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 ("customers") and retailers. The Company has been in business since 1990. The Company's products and services include the Insignia POPSign^® program, thermal sign card supplies for the Company's Impulse system, Stylus software and laser printable cardstock and label supplies. Since 1998, the Company has focused on providing in-store services through the Insignia Point-of-Purchase Services (Insignia POPS^®) in-store advertising program.

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, 2012, its results of operations for the three and six months ended June 30, 2012 and 2011, and its cash flows for the six months ended June 30, 2012 and 2011. 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, 2011.

The Summary of Significant Accounting Policies in the Company's 2011 Annual Report on Form 10-K describes the Company's accounting policies.

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


	June 30, 2012		December 31, 2011
Raw materials	$	55,000	$	74,000
Work-in-process		4,000		12,000
Finished goods		246,000		235,000
	$	305,000	$	321,000

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


	June 30, 2012			December 31, 2011
Property and Equipment:
Production tooling, machinery and equipment	$	3,912,000		$	3,908,000
Office furniture and fixtures		260,000			260,000
Computer equipment and software		1,029,000			1,008,000
Web site		38,000			38,000
Leasehold improvements		616,000			595,000
		5,855,000			5,809,000
Accumulated depreciation and amortization		(3,417,000	)		(3,050,000	)
Net Property and Equipment	$	2,438,000		$	2,759,000

Depreciation expense was $184,000 and $367,000 in the three and six months ended June 30, 2012, respectively, and $86,000 and $173,000 in the three and six months ended June 30, 2011, 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.

There were 354,000 stock option awards granted during the six months ended June 30, 2012, and the Company estimated the fair value of these awards using the following weighted average assumptions: expected life of 4.0 years, expected volatility of 73%, dividend yield of 0% and risk-free interest rate of .59%. Total stock-based compensation expense recorded for the three and six months ended June 30, 2012, was $65,000 and $250,000, respectively, and for the three and six months ended June 30, 2011 was $227,000 and $372,000, respectively.

There were no stock option exercises in the three and six months ended June 30, 2012. Total option exercises in the three and six months ended June 30, 2011 were 8,000 and 1,617,000, for which the Company received proceeds of $21,000 and $2,936,000.

Dividends Paid. On February 22, 2011, after receipt of a settlement payment in the Company's antitrust and false advertising lawsuit with News America Marketing In-Store, LLC ("News America"), the Board of Directors approved a special $2.00 per common share dividend totaling $31,335,000, which was paid on May 2, 2011. Prior to May 2, 2011, the Company had never paid a dividend, and no dividends were paid in 2012.

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 and six months ended June 30, 2012 and the three months ended June 30, 2011, all stock options were anti-dilutive. Options to purchase approximately 512,000 shares of common stock with a weighted average exercise price of $7.25 were outstanding at June 30, 2011 and were not included in the computation of common stock equivalents for the six months ended June 30, 2011 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, 2012 and 2011 were as follows:


	Three Months Ended June 30				Six Months Ended June 30
	2012		2011		2012		2011
Denominator for basic net income per share - weighted average shares		13,602,000		15,542,000		13,607,000		15,766,000

Effect of dilutive securities:
Stock options		—		—		—		575,000

Denominator for diluted net income per share - weighted average shares		13,602,000		15,542,000		13,607,000		16,341,000