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|                                                                                            |              | 
|------------------------------------------------------------------------------------------- | ------------ | 
|UNITED STATES SECURITIES AND EXCHANGE COMMISSION                                           
|Washington, D. C. 20549                                                                    
|                                                                                            |              | 
|                                                                                           
|                                                                                            | FORM
 10-Q/A | 
|                                                                                           
|                                                                                           
|x QUARTERLY REPORT PURSUANT TO
 SECTION 13 OR 15(d) OF                                     
|THE SECURITIES EXCHANGE
 ACT OF 1934                                                       
|                                                                                           
|for the quarterly period ended
 March 31, 2011                                             
|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 x      Non-accelerated
 filer o      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 September 6, 2011,
was 15,025,904.

1

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Table of Contents

EXPLANATORY
NOTE

This Form 10-Q/A is being
filed to amend the registrants Form 10-Q for the quarter ended March 31, 2011,
to: (1) correct for a miscalculation made related to deferred income taxes, as
announced by the Company on August 3, 2011, and (2) modify the portions of Exhibit
10.1 for which confidential treatment is requested, in response to comments
received from the Commission on the registrants request for confidential
treatment.

2

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Insignia Systems, Inc.

TABLE OF CONTENTS

|         |                                                                                        |  |   
|-------- | -------------------------------------------------------------------------------------- |  | --
|PART I.  | FINANCIAL INFORMATION                                                                  |  | 4 
|         |                                                                                        |  |   
|Item 1.  | Financial Statements                                                                   |  | 4 
|         |                                                                                        |  |   
|         | Condensed Balance Sheets  March 31, 2011 (unaudited)
 and December 31, 2010           |  | 4 
|         |                                                                                        |  |   
|         | Statements of Operations  Three months
 ended March 31, 2011 and 2010 (unaudited)     |  | 5 
|         |                                                                                        |  |   
|         | Statements of Cash Flows  Three months
 ended March 31, 2011 and 2010 (unaudited)     |  | 6 
|         |                                                                                        |  |   
|         | Notes to Financial Statements  March 31,
 2011 (unaudited)                            |  | 7 
|         |                                                                                        |  |   
|Item 2.  | Managements Discussion and Analysis
 of Financial Condition and Results of Operations |  | 12
|         |                                                                                        |  |   
|Item 3.  | Quantitative and Qualitative
 Disclosures About Market Risk                            |  | 16
|         |                                                                                        |  |   
|Item 4.  | Controls and Procedures                                                                |  | 16
|         |                                                                                        |  |   
|PART II. | OTHER INFORMATION                                                                      |  | 17
|         |                                                                                        |  |   
|Item 1.  | Legal Proceedings                                                                      |  | 17
|         |                                                                                        |  |   
|Item 1A. | Risk Factors                                                                           |  | 17
|         |                                                                                        |  |   
|Item 2.  | Unregistered Sales of Equity
 Securities and Use of Proceeds                           |  | 18
|         |                                                                                        |  |   
|Item 3.  | Defaults Upon Senior Securities                                                        |  | 18
|         |                                                                                        |  |   
|Item 4.  | Removed and Reserved                                                                   |  | 18
|         |                                                                                        |  |   
|Item 5.  | Other Information                                                                      |  | 18
|         |                                                                                        |  |   
|Item 6.  | Exhibits                                                                               |  | 18

3

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Table of Contents

PART I.    FINANCIAL INFORMATION

Item
1.  Financial Statements

Insignia Systems, Inc.
CONDENSED BALANCE SHEETS

|                                           |  |                                       |            |                              |   |            | 
|------------------------------------------ |  | ------------------------------------- | ---------- | ---------------------------- | - | ---------- | 
|                                           |  | (Restated)
March 31,
2011
(unaudited) |            | (Restated)
December 31,
2010 |  
|ASSETS                                     |  |                                       |            |                              |   |            | 
|Current Assets:                            |  |                                       |            |                              |   |            | 
|Cash and cash equivalents                  |  | $                                     | 90,240,000 |                              | $ | 13,196,000 | 
|Short-term investments                     |  |                                       |           |                              |   | 500,000    | 
|Accounts receivable, net                   |  |                                       | 2,822,000  |                              |   | 3,227,000  | 
|Inventories                                |  |                                       | 433,000    |                              |   | 414,000    | 
|Deferred tax assets, net                   |  |                                       | 151,000    |                              |   | 151,000    | 
|Prepaid expenses and other                 |  |                                       | 658,000    |                              |   | 360,000    | 
|Total Current Assets                       |  |                                       | 94,304,000 |                              |   | 17,848,000 | 
|                                           |  |                                       |            |                              |   |            | 
|Other Assets:                              |  |                                       |            |                              |   |            | 
|Property and equipment, net                |  |                                       | 928,000    |                              |   | 975,000    | 
|Non-current deferred tax assets, net       |  |                                       | 166,000    |                              |   | 5,551,000  | 
|Other                                      |  |                                       | 3,875,000  |                              |   | 227,000    | 
|                                           |  |                                       |            |                              |   |            | 
|Total Assets                               |  | $                                     | 99,273,000 |                              | $ | 24,601,000 | 
|                                           |  |                                       |            |                              |   |            | 
|LIABILITIES AND SHAREHOLDERS EQUITY       |  |                                       |            |                              |   |            | 
|Current Liabilities:                       |  |                                       |            |                              |   |            | 
|Accounts payable                           |  |                                       | 2,152,000  |                              |   | 2,335,000  | 
|Dividend payable                           |  |                                       | 31,335,000 |                              |   |           | 
|Income tax payable                         |  |                                       | 25,922,000 |                              |   |           | 
|Accrued liabilities                        |  |                                       |            |                              |   |            | 
|Compensation                               |  |                                       | 1,407,000  |                              |   | 809,000    | 
|Legal                                      |  |                                       | 167,000    |                              |   | 376,000    | 
|Employee stock purchase plan               |  |                                       | 49,000     |                              |   | 170,000    | 
|Retailer payments                          |  |                                       | 37,000     |                              |   | 1,119,000  | 
|Other                                      |  |                                       | 284,000    |                              |   | 400,000    | 
|Deferred revenue                           |  |                                       | 159,000    |                              |   | 134,000    | 
|Total Current Liabilities                  |  |                                       | 61,512,000 |                              |   | 5,343,000  | 
|                                           |  |                                       |            |                              |   |            | 
|Long-Term Liabilities:                     |  |                                       |            |                              |   |            | 
|Accrued income taxes                       |  |                                       | 400,000    |                              |   |           | 
|Accrued compensation                       |  |                                       | 800,000    |                              |   |           | 
|Total Liabilities                          |  |                                       | 62,712,000 |                              |   | 5,343,000  | 
|                                           |  |                                       |            |                              |   |            | 
|Commitments and Contingencies              |  |                                       |           |                              |   |           | 
|                                           |  |                                       |            |                              |   |            | 
|Shareholders Equity                       |  |                                       | 36,561,000 |                              |   | 19,258,000 | 
|                                           |  |                                       |            |                              |   |            | 
|Total Liabilities and Shareholders Equity |  | $                                     | 99,273,000 |                              | $ | 24,601,000 | 

