Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

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 operates in a single reportable segment. The Company’s primary products include the Insignia Point-of-Purchase Services (POPS®), freshADSsm and other retailer approved promotional services, in-store marketing programs, and custom adhesive and non-adhesive signage materials directly to our retail customers.

Basis of Presentation

The accompanying unaudited financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. They do not include all information and footnotes required by U.S. GAAP for complete financial statements. However, except as described herein, there has been no material change in the information disclosed in the notes to financial statements included in our financial statements as of and for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. 

Recently Adopted Accounting Pronouncements

Effective January 1, 2018, the Company adopted Financial Accounting Standards Board Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers” (“Topic 606”). Topic 606 supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition,” and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The adoption of ASU 2014-09, using the modified retrospective approach, had no significant impact on our results of operations, cash flows, or financial position. Revenue continues to be recognized for POPSigns ratably over the period of service, which is typically a two-week display cycle, and for sign card sales, at the time the products are shipped to customers. Additional information and disclosures required by this new standard are contained in Note 2, “Revenue.”

Inventories

Inventories are primarily comprised of sign cards, hardware and roll stock. Inventory is valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method, and consisted of the following as of the dates indicated:

	September 30,		December 31,
	2018		2017
Raw materials	$	90,000	$	68,000
Work-in-process		3,000		10,000
Finished goods		230,000		223,000
	$	323,000	$	301,000

Property and Equipment

Property and equipment consisted of the following as of the dates indicated:

	September 30,			December 31,
	2018			2017
Property and Equipment:
Production tooling, machinery and equipment	$	4,087,000		$	4,003,000
Office furniture and fixtures		329,000			325,000
Computer equipment and software		2,726,000			2,680,000
Leasehold improvements		577,000			577,000
Construction in-progress		995,000			206,000
		8,714,000			7,791,000
Accumulated depreciation and amortization		( 5,665,000	)		( 5,121,000	)
Net Property and Equipment	$	3,049,000		$	2,670,000

Depreciation expense was approximately $188,000 and $555,000 in the three and nine months ended September 30, 2018, respectively, and $220,000 and $653,000 in the three and nine months ended September 30, 2017, respectively.

Stock-Based Compensation

Stock-Based Compensation. We measure and recognize compensation expense for all stock-based payments at fair value. Restricted stock units and awards are valued at the closing market price of the Company’s stock on the date of the grant. We use the Black-Scholes option pricing model to determine the weighted average fair value of options and employee stock purchase plan rights. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as by assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

On November 28, 2016, our Board of Directors amended the 2003 Incentive Stock Option Plan (the “2003 Plan”) and the 2013 Omnibus Stock and Incentive Plan (the “2013 Plan”) to permit equitable adjustments to outstanding awards in the event of an extraordinary cash dividend. On March 28, 2017, the Board of Directors approved the modification of all outstanding stock option awards to provide option holders with substantially equivalent economic value after the effect of the dividend. The modification resulted in the issuance of options to purchase 150,476 additional shares. Total stock-based compensation expense for the modifications was approximately $79,000, which was recorded during the nine months ended September 30, 2017.

During the nine months ended September 30, 2018, stock option awards to purchase up to 119,515 shares were granted by the Company. The Company estimates the fair value of these awards using the following weighted average assumptions: expected life of 6.5 years, expected volatility of 51.21%, dividend yield of 0% and a risk-free rate interest rate of 2.80%. During the nine months ended September 30, 2017, no other stock option awards were granted by the Company beyond the modification discussed above.

During the nine months ended September 30, 2018, the Company issued 297,515 restricted stock units under the 2013 Plan and the 2018 Equity Incentive Plan (the “2018 Plan”). The shares underlying the awards were assigned a value of $1.77 and $1.95 per share, which was the closing price of our common stock on the date of grants. These awards are scheduled to vest over three years or four years with the first vesting in year two. During the nine months ended September 30, 2017, the Company issued 143,424 restricted stock units under the 2013 Plan. The shares underlying the awards made in 2017 were assigned weighted average values of $1.13 per share based on the closing price of our common stock on the applicable dates of grant and are scheduled to vest over two years.

During the nine months ended September 30, 2018, no restricted stock was issued. During the nine months ended September 30, 2017, the Company issued 60,000 shares of restricted stock under the 2013 Plan. The shares underlying the awards were assigned a value of $1.09 per share, which was the closing price of our common stock on the date of grant and are scheduled to vest over the two years following the date of grant.

During July 2018, non-employee members of the Board of Directors received restricted stock grants totaling 46,152 shares pursuant to the 2018 Plan. The shares underlying the awards were assigned a value of $1.95 per share, which was the closing price of our common stock on the date of grants, for a total value of $90,000, and are scheduled to vest the day immediately preceding the date of the next annual shareholder meeting.  During June 2017, non-employee members of the Board of Directors received grants totaling 72,115 fully vested shares of common stock pursuant to the 2013 Plan. The shares were assigned a value of $1.04 per share, based on the closing price on the grant date, for a total value of $75,000, which is included in stock-based compensation expense for the nine months ended September 30, 2017.

Total stock-based compensation expense recorded for the three and nine months ended September 30, 2018 was $128,000 and $277,000, respectively, and for the three and nine months ended September 30, 2017 was $43,000 and $317,000, respectively.

During the three and nine months ended September 30, 2018, there were approximately 900 shares issued pursuant to stock option exercises, for which the Company received proceeds of $1,000. During the three and nine months ended September 30, 2017, there were no options exercised. A portion of the stock option exercises in the three and nine months ended September 30, 2018 were completed on a cashless basis.

The Company estimated the fair value of stock-based awards granted during the nine months ended September 30, 2018, under the Company’s employee stock purchase plan using the following weighted average assumptions: expected life of 1.0 years, expected volatility of 66%, dividend yield of 0% and risk-free interest rate of 1.83%.

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 and restricted stock units and awards. Diluted net income (loss) per share gives effect to all diluted potential common shares outstanding during the period.

Options to purchase approximately 305,000 and 265,000 shares of common stock with a weighted average exercise price of $2.66 and $3.22, respectively, were outstanding at September 30, 2018 and were not included in the computation of common stock equivalents for the three and nine months ended September 30, 2018 because their exercise prices were higher than the average fair market value of the common stock during the reporting period.

Options to purchase approximately 501,000 shares of common stock with a weighted average exercise price of $2.33 were outstanding at September 30, 2017 and were not included in the computation of common stock equivalents for the three months ended September 30, 2017 because their exercise prices were higher than the average fair market value of the common shares during the reporting period. Due to the net loss incurred during the nine months ended September 30, 2017 all stock options were anti-dilutive for that period.

Weighted average common shares outstanding for the three and nine months ended September 30, 2018 and 2017 were as follows:

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2018		2017		2018		2017
Denominator for basic net income (loss) per share -   weighted average shares		11,729,000		11,758,000		11,784,000		11,698,000
Effect of dilutive securities:
Stock options and restricted stock units and awards		283,000		19,000		242,000		—
Denominator for diluted net income (loss) per share -   weighted average shares		12,012,000		11,777,000		12,026,000		11,698,000

Dividends

On November 28, 2016, the Board declared a one-time special dividend of $0.70 per share to shareholders of record as of December 16, 2016 of $8,233,000, of which $8,163,000 was paid on January 6, 2017, $14,000 was paid on May 15, 2017, and an additional $14,000 was paid on May 15, 2018.