Washington, D.C. 20549
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Section 12b-2 of the exchange Act)
Number of shares outstanding of the issuer’s Common Stock as
of November 16, 2020: 5,761,980.
PART
I – FINANCIAL INFORMATION
Item 1. Financial Statements
iSign Solutions Inc.
Condensed Consolidated Balance Sheets
(In
thousands, except par value amounts)
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Assets
|
|
Unaudited
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
25
|
|
|
$
|
25
|
|
Accounts receivable, net of allowance of $0 at September 30, 2020 and $1 at December 31, 2019, respectively
|
|
|
63
|
|
|
|
61
|
|
Prepaid expenses and other current assets
|
|
|
31
|
|
|
|
22
|
|
Total current assets
|
|
|
119
|
|
|
|
108
|
|
Property and equipment, net
|
|
|
6
|
|
|
|
8
|
|
Other assets
|
|
|
5
|
|
|
|
5
|
|
Total assets
|
|
$
|
130
|
|
|
$
|
121
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
350
|
|
|
$
|
1,196
|
|
Paycheck Protection Program, current portion
|
|
|
87
|
|
|
|
—
|
|
Short-term debt - related party
|
|
|
1,026
|
|
|
|
841
|
|
Short-term debt – other
|
|
|
1,746
|
|
|
|
1,405
|
|
Accrued compensation
|
|
|
79
|
|
|
|
71
|
|
Other accrued liabilities
|
|
|
1,049
|
|
|
|
814
|
|
Deferred revenue, current portion
|
|
|
344
|
|
|
|
346
|
|
Total current liabilities
|
|
|
4,681
|
|
|
|
4,673
|
|
|
|
|
|
|
|
|
|
|
Long-term debt - other
|
|
|
90
|
|
|
|
—
|
|
Paycheck Protection Program, net of current portion
|
|
|
36
|
|
|
|
—
|
|
Deferred revenue, net of current portion
|
|
|
—
|
|
|
|
70
|
|
Other long-term liabilities
|
|
|
919
|
|
|
|
669
|
|
Total liabilities
|
|
|
5,726
|
|
|
|
5,412
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 2,000,000 shares authorized; 5,762 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively
|
|
|
58
|
|
|
|
58
|
|
Treasury shares, 5 at September 30, 2020 and December 31, 2019, respectively
|
|
|
(325
|
)
|
|
|
(325
|
)
|
Additional paid-in capital
|
|
|
129,896
|
|
|
|
129,651
|
|
Accumulated deficit
|
|
|
(135,225
|
)
|
|
|
(134,675
|
)
|
Total stockholders’ deficit
|
|
|
(5,596
|
)
|
|
|
(5,291
|
)
|
Total liabilities and stockholders’ deficit
|
|
$
|
130
|
|
|
$
|
121
|
|
See accompanying notes to these Unaudited
Condensed Consolidated Financial Statements
iSign Solutions Inc.
Condensed Consolidated Statements of
Operations
Unaudited
(In thousands, except per share amounts)
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
44
|
|
|
$
|
45
|
|
|
$
|
134
|
|
|
$
|
126
|
|
Maintenance
|
|
|
198
|
|
|
|
168
|
|
|
|
525
|
|
|
|
512
|
|
Total revenue
|
|
|
242
|
|
|
|
213
|
|
|
|
659
|
|
|
|
638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
2
|
|
|
|
5
|
|
|
|
23
|
|
|
|
8
|
|
Maintenance
|
|
|
27
|
|
|
|
23
|
|
|
|
63
|
|
|
|
56
|
|
Research and development
|
|
|
126
|
|
|
|
179
|
|
|
|
446
|
|
|
|
531
|
|
Sales and marketing
|
|
|
10
|
|
|
|
10
|
|
|
|
62
|
|
|
|
63
|
|
General and administrative
|
|
|
397
|
|
|
|
194
|
|
|
|
816
|
|
|
|
588
|
|
Total operating costs and expenses
|
|
|
562
|
|
|
|
411
|
|
|
|
1,410
|
|
|
|
1,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(320
|
)
|
|
|
(198
|
)
|
|
|
(751
|
)
|
|
|
(608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
373
|
|
|
|
—
|
|
|
|
425
|
|
|
|
14
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(30
|
)
|
|
|
(19
|
)
|
|
|
(77
|
)
|
|
|
(46
|
)
|
Other
|
|
|
(52
|
)
|
|
|
(46
|
)
|
|
|
(144
|
)
|
|
|
(142
|
)
|
Amortization of debt discount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
(8
|
)
|
Other
|
|
|
—
|
|
|
|
(7
|
)
|
|
|
(1
|
)
|
|
|
(22
|
)
|
Loss before income tax expense
|
|
|
(30
|
)
|
|
|
(273
|
)
|
|
|
(549
|
)
|
|
|
(812
|
)
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Net loss
|
|
$
|
(30
|
)
|
|
$
|
(273
|
)
|
|
$
|
(550
|
)
|
|
$
|
(813
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.14
|
)
|
Weighted average common shares outstanding basic and diluted
|
|
|
5,762
|
|
|
|
5,762
|
|
|
|
5,762
|
|
|
|
5,762
|
|
See accompanying notes to these Unaudited
Condensed Consolidated Financial Statements
iSign Solutions Inc.
