UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1996 Commission File Number 0-19380
INSIGNIA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1656308
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
10801 Red Circle Drive
Minnetonka, MN 55343
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 930-8200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Number of shares of outstanding Common Stock, $.01 par value, as of March
14, 1997 was 6,860,081.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 14, 1997 was approximately $29,584,099 based upon the
last sale price of the registrant's Common Stock on such date.
Documents Incorporated By Reference:
Portions of registrant's 1996 Annual Report to Shareholders are
incorporated by reference in Part II; portions of the registrant's proxy
statement for the Annual Meeting of Shareholders scheduled for May 8, 1997 are
incorporated by reference into Part III.
PART I.
Item 1. Business
GENERAL
Insignia Systems, Inc. (the "Company") markets sign and label
production software and equipment primarily to retailers. The Company's first
product, the Impulse(R) Retail System, was sold to retail merchants between 1990
and November 1996 to quickly and easily produce high quality signs in their
stores. The Company has replaced the Impulse Retail System with the
SIGNright(TM) system, which performs essentially the same functions as the
Impulse, but currently has a list price of approximately one-half of what was
the Impulse system's list price. The Company's business strategy with the
Impulse system, and now with the SIGNright system, is to obtain both initial
revenue from the sale of electronic sign production equipment and software, and
recurring revenue from the sale of the sign cards, label supplies, and
accessories used with them. The Company's second product, a PC-based software
product tradenamed Stylus(R), is used by retail chains to produce signs, labels,
and posters. The Company markets its sign systems, supplies and accessories
primarily through an integrated telesales and direct marketing process in the
United States and through independent distributors in foreign markets.
INDUSTRY AND MARKET BACKGROUND
The Company estimates that there are approximately 1.1 million retail
stores in the United States. Retailers often use signs in their stores to
communicate prices, specials, product features, benefits and other information.
In the United States the signage systems used by retailers generally fall into
two main categories: (i) manual systems, primarily handwriting, or to a limited
extent press-on letters or clip-on lettering signs; and (ii) automated systems,
such as large computer systems and personal computers with sign making software
and laser printers. Small independent retailers are more likely to use manual
systems, and at the other end of the spectrum, large retail chains are more
likely to use centralized computer systems.
The Company estimates that of the approximately 1.1 million retail
stores in the United States, about 100,000 are independent retailers that are
too small to be good prospects for the SIGNright system and about 350,000 are
too large or are affiliated with a large chain which uses centralized computer
equipment. The Company considers its primary U.S. market for the SIGNright
system to be the approximately 650,000 medium and large independent retailers
and small retail chains that lie between the two extremes. The Company believes
there is a significant market among such stores for an easy-to-use, low cost,
standalone, on-site system that can quickly produce a wide variety of
professional quality signs. The Company considers its primary U.S. market for
the Stylus software to be the approximately 350,000 large independent retailers
and chain retailers.
THE SIGNRIGHT SYSTEM
The Impulse Retail System was developed by an independent product
design and development firm (the "Developer"). In November 1996, the Company
replaced the Impulse Retail System with the SIGNright system. The Company
believes that the primary market for the SIGNright system is medium and large
independent retailers and small retail chains. The Company estimates that there
are approximately 650,000 such retail locations in the United States. Within
this market, the Company initially focused on hardware and do-it-yourself stores
and food and grocery stores because of their number and propensity to use signs.
The Company has continued to expand its marketing efforts and now sells to
customers in nineteen different retail market segments.
The principal component of the SIGNright system is the sign production
unit (the "SIGNright machine"), which is about the size of an office typewriter.
It contains a custom keyboard, a small display screen, specially developed
hardware and software, and a thermal printhead similar to that of a facsimile
machine. The thermal technology eliminates the need for ink or toner and enables
a retailer to produce a sign that is dry and ready to display immediately. The
SIGNright machine weighs approximately 12 pounds and operates on standard sign
sizes (ranging from 2-1/3" x 3-2/3" to 11" x 14" for the U.S. market) which are
programmed into the SIGNright machine.
To make a sign the retailer selects from a portfolio one of many
pre-designed sign formats, enters the format number and the sign contents via
the keyboard, and inserts a sign card that bears a specially developed barcode.
The SIGNright machine then determines from the barcode whether the size of the
sign card and the sign format selected are compatible, determines the
approximate thermal energy setting on the printhead and prints the sign.
The SIGNright machine has one built-in type font and additional fonts
are available on cartridges for $150 each. Additional cartridges, priced at $200
each, provide portfolios of sign formats designed specifically for the various
retail market segments. The SIGNright machine has a built-in internal memory and
an available external memory cartridge so that frequently used or customized
sign formats can be easily stored for later use. The current retail price of the
SIGNright system is $995 ($1,395 if an average number of type fonts and sign
format cartridges are included). The SIGNright cartridges are copyrighted and
each cartridge is marked accordingly.
Sign cards are sold by the Company in a variety of sizes, colors and
combinations and can be customized to include pre-printed custom artwork (such
as the retailer's logo) as required by the customer. Approximately 38% of 1996
revenues came from the sale of sign cards and the Company expects that this
percentage will be slightly lower in the future as the Company broadens its
product mix.
STYLUS SOFTWARE
In late 1993, the Company introduced its second major product,
tradenamed Stylus, which is a PC-based software product used by retailers to
produce signs, labels, and posters. The Company believes that the primary market
for the Stylus software is large independent retailers and retail chains. The
Company estimates that there are approximately 350,000 such retail locations in
the U.S.
The Stylus software allows retailers to create signs, labels, and
posters by manually entering the information for the sign or by importing
information from a computer database. Retailers can import barcode and price
information from their point-of-sale system and can add a graphic image of the
product from a CD-ROM containing branded clip-art. They can also create a
database of selling information such as product features and benefits,
nutritional information, or lifestyle-type uses for the product which can be
added to create a more informative sign or label.
A significant portion of the retail marketplace is made up of chain
retailers who require that signs be consistent and controlled from headquarters.
Most still create their signs at their headquarters, duplicate them and then
deliver them to their stores. The headquarters version of the Company's Stylus
software allows chains to create signs and labels centrally to maintain
consistency in appearance, and then transmit to store-level printers. The
Company believes the Stylus software product has significant benefits for chain
retailers.
The current retail price of the Stylus software is $2,495 for the
single store version and $4,990 for the headquarters version. The Company also
sells the sign cards and labels used with the Stylus software in a variety of
sizes, colors, and styles. The Company sells these supplies at competitive
prices, but is not in a proprietary position.
MARKETING AND SALES
The Company's marketing strategy is to focus on specific vertical
market segments. The first two segments pursued were hardware and do-it-yourself
and food and grocery stores, which the Company selected because of the large
number of prospects in those segments and their propensity to use signs. The
Company has continued to expand its marketing efforts and now sells to customers
in nineteen different retail market segments.
The Company believes, based on its market research and sales to date,
that retailers who buy the SIGNright system do so primarily for three reasons.
The first and most important reason is their belief that high-quality signs will
increase sales. Second, many retailers want to improve their merchandising image
by having consistent, professional looking signs. Third, retailers are
interested in simplifying the sign making process as much as possible. While the
Company believes that cost is not as important as the other factors just
mentioned, the SIGNright system will, in many cases, be less expensive than a
retailer's existing method of sign production.
The Company believes that retailers who buy the Stylus software do so
for the same reasons listed above that retailers buy the SIGNright system. In
addition, they want the ability to create shelf labels, import information from
an existing database, and add graphic images of the product to their signs and
labels. Chain retailers also want the ability to create signs and labels
centrally to maintain consistency in appearance and content.
The Company markets the SIGNright system and the Stylus software in the
United States through an integrated marketing program that begins with targeted
direct mailings, advertising, participation in trade shows and developing
industry relationships. The marketing program then proceeds to telemarketing by
in-house sales personnel or a visit by an independent sales representative, or a
visit by a direct sales representative to sell the Stylus software to larger
chains.
The Company currently has 39 telephone sales representatives who are
full-time, 30 of which are on-site employees and nine of which are located at an
off-site location. The Company uses a network of personal computers and
specialized software to monitor and facilitate the sales process. The Company
stresses the ongoing training of its sales representatives and the use of a
structured multiple call sales process. Prospects are generated from publicly
available industry publications and purchased mailing lists. After mailing
promotional literature describing the product, the sales representative contacts
the prospect, qualifies them, answers questions and offers to send additional
information.