See accompanying notes to financial
statements.

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Table of Contents

Insignia Systems, Inc.
STATEMENTS OF OPERATIONS(Unaudited)

|                                                           |  |      |             |      |   |            |  
|---------------------------------------------------------- |  | ---- | ----------- | ---- | - | ---------- | -
|                                                           |  |      |             |      |   |            |  
|Three Months Ended March 31                                |  | 2011 |             | 2010 |  
|Services
revenues                                          |  | $    | 4,374,000   |      | $ | 5,137,000  |  
|Products
revenues                                          |  |      | 573,000     |      |   | 746,000    |  
|Total Net Sales                                            |  |      | 4,947,000   |      |   | 5,883,000  |  
|                                                           |  |      |             |      |   |            |  
|Cost of
services                                           |  |      | 2,543,000   |      |   | 2,436,000  |  
|Cost of
goods sold                                         |  |      | 368,000     |      |   | 517,000    |  
|Total Cost of Sales                                        |  |      | 2,911,000   |      |   | 2,953,000  |  
|Gross Profit                                               |  |      | 2,036,000   |      |   | 2,930,000  |  
|                                                           |  |      |             |      |   |            |  
|Operating Expenses:                                        |  |      |             |      |   |            |  
|Selling                                                    |  |      | 1,555,000   |      |   | 1,636,000  |  
|Marketing                                                  |  |      | 414,000     |      |   | 395,000    |  
|General and administrative                                 |  |      | 2,026,000   |      |   | 1,347,000  |  
|Gain from litigation settlement, net                       |  |      | (89,762,000 | )    |   |           |  
|Total Operating Expenses                                   |  |      | (85,767,000 | )    |   | 3,378,000  |  
|Operating Income (Loss)                                    |  |      | 87,803,000  |      |   | (448,000   | )
|                                                           |  |      |             |      |   |            |  
|Other Income (Expense):                                    |  |      |             |      |   |            |  
|Interest income                                            |  |      | 21,000      |      |   | 18,000     |  
|Interest expense                                           |  |      |            |      |   | (5,000     | )
|Total Other Income                                         |  |      | 21,000      |      |   | 13,000     |  
|Income (Loss) Before Taxes                                 |  |      | 87,824,000  |      |   | (435,000   | )
|Income tax
expense                                         |  |      | (33,951,000 | )    |   |           |  
|Net Income (Loss)                                          |  | $    | 53,873,000  |      | $ | (435,000   | )
|                                                           |  |      |             |      |   |            |  
|Net income
(loss) per share:                               |  |      |             |      |   |            |  
|Basic                                                      |  | $    | 3.37        |      | $ | (0.03      | )
|Diluted                                                    |  | $    | 3.17        |      | $ | (0.03      | )
|                                                           |  |      |             |      |   |            |  
|Shares used
in calculation of net income (loss) per share: |  |      |             |      |   |            |  
|Basic                                                      |  |      | 15,990,000  |      |   | 15,381,000 |  
|Diluted                                                    |  |      | 16,986,000  |      |   | 15,381,000 |  

See accompanying notes to financial
statements.

