UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report
(Date of earliest event reported) December 18, 2002
INSIGNIA SYSTEMS, INC.
----------------------
(Exact name of registrant as specified in its chapter)
Minnesota 0-19380 41-1656308
- ---------------------------- ----------- -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
6470 Sycamore Court North, Maple Grove, Minnesota 55369
- ------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (763) 392-6200
--------------
(Former name or former address, if changed since last report)
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
This Form 8-K/A includes the following financial statements and pro forma
financial information for the Registrant's acquisition of the assets comprising
the ValuStix (R) business from Paul A. Richards, Inc., as described in Form 8-K
filed December 31, 2002.
(a) Financial statements of businesses acquired.
Audited Financial Statements of ValuStix as of and for the Years Ended
December 31, 2000 and 2001
And
Unaudited Financial Statements of ValuStix as of and for the Nine Months
Ended September 30, 2001 and 2002
Report of Independent Auditors
Balance Sheets
Statements of Operations and Owners' Equity
Statements of Cash Flows
Notes to Financial Statements
(b) Pro forma financial information
Unaudited Pro Forma Condensed Combined Financial Statements of
Insignia Systems, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet as of
September 30, 2002
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Nine Months Ended September 30, 2002
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 2001
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
(c) Exhibits
Ex. No. Description
- ------- -----------
23.1 Consent of Ernst & Young LLP, Independent Auditors (filed herewith)
2
Report of Independent Auditors
The Board of Directors and Management
ValuStix
We have audited the accompanying balance sheets of ValuStix, an operating unit
within Paul A. Richards, Inc., as of December 31, 2000 and 2001, and the related
statements of operations and owners' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ValuStix at December 31, 2000
and 2001, and the results of its operations and its cash flows for the years
then ended, in conformity with accounting principles generally accepted in the
United States.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
January 22, 2003
3
VALUSTIX
BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
2000 2001 2002
----------- ----------- -----------
(UNAUDITED)
ASSETS
Current assets:
Receivables $ 47,500 $ 43,621 $ --
Deferred program costs 64,084 -- --
----------- ----------- -----------
111,584 43,621 --
Property and equipment:
Equipment 83,097 96,754 97,695
Furniture, fixtures, and equipment 3,762 3,762 3,762
----------- ----------- -----------
86,859 100,516 101,457
Accumulated depreciation (48,805) (61,204) (71,740)
----------- ----------- -----------
Net property and equipment 38,054 39,312 29,717
----------- ----------- -----------
Total assets $ 149,638 $ 82,933 $ 29,717
=========== =========== ===========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable $ 38,751 $ 10,213 $ 3,491
Accrued liabilities 2,565 2,691 --
Deferred revenue 70,000 -- --
----------- ----------- -----------
Total liabilities 111,316 12,904 3,491
Owner's equity
Contributed capital 1,023,153 2,066,687 2,732,358
Accumulated deficit (984,831) (1,996,658) (2,706,132)
----------- ----------- -----------
38,322 70,029 26,226
----------- ----------- -----------
Total liabilities and owners' equity $ 149,638 $ 82,933 $ 29,717
=========== =========== ===========
SEE ACCOMPANYING NOTES.
4
VALUSTIX
STATEMENTS OF OPERATIONS AND OWNERS' EQUITY
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
2000 2001 2001 2002
--------------------------- ---------------------------
(UNAUDITED)
Sales $ 105,000 $ 113,621 $ -- $ 29,292
Cost of sales 147,272 166,482 -- 61,280
--------------------------- ---------------------------
Gross margin (loss) (42,272) (52,861) -- (31,988)
Operating expenses:
Sales and marketing 691,187 808,430 735,680 561,553
General and administrative 127,261 150,536 163,667 115,933
--------------------------- ---------------------------
818,448 958,966 899,347 677,486
--------------------------- ---------------------------
Net loss (860,720) (1,011,827) (899,347) (709,474)
Owners' equity
Beginning of year 38,581 38,322 38,322 70,029
Contributions of services by owner -- 69,902 69,902 --
Contributions by owner 860,461 973,632 842,599 665,671
--------------------------- ---------------------------
End of year $ 38,322 $ 70,029 $ 51,476 $ 26,226
=========================== ===========================
SEE ACCOMPANYING NOTES.
