Item
1. Financial Statements.
iSign
Solutions Inc.
Condensed
Consolidated Balance Sheets
(In
thousands)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Assets
|
|
Unaudited
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
116
|
|
|
$
|
285
|
|
Accounts receivable, net of allowance of $0 at March 31, 2018 and $1 at December 31, 2017, respectively
|
|
|
31
|
|
|
|
45
|
|
Prepaid expenses and other current assets
|
|
|
22
|
|
|
|
28
|
|
Total current assets
|
|
|
169
|
|
|
|
358
|
|
Property and equipment, net
|
|
|
11
|
|
|
|
13
|
|
Other assets
|
|
|
17
|
|
|
|
17
|
|
Total assets
|
|
$
|
197
|
|
|
$
|
388
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,275
|
|
|
$
|
1,289
|
|
Short-term debt
|
|
|
1,482
|
|
|
|
1,458
|
|
Accrued compensation
|
|
|
147
|
|
|
|
201
|
|
Other accrued liabilities
|
|
|
827
|
|
|
|
740
|
|
Deferred revenue
|
|
|
350
|
|
|
|
310
|
|
Short-term capital lease
|
|
|
4
|
|
|
|
4
|
|
Total current liabilities
|
|
|
4,085
|
|
|
|
4,002
|
|
Deferred revenue long-term
|
|
|
145
|
|
|
|
175
|
|
Long-term capital lease
|
|
|
5
|
|
|
|
6
|
|
Other long-term liabilities
|
|
|
-
|
|
|
|
7
|
|
Total liabilities
|
|
|
4,235
|
|
|
|
4,190
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit):
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 2,000,000 shares authorized; 5,760 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively
|
|
|
58
|
|
|
|
58
|
|
Treasury shares, 5 at March 31, 2018 and December 31, 2017, respectively
|
|
|
(325
|
)
|
|
|
(325
|
)
|
Additional paid in capital
|
|
|
129,075
|
|
|
|
129,027
|
|
Accumulated deficit
|
|
|
(132,846
|
)
|
|
|
(132,562
|
)
|
Total stockholders’ deficit
|
|
|
(4,038
|
)
|
|
|
(3,802
|
)
|
Total liabilities and stockholders’ deficit
|
|
$
|
197
|
|
|
$
|
388
|
|
See
accompanying notes to these Condensed Consolidated Financial Statements
iSign
Solutions Inc.
Condensed
Consolidated Statements of Operations
Unaudited
(In
thousands, except per share amounts)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
Product
|
|
$
|
40
|
|
|
$
|
48
|
|
Maintenance
|
|
|
174
|
|
|
|
163
|
|
Total revenue
|
|
|
214
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
Product
|
|
|
3
|
|
|
|
4
|
|
Maintenance
|
|
|
7
|
|
|
|
45
|
|
Research and development
|
|
|
229
|
|
|
|
284
|
|
Sales and marketing
|
|
|
19
|
|
|
|
58
|
|
General and administrative
|
|
|
176
|
|
|
|
389
|
|
Total operating costs and expenses
|
|
|
434
|
|
|
|
780
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(220
|
)
|
|
|
(569
|
)
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(8
|
)
|
|
|
(6
|
)
|
Other
|
|
|
(30
|
)
|
|
|
(15
|
)
|
Amortization of debt discount:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Other
|
|
|
(17
|
)
|
|
|
(17
|
)
|
Net loss
|
|
|
(282
|
)
|
|
|
(614
|
)
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
(2
|
)
|
|
|
─
|
|
Net loss
|
|
$
|
(284
|
)
|
|
$
|
(614
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.11
|
)
|
Weighted average common shares outstanding, basic and diluted
|
|
|
5,762
|
|
|
|
5,762
|
|
See
accompanying notes to these Condensed Consolidated Financial Statements
iSign
Solutions Inc.
Condensed
Consolidated Statements of Cash Flows
Unaudited
(In
thousands)
|
|
Three
Months Ended
March
31,
|
|
|
|
2018
|
|
|
2017
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(284
|
)
|
|
$
|
(614
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
2
|
|
|
|
86
|
|
Stock-based compensation
|
|
|
48
|
|
|
|
21
|
|
Amortization
of debt discount
|
|
|
24
|
|
|
|
24
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable,
net
|
|
|
14
|
|
|
|
119
|
|
Prepaid expenses
and other assets
|
|
|
6
|
|
|
|
5
|
|
Accounts payable
|
|
|
(14
|
)
|
|
|
(16
|
)
|
Accrued compensation
|
|
|
(54
|
)
|
|
|
(10
|
)
|
Other accrued
and long-term liabilities
|
|
|
79
|
|
|
|
96
|
|
Deferred
revenue
|
|
|
10
|
|
|
|
27
|
|
Net
cash used in operating activities
|
|
|
(169
|
)
|
|
|
(262
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition
of property and equipment
|
|
|
─
|
|
|
|
(2
|
)
|
Net
cash used in investing activities
|
|
|
─
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance
of short-term debt
|
|
|
─
|
|
|
|
120
|
|
Payment
on short term debt
|
|
|
─
|
|
|
|
(120
|
)
|
Net
cash provided by financing activities
|
|
|
─
|
|
|
|
─
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(169
|
)
|
|
|
(264
|
)
|
Cash and cash
equivalents at beginning of period
|
|
|
285
|
|
|
|
389
|
|
Cash and cash
equivalents at end of period
|
|
$
|
116
|
|
|
$
|
125
|
|
See
accompanying notes to these Condensed Consolidated Financial Statements
iSign
Solutions Inc.
