What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-11 compared with 2022-11-10 · 106 added, 131 removed, 61 unchanged (80% of the section changed)

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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, to customize our solutions down to store level, to execute with excellence and the results our solutions deliver.

We believe our products and services are attractive to our clients because of our ability to navigate the complex retail landscape, to customize our solutions for both our brand and retail partners, to execute with excellence and the results our solutions deliver.

Our leadership and employees have extensive industry knowledge, including direct experience through former positions at consumer-packaged goods (“CPG”) manufacturers and retailers.

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The Insignia POPS solution is a national, account-specific, shelf-edge advertising and promotion tactic.

Primarily as a result of competitive pressures and also due to COVID-19, our in-store signage business has declined and become less of a focus in our growth.

Beginning in 2018 we began developing and offering an expanded portfolio of solutions including on-pack, merchandising and digital solutions in addition to our core business.

Our expanded portfolio allows us to meet the needs of brands, retailers and their agents as their business strategies evolve behind an ever-changing retail landscape.

Over the course of 2021 based on client feedback, business results and expanded team capabilities our primary focus is now on in-store solutions, resulting in our decision to exit digital solutions in addition to right-sizing our in-store signage portfolio.

With our diversification of business, we now recognized over 90% of our revenue from these recently developed solutions in the nine months ended September 30, 2022.

Over the last two years we have significantly reduced operating costs and retailer commitments.

In the last half of 2020 we outsourced most of our printing and IT operations.

In 2021 we relocated our headquarters and operations, both to smaller, more efficient leased spaces, and also restructured operations in December 2021.

These changes contributed to reduced expenses in the nine months ended September 30, 2022 and are expected to continue to drive savings for the remainder of 2022 compared to 2021.

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 net pretax gain from litigation settlement in operations in the three months ended September 30, 2022.

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, or other strategic transaction.

There can be no assurance that this process will result in any transaction.

Primarily because of competitive pressures, market contraction and reduced spending post the COVID-19 pandemic, our POPS business has declined and will be wound down in 2023.

Beginning in 2018, we began developing and offering an expanded portfolio of solutions including on-pack and displays in addition to what was our core business of Insignia POPS.

Our expanded portfolio now allows us to meet the needs of brands, retailers and their agents as their business strategies evolve behind an ever-changing retail landscape.

Since expanding our portfolio of solutions in 2018, our business results, investments and overall team capabilities are primarily focused on our display and on-pack solutions.

With our diversification of business, we recognized over 95% of our revenue from these newer solutions in 2022 and for the three months ended March 31, 2023.

On July 1, 2022, we entered into a $20 million settlement agreement with News Corporation, News America Marketing FSI L.L.C., and News America Marketing In-Store Services L.L.C.

(collectively, “News America”).

The agreement memorializes the amicable settlement of our outstanding lawsuit against News America.

The agreement resulted in net proceeds before income tax of $12,000,000, which was recorded as a net pretax gain from litigation settlement in operations during the three months ended September 30, 2022.

On April 7, 2023 we announced the launch of our non-bank lending platform, through the hiring of a Senior Vice President of Lending with over 20 years of experience in credit and lending.

Operations from non-bank lending did not have material impact on business for the three months ended March 31, 2023.

We continue to explore other 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 initiatives.

There can be no assurance that this process will result in any transaction or other initiatives.

Business Overview

Summary of Financial Results

For the quarter ended September 30, 2022, the Company generated net sales of $4,869,000, as compared with revenues of $3,493,000 for the quarter ended September 30, 2021.

For the nine months ended September 30, 2022, the Company generated revenues of $14,271,000, as compared with revenues of $14,975,000 in the nine months ended September 30, 2021.

Income before taxes for the quarter ended September 30, 2022 was $11,611,000, which included $12,000,000 from the net gain on litigation settlement, as compared to net loss before taxes of $912,000 for the quarter ended September 30, 2021.

