BLOOMIA HOLDINGS, INC. 10-Q

Item 1. Financial Statements CONDENSED BALANCE SHEETS June 30, December 31, 2022 2021 ASSETS (Unaudited) Current Assets: Cash and cash equivalents $ 2,302,000 $ 3,766,000 Restricted cash 85,000 85,000 Accounts receivable, net 4,124,000 5,247,000 Inventories 25,000 19,000 Income tax receivable 6,000 4,000 Prepaid production costs 103,000 867,000 Other prepaid expense 189,000 366,000 Total Current Assets 6,834,000 10,354,000 Other Assets: Property and equipment, net 97,000 113,000 Operating lease right-of-use assets 145,000 183,000 Total Assets $ 7,076,000 $ 10,650,000 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable 1,318,000 2,539,000 Accrued liabilities: Compensation 557,000 464,000 Sales tax 805,000 1,287,000 Other 648,000 1,430,000 Current portion of operating lease liabilities 75,000 76,000 Deferred revenue 602,000 842,000 Total Current Liabilities 4,005,000 6,638,000 Long-Term Liabilities: Accrued income taxes 730,000 711,000 Operating lease liabilities 72,000 108,000 Total Long-Term Liabilities 802,000 819,000 Commitments and Contingencies — — Shareholders' Equity: Common stock, par value $.01: Authorized shares - 5,714,000 Issued and outstanding shares - 1,793,000 at June 30, 2022 and 1,782,000 at December 31, 2021, respectively 18,000 18,000 Additional paid-in capital 16,394,000 16,296,000 Accumulated deficit ( 14,143,000 ) ( 13,121,000 ) Total Shareholders' Equity 2,269,000 3,193,000 Total Liabilities and Shareholders' Equity $ 7,076,000 $ 10,650,000 See accompanying notes to financial statements. 3 Table of Contents Insignia Systems, Inc. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended June 30 June 30 2022 2021 2022 2021 Net services revenues $ 3,254,000 $ 6,096,000 $ 9,402,000 $ 11,482,000 Cost of services 2,838,000 4,888,000 7,706,000 9,345,000 Gross Profit 416,000 1,208,000 1,696,000 2,137,000 Operating Expenses: Selling 290,000 465,000 632,000 981,000 Marketing 279,000 260,000 538,000 495,000 General and administrative 948,000 1,336,000 1,554,000 3,273,000 Total Operating Expenses 1,517,000 2,061,000 2,724,000 4,749,000 Operating Loss ( 1,101,000 ) ( 853,000 ) ( 1,028,000 ) ( 2,612,000 ) Other Income (Expense): Gain on forgiveness of debt and accrued interest — — — 1,062,000 Other income (expense) 31,000 ( 31,000 ) 28,000 ( 58,000 ) Total Other Income (expense) 31,000 ( 31,000 ) 28,000 1,004,000 Loss before Taxes ( 1,070,000 ) ( 884,000 ) ( 1,000,000 ) ( 1,608,000 ) Income tax expense 14,000 10,000 22,000 23,000 Net Loss $ ( 1,084,000 ) $ ( 894,000 ) $ ( 1,022,000 ) $ ( 1,631,000 ) Net loss per share: Basic $ ( 0.61 ) $ ( 0.51 ) $ ( 0.57 ) $ ( 0.93 ) Diluted $ ( 0.61 ) $ ( 0.51 ) $ ( 0.57 ) $ ( 0.93 ) Shares used in calculation of net loss per share: Basic 1,788,000 1,755,000 1,787,000 1,753,000 Diluted 1,788,000 1,755,000 1,787,000 1,753,000 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, 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 Issuance of common stock, net 1,000 — 11,000 — 11,000 Value of stock-based compensation — — 29,000 — 29,000 Issuance of common stock upon vesting of restricted stock units 6,000 — — — — Net loss — — — ( 1,084,000 ) ( 1,084,000 ) Balance at June 30, 2022 1,793,000 $ 18,000 $ 16,394,000 $ ( 14,143,000 ) $ 2,269,000 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 See accompanying notes to financial statements. 5 Table of Contents Insignia Systems, Inc. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30 2022 2021 Operating Activities: Net loss $ ( 1,022,000 ) $ ( 1,631,000 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 31,000 32,000 Gain on sale of property and equipment — ( 7,000 ) Changes in allowance for doubtful accounts 27,000 53,000 Stock-based compensation expense 59,000 142,000 Gain on forgiveness of debt and accrued interest — ( 1,062,000 ) Changes in operating assets and liabilities: Accounts receivable 1,096,000 967,000 Inventories ( 6,000 ) ( 6,000 ) Income tax receivable ( 2,000 ) ( 1,000 ) Prepaid expenses and other 941,000 536,000 Accounts payable ( 1,208,000 ) ( 647,000 ) Accrued liabilities ( 1,170,000 ) 361,000 Income tax payable 19,000 17,000 Deferred revenue ( 240,000 ) 95,000 Net cash used in operating activities ( 1,475,000 ) ( 1,151,000 ) Investing Activities: Purchases of property and equipment ( 28,000 ) ( 32,000 ) Proceeds from sale of property and equipment — 16,000 Net cash used in investing activities ( 28,000 ) ( 16,000 ) Financing Activities: Proceeds from issuance of common stock, net 39,000 26,000 Cash dividends paid ($0.70 per share) — ( 14,000 ) Repuchase of common stock upon vesting of restricted stock awards — ( 9,000 ) Net cash provided by financing activities 39,000 3,000 Decrease in cash and cash equivalents and restricted cash ( 1,464,000 ) ( 1,164,000 ) 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 $ 2,387,000 $ 5,964,000 Supplemental disclosures for cash flow information: Cash paid during the period for income taxes $ 5,000 $ 7,000 Non-cash financing activity: Operating lease right-of-use asset obtained in exchange for lease obligation $ - $ 33,000 Forgiveness of debt and accrued interest $ - $ 1,062,000 Purchase of property and equipment included in accounts payable $ - $ 15,000 See accompanying notes to financial statements. 