Table of Contents

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|                                                                         |                                  | 
|------------------------------------------------------------------------ | -------------------------------- | 
|UNITED STATES SECURITIES AND EXCHANGE COMMISSION                        
|Washington, 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, 2010                           
|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 xNo
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 oAccelerated filer oNon-accelerated filer xSmaller 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 oNo
x

Number
of shares outstanding of Common Stock, $.01 par value, as of July 30, 2010, was
15,546,210.

1

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Insignia Systems, Inc.

TABLE OF CONTENTS

|         |                                                                                           |  |   
|-------- | ----------------------------------------------------------------------------------------- |  | --
|PART I.  | FINANCIAL INFORMATION                                                                     |  |   
|         |                                                                                           |  |   
|Item 1.  | Financial Statements                                                                      |  | 3 
|         |                                                                                           |  |   
|         | Balance Sheets
  June 30, 2010 and December 31, 2009 (unaudited)                         |  | 3 
|         |                                                                                           |  |   
|         | Statements of
 Operations  Three and six months ended June 30, 2010 and 2009 (unaudited) |  | 4 
|         |                                                                                           |  |   
|         | Statements of
 Shareholders Equity  Six months ended June 30, 2010 and 2009 (unaudited) |  | 5 
|         |                                                                                           |  |   
|         | Statements of
 Cash Flows  Six months ended June 30, 2010 and 2009 (unaudited)           |  | 6 
|         |                                                                                           |  |   
|         | Notes to
 Financial Statements  June 30, 2010 (unaudited)                                |  | 7 
|         |                                                                                           |  |   
|Item 2.  | Managements Discussion and Analysis of
 Financial Condition and Results of Operations    |  | 10
|         |                                                                                           |  |   
|Item 3.  | Quantitative and Qualitative Disclosures About
 Market Risk                               |  | 15
|         |                                                                                           |  |   
|Item 4.  | Controls and Procedures                                                                   |  | 15
|         |                                                                                           |  |   
|         |                                                                                           |  |   
|PART II. | OTHER INFORMATION                                                                         |  |   
|         |                                                                                           |  |   
|Item 1.  | Legal Proceedings                                                                         |  | 16
|         |                                                                                           |  |   
|Item 1A. | Risk Factors                                                                              |  | 16
|         |                                                                                           |  |   
|Item 2.  | Unregistered Sales of Equity Securities and
 Use of Proceeds                              |  | 17
|         |                                                                                           |  |   
|Item 3.  | Defaults Upon Senior Securities                                                           |  | 17
|         |                                                                                           |  |   
|Item 4.  | Removed and Reserved                                                                      |  | 17
|         |                                                                                           |  |   
|Item 5.  | Other Information                                                                         |  | 17
|         |                                                                                           |  |   
|Item 6.  | Exhibits                                                                                  |  | 17

2

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Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial
Statements

Insignia Systems, Inc. 
BALANCE SHEETS(Unaudited)

|                                                                                                 |  |              |             |                  |   |             |  
|------------------------------------------------------------------------------------------------ |  | ------------ | ----------- | ---------------- | - | ----------- | -
|                                                                                                 |  | June 30,2010 |             | December 31,2009 |  
|ASSETS                                                                                           |  |              |             |                  |   |             |  
|Current Assets:                                                                                  |  |              |             |                  |   |             |  
|Cash and cash equivalents                                                                        |  | $            | 8,249,000   |                  | $ | 8,797,000   |  
|Short-term investments                                                                           |  |              | 3,400,000   |                  |   | 4,400,000   |  
|Accounts receivable, net of allowance for doubtful accounts of $8,000                            |  |              | 4,590,000   |                  |   | 2,890,000   |  
|Inventories                                                                                      |  |              | 403,000     |                  |   | 389,000     |  
|Prepaid expenses and other                                                                       |  |              | 235,000     |                  |   | 394,000     |  
|Total Current Assets                                                                             |  |              | 16,877,000  |                  |   | 16,870,000  |  
|                                                                                                 |  |              |             |                  |   |             |  
|Other Assets:                                                                                    |  |              |             |                  |   |             |  
|Property and equipment, net                                                                      |  |              | 1,041,000   |                  |   | 927,000     |  
|Other                                                                                            |  |              | 42,000      |                  |   | 42,000      |  
|                                                                                                 |  |              |             |                  |   |             |  
|Total Assets                                                                                     |  | $            | 17,960,000  |                  | $ | 17,839,000  |  
|                                                                                                 |  |              |             |                  |   |             |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                             |  |              |             |                  |   |             |  
|Current Liabilities:                                                                             |  |              |             |                  |   |             |  
|Current maturities of long-term liabilities                                                      |  | $            | 219,000     |                  | $ | 219,000     |  
|Accounts payable                                                                                 |  |              | 2,345,000   |                  |   | 2,253,000   |  
|Accrued liabilities                                                                              |  |              |             |                  |   |             |  
|Compensation                                                                                     |  |              | 833,000     |                  |   | 778,000     |  
|Retailer payments                                                                                |  |              | 563,000     |                  |   | 1,022,000   |  
|Legal                                                                                            |  |              | 381,000     |                  |   | 257,000     |  
|Employee stock purchase plan                                                                     |  |              | 93,000      |                  |   | 131,000     |  
|Other                                                                                            |  |              | 400,000     |                  |   | 389,000     |  
|Deferred revenue                                                                                 |  |              | 580,000     |                  |   | 1,105,000   |  
|Total Current Liabilities                                                                        |  |              | 5,414,000   |                  |   | 6,154,000   |  
|                                                                                                 |  |              |             |                  |   |             |  
|Long-Term Liabilities, less current maturities                                                   |  |              |            |                  |   |            |  
|                                                                                                 |  |              |             |                  |   |             |  
|Commitments and Contingencies                                                                    |  |              |            |                  |   |            |  
|                                                                                                 |  |              |             |                  |   |             |  
|Shareholders Equity:                                                                            |  |              |             |                  |   |             |  
|Common stock, par value $.01:                                                                    |  |              |             |                  |   |             |  
|Authorized shares  40,000,000                                                                   |  |              |             |                  |   |             |  
|Issued and outstanding shares  15,544,000 at June 30, 2010 and
 15,181,000 at December 31, 2009 |  |              | 155,000     |                  |   | 152,000     |  
|Additional paid-in capital                                                                       |  |              | 33,217,000  |                  |   | 32,578,000  |  
|Accumulated deficit                                                                              |  |              | (20,826,000 | )                |   | (21,045,000 | )
|Total Shareholders Equity                                                                       |  |              | 12,546,000  |                  |   | 11,685,000  |  
|                                                                                                 |  |              |             |                  |   |             |  
|Total Liabilities and Shareholders Equity                                                       |  | $            | 17,960,000  |                  | $ | 17,839,000  |  

