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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| iSign Solutions Inc (CE) | USOTC:ISGN | OTCMarkets | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.000001 | 0.00 | 01:00:00 |
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-19301
iSign Solutions Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 94-2790442 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| 2033 Gateway Place, Suite 659, San Jose, CA | 95110 | |
| (Address of principal executive offices) | (Zip Code) |
(650) 802-7888
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock | ISIGN | OTC Markets Group Inc. OTC Pink |
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.
| Yes | ☒ | No | ☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
| Yes | ☒ | No | ☐ |
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.
| large accelerated filer | ☐ | accelerated filer | ☐ |
| non-accelerated filer | ☒ | Smaller reporting Company | ☒ |
| Emerging growth company | ☐ |
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)
| Yes | ☐ | No | ☒ |
Number of shares outstanding of the issuer’s Common Stock, par value $0.01, as of August 16, 2021: 6,321,980
INDEX
| i |
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, | |||||||
| 2021 | 2020 | |||||||
| Assets | Unaudited | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 70 | $ | 26 | ||||
| Accounts receivable, net of allowance of $0 at June 30, 2021 and $0 at December 31, 2020, respectively | 95 | 100 | ||||||
| Prepaid expenses and other current assets | 7 | 10 | ||||||
| Total current assets | 172 | 136 | ||||||
| Property and equipment, net | 6 | 5 | ||||||
| Other assets | 5 | 5 | ||||||
| Total assets | $ | 183 | $ | 146 | ||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 385 | $ | 353 | ||||
| Short-term debt- related party | 1,096 | 1,065 | ||||||
| Short-term debt – other | 1,673 | 1,807 | ||||||
| Short-term debt – Paycheck Protection Program | 123 | 123 | ||||||
| Accrued compensation | 70 | 82 | ||||||
| Deferred Compensation | 219 | 219 | ||||||
| Other accrued liabilities | 1,292 | 1,141 | ||||||
| Deferred revenue | 473 | 215 | ||||||
| Total current liabilities | 5,331 | 5,005 | ||||||
| Long-term debt – other | 45 | 90 | ||||||
| Other long-term liabilities | 533 | 738 | ||||||
| Total liabilities | 5,909 | 5,833 | ||||||
| Commitments and contingencies |
|
|
||||||
| Stockholders’ deficit: | ||||||||
| Common stock, $0.01 par value; 2,000,000 shares authorized; 6,322 shares issued and outstanding at June 30, 2021 and 5,762 shares issued and outstanding at December 31, 2020 | 63 | 58 | ||||||
| Treasury shares, 5 at June 30, 2021 and December 31, 2020, respectively | (325 | ) | (325 | ) | ||||
| Additional paid-in capital | 130,098 | 129,783 | ||||||
| Accumulated deficit | (135,562 | ) | (135,203 | ) | ||||
| Total stockholders’ deficit | (5,726 | ) | (5,687 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 183 | $ | 146 | ||||
See accompanying notes to these Condensed Consolidated Financial Statements
1
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, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue: | ||||||||||||||||
| Product | $ | 99 | $ | 59 | $ | 181 | $ | 90 | ||||||||
| Maintenance | 169 | 168 | 346 | 327 | ||||||||||||
| Total revenue | 268 | 227 | 527 | 417 | ||||||||||||
| Operating costs and expenses: | ||||||||||||||||
| Cost of sales: | ||||||||||||||||
| Product | 20 | 19 | 30 | 21 | ||||||||||||
| Maintenance | 10 | 27 | 30 | 36 | ||||||||||||
| Research and development | 135 | 144 | 279 | 320 | ||||||||||||
| Sales and marketing | 22 | 25 | 71 | 52 | ||||||||||||
| General and administrative | 170 | 173 | 317 | 419 | ||||||||||||
| Total operating costs and expenses | 357 | 388 | 727 | 848 | ||||||||||||
| Loss from operations | (89 | ) | (161 | ) | (200 | ) | (431 | ) | ||||||||
| Other income (expense), net |
-
|
51 | 1 | 52 | ||||||||||||
| Interest expense: | ||||||||||||||||
| Related party | (25 | ) | (23 | ) | (49 | ) | (47 | ) | ||||||||
