# Bloomia Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2009

- Company: [Bloomia Holdings, Inc.](/companies/tulp.md) (CIK 875355)
- Form: 10-Q
- Filed: 2009-11-13
- Accepted by EDGAR: Nov 13, 2009, 21:53 ET
- Period: 2009-09-30
- Accession: 0000897101-09-002302
- Inline XBRL: no
- Main document: https://www.sec.gov/Archives/edgar/data/875355/000089710109002302/insignia095177_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/875355/000089710109002302/

## Management's discussion and analysis

As filed, 21,345 characters.

### Overview

Insignia Systems, Inc. markets in-store advertising programs, services and products to retailers and consumer packaged goods manufacturers. The Company’s services and products include the Insignia Point-of-Purchase Services (POPS) in-store advertising program, thermal sign card supplies for the Company’s SIGNright and Impulse systems, Stylus software and laser printable cardstock and label supplies.

### 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.

|  | Three Months Ended September 30 2009 | 2008 | Nine Months Ended September 30 2009 | 2008 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | 100.0% | 100.0% | 100.0% | 100.0% |
| Cost of sales | 48.0 | 47.7 | 47.8 | 45.8 |
| Gross profit | 52.0 | 52.3 | 52.2 | 54.2 |
| Operating expenses: |  |  |  |  |
| Selling | 22.4 | 29.8 | 24.1 | 25.9 |
| Marketing | 4.9 | 5.2 | 5.7 | 5.3 |
| General and administrative | 12.2 | 23.2 | 17.3 | 24.0 |
| Insurance settlement proceeds | — | — | (7.0) | — |
| Total operating expenses | 39.5 | 58.2 | 40.1 | 55.2 |
| Operating income (loss) | 12.5 | (5.9) | 12.1 | (1.0) |
| Other income (expense) | 0.3 | 0.5 | 0.3 | 0.6 |
| Income (loss) before taxes | 12.7 | (5.4) | 12.4 | (0.4) |
| Income tax expense (benefit) | 0.3 | (2.4) | 0.3 | 0.0 |
| Net income (loss) | 12.4% | (3.0)% | 12.1% | (0.4)% |

Decreased net sales in the first nine months of 2009 compared to the first nine months of 2008 combined with fixed costs of sales resulted in a decrease in gross profit in the 2009 period. This decrease in gross profit in the 2009 period was more than offset by decreased operating expense in the 2009 period, resulting in higher net income in the 2009 period compared to the 2008 period. The primary components of the decreased operating expense in the 2009 period were lower News America related legal expense in the 2009 period, the receipt of a settlement in the 2009 period in the Company’s lawsuit against one of its insurers for defense cost in the News America litigation and decreased sales commissions in the 2009 period. The decreased sales commissions resulted from decreased net sales in the 2009 period and a sales incentive to our strategic partner present only in 2008 which was triggered by a year-over-year increase in sales to specific customers.

### Three and Nine Months ended September 30, 2009 Compared to Three and Nine Months Ended September 30, 2008

***Net Sales.*** Net sales for the three months ended September 30, 2009, decreased 7.6% to $7,944,000 compared to $8,597,000 for the three months ended September 30, 2008. Net sales for the nine months ended September 30, 2009, decreased 12.5% to $19,903,000 compared to $22,738,000 for the nine months ended September 30, 2008.

Service revenues from our POPSign programs for the three months ended September 30, 2009, decreased 6.4% to $7,485,000 compared to $7,999,000 for the three months ended September 30, 2008. Service revenues from our POPSign programs for the nine months ended September 30, 2009, decreased 11.7% to $18,401,000 compared to $20,830,000 for the nine months ended September 30, 2008. The decreases in both 2009 periods were primarily due to decreases in the number of POPSign programs executed for customers (consumer packaged goods manufacturers) at stores in the Company’s retail network. The loss of Safeway, Inc. from the Company’s retail network when the contract expired on December 31, 2008 was a significant factor in the decreased number of sign placements in the 2009 periods.

Product sales for the three months ended September 30, 2009, decreased 23.2% to $459,000 compared to $598,000 for the three months ended September 30, 2008. Product sales for the nine months ended September 30, 2009, decreased 21.3% to $1,502,000 compared to $1,908,000 for the nine months ended September 30, 2008. The decreases were primarily due to lower sales of thermal supplies, laser sign card supplies and Stylus software based on decreased demand for those products from our customers.

