# Bloomia Holdings, Inc.: Form 10-K for the period ended Dec 31, 2009 - Company: [Bloomia Holdings, Inc.](/companies/tulp.md) (CIK 875355) - Form: 10-K - Filed: 2010-03-31 - Accepted by EDGAR: Mar 31, 2010, 19:16 ET - Period: 2009-12-31 - Accession: 0000897101-10-000659 - Inline XBRL: no - Main document: https://www.sec.gov/Archives/edgar/data/875355/000089710110000659/insignia101501_10k.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/875355/000089710110000659/ ## Business As filed, 13,903 characters. ### General Insignia Systems, Inc., (the “Company”) markets in-store advertising products, programs and services to consumer packaged goods manufacturers (customers) and retailers. The Company has been in business since 1990. Since 1998, the Company has been focusing on providing in-store services through the Insignia Point-Of-Purchase Services (POPS) in-store advertising program. Insignia POPS® includes the Insignia POPSign® program. Insignia’s POPSign is a national, account-specific, in-store, shelf-edge advertising program that has been shown to deliver significant sales increases. Funded by consumer packaged goods manufacturers, the program allows manufacturers to deliver vital product information to consumers at the point-of-purchase. The brand information is combined with each retailer’s store-specific prices and is displayed on the retailer’s unique sign format. The combining of manufacturer and retailer information produces a complete “call to action” that gets consumers the information they want and need to make purchasing decisions, while building store and brand equity. For retailers, Insignia’s POPSign program is a source of incremental revenue and is the first in-store advertising program that delivers a complete “call to action” on a product-specific and store-specific basis, with all participating retail stores updated weekly. For consumer packaged goods manufacturers, Insignia’s POPSign program provides access to the optimum retail advertising site for their products – the retail shelf-edge. In addition, manufacturers benefit from significant sales increases, short lead times, micro-marketing capabilities, such as store-specific and multiple language options, and a wide variety of program features and enhancements that provide unique advertising advantages. The Company’s Internet address is www.insigniasystems.com. The Company has made available on its Web site all of the reports it files with the SEC. The Company’s Web site is not incorporated by reference into this Report on Form 10-K. Copies of reports can also be obtained free of charge by requesting them from Insignia Systems, Inc., 8799 Brooklyn Boulevard, Minneapolis, Minnesota 55445; Attention: CFO; telephone 763-392-6200. ### Industry and Market Background According to Point-Of-Purchase Advertising International (POPAI), an industry non-profit trade association, more than 70% of brand purchase decisions are being made in-store. As a result, product manufacturers are constantly seeking in-store vehicles to motivate consumers to buy their branded products. The Company’s market studies indicate that the shelf-edge sign represents the final and best opportunity for manufacturers to convince the consumer to buy. In fact, a 2005 industry study concluded that shelf signs are the most effective type of in-store advertising vehicle after end-aisle displays and in-store leaflets. Many consumers seek product information beyond price in order to make educated buying decisions. The Company’s marketing studies indicate the most effective sign contains information supplied by the product manufacturer in combination with the retailer’s price and design look. ### Company Products ### Insignia’s POPSign Program Insignia’s POPSign program is an in-store, shelf-edge, point-of-purchase advertising program that enables manufacturers to deliver product-specific messages quickly and accurately – in designs and formats that have been pre-approved and supported by participating retailers. Insignia POPSigns deliver vital product selling information from manufacturers, such as product uses and features, nutritional information, advertising tag lines and product images. The brand information is combined with the retailer’s store-specific prices and is displayed on the retailer’s unique sign format that includes its logo, headline and store colors. Each sign is displayed directly in front of the manufacturer’s product in the participating retailer’s stores. Insignia’s POPSign program offers special features and enhancements, such as Advantage and Custom Advantage headers that allow manufacturers to add visibility and highlight their brand message at-shelf. Insignia offers Color POPSigns with customizable, image-building full-color graphics. Insignia UltraColor® POPSigns offer 75% more area for the full-color creative than Color POPSigns. Utilizing proprietary technology, the Company collects and organizes the data from both manufacturers and retailers, then formats, prints and delivers the signs to retailers for distribution and display. Store personnel place the signs at the shelf for two-week display cycles. The Company charges manufacturers for the signs placed in stores for each cycle. Retailers are paid a fee to display the signs and for product movement data provided to Insignia. ### The Impulse Retail System and SIGNright Sign System Prior to 1996, the Company’s primary product offering was the Impulse Retail System, a system developed by an independent product design and development firm. In 1996, the Company replaced the Impulse Retail System with the SIGNright Sign System. In 1998, the Company ceased the active domestic sales of the SIGNright Sign System. Cardstock for the two systems is sold by the Company in a variety of sizes and colors that can be customized to include pre-printed custom artwork, such as a retailer’s logo. Approximately 2% of 2009 revenues came from the sale of cardstock. The Company expects this percentage to be comparable in the future. ### Stylus Software In late 1993, the Company introduced Stylus, a PC-based software application used by retailers to produce signs, labels, and posters. The Stylus software allows retailers to create signs, labels and posters by manually entering the information or by importing information from a database. Approximately 1% of 2009 revenues came from the sale of Stylus products and maintenance. The Company expects this percentage to be comparable in the future. ### Laser Printer and Vinyl Label Supplies The Company provides a comprehensive offering of laser printable cardstock and vinyl labels to retailers for their in-store signage and shelf-edge product information needs. Products include adhesive and non-adhesive supplies in a variety of colors, sizes and weights. Approximately 4% of 2009 revenues came from the sale of laser printer and vinyl label supplies. The Company expects this percentage to be comparable in the future. ### Marketing and Sales The Company directly markets the Insignia POPSign program to food and drug manufacturers and retailers. By