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, 2000
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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.)
5025 Cheshire Lane North, Plymouth, Minnesota 55446
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(Address of principal executive offices) (Zip Code)
(763) 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 -- 9,872,071 shares as of July 17, 2000.
Total number of pages: 15
Page 1 of 15
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INDEX
REGISTRANT COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
---------------------------------
Item 1. Financial Statements (Unaudited)
Balance Sheets - June 30, 2000 and December 31, 1999
Statements of Operations - Three months ended June 30, 2000 and
1999; Six months ended June 30, 2000 and 1999
Statements of Cash Flows -- Six months ended June 30, 2000 and 1999
Notes to Financial Statements - June 30, 2000
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Item 3. Quantative and Qualitive Disclosures About Market Risk
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 15
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
INSIGNIA SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
--------------------------------------------------------- ------------ ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 444,195 $ 64,091
Marketable securities 655,792 1,186,933
Accounts receivable - net of $106,940 allowance 2,063,411 1,281,154
Inventories 1,144,475 1,217,784
Prepaid expenses & other 143,982 74,138
------------ ------------
TOTAL CURRENT ASSETS 4,451,855 3,824,100
PROPERTY AND EQUIPMENT:
Production tooling, machinery and equipment 1,774,609 1,743,020
Office furniture and fixtures 262,767 262,767
Computer equipment 852,919 833,440
Leasehold improvements 108,167 105,151
------------ ------------
2,998,462 2,944,378
Accumulated depreciation and amortization (2,808,515) (2,725,077)
------------ ------------
TOTAL PROPERTY AND EQUIPMENT 189,947 219,301
------------ ------------
TOTAL ASSETS $ 4,641,802 $ 4,043,401
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
---------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,084,588 $ 387,396
Accrued compensation and benefits 203,411 209,016
Accrued expenses 248,180 149,800
Current portion of long-term debt 21,007 81,967
Line of credit 687,731 807,020
Other 318,698 391,370
------------ ------------
TOTAL CURRENT LIABILITIES 2,563,615 2,026,569
LONG-TERM DEBT 0 0
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; authorized--20,000,000 shares;
issued and outstanding June 30, 2000--9,675,421 shares;
December 31, 1999--9,327,946 shares 96,754 93,279
Additional paid-in capital 16,684,997 16,134,002
Unearned compensation (19,176) (28,764)
Accumulated deficit (14,684,388) (14,181,685)
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TOTAL STOCKHOLDERS' EQUITY 2,078,187 2,016,832
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 4,641,802 $ 4,043,401
============ ============
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the
audited financial statements at that date. See Notes to Financial
Statements.
Page 3 of 15
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INSIGNIA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 3,047,996 $ 2,300,111 $ 5,926,222 $ 4,590,963
Cost of Sales 1,413,461 1,145,352 2,718,438 2,292,320
------------ ------------ ------------ ------------
GROSS PROFIT 1,634,535 1,154,759 3,207,784 2,298,643
OPERATING EXPENSES:
POPS Program 833,836 684,107 1,589,731 1,241,437
Sales 330,245 273,009 674,228 511,080
Marketing 286,695 169,445 556,560 340,837
General & Administrative 438,284 430,687 872,067 876,413
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 1,881,060 1,557,258 3,692,586 2,969,767
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) (246,525) (402,499) (484,802) (671,124)
OTHER INCOME (EXPENSE):
Interest Income 17,537 8,523 35,536 20,751
Interest Expense (31,798) (8,214) (63,906) (18,499)
Other Income (Expense) 12,390 3,026 11,469 10,551
------------ ------------ ------------ ------------
PRE-TAX INCOME (LOSS) (248,396) (399,164) (501,703) (658,321)
Provision for Income Tax 500 0 1,000 500
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (248,896) $ (399,164) $ (502,703) $ (658,821)
============ ============ ============ ============
Net Income (Loss) per share $ (0.03) $ (0.05) $ (0.05) $ (0.08)
============ ============ ============ ============
Shares used in calculation of
net loss per share:
