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, or a smaller reporting company. See the definitions of “large,
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) 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
14, 2022: 6,333,400
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, | |
| | |
2022 | | |
2021 | |
| Assets | |
Unaudited | | |
| |
| Current assets: | |
| | |
| |
| Cash and cash equivalents | |
$ | 71 | | |
$ | 40 | |
| Accounts receivable, net of allowance of $0 at September 30, 2022, and $0 at December 31, 2021, respectively | |
| 69 | | |
| 124 | |
| Prepaid expenses and other current assets | |
| 18 | | |
| 22 | |
| Total current assets | |
| 158 | | |
| 186 | |
| Property and equipment, net | |
| 5 | | |
| 5 | |
| Other assets | |
| 3 | | |
| 5 | |
| Total assets | |
$ | 166 | | |
$ | 196 | |
| | |
| | | |
| | |
| Liabilities and Stockholders’ Deficit | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Accounts payable | |
$ | 376 | | |
$ | 378 | |
| Short-term debt- related party | |
| 1,472 | | |
| 1,432 | |
| Short-term debt – other | |
| 1,647 | | |
| 1,592 | |
| Accrued compensation | |
| 59 | | |
| 69 | |
| Deferred Compensation | |
| 219 | | |
| 219 | |
| Other accrued liabilities | |
| 1,748 | | |
| 1,488 | |
| Deferred revenue | |
| 319 | | |
| 196 | |
| Total current liabilities | |
| 5,840 | | |
| 5,374 | |
| Long-term debt – other | |
| - | | |
| 45 | |
| Other long-term liabilities | |
| 720 | | |
| 608 | |
| Total liabilities | |
| 6,560 | | |
| 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 September 30, 2022, and 6,322 at December 31, 2021, | |
| 63 | | |
| 63 | |
| Treasury shares, 5 at September 30, 2022, and December 31, 2021, respectively | |
| (325 | ) | |
| (325 | ) |
| Additional paid-in capital | |
| 130,138 | | |
| 130,120 | |
| Accumulated deficit | |
| (136,270 | ) | |
| (135,689 | ) |
| Total stockholders’ deficit | |
| (6,394 | ) | |
| (5,831 | ) |
| Total liabilities and stockholders’ deficit | |
$ | 166 | | |
$ | 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 | | |
Nine Months Ended | |
| | |
September 30, | | |
September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Revenue: | |
| | |
| | |
| | |
| |
| Product | |
$ | 91 | | |
$ | 101 | | |
$ | 244 | | |
$ | 282 | |
| Maintenance | |
| 142 | | |
| 181 | | |
| 472 | | |
| 528 | |
| Total revenue | |
| 233 | | |
| 282 | | |
| 716 | | |
| 810 | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating costs and expenses: | |
| | | |
| | | |
| | | |
| | |
| Cost of sales: | |
| | | |
| | | |
| | | |
| | |
| Product | |
| (14 | ) | |
| 2 | | |
| 2 | | |
| 32 | |
| Maintenance | |
| 60 | | |
| 21 | | |
| 86 | | |
| 51 | |
| Research and development | |
| 138 | | |
| 156 | | |
| 443 | | |
| 436 | |
| Sales and marketing | |
| 7 | | |
| 15 | | |
| 74 | | |
| 86 | |
| General and administrative | |
| 108 | | |
| 130 | | |
| 417 | | |
| 446 | |
| Total operating costs and expenses | |
| 299 | | |
| 324 | | |
| 1,022 | | |
| 1,051 | |
| | |
| | | |
| | | |
| | | |
| | |
| Loss from operations | |
| (66 | ) | |
| (42 | ) | |
| (306 | ) | |
| (241 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Other income (expense), net | |
| - | | |
| 125 | | |
| - | | |
| 125 | |
| Interest expense: | |
| | | |
| | | |
| | | |
| | |
| Related party | |
| (42 | ) | |
| (35 | ) | |
| (121 | ) | |
| (97 | ) |
| Other | |
| (53 | ) | |
| (50 | ) | |
| (154 | ) | |
| (147 | ) |
| Loss before income tax expense | |
| (161 | ) | |
| (2 | ) | |
| (581 | ) | |
| (360 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Income tax expense | |
