BLOOMIA HOLDINGS, INC. 10-Q

Item 1. Financial Statements Insignia Systems, Inc. CONDENSED BALANCE SHEETS March 31, December 31, 2022 2021 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 396,000 $ 3,766,000 Restricted cash 85,000 85,000 Accounts receivable, net 7,465,000 5,247,000 Inventories 31,000 19,000 Income tax receivable 5,000 4,000 Prepaid production costs 319,000 867,000 Other prepaid expense 308,000 366,000 Total Current Assets 8,609,000 10,354,000 Other Assets: Property and equipment, net 107,000 113,000 Operating lease right-of-use assets 164,000 183,000 Total Assets $ 8,880,000 $ 10,650,000 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable 1,877,000 2,539,000 Accrued liabilities: Compensation 491,000 464,000 Sales tax 1,234,000 1,287,000 Other 681,000 1,430,000 Current portion of operating lease liabilities 78,000 76,000 Deferred revenue 397,000 842,000 Total Current Liabilities 4,758,000 6,638,000 Long-Term Liabilities: Accrued income taxes 721,000 711,000 Operating lease liabilities 88,000 108,000 Total Long-Term Liabilities 809,000 819,000 Commitments and Contingencies — — Shareholders' Equity: Common stock, par value $ 0.01 : Authorized shares - 5,714,000 Issued and outstanding shares - 1,786,000 at March 31, 2022 and 1,782,000 at December 31, 2021 18,000 18,000 Additional paid-in capital 16,354,000 16,296,000 Accumulated deficit ( 13,059,000 ) ( 13,121,000 ) Total Shareholders' Equity 3,313,000 3,193,000 Total Liabilities and Shareholders' Equity $ 8,880,000 $ 10,650,000 See accompanying notes to financial statements. 3 Table of Contents Insignia Systems, Inc. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31 2022 2021 Net services revenues $ 6,148,000 $ 5,386,000 Cost of services 4,868,000 4,457,000 Gross Profit 1,280,000 929,000 Operating Expenses: Selling 342,000 516,000 Marketing 259,000 235,000 General and administrative 606,000 1,937,000 Total Operating Expenses 1,207,000 2,688,000 Operating Income (Loss) 73,000 ( 1,759,000 ) Other Income (Expense): Gain on forgiveness of debt and accrued interest - 1,062,000 Other expense ( 3,000 ) ( 27,000 ) Total Other Income (Expense) ( 3,000 ) 1,035,000 Income (Loss) Before Taxes 70,000 ( 724,000 ) Income tax expense 8,000 13,000 Net Income (Loss) $ 62,000 $ ( 737,000 ) Net income (loss) per share: Basic $ 0.03 $ ( 0.42 ) Diluted $ 0.03 $ ( 0.42 ) Shares used in calculation of net income (loss) per share: Basic 1,786,000 1,751,000 Diluted 1,794,000 1,751,000 See accompanying notes to financial statements. 4 Table of Contents Insignia Systems, Inc. CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) Common Stock Additional Paid-In Shares Amount Capital Accumulated Deficit Total Balance at December 31, 2021 1,782,000 $ 18,000 $ 16,296,000 $ ( 13,121,000 ) $ 3,193,000 Issuance of common stock, net 4,000 — 28,000 — 28,000 Value of stock-based compensation — — 30,000 — 30,000 Net income — — — 62,000 62,000 Balance at March 31, 2022 1,786,000 $ 18,000 $ 16,354,000 $ ( 13,059,000 ) $ 3,313,000 Common Stock Additional Paid-In Shares Amount Capital Accumulated 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 See accompanying notes to financial statements. 5 Table of Contents Insignia Systems, Inc. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31 2022 2021 Operating Activities: Net income (loss) $ 62,000 $ ( 737,000 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 16,000 21,000 Gain on sale of property and equipment - ( 7,000 ) Changes in allowance for doubtful accounts ( 12,000 ) 24,000 Stock-based compensation expense 30,000 56,000 Gain on forgiveness of debt and accrued interest - ( 1,062,000 ) Changes in operating assets and liabilities: Accounts receivable ( 2,206,000 ) 758,000 Inventories ( 12,000 ) ( 17,000 ) Income tax receivable ( 1,000 ) 3,000 Prepaid expenses and other 606,000 108,000 Accounts payable ( 654,000 ) ( 568,000 ) Accrued liabilities ( 774,000 ) 590,000 Accrued income taxes 10,000 8,000 Deferred revenue ( 445,000 ) 520,000 Net cash used in operating activities ( 3,380,000 ) ( 303,000 ) Investing Activities: Purchases of property and equipment ( 18,000 ) ( 29,000 ) Sale of property and equipment - 16,000 Net cash used in investing activities ( 18,000 ) ( 13,000 ) Financing Activities: Proceeds from issuance of common stock 28,000 26,000 Net cash provided by financing activities 28,000 26,000 Decrease in cash and cash equivalents and restricted cash ( 3,370,000 ) ( 290,000 ) Cash and cash equivalents and restricted cash at beginning of period 3,851,000 7,128,000 Cash and cash equivalents and restricted cash at end of period $ 481,000 $ 6,838,000 Supplemental disclosures for cash flow information: Cash paid during the year for income taxes $ - $ ( 1,000 ) Non-cash financing activity: Purchase of property and equipment included in accounts payable $ 5,000 $ - Operating lease right-of-use asset obtained in exchange for lease obligation $ - $ 33,000 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 (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. Basis of Presentation . The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Securities and Exchange Commission (“SEC”) Regulation S-X. 