Table of Contents

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|                                                                                             |           | 
|-------------------------------------------------------------------------------------------- | --------- | 
|UNITED
 STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D. C. 20549                    
|                                                                                             |           | 
|                                                                                             |           | 
|                                                                                             | FORM 10-Q | 
|                                                                                             |           | 
|                                                                                             |           | 
|xQUARTERLY REPORT PURSUANT TO SECTION 13 OR
 15(d) OF
 THE SECURITIES EXCHANGE ACT OF 1934  
|                                                                                             |           | 
|for the
 quarterly period ended June 30, 2009                                               
|                                                                                             | or        | 
|oTRANSITION 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 incorporation or organization) | (IRS
 Employer Identification No.)

8799
Brooklyn Blvd.
Minneapolis, MN 55445(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 report(s), and (2) has been subject to such filing
requirements for the past 90 days.Yes x No o

Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).Yes o No o

Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and
large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):Large
accelerated filer o  Accelerated filer
o  Non-accelerated filer x  Smaller Reporting Company o

Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes o No x

Number
of shares outstanding of Common Stock, $.01 par value, as of July 31, 2009, was
15,135,131.

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1



Insignia
Systems, Inc.

TABLE OF CONTENTS

|         |                                                                                           |  |   
|-------- | ----------------------------------------------------------------------------------------- |  | --
|PART I.  | FINANCIAL
 INFORMATION                                                                    |  | 3 
|         |                                                                                           |  |   
|Item 1.  | Financial
 Statements                                                                     |  | 3 
|         |                                                                                           |  |   
|         | Balance
 Sheets  June 30, 2009 and December 31, 2008 (unaudited)                         |  | 3 
|         |                                                                                           |  |   
|         | Statements
 of Operations  Three and six months ended June 30, 2009 and 2008 (unaudited) |  | 4 
|         |                                                                                           |  |   
|         | Statements
 of Shareholders Equity  Six months ended June 30, 2009 and 2008 (unaudited) |  | 5 
|         |                                                                                           |  |   
|         | Statements
 of Cash Flows  Six months ended June 30, 2009 and 2008 (unaudited)           |  | 6 
|         |                                                                                           |  |   
|         | Notes
 to Financial Statements  June 30, 2009 (unaudited)                                |  | 7 
|         |                                                                                           |  |   
|Item 2.  | Managements Discussion and Analysis of Financial Condition and
 Results of Operations    |  | 12
|         |                                                                                           |  |   
|Item 3.  | Quantitative and Qualitative Disclosures About Market Risk                                |  | 16
|         |                                                                                           |  |   
|Item 4.  | Controls and Procedures                                                                   |  | 16
|         |                                                                                           |  |   
|PART II. | OTHER INFORMATION                                                                         |  | 17
|         |                                                                                           |  |   
|Item 1.  | Legal Proceedings                                                                         |  | 17
|         |                                                                                           |  |   
|Item 1A. | Risk Factors                                                                              |  | 18
|         |                                                                                           |  |   
|Item 2.  | Unregistered Sales of Equity Securities and Use of Proceeds                               |  | 18
|         |                                                                                           |  |   
|Item 3.  | Defaults Upon Senior Securities                                                           |  | 18
|         |                                                                                           |  |   
|Item 4.  | Submission of Matters to a Vote of Security Holders                                       |  | 18
|         |                                                                                           |  |   
|Item 5.  | Other Information                                                                         |  | 19
|         |                                                                                           |  |   
|Item 6.  | Exhibits                                                                                  |  | 19

2

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Table of Contents

|                              |                      
|----------------------------- | ---------------------
|PART I. FINANCIAL INFORMATION
|                              |                      
|Item 1.                       | Financial
 Statements

Insignia
Systems, Inc. BALANCE SHEETS(Unaudited)

|                                                                                                  |  |              |             |                  |   |             |  
|------------------------------------------------------------------------------------------------- |  | ------------ | ----------- | ---------------- | - | ----------- | -
|                                                                                                  |  | June 30,2009 |             | December 31,2008 |  
|ASSETS                                                                                            |  |              |             |                  |   |             |  
|Current Assets:                                                                                   |  |              |             |                  |   |             |  
|Cash and cash equivalents                                                                         |  | $            | 6,702,000   |                  | $ | 11,052,000  |  
|Short-term investments                                                                            |  |              | 1,900,000   |                  |   | ─           |  
|Accounts receivable  net of allowance for
doubtful accounts of
 $11,000 and $7,000, respectively |  |              | 4,083,000   |                  |   | 2,767,000   |  
|Inventories                                                                                       |  |              | 428,000     |                  |   | 442,000     |  
|Prepaid expenses and other                                                                        |  |              | 258,000     |                  |   | 238,000     |  
|Total Current Assets                                                                              |  |              | 13,371,000  |                  |   | 14,499,000  |  
|                                                                                                  |  |              |             |                  |   |             |  
|Other Assets:                                                                                     |  |              |             |                  |   |             |  
|Property and equipment, net                                                                       |  |              | 889,000     |                  |   | 1,054,000   |  
|Other                                                                                             |  |              | 40,000      |                  |   | 40,000      |  
|                                                                                                  |  |              |             |                  |   |             |  
|Total Assets                                                                                      |  | $            | 14,300,000  |                  | $ | 15,593,000  |  
|                                                                                                  |  |              |             |                  |   |             |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                              |  |              |             |                  |   |             |  
|Current Liabilities:                                                                              |  |              |             |                  |   |             |  
|Current maturities of long-term
liabilities                                                       |  | $            | 179,000     |                  | $ | 202,000     |  
|Accounts payable                                                                                  |  |              | 1,956,000   |                  |   | 2,770,000   |  
|Accrued liabilities                                                                               |  |              |             |                  |   |             |  
|Compensation                                                                                      |  |              | 607,000     |                  |   | 820,000     |  
|Employee stock purchase plan                                                                      |  |              | 68,000      |                  |   | 65,000      |  
|Legal                                                                                             |  |              | 110,000     |                  |   | 365,000     |  
|Other commissions                                                                                 |  |              | 45,000      |                  |   | 1,742,000   |  
|Other                                                                                             |  |              | 560,000     |                  |   | 981,000     |  
|Deferred revenue                                                                                  |  |              | 1,516,000   |                  |   | 1,158,000   |  
|Total Current Liabilities                                                                         |  |              | 5,041,000   |                  |   | 8,103,000   |  
|                                                                                                  |  |              |             |                  |   |             |  
|Long-Term Liabilities, less current maturities                                                    |  |              | 219,000     |                  |   | 219,000     |  
|                                                                                                  |  |              |             |                  |   |             |  
|Commitments and Contingencies                                                                     |  |              | ─           |                  |   | ─           |  
|                                                                                                  |  |              |             |                  |   |             |  
|Shareholders Equity:                                                                             |  |              |             |                  |   |             |  
|Common stock, par value $.01:                                                                     |  |              |             |                  |   |             |  
|Authorized shares  40,000,000                                                                    |  |              |             |                  |   |             |  
|Issued and outstanding shares  15,129,000 at
June 30, 2009 and
 15,069,000 at December 31, 2008  |  |              | 151,000     |                  |   | 151,000     |  
|Additional paid-in capital                                                                        |  |              | 32,223,000  |                  |   | 31,881,000  |  
|Accumulated deficit                                                                               |  |              | (23,334,000 | )                |   | (24,761,000 | )
|Total Shareholders Equity                                                                        |  |              | 9,040,000   |                  |   | 7,271,000   |  
|                                                                                                  |  |              |             |                  |   |             |  
|Total Liabilities and Shareholders Equity                                                        |  | $            | 14,300,000  |                  | $ | 15,593,000  |  

See accompanying notes to financial statements.