| - | | |
| - | | |
| - | | |
| (1 | ) |
| Net loss | |
$ | (161 | ) | |
$ | (2 | ) | |
$ | (581 | ) | |
$ | (361 | ) |
Basic and diluted net loss per common share | |
$ | (0.03 | ) | |
$ | (0.00 | ) | |
$ | (0.09 | ) | |
$ | (0.06 | ) |
Weighted average common shares outstanding, basic, and diluted | |
| 6,333 | | |
| 6,322 | | |
| 6,331 | | |
| 5,956 | |
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 | ) |
| Stock-based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 5 | | |
| - | | |
| 5 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (161 | ) | |
| (161 | ) |
| Balance, September 30, 2022 | |
| 6,333 | | |
$ | 63 | | |
| 5 | | |
$ | (325 | ) | |
$ | 130,138 | | |
$ | (136,270 | ) | |
$ | (6,394 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance January 1, 2021 | |
| 5,762 | | |
$ | 63 | | |
| 5 | | |
$ | (325 | ) | |
$ | 130,120 | | |
$ | (135,689 | ) | |
$ | (5,831 | ) |
| Stock-based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 24 | | |
| - | | |
| 24 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (190 | ) | |
| (190 | ) |
| Balance, March 31, 2021 | |
| 5,762 | | |
$ | 63 | | |
| 5 | | |
$ | (325 | ) | |
$ | 130,144 | | |
$ | (135,879 | ) | |
$ | (5,997 | ) |
| Stock-based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 17 | | |
| - | | |
| 17 | |
| Settlement of deferred salary | |
| 560 | | |
| 5 | | |
| - | | |
| - | | |
| 274 | | |
| - | | |
| 279 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (169 | ) | |
| (169 | ) |
| Balance, June 30, 2021 | |
| 6,322 | | |
$ | 68 | | |
| 5 | | |
$ | (325 | ) | |
| 130,435 | | |
| (136,048 | ) | |
| (5,870 | ) |
| Stock-based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 13 | | |
| - | | |
| 13 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2 | ) | |
| (2 | ) |
| Balance, September 3, 2021 | |
| 6,322 | | |
$ | 68 | | |
| 5 | | |
$ | (325 | ) | |
| 130,448 | | |
| (136,050 | ) | |
| (5,859 | ) |
See accompanying notes to these Condensed Consolidated Financial Statements
iSign Solutions Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
| | |
Nine Months Ended
September 30, | |
| | |
2022 | | |
2021 | |
| Cash flows from operating activities: | |
| | |
| |
| Net loss | |
$ | (581 | ) | |
$ | (361 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
| | | |
| | |
| Depreciation and amortization | |
| 3 | | |
| 3 | |
| Stock-based compensation | |
| 18 | | |
| 54 | |
| Forgiveness of debt related to PPP plus accrued interest | |
| - | | |
| (125 | ) |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Accounts receivable, net | |
| 55 | | |
| (28 | ) |
| Prepaid expenses and other assets | |
| 6 | | |
| (2 | ) |
| Accounts payable | |
| (2 | ) | |
| 49 | |
| Accrued compensation | |
| (10 | ) | |
| (5 | ) |
| Other accrued and long-term liabilities | |
| 372 | | |
| 353 | |
| Deferred revenue | |
| 123 | | |
| 124 | |
| Net cash provided by (used in) operating activities | |
| (16 | ) | |
| 62 | |
| | |
| | | |
| | |
| 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 | | |
| 211 | |
| Proceeds from the issuance of short-term debt – other | |
| 155 | | |
| 45 | |
| 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 | |
| 50 | | |
| 23 | |
| | |
| | | |
| | |
| Net increase in cash and cash equivalents | |
| 31 | | |
| 82 | |
| Cash and cash equivalents at beginning of period | |
| 40 | | |
| 26 | |
| Cash and cash equivalents at end of period | |
$ | 71 | | |
$ | 108 | |
See accompanying notes to these Condensed Consolidated Financial Statements
iSign Solutions Inc.
