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: March 31, 1998
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Commission File Number: 0-19380
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INSIGNIA SYSTEMS, INC.
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(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
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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 -- 6,897,721 shares as of May 8, 1998.
Total number of pages: 9
<PAGE>
INDEX
REGISTRANT COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets -- March 31, 1998 and December 31, 1997
Statements of Operations -- Three months ended March 31, 1998 and 1997
Statements of Cash Flows -- Three months ended March 31, 1998 and 1997
Notes to Financial Statements -- March 31, 1998
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>
March 31, December 31,
ASSETS 1998 1997
- --------------------------------------------------------------- ------------ ------------
(UNAUDITED) (NOTE)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 566,513 $ 0
Marketable securities 168,626 464,837
Accounts receivable - net of $229,822 allowance 1,883,253 2,712,505
Inventories 1,623,958 1,617,578
Prepaid expenses & other 168,854 540,028
------------ ------------
TOTAL CURRENT ASSETS 4,411,204 5,334,948
PROPERTY AND EQUIPMENT:
Production tooling, machinery and equipment 1,915,389 1,902,704
Office furniture and fixtures 356,099 356,099
Computer equipment 998,372 978,952
Leasehold improvements 312,420 312,420
------------ ------------
3,582,280 3,550,175
Accumulated depreciation and amortization (3,124,576) (3,030,500)
------------ ------------
TOTAL PROPERTY AND EQUIPMENT 457,704 519,675
INTANGIBLES 539,187 539,187
Accumulated amortization (539,187) (539,187)
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-- --
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TOTAL ASSETS $ 4,868,908 $ 5,854,623
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 686,907 $ 424,361
Accrued compensation and benefits 178,141 234,291
Accrued expenses 194,793 245,028
Current portion of long-term debt 105,837 103,221
Line of credit 703,392 365,447
Other 501,404 500,929
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TOTAL CURRENT LIABILITIES 2,370,474 1,873,277
LONG-TERM DEBT 158,644 186,104
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; authorized--20,000,000 shares;
issued and outstanding March 31, 1998--6,877,721 shares;
December 31, 1997--6,857,721 shares 68,852 68,578
Additional paid-in capital 13,110,788 13,083,563
Unearned compensation (983) (2,250)
Accumulated deficit (10,838,867) (9,354,649)
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TOTAL STOCKHOLDERS' EQUITY 2,339,790 3,795,242
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 4,868,908 $ 5,854,623
============ ============
</TABLE>
Note: The balance sheet at December 31, 1997 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
March 31
--------------------------
1998 1997
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<S> <C> <C>
NET SALES $ 2,331,926 $ 4,155,566
Cost of Sales 1,315,898 1,869,829
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GROSS PROFIT 1,016,028 2,285,737
OPERATING EXPENSES:
Restructuring Charge 572,293 0
Insignia POPS Program 369,652 168,924
Sales 603,849 1,151,363
Marketing 282,698 425,557
Product Development 128,569 107,946
General and Administrative 514,579 415,787
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TOTAL OPERATING EXPENSES 2,471,640 2,269,577
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OPERATING INCOME (LOSS) (1,455,612) 16,160
Other Income (Expense):
Interest Income 4,887 26,056
Interest Expense (27,324) (15,109)
Other Income (Expense) (5,669) (24,071)
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PRE-TAX INCOME (LOSS) (1,483,718) 3,036
Provision For Income Tax 500 1,629
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NET INCOME (LOSS) $(1,484,218) $ 1,407
=========== ===========
Net income (loss) per share:
Basic and diluted $ (0.22) $ 0.00
=========== ===========
Shares used in calculation of net loss per share:
Basic and diluated 6,861,277 6,586,956
=========== ===========
</TABLE>
<PAGE>
INSIGNIA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------------
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(1,484,217) $ 1,407
Non-cash expenses included in income (loss):
Depreciation and amortization 94,076 145,366
Provision for bad debt expense 25,500 17,000
Amortization of unearned compensation 1,267 1,267
Changes in operating assets and liabilities:
Accounts receivable 803,752 (384,646)
Inventories (6,380) 341,132
Prepaids and other 371,174 (570,354)
Accounts payable 262,546 (126,357)
Accrued compensation and benefits (56,150) (48,300)
Other accrued expenses (49,760) 101,838
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NET CASH USED IN OPERATING ACTIVITIES (38,192) (521,647)
INVESTING ACTIVITIES:
Purchases of property and equipment (32,105) (96,124)
Sale of marketable securities 296,211 --
----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 264,106 (96,124)
FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 27,499 3,013,288
Principle payments under long-term debt agreement (24,844) (7,479)
Proceeds from credit line 337,945 (673,281)
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CASH PROVIDED BY FINANCING ACTIVITIES 340,600 2,322,528
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DECREASE IN CASH AND EQUIVALENTS 566,514 1,714,757
Cash and cash equivalents at beginning of period 0 448,668
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 566,514 $ 2,163,425
=========== ===========
</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 three month period ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. For further information, refer to the financial statements
and footnotes thereto for the year ended December 31, 1997.