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

|                                                                                                   |  |                |             |      |   |            |  
|-------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | ---- | - | ---------- | -
|Three Months Ended March 31                                                                        |  | (Restated)2011 |             | 2010 |  
|Operating Activities:                                                                              |  |                |             |      |   |            |  
|Net income (loss)                                                                                  |  | $              | 53,873,000  |      | $ | (435,000   | )
|Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities: |  |                |             |      |   |            |  
|Depreciation and amortization                                                                      |  |                | 88,000      |      |   | 79,000     |  
|Deferred income tax expense                                                                        |  |                | 5,385,000   |      |   |           |  
|Stock-based compensation                                                                           |  |                | 145,000     |      |   | 113,000    |  
|Changes in operating assets and
liabilities:                                                       |  |                |             |      |   |            |  
|Accounts receivable                                                                                |  |                | 405,000     |      |   | (229,000   | )
|Inventories                                                                                        |  |                | (19,000     | )    |   | (93,000    | )
|Prepaid expenses and other                                                                         |  |                | 54,000      |      |   | 125,000    |  
|Accounts payable                                                                                   |  |                | (183,000    | )    |   | (382,000   | )
|Accrued liabilities                                                                                |  |                | (130,000    | )    |   | (1,223,000 | )
|Income tax payable                                                                                 |  |                | 28,145,000  |      |   |           |  
|Accrued income taxes                                                                               |  |                | 400,000     |      |   |           |  
|Excess tax benefits from stock-based
payments                                                      |  |                | (2,222,000  | )    |   |           |  
|Deferred revenue                                                                                   |  |                | 25,000      |      |   | (247,000   | )
|Net cash provided by (used in) operating activities                                                |  |                | 85,966,000  |      |   | (2,292,000 | )
|                                                                                                   |  |                |             |      |   |            |  
|Investing Activities:                                                                              |  |                |             |      |   |            |  
|Purchases of property and equipment                                                                |  |                | (41,000     | )    |   | (198,000   | )
|Acquisition of selling arrangement                                                                 |  |                | (4,000,000  | )    |   |           |  
|Purchases of investments                                                                           |  |                |            |      |   | (1,300,000 | )
|Proceeds from sale of investments                                                                  |  |                | 500,000     |      |   | 1,400,000  |  
|Net cash provided by (used in) investing activities                                                |  |                | (3,541,000  | )    |   | (98,000    | )
|                                                                                                   |  |                |             |      |   |            |  
|Financing Activities:                                                                              |  |                |             |      |   |            |  
|Proceeds from issuance of common stock, net                                                        |  |                | 3,069,000   |      |   | 638,000    |  
|Excess tax benefits from stock-based
payments                                                      |  |                | 2,222,000   |      |   |           |  
|Repurchase of common stock, net                                                                    |  |                | (10,672,000 | )    |   | (412,000   | )
|Net cash provided by (used in) financing activities                                                |  |                | (5,381,000  | )    |   | 226,000    |  
|                                                                                                   |  |                |             |      |   |            |  
|Increase (decrease) in cash and cash
equivalents                                                   |  |                | 77,044,000  |      |   | (2,164,000 | )
|                                                                                                  
|Cash and cash equivalents at beginning of
period                                                   |  |                | 13,196,000  |      |   | 8,797,000  |  
|Cash and cash equivalents at end of period                                                         |  | $              | 90,240,000  |      | $ | 6,633,000  |  
|                                                                                                   |  |                |             |      |   |            |  
|Supplemental disclosures for cash flow
information:                                                |  |                |             |      |   |            |  
|Cash paid during period for income taxes                                                           |  | $              | 12,000      |      | $ | 40,000     |  
|                                                                                                  
|Non-cash investing and financing
activities:                                                       |  |                |             |      |   |            |  
|Dividend payable                                                                                   |  | $              | 31,335,000  |      | $ |           |  
|Cashless exercise of options                                                                       |  | $              | 800,000     |      | $ |           |  

See accompanying notes to financial
statements.

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Insignia Systems, Inc.
NOTES TO FINANCIAL STATEMENTS(Unaudited)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | Summary of Significant Accounting Policies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Description of Business.Insignia Systems, Inc. (the
 Company) markets in-store advertising products, programs and services to
 consumer packaged goods manufacturers (customers) and retailers. The Company
 has been in business since 1990. The Companys products and services includes
 the Insignia POPSign® program, thermal sign card supplies for the Companys
 SIGNright and Impulse systems, Stylus software and laser printable cardstock
 and label supplies. Since 1998, the Company has been focusing on providing
 in-store services through the Insignia Point-of- Purchase Services (Insignia
 POPS®) in-store advertising program.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | 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, 2011, and its results of operations and cash flows for the three months
 ended March 31, 2011 and 2010. Results of operations for the periods
 presented are not necessarily indicative of the results to be expected for
 the full year.                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The
 financial statements do not include certain footnote disclosures and
 financial information normally included in financial statements prepared in
 accordance with accounting principles generally accepted in the United States
 of America and, therefore, should be read in conjunction with the financial
 statements and notes included in the Companys Annual Report on Form 10-K/A
 for the year ended December 31, 2010.                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Summary
 of Significant Accounting Policies in the Companys 2010 Annual Report on Form
 10-K/A describes the Companys accounting policies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Inventories.Inventories are primarily comprised of
 parts and supplies for Impulse and SIGNright machines, sign cards, 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,
 2011 |         | December 31,
 2010 |  
|Raw materials   |  | $               | 93,000  |                    | $ | 132,000 | 
|Work-in-process |  |                 | 31,000  |                    |   | 25,000  | 
|Finished goods  |  |                 | 309,000 |                    |   | 257,000 | 
|                |  | $               | 433,000 |                    | $ | 414,000 | 