Condensed
Consolidated Statements of Stockholders’ Deficit
Unaudited
(In thousands)
|
|
Common Stock
|
|
|
Treasury Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Total
Stockholders’
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Deficit)
|
|
Balance January 1, 2020
|
|
|
5,762
|
|
|
$
|
58
|
|
|
|
5
|
|
|
$
|
(325
|
)
|
|
$
|
129,651
|
|
|
$
|
(134,675
|
)
|
|
$
|
(5,291
|
)
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22
|
|
|
|
—
|
|
|
|
22
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(339
|
)
|
|
|
(339
|
)
|
Balance, March 31, 2020
|
|
|
5,762
|
|
|
$
|
58
|
|
|
|
5
|
|
|
$
|
(325
|
)
|
|
$
|
129,673
|
|
|
$
|
(135,014
|
)
|
|
$
|
(5,608
|
)
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17
|
|
|
|
—
|
|
|
|
17
|
|
Warrant issued for services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(181
|
)
|
|
|
(184
|
)
|
Balance, June 30, 2020
|
|
|
5,762
|
|
|
$
|
58
|
|
|
|
5
|
|
|
$
|
(325
|
)
|
|
|
129,703
|
|
|
|
(135,195
|
)
|
|
|
(5,759
|
)
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30
|
|
|
|
—
|
|
|
|
30
|
|
Warrants issued associated with other long-term liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
160
|
|
|
|
—
|
|
|
|
160
|
|
Warrants issued in settlement of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
3
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(30
|
)
|
|
|
(30
|
)
|
Balance, September 30, 2020
|
|
|
5,762
|
|
|
$
|
58
|
|
|
|
5
|
|
|
$
|
(325
|
)
|
|
$
|
129,896
|
|
|
$
|
(135,225
|
)
|
|
$
|
(5,596
|
)
|
|
|
Common Stock
|
|
|
Treasury Stock
|
|
|
Additional Paid-in
|
|
|
Accumulated
|
|
|
Total
Stockholders’
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Deficit)
|
|
Balance January 1, 2019
|
|
|
5,762
|
|
|
$
|
58
|
|
|
|
5
|
|
|
$
|
(325
|
)
|
|
$
|
129,251
|
|
|
$
|
(133,589
|
)
|
|
$
|
(4,605
|
)
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
59
|
|
|
|
—
|
|
|
|
59
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(291
|
)
|
|
|
(291
|
)
|
Balance, March 31, 2019
|
|
|
5,762
|
|
|
$
|
58
|
|
|
|
5
|
|
|
$
|
(325
|
)
|
|
$
|
129,310
|
|
|
$
|
(133,880
|
)
|
|
$
|
(4,837
|
)
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
48
|
|
|
|
—
|
|
|
|
48
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(249
|
)
|
|
|
(249
|
)
|
Balance, June 30, 2019
|
|
|
5,762
|
|
|
$
|
58
|
|
|
|
5
|
|
|
$
|
(325
|
)
|
|
$
|
129,358
|
|
|
$
|
(134,129
|
)
|
|
$
|
(5,038
|
)
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
37
|
|
|
|
—
|
|
|
|
37
|
|
Warrants issued associated with other long-term liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
212
|
|
|
|
—
|
|
|
|
212
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(273
|
)
|
|
|
(273
|
)
|
Balance, September 30, 2019
|
|
|
5,762
|
|
|
$
|
58
|
|
|
|
5
|
|
|
$
|
(325
|
)
|
|
$
|
129,607
|
|
|
$
|
(134,402
|
)
|
|
$
|
(5,062
|
)
|
See accompanying notes to these Unaudited
Condensed Consolidated Financial Statements
iSign Solutions Inc.
Condensed Consolidated Statements of
Cash Flows
Unaudited
(In thousands)
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(550
|
)
|
|
$
|
(813
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
309
|
|
|
|
49
|
|
Debt discount amortization
|
|
|
2
|
|
|
|
30
|
|
Warrant issued for services
|
|
|
16
|
|
|
|
-
|
|
Stock-based compensation
|
|
|
69
|
|
|
|
144
|
|
Forgiveness of debt related to accounts payable
|
|
|
(425
|
)
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(2
|
)
|
|
|
23
|
|
Prepaid expenses and other current assets
|
|
|
(9
|
)
|
|
|
10
|
|
Accounts payable
|
|
|
(291
|
)
|
|
|
(31
|
)
|
Accrued compensation
|
|
|
8
|
|
|
|
(9
|
)
|
Other accrued and long-term liabilities
|
|
|
339
|
|
|
|
332
|
|
Deferred revenue
|
|
|
(72
|
)
|
|
|
(24
|
)
|
Net cash used in operating activities
|
|
|
(606
|
)
|
|
|
(289
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment
|
|
|
-
|
|
|
|
(9
|
)
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of short-term debt -related party
|
|
|
183
|
|
|
|
-
|
|
Proceeds from the issuance of short-term debt -other
|
|
|
300
|
|
|
|
-
|
|
Proceeds from long-term-debt- Paycheck Protection Program
|
|
|
123
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
606
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
-
|
|
|
|
(298
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
25
|
|
|
|
335
|
|
Cash and cash equivalents at end of period
|
|
$
|
25
|
|
|
$
|
37
|
|
See accompanying notes to these Unaudited
Condensed Consolidated Financial Statements
iSign Solutions Inc.