On follow-up calls the process of making a sign is explained to the
prospect in detail, and an actual sign is sent to the prospect. Further calls
sell the potential benefits of the product and seek to close the sale. Where
appropriate, the Company offers to send the prospect a SIGNright system for a
five day trial or refers the prospect to one of the Company's independent
representatives. The Company has also established a separate inside Customer
Marketing function dedicated to selling sign cards and other supplies to
existing customers.
The Company has approximately 50 independent representatives located
throughout the continental United States that sell the SIGNright system and
related supplies, but do not sell the Stylus software. Most of these
representatives have received training at the Company's headquarters and all
have purchased a SIGNright system. The independent representatives both develop
their own prospects and handle referrals from the Company's inside sales
representatives. The Company compensates the independent representatives solely
through commissions and manages their efforts through a separate sales
management group.
The Company has also developed a direct sales force of five sales
representatives who attend trade shows and sell the Stylus software to larger
chains.
The SIGNright system is designed to operate in a variety of different
languages with minimal modifications. In foreign markets, the Company uses
independent distributors, who are currently covering 20 countries. During 1994,
1995 and 1996 foreign sales accounted for approximately 12%, 16% and 16% of
total sales, respectively. The Company expects that sales to foreign
distributors will be approximately 20% of total sales in 1997.
PATENTS AND TRADEMARKS
All intellectual property rights related to the Impulse Retail System
belong to the Developer. The Company's patent counsel has filed on behalf of the
Developer applications for United States and certain foreign patents covering
aspects of the Impulse Retail System, including the use of identifiers such as
barcodes on the sign cards for communicating information to a printer. The
United States Patent and Trademark Office has issued a patent covering the
Impulse Retail System, including the use of sign cards which are encoded for use
with the system. However, competitors may still attempt to market similar
machines using non-infringing technology.
The Developer had granted to the Company an exclusive, worldwide
license to market and sell (but not manufacture) the Impulse Retail System.
However, the Company is no longer marketing and selling the Impulse Retail
System pursuant to this worldwide license agreement. Therefore, the Developer
could grant the same marketing rights for the Impulse Retail System to another
party. However, the Developer has stated it does not presently intend to grant
similar marketing rights to any other party.
The Developer has entered into a joint venture agreement with a
Japanese firm (the "Supplier") to manufacturer and supply the SIGNright system.
The Supplier has entered into an exclusive supplier agreement whereby the
Company will have the exclusive distribution rights of the SIGNright system. The
manufacturing agreement requires the Company to purchase 24,000 units by October
31, 1998. The Developer could grant the same manufacturing rights for the
SIGNright system to another party. However, the Developer has stated it does not
presently intend to grant similar manufacturing rights to any other party.
The Company is not presently aware of any patents of third parties
which the SIGNright system would infringe. There can be no assurance, however,
that such conflicting rights do not exist, in which event the Company would be
unable to sell its product without obtaining a license from others. There is no
assurance the Company would be able to obtain any such license on satisfactory
terms, or at all.
The barcode which the Company uses on the sign cards for the Impulse
and SIGNright systems was also developed by the Developer, which has granted the
Company an exclusive worldwide license of its rights to the barcode. The license
requires the Company to pay a royalty of 1% of the net sales price received by
the Company on each sign card or other supply item that bears the barcode and
used by the Impulse Retail Systems. Although a patent has been issued to the
Developer which covers the use of the barcode, there is no assurance that the
Company will be able to prevent other suppliers of sign cards from copying the
barcode used by the Company. However, the Company believes that the number,
relatively small size and geographic dispersal of Impulse and SIGNright users,
their relationship with the Company, and the Company's retention of its customer
list as a trade secret will discourage other sign card suppliers from offering
barcoded sign cards for use on the Impulse machine.
The Company has obtained trademark registration in the United States of
the trademark "Impulse" for use on sign production machines. The Company is not
obligated to pay any royalty related to this trademark.
The Company is seeking trademark registration in the United States of
the trademark "SIGNright" for use on sign production machines. The Company is
not obligated to pay any royalty related to this trademark.
The Company has obtained trademark registration in the United States of
the trademark "Stylus" for use on sign and label software. The developer of the
DOS version of the Stylus software has granted to the Company an exclusive
worldwide license to market and sell the DOS version of the Stylus software. The
Company no longer sells and markets the DOS version of the Stylus software and
has terminated this license agreement. The Company has developed the Windows
version of the Stylus software which it is now marketing and selling.
PRODUCT DEVELOPMENT
The Company's product development activities on the SIGNright system
were primarily conducted by the Developer on a contract basis. The Company
continues to introduce various additional complementary products such as new
fonts and format cartridges, new sign card formats, new colors and new types of
sign cards.
The Stylus software product was initially developed on a contract basis
beginning in 1992 and continuing in 1993, 1994, 1995 and 1996. Beginning in
1993, the Company hired in-house employees to develop and modify portions of the
Stylus software product. The Company plans to continue to develop enhancements
to the Stylus software product using in-house employees and external software
developers. Product development costs of $471,346 for 1993; $473,477 for 1994;
$476,549 for 1995; and $448,008 for 1996 were primarily related to development
of the Stylus software product.
SUPPLIERS
The Company has no plans to develop an in-house manufacturing
capability for the SIGNright machine and is obligated to purchase the SIGNright
machine from the Supplier. The Company has entered into a supply agreement with
the Supplier and agreed with the Supplier to make its best efforts to purchase
24,000 units from the Supplier by December 31, 1998. Prices under the supply
agreement are fixed in Japanese yen. The Company owns certain tooling for the
SIGNright machine which is used by the Supplier. The Company believes there are
other manufacturers capable of manufacturing and providing the SIGNright machine
on comparable terms. However, the time required to locate and qualify another
supplier could cause a delay in the manufacturing process that might have a
serious adverse effect on the Company.
The thermal paper used by the Company in its sign cards is purchased
exclusively from one supplier. While the Company believes that an alternative
supplier would be available if necessary, any disruption in the relationship
with or deliveries by the current supplier could have a serious adverse effect
on the Company.
COMPETITION
The competition for the SIGNright system falls into two main
categories: (i) manual systems, primarily handwriting, or to a limited extent
press-on letters or clip-on lettering signs; and (ii) automated systems, such as
large computer system and personal computers with sign making software and laser
printers.
Most of the prospects in the Company's target market for the SIGNright
system have generally been making signs by hand. The Company believes that most
of its prospects do not use personal computers for sign making because of the
time and training required and the inability of most personal computer printers
to handle the weight and thickness of normal sign card stock. However, because
use of the Company's product involves a change in the customer's current sign
making methods, there is no assurance that the SIGNright system will achieve
significant market acceptance.
The Company's patent covers the SIGNright system and the use of sign
card encoded with a complementary barcode. The Company could face competition
from suppliers of sign cards who duplicate the barcode used by the Company.
However, the Company intends to vigorously defend its patent rights. Management
believes that the number, relatively small size, and geographic dispersal of its
customers, their relationship with the Company, and the Company's retention of
its customer list as a trade secret will discourage such competition. However,
there is no assurance that such competition will not develop.
The Stylus Sign and Label Works family of software products has three
major competitors in its' market: Access, Inc. (Access), Electronic Label
Technology, Inc. (ELT), and Retail Technologies, Inc. (RTI). Access offers a
product called dSIGN, which by its very nature of requiring individual
customization is focused more toward large retail chains. ELT sells numerous
version of LabelMaster. RTI markets Design-R-Labels. The Company believes that
its complete line of Stylus products compares favorably on features, benefits,
cost, performance, and ease of use and implementation to that of its main
competitors. The Company has several products and can provide solutions to
operate in the following environments: UNIX/AIX, AS/400, MD-DOS, Windows
3.1/95/NT, OBDC, or with stand -alone printers. The Company's main strengths, in
relation to its competition are: a large telemarketing organization,
merchandising, large format printing, high speed printing, image handling, ease
of use, and rapid implementation for their products, services and offerings.
Unlike the SIGNright system, the Stylus product does not offer the
Company the benefit of proprietary sign card stock. While this leaves customers
free to buy stock from alternate suppliers, the Company believes that it will
capture a significant portion of sign card and label sales due to the wide array
of pre-printed and perforated sign and label stock offered by the Company at
competitive prices.
EMPLOYEES
As of March 14, 1997, the Company had 129 full-time employees. The
full-time employees included 40 in telemarketing, 35 in other sales and
marketing positions, 39 in operations and customer service, 12 in administration
and accounting functions and 3 in senior management positions. None of the
Company's employees are represented by unions.