| Other | (55 | ) | (47 | ) | (110 | ) | (92 | ) | ||||||||
| Amortization of debt discount: | ||||||||||||||||
| Related party |
-
|
-
|
-
|
-
|
||||||||||||
| Other |
-
|
(1 | ) |
-
|
(1 | ) | ||||||||||
| Loss before income tax expense | (169 | ) | (181 | ) | (358 | ) | (519 | ) | ||||||||
| Income tax expense |
-
|
-
|
(1 | ) | (1 | ) | ||||||||||
| Net loss | $ | (169 | ) | $ | (181 | ) | $ | (359 | ) | $ | (520 | ) | ||||
| Basic and diluted net loss per common share | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.06 | ) | $ | (0.09 | ) | ||||
| Weighted average common shares outstanding, basic and diluted | 5,780 | 5,762 | 5,771 | 5,762 | ||||||||||||
See accompanying notes to these Condensed Consolidated Financial Statements
2
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, 2021 | 5,762 | $ | 58 | 5 | $ | (325 | ) | $ | 129,783 | $ | (135,203 | ) | $ | (5,687 | ) | |||||||||||||
| Stock-based compensation | – |
–
|
– |
–
|
24 |
–
|
24 | |||||||||||||||||||||
| 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 long-term deferred salary into common stock | 560 | 5 |
–
|
–
|
274 |
–
|
274 | |||||||||||||||||||||
| Net loss | – |
–
|
– |
–
|
–
|
(169 | ) | (169 | ) | |||||||||||||||||||
| Balance, June 30, 2021 | 6,322 | $ | 63 | 5 | $ | (325 | ) | $ | 130,098 | $ | (135,562 | ) | $ | (5,726 | ) | |||||||||||||
| Balance January 1, 2020 | 5,762 | $ | 58 | 5 | $ | (325 | ) | $ | 129,651 | $ | (134,675 | ) | $ | (5,291 | ) | |||||||||||||
| Stock-based compensation | – |
–
|
– |
–
|
22 |
–
|
22 | |||||||||||||||||||||
| Net loss | – |
–
|
– |
–
|
–
|
(339 | ) | (339 | ) | |||||||||||||||||||
| Balance, March 31, 2020 | 5,762 | $ | 58 | 5 | $ | (325 | ) | $ | 129,673 | $ | (135,014 | ) | $ | (5,608 | ) | |||||||||||||
| Stock-based compensation | – |
–
|
– |
–
|
17 |
–
|
17 | |||||||||||||||||||||
| Warrant issued for services | – |
–
|
– |
–
|
13 |
–
|
–
|
|||||||||||||||||||||
| Net loss | – |
–
|
– |
–
|
–
|
(181 | ) | (184 | ) | |||||||||||||||||||
| Balance, June 30, 2020 | 5,762 | $ | 58 | 5 | $ | (325 | ) | 129,703 | (135,195 | ) | (5,759 | ) | ||||||||||||||||
See accompanying notes to these Condensed Consolidated Financial Statements
3
iSign Solutions Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
|
Six Months Ended June 30, |
||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (359 | ) | $ | (520 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 2 | 2 | ||||||
| Debt discount amortization |
-
|
1 | ||||||
| Amortization of Warrants |
-
|
36 | ||||||
| Warrants issued for services |
-
|
13 | ||||||
| Stock-based compensation | 41 | 39 | ||||||
| Forgiveness of debt related to accounts payable |
-
|
(52 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | 5 | (12 | ) | |||||
| Prepaid expenses and other assets | 3 | 9 | ||||||
| Accounts payable | 32 | (88 | ) | |||||
| Accrued compensation | (12 | ) | 19 | |||||
| Other accrued and long-term liabilities | 225 | 212 | ||||||
| Deferred revenue | 258 | 113 | ||||||
| Net cash provided by (used in) operating activities | 195 | (228 | ) | |||||
| Cash flows from investing activities: | ||||||||
| Acquisition of property and equipment | (3 | ) |
-
|
|||||
| Net cash used in investing activities | (3 | ) |
-
|
|||||
| Cash flows from financing activities: | ||||||||
| Proceeds from the issuance of short-term debt – related party | 45 | 100 | ||||||
| Proceeds from the issuance of short-term debt – other | 40 | 300 | ||||||
| Proceeds from Short-term debt - Paycheck Protection Program |
-
|
123 | ||||||
| Payments on short term Debt – related party | (133 | ) |
-
|
|||||
| Payments on short term Debt – other | (100 | ) |
-
|
|||||
| Net cash provided by (used in) financing activities | (148 | ) | 523 | |||||
| Net increase in cash and cash equivalents | 44 | 295 | ||||||
| Cash and cash equivalents at beginning of period | 26 | 25 | ||||||
| Cash and cash equivalents at end of period | $ | 70 | $ | 320 | ||||
See accompanying notes to these Condensed Consolidated Financial Statements
4
iSign Solutions Inc.