Income before tax for the nine months ended September 30, 2022 was $10,611,000, which included $12,000,000 from the net gain on litigation settlement, as compared to net loss before taxes of $2,520,000 for the nine months ended September 30, 2021.

Revenue from our non-POPS solutions increased significantly for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, partially offset by continued declines in our signage business due to competitive pressures.

For the nine months ended September 30, 2022 net sales have declined $704,000, primarily due to continued declines in our signage business, partially offset by increases in non-POPS solutions revenue.

During the first nine months of 2021, litigation expenses increased significantly compared to prior quarters.

Litigation expenses for 2022 decreased in comparison to 2021 culminating with the litigation settlement on July 1, 2022.

We also recognized a gain of $1,062,000 on the forgiveness of our Paycheck Protection Program (“PPP”) loan during the first quarter of 2021.

Income tax benefit for the three and nine months ended September 30, 2022 included a benefit from a reduction in unrecognized tax benefits of $679,000, partially offset by income tax on income before tax.

During the nine months ended September 30, 2022, cash and cash equivalents and restricted cash increased $10,402,000 from $3,851,000 at December 31, 2021, to $14,253,000 at September 30, 2022, due to the proceeds from the litigation settlement.

The Company had no debt other than its lease obligations at September 30, 2022.

Working capital increased $10,284,000 from $3,716,000 at December 31, 2021 to $14,000,000 at September 30, 2022.

For the quarter ended March 31, 2023, the Company generated revenues of $12,831,000, as compared with revenues of $6,148,000 for the quarter ended March 31, 2022.

Net income for the quarter ended March 31, 2023 was $1,648,000, as compared to net income of $62,000 for the quarter ended March 31, 2022.

Revenue from our display and on-pack offerings has increased significantly for the three months ended March 31, 2023 compared to the three months ended March 31, 2022, partially offset by continued declines in our signage business due to competitive pressure, which we expect to continue for the remainder of 2023 as we wind down our POPS business.

We continue to pursue a variety of efforts designed to drive innovation, client acquisitions and retailer expansions.

The first quarter of the calendar year has historically been the strongest quarter of the year for our display and on-pack revenues.

We expect the remaining quarters in 2023 to have significantly less revenue than this first quarter and also expect operating losses in the remaining quarters of the year, and a loss for the full year.

During the quarter ended March 31, 2023, cash and cash equivalents and restricted cash decreased $3,844,000 from $14,524,000 at December 31, 2022 to $10,680,000 at March 31, 2023.

The decrease was primarily driven by the increase in net sales for the three months ended March 31, 2023 compared to the three months ended December 31, 2022, resulting in a $3,770,000 increase in accounts receivable.

We have no debt other than our lease obligations at March 31, 2023.

Working capital increased $1,692,000 from $13,379,000 at December 31, 2022 to $15,071,000 at March 31, 2023.

Results of Operations

The following table sets forth, for the periods indicated, certain items in our Condensed Statements of Operations as a percentage of total net sales.

Three Months Ended

Nine Months Ended

For the Three Months Ended March 31

Cost of sales

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Total operating expenses

Gain from litigation settlement, net

Operating income (loss)

Income (loss) before taxes

Income tax expense (benefit)

Net income (loss)

Three and Nine months Ended September 30, 2022 Compared to Three and Nine months Ended September 30, 2021

Net sales for the three months ended September 30, 2022 increased 39.4% to $4,869,000 compared to $3,493,000 for the three months ended September 30, 2021.

Net sales for the nine months ended September 30, 2022 decreased 4.7% to $14,271,000 compared to $14,975,000 for the nine months ended September 30, 2021.

For the three months ended September 30, 2022 non-POPS revenue increased 100.7%, partially offset by a 81.4% decrease in POPS solutions revenue.

For the nine months ended September 30, 2022, non-POPS revenue has increased 22.0%, partially offset by a 82.3% decrease in POPS solutions revenue.

The increase in non-POPS revenue is due to both new client acquisition as well as repeat business from existing clients.

