# Bloomia Holdings, Inc.: Form 10-Q/A for the period ended Mar 31, 2011

- Company: [Bloomia Holdings, Inc.](/companies/tulp.md) (CIK 875355)
- Form: 10-Q/A
- Filed: 2011-09-09
- Accepted by EDGAR: Sep 9, 2011, 16:11 ET
- Period: 2011-03-31
- Accession: 0000897101-11-001573
- Inline XBRL: no
- Main document: https://www.sec.gov/Archives/edgar/data/875355/000089710111001573/insignia114213_10-qa.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/875355/000089710111001573/

## Management's discussion and analysis

As filed, 16,096 characters.

### Overview

Insignia Systems, Inc. (the “Company”) markets in-store advertising products, programs and services to consumer packaged goods manufacturers (customers) and retailers. The Company’s products and services includes the Insignia POPSign® 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 March 31 | 2011 | 2010 |
| --- | ---: | ---: |
| Net sales | 100.0% | 100.0% |
| Cost of Sales | 58.8 | 50.2 |
| Gross Profit | 41.2 | 49.8 |
| Operating expenses: |  |  |
| Selling | 31.4 | 27.8 |
| Marketing | 8.4 | 6.7 |
| General and administrative | 41.0 | 22.9 |
| Gain from litigation settlement, net | (1,814.5) | — |
| Total operating expenses | (1,733.7) | 57.4 |
| Operating income (loss) | 1,774.9 | (7.6) |
| Other income | 0.4 | 0.2 |
| Income (loss) before taxes | 1,775.3 | (7.4) |
| Income tax expense | (686.3) | — |
| Net income (loss) | 1,089.0% | (7.4)% |

Decreased net sales in the first three months of 2011 compared to the first three months of 2010, combined with the effect of fixed costs in the costs of sales, resulted in a decrease in gross profit in the 2011 period. The decrease in gross profit and increased operating expenses in the 2011 period were dramatically offset by the litigation settlement, resulting in significant net income in 2011 as compared to a net loss in the 2010 period. See the non-GAAP financial measures information which follows later in this section for a comparison of the 2011 and 2010 periods non-GAAP net losses.

### Three Months ended March 31, 2011, Compared to Three Months Ended March 31, 2010

***Net Sales.*** Net sales for the three months ended March 31, 2011 decreased 15.9% to $4,947,000 compared to $5,883,000 for the three months ended March 31, 2010.

Service revenues from our POPSign programs for the three months ended March 31, 2011 decreased 14.9% to $4,374,000 compared to $5,137,000 for the three months ended March 31, 2010. The decrease was primarily due to a 12.0% decrease in the average sign price as well as a 5.7% decrease in the number of POPS signs displayed for customers at stores in the Company’s retail network. The decrease in the number of signs displayed in the 2011 period was primarily related to the expiration of the Kroger retailer contract at the end of 2010. During the three months ended March 31, 2010, revenue recognized by advertising in Kroger stores was $1,706,000.

Product sales for the three months ended March 31, 2011 decreased 23.2% to $573,000 compared to $746,000 for the three months ended March 31, 2010. This was primarily due to lower sales volume of laser printer supplies.

***Gross Profit.*** Gross profit for the three months ended March 31, 2011 decreased 30.5% to $2,036,000 compared to $2,930,000 for the three months ended March 31, 2010. Gross profit as a percentage of total net sales decreased to 41.2% for 2011 compared to 49.8% for 2010.

Gross profit from our POPSign program revenues for the three months ended March 31, 2011 decreased 32.2% to $1,831,000 compared to $2,701,000 for the three months ended March 31, 2010. The decrease was primarily due to decreased sales in 2011 combined with the effect of fixed costs. Gross profit as a percentage of POPSign program revenues decreased to 41.9% for 2011 compared to 52.6% for 2010, primarily due to the effect of fixed costs against decreased revenues.

Gross profit from our product sales for the three months ended March 31, 2011 decreased 10.5% to $205,000 compared to $229,000 for the three months ended March 31, 2010. The decrease was primarily due to decreased sales. Gross profit as a percentage of product sales increased to 35.8% for 2011 compared to 30.7% for 2010. The decreased laser printer supplies in 2011 were lower margin products which resulted in the higher gross profit percentage in 2011.