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
(In thousands)
|
Six Months Ended June 30, |
||||||||
| 2021 | 2020 | |||||||
| Supplementary disclosure of cash flow information | ||||||||
| Interest paid | $ | 21 | $ | 5 | ||||
| Income taxes paid | $ | 1 | $ | 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
5
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, 2020.
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, 2021 the Company’s accumulated deficit was $135,562. The Company has primarily met its working capital needs through the sale of debt and equity securities. As of June 30, 2021, the Company’s cash balance was $70. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
6
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
| 1. | Nature of Business and Summary of Significant Accounting Policies (continued) |
There can be no assurance that the Company will be successful in securing adequate capital resources to fund planned operations or that any additional funds will be available to the Company when needed, or if available, will be available on favorable terms or in amounts required by the Company. If the Company is unable to obtain adequate capital resources to fund operations, it may be required to delay, scale back or eliminate some or all of its operations, which may have a material adverse effect on the Company’s business, results of operations and ability to operate as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Accounting Changes and Recent Accounting Pronouncements
Accounting Standards Update No. 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.
| 2. | Concentrations |
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, |
||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Customer #1 | 88 | % | 88 | % | 40 | % | 28 | % | 37 | % | 23 | % | ||||||||||||
| Customer #2 |
-
|
-
|
-
|
10 | % |
-
|
11 | % | ||||||||||||||||
| Customer #3 |
-
|
-
|
19 | % | 24 | % | 19 | % | 25 | % | ||||||||||||||
| Customer #4 |
-
|
-
|
25 | % | 21 | % | 26 | % | 20 | % | ||||||||||||||
| Customer #5 | 11 | % | 12 | % |
-
|
-
|
-
|
-
|
||||||||||||||||
| Total concentration | 99 | % | 100 | % | 84 | % | 83 | % | 82 | % | 79 | % | ||||||||||||
7
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
| 3. | Net Loss per Share |
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
|
||||||||
| June 30, | June 30, | |||||||
| 2021 | 2020 | |||||||
| Common Stock subject to outstanding options | 1,338 | 1,067 | ||||||
| Common Stock subject to outstanding warrants | 1,450 | 2,566 | ||||||
| Common stock subject to outstanding convertible debt plus accrued interest | 7,157 | 6,473 | ||||||
| 4. | Debt |
Advances:
On February 17 and February 22, 2021, the Company repaid $30 and $30, respectively, of accounts receivable advances from unrelated parties along with $4 of accrued but unpaid advance fees. In addition, on March 31, 2021, the Company repaid $20 in accounts receivable advances to a related party. The advance fee of $1 was repaid on April 1, 2021.
In March 2021, the Company received, from related parties, advances aggregating $25 in cash against certain accounts receivable of the Company. Upon collection of an invoice, the Company agreed to repay the advance to the lenders on a pro rata basis together with a 5% advance fee. The Company accrued $1 in advance fees recorded as interest expense on the Statement of Operations.
Notes payable:
On May 6, 2020, the Company received loan proceeds in the amount of approximately $123 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The Company may apply for the loans and accrued interest forgiven after a period of either eight or twenty-four weeks, as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the period in question. Under the terms of the related promissory note, the unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. The Company has applied for full loan and interest forgiveness. While the Company currently believes that its use of the loan proceeds, meets the conditions for forgiveness of the loan, we cannot assure you that we did not take actions that caused the Company to be ineligible for forgiveness of the loan, in whole or in part.
On February 28, 2021, the Company issued an aggregate of $75 in unsecured notes, $30 to related parties and $45 to other investors. The Company received $15 in cash and $15 in exchange for an account receivable advance, received in the prior year, from related parties, and $45 in cash from other investors. The unsecured notes are convertible by the holder into common stock at any time at a price per share of $0.50. Upon closing a new financing of at least $1,000 in aggregate proceeds, the Company can force conversion at a price equal to the lesser of $0.50 per share or the price per share of the new financing. The notes bear interest at the rate of 10% per annum and are due December 31, 2021.