Item 2. Properties
The Company is located in approximately 51,000 square feet of office
and warehouse space in suburban Minneapolis, Minnesota, which has been leased
until December 1997. This facility is adequate and suitable for the Company's
current needs and additional space is expected to be available as needed at
competitive rates.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the Company's executive officers are as
follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
G. L. Hoffman 47 Chairman, President, Chief Executive Officer and Secretary
Paul A. Moquist 55 Executive Vice President, Sales and Marketing
John R. Whisnant 51 Vice President, Finance and Chief Financial Officer
</TABLE>
G. L. Hoffman, a co-founder of the Company, has been the Chairman,
President, Chief Executive Officer and Secretary of the Company since it was
incorporated in January 1990. Prior to that time he was a co-founder of
Varitronic Systems, Inc., which develops, manufactures and markets business
graphic products. Mr. Hoffman was employed as Chairman, Executive Vice President
and Secretary of Varitronics from 1983 until January 1990. Mr. Hoffman also had
primary responsibility for developing Varitronics' international marketing and
private label distribution systems.
Paul A. Moquist has been Executive Vice President, Sales and Marketing
of the Company since January 1991. Mr. Moquist joined the Company as Director of
Sales in March 1990. From September 1989 to March 1990 he served as Vice
President of Sales for Raster Devices Direct, Inc., a subsidiary of Laser Master
Technologies, Inc. which distributes a series of integrated publishing systems.
From November 1987 to September 1989 Mr. Moquist was a co-owner of Print Galley,
Inc., a printing business located in Hopkins, Minnesota.
John R. Whisnant joined the Company as Vice President of Finance and
Chief Financial Officer of the Company in October 1995. From June 1994 to
September 1995 he was self employed as a franchise consultant. From June 1992 to
June 1994 he served as President of AmericInn, Inc. a motel franchising company.
PART II.
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information required by Item 5 is incorporated herein by reference to the
section labeled "Stockholder Information" which appears in the registrant's 1996
Annual Report to Shareholders.
Item 6. Selected Financial Data
The information required by Item 6 is incorporated herein by reference to the
section entitled "Financial Highlights" which appears in the registrant's 1996
Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by Item 7 is incorporated herein by reference to the
section entitled "Financial Review" which appears in the registrant's 1996
Annual Report to Shareholders.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
FORWARD LOOKING STATEMENTS IN THIS 10-K REPORT AND IN THE ANNUAL REPORT TO
SHAREHOLDERS WHICH IS INCORPORATED HEREIN BY REFERENCE REFLECT THE COMPANY'S
CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. THESE
FORWARD LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES,
INCLUDING THOSE IDENTIFIED BELOW, WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM HISTORICAL RESULTS OR THOSE ANTICIPATED. THE WORDS "BELIEVE,"
"EXPECT," "ANTICIPATE," AND SIMILAR EXPRESSIONS IDENTIFY FORWARD LOOKING
STATEMENTS. READERS ARE REQUESTED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD
LOOKING STATEMENT, WHICH SPEAK ONLY AS OF THEIR DATES. THE COMPANY UNDERTAKES NO
OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD LOOKING STATEMENTS, WHETHER
AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. THE FOLLOWING
FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS
OR THOSE ANTICIPATED:
* CHANGES IN THE EXCHANGE RATE FOR JAPANESE YEN
* COST OF THE RAW MATERIAL
* RESULTS OF THE INSIGNIA POPS PROGRAM
* BUSINESS CONDITIONS OF THE GENERAL ECONOMY
* INSTALLATION OF SOFTWARE AND AVAILABILITY OF HARDWARE
* RELIANCE ON LICENSED PROPRIETARY RIGHTS
* SINGLE SOURCE SUPPLIER OF SIGNright MACHINES
* SIGN CARD REVENUE
* COMPETITION
* DEPENDENCE ON KEY EMPLOYEES
Item 8. Financial Statements and Supplementary Data
The information required by Item 8 is incorporated herein by reference to the
Financial Statements, Notes thereto and Auditors' Report which appear in the
registrant's 1996 Annual Report to Shareholders. See Item 14(a)(1) for an index
of the related financial statements and schedules.
Item 9. Disagreements with Accountants on Accounting and Financial Disclosures
None.
PART III.
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 10 concerning the executive officers of the
Company is submitted in a separate section of Part I of this Report.
The information required by Item 10 concerning the directors of the Company is
incorporated herein by reference to the Company's proxy statement for its 1997
Annual Meeting of Shareholders which will be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the close
of the fiscal year for which this report is filed.
Item 11. Executive Compensation
The information required by Item 11 is incorporated herein by reference to the
Company's proxy statement for its 1997 Annual Meeting of Shareholders which will
be filed with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days after the close of the fiscal year for which this report is
filed.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is incorporated by reference to the
Company's proxy statement for its 1997 Annual Meeting of Shareholders which will
be filed with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days after the close of the fiscal year for which this report is
filed.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated by reference to the
Company's proxy statement for its 1997 Annual Meeting of Shareholders which will
be filed with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days after the close of the fiscal year for which this report is
filed.
PART IV.
Item 14. Exhibits, Financial Statements, Schedule and Reports on Form 8-K
(a) Documents filed as part of this report.
(1) Financial Statements
<TABLE>
Pages
<S> <C>
Report of Independent Auditors............................................................................................*
Balance Sheets as of December 31, 1996 and 1995...........................................................................*
Statements of Operations for the years ended December 31, 1996, 1995, and 1994............................................*
Statement of Changes in Stockholders' Equity for the years ended December 31, 1996,
1995, and 1994.......................................................................................................*
Statements of Cash Flows for the years ended December 31, 1996, 1995, and 1994............................................*
Notes to Financial Statements.............................................................................................*
</TABLE>
* Incorporated by reference to the registrant's Annual Report to
Shareholders for the year ended December 31, 1996. See Exhibit 13.
(2) Financial Statement Schedule
<TABLE>
<CAPTION>
Pages in this
Form 10-K
<S> <C>
Schedule II: Valuation and Qualifying Accounts..........................................................................13
</TABLE>
All other schedules are omitted because they are not required or are not
applicable or the information is otherwise shown in the consolidated financial
statements or notes thereto.
(3) Exhibits. See "Exhibits Index" on page following signatures.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during 1996.
SCHEDULE II. Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
- -------------------------------------- ------------- ------------------------------- --------------- -----------
Additions
-------------------------------
(1) (2)
Charged
Balance at Charged to to Other Balance at
Beginning Costs and Accounts Deductions End of
Description of Period Expenses Describe Describe Period
- -------------------------------------- ------------- -------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful accounts $ 88,587 $ 70,000 $ -- $ 23,112 (1) $135,475
Provision for normal returns
and rebates 99,166 5,069 (2) 49,750 (3) 54,485
Provision for obsolete inventory 108,000 47,500 35,338 (4) 120,162
Year ended December 31, 1995
Allowance for doubtful accounts 68,418 80,500 -- 60,330 (1) 88,587
Provision for normal returns
and rebates 118,681 84,431 (2) 103,946 (3) 99,166
Provision for obsolete inventory 98,394 79,616 70,010 (4) 108,000
Year ended December 31, 1994
Allowance for doubtful accounts 81,107 40,000 -- 52,689 (1) 68,418
Provision for normal returns
and rebates 162,509 53,425 (2) 97,253 (3) 118,681
Provision for obsolete inventory 113,689 10,000 25,295 (4) 98,394
</TABLE>
- ---------------------------------------------
(1) Uncollectable accounts written off, net of recoveries.
(2) Charged against sales.
(3) Rebates paid to customer buying groups.
(4) Inventory scrapped and disposed of.
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
By: /s/ G. L. Hoffman
G. L. Hoffman
Chief Executive Officer
Dated: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
Power of Attorney
Each person whose signature appears below constitutes and appoints John R.
