Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

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. In October 2014, the Company announced the introduction of a new product, The Like MachineTM (“TLM”). The Company previously licensed this product from TLM Holdings, LLC (“TLMH”), a company in which Insignia’s former Chief Sales and Marketing Officer, Tim Halfmann, is the majority owner and serves as a principal. In March 2016, the Company and TLMH signed a new distribution agreement for the sale of The Like Machine to Insignia’s customers. This distribution agreement replaced the Company’s prior license agreement with TLMH. Mr. Halfmann resigned from Insignia, effective April 30, 2016 in order to focus his efforts more fully on the TLM product and its evolution going forward.

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 September 30, 2016, and its results of operations for the three and nine months ended September 30, 2016 and 2015, and its cash flows for the nine months ended September 30, 2016 and 2015. 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, 2015.

The Summary of Significant Accounting Policies in the Company’s 2015 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, rollstock and TLM devices. Inventory is valued at the lower of cost or market using the first-in, first-out (FIFO) method, and consisted of the following as of the dates indicated:

	September 30,		December 31,
	2016		2015
Raw materials	$	91,000	$	69,000
Work-in-process		14,000		4,000
Finished goods		470,000		318,000
	$	575,000	$	391,000

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

	September 30, 2016			December 31, 2015
Property and Equipment:
Production tooling, machinery and equipment	$	3,596,000		$	3,722,000
Office furniture and fixtures		322,000			145,000
Computer equipment and software		1,280,000			1,233,000
Web site		40,000			40,000
Leasehold improvements		577,000			—
Construction in-progress		220,000			616,000
		6,035,000			5,756,000
Accumulated depreciation and amortization		(4,505,000	)		(4,172,000	)
Net Property and Equipment	$	1,530,000		$	1,584,000

Depreciation expense was approximately $187,000 and $577,000 in the three and nine months ended September 30, 2016, respectively, and $160,000 and $482,000 in the three and nine months ended September 30, 2015, 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 graded-attribution method over the requisite service period of the award.

The Company issued options to purchase an aggregate of 20,000 shares of common stock under its 2013 Omnibus Stock and Incentive Plan, as amended (the “2013 Plan”), with a weighted average exercise price of $2.90, during the nine months ended September 30, 2016. The Company estimated the fair value of these awards using the following weighted average assumptions: expected life of 2.5 years, expected volatility of 41%, dividend yield of 0% and risk-free interest rate of 1.00%. The Company issued options to purchase an aggregate of 200,000 shares of common stock under the 2013 Plan, as amended, with a weighted average exercise price of $2.82, during the nine months ended September 30, 2015. The Company estimated the fair value of these awards using the following weighted average assumptions: expected life of 3.4 years, expected volatility of 45%, dividend yield of 0% and risk-free interest rate of 1.18%.

During the nine months ended September 30, 2016, the Company issued 100,000 shares of restricted stock under the 2013 Plan. The shares underlying the award were assigned a value of $2.33 per share, which was the closing price of our common stock on the date of grant, and is scheduled to vest over the five years following the date of grant. No restricted stock was issued during the nine months ended September 30, 2015.

During the nine months ended September 30, 2016, the Company issued 11,719 performance-based restricted stock units under the 2013 Plan. Each unit represents the right to acquire one share of the Company’s common stock. The units were assigned a weighted average value of $0.85 per unit, based on market condition assumptions, and are scheduled to vest with respect to 80% of the units if the price of the Company’s common stock during the applicable measurement period exceeds a minimum performance threshold or 100% if a maximum performance threshold is exceeded. No performance-based restricted stock units were issued during the nine months ended September 30, 2015.

During the nine months ended September 30, 2016, the Company issued 43,625 restricted stock units under the 2013 Plan. The units were assigned a weighted average value of $2.14 per share, based on the closing price of our common stock on the applicable dates of grant, and are scheduled to vest over the two years. During the nine months ended September 30, 2015, the Company issued 99,000 restricted stock units. The units were assigned a weighted average value of $2.71 per share, based on the closing price of our common stock on the applicable dates of grant, and are scheduled to vest over a weighted average of 2.3 years. Each of the foregoing restricted stock units represents the right to acquire one share of the Company’s common stock.

The Company estimated the fair value of stock-based awards granted during the nine months ended September 30, 2016, under the Company’s employee stock purchase plan using the following weighted average assumptions: expected life of 1.0 years, expected volatility of 31%, dividend yield of 0% and risk-free interest rate of 0.61%.

During May and June 2016, members of the Board of Directors received grants totaling 54,036 fully vested shares of common stock pursuant to the 2013 Plan. The shares were assigned a weighted average value of $2.19 per share, based on the stock prices on the applicable grant dates, for a total value of $119,000, of which $109,000 is included in stock-based compensation expense for the nine months ended September 30, 2016 and $10,000 was accrued for and expensed in the prior year. In June 2015, members of the Board of Directors received similar grants totaling 37,233 shares pursuant to the 2013 Plan. The shares were assigned a value of $2.82 per share, based on the stock price on the date of grant, for a total value of $105,000, which is included in stock-based compensation expense for the nine months ended September 30, 2015.

Total stock-based compensation (benefit) expense recorded for the three and nine months ended September 30, 2016 was $42,000 and $150,000, respectively, and for the three and nine months ended September 30, 2015 was $(11,000) and $267,000, respectively.

During the three and nine months ended September 30, 2016, there were approximately 54,700 shares and 115,700 shares issued pursuant to stock option exercises, for which the Company received proceeds of $0 and $16,000, respectively. During the three and nine months ended September 30, 2015, there were approximately 80,000 shares and 113,000 shares issued pursuant to stock option exercises, for which the Company received proceeds of $0 and $2,000, respectively. A portion of the stock option exercises in the three and nine months ended September 30, 2016 and 2015 were completed on a cashless basis.

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.

Due to the net loss incurred during the three and nine months ended September 30, 2016, all stock awards were anti-dilutive for the period. Options to purchase approximately 660,000 and 653,000 shares of common stock with a weighted average exercise price of $3.64 and $3.80, respectively, were outstanding at September 30, 2015 and were not included in the computation of common stock equivalents for the three and nine months ended September 30, 2015 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 nine months ended September 30, 2016 and 2015 were as follows:

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2016		2015		2016		2015
Denominator for basic net income (loss) per share -   weighted average shares		11,642,000		12,107,000		11,626,000		12,177,000
Effect of dilutive securities:
Stock options and restricted stock units and awards		—		134,000		—		174,000
Denominator for diluted net income (loss) per share -   weighted average shares		11,642,000		12,241,000		11,626,000		12,351,000