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, 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
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 -- 8,477,721 shares as of August 3, 1998.
Total number of pages: 10
<PAGE>
INDEX
REGISTRANT COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
- --------------------------------
Item 1. Financial Statements (Unaudited)
Balance Sheets - June 30, 1998 and December 31, 1997
Statements of Operations - Three months ended June 30, 1998 and
1997; Six months ended June 30, 1998 and 1997
Statements of Cash Flows - Six months ended June 30, 1998 and 1997
Notes to Financial Statements - June 30, 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>
June 30, December 31,
ASSETS 1998 1997
- ----------------------------------------------------------------- ------------ ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,108,498 $ 0
Marketable securities 166,975 464,837
Accounts receivable - net of $229,822 allowance 1,550,592 2,712,505
Inventories 1,382,968 1,617,578
Prepaid expenses & other 324,881 540,028
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TOTAL CURRENT ASSETS 5,533,914 5,334,948
PROPERTY AND EQUIPMENT:
Production tooling, machinery and equipment 1,869,492 1,902,704
Office furniture and fixtures 356,099 356,099
Computer equipment 974,291 978,952
Leasehold improvements 312,420 312,420
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3,512,302 3,550,175
Accumulated depreciation and amortization (3,154,121) (3,030,500)
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TOTAL PROPERTY AND EQUIPMENT 358,181 519,675
INTANGIBLES 539,187 539,187
Accumulated amortization (539,187) (539,187)
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-- --
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TOTAL ASSETS $ 5,892,095 $ 5,854,623
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts payable $ 457,166 $ 424,361
Accrued compensation and benefits 166,005 234,291
Accrued expenses 166,616 245,028
Current portion of long-term debt 108,518 103,221
Line of credit 670,838 365,447
Other 470,704 500,929
------------ ------------
TOTAL CURRENT LIABILITIES 2,039,847 1,873,277
LONG-TERM DEBT 130,488 186,104
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; authorized--20,000,000 shares;
issued and outstanding June 30, 1998--8,477,721 shares;
December 31, 1997--6,857,721 shares 87,477 68,578
Additional paid-in capital 14,964,332 13,083,563
Unearned compensation (0) (2,250)
Accumulated deficit (11,330,049) (9,354,649)
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TOTAL STOCKHOLDERS' EQUITY 3,721,760 3,795,242
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 5,892,095 $ 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 Six Months Ended
June 30 June 30
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 2,194,172 $ 4,198,332 4,526,098 $ 8,353,898
Cost of Sales 1,127,071 1,887,026 2,442,969 3,756,855
----------- ----------- ----------- -----------
GROSS PROFIT 1,067,101 2,311,306 2,083,129 4,597,043
OPERATING EXPENSES:
Restructuring Charge (62,103) 0 510,190 0
POPS Program 401,188 189,928 770,840 358,852
Sales 439,611 1,277,090 1,043,461 2,428,453
Marketing 200,314 343,061 483,012 768,618
Product Development 105,322 128,156 233,891 236,102
General & Administrative 472,430 493,360 987,007 909,147
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 1,556,762 2,431,595 4,028,401 4,701,172
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (489,661) (120,289) (1,945,272) (104,129)
OTHER INCOME (EXPENSE):
Interest Income 6,618 28,505 11,505 54,561
Interest Expense (42,713) (10,296) (70,037) (25,405)
Other Income (Expense) 36,073 8,542 30,404 (15,529)
----------- ----------- ----------- -----------
PRE-TAX INCOME (LOSS) (489,683) (93,538) (1,973,400) (90,502)
Provision for Income Tax 1,500 1,500 2,000 3,129
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (491,183) $ (95,038) $(1,975,400) $ (93,631)
=========== =========== =========== ===========
Net Income (Loss) per share $ (0.06) $ (0.01) $ (0.29) $ (0.01)
=========== =========== =========== ===========
Weighted average shares and
share equivalents outstanding 8,377,721 6,860,080 6,919,820 6,731,608
=========== =========== =========== ===========
</TABLE>
<PAGE>
INSIGNIA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
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1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(1,975,400) $ (93,631)
Non-cash expenses included in income (loss):
Depreciation and amortization 123,621 280,269
Provision for bad debt expense 51,000 34,000
Amortization of unearned compensation 2,250 2,502
Changes in operating assets & liabilities:
Accounts receivable 1,110,913 (1,363,868)
Inventories 234,610 395,127
Prepaids and other 215,147 (159,870)
Accounts payable 32,805 (164,807)
Accrued compensation and benefits (68,286) (11,486)
Other accrued expenses (108,637) 195,044
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NET CASH USED IN OPERATING ACTIVITIES (381,977) (886,720)
INVESTING ACTIVITIES:
Purchases of property and equipment 37,873 (119,102)
Purchase of marketable securities 297,862 (1,504,737)
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 335,735 (1,623,839)
FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 1,899,668 2,995,734
Principal payments under long-term debt agreement (50,319) (30,527)
Proceeds from credit line 305,391 (673,281)
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CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,154,740 2,291,926
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INCREASE (DECREASE) IN CASH & EQUIVALENTS 2,108,498 (218,633)
Cash and equivalents at beginning of period 0 448,668
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,108,498 $ 230,035
=========== ===========
</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, 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
(Second Quarter Ended June 30, 1998)
RESULTS OF OPERATIONS
NET SALES. The Company's net sales for the second quarter ended June 30, 1998
were $2,194,000, a decrease of 48%, compared to net sales of $4,198,000 for the
second quarter of 1997. For the six months ended June 30, 1997, net sales were
$4,526,000, a decrease of 46% compared to net sales of $8,354,000 for the first
half of 1997. Revenue from the sales of the SIGNright system was minimal for the
first half of 1998 vs. sales of $774,000 for the first half of 1997. The revenue
from the sale of sign cards used with the Impulse Retail System and SIGNright
system decreased 22% in the second quarter of 1998 vs. the second quarter of
1997. Stylus software sales decreased 70% for the second quarter of 1998 vs. the
second quarter of 1997. Printing sales also decreased 58% for the second quarter
of 1998 vs. the second quarter of 1997.
