150 days and are stated at amounts due from customers, net of an allowance for doubtful accounts. Accounts receivable outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. Changes in the Company’s allowance for doubtful accounts are as follows: December 31 2021 2020 Beginning balance $ 268,000 $ 65,000 Bad debt provision 71,000 203,000 Accounts written-off 111,000 — Recoveries ( 95,000 ) — Ending balance $ 355,000 $ 268,000 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 consists of the following: December 31 2021 2020 Raw materials $ — $ 32,000 Work-in-process — 2,000 Finished goods 19,000 51,000 $ 19,000 $ 85,000 Prepaid Production Costs. For merchandise and on-pack solutions, the Company incurs third party costs for design and materials prior to providing the solution to the customer. These costs are included in prepaid production costs until the revenue is recognized. Property and Equipment. Property and equipment is recorded at cost. Significant additions or improvements extending asset lives are capitalized, while repairs and maintenance are charged to expense when incurred. Expenditures are capitalized for all development activities, while expenditures related to planning, training, and maintenance are expensed. Depreciation is provided in amounts sufficient to relate the cost of assets to operations over their estimated useful lives. The straight-line method of depreciation is used for financial reporting purposes and accelerated methods are used for tax purposes. Estimated useful lives of the assets are as follows: Production tooling, machinery and equipment 1 – 6 years Office furniture and fixtures 1 – 3 years Computer equipment and software 3 – 5 years Leasehold improvements 1 – 3 years 26 Table of Contents Leases. The Company determines if an arrangement contains a lease at inception. Operating leases are included in our operating lease right-of-use (ROU) assets, the current portion of operating lease liabilities, and the operating lease liabilities on the balance sheets. The ROU assets represent our right to control the use of an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating lease ROU assets also include any prepaid lease payments made and exclude lease incentives. Lease expense is recognized on a straight-line basis over the lease term. The Company has elected the practical expedient to exclude short-term leases (one year or less) from our ROU assets and lease liabilities. Impairment of Long-Lived Assets . The Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. Impaired assets are then recorded at their estimated fair value. A hierarchy for inputs used in measuring fair value is in place that distinguishes market data between observable independent market inputs and unobservable market assumptions by the reporting entity. The hierarchy is intended to maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that the most observable inputs be used when available. At March 31, 2020, the impact of COVID-19 was determined to be a triggering event requiring an impairment review of long-lived assets. In 2011, the Company paid 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. At 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 that this agreement affords the Company access to. As a result, an impairment of $ 159,000 was recognized as of March 31, 2020. The Company also shortened the end of the 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 $ 158,000 for the year ended December 31, 2020. Restructuring. The Company implemented a plan to restructure its operations in December 2021, including workforce reductions and other cost-saving initiatives. As part of this restructuring plan, the Company reduced its workforce by approximately 19 %. A pre-tax restructuring charge of $ 201,000 was recorded during the year ended December 31, 2021. The Company recorded $ 81,000 of this charge within cost of sales and $ 120,000 within operating expenses in the Company’s statement of operations. As of December 31, 2021, the $ 201,000 pre-tax restructuring charge was included in accrued compensation and was paid in 2022. Sales Taxes. The Company accrues sales taxes based on determination of which of its products/services are subject to sales tax, and in which states and jurisdictions the tax applies. Further, the Company must determine which of its customers are exempt from the Company charging sales tax because the customer is a reseller or self-assesses and direct pays to states and other jurisdictions on purchases the customer makes from the Company. These determinations contain estimates and are subject to judgment and interpretation by taxing authorities in various states and other jurisdictions, which could result in recognizing materially different amounts in future periods. Income Taxes . Income taxes are accounted for under the liability method. Deferred income taxes are provided for temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred taxes are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or the entire deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of the enactment. It is the Company’s policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense (benefit). 