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, 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-- 8,497,721 shares as of October 30, 1998.
Total number of pages: 9
Page 1 of 9
<PAGE>
INDEX
REGISTRANT COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - September 30, 1998 and December 31, 1997
Statements of Operations - Three months ended September 30, 1998 and
1997; Nine months ended September 30, 1998 and 1997
Statements of Cash Flows -- Nine months ended September 30, 1998 and
1997
Notes to Financial Statements - September 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 2 of 9
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Part I. Financial Information
Item 1. Financial Statements
INSIGNIA SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
- ----------------------------------------------------- ------------ ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 144,424 $ 0
Marketable securities 1,441,863 464,837
Accounts receivable - net of $194,126 allowance 1,280,904 2,712,505
Inventories 1,284,869 1,617,578
Prepaid expenses & other 330,860 540,028
------------ ------------
TOTAL CURRENT ASSETS 4,482,920 5,334,948
PROPERTY AND EQUIPMENT:
Production tooling, machinery and equipment 1,876,957 1,902,704
Office furniture and fixtures 356,099 356,099
Computer equipment 972,720 978,952
Leasehold improvements 312,420 312,420
------------ ------------
3,518,196 3,550,175
Accumulated depreciation and amortization (3,234,125) (3,030,500)
------------ ------------
TOTAL PROPERTY AND EQUIPMENT 284,071 519,675
INTANGIBLES 539,187 539,187
Accumulated amortization (539,187) (539,187)
------------ ------------
-- --
------------ ------------
TOTAL ASSETS $ 4,766,991 $ 5,854,623
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 387,571 $ 424,361
Accrued compensation and benefits 158,945 234,291
Accrued expenses 119,432 245,028
Current portion of long-term debt 111,268 103,221
Line of credit 0 365,447
Other 477,120 500,929
------------ ------------
TOTAL CURRENT LIABILITIES 1,254,336 1,873,277
LONG-TERM DEBT 101,619 186,104
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; authorized--20,000,000 shares;
issued and outstanding Sept. 30, 1998--8,497,721 shares;
December 31, 1997--6,857,721 shares 87,478 68,578
Additional paid-in capital 15,098,214 13,083,563
Unearned compensation 0 (2,250)
Accumulated deficit (11,774,656) (9,354,649)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,411,036 3,795,242
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 4,766,991 $ 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 3 of 9
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INSIGNIA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 2,226,163 $ 2,778,771 6,752,261 $ 11,132,669
Cost of Sales 1,069,415 1,501438 3,512,384 5,258,293
------------ ------------ ------------ ------------
GROSS PROFIT 1,156,748 1,277,333 3,239,877 5,874,376
OPERATING EXPENSES:
Restructuring Charge -- -- 510,190 --
POPS Program 453,652 320,607 1,224,492 679,459
Sales 376,221 1,147,682 1,419,682 3,576,135
Marketing 157,502 371,125 640,514 1,139,743
Product Development 107,477 139,757 341,368 375,859
General & Administrative 500,651 500,862 1,487,658 1,410,009
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 1,595,503 2,480,033 5,623,904 7,181,205
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) (438,755) (1,202,700) (2,384,027) (1,306,829)
OTHER INCOME (EXPENSE):
Interest Income 27,125 20,476 38,630 75,037
Interest Expense (35,212) (12,686) (105,249) (38,091)
Other Income (Expense) 2,235 200 32,639 (15,329)
------------ ------------ ------------ ------------
PRE-TAX INCOME (LOSS) (444,607) (1,194,710) (2,418,007) (1,285,212)
Provision for Income Tax -- -- 2,000 3,129
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (444,607) $ (1,194,710) $ (2,420,007) $ (1,288,341)
============ ============ ============ ============
Net Income (Loss) per share $ (0.05) $ (0.17) $ (0.32) $ (0.19)
============ ============ ============ ============
Weighted average shares and
share equivalents outstanding 8,497,721 6,860,080 7,449,369 6,775,062
============ ============ ============ ============
</TABLE>
Page 4 of 9
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INSIGNIA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(2,420,007) $(1,288,341)
Non-cash expenses included in income (loss):
Depreciation and amortization 203,625 404,590
Provision for bad debt expense 76,500 59,500
Amortization of unearned compensation 2,250 3,767
Changes in operating assets & liabilities:
Accounts receivable 1,355,101 (938,180)
Inventories 332,709 234,677
Prepaids and other 209,168 (443,847)
Accounts payable (36,790) (45,400)
Accrued compensation and benefits (75,346) 9,966
Other accrued expenses (149,405) (36,547)
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NET CASH USED IN OPERATING ACTIVITIES (502,195) (2,039,815)
INVESTING ACTIVITIES:
Purchases of property and equipment 31,979 (183,915)
Purchase of marketable securities (977,026) (919,948)
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (945,047) (1,103,863)
FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 2,033,551 2,995,734
Principal payments under long-term debt agreement (76,438) (54,159)
Proceeds from credit line (365,447) (402,268)
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CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,591,666 2,539,307
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INCREASE (DECREASE) IN CASH & EQUIVALENTS 144,424 (604,371)
Cash and equivalents at beginning of period 0 448,668
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 144,424 $ (155,703)
=========== ===========
</TABLE>
Pagge 5 of 9
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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 September 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 6 of 9
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(Third Quarter Ended September 30, 1998)
RESULTS OF OPERATIONS
NET SALES. The Company's net sales for the third quarter ended September 30,
1998 were $2,226,000, a decrease of 20%, compared to net sales of $2,779,000 for
the third quarter of 1997. For the nine months ended September 30, 1998, net
sales were $6,752,000, a decrease of 39% compared to net sales of $11,133,000
for the first nine months of 1997. Revenue from the sales of the SIGNright
system decreased over the first nine months of 1998 due to the decision in April
of 1998 to terminate domestic sales of SIGNright machines. The sale of sign
cards used with the Impulse Retail System and SIGNright system also decreased by
15% over the first nine months of 1997. Stylus software sales also decreased by
72% between the first nine months of 1997 and the first nine months of 1998.
