Insignia Systems, Inc. Form 10-Q

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, 2001

Commission File Number:      0-19380

INSIGNIA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

Minnesota 41-1656308
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
   
5025 Cheshire Lane North, Plymouth, Minnesota 55446
(Address of principal executive offices) (Zip Code)

(763) 392-6200
(Registrant’s telephone number, including area code)

Not applicable
(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 — 10,426,409 shares as of July 20, 2001.

Total number of pages:     9


Page 1 of 9

INDEX

REGISTRANT COMPANY AND SUBSIDIARIES



PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements (Unaudited)

    Balance Sheets — June 30, 2001 and December 31, 2000

    Statements of Operations — Three months ended June 30, 2001 and 2000; Six months
  ended June 30, 2001 and 2000

    Statements of Cash Flows — Six months ended June 30, 2001 and 2000

    Notes to Financial Statements — June 30, 2001

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 9

Part I. Financial Information
Item 1. Financial Statements

INSIGNIA SYSTEMS, INC.
BALANCE SHEETS

ASSETS June 30,
2001
(Unaudited)
December 31,
2000
(Note)
   
CURRENT ASSETS:            
     Cash and cash equivalents   $ 1,758,363    1,106,160  
     Marketable securities    80,000    160,000  
     Accounts receivable – net of $116,191 allowance    2,590,044    2,089,786  
     Inventories    1,002,201    1,242,402  
     Prepaid expenses and other    95,702    216,792  

       TOTAL CURRENT ASSETS    5,526,310    4,815,140  
   
PROPERTY AND EQUIPMENT:  
     Production tooling, machinery and equipment    1,731,608    1,713,240  
     Office furniture and fixtures    239,413    201,457  
     Computer equipment    461,027    399,447  
     Leasehold improvements    204,667    178,796  

     2,636,715    2,492,940  
     Accumulated depreciation and amortization    (2,327,815 )  (2,242,887 )

       TOTAL PROPERTY AND EQUIPMENT    308,900    250,053  
   

           TOTAL ASSETS   $ 5,835,210   $ 5,065,193  

   
LIABILITIES AND STOCKHOLDERS’ EQUITY  
   
CURRENT LIABILITIES:  
     Accounts payable   $ 1,463,005   $ 988,707  
     Accrued compensation and benefits    400,105    439,795  
     Accrued expenses    100,305    149,800  
     Line of credit    510,760    602,852  
     Other    278,362    271,807  

       TOTAL CURRENT LIABILITIES    2,752,537    2,452,961  
   
STOCKHOLDERS’ EQUITY:  
     Common stock, par value $.01; authorized — 20,000,000 shares;  
       issued and outstanding June 30, 2001—10,425,842 shares;  
       December 31, 2000 — 10,287,371 shares    104,258    102,874  
     Additional paid-in capital    17,785,550    17,524,200  
     Unearned compensation    (3,835 )  (9,588 )
     Accumulated Deficit    (14,803,300 )  (15,005,254 )

       TOTAL STOCKHOLDERS’ EQUITY    3,082,673    2,612,232  

         TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY   $ 5,835,210   $ 5,065,193  


Note: The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date. See Notes to Financial Statements.


Page 3 of 9

INSIGNIA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)


Three Months Ended
June 30
Six Months Ended
June 30
2001 2000 2001 2000
   
NET SALES     $ 4,625,223   $ 3,047,996   $ 9,772,723   $ 5,926,222  
Cost of Sales    1,965,338    1,413,461    4,183,871    2,718,438  

     GROSS PROFIT    2,659,885    1,634,535    5,588,852    3,207,784  
   
OPERATING EXPENSES:  
    POPS Program    1,457,001    833,836    2,787,206    1,589,731  
    Sales    307,054    330,245    633,792    674,228  
    Marketing    516,291    286,695    944,735    556,560  
    General & Administrative    491,719    430,284    1,028,612    872,067  

       TOTAL OPERATING EXPENSES    2,772,065    1,881,060    5,394,345    3,692,586  

           OPERATING INCOME (LOSS)    (112,180 )  (246,525 )  194,507    (484,802 )
   
