BLOOMIA HOLDINGS, INC. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the financial statements and the related notes included in this Annual Report on Form 10-K. This report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those in such forward-looking statements as a result of many factors, including those discussed in “Forward-Looking Statements” and elsewhere in this report. 11 Table of Contents Overview We are a leading provider of in-store advertising solutions to brands, retailers, shopper marketing agencies and brokerages (“clients”). We believe our products and services are attractive to our clients because of our ability to navigate the complex retail landscape, customize our solutions down to store level, execute with excellence and the results our solutions deliver. Our leadership and employees have extensive industry knowledge, including direct experience through former positions at CPG manufacturers and retailers. We provide marketing solutions to brands spanning from some of the largest multinationals to new and emerging brands. New product investments by large and emerging CPG manufacturers give us optimism that our product portfolio is relevant to our clients. Over the past several years, we have significantly expanded our offered solutions and have developed a portfolio designed to more holistically meet the needs of our clients and execution partners which has diversified our portfolio. Our focus on portfolio diversification resulted in our 2022 non-POPS solutions revenue growing 22% versus 2021, and also resulted in our POPS signage solutions declining to approximately 5% of our total net sales for 2022, compared to 24% of our total net sales in 2021. In 2023 we will be winding down our POPS signage solution. We remain committed to further refining and enhancing our solutions and broadening our retailer relationships. We are also continuing to explore strategic options to maximize shareholder value. Potential strategic alternatives that may be evaluated include, but are not limited to, an acquisition, merger, business combination, in-licensing, start-up of new business, or other strategic transaction. There can be no assurance that this process will result in any transaction. Results of Operations The following table sets forth, for the periods indicated, certain items in the Company’s Statements of Operations as a percentage of total net sales. For the Years Ended December 31 2022 2021 Net sales 100.0 % 100.0 % Cost of sales 82.4 83.5 Gross profit 17.6 16.5 Operating expenses: Selling 7.0 9.9 Marketing 5.6 5.3 General and administrative 17.7 25.9 Total operating expenses 30.3 41.1 Gain from litigation settlement, net 63.8 - Operating income (loss) 51.1 (24.6 ) Other income 1.2 6.7 Income (loss) before taxes 52.3 (17.9 ) Income tax (benefit) expense (1.1 ) 0.2 Net income (loss) 53.4 % (18.1 )% Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Net Sales. Net sales for the year ended December 31, 2022 decreased 3.6% to $18,800,000, compared to $19,503,000 for the year ended December 31, 2021. The decrease was due to an 81.5% decrease in POPS solutions revenue, partially offset by an increase in non-POPS revenue of 21.5%. The increase in non-POPS revenue is due to both new client acquisition as well as repeat business from existing clients. POPS sales for the year ended December 31, 2022 were $880,000. Competitive pressures, including the expiration in April 2021 of our 10-year selling agreement with News America and management’s decision to prioritize resources to growth opportunities in non-POPS solutions, have resulted in decreased POPS solutions revenue for the year ended December 31, 2022 versus the year ended December 31, 2021. We expect POPS revenue will continue to decline in 2023 in comparison to 2022. Gross Profit. Gross profit for the year ended December 31, 2022 increased 2.2% to $3,301,000, compared to $3,230,000 for the year ended December 31, 2021. The increase in gross profit was primarily due to decreased fixed costs within gross margin from staff and staff related expenses. Gross profit as a percentage of total net sales increased to 17.6% for the year ended December 31, 2022, compared to 16.5% for the year ended December 31, 2021. The increase was primarily due to reduction of fixed expense as discussed above, partially offset by decreased net sales. 12 Table of Contents Operating Expenses Selling. Selling expenses for the year ended December 31, 2022 decreased 31.4% to $1,325,000, compared to $1,931,000 for the year ended December 31, 2021, primarily due to decreased staff and staff related expenses. Selling expenses as a percentage of total net sales decreased to 7.0% in 2022, compared to 9.9% in 2021, primarily due to decreased expense described above, partially offset by decreased net sales for the year ended December 31, 2022. Marketing. Marketing expenses for the year ended December 31, 2022 increased 1.7% to $1,050,000, compared to $1,032,000 for the year ended December 31, 2021. Marketing expenses as a percentage of total net sales increased to 5.6% in 2022, compared to 5.3% in 2021, primarily due to relatively flat expense over decreased sales in 2022. General and Administrative. General and administrative expenses for the year ended December 31, 2022 decreased 