Condensed Consolidated Statements of
Cash Flows (Continued)
Unaudited
(In thousands)
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Supplementary disclosure of cash flow information:
|
|
|
|
|
|
|
Interest paid
|
|
$
|
6
|
|
|
$
|
1
|
|
Income tax paid
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing and investing transactions:
|
|
|
|
|
|
|
|
|
Value of warrants issued on other long-term liabilities
|
|
$
|
-
|
|
|
$
|
212
|
|
Settlement of accounts payable for issuance of short-term debt and long-term debt, other
|
|
$
|
130
|
|
|
$
|
-
|
|
See accompanying notes to these Unaudited
Condensed Consolidated Financial Statements
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q
|
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, and
Sign-it® programs.
Certain numbers in the prior
year statement of operations included in this Form 10-Q have been combined to conform to the current year presentation.
In December 2019, an outbreak
of a novel strain of coronavirus (COVID-19) originated in Wuhan, China and has since spread to a number of other countries, including
the U.S. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. In addition, several states in
the U.S., including California, where the Company is headquartered, have experienced a flattening of new cases of COVID-19. However,
it is uncertain if this trend will continue into the winter months, as shown by the recent uptick in reported cases. The COVID-19
outbreak is disrupting supply chains and affecting production and sales across a wide range of industries. The extent of the impact
of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread
of the outbreak, impact on our customers, employees and vendors all of which are uncertain and cannot be predicted. At this point,
the extent to which COVID-19 may impact our financial condition or results of operations is uncertain.
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, 2019.
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 September 30, 2020, the Company’s accumulated
deficit was $135,225. The Company has primarily met its working capital needs through the sale of debt and equity securities. As
of September 30, 2020, the Company’s cash balance was $25. These factors raise substantial doubt about the Company’s
ability to continue as a going concern.
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q
|
1.
|
Nature of Business and Summary of Significant Accounting Policies (continued)
|
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.
Accounting Changes and Recent
Accounting Pronouncements
Accounting Standards Update
No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and
Derivatives and Hedging (Topic 815), Clarifying the Interaction between Topic 321, Topic 323 and Topic 815. The amended guidance
in this update was issued to clarify the interaction of the accounting for equity securities under Topic 321, Investments—Equity
Securities; investments accounted for under the equity method of accounting in Topic 323, Investments—Equity Method
and Joint Ventures; and the accounting for certain forward contracts and purchased options accounted for under Topic 815, Derivatives
and Hedging. The amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within
those fiscal years.
The Company will evaluate ASU
2020-01. The Company believes the adoption of ASU 2020-01 will have no impact on the Company’s financial statements.
Accounting Standards Update
No. 2020-03, Codification Improvements to Financial Instruments. The Board decided to issue a separate update to improve various
financial instruments Topics in the Codification to increase stakeholder awareness of the amendments and to clarify and improve
the understandability of the guidance of Topics. The amendments are effective immediately.
The Company believes the adoption
of ASU 2020-03 will have no impact on the Company’s financial statements.
Other Accounting Standards Updates
issued in 2020 are not currently 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 September 30,
|
|
|
Total Revenue
for the three months
ended
September 30,
|
|
|
Total Revenue
for the nine months
ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Customer #1
|
|
|
70
|
%
|
|
|
58
|
%
|
|
|
18
|
%
|
|
|
17
|
%
|
|
|
21
|
%
|
|
|
18
|
%
|
Customer #2
|
|
|
24
|
%
|
|
|
24
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Customer #3
|
|
|
-
|
|
|
|
16
|
%
|
|
|
10
|
%
|
|
|
16
|
%
|
|
|
11
|
%
|
|
|
11
|
%
|
Customer #4
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
%
|
|
|
29
|
%
|
|
|
23
|
%
|
|
|
29
|
%
|
Customer #5
|
|
|
-
|
|
|
|
-
|
|
|
|
29
|
%
|
|
|
17
|
%
|
|
|
23
|
%
|
|
|
16
|
%
|
Total concentration
|
|
|
94
|
%
|
|
|
98
|
%
|
|
|
78
|
%
|
|
|
79
|
%
|
|
|
78
|
%
|
|
|
74
|
%
|
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q
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 exercise of such options and warrants
would be antidilutive:
|
|
For the Three and Nine Months Ended
|
|
|
|
September 30,
2020
|
|
|
September 30,
2019
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1,338
|
|
|
|
1,077
|
|
Warrants
|
|
|
3,001
|
|
|
|
2,812
|
|
Convertible debt
|
|
|
5,298
|
|
|
|
4,498
|
|
In January and March 2020, the
Company received, from affiliates, advances aggregating $75 in cash against certain accounts receivable of the Company. Upon collection
of an invoice, the Company agreed to repay the advance to the lenders on a pro rata basis together with a 5% advance fee. On March
25, 2020, the affiliates converted their advances into unsecured notes. The Company paid the advance fees of $4 in cash, and recorded
them as interest expense in the quarter ended March 31, 2020.
In August and September 2020,
the Company received, from two affiliates, advances aggregating $83 in cash against certain accounts receivable of the Company.