3

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Table of Contents

Insignia
Systems, Inc. STATEMENTS OF OPERATIONS(Unaudited)

|                                                     |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|---------------------------------------------------- |  | --------------------------- | ---------- | ------------------------- | - | ---------- | - | ---- | ---------- | - | - | ---------- | -
|                                                     |  | Three Months Ended
 June 30 |            | Six Months Ended
 June 30 |  
|                                                     |  | 2009                        |            | 2008                      |   | 2009       |   | 2008 |           
|Services revenues                                    |  | $                           | 5,285,000  |                           | $ | 6,883,000  |   | $    | 10,916,000 |   | $ | 12,831,000 |  
|Products sold                                        |  |                             | 488,000    |                           |   | 695,000    |   |      | 1,043,000  |   |   | 1,310,000  |  
|Total Net Sales                                      |  |                             | 5,773,000  |                           |   | 7,578,000  |   |      | 11,959,000 |   |   | 14,141,000 |  
|                                                     |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Cost of services                                     |  |                             | 2,422,000  |                           |   | 2,879,000  |   |      | 5,005,000  |   |   | 5,491,000  |  
|Cost of goods sold                                   |  |                             | 326,000    |                           |   | 405,000    |   |      | 706,000    |   |   | 822,000    |  
|Total Cost of Sales                                  |  |                             | 2,748,000  |                           |   | 3,284,000  |   |      | 5,711,000  |   |   | 6,313,000  |  
|Gross Profit                                         |  |                             | 3,025,000  |                           |   | 4,294,000  |   |      | 6,248,000  |   |   | 7,828,000  |  
|                                                     |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Operating
 Expenses:                                 |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Selling                                              |  |                             | 1,511,000  |                           |   | 1,669,000  |   |      | 3,018,000  |   |   | 3,317,000  |  
|Marketing                                            |  |                             | 345,000    |                           |   | 399,000    |   |      | 734,000    |   |   | 760,000    |  
|General and administrative                           |  |                             | 1,044,000  |                           |   | 1,643,000  |   |      | 2,469,000  |   |   | 3,465,000  |  
|Insurance settlement proceeds                        |  |                             | ─          |                           |   | ─          |   |      | (1,387,000 | ) |   | ─          |  
|Total Operating Expenses                             |  |                             | 2,900,000  |                           |   | 3,711,000  |   |      | 4,834,000  |   |   | 7,542,000  |  
|Operating Income                                     |  |                             | 125,000    |                           |   | 583,000    |   |      | 1,414,000  |   |   | 286,000    |  
|                                                     |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Other
 Income (Expense):                             |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Interest income                                      |  |                             | 31,000     |                           |   | 50,000     |   |      | 69,000     |   |   | 123,000    |  
|Interest expense                                     |  |                             | (10,000    | )                         |   | (14,000    | ) |      | (20,000    | ) |   | (30,000    | )
|Other expense                                        |  |                             | ─          |                           |   | (2,000     | ) |      | ─          |   |   | (2,000     | )
|Total Other Income                                   |  |                             | 21,000     |                           |   | 34,000     |   |      | 49,000     |   |   | 91,000     |  
|Income Before Taxes                                  |  |                             | 146,000    |                           |   | 617,000    |   |      | 1,463,000  |   |   | 377,000    |  
|                                                     |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Income tax expense                                   |  |                             | 36,000     |                           |   | 207,000    |   |      | 36,000     |   |   | 207,000    |  
|Net Income                                           |  | $                           | 110,000    |                           | $ | 410,000    |   | $    | 1,427,000  |   | $ | 170,000    |  
|                                                     |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Net income per share:                                |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Basic                                                |  | $                           | 0.01       |                           | $ | 0.03       |   | $    | 0.09       |   | $ | 0.01       |  
|Diluted                                              |  | $                           | 0.01       |                           | $ | 0.03       |   | $    | 0.09       |   | $ | 0.01       |  
|                                                     |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Shares used in calculation
 of net income per share: |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Basic                                                |  |                             | 15,129,000 |                           |   | 15,590,000 |   |      | 15,129,000 |   |   | 15,590,000 |  
|Diluted                                              |  |                             | 15,783,000 |                           |   | 16,000,000 |   |      | 15,513,000 |   |   | 16,055,000 |  

See accompanying notes to financial statements.

4

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Table of Contents

Insignia Systems, Inc.
STATEMENTS OF SHAREHOLDERS EQUITY(Unaudited)

|                                   |  |              |            |                              |   |                      |  |       |            |  |   |             |   |   |            | 
|---------------------------------- |  | ------------ | ---------- | ---------------------------- | - | -------------------- |  | ----- | ---------- |  | - | ----------- | - | - | ---------- | 
|                                   |  | Common Stock |            | Additional
 Paid-In
 Capital |   | Accumulated
 Deficit |  | Total |           
|                                   |  | Shares       |            | Amount                       |   |                      |  |      
|                                   |  |              |            |                              |   |                      |  |       |            |  |   |             |   |   |            | 
|Six
 Months Ended June 30, 2009    |  |              |            |                              |   |                      |  |       |            |  |   |             |   |   |            | 
|                                   |  |              |            |                              |   |                      |  |       |            |  |   |             |   |   |            | 
|Balance
 at December 31, 2008      |  |              | 15,069,000 |                              | $ | 151,000              |  | $     | 31,881,000 |  | $ | (24,761,000 | ) | $ | 7,271,000  | 
|Issuance of common stock,
 net     |  |              | 60,000     |                              |   |                     |  |       | 44,000     |  |   |            |   |   | 44,000     | 
|Value of stock-based
 compensation |  |              |           |                              |   |                     |  |       | 298,000    |  |   |            |   |   | 298,000    | 
|Net income                         |  |              |           |                              |   |                     |  |       |           |  |   | 1,427,000   |   |   | 1,427,000  | 
|                                   |  |              |            |                              |   |                      |  |       |            |  |   |             |   |   |            | 
|Balance
 at June 30, 2009          |  |              | 15,129,000 |                              | $ | 151,000              |  | $     | 32,223,000 |  | $ | (23,334,000 | ) | $ | 9,040,000  | 
|                                   |  |              |            |                              |   |                      |  |       |            |  |   |             |   |   |            | 
|Six
 Months Ended June 30, 2008    |  |              |            |                              |   |                      |  |       |            |  |   |             |   |   |            | 
|                                   |  |              |            |                              |   |                      |  |       |            |  |   |             |   |   |            | 
|Balance
 at December 31, 2007      |  |              | 15,550,000 |                              | $ | 156,000              |  | $     | 32,025,000 |  | $ | (22,504,000 | ) | $ | 9,677,000  | 
|Issuance of common stock,
 net     |  |              | 40,000     |                              |   |                     |  |       | 95,000     |  |   |            |   |   | 95,000     | 
|Value of stock-based
 compensation |  |              |           |                              |   |                     |  |       | 284,000    |  |   |            |   |   | 284,000    | 
|Net income                         |  |              |           |                              |   |                     |  |       |           |  |   | 170,000     |   |   | 170,000    | 
|                                   |  |              |            |                              |   |                      |  |       |            |  |   |             |   |   |            | 
|Balance at June 30, 2008           |  |              | 15,590,000 |                              | $ | 156,000              |  | $     | 32,404,000 |  | $ | (22,334,000 | ) | $ | 10,226,000 | 

See accompanying notes to financial statements.