Condensed Consolidated Statements of Cash Flows
(Continued)
(Unaudited)
(In thousands)
| | |
Nine Months Ended
September 30, | |
| | |
2022 | | |
2021 | |
| Supplementary disclosure of cash flow information | |
| | |
| |
| Interest paid | |
$ | 32 | | |
$ | 22 | |
| 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 |
Reclassification of Prior Year Presentation
The Company is reclassifying its financial statements for the year ended December 31, 2021 (the
“2021 Financial Statements”). These financial statements represent a reclassification of certain prior year account classifications
and footnotes.
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 several 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 disrupt 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 September 30, 2022, the Company’s accumulated deficit was $136,270. The
Company has primarily met its working capital needs through the sale of debt and equity securities. As of September 30, 2022, the Company’s
cash balance was $71. 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 September 30, | | |
Total Revenue
for the three months
ended
September 30, | | |
Total Revenue
for the nine months
ended September
30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Customer #1 | |
| 76 | % | |
| 88 | % | |
| 35 | % | |
| 40 | % | |
| 36 | % | |
| 33 | % |
| Customer #2 | |
| - | | |
| - | | |
| 30 | % | |
| 25 | % | |
| 28 | % | |
| 26 | % |
| Customer #3 | |
| - | | |
| - | | |
| 22 | % | |
| 19 | % | |
| 21 | % | |
| 19 | % |
| Customer #4 | |
| 21 | % | |
| 12 | % | |
| - | | |
| - | | |
| - | | |
| - | |
| Total concentration | |
| 97 | % | |
| 100 | % | |
| 87 | % | |
| 84 | % | |
| 85 | % | |
| 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
Nine Months | |
| | |
September 30, | | |
September 30, | |
| | |
2022 | | |
2021 | |
| Common Stock subject to outstanding options | |
| 1,297 | | |
| 1,338 | |
| Common Stock subject to outstanding warrants | |
| 450 | | |
| 1,450 | |
| Common stock subject to outstanding convertible debt plus accrued interest | |
| 8,007 | | |
| 7,290 | |
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 notes 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.
On August 2022, the Company issued an
aggregate of $50 in unsecured convertible notes 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 nine months ended
September 30, 2022, the Company accrued $95 and $275 of interest expense, $74 and $211, for notes only, associated with the outstanding
secured and unsecured convertible promissory notes, of which $33 and $95 was to related parties and $41 and $116 was to other investors.
For the three and nine months ended September 30, 2021, the Company accrued $84 and $243 of interest expense, $75 and $211, for notes
only, associated with the outstanding secured and unsecured convertible promissory notes, of which $35 and $97 was to related parties
and $40 and $114 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 nine months ended September 30, 2022, and 2021, was approximately 11.53% and 11.2%, 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 nine months ended September 30, 2022, and 2021. There were no stock options exercised during the three and nine months ended September
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 nine months ended September 30:
| | |
Three Months Ended
September 30, | | |
Nine Months Ended
September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Research and development | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| General and administrative | |
$ | 3 | | |
$ | 9 | | |
$ | 12 | | |
$ | 38 | |
| Director and consultant options | |
$ | 2 | | |
$ | 4 | | |
$ | 6 | | |
$ | 15 | |
| Total stock-based compensation expense | |
$ | 5 | | |
$ | 13 | | |
$ | 18 | | |
$ | 53 | |
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
A summary of option activity under the
Company’s plans for the nine months ended September 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 | |
| 41 | | |
| | | |
$ | - | | |
$
| | | |
| - | | |
| | | |
$ | - | | |
$ | | |
| Outstanding
at September 30 | |
| 1,297 | | |
$ | 0.59 | | |
| 2.88 | | |
$ | | | |
| 1,338 | | |
$ | 0.87 | | |
| 3.84 | | |
$
| | |
| Vested
and expected to vest at September 30 | |
| 1,330 | | |
$ | 0.84 | | |
| 2.29 | | |
$ | - | | |
| 1,331 | | |
$ | 0.88 | | |
| 3.60 | | |
$ | - | |
