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
 March 31, 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 x
No o

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

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

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

Number
of shares outstanding of Common Stock, $.01 par value, as of May 10, 2010, was
15,464,495.

1

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Insignia Systems, Inc.

TABLE OF CONTENTS

|         |                                                                                              |  |   
|-------- | -------------------------------------------------------------------------------------------- |  | --
|PART I.  | FINANCIAL INFORMATION                                                                        |  | 3 
|         |                                                                                              |  |   
|Item 1.  | Financial Statements                                                                         |  | 3 
|         |                                                                                              |  |   
|         | Balance Sheets
  March 31, 2010 and December 31, 2009 (unaudited)                           |  | 3 
|         |                                                                                              |  |   
|         | Statements of
 Operations  Three months ended March 31, 2010 and 2009 (unaudited)           |  | 4 
|         |                                                                                              |  |   
|         | Statements of
 Shareholders Equity  Three months ended March 31, 2010 and 2009 (unaudited) |  | 5 
|         |                                                                                              |  |   
|         | Statements of
 Cash Flows -- Three months ended March 31, 2010 and 2009 (unaudited)          |  | 6 
|         |                                                                                              |  |   
|         | Notes to
 Financial Statements  March 31, 2010 (unaudited)                                  |  | 7 
|         |                                                                                              |  |   
|Item 2.  | Managements
 Discussion and Analysis of Financial Condition and Results of Operations       |  | 11
|         |                                                                                              |  |   
|Item 3.  | Quantitative
 and Qualitative Disclosures About Market Risk                                  |  | 14
|         |                                                                                              |  |   
|Item 4.  | Controls and
 Procedures                                                                     |  | 14
|         |                                                                                              |  |   
|PART II. | OTHER
 INFORMATION                                                                           |  | 16
|         |                                                                                              |  |   
|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                                                                                     |  | 18

2

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Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.     Financial Statements

Insignia Systems, Inc. 
BALANCESHEETS(Unaudited)

|                                                                                                                                 |  |               |             |                  |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | ---------------- | - | ----------- | -
|                                                                                                                                 |  | March 31,2010 |             | December 31,2009 |  
|ASSETS                                                                                                                           |  |               |             |                  |   |             |  
|Current Assets:                                                                                                                  |  |               |             |                  |   |             |  
|Cash and cash equivalents                                                                                                        |  | $             | 6,633,000   |                  | $ | 8,797,000   |  
|Short-term investments                                                                                                           |  |               | 4,300,000   |                  |   | 4,400,000   |  
|Accounts receivable, net of allowance for doubtful accounts of $8,000                                                            |  |               | 3,119,000   |                  |   | 2,890,000   |  
|Inventories                                                                                                                      |  |               | 482,000     |                  |   | 389,000     |  
|Prepaid expenses and other                                                                                                       |  |               | 269,000     |                  |   | 394,000     |  
|Total Current Assets                                                                                                             |  |               | 14,803,000  |                  |   | 16,870,000  |  
|                                                                                                                                 |  |               |             |                  |   |             |  
|Other Assets:                                                                                                                    |  |               |             |                  |   |             |  
|Property and equipment, net                                                                                                      |  |               | 1,046,000   |                  |   | 927,000     |  
|Other                                                                                                                            |  |               | 42,000      |                  |   | 42,000      |  
|                                                                                                                                 |  |               |             |                  |   |             |  
|Total Assets                                                                                                                     |  | $             | 15,891,000  |                  | $ | 17,839,000  |  
|                                                                                                                                 |  |               |             |                  |   |             |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                             |  |               |             |                  |   |             |  
|Current Liabilities:                                                                                                             |  |               |             |                  |   |             |  
|Current maturities of long-term liabilities                                                                                      |  | $             | 219,000     |                  | $ | 219,000     |  
|Accounts payable                                                                                                                 |  |               | 1,871,000   |                  |   | 2,253,000   |  
|Accrued liabilities                                                                                                              |  |               |             |                  |   |             |  
|Compensation                                                                                                                     |  |               | 594,000     |                  |   | 778,000     |  
|Legal                                                                                                                            |  |               | 256,000     |                  |   | 257,000     |  
|Retailer payments                                                                                                                |  |               | 74,000      |                  |   | 1,022,000   |  
|Employee stock purchase plan                                                                                                     |  |               | 46,000      |                  |   | 131,000     |  
|Other                                                                                                                            |  |               | 384,000     |                  |   | 389,000     |  
|Deferred revenue                                                                                                                 |  |               | 858,000     |                  |   | 1,105,000   |  
|Total Current Liabilities                                                                                                        |  |               | 4,302,000   |                  |   | 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 
 15,439,000 at March 31, 2010 and 15,181,000 at December 31, 2009 |  |               | 154,000     |                  |   | 152,000     |  
|Additional paid-in capital                                                                                                       |  |               | 32,915,000  |                  |   | 32,578,000  |  
|Accumulated deficit                                                                                                              |  |               | (21,480,000 | )                |   | (21,045,000 | )
|Total Shareholders Equity                                                                                                       |  |               | 11,589,000  |                  |   | 11,685,000  |  
|                                                                                                                                 |  |               |             |                  |   |             |  
|Total Liabilities and Shareholders Equity                                                                                       |  | $             | 15,891,000  |                  | $ | 17,839,000  |  