5
VALUSTIX
STATEMENTS OF CASH FLOWS
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
2000 2001 2001 2002
--------------------------- ---------------------------
OPERATING ACTIVITIES
Net loss $ (860,720) $(1,011,827) $ (899,347) $ (709,474)
Adjustments to reconcile net loss to net
cash (used in) operating activities:
Depreciation 16,044 12,399 12,305 10,536
Contribution of services by owner -- 69,902 69,902 --
Changes in operating assets and
liabilities:
Receivables (47,500) 3,879 47,500 43,621
Prepaid expenses (64,084) 64,084 43,541 --
Accounts payable 38,751 (28,538) (38,751) (6,722)
Accrued liabilities 2,565 126 (1,163) (2,691)
Deferred revenue 70,000 (70,000) (70,000) --
--------------------------- ---------------------------
Net cash used in operating activities (844,944) (959,975) (836,013) (664,730)
INVESTING ACTIVITIES
Capital expenditures (15,517) (13,657) (6,586) (941)
--------------------------- ---------------------------
Net cash used in investing activities (15,517) (13,657) (6,586) (941)
FINANCING ACTIVITIES
Capital contributed by owner 860,461 973,632 842,599 665,671
--------------------------- ---------------------------
Net cash provided by financing activities 860,461 973,632 842,599 665,671
--------------------------- ---------------------------
Net increase (decrease) in cash $ -- $ -- $ -- $ --
=========================== ===========================
SEE ACCOMPANYING NOTES.
6
16
VALUSTIX
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
ValuStix (the Company) is an operating unit within Paul A. Richards, Inc. (PAR),
a New York company. These financial statements reflect the financial position,
results of operations, and cash flows of ValuStix, as if it were a stand-alone
company.
The ValuStix business is a proprietary system that allows retailers and
manufacturers to attach coupons and other promotional materials to products that
are sold in grocery stores and other retail locations. Coupons and promotional
materials are applied to any product at the point-of-production in pressure
sensitive booklets via customized equipment. The booklets can be adhered to all
categories of products, including frozen foods, refrigerated foods, dairy
products and produce.
BASIS OF PRESENTATION
The financial statements have been derived from the financial statements and
accounting records of Paul A. Richards, Inc. using the historical results of
operations and historical basis of certain assets and liabilities of the
Company's business. Management believes the assumptions underlying the financial
statements are reasonable. However, the financial statements included herein may
not necessarily reflect the Company's results of operations, financial position,
and cash flows in the future or what its results of operations, financial
position, and cash flows would have been had the Company been a stand-alone
company during the periods presented.
The financial statements include allocations of certain Paul A. Richards, Inc.
corporate assets, liabilities, and expenses to the ValuStix business that is
being sold to an outside party (see Note 3). Product costs are based on direct
labor, overhead and materials assigned to each coupon project. Sales, marketing,
and general and administrative wages and benefits are based on actual time
devoted to ValuStix operations. Overhead costs have been allocated based on the
ratio of wages and benefits allocated to ValuStix as a percentage of Paul A.
Richards, Inc.'s total wages and benefits. Overhead primarily includes rent,
utilities, accounting and other administrative costs. Management believes the
costs of these services charged to the Company are a reasonable representation
of the costs that would have been incurred if the Company had performed these
functions as a stand-alone company.
7
VALUSTIX
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The information presented as of September 30, 2002 and for the nine months ended
September 30, 2001 and 2002 is unaudited. In the opinion of management of PAR,
the accompanying unaudited financial statements contain all adjustments
considered necessary for the fair presentation of ValuStix's financial position
as of September 30, 2002, the results of its operations for the nine month
periods ended September 30, 2001 and 2002 and its cash flows for the nine months
ended September 30, 2001 and 2002.
ACCOUNTS RECEIVABLE
The Company grants credit to customers in the normal course of business, but
generally does not require collateral or any other security to support amounts
due.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets as follows:
Equipment 3 - 5 years
Furniture and fixtures 7 years
IMPAIRMENT OF LONG-LIVED ASSETS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) 144 "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
LONG-LIVED ASSETS," which was effective January 1, 2002. SFAS 144 supercedes
SFAS 121 and further clarifies the accounting for disposals of long-lived
assets. The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
REVENUE RECOGNITION
The Company recognizes revenue over the period of service related to the coupon
projects.
8
VALUSTIX
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
PAR, with the consent of its shareholder, elected to be taxed as an S
corporation under the Internal Revenue Code and applicable state statutes.
Consequently, no income taxes are recorded in the financial statements since the
net income (loss) will be included in the tax returns of the shareholder.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. These estimates include an allocation of costs by Paul A.
Richards, Inc., among other estimates. Actual results could differ from those
estimates.
2. CONCENTRATIONS
MAJOR CUSTOMERS
During the year ended December 31, 2000 six customers each accounted for 16% of
the Company's total net sales. At December 31, 2000 two customers accounted for
all of the Company's accounts receivable. During the year ended December 31,
2001 one customer accounted for 38% of the Company's total net sales and all of
its accounts receivable as of December 31, 2001.
