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, 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 -- 9,250,246 shares as of October 28, 1999.
Total number of pages: 9
Page 1 of 9
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INDEX
REGISTRANT COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - September 30, 1999 and December 31, 1998
Statements of Operations - Three months ended September 30, 1999 and
1998; Nine months ended September 30, 1999 and 1998
Statements of Cash Flows -- Nine months ended September 30, 1999 and
1998
Notes to Financial Statements - September 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 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 1999 1998
- ------------------------------------------------------ ------------ ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,328,946 $ 0
Marketable securities 253,637 1,120,100
Accounts receivable - net of $114,056 allowance 1,351,657 1,280,021
Inventories 1,175,291 1,210,500
Prepaid expenses & other 88,362 187,784
------------ ------------
TOTAL CURRENT ASSETS 4,197,893 3,798,405
PROPERTY AND EQUIPMENT:
Production tooling, machinery and equipment 1,735,535 1,894,577
Office furniture and fixtures 262,767 358,602
Computer equipment 826,254 954,096
Leasehold improvements 103,533 35,134
------------ ------------
2,928,089 3,242,409
Accumulated depreciation and amortization (2,680,490) (2,972,303)
------------ ------------
TOTAL PROPERTY AND EQUIPMENT 247,599 270,106
------------ ------------
TOTAL ASSETS $ 4,445,492 $ 4,068,511
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 613,598 $ 518,529
Accrued compensation and benefits 173,199 176,746
Accrued expenses 87,729 85,138
Current portion of long-term debt 111,322 114,087
Line of credit 951,687 0
Other 267,139 672,084
------------ ------------
TOTAL CURRENT LIABILITIES 2,204,674 1,566,584
LONG-TERM DEBT 0 72,018
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; authorized--20,000,000 shares;
issued and outstanding September 30, 1999--9,250,246 shares;
December 31, 1998--8,499,800 shares 92,502 84,998
Additional paid-in capital 16,000,917 15,163,071
Unearned compensation (33,558) (47,932)
Accumulated deficit (13,819,043) (12,770,228)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 2,240,818 2,429,909
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 4,445,492 $ 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 9
<PAGE>
INSIGNIA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 2,364,464 $ 2,226,163 $ 6,955,427 $ 6,752,261
Cost of Sales 1,177,281 1,069,415 3,469,601 3,512,384
------------ ------------ ------------ ------------
GROSS PROFIT 1,187,183 1,156,748 3,485,826 3,239,877
OPERATING EXPENSES:
Restructuring Charge 0 0 0 510,190
POPS Program 697,962 453,652 1,939,399 1,224,492
Sales 279,130 376,221 790,210 1,419,682
Marketing 167,854 157,502 508,691 640,514
Product Development 0 107,477 0 341,368
General & Administrative 422,152 500,651 1,298,565 1,487,658
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 1,567,098 1,595,503 4,536,865 5,623,904
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) (379,915) (438,755) (1,051,039) (2,384,027)
OTHER INCOME (EXPENSE):
Interest Income 13,314 27,125 34,065 38,630
Interest Expense (24,401) (35,212) (42,900) (105,249)
Other Income (Expense) 1,508 2,235 12,059 32,639
------------ ------------ ------------ ------------
PRE-TAX INCOME (LOSS) (389,494) (444,607) (1,047,815) (2,418,007)
Provision for Income Tax 500 0 1,000 2,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (389,994) $ (444,607) $ (1,048,815) $ (2,420,007)
============ ============ ============ ============
Net Income (Loss) per share $ (0.04) $ (0.05) $ (0.12) $ (0.32)
============ ============ ============ ============
Weighted average shares and
share equivalents outstanding 9,250,246 8,497,721 8,685,630 7,449,369
============ ============ ============ ============
</TABLE>
Page 4 of 9
<PAGE>
INSIGNIA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (1,048,815) $ (2,420,007)
Non-cash expenses included in income (loss):
Depreciation and amortization 169,793 203,625
Provision for bad debt expense 45,000 76,500
Amortization of unearned compensation 14,374 2,250
Changes in operating assets & liabilities:
Accounts receivable (116,636) 1,355,101
Inventories 35,209 332,709
Prepaids and other 99,422 209,168
Accounts payable 95,069 (36,790)
Accrued compensation and benefits (3,547) (75,346)
Other accrued expenses (402,354) (149,405)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (1,112,485) (502,195)
INVESTING ACTIVITIES:
Proceeds from sale of (purchases of) property and equipment (147,286) 31,979
Proceeds from sale of (purchases of) marketable securities 866,463 (977,026)
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 719,177 (945,047)
FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 845,350 2,033,551
Principal payments under long-term debt agreement (74,783) (76,438)
Proceeds from (payments to) credit line 951,687 (365,447)
------------ ------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,722,254 1,591,666
------------ ------------
INCREASE (DECREASE) IN CASH & EQUIVALENTS 1,328,946 144,424
Cash and equivalents at beginning of period 0 0
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,328,946 $ 144,424
============ ============
</TABLE>
Page 5 of 9
<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 September 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 9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(Third Quarter Ended September 30, 1999)
RESULTS OF OPERATIONS
NET SALES. The Company's net sales for the third quarter ended September 30,
1999 were $2,364,000, an increase of 6%, compared to net sales of $2,226,000 for
the third quarter of 1998. For the nine months ended September 30, 1999, net
sales were $6,955,000, an increase of 3% compared to net sales of $6,752,000 for
the first nine months of 1998. Revenue from the sale of sign cards used with the
Impulse Retail System and SIGNright system decreased by 15% over the first nine
months of 1998. Stylus software sales increased by 100% between the first nine
months of 1998 and the first nine months of 1999. Revenue from the POPS program
increased 450% between the first nine months of 1998 and the first nine months
of 1999. Printing revenues and machine revenues remained relatively flat between
the first nine months of 1999 and the first nine months of 1998.