27 Table of Contents Stock-Based Compensation . The Company measures and recognizes compensation expense for all stock-based awards at fair value. Restricted stock units and awards are valued at the closing market price of the Company’s stock on 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 fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our 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. The expected lives of the options and employee stock purchase plan rights are based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected term at grant date. Volatility is based on historical and expected future volatility of the Company’s stock. The Company has not historically issued any dividends beyond one-time dividends declared in 2011 and 2016 and does not expect to in the future. Advertising Costs . Advertising costs are charged to operations as incurred. Advertising expenses were approximately $ 34,000 and $ 69,000 during the years ended December 31, 2021 and 2020, respectively. Net Income (Loss) Per Share . Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding and excludes any dilutive effects of stock options and restricted stock units and awards. Diluted net income (loss) per share gives effect to all diluted potential common shares outstanding during the year. Weighted average common shares outstanding for the years ended December 31, 2021 and 2020 were as follows: Year ended December 31 2021 2020 Denominator for basic net loss per share - weighted average shares 1,760,000 1,734,000 Effect of dilutive securities: Stock options, restricted stock units and restricted stock awards — — Denominator for diluted net loss per share - weighted average shares 1,760,000 1,734,000 Due to the net loss incurred during the years ended December 31, 2021 and 2020, all stock awards were anti-dilutive for the period. Immaterial Error in Three and Nine Months Ended September 30, 2021. During the year-end close process, the Company determined that it qualified for a benefit under the Employee Retention Credit (ERC) for the third quarter of 2021 of $ 293,000 . The $ 293,000 benefit was reduced by $ 20,000 for related filing and preparation costs, resulting in a net benefit of $ 273,000 . This benefit is included in other income in the accompanying financial statements for the year ended December 31, 2021. For the three and nine months ended September 30, 2021, the impact of the error of including the benefit in that quarter, would have increased other income and decreased net loss by $ 273,000 , and decreased net loss per share by $ 0.15 . For the three months ended December 31, 2021, the impact of the error of including the benefit in that quarter, would have decreased other income and increased net loss by $ 273,000 , and increased net loss per share by $ 0.15 . The error had no impact on previously reported net sales or operating loss. In accordance with Staff Accounting Bulletin (SAB) 99 (“Materiality”) the Company evaluated this error, including both qualitative and quantitative considerations, and concluded this error did not result in a material misstatement of the previously issued financial statements for the three and nine months ended September 30, 2021. Use of Estimates . The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. 28 Table of Contents 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 “ 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 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: Merchandising, On-Pack, and Non-POPS Signage Solutions . The Company supplies CPG manufacturers with retailer approved promotional services, such as merchandising, on-pack, and signage 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. POPS 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. 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. 