34.4% to $3,320,000, compared to $5,058,000 for the year ended December 31, 2021. The decrease was primarily due to higher expenses incurred in the year ended December 31, 2021 as a result of litigation with News America. Following the litigation settlement on July 1, 2022, the Company does not expect to incur further expenses related to the legal proceedings with News America. The decrease in litigation expenses was partially offset by increase in expenses related to exploring strategic alternatives. General and administrative expenses as a percentage of total net sales decreased to 17.7% in 2022, compared to 25.9% in 2021, primarily due to the decreases in expense as described above. Gain from litigation settlement. On July 1, 2022, the Company entered into the settlement agreement with News America, with net proceeds after expenses of $12,000,000, which was recorded as a gain on litigation settlement in operations in the three months ended September 30, 2022. Other Income. Other income for the year ended December 31, 2022 was $222,000 compared to other income of $1,299,000 for the year ended December 31, 2021. The decrease was due to two items in 2021 that did not recur in 2022, the gain on forgiveness of debt and accrued interest of $1,062,000 from the SBA forgiving the Company of its loan pursuant to the Paycheck Protection Program, as well as a $273,000 benefit received under the Employee Retention Credit. Other income in 2022 consisted primarily of interest income from investment in short-term treasury bills. Income Taxes. For the year ended December 31, 2022, the Company recorded an income tax benefit of $218,000, compared to an income expense of $42,000 for the year ended December 31, 2021. The effective tax rate was 2.2% and (1.2)% for the years ended December 31, 2022 and 2021, respectively. The primary differences between the Company’s 2022 effective tax rate and the statutory federal rates were the reversal of non-deductible penalties, the reversal of unrecognized tax benefits, and a change in the Company’s valuation allowance against its deferred assets of ($1,971,000). The valuation allowance decrease in 2022 was primarily related to the utilization of the Company’s net operating loss carryforward against the Company’s taxable income. Such utilization was limited to 80% of the Company’s taxable income for the year. The primary differences in 2021 were due to the forgiveness of the Company’s PPP loan of $1,062,000 and a change in the Company’s valuation allowance against its deferred assets of $1,200,000. The effective tax rate fluctuates between periods based on the level of permanent differences and other discrete items relative to the level of pre-tax income or loss for the period. Net Income (Loss). For the reasons stated above including the pre-tax gain from litigation settlement in 2022, and the gain on debt forgiveness of the PPP loan and accrued interest of $1,062,000 in 2021, the net income for the year ended December 31, 2022 was $10,046,000 compared to a net loss of $3,534,000 for the year ended December 31, 2021. Liquidity and Capital Resources The Company has financed its operations with proceeds from stock sales and sales of its services and products. At December 31, 2022, working capital (current assets less current liabilities) was $13,379,000 compared to $3,716,000 at December 31, 2021. During the year ended December 31, 2022, cash and cash equivalents and restricted cash increased $10,673,000 from $3,851,000 at December 31, 2021, to $14,524,000 at December 31, 2022. These increases were the result of the net proceeds of $12,000,000 from the litigation settlement. The Company has invested a significant portion of its cash and cash equivalents in short-term Treasury Bills. Operating Activities: Net cash provided by operating activities during the year ended December 31, 2022 was $10,663,000. Net income of $10,046,000, less non-cash adjustments of $69,000, plus changes in operating assets and liabilities of $686,000 resulted in the $10,663,000 of cash provided by operating activities. The non-cash adjustments consisted of depreciation expense, changes in allowance for doubtful accounts, and stock-based compensation expense. The largest component of the change in operating assets and liabilities was deferred revenue which increased $1,585,000 from December 31, 2021. The increase was a result of an increase in prepaid revenue from our customers. In the normal course of business, our accounts receivable, accounts payable, accrued liabilities, deferred revenue and prepaid production costs will fluctuate depending on the level of revenues and related business activity, as well as billing arrangements with customers and payment terms with retailers. 