Whisnant his true and lawful attorney-in-fact and agent, acting alone, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments to this Annual
Report on Form 10-K and to file the same, with all exhibits thereto, and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person hereby ratifying and
confirming all said attorney-in-fact and agent, acting alone, or his substitute
or substitutes, may lawfully do or cause to be done by virtue thereof.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ G. L. Hoffman Chairman, President, Chief Executive Officer and March 26, 1997
G. L. Hoffman Secretary (principal executive officer)
/s/ John R. Whisnant Vice President of Finance and Chief Financial March 26, 1997
John R. Whisnant Officer (principal financial officer)
/s/ Erwin A. Kelen Director March 26, 1997
Erwin A. Kelen
/s/ Gordon F. Stofer Director March 26, 1997
Gordon F. Stofer
/s/ Frank D. Trestman Director March 26, 1997
Frank D. Trestman
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT INDEX TO FORM 10-K
For the year ended December 31, 1996
Commission File No: 0-19380
Exhibit Page Number or Incorporation
Number Description By Reference To
- ------------------- ------------------------------------------- --------------------------------------------------------
<S> <C> <C>
3.1 Articles of Incorporation of Registrant, Exhibit 3.1 of the Registrant's Registration Statement
as amended to date of Form S-18, Reg. No. 33-40765C
3.2 Bylaws, as amended to date Exhibit 3.2 of the Registrant's Registration Statement
of Form S-18, Reg. No. 33-40765C
4.1 Specimen Common Stock Certificate of Exhibit 4.1 of the Registrant's Registration Statement
Registrant of Form S-18, Reg. No. 33-40765C
10.1 License Agreement between Thomas and Exhibit 10.1 of the Registrant's Registration
Lawrence McGourty and the Company dated Statement of Form S-18, Reg. No. 33-40765C
January 23, 1990, as amended
10.2 Barcode License and Support Agreement Exhibit 10.2 of the Registrant's Registration
between Thomas and Lawrence McGourty and Statement of Form S-18, Reg. No. 33-40765C
the Company dated January 23, 1990
10.3 The Company's 1990 Stock Plan, as amended Exhibit 10.3 of the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1995
10.4 Sign Printer Sales Agreement between the Exhibit 10.4 of the Registrant's Registration
Company and Creative Machineries Statement of Form S-18, Reg. No. 33-40765C
International, Inc. dated January 29,
1990, as amended
10.6 Lease Agreement between R. L. Johnson Exhibit 10.6 of the Registrant's Annual Report on Form
Investment Company, Inc. and the Company, 10-K for the year ended
dated October 22, 1992 December 31, 1992
10.7 Common Stock Warrant dated September 28, Exhibit 10.7 of the Registrant's Registration
1990 issued to Erwin Kelen Statement of Form S-18, Reg. No. 33-40765C
10.8 Non competition and Consulting Agreement Exhibit 10.12 of the Registrant's Registration
between Varitronics and G. L. Hoffman Statement of Form S-18, Reg. No. 33-40765C
dated January 12, 1990
10.9 Employee Stock Purchase Plan Exhibit 10.14 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994
10.10 Loan and Security Agreement between FBS Exhibit 10.15 of the Registrant's Annual Report on
Business Finance Corporation and the Form 10-K for the year ended December 31, 1995
Company dated July 31, 1995
10.11 Loan Agreement between Riverside Bank and Exhibit 10.16 of the Registrant's Annual Report on
the Company dated October 9, 1995 Form 10-K for the year ended December 31, 1995
11 Computation of Net Loss 17
per Share
13 Registrant's Annual Report to 18
Shareholders for 1996
23 Consent of Ernst & Young LLP 40
25 Power of Attorney (See signature page of 14
this Form 10-K)
27 Financial Data Schedule 41
</TABLE>
EXHIBIT 11
INSIGNIA SYSTEMS, INC.
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------------
1996 1995 1994
------------------ ------------------ -----------------
<S> <C> <C> <C>
Primary:
Average shares outstanding 5,403,341 5,359,918 5,202,646
Net effect of dilutive stock
options--based on treasury
stock method using average
market price -- -- --
================== ================== ==================
TOTAL 5,403,741 5,359,918 5,202,646
================== ================== ==================
Net Loss $ (999,226) $(1,451,402) $ (908,677)
================== ================== ==================
Net Loss Per Share $(.18) $(.27) $ (.17)
================== ================== ==================
Fully Diluted:
Average shares outstanding 5,304,741 5,359,918 5,202,646
Net effect of dilutive stock
options--based on treasury stock method
using ending market price, if higher
than average market price -- -- --
------------------ ------------------ ------------------
TOTAL 5,403,741 5,359,918 5,202,646
================== ================== ==================
Net Loss $ (999,226) $(1,451,402) $ (908,677)
================== ================== ==================
Net Loss Per Share $(.18) $(.27) $ (.17)
================== ================== ==================
</TABLE>
ANNUAL REPORT '96
BUSINESS DESCRIPTION
Insignia Systems, Inc. (the "Company") is the leading marketer of printing
equipment, software and related print media products used by retailers to
produce their promotional and point-of-sale display materials in-store. Today,
Insignia has over 25,000 customers worldwide using SIGNright(TM), the Impulse(R)
Retail System or Stylus(R) Sign & Label Works software to easily create and
print professional point-of-sale signs, labels, posters and flyers. The
Company's mission is to help retailers compete more effectively by providing
easy-to-use systems and high quality print media supplies. The Company obtains
initial revenue from the sale of sign production equipment and software, and
recurring revenue from the sale of sign and label supplies and accessories used
with them.
The Company markets its sign systems, accessories and supplies in the United
States principally through an innovative telesales and direct marketing process.
The in-house telesales professionals are a developing strategic asset and are
supported by an integrated direct marketing program which includes direct mail,
advertising and attendance at numerous trade shows. The Company uses independent
distributors in the United Kingdom, Canada, Spain, Australia and over twenty
other foreign markets.
TABLE OF CONTENTS
Financial Highlights............................................. 2
Letter to Shareholders........................................... 3
Financial Review................................................. 4
Balance Sheets................................................... 8
Statements of Operations......................................... 9
Statement of Changes in Stockholders' Equity.................... 10
Statements of Cash Flows........................................ 11
Notes to Financial Statements................................... 12
Report of Independent Auditors.................................. 19
Stockholder Information......................................... 20
<TABLE>
<CAPTION>
Financial Highlights
(In thousands, except per share amounts)
For the Years Ended
December 31 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net sales $ 14,667 $ 15,547 $ 16,304 $ 14,249 $ 11,200
Operating income (loss) (999) (1,470) (947) 232 356
Net income (loss) (999) (1,451) (909) 366 517
Net income (loss) per share $ (.18) $ (.27) $ (.17) $ .07 $ .10
Weighted average shares and
share equivalents outstanding 5,404 5,360 5,203 5,254 5,321
Working capital $ 3,512 $ 4,351 $ 4,952 $ 6,094 $ 6,140
Total assets 6,426 6,832 8,107 8,094 7,997
Long-term debt and lease obligation 289 383 - 13 27
Total stockholders' equity 4,174 5,118 6,413 7,156 6,769
</TABLE>
TO OUR SHAREHOLDERS
In fiscal 1996, net sales were slightly lower than 1995 and we had a net loss of
approximately $1,000,000 or $.18 per share. On the surface our net sales history
over the last three years would indicate a very "flat" business. However, a
closer look would indicate that we have continued to build value within each one
of the Company's existing products.
Part of the flat sales resulted from the $2,000+ price point on our Impulse(R)
Retail System. Unfortunately, the Company could not lower its prices on the
Impulse Retail System because equipment costs were increasing as the yen
strengthened against the dollar. In 1995, the technology to develop a
replacement sign making machine at lower costs became available to the Company,
and by late 1996, the Company had developed and launched SIGNright(TM), with
packages starting as low as $995. The SIGNright system totally replaced the
Impulse Retail System. As is frequently the case, when a new product is
introduced which totally replaces the old product, there is a short term falloff
in sales volume until the transition is completed. We feel that this transition
has been completed and expect the placements of SIGNright systems to increase
during the remaining quarters.
During all of this time, the Company continues to sell more sign making
machines. Each machine generates about $300 in sales of Insignia's proprietary
and patented sign cards. We expect the revenue from the sale of sign cards to
increase each year. The Company expects to sell many more SIGNright systems
annually which will continue to drive additional sales of the proprietary sign
card. With a projected 30,000 machines in the field by 1998, the Company should
have annual revenues of $7-$9 million from its "razor blade" business. At 30,000
machines, Insignia would still own less than 5% of the domestic market.
The Company's Stylus(R) Sign & Label Works net sales tripled between 1995 and
1996 and the national roll-out of the Stylus product has been very successful.
Stylus installations at chain retail customers include Toys `R' Us(R), Computer
City(R), Sportmart(R), Dillard's(R), Kroger(R) and many others. In addition, the
Company is beginning to obtain sign and label business from many of the Stylus
customers.