Condensed
Consolidated Statements of Cash Flows (Continued)
Unaudited
(In
thousands)
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Supplementary disclosure of cash flow information
|
|
|
|
|
|
|
Interest paid
|
|
$
|
─
|
|
|
$
|
6
|
|
Income taxes paid
|
|
$
|
2
|
|
|
$
|
-
|
|
See
accompanying notes to these Condensed Consolidated Financial Statements
iSign
Solutions Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
thousands, except per share amounts)
1.
|
Nature
of Business and Summary of Significant Accounting Policies
|
Nature
of Business
iSign
Solutions Inc. and its subsidiary is a leading supplier of digital transaction management (DTM) software enabling the paperless,
secure and cost-effective management and authentication of document-based transactions. iSign’s solutions encompass a wide
array of functionality and services, including electronic signatures, simple-to-complex workflow management and various options
for biometric authentication. These solutions are available across virtually all enterprise, desktop and mobile environments as
a seamlessly integrated platform for both ad-hoc and fully automated transactions. iSign’s platform can be deployed both
on premise and as a cloud-based (“SaaS”) service, with the ability to easily transition between deployment models.
The Company is headquartered in San Jose, California. The Company’s products include SignatureOne™ Ceremony™
Server, the iSign™ suite of products and services, including iSign™ Enterprise and iSign™ Console™, and
Sign-it™ programs.
Basis
of Presentation
The
financial information contained herein should be read in conjunction with the Company’s consolidated audited financial statements
and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2017.
The
accompanying unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial
statements. In the opinion of management, the unaudited condensed consolidated financial statements included in this quarterly
report reflect all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for a fair
presentation of its financial position at the dates presented and the Company’s results of operations and cash flows for
the periods presented. The Company’s interim results are not necessarily indicative of the results to be expected for the
entire year.
Going
Concern
The
accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue
as a going concern. The Company has incurred significant cumulative losses since its inception and, at March 31, 2018 the Company’s
accumulated deficit was $132,846. The Company has primarily met its working capital needs through the sale of debt and equity
securities. As of March 31, 2018, the Company’s cash balance was $116. These factors raise substantial doubt about the Company’s
ability to continue as a going concern.
There
can be no assurance that the Company will be successful in securing adequate capital resources to fund planned operations or that
any additional funds will be available to the Company when needed, or if available, will be available on favorable terms or in
amounts required by the Company. If the Company is unable to obtain adequate capital resources to fund operations, it may be required
to delay, scale back or eliminate some or all of its operations, which may have a material adverse effect on the Company’s business,
results of operations and ability to operate as a going concern. The unaudited condensed consolidated financial statements do
not include any adjustments that might result from the outcome of this uncertainty.
iSign
Solutions Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
thousands, except per share amounts)
|
1.
|
Nature of Business and Summary of Significant Accounting Policies (continued)
|
Recently Adopted Accounting
Pronouncements
ASC Topic 606, “Revenue
from Contracts with Customers
”
On January 1, 2018, the Company
adopted Accounting Standard Codification No. 606, Revenue from Contracts with Customers (“Topic 606”), using the modified
retrospective method. There were no open contracts which were not completed as of January 1, 2018, except for maintenance and support
contracts. Results for the reporting period beginning January 1, 2018 are presented under Topic 606, while prior period amounts
are not restated, and continue to be reported in accordance with the Company’s historic accounting under ASC 605, Revenue
Recognition (“Topic 605”).
Under Topic 606, the Company
will recognize a contract asset for satisfied performance obligations that do not provide the Company with an unconditional right
to consideration, which was restricted under the previous standard.
Revenue Recognition
The Company’s principal
sources of revenues are from the sale of software products, SOW (engineering services), annual software product, and software maintenance
contracts. The Company also derives revenue from customers based on the numbers of signatures produced by the Company’s signature
software solutions imbedded within the customer’s product.