5

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Table of Contents

Insignia Systems, Inc.
STATEMENTS OF CASH FLOWS(Unaudited)

|                                                                               |  |      |            |      |   |            |  
|------------------------------------------------------------------------------ |  | ---- | ---------- | ---- | - | ---------- | -
|Six Months
 Ended June 30                                                      |  | 2009 |            | 2008 |  
|Operating
 Activities:                                                         |  |      |            |      |   |            |  
|Net income                                                                     |  | $    | 1,427,000  |      | $ | 170,000    |  
|Adjustments to reconcile net income to net cash used in operating
 activities: |  |      |            |      |   |            |  
|Depreciation
 and amortization                                                 |  |      | 203,000    |      |   | 175,000    |  
|Provision
 for income taxes                                                    |  |      | 36,000     |      |   | 207,000    |  
|Provision
 for bad debt expense                                                |  |      | 7,000      |      |   |           |  
|Stock-based
 compensation                                                      |  |      | 298,000    |      |   | 284,000    |  
|Changes in operating assets and liabilities:                                   |  |      |            |      |   |            |  
|Accounts
 receivable                                                           |  |      | (1,323,000 | )    |   | (2,774,000 | )
|Inventories                                                                    |  |      | 14,000     |      |   | (181,000   | )
|Prepaid
 expenses and other                                                    |  |      | (56,000    | )    |   | (123,000   | )
|Accounts
 payable                                                              |  |      | (814,000   | )    |   | 576,000    |  
|Accrued
 liabilities                                                           |  |      | (2,583,000 | )    |   | 201,000    |  
|Deferred
 revenue                                                              |  |      | 358,000    |      |   | 1,432,000  |  
|Net cash used in operating activities                                          |  |      | (2,433,000 | )    |   | (33,000    | )
|                                                                               |  |      |            |      |   |            |  
|Investing
 Activities:                                                         |  |      |            |      |   |            |  
|Purchases of property and equipment                                            |  |      | (38,000    | )    |   | (211,000   | )
|Purchases of investments                                                       |  |      | (1,900,000 | )    |   |           |  
|Net cash used in investing activities                                          |  |      | (1,938,000 | )    |   | (211,000   | )
|                                                                               |  |      |            |      |   |            |  
|Financing
 Activities:                                                         |  |      |            |      |   |            |  
|Payment of long-term liabilities                                               |  |      | (23,000    | )    |   | (130,000   | )
|Proceeds from issuance of common stock, net                                    |  |      | 44,000     |      |   | 95,000     |  
|Net cash provided by (used in) financing activities                            |  |      | 21,000     |      |   | (35,000    | )
|Decrease in cash and cash
 equivalents                                         |  |      | (4,350,000 | )    |   | (279,000   | )
|Cash and cash equivalents
 at beginning of period                              |  |      | 11,052,000 |      |   | 7,393,000  |  
|Cash and cash equivalents
 at end of period                                    |  | $    | 6,702,000  |      | $ | 7,114,000  |  
|                                                                               |  |      |            |      |   |            |  
|Supplemental
 disclosures for cash flow information:                           |  |      |            |      |   |            |  
|Cash paid during periods for interest                                          |  | $    |           |      | $ | 11,000     |  
|Cash paid during periods for income taxes                                      |  |      | 13,000     |      |   |           |  
|                                                                               |  |      |            |      |   |            |  

See accompanying notes to financial statements.

6

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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 advertising programs, services and products to retailers and
 consumer packaged goods manufacturers. The Companys services and products
 include the Insignia Point-of-Purchase Services (POPS) in-store advertising
 program, 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 June 30,
 2009, and its results of operations and cash flows for the three and six
 months ended June 30, 2009 and 2008. 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 for the year ended
 December 31, 2008.                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Summary of Significant
 Accounting Policies in the Companys 2008 Annual Report on Form 10-K describes the Companys accounting
 policies.                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Short-term Investments.
 Short-term investments consist of short-term bank certificates of
 deposit with original maturities of between three and twelve months. These
 short-term investments are classified as held to maturity and are valued at
 cost which approximates fair value.
 These investments are considered Level 2 investments under Statement
 of Financial Accounting Standards No. 157, Fair
 Value Measurements.                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | 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
 consists of the following:                                                                                                                                                                                                                                                                                 

|                |  |                |         |                    |   |         | 
|--------------- |  | -------------- | ------- | ------------------ | - | ------- | 
|                |  | June 30,
 2009 |         | December 31,
 2008 |  
|Raw materials   |  | $              | 95,000  |                    | $ | 107,000 | 
|Work-in-process |  |                | 51,000  |                    |   | 64,000  | 
|Finished goods  |  |                | 282,000 |                    |   | 271,000 | 
|                |  | $              | 428,000 |                    | $ | 442,000 | 

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| |                                                                          
| | -------------------------------------------------------------------------
| | Property and Equipment.Property and equipment consists of the
 following:

|                                             |  |                |            |                    |   |            |  
|-------------------------------------------- |  | -------------- | ---------- | ------------------ | - | ---------- | -
|                                             |  | June 30,
 2009 |            | December 31,
 2008 |  
|Production tooling,
 machinery and equipment |  | $              | 2,125,000  |                    | $ | 2,115,000  |  
|Office furniture and
 fixtures               |  |                | 253,000    |                    |   | 250,000    |  
|Computer equipment and
 software             |  |                | 715,000    |                    |   | 719,000    |  
|Web site                                     |  |                | 38,000     |                    |   | 38,000     |  
|Leasehold improvements                       |  |                | 257,000    |                    |   | 255,000    |  
|                                             |  |                | 3,388,000  |                    |   | 3,377,000  |  
|Accumulated depreciation
 and amortization   |  |                | (2,499,000 | )                  |   | (2,323,000 | )
|Net Property and Equipment                   |  | $              | 889,000    |                    | $ | 1,054,000  |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Stock-Based Compensation. The Company accounts for its stock-based
 compensation in accordance with the provisions of Statement of Financial
 Accounting Standards No. 123(R). We recognize stock compensation expense on a
 straight-line method over the requisite service period of the award.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | There were 328,500 stock
 option awards granted during the six months ended June 30, 2009. Total
 stock-based compensation expense recorded for the six months ended June 30,
 2009 and 2008, was $298,000 and $284,000, respectively. The Company uses the Black-Scholes
 option-pricing model to estimate the fair value of stock-based awards with
 the following weighted average assumptions for the stock option awards
 granted during the six months ended June 30, 2009: expected life of 3.6 years,
 expected volatility of 77%, dividend yield of 0% and a risk-free interest
 rate of 1.31%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Net Income Per Share.Basic net income per share is computed by
 dividing net income 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 period. Options and warrants to purchase approximately
 1,988,000 and 2,150,000 shares of common stock with weighted average exercise
 prices of $4.73 and $4.96 were outstanding at June 30, 2009 and 2008 and were
 not included in the computation of common stock equivalents for the three
 months ended June 30, 2009 and 2008 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 2,433,000 and
 2,084,000 shares of common stock with weighted average exercise prices of
 $4.17 and $5.06 were outstanding at June 30, 2009 and 2008 and were not
 included in the computation of common stock equivalents for the six months
 ended June 30, 2009 and 2008 because their exercise prices were higher than
 the average fair market value of the common shares during the reporting
 period.

