Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2016

Summary of Significant Accounting Policies

Description of Business

Description of Business. Insignia Systems, Inc. (the “Company”) markets in-store advertising products, programs and services primarily to consumer packaged goods manufacturers. The Company’s products include the Insignia Point-of-Purchase Services (POPS) in-store marketing program, thermal sign card supplies for the Company’s Impulse Retail System, and laser printable cardstock and label supplies. In October 2014, the Company announced the introduction of a new product, The Like MachineTM, which is an innovative new media that harnesses the power of social media, consumer engagement, and word-of-mouth recommendation at the point of purchase.  The Company licenses this product from TLM Holdings, LLC (“TLMH”), a company in which Insignia’s Chief Sales and Marketing Officer, Tim Halfmann, is the majority owner and serves as a principal. In March 2016, the Company and TLMH signed a new distribution agreement for the sale of The Like Machine to Insignia’s customers. This distribution agreement replaced the Company’s prior license agreement with TLMH. Mr. Halfmann has resigned from Insignia, effective April 30, 2016 in order to focus his efforts more fully on The Like Machine product and its evolution going forward.

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 March 31, 2016, and its results of operations and its cash flows for the three months ended March 31, 2016 and 2015. 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, 2015.

The Summary of Significant Accounting Policies in the Company’s 2015 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, rollstock, and TLM devices. 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,		December 31,
	2016		2015
Raw materials	$	48,000	$	69,000
Work-in-process	15,000		4,000
Finished goods	425,000		318,000
	$	488,000	$	391,000

Property and Equipment

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

	March 31,			December 31,
	2016			2015
Property and Equipment:
Production tooling, machinery and equipment	$	3,725,000		$	3,722,000
Office furniture and fixtures	322,000			145,000
Computer equipment and software	1,276,000			1,233,000
Web site	40,000			40,000
Leasehold improvements	570,000			—
Construction in-progress	30,000			616,000
	5,963,000			5,756,000
Accumulated depreciation and amortization	(4,254,000		)	(4,172,000		)
Net Property and Equipment	$	1,709,000		$	1,584,000

Depreciation expense was approximately $194,000 and $163,000 in the three months ended March 31, 2016 and 2015, 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 graded-attribution method over the requisite service period of the award.

The Company issued options to purchase an aggregate of 20,000 shares of common stock under its 2013 Omnibus Stock and Incentive Plan, as amended, with a weighted average exercise price of $2.90, during the three months ended March 31, 2016. The Company estimated the fair value of these awards using the following weighted average assumptions: expected life of 2.5 years, expected volatility of 41%, dividend yield of 0% and risk-free interest rate of 1.00%. During the three months ended March 31, 2016, no restricted stock units were granted by the Company. During the three months ended March 31, 2015, no stock option awards or restricted stock units were granted by the Company.

The Company estimated the fair value of stock-based awards granted during the three months ended March 31, 2016 under the employee stock purchase plan using the following weighted average assumptions: expected life of 1.0 year, expected volatility of 31%, dividend yield of 0% and risk-free interest rate of 0.61%.

The total fair value of stock-based rights granted under the employee stock purchase plan during the three months ended March 31, 2016 and 2015 was approximately $3,000 and $7,000, respectively.

Total stock-based compensation expense recorded for the three months ended March 31, 2016 and 2015, was $26,000 and $83,000, respectively.

During the three months ended March 31, 2016, there were no options exercised. During the three months ended March 31, 2015, 23,667 shares of common stock were issued pursuant to stock option exercises, for which the Company received aggregate proceeds of $1,000. A portion of the stock option exercises in the three months ended March 31, 2015 were done on a cashless basis.

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.

Due to the net loss incurred during the three months ended March 31, 2016, all stock awards were anti-dilutive for the period. Options to purchase approximately 672,000 shares of common stock with a weighted average exercise price of $3.97 were outstanding at March 31, 2015 and were not included in the computation of common stock equivalents for the three months ended March 31, 2015 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 months ended March 31, 2016 and 2015 were as follows:

Three months ended March 31	2016	2015
Denominator for basic net income per share - weighted average shares	11,624,000	12,210,000
Effect of dilutive securities:
Stock options and restricted stock units	—	210,000
Denominator for diluted net income per share - weighted average shares	11,624,000	12,420,000