Revenue from contracts with
customers is recognized using the following five steps:
a) Identify the contract(s)
with a customer;
b) Identify the performance
obligations (a good or service) in the contract;
c) Determine the transaction
price; for each performance obligation within the contract
d) Allocate the transaction
price to the performance obligations in the contract; and
e) Recognize revenue when (or
as) the Company satisfies a performance obligation.
Contracts contain performance
obligation(s) for the transfer goods or services to a customer. The performance obligations are a promise (or a group of promises)
that are distinct. The transaction price is the amount of consideration a Company expects to receive from a customer in exchange
for satisfying the performance obligations specified in the contract.
Contracts may contain one or
more performance obligations (a good or service). Performance obligations are accounted for separately if they are distinct. A
good or service is distinct if the customer can benefit from the good or service either on its own or together with other resources
readily available to the customer, and the good or service is distinct in the context of the contract. Otherwise performance obligations
will be combined with other promised goods or services until the Company identifies a bundle of goods or services that is distinct.
The transaction price is allocated
to all separate performance obligations within the contract based on their relative standalone selling prices (“SSP”).
The best evidence for SSP is the price the Company would charge for that good or service when sold separately in similar circumstances
to similar customers. If goods or services are not always sold separately, the Company would use the best estimate of SSP in the
allocation of transaction price. The transaction price reflects the amount of consideration to which the Company expects to be
entitled in exchange for transferring goods or services, which may include an estimate of variable consideration to the extent
that it is probable of not being subject to significant reversals in the future based on the Company’s experience
with similar arrangements. The transaction price also reflects the impact of the time value of money if there is a significant
financing component present in an arrangement. The transaction price excludes amounts collected on behalf of third parties, such
as sales taxes.
iSign
Solutions Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
thousands, except per share amounts)
|
1.
|
Nature of Business and Summary of Significant Accounting Policies (continued)
|
Recently Adopted Accounting
Pronouncements
(continued)
ASC Topic 606, “Revenue
from Contracts with Customers
”
(continued)
Revenue is recognized when
the Company satisfies each performance obligation identified within the contract by transferring control of the promised goods
or services to the customer. Goods or services can transfer at a point in time or over time depending on the nature of the arrangement.
Deferred revenue represents
the Company’s obligation to transfer goods or services to a customer for which the Company has received consideration from
the customer. Our payment terms do not vary by the type of products or services offered. The term between invoicing and when payment
is due is not significant. During the three-month period ended March 30, 2018, the Company recognized $189 of revenue that was
included in deferred revenue at the beginning of the period.
Contract assets exist when
the Company has satisfied a performance obligation but does not have an unconditional right to consideration (e.g., because the
entity first must satisfy another performance obligation in the contract before it is entitled to invoice the customer).
The Company transfers all of
its goods and services electronically with the associated costs recorded in cost of sales in the Company’s Condensed Consolidated
Statements of Operations.
Software. Revenue from the
sale of software products is recognized when the control is transferred. For most of the Company’s software product sales,
the control is transferred at the time the product is electronically transferred because the customer has significant risks and
rewards of ownership of the asset and the Company has a present right to payment at that time.
Statement of Work (SOW). Revenue
from SOW (engineering services) is recognized upon completion, transfer and satisfaction of the performance obligations identified
with in the contract by the customer.
Transactional revenue. For
transactional type contracts, the Company’s performance obligations are met upon transfer of the software master to the customer.
Revenue from transactional customers is recognized as the customer reports the number of units (signatures) rendered over the specified
reporting period, generally three months.
Recurring Product revenue.
The company has revenue contracts that allow the customer to utilize the Company’s signature software on an annual basis.
Maintenance and support costs are included in the annual price to the customer. The customer has the right to renew or cancel the
contract on an annual basis. Recurring revenue is recognized on a straight line basis over the contract period, generally one year.
Maintenance and support. Maintenance
and support services are satisfied ratably over time as the customer simultaneously receives and consumes the benefits of the
services. As a result, support and maintenance revenue is recognized on a straight line basis over the period of the contract.
iSign
Solutions Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
thousands, except per share amounts)
|
1.
|
Nature of Business and Summary of Significant Accounting Policies (continued)
|
Recently Adopted Accounting
Pronouncements
(continued)
ASC Topic 606, “Revenue
from Contracts with Customers
”
(continued)
Arrangements with Multiple
Performance Obligations. The Company has, from time to time, revenue arrangements that include multiple performance obligations.
