BLOOMIA HOLDINGS, INC. 10-Q

Item 1. Financial Statements Insignia Systems, Inc. CONDENSED BALANCE SHEETS September 30, 2022 December 31, (Unaudited) 2021 ASSETS Current Assets: Cash and cash equivalents $ 14,168,000 $ 3,766,000 Restricted cash 85,000 85,000 Accounts receivable, net 4,723,000 5,247,000 Inventories 37,000 19,000 Income taxes receivable - 4,000 Prepaid production costs 636,000 867,000 Other prepaid expense 208,000 366,000 Total Current Assets 19,857,000 10,354,000 Other Assets: Property and equipment, net 84,000 113,000 Operating lease right-of-use assets 126,000 183,000 Total Assets $ 20,067,000 $ 10,650,000 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable 1,944,000 2,539,000 Accrued liabilities: Compensation 930,000 464,000 Sales tax 775,000 1,287,000 Other 736,000 1,430,000 Income taxes payable 482,000 - Current portion of operating lease liabilities 71,000 76,000 Deferred revenue 919,000 842,000 Total Current Liabilities 5,857,000 6,638,000 Long-Term Liabilities: Accrued income taxes 52,000 711,000 Operating lease liabilities 56,000 108,000 Total Long-Term Liabilities 108,000 819,000 Commitments and Contingencies — — Shareholders' Equity: Common stock, par value $ 0.01 : Authorized shares - 5,714,000 Issued and outstanding shares - 1,796,000 at September 30, 2022 and 1,782,000 at December 31, 2021, respectively 18,000 18,000 Additional paid-in capital 16,426,000 16,296,000 Accumulated deficit ( 2,342,000 ) ( 13,121,000 ) Total Shareholders' Equity 14,102,000 3,193,000 Total Liabilities and Shareholders' Equity $ 20,067,000 $ 10,650,000 See accompanying notes to financial statements. 1 Table of Contents Insignia Systems, Inc. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended September 30 September 30 2022 2021 2022 2021 Net services revenues $ 4,869,000 $ 3,493,000 $ 14,271,000 $ 14,975,000 Cost of services 4,031,000 2,948,000 11,737,000 12,293,000 Gross Profit 838,000 545,000 2,534,000 2,682,000 Operating Expenses: Selling 294,000 425,000 926,000 1,406,000 Marketing 249,000 266,000 787,000 761,000 General and administrative 756,000 779,000 2,310,000 4,052,000 Total Operating Expenses 1,299,000 1,470,000 4,023,000 6,219,000 Gain from litigation settlement, net 12,000,000 — 12,000,000 — Operating Income (Loss) 11,539,000 ( 925,000 ) 10,511,000 ( 3,537,000 ) Other Income (Expense): Gain on forgiveness of debt and accrued interest — — — 1,062,000 Other income (expense) 72,000 13,000 100,000 ( 45,000 ) Total Other Income 72,000 13,000 100,000 1,017,000 Income (Loss) Before Taxes 11,611,000 ( 912,000 ) 10,611,000 ( 2,520,000 ) Income tax (benfit) expense ( 190,000 ) 9,000 ( 168,000 ) 32,000 Net Income (Loss) $ 11,801,000 $ ( 921,000 ) $ 10,779,000 $ ( 2,552,000 ) Net income (loss) per share: Basic $ 6.57 $ ( 0.52 ) $ 6.02 $ ( 1.45 ) Diluted $ 6.57 $ ( 0.52 ) $ 6.00 $ ( 1.45 ) Shares used in calculation of net income (loss) per share: Basic 1,795,000 1,766,000 1,790,000 1,757,000 Diluted 1,796,000 1,766,000 1,796,000 1,757,000 See accompanying notes to financial statements. 2 Table of Contents Insignia Systems, Inc. CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) Additional Common Stock 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 Value of stock-based compensation — — 32,000 — 32,000 Issuance of common stock upon vesting of restricted stock units 3,000 — — — — Net income — — — 11,801,000 11,801,000 Balance at September 30, 2022 1,796,000 $ 18,000 $ 16,426,000 $ ( 2,342,000 ) $ 14,102,000 Additional Common Stock Paid-In Accumulated Shares Amount Capital Deficit Total Balance at December 31, 2020 1,748,000 $ 17,000 $ 16,238,000 $ ( 9,587,000 ) $ 6,668,000 Issuance of common stock, net 6,000 1,000 25,000 — 26,000 Value of stock-based compensation — — 56,000 — 56,000 Net loss — — — ( 737,000 ) ( 737,000 ) Balance at March 31, 2021 1,754,000 $ 18,000 $ 16,319,000 $ ( 10,324,000 ) $ 6,013,000 Value of stock-based compensation — — 86,000 — 86,000 Repurchase of common stock upon vesting of restricted stock units 11,000 — ( 9,000 ) — ( 9,000 ) Net loss — — — ( 894,000 ) ( 894,000 ) Balance at June 30, 2021 1,765,000 $ 18,000 $ 16,396,000 $ ( 11,218,000 ) $ 5,196,000 Value of stock-based compensation — — 56,000 — 56,000 Repurchase of common stock upon vesting of restricted stock units 3,000 — ( 9,000 ) — ( 9,000 ) Net loss — — — ( 921,000 ) ( 921,000 ) Balance at September 30, 2021 1,768,000 $ 18,000 $ 16,443,000 $ ( 12,139,000 ) $ 4,322,000 See accompanying notes to financial statements. 