PART
I–FINANCIAL INFORMATION
Item
1. Financial Statements
iSign
Solutions Inc.
Condensed
Consolidated Balance Sheets
(In
thousands, except par value amounts)
| | |
June 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| |
Unaudited | | |
| |
| Assets | |
| | |
| |
| Current assets: | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 165 | | |
$ | 40 | |
| Accounts receivable, net of allowance of $24 at June 30, 2022 and $0 at December 31, 2021, respectively | |
| 108 | | |
| 124 | |
| Prepaid expenses and other current assets | |
| 12 | | |
| 22 | |
| Total current assets | |
| 285 | | |
| 186 | |
| Property and equipment, net | |
| 5 | | |
| 5 | |
| Other assets | |
| 7 | | |
| 5 | |
| Total assets | |
$ | 297 | | |
$ | 196 | |
| | |
| | | |
| | |
| Liabilities and Stockholders’ Deficit | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Accounts payable | |
$ | 371 | | |
$ | 378 | |
| Short-term debt- related party | |
| 1,472 | | |
| 1,002 | |
| Short-term debt – other | |
| 1,597 | | |
| 2,022 | |
| Accrued compensation | |
| 74 | | |
| 69 | |
| Deferred Compensation | |
| 219 | | |
| 219 | |
| Other accrued liabilities | |
| 1,648 | | |
| 1,488 | |
| Deferred revenue | |
| 471 | | |
| 196 | |
| Total current liabilities | |
| 5,852 | | |
| 5,374 | |
| Long-term debt – other | |
| – | | |
| 45 | |
| Other long-term liabilities | |
| 683 | | |
| 608 | |
| Total liabilities | |
| 6,535 | | |
| 6,027 | |
| Commitments and contingencies | |
| | | |
| | |
| Stockholders’ deficit: | |
| | | |
| | |
| Common stock, $0.01 par value; 2,000,000 shares authorized; 6,333 shares issued and outstanding at June 30, 2022 and December 31, 2021 | |
| 63 | | |
| 63 | |
| Treasury shares, 5 at June 30, 2022 and December 31, 2021, respectively | |
| (325 | ) | |
| (325 | ) |
| Additional paid-in capital | |
| 130,133 | | |
| 130,120 | |
| Accumulated deficit | |
| (136,109 | ) | |
| (135,689 | ) |
| Total stockholders’ deficit | |
| (6,238 | ) | |
| (5,831 | ) |
| Total liabilities and stockholders’ deficit | |
$ | 297 | | |
$ | 196 | |
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 | | |
Six Months Ended | |
| | |
June 30, | | |
June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Revenue: | |
| | |
| | |
| | |
| |
| Product | |
$ | 73 | | |
$ | 99 | | |
$ | 153 | | |
$ | 181 | |
| Maintenance | |
| 155 | | |
| 169 | | |
| 330 | | |
| 346 | |
| Total revenue | |
| 228 | | |
| 268 | | |
| 483 | | |
| 527 | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating costs and expenses: | |
| | | |
| | | |
| | | |
| | |
| Cost of sales: | |
| | | |
| | | |
| | | |
| | |
| Product | |
| 14 | | |
| 20 | | |
| 16 | | |
| 30 | |
| Maintenance | |
| 8 | | |
| 10 | | |
| 26 | | |
| 30 | |
| Research and development | |
| 144 | | |
| 135 | | |
| 305 | | |
| 279 | |
| Sales and marketing | |
| 13 | | |
| 22 | | |
| 67 | | |
| 71 | |
| General and administrative | |
| 149 | | |
| 170 | | |
| 309 | | |
| 317 | |
| Total operating costs and expenses | |
| 328 | | |
| 357 | | |
| 723 | | |
| 727 | |
| | |
| | | |