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
(First Quarter Ended March 31, 1998)
RESULTS OF OPERATIONS
NET SALES. The Company's net sales for the first quarter ended March 31, 1998
were $2,332,000, a decrease of 56%, compared to net sales of $4,156,000 for the
first quarter of 1997. The substantial decrease in sales resulted from a sales
decrease in most revenue areas. Sign card sales decreased from $1,580,000 in the
first quarter of 1997 to $1,286,000 in the first quarter of 1998. Printing sales
decreased from $525,000 in the first quarter of 1997 to $305,000 in the first
quarter of 1998. Stylus software sales decreased from $598,000 in the first
quarter of 1997 to $61,000 in the first quarter of 1998. SIGNright machine and
accessories sales decreased from $703,000 in the first quarter of 1997 to
$88,000 in the first quarter of 1998. As a result of this decrease in sales, the
Company discontinued the direct telemarketing program for the SIGNright machine
in January 1998, eliminating 24 positions. In addition, in April 1998 the
Company eliminated an additional 30 positions and discontinued the sale of the
SIGNright machine. Revenue from the Insignia POPS program was $10,000 in the
first quarter of 1998, compared to no revenue from the POPS program in the first
quarter of 1997. The Company currently has 1,130 stores under contract and
on-line for the POPS program, along with another 458 stores which we anticipate
will sign contracts and be on-line within the next 60 days. These retail stores
include stores from Kroger, A&P, Lowe's, Piggly Wiggly and Shop Rite. The
Company anticipates substantial growth in the POPS program revenue area as
additional stores are put on-line and additional retailers decide to join the
POPS program.
GROSS PROFIT. The Company's gross profit for the first quarter of 1998 decreased
45% to $1,016,000, compared to $2,286,000 for the first quarter of 1997. Gross
profit as a percentage of net sales was 44% the first quarter of 1998, compared
to 55% for the first quarter of 1997. The decrease in gross profit from 1997 was
due to significantly lower sales along with a lower proportion of sales of
Stylus software which has a much higher margin than other products.
OPERATING EXPENSES. Operating expenses increased 9% in the first quarter of
1998. Operating expenses for the first quarter of 1998 were $2,471,000, which
included a restructuring charge of $572,000. Sales expenses decreased 52%. This
decrease reflected the restructuring in January 1998. Marketing expenses
decreased 66%. This decrease reflected a cut in a variety of marketing related
programs during the first quarter of 1998. Product development expenses
increased 20% as the Company continues to develop its Stylus product. General
and Administrative expenses increased 24%. During the first quarter of 1997, the
Company received an $85,000 health insurance premium refund. The Company
received no health insurance premium refund in the first quarter of 1998.
NET INCOME (LOSS). The Company had a net loss of $(1,484,218), or $(0.22) per
share for the first quarter of 1998, compared to a net income of $1,407, or
$0.00 per share for the first quarter of 1997. The net loss for the first
quarter of 1998 was the due primarily to substantially lower sales and incurring
the restructuring charge during the first quarter of 1998.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, working capital was $2,041,000, compared to $3,462,000 at
December 31, 1997. Cash and cash equivalents increased $270,000 to $735,000 at
March 31, 1998, primarily due to the decrease in accounts receivables and
prepaids, the decrease in accounts payable and the sale of marketable securities
along with an increase to the credit line which offset the net loss. The
$804,000 decrease in accounts receivable reflects substantial paydowns by
customers to whom the Company had given deferred terms. The decrease to prepaids
reflects the write-off of deposits for SIGNright machines.
The Company anticipates that its working capital needs will continue to increase
due to the expected growth in the POPS program business. However, the Company
entered into a $3 million line of credit agreement with a finance corporate
against which $703,000 was outstanding as of March 31, 1998, and the Company
believes that it will have sufficient capital resources to finance its current
business operations and anticipated growth for the foreseeable future.
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
None.
(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: May 12, 1998 Insignia Systems, Inc.
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(Registrant)
/s/ G. L. Hoffman
---------------------------
G. L. Hoffman
Chairman
/s/ Scott F. Drill
---------------------------
Scott F. Dill
President and CEO
/s/ John R. Whisnant
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John R. Whisnant
Vice President of Finance
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 566,513
<SECURITIES> 168,626
<RECEIVABLES> 2,113,075
<ALLOWANCES> 229,822
<INVENTORY> 1,623,958
<CURRENT-ASSETS> 4,411,204
<PP&E> 3,582,280
<DEPRECIATION> 3,124,576
<TOTAL-ASSETS> 4,868,908
<CURRENT-LIABILITIES> 2,370,474
<BONDS> 0
0
0
<COMMON> 13,179,640
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,868,908
<SALES> 2,331,926
<TOTAL-REVENUES> 2,331,926
<CGS> 1,315,898
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,471,640
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,324
<INCOME-PRETAX> 0
<INCOME-TAX> 500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,484,218)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