utilizing the Insignia POPSign program, these manufacturers and retailers can easily accomplish what had previously been either impossible or extremely difficult: tailoring national in-store advertising programs to regional and local needs with minimal effort. In addition to the benefits provided to manufacturers and retailers, Insignia’s POPSign program provides consumers more information and clearer messages to aid in purchasing decisions. The Company believes its POPSign program is the most complete in-store advertising sign program available, benefiting consumer, retailer, and manufacturer. On June 12, 2006, the Company entered into an Exclusive Reseller Agreement with Valassis Sales and Marketing Services, Inc. (“Valassis”). The agreement had an initial term of one year with the objective of increasing the Company’s sales of Insignia POPSigns. On December 6, 2006, the Company and Valassis executed Amendment No. 1 to the agreement which finalized certain appendices, made certain other modifications to the agreement and extended the initial term through December 31, 2007. On July 2, 2007 the Company and Valassis executed Amendment No. 2 to the agreement which extended the term of the agreement to December 31, 2017 and expanded the strategic alliance to increase the role of Valassis to include developing and expanding the Company’s participating retailer network. In conjunction with Amendment No. 2 Valassis received a five-year warrant to acquire 800,000 shares of Insignia’s common stock at a price of $4.04 and will be paid cash commissions by the Company on the revenue the Company realizes from POPS programs the consumer packaged goods manufacturers conduct in the new retail chains. The Company recorded $1,521,000 of expense during the year ended December 31, 2007 related to the fair value of the warrant. Prior to April 1998, the Company marketed the Impulse Retail System and the SIGNright Sign System through telemarketing by in-house sales personnel and independent sales representatives. In May 1998, the Company discontinued the active marketing of the systems. The Company sells cardstock and supplies related to these systems to U.S. and international customers. The Company markets its Stylus software in the United States and internationally primarily through resellers that integrate Stylus as an Open Database Connectivity design and publishing component into their retail data and information management software applications. During 2009, 2008 and 2007, foreign sales accounted for less than 1% of total net sales each year. The Company expects sales to foreign distributors will be less than 1% of total net sales in 2010. ### Competition ### Insignia’s POPSign Program The Insignia POPSign program is competing for the marketing expenditures of branded product manufacturers for at-shelf advertising-related signage. The Insignia POPSign program has one major competitor in its market, which is News America Marketing In-Store®, Inc. (News America), plus other smaller competitors. News America offers a network for in-store advertising, promotion and sales merchandising services. News America has branded its in-store shelf signage products as SmartSource Shelftalksm, SmartSource Shelfvisionsm and SmartSource Price Pop®. We believe the main strengths of the Insignia POPSign program in relation to its competitors are: - the linking of manufacturers to retailers at a central coordination point - providing a complete “call to action” - supplying product-specific and store-specific messages at the retail shelf - delivering vital product information and store-specific prices - short lead times - significant sales increases ### Patents and Trademarks The Company has developed and is using a number of trademarks, service marks, slogans, logos and other commercial symbols to advertise and sell its products. The Company owns U.S. registered trademarks for Insignia Systems, Inc.® (and Design), Insignia POPS®, POPS Select®, Insignia POPSign®, Insignia ShelfPOPS®, UltraColor®, Stylus®, Stylus Work Center®, SIGNright®, Impulse®, DuraSign®, I-Care®, and Check This Out.® The Company is in the process of obtaining trademark registrations in the United States for the trademark “Insignia E-POPS” and “Color POPSign.” The Company licenses the right to use a patented barcode on the sign cards for the Company’s Impulse and SIGNright Sign Systems. Neither revenues from this product line, nor royalties paid under the license agreement, are considered material. Key employees are required to enter into nondisclosure and invention assignment agreements, and customers, vendors and other third parties also must agree to nondisclosure restrictions prior to disclosure of our trade secrets or other confidential or proprietary information. ### Product Development Product development for Insignia’s POPSign program has been conducted internally and includes the proprietary data management and operations system, as well as the current offering of point-of-purchase and other advertising products. Ongoing internal systems enhancements, as well as the development of point-of-purchase and other advertising or promotional products, will be conducted utilizing both internal and external resources as appropriate. Product development on the SIGNright Sign System was primarily conducted by a developer on a contract basis. The Stylus software product line remains a viable application for the Company’s retail customers. The Company performs development to keep Stylus current and updated to meet industry requirements. ### Customers Valassis and General Mills, Inc. each accounted for 20% of the Company’s total net sales for the year ended December 31, 2009. General Mills, Inc., Nestle Co., Kellogg Sales Company and Valassis accounted for 19%, 13%, 11% and 10%, respectively, of the Company’s total net sales for the year ended December 31, 2008. Nestle Co. and Kellogg Sales Company accounted for 15% and 11%, respectively, of the Company’s total net sales for the year ended December 31, 2007. ### Backlog Sales backlog on March 8, 2010 was approximately $7.5 million, all of which is for delivery during the remainder of 2010. The orders are believed to be firm but there is no assurance that all of the backlog will actually result in revenues. Sales backlog on March 9, 2009 was approximately $8.2 million. ### Seasonality The Company’s results of operations have fluctuated from quarter to quarter due to variations in net sales and operating expenses. There is no seasonal pattern to these fluctuations. The results of operations fluctuate from quarter to quarter as a result of the following: - The timing of seasonal events for customers; - Variations in the specific products which customers choose to advertise; - Fluctuations in advertising budgets of customers and the amounts they commit to in-store advertising; - Variations in the number of retailers in the Company’s network; - Sales incentives to sales staff and strategic partners; - Minimum program level commitments to retailers; and - Professional fees related to