The Company allocates transaction price to all separate performance obligations based on their relative standalone selling prices
(“SSP”). The Company’s best evidence for SSP is the
price the Company would charge for that good or service when the Company sells it separately in similar circumstances to similar
customers. If goods or services are not always sold separately, the Company uses the best estimate of SSP in the allocation of
transaction price. The Company’s process for determining best estimate of SSP involves management’s judgment, and considers
multiple factors including, but not limited to, major product groupings, gross margin objectives and pricing practices. Pricing
practices may vary over time, depending upon the unique facts and circumstances related to each deliverable. If the facts and circumstances
underlying the factors considered change or should future facts and circumstances lead the Company to consider additional factors,
the Company’s best estimate of SSP may also change.
Contract costs. The incremental
costs of obtaining a contract are capitalized if the costs are expected to be recovered. Costs that are recognized as assets are
amortized straight-line over the period as the related goods or services transfer to the customer. Costs incurred to fulfill a
contract are capitalized if they are not covered by other relevant guidance, relate directly to a contract, will be used to satisfy
future performance obligations, and are expected to be recovered.
There was no adjustment to
the opening balance of accumulated deficit as of January 1, 2018 from adopting Topic 606.
Significant Judgments. The
Company may exercise significant judgment when determining whether products and services are considered distinct performance obligations
that should be accounted for separately versus together.
Practical Expedients and Exemptions.
Under Topic 606, incremental costs of obtaining a contract, such as sales commissions, are capitalized if they are expected to
be recovered. Expensing these costs as they are incurred is not permitted unless they qualify for the practical expedient. The
Company elected the practical expedient to expense the costs to obtain a contract as incurred when the expected amortization period
is one year or less.
The Company elected the practical
expedient under Topic 606 to not disclose the transaction price allocated to remaining performance obligations, since the majority
of the Company’s arrangements have original expected durations of one year or less, or the invoicing corresponds to the value
of the Company’s performance completed to date.
The Company elected the practical
expedient that allows the Company to not assess a contract for a significant financing component if the period between the customer’s
payment and the transfer of the goods or services is one year or less.
iSign
Solutions Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
thousands, except per share amounts)
1.
|
Nature
of Business and Summary of Significant Accounting Policies (continued)
|
Accounting
Changes and Recent Accounting Pronouncements
Accounting
Standards Update (“ASU”) No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220), Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in ASU 2018-2 allow a reclassification from
accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.
Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the
usefulness of information reported to financial statement users. The Board decided that the amendments in this Update should be
effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.
Due to the Company’s net operating losses, implementation of ASU 2018-2 would not be expected to have a material impact
on the Company’s financial position, results of operations and cash flows.
Accounting
Standards Update No. 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10)
Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2018-03 retained the current framework for accounting
for financial instruments in generally accepted accounting principles (GAAP) but makes targeted improvements to address certain
aspects of recognition, measurement, presentation, and disclosure of financial instruments. For public business entities the amendments
in this Update are effective for fiscal years beginning after December 15, 2017. The Company is currently evaluating the impact
of ASU 2018-3 on the Company’s financial position, results of operations and cash flows.
Accounting
Standards Update No. 2018-05, Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin
No. 118. ASU 2018-05 covers income Tax accounting implications of the Tax Cuts and Jobs Act for instance, ASU 2018-05 introduces
changes that impact U.S. corporate tax rates, business-related exclusions, and deductions and credits. The Act will also have
international tax consequences for many companies that operate internationally. The Company is currently evaluating the impact
of ASU 2018-05 on the Company’s financial position, results of operations and cash flows.
Other
Accounting Standards Updates issued in 2018 are not applicable to the Company, therefore implementation would not be expected
to have a material impact on the Company’s financial position, results of operations and cash flows.
The
following table summarizes accounts receivable and revenue concentrations:
|
|
|
Accounts Receivable
As of March 31,
|
|
|
Total Revenue
As of March 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
Customer #1
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
%
|
|
|
15
|
%
|
|
Customer #2
|
|
|
-
|
|
|
|
34
|
%
|
|
|
-
|
|
|
|
-
|
|
|
Customer #3
|
|
|
76
|
%
|
|
|
47
|
%
|
|
|
11
|
%
|
|
|
10
|
%
|
|
Customer #4
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
%
|
|
|
17
|
%
|
|
Customer #5
|
|
|
-
|
|
|
|
-
|
|
|
|
20
|
%
|
|
|
12
|
%
|
|
Customer #6
|
|
|
16
|
%
|
|
|
11
|
%
|
|
|
-
|
|
|
|
-
|
|
|
Total concentration
|
|
|
92
|
%
|
|
|
92
|
%
|
|
|
61
|
%
|
|
|
54
|
%
|
iSign
Solutions Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
thousands, except per share amounts)
3.
|
Intangible
Assets, Net
|
The
Company performs an intangible asset impairment analysis at least annually or whenever circumstances or events indicate such assets
might be impaired. The Company would recognize an impairment charge in the event the net book value of such assets exceeded the
future undiscounted cash flows attributable to such assets.