29 Table of Contents Disaggregation of Revenue In the following table, revenue is disaggregated by major revenue stream and timing of revenue recognition. Year ended December 31, 2021 Services Revenues Products Revenue Total Revenue Timing of revenue recognition: Products and services transferred over time $ 6,659,000 $ — $ 6,659,000 Products and services transferred at a point in time 12,844,000 — 12,844,000 Total $ 19,503,000 $ — $ 19,503,000 Year ended December 31, 2020 Services Revenues Products Revenue Total Revenue Timing of revenue recognition: Products and services transferred over time $ 10,670,000 $ — $ 10,670,000 Products and services transferred at a point in time 6,234,000 578,000 6,812,000 Total $ 16,904,000 $ 578,000 $ 17,482,000 Contract Costs Sales commissions paid to internal or external sales representatives are eligible for capitalization because 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 ( 180,000 ) Cash received in advance and not recognized as revenue 842,000 Balance at December 31, 2021 $ 842,000 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 $ 111,000 and $ 57,000 related to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31, 2021 will be recognized during 2022 and 2023, respectively. 30 Table of Contents 3. Property and Equipment. Property and equipment consists of the following at December 31: 2021 2020 Property and Equipment: Production tooling, machinery and equipment $ 27,000 $ 2,349,000 Office furniture and fixtures 95,000 425,000 Computer equipment and software 753,000 1,447,000 Leasehold improvements 19,000 — Construction in-progress 4,000 17,000 898,000 4,238,000 Accumulated depreciation and amortization ( 785,000 ) ( 4,163,000 ) Net Property and Equipment $ 113,000 $ 75,000 Depreciation expense for the years ended December 31, 2021 and 2020 was $ 60,000 and $ 314,000 , respectively. During December 2020, in connection with the outsourcing of most printing operations, the Company sold property and equipment with a net book value of $ 230,000 , for $ 195,000 , resulting in a loss on sale of $ 35,000 . The proceeds were in the form of receivables due in four equal amounts due in June and December 2021 and June and December 2022. The receivables that were due in 2021 were collected. 4. Leases. As of December 31, 2021, the Company leases space under two non-cancelable operating leases for its corporate headquarters and for warehouse space. Both leases have escalating lease payment terms but neither contains a contingent rent provision. 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, supported by an $ 85,000 deposit, 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 of approximately 4.8 % in determining the present value of the lease payments based on the information available at the lease commencement date. 31 Table of Contents The cost components of the Company’s operating leases were as follows: Year ended December 31, 2021 Prior Corporate Corporate Additional Operating Headquarters Headquarters Office Space Warehouse Leases Operating lease cost $ 38,000 $ 28,000 $ — $ 13,000 $ 79,000 Variable lease cost 24,000 16,000 — 12,000 52,000 Short-term lease cost — — 28,000 — 28,000 Total $ 62,000 $ 44,000 $ 28,000 $ 25,000 $ 159,000 Year ended December 31, 2020 Prior Corporate Corporate Additional Operating Headquarters Headquarters Office Space Warehouse Leases Operating lease cost $ 150,000 $ — $ — $ — $ 150,000 Variable lease cost 104,000 — — — 104,000 Short-term lease cost — — 40,000 — 40,000 Total $ 254,000 $ — $ 40,000 $ — $ 294,000 Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs for the Company’s leased corporate headquarters which are paid based on actual costs incurred by the lessor. Maturities of the Company’s lease liabilities for is corporate headquarters and its warehouse operating leases are as follows as of December 31, 2021: 2022 $ 83,000 2023 72,000 2024 40,000 Total lease payments $ 195,000 Less: Interest ( 11,000 ) Present value of lease liabilities $ 184,000 The remaining lease terms as of December 31, 2021 for the Company’s corporate headquarters and its warehouse leases were 2.5 years and 1.2 years, respectively. The cash outflow for operating leases for the years ended December 31, 2021 and December 31, 2020 were $ 97,000 and $ 222,000 , respectively. Operating lease liabilities and right-of-use assets were increased for new non-cash leases by $ 219,000 for the year ended December 31, 2021. 5. Commitments and Contingencies. Legal. The Company is subject to various legal matters in the normal course of business. In July 2019, the Company filed 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. 