8
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
| 4. | Debt (continued) |
In April 2021, the Company re-paid $49 of Accounts Receivable Advances and $6 in accrued but unpaid 5% advance fees to an affiliate. In addition the Company repaid to another affiliate $64 of Accounts Receivable Advances and $4 in accrued but unpaid 5% advance fees.
In June 2021, the Company paid the first installment in the amount of $40 plus accrued interest of $5 of a note entered into associated with a settlement agreement dated July 1, 2020 with one of its vendors. The remaining $90 plus interest at the rate of 4% per annum is due in two installments, June of 2022 and June of 2023.
During the three and six months ended June 30, 2021, the Company accrued $80 and $159 of interest expense, $68 and $136, respectively, 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. For the three and six months ended June 30, 2020, the Company accrued $70 and $139 of interest expense, $60 and $120, respectively, associated with the outstanding secured and unsecured convertible promissory notes, of which $23 and $47 was to related parties and $38 and $73 was to other investors.
| 5. | Stockholders’ Deficit |
Stock-based compensation expense is based on the estimated grant date fair value of the portion of stock-based payment awards that are ultimately expected to vest during the period. The grant date fair value of stock -based awards to employees and directors is calculated using the Black-Scholes-Merton valuation model.
Forfeitures of stock-based payment awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The estimated average forfeiture rate for the six months ended June 30, 2021 and 2020, was approximately 4.78% and 13.59%, 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, 2021 and 2020. There were no stock options exercised during the three and six months ended June 30, 2021 and 2020, respectively.
9
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
| 5. | Stockholders’ Deficit (continued) |
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, |
|||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Research and development | $ |
-
|
$ | 2 | $ | - | $ | 5 | ||||||||
| General and administrative | $ | 17 | $ | 12 | $ | 29 | $ | 28 | ||||||||
| Director and consultant options | $ | 7 | $ | 3 | $ | 12 | $ | 6 | ||||||||
| Total stock-based compensation expense | $ | 24 | $ | 17 | $ | 41 | $ | 39 | ||||||||
A summary of option activity under the Company’s plans for the six months ended June 30, 2021 and 2020 is as follows:
| 2021 | 2020 | |||||||||||||||||||||||||||||||
|
Options |
Shares |
Weighted
|
Weighted
Average Remaining Contractual Life (Years) |
Aggregate
|
Shares |
Weighted
|
Weighted
Average Remaining Contractual Life (Years) |
Aggregate
|
||||||||||||||||||||||||
| Outstanding at January 1, | 1,338 | $ | 0.87 |
-
|
$ |
|
1,077 | $ | 1.59 |
-
|
$ |
-
|
||||||||||||||||||||
| Granted |
-
|
|
$ |
-
|
$ |
|
-
|
$ |
-
|
-
|
$ |
-
|
||||||||||||||||||||
| Forfeited or expired |
-
|
$ |
-
|
$ | 10 | $ | 56.10 |
-
|
$ |
-
|
||||||||||||||||||||||
| Outstanding at June 30 | 1,338 | $ | 0.87 | 4.10 | $ |
|
1,067 | $ | 1.07 | 5.50 | $ |
-
|
||||||||||||||||||||
| Vested and expected to vest at June 30 | 1,320 | $ | 0.88 | 3.80 | $ |
-
|
1,067 | $ | 1.07 | 4.52 | $ |
-
|
||||||||||||||||||||
| Exercisable at June 30 | 1,078 | $ | 0.96 | 3.68 | $ |
-
|
822 | $ | 1.18 | 4.38 | $ |
-
|
||||||||||||||||||||
The following table summarizes significant ranges of outstanding and exercisable options as of June 30, 2021:
| 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 | 930 | 4.15 | $ | 0.50 | 703 | $ | 0.50 | |||||||||||||
| $0.51 – $625.00 | 408 | 3.98 | $ | 1.73 | 375 | $ | 1.81 | |||||||||||||
| Total | 1,338 | 4.10 | $ | 0.87 | 1,078 | $ | 0.96 | |||||||||||||
10
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
| 5. | Stockholders’ Deficit (continued) |
A summary of the status of the Company’s non-vested shares as of June 30, 2021 is as follows:
| Non-vested Shares | Shares |
Weighted Average
Grant-Date Fair Value per share |
||||||
| Non-vested at January 1, 2021 | 381 | $ | 0.57 | |||||
| Vested | (120 | ) | $ | 0.57 | ||||
| Non-vested at June 30, 2021 | 261 | $ | 0.54 | |||||
As of June 30, 2021, there was a total of $46 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 1.5 years.
