Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2017

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 marketing program, freshADS^SM, thermal sign card supplies for the Company’s Impulse Retail System, and laser printable cardstock and label supplies.

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, 2017, its results of operations for the three and nine months ended September 30, 2017 and 2016, and its cash flows for the nine months ended September 30, 2017 and 2016. 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, 2016.

The Summary of Significant Accounting Policies in the Company’s 2016 Annual Report on Form 10-K describes the Company’s accounting policies.

Inventories. Inventories are primarily comprised of sign cards and roll stock. 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,
	2017		2016
Raw materials	$	110,000	$	123,000
Work-in-process		18,000		27,000
Finished goods		198,000		175,000
	$	326,000	$	325,000

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

	September 30,			December 31,
	2017			2016
Property and Equipment:
Production tooling, machinery and equipment	$	4,001,000		$	4,000,000
Office furniture and fixtures		322,000			322,000
Computer equipment and software		2,671,000			1,301,000
Leasehold improvements		577,000			577,000
Construction in-progress		49,000			523,000
		7,620,000			6,723,000
Accumulated depreciation and amortization		(4,907,000	)		(4,293,000	)
Net Property and Equipment	$	2,713,000		$	2,430,000

Depreciation expense was approximately $220,000 and $653,000 in the three and nine months ended September 30, 2017, respectively, and $187,000 and $577,000 in the three and nine months ended September 30, 2016, 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.

In November 2016, our Board of Directors amended the 2003 Incentive Stock Option Plan (the “2003 Plan”) and the 2013 Omnibus Stock and Incentive Plan (the “2013 Plan”) to permit equitable adjustments to outstanding awards in the event of a special dividend. In March 2017, the Board of Directors approved the modification of all outstanding stock option awards to provide option holders with substantially equivalent economic value after the effect of the dividend. The modification resulted in the issuance of options to purchase up to 150,476 additional shares. Total stock-based compensation expense for the modifications was approximately $79,000, which was recorded during the nine months ended September 30, 2017.

During the nine months ended September 30, 2017, no other stock option awards were granted by the Company beyond the modification discussed above. During the nine months ended September 30, 2016, 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, with a weighted average exercise price of $2.90. 

During the nine months ended September 30, 2017, the Company issued 60,000 shares of restricted stock under the 2013 Plan. The shares underlying the award were assigned a value of $1.09 per share, which was the closing price of our common stock on the date of grant, and is scheduled to vest over the two years following the date of grant. 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.

During the nine months ended September 30, 2017 and 2016, the Company issued 143,424 and 43,625 restricted stock units, respectively, under the 2013 Plan. The shares underlying the awards made in 2017 and 2016 were assigned weighted average values of $1.13 and $2.14 per share, respectively, based on the closing price of our common stock on the applicable dates of grant, and are scheduled to vest over two years.

During June 2017, non-employee members of the Board of Directors received grants totaling 72,115 fully vested shares of common stock pursuant to the 2013 Plan. The shares were assigned a value of $1.04 per share, based on the closing price on the grant date, for a total value of $75,000, which is included in stock-based compensation expense for the nine months ended September 30, 2017. 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 2015.

Total stock-based compensation expense recorded for the three and nine months ended September 30, 2017 was $43,000 and $317,000, respectively, and for the three and nine months ended September 30, 2016 was $42,000 and $150,000, respectively.

During the three and nine months ended September 30, 2017, there were no options exercised. During each of 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. A portion of the stock option exercises in the three and nine months ended September 30, 2016 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.

Options to purchase approximately 501,000 shares of common stock with a weighted average exercise price of $2.33 were outstanding at September 30, 2017 and were not included in the computation of common stock equivalents for the three months ended September 30, 2017 because their exercise prices were higher than the average fair market value of the common shares during the reporting period. Due to the net loss incurred during the nine months ended September 30, 2017 and the three months and nine months ended September 30, 2016, all stock options were anti-dilutive for those periods.

Weighted average common shares outstanding for the three and nine months ended September 30, 2017 and 2016 were as follows:

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2017		2016		2017		2016
Denominator for basic net income (loss) per share -   weighted average shares		11,758,000		11,642,000		11,698,000		11,626,000
Effect of dilutive securities:
Stock options and restricted stock units and awards		19,000		—		—		—
Denominator for diluted net income (loss) per share -   weighted average shares		11,777,000		11,642,000		11,698,000		11,626,000

Dividends. On November 28, 2016, the Board declared a one-time special dividend of $0.70 per share to shareholders of record as of December 16, 2016 of $8,233,000, of which $8,163,000 was paid on January 6, 2017, and an additional $14,000 was paid on May 15, 2017.