| | | |
| | | |
| | |
| Loss from operations | |
| (100 | ) | |
| (89 | ) | |
| (240 | ) | |
| (200 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Other income (expense), net | |
| (0 | ) | |
| ─ | | |
| (0 | ) | |
| 1 | |
| Interest expense: | |
| | | |
| | | |
| | | |
| | |
| Related party | |
| (40 | ) | |
| (25 | ) | |
| (79 | ) | |
| (49 | ) |
| Other | |
| (49 | ) | |
| (55 | ) | |
| (101 | ) | |
| (110 | ) |
| Loss before income tax expense | |
| (189 | ) | |
| (169 | ) | |
| (420 | ) | |
| (358 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Income tax expense | |
| ─ | | |
| ─ | | |
| ─ | | |
| (1 | ) |
| Net loss | |
$ | (189 | ) | |
$ | (169 | ) | |
$ | (420 | ) | |
$ | (359 | ) |
Basic and diluted net loss per common share | |
$ | (0.03 | ) | |
$ | (0.03 | ) | |
$ | (0.07 | ) | |
$ | (0.06 | ) |
Weighted average common shares outstanding, basic and diluted | |
| 6,333 | | |
| 5,780 | | |
| 6,331 | | |
| 5,771 | |
See accompanying notes to these 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’ | |
| | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
| Balance January 1, 2022 | |
| 6,322 | | |
$ | 63 | | |
| 5 | | |
$ | (325 | ) | |
$ | 130,120 | | |
$ | (135,689 | ) | |
$ | (5,831 | ) |
| Stock-based compensation | |
| ─ | | |
| ─ | | |
| ─ | | |
| ─ | | |
| 7 | | |
| ─ | | |
| 7 | |
| Cashless exercise of warrants | |
| 11 | | |
| ─ | | |
| ─ | | |
| ─ | | |
| ─ | | |
| ─ | | |
| ─ | |
| Net loss | |
| ─ | | |
| ─ | | |
| ─ | | |
| ─ | | |
| ─ | | |
| (231 | ) | |
| (231 | ) |
| Balance, March 31, 2022 | |
| 6,333 | | |
$ | 63 | | |
| 5 | | |
$ | (325 | ) | |
$ | 130,127 | | |
$ | (135,920 | ) | |
$ | (6,055 | ) |
| Stock-based compensation | |
| ─ | | |
| ─ | | |
| ─ | | |
| ─ | | |
| 6 | | |
| ─ | | |
| 6 | |
| Net loss | |
| ─ | | |
| ─ | | |
| ─ | | |
| ─ | | |
| ─ | | |
| (189 | ) | |
| (189 | ) |
| Balance, June 30, 2022 | |
| 6,333 | | |
$ | 63 | | |
| 5 | | |
$ | (325 | ) | |
$ | 130,133 | | |
$ | (136,109 | ) | |
$ | (6,238 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance January 1, 2021 | |
| 5,762 | | |
$ | 58 | | |
| 5 | | |
$ | (325 | ) | |
$ | 129,783 | | |
$ | (135,203 | ) | |
$ | (5,687 | ) |
| Stock-based compensation | |
| ─ | | |
| ─ | | |
| ─ | | |
| ─ | | |
| 24 | | |
| ─ | | |
| 22 | |
| Net loss | |
| ─ | | |
| ─ | | |
| ─ | | |
| ─ | | |
| ─ | | |
| (190 | ) | |
| (190 | ) |
| Balance, March 31, 2021 | |
| 5,762 | | |
$ | 58 | | |
| 5 | | |
$ | (325 | ) | |
$ | 129,807 | | |
$ | (135,393 | ) | |
$ | (5,853 | ) |
| Stock-based compensation | |
| ─ | | |
| ─ | | |
| ─ | | |
| ─ | | |
| 17 | | |
| ─ | | |
| 17 | |
| Settlement of deferred salary | |
| 560 | | |
| 5 | | |
| ─ | | |
| ─ | | |
| 274 | | |
| ─ | | |
| 279 | |
| Net loss | |
| ─ | | |
| ─ | | |
| ─ | | |
| ─ | | |
| ─ | | |
| (169 | ) | |
| (169 | ) |
| Balance, June 30, 2021 | |
| 6,322 | | |
$ | 63 | | |
| 5 | | |
$ | (325 | ) | |
| 130,098 | | |
| (135,562 | ) | |
| (5,726 | ) |
See accompanying notes to these Condensed Consolidated
Financial Statements
iSign
Solutions Inc.