8

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| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | Weighted
 average common shares outstanding for the three and six months ended June 30,
 2009 and 2008 were as follows:

|                                                                                 |  |                             |            |                           |  |            |  |      |            |  |  |            | 
|-------------------------------------------------------------------------------- |  | --------------------------- | ---------- | ------------------------- |  | ---------- |  | ---- | ---------- |  |  | ---------- | 
|                                                                                 |  | Three Months Ended
 June 30 |            | Six Months Ended
 June 30 | 
|                                                                                 |  | 2009                        |            | 2008                      |  | 2009       |  | 2008 |           
|Denominator for basic net income per share
  weighted average shares            |  |                             | 15,129,000 |                           |  | 15,590,000 |  |      | 15,129,000 |  |  | 15,590,000 | 
|                                                                                 |  |                             |            |                           |  |            |  |      |            |  |  |            | 
|Effect of dilutive securities:                                                   |  |                             |            |                           |  |            |  |      |            |  |  |            | 
|Stock options and warrants                                                       |  |                             | 654,000    |                           |  | 410,000    |  |      | 384,000    |  |  | 465,000    | 
|                                                                                 |  |                             |            |                           |  |            |  |      |            |  |  |            | 
|Denominator for diluted net income per
 share  adjusted weighted average shares |  |                             | 15,783,000 |                           |  | 16,000,000 |  |      | 15,513,000 |  |  | 16,055,000 | 

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Commitments and Contingencies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Legal. In August 2000, News America Marketing
 In-Store, Inc. (News America), brought suit against the Company in U.S.
 District Court in New York, New York. The case was settled in November 2002.
 The terms of the settlement agreement are confidential. The settlement did
 not impact the Companys operating results.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | In October 2003, News
 America brought suit against the Company in U.S. District Court in New York,
 New York, alleging that the Company has engaged in deceptive acts and
 practices, has interfered with existing business relationships with retailers
 and prospective economic advantage, and has engaged in unfair competition.
 The suit sought unspecified damages and injunctive relief. In February 2007
 the U.S. District Court in New York transferred this action to Minnesota
 where the claims became part of the lawsuit the Company filed against News
 America and Albertsons Inc. in 2004 (described below), and the New York
 action was subsequently dismissed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | On September 23, 2004, the
 Company brought suit against News America and Albertsons Inc. (Albertsons)
 in Federal District Court in Minneapolis, Minnesota, for violations of
 federal and state antitrust and false advertising laws, alleging that News
 America has acquired and maintained monopoly power through various wrongful
 acts designed to harm the Company in the in-store advertising and promotion
 products and services market. The suit seeks injunctive relief sufficient to
 prevent further antitrust injury and an award of treble damages to be
 determined at trial for the harm caused to the Company. On June 30, 2006 the
 Court denied the motions of News America and Albertsons to dismiss the
 suit. On September 20, 2006, the State of Minnesota through its Attorney
 General intervened as a co-plaintiff in the business disparagement portion of
 the Minnesota case. In December 2006, News America filed counterclaims in the
 Minnesota case that included claims similar to those in its New York action
 against Insignia and one of its officers, plus claims for damages for two
 alleged incidents of libel and slander. On February 4, 2008, the Court
 approved a consent decree entered into by News America and the State of
 Minnesota under which News America agreed to not violate Minnesotas statutes
 prohibiting commercial disparagement. On July 29, 2008, the Company and
 Albertsons entered into a settlement agreement and mutual release, in which
 they each agreed to release all claims against the other, and the Company
 agreed to dismiss its lawsuit against Albertsons. Pursuant to Court order,
 all discovery and pre-trial matters were completed by May 1, 2009. Motions by
 the Company and by News America for summary judgment were argued on
 May 11, 2009, and the Court has not yet ruled on these motions.

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | The Company filed claims
 in December 2006 and January 2007 with its directors and officers liability
 and general liability insurers related to the defense costs and insurance
 coverage for claims asserted against the Company and one of its officers in
 News Americas counterclaims. On August 9, 2007, the Company filed a
 complaint against the insurers in Hennepin County District Court, State of
 Minnesota requesting a declaratory judgment that the insurers owed the
 Company and its officer such defense costs and insurance coverage. In
 December 2007, the Company settled its claim against one of the insurers.
 Also, in March 2009, the Company settled with the other insurer and received
 a payment of $1,387,000 as part of the settlement. The Company recorded the
 payment in general and administrative expenses for the quarter ended
 March 31, 2009, and the litigation with the insurers is now
 concluded.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Although management
 believes that News Americas counterclaims are without merit, an evaluation
 of the likelihood of an unfavorable outcome and an estimate of the potential liability
 cannot be rendered at this time. If the Company is required to pay a
 significant amount in settlement or damages, it will have a material adverse
 effect on its operations and financial condition. In addition, a negative
 outcome of this litigation could affect long-term competitive aspects of the
 Companys business.                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Management currently
 expects the amount of legal fees and expenses that will be incurred in
 connection with the ongoing lawsuit against News America to be significant
 throughout 2009 and possibly future years. During the six months ended June
 30, 2009, the Company
 incurred legal fees of $1,021,000 related to the News America litigation
 which were offset by the $1,387,000 payment received from settlement of its
 claim against one of its insurers during the first quarter of 2009. Legal
 fees and expenses are expensed as incurred and are included in general and
 administrative expenses in the statements of operations.                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Company is subject to
 various other legal proceedings in the normal course of business. Management
 believes the outcome of these proceedings will not have a material
 adverse effect on the Companys financial position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|3. | Income Taxes. The
 Company continues to carry a full valuation allowance against its net
 deferred tax asset at June 30, 2009, and has therefore recorded income tax
 expense of $36,000 for the six months ended June 30, 2009 related to
 alternative minimum tax liability. The valuation allowance has been
 established due to uncertainties regarding the realization of deferred tax
 assets. Income tax expense was $207,000 for the six months ended June
 30, 2008 which was based upon an effective rate of 55% which incorporated a
 statutory rate of 37% and the effect of nondeductible expenses for tax
 purposes related to stock-based compensation and meals and entertainment.                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4. | Concentrations.During
 the six months ended June 30 2009, three customers accounted for 20%, 19% and
 14%, respectively, of the Companys total net sales. At June 30, 2009, these
 customers represented 10%, 31% and 18%, respectively, of the Companys total
 accounts receivable. During the six months ended June 30, 2008, two customers
 each accounted for 11% of the Companys total net sales. At June 30, 2008,
 one of these customers represented 29% of the Companys total accounts
 receivable and one other customer represented 14% of the Companys total
 accounts receivable.                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | 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. Additionally, the loss of a major
 retailer from the Companys retail network could adversely affect operating
 results.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|5. | Subsequent Events. In May 2009, the Financial Accounting
 Standards Board issued Statement 165, Subsequent
 Events, to incorporate the accounting and disclosure requirements
 for subsequent events into U.S. generally accepted accounting principles.
 Statement 165 introduces new terminology, defines a date through which
 management must evaluate subsequent events, and lists the circumstances under
 which an entity must recognize and disclose events or transactions occurring
 after the balance-sheet date. The Company adopted Statement 165 as of June
 30, 2009, which was the required effective date.                                                                                                                                                                                                                                                                                                                          