See accompanying notes to financial statements.

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Table of Contents

Insignia Systems, Inc. 
STATEMENTS OFOPERATIONS(Unaudited)

|                                                           |  |      |            |      |   |            |  
|---------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|Three
 Months Ended March 31                               |  | 2010 |            | 2009 |  
|Services revenues                                          |  | $    | 5,137,000  |      | $ | 5,631,000  |  
|Products sold                                              |  |      | 746,000    |      |   | 555,000    |  
|Total Net Sales                                            |  |      | 5,883,000  |      |   | 6,186,000  |  
|                                                           |  |      |            |      |   |            |  
|Cost of services                                           |  |      | 2,436,000  |      |   | 2,583,000  |  
|Cost of goods sold                                         |  |      | 517,000    |      |   | 380,000    |  
|Total Cost of Sales                                        |  |      | 2,953,000  |      |   | 2,963,000  |  
|Gross Profit                                               |  |      | 2,930,000  |      |   | 3,223,000  |  
|                                                           |  |      |            |      |   |            |  
|Operating Expenses:                                        |  |      |            |      |   |            |  
|Selling                                                    |  |      | 1,636,000  |      |   | 1,507,000  |  
|Marketing                                                  |  |      | 395,000    |      |   | 389,000    |  
|General and administrative                                 |  |      | 1,347,000  |      |   | 1,425,000  |  
|General and administrative (insurance settlement proceeds) |  |      |           |      |   | (1,387,000 | )
|Total Operating Expenses                                   |  |      | 3,378,000  |      |   | 1,934,000  |  
|Operating Income (Loss)                                    |  |      | (448,000   | )    |   | 1,289,000  |  
|                                                           |  |      |            |      |   |            |  
|Other Income (Expense):                                    |  |      |            |      |   |            |  
|Interest income                                            |  |      | 18,000     |      |   | 38,000     |  
|Interest expense                                           |  |      | (5,000     | )    |   | (10,000    | )
|Total Other Income                                         |  |      | 13,000     |      |   | 28,000     |  
|Net Income (Loss)                                          |  | $    | (435,000   | )    | $ | 1,317,000  |  
|                                                           |  |      |            |      |   |            |  
|Net income (loss) per share:                               |  |      |            |      |   |            |  
|Basic                                                      |  | $    | (0.03      | )    | $ | 0.09       |  
|Diluted                                                    |  | $    | (0.03      | )    | $ | 0.09       |  
|                                                           |  |      |            |      |   |            |  
|Shares used in calculation of net income (loss) per share: |  |      |            |      |   |            |  
|Basic                                                      |  |      | 15,381,000 |      |   | 15,128,000 |  
|Diluted                                                    |  |      | 15,381,000 |      |   | 15,243,000 |  

See accompanying notes to financial statements.