Upon collection of an invoice, the Company agreed to repay the advance to the lenders on a pro rata basis together with a 5% advance
fee. The Company has accrued the advance fees of $4 which is included in interest expense in the quarter ended September 30, 2020.
Notes payable:
On
March 25, 2020, the Company issued an aggregate of $150 in unsecured notes to affiliates and other investors. The Company received
$75 in cash and $75 in exchange for the advances discussed above. The unsecured notes are convertible by the holder into
common stock at any time at a price per share of $0.50. Upon closing a new financing of at least $1,000 in aggregate proceeds,
the Company can force conversion at a price equal to the lesser of $0.50 per share or the price per share of the new financing.
The notes bear interest at the rate of 10% per annum and are due December
31, 2020.
On May 6, 2020, the Company received
loan proceeds in the amount of approximately $123 under the Paycheck Protection Program (“PPP”). The PPP, established
as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses
for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The Company may apply for the loans
and accrued interest forgiven after a period of either eight or twenty-four weeks, as long as the borrower uses the loan proceeds
for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness
will be reduced if the borrower terminates employees or reduces salaries during the period in question. Under the terms of the
related promissory note, the unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral
of payments for the first six months. The Company used the proceeds for purposes consistent with the PPP. While the Company currently
believes that its use of the loan proceeds, for the most part, meet the conditions for forgiveness of the loan, we cannot assure
you that we did not take actions that caused the Company to be ineligible for forgiveness of the loan, in whole or in part.
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q
On June 19, 2020, iSign
Solutions Inc. (the “Company”) entered into a Note Purchase Agreement (the “Purchase Agreement”) with
an investor. Under the terms of the Purchase Agreement, the Company received a cash loan in the aggregate amount of $250,000
(the “Loan”) from the investor in exchange for the Company’s issuance of an unsecured convertible
promissory note equal to the amount of such investor’s loan contribution to the Company. The Note bears interest at the
rate of 10% per annum, and has a maturity date the earlier of December 31, 2021, or the date on which the Company’s
other outstanding unsecured convertible promissory notes are due. The Note may be converted by its terms at the option of the
investor into shares of the Company’s common stock.
On July 1, 2020 the Company entered
into a settlement agreement with one of its vendors whereby the Company paid $135 in cash and issued a promissory note in the amount
of $130 in settlement of approximately $537 in outstanding accounts payable. The note bears interest at the rate of 4% per annum
and is due in installments of $40, $45 and $45 on or before the anniversary date of the note over the next three years. The settlement
agreement discussed above resulted in gain of $272 recorded as other income in the statement of operations.
The Company accrued $83 and $221
of interest expense during the three and nine months ended September 30, 2020, $73 and $194, respectively, associated with the
outstanding secured and unsecured convertible promissory notes, of which $28 and $76, respectively, was to related parties and
$45 and $118, respectively, was to other investors. For the three and nine months ended September 30, 2019, the Company accrued
$65 and $188 of interest expense, $55 and $162, respectively, associated with its outstanding notes, of which $19 and $47, respectively,
was to related parties and $36 and $115, respectively, was to other investors.
The Company recorded $1 and $2
in debt discount amortization for the three and nine months ended September 30, 2020. For the three and nine months ended September
30, 2019 the Company recorded $10 and $30 of debt discount
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 September 30, 2020 and 2019, was approximately 11.2%
and 13.4%, 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 using the accrual
method over the vesting period of the options.
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q
|
5.
|
Stockholders’ Deficit (continued)
|
The Company granted 290 stock
options during the nine months ended September 30, 2020 at a weighted average exercise price of $0.50 per share. The Company granted
40 stock options during the nine months ended September 30, 2019 at a weighted average exercise price of $0.50 per share. There
were no stock options exercised during the three and nine months ended September 30, 2020 and 2019. The fair value calculations
for the stock options granted are based on the following assumptions:
|
|
Nine Months Ended
September 30,
2020
|
|
|
Nine Months Ended
September 30,
2019
|
|
Risk free interest rate
|
|
|
0.18
|
%
|
|
|
2.30
|
%
|
Expected life (years)
|
|
|
6.41
|
|
|
|
6.13
|
|
Expected volatility
|
|
|
164.00
|
%
|
|
|
191.65
|
%
|
Expected dividends
|
|
|
None
|
|
|
|
None
|
|
The following table summarizes
the allocation of stock-based compensation expense related to stock option grants for the three and nine-month periods ended September
30, 2020 and 2019.