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

|                                            |  |                 |            |                    |   |            |  
|------------------------------------------- |  | --------------- | ---------- | ------------------ | - | ---------- | -
|                                            |  | March 31,
 2011 |            | December 31,
 2010 |  
|Property and Equipment:                     |  |                 |            |                    |   |            |  
|Production tooling, machinery and equipment |  | $               | 2,346,000  |                    | $ | 2,344,000  |  
|Office furniture and fixtures               |  |                 | 258,000    |                    |   | 258,000    |  
|Computer equipment and software             |  |                 | 975,000    |                    |   | 936,000    |  
|Web site                                    |  |                 | 38,000     |                    |   | 38,000     |  
|Leasehold improvements                      |  |                 | 351,000    |                    |   | 351,000    |  
|                                            |  |                 | 3,968,000  |                    |   | 3,927,000  |  
|Accumulated depreciation and amortization   |  |                 | (3,040,000 | )                  |   | (2,952,000 | )
|Net Property and Equipment                  |  | $               | 928,000    |                    | $ | 975,000    |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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, 2011.
 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,
 2011, under the employee stock purchase plan using the following weighted
 average assumptions: expected life of 1 year, expected volatility of 30%,
 dividend yield of 0% and risk-free interest rate of 0.30%. Total stock-based
 compensation expense recorded for the three months ended March 31, 2011 and
 2010, was $145,000 and $113,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Dividend Payable.
 On February 22, 2011, the Board of Directors approved a special $2.00 per
 common share dividend totaling $31,335,000. The dividend was accrued at March
 31, 2011, and paid on May 2, 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 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 315,000 and 438,000 shares of common stock with
 weighted average exercise prices of $8.80 and $8.01 were outstanding at March
 31, 2011 and 2010 and were not included in the computation of common stock
 equivalents for the three months ended March 31, 2011 and 2010 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.

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| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | Weighted
 average common shares outstanding for the three months ended March 31, 2011
 and 2010 were as follows:

|                                                                               |  |      |            |      |  |            | 
|------------------------------------------------------------------------------ |  | ---- | ---------- | ---- |  | ---------- | 
|Three Months Ended March 31                                                    |  | 2011 |            | 2010 | 
|Denominator for basic net income (loss) per share - weighted average
 shares   |  |      | 15,990,000 |      |  | 15,381,000 | 
|Effect of dilutive securities:                                                 |  |      |            |      |  |            | 
|Stock options and warrants                                                     |  |      | 996,000    |      |  |           | 
|Denominator for diluted net income (loss) per share - weighted
 average shares |  |      | 16,986,000 |      |  | 15,381,000 | 

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Restatement. The Company has determined that
 there was an error made in connection with state income taxes payable as of
 March 31, 2011 as a result of disqualifying dispositions of incentive stock
 options and other exercises of nonqualified stock options. The amount of the
 restatement was to decrease income taxes payable by $58,000 and increase
 shareholders equity by $58,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3. | Commitments and Contingencies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Legal. On
 September 23, 2004, the Company brought suit against News America and
 Albertsons Inc. (Albertsons) in Federal District Court in Minneapolis,
 Minnesota, for violations of federal and state antitrust and false
 advertising laws, alleging that News America has acquired and maintained
 monopoly power through various wrongful acts designed to harm the Company in
 the in-store advertising and promotion products and services market. The suit
 sought injunctive relief sufficient to prevent further antitrust injury and
 an award of treble damages 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 February
 7, 2011, trial in the Companys lawsuit against News America commenced in U.S.
 District Court for the District of Minnesota. On February 9, 2011, the
 Company and News America entered into a Settlement Agreement to settle the
 lawsuit. Pursuant to the Settlement Agreement, News America paid the Company
 $125,000,000, and the Company paid News America $4,000,000 in exchange for a
 10-year arrangement to sell signs with price into News Americas network of
 retailers as News Americas exclusive agent. The Settlement Agreement
 included the dismissal with prejudice of the Companys lawsuit against News
 America. The definitive agreement for the 10-year arrangement was approved by
 the U.S. District Court on June 6, 2011, and signed by both parties. Certain
 issues have arisen since then in connection with the implementation of the
 definitive agreement. On August 25, 2011, the Magistrate Judge issued a
 supplemental Order defining and clarifying the business operations between
 the Company and News America relative to the definitive agreement. The
 Company expects that the definitive agreement and the supplemental Order will
 aid the Company in increasing its sale of signs-with-price to consumer
 packaged goods customers, but there is no guarantee that the definitive
 agreement will result in increased sales.                                                                     

9

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| |                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------
| | A
 reconciliation of the settlement proceeds to the gain from litigation
 settlement recognized in the statement of operations is as follows:

|                                     |  |                              |             |      |   |   | 
|------------------------------------ |  | ---------------------------- | ----------- | ---- | - | - | 
|                                     |  | Three Months Ended
 March 31 |            
|                                     |  | 2011                         |             | 2010 |  
|Settlement proceeds                  |  | $                            | 125,000,000 |      | $ |  | 
|Less contingent attorneys fees      |  |                              | (31,250,000 | )    |   |  | 
|Less bonuses paid to employees       |  |                              | (3,988,000  | )    |   |  | 
|Gain from litigation settlement, net |  | $                            | 89,762,000  |      | $ |  | 