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Table of Contents

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

|                                  |  |              |            |        |                       |                                |       |   |            |   |   |             |   |   |            |  
|--------------------------------- |  | ------------ | ---------- | ------ | --------------------- | ------------------------------ | ----- | - | ---------- | - | - | ----------- | - | - | ---------- | -
|                                  |  |              |            |        |                       | Additional 
 Paid-In 
 Capital |       |   |            |   |  
|                                  |  | Common Stock |            |        | Accumulated 
 Deficit |                                | Total |  
|                                  |  | Shares       |            | Amount |                       |                                |       |  
|Three Months Ended March 31, 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     |  |              | 333,000    |        |                       | 3,000                          |       |   | 635,000    |   |   |            |   |   | 638,000    |  
|Repurchase of common stock, net   |  |              | (75,000    | )      |                       | (1,000                         | )     |   | (411,000   | ) |   |            |   |   | (412,000   | )
|Value of stock-based compensation |  |              |           |        |                       |                               |       |   | 113,000    |   |   |            |   |   | 113,000    |  
|Net loss                          |  |              |           |        |                       |                               |       |   |           |   |   | (435,000    | ) |   | (435,000   | )
|                                  |  |              |            |        |                       |                                |       |   |            |   |   |             |   |   |            |  
|Balance at March 31, 2010         |  |              | 15,439,000 |        | $                     | 154,000                        |       | $ | 32,915,000 |   | $ | (21,480,000 | ) | $ | 11,589,000 |  
|                                  |  |              |            |        |                       |                                |       |   |            |   |   |             |   |   |            |  
|Three Months Ended March 31, 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     |        |                       |                               |       |   | 49,000     |   |   |            |   |   | 49,000     |  
|Value of stock-based compensation |  |              |           |        |                       |                               |       |   | 98,000     |   |   |            |   |   | 98,000     |  
|Net income                        |  |              |           |        |                       |                               |       |   |           |   |   | 1,317,000   |   |   | 1,317,000  |  
|                                  |  |              |            |        |                       |                                |       |   |            |   |   |             |   |   |            |  
|Balance at March 31, 2009         |  |              | 15,129,000 |        | $                     | 151,000                        |       | $ | 32,028,000 |   | $ | (23,444,000 | ) | $ | 8,735,000  |  

See accompanying notes to financial statements.

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Table of Contents

Insignia Systems, Inc. 
STATEMENTS OFCASHFLOWS(Unaudited)