### Operating Expenses

***Selling.*** Selling expenses for the three months ended March 31, 2011 decreased 5.0% to $1,555,000 compared to $1,636,000 for the three months ended March 31, 2010, primarily due to decreased sales commissions in 2011 due to decreased sales. Selling expenses as a percentage of total net sales increased to 31.4% in 2011 compared to 27.8% in 2010, primarily due to the effect of decreased sales.

***Marketing.*** Marketing expenses for the three months ended March 31, 2011 increased 4.8% to $414,000 compared to $395,000 for the three months ended March 31, 2010. Marketing expenses as a percentage of total net sales increased to 8.4% in 2011 compared to 6.7% in 2010, due to the effect of decreased sales.

***General and administrative.*** General and administrative expenses for the three months ended March 31, 2011 increased 50.4% to $2,026,000 compared to $1,347,000 for the three months ended March 31, 2010. General and administrative expenses as a percentage of total net sales increased to 41.0% in 2011 compared to 22.9% in 2010, due to increased legal expense in 2011. Legal fees were $989,000 for the three months ended March 31, 2011, compared to $523,000 for the three months ended March 31, 2010. The legal fees in each quarter were incurred primarily in connection with the News America lawsuit described in Note 2 to the financial statements. Management does not expect significant legal fees and expenses in future periods in connection with post-settlement activities.

***Gain from litigation settlement.*** On February 9, 2011, the Company entered into a Settlement Agreement in its lawsuit against News America. As part of the Settlement Agreement, News America paid the Company $125,000,000. Netted against this payment was a contingent fee payment of $31,250,000 to the Company’s lead trial counsel as well as performance bonus payments of $3,988,000 to certain employees in connection with the settlement, resulting in a net pre-tax gain of $89,762,000.

***Other Income.*** Other income for the three months ended March 31, 2011 was $21,000 compared to $13,000 for the three months ended March 31, 2010. The difference was due to increased interest income in the 2011 period due to higher cash, cash equivalents and short-term investment balances, partially offset by lower interest rates, and a decrease in interest expense in 2011.

***Income Taxes.*** As a result of the taxable income generated by the settlement proceeds, $5,385,000 of the Company’s deferred tax assets were utilized during the first three months of 2011. For the three months ended March 31, 2011, the provision for income taxes was $33,951,000, or 38.7% of income before income taxes. The provision for income taxes during the three months ended March 31, 2011, is comprised of federal and state taxes. The primary difference between the Company’s March 31, 2011, effective tax rate and the statutory federal rate is state income taxes. The lack of profitability in the first quarter of 2010, and the full valuation allowance against the Company’s deferred tax assets, resulted in no provision for taxes or tax benefit for the 2010 period.

***Net Income (Loss).*** Our net income for the three months ended March 31, 2011 was $53,873,000 compared to a net loss of $(435,000) for the three months ended March 31, 2010.

### Non-GAAP Financial Measures

To supplement the Company’s financial statements presented in accordance with GAAP, the Company has provided certain non-GAAP financial measures of financial performance in prior public announcements. These non-GAAP measures include:

- net income (loss) before gain from litigation settlement (net of tax), and
- net income before News America related legal fee expense.

The Company’s reference to these non-GAAP measures should be considered in addition to results prepared under current accounting standards, but are not a substitute for, or superior to, GAAP results.

These non-GAAP measures are provided to enhance investors’ overall understanding of the Company’s current financial performance and ability to generate cash flows. In many cases non-GAAP financial measures are used by analysts and investors to evaluate the Company’s performance. Reconciliation to the nearest GAAP measure can be found in the financial table included below.

| Three Months Ended March 31 | 2011 | 2010 |
| --- | ---: | ---: |
| Net income (loss) | $53,873,000 | $(435,000) |
| Adjustment: |  |  |
| Gain from litigation settlement (net of tax) (see below) | (55,062,000) | — |
| Non-GAAP net loss before gain from litigation settlement (net of tax) | (1,189,000) | (435,000) |
| Adjustment: |  |  |
| News America related legal expense | 826,000 | 404,000 |
| Non-GAAP net loss before gain from litigation settlement (net of tax) and News America related legal expense | $(363,000) | $(31,000) |
| Gain from litigation settlement (net of tax) |  |  |
| Settlement proceeds | $125,000,000 |  |
| Less contingent attorney’s fees | (31,250,000) |  |
| Less bonuses paid to employees | (3,988,000) |  |
|  | 89,762,000 |  |
| Less settlement related income taxes | (34,700,000) |  |
| Gain from litigation settlement (net of tax) | $55,062,000 |  |

### 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 March 31, 2011, working capital was $32,792,000 compared to $12,505,000 at December 31, 2010. During the three months ended March 31, 2011, cash, cash equivalents and short-term investments increased $76,544,000 from $13,696,000 at December 31, 2010 to $90,240,000 at March 31, 2011.