Warrants
The Company did not issue any warrants during the three and six month periods ended June 30, 2021. The Company issued 30,000 warrants during the three and six months ended June 30, 2020 to a consultant for services. The warrants are exercisable for three years with an exercise price of $0.50 per share. The Company ascribed a value of $13 to the warrants which is based on the Black-Scholes-Merton valuation model.
In June 2021, the Company transferred from SGP to Andrea Goren the Common Stock Purchase Warrant numbers 19-01 and 20-2, respectively dated February 6, 2019 and August 11, 2020 (the “SGP Warrants”) to purchase Seven Hundred Thousand (700,000) and Two hundred Fifty Thousand (250,000) shares of Company common stock, respectively.
A summary of the warrant activity for the six months ended June 30 is as follows:
| 2021 | 2020 | |||||||||||||||
| Shares |
Weighted
Average Exercise Price Per Share |
Shares |
Weighted
Average Exercise Price Per Share |
|||||||||||||
| Outstanding at beginning of period | 3,001 | $ | 1.52 | 2,536 | $ | 1.52 | ||||||||||
| Issued |
-
|
$ |
-
|
30 | $ |
-
|
||||||||||
| Expired | 1,551 | $ | 2.18 |
-
|
$ |
-
|
||||||||||
| Outstanding at end of period | 1,450 | $ | 0.50 | 2,566 | $ | 1.52 | ||||||||||
| Exercisable at end of period | 1,450 | $ | 0.50 | 2,566 | $ | 1.52 | ||||||||||
A summary of the status of the warrants outstanding and exercisable as of June 30, 2021 is as follows:
| Number of Warrants |
Weighted Average
Remaining Life (years) |
Weighted Average
Exercise Price per share |
||||||
| 985 | 0.61 | $ | 0.50 | |||||
| 30 | 1.60 | $ | 0.50 | |||||
| 10 | 4.08 | $ | 0.50 | |||||
| 425 | 2.14 | $ | 0.50 | |||||
| 1,450 | 1.10 | $ | 0.50 | |||||
11
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
| 5. | Stockholders’ Deficit (continued) |
Common Stock
In June 2021, the Company, with approval of the Board of Directors, reallocated all of the $560,000 of accrued compensation owed to SG Phoenix in equal parts to Mr. Sassower and Mr. Goren, according to their respective ownership in SG Phoenix. Mr. Sassower settled $280,000 of Accrued Long -term deferred salary allocated to him into 560,000 shares of the Company’s Common Stock at a price of $0.50 per share, which was substantially above the then current market price of the company’s common stock.
| 6. | Subsequent Event |
In July 2021, the Company received, from an affiliate advances aggregating $10 in cash against certain accounts receivable of the Company. Upon collection of an invoice, the Company agreed to repay the advance to the lender on a pro rata basis together with a 5% advance fee. The funds will be used for working capital purposes.
Forward Looking Statements
Certain statements contained in this quarterly report on Form 10-Q, including, without limitation, statements containing the words “believes”, “anticipates”, “hopes”, “intends”, “expects”, and other words of similar import, constitute “forward looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors which may cause actual events to differ materially from expectations. Such factors include those set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, including the following:
| ● | Technological, engineering, manufacturing, quality control or other circumstances that could delay the sale or shipment of products; |
| ● | Economic, business, market and competitive conditions in the software industry and technological innovations that could affect the Company’s business; |
| ● | The Company’s inability to protect its trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company; and |
| ● | General economic and business conditions and the availability of sufficient financing. |
Except as otherwise required by applicable laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, as a result of new information, future events or otherwise.
12
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, 2020.
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, 2020, net losses aggregated approximately $1,614, and, at June 30, 2021, the Company’s accumulated deficit was approximately $135,562.
13
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
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, 2021, total revenue was $268, compared to total revenue of $227 in the prior year period. For the six months ended June 30, 2021, total revenue was $527, an increase of $110, or 26%, compared to total revenue of $417 in the prior year period. The change in revenue for the six months ended June 30, 2021 is primarily due to an increase in product revenue of $91 or 101%, compared to the prior year period The increase in product revenue is the result of increases in engineering service and transactional. Maintenance revenue for the six months was $346, an increase of $19, or 6% compared to $327 in the prior year.
