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, 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 -- 10,274,771 shares as of October 17, 2000.
Total number of pages: 11
Page 1 of 11
<PAGE>
INDEX
REGISTRANT COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - September 30, 2000 and December 31, 1999
Statements of Operations - Three months ended September 30, 2000 and
1999; Nine months ended September 30, 2000 and 1999
Statements of Cash Flows -- Nine months ended September 30, 2000 and
1999
Notes to Financial Statements - September 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 11
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
INSIGNIA SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
-------------------------------------------------------- ------------- -------------
(UNAUDITED) (NOTE)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,400,204 $ 64,091
Marketable securities 164,594 1,186,933
Accounts receivable (net of allowance of $106,186
as of 9/30/2000 and $71,000 as of 12/31/1999) 2,044,747 1,281,154
Inventories 1,083,366 1,217,784
Prepaid expenses & other 77,274 74,138
------------- -------------
TOTAL CURRENT ASSETS 4,770,185 3,824,100
PROPERTY AND EQUIPMENT:
Production tooling, machinery and equipment 1,781,620 1,743,020
Office furniture and fixtures 262,768 262,767
Computer equipment 864,899 833,440
Leasehold improvements 108,167 105,151
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3,017,454 2,944,378
Accumulated depreciation and amortization (2,841,964) (2,725,077)
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TOTAL PROPERTY AND EQUIPMENT 175,490 219,301
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TOTAL ASSETS $ 4,945,675 $ 4,043,401
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts payable $ 865,845 $ 387,396
Accrued compensation and benefits 272,263 209,016
Accrued expenses 247,999 149,800
Current portion of long-term debt 0 81,967
Line of credit 732,789 807,020
Other 198,936 391,370
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TOTAL CURRENT LIABILITIES 2,317,832 2,026,569
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; authorized--20,000,000
shares; issued and outstanding September 30, 2000--
10,274,711 shares; December 31, 1999--9,327,946 shares 102,747 93,279
Additional paid-in capital 17,438,753 16,134,002
Unearned compensation 66,062 (28,764)
Accumulated deficit (14,979,719) (14,181,685)
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TOTAL STOCKHOLDERS' EQUITY 2,627,843 2,016,832
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 4,945,675 $ 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 11
<PAGE>
INSIGNIA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 2,863,480 $ 2,364,464 $ 8,789,702 6,955,427
Cost of Sales 1,172,138 1,177,281 3,890,576 3,469,601
----------- ----------- ----------- -----------
GROSS PROFIT 1,691,342 1,187,183 4,899,126 3,485,826
OPERATING EXPENSES:
POPS Program 908,988 697,962 2,498,719 1,939,399
Sales 289,755 279,130 963,983 790,210
Marketing 293,348 167,854 849,908 508,691
General & Administrative 490,589 422,152 1,362,656 1,298,565
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 1,982,680 1,567,098 5,675,266 4,536,865
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (291,338) (379,915) (776,140) (1,051,039)
OTHER INCOME (EXPENSE):
Interest Income 25,317 13,314 60,853 34,065
Interest Expense (29,970) (24,401) (93,876) (42,900)
Other Income (Expense) 1,160 1,508 12,629 12,059
----------- ----------- ----------- -----------
PRE-TAX INCOME (LOSS) (294,831) (389,494) (796,534) (1,047,815)
Provision for Income Tax 500 500 1,500 1,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (295,331) $ (389,994) $ (798,034) $(1,048,815)
=========== =========== =========== ===========
Net Income (Loss) per share $ (0.03) $ (0.04) $ (0.08) $ (0.12)
=========== =========== =========== ===========
Shares used in calculation of
Net income (loss) per share:
Basic and diluted 9,730,697 9,250,246 9,721,471 8,685,630
</TABLE>
Page 4 of 11
<PAGE>
INSIGNIA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
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2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (798,034) $(1,048,815)
Non-cash expenses included in income (loss):
Depreciation and amortization 116,867 169,793
Provision for bad debt expense 115,000 45,000
Amortization of unearned compensation 94,826 14,374
Changes in operating assets & liabilities:
Accounts receivable (878,593) (116,636)
Inventories 134,418 35,209
Prepaids and other (3,136) 99,422
Accounts payable 478,449 95,069
Accrued compensation and benefits 63,247 (3,547)
Other accrued expenses (94,235) (402,354)
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NET CASH USED IN OPERATING ACTIVITIES (771,191) (1,112,485)
INVESTING ACTIVITIES:
(Purchase) Sale of property and equipment (73,056) (147,286)
(Purchase) Sales of marketable securities 1,022,339 866,463
------------ ------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 949,283 719,177
FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 1,314,219 845,350
Principal payments under long-term debt agreement (81,967) (74,783)
Proceeds from (payments to) credit line (74,231) 951,687
------------ ------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,158,021 1,722,254
INCREASE (DECREASE) IN CASH & EQUIVALENTS 1,336,113 1,328,946
Cash and equivalents at beginning of period 64,091 0
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,400,204 $ 1,328,946
============ ============
</TABLE>
Page 5 of 11
<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 nine month period ended September 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.