On February 9, 2011, the Company entered into a settlement agreement in its lawsuit against News America. As part of the settlement agreement, News America paid the Company $125,000,000 less $4,000,000 related to a 10-year business arrangement. Litigation counsel for the Company received a contingent fee payment of $31,250,000 which resulted in net cash to the Company of $89,750,000 after the contingent fee.

On February 22, 2011, the Board of Directors approved a series of actions. First, the Board of Directors authorized a special $2.00 per common share dividend which resulted in in a payment to shareholders of $31,335,000 on May 2, 2011. Second, the Board approved a Performance Bonus Plan, providing for the payment of $3,988,000 to certain employees of the Company. Third, the Board authorized the repurchase of up to $15,000,000 of the Company’s common stock on or before January 31, 2012. The plan does not obligate the Company to repurchase any particular number of shares, and may be suspended at any time at the Company’s discretion. On May 25, 2011, the Board amended the plan to increase the maximum share purchase amount from $15,000,000 to $20,000,000.

Net cash provided by operating activities during the three months ended March 31, 2011, was $85,966,000. Net income of $53,873,000, plus non-cash adjustments of $5,618,000 and changes in operating assets and liabilities of $26,475,000 resulted in the $85,966,000 of cash provided by operating activities. The net non-cash adjustments of $5,618,000 consisted of depreciation and amortization expense, deferred income tax expense, and stock-based compensation expense. The most significant component of the $26,475,000 change in operating assets and liabilities was income taxes. Income tax payable increased by $28,145,000, before the excess tax benefit of $2,222,000, primarily due to taxable income related to the litigation settlement. Accrued retailer payments decreased $1,082,000 primarily related to the payment to one of our retailers, and accrued compensation increased $1,398,000 primarily due to the terms of the performance bonus plan related to the News America settlement. 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 $3,541,000 was used in investing activities during the three months ended March 31, 2011. Proceeds from the sale of investments were more than offset by the purchase of property and equipment and the payment of $4,000,000 in exchange for a 10-year business arrangement. Proceeds of $500,000 during the first quarter consisted entirely of redemptions of twenty-six week certificates of deposit. Capital expenditures of $41,000 during the quarter consisted primarily of information technology equipment and software. The Company expects to make capital expenditures of approximately $2,000,000 for the remainder of 2011.

Net cash of $5,381,000, which includes the excess tax benefit of $2,222,000, was used in financing activities during the three months ended March 31, 2011. The repurchase of common stock of $10,672,000, pursuant to a plan adopted on February 22, 2011 and amended on May 25, 2011, was partially offset by $3,069,000 of proceeds from the issuance of common stock from the exercise of employee stock options and the employee stock purchase plan.

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 for the remainder of 2011 and for the next twelve months thereafter. 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, 2010, included in our Form 10-K/A filed with the Securities and Exchange Commission on September 9, 2011. 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.

### Cautionary Statement Regarding Forward Looking Information

Statements made in this quarterly report on Form 10-Q/A, 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/A for the year ended December 31, 2010, and updated in Part II, Item 1A of this Quarterly Report on Form 10-Q/A.

## Controls and procedures

As filed, 1,832 characters.

(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, including the circumstances surrounding the recently announced amendment of the 2010 Form 10-K, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report. Disclosure controls and procedures ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and are designed to ensure that information required to be disclosed by us in these reports is accumulated and communicated to the Company’s management, including its Chief Executive Office and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosures.

(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, other than the Company’s hiring of a new chief financial officer effective June 13, 2011.

## Risk factors

As filed, 275 characters.

We described the most significant risk factors applicable to the Company in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K/A for the year ended December 31, 2010. We believe there have been no material changes from the risk factors disclosed on Form 10-K/A.

Filed Sep 9, 2011.
Source: SEC EDGAR, the filing index for accession 0000897101-11-001573. Last ingested by Listed: Nov 12, 2026, 22:21 ET. No prices; not investment advice.