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, 1999
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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.)
5025 Cheshire Lane North, Plymouth, Minnesota 55446
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(Address of principal executive offices) (Zip Code)
(612) 392-6200
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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 -- 8,726,496 shares as of July 19, 1999.
Total number of pages: 10
Page 1 of 10
<PAGE>
INDEX
REGISTRANT COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets -- June 30, 1999 and December 31, 1998
Statements of Operations -- Three months ended June 30, 1999 and 1998;
Six months ended June 30, 1999 and 1998
Statements of Cash Flows -- Six months ended June 30, 1999 and 1998
Notes to Financial Statements -- June 30, 1999
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 10
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Part I. Financial Information
Item 1. Financial Statements
INSIGNIA SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
- ---------------------------------------------------------- ------------ ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 242,106 $ 0
Marketable securities 250,555 1,120,100
Accounts receivable - net of $114,056 allowance 1,201,804 1,280,021
Inventories 1,267,412 1,210,500
Prepaid expenses & other 120,441 187,784
------------ ------------
TOTAL CURRENT ASSETS 3,082,318 3,798,405
PROPERTY AND EQUIPMENT:
Production tooling, machinery and equipment 1,729,418 1,894,577
Office furniture and fixtures 262,767 358,602
Computer equipment 816,739 954,096
Leasehold improvements 100,585 35,134
------------ ------------
2,909,509 3,242,409
Accumulated depreciation and amortization (2,628,722) (2,972,303)
------------ ------------
TOTAL PROPERTY AND EQUIPMENT 280,787 270,106
------------ ------------
TOTAL ASSETS $ 3,363,105 $ 4,068,511
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 588,485 $ 518,529
Accrued compensation and benefits 143,942 176,746
Accrued expenses 94,227 85,138
Current portion of long-term debt 119,941 114,087
Line of credit 0 0
Other 294,232 672,084
------------ ------------
TOTAL CURRENT LIABILITIES 1,240,827 1,566,584
LONG-TERM DEBT 20,011 72,018
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; authorized--20,000,000 shares;
issued and outstanding June 30, 1999--8,726,496 shares;
December 31, 1998--8,499,800 shares 87,265 84,998
Additional paid-in capital 15,482,404 15,163,071
Unearned compensation (38,352) (47,932)
Accumulated deficit (13,429,050) (12,770,228)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 2,102,267 2,429,909
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 3,363,105 $ 4,068,511
============ ============
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date. See Notes to Financial Statements.
Page 3 of 10
<PAGE>
INSIGNIA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 2,300,111 $ 2,194,172 $ 4,590,963 $ 4,526,098
Cost of Sales 1,145,352 1,127,071 2,292,320 2,442,969
----------- ----------- ----------- -----------
GROSS PROFIT 1,154,759 1,067,101 2,298,643 2,083,129
OPERATING EXPENSES:
Restructuring Charge 0 (62,103) 0 510,190
POPS Program 684,107 401,188 1,241,437 770,840
Sales 273,009 439,611 511,080 1,043,461
Marketing 169,445 200,314 340,837 483,012
Product Development 0 105,322 0 233,891
General & Administrative 430,687 472,430 876,413 987,007
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 1,557,258 1,556,762 2,969,767 4,028,401
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (402,499) (489,661) (671,124) (1,945,272)
OTHER INCOME (EXPENSE):
Interest Income 8,523 6,618 20,751 11,505
Interest Expense (8,214) (42,713) (18,499) (70,037)
Other Income (Expense) 3,026 36,073 10,551 30,404
----------- ----------- ----------- -----------
PRE-TAX INCOME (LOSS) (399,164) (489,683) (658,321) (1,973,400)
Provision for Income Tax 0 1,500 500 2,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (399,164) $ (491,183) $ (658,821) $(1,975,400)
=========== =========== =========== ===========
Net Income (Loss) per share $ (0.05) $ (0.06) $ (0.08) $ (0.29)
=========== =========== =========== ===========
Shares used in calculation of
net loss per share:
Basic and diluted 8,726,496 8,377,721 8,649,948 6,919,820
=========== =========== =========== ===========
</TABLE>
Page 4 of 10
<PAGE>
INSIGNIA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (658,821) $(1,975,400)
Non-cash expenses included in income (loss):
Depreciation and amortization 118,025 123,621
Provision for bad debt expense 30,000 51,000
Amortization of unearned compensation 9,580 2,250
Changes in operating assets & liabilities:
Accounts receivable 48,217 1,110,913
Inventories (56,912) 234,610