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | The Company evaluated its
 June 30, 2009 financial statements for subsequent events through August 12,
 2009, the date the financial statements were issued. The Company is not aware
 of any subsequent events which would require recognition or disclosure in the
 financial statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|6. | New Accounting Pronouncements.In April 2009, the FASB issued FSP FAS
 107-1 and APB 28-1, Interim Disclosures
 about Fair Value of Financial Instruments. This FSP amends FASB
 Statement No. 107, Disclosures about Fair
 Value of Financial Instruments, to require disclosures about fair
 value of financial instruments for interim reporting periods of publicly
 traded companies as well as in annual financial statements. This FSP also
 amends APB Opinion No. 28, Interim Financial Reporting, to require those
 disclosures in summarized financial information at interim reporting periods.
 FSP FAS 107-1 and APB 28-1 are effective for interim and annual reporting
 periods ending after June 15, 2009. The adoption of FSP FAS 107-1 and APB
 28-1 did not have a material effect on the Companys financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | In April 2009, the FASB
 issued FSP FAS 115-2 and FAS 124-2, Recognition
 and Presentation of Other-Than-Temporary Impairments, which is
 intended to provide greater clarity to investors about the credit and
 noncredit component of an Other-Than-Temporary Impairment event and to more
 effectively communicate when an Other-Than-Temporary Impairment event has
 occurred. The FSP applies to debt securities and requires that the total OTTI
 be presented in the statement of income with an offset for the amount of
 impairment that is recognized in other comprehensive income, which is the
 noncredit component. The FSP is effective for interim and annual periods
 ending after June 15, 2009, with early adoption permitted for periods ending
 after March 15, 2009. The FSP will be applied prospectively with a cumulative
 effect transition adjustment as of the beginning of the period in which it is
 adopted. An entity early adopting this FSP must also early adopt FSP FAS
 157-4, Determining Fair Value When the
 Volume and Level of Activity for the Asset or Liability Have Significantly
 Decreased and Identifying Transactions That Are Not Orderly. The
 adoption of FSP FAS 115-2 and FAS 124-2 did not have a material effect on the
 Companys financial statements.                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | In April 2009, the FASB
 issued FSP FAS 157-4, Determining Fair
 Value When the Volume and Level of Activity for the Asset or Liability Have
 Significantly Decreased and Identifying Transactions That Are Not Orderly.
 This FSP provides additional guidance for estimating fair value in accordance
 with FASB Statement No. 157, Fair Value
 Measurements, when the volume and level of activity for the asset
 or liability have significantly decreased. This FSP also includes guidance on
 identifying circumstances that indicate a transaction is not orderly. This
 FSP emphasizes that even if there has been a significant decrease in the
 volume and level of activity for the asset or liability and regardless of the
 valuation technique(s) used, the objective of a fair value measurement
 remains the same. Fair value is the price that would be received to sell an
 asset or paid to transfer a liability in an orderly transaction (that is, not
 a forced liquidation or distressed sale) between market participants at the
 measurement date under current market conditions. FSP FAS 157-4 is effective
 for interim and annual reporting periods ending after June 15, 2009, and is
 applied prospectively. The adoption of FSP FAS 157-4 did not have a material
 effect on the Companys financial statements.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | In June 2009, the FASB
 issued SFAS No. 168, The FASB Accounting
 Standards Codification and the Hierarchy of Generally Accepted Accounting
 Principles (SFAS 168). SFAS 168 replaces FASB Statement No. 162,
 The Hierarchy of Generally Accepted
 Accounting Principles. The FASB Accounting Standards Codification
 is intended to be the source of authoritative U.S. generally accepted
 accounting principles (GAAP) and reporting standards as issued by the
 FASB. Its primary purpose is to improve clarity and use of existing standards
 by grouping authoritative literature under common topics. This Statement is
 effective for financial statements issued for interim and annual periods
 ending after September 15, 2009. The Company does not expect the
 adoption of SFAS 168 to have a material effect on its financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and
 Analysis of Financial Condition and Results of Operations

Overview

Insignia
Systems, Inc. markets in-store advertising programs, services and products to
retailers and consumer packaged goods manufacturers. The Companys services and
products include the Insignia Point-of-Purchase Services (POPS) in-store
advertising program, thermal sign card supplies for the Companys SIGNright and
Impulse systems, Stylus software and laser printable cardstock and label
supplies.

Results of Operations

The following
table sets forth, for the periods indicated, certain items in the Companys
Statements of Operations as a percentage of total net sales.

|                              |  |                             |       |                            |  |       |   |      |       |   |  |       |  
|----------------------------- |  | --------------------------- | ----- | -------------------------- |  | ----- | - | ---- | ----- | - |  | ----- | -
|                              |  | Three Months Ended
 June 30 |       | Six Months Ended 
 June 30 | 
|                              |  | 2009                        |       | 2008                       |  | 2009  |   | 2008 |      
|Net sales                     |  |                             | 100.0 | %                          |  | 100.0 | % |      | 100.0 | % |  | 100.0 | %
|Cost of sales                 |  |                             | 47.6  |                            |  | 43.3  |   |      | 47.8  |   |  | 44.6  |  
|Gross profit                  |  |                             | 52.4  |                            |  | 56.7  |   |      | 52.2  |   |  | 55.4  |  
|Operating expenses:           |  |                             |       |                            |  |       |   |      |       |   |  |       |  
|Selling                       |  |                             | 26.1  |                            |  | 22.0  |   |      | 25.2  |   |  | 23.5  |  
|Marketing                     |  |                             | 6.0   |                            |  | 5.3   |   |      | 6.1   |   |  | 5.4   |  
|General and administrative    |  |                             | 18.1  |                            |  | 21.7  |   |      | 20.7  |   |  | 24.5  |  
|Insurance settlement proceeds |  |                             | ─     |                            |  | ─     |   |      | (11.6 | ) |  | ─     |  
|Total operating expenses      |  |                             | 50.2  |                            |  | 49.0  |   |      | 40.4  |   |  | 53.4  |  
|Operating income              |  |                             | 2.2   |                            |  | 7.7   |   |      | 11.8  |   |  | 2.0   |  
|Other income                  |  |                             | 0.3   |                            |  | 0.4   |   |      | 0.4   |   |  | 0.7   |  
|Income before taxes           |  |                             | 2.5   |                            |  | 8.1   |   |      | 12.2  |   |  | 2.7   |  
|Income tax expense            |  |                             | 0.6   |                            |  | 2.7   |   |      | 0.3   |   |  | 1.5   |  
|Net income                    |  |                             | 1.9   | %                          |  | 5.4   | % |      | 11.9  | % |  | 1.2   | %

Decreased net
sales in the first six months of 2009 compared to the first six months of 2008 combined
with fixed costs of sales resulted in a decrease in gross profit in the 2009
period. This decrease in gross profit in the 2009 period was more than offset
by the receipt of a settlement in the Companys claims against one of its
insurers for defense cost in the News America litigation and decreased News
America related legal fees in the 2009 period, resulting in higher net income
in the 2009 period compared to the 2008 period.

Three and Six Months ended June 30, 2009
Compared to Three and Six Months Ended June 30, 2008

Net Sales.
Net sales for the three months ended June 30, 2009 decreased 23.8% to
$5,773,000 compared to $7,578,000 for the three months ended June 30, 2008. Net
sales for the six months ended June 30, 2009 decreased 15.4% to $11,959,000
compared to $14,141,000 for the six months ended June 30, 2008.

Service
revenues from our POPSign programs for the three months ended June 30, 2009
decreased 23.2% to $5,285,000 compared to $6,883,000 for the three months ended
June 30, 2008. Service revenues from our POPSign programs for the six months
ended June 30, 2009 decreased 14.9% to $10,916,000 compared to $12,831,000 for
the six months ended June 30, 2008. The decreases in both 2009 periods were
primarily due to decreases in the number of POPSign programs executed for
customers (consumer packaged goods manufacturers) at stores in the Companys
retail network. The loss of Safeway, Inc. from the Companys retail network
when the contract expired on December 31, 2008 was a significant factor in the
decreased number of sign placements in the 2009 periods.