litigation. ### Employees As of February 26, 2010, the Company had 116 employees, including all full-time and part-time employees. ### Segment Reporting The Company operates in a single reportable segment. ## Risk factors As filed, 11,446 characters. Our business faces significant risks, including the risks described below. If any of the events or circumstances described in the following risks occurs, our business, financial condition or results of operations could suffer, and the trading price of our common stock could decline. ### Our Customers And Retailers May Be Susceptible To Changes In General Economic Conditions Our revenues are affected by our customers’ marketing and advertising spending and our revenues and results of operations may be subject to fluctuations based upon general economic conditions. A continued economic downturn may reduce demand for our products and services or depress pricing of those products and services and have an adverse effect on our results of operations. Retailers may be impacted by changes in consumer spending as well, which may adversely impact our ability to renew contracts with our existing retailers as well as contract with new retailers on terms which are acceptable. In addition, if we are unable to successfully anticipate changing economic conditions, we may be unable to effectively plan for and respond to those changes, and our business could be negatively affected. ### We Have Had Significant Losses In Prior Periods Although we had net income of $3,716,000, $2,343,000 and $2,396,000 for the years ended December 31, 2009, 2007 and 2006, respectively, we had a net loss of $(2,257,000) for the year ended December 31, 2008, and significant net losses for a number of years prior to December 31, 2006. There can be no assurance that we will be profitable on a quarterly or annual basis. If we are unable to generate net income from operations our business will be adversely affected and our stock price will likely decline. ### We Are Involved In Major Litigation In August 2000, News America Marketing In-Store, Inc. (News America), brought suit against the Company in U.S. District Court in New York, New York. The case was settled in November 2002. The terms of the settlement agreement are confidential. The settlement did not impact the Company’s operating results. In October 2003, News America brought suit against the Company in U.S. District Court in New York, New York, alleging that the Company has engaged in deceptive acts and practices, has interfered with existing business relationships with retailers and prospective economic advantage, and has engaged in unfair competition. The suit sought unspecified damages and injunctive relief. In February 2007 the U.S. District Court in New York transferred this action to Minnesota where the claims became part of the lawsuit the Company filed against News America and Albertson’s Inc. in 2004 (described below), and the New York action was subsequently dismissed. On September 23, 2004, the Company brought suit against News America and Albertson’s Inc. (Albertson’s) in Federal District Court in Minneapolis, Minnesota, for violations of federal and state antitrust and false advertising laws, alleging that News America has acquired and maintained monopoly power through various wrongful acts designed to harm the Company in the in-store advertising and promotion products and services market. The suit seeks injunctive relief sufficient to prevent further antitrust injury and an award of treble damages to be determined at trial for the harm caused to the Company. On June 30, 2006 the Court denied the motions of News America and Albertson’s to dismiss the suit. On September 20, 2006, the State of Minnesota through its Attorney General intervened as a co-plaintiff in the business disparagement portion of the Minnesota case. In December 2006, News America filed counterclaims in the Minnesota case that included claims similar to those in its New York action against Insignia and one of its officers, plus claims for damages for two alleged incidents of libel and slander. On February 4, 2008, the Court approved a consent decree entered into by News America and the State of Minnesota under which News America agreed to not violate Minnesota’s statutes prohibiting commercial disparagement. On July 29, 2008, the Company and Albertson’s entered into a settlement agreement and mutual release, in which they each agreed to release all claims against the other, and the Company agreed to dismiss its lawsuit against Albertson’s. On September 30, 2009, the Court ruled on motions by both the Company and News America for Summary Judgment. The Court awarded Summary Judgment to the Company and one of its executive officers on all of News America’s counterclaims and third-party claims. The Court also denied News America’s Motion for Summary Judgment on the Company’s claims against News America other than granting News America’s uncontested motion on one claim in the Amended Complaint related to retailers. The Court’s rulings set the stage for a trial on the Company’s antitrust and unfair-competition claims against News America, and a settlement conference is currently scheduled for April 12, 2010. Assuming the case does not settle at that time, the Company will request that the Court set the case for trial as soon as possible after April 12th. The Company filed claims in December 2006 and January 2007 with its director’s and officer’s liability and general liability insurers related to the defense costs and insurance coverage for claims asserted against the Company and one of its officers in News America’s counterclaims. On August 9, 2007, the Company filed a complaint against the insurers in Hennepin County District Court, State of Minnesota requesting a declaratory judgment that the insurers owed the Company and its officer such defense costs and insurance coverage. In December 2007, the Company settled its claim against one of the insurers. Also, in March 2009, the Company settled with the other insurer and received a payment of $1,387,000 as part of the settlement. The Company recorded the payment in general and administrative expenses for the quarter ended March 31, 2009, and the litigation with the insurers is now concluded. Management currently expects the amount of legal fees and expenses that will be incurred in connection with the ongoing lawsuit against News America to be significant throughout 2010 and possibly future years. During the year ended December 31, 2009, the Company incurred legal fees of $1,753,000 related to the News America litigation which were offset by the $1,387,000 payment received from settlement of its claim against one of its insurers during the first quarter of 2009. Legal fees and expenses are expensed as incurred and are included in general and administrative expenses in the statements of operations. The Company is subject to various other legal proceedings in the normal course of business. Management believes the outcome of these proceedings will not have a material adverse effect on the