***Gross Profit.*** Gross profit for the three months ended September 30, 2009, decreased 8.2% to $4,132,000 compared to $4,499,000 for the three months ended September 30, 2008. Gross profit for the nine months ended September 30, 2009, decreased 15.8% to $10,380,000 compared to $12,327,000 for the nine months ended September 30, 2008. Gross profit as a percentage of total net sales decreased to 52.0% for the three months ended September 30, 2009, compared to 52.3% for the three months ended September 30, 2008. Gross profit as a percentage of total net sales decreased to 52.2% for the nine months ended September 30, 2009, compared to 54.2% for the nine months ended September 30, 2008.

Gross profit from our POPSign program revenues for the three months ended September 30, 2009, decreased 7.0% to $3,999,000 compared to $4,300,000 for the three months ended September 30, 2008. Gross profit from our POPSign program revenues for the nine months ended September 30, 2009, decreased 14.9% to $9,910,000 compared to $11,640,000 for the nine months ended September 30, 2008. The decreases in both 2009 periods were primarily due to decreased sales which were partially offset by decreased retailer expenses and printing expenses. Gross profit as a percentage of POPSign program revenues for the three months ended September 30, 2009, decreased to 53.4% compared to 53.8% for the three months ended September 30, 2008. Gross profit as a percentage of POPSign program revenues for the nine months ended September 30, 2009 decreased to 53.9%, compared to 55.9% for the nine months ended September 30, 2008. The decreases in gross profit as a percentage of POPSign program revenues in both 2009 periods were primarily due to the effect of fixed costs and the effect of retailer expenses which did not decrease as significantly as sales.

Gross profit from our product sales for the three months ended September 30, 2009, decreased 33.2% to $133,000 compared to $199,000 for the three months ended September 30, 2008. Gross profit from our product sales for the nine months ended September 30, 2009, decreased 31.6% to $470,000 compared to $687,000 for the nine months ended September 30, 2008. The decreases in gross profit in the 2009 periods were primarily due to decreased sales combined with fixed costs. Gross profit as a percentage of product sales was 29.0% for the three months ended September 30, 2009, compared to 33.3% for the three months ended September 30, 2008. Gross profit as a percentage of product sales was 31.3% for the nine months ended September 30, 2009, compared to 36.0% for the nine months ended September 30, 2008. The decreases in gross profit as a percentage of products sales in the 2009 periods were primarily due to decreased sales and the effect of fixed costs.

### Operating Expenses

***Selling.*** Selling expenses for the three months ended September 30, 2009, decreased 30.7% to $1,776,000 compared to $2,561,000 for the three months ended September 30, 2008. Selling expenses for the nine months ended September 30, 2009, decreased 18.4% to $4,794,000 compared to $5,878,000 for the nine months ended September 30, 2008. Decreases in the 2009 periods were primarily due to decreased sales commissions. The decreased sales commissions were due to decreased POPSign program sales and a sales incentive to our strategic partner present only in 2008 which was triggered by a year-over-year increase in sales to specific customers.

Selling expenses as a percentage of total net sales decreased to 22.4% for the three months ended September 30, 2009, compared to 29.8% for the three months ended September 30, 2008. Selling expenses as a percentage of total net sales decreased to 24.1% for the nine months ended September 30, 2009, compared to 25.9% for the nine months ended September 30, 2008. The decreases in selling expenses as a percentage of total net sales in the 2009 periods were due to the factors described above.

***Marketing.*** Marketing expenses for the three months ended September 30, 2009, decreased 13.3% to $391,000 compared to $451,000 for the three months ended September 30, 2008. Marketing expenses for the nine months ended September 30, 2009, decreased 7.1% to $1,125,000 compared to $1,211,000 for the nine months ended September 30, 2008. Decreased expenses in the 2009 periods were primarily the result of decreased data acquisition expenses and no staff recruitment costs in 2009.

Marketing expenses as a percentage of total net sales decreased to 4.9% for the three months ended September 30, 2009, compared to 5.2% for the three months ended September 30, 2008. The decrease in marketing expense as a percentage of total net sales for the three months ended September 30, 2009, was the result of the decreased expenses discussed above in relation to decreased sales. Marketing expenses as a percentage of total net sales increased to 5.7% for the nine months ended September 30, 2009, compared to 5.3% for the nine months ended September 30, 2008. The increase in marketing expenses as a percentage of total net sales for the nine months ending September 30, 2009, was the result of the decreased expenses discussed above in relation to decreased sales.