13 Table of Contents Investing Activities: Net cash used in investing activities during the year ended December 31, 2022 was $29,000. This was related to the purchase of property and equipment. Financing Activities: Net cash provided by financing activities during the year ended December 31, 2022 was $39,000, which related to proceeds from the issuance of common stock under the employee stock purchase plan and exercised stock options. Primarily as a result of the net proceeds from the litigation settlement of $12 million, cash and cash equivalents plus restricted cash at December 31, 2022 was $14.5 million. The Company believes that based upon current business conditions and plans, its cash and cash equivalents balances will be sufficient for its cash requirements for at least the twelve-month period subsequent to the filing of this Form 10-K. Depending on the outcome our strategic alternative process we may be required to finance this process through equity offerings or debt financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders will be diluted, and the terms of those securities may include liquidation or other preferences that adversely affect the rights of our shareholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Additional capital may not be available when needed, on reasonable terms, or at all, and our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the U.S. and worldwide resulting from the ongoing COVID-19 pandemic. If we are unable to raise additional funds when needed we may not be able to complete transactions related to the strategic alternatives process. Critical Accounting Estimates Our discussion of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales, costs and expenses and related disclosures. Critical accounting estimates are those estimates made in accordance with GAAP which involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. On an ongoing basis, we evaluate our estimates and assumptions, including those related to allowance for doubtful accounts, income taxes, sales tax, and stock-based compensation expense. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our financial statements. We believe the following are our critical accounting estimates used in preparation of our financial statements: Allowance for Doubtful Accounts . An allowance is established for estimated uncollectible accounts receivable. 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, the condition of the general economy and the industry as a whole and other relevant facts and circumstances. Unexpected changes in the aforementioned factors could result in materially different amounts. Sales Taxes . Sales taxes are based on determination of which of the Company’s products/services are subject to sales tax, and in which of various states and other jurisdictions the tax applies. Further, the Company must determine which of our 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. 14 Table of Contents Income Taxes . Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. 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, adjustments 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. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Stock-Based Compensation Expense . The Company measures and recognizes compensation expense for all stock-based payments at fair value. Restricted stock awards and restricted stock units 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 several 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 terms 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 life at grant date. Volatility is based on historical volatility of the Company’s stock. The Company has not historically issued any dividends beyond the one-time dividends declared in 2011 and 2016 and does not expect to in the future. If factors change and the Company employs different assumptions in the valuation of grants in future periods, the compensation expense that the Company records may differ significantly from what it has recorded in the current period. Forward-Looking Statements Statements in this report that are not statements of historical or current facts are considered forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. The words “anticipates,” “believes,” “estimates,” “expects,” “future,” “likely,” “may,” “projects,” “seeks,” “will,” and similar expressions may identify forward-looking statements. Readers are cautioned not to place undue reliance on these or any forward-looking statements, which speak only as of the date of this report. Statements made in this report regarding, for instance, the ongoing exploration of strategic alternatives, changes in composition of retailer and CPG manufacturer networks, innovation and transformation of the Company’s business, benefits of outsourcing arrangements, are forward-looking statements. These forward-looking statements are based on current information, which we have assessed and which by its nature is dynamic and subject to rapid and even abrupt changes. As such, actual results may differ materially from the results or performance expressed or implied by such forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, including those set forth in this report and additional risks, if any, identified in our Quarterly Reports on Form 10-Q and our Current Reports on Forms 8-K filed with the SEC. Such forward-looking statements should be read in conjunction with the Company's filings with the SEC. Insignia assumes no responsibility to update the forward-looking statements contained in this report or the reasons why actual results would differ from those anticipated in any such forward-looking statement, other than as required by law. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Smaller reporting companies are not required to provide disclosure pursuant to this Item. 15 Table of Contents