Due to sales cycles within the retailers that our non-POPS solutions execute we anticipate seasonality in sales, with those sales being relatively stronger in the first quarter of the year.

Operating income

Other income (expense)

Income before taxes

Income tax expense

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Net sales for the three months ended March 31, 2023 increased 108.7% to $12,831,000 compared to $6,148,000 for the three months ended March 31, 2022.

The increase was due to a 121% increase in the combination of display and on-pack revenue, partially offset by a 43% decrease in signage revenue.

For the three months ended March 31, 2023, display revenue has increased due to securing larger contracts in addition to both an increase in sales to new CPGs and an increase in sales to existing CPGs.

Due to sales cycles within the retailers that our display and on-pack solutions execute we anticipate seasonality in sales, with those sales being significantly stronger in the first quarter of the year.

Our display business generally consists of larger contracts versus our historical signage business.

As a result, our revenue may be prone to variances on a year over year basis.

Competitive pressures, including the expiration in April 2021 of our 10-year selling agreement with News America have resulted in decreased POPS solutions revenue for three and nine months ended September 30, 2022 versus the three and nine months ended September 30, 2021.

We expect POPS revenue will continue to decline in 2022 in comparison to 2021 as we have reduced the number of stores in our network.

As a result, our revenue may be prone to variances on both a quarter to quarter and a year over year basis.

Competitive pressures have resulted in decreased POPS solutions revenue for three months ended March 31, 2023 versus the three months ended March 31, 2022.

We expect POPS revenue will continue to decline in 2023 in comparison to 2022 due to the decision to wind down this product offering during the quarter ending June 30, 2023.

Gross Profit.

Gross profit for the three months ended September 30, 2022 increased 53.8% to $838,000 compared to $545,000 for the three months ended September 30, 2021.

The increase in gross profit was primarily due to the increase in net sales.

Gross profit as a percentage of total net sales increased to 17.2% for the three months ended September 30, 2022 compared to 15.6% for the three months ended September 30, 2021.

The increase was primarily due to the impact fixed costs have on gross profit percentage when sales increase, partially offset by the mix of net sales as our non-POPS solutions typically have lower margins.

Gross profit for the nine months ended September 30, 2022 decreased 5.5% to $2,534,000 compared to $2,682,000 for the nine months ended September 30, 2021.

The decrease in gross profit was primarily due to the decline in net sales.

Gross profit as a percentage of total net sales decreased to 17.8% for the nine months ended September 30, 2022 compared to 17.9% for the nine months ended September 30, 2021.

Gross profit for the three months ended March 31, 2023 increased 128.1% to $2,920,000 compared to $1,280,000 for the three months ended March 31, 2022.

Gross profit as a percentage of total net sales increased to 22.8% for the three months ended March 31, 2023, compared to 20.8% for the three months ended March 31, 2022.

The increase in gross profit was primarily due to increased sales.

Operating Expenses

Selling expenses for the three months ended September 30, 2022 decreased 30.8% to $294,000 compared to $425,000 for the three months ended September 30, 2021.

Selling expenses for the nine months ended September 30, 2022 decreased 34.1% to $926,000 compared to $1,406,000 for the nine months ended September 30, 2021.

The decreases for both periods were primarily due to decreased staff and staff related expenses.

Selling expenses as a percentage of total net sales decreased to 6.0% for the three months ended September 30, 2022 compared to 12.2% for the three months ended September 30, 2021.

The decrease was primarily due to decreased staff and staff related expenses, in addition to increased sales.

Selling expenses as a percentage of net sales decreased to 6.5% for the nine months ended September 30, 2022 compared to 9.4% for the nine months ended September 30, 2021.

The decreases were primarily due to decreased staff and staff related expenses, partially offset by decreased sales.

Marketing expenses for the three months ended September 30, 2022 decreased 6.4% to $249,000 compared to $266,000 for the three months ended September 30, 2021.

