Summary of Significant Accounting Policies

3 Months Ended

Sep. 30, 2022

Summary of Significant Accounting Policies

Summary Of Significant Accounting Policies

1. Summary of Significant Accounting Policies.

Description of Business. Insignia Systems, Inc. (the “Company”) is a leading provider of in-store solutions to consumer-packaged goods (“CPG”) manufacturers, retailers, shopper marketing agencies and brokerages. The Company operates in a single reportable segment. The Company’s leadership and employees have extensive industry knowledge with direct experience in both CPG manufacturers and retailers. The Company provides marketing solutions to CPG manufacturers spanning from some of the largest multinationals to new and emerging brands.  The Company’s primary solutions are merchandising solutions, on-pack solutions and signage.

Basis of Presentation. The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Securities and Exchange Commission (“SEC”) Regulation S-X. 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 the Company’s financial statements as of and for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 9, 2022 (the 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.  The accompanying condensed balance sheet as of December 31, 2021 has been derived from the audited balance sheet as of December 31, 2021 contained in the Form 10-K. 

As discussed in Note 6, the Company settled a lawsuit and recorded a net pre-tax gain from litigation settlement of $12,000,000 in operations in the three months ended September 30, 2022.

Cash and Cash Equivalents and Restricted Cash.  The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the statement of cash flows:

	September 30,		December 31,
	2022		2021
Cash and cash equivalents	$	14,168,000	$	3,766,000
Restricted cash		85,000		85,000
Total cash, cash equivalents and restricted cash	$	14,253,000	$	3,851,000

Included in cash and cash equivalents is a U.S. Treasury Bill with a carrying value of $11,100,000.

Inventories. Inventories are primarily comprised of sign cards and hardware. Inventory is valued at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method.

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

	September 30,			December 31,
	2022			2021
Property and Equipment:
Production tooling, machinery and equipment	$	27,000		$	27,000
Office furniture and fixtures		95,000			95,000
Computer equipment and software		758,000			753,000
Leasehold improvements		19,000			19,000
Construction in-progress		15,000			4,000
		914,000			898,000
Accumulated depreciation and amortization		(830,000	)		(785,000	)
Net Property and Equipment	$	84,000		$	113,000

Depreciation expense was approximately $15,000 and $46,000 in the three and nine months ended September 30, 2022, respectively, and was $14,000 and $46,000 in the three and nine months ended September 30, 2021, respectively.

Stock-Based Compensation. The Company measures and recognizes 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. The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options and employee stock purchase plan rights. The determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s 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, 2022 and 2021, no equity awards were issued by the Company, except those awarded to non-employee members of the Board of Directors in August 2022 and in June 2021.

In August 2022, non-employee members of the Board of Directors received restricted stock grants totaling 6,248 shares pursuant to the 2018 Equity Incentive Plan (the “2018 Plan”). The shares underlying the awards were assigned a value of $9.60 per share, which was the closing price of the Company’s common stock on the date of grant, for a total grant date value of $60,000. The shares are scheduled to vest the day immediately preceding the date of the next annual shareholder meeting.

In June 2021, non-employee members of the Board of Directors received restricted stock grants totaling 5,514 shares pursuant to the 2018 Plan. The shares underlying the awards were assigned a value of $8.16 per share, which was the closing price of the Company’s common stock on the date of grant, for a total grant date value of $45,000. The shares vested on June 1, 2022.

Total stock-based compensation expense recorded for the three and nine months ended September 30, 2022 was $32,000 and $91,000, respectively, and for the three and nine months ended September 30, 2021 was $56,000 and $198,000, 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.

Options to purchase approximately 14,086 shares of common stock with a weighted average exercise price of $11.91 and $11.98, respectively, were outstanding at September 30, 2022 and were not included in the computation of common stock equivalents for the three and nine months ended September 30, 2022 because their exercise prices were higher than the average fair market value of the common stock during the reporting period.

Due to the net loss incurred during the three and nine months ended September 31, 2021 all outstanding stock options were anti-dilutive for those periods.  As of September 30, 2021 the Company had options to purchase 21,741 shares of common stock and 32,410 restricted stock units, each representing the contingent right to receive one share of common stock, outstanding.

Weighted average common shares outstanding:

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2022		2021		2022		2021
Denominator for basic net income (loss) per share - weighted average shares		1,795,000		1,766,000		1,790,000		1,757,000
Effect of dilutive securities:
Stock options and restricted stock units		1,000				6,000
Denominator for diluted net income (loss) per share - weighted average shares		1,796,000		1,766,000		1,796,000		1,757,000