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Research and development
|
|
$
|
1
|
|
|
$
|
6
|
|
|
$
|
7
|
|
|
$
|
24
|
|
General and administrative
|
|
|
21
|
|
|
|
25
|
|
|
|
49
|
|
|
|
98
|
|
Director options
|
|
|
8
|
|
|
|
6
|
|
|
|
13
|
|
|
|
22
|
|
Stock-based compensation expense
|
|
$
|
30
|
|
|
$
|
37
|
|
|
$
|
69
|
|
|
$
|
144
|
|
A summary of option
activity under the Company’s plans as of September 30, 2020 and 2019 is as follows:
|
|
2020
|
|
|
|
|
|
2019
|
|
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,
|
|
|
1,077
|
|
|
$
|
1.59
|
|
|
|
|
|
|
$
|
-
|
|
|
|
1,037
|
|
|
$
|
1.65
|
|
|
|
|
|
|
$
|
-
|
|
Granted
|
|
|
290
|
|
|
$
|
0.50
|
|
|
|
|
|
|
$
|
-
|
|
|
|
40
|
|
|
$
|
0.50
|
|
|
|
|
|
|
$
|
-
|
|
Forfeited or expired
|
|
|
(29
|
)
|
|
$
|
23.63
|
|
|
|
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
Outstanding at September 30
|
|
|
1,338
|
|
|
$
|
0.86
|
|
|
|
4.84
|
|
|
$
|
-
|
|
|
|
1,077
|
|
|
$
|
1.61
|
|
|
|
5.22
|
|
|
$
|
-
|
|
Vested and expected to vest at
September 30
|
|
|
1,293
|
|
|
$
|
1.40
|
|
|
|
5.15
|
|
|
$
|
-
|
|
|
|
1,072
|
|
|
$
|
1.61
|
|
|
|
5.22
|
|
|
$
|
-
|
|
Exercisable at September 30
|
|
|
868
|
|
|
$
|
1.03
|
|
|
|
4.18
|
|
|
$
|
-
|
|
|
|
575
|
|
|
$
|
2.45
|
|
|
|
4.95
|
|
|
$
|
-
|
|
The following table summarizes
significant ranges of outstanding and exercisable options as of September 30, 2020:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
Number Outstanding
|
|
|
Weighted Average Remaining Contractual Life
(in years)
|
|
|
Weighted Average Exercise Price Per Share
|
|
|
Number Outstanding
|
|
|
Weighted Average Exercise Price Per Share
|
|
$0.01 – $25.00
|
|
|
930
|
|
|
|
4.89
|
|
|
$
|
0.50
|
|
|
|
591
|
|
|
$
|
0.50
|
|
$25.01 - $625.00
|
|
|
408
|
|
|
|
4.86
|
|
|
$
|
0.84
|
|
|
|
277
|
|
|
$
|
0.84
|
|
Total
|
|
|
1,338
|
|
|
|
4.84
|
|
|
$
|
0.87
|
|
|
|
868
|
|
|
$
|
0.87
|
|
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q
|
5.
|
Stockholders’ Deficit (continued)
|
The following table summarizes
the Company’s non-vested option shares as of September 30, 2020:
Non-vested Option Shares
|
|
Shares
|
|
|
Weighted Average
Grant-Date
Fair Value
|
|
Non-vested at January 1, 2020
|
|
|
660
|
|
|
$
|
0.65
|
|
Granted
|
|
|
290
|
|
|
$
|
0.50
|
|
Vested
|
|
|
(480
|
)
|
|
$
|
0.65
|
|
Non-vested at September 30, 2020
|
|
|
470
|
|
|
$
|
0.56
|
|
As of September 30, 2020, there was $99 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 1.12 years.
Warrants
On January 28, 2020, the Company
issued 30 warrants to a consultant for services. The warrants are exercisable for three years with an exercise price of $0.50 per
share. The Company ascribed a value of $13 to the warrants which is based on the Black-Scholes-Merton valuation model. The warrant
cost was charged to general and administrative expense during the period.
On July 9, 2020, the Company entered
into a settlement agreement with a vendor. In addition to a cash payment the Company issued 10 warrants to purchase 10 shares of
common stock in settlement of the outstanding accounts payable balance. The warrants are exercisable for five years with an exercise
price of $0.50 per share. The Company ascribed a value of $3 to the warrants which is based on the Black-Scholes-Merton valuation
model. The warrant cost was charged to general and administrative expense during the period.
On August 11, 2020, the Company
issued 425 warrants to purchase 425 shares of common stock to two consultants associated with their unpaid consulting fees. The
Company ascribed a value of $160 to the warrants which is booked as stock based compensation in general and administrative expense
in the statement of operations. The warrants are only exercisable for deferred consulting fees. Upon exercise, the Company would
not receive any cash and would reduce accrued expenses. The above warrants have a three year life from the date of grant and an
exercise price of $0.50 per share.
On February 2, 2019, the Company
issued warrants to purchase 985 shares of common stock to employees and consultants associated with their unpaid salaries and consulting
fees. The Company ascribed a value of $212 to the warrants which was booked as a discount to other long-term liabilities in the
balance sheet. The remaining $147 value of the warrants was amortized to general and administrative expense in the statement of
operations as of September 30, 2020. The warrants are only exercisable for deferred salaries and consulting fees. The above warrants
have a three year life from the date of grant and an exercise price of $0.50 per share.
For the three and nine months ended September 30, 2020,
the Company has charged $275 and $323, respectively, of the warrant value to expense. For the three and nine months ended September
30, 2019 the Company charged $46 of warrant value to expense.