|                                                                                      |  |      |            |      |   |            |  
|------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|Three
 Months Ended March 31                                                          |  | 2010 |            | 2009 |  
|Operating Activities:                                                                 |  |      |            |      |   |            |  
|Net income (loss)                                                                     |  | $    | (435,000   | )    | $ | 1,317,000  |  
|Adjustments to reconcile net income (loss) to net cash used in
 operating activities: |  |      |            |      |   |            |  
|Depreciation and amortization                                                         |  |      | 79,000     |      |   | 101,000    |  
|Provision for bad debt expense                                                        |  |      |           |      |   | 3,000      |  
|Stock-based compensation                                                              |  |      | 113,000    |      |   | 98,000     |  
|Changes in operating assets and liabilities:                                          |  |      |            |      |   |            |  
|Accounts receivable                                                                   |  |      | (229,000   | )    |   | (123,000   | )
|Inventories                                                                           |  |      | (93,000    | )    |   | (16,000    | )
|Prepaid expenses and other                                                            |  |      | 125,000    |      |   | (2,000     | )
|Accounts payable                                                                      |  |      | (382,000   | )    |   | (384,000   | )
|Accrued liabilities                                                                   |  |      | (1,223,000 | )    |   | (2,597,000 | )
|Deferred revenue                                                                      |  |      | (247,000   | )    |   | (184,000   | )
|Net
 cash used in operating activities                                                |  |      | (2,292,000 | )    |   | (1,787,000 | )
|                                                                                      |  |      |            |      |   |            |  
|Investing Activities:                                                                 |  |      |            |      |   |            |  
|Purchases of property and equipment                                                   |  |      | (198,000   | )    |   | (17,000    | )
|Purchases of investments                                                              |  |      | (1,300,000 | )    |   | (1,100,000 | )
|Proceeds from sale of investments                                                     |  |      | 1,400,000  |      |   |           |  
|Net
 cash used in investing activities                                                |  |      | (98,000    | )    |   | (1,117,000 | )
|                                                                                      |  |      |            |      |   |            |  
|Financing Activities:                                                                 |  |      |            |      |   |            |  
|Payment of long-term liabilities                                                      |  |      |           |      |   | (23,000    | )
|Proceeds from issuance of common stock, net                                           |  |      | 638,000    |      |   | 49,000     |  
|Repurchase of common stock, net                                                       |  |      | (412,000   | )    |   |           |  
|Net
 cash provided by financing activities                                            |  |      | 226,000    |      |   | 26,000     |  
|Decrease in cash and cash equivalents                                                 |  |      | (2,164,000 | )    |   | (2,878,000 | )
|Cash and cash equivalents at beginning of period                                      |  |      | 8,797,000  |      |   | 11,052,000 |  
|Cash and cash equivalents at end of period                                            |  | $    | 6,633,000  |      | $ | 8,174,000  |  
|                                                                                      |  |      |            |      |   |            |  
|Supplemental disclosures for cash flow information:                                   |  |      |            |      |   |            |  
|Cash paid during period for taxes                                                     |  | $    | 40,000     |      | $ | 8,000      |  

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 March
 31, 2010, and its results of operations and cash flows for the three months
 ended March 31, 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, rollstock
 and POPSign supplies. Inventory is valued at the lower of cost or market
 using the first-in, first-out (FIFO) method, and consists of the following:                                                                                                                                                                                                                                                           

|                |  |                 |         |                    |   |         | 
|--------------- |  | --------------- | ------- | ------------------ | - | ------- | 
|                |  | March 31,
 2010 |         | December 31,
 2009 |  
|Raw materials   |  | $               | 145,000 |                    | $ | 57,000  | 
|Work-in-process |  |                 | 37,000  |                    |   | 52,000  | 
|Finished goods  |  |                 | 300,000 |                    |   | 280,000 | 
|                |  | $               | 482,000 |                    | $ | 389,000 | 