3 Table of Contents Insignia Systems, Inc. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30 2022 2021 Operating Activities: Net income (loss) $ 10,779,000 $ ( 2,552,000 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 46,000 46,000 Gain on sale of property and equipment — ( 7,000 ) Changes in allowance for doubtful accounts ( 50,000 ) 34,000 Stock-based compensation expense 91,000 198,000 Gain on forgiveness of debt and accrued interest — ( 1,062,000 ) Changes in operating assets and liabilities: Accounts receivable 574,000 1,620,000 Inventories ( 18,000 ) ( 2,000 ) Income taxes receivable 4,000 ( 1,000 ) Prepaid expenses and other 389,000 ( 27,000 ) Accounts payable ( 587,000 ) ( 1,655,000 ) Accrued liabilities ( 740,000 ) 28,000 Income taxes payable 482,000 — Accrued income taxes ( 659,000 ) 26,000 Deferred revenue 77,000 31,000 Net cash provided by (used in) operating activities 10,388,000 ( 3,323,000 ) Investing Activities: Purchases of property and equipment ( 25,000 ) ( 81,000 ) Sale of property and equipment — 16,000 Net cash used in investing activities ( 25,000 ) ( 65,000 ) 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 — ( 18,000 ) Net cash provided by (used in) financing activities 39,000 ( 6,000 ) Increase (decrease) in cash and cash equivalents and restricted cash 10,402,000 ( 3,394,000 ) 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 $ 14,253,000 $ 3,734,000 Supplemental disclosures for cash flow information: Cash paid during the period for income taxes $ 5,000 $ 6,000 Non-cash financing activity: Operating lease right-of-use asset obtained in exchange for lease obligation $ - $ 219,000 Forgiveness of debt and accrued interest $ - $ 1,062,000 Purchase of property and equipment included in accounts payable $ - $ 13,000 See accompanying notes to financial statements. 4 Table of Contents Insignia Systems, Inc. Notes To Financial Statements (Unaudited) 1. Summary of Significant Accounting Policies. Description of Business . Insignia Systems, Inc. (the “Company”) is a leading provider of in-store 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. As discussed in Note 6, the Company settled a lawsuit and recorded a net pre-tax gain from litigation settlement of $ 12,000,000 in operations in the three months ended September 30, 2022. Cash and Cash Equivalents and Restricted Cash. The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the statement of cash flows: September 30, December 31, 2022 2021 Cash and cash equivalents $ 14,168,000 $ 3,766,000 Restricted cash 85,000 85,000 Total cash, cash equivalents and restricted cash $ 14,253,000 $ 3,851,000 Included in cash and cash equivalents is a U.S. Treasury Bill with a carrying value of $ 11,100,000 . 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. 5 Table of Contents Property and Equipment . Property and equipment consisted of the following: September 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 758,000 753,000 Leasehold improvements 19,000 19,000 Construction in-progress 15,000 4,000 914,000 898,000 Accumulated depreciation and amortization ( 830,000 ) ( 785,000 ) Net Property and Equipment $ 84,000 $ 113,000 Depreciation expense was approximately $ 15,000 and $ 46,000 in the three and nine months ended September 30, 2022, respectively, and was $ 14,000 and $ 46,000 in the three and nine months ended September 30, 2021, respectively. Stock-Based Compensation . The Company measures and recognizes compensation expense for all stock-based payments at fair value. Restricted stock units and awards are valued at the closing market price of the Company’s stock as of the date of the grant. The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options and employee stock purchase plan rights. The determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as by assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. During the nine months ended September 30, 2022 and 2021, no equity awards were issued by the Company, except those awarded to non-employee members of the Board of Directors in August 2022 and in June 2021. In August 2022, non-employee members of the Board of Directors received restricted stock grants totaling 6,248 shares pursuant to the 2018 Equity Incentive Plan (the “2018 Plan”). The shares underlying the awards were assigned a value of $ 9.60 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 $ 60,000 . The shares are scheduled to vest the day immediately preceding the date of the next annual shareholder meeting. 