GROSS PROFIT. The Company's gross profit for the second quarter of 1998
decreased 54% to $1,067,000, compared to $2,311,000 for the second quarter of
1997. Gross profit for the first six months of 1998 decreased 55% to $2,083,000,
compared to $4,597,000 for the first half of 1997. The decrease in gross profit
for the second quarter and six months of 1998 is primarily due to terminating
domestic marketing and sales of SIGNright machines in January 1998, along with a
decrease in Stylus software sales and printing sales. Gross profit as a
percentage of net sales was 48.6% for the second quarter of 1998, compared to
55.1% for the second quarter of 1997, and was 46% for the first six months of
1998, compared to 55% for the first half of 1997.
OPERATING EXPENSES. Operating expenses decreased 36% in the second quarter of
1998 compared to the second quarter of 1997, and decreased 14% for the first six
months of 1998, compared to the first half of 1997. Sales expenses decreased 66%
and 43%, respectively. Marketing expenses decreased 42% and 38%, respectively,
product development expenses decreased 18% and 1%, respectively, and general and
administrative expenses decreased 4% for the second quarter of 1998 and
increased 9% for the first six months of 1998. All of the decreases resulted
from the corporate restructuring and downsizing which occurred in January and
April of 1998.
Operating expenses as a percentage of net sales were 71% in the second quarter
of 1998 and 89% for the first six months of 1998, compared to 57% in the second
quarter of 1997 and 53% for the first half of 1997. The increase as a percentage
of net sales in 1998 was a result of lower than anticipated sales for the first
quarter and for the first six months of 1998.
NET INCOME (LOSS). The Company had a net loss of $(491,000), or $(.06) per share
for the second quarter of 1998, compared to a net loss of $(95,000), or $(.01)
per share for the second quarter of 1997. For the first six months of 1998, the
net loss was $(1,975,000), or $(0.29) per share, compared to a net loss of
$(94,000), or $(.01) per share for the first half of 1997. The increase in net
loss for the first half of 1998 was the result of substantially lower sales
during the applicable periods for 1998.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, working capital was $3,494,000, compared to $3,461,000 at
December 31, 1997. Cash, cash equivalents and marketable securities increased
$2,108,000 from $0 at December 1, 1997 to $2,108,000 on June 30, 1998, primarily
due to the proceeds received from the issuance of common stock and borrowings
from the credit line along with a decrease to accounts receivable, inventory and
prepaids, offset by the net loss. Accounts receivable decreased $1,111,000
during the first half of 1998 due to the collection of extended term contracts
entered into in 1997.
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 second quarter of 1998, the Company
believes that it will have sufficient capital resources to fund 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
The Company held its Annual Meeting of Shareholders on May 21, 1998
The shareholders present or by proxy voted to elect Scott Drill, G. L.
Hoffman, Erwin A. Kelen, Don Schultz, Gordon F. Stofer, and Frank D.
Trestman as directors with each director receiving the following votes:
WITHHOLD
FOR AUTHORITY
--- ---------
G. L. Hoffman 5,926,553 186,300
Scott F. Drill 6,002,390 110,463
Erwin A. Kelen 5,997,153 115,700
Don E. Schultz 5,951,390 161,463
Gordon F. Stofer 5,943,153 169,700
Frank D. Trestman 5,947,153 165,700
<PAGE>
The shareholders present or by proxy voted to ratify an amendment to
the Company's Employee Stock Purchase Plan to renew the term of the
Plan for three additional years with 5,805,390 votes in favor, 300,763
votes against and 6,700 votes abstaining and no broker non-votes.
The shareholders present or by proxy voted to ratify an amendment to
the Company's Stock Plan to increase by 600,000 shares the number of
shares available under the Plan with 5,583,408 votes in favor, 496,815
votes against, 17,000 votes abstaining and 15,630 broker non-votes.
The shareholders present or by proxy voted to approve the appointment
of Ernst & Young LLP as independent auditors with 5,893,238 votes in
favor, 192,415 votes against, and 27,200 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 3, 1998 Insignia Systems, Inc.
-------------------------------------
(Registrant)
/s/ Scott Drill
---------------------------------
Scott Drill
President
/s/ John R. Whisnant
---------------------------------
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-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,108,498
<SECURITIES> 166,975
<RECEIVABLES> 1,780,414
<ALLOWANCES> 229,822
<INVENTORY> 1,382,968
<CURRENT-ASSETS> 5,533,914
<PP&E> 3,512,302
<DEPRECIATION> 3,154,121
<TOTAL-ASSETS> 5,892,095
<CURRENT-LIABILITIES> 2,039,847
<BONDS> 0
0
0
<COMMON> 15,051,809
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,892,095
<SALES> 2,194,172
<TOTAL-REVENUES> 0
<CGS> 1,177,071
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,556,762
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,713
<INCOME-PRETAX> 0
<INCOME-TAX> 1,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (491,183)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