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Table of Contents

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

|                                             |  |                 |            |                    |   |            |  
|-------------------------------------------- |  | --------------- | ---------- | ------------------ | - | ---------- | -
|                                             |  | March 31,
 2010 |            | December 31,
 2009 |  
|Production tooling,
 machinery and equipment |  | $               | 2,332,000  |                    | $ | 2,226,000  |  
|Office furniture and
 fixtures               |  |                 | 256,000    |                    |   | 255,000    |  
|Computer equipment and
 software             |  |                 | 782,000    |                    |   | 758,000    |  
|Web site                                     |  |                 | 38,000     |                    |   | 38,000     |  
|Leasehold improvements                       |  |                 | 339,000    |                    |   | 322,000    |  
|                                             |  |                 | 3,747,000  |                    |   | 3,599,000  |  
|Accumulated depreciation
 and amortization   |  |                 | (2,701,000 | )                  |   | (2,672,000 | )
|Net Property and Equipment                   |  | $               | 1,046,000  |                    | $ | 927,000    |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 no stock option
 awards granted during the three months ended March 31, 2010. The Company used
 the Black-Scholes option pricing model to estimate the fair value of
 stock-based rights granted during the three months ended March 31, 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 three months ended March 31, 2010 and
 2009, was $113,000 and $98,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Net Income (Loss) Per Share. Basic net income (loss) 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 (loss)
 per share gives effect to all diluted potential common shares outstanding
 during the period. Options and warrants to purchase approximately 438,000 and
 2,879,000 shares of common stock with weighted average exercise prices of
 $8.01 and $3.78 were outstanding at March 31, 2010 and 2009 and were not
 included in the computation of common stock equivalents for the three months
 ended March 31, 2010 and 2009 because their exercise prices were higher than
 the average fair market value of the common shares during the reporting
 period. During the three months ended March 31, 2010, the effect of options
 and warrants outstanding was anti-dilutive due to the net loss incurred
 during the period. Had net income been achieved, approximately 1,324,000 of
 common stock equivalents would have been included in the computation of
 diluted net income per share.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Weighted average common
 shares outstanding for the three months ended March 31, 2010 and 2009 were as
 follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                                                                        |  |                              |            |      |  |            | 
|--------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | ---- |  | ---------- | 
|                                                                                        |  | Three Months Ended
 March 31 |           
|                                                                                        |  | 2010                         |            | 2009 | 
|Denominator for basic net
 income (loss) per share  weighted average shares            |  |                              | 15,381,000 |      |  | 15,128,000 | 
|                                                                                        |  |                              |            |      |  |            | 
|Effect of dilutive
 securities:                                                         |  |                              |            |      |  |            | 
|Stock options and warrants                                                              |  |                              |           |      |  | 115,000    | 
|                                                                                        |  |                              |            |      |  |            | 
|Denominator for diluted
 net income (loss) per share  adjusted weighted average shares |  |                              | 15,381,000 |      |  | 15,243,000 | 

8

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Table of Contents

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 three months
 ended March 31, 2010, the Company incurred legal fees of $404,000 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 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

9

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Table of Contents

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3. | Income
 Taxes. The Company
 carried a full valuation allowance against its net deferred tax asset at both
 March 31, 2010 and March 31, 2009. The Company did not record income tax
 expense for the three months ended March 31,
 2010, due to the Companys lack of profitability during the quarter. The
 Company did not record income tax expense for the three months ended March
 31, 2009, due to tax losses which resulted in the elimination of any federal
 alternative minimum tax and state income taxes. The valuation allowance has
 been established due to uncertainties regarding the realization of deferred
 tax assets.                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4. | Concentrations. During the three months ended March 31,
 2010, General Mills, Inc., Valassis Sales and Marketing Services, Inc., and
 Nestle Co. accounted for 23%, 13% and 13%, respectively, of the Companys
 total net sales. At March 31, 2010 these three customers represented 14%, 14%
 and 15%, respectively, of the Companys total accounts receivable. During the three months ended March 31, 2009, General Mills,
 Inc., Valassis Sales and Marketing Services, Inc., and Nestle Co. accounted
 for 24%, 16% and 11%, respectively, of the Companys total net sales. At
 March 31, 2009, Valassis Sales and Marketing Services, Inc. and Nestle Co.
 represented 26% and 14%, 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.

10

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Table of Contents

|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|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
 March 31 |      
|                                                           |  | 2010                         |       | 2009 | 
|Net sales                                                  |  |                              | 100.0 | %    |  | 100.0 | %
|Cost of sales                                              |  |                              | 50.2  |      |  | 47.9  |  
|Gross profit                                               |  |                              | 49.8  |      |  | 52.1  |  
|Operating expenses:                                        |  |                              |       |      |  |       |  
|Selling                                                    |  |                              | 27.8  |      |  | 24.4  |  
|Marketing                                                  |  |                              | 6.7   |      |  | 6.3   |  
|General and administrative                                 |  |                              | 22.9  |      |  | 23.0  |  
|General and administrative (insurance settlement proceeds) |  |                              |      |      |  | (22.4 | )
|Total operating expenses                                   |  |                              | 57.4  |      |  | 31.3  |  
|Operating income (loss)                                    |  |                              | (7.6  | )    |  | 20.8  |  
|Other income                                               |  |                              | 0.2   |      |  | 0.5   |  
|Net income (loss)                                          |  |                              | (7.4  | )%   |  | 21.3  | %