Marketing expense for the nine months ended September 30, 2022 increased 3.4% to $787,000 compared to $761,000 for the nine months ended September 30, 2021.

Marketing expenses as a percentage of total net sales decreased to 5.1% for the three months ended September 30, 2022 compared to 7.6% for the three months ended September 30, 2021.

The decrease was due to increased sales.

Marketing expenses as a percentage of net sales increased to 5.5% for the nine months ended September 30, 2022 compared to 5.1% for the nine months ended September 30, 2021.

The increase was due to decreased sales.

Selling expenses for the three months ended March 31, 2023 increased 6.4% to $364,000 compared to $342,000 for the three months ended March 31, 2022.

The increase in expense was due to higher commissions due to the higher sales, and were partially offset by open sales positions during the quarter.

Selling expenses as a percentage of total net sales decreased to 2.8% for the three months ended March 31, 2023 compared to 5.6% for the three months ended March 31, 2022.

The decrease was primarily due to increased sales, partially offset by an increase in commissions.

Marketing expenses for the three months ended March 31, 2023 increased 14.3% to $296,000 compared to $259,000 for the three months ended March 31, 2022.

Increased marketing expense was primarily the result of increased staff and staff related expenses.

Marketing expenses as a percentage of total net sales decreased to 2.3% for the three months ended March 31, 2023 compared to 4.2% for the three months ended March 31, 2022.

The decrease was primarily due to increased sales, partially offset by increased staff and staff related expenses.

General and administrative.

General and administrative expenses for the three months ended September 30, 2022 decreased 3.0% to $756,000 compared to $779,000 for the three months ended September 30, 2021.

Increased expenses for the strategic alternatives process were substantially offset by decreased litigation expenses.

General and administrative expenses for the nine months ended September 30, 2022 decreased 43.0% to $2,310,000 compared to $4,052,000 for the nine months ended September 30, 2021.

The decreases for both periods were primarily due to higher expenses incurred in the prior year period 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.

General and administrative expenses as a percentage of total net sales decreased to 15.5% for the three months ended September 30, 2022 compared to 22.3% for the three months ended September 30, 2021.

The decrease was primarily due to increased sales.

General and administrative expenses as a percentage of net sales decreased to 16.2% for the nine months ended September 30, 2022 compared to 27.0% for the nine months ended September 30, 2021.

The decrease was due to the factors described above, partially offset by decreased sales.

Gain from litigation settlement.

On July 1, 2022, the Company entered into a $20,000,000 settlement agreement with News America, with net proceeds after expenses of $12,000,000.

The agreement memorializes the amicable settlement of the Company’s outstanding lawsuit against News America.

Other Income.

Other income for the three months ended September 30, 2022 was $72,000 compared to other income of $13,000 for the three months ended September 30, 2021, primarily due to interest income.

Other income for the nine months ended September 30, 2022 was $100,000 compared to other income of $1,017,000 for the nine months ended September 30, 2021.

The significantly higher income in the prior year period reflects the gain on forgiveness of debt and accrued interest of $1,062,000 from the SBA forgiving the Company’s loan pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act.

General and administrative expenses for the three months ended March 31, 2023 increased 19.0% to $721,000 compared to $606,000 for the three months ended March 31, 2022.

The increase was primarily from the comparison to the reduced expense in 2022 from the Director Deferred Compensation Plan due to a reduction in our share price for the three months ended March 31, 2022.

General and administrative expenses as a percentage of total net sales decreased to 5.7% for the three months ended March 31, 2023 compared to 9.8% for the three months ended March 31, 2022.

The decrease was primarily due to increased sales, partially offset by the factors described above.

With the April 7, 2023 announcement of our non-bank lending platform we expect to incur between $65,000 to $75,000 of additional expense on a quarterly basis for the duration of 2023.

Other Income (Expense).

Other income for the three months ended March 31, 2023 was $112,000 compared to $3,000 of expense for the three months ended March 31, 2022.