32 Table of Contents 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 cancelled a hearing on the motion originally scheduled for January 26, 2022, and referred the case to mediation. News America’s summary judgment motion remains pending. At this stage of the proceedings, the Company is unable to determine the likelihood of an unfavorable outcome or estimate any potential resulting liability. Retailer Agreements . The Company has contracts in the normal course of business with various retailers, some of which provide for fixed or store-based payments rather than sign placement-based payments resulting in minimum commitments each year to maintain the agreements. During the years ended December 31, 2021 and 2020, the Company incurred $ 199,000 and $ 2,765,000 of costs related to fixed and store-based payments, respectively. The amounts are recorded in cost of services in the Company’s statements of operations. The aggregate commitment amounts under agreements with retailers as of December 31, 2021 for future years are less than $ 50,000 . 6. Shareholders’ Equity . Stock-Based Compensation. The Company’s stock-based compensation plans are administered by the Compensation Committee of the Board of Directors, which, subject to approval by the Board of Directors, selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures and other provisions of the award. The following table summarizes the stock-based compensation expense that was recognized in the Company’s statements of operations for the years ended December 31, 2021 and 2020: Year ended December 31 2021 2020 Cost of sales $ 24,000 $ 5,000 Selling 25,000 38,000 Marketing 12,000 ( 1,000 ) General and administrative 171,000 130,000 $ 232,000 $ 172,000 The Company uses the Black-Scholes option pricing model to estimate fair value of stock-based awards with the following weighted average assumptions: 2021 2020 Stock Purchase Plan Options: Expected life (years) 1.0 1.0 Expected volatility 142 % 59 % Dividend yield 0 % 0 % Risk-free interest rate 0.1 % 1.6 % The Company uses the graded attribution method to recognize expense for unvested stock-based awards. Forfeitures are recognized as incurred. Stock Options, Restricted Stock, Restricted Stock Units, and Other Stock-Based Compensation Awards . The Company maintains the 2003 Incentive Stock Option Plan (the “2003 Plan”), the 2013 Omnibus Stock and Incentive Plan (the “2013 Plan”) and the 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan replaced the 2013 Plan upon its ratification by shareholders in July 2018. No further awards may be granted under the 2013 Plan or the 2003 Plan. Awards granted under the 2003 Plan and 2013 Plan will remain in effect until they are exercised or expire according to their terms. 33 Table of Contents Under the terms of the 2018 Plan, the number of shares of our common stock that may be the subject of awards and issued under the 2018 Plan was initially 128,571 plus any shares remaining available for future grants under the 2013 Plan on the effective date of the 2018 Plan. All equity awards made during 2021 and 2020 were under the 2018 Plan. Under the terms of the 2018 Plan, the Company may grant awards in a variety of instruments including stock options, restricted stock and restricted stock units to employees, consultants and directors generally at an exercise price at or above 100% of fair market value at the close of business on the date of grant. Stock options expire 10 years after the date of grant and generally vest over three years. The Company issues new shares of common stock upon grant of restricted stock, when stock options are exercised, and when restricted stock units are vested and/or settled. The following table summarizes activity under the 2003, 2013 and 2018 Plans: Plan Shares Available for Grant Plan Options Outstanding Weighted Average Exercise Price Per Share Aggregate Intrinsic Value Balance at January 1, 2020 117,661 42,416 $ 16.66 Restricted stock units and awards granted - 2018 Plan ( 31,782 ) — Cancelled or forfeited - 2018 Plan options 1,070 ( 1,070 ) 13.65 Cancelled or forfeited - 2018 Plan restricted stock and restricted stock units 3,091 — 9.58 Cancelled or forfeited - 2013 Plan options 2,241 ( 2,241 ) 15.54 Cancelled or forfeited - 2013 Plan restricted stock and restricted stock units 1,450 — 13.34 Cancelled or forfeited - 2003 Plan options — ( 8,607 ) 24.23 Balance at December 31, 2020 93,731 30,498 14.69 Restricted stock units and awards granted - 2018 Plan ( 5,514 ) — Cancelled or forfeited - 2018 Plan options 2,584 ( 2,584 ) 13.36 Cancelled or forfeited - 2018 Plan restricted stock and restricted stock units 5,508 — 8.69 Stock options exercised — ( 1,973 ) 13.59 $ 17,100 Cancelled or forfeited - 2013 Plan options 292 ( 292 ) 15.54 Cancelled or forfeited - 2013 Plan restricted stock and restricted stock units 1,047 — 12.39 Cancelled or