Decreased net sales in the
first three months of 2010 compared to the first three months of 2009, combined
with the effect of fixed costs in the costs of sales, resulted in a decrease in
gross profit in the 2010 period. This decreased gross profit in the 2010
period, combined with higher operating expenses in the 2010 period and the
insurance settlement proceeds present only in the 2009 period, resulted in a
net loss in the first quarter of 2010 as compared to net income in the first
quarter of 2009.

Three Months ended March 31, 2010 Compared to Three Months
Ended March 31, 2009

Net Sales. Net sales for the three months ended March 31, 2010 decreased 4.9% to
$5,883,000 compared to $6,186,000 for the three months ended March 31, 2009.

Service revenues from our
POPSign programs for the three months ended March 31, 2010 decreased 8.8% to
$5,137,000 compared to $5,631,000 for the three months ended March 31, 2009.
The decrease was due to a decrease in the number of POPS signs displayed for
customers (consumer packaged goods manufacturers) at stores in the Companys
retail network which was partially offset by an increase in the average price
per sign.

Product sales
for the three months ended March 31, 2010 increased 34.4% to $746,000 compared
to $555,000 for the three months ended March 31, 2009. This was primarily due
to higher sales of laser printer supplies based on increased demand for those
products from one of our customers.

11

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Table of Contents

Gross Profit.
Gross profit for the three months ended March 31, 2010 decreased 9.1% to
$2,930,000 compared to $3,223,000 for the three months ended March 31, 2009.
Gross profit as a percentage of total net sales decreased to 49.8% for 2010
compared to 52.1% for 2009.

Gross profit
from our POPSign program revenues for the three months ended March 31, 2010
decreased 11.4% to $2,701,000 compared to $3,048,000 for the three months ended
March 31, 2009. The decrease was primarily due to decreased sales in 2010 combined
with the effect of fixed costs. Gross profit as a percentage of POPSign program
revenues decreased to 52.6% for 2010 compared to 54.1% for 2009, primarily due
to the effect of fixed costs against decreased revenues.

Gross profit
from our product sales for the three months ended March 31, 2010 increased
30.9% to $229,000 compared to $175,000 for the three months ended March 31,
2009. The increase was primarily due to increased sales combined with fixed
costs. Gross profit as a percentage of product sales decreased to 30.7% for
2010 compared to 31.5% for 2009, primarily due to a change in the product mix
towards lower margin products.

Operating Expenses

Selling.
Selling expenses for the three months ended March 31, 2010 increased 8.6% to
$1,636,000 compared to $1,507,000 for the three months ended March 31, 2009,
primarily due to increased sales staffing levels and increased travel related expenses which were partially offset by decreased sales
commissions in 2010 due to decreased sales. Selling expenses as a percentage of
total net sales increased to 27.8% in 2010 compared to 24.4% in 2009, due to
the increased costs discussed above in combination with the effect of decreased
sales.

Marketing.
Marketing expenses for the three months ended March 31, 2010 increased 1.5% to
$395,000 compared to $389,000 for the three months ended March 31, 2009.
Marketing expenses as a percentage of total net sales increased to 6.7% in 2010
compared to 6.3% in 2009, due to the slightly increased costs combined with the
effect of decreased sales.

General and
administrative. General and administrative
expenses for the three months ended March 31, 2010 decreased 5.5% to $1,347,000
compared to $1,425,000 for the three months ended March 31, 2009, primarily due
to decreased legal expense which more than offset increased staff levels and
increased travel related expenses. General
and administrative expenses as a percentage of total net sales decreased to
22.9% in 2010 compared to 23.0% in 2009, due to the factors described above in
combination with decreased sales in 2010. Legal fees were $523,000 for the
three months ended March 31, 2010, compared to $742,000 for the three months
ended March 31, 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 March 31, 2010 was $13,000 compared to
$28,000 for the three months ended March 31, 2009. The difference was due
primarily to decreased interest income in the 2010 period as a result of lower
interest rates which more than offset the higher cash, cash equivalents and
short-term investment balances in the 2010 period.