Company’s financial position or results of operations. ### We Are Dependent On Our Contracts With Retailers And Our Ability To Renew Those Contracts When Their Terms Expire On an ongoing basis, we negotiate renewals of various retailer contracts. Some of our retailer contracts require us to guarantee minimum payments to our retailers. If we are unable to offer guarantees at the required levels in the new contracts, and the contracts are not renewed because of that or because of other reasons, it will have a material adverse effect on our operations and financial condition. Our POPS business and results of operations could be adversely affected if the number of retailer partners decreases significantly or if the retailer partners fail to continue to provide good service including performing their duties in placing and maintaining POPSigns at the shelf in their stores and providing product movement data to us. ### Our Results Of Operations May Be Subject To Significant Fluctuations Which May Result In A Decrease In Our Stock Price Our quarterly and annual operating results have fluctuated in the past and may vary in the future due to a wide variety of factors including: - the loss of contracts with retailers; - the continued impact of significant litigation on our business; - the timing of seasonal events for customers or the loss of customers; - the timing of new retail stores being added; - the timing of additional selling, marketing and general and administrative expenses; and - competitive conditions in our industry. Due to these factors, our quarterly net sales, expenses and results of operations could vary significantly in the future and this could adversely affect the market price of our common stock. ### We Have Significant Competition We face significant competition from News America which provides at-shelf advertising and promotional signage. News America has significantly greater financial resources that can be used to market their products. Should our competitor succeed in obtaining more of the at-shelf advertising business from our current customers, our revenues and related operations would be adversely affected. We are involved in major litigation regarding News America’s alleged violations of anti-trust and other laws, as more fully described in this Item 1A under “We Are Involved In Major Litigation.” ### Our Results Are Dependent On The Success Of Our Insignia POPS Program Which Represents A Significant Part Of Our Business We are largely dependent on our POPS program, which represented approximately 93%, 92% and 88% of total net sales for fiscal 2009, 2008 and 2007, respectively. We expect the POPS program to represent a higher percentage in fiscal 2010 and future periods. Should brand manufacturers no longer perceive value in the POPS program, our business and results of operations would be adversely affected due to our heavy dependence on this program. ### Our Results Are Dependent On The Level Of Spending By Branded Product Manufacturers For Advertising And Promotional Expenditures We are largely dependent on the net sales from our POPSigns, which are purchased by branded product manufacturers. Changes in economic conditions could result in reductions in advertising and promotional expenditures by branded product manufacturers. Should these reductions occur, our revenues and related results of operations would be adversely affected. ### Our Results Are Dependent On Our Manufacturer Partners Continuing To Achieve Sales Increases Our product manufacturer customers use our POPS program to motivate consumers to buy their branded products. Use of our POPS program has historically resulted in sales increases for that particular product. If our POPS program does not continue to result in these product sales increases, our marketing success and sales levels could be adversely affected. ### Our Stock Price Has Been And May Continue To Be Volatile During 2009 our common stock has traded between $5.27 and $0.72 per share. The market price of our common stock may continue to be volatile and may be significantly affected by: - the loss or addition of contracts with major consumer packaged goods manufacturers and retailers; - the continued impact of significant litigation on our business; - actual or anticipated fluctuations in our operating results; - announcements of new services by us or our competitors; - developments with respect to conditions and trends in our industry or in the industries we serve; - general market conditions; and - other factors, many of which are beyond our control. ## Properties As filed, 255 characters. The Company currently leases approximately 41,000 square feet of office and warehouse space in suburban Minneapolis, Minnesota, through February 29, 2016. The Company believes that the 41,000 square feet of space will meet the Company’s foreseeable needs. ## Legal proceedings As filed, 5,132 characters. In August 2000, News America Marketing In-Store, Inc. (News America), brought suit against the Company in U.S. District Court in New York, New York. The case was settled in November 2002. The terms of the settlement agreement are confidential. The settlement did not impact the Company’s operating results. In October 2003, News America brought suit against the Company in U.S. District Court in New York, New York, alleging that the Company has engaged in deceptive acts and practices, has interfered with existing business relationships with retailers and prospective economic advantage, and has engaged in unfair competition. The suit sought unspecified damages and injunctive relief. In February 2007 the U.S. District Court in New York transferred this action to Minnesota where the claims became part of the lawsuit the Company filed against News America and Albertson’s Inc. in 2004 (described below), and the New York action was subsequently dismissed. On September 23, 2004, the Company brought suit against News America and Albertson’s Inc. (Albertson’s) in Federal District Court in Minneapolis, Minnesota, for violations of federal and state antitrust and false advertising laws, alleging that News America has acquired and maintained monopoly power through various wrongful acts designed to harm the Company in the in-store advertising and promotion products and services market. The suit seeks injunctive relief sufficient to prevent further antitrust injury and an award of treble damages to be determined at trial for the harm caused to the Company. On June 30, 2006 the Court denied the motions of News America and Albertson’s to dismiss the suit. On September 20, 2006, the State of Minnesota through its Attorney General intervened as a co-plaintiff in the business disparagement portion of the Minnesota case. In December 2006, News America filed counterclaims in the Minnesota case that included claims similar to those in its New York action against Insignia and one of its officers, plus claims for damages for two alleged incidents of libel and slander. On February 4, 2008, the Court approved a consent decree entered into by News America and the State