forfeited - 2003 Plan options — ( 6,527 ) 19.66 Balance at December 31, 2021 97,648 19,122 $ 13.23 The following table summarizes information about the stock options outstanding at December 31, 2021: Options Outstanding Options Exercisable Ranges of Exercise Prices Number Outstanding Weighted Average Remaining Contractual Life Weighted Average Exercise Price Per Share Number Exercisable Weighted Average Exercise Price Per Share $ 8.26 - $ 13.65 13,759 5.07 years $ 12.33 10,363 $ 11.90 $ 15.54 - $ 21.63 5,363 2.39 years 15.54 5,363 15.54 19,122 4.32 years $ 13.23 15,726 $ 13.14 34 Table of Contents Options outstanding under the Plans expire at various dates during the period from May 2022 through August 2028. Options outstanding at December 31, 2021 had an aggregate intrinsic value of $ 188,322 . Options outstanding at December 31, 2020 had no intrinsic value. Options exercisable at December 31, 2021 had a weighted average remaining life of 3.82 years and an aggregate intrinsic value of $ 156,298 . No options were granted in either 2021 or 2020. The number of options exercisable at December 31, 2020 was 21,123 . During the year ended December 31, 2021, 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 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 earlier of June 10, 2022 or the day immediately preceding the date of the next annual shareholder meeting. During the year ended December 31, 2020, the Company issued 24,282 restricted stock units. The shares underlying the awards were assigned a weighted average value of $6.00 per share, which was the closing price of the Company’s common stock on the date of grants. These awards vested on December 31, 2021. During December 2020, non-employee members of the Board of Directors received restricted stock grants totaling 7,500 shares. The shares underlying the awards were assigned a value of $6.00 per share, which was the closing price of the Company’s common stock on the date of grants, for a total value of $ 45,000 , and were vested in full the day immediately preceding the date of the 2021 annual shareholder meeting, June 9, 2021. Restricted stock and restricted stock unit transactions during the years ended December 31, 2021 and 2020 are summarized as follows: Number of Shares Weighted average grant date fair value Unvested shares at January 1, 2020 44,659 $ 12.16 Granted 31,782 6.00 Vested ( 22,315 ) 11.36 Forfeited or surrendered ( 4,162 ) 10.30 Unvested shares at December 31, 2020 49,964 $ 8.76 Granted 5,514 8.16 Vested ( 40,392 ) 8.33 Forfeited or surrendered ( 6,555 ) 9.28 Unvested shares at December 31, 2021 8,531 $ 10.01 As of December 31, 2021, there was approximately $ 5,000 of total unrecognized compensation costs related to outstanding stock options, which is expected to be recognized over a weighted average period of 0.6 years. As of December 31, 2021, there was approximately $ 30,000 of total unrecognized compensation costs related to restricted stock and restricted stock units, which is expected to be recognized over a weighted average period of 0.5 years. Employee Stock Purchase Plan. The Company has an Employee Stock Purchase Plan (the “ESPP”) that enables employees to contribute up to 10% of their base compensation toward the purchase of the Company’s common stock at 85% of its market value on the first or last day of the year. During the years ended December 31, 2021 and 2020, respectively, participants purchased 4,541 and 6,152 shares under the ESPP. At December 31, 2021, 24,436 shares were reserved for future employee purchases of common stock under the ESPP. For the years ended December 31, 2021 and 2020, the Company recognized $ 23,000 and $ 18,000 , respectively, of stock-based compensation expense related to the ESPP. Dividends. The Company has not historically paid dividends, other than one-time dividends declared in 2011 and 2016. The Company intends to retain earnings from operations for use in advancing our business strategy; however, the Company may consider special dividends in the future depending on outcomes of actions such as legal proceedings. 