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | During the
 quarter ended March 31, 2011, the Company incurred legal fees of $32,076,000
 in connection with the News America lawsuit. A contingent fee payment of
 $31,250,000 was made to the Companys lead trial counsel out of the
 settlement proceeds. Additional legal fees of $826,000 were incurred in
 connection with the lawsuit as the Company prepared for trial, worked through
 settlement discussions, and post settlement activities. Management does not
 expect significant legal fees and expenses in future periods after
 post-settlement activities are concluded. Legal fees and expenses are
 expensed as incurred and are included in general and administrative expenses
 in the statements of operations, except for the contingent fee which was
 included as a reduction of the gain from the litigation settlement.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|4. | Income Taxes.
 As a result of the taxable income generated by the settlement proceeds,
 $5,385,000 of the Companys deferred tax assets was utilized during the first
 three months of 2011. For the three months ended March 31, 2011, the
 provision for income taxes was $33,951,000, or 38.7% of income before income
 taxes. The income tax provision during the three months ended March 31, 2011,
 is comprised of federal and state taxes. The primary difference between the
 Companys March 31, 2011, effective tax rate and the statutory federal rate
 is due to state income taxes. For the three months ended March 31, 2010, no
 provision for income taxes or tax benefit was recorded as a full valuation
 allowance existed on the Companys deferred tax assets.                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | As of March
 31, 2011, the Company had unrecognized tax benefits totaling $400,000
 excluding interest which relate to state nexus issues. The amount of the
 unrecognized tax benefits, if recognized, that would affect the effective
 income tax rates of future periods is $400,000. Due to the current statute of
 limitations regarding the unrecognized tax benefits, the unrecognized tax
 benefits and associated interest is not expected to decrease significantly in
 2011.                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|5. | Concentrations. During the three months
 ended March 31, 2011, Nestle Co. and Valassis Sales and Marketing Services,
 Inc. accounted for 29% and 18%, respectively, of the Companys total net
 sales. At March 31, 2011, these two customers represented 26% and 12%,
 respectively, of the Companys total accounts receivable. 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. Valassis Sales and Marketing Services, Inc. is a
 reseller of the Companys POPSign program to consumer packaged goods
 manufacturers.                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Although
 there are a number of customers that the Company sells to, the loss of a major
 customer could adversely affect operating results. Additionally, the loss of
 a major retailer from the Companys retail network could adversely affect
 operating results.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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Table of Contents

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | New Accounting Pronouncements. In October
 2009, the Financial Accounting Standards Board (FASB) issued Accounting
 Standards Update (ASU) No. 2009-13, Multiple-Deliverable
 Revenue Arrangementsa consensus of the FASB Emerging Issues Task Force,
 that provides amendments to the criteria for separating consideration in
 multiple-deliverable arrangements. As a result of these amendments,
 multiple-deliverable revenue arrangements will be separated in more
 circumstances than under previous U.S. GAAP. The ASU does this by
 establishing a selling price hierarchy for determining the selling price of a
 deliverable. The selling price used for each deliverable will be based on
 vendor-specific objective evidence (VSOE) if available, third-party
 evidence if VSOE is not available, or estimated selling price if neither VSOE
 nor third-party evidence is available. A vendor will be required to determine
 its best estimate of selling price in a manner that is consistent with that
 used to determine the price to sell the deliverable on a standalone basis.
 This ASU also eliminates the residual method of allocation and will require
 that arrangement consideration be allocated at the inception of the
 arrangement to all deliverables using the relative selling price method,
 which allocates any discount in the overall arrangement proportionally to
 each deliverable based on its relative selling price. This standard became
 effective for the Company in January 2011 and did not have a material impact
 on the Companys results of operations or financial condition.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | In October
 2009, the FASB issued ASU 2009-14, Certain
 Revenue Arrangements That Include Software Elements  a consensus of the FASB
 Emerging Issues Task Force. This ASU removes tangible products
 containing software components and nonsoftware components that function
 together to deliver the tangible products essential functionality from the
 scope of the software revenue guidance in Subtopic 985-605 of the
 Codification. Additionally, ASU 2009-14 provides guidance on how a vendor
 should allocate arrangement consideration to deliverables in an arrangement
 that includes both tangible products and software that is not essential to
 the products functionality. This standard became effective for the Company
 in January 2011 and did not have a material impact on the Companys results
 of operations or financial condition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | 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 were
 effective for reporting periods beginning after December 15, 2009, with the
 remaining new disclosures effective for reporting periods beginning after
 December 15, 2010. The Company adopted the amended guidance and it did not
 have a significant impact on the Companys financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | In July
 2010, the FASB issued ASU No. 2010-20,Receivables Topic 310 Disclosures about the Credit Quality of Financing
 Receivables and the Allowance for Credit Losses, to enhance the
 disclosures required for financing receivables (for example, loans, trade
 accounts receivable, notes receivable, and receivables relating to a lessors
 leveraged, direct financing, and sales-type leases) and allowances for credit
 losses. The amended disclosures are designed to provide more information to
 financial statement users regarding the credit quality of a creditors
 financing receivables and the adequacy of its allowance for credit losses.
 The amended guidance is effective for period-end balances beginning with the
 first interim or annual reporting period ending on or after December 15,
 2010. The amended guidance is effective for activity during a reporting
 period beginning on or after December 15, 2010. The Company adopted the
 amended guidance and it did not have a significant impact on the Companys
 financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | In May 2011,
 the FASB issued ASU 2011-04,Fair Value
 Measurement (Topic 820)  Amendments to Achieve Common Fair Value Measurement and Disclosure
 Requirements in U.S. GAAP and IFRSs. This ASU
 provides a consistent definition of fair value between U.S. GAAP and
 International Financial Reporting Standards. Additionally, the ASU changes
 certain fair value measurement principles and expands the disclosures for fair
 value measurements. ASU 2011-04 is effective for interim and annual periods
 beginning after December 15, 2011 and is to be applied prospectively. The
 adoption of this ASU is not expected to have a material impact on the
 Companys financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

11

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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. (the Company) markets in-store advertising products, programs
and services to consumer packaged goods manufacturers (customers) and
retailers. The Companys products and services includes the Insignia POPSign®
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          |  | 2011 |          | 2010 | 
|Net sales                            |  |      | 100.0    | %    |  | 100.0 | % 
|Cost of Sales                        |  |      | 58.8     |      |  | 50.2  |   
|Gross Profit                         |  |      | 41.2     |      |  | 49.8  |   
|Operating expenses:                  |  |      |          |      |  |       |   
|Selling                              |  |      | 31.4     |      |  | 27.8  |   
|Marketing                            |  |      | 8.4      |      |  | 6.7   |   
|General and administrative           |  |      | 41.0     |      |  | 22.9  |   
|Gain from litigation settlement, net |  |      | (1,814.5 | )    |  |      |   
|Total operating expenses             |  |      | (1,733.7 | )    |  | 57.4  |   
|Operating income (loss)              |  |      | 1,774.9  |      |  | (7.6  | ) 
|Other income                         |  |      | 0.4      |      |  | 0.2   |   
|Income (loss) before taxes           |  |      | 1,775.3  |      |  | (7.4  | ) 
|Income tax expense                   |  |      | (686.3   | )    |  |      |   
|Net income (loss)                    |  |      | 1,089.0  | %    |  | (7.4  | )%

