UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the period ended: September 30, 1997
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Commission File Number: 0-19380
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INSIGNIA SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1656308
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10801 Red Circle Drive, Minnetonka, Minnesota 55343
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(Address of principal executive offices) (Zip Code)
(612) 930-8200
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(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registration (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 periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
__X__ Yes _____ No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common Stock, $.01 Par Value -- 6,860,080 shares as of October 30, 1997.
Total number of pages: 12
Exhibit index is on page: 11
<PAGE>
INDEX
REGISTRANT COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
- ------------------------------------
Item 1. Financial Statements (Unaudited)
Balance Sheets -- September 30, 1997 and December 31, 1996
Statements of Operations -- Three months ended September 30, 1997
and 1996; Nine months ended September 30, 1997 and 1996.
Statements of Cash Flows -- Nine months ended September 30, 1997
and 1996
Notes to Financial Statements -- September 30, 1997
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
PART II. OTHER INFORMATION
- --------------------------------
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
INSIGNIA SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
- ------------------------------------------------------ ------------- -----------
(UNAUDITED) (NOTE)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ (155,703) $ 448,668
Marketable securities 1,071,023 149,427
Accounts receivable - net of $174,057 allowance 3,523,531 2,644,851
Inventories 1,781,286 2,015,963
Prepaid expenses 657,761 215,562
----------- -----------
TOTAL CURRENT ASSETS 6,877,898 5,474,471
PROPERTY AND EQUIPMENT:
Production tooling, machinery and equipment 1,891,519 1,862,311
Office furniture and fixtures 361,350 364,119
Computer equipment 938,151 780,675
Leasehold improvements 312,420 312,420
----------- -----------
3,503,440 3,319,525
Accumulated depreciation and amortization (2,772,811) (2,368,221)
----------- -----------
TOTAL PROPERTY AND EQUIPMENT 730,629 951,304
INTANGIBLES 539,187 539,187
Accumulated amortization (539,187) (539,187)
----------- -----------
-- --
----------- -----------
TOTAL ASSETS $ 7,608,527 $ 6,425,775
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 636,761 $ 682,161
Accrued compensation and benefits 238,985 229,019
Accrued expenses 78,621 93,534
Other 99,978 191,077
Line of credit 271,013 673,281
Current portion of lease 169,443 93,391
----------- -----------
TOTAL CURRENT LIABILITIES 1,494,801 1,962,463
LONG-TERM DEBT 228,580 289,326
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; authorized--20,000,000 shares;
issued and outstanding June 30, 1997--6,860,080 shares;
December 31, 1996--5,403,858 shares 68,577 54,039
Additional paid-in capital 13,083,563 10,102,397
Unearned compensation (3,516) (7,313)
Accumulated deficit (7,263,478) (5,975,137)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 5,885,146 4,173,986
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 7,608,527 $ 6,425,775
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date. See Notes to Financial
Statements.
<PAGE>
INSIGNIA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 2,778,771 $ 3,543,712 $ 11,132,669 $ 11,161,668
Cost of Sales 1,501438 1,653,563 5,258,293 5,303,904
----------- ----------- ------------ ------------
GROSS PROFIT 1,277,333 1,890,149 5,874,376 5,857,764
OPERATING EXPENSES:
POPS Program 320,607 -- 679,459 --
Sales 1,147,682 1,125,614 3,576,135 3,200,218
Marketing 371,125 363,508 1,139,743 1,278,037
Product Development 139,757 128,486 375,859 356,311
General & Administrative 500,862 466,513 1,410,009 1,404,261
----------- ----------- ------------ ------------
TOTAL OPERATING EXPENSES 2,480,033 2,084,121 7,181,205 6,238,827
----------- ----------- ------------ ------------
OPERATING INCOME (LOSS) (1,202,700) (193,972) (1,306,829) (381,063)
OTHER INCOME (EXPENSE):
Interest Income 20,476 14,105 75,037 38,095
Interest Expense (12,686) (17,477) (38,091) (44,803)
Other Income (Expense) 200 1,792 (15,329) 12,97
----------- ----------- ------------ ------------
PRE-TAX INCOME (LOSS) (1,194,710) (195,552) (1,285,212) (374,792)
Provision for Income Tax -- 500 3,129 4,578
----------- ----------- ------------ ------------