GROSS PROFIT. The Company's gross profit for the third quarter of 1998 decreased
9% to $1,157,000, compared to $1,277,000 for the third quarter of 1997. Gross
profit for the first nine months of 1998 decreased 45% to $3,240,000, compared
to $5,874,000 for the first nine months of 1997. The decrease in gross profit
for the third quarter of 1998 is primarily due to the overall decrease in net
sales. Gross profit as a percentage of net sales was 52% for the third quarter
of 1998, compared to 41% for the third quarter of 1997, and was 48% for the
first nine months of 1998, compared to 52.1% for the first nine months of 1997.
OPERATING EXPENSES. Operating expenses decreased 36% in the third quarter of
1998 compared to the third quarter of 1997, and decreased 22% for the first nine
months of 1998, compared to the first nine months of 1997. Sales expenses
decreased 67% in the third quarter of 1998, compared to the third quarter of
1997 and decreased 60% for the first nine months of 1998, compared to the first
nine months of 1997. Marketing expenses decreased 58% in the third quarter of
1998, compared to the third quarter of 1997 and decreased 44% for the first nine
months of 1998, compared to the first nine months of 1997. Product development
expenses decreased 25% and 9%, respectively. General and administrative expenses
decreased one tenth of 1% for the third quarter of 1998, compared to the third
quarter of 1997, but increased 6% for the first nine months of 1998, compared to
the first nine months of 1997. 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 72% in the third quarter of
1998 and 83% for the first nine months of 1998, compared to 89% in the third
quarter of 1997 and 65% for the first nine months of 1997. For the fourth
quarter of 1997 the Company expects its operating expenses as a percentage of
net sales to decrease compared to the fourth quarter of 1997 as a result of the
April, 1998 restructuring and downsizing, and to remain flat compared to the
third quarter of 1998 net loss.
Page 7 of 9
<PAGE>
NET INCOME (LOSS). The Company had a net loss of $(445,000), or $(.05) per share
for the third quarter of 1998, compared to a net loss of $(1,195,000), or $(.17)
per share for the third quarter of 1997. For the first nine months of 1998, the
net loss was $(2,420,000), or $(0.32) per share, compared to a net loss of
$(1,288,000), or $(.19) per share for the first nine months of 1997. The net net
loss for the first nine months of 1998, compared to the net loss for the first
nine months of 1997 resulted primarily from the termination of domestic
SIGNright sales and significantly lower Stylus software sales and somewhat lower
sign card sales.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, working capital was $3,229,000, compared to $3,461,000 at
December 31, 1997. Cash, cash equivalents and marketable securities increased
$1,121,000 from $465,000 at December 31, 1997 to $1,586,000 at September 30,
1998, due to the proceeds received from the issuance of common stock of
$2,034,000, a decrease to accounts receivable of $1,355,000, a decrease in
inventories of $333,000, and a decrease in prepaids of $209,000, offset by the
net loss of $2,420,000, a decrease in accrued expenses of $149,000 and principal
payments under the long term debt agreement and credit line of $442,000. The
decrease to accounts receivable resulted from payments received from extended
pay plans. The decrease to inventory resulted from the Company reducing its
machine inventory levels. The Company expects inventory levels to remain the
same through 1998. Accounts receivable balances should also remain flat during
the remainder of 1998.
The Company believes its current cash position, cash flow from operations, its
access to capital resourcess, including the present line of credit will be
sufficient to fund 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.
Page 8 of 9
<PAGE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter covered by
this Form 10-Q.
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: October 30, 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> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 144,424
<SECURITIES> 1,441,863
<RECEIVABLES> 1,475,030
<ALLOWANCES> 194,126
<INVENTORY> 1,284,869
<CURRENT-ASSETS> 4,482,920
<PP&E> 3,518,196
<DEPRECIATION> 3,239,125
<TOTAL-ASSETS> 4,766,991
<CURRENT-LIABILITIES> 1,254,336
<BONDS> 0
0
0
<COMMON> 15,185,692
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,766,991
<SALES> 2,226,163
<TOTAL-REVENUES> 2,226,163
<CGS> 1,069,415
<TOTAL-COSTS> 1,595,503
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,212
<INCOME-PRETAX> (444,607)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (444,607)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0.00
</TABLE>