Amortization
of intangible asset costs was $0 and $81 for the three months ended March 31, 2018 and 2017, respectively.
The
Company calculates basic net loss per share based on the weighted average number of shares outstanding, and when applicable, diluted
net income per share, which is based on the weighted average number of shares and potential dilutive shares outstanding.
The
following table lists shares and warrants that were excluded from the calculation of diluted earnings per share as the inclusion
of shares from the assumed exercise of such options and warrants would be anti-dilutive:
|
|
|
For the Three Months Ended
|
|
|
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
736
|
|
|
|
71
|
|
|
Warrants
|
|
|
1,839
|
|
|
|
1,878
|
|
Notes
payable:
In
November 2016, the Company issued long-term unsecured convertible promissory notes to investors and affiliates of the Company
aggregating $700 in cash. The Company also issued the same long-term notes to affiliates in exchange for an aggregate of $200
in demand notes that had been issued earlier in September and October of 2016. The long-term notes are mandatorily convertible
into Common Stock at a conversion rate of the lesser of $0.50 per share (initially, $1.30 per share and subsequently reduced in
connection with the May 2017 financing described below) or the price per share of Common Stock, upon closing a new debt and or
equity financing of at least $1,000 in aggregate proceeds. The notes bear interest at the rate of 6% per annum and are due December
31, 2018. The Company issued warrants to purchase 277 shares of Common Stock in connection with these long-term notes. The Company
ascribed a value of $204 to the 277 warrants and recorded a discount to the long-term notes and a corresponding amount to additional
paid-in capital. The discount is being amortized using the effective interest method over the term of the notes.
In
May 2017, the Company issued secured convertible promissory notes to investors and affiliates of the Company aggregating $505
in cash. In addition, certain investors and affiliates of the Company that had taken part in the November 2016 financing discussed
above, and that also participated in the May 2017 financing, exchanged $450 of unsecured convertible promissory notes received
in the November 2016 financing for $250 in secured notes with the same terms as the secured notes issued in the May 2017 financing
and $200 in unsecured notes with the same terms as the November 2016 financing discussed above. The secured notes are mandatorily
convertible into Common Stock at a conversion rate of the lesser of $0.50 per share or the price per share of Common Stock, upon
closing a new financing of at least $1,000 in aggregate proceeds. The secured notes bear interest at the rate of 10% per annum,
are due December 31, 2018 and are secured by an interest in all the Company’s rights, title and interest in, to and under its
intellectual property. Should the secured notes remain outstanding following the maturity date an additional 30% of the note’s
principal amount shall become due and payable.
iSign
Solutions Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
thousands, except per share amounts)
Notes
payable:
In
December 2017, the Company issued additional secured convertible promissory notes to investors and affiliates of the Company aggregating
$150 in cash. The secured notes have substantially the same terms as the secured notes issued in the May 2017 financing.
The
Company used the funds received from the above financing for working capital and general corporate purposes.
During
the three months ended March 31, 2018, the Company accrued $38 of interest expense, $32 associated with the notes, of which $8
was to related parties and $24 was to other investors.
The
Company recorded $24 in debt discount amortization for the three months ended March 31, 2018 and 2017, respectively.
6.
|
Stockholders’
Equity (Deficit)
|
Stock-based
compensation expense is based on the estimated grant date fair value of the portion of stock-based payment awards that are ultimately
expected to vest during the period. The grant date fair value of stock-based awards to employees and directors is calculated using
the Black-Scholes-Merton valuation model.
Forfeitures
of stock-based payment awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. The estimated average forfeiture rate for the three months ended March 31, 2018 and 2017 was approximately
5.95% and 12.34%, respectively, based on historical data.
Valuation
and Expense Information:
The
weighted-average fair value of stock-based compensation is based on the Black-Scholes-Merton valuation model. Forfeitures are
estimated and it is assumed no dividends will be declared. The estimated fair value of stock-based compensation awards to employees
is amortized over the vesting period of the options.
There
were no stock options granted, and no stock options exercised during the three months ended March 31, 2018 and 2017, respectively.