12

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Table of Contents

Product sales
for the three months ended June 30, 2009 decreased 29.8% to $488,000 compared
to $695,000 for the three months ended June 30, 2008. Product sales for the six
months ended June 30, 2009 decreased 20.4% to $1,043,000 compared to $1,310,000
for the six months ended June 30, 2008. The decreases in both 2009 periods were
primarily due to lower sales of thermal sign card supplies, laser sign card
supplies and Stylus software based on decreased demand for those products from
our customers.

Gross Profit.Gross profit for the three months ended June 30, 2009 decreased 29.6% to
$3,025,000 compared to $4,294,000 for the three months ended June 30, 2008.
Gross profit for the six months ended June 30, 2009 decreased 20.2% to
$6,248,000 compared to $7,828,000 for the six months ended June 30, 2008. Gross
profit as a percentage of total net sales decreased to 52.4% for the three
months ended June 30, 2009, compared to 56.7% for the three months ended June
30, 2008. Gross profit as a percentage of total net sales decreased to 52.2%
for the six months ended June 30, 2009, compared to 55.4% for the six months
ended June 30, 2008.

Gross profit
from our POPSign program revenues for the three months ended June 30, 2009
decreased 28.5% to $2,863,000 compared to $4,004,000 for the three months ended
June 30, 2008. Gross profit from our POPSign program revenues for the six
months ended June 30, 2009 decreased 19.5% to $5,911,000 compared to $7,340,000
for the six months ended June 30, 2008. The decreases in both 2009 periods were
primarily due to decreased sales which were partially offset by decreased
retailer expenses. Gross profit as a percentage of POPSign program revenues for
the three months ended June 30, 2009 decreased to 54.2% compared to 58.2% for
the three months ended June 30, 2008. Gross profit as a percentage of POPSign
program revenues for the six months ended June 30, 2009 decreased to 54.2%
compared to 57.2% for the six months ended June 30, 2008. The decreases in
gross profit as a percentage of POPSign program revenues in both 2009 periods
were primarily due the effect of fixed costs and the effect of retailer
expenses which did not decrease as significantly as sales.

Gross profit
from our product sales for the three months ended June 30, 2009 decreased 44.1%
to $162,000 compared to $290,000 for the three months ended June 30, 2008.
Gross profit from our product sales for the six months ended June 30, 2009
decreased 30.9% to $337,000 compared to $488,000 for the six months ended June
30, 2008. The decreases in both 2009 periods were primarily due to decreased
sales combined with fixed costs. Gross profit as a percentage of product sales
was 33.2% for the three months ended June 30, 2009 compared to 41.7% for the
three months ended June 30, 2008. Gross profit as a percentage of product sales
was 32.3% for the six months ended June 30, 2009 compared to 37.3% for the six
months ended June 30, 2008. The decreases in both 2009 periods were
was due to decreased sales and the effect of fixed costs.

Operating
Expenses

Selling.
Selling expenses for the three months ended June 30, 2009 decreased 9.5% to
$1,511,000 compared to $1,669,000 for the three months ended June 30, 2008.
Selling expenses for the six months ended June 30, 2009 decreased 9.0% to
$3,018,000 compared to $3,317,000 for the six months ended June 30, 2008.
Decreases in the 2009 periods were primarily due to decreased sales
commissions. The decreased sales commissions were due to decreased POPSign
program sales.

Selling
expenses as a percentage of total net sales increased to 26.1% for the three
months ended June 30, 2009 compared to 22.0% for the three months ended June
30, 2008. Selling expenses as a percentage of total net sales increased to
25.2% for the six months ended June 30, 2009 compared to 23.5% for the six
months ended June 30, 2008. The increases in the selling expenses as a
percentage of total net sales in the 2009 periods were due to the effect of
fixed or flat costs (salaries and benefits, facility costs, travel, lodging,
meals and entertainment) in relation to the effect of decreased sales in the
2009 periods.

13

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Table of Contents

Marketing.
Marketing expenses for the three months ended June 30, 2009 decreased 13.5% to
$345,000 compared to $399,000 for the three months ended June 30, 2008.
Marketing expenses for the six months ended June 30, 2009 decreased 3.4% to
$734,000 compared to $760,000 for the six months ended June 30, 2008. Decreased
expenses in the 2009 periods were primarily the result of decreased data
acquisition expenses.

Marketing
expenses as a percentage of total net sales increased to 6.0% for the three
months ended June 30, 2009 compared to 5.3% for the three months ended June 30,
2008. Marketing expenses as a percentage of total net sales increased to 6.1%
for the six months ended June 30, 2009 compared to 5.4% for the six months
ended June 30, 2008. The increases in marketing expenses as a percentage of
total net sales in the 2009 periods were primarily due to the effect of flat
costs in relation to the effect of decreased sales in the 2009 periods.

General and
administrative. General and administrative
expenses for the three months ended June 30, 2009 decreased 36.5% to $1,044,000
compared to $1,643,000 for the three months ended June 30, 2008. General and
administrative expenses for the six months ended June 30, 2009 decreased 32.6%
to $2,469,000 compared to $3,465,000 for the six months ended June 30, 2008.
The decreases in the 2009 periods were primarily due to decreased legal expense
and decreased facility related expenses. The Company recorded lower legal
expense in the 2009 periods as there was more activity in the 2008 periods
related to trial preparation.

General and
administrative expenses as a percentage of total net sales decreased to 18.1%
for the three months ended June 30, 2009 compared to 21.7% for the three months
ended June 30, 2008. General and administrative expenses as percentage of total
net sales decreased to 20.7% for the six months ended June 30, 2009 compared to
24.5% for the six months ended June 30, 2008. The decreases in the 2009 periods
were primarily due to the decreased costs discussed above in relation to
decreased sales.

Legal fees and
expenses were $317,000 for the three months ended June 30, 2009 compared to
$849,000 for the three months ended June 30, 2008. Legal fees and expenses were
$1,059,000 for the six months ended June 30, 2009 compared to $1,880,000 for
the six months ended June 30, 2008. The legal fees and expenses in each period
were incurred primarily in connection with the News America lawsuit described
in Note 2 to the financial statements. Decreased legal fees and expenses in the
2009 periods reflect decreased trial preparation and other activity. We
currently expect the amount of additional legal fees and expenses that will be
incurred in connection with the ongoing lawsuit to be significant throughout
the remainder of 2009 and possibly future years. Also, if the Company is required to pay a
significant amount in settlement or damages, it will have a material adverse
effect on its operations and financial condition. In addition, a negative
outcome of this litigation could affect long-term competitive aspects of the
Companys business.

Insurance settlement
proceeds. The Company received a payment of
$1,387,000 in the first quarter of 2009 from an insurer as part of a settlement
of the Companys claim that the insurer owed the Company defense costs for
claims asserted against the Company and one of its officers in the News America
litigation.

Other Income.
Other income for the three months ended June 30, 2009 was $21,000 compared to
$34,000 for the three months ended June 30, 2008. Other income for the six
months ended June 30, 2009 was $49,000 compared to $91,000 for the six
months ended June 30, 2008. Lower other income in the 2009 periods was
primarily due to decreased interest income in the 2009 periods as a result of
lower interest rates which more than offset the higher cash balances in the
2009 periods.