of Minnesota under which News America agreed to not violate Minnesota’s statutes prohibiting commercial disparagement. On July 29, 2008, the Company and Albertson’s entered into a settlement agreement and mutual release, in which they each agreed to release all claims against the other, and the Company agreed to dismiss its lawsuit against Albertson’s. On September 30, 2009, the Court ruled on motions by both the Company and News America for Summary Judgment. The Court awarded Summary Judgment to the Company and one of its executive officers on all of News America’s counterclaims and third-party claims. The Court also denied News America’s Motion for Summary Judgment on the Company’s claims against News America other than granting News America’s uncontested motion on one claim in the Amended Complaint related to retailers. The Court’s rulings set the stage for a trial on the Company’s antitrust and unfair-competition claims against News America, and a settlement conference is currently scheduled for April 12, 2010. Assuming the case does not settle at that time, the Company will request that the Court set the case for trial as soon as possible after April 12th. The Company filed claims in December 2006 and January 2007 with its director’s and officer’s liability and general liability insurers related to the defense costs and insurance coverage for claims asserted against the Company and one of its officers in News America’s counterclaims. On August 9, 2007, the Company filed a complaint against the insurers in Hennepin County District Court, State of Minnesota requesting a declaratory judgment that the insurers owed the Company and its officer such defense costs and insurance coverage. In December 2007, the Company settled its claim against one of the insurers. Also, in March 2009, the Company settled with the other insurer and received a payment of $1,387,000 as part of the settlement. The Company recorded the payment in general and administrative expenses for the quarter ended March 31, 2009, and the litigation with the insurers is now concluded. Management currently expects the amount of legal fees and expenses that will be incurred in connection with the ongoing lawsuit against News America to be significant throughout 2010 and possibly future years. During the year ended December 31, 2009, the Company incurred legal fees of $1,753,000 related to the News America litigation which were offset by the $1,387,000 payment received from settlement of its claim against one of its insurers during the first quarter of 2009. Legal fees and expenses are expensed as incurred and are included in general and administrative expenses in the statements of operations. The Company is subject to various other legal proceedings in the normal course of business. Management believes the outcome of these proceedings will not have a material adverse effect on the Company’s financial position or results of operations. ## Management's discussion and analysis As filed, 29,882 characters. The following discussion should be read in conjunction with the financial statements and the related notes included in this Report. 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. ### Impact Of The Current Economic Environment The Company does not believe that the recession which began in late 2007 had a significant effect on its results of operations for the year ended December 31, 2009. POPSign service revenues for the year ended December 31, 2009, decreased 7.8% over the year ended December 31, 2008; however, this decrease was primarily related to the loss of a significant retailer from the Company’s retail network at the end of 2008 when the contract with the retailer expired. Products sales for the year ended December 31, 2009, decreased 15.0% from the year ended December 31, 2008, which reflects a historical trend of decreases due to decreased demand for thermal sign card supplies and laser supplies. The Company may be adversely affected by the economic environment in the future if spending levels of its customers are reduced or it is unable to renew contracts with existing retailers or contract with new retailers on terms which are acceptable. ### 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. | Year ended December 31 | 2009 | 2008 | 2007 | | --- | ---: | ---: | ---: | | Net sales | 100.0% | 100.0% | 100.0% | | Cost of sales | 46.7 | 46.2 | 44.6 | | Gross profit | 53.3 | 53.8 | 55.4 | | Operating expenses: | | | | | Selling | 23.0 | 27.1 | 23.2 | | Marketing | 5.4 | 5.1 | 5.8 | | Warrant expense | — | — | 6.2 | | General and administrative | 16.7 | 22.6 | 19.9 | | Insurance settlement proceeds | (4.8) | — | — | | Total operating expenses | 40.3 | 54.8 | 55.1 | | Operating income (loss) | 13.0 | (1.0) | 0.3 | | Other income | 0.3 | 0.6 | 0.6 | | Income (loss) before taxes | 13.3 | (0.4) | 0.9 | | Income tax (expense) benefit | (0.4) | (6.8) | 8.7 | | Net income (loss) | 12.9% | (7.2)% | 9.6% | ### Critical Accounting Policies 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. During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, net revenues, costs and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, allowance for doubtful accounts, income taxes, 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 consolidated financial statements. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements: ***Revenue Recognition.*** The Company recognizes revenue from Insignia POPSigns ratably over the period of service, which is typically a two-week display cycle. We recognize revenue related to equipment, software and sign card sales at the time the products are shipped to customers. Revenue associated with maintenance agreements is recognized ratably over the life of the contract. Revenue that has been billed and not yet recognized is reflected as deferred revenue on our balance sheet. ***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. ***Income Taxes.*** Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases 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, we consider 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, 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. We recognize 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. At December 31, 2009, all of the Company’s net deferred tax assets were offset with a valuation allowance, which amounted to approximately $7.9 million. The Company does not believe it is more likely than not that these deferred tax assets will be realized in future years. ***Stock-Based Compensation.*** We measure and recognize compensation expense for all stock-based payments at fair value. We use 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 a number of highly 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 and expected future volatility of the Company’s stock. The Company has not historically issued any dividends and does not expect to in the future. Forfeitures are estimated at the time of the grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates. If factors change and we employ different assumptions in the valuation of grants in future periods, the compensation expense that we record may differ significantly from what we have recorded in the current periods. ### Fiscal 2009 Compared to Fiscal 2008 ***Net Sales.