The net loss for the three months ended June 30, 2021 was $169, a decrease of $12, or 7%, compared to a net loss of $181 in the prior year period. The three month loss from operations decreased $72, or 45%, to $89 compared to $161 in the prior year period. The decrease was due to the increase in revenue and a net decrease in overhead expenses. For the six months ended June 30, 2021 the net loss was $359, a decrease of $161, or 31%, compared to a net loss of $520 in the prior year period. The six month loss from operations decreased $231, or 54%, to $200 compared to $431 in the prior year period. This decrease was due to the same factors described for the three month period above.
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, 2021, product revenue was $99, an increase of $40, or 68%, compared to product revenue of $59 in the prior year period. The increase in revenue is primarily attributable to increases in engineering service and transactional revenue compared to the prior year period. For the three months ended June 30, 2021, maintenance revenue was $169, an increase of $1, or 1%, compared to maintenance revenue of $168 in the prior year period.
For the six months ended June 30, 2021, product revenue was $181, an increase of $91, or 101%, compared to product revenue of $90 in the prior year period. The increase in product revenue is primarily due to the same factors for the three-month period discussed above. For the six months ended June 30, 2020, maintenance revenue was $346, an increase of $19, or 6%, compared to maintenance revenue of $346 in the prior year period. The increase in maintenance revenue is primarily due to the conversion from discounted long-term maintenance contracts to non-discounted annual maintenance terms.
14
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
Cost of Sales
For the three months ended June 30, 2021, cost of sales was $30, a decrease of $16, or 35%, compared to cost of sales of $46 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, 2021, compared to the prior year period.
For the six months ended June 30, 2021, cost of sales was $60, an increase of $3, or 5%, compared to cost of sales of $57 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 June 30, 2021, research and development expense was $135, a decrease of $9, or 6%, compared to research and development expense of $144 in the prior year period. Research and development expenses consist primarily of salaries and related costs, outside engineering, maintenance items, and allocated facilities expenses. Other general expenses decreased $17, or 6%, due to reductions in professional services and facilities costs compared to the prior year. The reductions in overhead expenses were offset by a decrease of $9 in allocated labor costs to cost of sales. Total expenses, before allocations for the three months ended June 30, 2020, were $169, a decrease of $17, or 9%, compared to $186 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, 2021, research and development expense was $279, a decrease of $41, or 13%, compared to research and development expense of $320 in the prior year period. Total expenses, before allocations to cost of sales, for the six months ended June 30, 2020, were $343, a decrease of $30, or 8%, compared to $320 in the prior year period. The reasons for these decreases during the six-month period ended June 30, 2021 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.
Sales and Marketing Expense
For the three months ended June 30, 2021, sales and marketing expense was $22, a decrease of $3, or 12%, compared to sales and marketing expense of $25 in the prior year period. For the six months ended June 30, 2021, sales and marketing expense was $71, an increase of $19, or 37%, compared to sales and marketing expense of $52 in the prior year period. These increases are primarily attributable to an increase in commission expense related to renewal of maintenance contracts.
General and Administrative Expense
For the three months ended June 30, 2021, general and administrative expense was $170, a decrease of $3, or 2%, compared to general and administrative expense of $173 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, 2021, general and administrative expense was $317, a decrease of $102, or 24%, compared to general and administrative expense of $419 in the prior year period. The decrease was due to the reduction in professional services, warrants expense and the provision for doubtful accounts.
15
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
Other Income and Expense
For the three and six months ended June 30, 2021, other income was $0 and $1, respectively, a decrease of $51 and $51, respectively, compared to other income of $51 and $52 for the three and six months ended June 30, 2020. The change in other income and expense is due primarily to the forgiveness of $52 of accounts payable during the three months ended June 30, 2020. Such forgiveness was generated from related cash payments of approximately $88. Other income for the three and six months ended June 30 2020 included the collection of $12 of accounts receivable written off in the prior year.
For the three months ended June 30, 2021, interest expense was $80, an increase of $10, or 14% compared to interest expense of $70 in the prior year period. For the six months ended June 30, 2021, interest expense was $159, an increase of $20, or 14%, compared to interest expense of $139 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, 2021 compared to the prior year period.