Decreased net
sales in the first three months of 2011 compared to the first three months of
2010, combined with the effect of fixed costs in the costs of sales, resulted
in a decrease in gross profit in the 2011 period. The decrease in gross profit
and increased operating expenses in the 2011 period were dramatically offset by
the litigation settlement, resulting in significant net income in 2011 as
compared to a net loss in the 2010 period. See the non-GAAP financial measures
information which follows later in this section for a comparison of the 2011
and 2010 periods non-GAAP net losses.

Three Months ended March 31, 2011, Compared
to Three Months Ended March 31, 2010

Net Sales. Net sales for the three months ended
March 31, 2011 decreased 15.9% to $4,947,000 compared to $5,883,000 for the
three months ended March 31, 2010.

Service
revenues from our POPSign programs for the three months ended March 31, 2011
decreased 14.9% to $4,374,000 compared to $5,137,000 for the three months ended
March 31, 2010. The decrease was primarily due to a 12.0% decrease in the
average sign price as well as a 5.7% decrease in the number of POPS signs
displayed for customers at stores in the Companys retail network. The decrease
in the number of signs displayed in the 2011 period was primarily related to
the expiration of the Kroger retailer contract at the end of 2010. During the
three months ended March 31, 2010, revenue recognized by advertising in Kroger
stores was $1,706,000.

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Table of Contents

Product sales
for the three months ended March 31, 2011 decreased 23.2% to $573,000 compared
to $746,000 for the three months ended March 31, 2010. This was primarily due
to lower sales volume of laser printer supplies.

Gross Profit.
Gross profit for the three months ended March 31, 2011 decreased 30.5% to
$2,036,000 compared to $2,930,000 for the three months ended March 31, 2010.
Gross profit as a percentage of total net sales decreased to 41.2% for 2011
compared to 49.8% for 2010.

Gross profit
from our POPSign program revenues for the three months ended March 31, 2011
decreased 32.2% to $1,831,000 compared to $2,701,000 for the three months ended
March 31, 2010. The decrease was primarily due to decreased sales in 2011
combined with the effect of fixed costs. Gross profit as a percentage of
POPSign program revenues decreased to 41.9% for 2011 compared to 52.6% for
2010, primarily due to the effect of fixed costs against decreased revenues.

Gross profit
from our product sales for the three months ended March 31, 2011 decreased
10.5% to $205,000 compared to $229,000 for the three months ended March 31,
2010. The decrease was primarily due to decreased sales. Gross profit as a
percentage of product sales increased to 35.8% for 2011 compared to 30.7% for 2010.
The decreased laser printer supplies in 2011 were lower margin products which
resulted in the higher gross profit percentage in 2011.

Operating Expenses

Selling.
Selling expenses for the three months ended March 31, 2011 decreased 5.0% to
$1,555,000 compared to $1,636,000 for the three months ended March 31, 2010,
primarily due to decreased sales commissions in 2011 due to decreased sales.
Selling expenses as a percentage of total net sales increased to 31.4% in 2011
compared to 27.8% in 2010, primarily due to the effect of decreased sales.

Marketing.
Marketing expenses for the three months ended March 31, 2011 increased 4.8% to
$414,000 compared to $395,000 for the three months ended March 31, 2010.
Marketing expenses as a percentage of total net sales increased to 8.4% in 2011
compared to 6.7% in 2010, due to the effect of decreased sales.

General and
administrative. General and administrative
expenses for the three months ended March 31, 2011 increased 50.4% to
$2,026,000 compared to $1,347,000 for the three months ended March 31, 2010.
General and administrative expenses as a percentage of total net sales
increased to 41.0% in 2011 compared to 22.9% in 2010, due to increased legal
expense in 2011. Legal fees were $989,000 for the three months ended March 31,
2011, compared to $523,000 for the three months ended March 31, 2010. The legal
fees in each quarter were incurred primarily in connection with the News
America lawsuit described in Note 2 to the financial statements. Management
does not expect significant legal fees and expenses in future periods in
connection with post-settlement activities.

Gain from litigation
settlement. On February 9, 2011, the Company
entered into a Settlement Agreement in its lawsuit against News America. As
part of the Settlement Agreement, News America paid the Company $125,000,000.
Netted against this payment was a contingent fee payment of $31,250,000 to the
Companys lead trial counsel as well as performance bonus payments of
$3,988,000 to certain employees in connection with the settlement, resulting in
a net pre-tax gain of $89,762,000.

Other Income.
Other income for the three months ended March 31, 2011 was $21,000 compared to
$13,000 for the three months ended March 31, 2010. The difference was due to
increased interest income in the 2011 period due to higher cash, cash
equivalents and short-term investment balances, partially offset by lower
interest rates, and a decrease in interest expense in 2011.

Income Taxes.
As a result of the taxable income generated by the settlement proceeds,
$5,385,000 of the Companys deferred tax assets were utilized during the first
three months of 2011. For the three months ended March 31, 2011, the provision
for income taxes was $33,951,000, or 38.7% of income before income taxes. The
provision for income taxes during the three months ended March 31, 2011, is
comprised of federal and state taxes. The primary difference between the
Companys March 31, 2011, effective tax rate and the statutory federal rate is
state income taxes. The lack of profitability in the first quarter of 2010, and
the full valuation allowance against the Companys deferred tax assets,
resulted in no provision for taxes or tax benefit for the 2010 period.