The
following table summarizes the allocation of stock-based compensation expense for the three months ended March 31:
|
|
|
2018
|
|
|
2017
|
|
|
Research and development
|
|
$
|
31
|
|
|
$
|
8
|
|
|
Sales and marketing
|
|
|
─
|
|
|
|
─
|
|
|
General and administrative
|
|
|
13
|
|
|
|
10
|
|
|
Director
|
|
|
4
|
|
|
|
3
|
|
|
Total stock-based compensation
|
|
$
|
48
|
|
|
$
|
21
|
|
iSign
Solutions Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
thousands, except per share amounts)
6.
|
Stockholders’
Equity (Deficit) (continued)
|
A
summary of option activity under the Company’s plans for the three months ended March 31, 2018 and 2017 is as follows:
|
|
|
2018
|
|
|
2017
|
|
|
Options
|
|
Shares
|
|
|
Weighted
Average Exercise Price per share
|
|
|
Weighted
Average Remaining Contractual Term (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
|
Shares
|
|
|
Weighted
Average Exercise Price per share
|
|
|
Weighted
Average Remaining Contractual Term (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
|
Outstanding at January 1
|
|
|
736
|
|
|
$
|
3.65
|
|
|
|
|
|
|
|
|
|
|
|
71
|
|
|
$
|
45.21
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31
|
|
|
736
|
|
|
$
|
3.65
|
|
|
|
6.11
|
|
|
$
|
-
|
|
|
|
71
|
|
|
$
|
45.21
|
|
|
|
2.91
|
|
|
$
|
-
|
|
|
Vested and expected to vest at March 31
|
|
|
702
|
|
|
$
|
3.86
|
|
|
|
6.09
|
|
|
$
|
-
|
|
|
|
70
|
|
|
$
|
45.53
|
|
|
|
2.88
|
|
|
$
|
-
|
|
|
Exercisable at March 31
|
|
|
153
|
|
|
$
|
15.67
|
|
|
|
4.82
|
|
|
$
|
-
|
|
|
|
62
|
|
|
$
|
48.02
|
|
|
|
2.63
|
|
|
$
|
-
|
|
The
following table summarizes significant ranges of outstanding and exercisable options as of March 31, 2018:
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
Number Outstanding
|
|
Weighted Average Remaining Contractual Term (in years)
|
|
|
Weighted Average Exercise Price
|
|
|
Number Outstanding
|
|
Weighted Average Exercise Price
|
|
|
$25.00 – $625.00
|
|
736
|
|
|
6.11
|
|
|
$
|
3.65
|
|
|
153
|
|
$
|
15.67
|
|
A
summary of the status of the Company’s non-vested shares as of March 31, 2018 is as follows:
|
Non-vested Shares
|
|
Shares
|
|
|
Weighted Average
Grant-Date
Fair Value
|
|
|
Non-vested at January 1, 2018
|
|
|
641
|
|
|
$
|
0.57
|
|
|
Vested
|
|
|
(58
|
)
|
|
$
|
1.63
|
|
|
Non-vested at March 31, 2018
|
|
|
583
|
|
|
$
|
0.51
|
|
As
of March 31, 2018, there was $106 of total unrecognized compensation expense related to non-vested stock-based compensation arrangements
granted under the plans. The unrecognized compensation expense is expected to be realized over a weighted average period of 1.5
years.
iSign
Solutions Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
thousands, except per share amounts)
6.
|
Stockholders’
Equity (Deficit) (continued)
|
Warrants
A
summary of the warrant activity to purchase shares of Common Stock for the three months ended March 31 is as follows:
|
|
|
2018
|
|
|
2017
|
|
|
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Outstanding at beginning of period
|
|
|
1,878
|
|
|
$
|
2.46
|
|
|
|
1,882
|
|
|
$
|
2.52
|
|
|
Issued
|
|
|
-
|
|
|
$
|
-
|
|
|
|
─
|
|
|
$
|
─
|
|
|
Expired/Canceled
|
|
|
(39
|
)
|
|
$
|
15.63
|
|
|
|
(4
|
)
|
|
$
|
34.38
|
|
|
Outstanding at end of period
|
|
|
1,839
|
|
|
$
|
1.58
|
|
|
|
1,878
|
|
|
$
|
2.69
|
|
|
Exercisable at end of period
|
|
|
1,839
|
|
|
$
|
1.58
|
|
|
|
1,878
|
|
|
$
|
2.69
|
|
A
summary of the status of the warrants outstanding and exercisable to purchase shares of Common Stock as of March 31, 2018 is as
follows:
Number of Shares
|
|
|
Weighted Average Remaining Life
|
|
|
Weighted Average Exercise Price per share
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
0.03
|
|
|
$
|
0.09
|
|
|
1,551
|
|
|
|
3.18
|
|
|
$
|
1.83
|
|
|
277
|
|
|
|
2.83
|
|
|
$
|
0.24
|
|
|
1,839
|
|
|
|
3.11
|
|
|
$
|
1.58
|
|
On April 30, 2018, the Company received
advances aggregating $40 against certain accounts receivable from a related party and others. The advances were repaid May 8,
2018 upon collection of the accounts receivable together with a five percent advance fee. The funds were used for working capital
purposes.
iSign
Solutions Inc.
