Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

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®) in-store signage solution, and other retailer approved promotional services, in-store marketing solutions, 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 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, 2018 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, 2019, the Company adopted Financial Accounting Standards Board Accounting Standards Update (“ASU”) 2016-02, “Leases” (“Topic 842”) under which lessees will recognize most leases on the balance sheet. At the date of adoption of the standard the Company recorded a right of use asset with a value of $305,000, reduced deferred rent by $158,000 and recorded a lease liability of $463,000. The Company elected the option under Topic 842 not to restate comparative periods in the transition. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard which allowed it to carry forward the historical lease classification. Additional required disclosures for Topic 842 are contained in Note 5.

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,
	2019		2018
Raw materials	$	56,000	$	80,000
Work-in-process		25,000		12,000
Finished goods		262,000		261,000
	$	343,000	$	353,000

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

	September 30,			December 31,
	2019			2018
Property and Equipment:
Production tooling, machinery and equipment	$	3,728,000		$	3,694,000
Office furniture and fixtures		385,000			385,000
Computer equipment and software		4,190,000			2,743,000
Leasehold improvements		577,000			577,000
Construction in-progress		—			1,179,000
		8,880,000			8,578,000
Accumulated depreciation and amortization		(6,051,000	)		(5,310,000	)
Net Property and Equipment	$	2,829,000		$	3,268,000

Depreciation expense was approximately $300,000 and $740,000 in the three and nine months ended September 30, 2019, respectively, and was $188,000 and $555,000 in the three and nine months ended September 30, 2018, respectively.

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 as of 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.

During the nine months ended September 30, 2019 and 2018, no stock awards were granted by the Company.

During the nine months ended September 30, 2019, no stock option awards were granted. During the nine months ended September 30, 2018, options to purchase up to 119,515 shares of common stock were granted to employees by the Company under the 2018 Equity Incentive Plan (the “2018 Plan”). The Company estimated 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, 2019, no restricted stock units were granted. During the nine months ended September 30, 2018, the Company issued a total of 297,515 restricted stock units to employees under the 2013 Omnibus Stock and Incentive Plan and the 2018 Plan, with each unit representing the right to receive one share of common stock. The shares underlying the awards were assigned values of $1.77 and $1.95 per share, which represent the closing prices of our common stock on the dates of grant. These awards are scheduled to vest over three years or four years with the first vesting scheduled to occur in year two.

In June 2019, non-employee directors received a total of 70,755 restricted stock units pursuant to the 2018 Plan, with each unit representing the right to receive one share of common stock. The shares underlying the awards were assigned a value of $1.06 per share, which was the closing price of our common stock on the date of grant, for a total value of $75,000, and are scheduled to vest the day immediately preceding the date of the 2020 annual meeting of shareholders. In July 2018, non-employee directors received a total of 46,152 restricted stock units 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 grant, for a total value of $90,000. The restricted stock units granted to directors in 2018 vested and settled into an equivalent number of shares of common stock on June 5, 2019, the day immediately preceding the date of our 2019 annual meeting of shareholders.

The Company estimated the fair value of stock-based awards granted during the nine months ended September 30, 2019 under the Company’s employee stock purchase plan using the following weighted average assumptions: expected life of 1.0 year, expected volatility of 57%, dividend yield of 0% and risk-free interest rate of 2.60%.

Our non-employee directors are eligible to participate in our director deferred compensation plan, which allows a director to make voluntary deferrals of up to 100% of their annual cash retainers relating to board or committee chair service. During the nine months ended September 30, 2019, elected to defer a total of $46,000 in fees pursuant to the director referred compensation plan. During June 2019, the Company issued 8,370 shares of common stock in settlement of $9,000 of total deferred fees due to a non-employee director’s departure from the board.

Total stock-based compensation expense recorded for the three and nine months ended September 30, 2019 was $101,000 and $378,000, respectively, and for the three and nine months ended September 30, 2018 was $128,000 and $277,000, respectively.

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 dilutive potential common shares outstanding during the period.

Due to the net loss incurred during the three and nine months ended September 30, 2019 all outstanding stock options were anti-dilutive for that 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.

Weighted average common shares outstanding for the three and nine months ended September 30, 2019 and 2018 were as follows:

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2019		2018		2019		2018
Denominator for basic net income (loss) per share - weighted average shares		11,986,000		11,729,000		11,911,000		11,784,000
Effect of dilutive securities:
Stock options and restricted stock units		—		283,000		—		242,000
Denominator for diluted net income (loss) per share - weighted average shares		11,986,000		12,012,000		11,911,000		12,026,000