***General and administrative.*** General and administrative expenses for the three months ended September 30, 2009, decreased 51.2% to $973,000 compared to $1,992,000 for the three months ended September 30, 2008. General and administrative expenses for the nine months ended September 30, 2009 decreased 36.9% to $3,442,000 compared to $5,457,000 for the nine months ended September 30, 2008. The decreases in the 2009 periods were primarily due to decreased legal expense and decreased facility related expenses. The Company also received an early lease termination payment from its previous landlord in the third quarter of 2008 ($285,000 net of moving expense). The Company recorded lower legal expense in the 2009 periods as there was more activity in the 2008 periods related to trial preparation in the News America litigation.

General and administrative expenses as a percentage of total net sales decreased to 12.2% for the three months ended September 30, 2009, compared to 23.2% for the three months ended September 30, 2008. General and administrative expenses as a percentage of total net sales decreased to 17.3% for the nine months ended September 30, 2009, compared to 24.0% for the nine months ended September 30, 2008. The decreases in the 2009 periods were primarily due to the decreased costs discussed above in relation to decreased sales.

Legal fees for the three months ended September 30, 2009, were $250,000 compared to $1,526,000 for the three months ended September 30, 2008. Legal fees for the nine months ended September 30, 2009, were $1,309,000 compared to $3,406,000 for the nine months ended September 30, 2008. The legal fees and expenses in each period were incurred primarily in connection with the News America lawsuit described in Note 2 to the financial statements. Decreased legal fees and expenses in the 2009 periods reflect decreased trial preparation and other activity. We currently expect the amount of additional legal fees and expenses that will be incurred in connection with the ongoing lawsuit to be significant throughout the remainder of 2009, 2010 and possibly future years.

***Insurance settlement proceeds.*** The Company received a payment of $1,387,000 in the first quarter of 2009 from an insurer as part of a settlement of the Company’s claim that the insurer owed the Company defense costs for claims asserted against the Company and one of its officers in the News America litigation.

***Other Income.*** Other income for the three months ended September 30, 2009, was $20,000 compared to $44,000 for the three months ended September 30, 2008. Other income for the nine months ended September 30, 2009, was $69,000 compared to $135,000 for the nine months ended September 30, 2008. Lower other income in the 2009 periods was primarily due to decreased interest income in the 2009 periods as a result of lower interest rates which more than offset the higher cash balances in the 2009 periods.

***Income Taxes.*** The Company continues to carry a full valuation allowance against its net deferred tax asset at September 30, 2009, and has therefore recorded income tax expense of $26,000 and $62,000 for the three and nine months ended September 30, 2009, respectively, which was related to alternative minimum taxes. The Company did not record a cumulative income tax benefit for the nine months ended September 30, 2008, as a result of the net loss for the nine months and its analysis of future taxable income levels and the amount of net deferred tax assets recorded at September 30, 2008. For the three months ended September 30, 2008, the Company recorded an income tax benefit of $207,000 in order to adjust the cumulative income tax expense/benefit to $0 for the nine month period.

***Net Income (Loss).*** The net income for the three months ended September 30, 2009, was $986,000 compared to a net loss of $(254,000) for the three months ended September 30, 2008. The net income for the nine months ended September 30, 2009, was $2,413,000 compared to a net loss of $(84,000) for the nine months ended September 30, 2008.

### Liquidity and Capital Resources

The Company has financed its operations with proceeds from public and private stock sales and sales of its services and products. At September 30, 2009, working capital was $9,507,000 compared to $6,396,000 at December 31, 2008. During the first nine months of 2009, cash and cash equivalents decreased by $2,351,000 from $11,052,000 at December 31, 2008 to $8,701,000 at September 30, 2009. The decrease in cash and cash equivalents was primarily the result of investments made during the first nine months in certificates of deposit with twenty-six week maturities which were classified as short-term investments. During the first nine months of 2009, cash, cash equivalents and short-term investments decreased by $151,000 to $10,901,000 at September 30, 2009, as compared to $11,052,000 at December 31, 2008.