As a result of the development of our Stylus software, the Company believes it
is in the best position to apply this technology and its merchandising expertise
to the increased need on behalf of major consumer product manufacturers to
increase their in-store marketing efforts. By leveraging the Company's knowledge
and experience with the power of its software, the Company has created a new
opportunity for retailers and manufacturers, called Insignia POPS. Insignia POPS
`software services will be offered to brand manufacturers who can use the
Company's signage and database systems to deliver their own merchandising
messages directly to the retailer's sign. This program will be funded out of the
manufacturers' direct-to-consumer promotional budget. The Insignia POPS program
has successfully completed an in-market test with Kroger, General Mills(R),
Oscar Mayer(R) and ConAgra(R). The test was arranged and analyzed by Ernst &
Young LLP, and showed positive results for both brandedmanufacturers and
retailers. Based upon these tests, the Company initiated the development of the
Insignia POPS program. The Company expects the Insignia POPS program to become a
preferred signage choice by both branded product manufacturers and retailers and
to have national presence as quickly as possible, perhaps as early as the first
quarter of 1998.
We are confident that the "value building" within the Company that we have
accomplished over the last few years will result in a very successful 1997.
Thank you for your support.
/s/ G.L. Hoffman
G.L. Hoffman
Chairman, President and Chief Executive Officer
FINANCIAL REVIEW
The Company was incorporated in January 1990 and from September 1990 until
November 1996 sold its Impulse(R) Retail System. In November 1996, the Company
replaced the Impulse Retail System with the SIGNright(TM) system, which performs
essentially the same functions. The SIGNright system is being sold primarily by
in-house telemarketers and independent sales representatives in the United
States and through foreign distributors. During 1993 the Company began selling
Stylus(R), a PC-based sign and label software system.
The following table sets forth, for the periods indicated, certain items in the
Company's statements of operations as a percentage of net sales.
Year Ended December 31 1996 1995 1994
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 48.2 47.2 42.1
Gross Profit 51.8 52.8 57.9
Operating Expenses:
Sales and Marketing 42.5 45.1 47.1
General and Administrative 3.3 3.1 2.9
Product Development 12.8 14.0 13.7
Total Operating Expenses 58.6 62.2 63.7
Operating Loss (6.8) (9.4) (5.8)
Other Income - 0.1 0.3
Net Loss (6.8)% (9.3)% (5.5)%
RESULTS OF OPERATIONS:
NET SALES. Net sales for the year ended December 31, 1996 decreased 6% to
$14,667,000 compared to sales of $15,547,000 in 1995. Net sales for 1995
decreased 5% compared to sales of $16,304,000 in 1994.
The decrease in sales in 1996 resulted primarily from a flat demand for the
Impulse due to winding down of the sales of the Impulse machine and a steady,
but slowly increasing demand for SIGNright during the introductory period. The
decrease in sales in 1995 resulted from a reduction in the Company's sales and
marketing personnel along with a flat demand for the Impulse.
GROSS PROFIT. The Company's gross profit decreased 7% in 1996 to $7,604,000 as
compared to 1995. The gross profit decreased 13% in 1995 as compared to 1994.
Gross profit as a percentage of net sales decreased to 51.8% for 1996 compared
to 52.8% for 1995 and 57.9% in 1994. The decrease in 1995 and 1996 was due to a
higher proportion of sales of lower margin products and the overall decrease in
net sales. The Company's foreign sales were 16% in 1995 and 1996 compared to 12%
in 1994. The Company expects that sales to foreign distributors will be
approximately 20% in 1997.
FINANCIAL REVIEW
OPERATING EXPENSES. Operating expenses decreased 11% in 1996 and 7% in 1995. The
Company initiated a downsizing and expense reduction effort during the third
quarter of 1995 which continued to reduce the overall operating expense levels
during 1996. Sales expenses decreased 8% in 1995 and 8% in 1996, which reflected
lower commissions due to decreased sales. Marketing expenses decreased 10% in
1995 and 19% in 1996, due to the expense reduction effort. General and
administrative expenses decreased 2% in 1995 and 14% in 1996. The decrease in
general and administrative expenses was primarily due to the downsizing and
expense reduction initiated in the third quarter of 1995. Product development
expenses increased 5% in 1996 and 1% in 1995 as the Company continued to reduce
its development activities. The Company expects that its operating expenses will
remain flat as the Company continues to closely monitor its operating expenses.
Operating expenses as a percentage of net sales were 59% in 1996 compared to 62%
in 1995 and 64% in 1994. The decrease as a percentage of net sales in 1996 was
due primarily to the continued expense reduction effort. The Company expects its
operating expenses as a percentage of net sales to further decrease as sales
increase faster than expenses and the Company is able to leverage its fixed
expenses. The Company expects its net sales to increase at a faster rate than
operating expenses as the Company's telemarketing personnel continue to sell
machines to new customers and the demand for sign card from current customers
continues to increase as more machines are sold.
NET LOSS. The Company had a net loss of $999,000 in 1996 compared to a net loss
of $1,451,000 in 1995 and a net loss of $909,000 in 1994. The loss in 1996 was
due to a decrease in margins due to a high proportion of sales of lower margin
products and decreased net sales.
LIQUIDITY AND CAPITAL RESOURCES:
The Company has financed its operations with proceeds from public and private
equity placements and funds from operations. At December 31, 1996, working
capital was $3,512,000 compared to $4,351,000 at December 31, 1995. Cash, cash
equivalents and marketable securities decreased $489,000 to $598,000 at December
31, 1996.
Net cash decreased $783,000 due to operating activities, primarily due to the
net loss, the decrease in accounts payable and the increase in accounts
receivable. Accounts payable decreased $102,000 during 1996 primarily due to the
difference in the purchasing schedule for the SIGNright systems. Accounts
receivable increased $479,000 during 1996 due to some very large Stylus sales
during the later part of 1996. The Company expects accounts receivable to remain
relatively flat during 1997. The Company expects inventory levels to grow as
sales volume increases.
Net cash of $12,000 was provided by investing activities. The net cash increase
was due to the maturity of marketable securities in the amount of $1,469,000
offset by the purchase of marketable securities in the amount of $1,114,000 and
the purchase of property and equipment of $342,000.
Net cash of $635,000 was provided by financial activities, primarily due to
proceeds from the line of credit of $673,000 and proceeds from the issuance of
common stock of $47,000 offset by principal payments on long-term debt of
$84,000.
The Company anticipates that its working capital needs will continue to increase
due to the expected growth in the business. In January 1997, the Company
received an additional $2,900,000 of proceeds from the sale of common stock. The
Company believes that, with the proceeds from this additional equity placement,
it will have sufficient capital resources to fund its current business
operations and anticipated growth for the foreseeable future.
FORWARD LOOKING STATEMENTS:
Certain statements contained herein and in the
following section and like statements elsewhere in this report are forward
looking statements. Actual results could differ materially from those
anticipated as a result of various factors. Set forth below are the principal
factors and risks considered most likely to cause actual results to differ
materially from
management's expectations.
Significant risk factors, while not all inclusive, are:
1. IMPACT OF COSTS OF CONVERTING U.S. DOLLARS TO JAPANESE YEN.
The SIGNright is purchased by the Company from a Japanese manufacturer and the
purchase price is stated in yen. Currency exchange rates could therefore affect
the cost of the SIGNright system to the Company.
2. COST OF THE RAW MATERIAL.
The Company's printing gross margin percentage is a sensitive function of the
cost of the raw paper materials.
3. RESULTS OF INSIGNIA POPS PROGRAM.
It will be necessary to achieve results from the Insignia POPS program that are
comparable to the initial Insingia POPS test program in order to achieve
revenues for the Insingia POPS program at the rate anticipated by the Company.
4. BUSINESS CONDITIONS OF THE GENERAL ECONOMY.
5. INSTALLATION OF SOFTWARE AND AVAILABILITY OF HARDWARE.
The Company's ability to contract with the planned number of retailers will
depend on a number of factors, including timely installation of software,
locating retailers with adequate hardware, and conducting the necessary
training.
6. RELIANCE ON LICENSED PROPRIETARY RIGHTS.
All patents on or other proprietary rights to the Impulse and SIGNright systems,
and the associated bar-codes on the sign cards, are held by a third-party
developer (the "Developer"), which is independent of the Company. The Company
has a non-exclusive license to market and sell (but not manufacture) the Impulse
and SIGNright systems. A patent covering certain aspects of the Impulse system
has been obtained in the Developer's name by the Company and a patent
application covering certain aspects of the SIGNright product has been applied
for in the Developer's name by the Company. There is no assurance that any such
patents would offer the Company a meaningful competitive advantage, since
competitors might employ non-infringing technology, and such patents may be
subject to challenge by third parties. Any disruption in the Company's
relationship with the Developer or termination of the Company's license with the
Developer could have a serious adverse effect on the Company.