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q
|
5.
|
Stockholders’ Deficit (continued)
|
Warrants
A summary of the warrant activity for the nine months
ended September 30 is as follows:
|
|
September 30, 2020
|
|
|
September 30, 2019
|
|
|
|
Shares
|
|
|
Weighted Average Exercise Price Per Share
|
|
|
Shares
|
|
|
Weighted Average Exercise Price Per Share
|
|
Outstanding at beginning of period
|
|
|
2,536
|
|
|
$
|
1.52
|
|
|
|
1,828
|
|
|
$
|
2.08
|
|
Issued
|
|
|
465
|
|
|
$
|
0.50
|
|
|
|
985
|
|
|
$
|
0.50
|
|
Outstanding at end of period
|
|
|
3,001
|
|
|
$
|
1.37
|
|
|
|
2,813
|
|
|
$
|
1.53
|
|
Exercisable at end of period
|
|
|
3,001
|
|
|
$
|
1.37
|
|
|
|
2,813
|
|
|
$
|
1.53
|
|
A summary of the status of the warrants outstanding
and exercisable as of September 30, 2020 is as follows:
Number of Shares
Issuable Under
Warrants
|
|
|
Weighted Average
Remaining Life
(years)
|
|
|
Weighted Average
Exercise Price
per share
|
|
|
|
|
|
|
|
|
|
|
1,551
|
|
|
|
0.64
|
|
|
$
|
2.18
|
|
|
985
|
|
|
|
1.37
|
|
|
$
|
0.50
|
|
|
30
|
|
|
|
2.36
|
|
|
$
|
0.50
|
|
|
10
|
|
|
|
4.84
|
|
|
$
|
0.50
|
|
|
425
|
|
|
|
2.90
|
|
|
$
|
0.50
|
|
|
3,001
|
|
|
|
1.23
|
|
|
$
|
1.37
|
|
In October, 2020, the Company
received, from an affiliate and another party advances aggregating $60 in cash against certain accounts receivable of the Company.
Upon collection of an invoice, the Company agreed to repay the advance to the lenders on a pro rata basis together with a 5% advance
fee. The funds will be used for working capital purposes.
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q
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, 2019, 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, 2019.
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, 2019, net losses aggregated $2,113, and, at September 30, 2020, the Company’s
accumulated deficit was $134,975.
For the three months
ended September 30, 2020, total revenue was $242, an increase of $29, or 14%, compared to total revenue of $213 in the prior year
period. For the nine months ended September 30, 2020, total revenue was $659, an increase of $21, or 3%, compared to total revenue
of $638 in the prior year period. The increases in revenue for the three and nine months ended September 30, 2020 are due primarily
to increases in product and maintenance revenue compared to the prior year periods.
For the three months
ended September 30, 2020, the Company recorded a net loss of $30, a decrease of $243, or 89%, compared to a net loss of $273 in
the prior year period. The $30 net loss was primarily due to warrant expense related to long-term liabilities of $323 and an increase
in interest expense on the increase in debt. These increased expenses were partially offset by $373 in forgiveness of debt resulting
from settlement agreements with vendors for outstanding accounts payable balances during the three months ended September 30,
2020. For the nine months ended September 30, 2020 the net loss was $550, a decrease of $263, or 32%, compared to a net
loss of $813 in the prior year period.
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q
Critical Accounting Policies and Estimates
Refer to Item 7, “Management
Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2019 Form 10-K.
Effect of Recent Accounting Pronouncements
Accounting Standards
Updates issued in 2020 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 September 30, 2020, product revenue was $44, a decrease of $1, or 2%, compared to product revenue of $45 in the prior year
period. The decrease was primarily due to the timing of new product orders received in the quarter. For the three months ended
September 30, 2020, maintenance revenue was $198, an increase of $30, or 18%, compared to maintenance revenue of $168 in the prior
year period. The increase is primarily due to an increases in the amount of certain maintenance contract renewals and adjustments.
For the nine months
ended September 30, 2020, product revenue was $134, an increase of $8, or 6%, compared to product revenue of $126 in the prior
year period. The increase in product revenue is primarily attributable to an increase in engineering project billings compared
to the prior year period. For the nine months ended September 30, 2020, maintenance revenue was $525, an increase of $13, or 3%,
compared to maintenance revenue of $512 in the prior year period. The increase in maintenance revenue is primarily due to the factors
discussed for the three-month period above.
Cost of Sales
For the three months
ended September 30, 2020, cost of sales was $29, a decrease of $1, or 4%, compared to cost of sales of $28 in the prior year period.
The decrease in cost of sales was primarily due to a decrease in direct labor costs associated with billable engineering revenue
partially offset by an increase in labor related to maintenance contracts during the three months ended September 30, 2020, compared
to the prior year period.
For the nine months
ended September 30, 2020, cost of sales was $86, an increase of $22, or 34%, compared to cost of sales of $64 in the prior year
period. The increase in cost of sales was due to an increase in direct labor related to maintenance contracts and billable engineering
revenue compared to the prior year period.
Operating expenses
Research and Development Expenses
For the three months
ended September 30, 2020, research and development expense was $126, a decrease of $53, or 30%, compared to research and development
expense of $179 in the prior year period. Research and development expenses consist primarily of salaries and related costs, outside
engineering, maintenance items, and allocated facilities expenses. Research and development expenses decreased primarily due a
decrease in outside engineering costs and an increase in the amount of engineering costs allocated to cost of sales. Total expenses,
before allocations for the three months ended September 30, 2020, were $172, a decrease of $39, or 18%, compared to $211 in the
prior year period. The decrease was primarily due to the reduced outside engineering expense during the current quarter.
