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 and retailers. The Company’s products include the Insignia Point-of-Purchase Services (POPS) in-store advertising program, thermal sign card supplies for the Company’s Impulse Retail systems, laser printable cardstock and label supplies. Additionally, in October 2014, the Company announced a new product, The Like MachineTM, which is an in-store consumer approval device. The Company pays royalties pursuant to a licensing agreement to sell this new product. The Like Machine is currently in the pilot phase of launch, and the Company expects to more fully roll out this offering during 2015.

Basis of Presentation. Financial statements for the interim periods included herein are unaudited; however, they contain all adjustments, including normal recurring accruals, which in the opinion of management, are necessary to present fairly the financial position of the Company at June 30, 2015, its results of operations for the three and six months ended June 30, 2015 and 2014, and its cash flows for the six months ended June 30, 2015 and 2014. 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, 2014.

The Summary of Significant Accounting Policies in the Company’s 2014 Annual Report on Form 10-K describes the Company’s accounting policies.

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

	June 30,		December 31,
	2015		2014
Raw materials	$	70,000	$	110,000
Work-in-process	10,000		8,000
Finished goods	369,000		405,000

	$	449,000	$	523,000

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

	June 30,			December 31,
	2015			2014
Property and Equipment:
Production tooling, machinery and equipment	$	3,932,000		$	3,976,000
Office furniture and fixtures	260,000			260,000
Computer equipment and software	1,131,000			1,065,000
Web site	40,000			40,000
Leasehold improvements	616,000			616,000
Construction in-progress	71,000			35,000

	6,050,000			5,992,000
Accumulated depreciation and amortization	(4,804,000		)	(4,525,000		)

Net Property and Equipment	$	1,246,000		$	1,467,000

Depreciation expense was approximately $159,000 and $322,000 in the three and six months ended June 30, 2015, respectively, and $157,000 and $312,000 in the three and six months ended June 30, 2014, respectively.

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.

The Company issued 200,000 stock option awards, with a weighted average exercise price of $2.82, during the six months ended June 30, 2015, and the Company estimated the fair value of these awards using the following weighted average assumptions: expected life of 3.4 years, expected volatility of 45%, dividend yield of 0% and risk-free interest rate of 1.18%.

The Company estimated the fair value of stock-based rights granted during the six months ended June 30, 2015, under the Company’s employee stock purchase plan using the following weighted average assumptions: expected life of 1.0 years, expected volatility of 37%, dividend yield of 0% and risk-free interest rate of 0.25%.

The Company issued 31,000 restricted stock units during the six months ended June 30, 2015. The units were assigned a value of $2.82 per share, based on the stock price on the date of the grant, and vest over three years. Stock-based compensation expense for the restricted stock units during the three and six months ended June 30, 2015 was $13,000 and $23,000. The Company issued 25,000 restricted stock units during the six months ended June 30, 2014. The units were assigned a value of $3.03 per share, based on the stock price on the date of the grant, and vest over three years. Stock-based compensation expense for the restricted stock units during the three and six months ended June 30, 2014 was $5,000.

In June 2015, equity grants were made by the Company to the Board of Directors, pursuant to the 2013 Omnibus Stock and Incentive Plan, as amended, in the form of fully vested shares of common stock. A total of 37,233 shares were granted to the Board of Directors. The shares were assigned a value of $2.82 per share, based on the stock price on the date of grant, for a total value of $105,000, which is included in stock-based compensation expense.

Total stock-based compensation expense recorded for the three and six months ended June 30, 2015 was $195,000 and $278,000, respectively, and for the three and six months ended June 30, 2014 was $181,000 and $217,000, respectively.

During the three and six months ended June 30, 2015 there were approximately 10,000 shares and 34,000 shares issued pursuant to stock option exercises, for which the Company received proceeds of $1,000 and $2,000, respectively. During the three and six months ended June 30, 2014, there were approximately 15,000 and 69,000 shares issued pursuant to stock option exercises, for which the Company received proceeds of $29,000 and $100,000, respectively. A portion of the stock option exercises in the three and six months ended June 30, 2015 and 2014 were done on a cashless basis.

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

Options to purchase approximately 628,000 and 650,000 shares of common stock with a weighted average exercise price of $3.79 and $3.89, respectively, were outstanding at June 30, 2015 and were not included in the computation of common stock equivalents for the three and six months ended June 30, 2015 because their exercise prices were higher than the average fair market value of the common shares during the reporting period. Options to purchase approximately 579,000 and 519,000 shares of common stock with a weighted average exercise price of $4.28 and $4.32, respectively, were outstanding at June 30, 2014 and were not included in the computation of common stock equivalents for the three and six months ended June 30, 2014 because their exercise prices were higher than the average fair market value of the common shares during the reporting period.

Weighted average common shares outstanding for the three and six months ended June 30, 2015 and 2014 were as follows:

	Three Months Ended		Six Months Ended
	June 30		June 30
	2015	2014	2015	2014
Denominator for basic net income per share - weighted average shares	12,213,000	12,854,000	12,212,000	12,854,000
Effect of dilutive securities:
Stock options and restricted stock units	179,000	239,000	194,000	238,000


Denominator for diluted net income per share - weighted average shares	12,392,000	13,093,000	12,406,000	13,092,000