Prepaids and other 67,343 215,147
Accounts payable 69,956 32,805
Accrued compensation and benefits (32,804) (68,286)
Other accrued expenses (368,763) (108,637)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (774,179) (381,977)
INVESTING ACTIVITIES:
Purchases of property and equipment (128,706) 37,873
Purchase of marketable securities 869,545 297,862
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 740,839 335,735
FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 321,600 1,899,668
Principal payments under long-term debt agreement (46,153) (50,319)
Proceeds from credit line 0 305,391
----------- -----------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 275,447 2,154,740
----------- -----------
INCREASE (DECREASE) IN CASH & EQUIVALENTS 242,107 2,108,498
Cash and equivalents at beginning of period 0 0
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 242,107 $ 2,108,498
=========== ===========
</TABLE>
Page 5 of 10
<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, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. For further information, refer to the financial statements
and footnotes thereto for the year ended December 31, 1998.
NOTE B -- INVENTORIES
Inventories consist primarily of Finished Goods on site.
Page 6 of 10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(Second Quarter Ended June 30, 1999)
RESULTS OF OPERATIONS
NET SALES. The Company's net sales for the second quarter ended June 30, 1999
were $2,300,000, an increase of 5%, compared to net sales of $2,194,000 for the
second quarter of 1998. For the six months ended June 30, 1999, net sales were
$4,591,000, an increase of 1% compared to net sales of $4,526,000 for the first
half of 1998. Revenue from the sales of machines, cartridges and machine
maintenance was $549,000 for the first half of 1999 versus similar sales of
$446,000 for the first half of 1998. Stylus software and maintenance sales
decreased 1% during the first half of 1999 compared to the first half of 1998.
Thermal sign card sales decreased 10% for the first half of 1999 ($2,217,000)
versus sales for the first half of 1998 ($2,452,000). Printing sales decreased
24% for the first half of 1999 versus the first half of 1998. POPS program sales
increased from $33,000 in the first half of 1998 to $795,000 for the first half
of 1999.
GROSS PROFIT. The Company's gross profit for the second quarter of 1999
increased 5% to $1,155,000, compared to $1,067,000 for the second quarter of
1998. Gross profit for the first six months of 1999 increased 10% to $2,299,000,
compared to $2,083,000 for the first half of 1998. The increase in gross profit
for the second quarter and the first six months of 1999 is primarily due to the
increase in the POPS program sales. Gross profit as a percentage of net sales
was 50.2% for the second quarter of 1999, compared to 48.6% for the second
quarter of 1998, and was 50.1% for the first six months of 1999, compared to 46%
for the first half of 1998.
OPERATING EXPENSES. Operating expenses remained flat in the second quarter of
1999 compared to the second quarter of 1998, and decreased 26% for the first six
months of 1999, compared to the first six months of 1998. Sales expenses
decreased 38% for the second quarter of 1999, compared to the second quarter of
1998. Marketing expenses decreased 16% for the second quarter of 1999, compared
to the second quarter of 1998. Product development expenses went from $105,000
for the second quarter of 1998 to $0 for the second quarter of 1999. General and
administrative expenses decreased 9% for the second quarter of 1999, compared to
the second quarter of 1998. POPS expenses increased 70% for the second quarter
of 1999, compared to the second quarter of 1998.
Sales expenses decreased 51% for the first sixth months of 1999, compared to the
first six months of 1998. Marketing expenses decreased 30% for the first six
months of 1999, compared to the first six months of 1998. Product development
expenses were $234,000 for the first six months of 1998, compared to $0 for the
first six months of 1999. General and administrative expenses decreased 11% for
the first six months of 1999, compared to the first six months of 1998. POPS
expenses increased 61% for the first six months of 1999, compared to the first
six months of 1998. The decrease in sales expenses, marketing expenses, and
general and administrative expenses for both the second quarter of 1999 and for
the first six months of 1999 resulted from the corporate restructuring and
downsizing which occurred in January and April of 1998. The increase in POPS
operating expenses for both the second quarter of 1999 and the first six months
of 1999 reflect the continuing commitment to the POPS program during the first
six months of 1999.