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q
Research and Development Expenses (continued)
For the nine months
ended September 30, 2020, research and development expense was $446, a decrease of $85, or 16%, compared to research and development
expense of $531 in the prior year period. The most significant factors in the decrease include a decrease in stock option expense
and other overhead expense, including outside engineering and allocated engineering expense to cost of sales. Total expenses, before
allocations to cost of sales, for the nine months ended September 30, 2020, were $545, a decrease of $59, or 10%, compared to $605
in the prior year period. The decrease in total engineering expense is primarily due to the factors discussed for the three month
period above.
Sales and Marketing Expense
For the three months
ended September 30, 2020, sales and marketing expense was $10, compared to sales and marketing expense of $10 in the prior year
period. For the nine months ended September 30, 2020, sales and marketing expense was $62, a decrease of $1, or 2%, compared to
sales and marketing expense of $63 in the prior year period. These decrease was primarily attributable to a decrease in commissions
compared to the prior year period.
General and Administrative Expense
For the three months
ended September 30, 2020, general and administrative expense was $397, an increase of $203 or 105%, compared to general and administrative
expense of $194 in the prior year period. The increase was primarily due to $288 in stock based compensation expense partially
offset by decreases in other general overhead expenses compared to the prior year period.
For the nine months
ended September 30, 2020, general and administrative expense was $816, an increase of $228, or 39%, compared to general and administrative
expense of $588 in the prior year period. The increase in total general and administrative expense is primarily due to the factors
discussed for the three month period above.
Other Income and Expense, net
For the three and
nine months ended September 30, 2020, other income was $373 and $425, respectively, an increase of $373 and $411, respectively,
compared to other income of $0 and $14 for the three and nine months ended September 30, 2019. The increase in other income and
expense is due primarily to the forgiveness of $373 and $425, respectively, of accounts payable during the three and nine months
ended September 30, 2020. Such forgiveness was generated in conjunction with cash payments of approximately $287. Other income
for the three and nine months ended June 30 2019 included the collection of $14 of accounts receivable written off in the prior
year.
For the three months
ended September 30, 2020, interest expense was $82, an increase of $17, or 24% compared to interest expense of $65 in the prior
year period. For the nine months ended September 30, 2020, interest expense was $221, an increase of $33, or 18%, compared to interest
expense of $188 in the prior year period. The increase in interest expense is primarily due to the increase in the amount of debt
outstanding for the three and nine months ended September 30, 2020 compared to the prior year period.
Amortization of debt
discount was $1 and $2 for the three and nine month periods ended September 30, 2020 compared to $10 and $30 in the same periods
of the prior year, respectively. The decrease was due to the extension of the maturity date of the Company’s debt to December
31, 2020.
Liquidity and Capital Resources
At September 30, 2020, cash and cash equivalents totaled $25,
compared to cash and cash equivalents of $25 at December 31, 2019. Net cash used in operating activities was $606. The cash
used in operations was offset by $606 in proceeds provided by financing activities. At September 30, 2020, total current assets
were $119, compared to total current assets of $108 at December
31, 2019. At September 30, 2020, the Company’s principal sources of funds included its aggregated cash and cash equivalents
of $25.
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q
Liquidity and Capital Resources (continued)
At September 30, 2020,
accounts receivable, net was $63, an increase of $2, or 3%, compared to accounts receivable, net of $61 at December 31, 2019. The
increase is due primarily to the timing of billings and collections during the nine months ended September 30, 2020.
At September 30, 2020,
prepaid expenses and other current assets were $31, an increase of $9, or 41%, compared to prepaid expenses and other current assets
of $22 at December 31, 2019. The increase is due primarily to an increase of prepaids associated with engineering activities during
the period.
At September 30, 2020,
accounts payable was $350, a decrease of $846, or 71%, compared to accounts payable of $1,196 at December 31, 2019. The decrease
is due primarily to the forgiveness of $425 of accounts payable, related cash payments of approximately $287 and the issuance of
a note payable of $130 during the three and nine months ended September 30, 2020. At September 30, 2020, accrued compensation was
$79, an increase of $8, or 11%, compared to accrued compensation of $71 at December 31, 2019. The increase is due primarily to
an increase in accrued vacation expense. Other accrued liabilities were $1,049, an increase of $235, or 29%, from $814 at December
31, 2019 due primarily to the accrual of interest on the Company’s short –term debt and deferred professional services.
At September 30, 2020,
deferred revenue was $344, a decrease of $2, or 1%, compared to deferred revenue of $346 at December 31, 2019. 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.
At September 30, 2020,
total current liabilities were $4,681, an increase of $8, or 0.02%, compared to total current liabilities of $4,673 at December
31, 2019.
In January and March
2020, the Company received, from affiliates, advances aggregating $75 in cash against certain accounts receivable of the Company.
Upon collection of an invoice, the Company agreed to repay the advance to the lenders on a pro rata basis together with a 5% advance
fee. On March 25, 2020, the affiliates converted their advances into unsecured notes. The Company paid the advance fees of $4 in
cash, and recorded them as interest expense in the quarter ended March 31, 2020.
In August and September
2020, the Company received, from two affiliates, advances aggregating $83 in cash against certain accounts receivable of the Company.