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
(In
thousands)
| | |
Six Months Ended June 30, | |
| | |
2022 | | |
2021 | |
| Cash flows from operating activities: | |
| | |
| |
| Net loss | |
$ | (420 | ) | |
$ | (359 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
| | | |
| | |
| Depreciation and amortization | |
| 3 | | |
| 2 | |
| Stock-based compensation | |
| 13 | | |
| 41 | |
| Bad debt expense | |
| 24 | | |
| ─ | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Accounts receivable, net | |
| (8 | ) | |
| 5 | |
| Prepaid expenses and other assets | |
| 8 | | |
| 3 | |
| Accounts payable | |
| (7 | ) | |
| 32 | |
| Accrued compensation | |
| 5 | | |
| (12 | ) |
| Other accrued and long-term liabilities | |
| 235 | | |
| 225 | |
| Deferred revenue | |
| 275 | | |
| 258 | |
| Net cash provided by (used in) operating activities | |
| 128 | | |
| 195 | |
| | |
| | | |
| | |
| Cash flows from investing activities: | |
| | | |
| | |
| Acquisition of property and equipment | |
| (3 | ) | |
| (3 | ) |
| Net cash used in investing activities | |
| (3 | ) | |
| (3 | ) |
| | |
| | | |
| | |
| Cash flows from financing activities: | |
| | | |
| | |
| Proceeds from the issuance of short-term debt – related party | |
| 70 | | |
| 45 | |
| Proceeds from the issuance of short-term debt – other | |
| 105 | | |
| 40 | |
| Payments on short term Debt – related party | |
| (30 | ) | |
| (133 | ) |
| Payments on short term Debt – other | |
| (145 | ) | |
| (100 | ) |
| Net cash provided by (used in) financing activities | |
| ─ | | |
| (148 | ) |
| | |
| | | |
| | |
| Net increase in cash and cash equivalents | |
| 125 | | |
| 44 | |
| Cash and cash equivalents at beginning of period | |
| 40 | | |
| 26 | |
| Cash and cash equivalents at end of period | |
$ | 165 | | |
$ | 70 | |
See accompanying notes to these Condensed Consolidated
Financial Statements
iSign
Solutions Inc.
Condensed
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
(In
thousands)
| | |
Six Months Ended June 30, | |
| | |
2022 | | |
2021 | |
| Supplementary disclosure of cash flow information | |
| | |
| |
| Interest paid | |
$ | 32 | | |
$ | 21 | |
| Income taxes paid | |
$ | ─ | | |
$ | 1 | |
| Accounts receivable advance converted to convertible note | |
$ | ─ | | |
$ | 15 | |
| Long-term deferred compensation settled for Common Stock | |
$ | ─ | | |
$ | 279 | |
See accompanying notes to these Condensed Consolidated
Financial Statements
iSign Solutions Inc.
FORM 10-Q
(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.
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. Since March
11, 2020 states in the U.S., including California, where the Company is headquartered, have begun to open up as the result of the development
of vaccines to thwart the spread of the virus. New variants of COVID-19 have surfaced around the world, including the United States which
may cause additional closures of economies depending on how virulent the new strains are. New COVID-19 variant outbreaks may further
disrupted supply chains and affected production and sales across a wide range of industries. The extent of the impact of new COVID-19
outbreaks on our operational and financial performance will depend on certain developments, including the duration and further spread
of the outbreak, continued impact on our customers, employees and vendors all of which are uncertain and cannot be predicted.