*** Net sales for the year ended December 31, 2009 decreased 8.4% to $28,770,000 compared to $31,406,000 for the year ended December 31, 2008. Service revenues from our POPSign programs for the year ended December 31, 2009 decreased 7.8% to $26,666,000 compared to $28,931,000 for the year ended December 31, 2008. The decrease was primarily due to a decrease in the number of POPSign programs executed for customers (consumer packaged goods manufacturers) during the 2009 period as a result of the loss of Safeway, Inc. from our network of retailers at December 31, 2008 when the contract with Safeway, Inc. expired. Product sales for the year ended December 31, 2009 decreased 15.0% to $2,104,000 compared to $2,475,000 for the year ended December 31, 2008. The decrease was primarily due to decreased sales of thermal sign card supplies, laser sign card and label supplies, and Stylus software based upon decreased demand for these products from our customers. The Company expects further declines in sales of thermal sign card supplies for the year ending December 31, 2010. ***Gross Profit.*** Gross profit for the year ended December 31, 2009 decreased 9.1% to $15,341,000 compared to $16,884,000 for the year ended December 31, 2008. Gross profit as a percentage of total net sales decreased to 53.3% for 2009 compared to 53.8% for 2008. Gross profit from our POPSign program revenues for the year ended December 31, 2009 decreased 8.4% to $14,652,000 compared to $16,002,000 for the year ended December 31, 2008. The decrease in gross profit of $1,350,000 was primarily due to decreased sales which was partially offset by decreased retailer expenses and printing expenses. Gross profit as a percentage of POPSign program revenues decreased to 55.0% for 2009 compared to 55.3% for 2008, due primarily 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 year ended December 31, 2009 decreased 21.9% to $689,000 compared to $882,000 for the year ended December 31, 2008. Gross profit as a percentage of product sales decreased to 32.8% for 2009 compared to 35.6% for 2008. The decreases were primarily due to decreased sales and the effect of fixed costs. ### Operating Expenses ***Selling.*** Selling expenses for the year ended December 31, 2009 decreased 22.2% to $6,632,000 compared to $8,521,000 for the year ended December 31, 2008, 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 (Valassis) 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 23.0% in 2009 compared to 27.1% in 2008, primarily due to the factors described above. ***Marketing.*** Marketing expenses for the year ended December 31, 2009 decreased 3.9% to $1,540,000 compared to $1,602,000 for the year ended December 31, 2008, primarily due to decreased data acquisition expense and no staff recruitment costs in 2009. Marketing expenses as a percentage of total net sales increased to 5.4% in 2009 compared to 5.1% in 2008, primarily due to the factors described combined with the effect of decreased sales in 2009. ***General and Administrative.*** General and administrative expenses for the year ended December 31, 2009 decreased 31.9% to $4,811,000 compared to $7,060,000 for the year ended December 31, 2008, primarily due to decreased legal costs related to the News America litigation and decreased facility related expenses which were partially offset by a lease termination payment which the Company received in 2008. The Company recorded lower legal expense in 2009 as there was more activity in 2008 related to trial preparation in the News America litigation. The decreased facility related expenses were the result of more favorable lease terms in the Company’s current facility which it has occupied since August 1, 2008. The Company received a payment of $400,000 for the early termination of its previous facility lease on July 31, 2008. The payment, net of $115,000 of moving expense, is recorded as part of general and administrative expenses in 2008. General and administrative expenses as a percentage of total net sales decreased to 16.7% in 2009 compared to 22.6% in 2008, primarily due to the factors described above in relation to decreased sales. Legal fees were $1,838,000 for the year ended December 31, 2009 compared to $4,234,000 for the year ended December 31, 2008. The legal fees in each year were incurred primarily in connection with the News America litigation described elsewhere herein. We currently expect the amount of legal fees that will be incurred in connection with the ongoing lawsuit to be significant in 2010 as trial preparation continues and as the trial is conducted. A negative outcome of this litigation could affect long-term competitive aspects of the Company’s business. ***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 (Expense).*** Other income (net) for the year ended December 31, 2009 was $86,000 compared to other income (net) of $180,000 for the year ended December 31, 2008. Included in other income (net) was interest income of $127,000 for the year ended December 31, 2009 compared to interest income of $234,000 for the year ended December 31, 2008. Interest income for the 2009 year was lower due to lower interest rates which more than offset the effect of higher average cash balances in 2009. Lower interest expense of $40,000 for the year ended December 31, 2009 versus $57,000 for the year ended December 31, 2008 was due to scheduled principal payments made in 2009 to reduce amounts owed to a retailer. ***Income Taxes.*** The Company recorded income tax expense for the year ended December 31, 2009 of $115,000 compared to $2,138,000 for the year ended December 31, 2008. The Company continues to carry a full valuation allowance against its net deferred tax asset at December 31, 2009, and has therefore recorded income tax expense of $115,000 for 2009 which is related to alternative minimum taxes. The Company recorded income tax expense for the year ended December 31, 2008, of $2,138,000 as a result of increasing the valuation allowance against the deferred tax assets by $1,930,000, recording expense of $201,000 from changes in the deferred tax assets and recognizing $7,000 of current income tax expense related to state tax liabilities. ***Net Income (Loss).*** The net income for the year ended December 31, 2009 was $3,716,000 compared to a net loss of $(2,257,000) for the year ended December 31, 2008. ### Fiscal 2008 Compared to Fiscal 2007 ***Net Sales.