Although there are a number of customers that the Company sells to, the loss of
a major customer could cause a delay in and possible loss of sales, which would
adversely affect operating results.
SUPPLIERS
The Company subcontracts with one vendor for the printing of the ValuStix
coupons. Although there are a limited number of printers capable of providing
this service, management believes that other printers could provide the coupons
on comparable terms. The time required to locate and qualify other printers,
however, could cause a delay that may be financially disruptive to the Company.
9
VALUSTIX
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SUBSEQUENT EVENT
On December 23, 2002, all of the assets comprising the ValuStix business were
acquired by Insignia Systems, Inc. (Insignia), a Minnesota company, for
$3,000,000 in cash, plus a five-year royalty based on annual net sales over a
threshold amount, pursuant to an Asset Purchase Agreement dated December 23,
2002 between Paul A. Richards, Inc. and Insignia. The price was determined based
on the value of the assets transferred and expectations concerning future sales
of the product line. Insignia is not related to Paul A. Richards, Inc. in any
manner.
10
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the combined financial position or results of operations for future periods or
the financial position or results of operations that actually would have been
realized had Insignia Systems, Inc. and ValuStix been a combined company during
the specified periods. The unaudited pro forma condensed combined financial
statements, including the related notes, are qualified in their entirety by
reference to, and should be read in conjunction with, the historical financial
statements and related notes of Insignia Systems, Inc., included in its Form
10-K and Form 10-Q filed with the Securities and Exchange Commission on March
29, 2002 and October 31, 2002, respectively, and the historical audited
financial statements and related notes of ValuStix, included elsewhere in this
Form 8-K/A.
The following unaudited pro forma condensed combined financial statements are
accounted for in accordance with Statement of Financial Accounting Standards No.
141, BUSINESS COMBINATIONS (SFAS 141). The purchase price allocation is
preliminary. The pro forma condensed combined financial statements are based on
the respective historical financial statements of Insignia Systems, Inc. and
ValuStix and assumes the acquisition took place on January 1, 2001. The pro
forma adjustments are based on the estimates and assumptions set forth in the
notes to such statements.
11
INSIGNIA SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2002
Insignia
Systems, Pro Forma
Inc. ValuStix Adjustments Combined
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 2,640,777 $ -- $ (3,000,000) (a) $ 6,681,777
7,041,000 (c)
Accounts receivable, net 3,420,395 -- 3,420,395
Inventories 803,743 -- 803,743
Prepaid expenses 275,109 -- 275,109
-----------------------------------------------------------------
Total Current Assets 7,140,024 -- 4,041,000 11,181,024
--
Property and Equipment, at cost 3,132,727 101,457 (101,457) (b) 3,132,727
15,000 (a) 15,000
Accumulated depreciation and amortization (2,531,901) (71,740) 71,740 (b) (2,531,901)
-----------------------------------------------------------------
Total Property and Equipment 600,826 29,717 (14,717) 615,826
Other Assets:
Goodwill -- -- 2,985,000 (a) 2,985,000
-----------------------------------------------------------------
Total Assets $ 7,740,850 $ 29,717 $ 7,011,283 $ 14,781,850
=================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 322,458 $ -- $ 322,458
Accounts payable 486,418 3,491 (3,491) (b) 486,418
Accrued liabilities 2,416,869 -- -- 2,416,869
Deferred revenue 507,998 -- 507,998
-----------------------------------------------------------------
Total Current Liabilities 3,733,743 3,491 (3,491) 3,733,743
Shareholders' Equity:
Common stock 109,274 8,161 (c) 117,435
Additional paid-in capital 18,759,854 7,032,839 (c) 25,792,693
Contributed capital 2,732,358 (2,732,358) (b) --
Accumulated deficit (14,862,021) (2,706,132) 2,706,132 (b) (14,862,021)
-----------------------------------------------------------------
Total Shareholders' Equity 4,007,107 26,226 7,014,774 11,048,107
-----------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 7,740,850 $ 29,717 $ 7,011,283 $ 14,781,850
=================================================================
SEE ACCOMPANYING NOTES.