7. SINGLE SOURCE SUPPLIER OF SIGNright MACHINES.
The Company does not have, and has no plans to develop, any in-house
manufacturing capability. The Company obtains the SIGNright machine from a
Japanese supplier (the "Supplier") which was designated by the Developer. Any
significant disruption in the Company's relationship with the Supplier, or
failure by the Supplier to make timely deliveries of quality product, could have
a serious adverse effect on the Company.
8. SIGN CARD REVENUE.
The Company derives a significant portion of its revenue from the sale of the
bar-coded sign cards required by the Impulse and SIGNright systems. If a
substantial number of customers discontinue the use of the sign card there could
be a serious adverse effect on the Company's revenue.
9. COMPETITION.
The Company's SIGNright product faces competition from numerous sources,
including handmade signs, large computer systems using customized software, and
personal computers with sign-making software and laser printers. For the Stylus
product, the Company's two major competitors are dSIGN, Inc. (a privately-held
company based in Seattle, WA) and Electronic Label Technology, Inc. (a
privately-held company based in Oklahoma City, OK). Insignia POPS will be
competing for the marketing expenditures of branded product manufacturers, who
use various forms of point-of-purchase marketing methods, such as displays,
coupons, in-store samples, etc. There is no assurance that Insignia POPS will
compete successfully with these traditional marketing methods.
10. DEPENDENCE ON KEY EMPLOYEES.
The Company is highly dependent upon the services of its present officers, and
the loss of any of them could have a material adverse effect on the Company.
None of the Company's officers are bound by employment or non-competition
agreements with the Company. The success of the Company will also depend on its
ability to attract and retain capable sales and marketing personnel.
<TABLE>
<CAPTION>
BALANCE SHEETS
As of December 31 1996 1995
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 448,668 $ 583,613
Marketable securities 149,427 503,906
Accounts receivable - net of $135,000 allowance in 1996
and $89,000 in 1995 2,644,851 2,235,374
Inventories 2,015,963 2,027,566
Prepaid expenses 215,562 331,618
Total Current Assets 5,474,471 5,682,077
PROPERTY AND EQUIPMENT:
Production tooling, machinery and equipment 1,862,311 2,107,719
Office furniture and fixtures 364,119 363,075
Computer equipment 780,675 710,573
Leasehold improvements 312,420 312,420
3,319,525 3,493,787
Accumulated depreciation and amortization (2,368,221) (2,344,271)
Total Property and Equipment 951,304 1,149,516
TOTAL ASSETS $ 6,425,775 $ 6,831,593
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 682,161 $ 784,051
Accrued compensation and benefits 229,019 222,702
Accrued expenses 93,534 114,562
Other 191,077 125,373
Line of credit 673,281 -
Current portion of long-term debt 93,391 84,497
Total Current Liabilities 1,962,463 1,331,185
LONG-TERM DEBT 289,326 382,717
COMMITMENTS (SEE NOTES 4 & 8)
STOCKHOLDERS' EQUITY:
Common stock, par value $.01:
Authorized shares - 20,000,000
Issued and outstanding shares -
5,403,858 in 1996 and
5,361,006 in 1995 54,039 53,610
Additional paid-in capital 10,102,397 10,056,117
Unearned compensation (7,313) (16,125)
Accumulated deficit (5,975,137) (4,975,911)
Total Stockholders' Equity 4,173,986 5,117,691
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,425,775 $ 6,831,593
</TABLE>
SEE ACCOMPANYING NOTES
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
Year Ended December 31 1996 1995 1994
<S> <C> <C> <C>
NET SALES $ 14,667,382 $ 15,546,723 $ 16,303,543
Cost of Sales 7,063,836 7,339,659 6,863,681
Gross Profit 7,603,546 8,207,064 9,439,862
OPERATING EXPENSES:
Sales 4,381,247 4,738,794 5,146,208
Marketing 1,845,730 2,280,458 2,537,884
Product development 498,160 476,549 473,477
General and administrative 1,877,411 2,181,165 2,229,395
Total Operating Expenses 8,602,548 9,676,966 10,386,964
Operating Loss (999,002) (1,469,902) (947,102)
OTHER INCOME (EXPENSE):
Interest income 46,751 62,551 104,597
Interest expense (64,911) (23,828) (2,799)
Other income (expense) 17,936 (20,223) (63,373)
NET LOSS $ (999,226) $ (1,451,402) $ (908,677)
Net loss per share $ (.18) $ (.27) $ (.17)
Weighted average shares and
share equivalents outstanding 5,403,741 5,359,918 5,202,646
</TABLE>
SEE ACCOMPANYING NOTES
8
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Additional
Common Stock Paid-In Unearned Accumulated
Shares Amount Capital Compensation Deficit Total
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JAN. 1, 1994 5,058,510 $ 50,585 $ 9,777,142 $ (56,250) $(2,615,832) $ 7,155,645
Exercise of stock options 108,647 1,086 50,914 - - 52,000
Employee stock purchase plan 49,279 493 93,630 - - 94,123
Amortization of stock grant - - - 20,062 - 20,062
Net loss - - - - (908,677) (908,677)
BALANCE AT DEC. 31, 1994 5,216,436 52,164 9,921,686 (36,188) (3,524,509) 6,413,153
Exercise of stock options 54,077 541 29,459 - - 30,000
Employee stock purchase plan 90,493 905 104,972 - - 105,877
Amortization of stock grant - - - 20,063 - 20,063
Net loss - - - - (1,451,402) (1,451,402)
BALANCE AT DEC. 31, 1995 5,361,006 53,610 10,056,117 (16,125) (4,975,911) 5,117,691
Employee stock purchase plan 42,852 429 46,280 - - 46,709
Amortization of stock grant - - - 8,812 - 8,812
Net loss - - - - (999,226) (999,226)
BALANCE AT DEC. 31, 1996 5,403,858 $ 54,039 $10,102,397 $ (7,313) $(5,975,137) $ 4,173,986
</TABLE>
SEE ACCOMPANYING NOTES
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Year Ended December 31 1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (999,226) $(1,451,402) $ (908,677)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 540,192 647,667 584,720
Provision for bad debt expense 70,000 80,500 40,000
Provision for obsolete inventory 47,500 79,616 10,000
Amortization of unearned compensation 8,812 20,063 20,062
Changes in operating assets and liabilities:
Accounts receivable (479,477) 5,784 (345,409)
Inventories (35,897) (181,208) (532,298)
Prepaid expenses 116,056 102,014 (82,938)
Accounts payable (101,890) (347,182) 718,070
Accrued compensation and benefits 6,317 (79,358) 106,051
Accrued expenses and other 44,676 (21,001) (41,044)
Net Cash Used in Operating Activities (782,937) (1,144,507) (431,463)
INVESTING ACTIVITIES:
Purchases of property and equipment (341,980) (335,595) (971,756)
Purchase of marketable securities (1,114,271) (510,154) (72,266)
Maturity/sale of marketable securities 1,468,750 1,036,923 1,563,118
Net Cash Provided By Investing Activities 12,499 191,174 519,096
FINANCING ACTIVITIES:
Net change in line of credit 673,281 - -
Proceeds from issuance of long-term debt - 500,000 -
Proceeds from issuance of Common Stock 46,709 135,877 146,123
Payments on capital lease obligations - - (26,815)
Principal payments on long-term debt (84,497) (32,786) -
Net Cash Provided by Financing Activities 635,493 603,091 119,308
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (134,945) (350,242) 206,941
Cash and Cash Equivalents at Beginning of Year 583,613 933,855 726,914
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 448,668 $ 583,613 $ 933,855
SEE ACCOMPANYING NOTES
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS. Insignia Systems, Inc. (the "Company") develops and
markets signage and related products to retail markets. Its current product, the
SIGNright(TM) system, is an easy-to-use, affordable sign making system. The
system produces high quality signs on sign cards provided by the Company. The
product is being sold primarily by telephone sales representatives and
independent sales representatives. The Company also sells through foreign
distributors. The Company's second major product, tradenamed Stylus(R), is a
PC-based sign and label software system. It is sold through direct sales as well
as by telephone sales representatives.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
CASH EQUIVALENTS. The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
REVENUE RECOGNITION. The Company recognizes revenue at the time the products are
shipped to customers.
MARKETABLE SECURITIES. Marketable securities are composed of debt securities and
are classified as available-for-sale. Available-for-sale securities are carried
at fair value, with the unrealized gains and losses, net of tax, reported as a
separate component of stockholders' equity. Realized gains and losses and
declines in value judged to be other than temporary on available-for-sale
securities are included in other income.
INVENTORIES. Inventories are primarily comprised of Impulse(R) machines,
SIGNright machines, sign cards, and accessories. Inventory is valued at lower of
cost or market using the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT. Property and equipment is recorded at cost. Depreciation
and amortization is provided on a straight line basis over three to five years.