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: June 30, December 31, 2022 2021 Cash and cash equivalents $ 2,302,000 $ 3,766,000 Restricted cash 85,000 85,000 Total cash, cash equivalents and restricted cash $ 2,387,000 $ 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: June 30, 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 756,000 753,000 Leasehold improvements 19,000 19,000 Construction in-progress 16,000 4,000 913,000 898,000 Accumulated depreciation and amortization ( 816,000 ) ( 785,000 ) Net Property and Equipment $ 97,000 $ 113,000 Depreciation expense was approximately $ 15,000 and $ 31,000 in the three and six months ended June 30, 2022, respectively, and was $ 11,000 and $ 32,000 in the three and six months ended June 30, 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 six-month periods ended June 30, 2022 and 2021 no equity awards were issued by the Company, except those awarded to non-employee members of the Board of Directors in June 2021. 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 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 vested on June 1, 2022. Total stock-based compensation expense recorded for the three and six months ended June 30, 2022 was $ 29,000 and $ 59,000 , respectively, and for the three and six months ended June 30, 2021 was $ 86,000 and $ 142,000 , 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 six months ended June 30, 2022 and 2021 all outstanding stock awards were anti-dilutive for those periods. As of June 30, 2022, the Company had 14,086 options and 3,396 restricted units outstanding. As of June 30, 2021, the Company had 21,741 options and 37,879 restricted units outstanding. Weighted average common shares outstanding for the three and six months ended June 30, 2022 and 2021 were as follows: Three Months Ended Six Months Ended June 30 June 30 2022 2021 2022 2021 Denominator for basic net loss per share - weighted average shares 1,788,000 1,755,000 1,787,000 1,753,000 Effect of dilutive securities: Stock options and restricted stock units — — — — Denominator for diluted net loss per share - weighted average shares 1,788,000 1,755,000 1,787,000 1,753,000 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 transferred to a customer are accounted for as a fulfillment cost and are included in cost of services. 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 June 30 Six months ended June 30 2022 2021 2022 2021 Services Revenues Services Revenues Services Revenues Services Revenues Timing of revenue recognition: Services transferred over time $ 502,000 $ 1,861,000 $ 958,000 $ 3,884,000 Services transferred at a point in time 2,752,000 4,235,000 8,444,000 7,598,000 Total $ 3,254,000 $ 6,096,000 $ 9,402,000 $ 11,482,000 Contract Costs Sales commissions that are paid to internal or external sales representatives are eligible for capitalization as they are incremental costs that would not have been incurred without entering into a specific sales arrangement and are recoverable through the expected margin on the transaction. The Company is applying the practical expedient in Accounting Standards Codification 340-40-25-4 that allows the incremental costs of obtaining a contract to be recorded as an expense when incurred when the amortization period of the asset that would have otherwise been recognized is one year or less. These costs are included in selling expenses. 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 238,000 Balance at June 30, 2022 $ 602,000 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 $ 56,000 and $ 57,000 related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2022 will be recognized during the remainder of fiscal 2022 and 2023, respectively. 