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, 2002
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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 -- 10,906,765 shares as of July 20, 2002.
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, 2002 and December 31, 2001
Statements of Operations - Three months ended June 30, 2002 and 2001;
Six months ended June 30, 2002 and 2001
Statements of Cash Flows -- Six months ended June 30, 2002 and 2001
Notes to Financial Statements - June 30, 2002
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
June 30, December 31,
ASSETS 2002 2001
----------------------------------------------------------------- ------------ ------------
(UNAUDITED) (NOTE)
CURRENT ASSETS:
Cash and cash equivalents $ 2,661,123 $ 2,209,448
Marketable securities 0 80,000
Accounts receivable - net of $218,511 allowance 3,471,849 2,995,527
Inventories 829,319 843,965
Prepaid expenses and other 385,273 146,002
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TOTAL CURRENT ASSETS 7,347,564 6,274,942
PROPERTY AND EQUIPMENT:
Production tooling, machinery and equipment 1,753,281 1,740,462
Office furniture and fixtures 243,051 243,051
Computer equipment 589,285 517,510
Leasehold improvements 275,292 266,836
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2,860,909 2,767,859
Accumulated depreciation and amortization (2,486,636) (2,411,900)
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TOTAL PROPERTY AND EQUIPMENT 374,273 355,959
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TOTAL ASSETS $ 7,721,837 $ 6,630,901
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts payable 1,566,054 $ 2,140,452
Accrued compensation and benefits 473,103 509,636
Accrued expenses 635,301 25,028
Deferred revenue 206,916 151,214
Line of credit 317,310 511,619
Other 75,007 53,618
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TOTAL CURRENT LIABILITIES 3,273,691 3,391,567
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; authorized--20,000,000 shares;
issued and outstanding June 30, 2002--10,906,765 shares;
December 31, 2001--10,614,098 shares 109,068 106,141
Additional paid-in capital 18,701,884 18,017,617
Accumulated deficit (14,362,806) (14,884,424)
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TOTAL STOCKHOLDERS' EQUITY 4,448,146 3,239,334
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 7,721,837 $ 6,630,901
============ ============
Note: The balance sheet at December 31, 2001 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 Six Months Ended
June 30 June 30
------------------------------- -------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
NET SALES $ 5,822,882 $ 4,625,223 $ 11,837,999 $ 9,772,723
Cost of Sales 2,133,384 1,965,338 4,610,562 4,183,871
------------ ------------ ------------ ------------
GROSS PROFIT 3,689,498 2,659,885 7,227,437 5,588,852
OPERATING EXPENSES:
POPS Program 1,806,328 1,457,001 3,600,766 2,787,206
Sales 302,231 307,054 626,890 633,792
Marketing 623,135 516,291 1,100,088 944,735
General & Administrative 662,451 491,719 1,277,290 1,028,612
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 3,394,145 2,772,065 6,605,034 5,394,345
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 295,353 (112,180) 622,403 194,507
OTHER INCOME (EXPENSE):
Interest Income 12,645 18,509 23,087 36,525
Interest Expense (14,829) (19,067) (28,698) (38,252)
Other Income (Expense) (100,853) 24,140 (95,781) 24,824
------------ ------------ ------------ ------------
PRE-TAX INCOME (LOSS) 192,316 (88,598) 521,011 217,604
Provision for Income Tax (9,397) 10,575 (607) 15,650
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NET INCOME (LOSS) $ 201,713 $ (99,173) $ 521,618 $ 201,954
============ ============ ============ ============
Basic Earnings (Loss) per share $ 0.02 $ (0.01) $ .05 $ 0.02
============ ============ ============ ============
Diluted Earnings (Loss) per share $ 0.02 $ (0.01) $ .04 $ 0.02
============ ============ ============ ============
Shares used in calculation of net
income (loss) per share:
Basic 10,801,128 10,401,404 10,750,602 10,381,673
============ ============ ============ ============
Diluted 11,744,213 10,401,404 11,670,733 11,648,003
============ ============ ============ ============
Page 4 of 9
INSIGNIA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30
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2002 2001
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OPERATING ACTIVITIES:
Net income (loss) $ 521,618 $ 201,954
Non-cash expenses included in income (loss):
Depreciation and amortization 74,736 84,928
Provision for bad debt expense (42,000) 9,948
Amortization of unearned compensation 0 5,753
Changes in operating assets & liabilities:
Accounts receivable (434,322) (510,206)
Inventories 14,646 240,201
Prepaids and other (74,271) 121,090
Accounts payable (574,398) 474,297
Accrued compensation and benefits (36,533) (39,691)
Deferred revenue 55,702 43,488
Accrued expenses and other 631,662 (86,427)
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NET CASH USED IN OPERATING ACTIVITIES 136,840 545,335
INVESTING ACTIVITIES:
(Purchase) Sale of property and equipment (93,050) (143,775)
(Purchase) Sale of marketable securities 80,000 80,000
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (13,050) (63,775)
FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 522,194 262,735
Proceeds (to) from credit line (194,309) (92,092)
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CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 327,885 170,643
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INCREASE (DECREASE) IN CASH & EQUIVALENTS 451,675 652,203
Cash and equivalents at beginning of period 2,209,448 1,106,160
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,661,123 $ 1,758,363
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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 accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United
States 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, 2002 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2002. For further information, refer to
the financial statements and footnotes thereto for the year ended December 31,
2001.
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, 2002)
RESULTS OF OPERATIONS
NET SALES. The Company's net sales for the second quarter ended June 30, 2002
were $5,823,000, an increase of 26%, compared to net sales of $4,625,000 for the
second quarter of 2001. For the six months ended June 30, 2002, net sales were
$11,838,000, an increase of 21% compared to net sales of $9,773,000 for the
first half of 2001. POPS program sales increased 37% from $6,833,000 in the
first half of 2001 to $9,348,000 for the first half of 2002. Thermal sign card
sales decreased 13% from $1,479,000 during the first half of 2001 to $1,280,000
in the first half of 2002. Printing sales decreased 10% from $858,000 in the
first half of 2001 to $769,000 in the first half of 2002.
Page 6 of 9
GROSS PROFIT. The Company's gross profit for the second quarter of 2002
increased 39% to $3,689,000, compared to $2,660,000 for the second quarter of
2001. Gross profit for the first six months of 2002 increased 29% to $7,227,000,
compared to $5,589,000 for the first half of 2001. The increase in gross profit
for the second quarter and the first six months of 2002 is primarily due to the
increase in the POPS program sales. Gross profit as a percentage of net sales
was 63.4% for the second quarter of 2002, compared to 57.5% for the second
quarter of 2001, and was 61.1% for the first six months of 2002, compared to
57.2% for the first half of 2001.
OPERATING EXPENSES. Operating expenses increased 22% in the second quarter of
2002 compared to the second quarter of 2001. Sales expenses decreased 2% for the
second quarter of 2002, compared to the second quarter of 2001. Marketing
expenses increased 21% for the second quarter of 2002, compared to the second
quarter of 2001. This increase was due primarily to additional sign promotional
expenses incurred during the second quarter of 2002. General and administrative
expenses increased 35% for the second quarter of 2002, compared to the second
quarter of 2001. This increase was due primarily to increased legal expenses.
POPS expenses increased 24% for the second quarter of 2002, compared to the
second quarter of 2001 and reflects the continuing commitment to the POPS
program.
Operating expenses increased 22% for the first six months of 2002, compared to
the first six months of 2001. Sales expenses decreased 1% for the first sixth
months of 2002, compared to the first six months of 2001. Marketing expenses
increased 16% for the first six months of 2002 compared to the first six months
of 2001 and is due primarily to additional sign promotional expenses during the
first six months of 2002. General and administrative expenses increased 24% for
the first six months of 2002, compared to the first six months of 2001. This
increase was due primarily to increased legal expenses. POPS expenses increased
29% for the first six months of 2002, compared to the first six months of 2001.
This increase in POPS operating expenses for the first six months of 2002
reflects the continuing commitment to the POPS program.
Operating expenses as a percentage of net sales were 58% in the second quarter
of 2002 and 56% for the first six months of 2002, compared to 60% in the second
quarter of 2001 and 55% for the first six months of 2001.
NET INCOME (LOSS). The Company had a net income of $202,000, or $.02 per share
for the second quarter of 2002, compared to a net loss of $(99,000), or $(.01)
per share for the second quarter of 2001. For the first six months of 2002, the
net income was $522,000, or $0.05 per share, compared to a net income of
$202,000, or $.02 per share for the first half of 2001. The net income for the
first half of 2002 and for the second quarter of 2002, compared to the first
half of 2001 and the second quarter of 2001 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, 2002, working capital was $4,074,000, compared to $2,883,000 at
December 31, 2001. Cash, cash equivalents and marketable securities increased
$452,000 from $2,209,000 at December 31, 2001 to $2,661,000 on June 30, 2002,
primarily due to the net income of $522,000, an increase in accrued expenses and
other expenses of $632,000 and the proceeds received from the issuance of common
stock of $522,000, offset by an increase in accounts receivable of $434,000, a
decrease in accounts payable of $574,000, an increase in prepaids and other of
$74,000 and a decrease in the credit line of $194,000.
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 22, 2002.
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:
WITHHOLD
FOR AUTHORITY
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Scott F. Drill 10,058,194 98,600
G. L. Hoffman 6,628,743 3,528,051
Erwin A. Kelen 10,084,794 72,000
Gordon F. Stofer 10,087,194 69,600
W. Robert Ramsdell 9,447,244 709,550
Frank D. Trestman 10,082,994 73,800
Gary L. Vars 10,057,994 98,800
Page 8 of 9
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 9,682,991 shares in favor, 454,868
shares against, and 18,935 shares abstaining.
The shareholders present or by proxy voted to approve the appointment
of Ernst & Young LLP as independent auditors with 10,116,089 votes in
favor, 14,800 votes against, and 25,905 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 30, 2002 Insignia Systems, Inc.
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(Registrant)
/s/ Scott Drill
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Scott Drill
President
/s/ John R. Whisnant
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John R. Whisnant
Vice President of Finance
Page 9 of 9