Other income in 2023 consisted primarily of interest income from investment in short-term treasury bills.

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 expenses related to 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 assts and decreases in the Company’s reserve for unrecognized tax benefits.

For the three months ended March 31, 2023, the Company recorded income tax expense of $3,000, or 0.2% of income before 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.

The income tax expense for the three months ended March 31, 2023 and 2022 is comprised of federal and state taxes.

The primary differences between the Company’s March 31, 2023 and 2022 effective tax rates and the statutory federal rate are nondeductible stock-based compensation, nondeductible meals and entertainment, as well as changes in the Company’s valuation allowance against its deferred tax assets.

The Company reassesses its effective tax rate each reporting period and adjusts the annual effective rate if deemed necessary, based on projected annual taxable income (loss).

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Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria.

In the third quarter of 2022, the Company recognized an income tax benefit of approximately $2,128,000 due to the partial reversal of its valuation allowance on deferred tax assets.

This partial reversal of the valuation allowance is based on the Company’s expected ability to utilize a portion of its federal and state net operating losses carried forward against 2022 federal and state income tax liabilities.

The Company will continue to assess the potential realization of its remaining deferred tax assets in the future to determine if sufficient evidence exists to remove all or a portion of the Company’s valuation allowance on its deferred tax assets.

As a result of the Company’s future outlook, management has concluded that the uncertainties related to the realization of its deferred tax assets are unfavorable.

Management has considered positive and negative evidence for the potential utilization of the deferred tax assets and has concluded, as of September 30, 2022, that it is more likely than not that Company will not realize the full amount of its net deferred tax assets.

Therefore, the valuation allowance on deferred tax assets not recognized in 2022 will remain.

As of 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 exposure.

As a result of the Company’s future outlook, management has reviewed its deferred tax assets and concluded that the uncertainties related to the realization of its deferred tax assets are unfavorable.

Management has considered positive and negative evidence for the potential utilization of the deferred tax assets and has concluded that it is more likely than not that the Company will not realize the full amount of its net deferred tax assets.

As of March 31, 2023, and December 31, 2022, the Company had unrecognized tax benefits totaling $54,000 and $53,000, 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 $54,000.

The Company has recorded a decrease of approximately $679,000 in unrecognized tax benefits related to state exposure in the third quarter of 2022, which will reduce accrued income taxes and increase the current income tax benefit.

The Company has determined it is no longer more likely than not that the Company will realize the tax expense.

A reconciliation of the beginning and ending amount of unrecognized income tax benefit is as follows:

Balance at December 31, 2021

Increase due to interest and state tax

Decrease in prior year interest and state tax

Balance at September 30, 2022

At December 31, 2022, the Company had Federal net operating loss (NOL) to carry forward of approximately $2,900,000.

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.

Net Income (Loss).

For the reasons stated above, net income for the three and nine months ended September 30, 2022 was $11,801,000 and $10,779,000, respectively, compared to net loss of $921,000 and $2,552,000, respectively, for the three and nine months ending September 30, 2021.

As of March 31, 2023 the Company estimates remaining Federal NOL carryforwards to be approximately $1,200,000.

The federal NOL utilization is limited to 80% of estimated taxable income.

The estimated NOL carryforward will be adjusted at year end for actual results.

For the reasons stated above, net income for the three months ended March 31, 2023 was $1,648,000, compared to net income of $62,000 for the three months ending March 31, 2022.

As discussed in the sales section, we anticipate seasonality in sales, with sales being lower in the remaining quarters of the year, resulting in expected losses for the remaining quarters in 2023 and a loss for the full year.

Liquidity and Capital Resources

The Company has financed its operations with proceeds from stock sales and sales of its services and products.

At September 30, 2022, working capital was $14,000,000 (defined as current assets less current liabilities) compared to $3,716,000 at December 31, 2021.