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 |  
|                                                    |  | 2010                        |            | 2009                      |   | 2010       |   | 2009 |           
|Services revenues                                   |  | $                           | 7,562,000  |                           | $ | 5,285,000  |   | $    | 12,699,000 |   | $ | 10,916,000 |  
|Products sold                                       |  |                             | 764,000    |                           |   | 488,000    |   |      | 1,510,000  |   |   | 1,043,000  |  
|Total Net Sales                                     |  |                             | 8,326,000  |                           |   | 5,773,000  |   |      | 14,209,000 |   |   | 11,959,000 |  
|                                                    |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Cost of services                                    |  |                             | 3,482,000  |                           |   | 2,422,000  |   |      | 5,918,000  |   |   | 5,005,000  |  
|Cost of goods sold                                  |  |                             | 499,000    |                           |   | 326,000    |   |      | 1,016,000  |   |   | 706,000    |  
|Total Cost of Sales                                 |  |                             | 3,981,000  |                           |   | 2,748,000  |   |      | 6,934,000  |   |   | 5,711,000  |  
|Gross Profit                                        |  |                             | 4,345,000  |                           |   | 3,025,000  |   |      | 7,275,000  |   |   | 6,248,000  |  
|                                                    |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Operating Expenses:                                 |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Selling                                             |  |                             | 1,775,000  |                           |   | 1,511,000  |   |      | 3,411,000  |   |   | 3,018,000  |  
|Marketing                                           |  |                             | 411,000    |                           |   | 345,000    |   |      | 806,000    |   |   | 734,000    |  
|General and administrative                          |  |                             | 1,508,000  |                           |   | 1,044,000  |   |      | 2,855,000  |   |   | 2,469,000  |  
|Insurance settlement proceeds                       |  |                             |           |                           |   |           |   |      |           |   |   | (1,387,000 | )
|Total Operating Expenses                            |  |                             | 3,694,000  |                           |   | 2,900,000  |   |      | 7,072,000  |   |   | 4,834,000  |  
|Operating Income                                    |  |                             | 651,000    |                           |   | 125,000    |   |      | 203,000    |   |   | 1,414,000  |  
|                                                    |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Other Income (Expense):                             |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Interest income                                     |  |                             | 8,000      |                           |   | 31,000     |   |      | 26,000     |   |   | 69,000     |  
|Interest expense                                    |  |                             | (5,000     | )                         |   | (10,000    | ) |      | (10,000    | ) |   | (20,000    | )
|Total Other Income                                  |  |                             | 3,000      |                           |   | 21,000     |   |      | 16,000     |   |   | 49,000     |  
|Income Before Taxes                                 |  |                             | 654,000    |                           |   | 146,000    |   |      | 219,000    |   |   | 1,463,000  |  
|                                                    |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Income tax expense                                  |  |                             |           |                           |   | 36,000     |   |      |           |   |   | 36,000     |  
|Net Income                                          |  | $                           | 654,000    |                           | $ | 110,000    |   | $    | 219,000    |   | $ | 1,427,000  |  
|                                                    |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Net income per share:                               |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Basic                                               |  | $                           | 0.04       |                           | $ | 0.01       |   | $    | 0.01       |   | $ | 0.09       |  
|Diluted                                             |  | $                           | 0.04       |                           | $ | 0.01       |   | $    | 0.01       |   | $ | 0.09       |  
|                                                    |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Shares used in calculation of net income per share: |  |                             |            |                           |   |            |   |      |            |   |   |            |  
|Basic                                               |  |                             | 15,487,000 |                           |   | 15,129,000 |   |      | 15,434,000 |   |   | 15,129,000 |  
|Diluted                                             |  |                             | 16,924,000 |                           |   | 15,783,000 |   |      | 16,815,000 |   |   | 15,513,000 |  

See accompanying notes to financial statements.