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, 2021.
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 June 30, 2022 the Company’s accumulated
deficit was $136,109. The Company has primarily met its working capital needs through the sale of debt and equity securities. As of June
30, 2022, the Company’s cash balance was $165. These factors raise substantial doubt about the Company’s ability to continue
as a going concern.
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
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. 2021-04, Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock
Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40). A modification
of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after
modification or exchange should be treated as an exchange of the original instrument for a new instrument. In addition, the effect of
a modification or an exchange of a freestanding equity-classified written call option that remains equity should be measured. The effect
of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification
or exchange should be recognize on the basis of the substance of the transaction, in the same manner as if cash had been paid as consideration.
The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021. Early adoption is permitted
for all entities, including adoption in an interim period.
The
Company will evaluate ASU 2021-04 to determine what impact, if any, the adoption will have on the Company’s financial statements.
Other
Accounting Standards Updates issued in 2021 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.
In
August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.
Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion
features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in
substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single
liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. Similarly,
equity-classified convertible preferred stock instruments will be accounted for as single units of account in equity unless the conversion
feature needs to be bifurcated under Topic 815. The new guidance also made amendments to the earnings per share guidance in Topic 260,
Earnings Per Share, for convertible instruments, the most significant impact of which is requiring the use of the if-converted method
for diluted earnings per share calculation. Further, ASU 2020-06 made revisions to Subtopic 815-40, which provides guidance on how an
entity must determine whether a contract qualifies for a scope exception from derivative accounting. ASU 2020-06 is effective for fiscal
years beginning after December 15, 2021, with early adoption permitted. Adoption of the standard requires using either a modified retrospective
or a full retrospective approach. Effective January 1, 2022, the Company early adopted ASU 2020-06 using the modified retrospective approach.
Adoption of the new standard did not have a material impact on the Company’s financial statements or disclosures.
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
The
following table summarizes accounts receivable and revenue concentrations:
| | |
Accounts Receivable
as of June 30, | | |
Total Revenue
for the three months
ended
June 30, | | |
Total Revenue
for the six months
ended June
30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Customer #1 | |
| 70 | % | |
| 88 | % | |
| 38 | % | |
| 40 | % | |
| 36 | % | |
| 33 | % |
| Customer #2 | |
| ─ | | |
| ─ | | |
| 30 | % | |
| 25 | % | |
| 27 | % | |
| 26 | % |
| Customer #3 | |
| ─ | | |
| ─ | | |
| 22 | % | |
| 19 | % | |
| 21 | % | |
| 19 | % |
| Total concentration | |
| 70 | % | |
| 88 | % | |
| 90 | % | |
| 84 | % | |
| 84 | % | |
| 78 | % |
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 and Six Months | |
| | |
June 30, | | |
June 30, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| Common Stock subject to outstanding options | |
| 1,321 | | |
| 1,338 | |
| Common Stock subject to outstanding warrants | |
| 450 | | |
| 1,450 | |
| Common stock subject to outstanding convertible debt plus accrued interest | |
| 7,907 | | |
| 7,157 | |
Advances:
On
January 19 and February 9, 2022, the Company repaid $15 and $15, respectively, of accounts receivable advances from related parties along
with $2 of accrued advance fees. In addition, during February 2022, the Company repaid $100 of demand notes to an unrelated party along
with 20% of accrued fees.
Notes
payable:
In
January 2022, the Company received, from unrelated parties, demand notes aggregating $50 in cash. The notes bear interest at the rate
of 20% per annum. Principal and interest due shall be paid in full on demand, following ten (10) calendar day prior written notices starting
on March 15, 2022. These note may be prepaid in whole or in part at any time without penalty, premium or other consideration by giving
at least five (5) business day prior written notice to the Holder. The notes were repaid in full plus $1 of accrued interest in February
2022.
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
On
April 20, 2022, the Company issued an aggregate of $125 in unsecured convertible notes, $70 to related parties and $55 to other investors.
