Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2023

Summary of Significant Accounting Policies

Description Of Business

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. On April 7, 2023, Insignia announced the launch of the Company’s non-bank lending platform.

Basis Of Presentation

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, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 9, 2023 (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. Due to sales cycles within the retailers that our display and on-pack solutions execute we anticipate seasonality in sales, with those sales being relatively stronger in the first quarter of the year. We expect the remaining quarters in 2023 to have significantly less revenue than this first quarter and also expect operating losses in the remaining quarters of the year. The accompanying condensed balance sheet as of December 31, 2022 has been derived from the audited balance sheet as of December 31, 2022 contained in the Form 10-K.

Cash And Cash Equivalents And Restricted Cash

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:

	March 31,		December 31,
	2023		2022
Cash and cash equivalents	$	10,595,000	$	14,439,000
Restricted cash		85,000		85,000
Total cash, cash equivalents and restricted cash	$	10,680,000	$	14,524,000

Inventories

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

	March 31,			December 31,
	2023			2022
Property and Equipment:
Production tooling, machinery and equipment	$	14,000		$	27,000
Office furniture and fixtures		94,000			95,000
Computer equipment and software		580,000			771,000
Leasehold improvements		19,000			19,000
Construction in-progress		6,000			3,000
		713,000			915,000
Accumulated depreciation and amortization		(649,000	)		(844,000	)
Net Property and Equipment	$	64,000		$	71,000

Depreciation expense was approximately $14,000 and $16,000 in the three months ended March 31, 2023 and 2022, respectively.

Stock-based Compensation

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 three months ended March 31, 2023 and 2022, no stock options or restricted stock were issued by the Company.

The Company estimated the fair value of stock-based awards granted during the three months ended March 31, 2023, under the Company’s employee stock purchase plan using the following weighted average assumptions: expected life of 1.0 year, expected volatility of 95.2%, dividend yield of 0% and risk-free interest rate of 4.7%.

The Company recorded total stock-based compensation expense of $22,000 and $30,000 for the three months ended March 31, 2023 and 2022, respectively.

Net Income per Share

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 and restricted stock units and awards. Diluted net income per share gives effect to all dilutive potential common shares outstanding during the period.

Options to purchase approximately 14,000 shares of common stock with a weighted average exercise price of $11.95, were outstanding at March 31, 2023 and were not included in the computation of common stock equivalents for the three months ended March 31, 2023 because their exercise prices were higher than the average fair market value of the common stock during the reporting period.

Options to purchase approximately 14,000 shares of common stock with a weighted average exercise price of $12.60, were outstanding at March 31, 2022 and were not included in the computation of common stock equivalents for the three months ended March 31, 2022 because their exercise prices were higher than the average fair market value of the common stock during the reporting period.

Weighted average common shares outstanding for the three months ended March 31, 2023 and 2022 were as follows:

Three months ended March 31	2023		2022
Denominator for basic net income per share - weighted average shares		1,798,000		1,786,000
Effect of dilutive securities:
Stock options, restricted stock and restricted stock units		4,000		8,000
Denominator for diluted net income per share - weighted average shares		1,802,000		1,794,000