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Table of Contents

Insignia Systems, Inc. 
Statements of Shareholders Equity(Unaudited)

|                                  |  |              |            |            |   |             |   |         |            |       |   |             |   |   |            |  
|--------------------------------- |  | ------------ | ---------- | ---------- | - | ----------- | - | ------- | ---------- | ----- | - | ----------- | - | - | ---------- | -
|                                  |  |              |            | Additional |   |             |   |         |           
|                                  |  | Common Stock |            | Paid-In    |   | Accumulated |   |         |           
|                                  |  | Shares       |            | Amount     |   | Capital     |   | Deficit |            | Total |  
|Six Months Ended June 30, 2010    |  |              |            |            |   |             |   |         |            |       |   |             |   |   |            |  
|                                  |  |              |            |            |   |             |   |         |            |       |   |             |   |   |            |  
|Balance at December 31, 2009      |  |              | 15,181,000 |            | $ | 152,000     |   | $       | 32,578,000 |       | $ | (21,045,000 | ) | $ | 11,685,000 |  
|Issuance of common stock, net     |  |              | 448,000    |            |   | 4,000       |   |         | 705,000    |       |   |            |   |   | 709,000    |  
|Repurchase of common stock, net   |  |              | (85,000    | )          |   | (1,000      | ) |         | (468,000   | )     |   |            |   |   | (469,000   | )
|Value of stock-based compensation |  |              |           |            |   |            |   |         | 402,000    |       |   |            |   |   | 402,000    |  
|Net income                        |  |              |           |            |   |            |   |         |           |       |   | 219,000     |   |   | 219,000    |  
|                                  |  |              |            |            |   |             |   |         |            |       |   |             |   |   |            |  
|Balance at June 30, 2010          |  |              | 15,544,000 |            | $ | 155,000     |   | $       | 33,217,000 |       | $ | (20,826,000 | ) | $ | 12,546,000 |  
|                                  |  |              |            |            |   |             |   |         |            |       |   |             |   |   |            |  
|                                  |  |              |            |            |   |             |   |         |            |       |   |             |   |   |            |  
|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  |  

See accompanying notes to financial statements.

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Table of Contents

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

|                                                                               |  |      |            |      |   |            |  
|------------------------------------------------------------------------------ |  | ---- | ---------- | ---- | - | ---------- | -
|Six Months
 Ended June 30                                                      |  | 2010 |            | 2009 |  
|Operating Activities:                                                          |  |      |            |      |   |            |  
|Net income                                                                     |  | $    | 219,000    |      | $ | 1,427,000  |  
|Adjustments to reconcile net income to net cash used in operating
 activities: |  |      |            |      |   |            |  
|Depreciation and amortization                                                  |  |      | 161,000    |      |   | 203,000    |  
|Provision for income taxes                                                     |  |      |           |      |   | 36,000     |  
|Provision for bad debt expense                                                 |  |      |           |      |   | 7,000      |  
|Stock-based compensation                                                       |  |      | 402,000    |      |   | 298,000    |  
|Changes in operating assets and liabilities:                                   |  |      |            |      |   |            |  
|Accounts receivable                                                            |  |      | (1,700,000 | )    |   | (1,323,000 | )
|Inventories                                                                    |  |      | (14,000    | )    |   | 14,000     |  
|Prepaid expenses and other                                                     |  |      | 159,000    |      |   | (56,000    | )
|Accounts payable                                                               |  |      | 92,000     |      |   | (814,000   | )
|Accrued liabilities                                                            |  |      | (307,000   | )    |   | (2,583,000 | )
|Deferred revenue                                                               |  |      | (525,000   | )    |   | 358,000    |  
|Net
 cash used in operating activities                                         |  |      | (1,513,000 | )    |   | (2,433,000 | )
|                                                                               |  |      |            |      |   |            |  
|Investing Activities:                                                          |  |      |            |      |   |            |  
|Purchases of property and equipment                                            |  |      | (275,000   | )    |   | (38,000    | )
|Purchases of investments                                                       |  |      | (2,600,000 | )    |   | (1,900,000 | )
|Proceeds from sale of investments                                              |  |      | 3,600,000  |      |   |           |  
|Net
 cash provided by (used in) investing activities                           |  |      | 725,000    |      |   | (1,938,000 | )
|                                                                               |  |      |            |      |   |            |  
|Financing Activities:                                                          |  |      |            |      |   |            |  
|Payment of long-term liabilities                                               |  |      |           |      |   | (23,000    | )
|Proceeds from issuance of common stock, net                                    |  |      | 714,000    |      |   | 44,000     |  
|Repurchase of common stock, net                                                |  |      | (474,000   | )    |   |           |  
|Net
 cash provided by financing activities                                     |  |      | 240,000    |      |   | 21,000     |  
|Decrease in cash and cash equivalents                                          |  |      | (548,000   | )    |   | (4,350,000 | )
|Cash and cash equivalents at beginning of period                               |  |      | 8,797,000  |      |   | 11,052,000 |  
|Cash and cash equivalents at end of period                                     |  | $    | 8,249,000  |      | $ | 6,702,000  |  
|                                                                               |  |      |            |      |   |            |  
|Supplemental disclosures for cash flow information:                            |  |      |            |      |   |            |  
|Cash paid during periods for income taxes                                      |  | $    | 40,000     |      | $ | 13,000     |  

See accompanying notes to financial statements.