| Exercisable
at September 30 | |
| 1,204 | | |
$ | 0.60 | | |
| 2.72 | | |
$ | - | | |
| 1,138 | | |
$ | 0.94 | | |
| 3.50 | | |
$ | - | |
The following table summarizes significant
ranges of outstanding and exercisable options as of September 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 | | |
| 910 | | |
| 2.89 | | |
$ | 0.50 | | |
| 817 | | |
$ | 0.50 | |
| $0.51 – $1.00 | | |
| 386 | | |
| 2.86 | | |
$ | 0.78 | | |
| 386 | | |
$ | 0.78 | |
| $1.01 – $625.00 | | |
| 1 | | |
| 0.13 | | |
$ | 10.00 | | |
| 1 | | |
$ | 10.00 | |
| Total | | |
| 1,297 | | |
| 2.88 | | |
$ | 0.59 | | |
| 1,204 | | |
$ | 0.60 | |
A summary of the status of the Company’s non-vested shares as
of September 30, 2022, is as follows:
| Non-vested Shares | |
Shares | | |
Weighted Average
Grant-Date
Fair Value per
share | |
| Non-vested at January 1, 2022 | |
| 171 | | |
$ | 0.50 | |
| Vested | |
| (78 | ) | |
$ | 0.92 | |
| Non-vested at September 30, 2022 | |
| 93 | | |
$ | 0.50 | |
As of September 30, 2022, there was a
total of $7 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 0.46 year.
Warrants
The Company did not issue any warrants
during the nine months ended September 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 nine months ended September 30 is as follows:
A summary of the warrant activity for the nine months ended
September 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 September 30, 2022, is as follows:
| Number of Warrants | |
Weighted
Average
Remaining
Life
(years) | | |
Weighted
Average
Exercise
Price
per share | |
| 15 | |
| 0.33 | | |
$ | 0.50 | |
| 10 | |
| 2.81 | | |
$ | 0.50 | |
| 425 | |
| 0.88 | | |
$ | 0.50 | |
| 450 | |
| 0.90 | | |
$ | 0.50 | |
No subsequent events as of November 14,
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-premises 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 September 30, 2022, the Company’s
accumulated deficit was approximately $136,270.
In December 2019, an outbreak
of a novel strain of coronavirus (COVID-19) originated in Wuhan, China and has since spread to several 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 disrupt 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
September 30, 2022, total revenue was $233, compared to total revenue of $282 in the prior year period. For the nine months ended September
30, 2022, total revenue was $716, a decrease of $94, or 12%, compared to total revenue of $810 in the prior year period. The change in
revenue for the nine months ended September 30, 2022, is primarily due to a decrease in product revenue of $38 or 13%, 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 nine
months was $472, a decrease of $56, or 12% compared to $528 in the prior year.
The net loss for the three
months ended September 30, 2022, was $161, an increase of $159, or 7950%, compared to a net loss of $2 in the prior year period. The three-month
loss from operations increased by $24, or 57%, to $66 compared to $42 in the prior year period. The decrease was due to the decrease in
revenue and a net increase in overhead expenses. For the nine months ended September 30, 2022, the net loss was $581, an increase of $220,
or 61%, compared to a net loss of $361 in the prior year period. The nine-month loss from operations increased $65, or 27%, to $306 compared
to $241 in the prior year period.
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
September 30, 2022, product revenue was $91, a decrease of $10, or 10%, compared to product revenue of $101 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 September 30, 2022, maintenance revenue was $142, a decrease of $39, or 21%, compared to maintenance revenue of $181
in the prior year period.
For the nine months ended
September 30, 2022, product revenue was $244, a decrease of $38, or 13%, compared to product revenue of $282 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 nine months ended
September 30, 2022, maintenance revenue was $472, a decrease of $56, or 11%, compared to maintenance revenue of $528 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
September 30, 2022, cost of sales was $46, an increase of $23, or 100%, compared to cost of sales of $23 in the prior year period. The
increase in cost of sales was due to an increase in direct labor related to maintenance contracts during the three months ended September
30, 2022, compared to the prior year period.
For the nine months ended
September 30, 2022, cost of sales was $88, an increase of $5, or 6%, compared to cost of sales of $83 in the prior year period. The increase
in cost of sales was due to an increase 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 September 30, 2022, research and development expense was $138, a decrease of $16, or 11%, compared to research
and development expense of $156 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 September 30, 2022, were $190, an increase of $6, or 4%, compared to $183 in the prior year period. The increase in gross
expenses is primarily due to the increase in employee benefit during the year 2022.
For the nine months ended
September 30, 2022, research and development expense was $443, an increase of $7, or 2%, compared to research and development expense
of $436 in the prior year period. Total expenses, before allocations to cost of sales, for the nine months ended September 30, 2022, were
$540, an increase of $12, or 2%, compared to $528 in the prior year period. The reasons for these increase during the nine-month period
ended September 30, 2022, are the same as for the three-month period discussed above.
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
Sales and Marketing Expense
For the three months ended
September 30, 2022, sales and marketing expense was $7, a decrease of $8, or 53%, compared to sales and marketing expense of $15 in the
prior year period. For the nine months ended September 30, 2022, sales and marketing expense was $74, a decrease of $12, or 14%, compared
to sales and marketing expense of $86 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 September 30, 2022, general and administrative expense was $108, a decrease of $22, or 17%, compared to general
and administrative expense of $130 in the prior year period. The decrease was primarily due to a decrease in professional services, Investor
relations and employee benefit expense from period to period.
For the nine months ended
September 30, 2022, general and administrative expense was $417, a decrease of $29, or 7%, compared to general and administrative expense
of $446 in the prior year period. The decrease was primarily due to the same as for the three-month period discussed above.
.
Other Income and Expense
For the three and nine months
ended September 30, 2022, other expense was $0 and $0, respectively, a decrease of $125 and $125, respectively, compared to other expense
of $125 and $125 for the three and nine months ended September 30, 2021. The decrease in other income for three and nine months of 2022
was due to no PPP loan waiver this year.
For the three months ended
September 30, 2022, interest expense was $95, an increase of $10, or 12% compared to interest expense of $85 in the prior year period.
For the nine months ended September 30, 2022, interest expense was $275, an increase of $31, or 13%, compared to interest expense of $244
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, 2022, compared to the prior year period.
Amortization of debt discount
was $0 for the three- and nine-month periods ended September 30, 2022, compared to $0 in the same periods of the prior year, respectively.
Income tax expense for the
three and nine months ended September 30, 2022, and 2021 were $0 and $1, respectively.
Liquidity and Capital Resources
On September 30, 2022, cash
and cash equivalents totaled $71, compared to cash and cash equivalents of $40 on December 31, 2021. The increase in cash was due primarily
to $16 used in operating activities offset by $3 in cash used in investing activities and $50 provided by financing for the nine-month
period ended September 30, 2022. On September 30, 2022, total current assets were $158, compared to total current assets of $186 on December
31, 2021. On September 30, 2022, the Company’s principal sources of funds included its aggregated cash and cash equivalents of $71.
On September 30, 2022, accounts
receivable net, was $69, a decrease of $55 or 44%, compared to accounts receivable net of $124 on December 31, 2021. The decrease is due
primarily due to faster collection times for accounts receivable.
On September 30, 2022, prepaid
expenses and other current assets were $18, a decrease of $4, or 18%.
On September 30, 2022, total
current liabilities were $5,840, an increase of $466, or 9%, compared to total current liabilities of $5,374 on December 31, 2021.
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
On September 30, 2022, accounts
payable was $376, a decrease of $2, or 1%, compared to accounts payable of $378 on December 31, 2021.
On September 30, 2022, accrued
compensation was $59, a decrease of $10, or 14%, compared to accrued compensation of $69 on December 31, 2021.
On September 30, 2022, deferred
revenue was $319, an increase of $123, or 63%, compared to deferred revenue of $196 on December 31, 2021. Deferred revenue primarily reflects
advance payments for maintenance fees from the Company’s licensees that are 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, September
of 2023.
The Company incurred $95
and $275, respectively, of interest expense for the three and nine months ended September 30, 2022, of which was $0 and $32, respectively,
was paid in cash.
The Company had no material
commitments as of September 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 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
any short-term security investments during the three and nine months ended September 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 nine months ended September 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 September 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)