Basic and diluted 9,675,421 8,726,496 9,541,161 8,649,948
============ ============ ============ ============
</TABLE>
Page 4 of 15
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INSIGNIA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (502,703) $ (658,821)
Non-cash expenses included in income (loss):
Depreciation and amortization 83,418 118,025
Provision for bad debt expense 70,000 30,000
Amortization of unearned compensation 9,588 9,580
Changes in operating assets & liabilities:
Accounts receivable (852,257) 48,217
Inventories 73,309 (56,912)
Prepaids and other (69,844) 67,343
Accounts payable 697,192 69,956
Accrued compensation and benefits (5,605) (32,804)
Other accrued expenses 25,708 (368,763)
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NET CASH USED IN OPERATING ACTIVITIES (471,194) (774,179)
INVESTING ACTIVITIES:
(Purchase) Sale of property and equipment (54,064) (128,706)
(Purchase) Sale of marketable securities 531,141 869,545
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 477,077 740,839
FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 554,470 321,600
Principal payments under long-term debt agreement (60,960) (46,153)
Proceeds (to) from credit line (119,289) 0
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CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 374,221 275,447
---------- ----------
INCREASE (DECREASE) IN CASH & EQUIVALENTS 380,104 242,107
Cash and equivalents at beginning of period 64,091 0
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 444,195 $ 242,107
========== ==========
</TABLE>
Page 5 of 15
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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 June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. For further information, refer to the financial statements
and footnotes thereto for the year ended December 31, 1999.
NOTE B -- INVENTORIES
Inventories consist primarily of Finished Goods on site.
Page 6 of 15
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Item 2. Managements Discussion and Analysis of Results of Operations and
Financial Condition
(Second Quarter Ended June 30, 2000)
RESULTS OF OPERATIONS
NET SALES. The Company's net sales for the second quarter ended June 30, 2000
were $3,048,000, an increase of 33%, compared to net sales of $2,300,000 for the
second quarter of 1999. For the six months ended June 30, 2000, net sales were
$5,926,000, an increase of 29% compared to net sales of $4,591,000 for the first
half of 1999. Revenue from the sales of machines, cartridges and machine
maintenance was $400,000 for the first half of 2000 versus similar sales of
$549,000 for the first half of 1999. Stylus software and maintenance sales
increased 7% from $385,000 in the first half of 1999 to $413,000 in the first
half of 2000. Thermal sign card sales decreased 11% from $2,217,000 during the
first half of 1999 to $1,971,000 in the first half of 2000. Printing sales
increased 49% from $550,000 in the first half of 1999 to $819,000 in the first
half of 2000. POPS program sales increased 186% from $795,000 in the first half
of 1999 to $2,276,000 for the first half of 2000.
GROSS PROFIT. The Company's gross profit for the second quarter of 2000
increased 42% to $1,635,000, compared to $1,155,000 for the second quarter of
1999. Gross profit for the first six months of 2000 increased 40% to $3,208,000,
compared to $2,299,000 for the first half of 1999. The increase in gross profit
for the second quarter and the first six months of 2000 is primarily due to the
increase in the POPS program sales. Gross profit as a percentage of net sales
was 53.6% for the second quarter of 2000, compared to 50.2% for the second
quarter of 1999, and was 54.1% for the first six months of 2000, compared to
50.1% for the first half of 1999.
OPERATING EXPENSES. Operating expenses increased 21% in the second quarter of
2000 compared to the second quarter of 1999, and increased 24% for the first six
months of 2000, compared to the first six months of 1999. Sales expenses
increased 21% for the second quarter of 2000, compared to the second quarter of
1999. This increase was due primarily to additional commission and bonuses paid
during the second quarter of 2000 relating to the increase in Stylus and
Printing sales. Marketing expenses increased 70% for the second quarter of 2000,
compared to the second quarter of 1999. This increase was due primarily to
additional sign promotional expenses incurred during the second quarter of 2000.
