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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 quarterly period ended September 30, 2003

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from ___________________ to _________________

Commission File Number: 1-13471

Insignia Systems, Inc.
(Exact name of registrant as specified in its charter)


Minnesota   41-1656308  
(State or other jurisdiction of  (IRS Employer 
incorporation or organization)  Identification No.) 

6470 Sycamore Court North, Maple Grove, MN 55369
(Address of principal executive offices)

(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 registrant (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 period 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 o No

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2).
o Yes x No

        Number of shares outstanding of Common Stock, $.01 par value, as of November 7, 2003, was 12,397,769.


Page 1 of 21


INSIGNIA SYSTEMS, INC.

INDEX

PART I.   FINANCIAL INFORMATION  

Item 1. 		 
Financial Statements 		 
  
     Balance Sheets – September 30, 2003 and December 31, 2002 (unaudited)		 
  
     Statements of Operations – Three and nine months ended September 30, 2003 and 2002 (unaudited)		 
  
     Statements of Cash Flows – Nine months ended September 30, 2003 and 2002 (unaudited)		 
  
     Notes to Financial Statements – September 30, 2003 (unaudited)		 

Item 2. 		 
Management's Discussion and Analysis of Financial Condition and Results of Operations 		 

Item 3. 		 
Quantitative and Qualitative Disclosures About Market Risk 		 

Item 4. 		 
Controls and Procedures 		 


PART II. 		 

OTHER INFORMATION 		 

Item 1. 		 
Legal Proceedings 		 

Item 2. 		 
Changes in Securities and Use of Proceeds 		 

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


EXHIBITS

Page 2 of 21


PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements

INSIGNIA SYSTEMS, INC.
BALANCE SHEETS
(Unaudited)

September 30,
2003
 December 31,
2002
ASSETS            

CURRENT ASSETS:		  
     Cash and cash equivalents   $ 4,780,595   $ 6,471,581  
     Accounts receivable, net    4,704,902    5,263,701  
     Inventories    671,644    975,876  
     Prepaid expenses and other    568,926    77,248  
       TOTAL CURRENT ASSETS    10,726,067    12,788,406  

PROPERTY AND EQUIPMENT:		  
     Production tooling, machinery and equipment    1,756,736    2,046,208  
     Office furniture and fixtures    257,547    257,547  
     Computer equipment    675,637    645,742  
     Leasehold improvements    278,977    174,143  
     Construction-in-progress    —    50,936  
     2,968,897    3,174,576  
     Accumulated depreciation and amortization    (2,194,035 )  (2,281,838 )
        TOTAL PROPERTY AND EQUIPMENT    774,862    892,738  

OTHER ASSETS:		  
     Goodwill    3,092,788    3,041,186  
     Other    416,666    —  
        TOTAL OTHER ASSETS    3,509,454    3,041,186  
           TOTAL ASSETS   $ 15,010,383   $ 16,722,330  

LIABILITIES AND SHAREHOLDERS' EQUITY 		  

CURRENT LIABILITIES:		  
     Accounts payable   $ 2,427,801   $ 3,465,746  
     Accrued liabilities:  
       Commissions    308,194    269,323  
       Employee stock purchase plan    165,992    246,120  
       Other    585,635    406,061  
     Deferred revenue    440,794    1,077,002  
        TOTAL CURRENT LIABILITIES    3,928,416    5,464,252  

SHAREHOLDERS' EQUITY:		  
     Common stock, par value $.01; authorized – 20,000,000 shares;  
       issued and outstanding September 30, 2003 – 12,385,269 shares;  
       December 31, 2002 – 11,767,255 shares    123,853    117,673  
     Additional paid-in capital    26,462,188    25,692,131  
     Accumulated deficit    (15,504,074 )  (14,551,726 )
        TOTAL SHAREHOLDERS' EQUITY    11,081,967    11,258,078  

            TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		   $ 15,010,383   $ 16,722,330  

See accompanying Notes to Financial Statements.