NOTE C - GENERAL & ADMINISTRATIVE EXPENSE
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, ACCOUNTING FOR CERTAIN TRANSACTIONS involving Stock
Compensation, an interpretation of APB Opinion No. 25. The Interpretation, which
has been adopted prospectively as of July 1, 2000, requires that stock options
that have been modified to reduce the exercise price be accounted for as
variable. The Company repriced 13,000 stock options on May 20, 1999, and reduced
the exercise price to $1.50 per share, the then-current market price of the
stock. Under the Interpretation, the options are accounted for as variable from
July 1, 2000 until the options are exercised, forfeited or expire unexercised.
Prior to the adoption of the Interpretation, the Company accounted for these
repriced stock options as fixed. Because the market price of the Company's stock
increased since May 20, 1999, the effect of adopting the Interpretation was to
decrease net income for the quarter ended September 30, 2000 by $.008 per share.
NOTE D - LITIGATION
On August 7, 2000, News America Marketing In-Store, Inc., a major provider of
in-store, shelf mounted signs for retail stores, filed a suit against the
Company in federal district court in New Yor, New York. The compliant alleges
that News America has exclusive promotional agreements with various major retail
chains, and that those agreements prevented retailers from contracting for the
Page 6 of 11
<PAGE>
Company's POPS program. The complaint accuses the Company of interfering with
business relationships, unfair competition and false advertising and seeks an
injunction against the Company and actual and punitive damages in an unspecified
amount.
The Company believes that News America's suit is without merit. On August 11,
2000 the Company filed suit against News America in federal district court in
Minneapolis, Minnesota. The Company's suit alleges that News America has and is
engaged in anti-competitive practices and is attempting to use its dominant
position in the market to stifle competition. In particular, the Company's suit
alleges that News America is violating the anit-trust laws by attempting to use
unenforceable exclusive dealing clauses to dissuade customers from using the
Company's POPS program. The complaint seeks declaratory and injunctive relief,
actual damages in an unspecified amount and treble damages and attorneys fees
under federal antitrust law.
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(Third Quarter Ended September 30, 2000)
RESULTS OF OPERATIONS
NET SALES. The Company's net sales for the third quarter ended September 30,
2000 were $2,863,000, an increase of 21%, compared to net sales of $2,364,000
for the third quarter of 1999. For the nine months ended September 30, 2000, net
sales were $8,790,000, an increase of 26% compared to net sales of $6,955,000
for the first nine months of 1999. Revenue from the sales of machines,
cartridges and machine maintenance was $564,000 for the first nine months of
2000 versus similar sales of $748,000 for the first nine months of 1999. Stylus
software and maintenance sales decreased 9% from $619,000 in the first nine
months of 1999 to $563,000 in the first nine months of 2000. Thermal sign card
sales decreased 15% from $3,187,000 during the first nine months of 1999 to
$2,708,000 in the first nine months of 2000. Printing sales increased 19% from
$929,000 in the first nine months of 1999 to $1,110,000 in the first nine months
of 2000. POPS program sales increased 179% from $1,347,000 in the first nine
months of 1999 to $3,757,000 for the first nine months of 2000.