Amortization of debt discount was $0 for the three and six month periods ended June 30, 2021 compared to $1 in the same periods of the prior year, respectively. Amortization of the debt discount was completed in the three months ended June 30, 2020.
Income tax expensee for the three and six months ended June 30, 2021 and 2020 were $0 and $1, respectively.
Liquidity and Capital Resources
At June 30, 2021, cash and cash equivalents totaled $70, compared to cash and cash equivalents of $26 at December 31, 2020. The increase in cash was due primarily to $195 provided by operating activities offset by $3 in cash used in investing activities and $148 used in financing for the six month period ended June 30, 2021. At June 30, 2021, total current assets were $172, compared to total current assets of $136 at December 31, 2020. At June 30, 2021, the Company’s principal sources of funds included its aggregated cash and cash equivalents of $70.
At June 30, 2021, accounts receivable net, was $95, a decrease of $5, or 5%, compared to accounts receivable net of $100 at December 31, 2020. The decrease is due primarily due to faster collection times for accounts receivable.
At June 30, 2021, prepaid expenses and other current assets were $7, a decrease of $3, or 30%. 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, 2021, total current liabilities were $5,331, an increase of $326, or 7%, compared to total current liabilities of $5,005 at December 31, 2020.
At June 30, 2021, accounts payable was $385, an increase of $32, or 9%, compared to accounts payable of $353 at December 31, 2020. The increase is due to an increase in professional service expenses.
At June 30, 2021, accrued compensation was $70, a decrease of $12, or 15%, compared to accrued compensation of $82 at December 31, 2020. The decrease is due primarily to payment of accrued commissions on certain maintenance renewals during the six month period. Other accrued liabilities were $1292, an increase of $151, or 13%, from $1,141 at December 31, 2020 primarily due to the accrual of additional interest expense on the Company’s debt and certain franchise taxes.
At June 30, 2021, deferred revenue was $473, an increase of $258, or 120%, compared to deferred revenue of $215 at December 31, 2020. 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.
On February 28, 2021, the Company issued an aggregate of $75 in unsecured notes to affiliates and other investors. The Company received $60 in cash and $15 in exchange for advances received in the prior year. The unsecured notes are convertible by the holder into common stock at any time at a price per share of $0.50. Upon closing a new financing of at least $1,000 in aggregate proceeds, the Company can force conversion at a price equal to the lesser of $0.50 per share or the price per share of the new financing. The notes bear interest at the rate of 10% per annum and are due December 31, 2021.
16
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
In March 2021, the Company received, from related parties, advances aggregating $25 in cash against certain accounts receivable of the Company. Upon collection of an invoice, the Company agreed to repay the advance to the lenders on a pro rata basis together with a 5% advance fee. The Company accrued $1 in advance fees recorded as interest expense on the Statement of Operations.
In April 2021, the Company re-paid $49 of Accounts Receivable Advances and $6 in accrued but unpaid 5% advance fees to an affiliate. In addition the Company repaid to another affiliate $64 of Accounts Receivable Advances and $4 in accrued but unpaid 5% advance fees.
In June 2021, the Company paid the first installment in the amount of $40 plus accrued interest of $5 of a note entered into associated with a settlement agreement dated July 1, 2020 with one of its vendors. The reaming $90 plus interest at the rate of 4% per annum is due in two installments, June of 2022 and June of 2023.
The Company incurred $80 and $159, respectively, of interest expense for the three and six months ended June 30, 2021, of which was $16 and $21, respectively, was paid in cash.
The Company had no material commitments as of June 30, 2021.
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, 2021.
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, 2021 and 2020, foreign currency translation gains and losses were insignificant.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Company carried out an evaluation as of the end of the period covered by this report, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to paragraph (b) of Rule 13a-15 and 15d-15 under the Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation and because of the material weaknesses in our internal control over financial reporting described below, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act (1) is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
17
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
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, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
18
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
Part II-Other Information
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sale of Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information.
None.
Item 6. Exhibits.
| (a) | Exhibits. |
19
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
20
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
21
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
22
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
| * | Filed herewith. |
23
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| iSign Solutions Inc. | ||
| Registrant |
| August 16, 2021 | /s/ Michael Engmann | |
| Date | Michael Engmann | |
| (Principal Financial Officer and Officer Duly Authorized to Sign on Behalf of the Registrant) |
24
1 Year iSign Solutions (CE) Chart |
1 Month iSign Solutions (CE) Chart |
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