FORM
10-Q
(In
thousands, except per share amounts)
Forward
Looking Statements
Certain
statements contained in this quarterly report on Form 10-Q, including, without limitation, statements containing the words “believes”,
“anticipates”, “hopes”, “intends”, “expects”, and other words of similar import,
constitute “forward looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements involve known and unknown risks, uncertainties and other factors which may cause actual events to differ materially
from expectations. Such factors include those set forth in the Company’s Annual Report on Form 10-K for the year ended December
31, 2017, including the following:
|
●
|
Technological,
engineering, manufacturing, quality control or other circumstances that could delay the
sale or shipment of products;
|
|
●
|
Economic,
business, market and competitive conditions in the software industry and technological
innovations that could affect the Company’s business;
|
|
●
|
The
Company’s inability to protect its trade secrets or other proprietary rights, operate
without infringing upon the proprietary rights of others and prevent others from infringing
on the proprietary rights of the Company; and
|
|
●
|
General
economic and business conditions and the availability of sufficient financing.
|
Except
as otherwise required by applicable laws, the Company undertakes no obligation to publicly update or revise any forward-looking
statements, as a result of new information, future events or otherwise.
Item
2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
.
The
following discussion and analysis should be read in conjunction with the Company’s unaudited condensed consolidated financial
statements and notes thereto included in Part 1, Item 1 of this quarterly report on Form 10-Q and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” set forth in the Company’s Annual report on Form 10-K
for the fiscal year ended December 31, 2017.
Overview
The
Company is a leading supplier of digital transaction management (DTM) software enabling the paperless, secure and cost-effective
management of document-based transactions. iSign’s solutions encompass a wide array of functionality and services, including
electronic signatures, biometric authentication and simple-to-complex workflow management. These solutions are available across
virtually all enterprise, desktop and mobile environments as a seamlessly integrated platform for both ad-hoc and fully automated
transactions. iSign’s software platform can be deployed both on-premise and as a cloud-based service, with the ability
to easily transition between deployment models.
The Company was incorporated
in Delaware in October 1986. Except for the year ended December 31, 2004, in each year since its inception the Company has incurred
losses. For the two-year period ended December 31, 2017, net losses aggregated approximately $7,004, and, at March 31, 2018, the
Company’s accumulated deficit was approximately $132,846.
For the three months
ended March 31, 2018, total revenue was $214, an increase of $3, or 1%, compared to total revenue of $211 in the prior year period.
The increase in revenue is primarily attributable to an increase in the Company’s maintenance revenue for the quarter.
The net loss for
the three months ended March 31, 2018 was $284, a decrease of $330, or 54%, compared to a net loss of $614 in the prior year period.
The decrease is due to the decrease in the loss from operations of $349, offset by a $19 increase in interest expense and income
taxes.
iSign
Solutions Inc.
FORM
10-Q
(In
thousands, except per share amounts)
Critical
Accounting Policies and Estimates
Refer
to Item 7, “Management Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s
2017 Form 10-K.
Effect
of Recent Accounting Pronouncement
Accounting
Standards Updates issued in 2018 are being evaluated by the Company, however, implementation is not expected to have a material
impact on the Company’s financial position, results of operations and cash flows.
Results
of Operations
Revenue
For
the three months ended March 31, 2018, product revenue was $40, a decrease of $8, or 17%, compared to product revenue of $48 in
the prior year period. The decrease in product revenue is primarily due to lower transaction volume compared to the prior year
quarter. For the three months ended March 31, 2018, maintenance revenue was $174, an increase of $11, or 7%, compared to maintenance
revenue of $163 in the prior year period. The increase in maintenance revenue was due to the renewal of certain maintenance contracts
during 2017.
Cost
of Sales
For
the three months ended March 31, 2018, cost of sales was $10, a decrease of $39, or 80%, compared to cost of sales of $49 in the
prior year period. The decrease in cost of sales is primarily attributable to the decrease in direct engineering costs associated
with product sales and maintenance activities compared to the prior year period.
Operating
expenses
Research
and Development Expenses
For
the three months ended March 31, 2018, research and development expense was $229, a decrease of $55, or 19%, compared to research
and development expense of $284 in the prior year period. Research and development expenses consist primarily of salaries and
related costs, outside engineering, maintenance items, and allocated facilities expenses. The decrease in research and development
expense was due to a reduction in headcount of two engineers, and reductions in the utilization of outside engineering services
compared to the prior year. These reductions were offset by an increase in stock-based compensation expense. Gross engineering
expenses, before allocations to sales, decreased by $92, or 27%, compared to the prior year period, due primarily to the same
factors discussed above.
Sales
and Marketing Expenses
For
the three months ended March 31, 2018, sales and marketing expense was $19, a decrease of $39, or 67%, compared to $58 in the
prior year period. The decrease was primarily attributable to a decrease in commissions and professional services in connection
with the Company’s efforts to restructure its operations in favor of partner-generated recurring revenue.