13

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Table of Contents

Net Income (Loss).
Our net income for the three months ended March 31, 2011 was $53,873,000
compared to a net loss of $(435,000) for the three months ended March 31, 2010.

Non-GAAP Financial Measures

To supplement
the Companys financial statements presented in accordance with GAAP, the
Company has provided certain non-GAAP financial measures of financial
performance in prior public announcements. These non-GAAP measures include:

| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | net income
 (loss) before gain from litigation settlement (net of tax), and
| |  | net income
 before News America related legal fee expense.                 

The Companys
reference to these non-GAAP measures should be considered in addition to
results prepared under current accounting standards, but are not a substitute
for, or superior to, GAAP results.

These non-GAAP
measures are provided to enhance investors overall understanding of the
Companys current financial performance and ability to generate cash flows. In
many cases non-GAAP financial measures are used by analysts and investors to
evaluate the Companys performance. Reconciliation to the nearest GAAP measure
can be found in the financial table included below.

|                                                                                                              |  |      |             |      |   |          |  
|------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | -------- | -
|Three
 Months Ended March 31                                                                                  |  | 2011 |             | 2010 |  
|Net income (loss)                                                                                             |  | $    | 53,873,000  |      | $ | (435,000 | )
|Adjustment:                                                                                                   |  |      |             |      |   |          |  
|Gain from litigation settlement (net of tax) (see below)                                                      |  |      | (55,062,000 | )    |   |         |  
|Non-GAAP net loss before gain from litigation settlement (net of tax)                                         |  |      | (1,189,000  | )    |   | (435,000 | )
|Adjustment:                                                                                                   |  |      |             |      |   |          |  
|News America related legal expense                                                                            |  |      | 826,000     |      |   | 404,000  |  
|Non-GAAP net loss before gain from litigation settlement (net of tax)
 and News America related legal expense |  | $    | (363,000    | )    | $ | (31,000  | )
|                                                                                                              |  |      |             |      |   |          |  
|Gain from litigation settlement (net of tax)                                                                  |  |      |             |      |   |          |  
|Settlement proceeds                                                                                           |  | $    | 125,000,000 |      |   |          |  
|Less contingent attorneys fees                                                                               |  |      | (31,250,000 | )    |   |          |  
|Less bonuses paid to employees                                                                                |  |      | (3,988,000  | )    |   |          |  
|                                                                                                              |  |      | 89,762,000  |      |   |          |  
|Less settlement related income taxes                                                                          |  |      | (34,700,000 | )    |   |          |  
|Gain from litigation settlement (net of tax)                                                                  |  | $    | 55,062,000  |      |   |          |  

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, 2011, working capital was
$32,792,000 compared to $12,505,000 at December 31, 2010. During the three
months ended March 31, 2011, cash, cash equivalents and short-term investments
increased $76,544,000 from $13,696,000 at December 31, 2010 to $90,240,000 at
March 31, 2011.

14

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Table of Contents

On February 9,
2011, the Company entered into a settlement agreement in its lawsuit against
News America. As part of the settlement agreement, News America paid the
Company $125,000,000 less $4,000,000 related to a 10-year business arrangement.
Litigation counsel for the Company received a contingent fee payment of
$31,250,000 which resulted in net cash to the Company of $89,750,000 after the
contingent fee.

On February
22, 2011, the Board of Directors approved a series of actions. First, the Board
of Directors authorized a special $2.00 per common share dividend which
resulted in in a payment to shareholders of $31,335,000 on May 2, 2011. Second,
the Board approved a Performance Bonus Plan, providing for the payment of
$3,988,000 to certain employees of the Company. Third, the Board authorized the
repurchase of up to $15,000,000 of the Companys common stock on or before
January 31, 2012. 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. On May 25, 2011, the Board amended the plan to increase the maximum
share purchase amount from $15,000,000 to $20,000,000.

Net cash
provided by operating activities during the three months ended March 31, 2011,
was $85,966,000. Net income of $53,873,000, plus non-cash adjustments of
$5,618,000 and changes in operating assets and liabilities of $26,475,000
resulted in the $85,966,000 of cash provided by operating activities. The net
non-cash adjustments of $5,618,000 consisted of depreciation and amortization
expense, deferred income tax expense, and stock-based compensation expense. The
most significant component of the $26,475,000 change in operating assets and
liabilities was income taxes. Income tax payable increased by $28,145,000,
before the excess tax benefit of $2,222,000, primarily due to taxable income
related to the litigation settlement. Accrued retailer payments decreased
$1,082,000 primarily related to the payment to one of our retailers, and
accrued compensation increased $1,398,000 primarily due to the terms of the
performance bonus plan related to the News America settlement. The Company
expects accounts receivable, accounts payable, accrued liabilities and deferred
revenue to fluctuate during future periods depending on the level of POPSign
revenues and related business activity as well as billing arrangements with
customers and payment terms with retailers.

Net cash of
$3,541,000 was used in investing activities during the three months ended March
31, 2011. Proceeds from the sale of investments were more than offset by the
purchase of property and equipment and the payment of $4,000,000 in exchange
for a 10-year business arrangement. Proceeds of $500,000 during the first
quarter consisted entirely of redemptions of twenty-six week certificates of
deposit. Capital expenditures of $41,000 during the quarter consisted primarily
of information technology equipment and software. The Company expects to make
capital expenditures of approximately $2,000,000 for the remainder of 2011.