The unsecured notes are convertible by the holder into common stock at any time at a price per share of $1.00. 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 $1.00 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, 2022.
During
the three and six months ended June 30, 2022, the Company accrued $89 and $180 of interest expense, $70 and $137, for notes only, associated
with the outstanding secured and unsecured convertible promissory notes, of which $32 and $62 was to related parties and $38 and $75
was to other investors. For the three and six months ended June 30, 2021, the Company accrued $80 and $159 of interest expense, $68 and
$136, for notes only, associated with the outstanding secured and unsecured convertible promissory notes, of which $24 and $49 was to
related parties and $44 and $87 was to other investors.
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 six months ended June 30, 2022 and 2021, was approximately
1.73% and 4.78%, 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.
No
options were granted during the three and six months ended June 30, 2022 and 2021. There were no stock options exercised during the three
and six months ended June 30, 2022 and 2021, respectively.
The
following table summarizes the allocation of stock-based compensation expense related to stock option grants for the three and six months
ended June 30:
| | |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Research and development | |
$ | ─ | | |
$ | ─ | | |
$ | ─ | | |
$ | ─ | |
| General and administrative | |
$ | 4 | | |
$ | 17 | | |
$ | 9 | | |
$ | 29 | |
| Director and consultant options | |
$ | 2 | | |
$ | 7 | | |
$ | 4 | | |
$ | 12 | |
| Total stock-based compensation expense | |
$ | 6 | | |
$ | 24 | | |
$ | 13 | | |
$ | 41 | |
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
A
summary of option activity under the Company’s plans for the six months ended June 30, 2022 and 2021 is as follows:
| | |
2022 | | |
2021 | |
| Options | |
Shares | | |
Weighted
Average
Exercise
Price Per
Share | | |
Weighted
Average
Remaining
Contractual
Life (Years) | | |
Aggregate
Intrinsic
Value | | |
Shares | | |
Weighted
Average
Exercise
Price Per
Share | | |
Weighted
Average
Remaining
Contractual
Life (Years) | | |
Aggregate
Intrinsic
Value | |
| Outstanding at January 1, | |
| 1,338 | | |
$ | 0.84 | | |
| ─ | | |
$ | | | |
| 1,338 | | |
$ | 0.87 | | |
| ─ | | |
$ | ─ | |
| Granted | |
| ─ | | |
$ | | | |
| ─ | | |
$ | | | |
| ─ | | |
$ | | | |
| ─ | | |
$ | ─ | |
| Forfeited or expired | |
| 17 | | |
$ | | | |
| ─ | | |
$ | | | |
| ─ | | |
$ | | | |
| ─ | | |
$ | ─ | |
| Outstanding at June 30 | |
| 1,321 | | |
$ | 0.59 | | |
| 3.13 | | |
$ | | | |
| 1,338 | | |
$ | 0.87 | | |
| 4.10 | | |
$ | ─ | |
| Vested and expected to vest at June 30 | |
| 1,301 | | |
$ | 0.84 | | |
| 2.67 | | |
$ | ─ | | |
| 1,320 | | |
$ | 0.88 | | |
| 3.80 | | |
$ | ─ | |
| Exercisable at June 30 | |
| 1,204 | | |
$ | 0.60 | | |
| 2.93 | | |
$ | ─ | | |
| 1,078 | | |
$ | 0.96 | | |
| 3.68 | | |
$ | ─ | |
The
following table summarizes significant ranges of outstanding and exercisable options as of June 30, 2022:
| | |
Options Outstanding | | |
Options Exercisable | |
| Range of Exercise Prices | |
Number
Outstanding | | |
Weighted
Average
Remaining
Contractual
Term (in
years) | | |
Weighted
Average
Exercise
Price per
share | | |
Number
Outstanding | | |
Weighted
Average
Exercise
Price per
Share | |
| $0.01 – $0.50 | |
| 927 | | |
| 3.14 | | |
$ | 0.50 | | |
| 810 | | |
$ | 0.50 | |
| $0.51 – $1.00 | |
| 393 | | |
| 3.11 | | |
$ | 0.78 | | |
| 393 | | |
$ | 0.78 | |
| $1.01 – $625.00 | |
| 1 | | |
| 0.38 | | |
$ | 10.00 | | |
| 1 | | |
$ | 10.00 | |
| Total | |
| 1,321 | | |
| 3.13 | | |
$ | 0.59 | | |
| 1,204 | | |
$ | 0.60 | |
A
summary of the status of the Company’s non-vested shares as of June 30, 2022 is as follows:
| Non-vested Shares | |
Shares | | |
Weighted
Average
Grant-Date
Fair Value
per
share | |
| Non-vested at January 1, 2022 | |
| 167 | | |
$ | 0.50 | |
| Vested | |
| (50 | ) | |
$ | 0.71 | |
| Non-vested at June 30, 2022 | |
| 117 | | |
$ | 0.50 | |
As
of June 30, 2022, there was a total of $11 of 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 year.