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Table of Contents

|                             
|-----------------------------
|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,
 2010, its results of operations for the three and six months ended June 30,
 2010 and 2009, and its cash flows for the six months ended June 30, 2010 and
 2009. 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, 2009.                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Summary of Significant
 Accounting Policies in the Companys 2009 Annual Report on Form 10-K
 describes the Companys accounting policies.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Inventories. Inventories are primarily comprised of
 parts and supplies for Impulse and SIGNright machines, sign cards, and
 rollstock. Inventory is valued at the lower of cost or market using the
 first-in, first-out (FIFO) method, and consists of the following:                                                                                                                                                                                                                                                                                                                                   

|                |  |                |         |                    |   |         | 
|--------------- |  | -------------- | ------- | ------------------ | - | ------- | 
|                |  | June 30,
 2010 |         | December 31,
 2009 |  
|Raw materials   |  | $              | 53,000  |                    | $ | 57,000  | 
|Work-in-process |  |                | 44,000  |                    |   | 52,000  | 
|Finished goods  |  |                | 306,000 |                    |   | 280,000 | 
|                |  | $              | 403,000 |                    | $ | 389,000 | 

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

|                                            |  |                |            |                    |   |            |  
|------------------------------------------- |  | -------------- | ---------- | ------------------ | - | ---------- | -
|                                            |  | June 30,
 2010 |            | December 31,
 2009 |  
|Production tooling, machinery and equipment |  | $              | 2,336,000  |                    | $ | 2,226,000  |  
|Office furniture and fixtures               |  |                | 258,000    |                    |   | 255,000    |  
|Computer equipment and software             |  |                | 841,000    |                    |   | 758,000    |  
|Web site                                    |  |                | 38,000     |                    |   | 38,000     |  
|Leasehold improvements                      |  |                | 351,000    |                    |   | 322,000    |  
|                                            |  |                | 3,824,000  |                    |   | 3,599,000  |  
|Accumulated depreciation and amortization   |  |                | (2,783,000 | )                  |   | (2,672,000 | )
|Net Property and Equipment                  |  | $              | 1,041,000  |                    | $ | 927,000    |  

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Stock-Based Compensation. The Company measures and recognizes
 compensation expense for all stock-based payments at fair value using the
 Black-Scholes option pricing model to determine the weighted average fair
 value of options and employee stock purchase plan rights. The Company
 recognizes stock-based compensation expense on a straight-line method over
 the requisite service period of the award.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | There were 334,500 stock
 option awards granted during the six months ended June 30, 2010, and the
 Company estimated the fair value of these awards using the following weighted
 average assumptions: expected life of 3.5 years, expected volatility of 55%,
 dividend yield of 0% and risk-free interest rate of 1.28%. The Company
 estimated the fair value of stock-based rights granted during the six months
 ended June 30, 2010, under the employee stock purchase plan using the
 following weighted average assumptions: expected life of 1 year, expected
 volatility of 55%, dividend yield of 0% and risk-free interest rate of 0.45%.
 Total stock-based compensation expense recorded for the six months ended June
 30, 2010 and 2009, was $402,000 and $298,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 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
 481,000 and 1,988,000 shares of common stock with weighted average exercise
 prices of $7.73 and $4.73 were outstanding at June 30, 2010 and 2009 and were
 not included in the computation of common stock equivalents for the three
 months ended June 30, 2010 and 2009 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 459,000 and 2,433,000
 shares of common stock with weighted average exercise prices of $7.87 and
 $4.17 were outstanding at June 30, 2010 and 2009 and were not included in the
 computation of common stock equivalents for the six months ended June 30,
 2010 and 2009 because their exercise prices were higher than the average fair
 market value of the common shares during the reporting period.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Weighted average common
 shares outstanding for the three and six months ended June 30, 2010 and 2009
 were as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                                                                                 |  |                             |            |                           |  |            |  |      |            |  |  |            | 
|-------------------------------------------------------------------------------- |  | --------------------------- | ---------- | ------------------------- |  | ---------- |  | ---- | ---------- |  |  | ---------- | 
|                                                                                 |  | Three Months Ended
 June 30 |            | Six Months Ended
 June 30 | 
|                                                                                 |  | 2010                        |            | 2009                      |  | 2010       |  | 2009 |           
|Denominator for basic net income per share  weighted average shares             |  |                             | 15,487,000 |                           |  | 15,129,000 |  |      | 15,434,000 |  |  | 15,129,000 | 
|                                                                                 |  |                             |            |                           |  |            |  |      |            |  |  |            | 
|Effect of dilutive securities:                                                   |  |                             |            |                           |  |            |  |      |            |  |  |            | 
|Stock options and warrants                                                       |  |                             | 1,437,000  |                           |  | 654,000    |  |      | 1,381,000  |  |  | 384,000    | 
|                                                                                 |  |                             |            |                           |  |            |  |      |            |  |  |            | 
|Denominator for diluted net income per share  adjusted weighted
 average shares |  |                             | 16,924,000 |                           |  | 15,783,000 |  |      | 16,815,000 |  |  | 15,513,000 | 

8

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Commitments
 and Contingencies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Legal.
 On September 23, 2004, the Company brought suit against News America
 Marketing In-Store, Inc. (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 September 20,
 2006, the State of Minnesota through its Attorney General intervened as a
 co-plaintiff in the business disparagement portion of the case. In December
 2006, News America filed
 counterclaims in the case that included claims of alleged interference with
 contracts and alleged libel and slander against Insignia and one of its
 officers. 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.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | On September 30, 2009, the
 Court ruled on motions by both the Company and News America for Summary
 Judgment. The Court awarded Summary Judgment to the Company and one of its
 executive officers on all of News Americas counterclaims and third-party
 claims. The Court also denied News Americas Motion for Summary Judgment on
 the Companys claims against News America other than granting News Americas
 uncontested motion on one claim in the Amended Complaint related to
 retailers. The Courts rulings set the stage for a trial on the Companys
 antitrust and unfair-competition claims against News America. At a status
 conference on May 4, 2010, the Court set December 6, 2010, as the date
 certain for starting the trial.                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | 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. 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.                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | During the six months
 ended June 30, 2010, the Company incurred legal fees of $927,000 related to
 the News America litigation. 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 the remainder of
 2010 and into 2011. 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
 carried a full valuation allowance against its net deferred tax asset at both
 June 30, 2010 and 2009. The Company did not record income tax expense for the
 six months ended June 30, 2010, due to the lack of taxable income for the
 period and the presence of a full valuation allowance against the deferred
 tax asset. The Company 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.                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4. | Concentrations. During the six months ended June 30 2010,
 Valassis Sales and Marketing Services, Inc., General Mills, Inc., and Nestle
 Co. accounted for 20%, 19% and 17%, respectively, of the Companys total net
 sales. At June 30, 2010, these customers represented 26%, 13% and 15%,
 respectively, of the Companys total accounts receivable. During the six
 months ended June 30, 2009, Valassis Sales and Marketing Services, Inc.,
 General Mills, Inc., and Nestle Co. 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.                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | 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. | New
 Accounting Pronouncements. In December 2009, the Financial Accounting Standards Board (FASB)
 issued Accounting Standards Update (ASU) No. 2010-06, Fair Value Measurements and Disclosures Topic 820
 Improving Disclosures about Fair Value Measurements. This ASU
 requires some new disclosures and clarifies some existing disclosure
 requirements about fair value measurement as set forth in Codification
 Subtopic 820-10. The FASBs objective is to improve these disclosures and,
 thus, increase the transparency in financial reporting. Some of the new
 disclosures are effective for reporting periods beginning after December 15,
 2009, with the remaining new disclosures effective for reporting periods
 beginning after December 15, 2010. The adoption of this ASU will not have a
 material impact on our financial statements.

|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|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 | 
|                              |  | 2010                        |       | 2009                      |  | 2010  |   | 2009 |      
|Net sales                     |  |                             | 100.0 | %                         |  | 100.0 | % |      | 100.0 | % |  | 100.0 | %
|Cost of sales                 |  |                             | 47.8  |                           |  | 47.6  |   |      | 48.8  |   |  | 47.8  |  
|Gross profit                  |  |                             | 52.2  |                           |  | 52.4  |   |      | 51.2  |   |  | 52.2  |  
|Operating expenses:           |  |                             |       |                           |  |       |   |      |       |   |  |       |  
|Selling                       |  |                             | 21.3  |                           |  | 26.1  |   |      | 24.0  |   |  | 25.2  |  
|Marketing                     |  |                             | 5.0   |                           |  | 6.0   |   |      | 5.7   |   |  | 6.1   |  
|General and administrative    |  |                             | 18.1  |                           |  | 18.1  |   |      | 20.1  |   |  | 20.7  |  
|Insurance settlement proceeds |  |                             |      |                           |  |      |   |      |      |   |  | (11.6 | )
|Total operating expenses      |  |                             | 44.4  |                           |  | 50.2  |   |      | 49.8  |   |  | 40.4  |  
|Operating income              |  |                             | 7.8   |                           |  | 2.2   |   |      | 1.4   |   |  | 11.8  |  
|Other income                  |  |                             |      |                           |  | 0.3   |   |      | 0.1   |   |  | 0.4   |  
|Income before taxes           |  |                             | 7.8   |                           |  | 2.5   |   |      | 1.5   |   |  | 12.2  |  
|Income tax expense            |  |                             |      |                           |  | 0.6   |   |      |      |   |  | 0.3   |  
|Net income                    |  |                             | 7.8   | %                         |  | 1.9   | % |      | 1.5   | % |  | 11.9  | %

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Increased net sales in the
first six months of 2010 compared to the first six months of 2009 resulted in
increased gross profit for the 2010 period. This increased gross profit for the
2010 period was largely offset by increased operating expenses for the 2010
period. Also, during the first six months of 2009 the Company received proceeds
of $1,387,000 as part of a settlement in the Companys claims against one of
its insurers for defense costs in the News America litigation. Net income for
the first six months of 2010 was $179,000 higher than net income for the first
six months of 2009 when excluding the insurance settlement proceeds for the
first six months of 2009.

Three and Six Months ended June 30, 2010 Compared to Three
and Six Months Ended June 30, 2009

Net Sales. Net sales for the three months ended June
30, 2010, increased 44.2% to $8,326,000 compared to $5,773,000 for the three
months ended June 30, 2009. Net sales for the six months ended June 30, 2010,
increased 18.8% to $14,209,000 compared to $11,959,000 for the six months ended
June 30, 2009.

Service revenues from our
POPSign programs for the three months ended June 30, 2010, increased 43.1% to
$7,562,000 compared to $5,285,000 for the three months ended June 30, 2009,
primarily due to an increase in the number of POPSign programs executed for
customers (consumer packaged goods manufacturers) at stores in the Companys
retail network. Service revenues from our POPSign programs for the six months
ended June 30, 2010, increased 16.3% to $12,699,000 compared to $10,916,000 for
the six months ended June 30, 2009. The increase in service revenues for the
six month 2010 period was due to an increase in the number of POPSign programs
executed for customers and an increase in the average program price.

Product sales for the three
months ended June 30, 2010, increased 56.6% to $764,000 compared to $488,000
for the three months ended June 30, 2009. Product sales for the six months
ended June 30, 2010, increased 44.8% to $1,510,000 compared to $1,043,000 for
the six months ended June 30, 2009. The increases in both 2010 periods were
primarily due to higher sales of laser printer supplies based on increased
demand for those products from one of our customers.

Gross Profit. Gross profit for the three months ended June
30, 2010, increased 43.6% to $4,345,000 compared to $3,025,000 for the three months
ended June 30, 2009. Gross profit for the six months ended June 30, 2010,
increased 16.4% to $7,275,000 compared to $6,248,000 for the six months ended
June 30, 2009. Gross profit as a percentage of total net sales decreased to
52.2% for the three months ended June 30, 2010, compared to 52.4% for the three
months ended June 30, 2009. Gross profit as a percentage of total net sales
decreased to 51.2% for the six months ended June 30, 2010, compared to 52.2%
for the six months ended June 30, 2009.

Gross profit from our
POPSign program revenues for the three months ended June 30, 2010, increased
42.5% to $4,080,000 compared to $2,863,000 for the three months ended June 30,
2009. Gross profit from our POPSign program revenues for the six months ended June
30, 2010, increased 14.7% to $6,781,000 compared to $5,911,000 for the six
months ended June 30, 2009. The increases in both 2010 periods were primarily
due to increased sales which were partially offset by increased retailer
expenses. Gross profit as a percentage of POPSign program revenues for the
three months ended June 30, 2010, decreased to 54.0% compared to 54.2% for the
three months ended June 30, 2009. Gross profit as a percentage of POPSign
program revenues for the six months ended June 30, 2010, decreased to 53.4%
compared to 54.2% for the six months ended June 30, 2009. The decreases in
gross profit as a percentage of POPSign program revenues in both 2010 periods
were primarily due to the effect of increased variable retailer expenses which
were partially offset by the effect of fixed costs.

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Table of Contents

Gross profit from our
product sales for the three months ended June 30, 2010, increased 63.6% to
$265,000 compared to $162,000 for the three months ended June 30, 2009. Gross
profit from our product sales for the six months ended June 30, 2010, increased
46.6% to $494,000 compared to $337,000 for the six months ended June 30, 2009.
The increases in both 2010 periods were primarily due to increased sales. Gross
profit as a percentage of product sales was 34.7% for the three months ended
June 30, 2010, compared to 33.2% for the three months ended June 30, 2009.
Gross profit as a percentage of product sales
was 32.7% for the six months ended June 30, 2010, compared to 32.3% for the six
months ended June 30, 2009. The increases in both 2010 periods were due to the
effect of fixed costs which more than offset the effect of significantly
increased sales of lower margin products.

Operating Expenses

Selling. Selling expenses for the three months ended June 30, 2010, increased
17.5% to $1,775,000 compared to $1,511,000 for the three months ended June 30,
2009. Selling expenses for the six months ended June 30, 2010, increased 13.0%
to $3,411,000 compared to $3,018,000 for the six months ended June 30, 2009.
Increases in the 2010 periods were primarily due to increased sales
commissions, increased staffing levels and benefits, and increased travel
related expenses. The increased sales commissions were due to increased POPSign
program revenues.

Selling expenses as a
percentage of total net sales decreased to 21.3% for the three months ended
June 30, 2010, compared to 26.1% for the three months ended June 30, 2009.
Selling expenses as a percentage of total net sales decreased to 24.0% for the
six months ended June 30, 2010, compared to 25.2% for the six months ended June
30, 2009. The decreases in the selling expenses as a percentage of total net
sales in the 2010 periods were due to the effect of the increased costs
discussed above in combination with the effect of increased sales.

Marketing. Marketing expenses for the three months
ended June 30, 2010, increased 19.1% to $411,000 compared to $345,000 for the
three months ended June 30, 2009. Marketing expenses for the six months ended
June 30, 2010, increased 9.8% to $806,000 compared to $734,000 for the six
months ended June 30, 2009. Increased expenses in the 2010 periods were
primarily the result of increased staffing levels, employee benefit costs and
data acquisition costs.

Marketing expenses as a
percentage of total net sales decreased to 5.0% for the three months ended June
30, 2010, compared to 6.0% for the three months ended June 30, 2009. Marketing
expenses as a percentage of total net sales decreased to 5.7% for the six
months ended June 30, 2010, compared to 6.1% for the six months ended June 30,
2009. The decreases in marketing expenses as a percentage of total net sales in
the 2010 periods were primarily due to the effect of the increased costs
discussed above in combination with the effect of increased sales.

General and administrative. General and administrative expenses for the
three months ended June 30, 2010, increased 44.4% to $1,508,000 compared to
$1,044,000 for the three months ended June 30, 2009. General and administrative
expenses for the six months ended June 30, 2010, increased 15.6% to $2,855,000
compared to $2,469,000 for the six months ended June 30, 2009. The increase in
the second quarter 2010 period was primarily due to increased legal expense,
staffing levels and travel related expenses. The increased legal expenses were
related to the News America litigation. The increase in the six month 2010
period was primarily due to increased staffing levels and travel related
expenses.

General and administrative
expenses as a percentage of total net sales was 18.1% for both the three months
ended June 30, 2010 and June 30, 2009. General and administrative expenses as
percentage of total net sales decreased to 20.1% for the six months ended June
30, 2010, compared to 20.7% for the six months ended June 30, 2009. The lack of
change in the second quarter 2010 period and the decrease in the six month 2010
period were primarily due to the increased costs discussed above in relation to
increased sales.

12

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Legal fees and expenses were
$566,000 for the three months ended June 30, 2010, compared to $317,000 for the
three months ended June 30, 2009. Legal fees and expenses were $1,089,000 for
the six months ended June 30, 2010, compared to $1,059,000 for the six months
ended June 30, 2009. The legal fees in each quarter were incurred primarily in
connection with the News America lawsuit described in Note 2 to the financial
statements. We currently expect the amount of additional legal fees that will
be incurred in connection with the ongoing lawsuit to be significant throughout
the remainder of 2010 and into 2011 as trial preparation continues and as the
trial is conducted. 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, 2010, was $3,000 compared to $21,000 for the three months ended June 30,
2009. Other income for the six months ended June 30, 2010, was $16,000 compared
to $49,000 for the six months ended June 30, 2009. Lower other income in the
2010 periods was primarily due to decreased interest income in the 2010 periods
as a result of lower interest rates which more than offset the higher cash,
cash equivalents and short-term investment balances in the 2010 periods.

Income Taxes. The Company carried a full valuation
allowance against its net deferred tax asset at both June 30, 2010, and June
30, 2009. The Company did not record income tax expense for the three and six
months ended June 30, 2010, due to the combination of the full valuation
allowance and the lack of taxable income for the period. The Company recorded
income tax expense of $36,000 for the three and 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. The Company updates its deferred tax asset and valuation allowance
analysis quarterly to confirm the appropriateness of its valuation allowance.

Net Income. Net income for the three months ended June
30, 2010, was $654,000 compared to $110,000 for the three months ended June 30,
2009. Net income for the six months ended June 30, 2010, was $219,000 compared
to $1,427,000 for the six months ended June 30, 2009.

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, 2010, working capital was $11,463,000
compared to $10,716,000 at December 31, 2009. During the six months ended June
30, 2010, cash, cash equivalents and short-term investments decreased
$1,548,000 from $13,197,000 at December 31, 2009, to $11,649,000 at June 30,
2010.

Net cash used in operating
activities during the six months ended June 30, 2010 was $1,513,000. Net income
of $219,000 and non-cash expenses of $563,000 (depreciation and stock-based
compensation expense) for the six months ended June 30, 2010, were more than
offset by changes in operating assets and liabilities, primarily decreases in
accrued liabilities and deferred revenue and an increase in accounts
receivable. Accounts receivable increased $1,700,000 during the six months
ended June 30, 2010, primarily due to higher revenue in the two months
preceding June 30, 2010, as compared to the two months preceding December 31,
2009, and due to variability in customer billing arrangements and terms. The
Company expects accounts receivable, accounts payable, accrued liabilities and
deferred revenue to fluctuate during 2010 depending on the level of quarterly
POPSign revenues and related business activity as well as billing arrangements
with customers.

13

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Net cash of $725,000 was
provided by investing activities during the six months ended June 30, 2010, due
to short-term investment activity and expenditures of $275,000 for property and
equipment. Purchases of short-term investments of $2,600,000 and proceeds of
$3,600,000 during the six months consisted entirely of purchases and redemptions of
twenty-six week certificates of deposit. Capital expenditures of $275,000
during the six months consisted of digital printing related equipment and
related leasehold modifications as well as information technology equipment and
software. The Company expects capital expenditures of up to $150,000 for the
remainder of 2010.

Net cash of $240,000 was
provided by financing activities during the six months ended June 30, 2010, as
a result of $714,000 of proceeds (net) from the issuance of common stock from
the exercise of stock options and the employee stock purchase plan which was
partially offset by $474,000 of stock repurchased by the Company pursuant to a
plan adopted on February 23, 2010. The stock repurchase plan allows for the
repurchase of up to $2,000,000 of the Companys common stock on or before
January 31, 2011.

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.

Our significant accounting
policies are described in Note 1 to the annual financial statements as of and
for the year ended December 31, 2009, included in our Form 10-K filed with the Securities
and Exchange Commission on March 31, 2010. 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, 2009, and updated in Part II, Item 1A of this Quarterly
Report on Form 10-Q.