12

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Table of Contents

Income Taxes.
The Company carried a full valuation allowance against its net deferred tax
asset at both March 31, 2010 and March 31, 2009. The Company did not record
income tax expense for the three months ended March 31, 2010, due to the net
loss for the period. The Company did not record income tax expense for the
three months ended March 31, 2009 due to tax losses which resulted in the
elimination of any federal alternative minimum tax and state income taxes. 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 (Loss).
Our net loss for the three months ended March 31, 2010 was $(435,000) compared
to net income of $1,317,000 for the three months ended March 31, 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 March 31, 2010, working capital was
$10,501,000 compared to $10,716,000 at December 31, 2009. During the three
months ended March 31, 2010, cash and cash equivalents decreased $2,164,000
from $8,797,000 at December 31, 2009 to $6,633,000 at March 31, 2010.

Net cash used
in operating activities during the three months ended March 31, 2010, was
$2,292,000. The decrease in cash and cash equivalents from operating activities
primarily resulted from the net loss of $(435,000) and the $(2,049,000) impact
of changes in operating assets and liabilities which were partially offset by
the $192,000 noncash impact of depreciation and stock-based compensation
included in the net loss. Accrued liabilities decreased by $1,223,000 from
December 31, 2009 to March 31, 2010, primarily as the result of accrued
retailer payments which had accrued during 2009 and which were payable after
December 31, 2009.

Net cash of
$98,000 was used in investing activities during the three months ended March
31, 2010, due to short-term investment activity and $198,000 of expenditures
for property and equipment. Purchases of short-term investments of $1,300,000
and proceeds of $1,400,000 during the quarter consisted entirely of purchases
and redemptions of twenty-six week certificates of deposit. Capital
expenditures of $198,000 during the quarter consisted of digital printing
related equipment and related leasehold modifications as well as information
technology equipment and software. The Company expects to make capital
expenditures of up to $200,000 for the remainder of 2010.

Net cash of
$226,000 was provided by financing activities during the three months ended
March 31, 2010 as a result of $638,000 of proceeds from the issuance of common
stock from the exercise of employee stock options and the employee stock
purchase plan which was partially offset by $412,000 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
for the remainder of 2010. 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.

13

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Table of Contents

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.

|        |                                                           
|------- | ----------------------------------------------------------
|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 were 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.

14

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Table of Contents

(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.

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 2010 and into 2011. During the three months ended March 31, 2010,
the Company incurred legal fees of $404,000 related to the News America
litigation. 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 March 31, 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 |     
|                    
|January
 1-31, 2010  |  |                                      |  |                               |  |                                                                                       |  | $                                                                                            |     |  |  |  |  |       |  |  |  | $ | 2,000,000 |  | 
|February
 1-28, 2010 |  |                                      |  |                               |  |                                                                                       |  | $                                                                                            |     |  |  |  |  |       |  |  |  | $ | 2,000,000 |  | 
|March 1-31,
 2010    |  |                                      |  | 75,000                         |  |                                                                                       |  | $                                                                                            | 5.47 |  |  |  |  | 75,000 |  |  |  | $ | 1,589,800 |  | 

|         |                                
|-------- | -------------------------------
|Item
 3. | Defaults upon Senior Securities
|         |                                
|None.    |                                
|         |                                
|Item
 4. | Removed and Reserved           
|         |                                
|Item
 5. | Other Information              
|         |                                
|None.    |                                

17

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Table of Contents

|         |         
|-------- | --------
|Item
 6. | Exhibits

The following
exhibits are included herewith:

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

SIGNATURES

Pursuant to
the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|                     |                                       
|-------------------- | --------------------------------------
|Dated: May
 17, 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

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

19

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