12
INSIGNIA SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
Insignia
Systems, Pro Forma
Inc. ValuStix Adjustments Combined
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Net Sales $ 16,913,907 $ 29,292 $ 16,943,199
Cost of Sales 6,726,743 61,280 (6,840) (d) 6,781,183
-----------------------------------------------------------------
Gross Profit (Loss) 10,187,164 (31,988) 6,840 10,162,016
Operating Expenses
POPS 5,460,173 -- -- 5,460,173
Sales and marketing 2,728,044 561,553 (61,560) (d) 3,228,037
General and administrative 1,876,021 115,933 (8,286) (e) 1,983,668
-----------------------------------------------------------------
10,064,238 677,486 (69,846) 10,671,878
-----------------------------------------------------------------
Operating Income (Loss) 122,926 (709,474) 76,686 (509,862)
Other Income (Expense)
Interest income 37,895 -- -- 37,895
Interest expense (44,476) -- -- (44,476)
Other income (expense) (93,943) -- -- (93,943)
-----------------------------------------------------------------
(100,524) -- (100,524)
-----------------------------------------------------------------
Net Income (Loss) $ 22,402 $ (709,474) 76,686 $ (610,386)
=================================================================
Net income (loss) per share:
Basic $ 0.00 $ (0.05)
Diluted $ 0.00 $ (0.05)
Shares used in calculation of net income (loss) per share:
Basic 10,802,774 11,618,874
Diluted 11,679,294 12,495,394
SEE ACCOMPANYING NOTES.
13
INSIGNIA SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
Insignia
Systems, Pro Forma
Inc. ValuStix Adjustments Combined
------------ ------------ ------------ ------------
(UNAUDITED)
Net Sales $ 19,933,166 $ 113,621 $ 20,046,787
Cost of Sales 8,571,771 166,482 (6,189) (d) 8,732,064
-----------------------------------------------------------------
Gross Profit (Loss) 11,361,395 (52,861) 6,189 11,314,723
Operating Expenses
POPS 6,045,848 6,045,848
Sales and marketing 2,894,417 808,430 (26,873) (d) 3,675,974
General and administrative 2,302,361 150,536 (9,399) (e) 2,443,498
-----------------------------------------------------------------
11,242,626 958,966 (36,272) 12,165,320
-----------------------------------------------------------------
Operating Income (Loss) 118,769 (1,011,827) 42,461 (850,597)
Other Income (Expense)
Interest income 61,895 -- 61,895
Interest expense (69,828) -- (69,828)
Other income (expense) 9,994 -- 9,994
-----------------------------------------------------------------
2,061 -- 2,061
-----------------------------------------------------------------
Net Income (Loss) $ 120,830 $ (1,011,827) 42,461 $ (848,536)
=================================================================
Net income (loss) per share:
Basic $ 0.01 $ (0.08)
Diluted $ 0.01 $ (0.08)
Shares used in calculation of net income (loss) per share:
Basic 10,470,075 11,286,175
Diluted 11,539,760 12,355,860
SEE ACCOMPANYING NOTES.
14
INSIGNIA SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Certain historical data of ValuStix has been classified to conform to
Insignia's presentation. The unaudited pro forma weighted average number of
shares outstanding (basic and diluted) are based upon Insignia Systems, Inc.'s
amounts, plus 816,100 shares issued in a December 18, 2002 private placement.
2. ALLOCATION OF PURCHASE PRICE
The December 23, 2002 estimated purchase price of ValuStix has been
allocated as follows:
Goodwill $ 2,985,000
Property and equipment 15,000
-----------
$ 3,000,000
===========
3. KEY TO PRO FORMA ADJUSTMENTS
The unaudited pro forma condensed combined balance sheet and statements
of operations include the adjustments necessary to give effect to the purchase
price as if it had occurred on January 1, 2001 and to reflect the allocation of
the purchase price to the fair value of the assets acquired as noted above,
including the elimination of ValuStix's equity accounts. Summarized below are
the pro forma adjustments necessary to reflect the acquisition of ValuStix based
upon the purchase method of accounting in accordance with SFAS 141:
a. Record the purchase price allocation.
b. Eliminate the assets and liabilities not acquired as part of the
acquisition and also eliminate the equity accounts of ValuStix.
c. Record common stock issued in a private placement, a portion of
the proceeds of which were used to purchase ValuStix.
d. Reduce compensation paid to Paul A. Richards to agree to level in
Employment Agreement dated December 23, 2002.
e. Reduce depreciation expense to reflect lower cost basis of
property and equipment.
15
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 hereunto duly authorized.
Insignia Systems, Inc.
------------------------------------------
(Registrant)
Date: February 27, 2003
----------------- By /s/ Denni Jo Lester
------------------------------------------
(Denni Jo Lester, Chief Financial Officer)
16
EXHIBIT INDEX
Ex. No. Description
- ------- -----------
23.1 Consent of Ernst & Young LLP, Independent Auditors (filed herewith)
17