Leasehold improvements are amortized over the shorter of the term of the lease
or life of the asset.
PRODUCTION TOOLING COSTS. Expenditures relating to the purchase and installation
of production tooling are capitalized and amortized on a purchased units basis.
INCOME TAXES. Income taxes are accounted for under the liability method.
Deferred income taxes are provided for temporary differences between financial
reporting and tax bases of assets and liabilities.
STOCK-BASED COMPENSATION. The Company has adopted the disclosure-only provisions
of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," but applies Accounting Principles Board Opinion No.
25 (APB 25) and related interpretations in accounting for its plans. Under
APB25, when the exercise price of employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
IMPAIRMENT OF LONG-LIVED ASSETS. The Company will record impairment losses on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount.
USE OF ESTIMATES. The preparation of financial statements in conformity with
general accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
NET LOSS PER SHARE. Net loss per share is computed by dividing the net loss by
the weighted average number of shares of Common Stock and Common Stock
equivalents outstanding during the period.
ADVERTISING COSTS. Advertising costs are charged to operations as incurred.
Advertising expenses were approximately $768,786, $989,520 and $864,128 in 1996,
1995 and 1994, respectively.
RESEARCH AND DEVELOPMENT. Research and development expenditures are charges to
operations as incurred. Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed, requires capitalization of certain software development costs
subsequent to the establishment of technological feasibility.
Based on the Company's product development process, technological feasibility is
established upon completion of a working model. Costs incurred by the Company
between completion of the working model and the point at which the product is
ready for general release have been insignificant. All research and development
costs have been expensed.
3. MARKETABLE SECURITIES. Marketable securities consist of U.S. Treasury Debt
Securities which mature in October, 1997. Approximately $140,000 of these notes
are pledged as collateral for the loan agreement (see Note 7). Investments are
classified as available-for-sale and are stated at amortized cost which
approximates fair market value. During 1994, realized losses on sales of
investments totalled $84,000.
4. COMMITMENTS.
PRODUCT DESIGN AGREEMENTS. The Company entered into an exclusive agreement with
the developer of the Impulse machine whereby in exchange for all rights to
market the product, the Company would pay royalties of $21 per machine purchased
by the Company and was to make all reasonable efforts to purchase 20,000 units
by December 31, 1994. Since the Company did not purchase the required number of
units by December 31, 1994, the Company no longer has a guarantee of
exclusivity. However, the developer does not intend to grant similar rights to
another company. The Company could regain the guarantee of exclusive rights by
prepaying royalties on any remaining units. The Company has ceased selling the
Impulse machine as of December 31, 1996.
The Company has an exclusive licensing agreement for a bar-code used with the
Impulse Retail System and SIGNright system. The Company has agreed to pay
royalties totaling 1% of net sales on all paper and supplies using the bar-code
technology.
The Company has the rights to use and distribute certain fontware technology
developed for its Impulse Retail System. The agreement required a one time
payment of $25,000 for source code rights and $1,500 for each fontware outline
licensed. In addition, the Company has agreed to pay royalties of $3.75 per
fontware outline sold.
HARDWARE PURCHASE AGREEMENT. The Company has a purchase agreement with a
Japanese company that holds the rights to supply its SIGNright machine. In
addition, before beginning production, the Company paid for tooling, equipment
and development expenditures of approximately $248,000. The purchase price for
the SIGNright machine is payable in Japanese yen and therefore the dollar value
of such payments may fluctuate with exchange rates.
5. INCOME TAXES. At December 31, 1996, the Company had net operating loss
carryforwards of approximately $5,200,000 which are available to offset future
taxable income through 2011. These carryforwards are subject to the limitations
of Internal Revenue Code Section 382. This section provides limitations on the
availability of net operating losses to offset current taxable income if
significant ownership changes have occurred for federal tax purposes.
Significant components of the deferred tax assets are as follows:
As of December 31 1996 1995
DEFERRED TAX ASSETS:
Net operating loss carryforwards $ 1,919,100 $ 1,655,300
Depreciation and amortization 119,200 49,700
Accounts receivable allowance 50,100 32,800
Allowance for machine returns 15,900 27,400
Inventory reserve 44,500 39,900
Other 51,500 39,700
Total deferred tax asset 2,200,300 1,844,800
Valuation allowance (2,200,300) (1,844,800)
Net deferred tax assets $ - $ -
6. STOCK OPTIONS, WARRANTS AND AWARDS.
STOCK OPTION PLAN. The Company has a stock option plan for its employees and
directors. Under the terms of the plan, the Company grants incentive stock
options to employees at an exercise price at or above 100% of fair market value
on the date of grant. The plan also allows the Company to grant non-qualified
options at an exercise price of less than 100% of fair market value at the date
of grant. The stock options expire five years after the date of grant and
typically vest in one-third increments on the first, second and third
anniversaries of the grant date.
The following table summarizes activity under the plan:
<TABLE>
<CAPTION>
Plan Plan Weighted
Shares Options Average Exercise
Available For Grant Outstanding Price Per Share
<S> <C> <C> <C>
Balance at December 31, 1993 11,267 433,400 $ 1.73
Shares reserved 100,000 -
Granted (64,900) 64,900 2.59
Cancelled 9,753 (9,753) 2.26
Exercised - (108,647) 0.51
Balance at December 31, 1994 56,120 379,900 2.10
Granted (126,500) 126,500 1.42
Cancelled 117,223 (117,223) 1.99
Exercised - (54,077) 0.53
Balance at December 31, 1995 46,843 335,100 2.16
Shares reserved 300,000 - -
Granted (223,400) 223,400 1.92
Cancelled 99,300 (99,300) 2.25
Exercised - - -
Balance at December 31, 1996 222,743 459,200 $ 1.79
The number of options exercisable under the plan were:
December 31, 1994 288,313
December 31, 1995 218,805
December 31, 1996 267,262
</TABLE>
The following table summarizes information about the stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Range Of Average Average Number Average
Exercise Number Remaining Exercise Price Exercisable at Exercise Price
Prices Outstanding Contractual Life Per Share Dec. 31, 1996 Per Share
<S> <C> <C> <C> <C> <C>
$ 1.00 - $ 1.5 346,300 4 Years $ 1.40 157,030 $ 1.41
1.56 - 2.2 1,400 3 Years 1.73 528 1.77
2.31 - 3.38 93,500 2 Years 2.78 91,704 2.77
3.88 - 4.13 18,000 1 Year 4.08 18,000 4.08
$ 1.00 - $ 4.13 459,200 2.5 Years $ 1.79 267,262 $ 2.06
Options outstanding under the plan expire at various dates during the period May
1997 through November 2000.
</TABLE>
The Company follows Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB 25) and related interpretations in accounting for
its employee stock options because, as discussed below, the alternative fair
value accounting provided for under FASB Statement No. 123, Accounting for
Stock-Based Compensation ("Statement 123"), requires use of option valuation
models that were not developed for use valuing employee stock options.
Pro forma information regarding net loss and loss per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of Statement 123. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 1995 and 1996: risk-free interest rate of 6.0%; volatility
factor of the expected market price of the Company's common stock of .532, and a
weighted-average life of the option of three years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:
1996 1995
Pro forma net loss $ (1,111,522) $ (1,482,027)
Pro forma net loss
per common share $ (.21) $ (.28)
The pro forma effect on the net loss for 1995 and 1996 is not representative of
the pro forma effect on net loss in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995.
WARRANTS. During 1995 and 1994, the Company issued five year warrants to outside
consultants to purchase 1,000 shares of Common Stock at $1.50 per share. Prior
to 1994, the Company issued five year warrants to a consultant to purchase a
total of 17,500 shares of Common Stock exercisable at various prices between
$2.56 per share and $4.00 per share. The warrants expire on various dates from
July 1997 to August 1998.
In connection with the initial public offering of Common Stock in 1991, the
Company issued a five year warrant to the underwriter for the purchase of
140,000 shares of Common Stock at $4.35 per share. This warrant expired in 1996.
During 1990, two non-employee board members provided strategic planning,
financial and general advisory assistance to the Company. In exchange for their
services, the Company granted to each individual a warrant to purchase 75,000
shares of Common Stock at $2.00 per share for a five year period. During 1994,
these warrants were extended to September 9, 1999.
In 1990, the Company granted a warrant valued at $1,000 for the purchase of
2,500 shares of Common Stock at $2.00 per share to an equipment leasing company
in exchange for lower interest payments on a lease. This warrant expired in
1995.