Warrants
The
Company did not issue any warrants during the six months ended June 30, 2022 and 2021.
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
A
summary of the warrant activity to purchase shares of Common Stock for the six months ended June 30 is as follows:
A
summary of the warrant activity for the six months ended June 30 is as follows:
| | |
2022 | | |
2021 | |
| | |
Shares | | |
Weighted
Average
Exercise
Price Per
Share | | |
Shares | | |
Weighted
Average
Exercise
Price Per
Share | |
| Outstanding at beginning of period | |
| 1,450 | | |
$ | 0.50 | | |
| 3,001 | | |
$ | 1.52 | |
| Issued | |
| ─ | | |
$ | ─ | | |
| ─ | | |
$ | ─ | |
| Exercised | |
| (15 | ) | |
$ | 0.50 | | |
| ─ | | |
$ | ─ | |
| Expired | |
| (985 | ) | |
$ | 0.50 | | |
| (1,551 | ) | |
$ | 2.18 | |
| Outstanding at end of period | |
| 450 | | |
$ | 0.50 | | |
| 1,450 | | |
$ | 0.50 | |
| Exercisable at end of period | |
| 450 | | |
$ | 0.50 | | |
| 1,450 | | |
$ | 0.50 | |
A
summary of the status of the warrants outstanding and exercisable as of June 30, 2022 is as follows:
| Number of Warrants | |
Weighted Average
Remaining Life
(years) | |
Weighted Average
Exercise Price per
share | |
| | |
| |
| |
| 15 | |
0.59 | |
$ | 0.50 | |
| 10 | |
3.07 | |
$ | 0.50 | |
| 425 | |
1.13 | |
$ | 0.50 | |
| 450 | |
1.16 | |
$ | 0.50 | |
On August 11, 2022, the Company issued
an aggregate of $50 in unsecured convertible notes from third party investor. The unsecured notes are convertible by the holder into
common stock at any time at a price per share of $1.00. 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 $1.00 per share or the price per share of the new financing. The note bears interest
at the rate of 10% per annum and is due December 31, 2022.
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, 2021, 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.
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
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, 2021.
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, 2021, net losses aggregated approximately $1,014, and, at June
30, 2022, the Company’s accumulated deficit was approximately $136,109.
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. Since March
11, 2020 states in the U.S., including California, where the Company is headquartered, have begun to open up as the result of the development
of vaccines to thwart the spread of the virus. New variants of COVID-19 have surfaced around the world, including the United States which
may cause additional closures of economies depending on how virulent the new strains are. New COVID-19 variant outbreaks may further
disrupted supply chains and affected production and sales across a wide range of industries. The extent of the impact of new COVID-19
outbreaks on our operational and financial performance will depend on certain developments, including the duration and further spread
of the outbreak, continued impact on our customers, employees and vendors all of which are uncertain and cannot be predicted.