During the nine months ended September 30, 2022, cash and cash equivalents and restricted cash increased $10,402,000 from $3,851,000 at December 31, 2021, to $14,253,000 at September 30, 2022.

These increases were the result of the net proceeds of $12,000,000 from the litigation settlement.

At March 31, 2023, working capital was $15,071,000 (defined as current assets less current liabilities) compared to $13,379,000 at December 31, 2022.

During the three months ended March 31, 2023 cash and cash equivalents and restricted cash decreased $3,844,000 from $14,524,000 at December 31, 2022 to $10,680,000 at March 31, 2023.

Operating Activities .

Net cash provided by operating activities during the nine months ended September 30, 2022, was $10,388,000.

Net income of $10,779,000, plus non-cash adjustments of $87,000, less changes in operating assets and liabilities of $478,000 resulted in the $10,388,000 of cash provided by operating activities.

The largest components of the change in operating assets and liabilities were accrued liabilities which decreased $740,000 from December 31, 2021 due to payment of payroll tax associated with vesting of RSUs on December 31, 2021 and a decrease to accrued director deferred compensation due to changes in our stock price from December 31, 2021, and accrued income taxes which decreased $659,000 from December 31, 2021 due to a reduction in uncertain tax positions.

In the normal course of business, our accounts receivable, accounts payable, accrued liabilities and deferred revenue will fluctuate depending on the level of revenues and related business activity, as well as billing arrangements with customers.

Net cash used by operating activities during the three months ended March 31, 2023 was $3,846,000.

Net income of $1,648,000, plus non-cash adjustments of $56,000, was more than offset by changes in operating assets and liabilities of $5,550,000 which resulted in the $3,846,000 of cash used 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 accounts receivable which increased $3,770,000 from December 31, 2022.

The increase was a result of increased net sales for the three months ended March 31, 2023 compared to the fourth quarter of 2022.

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.

Investing Activities .

Net cash used in investing activities during the nine months ended September 30, 2022 was $25,000, which related to purchase of property and equipment.

Net cash used in investing activities during the three months ended March 31, 2023 was $6,000, which related to purchases of property and equipment.

Financing Activities .

Net cash used in financing activities during the nine months ended September 30, 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 in the three months ended September 30, 2022, cash and cash equivalents plus restricted cash at September 30, 2022 were $14.3 million.

The Company believes that based upon current business conditions and plans, its cash balance will be sufficient for its cash requirements for at least the twelve-month period subsequent to the filing of this Form 10-Q.

Net cash provided by financing activities during the three months ended March 31, 2023 was $8,000, which related to proceeds received from issuance of common stock under the employee stock purchase plan.

Cash and cash equivalents plus restricted cash at March 31, 2023 was $10.7 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 next 12 months.

Depending on the outcome of 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.

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 GAAP.

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.

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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.

Our significant accounting policies and estimates are described in Note 1 to the annual financial statements included in Part II, Item 8 and in Item 7 of our Annual Report on Form 10-K as of and for the year ended December 31, 2021, filed with the Securities and Exchange Commission on March 9, 2022.

Our significant accounting policies are described in Note 1 to the annual financial statements included in Part II, Item 8 of our Annual Report on Form 10-K as of and for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 9, 2023.

We believe our most critical accounting estimates include the following:

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income taxes;

stock-based compensation.

stock-based compensation expense.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements made in this Quarterly Report on Form 10-Q, in the Company’s other SEC filings, in press releases and in oral statements to shareholders and securities analysts that are not statements of historical or current facts are “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance of the Company to be materially different from the results or performance expressed or implied by such forward-looking statements.

The words “anticipates,” “believes,” “estimates,” “expects,” “future,” “likely,” “may,” “projects,” “seeks,” “will” and similar expressions identify forward-looking statements.

The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “likely,” “may,” “plan,” “project,” “will” and similar expressions identify forward-looking statements.