Net cash used in operating activities during the nine months ended September 30, 2009, was $106,000. Net income of $2,413,000 plus non-cash expense of $793,000 totaling $3,206,000 for the nine months ended September 30, 2009, were more than offset by changes in operating assets and liabilities of $3,312,000. The non-cash expense of $793,000 consisted of stock-based compensation expense, depreciation, amortization, provision for income taxes and provision for bad debt expense. Accounts payable and accrued liabilities decreased $2,310,000 during the nine months ended September 30, 2009, primarily as a result of the payment in January 2009 of accrued commissions, retailer payments and legal fees which had accrued during 2008 and were payable after December 31, 2008. Accounts receivable increased $1,224,000 during the nine months ended September 30, 2009. This increase was primarily due to the return to historical payment patterns at September 30, 2009, and higher POPSign billings in the last month of the third quarter of 2009 as compared to the last month of the fourth quarter of 2008. During December 2008, a significant POPSign customer accelerated their payments resulting in lower accounts receivable at December 31, 2008 than historically experienced. Deferred revenue increased $407,000 during the nine months ended September 30, 2009, primarily due to the advanced billing to a customer in June 2009 for an eleven month POPSign program which was partially offset by decreases in other advanced billings. The Company expects accounts receivable, accounts payable, accrued liabilities and deferred revenue to fluctuate during future periods depending on the level of POPSign revenues and related business activity as well as billing arrangements with customers and payment terms with retailers.

Net cash of $2,268,000 was used in investing activities during the nine months ended September 30, 2009, due to short-term investment activity and the purchase of property and equipment. Purchases of short-term investments of $3,300,000 and proceeds of $1,100,000 during the nine months consisted entirely of purchases and redemptions of twenty-six week certificates of deposit. Purchases of property and equipment totaled $68,000 during the nine months ended September 30, 2009. The Company expects to make capital expenditures of approximately $400,000 in the fourth quarter of 2009 consisting primarily of digital printing equipment.

Net cash of $23,000 was provided by financing activities during the nine months ended September 30, 2009. Proceeds (net) of $46,000 resulting from the issuance of common stock from the employee stock purchase plan and the employee stock option plan were partially offset by the payment of $23,000 of principal on long-term liabilities. The Company will use $179,000 of cash in the fourth quarter of 2009 for an additional principal payment on its long-term liabilities which is due on December 31, 2009.

The Company believes that based upon current business conditions, its existing cash balance and future cash from operations will be sufficient for its cash requirements in the foreseeable future. However, there can be no assurances that this will occur or that the Company will be able to secure additional financing from public or private stock sales or from other financing agreements if needed.

### Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in Note 1 to the annual financial statements as of and for the year ended December 31, 2008, included in our Form 10-K filed with the Securities and Exchange Commission on March 30, 2009. We believe our most critical accounting policies and estimates include the following:

- revenue recognition;
- allowance for doubtful accounts;
- accounting for deferred income taxes; and
- stock-based compensation.

15

### Cautionary Statement Regarding Forward-Looking Information

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, which 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 which 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 “believes,” “expects,” “anticipates,” “seeks” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. These statements are subject to the risks and uncertainties that could cause actual results to differ materially and adversely from the forward-looking statements. These risks and uncertainties include, but are not limited to, the risks presented in our Annual Report on Form 10-K for the year ended December 31, 2008, and updated in Part II, Item 1A of this Quarterly Report on Form 10-Q.

| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
| --- | --- |
| Not applicable. |  |
| **Item 4.** | **Controls and Procedures** |

(a) Evaluation of Disclosure Controls and Procedures

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic filings under the Exchange Act.

(b) Changes in Internal Controls Over Financial Reporting

There was no change in our internal controls over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 658 characters.

Set forth below is an update to one of the Risk Factors contained in the Company’s Form 10-K Annual Report for the year ended December 31, 2008.

### We Are Involved In Major Litigation

As discussed in Part II, Item 1, Legal Proceedings, of this Form 10-Q, we have been involved in major litigation with News America since 2003. Although all of News America’s claims against the Company in the litigation were recently dismissed, we expect the amount of legal fees and expenses that will be incurred in connection with the ongoing lawsuit by the Company against News America to be significant throughout the remainder of 2009, 2010, and possibly future years.

Filed Nov 13, 2009.
Source: SEC EDGAR, the filing index for accession 0000897101-09-002302. Last ingested by Listed: Oct 24, 2026, 14:58 ET. No prices; not investment advice.