Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2013

Summary of Significant Accounting Policies

Description Of Business

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

Basis of Presentation

Basis of Presentation. Financial statements for the interim periods included herein are unaudited; however, they contain all adjustments, including normal recurring accruals, which in the opinion of management, are necessary to present fairly the financial position of the Company at September 30, 2013, its results of operations for the three and nine months ended September 30, 2013 and 2012, and its cash flows for the nine months ended September 30, 2013 and 2012. Results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.

The financial statements do not include certain footnote disclosures and financial information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America and, therefore, should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

The Summary of Significant Accounting Policies in the Company’s 2012 Annual Report on Form 10-K describes the Company’s accounting policies.

Inventories

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

	September 30,		December 31,
	2013		2012
Raw materials	$	91,000	$	72,000
Work-in-process	12,000		3,000
Finished goods	240,000		235,000
	$	343,000	$	310,000

Property And Equipment

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

	September 30,			December 31,
	2013			2012
Property and Equipment:
Production tooling, machinery and equipment	$	3,865,000		$	3,923,000
Office furniture and fixtures	260,000			260,000
Computer equipment and software	1,257,000			1,085,000
Web site	25,000			38,000
Leasehold improvements	616,000			616,000
Construction in-progress	52,000			25,000
	6,075,000			5,947,000
Accumulated depreciation and amortization	(4,204,000		)	(3,798,000		)
Net Property and Equipment	$	1,871,000		$	2,149,000

Depreciation expense was approximately $158,000 and $506,000 in the three and nine months ended September 30, 2013, respectively, and $183,000 and $550,000 in the three and nine months ended September 30, 2012, respectively.

Stock-Based Compensation

Stock-Based Compensation. The Company measures and recognizes compensation expense for all stock-based awards 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 105,000 stock option awards granted during the nine months ended September 30, 2013, and the Company estimated the fair value of these awards using the following weighted average assumptions: expected life of 3.9 years, expected volatility of 52%, dividend yield of 0% and risk-free interest rate of 1.2%.

The Company estimated the fair value of stock-based rights granted during the nine months ended September 30, 2013 under the Company’s employee stock purchase plan using the following weighted average assumptions: expected life of 1.0 years, expected volatility of 51%, dividend yield of 0% and risk-free interest rate of 0.16%. Total stock-based compensation expense recorded for the three and nine months ended September 30, 2013 was $108,000 and $324,000, respectively, and for the three and nine months ended September 30, 2012 was $39,000 and $289,000, respectively.

Total option exercises in the three and nine months ended September 30, 2013 were 23,833 and 37,165, for which the Company received proceeds of $10,020 and $22,820. A portion of the stock option exercises in the three and nine months ended September 30, 2013 were done on a cashless basis. There were no stock option exercises in the three and nine months ended September 30, 2012.

Net Income (Loss) Per Share

Net Income (Loss) Per Share. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding and excludes any potential dilutive effects of stock options. Diluted net income (loss) per share gives effect to all diluted potential common shares outstanding during the period.

Options to purchase approximately 538,000 and 1,005,000 shares of common stock with a weighted average exercise price of $4.20 and $3.48, respectively, were outstanding at September 30, 2013 and were not included in the computation of common stock equivalents for the three and nine months ended September 30, 2013 because their exercise prices were higher than the average fair market value of the common shares during the respective reporting period. Due to the net loss incurred during the three and nine months ended September 30, 2012, all stock options were anti-dilutive.

Weighted average common shares outstanding for the three and nine months ended September 30, 2013 and 2012 were as follows:

	Three Months Ended		Nine Months Ended
	September 30		September 30
	2013	2012	2013	2012
Denominator for basic net income (loss) per share - weighted average shares	13,230,000	13,602,000	13,515,000	13,605,000
Effect of dilutive securities:
Stock options	140,000	1,000	66,000	—
Denominator for diluted net income (loss) per share - weighted average shares	13,370,000	13,603,000	13,581,000	13,605,000