*** Net sales for the year ended December 31, 2008 increased 28.6% to $31,406,000 compared to $24,431,000 for the year ended December 31, 2007. Service revenues from our POPSign programs for the year ended December 31, 2008 increased 34% to $28,931,000 compared to $21,589,000 for the year ended December 31, 2007. The increase was primarily due to an increase in the number of POPSign programs executed for customers (consumer packaged goods manufacturers) during the 2008 period which more than offset a reduction in the average sign price during the 2008 period. Product sales for the year ended December 31, 2008 decreased 12.9% to $2,475,000 compared to $2,842,000 for the year ended December 31, 2007. The decrease was primarily due to decreased sales of both thermal sign card supplies and laser supplies based upon decreased demand for these products from our customers. ***Gross Profit.*** Gross profit for the year ended December 31, 2008 increased 24.7% to $16,884,000 compared to $13,542,000 for the year ended December 31, 2007. Gross profit as a percentage of total net sales decreased to 53.8% for 2008 compared to 55.4% for 2007. Gross profit from our POPSign program revenues for the year ended December 31, 2008 increased 28.9% to $16,002,000 compared to $12,419,000 for the year ended December 31, 2007. The increase in gross profit of $3,583,000 resulted from $7,342,000 of increased revenues offset by an increase in retailer expenses of $2,652,000 and an increase in all other costs of services (labor, overhead and material) of $1,107,000. Gross profit as a percentage of POPSign program revenues decreased to 55.3% for 2008 compared to 57.5% for 2007, due primarily to lower average revenue per sign combined with higher average cost per sign (primarily retailer expenses) in the 2008 period. Gross profit from our product sales for the year ended December 31, 2008 decreased 21.5% to $882,000 compared to $1,123,000 for the year ended December 31, 2007. Gross profit as a percentage of product sales decreased to 35.6% for 2008 compared to 39.5% for 2007. The decreases were primarily due to decreased sales and the effect of fixed costs. ### Operating Expenses ***Selling.*** Selling expenses (exclusive of selling related warrant expense) for the year ended December 31, 2008 increased 50.4% to $8,521,000 compared to $5,664,000 for the year ended December 31, 2007, primarily due to increased sales commissions, staffing levels and meals/entertainment/travel costs. The increased sales commissions were due to increased POPSign program sales and the effect of increased incentives for our strategic partner (Valassis Sales & Marketing Services, Inc. (“Valassis”)) and our employed sales force. Selling expenses as a percentage of total net sales increased to 27.1% in 2008 compared to 23.2% in 2007, primarily due to the factors described above offset partially by the effect of increased sales in 2008. ***Marketing.*** Marketing expenses (exclusive of marketing related warrant expense) for the year ended December 31, 2008 increased 13.5% to $1,602,000 compared to $1,412,000 for the year ended December 31, 2007, primarily due to increased labor and benefit costs (as a result of increased staffing levels) partially offset by decreased data acquisition and analysis costs. Marketing expenses as a percentage of total net sales decreased to 5.1% in 2008 compared to 5.8% in 2007, primarily due to the factors described which were more than offset by the effect of increased sales in 2008. ***Warrant expense (selling and marketing).*** On July 2, 2007, the Company and Valassis entered into Amendment No. 2 (the “Amendment”) to the Exclusive Reseller Agreement between the parties. The Amendment extends the term of the strategic alliance between the parties to December 31, 2017. The Amendment also expands the strategic alliance to increase the role of Valassis in the selling and marketing efforts of developing and expanding the Company’s participating retailer network. Valassis received a five-year warrant to acquire 800,000 shares of the Company’s common stock at a price of $4.04 and will be paid a cash commission by the Company on the revenue the Company realizes from POPS programs the consumer packaged goods manufacturers conduct in the new retail chains. For the year ended December 31, 2007, the Company recorded $1,521,000 of expense related to the fair value of the warrant. ***General and Administrative.*** General and administrative expenses for the year ended December 31, 2008 increased 45.1% to $7,060,000 compared to $4,864,000 for the year ended December 31, 2007, primarily due to increased legal costs related to the News America litigation and increased staffing levels which were partially offset by the receipt of a lease termination payment. The Company received a payment of $400,000 of early termination of its previous facility lease on July 31, 2008. The payment, net of $115,000 of moving expense, is recorded as part of general and administrative expenses. General and administrative expenses as a percentage of total net sales increased to 22.6% in 2008 compared to 19.9% in 2007, primarily due to the factors described above offset partially by the effect of increased sales in 2008. Legal fees were $4,234,000 for the year ended December 31, 2008 compared to $1,883,000 for the year ended December 31, 2007. The legal fees in each year were incurred primarily in connection with two News America lawsuits described elsewhere herein. Legal fees increased in 2008 primarily due to the increased in activity in the News America litigation as the parties prepared to be trial-ready. ***Other Income (Expense).*** Other income (net) for the year ended December 31, 2008 was $180,000 compared to other income (net) of $153,000 for the year ended December 31, 2007. Included in other income (net) was interest income of $234,000 for the year ended December 31, 2008 versus interest income of $247,000 for the year ended December 31, 2007. Interest income for the 2008 year was lower due to lower interest rates which more than offset the effect of higher average cash balances in 2008. Lower interest expense of $57,000 for the year ended December 31, 2008 versus $95,000 for the year ended December 31, 2007 was primarily due to the expiration of the line of credit on April 30, 2007. ***Income Taxes.*** The Company recorded income tax expense for the year ended December 31, 2008 of $2,138,000 as a result of increasing the valuation allowance against the deferred tax assets by $1,930,000, recording expense of $201,000 from changes in the deferred tax assets and recognizing $7,000 of current income tax expense related to state tax liabilities. The Company recorded an income tax benefit for the year ended December 31, 2007 of $2,109,000 as a result of the reversal of $2,337,000 of the valuation allowance against the deferred tax asset which offset expense from a change in deferred tax assets of $206,000 and $22,000 of current income tax expense related to Federal alternative minimum tax liability and other state tax liabilities. ***Net Income (Loss).