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, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 9, 2022 (the Form 10-K). 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. The accompanying condensed balance sheet as of December 31, 2021 has been derived from the audited balance sheet as of December 31, 2021 contained in the Form 10-K. 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: March 31, December 31, 2022 2021 Cash and cash equivalents $ 396,000 $ 3,766,000 Restricted cash 85,000 85,000 Total cash, cash equivalents and restricted cash $ 481,000 $ 3,851,000 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. Property and Equipment . Property and equipment consisted of the following as of the dates indicated: March 31, December 31, 2022 2021 Property and Equipment: Production tooling, machinery and equipment $ 27,000 $ 27,000 Office furniture and fixtures 95,000 95,000 Computer equipment and software 757,000 753,000 Leasehold improvements 19,000 19,000 Construction in-progress 10,000 4,000 908,000 898,000 Accumulated depreciation and amortization ( 801,000 ) ( 785,000 ) Net Property and Equipment $ 107,000 $ 113,000 Depreciation expense was approximately $ 16,000 and $ 21,000 in the three months ended March 31, 2022 and 2021, respectively. 7 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 three months ended March 31, 2022 and 2021, no stock options or restricted stock were issued by the Company. The Company estimated the fair value of stock-based awards granted during the three months ended March 31, 2022, under the Company’s employee stock purchase plan using the following weighted average assumptions: expected life of 1.0 year, expected volatility of 168.7 %, dividend yield of 0 % and risk-free interest rate of 0.4 %. The Company recorded total stock-based compensation expense of $ 30,000 and $ 56,000 for the three months ended March 31, 2022 and 2021, 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 potential dilutive effects of stock options and restricted stock units and awards. Diluted net income (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Options to purchase approximately 14,000 shares of common stock with a weighted average exercise price of 12.60 , were outstanding at March 31, 2022 and were not included in the computation of common stock equivalents for the three months ended March 31, 2022 because their exercise prices were higher than the average fair market value of the common stock during the reporting period. Due to the net loss incurred during the three months ended March 31, 2021 all outstanding stock options were anti-dilutive for the periods. Weighted average common shares outstanding for the three months ended March 31, 2022 and 2021 were as follows: Three months ended March 31 2022 2021 Denominator for basic net income (loss) per share - weighted average shares 1,786,000 1,751,000 Effect of dilutive securities: Stock options, restricted stock and restricted stock units 8,000 — Denominator for diluted net income (loss) per share - weighted average shares 1,794,000 1,751,000 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 “ 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. 8 Table of Contents 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. Disaggregation of Revenue In the following table, revenue is disaggregated by timing of revenue recognition. Three months ended March 31, 2022 Services Revenues Timing of revenue recognition: Services transferred over time $ 456,000 Services transferred at a point in time 5,692,000 Total $ 6,148,000 Three months ended March 31, 2021 Services Revenues Timing of revenue recognition: Services transferred over time $ 2,025,000 Services transferred at a point in time 3,361,000 Total $ 5,386,000 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. 9 Table of Contents Deferred Revenue Deferred revenues represent amounts collected from customers in advance of the satisfaction of performance obligations. Significant changes in deferred revenue during the period are as follows: Balance at December 31, 2021 $ 842,000 Reclassification of beginning deferred revenue to revenue, as a result of performance obligations satisfied ( 478,000 ) Cash received in advance and not recognized as revenue 33,000 Balance at March 31, 2022 $ 397,000 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 $ 84,000 and $ 57,000 related to performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2022 will be recognized during the remainder of fiscal 2022 and 2023, respectively. 3. Leases. As of March 31, 2022 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 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 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. 10 Table of Contents The cost components of the Company’s operating leases were as follows for the periods ended March 31, 2022 and 2021: Three months ended March 31, 2022 Prior Corporate Corporate Additional Operating Headquarters Headquarters Office Space Warehouse Leases Operating lease cost $ — $ 17,000 $ — $ 4,000 $ 21,000 Variable lease cost — 10,000 — 3,000 13,000 Total $ — $ 27,000 $ — $ 7,000 $ 34,000 Three months ended March 31, 2021 Prior Corporate Corporate Additional Operating Headquarters Headquarters Office Space Warehouse Leases Operating lease cost $ 38,000 $ — $ — $ — $ 38,000 Variable lease cost 24,000 — — — 24,000 Short-term lease cost — — 11,000 — 11,000 Total $ 62,000 $ — $ 11,000 $ — $ 73,000 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. Maturities of the Company’s lease liabilities for its corporate headquarters and its warehouse operating leases are as follows as of March 31, 2022: Maturity of Lease Liabilities Leases 2022 $ 63,000 2023 72,000 2024 40,000 Total lease payments 175,000 Less: Interest ( 9,000 ) Present value of lease liabilities $ 166,000 The remaining lease terms as of March 31, 2022 for the Company’s corporate headquarters and its warehouse leases were 2.3 years and 1 .0 years, respectively. The cash outflows for operating leases for the three months ended March 31, 2022 and March 31, 2021 were $ 21,000 and $ 68,000 , respectively. 4. Income Taxes. For the three months ended March 31, 2022, the Company recorded income tax expense of $ 8,000 , or 11.4 % of income before taxes. For the three months ended March 31, 2021, the Company recorded income tax expense of $ 13,000 , or ( 1.8 %) of loss before taxes. The income tax expense for the three months ended March 31, 2022 and 2021 is comprised of federal and state taxes. The primary differences between the Company’s March 31, 2022 and 2021 effective tax rates and the statutory federal rate are nondeductible stock-based compensation, nondeductible meals and entertainment and changes in the Company’s valuation allowance against its deferred tax assets. The Company reassesses its effective rate each reporting period and adjusts the annual effective rate if deemed necessary, based on projected annual taxable income (loss). Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of enacted tax laws. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which it operates, estimates of future taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustment to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria. As of March 31, 2022, and December 31, 2021, the Company had unrecognized tax benefits totaling $ 721,000 and $ 711,000 , 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 $ 721,000 . The Company believes that it is probable 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. 11 Table of Contents 5. Concentrations. During the three months ended March 31, 2022, three customers accounted for 27 %, 23 % and 11 %, respectively, of the Company’s total net sales. During the three months ended March 31, 2021, two customers accounted for 17 % and 14 %, respectively, of the Company’s total net sales. At March 31, 2022, three customers accounted for 23 %, 19 % and 17 %, respectively, of the Company’s total accounts receivable. At December 31, 2021, two customers represented 25 % and 19 %, respectively, of the Company’s total accounts receivable. 6. Legal Proceedings. The Company is subject to various legal matters in the normal course of business. In July 2019, the Company filed suit against News Corporation, News America Marketing FSI L.L.C., and News America Marketing In-Store Services L.L.C. (collectively, “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 cancelled a hearing on the motion originally scheduled for January 26, 2022, and referred the case to mediation. The court has rescheduled the hearing on News America’s summary judgment motion for June 22, 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. 7. Loan. In April 2020, the Company entered into a promissory note (the “Note”) with Alerus Financial, N.A. The Note evidenced a loan to the Company in the amount of $ 1,054,000 pursuant to the Paycheck Protection Program (the “PPP”) of the CARES Act administered by the U.S. Small Business Administration (the “SBA”). In accordance with the requirements of the CARES Act, the Company used the proceeds from the loan exclusively for qualified expenses under the PPP, including payroll costs, rent and utility costs. 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. 12 Table of Contents