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: June 30, 1997
-----------------------------------------------------------
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
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(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 Per Value -- 6,860,080 shares as of August 1, 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 - June 30, 1997 and December 31, 1996
Statements of Operations - Three months ended June 30, 1997 and
1996; Six months ended June 30, 1997 and 1996
Statements of Cash Flows -- Six months ended June 30, 1997 and 1996
Notes to Financial Statements - June 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>
June 30, December 31,
ASSETS 1997 1996
- ----------------------------------------------------------------- ------------ ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 230,035 $ 448,668
Marketable securities 1,655,812 149,427
Accounts receivable - net of $147,440 allowance 3,974,719 2,644,851
Inventories 1,620,836 2,015,963
Prepaid expenses 373,784 215,562
------------ ------------
TOTAL CURRENT ASSETS 7,855,186 5,474,471
PROPERTY AND EQUIPMENT:
Production tooling, machinery and equipment 1,876,391 1,862,311
Office furniture and fixtures 364,119 364,119
Computer equipment 885,697 780,675
Leasehold improvements 312,420 312,420
------------ ------------
3,438,627 3,319,525
Accumulated depreciation and amortization (2,648,490) (2,368,221)
------------ ------------
TOTAL PROPERTY AND EQUIPMENT 790,137 951,304
INTANGIBLES 539,187 539,187
Accumulated amortization (539,187) (539,187)
------------ ------------
-- --
------------ ------------
TOTAL ASSETS $ 8,645,323 $ 6,425,775
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 517,354 $ 682,161
Accrued compensation and benefits 217,533 229,019
Accrued expenses 213,296 93,534
Other 97,727 191,077
Line of credit -- 673,281
Current portion of lease 266,359 93,391
------------ ------------
TOTAL CURRENT LIABILITIES 1,312,269 1,962,463
LONG-TERM DEBT 254,463 289,326
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 (4,781) (7,313)
Accumulated deficit (6,068,768) (5,975,137)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 7,078,591 4,173,986
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 8,645,323 $ 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 Six Months Ended
June 30 June 30
--------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 4,198,332 $ 3,818,139 $ 8,353,898 $ 7,617,956
Cost of Sales 1,887,026 1,882,728 3,756,855 3,650,341
----------- ----------- ----------- -----------
GROSS PROFIT 2,311,306 1,935,411 4,597,043 3,967,615
OPERATING EXPENSES:
POPS Program 189,928 -- 358,852 --
Sales 1,277,090 1,047,382 2,428,453 2,074,604
Marketing 343,061 395,330 768,618 914,529
Product Development 128,156 116,308 236,102 227,825
General & Administrative 493,360 465,655 909,147 937,748
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 2,431,595 2,024,675 4,701,172 4,154,706
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (120,289) (89,264) (104,129) (187,091)
OTHER INCOME (EXPENSE):
Interest Income 28,505 10,883 54,561 23,990
Interest Expense (10,296) (13,717) (25,405) (27,326)
Other Income (Expense) 8,542 3,767 (15,529) 11,187
----------- ----------- ----------- -----------
PRE-TAX INCOME (LOSS) (93,538) (88,331) (90,502) (179,240)
Provision for Income Tax 1,500 500 3,129 4,078
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (95,038) $ (88,831) $ (93,631) $ (183,318)
=========== =========== =========== ===========
Net Income (Loss) per share $ (0.01) $ (0.02) $ (0.01) $ (0.03)
=========== =========== =========== ===========
Weighted average shares and
share equivalents outstanding 6,860,080 5,403,858 6,731,608 5,403,384
=========== =========== =========== ===========
</TABLE>
<PAGE>
INSIGNIA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-------------------------
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (93,631) $(183,318)
Non-cash expenses included in income (loss):
Depreciation and amortization 280,269 267,047
Provision for bad debt expense 34,000 25,500
Amortization of unearned compensation 2,502 4,406
Changes in operating assets & liabilities:
Accounts receivable (1,363,868) (333,191)
Inventories 395,127 277,126
Prepaids and other (159,870) 242,739
Accounts payable (164,807) (279,692)
Accrued compensation and benefits (11,486) (49,027)
Other accrued expenses 195,044 108,735
----------- ---------
NET CASH USED IN OPERATING ACTIVITIES (886,720) 80,325
INVESTING ACTIVITIES:
Purchases of property and equipment (119,102) (147,683)
Purchase of marketable securities (1,504,737) --
----------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (1,623,839) (147,683)
FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 2,995,734 46,709
Principal payments under long-term debt agreement (30,527) (41,192)
Proceeds from credit line (673,281) 100,000
----------- ---------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,291,926 105,517
----------- ---------
INCREASE (DECREASE) IN CASH & EQUIVALENTS (218,633) 38,159
Cash and equivalents at beginning of period 448,668 583,613
----------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 230,035 $ 621,772
=========== =========
</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 six month period ended June 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
(Second Quarter Ended June 30, 1997)
RESULTS OF OPERATIONS
NET SALES. The Company's net sales for the second quarter ended June 30, 1997
were $4,198,000, an increase of 10%, compared to net sales of $3,800,000 for the
second quarter of 1996. For the six months ended June 30, 1997, net sales were
$8,354,000, an increase of 10% compared to net sales of $7,618,000 for the first
half of 1996. Revenue from the sales of the SIGNright system was relatively flat
for the first half of 1997 and was down from comparable sales of the Impulse
Retail System in the first half of 1996. The sale of sign cards used with the
Impulse Retail System and SIGNright system also remain relatively flat. Sales of
Stylus software and related supplies increased substantially in the second
quarter.