14

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Table of Contents

|        |                                                            
|------- | -----------------------------------------------------------
|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 as of the end of the period covered by this report.
Disclosure controls and procedures ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms, and are designed to
ensure that information required to be disclosed by us in these reports is
accumulated and communicated to the Companys management, including its Chief
Executive Office and Chief Financial Officer, as appropriate to allow timely
decisions regarding disclosures.

(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.

15

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Table of Contents

PART II. OTHER
INFORMATION

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

On September
23, 2004, the Company brought suit against News America Marketing In-Store,
Inc. (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 September 20, 2006, the State of Minnesota through its Attorney
General intervened as a co-plaintiff in the business disparagement portion of
the case. In December 2006, News America filed counterclaims in the case that
included claims of alleged interference with contracts and alleged libel and
slander against Insignia and one of its officers. 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.

On September
30, 2009, the Court ruled on motions by both the Company and News America for
Summary Judgment. The Court awarded Summary Judgment to the Company and one of
its executive officers on all of News Americas counterclaims and third-party
claims. The Court also denied News Americas Motion for Summary Judgment on the
Companys claims against News America other than granting News Americas
uncontested motion on one claim in the Amended Complaint related to retailers.
The Courts rulings set the stage for a trial on the Companys antitrust and
unfair-competition claims against News America. At a status conference on May
4, 2010, the Court set December 6, 2010, as the date certain for starting the
trial.

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. 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.

During the six
months ended June 30, 2010, the Company incurred legal fees of $927,000 related
to the News America litigation. 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 the remainder of 2010
and into 2011. 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.

16

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Table of Contents

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

On February
23, 2010, the Board of Directors authorized the repurchase of up to $2,000,000
of the Companys common stock on or before January 31, 2011. 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, 2010 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,
 2010 |  |                                      |       |                                | $ |                                                                                      |  |                                                                                                |       |  | $ | 1,591,000 | 
|May 1-31,
 2010   |  |                                      | 10,000 |                                | $ | 5.60                                                                                  |  |                                                                                                | 85,000 |  | $ | 1,535,000 | 
|June 1-30,
 2010  |  |                                      |       |                                | $ |                                                                                      |  |                                                                                                |       |  | $ | 1,535,000 | 

|                                               |                                
|---------------------------------------------- | -------------------------------
|Item 3.                                        | Defaults upon Senior Securities
|                                               |                                
|None.                                          |                                
|                                               |                                
|Item 4.                                        | Removed and Reserved           
|                                               |                                
|Item 5.                                        | Other Information              
|                                               |                                
|None.                                          |                                
|                                               |                                
|Item 6.                                        | Exhibits                       
|                                               |                                
|The
 following exhibits are included herewith:

| |      |                                                                                               
| | ---- | ----------------------------------------------------------------------------------------------
| | 10.1 | Amended
 Change in Control Severance Agreement (1) with Scott F. Drill
 dated May 26, 2010    
| |      |                                                                                               
| | 10.2 | Amended
 Change in Control Severance Agreement (1) with Justin W. Shireman
 dated May 26, 2010
| |      |                                                                                               
| | 10.3 | Amended
 Change in Control Severance Agreement (1) with Scott J. Simcox
 dated May 26, 2010   
| |      |                                                                                               
| | 10.4 | Amended
 Change in Control Severance Agreement (1) with Alan Jones dated
 May 26, 2010        
| |      |                                                                                               
| | 10.5 | Amended
 Change in Control Severance Agreement (1) with A. Thomas Lucas
 dated May 26, 2010   
| |      |                                                                                               
| | 31.1 | Certification
 of Principal Executive Officer                                                 
| |      |                                                                                               
| | 31.2 | Certification
 of Principal Financial Officer                                                 
| |      |                                                                                               
| | 32   | Section 1350
 Certification                                                                   

(1) The
Amended Change in Control Severance Agreement contains non-substantive
technical changes designed to comply with Internal Revenue Service Code Section
409A regulations regarding deferred compensation, and other non-substantive
technical changes.

17

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Table of Contents

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 9, 2010 | 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)        

18

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Table of Contents

EXHIBIT INDEX

| |      |                                                                                               
| | ---- | ----------------------------------------------------------------------------------------------
| | 10.1 | Amended
 Change in Control Severance Agreement(1) with Scott F. Drill dated
 May 26, 2010     
| |      |                                                                                               
| | 10.2 | Amended
 Change in Control Severance Agreement (1) with Justin W. Shireman
 dated May 26, 2010
| |      |                                                                                               
| | 10.3 | Amended
 Change in Control Severance Agreement (1) with Scott J. Simcox
 dated May 26, 2010   
| |      |                                                                                               
| | 10.4 | Amended
 Change in Control Severance Agreement (1) with Alan Jones dated
 May 26, 2010        
| |      |                                                                                               
| | 10.5 | Amended
 Change in Control Severance Agreement (1) with A. Thomas Lucas
 dated May 26, 2010   
| |      |                                                                                               
| | 31.1 | Certification
 of Principal Executive Officer                                                 
| |      |                                                                                               
| | 31.2 | Certification
 of Principal Financial Officer                                                 
| |      |                                                                                               
| | 32   | Section 1350
 Certification                                                                   

(1) The
Amended Change in Control Severance Agreement contains non-substantive
technical changes designed to comply with Internal Revenue Service Code Section
409A regulations regarding deferred compensation, and other non-substantive
technical changes.

19

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