STOCK AWARD. In December 1993, the Company granted 25,000 shares of restricted
stock at no cost to an officer of the Company. The restriction on the shares is
removed as the individual completes employment periods with the Company through
various dates from 1995 through 1998.
7. LONG-TERM DEBT. The Company entered into a long-term loan agreement with a
finance corporation during 1995. The Company borrowed $500,000 and pledged
certain printing press assets and U. S. Treasury Debt Securities as collateral.
The Company also entered into a $1 million line of credit agreement with a bank
against which $673,000 was outstanding at December 31, 1996. Interest on the
outstanding balance is computed at the bank's prime rate plus 1.25% and was 9.5%
at December 31, 1996. The line of credit agreement expires on April 9, 1997. The
Company pledged as security all inventory, accounts receivable, equipment and
general intangibles. In addition, the bank issued a letter of credit in the
amount of $196,000 on behalf of the Company to a Japanese company to secure the
production and manufacture of several signmaking machines. This letter of credit
is secured by the line of credit. The carrying amount of the Company's debt
instruments approximates fair value.
Long-term debt as of December 31, 1996 is as follows:
Obligations under long-term debt $ 382,717
Less current portion 93,391
$ 289,326
Maturities of long-term debt as of December 31, 1996 are as follows:
1997 $ 93,391
1998 103,221
1999 114,087
2000 72,018
$ 382,717
Cash paid during the year for interest was $51,285, $20,393 and $2,799 in 1996,
1995, and 1994, respectively.
8. LEASES. The Company leases its office space under a five year operating
lease. The future noncancelable lease payments due on the operating lease as of
December 31, 1996 is $491,000. The Company incurred approximately $429,000,
$412,000 and $389,000 in rent expense in 1996, 1995, and 1994, respectively.
9. CUSTOMER SALES. No single customer represented a significant portion of total
sales. Export sales accounted for 16%, 16%, and 12% of total sales in 1996,
1995, and 1994, respectively.
10. EMPLOYEE BENEFIT PLANS. The Company has a Retirement Profit Sharing and
Savings Plan under Section 401(k) of the Internal Revenue Code. The plan allows
employees to defer up to 10% of their income on a pre-tax basis through
contributions to the plan. The Company may make matching contributions with
respect to salary deferral at a percentage to be determined by the Company each
year. In 1996, 1995, and 1994, the Company made no matching contributions.
The Company adopted an Employee Stock Purchase Plan effective January 1, 1993.
The plan enables employees to contribute up to 10% of their compensation toward
the purchase of the Company's Common Stock at 85% of market value. In 1996,
1995, and 1994, 42,852, 90,493 and 49,279 shares, respectively, were purchased
by employees under the plan. At December 31, 1996, 222,743 shares are reserved
for future employee purchases of Common Stock under the plan.
11. SOURCES OF SUPPLY. The Company currently buys its components of its products
from sole suppliers. Although there are a limited number of manufacturers
capable of manufacturing its products, management believes that other
manufacturers could adapt to provide the products on comparable terms. The time
required to locate and qualify other manufacturers, however, could cause a delay
in manufacturing that may be financially disruptive to the Company.
12. SUBSEQUENT EVENT. On January 17, 1997, the Company issued 1,376,000 units
consisting of 1,376,000 shares of its Common Stock and warrants to purchase an
additional 688,000 shares of Common Stock. The Company received net proceeds of
approximately $2,900,000, which is available for general corporate purposes. The
warrants are exercisable at $2.125 per share and expire in January 2000.
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Insignia Systems, Inc.
We have audited the accompanying balance sheets of Insignia Systems, Inc. as of
December 31, 1996 and 1995, and the related statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Insignia Systems, Inc. at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
January 24, 1997
OFFICERS
G. L. HOFFMAN
Chairman, Secretary, President and
Chief Executive Officer
PAUL A. MOQUIST
Executive Vice President, Sales and Operations
JOHN R. WHISNANT
Vice President, Finance
BOARD OF DIRECTORS
G. L. HOFFMAN
Chairman, Secretary, President and
Chief Executive Officer
Insignia Systems, Inc.
ERWIN A. KELEN (1, 2)
President
Kelen Ventures
GORDON F. STOFER (1, 2)
Managing General Partner
Cherry Tree Ventures
FRANK D. TRESTMAN (1, 2)
President
Trestman Enterprises
(1) Audit Committee
(2) Compensation Committee
STOCKHOLDER INFORMATION
CORPORATE OFFICE: Insignia Systems, Inc.
10801 Red Circle Drive, Minnetonka, MN 55343
Phone: (612) 930-8200; (800) 874-4648
Fax: (612) 930-8222; (800) 347-9216
ANNUAL MEETING: Thursday, May 8, 1997, 3:30 p.m.
Holiday Inn Express
10985 Red Circle Drive
Minnetonka, MN 55343
TRANSFER AGENT AND REGISTRAR:
Norwest Bank Minnesota, N.A.
P.O. Box 64854, St. Paul, MN 55164-0854
(612) 450-4064; (800) 468-9716
LEGAL COUNSEL: Lindquist & Vennum
4200 IDS Center, Minneapolis, MN 55402
INDEPENDENT AUDITORS: Ernst & Young LLP
1400 Pillsbury Center, Minneapolis, MN 55402
INVESTOR INQUIRIES: Inquiries should be directed to:
Vice President of Finance, Insignia Systems, Inc.
10801 Red Circle Drive, Minnetonka, MN 55343
FORM 10-K: Shareholders who wish to obtain a copy of the Company's annual report
on Form 10-K, filed with the Securities and Exchange Commission for the year
ended December 31, 1996, may do so without charge by writing to the Company.
STOCK LISTING: The Company's common stock trades on The Nasdaq Small-Cap Market
System under the symbol ISIG. The following table sets forth the range of high
and low bid prices reported on the Nasdaq System. These quotations represent
prices between dealers and do not reflect retail mark-ups, mark-downs or
commissions.
1996 High Low
First Quarter 1 5/8 1 3/8
Second Quarter 1 3/4 1 5/16
Third Quarter 2 7/16 1 5/16
Fourth Quarter 2 3/16 1 3/4
1995 High Low
First Quarter 1 3/4 1 1/4
Second Quarter 1 3/4 1 1/4
Third Quarter 2 1 1/4
Fourth Quarter 1 5/8 15/16
As of February 28, 1997, the Company had 186 shareholders of record and
approximately 1,000 beneficial owners.
Dividend Policy: The Company has never paid cash dividends on its common stock.
The Board of Directors presently intends to retain all earnings for use in the
Company's business and does not anticipate paying cash dividends in the
foreseeable future.
(Back Cover of the Annual Report)
[LOGO] INSIGNIA(R) SYSTEMS, INC.
10801 Red Circle Drive, Minnetonka, MN 55343
Phone: (612) 930-8200 Fax: (612) 930-8222
E-mail: [email protected] Web: http://www.insignia-sys.com
(C) 1997 Insignia Systems, Inc. All rights reserved. Insignia, Impulse,
SIGNright and Stylus are registered trademarks of Insignia Systems, Inc.
All other brand names are trademarks of their respective owners. #2160
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Insignia Systems, Inc. of our report dated January 24, 1997, included in the
1996 Annual Report to Stockholders of Insignia Systems, Inc.
Our audits also included the financial statement schedule of Insignia Systems,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-47003 and Form S-8 No. 33-92376) pertaining to the 1990 Stock
Plan and in the Registration Statements (Form S-8 No. 33-75372 and Form S-8 No.
33-92374) pertaining to the Employee Stock Purchase Plan of Insignia Systems,
Inc. of our report dated January 24, 1997, with respect to the financial
statements incorporate herein by reference and our report included in the
preceding paragraph with respect to the financial statement schedule included in
this Annual Report (Form 10-K) of Insignia Systems, Inc.
/s/Ernst & Young LLP
Minneapolis, Minnesota
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 448,668
<SECURITIES> 149,427
<RECEIVABLES> 2,779,851
<ALLOWANCES> (135,000)
<INVENTORY> 2,015,963
<CURRENT-ASSETS> 5,474,471
<PP&E> 3,319,525
<DEPRECIATION> (2,368,221)
<TOTAL-ASSETS> 6,425,775
<CURRENT-LIABILITIES> 1,962,463
<BONDS> 0
0
0
<COMMON> 10,156,436
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,425,775
<SALES> 14,667,382
<TOTAL-REVENUES> 14,667,382
<CGS> 7,063,836
<TOTAL-COSTS> 8,602,548
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,911
<INCOME-PRETAX> (999,226)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (999,226)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