NET INCOME (LOSS) $(1,194,710) $ (196,052) $ (1,288,341) $ (379,370)
=========== =========== ============ ============
Net Income (Loss) per share $ (0.17) $ (0.04) $ (0.19) $ (0.07)
=========== =========== ============ ============
Weighted average shares and
share equivalents outstanding 6,860,080 5,403,858 6,775,062 5,403,544
=========== =========== ============ ============
</TABLE>
<PAGE>
INSIGNIA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-------------------------
1997 1996
----------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(1,288,341) $(379,370)
Non-cash expenses included in income (loss):
Depreciation and amortization 404,590 397,310
Provision for bad debt expense 59,500 51,000
Amortization of unearned compensation 3,767 6,609
Changes in operating assets & liabilities:
Accounts receivable (938,180) (188,747)
Inventories 234,677 45,904
Prepaids and other (443,847) (159,365)
Accounts payable (45,400) (80,071)
Accrued compensation and benefits 9,966 (78,651)
Other accrued expenses (36,547) 40,278
----------- ---------
NET CASH USED IN OPERATING ACTIVITIES (2,039,815) (345,103)
INVESTING ACTIVITIES:
Purchases of property and equipment (183,915) (266,743)
Purchase of marketable securities (919,948) --
----------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (1,103,863) (266,743)
FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 2,995,734 46,709
Principal payments under long-term debt agreement (54,159) (162,574)
Proceeds from credit line (402,268) 100,000
----------- ---------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,539,307 (15,865)
----------- ---------
INCREASE (DECREASE) IN CASH & EQUIVALENTS (604,371) (627,711)
Cash and equivalents at beginning of period 448,668 583,613
----------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ (155,703) $ (44,098)
=========== =========
</TABLE>
<PAGE>
INSIGNIA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the financial statements
and footnotes thereto for the year ended December 31, 1996.
NOTE B -- INVENTORIES
Inventories consist primarily of Finished Goods on site.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(Third Quarter and Nine Months Ended September 30, 1997)
RESULTS OF OPERATIONS
NET SALES. The Company's net sales for the third quarter ended September 30,
1997 were $2,779,000, an decrease of 22% compared to net sales of $3,544,000 for
the third quarter of 1996. For the nine months ended September 30, 1997, net
sales were $11,133,000, a decrease of .3% compared to net sales of $11,162,000
for the first nine months of 1996. Revenue from the sale of the Impulse(R) and
SIGNright(TM) systems decreased over the first nine months of 1997. The sale of
sign cards used with the Impulse and SIGNright systems also decreased over the
first nine months of 1997. Sales of Stylus(R) our PC-based sign and label
software and related supplies decreased substantially in the third quarter.
GROSS PROFIT. The Company's gross profit for the third quarter of 1997 decreased
32% to $1,278,000, compared to $1,890,000 for the third quarter of 1996. Gross
profit for the first nine months of 1997 increased 11% to $5,874,000, compared
to $5,858,000 for the first nine months of 1996. The decrease in gross profit
for the third quarter is primarily due to the overall decrease in net sales.
Gross profit as a percentage of net sales was 41.0% for the third quarter of
1997, compared to 53.3% for the third quarter of 1996 and was 52.1% for the
first nine months of 1997, compared to 52.5% for the first nine months of 1996.
OPERATING EXPENSES. Operating expenses increased 19% in the third quarter of
1997 compared to the third quarter of 1996 and increased 15% for the first nine
months of 1997 compared to the first nine months of 1996. Sales expenses
increased 2% in the third quarter of 1997 compared to the third quarter of 1996,
and increased 12% for the first nine months of 1997 compared to the first nine
months of 1996. The increase reflects fixed sales expenses being a larger
percentage of total sales expenses. Marketing expenses increased 2% in the third
quarter of 1997 compared to the third quarter of 1996, but decreased 11% for the
first nine months of 1997 compared to the first nine months of 1996. Product
development expenses increased 9% and 6%, respectively. General and
administrative expenses increased 7% and 1%, respectively. The Company incurred
no POPS program operating expenses in 1996. The POPS program operating expenses
for the third quarter of 1997 was $320,000 and for the nine months ended
September 30, 1997 was $679,000. The Company expects that its operating expenses
for the fourth quarter of 1997 will be comparable to the third quarter of 1997.