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 vested on June 1, 2022. Total stock-based compensation expense recorded for the three and nine months ended September 30, 2022 was $ 32,000 and $ 91,000 , respectively, and for the three and nine months ended September 30, 2021 was $ 56,000 and $ 198,000 , 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 14,086 shares of common stock with a weighted average exercise price of $ 11.91 and $ 11.98 , respectively, were outstanding at September 30, 2022 and were not included in the computation of common stock equivalents for the three and nine months ended September 30, 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 and nine months ended September 31, 2021 all outstanding stock options were anti-dilutive for those periods. As of September 30, 2021 the Company had options to purchase 21,741 shares of common stock and 32,410 restricted stock units, each representing the contingent right to receive one share of common stock, outstanding. 6 Table of Contents Weighted average common shares outstanding: Three Months Ended Nine Months Ended September 30 September 30 2022 2021 2022 2021 Denominator for basic net income (loss) per share - weighted average shares 1,795,000 1,766,000 1,790,000 1,757,000 Effect of dilutive securities: Stock options and restricted stock units 1,000 6,000 Denominator for diluted net income (loss) per share - weighted average shares 1,796,000 1,766,000 1,796,000 1,757,000 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. 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. 7 Table of Contents Disaggregation of Revenue In the following table, revenue is disaggregated by major revenue stream and timing of revenue recognition. Three months ended September 30 Nine months ended September 30 2022 2021 2022 2021 Services Revenues Services Revenues Services Revenues Services Revenues Timing of revenue recognition: Services transferred over time $ 398,000 $ 1,482,000 $ 1,355,000 $ 5,366,000 Services transferred at a point in time 4,471,000 2,011,000 12,916,000 9,609,000 Total $ 4,869,000 $ 3,493,000 $ 14,271,000 $ 14,975,000 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. 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 555,000 Balance at September 30, 2022 $ 919,000 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 $ 28,000 and $ 57,000 related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2022 will be recognized during the remainder of fiscal 2022 and 2023, respectively. 3. Leases. As of September 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. 8 Table of Contents 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: Three months ended September 30, 2022 Nine months ended September 30, 2022 Corporate Operating Corporate Operating Headquarters Warehouse Leases Headquarters Warehouse Leases Operating lease cost $ 17,000 $ 4,000 $ 21,000 $ 50,000 $ 13,000 $ 63,000 Variable lease cost 10,000 3,000 $ 13,000 30,000 9,000 39,000 Total $ 27,000 $ 7,000 $ 34,000 $ 80,000 $ 22,000 $ 102,000 Three months ended September 30, 2021 Corporate Additional Operating Headquarters Office Space Warehouse Leases Operating lease cost $ 11,000 $ - $ 4,000 $ 15,000 Variable lease cost 7,000 - 4,000 11,000 Short-term lease cost - 7,000 - 7,000 Total $ 18,000 $ 7,000 $ 8,000 $ 33,000 Nine months ended September 30, 2021 Prior Corporate Corporate Additional Operating Headquarters Headquarters Office Space Warehouse Leases Operating lease cost $ 38,000 $ 11,000 $ - $ 9,000 $ 58,000 Variable lease cost 24,000 7,000 - 9,000 40,000 Short-term lease cost - - 28,000 - 28,000 Total $ 62,000 $ 18,000 $ 28,000 $ 18,000 $ 126,000 Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs which are paid based on actual costs incurred by the lessor. Maturities of the Company’s lease liabilities for