Upon collection of an invoice, the Company agreed to repay the advance to the lenders on a pro rata basis together with a 5% advance
fee. The Company has accrued the advance fees of $4 which is included in interest expense in the quarter ended September 30, 2020.
On March 25, 2020,
the Company issued an aggregate of $150 in unsecured notes to affiliates and other investors. The Company received $75 in cash
and $75 in exchange for the advances discussed above. The unsecured notes are convertible by the holder into common stock at any
time at a price per share of $0.50. Upon closing a new financing of at least $1,000 in aggregate proceeds, the Company can force
conversion at a price equal to the lesser of $0.50 per share or the price per share of the new financing. The notes bear interest
at the rate of 10% per annum and are due December 31, 2020.
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q
Liquidity and Capital Resources (continued)
On May 6, 2020,
the Company received loan proceeds in the amount of approximately $123 under the Paycheck Protection Program
(“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES
Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses
of the qualifying business. The Company may apply for the loans and accrued interest forgiven after a period of either eight
or twenty-four weeks, as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent
and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates
employees or reduces salaries during the period in question. Under the terms of the related promissory note, the unforgiven
portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six
months. The Company used the proceeds for purposes consistent with the PPP. While the Company currently believes that its use
of the loan proceeds, for the most part, meets the conditions for forgiveness of the loan, we cannot assure you that we did
not take actions that caused the Company to be ineligible for forgiveness of the loan, in whole or in part.
On June 19, 2020,
the Company entered into a Note Purchase Agreement (the “Purchase Agreement”) with an investor. Under the terms of
the Purchase Agreement, the Company received a cash loan in the aggregate amount of $250,000 (the “Loan”) from the
investor in exchange for the Company’s issuance of an unsecured convertible promissory note equal to the amount of such investor’s
loan contribution to the Company. The Note bears interest at the rate of 10% per annum, and has a maturity date the earlier of
December 31, 2021, or the date on which the Company’s other outstanding unsecured convertible promissory notes are due. The
Note may be converted by its terms at the option of the investor into shares of the Company’s common stock.
On July 1, 2020 the
Company entered into a settlement agreement with one of its vendors where by the Company paid $135 in cash and issued a promissory
note in the amount of $130 in settlement of approximately $537 in outstanding accounts payable. The note bears interest at the
rate of 4% per annum and is due in installments of $40, $45 and $45 on or before the anniversary date of the note over the next
three years. The settlement agreement discussed above resulted in gain of $272 recorded as other income in the statement of operations.
The Company accrued
$83 and $221 of interest expense during the three and nine months ended September 30, 2020, $73 and $194, respectively, associated
with the outstanding secured and unsecured convertible promissory notes, of which $28 and $76, respectively, was to related parties
and $45 and $118, respectively, was to other investors. For the three and nine months ended September 30, 2019, the Company accrued
$65 and $188 of interest expense, $55 and $162, respectively, associated with its outstanding notes, of which $19 and $47, respectively,
was to related parties and $36 and $115, respectively, was to other investors.
The Company recorded
$1 and $2 in debt discount amortization for the three and nine months ended September 30, 2020. For the three and nine months ended
September 30, 2019 the Company recorded $10 and $30 of debt discount
The Company had no
material commitments as of September 30, 2020.
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.
(In thousands, except per share amounts)
FORM 10-Q
|
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk.
|
Interest Rate Risk
The Company did not
enter into any short-term security investments during the three and nine months ended September 30, 2020.
Foreign Currency Risk
From time to time,
the Company makes certain capital equipment or other purchases denominated in foreign currencies. As a result, the Company’s
cash flows and earnings are exposed to fluctuations in interest rates and foreign currency exchange rates. The Company attempts
to limit these exposures through operational strategies and generally has not hedged currency exposures. During the three and nine
months ended September 30, 2020 and 2019, foreign currency translation gains and losses were insignificant.
|
Item 4.
|
Controls and Procedures.
|
Disclosure Controls and Procedures
The Company carried
out an evaluation as of the end of the period covered by this report, under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures
pursuant to paragraph (b) of Rule 13a-15 and
15d-15 under the Exchange
Act of 1934 (the “Exchange Act”). Based on that evaluation and because of the material weaknesses in our internal control
over financial reporting described below, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure
controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports it
files or submits under the Exchange Act (1) is recorded, processed, summarized, and reported within the time periods specified
in the SEC’s rules and forms, and (2) is accumulated and communicated to our management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Management identified
the following control deficiencies that constitute material weaknesses that are not fully remediated as of the filing date of this
report:
As a small company
with limited resources that are mainly focused on the development and sales of software products and services, iSign does not employ
a sufficient number of staff in its finance department to possess an optimal segregation of duties or to provide optimal levels
of oversight. This has resulted in certain audit adjustments and management believes that there may be a possibility for a material
misstatement to occur in future periods while it employs the current number of personnel in its finance department.
The Company does not
expect that its disclosure controls and procedures will prevent all error and all fraud. A control procedure, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedures are
met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override
of the control. The Company considered these limitations during the development of its disclosure controls and procedures, and
will continually reevaluate them to ensure they provide reasonable assurance that such controls and procedures are effective.
Changes in Internal Control over Financial
Reporting
There has been no
change in our internal control over financial reporting during the quarter ended September 30, 2020 that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting.
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q