For
the three months ended June 30, 2022, total revenue was $228, compared to total revenue of $268 in the prior year period. For the six
months ended June 30, 2022, total revenue was $483, a decrease of $44, or 8%, compared to total revenue of $527 in the prior year period.
The change in revenue for the six months ended June 30, 2022 is primarily due to a decrease in product revenue of $28 or 15%, compared
to the prior year period. The decrease in product revenue is the result of no SOW transaction for this year. Maintenance revenue for
the six months was $330, a decrease of $16, or 5% compared to $346 in the prior year.
The
net loss for the three months ended June 30, 2022 was $189, an increase of $20, or 12%, compared to a net loss of $169 in the prior year
period. The three month loss from operations increased by $11, or 12%, to $100 compared to $89 in the prior year period. The decrease
was due to the decrease in revenue and a net decrease in overhead expenses. For the six months ended June 30, 2022 the net loss was $420,
an increase of $61, or 17%, compared to a net loss of $359 in the prior year period. The six month loss from operations increased $40,
or 20%, to $240 compared to $200 in the prior year period. This increase was due to the same factors described for the three month period
above.
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 2020 Form 10-K.
Effect of Recent Accounting Pronouncements
Accounting Standards Updates
issued in 2021 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
June 30, 2022, product revenue was $73, a decrease of $26, or 25%, compared to product revenue of $99 in the prior year period. The decrease
in revenue is primarily attributable to decreases in SOW transactional revenue compared to the prior year period. For the three months
ended June 30, 2022, maintenance revenue was $155, a decrease of $14, or 8%, compared to maintenance revenue of $169 in the prior year
period.
For the six months ended
June 30, 2022, product revenue was $153, a decrease of $28, or 15%, compared to product revenue of $181 in the prior year period. The
decrease in product revenue is primarily due to the same factors for the three-month period discussed above. For the six months ended
June 30, 2022, maintenance revenue was $330, a decrease of $16, or 5%, compared to maintenance revenue of $346 in the prior year period.
The decrease in maintenance revenue is primarily due to less maintenance contracts.
Cost of Sales
For the three months ended
June 30, 2022, cost of sales was $22, a decrease of $8, or 27%, compared to cost of sales of $30 in the prior year period. The decrease
in cost of sales was due to a decrease in direct labor related to maintenance contracts during the three months ended June 30, 2022, compared
to the prior year period.
For the six months ended
June 30, 2022, cost of sales was $42, a decrease of $18, or 30%, compared to cost of sales of $60 in the prior year period. The decrease
in cost of sales was due to a decrease in direct labor related to revenue from SOW contracts, compared to the prior year period.
Operating expenses
Research and Development Expenses
For
the three months ended June 30, 2022, research and development expense was $144, an increase of $9, or 6%, compared to research and development
expense of $135 in the prior year period. Research and development expenses consist primarily of salaries and related costs, outside engineering,
maintenance items, and allocated facilities expenses. Total expenses, before allocations for the three months ended June 30, 2022, were
$168, a decrease of $1, or 0%, compared to $169 in the prior year period. The decrease in gross expenses is primarily due to the
factors discussed above and certain cost saving measures put in place in the current year to safeguard against possible negative repercussions
of the COVID-19 pandemic.
For the six months ended
June 30, 2022, research and development expense was $305, an increase of $26, or 9%, compared to research and development expense of $279
in the prior year period. Total expenses, before allocations to cost of sales, for the six months ended June 30, 2021, were $353, an increase
of $10, or 3%, compared to $343 in the prior year period. The reasons for these increase during the six-month period ended June 30, 2022
are the same as for the three-month period discussed above. The decrease in total expenses was offset by a reduction the amount of direct
labor allocated to cost of sales during the six month period.