Net cash of
$5,381,000, which includes the excess tax benefit of $2,222,000, was used in
financing activities during the three months ended March 31, 2011. The
repurchase of common stock of $10,672,000, pursuant to a plan adopted on
February 22, 2011 and amended on May 25, 2011, was partially offset by
$3,069,000 of proceeds from the issuance of common stock from the exercise of
employee stock options and the employee stock purchase plan.

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 2011 and for the next twelve months thereafter. 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.

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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, 2010, included in our Form
10-K/A filed with the Securities and Exchange Commission on September 9, 2011.
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/A, 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/A for the year ended December 31, 2010, and updated in Part II, Item
1A of this Quarterly Report on Form 10-Q/A.

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, including the circumstances
surrounding the recently announced amendment of the 2010 Form 10-K, 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.

(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, other than
the Companys hiring of a new chief financial officer effective June 13, 2011.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On September
23, 2004, the Company brought suit against News America and Albertsons Inc.
(Albertsons) in Federal District Court in Minneapolis, Minnesota, for
violations of federal and state antitrust and false advertising laws, alleging
that News America has acquired and maintained monopoly power through various
wrongful acts designed to harm the Company in the in-store advertising and
promotion products and services market. The suit sought injunctive relief
sufficient to prevent further antitrust injury and an award of treble damages
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 February 7,
2011, trial in the Companys lawsuit against News America commenced in U.S.
District Court for the District of Minnesota. On February 9, 2011, the Company
and News America entered into a Settlement Agreement to settle the lawsuit.
Pursuant to the Settlement Agreement, News America paid the Company
$125,000,000, and the Company paid News America $4,000,000 in exchange for a
10-year arrangement to sell signs with price into News Americas network of
retailers as News Americas exclusive agent. The Settlement Agreement included
the dismissal with prejudice of the Companys lawsuit against News America. The
definitive agreement for the 10-year arrangement was approved by the U.S.
District Court on June 6, 2011, and signed by both parties. Certain issues have
arisen since then in connection with the implementation of the definitive
agreement. On August 25, 2011, the Magistrate Judge issued a supplemental Order
defining and clarifying the business operations between the Company and News
America relative to the definitive agreement. The Company expects that the
definitive agreement and the supplemental Order will aid the Company in
increasing its sale of signs-with-price to consumer packaged goods customers,
but there is no guarantee that the definitive agreement will result in
increased sales.

Legal fees of
$826,000 were incurred in connection with the News America lawsuit as the
Company prepared for trial, worked through settlement discussions, and post
settlement activities. Additionally, during the quarter ended March 31, 2011,
the Company made a contingent fee payment of $31,250,000 to the lead trial
counsel out of the News America lawsuit settlement proceeds. Management does not
expect significant legal fees and expenses in future periods after
post-settlement activities are concluded. Legal fees and expenses are expensed
as incurred and are included in general and administrative expenses in the
statements of operations, except for the contingent fee which was included as a
reduction of the gain from the litigation settlement.

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

We described
the most significant risk factors applicable to the Company in Part I, Item 1A
Risk Factors of our Annual Report on Form 10-K/A for the year ended December
31, 2010. We believe there have been no material changes from the risk factors
disclosed on Form 10-K/A.

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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 has now
expired with no shares repurchased in 2011.

On February
22, 2011, the Board of Directors authorized the repurchase of up to $15,000,000
of the Companys common stock on or before January 31, 2012, under a new plan.
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. On May
25, 2011, the Board amended the plan to increase the maximum share purchase
amount from $15,000,000 to $20,000,000.

Our share
repurchase program activity for the three months ended March 31, 2011, under
the new plan 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 |          
|                     
|February
 22-28, 2011 |  |                                      |          |                                | $ |                                                                                     |  |                                                                                              |          |  | $ | 20,000,000 | 
|March 1-31,
 2011     |  |                                      | 1,583,700 |                                |   | 6.69                                                                                 |  |                                                                                              | 1,583,700 |  |   | 9,407,700  | 

Item 3. Defaults upon Senior Securities

None.

Item 4. Removed and Reserved

Item 5. Other Information

None.

Item 6. Exhibits

The following
exhibits are included herewith:

|     |                                                                                                                                                            
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 | Settlement
 Agreement and Release with News America Marketing In-Store, LLC, dated
 February 9, 2011, including exhibits (confidential treatment requested)
|31.1 | Certification
 of Principal Executive Officer                                                                                                              
|31.2 | Certification
 of Principal Financial Officer                                                                                                              
|32   | Section 1350
 Certification                                                                                                                                

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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:   September
 9, 2011 | Insignia Systems, Inc.                                              
|                            | (Registrant)                                                        
|                            |                                                                     
|                            | /s/ Scott F.
 Drill                                                 
|                            | Scott F.
 Drill                                                     
|                            | President
 and Chief Executive Officer (principal executive officer)
|                            |                                                                     
|                            | /s/ John C.
 Gonsior                                                
|                            | John C.
 Gonsior                                                    
|                            | Vice
 President, Finance and                                        
|                            | Chief
 Financial Officer                                            
|                            | (principal
 financial officer)                                      

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EXHIBIT
INDEX

| |      |                                                                                                                                                            
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.1 | Settlement
 Agreement and Release with News America Marketing In-Store, LLC, dated
 February 9, 2011, including exhibits (confidential treatment requested)
| | 31.1 | Certification
 of Principal Executive Officer                                                                                                              
| | 31.2 | Certification
 of Principal Financial Officer                                                                                                              
| | 32   | Section 1350
 Certification                                                                                                                                

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