Page 3 of 21


INSIGNIA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)

Three Months Ended
September 30
 Nine Months Ended
September 30
2003
 2002
 2003
 2002
Services revenues     $ 6,179,936   $ 3,870,342   $ 17,813,549   $ 13,218,091  
Products sold    929,909    1,205,566    3,018,757    3,695,816  
    TOTAL NET SALES    7,109,845    5,075,908    20,832,306    16,913,907  

Cost of services		    3,338,966    2,286,749    10,034,822    6,930,137  
Cost of sales    550,889    550,034    1,729,968    1,771,407  
    TOTAL COST OF SALES    3,889,855    2,836,783    11,764,790    8,701,544  

           Gross Profit		    3,219,990    2,239,125    9,067,516    8,212,363  

OPERATING EXPENSES:		  
    Selling    2,062,665    1,699,618    6,532,743    5,051,027  
    Marketing    328,683    440,253    1,069,050    1,162,389  
    General and administrative    702,742    598,731    2,468,683    1,876,021  
       Total operating expenses    3,094,090    2,738,602    10,070,476    8,089,437  

           Operating Income (Loss)		    125,900    (499,477 )  (1,002,960 )  122,926  

OTHER INCOME (EXPENSE):		  
    Interest income    16,307    14,808    58,946    37,895  
    Interest expense    (276 )  (15,778 )  (1,972 )  (44,476 )
    Other income (expense)    (217 )  1,231    (6,362 )  (93,943 )
     15,814    261    50,612    (100,524 )

           NET INCOME (LOSS)		   $ 141,714   $ (499,216 ) $ (952,348 ) $ 22,402  

Net income (loss) per share:		  
    Basic   $ 0.01   $ (0.05 ) $ (0.08 ) $ 0.00  
    Diluted   $ 0.01   $ (0.05 ) $ (0.08 ) $ 0.00  

Shares used in calculation of		  
net income (loss) per share:  
    Basic    12,349,372    10,915,056    12,211,848    10,802,774  
    Diluted    12,590,051    10,915,056    12,211,848    11,679,294  

See accompanying Notes to Financial Statements.


Page 4 of 21


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

Nine Months Ended
September 30
2003
 2002
OPERATING ACTIVITIES:            
     Net income (loss)   $ (952,348 ) $ 22,402  
     Adjustments to reconcile net income (loss) to net cash  
       provided by (used in) operating activities:  
         Depreciation and amortization    218,656    125,662  
         Provision for bad debt expense    35,000    (23,000 )
     Changes in operating assets and liabilities:  
         Accounts receivable    523,799    (401,868 )
         Inventories    304,232    40,222  
         Prepaid expenses and other    (908,344 )  (129,107 )
         Accounts payable    (1,037,945 )  (529,287 )
         Accrued liabilities    138,317    703,841  
         Deferred revenue    (636,208 )  356,784  
                Net cash provided by (used in) operating activities    (2,314,841 )  165,649  

INVESTING ACTIVITIES:		  
     Purchases of property and equipment    (100,780 )  (370,529 )
     Maturities of marketable securities    —    80,000  
     Other    (51,602 )  —  
                Net cash used in investing activities    (152,382 )  (290,529 )

FINANCING ACTIVITIES:		  
     Net change in line of credit    —    (189,161 )
     Proceeds from issuance of common stock, net    776,237    745,370  
                Net cash provided by financing activities    776,237    556,209  

          Increase (decrease) in cash and cash equivalents		    (1,690,986 )  431,329  

Cash and cash equivalents at beginning of period		    6,471,581    2,209,448  

CASH AND CASH EQUIVALENTS AT END OF PERIOD		   $ 4,780,595   $ 2,640,777  

See accompanying Notes to Financial Statements.


Page 5 of 21


INSIGNIA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1.          Summary of Significant Accounting Policies.