Operating expenses as a percentage of net sales were 89% in the third quarter of
1997 and 65% for the first nine months of 1997, compared to 59% for the third
quarter of 1996 and 56% for the first nine months of 1996. For the fourth
quarter of 1997, the Company expects its operating expenses as a percentage of
net sales to increase compared to the fourth quarter of 1996 as a result of the
POPS program expenses, but to decrease compared to the third quarter of 1997 as
net sales are expected to increase.
<PAGE>
NET INCOME OR LOSS. The Company had a net loss of $(1,195,000), or $(.17) per
share for the third quarter of 1997, compared to a net loss of $(196,000), or
$(04) per share for the third quarter of 1996. For the first nine months of
1997, the net loss was $(1,288,000), or $(.19) per share compared to a net loss
of $(379,000), or $(.07) per share for the first nine months of 1996. The net
loss for the third quarter of 1997 and the increase in the net loss for the
first nine months of 1997 compared to the first nine months of 1996 resulted
primarily from significantly lower SIGNright and Stylus software sales and
somewhat lower sign card sales.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, working capital was $5,383,000 compared to $4,087,000 at
December 31, 1996. Cash, cash equivalents and marketable securities increased
$318,000 from $598,000 at December 31, 1996 to $915,000 at September 30, 1997,
due to the increase in additional paid-in capital of $2,996,000 reduced by the
net loss of $(1,288,000) and the increase in accounts receivable of $938,000.
Accounts receivable increased $938,000 during the first nine months of 1997 due
to an increase in extended payment terms offered to certain customers.
Inventories decreased $235,000 as the company reduced its inventory levels. The
Company expects inventory levels to grow as sales volume increases. Accounts
receivable balances should decrease as customers pay off the extended payment
terms.
The Company believes that its current cash position, cash flow from operations,
and access to capital resources, including the present line of credit, will be
sufficient to fund current business operations and anticipated growth for the
foreseeable future.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on page following signature.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter covered
by this Form 10-Q.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Insignia Systems, Inc.
Dated: October 30, 1997 ------------------------------------
(Registrant)
/s/ G. L. Hoffman
------------------------------
G. L. Hoffman
President
/s/ John R. Whisnant
------------------------------
John R. Whisnant
Vice President of Finance
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX TO FORM 10-Q
For the quarter ended Commission File No.: 0-19380
September 30, 1997
- --------------------------------------------------------------------------------
INSIGNIA SYSTEMS, INC.
- --------------------------------------------------------------------------------
Page Number in
Sequential
Numbering of
All Pages
Exhibit Including Exhibits
- ------- ------------------
11 Statement re computation of earnings per share.......... 12
Exhibit 11
INSIGNIA SYSTEMS, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 6,860,080 5,403,858 6,775,062 5,403,544
Net effective of dilutive stock
options--based on treasury stock
method using average market price 0 0 0 0
----------- ----------- ----------- -----------
TOTAL 6,860,080 5,403,858 6,775,062 5,403,544
=========== =========== =========== ===========
Net Income (Loss) $(1,194,710) $ (196,052) $ 1,288,341) $ (379,370)
=========== =========== =========== ===========
Net Income (Loss) per share $ (0.19) $ 0.04) $ (0.18) $ (0.07)
=========== =========== =========== ===========
FULLY DILUTED:
Average shares outstanding 6,860,080 5,403,858 6,775,062 5,403,544
Net effect of dilutive stock
options--based on treasury stock
method using ending market price,
if higher than average market price 0 0 0 0
----------- ----------- ----------- -----------
TOTAL 6,860,080 5403,858 6,775,062 5,403,544
=========== =========== =========== ===========
Net Income (Loss) $(1,194,710) $ (196,052) $(1,288,341) $ (379,370)
=========== =========== =========== ===========
Net Income (Loss) per share $ (0.19) $ (0.04) $ (0.18) $ (0.07)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> (155,703)
<SECURITIES> 1,071,023
<RECEIVABLES> 3,523,531
<ALLOWANCES> 0
<INVENTORY> 1,781,286
<CURRENT-ASSETS> 6,877,898
<PP&E> 3,503,440
<DEPRECIATION> 2,772,811
<TOTAL-ASSETS> 7,608,527
<CURRENT-LIABILITIES> 1,223,788
<BONDS> 0
0
0
<COMMON> 13,152,140
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,608,527
<SALES> 2,778,771
<TOTAL-REVENUES> 0
<CGS> 1,501,438
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,480,033
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,686
<INCOME-PRETAX> (1,194,710)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,194,710)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