General
and Administrative Expenses
For
the three months ended March 31, 2018, general and administrative expense was $176, a decrease of $213, or 55%, compared to general
and administrative expense of $389 in the prior year period. The decrease was primarily due to decreases in professional service
expenses of $96, or 51%, related to legal, accounting and other professional fees. Salaries and related expense was $43, a decrease
of $22, or 34%. The decrease in salaries and related expense resulted from a reduction in headcount of one accountant, compared
to the prior year period. Other general overhead costs, including intangible asset amortization, decreased $95, or 71%, compared
to the prior year period.
Other
income and expense
Interest
expense for the three months ended March 31, 2018 was $38, an increase of $17, or 81% compared to interest expense of $21 in the
prior year period. The increase is due to an increase in short-term debt and other unpaid interest bearing liabilities. Interest
expense on short-term debt associated with related parties was $8 and non-related party interest expense was $24.
Amortization
of debt discount was $24 for the three months ended March 31, 2018 and 2017, respectively.
iSign
Solutions Inc.
FORM
10-Q
(In
thousands, except per share amounts)
Liquidity
and Capital Resources
At
March 31, 2018, cash and cash equivalents totaled $116, compared to cash and cash equivalents of $285 at December 31, 2017. The
decrease in cash was due to cash used in operating activities of $169. At March 31, 2018, total current assets were $169 compared
to total current assets of $358 at December 31, 2017. At March 31, 2018, the Company’s principal sources of funds included its
cash and cash equivalents aggregating $116.
At
March 31, 2018, accounts receivable net, was $31, a decrease of $14, or 31%, compared to accounts receivable, net of $45 at December
31, 2017. The decrease is due primarily to faster collection times for accounts receivable.
At
March 31, 2018, prepaid expenses and other current assets were $22, a decrease of $6, or 21%, compared to prepaid expenses and
other current assets of $28 at December 31, 2017. The decrease is due primarily to a lower amount of prepaid assets acquired during
the quarter relative to the amount of prepaid assets expensed.
At
March 31, 2018, total current liabilities were $4,066, an increase of $64, or 2%, compared to total current liabilities of $4,002
at December 31, 2017. At March 31, 2018, accounts payable were $1,275, a decrease of $14, or 1%, from the December 31, 2017 balance
of $1,289. At March 31, 2018, accrued compensation was $147, a decrease of $54, or 27%, compared to accrued compensation of $201
at December 31, 2017, due primarily to a reduction in headcount and payment of accrued but unpaid vacation expense. Other accrued
liabilities were $827, an increase of $87, or 12%, from December 31, 2017, primarily due to the accrual of certain professional
service fees.
Current
deferred revenue was $350, an increase of $40, or 13%, compared to current deferred revenue of $310 at December 31, 2017. Deferred
revenue primarily reflects advance payments for maintenance fees from the Company’s licensees that are generally recognized as
revenue by the Company when all obligations are met or over the term of the maintenance agreement, whichever is longer. Deferred
revenue is recorded when the Company receives advance payment from its customers.
For
the three months ended March 31, 2018, the Company incurred $38 of interest expense and $24 in amortization of debt discount.
For the three months ended March 31, 2017, the Company incurred $21 of interest expense and $24 in amortization of debt discount.
The
Company had the following material commitments as of March 31, 2018:
Contractual
obligations
|
|
Total
|
|
|
2018
|
|
|
2019
|
|
|
Thereafter
|
|
Operating lease commitments
(1)
|
|
$
|
163
|
|
|
$
|
76
|
|
|
$
|
87
|
|
|
$
|
─
|
|
Capital lease
commitments
|
|
|
12
|
|
|
|
4
|
|
|
|
6
|
|
|
|
2
|
|
|
|
$
|
175
|
|
|
$
|
80
|
|
|
$
|
93
|
|
|
$
|
2
|
|
1.
|
In
November 2016, the Company moved its principal facilities to San Jose, California, pursuant
to a lease that expires in 2019. In addition to monthly rent, the facilities are subject
to additional rental payments for utilities and other costs above the base amount.
|
The
Company has experienced recurring losses from operations that raise a substantial doubt about its ability to continue as a going
concern. There can be no assurance that the Company will have adequate capital resources to fund planned operations or that any
additional funds will be available to it when needed, or if available, will be available on favorable terms or in amounts required
by it. If the Company is unable to obtain adequate capital resources to fund operations, it may be required to delay, scale back
or eliminate some or all of its operations, which may have a material adverse effect on the Company’s business, results of operations
and ability to operate as a going concern.
iSign
Solutions Inc.
FORM
10-Q
(In
thousands, except per share amounts)