GROSS PROFIT. The Company's gross profit for the third quarter of 2000 increased
42% to $1,691,000, compared to $1,187,000 for the third quarter of 1999. Gross
profit for the first nine months of 2000 increased 41% to $4,899,000, compared
to $3,486,000 for the first nine months of 1999. The increase in gross profit
for the third quarter and the first nine months of 2000 is primarily due to the
increase in the POPS program sales which have higher margins. Gross profit as a
percentage of net sales was 59.1% for the third quarter of 2000, compared to
50.2% for the third quarter of 1999, and was 55.7% for the first nine months of
2000, compared to 50.1% for the first nine months of 1999.
Page 7 of 11
<PAGE>
OPERATING EXPENSES. Operating expenses increased 27% in the third quarter of
2000 compared to the third quarter of 1999, and increased 25% for the first nine
months of 2000, compared to the first nine months of 1999. Sales expenses
increased 4% for the third quarter of 2000, compared to the third quarter of
1999. Marketing expenses increased 75% for the third quarter of 2000, compared
to the third quarter of 1999. This increase was due primarily to additional sign
promotional expenses incurred during the third quarter of 2000. General and
administrative expenses increased 16% for the third quarter of 2000, compared to
the third quarter of 1999. This increase was due primarily to the option
repricing under variable accounting rules. POPS expenses increased 30% for the
third quarter of 2000, compared to the third quarter of 1999 and reflects the
continuing commitment to the POPS program.
Sales expenses increased 22% for the first nine months of 2000, compared to the
first nine months of 1999. This increase reflects additional commissions and
bonuses paid during the first nine months of 2000 as a result in the increase in
sales in the Printing areas, plus additional expenses incurred relative to
Stylus maintenance. Marketing expenses increased 67% for the first nine months
of 2000, compared to the first nine months of 1999 and is due primarily to
additional sign promotional expenses during the first nine months of 2000.
General and administrative expenses increased 5% for the first nine months of
2000, compared to the first nine months of 1999. POPS expenses increased 29% for
the first nine months of 2000, compared to the first nine months of 1999. This
increase in POPS operating expenses for the first nine months of 2000 reflects
the continuing commitment to the POPS program.
Operating expenses as a percentage of net sales were 69% in the third quarter of
2000 and 65% for the first nine months of 2000, compared to 66% in the third
quarter of 1999 and 65% for the first nine months of 1999.
NET INCOME (LOSS). The Company had a net loss of $(295,000), or $(.03) per share
for the third quarter of 2000, compared to a net loss of $(390,000), or $(.04)
per share for the third quarter of 1999. For the first nine months of 2000, the
net loss was $(798,000), or $(0.08) per share, compared to a net loss of
$(1,049,000), or $(.12) per share for the first nine months of 1999. The
decrease in net loss for the first nine months of 2000 and the third quarter of
2000, compared to the first nine months of 1999 and the third quarter of 1999
resulted primarily from the company's ability to increase its net sales at a
proportionally higher rate than the increase in operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, working capital was $2,452,000, compared to $1,798,000 at
December 31, 1999. Cash, cash equivalents and marketable securities increased
$314,000 from $1,251,000 at December 31, 1999 to $1,565,000 on September 30,
2000, primarily due to the net loss of $798,000 and a increase in accounts
receivable of $879,000, offset by the proceeds received from the issuance of
common stock of $1,314,000, plus an increase in accounts payable of $478,000,
and a decrease in inventories of $134,000.
Page 8 of 11
<PAGE>
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
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No. Description Page
--- ----------- ----
27 Financial Data Schedule 11
(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 11
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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: October 31, 2000 Insignia Systems, Inc.
---------------------------------
(Registrant)
/s/ Scott Drill
-----------------------------
Scott Drill
President
/s/ John R. Whisnant
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John R. Whisnant
Vice President of Finance
Page 10 of 11