Income Taxes.
The Company continues to carry a full valuation allowance against its net
deferred tax asset at June 30, 2009, and has therefore only recorded income tax
expense of $36,000 for the six months ended June 30, 2009 related to
alternative minimum tax liability. The valuation allowance has been established
due to uncertainties regarding the realization of deferred tax
assets. Income tax expense was $207,000 for the six months ended June 30,
2008 which was based upon an effective rate of 55% which incorporated a
statutory rate of 37% and the effect of nondeductible expenses for tax purposes
related to stock-based compensation and meals and entertainment.

14

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Net Income.
Net income for the three months ended June 30, 2009 was $110,000 compared to
$410,000 for the three months ended June 30, 2008. Net income for the six
months ended June 30, 2009 was $1,427,000 compared to $170,000 for the six
months ended June 30, 2008.

Liquidity and Capital Resources

The Company
has financed its operations with proceeds from public and private stock sales
and sales of its services and products. At June 30, 2009, working capital was
$8,330,000 compared to $6,396,000 at December 31, 2008. During the six months
ended June 30, 2009, cash, cash equivalents and short-term investments
decreased $2,450,000 from $11,052,000 at December 31, 2008 to $8,602,000 at
June 30, 2009.

Net cash used
in operating activities during the six months ended June 30, 2009 was
$2,433,000. Net income of $1,427,000 for the six months ended June 30, 2009 was
more than offset by changes in operating assets and liabilities, primarily
decreases in accrued liabilities and accounts payable and an increase in
accounts receivable. Accounts payable and accrued liabilities decreased
$3,397,000 during the six month period primarily as a result of the payment in
January 2009 of accrued commissions, retailer payments and legal fees which had
accrued during 2008 and were payable after December 31, 2008. Accounts
receivable increased $1,323,000 during the six months ended June 30, 2009
primarily due to an advanced billing in June 2009 to a customer for an eleven
month POPSign program contract. Deferred revenue increased $358,000 during the
six months ended June 30, 2009 primarily due to the advanced billing to a
customer described above which was partially offset by decreases in other
advanced billings. The Company expects accounts receivable, accounts payable,
accrued liabilities and deferred revenue to fluctuate during 2009 depending on
the level of quarterly POPSign revenues and related business activity as well
as billing arrangements with customers.

Net cash of
$1,938,000 was used in investing activities during the six months ended June
30, 2009, due to the purchase of $1,900,000 of short-term investments
(certificates of deposit with twenty-six week maturities) and $38,000 of
expenditures for property and equipment. The Company expects capital
expenditures for the remainder of 2009 to be higher due to planned capital
equipment expenditures.

Net cash of
$21,000 was provided by financing activities during the six months ended June
30, 2009 as a result of $44,000 of proceeds (net) from the issuance of common
stock from the employee stock purchase plan which was partially offset by the
payment of $23,000 of principal on long-term liabilities.

The Company
believes that based upon current business conditions, its existing cash balance
and future cash from operations will be sufficient for its cash requirements in
the foreseeable future. However, there can be no assurances that this will
occur or that the Company will be able to secure additional financing from
public or private stock sales or from other financing agreements if needed.

Critical Accounting Policies

The discussion and analysis of
our financial condition and results of operations are based upon our financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires us to make estimates and judgments that affect
the reported amounts of assets and liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities at the date of our
financial statements. Actual results may differ from these estimates under
different assumptions or conditions.

15

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Our significant accounting policies are described in
Note 1 to the annual financial statements as of and for the year ended December
31, 2008, included in our Form 10-K filed with the Securities and Exchange
Commission on March 30, 2009. We believe our most critical accounting policies
and estimates include the following:

| |   |                                          
| | - | -----------------------------------------
| |  | revenue recognition;                     
|
| |  | allowance for doubtful accounts;         
|
| |  | accounting for deferred income taxes; and
|
| |  | stock-based compensation.                

Cautionary
Statement Regarding Forward-Looking Information

Statements made in this quarterly report on Form 10-Q,
in the Companys other SEC filings, in press releases and in oral statements to
shareholders and securities analysts, which are not statements of historical or
current facts, are forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results or performance of the Company to be
materially different from the results or performance expressed or implied by
such forward-looking statements. The words believes, expects, anticipates,
seeks and similar expressions identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date the statement was made. These statements are
subject to the risks and uncertainties that could cause actual results to
differ materially and adversely from the forward-looking statements. These
risks and uncertainties include, but are not limited to, the risks presented in our Annual Report on
Form 10-K for the year ended December 31, 2008, and updated in
Part II, Item 1A of this Quarterly Report on Form 10-Q.

|                |                                                           
|--------------- | ----------------------------------------------------------
|Item 3.         | Quantitative and Qualitative Disclosures About Market Risk
|                |                                                           
|Not applicable.
|                |                                                           
|Item 4.         | Controls and Procedures                                   

(a) Evaluation of Disclosure Controls and Procedures

The Companys management carried out an evaluation,
under the supervision and with the participation of the Companys Chief
Executive Officer and the Companys Chief Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended) as of the end of the period
covered by this report, pursuant to Exchange Act Rule 13a-15. Based upon that
evaluation, the Companys Chief Executive Officer and the Companys Chief
Financial Officer concluded that the Companys disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company required to be included in the Companys periodic
filings under the Exchange Act.

(b) Changes in Internal Controls Over Financial
Reporting

There was no change in our internal controls over
financial reporting that occurred during the last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

16

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Table of Contents

PART II.     OTHER INFORMATION

|        |                   
|------- | ------------------
|Item 1. | Legal
 Proceedings

In August 2000, News America
Marketing In-Store, Inc. (News America), brought suit against the Company in
U.S. District Court in New York, New York. The case was settled in November
2002. The terms of the settlement agreement are confidential. The settlement
did not impact the Companys operating results.

In October 2003, News
America brought suit against the Company in U.S. District Court in New York,
New York, alleging that the Company has engaged in deceptive acts and
practices, has interfered with existing business relationships with retailers
and prospective economic advantage, and has engaged in unfair competition. The
suit sought unspecified damages and injunctive relief. In February 2007 the
U.S. District Court in New York transferred this action to Minnesota where the
claims became part of the lawsuit the Company filed against News America and
Albertsons Inc. in 2004 (described below), and the New York action was
subsequently dismissed.

On September 23, 2004, the
Company brought suit against News America and Albertsons Inc. (Albertsons) in
Federal District Court in Minneapolis, Minnesota, for violations of federal and
state antitrust and false advertising laws, alleging that News America has
acquired and maintained monopoly power through various wrongful acts designed
to harm the Company in the in-store advertising and promotion products and
services market. The suit seeks injunctive relief sufficient to prevent further
antitrust injury and an award of treble damages to be determined at trial for
the harm caused to the Company. On June 30, 2006 the Court denied the motions
of News America and Albertsons to dismiss the suit. On September 20,
2006, the State of Minnesota through its Attorney General intervened as a
co-plaintiff in the business disparagement portion of the Minnesota case. In
December 2006, News America filed counterclaims in the Minnesota case that
included claims similar to those in its New York action against Insignia and
one of its officers, plus claims for damages for two alleged incidents of libel
and slander. On February 4, 2008, the Court approved a consent decree entered
into by News America and the State of Minnesota under which News America agreed
to not violate Minnesotas statutes prohibiting commercial disparagement. On
July 29, 2008, the Company and Albertsons entered into a settlement agreement
and mutual release, in which they each agreed to release all claims against the
other, and the Company agreed to dismiss its lawsuit against Albertsons.
Pursuant to Court order, all discovery and pre-trial matters were completed by
May 1, 2009. Motions by the Company and by News America for summary judgment
were argued on May 11, 2009, and the Court has not yet ruled on these
motions.

