1.Summary of Significant Accounting Policies.

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. Additionally, in October 2014, the Company announced a new product, The Like MachineTM, which is an in-store consumer approval device. The Company pays royalties pursuant to a licensing agreement to sell this new product. The Like Machine is currently in the initial pilot phase of launch, and the Company expects to more fully roll out this offering during 2015.

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, 2015, its results of operations and its cash flows for the three months ended March 31, 2015 and 2014. 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, 2014.

The Summary of Significant Accounting Policies in the Company’s 2014 Annual Report on Form 10-K describes the Company’s accounting policies.

Inventories. Inventories are primarily comprised of parts and supplies for Impulse machine, 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:

	March 31,		December 31,
	2015		2014
Raw materials	$	102,000	$	110,000
Work-in-process	30,000		8,000
Finished goods	377,000		405,000
	$	509,000	$	523,000

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

	March 31,			December 31,
	2015			2014
Property and Equipment:
Production tooling, machinery and equipment	$	3,942,000		$	3,976,000
Office furniture and fixtures	260,000			260,000
Computer equipment and software	1,087,000			1,065,000
Web site	40,000			40,000
Leasehold improvements	616,000			616,000
Construction in-progress	89,000			35,000
	6,034,000			5,992,000
Accumulated depreciation and amortization	(4,655,000		)	(4,525,000		)
Net Property and Equipment	$	1,379,000		$	1,467,000

Depreciation expense was approximately $163,000 and $155,000 in the three months ended March 31, 2015 and 2014, respectively.

Stock-Based Compensation. The Company measures and recognizes compensation expense for all stock-based awards at fair value. The Black-Scholes option pricing model is used to determine the weighted average fair value of options and employee stock purchase plan rights. The determination of fair value of share-based awards 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. Restricted stock units are valued at the closing market price of the Company’s stock date of the grant.

During the three months ended March 31, 2015 and 2014, 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, 2015 under the employee stock purchase plan using the following weighted average assumptions: expected life of 1.0 year, expected volatility of 37%, dividend yield of 0% and risk-free interest rate of 0.25%.

The total fair value of stock-based rights granted under the employee stock purchase plan during the three months ended March 31, 2015 and 2014 was approximately $7,000 and $10,000, respectively.

In May 2014, the Company granted 25,000 restricted stock units to certain key employees. The units were granted at $3.03 per share, based on the stock price on the date of the grant and vest over three years. Stock-based compensation expense for the restricted stock units during the three months ended March 31, 2015 was $10,000, which is included in stock-based compensation expense.

Total stock-based compensation expense recorded for the three months ended March 31, 2015 and 2014, was $83,000 and $36,000, respectively.

During the three months ended March 31, 2015, there were 23,667 stock options exercised, for which the Company received proceeds of $1,000. During the three months ended March 31, 2014, there were 49,670 stock options exercised, for which the Company received proceeds of $62,000. A portion of the stock option exercises in the three months ended March 31, 2015 and 2014 were done on a cashless basis.

Net Income per Share. Basic net income per share is computed by dividing net income by the weighted average shares outstanding and excludes any potential dilutive effects of stock options. Diluted net income per share gives effect to all diluted potential common shares outstanding during 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. Options to purchase approximately 459,000 shares of common stock with a weighted average exercise price of $4.36 were outstanding at March 31, 2014 and were not included in the computation of common stock equivalents for the three months ended March 31, 2014 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, 2015 and 2014 were as follows:

Three months ended March 31	2015	2014
Denominator for basic net income per share - weighted average shares	12,210,000	12,853,000
Effect of dilutive securities: Stock options and restricted stock units	210,000	238,000
Denominator for diluted net income per share - weighted average shares	12,420,000	13,091,000