GROSS PROFIT. The Company's gross profit for the second quarter of 1997
increased 20% to $2,311,000, compared to $1,935,000 for the second quarter of
1996. Gross profit for the first six months of 1997 increased 16% to $4,597,000,
compared to $3,968,000 for the first half of 1996. The increase in gross profit
for the second quarter and six months of 1997 is primarily due to an increase in
Stylus software sales, which has very high margins. Gross profit as a percentage
of net sales was 55% for the second quarter of 1997, compared to 50.7% for the
second quarter of 1996, and was 55% for the first six months of 1997, compared
to 52.1% for the first half of 1996.
OPERATING EXPENSES. Operating expenses increased 20% in the second quarter of
1997 compared to the second quarter of 1996, and increased 13% for the first six
months of 1997, compared to the first half of 1996. Sales expenses increased 22%
and 17%, respectively. The increase reflects higher commissions due to higher
sales. Marketing expenses decreased 14% and 16%, respectively, product
development expenses increased 10% and 4%, respectively, and general and
administrative expenses increased 6% for the second quarter and decreased 3% for
the first half of 1997. The Company incurred $190,000 and $359,000 for the first
quarter and the first half of 1997, respectively, for POPS program operating
expenses as the Company proceeded to kick-off the Insignia POPS program. The
Company expects marketing, general and administrative and product development
expenses to remain flat, sales expenses to increase as sales commissions
increase as sales increase, and POPS program expenses to increase as the
Insignia POPS program gets underway.
Operating expenses as a percentage of net sales were 57% in the second quarter
of 1997 and 56% for the first six months of 1997, compared to 53% in the second
quarter of 1996 and 55% for the first half of 1996. The increase as a percentage
of net sales in 1997 was a result of initial POPS program expenses and increased
sales commissions paid. The Company expects its operating expenses as a percent
of net sales to increase as the POPS program operating expenses continue to
increase.
NET INCOME (LOSS). The Company had a net loss of $(95,000), or $(.01) per share
for the second quarter of 1997, compared to a net loss of $(89,000), or $(.02)
per share for the second quarter of 1996. For the first six months of 1997, the
net loss was $(94,000), or $(0.01) per share, compared to
<PAGE>
a net loss of $(183,000), or $(.03) per share for the first half of 1996. The
decrease in net loss for the first half of 1997 was the result of an increase in
sales and an increase in the sale of higher margin items. The net loss for the
second quarter of 1997 was the due primarily to incurring Insignia POPS program
operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, working capital was $6,543,000, compared to $3,512,000 at
December 31, 1996. Cash, cash equivalents and marketable securities increased
$1,288,000 from $598,000 at December 31, 1996 to $1,886,000 on June 30, 1997,
primarily due to the proceeds received from the issuance of common stock, offset
by an increase in accounts receivable, an increase in prepaids and other, and a
decrease in accounts payable. Accounts receivable increased $1,364,000 during
the first half of 1997 due to strong quarter-end sales and the granting of
extended terms. The Company expects accounts receivable levels to grow as sales
volume increases and the extended terms program is continued.
The Company anticipates that its working capital needs will continue to increase
due to the expected growth in the business. However, as a result of the issuance
of additional common stock during the first quarter of 1997, the Company
believes that it will have sufficient capital resources to fund its current
business operations 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
The Company held its Annual Meeting of Shareholders on May 8, 1997.
The shareholders present or by proxy voted to elect G. L. Hoffman,
Erwin A. Kelen, Gordon F. Stofer, and Frank D. Trestman as directors
with each director receiving the following votes:
WITHHOLD
FOR AUTHORITY
--- ---------
G. L. Hoffman 5,816,502 35,879
Erwin A. Kelen 5,816,502 35,899
Gordon F. Stofer 5,816,502 35,899
Frank D. Trestman 5,816,502 35,899
The shareholders present or by proxy voted to approve the appointment
of Ernst & Young LLP as independent auditors with 5,825,573 votes for
and 16,591 votes against, 10,237 votes abstaining and no broker
non-votes.
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.
Dated: August 4, 1997 Insignia Systems, Inc.
(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
June 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 Six Months Ended
June 30 June 30
--------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 6,860,080 5,403,858 6,731,608 5,403,384
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 6,731,608 5,403,384
=========== =========== =========== ===========
Net Income (Loss) $ (95,038) $ (88,831) $ (93,631) $ (183,318)
=========== =========== =========== ===========
Net Income (Loss) per share $ (0.01) $ (0.02) $ (0.01) $ (0.03)
=========== =========== =========== ===========
FULLY DILUTED:
Average shares outstanding 6,860,080 5,403,858 6,731,608 5,403,384
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 5,403,858 6,731,608 5,403,384
=========== =========== =========== ===========
Net Income (Loss) $ (95,038) $ (88,831) $ (93,6310) $ (183,318)
=========== =========== =========== ===========
Net Income (Loss) per share $ (0.01) $ (0.02) $ (0.01) $ (0.03)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 230,035
<SECURITIES> 1,655,812
<RECEIVABLES> 9,122,159
<ALLOWANCES> 147,440
<INVENTORY> 1,620,836
<CURRENT-ASSETS> 7,855,186
<PP&E> 3,438,627
<DEPRECIATION> 2,648,490
<TOTAL-ASSETS> 8,645,323
<CURRENT-LIABILITIES> 1,312,269
<BONDS> 0
0
0
<COMMON> 13,152,140
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,645,323
<SALES> 4,198,332
<TOTAL-REVENUES> 4,235,379
<CGS> 1,887,026
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,431,595
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,926
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (95,038)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