OTHER INCOME (EXPENSE):  
    Interest Income    18,509    17,537    36,525    35,536  
    Interest Expense    (19,067 )  (31,799 )  (38,252 )  (63,906 )
    Other Income (Expense)    24,140    12,390    24,824    11,469  

PRE-TAX INCOME (LOSS)    (88,598 )  (248,396 )  217,604    (501,703 )
   
Provision for Income Tax    10,575    500    15,650    1,000  

           NET INCOME (LOSS)   $ (99,173 ) $ (248,896 ) $ 201,954   $ (502,703 )

   
Net Income (Loss) per share   $ (0.01 ) $ (0.03 ) $ 0.02   $ (0.05 )

   
Shares used in calculation of  
net loss per share:  
   Basic    10,401,404    9,765,421    10,381,673    9,541,161  

   Diluted    10,401,404    9,765,421    11,648,003    9,541,161  


  

Page 4 of 9

INSIGNIA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)


Six Months Ended
June 30
2001 2000
OPERATING ACTIVITIES:            
     Net income (loss)   $ 201,954   $ (502,703 )
     Non-cash expenses included in income (loss):  
         Depreciation and amortization    84,928    83,418  
         Provision for bad debt expense    9,948    70,000  
         Amortization of unearned compensation    5,753    9,588  
   
     Changes in operating assets & liabilities:  
             Accounts receivable    (510,206 )  (852,257 )
             Inventories    240,201    73,309  
             Prepaids and other    121,090    (69,844 )
             Accounts payable    474,297    697,192  
             Accrued compensation and benefits    (39,691 )  (5,605 )
             Other accrued expenses    (42,939 )  25,708  

         NET CASH USED IN OPERATING ACTIVITIES    545,335    (471,194 )
   
INVESTING ACTIVITIES:  
     (Purchase) Sale of property and equipment    (143,775 )  (54,064 )
     (Purchase) Sale of marketable securities    80,000    531,141  

         NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES    (63,775 )  477,077  
   
FINANCING ACTIVITIES:  
     Proceeds from issuance of Common Stock    262,735    554,470  
     Principal payments under long-term debt agreement        (60,960 )
     Proceeds (to) from credit line    (92,092 )  (119,289 )

         CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES    170,643    374,221  

   
         INCREASE (DECREASE) IN CASH & EQUIVALENTS    652,203    380,104  
   
Cash and equivalents at beginning of period    1,106,160    64,091  

         CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 1,758,363   $ 444,195  


Page 5 of 9

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, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. For further information, refer to the financial statements and footnotes thereto for the year ended December 31, 2000.

NOTE B — INVENTORIES

Inventories consist primarily of Finished Goods on site.

Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition

(Second Quarter Ended June 30, 2001)

Results of Operations

Net Sales. The Company’s net sales for the second quarter ended June 30, 2001 were $4,625,000, an increase of 52%, compared to net sales of $3,048,000 for the second quarter of 2000. For the six months ended June 30, 2001, net sales were $9,773,000, an increase of 65% compared to net sales of $5,926,000 for the first half of 2000. Revenue from the sales of machines, cartridges and machine maintenance was $251,000 for the first half of 2001 versus similar sales of $400,000 for the first half of 2000. Stylus software and maintenance sales decreased from $413,000 in the first half of 2000 to $269,000 in the first half of 2001. Thermal sign card sales decreased 25% from $1,971,000 during the first half of 2000 to $1,479,000 in the first half of 2001. Printing sales increased 5% from $819,000 in the first half of 2000 to $858,000 in the first half of 2001. POPS program sales increased 200% from $2,276,000 in the first half of 2000 to $6,833,000 for the first half of 2001.


Page 6 of 9

Gross Profit. The Company’s gross profit for the second quarter of 2001 increased 63% to $2,660,000, compared to $1,635,000 for the second quarter of 2000. Gross profit for the first six months of 2001 increased 74% to $5,589,000, compared to $3,208,000 for the first half of 2000. The increase in gross profit for the second quarter and the first six months of 2001 is primarily due to the increase in the POPS program sales. Gross profit as a percentage of net sales was 57.5% for the second quarter of 2001, compared to 53.6% for the second quarter of 2000, and was 57.2% for the first six months of 2001, compared to 54.1% for the first half of 2000.