  Description of Business.

  Insignia Systems, Inc. (the “Company”) markets in-store promotional products, programs and services to retailers and consumer packaged goods manufacturers. The Company’s products include the Insignia Point-of-Purchase Services (POPS®) in-store promotion program, which includes both Insignia POPSign and VALUStix® programs; thermal sign card supplies for the Company’s SIGNright and Impulse systems; Stylus software; and laser printable cardstock and label supplies.

  Basis of Presentation.

  Financial statements for the interim periods included herein are unaudited; however, they contain all adjustments, including normal recurring accruals, which in the opinion of management, are necessary to present fairly the financial position of the Company at September 30, 2003, and its results of operations and cash flows for the three and nine months ended September 30, 2003 and 2002. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. Results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.

  The financial statements do not include certain footnote disclosures and financial information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America and, therefore, should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2002.

  The Company has included in its financial statements the assets and liabilities recorded in connection with the acquisition of the assets comprising the VALUStix business. The results of operations related to VALUStix since December 23, 2002, the effective date, have been included in the Company’s Statement of Operations.

  The Summary of Significant Accounting Policies in the Company’s 2002 Annual Report on Form 10-K/A describes the Company’s accounting policies.

  Inventories.

  Inventories are primarily comprised of parts and supplies for Impulse and SIGNright machines, sign cards and rollstock. Inventory is valued at the lower of cost or market using the first-in, first-out (FIFO) method and consist of the following:

September 30,
2003
 December 31,
2002
Raw materials     $ 189,685   $ 328,713  
Work-in-process    11,394    —  
Finished goods    470,565    647,163  
    $ 671,644   $ 975,876  

Page 6 of 21


INSIGNIA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

  Prepaid Expenses.

  During the nine months ended September 30, 2003 the Company made a pre-payment of approximately $1,000,000 to a retailer, in connection with a three-year contract. The pre-payment is being amortized ratably over the three-year contract using the straight-line method. At September 30, 2003 the balance of the prepaid expense related to this retailer payment was approximately $750,000, of which approximately $417,000 was classified as long-term.

  Net Income (Loss) Per Share.

  Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding and excludes any dilutive effects of options, warrants and convertible securities. Diluted net income per share gives effect to all diluted potential common shares outstanding during the year. Options and warrants to purchase approximately 1,292,000 shares of common stock with a weighted average exercise price of $8.75 were outstanding at September 30, 2003 and were not included in the computation of common stock equivalents for the three months ended September 30, 2003 because their exercise prices were higher than the average fair market value of the common shares during the reporting period. Options and warrants to purchase approximately 1,058,000 shares of common stock with a weighted average exercise price of $9.59 were outstanding at September 30, 2003 and were not included in the computation of common stock equivalents for the nine months ended September 30, 2003 because their exercise prices were higher than the average fair market value of the common shares during the reporting period. Options to purchase approximately 277,000 shares of common stock with a weighted average exercise price of $8.71 were outstanding at September 30, 2002 and were not included in the computation of common stock equivalents for the nine months ended September 30, 2002 because their exercise prices were higher than the average fair market value of the common shares during the reporting periods.

  For the nine months ended September 30, 2003, the effect of options and warrants was anti-dilutive due to the net loss incurred during the period. Had net income been achieved, approximately 189,000 of common stock equivalents would have been included in the computation of diluted net income per share for the nine months ended September 30, 2003.

Three Months Ended
September 30
 Nine Months Ended
September 30
2003
 2002
 2003
 2002
Denominator for basic net income (loss)                    
   per share – weighted averages shares    12,349,372    10,915,056    12,211,848    10,802,774  

Effect of dilutive securities:		  
  Stock options and warrants    240,679    —    —    876,520  

Denominator for diluted net income (loss)		  
   per share – adjusted weighted average shares    12,590,051    10,915,056    12,211,848    11,679,294  
  Reclassifications.