Page 7 of 10
<PAGE>
Operating expenses as a percentage of net sales were 68% in the second quarter
of 1999 and 65% for the first six months of 1999, compared to 71% in the second
quarter of 1998 and 89% for the first six months of 1998. The decrease as a
percentage of net sales in 1999 was primarily the result of the corporate
restructuring and downsizing which occurred in 1998.
NET INCOME (LOSS). The Company had a net loss of $(399,000), or $(.05) per share
for the second quarter of 1999, compared to a net loss of $(491,000), or $(.06)
per share for the second quarter of 1998. For the first six months of 1999, the
net loss was $(659,000), or $(0.08) per share, compared to a net loss of
$(1,975,000), or $(.29) per share for the first half of 1998. The decrease in
net loss for the first half of 1999, compared to the first half of 1998 resulted
primarily from a decrease in operating expenses of more than $1,300,000 while
sales increased almost $200,000 for the same period. A decrease in the net loss
for the second quarter of 1999 was due primarily to an increase in sales, while
operating expenses remained flat.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, working capital was $1,841,000, compared to $2,232,000 at
December 31, 1998. Cash, cash equivalents and marketable securities increased
from $0 at December 1, 1998 to $242,000 on June 30, 1999, primarily due to the
proceeds received from the issuance of common stock and the sale of marketable
securities offset by the net operating loss and the purchase of property and
equipment.
The Company anticipates that its working capital needs will continue to increase
due to the expected growth in the business. However, 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
Page 8 of 10
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 20, 1999.
The shareholders present or by proxy voted to elect Scott Drill, G. L.
Hoffman, Erwin A. Kelen, Don Schultz, Gordon F. Stofer, Frank D.
Trestman, and Gary L. Vars as directors with each director receiving
the following votes:
WITHHOLD
FOR AUTHORITY
--- ---------
G. L. Hoffman 6,337,650 782,462
Scott F. Drill 7,043,825 36,687
Erwin A. Kelen 7,022,692 57,820
Don E. Schultz 7,044,025 36,487
Gordon F. Stofer 7,044,025 36,487
Frank D. Trestman 7,022,692 57,820
Gary L. Vars 7,043,825 36,687
The shareholders present or by proxy voted to ratify an amendment to
the Company's Stock Plan to increase by 250,000 shares the number of
shares available under the Plan with 6,660,125 shares in favor, 305,787
shares against, and 114,600 shares abstaining.
The shareholders present or by proxy voted to approve the appointment
of Ernst & Young LLP as independent auditors with 7,056,512 votes in
favor, 19,000 votes against, and 5,000 votes abstaining.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter covered by
this Form 10-Q.
Page 9 of 10
<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: July 28, 1999 Insignia Systems, Inc.
-----------------------------------------
(Registrant)
/s/ Scott Drill
------------------------------------
Scott Drill
President
/s/ John R. Whisnant
------------------------------------
John R. Whisnant
Vice President of Finance
Page 10 of 10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 242,106
<SECURITIES> 250,555
<RECEIVABLES> 1,315,860
<ALLOWANCES> (114,056)
<INVENTORY> 1,267,412
<CURRENT-ASSETS> 3,082,318
<PP&E> 2,909,509
<DEPRECIATION> (2,628,722)
<TOTAL-ASSETS> 3,363,105
<CURRENT-LIABILITIES> 1,240,827
<BONDS> 0
0
0
<COMMON> 15,569,669
<OTHER-SE> (38,352)
<TOTAL-LIABILITY-AND-EQUITY> 3,363,105
<SALES> 2,300,111
<TOTAL-REVENUES> 2,311,660
<CGS> 1,145,352
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,557,258
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,214
<INCOME-PRETAX> (399,164)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (399,164)
<EPS-BASIC> (.05)
<EPS-DILUTED> 0
</TABLE>