General and administrative expenses remained flat for the second quarter of
2000, compared to the second quarter of 1999. POPS expenses increased 21% for
the second quarter of 2000, compared to the second quarter of 1999 and reflects
the continuing commitment to the POPS program.
Sales expenses increased 32% for the first six months of 2000, compared to the
first six months of 1999. This increase reflects the additional commissions and
bonuses paid during the first six months of 2000 as a result in the increase in
sales in the Stylus and Printing areas. Marketing expenses increased 63% for the
first six months of 2000, compared to the first six months of 1999 and is due
primarily to additional sign promotional expenses during the first six months of
2000. General and
Page 7 of 15
<PAGE>
administrative expenses remained flat for the first six months of 2000, compared
to the first six months of 1999. POPS expenses increased 28% for the first six
months of 2000, compared to the first six months of 1999. This increase in POPS
operating expenses for the first six months of 2000 reflects the continuing
commitment to the POPS program.
Operating expenses as a percentage of net sales were 62% in the second quarter
of 2000 and 62% for the first six months of 2000, compared to 68% in the second
quarter of 1999 and 65% for the first six months of 1999.
NET INCOME (LOSS). The Company had a net loss of $(249,000), or $(.03) per share
for the second quarter of 2000, compared to a net loss of $(400,000), or $(.05)
per share for the second quarter of 1999. For the first six months of 2000, the
net loss was $(503,000), or $(0.05) per share, compared to a net loss of
$(659,000), or $(.08) per share for the first half of 1999. The decrease in net
loss for the first half of 2000 and the second quarter of 2000, compared to the
first half of 1999 and the first half of 1999 resulted primarily from the
company's ability to increase its sales at a proportionally higher rate than the
increase in operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, working capital was $1,888,000, compared to $1,798,000 at
December 31, 1999. Cash, cash equivalents and marketable securities decreased
$151,000 from $1,251,0000 at December 31, 1999 to $1,100,000 on June 30, 2000,
primarily due to the net loss of $503,000 and a increase in accounts receivable
of $852,000, offset by the proceeds received from the issuance of common stock
of $554,000, plus an increase in accounts payable of $697,000.
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.
Item 3. Quantitive and Qualative Disclosures About Marketing Risk
None.
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 15
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Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 18, 2000.
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 7,700,183 717,176
Scott F. Drill 8,414,133 3,226
Erwin A. Kelen 8,414,333 3,026
W. Robert Ramsdell 8,414,133 3,226
Don E. Schultz 8,414,333 3,026
Gordon F. Stofer 8,413,533 3,826
Frank D. Trestman 8,414,333 3,026
Gary L. Vars 8,414,133 3,226
The shareholders present or by proxy voted to ratify an amendment to
the Company's Stock Plan to increase by 200,000 shares the number of
shares available under the Plan with 5,179,987 shares in favor, 322,658
shares against, and 32,100 shares abstaining.
The shareholders present or by proxy voted to ratify an amendment to
the Company's Employee Stock Purchase Plan to increase by 200,000
shares the number of shares available under the Plan and extend the
term of the Plan for three additional years through 2003 with 5,179,119
shares in favor, 308,026 shares against, and 29,600 shares abstaining.
The shareholders present or by proxy voted to approve the appointment
of Ernst & Young LLP as independent auditors with 8,384,833 votes in
favor, 22,526 votes against, and 10,000 votes abstaining.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No. Description Page
--- ----------- ----
10 Form of Change in Control Severence Agreement between
the Company and certain executive officers 11
27 Financial Data Schedule 15
(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 15
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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 21, 2000 Insignia Systems, Inc.
-------------------------------------
(Registrant)
/s/ Scott Drill
-------------------------------
Scott Drill
President
/s/ John R. Whisnant
-------------------------------
John R. Whisnant
Vice President of Finance
Page 10 of 15