The Company filed claims in
December 2006 and January 2007 with its directors and officers liability and
general liability insurers related to the defense costs and insurance coverage
for claims asserted against the Company and one of its officers in News Americas
counterclaims. On August 9, 2007, the Company filed a complaint against the
insurers in Hennepin County District Court, State of Minnesota requesting a
declaratory judgment that the insurers owed the Company and its officer such
defense costs and insurance coverage. In December 2007, the Company settled its
claim against one of the insurers. Also, in March 2009, the Company settled
with the other insurer and received a payment of $1,387,000 as part of the
settlement. The Company recorded the payment in general and administrative
expenses for the quarter ended March 31, 2009, and the litigation
with the insurers is now concluded.

Although management believes
that News Americas counterclaims are without merit, an evaluation of the
likelihood of an unfavorable outcome and an estimate of the potential liability
cannot be rendered at this time. If the Company is required to pay a significant
amount in settlement or damages, it will have a material adverse effect on its
operations and financial condition. In addition, a negative outcome of this
litigation could affect long-term competitive aspects of the Companys
business.

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Table of Contents

Management currently expects
the amount of legal fees and expenses that will be incurred in connection with
the ongoing lawsuit against News America to be significant throughout 2009 and
possibly future years. During the six months ended June 30, 2009, the Company incurred legal fees
of $1,021,000 related to the News America litigation which were offset by the
$1,387,000 payment received from settlement of its claim against one of its
insurers during the first quarter of 2009. Legal fees and expenses are expensed
as incurred and are included in general and administrative expenses in the
statements of operations.

The Company is subject to
various other legal proceedings in the normal course of business. Management
believes the outcome of these proceedings will not have a material
adverse effect on the Companys financial position or results of operations.

|          |              
|--------- | -------------
|Item
 1A. | Risk
 Factors

Not applicable.

|        |                                                             
|------- | ------------------------------------------------------------
|Item 2. | Unregistered Sales of Equity
 Securities and Use of Proceeds

On August 19, 2008, the Board of Directors authorized
the repurchase of up to $2,000,000 of the Companys common stock on or before
July 31, 2009. The plan does not obligate the Company to repurchase any
particular number of shares, and may be suspended at any time at the Companys
discretion.

Our share repurchase program activity for the three
months ended June 30, 2009 was:

|                 |  |                                      |  |                                |  |                                                                                      |   |                                                                                              |  |   |  |  |  |   |           |  | 
|---------------- |  | ------------------------------------ |  | ------------------------------ |  | ------------------------------------------------------------------------------------ | - | -------------------------------------------------------------------------------------------- |  | - |  |  |  | - | --------- |  | 
|                 |  | Total Number
 Of Shares
 Repurchased |  | Average
 Price Paid
 Per Share |  | Total Number Of
 Shares Purchased As
 Part Of Publicly
 Announced Plans
 Or Programs |   | Approximate Dollar
 Value of Shares That
 May Yet Be Purchased
 Under The Plans
 Or Programs | 
|                 |  |                                      |  |                                |  |                                                                                      |   |                                                                                              |  |   |  |  |  |   |           |  | 
|April 1-30, 2009 |  |                                     |  |                                |  | $                                                                                    |  |                                                                                              |  |  |  |  |  | $ | 1,271,000 |  | 
|May 1-31, 2009   |  |                                     |  |                                |  | $                                                                                    |  |                                                                                              |  |  |  |  |  | $ | 1,271,000 |  | 
|June 1-30, 2009  |  |                                     |  |                                |  | $                                                                                    |  |                                                                                              |  |  |  |  |  | $ | 1,271,000 |  | 

|        |                                 
|------- | --------------------------------
|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 20, 2009.                                                                                                                                                    
|                                                                                                                                                                                                                          |                                                     
|The shareholders present in person or by proxy voted
 to elect Donald J. Kramer, Scott F. Drill, Peter V. Derycz, Reid V. MacDonald
 and Gordon F. Stofer as directors with each director receiving the following
 votes:

|                  |  |            |  |                   
|----------------- |  | ---------- |  | ------------------
|                  |  | FOR        |  | WITHHOLD AUTHORITY
|Donald J. Kramer  |  | 13,713,667 |  | 140,404           
|Scott F. Drill    |  | 13,720,503 |  | 133,578           
|Peter V. Derycz   |  | 13,715,677 |  | 138,404           
|Reid V. MacDonald |  | 13,715,677 |  | 138,404           
|Gordon F. Stofer  |  | 13,715,677 |  | 138,404           

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Table of Contents

|                                                                                                                                                                                                                                                                                                                                                                         |                  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -----------------
|The shareholders present in person or by proxy voted
 to approve an amendment to the Companys 2003 Incentive Stock Option Plan to
 increase the number of shares reserved for issuance under the Plan from
 2,375,000 to 2,625,000. The vote consisted of 4,788,409 shares in favor,
 268,538 shares against, 11,500 shares abstaining and 8,785,634 broker
 non-votes.
|                                                                                                                                                                                                                                                                                                                                                                         |                  
|The shareholders present in person or by proxy voted
 to approve an amendment to the Companys Employee Stock Purchase Plan to
 increase the number of shares reserved for issuance under the Plan from 950,000
 to 1,200,000. The vote consisted of 4,972,377 shares in favor, 83,270 shares
 against, 12,800 shares abstaining and 8,785,634 broker non-votes.        
|                                                                                                                                                                                                                                                                                                                                                                         |                  
|The shareholders present in person or by proxy voted
 to ratify the appointment of Grant Thornton LLP as the independent registered
 public accounting firm for the current year. The vote consisted of 13,687,452
 shares in favor, 139,767 shares against and 26,861 shares abstaining.                                                                               
|                                                                                                                                                                                                                                                                                                                                                                         |                  
|Item 5.                                                                                                                                                                                                                                                                                                                                                                  | Other Information
|                                                                                                                                                                                                                                                                                                                                                                         |                  
|None.                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                         |                  
|Item 6.                                                                                                                                                                                                                                                                                                                                                                  | Exhibits         
|                                                                                                                                                                                                                                                                                                                                                                         |                  
|The following exhibits are included herewith:                                                                                                                                                                                                                                                                                                                           

| |      |                                             
| | ---- | --------------------------------------------
| | 31.1 | Certification of Principal Executive Officer
|
| | 31.2 | Certification of Principal Financial Officer
|
| | 32   | Section 1350 Certification                  

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:  August 12, 2009 |  | Insignia Systems, Inc.                | 
|                        |  | (Registrant)                          | 
|                        |  |                                       | 
|                        |  | /s/  Scott F. Drill                  
|                        |  | Scott F. Drill                       
|                        |  | President and Chief Executive Officer
|                        |  | (principal executive officer)        
|                        |  |                                       | 
|                        |  | /s/  Justin W. Shireman               | 
|                        |  | Justin W. Shireman                   
|                        |  | Vice President, Finance and          
|                        |  | Chief Financial Officer              
|                        |  | (principal financial officer)        

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Table of Contents

EXHIBIT
INDEX

| |      |                                             
| | ---- | --------------------------------------------
| | 31.1 | Certification of Principal Executive Officer
| |      |                                             
| | 31.2 | Certification of Principal Financial Officer
| |      |                                             
| | 32   | Section 1350 Certification                  

20

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