35 Table of Contents 7. Income Taxes. Income tax benefit consists of the following: Year Ended December 31 2021 2020 Current taxes - Federal $ — $ ( 233,000 ) Current taxes - State 42,000 42,000 Income tax expense (benefit) $ 42,000 $ ( 191,000 ) The actual tax benefit attributable to loss before taxes differs from the expected tax benefit computed by applying the U.S. federal corporate income tax rate of 21% as follows: Year Ended December 31 2021 2020 Federal statutory rate 21.0 % 21.0 % Stock-based awards 2.0 ( 0.8 ) State taxes 3.6 3.6 Impact of uncertain tax positions ( 1.0 ) ( 0.7 ) Valuation allowance ( 34.3 ) ( 19.6 ) PPP forgiveness 7.5 — Other — 0.8 Effective federal income tax rate ( 1.2 )% 4.3 % Components of resulting noncurrent deferred tax assets (liabilities) are as follows: As of December 31 2021 2020 Deferred tax assets Accrued expenses $ 507,000 $ 376,000 Inventory reserve 23,000 9,000 Stock-based awards 31,000 65,000 Reserve for bad debts 88,000 33,000 Net operating loss and credit carryforwards 2,507,000 1,422,000 Other 33,000 47,000 Depreciation 33,000 52,000 Valuation allowance ( 3,146,000 ) ( 1,946,000 ) Total deferred tax assets $ 76,000 $ 58,000 Deferred tax liabilities Prepaid expenses $ ( 76,000 ) $ ( 58,000 ) Total deferred tax liabilities ( 76,000 ) ( 58,000 ) Net deferred income tax liabilities $ — $ — 36 Table of Contents As of December 31, 2021, the Company had a Federal net operating loss (NOL) to carry forward of approximately $ 9,700,000 and state NOLs of approximately $ 7,400,000 to carry forward. The Federal NOLs can be carried forward indefinitely. The expiration of state NOLs carried forward varies by taxing jurisdiction. Future utilization of NOLs carried forward may be subject to certain limitations under Section 382 of the Internal Revenue Code. 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. The Company received this refund in 2021. The Company evaluates all significant available positive and negative evidence, including the existence of losses in prior years and its forecast of future taxable income, in assessing the need for a valuation allowance. The underlying assumptions the Company uses in forecasting future taxable income require significant judgment and take into consideration the Company’s recent performance. The change in the valuation allowance for the years ended December 31, 2021 and 2020 was $ 1,200,000 and $ 943,000 , respectively. The Company has recorded a liability of $ 711,000 and $ 677,000 for uncertain tax positions taken in tax returns in previous years as of December 31, 2021 and 2020, respectively. This liability is reflected as accrued income taxes on the Company’s balance sheets. The Company files income tax returns in the United States and numerous state and local tax jurisdictions. Tax years 2018 and forward are open for examination and assessment by the Internal Revenue Service. With limited exceptions, tax years prior to 2018 are no longer open in major state and local tax jurisdictions. The Company believes that it is reasonably possible that a decrease of up to $ 665,000 in unrecognized tax benefits related to state exposures may be necessary in the third quarter of 2022, which would reduce accrued income taxes and increase income tax benefit. A reconciliation of the beginning and ending amount of the liability for uncertain tax positions is as follows: Balance at January 1, 2020 $ 643,000 Increases due to interest and state tax 34,000 Balance at December 31, 2020 677,000 Increases due to interest and state tax 34,000 Balance at December 31, 2021 $ 711,000 8. Employee Benefit Plans . The Company sponsors a Retirement Profit Sharing and Savings Plan under Section 401(k) of the Internal Revenue Code. The plan allows employees to defer up to 50 % of their wages, subject to Federal limitations, on a pre-tax basis through contributions to the plan. During the years ended December 31, 2021 and 2020, the Company’s expense for matching contributions was $ 41,000 and $ 62,000 , respectively. 9. Concentrations. Major Customers During the year ended December 31, 2021, two customers accounted for 15 % and 12 %, respectively of the Company’s total net sales. At December 31, 2021, two customers represented 25 % and 19 %, respectively of the Company’s total accounts receivable. During the year ended December 31, 2020, one customer accounted for 14 % of the Company’s total net sales. At December 31, 2020, two customers represented 17 % and 10 %, respectively of the Company’s total accounts receivable. Export Sales . Export sales accounted for less than 1% of total net sales during the years ended December 31, 2021 and 2020. 10. Loan. In April 2020, the Company entered into a promissory note (the “Note”) with Alerus Financial, N.A. The Note evidences 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 amount due under the Note, including accrued interest, was approved by the SBA on January 29, 2021. Accordingly, for the year ended December 31, 2021 the debt of $ 1,054,000 , plus accrued interest of $ 8,000 was eliminated with a gain on debt extinguishment included in other income. 37 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None.