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
Sales and Marketing Expense
For the three months ended
June 30, 2022, sales and marketing expense was $13, a decrease of $9, or 42%, compared to sales and marketing expense of $22 in the prior
year period. For the six months ended June 30, 2022, sales and marketing expense was $67, a decrease of $4, or 6%, compared to sales and
marketing expense of $71 in the prior year period. These decreases are primarily attributable to a decrease in commission expense due
to low renewal of maintenance contracts.
General and Administrative Expense
For the three months ended
June 30, 2021, general and administrative expense was $149, a decrease of $21, or 12%, compared to general and administrative expense
of $170 in the prior year period. The decrease was primarily due to a decrease in overhead expense from period to period.
For the six months ended
June 30, 2022, general and administrative expense was $309, a decrease of $8, or 3%, compared to general and administrative expense of
$317 in the prior year period. The decrease was due to the reduction in accounting and auditing services and investor relations expense
accounts.
Other Income and Expense
For the three and six months
ended June 30, 2022, other expense was $0 and $0, respectively, an increase of $0 and $1, respectively, compared to other expense of $0
and $1 for the three and six months ended June 30, 2021
For the three months ended
June 30, 2022, interest expense was $89, an increase of $9, or 11% compared to interest expense of $80 in the prior year period. For the
six months ended June 30, 2022, interest expense was $180, an increase of $21, or 13%, compared to interest expense of $159 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 six
months ended June 30, 2022 compared to the prior year period.
Amortization of debt discount
was $0 for the three and six month periods ended June 30, 2022 compared to $0 in the same periods of the prior year, respectively.
Income tax expense for the
three and six months ended June 30, 2022 and 2021 were $0 and $1, respectively.
Liquidity and Capital Resources
At June 30, 2022, cash and
cash equivalents totaled $165, compared to cash and cash equivalents of $40 at December 31, 2021. The increase in cash was due primarily
to $128 provided by operating activities offset by $3 in cash used in investing activities and $0 used in financing for the six month
period ended June 30, 2022. At June 30, 2022, total current assets were $285, compared to total current assets of $186 at December 31,
2021. At June 30, 2021, the Company’s principal sources of funds included its aggregated cash and cash equivalents of $165.
At June 30, 2021, accounts
receivable net, was $108, a decrease of $16 or 13%, compared to accounts receivable net of $124 at December 31, 2021. The decrease is
due primarily due to faster collection times for accounts receivable.
At June 30, 2022, prepaid
expenses and other current assets were $12, a decrease of $10, or 45%. The Company has been working on minimizing the dollar amount of
new prepaid expenses incurred during the six-month period in light of the financial uncertainty surrounding the current COVID-19 pandemic.
At June 30, 2022, total current
liabilities were $5,852, an increase of $478, or 9%, compared to total current liabilities of $5,374 at December 31, 2021.
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
At June 30, 2022, accounts
payable was $371, a decrease of $7, or 2%, compared to accounts payable of $378 at December 31, 2021.
At June 30, 2022, accrued
compensation was $74, an increase of $5, or 7%, compared to accrued compensation of $69 at December 31, 2021. The increase is due primarily
to the accrual of commissions during the quarter ended June 30, 2022
At June 30, 2022, deferred
revenue was $471, an increase of $275, or 140%, compared to deferred revenue of $196 at December 31, 2021. 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.
In June 2022, the Company
paid the second installment in the amount of $45 plus accrued interest of $4 of a note entered into associated with a settlement agreement
dated July 1, 2020 with one of its vendors. The reaming $45 plus interest at the rate of 4% per annum is due in two installments, June
of 2023.
The Company incurred
$89 and $180, respectively, of interest expense for the three and six months ended June 30, 2022, of which was $28 and $4, respectively,
was paid in cash.
The Company had no material
commitments as of June 30, 2022.
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.
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 six months ended June 30, 2022.
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 six months ended June 30, 2022 and
2021, foreign currency translation gains and losses were insignificant.
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
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 June 30, 2022 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)