3. Leases. As of June 30, 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 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. The cost components of the Company’s operating leases were as follows for the three and six month periods ended June 30, 2022 and 2021: Three months ended June 30, 2022 Six months ended June 30, 2022 Corporate Headquarters Warehouse Operating Leases Corporate Headquarters Additional Office Space Warehouse Operating Leases Operating lease cost $ 16,000 $ 5,000 $ 21,000 $ 33,000 $ - $ 9,000 $ 42,000 Variable lease cost 10,000 3,000 13,000 20,000 - 6,000 26,000 Total $ 26,000 $ 8,000 $ 34,000 $ 53,000 $ - $ 15,000 $ 68,000 Three months ended June 30, 2021 Six months ended June 30, 2021 Additional Office Space Warehouse Operating Leases Prior Corporate Headquarters Additional Office Space Warehouse Operating Leases Operating lease cost $ - $ 4,000 $ 4,000 $ 38,000 $ - $ 4,000 $ 42,000 Variable lease cost - 5,000 5,000 24,000 - 5,000 29,000 Short-term lease cost 10,000 - 10,000 - 21,000 - 21,000 Total $ 10,000 $ 9,000 $ 19,000 $ 62,000 $ 21,000 $ 9,000 $ 92,000 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. 10 Table of Contents Maturities of the Company’s lease liabilities for its corporate headquarters and its warehouse operating leases are as follows as of June 30, 2022: Maturity of Lease Liabilities Leases 2022 $ 42,000 2023 72,000 2024 40,000 Total lease payments 154,000 Less: Interest ( 7,000 ) Present value of lease liabilities $ 147,000 The remaining lease terms as of June 30, 2022 for the Company’s corporate headquarters and its warehouse leases were 2.0 years and 0.8 years, respectively. The cash outflows for operating leases were $ 20,000 and $ 41,000 for the three and six months ended June 30, 2022, respectively, and were $ 4,000 and $ 72,000 for the three and six months ended June 30, 2021, respectively. 4. Income Taxes. For the three and six months ended June 30, 2022, the Company recorded income tax expense of $ 14,000 and $ 22,000 , respectively, or 1.3 % and 2.2 % of loss before taxes, respectively. For the three and six months ended June 30, 2021, the Company recorded income tax expense of $ 10,000 and $ 23,000 , respectively, or 1.1 % and 1.4 % of loss before taxes, respectively. The income tax expense for the three and six months ended June 30, 2022 and 2021 is comprised of federal and state taxes. The primary differences between the Company’s June 30, 2022 and 2021 effective tax rates and the statutory federal rate are nondeductible stock-based compensation, nondeductible meals and entertainment, nondeductible penalties and increases in the Company’s valuation allowance against its deferred tax assets; and for the period ended June 30, 2021, loan forgiveness from the Paycheck Protection Program (PPP) loan. The Company reassesses its effective rate each reporting period and adjusts the annual effective rate if deemed necessary, based on projected annual taxable income (loss). Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of enacted tax laws. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which it operates, estimates of future taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustment to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria. As of June 30, 2022, and December 31, 2021, the Company had unrecognized tax benefits totaling $ 730,000 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 $ 730,000 . Due to the current statute of limitations regarding the unrecognized tax benefits, the Company expects to record a decrease of approximately $ 695,000 in unrecognized tax benefits related to state exposures in the third quarter of 2022, which will reduce accrued income taxes and increase income tax benefit. 5. Concentrations. During the six months ended June 30, 2022, three customers accounted for 22 %, 15 % and 10 %, respectively of the Company’s total net sales. During the six months ended June 30, 2021, three customers accounted for 15 %, 12 % and 11 %, respectively of the Company’s total net sales. At June 30, 2022, two customers represented 32 % and 10 %, 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. 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. Subsequent to the end of the quarter, on July 1, 2022, the Company entered into a $ 20 million settlement agreement with News America. The agreement memorializes the amicable settlement of the Company’s outstanding lawsuit against News America. The agreement is expected to result in net proceeds before income tax of between $ 11,500,000 and $ 12,000,000 for the Company, which will be recorded as pretax income in the quarter ending September 30, 2022. 11 Table of Contents The Company is subject to various legal matters in the normal course of business. 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. 8. Subsequent Event. Subsequent to June 30, 2022, the Company entered into a Confidential Settlement Agreement and Mutual Release with News America. See Note 6 for details. 12 Table of Contents