Forward-looking statements include statements expressing the intent, belief or current expectations of the Company and members of our management team regarding, for instance:

(i) our belief that our cash balance and cash generated by operations will provide adequate liquidity and capital resources for at least the next twelve months;

and (ii) that we expect fluctuations in accounts receivable and payable, accrued liabilities, revenue deferrals and prepaid production costs.

(ii) that we expect the remaining quarters in 2023 to have significantly less revenue than this first quarter and also expect operating losses in the remaining quarters of the year, and a loss for the full year;

(iii) we anticipate seasonality in sales, with those sales being significantly stronger in the first quarter of the year and (iv) that we expect fluctuations in accounts receivable and payable, accrued liabilities, revenue deferrals and prepaid production costs.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

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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.

Factors that could cause our estimates and assumptions as to future performance, and our actual results, to differ materially include the following:(i) local, regional, national, and international economic conditions that have deteriorated as a result of the COVID-19 pandemic, inflation, and labor shortages, including the risks of a global recession or a recession in one or more of our key markets, and the impact they may have on us and our customers and our assessment of that impact;

(ii) management’s ability to fully or successfully implement its business plan to achieve and maintain increased sales and resultant profitability in the future;

(iii) the Company’s success in developing and implementing new product offerings, in a successful manner;

(iv) prevailing market conditions, including pricing and other competitive pressures, in the in-store advertising industry and, intense competition for agreements with CPG retailers and manufacturers;

(v) potentially incorrect assumptions by management with respect to the financial effect of current strategic decisions and the effect of current sales trends on fiscal year 2022 results;

(vi) termination of all or a major portion of, or a significant change in terms and conditions of, a material agreement with a CPG manufacturer or retailer;

(vii) other economic, business, market, financial, competitive and/or regulatory factors affecting the Company’s business generally;

(viii) our ability to successfully manage our IT operating infrastructure outsourcing arrangement;

and (ix) our ability to attract and retain highly qualified managerial, operational and sales personnel.

Our risks and uncertainties also include, but are not limited to, the risks presented in our Annual Report on Form 10-K for the year ended December 31, 2021, and any additional risks presented in our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K.

Factors that could cause our estimates and assumptions as to future performance, and our actual results, to differ materially include the following:

(i) local, regional, national, and international economic conditions that have deteriorated including the risks of a global recession or a recession in one or more of our key markets, and the impact they may have on us and our customers and our assessment of that;

(ii) impacts of a pandemic including the duration, spread, severity, and any recurrence of the COVID-19 pandemic, the duration and scope of related government orders and restrictions, the impact on our employees, and the extent of the impact of a pandemic on overall demand for our products and services;

(iii) management’s ability to fully or successfully implement its business plan to achieve and maintain increased sales and resultant profitability in the future;

(iv) the Company’s success in developing and implementing new product offerings, in a successful manner;

(v) prevailing market conditions, including pricing and other competitive pressures, in the in-store advertising industry and, intense competition for agreements with CPG retailers and manufacturers;

(vi) potentially incorrect assumptions by management with respect to the financial effect of current strategic decisions and the effect of current sales trends on fiscal year 2023 results;

(vii) termination of all or a major portion of, or a significant change in terms and conditions of, a material agreement with a CPG manufacturer or retailer;

(viii) other economic, business, market, financial, competitive and/or regulatory factors affecting the Company’s business generally;

(ix) our ability to successfully manage our IT operating infrastructure outsourcing arrangement;

(x) our ability to attract and retain highly qualified managerial, operational and sales personnel;

and (xi) our ability to develop and operate our non-bank lending business.

Our risks and uncertainties also include, but are not limited to, the risks presented in our Annual Report on Form 10-K for the year ended December 31, 2022 and this Quarterly Report on Form 10-Q, and any additional risks presented in our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K.

We undertake no obligation (and expressly disclaim any such obligation) to update forward-looking statements made in this Form 10-Q to reflect events or circumstances after the date of this Form 10-Q or to update reasons why actual results would differ from those anticipated in any such forward-looking statements, other than as required by law.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis