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