*** The net loss for the year ended December 31, 2008 was $(2,257,000) compared to net income of $2,343,000 for the year ended December 31, 2007. ### 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 December 31, 2009, working capital was $10,716,000 compared to $6,396,000 at December 31, 2008. During the year ended December 31, 2009, cash and cash equivalents decreased by $2,255,000 from $11,052,000 at December 31, 2008 to $8,797,000 at December 31, 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 year ended December 31, 2009, cash, cash equivalents and short-term investments increased by $2,145,000 to $13,197,000 at December 31, 2009, as compared to $11,052,000 at December 31, 2008. Net cash provided by operating activities during the year ended December 31, 2009, was $2,464,000. Net income of $3,716,000 plus non-cash expense of $1,066,000 totaling $4,782,000 for the year ended December 31, 2009, more than offset changes in operating assets and liabilities which used cash of $2,318,000. The non-cash expense of $1,066,000 consisted of stock-based compensation expense, depreciation, amortization, provision for income taxes and provision for bad debt expense. Accounts payable and accrued liabilities decreased $1,974,000 during the year ended December 31, 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. 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 $4,678,000 was used in investing activities during the year ended December 31, 2009, due to short-term investment activity and the purchase of property and equipment. Purchases of short-term investments of $6,300,000 and proceeds of $1,900,000 during the year consisted entirely of purchases and redemptions of twenty-six week certificates of deposit. Purchases of property and equipment totaled $278,000 during the year ended December 31, 2009, and consisted of digital printing related equipment and related leasehold modifications as well as information technology equipment and software. The Company expects to make capital expenditures of approximately $200,000 in 2010 consisting of additional digital printing and information technology equipment. Net cash of $41,000 was used in financing activities during the year ended December 31, 2009. Proceeds (net) of $161,000 resulting from the issuance of common stock from the employee stock purchase plan and the employee stock option plans were more than offset by the payment of $202,000 of principal on long-term liabilities. 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. ### New Accounting Pronouncements In June 2009, the Financial Accounting Standards Board (FASB) issued guidance that established the FASB Accounting Standards Codification™ (FASB ASC) as the source of authoritative accounting principles recognized by the FASB to be applied to nongovernmental entities in the preparation of financials statements in conformity with generally accepted accounting principles (GAAP). The Codification is a reorganization and compilation of all then-existing authoritative GAAP for nongovernmental entities, except for guidance issued by the Securities and Exchange Commission. Use of the new Codification is effective for interim and annual periods ending after September 15, 2009. Adoption of the Codification has not impacted the financial results of the Company. In May 2009, FASB ASC 855, *Subsequent Events* was issued. This statement requires an entity to evaluate events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The new guidance sets forth the period after the balance sheet date during which management of an entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financials statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The Company has adopted the new guidance that was effective for financial statements issued for interim and annual periods ending after June 15, 2009 and the adoption did not have a material impact on our financial statements. In August 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-05, Fair Value Measurements and Disclosures Topic 820 “Improving Disclosures about Fair Value Measurements”. The updated guidance affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an orderly transaction and clarifies and includes additional factors for determining there has been a significant decrease in market activity for an asset when the market for that asset is not active. It also requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence. This guidance was effective September 1, 2009 and the adoption did not have a material impact on our financial statements. In December 2009, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures Topic 820 “Improving Disclosures about Fair Value Measurements”. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Some of the new disclosures are effective for reporting periods beginning after December 15, 2009, with the remaining new disclosures effective for reporting periods beginning after December 15, 2010. The adoption of this ASU will not have a material impact on our financial statements. ### Contractual Obligations The following table summarizes the Company’s contractual obligations and commercial commitments as of December 31, 2009: ### Payments due by Period | Contractual Obligations: | Total | Less than 1 Year | 2-3 Years | 4-5 Years | After 5 years | | --- | ---: | ---: | ---: | ---: | ---: | | Operating leases, excluding operating costs | $2,899,000 | $446,000 | $921,000 | $958,000 | $574,000 | | Payments to retailers\* | 3,660,000 | 3,141,000 | 501,000 | 18,000 | — | | Long-term liabilities | 219,000 | 219,000 | — | — | — | | Purchase commitments | 398,000 | 322,000 | 76,000 | — | — | | Total contractual obligations | $7,176,000 | $4,128,000 | $1,498,000 | $976,000 | $574,000 | \*On an ongoing basis, the Company negotiates renewals of various retailer agreements, some of which provide for fixed or store-based payments rather than sign placement-based payments. Upon the completion of renewals, the annual commitment amounts could be in excess of the amounts above. ### Off-Balance Sheet Transactions None. ## Controls and procedures As filed, 2,824 characters. ### 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 (principal executive officer) and the Company’s Chief Financial Officer (principal 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 December 31, 2009, 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 as of December 31, 2009 were effective. Disclosure controls and procedures ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and are designed to ensure that information required to be disclosed by us in these reports is accumulated and communicated to our management, as appropriate to allow timely decisions regarding disclosures. ### Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2009. In conducting its evaluation, our management used the criteria set forth by the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management believes our internal control over financial reporting was effective as of December 31, 2009. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report. ### Changes in Internal Control Over Financial Reporting No changes in the Company’s internal control over financial reporting have occurred during the fourth quarter of 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Filed Mar 31, 2010. Source: SEC EDGAR, the filing index for accession 0000897101-10-000659. Last ingested by Listed: Oct 24, 2026, 14:58 ET. No prices; not investment advice.