GROSS PROFIT. The Company's gross profit for the third quarter of 1999 increased
3% to $1,187,000, compared to $1,157,000 for the third quarter of 1998. Gross
profit for the first nine months of 1999 increased 8% to $3,486,000, compared to
$3,240,000 for the first nine months of 1998. The increase in gross profit for
both the third quarter of 1999 and for the first nine months of 1999 is
primarily due to the overall mix of products being sold.
OPERATING EXPENSES. Operating expenses decreased 2% in the third quarter of 1999
compared to the third quarter of 1998. Sales expenses decreased 26% in the third
quarter of 1999, compared to the third quarter of 1998. This decrease was due
primarily to the reduction in personnel in the Stylus product area. Marketing
expenses increased 6% in the third quarter of 1999, compared to the third
quarter of 1998. Product development expenses went from $108,000 for the third
quarter of 1998 to $0 for the third quarter of 1999. General and administrative
expenses decreased 16% for the third quarter of 1999, compared to the third
quarter of 1998. This decrease was due primarily to a reduction in rent and
operating expenses as a result of the Company's move to a new location with a
43% reduction in square footage. POPS program expenses increased 54% from the
third quarter of 1999 from the third quarter of 1998 which reflects the
continued investment in both personnel and other programs for the POPS product.
Sales expenses decreased 35% during the first nine months of 1999, compared to
the first nine months of 1998, again resulting mostly from a reduction in Stylus
product personnel. Marketing expenses decreased 21% for the first nine months of
1999, compared to the first nine months of 1998. Product development expenses
were $341,000 for the first nine months of 1998, compared to $0 for the first
nine months of 1999. General and Administrative expenses decreased 13% for the
first nine months of 1999, compared to the first nine months of 1998, again
resulting mostly from the reduction in rent and operating costs. POPS expenses
increased 58% for the first nine months of 1999 compared to the first nine
months of 1998.
Page 7 of 9
<PAGE>
Operating expenses for the first nine months of 1999 decreased 19%, compared to
the first nine months of 1998. Operating expenses as a percentage of net sales
were 66% in the third quarter of 1999 and 65% for the first nine months of 1999,
compared to 72% in the third quarter of 1998 and 83% for the first nine months
of 1998. The decrease as a percentage of net sales in 1999 was primarily due to
the result of the corporate restructuring which occurred in 1998.
NET INCOME (LOSS). The Company had a net loss of $(390,000), or $(.04) per share
for the third quarter of 1999, compared to a net loss of $(445,000), or $(.05)
per share for the third quarter of 1998. For the first nine months of 1999, the
net loss was $(1,049,000), or $(.12) per share, compared to a net loss of
$(2,420,000), or $(.32) per share for the first nine months of 1998. The
decrease in net loss for the first nine months of 1999, compared to the net loss
for the first nine months of 1998 resulted primarily from the decrease in
operating expenses of more than $1,100,000, while gross profit increased more
than $200,000 for the same period. A slight decrease in the net loss for the
third quarter of 1999, compared to the third quarter of 1998 was due primarily
to an increase in sales while operating expenses remained flat.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, working capital was $1,993,000, compared to $2,232,000 at
December 31, 1998. Cash, cash equivalents and marketable securities increased
from $0 at December 31, 1998 to $1,329,000 at September 30, 1999, primarily due
to the proceeds received from the issuance of common stock and the sale of
marketable securities and the proceeds from the line of credit, 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 of 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
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
None
(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 28, 1999 Insignia Systems, Inc.
----------------------------------------
(Registrant)
/s/ Scott Drill
---------------------------------
Scott Drill
President
/s/ John R. Whisnant
---------------------------------
John R. Whisnant
Vice President of Finance
Page 9 of 9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,328,946
<SECURITIES> 253,637
<RECEIVABLES> 1,465,713
<ALLOWANCES> 114,056
<INVENTORY> 1,175,291
<CURRENT-ASSETS> 4,197,893
<PP&E> 2,298,089
<DEPRECIATION> 2,680,490
<TOTAL-ASSETS> 4,445,492
<CURRENT-LIABILITIES> 2,204,674
<BONDS> 0
0
0
<COMMON> 92,502
<OTHER-SE> 2,148,316
<TOTAL-LIABILITY-AND-EQUITY> 4,445,492
<SALES> 2,364,464
<TOTAL-REVENUES> 2,364,464
<CGS> 1,177,281
<TOTAL-COSTS> 1,567,098
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,401
<INCOME-PRETAX> 0
<INCOME-TAX> 500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (389,994)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