is corporate headquarters and its warehouse operating leases are as follows as of September 30, 2022: Maturity of Lease Liabilities Leases 2022 $ 21,000 2023 72,000 2024 40,000 Total lease payments 133,000 Less: Interest ( 6,000 ) Present value of lease liabilities $ 127,000 The remaining lease terms as of September 30, 2022 for the Company’s corporate headquarters and its warehouse leases were 1.8 years and 0.5 years, respectively. The discount rate for both leases is 4.8%. The cash outflow for operating leases for the three and nine months ended September 30, 2022 was $ 21,000 and $ 62,000 , respectively. The cash outflow for operating leases for the three and nine months ended September 30, 2021 was $ 15,000 and $ 76,000 , respectively. 4. Income Taxes. For the three and nine months ended September 30, 2022, the Company recorded income tax benefit of $ 190,000 and $ 168,000 , or ( 1.6 )% and ( 1.6 )% of income before taxes, respectively. For the three and nine months ended September 30, 2021, the Company recorded income tax expense of $ 9,000 and $ 32,000 , or 1 .0% and 1.3 % of loss before taxes, respectively. The income tax expense or benefit for the three and nine months ended September 30, 2022 and 2021 is comprised of federal and state taxes. The primary differences between the Company’s September 30, 2022 and 2021 effective tax rates and the statutory federal rate are nondeductible stock-based compensation, nondeductible penalties and for 2021 increases in the Company’s valuation allowance against its deferred tax assets and for 2022 decreases in the Company’s valuation allowance against its deferred tax assets and decreases in the Company’s reserve for unrecognized tax benefits. 9 Table of Contents Nine months ended September 30, 2022 2021 Federal statutory rate 21 .0 % 21 .0 % Stock-based awards 0.1 ( 0.9 ) State taxes 3.6 3.6 Impact of uncertain tax positions ( 6.2 ) ( 1.1 ) Valuation allowance ( 20 .0 ) ( 34.3 ) PPP forgiveness - 10.5 Other ( 0.1 ) ( 0.1 ) Effective federal income tax rate ( 1.6 )% ( 1.3 )% The Company reassesses its effective rate each reporting period and adjusts the annual effective rate if deemed necessary, based on projected annual taxable income (loss). Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of enacted tax laws. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which we operate, estimates of future taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustment to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria. At September 30, 2022, and December 31, 2021, the Company had unrecognized tax benefits totaling $ 52,000 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 $ 52,000 . The Company recorded a decrease of approximately $ 679,000 in unrecognized tax benefits related to state income tax exposure in the third quarter of 2022, which reduced accrued income taxes and increased income tax benefit. The Company has determined it is no longer more likely than not that the Company will realize the tax expense. At December 31, 2021, the Company had Federal net operating loss (NOL) to carry forward of approximately $ 9,700,000 . As of September 30, 2022 the Company estimates remaining Federal NOL carryforwards to be approximately $ 2,000,000 . The federal NOL utilization was limited to 80 % of estimated taxable income. The estimated NOL carry-forward will be adjusted at year end for fourth quarter results. 5. Concentrations. During the nine months ended September 30, 2022, three customers accounted for 19 %, 12 % and 11 % respectively, of the Company’s total net sales. During the nine months ended September 30, 2021, two customers accounted for 16 % and 10 % respectively, of the Company’s total net sales. At September 30, 2022, two customers represented 20 % and 12 % respectively, of the Company’s total accounts receivable. At December 31, 2021, two customers represented 25 % and 19 % 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. 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 resulted in net proceeds before income tax of $ 12,000,000 for the Company, which was recorded as a gain on litigation settlement in operations in the three months ended September 30, 2022. 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. 10 Table of Contents