Operating Expenses. Operating expenses increased 47% in the second quarter of 2001 compared to the second quarter of 2000, and increased 46% for the first six months of 2001, compared to the first six months of 2000. Sales expenses decreased 7% for the second quarter of 2001, compared to the second quarter of 2000. This decrease was due primarily to lower commission and bonuses paid during the second quarter of 2001. Marketing expenses increased 80% for the second quarter of 2001, compared to the second quarter of 2000. This increase was due primarily to additional sign promotional expenses incurred during the second quarter of 2001. General and administrative expenses increased 14% for the second quarter of 2001, compared to the second quarter of 2000. This increase was due primarily to increased legal expenses. POPS expenses increased 75% for the second quarter of 2001, compared to the second quarter of 2000 and reflects the continuing commitment to the POPS program.

Sales expenses decreased 6% for the first sixth months of 2001, compared to the first six months of 2000. This decrease reflects the lower commissions and bonuses paid during the first six months of 2001. Marketing expenses increased 70% for the first six months of 2001 compared to the first six months of 2000 and is due primarily to additional sign promotional expenses during the first six months of 2001. General and administrative expenses increased 18% for the first six months of 2001, compared to the first six months of 2000. This increase was due primarily to increased legal expenses. POPS expenses increased 75% for the first six months of 2001, compared to the first six months of 2000. This increase in POPS operating expenses for the first six months of 2001 reflects the continuing commitment to the POPS program.

Operating expenses as a percentage of net sales were 67% in the second quarter of 2001 and 55% for the first six months of 2001, compared to 62% in the second quarter of 2000 and 62% for the first six months of 2000.

Net Income (Loss). The Company had a net loss of $(99,000), or $(.01) per share for the second quarter of 2001, compared to a net loss of $(249,000), or $(.03) per share for the second quarter of 2000. For the first six months of 2001, the net income was $202,000, or $0.02 per share, compared to a net loss of $(503,000), or $(.05) per share for the first half of 2000. The net income for the first half of 2001 and the decrease in the net loss for the second quarter of 2001, compared to the first half of 2000 and the first half of 2000 resulted primarily from the company’s ability to increase its sales at a proportionally higher rate than the increase in operating expenses.


Page 7 of 9

Liquidity and Capital Resources

At June 30, 2001, working capital was $2,774,000, compared to $2,362,000 at December 31, 2000. Cash, cash equivalents and marketable securities increased $652,000 from $1,106,0000 at December 31, 2000 to $1,758,000 on June 30, 2001, primarily due to the net income of $202,000, a decrease in inventory of $240,000, an increase in accounts payable of $474,000, and the proceeds received from the issuance of common stock of $263,000, offset by plus an increase in accounts receivable of $515,000.

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.

Item 4. Submission of Matters to a Vote of Security Holders

  The Company held its Annual Meeting of Shareholders on May 17, 2001. The shareholders present or by proxy voted to elect Scott Drill, G. L. Hoffman, Erwin A. Kelen, W. Robert Ramsdell, Gordon F. Stofer, Frank D. Trestman and Gary L. Vars as directors with each director receiving the following votes:

FOR WITHHOLD
AUTHORITY
Scott F. Drill 8,872,872  19,600 
G. L. Hoffman 8,439,314  453,158 
Erwin A. Kelen 8,886,872  5,600 
Gordon F. Stofer 8,886,872  5,600 
W. Robert Ramsdell 8,885,872  6,600 
Frank D. Trestman 8,859,089  33,383 
Gary L. Vars 8,872,872  19,600 


Page 8 of 9


  The shareholders present or by proxy voted to ratify an amendment to the Company’s Stock Plan to increase by 500,000 shares the number of shares available under the Plan with 8,602,449 shares in favor, 282,948 shares against, and 7,075 shares abstaining.

  The shareholders present or by proxy voted to approve the appointment of Ernst & Young LLP as independent auditors with 8,875,922 votes in favor, 9,830 votes against, and 6,720 votes abstaining.

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: July 23, 2001 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