Attached files
| file | filename |
|---|---|
| EX-32.2 - CERTIFICATION - iSign Solutions Inc. | f10q0918ex32-2_isign.htm |
| EX-32.1 - CERTIFICATION - iSign Solutions Inc. | f10q0918ex32-1_isign.htm |
| EX-31.2 - CERTIFICATION - iSign Solutions Inc. | f10q0918ex31-2_isign.htm |
| EX-31.1 - CERTIFICATION - iSign Solutions Inc. | f10q0918ex31-1_isign.htm |
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: September 30, 2018
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
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 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).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | 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 as of November 14, 2018: 5,761,980.
INDEX
| Page No. | ||
| PART I. FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 1 |
| Condensed Consolidated Balance Sheets at September 30, 2018 (unaudited) and December 31, 2017 | 1 | |
| Condensed Consolidated Statements of Operations for the Three- and Nine-Month Periods Ended September 30, 2018 and 2017 (unaudited) | 2 | |
| Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2018 and 2017 (unaudited) | 3 | |
| Notes to Unaudited Condensed Consolidated Financial Statements | 5 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 19 |
| Item 4. | Controls and Procedures | 19 |
| PART II. OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 20 |
| Item 1A. | Risk Factors | 20 |
| Item 2. | Unregistered Sale of Securities and Use of Proceeds | 20 |
| Item 3. | Defaults Upon Senior Securities | 20 |
| Item 4. | Mine Safety Disclosures | 20 |
| Item 5. | Other Information | 20 |
| Item 6. | Exhibits | 21 |
| (a) Exhibits | 21 | |
| Signatures | 24 | |
i
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, | |||||||
| 2018 | 2017 | |||||||
| Assets | Unaudited | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 164 | $ | 285 | ||||
| Accounts receivable, net of allowance of $18 at September 30, 2018 and $1 at December 31, 2017, respectively | 72 | 45 | ||||||
| Prepaid expenses and other current assets | 55 | 28 | ||||||
| Total current assets | 291 | 358 | ||||||
| Property and equipment, net | 2 | 13 | ||||||
| Other assets | 5 | 17 | ||||||
| Total assets | $ | 298 | $ | 388 | ||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,300 | $ | 1,289 | ||||
| Short-term debt | 1,838 | 1,458 | ||||||
| Accrued compensation | 140 | 201 | ||||||
| Other accrued liabilities | 1,050 | 740 | ||||||
| Deferred revenue | 371 | 310 | ||||||
| Short-term capital lease | - | 4 | ||||||
| Total current liabilities | 4,699 | 4,002 | ||||||
| Deferred revenue long-term | 70 | 175 | ||||||
| Long-term capital lease | - | 6 | ||||||
| Other long-term liabilities | - | 7 | ||||||
| Total liabilities | 4,769 | 4,190 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Common stock, $0.01 par value; 2,000,000 shares authorized; 5,760 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively | 58 | 58 | ||||||
| Treasury shares, 5 at September 30, 2018 and December 31, 2017, respectively | (325 | ) | (325 | ) | ||||
| Additional paid in capital | 129,170 | 129,027 | ||||||
| Accumulated deficit | (133,374 | ) | (132,562 | ) | ||||
| Total stockholders’ deficit | (4,471 | ) | (3,802 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 298 | $ | 388 | ||||
See accompanying notes to these Unaudited Condensed Consolidated Financial Statements
1
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, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Revenue: | ||||||||||||||||
| Product | $ | 24 | $ | 65 | $ | 97 | $ | 157 | ||||||||
| Maintenance | 173 | 165 | 539 | 498 | ||||||||||||
| Total revenue | 197 | 230 | 636 | 655 | ||||||||||||
| Operating costs and expenses: | ||||||||||||||||
| Cost of sales: | ||||||||||||||||
| Product | 2 | 4 | 7 | 11 | ||||||||||||
| Maintenance | 28 | 23 | 46 | 92 | ||||||||||||
| Research and development | 166 | 299 | 632 | 884 | ||||||||||||
| Sales and marketing | 14 | 28 | 75 | 136 | ||||||||||||
| General and administrative | 179 | 241 | 507 | 920 | ||||||||||||
| Total operating costs and expenses | 389 | 595 | 1,267 | 2,043 | ||||||||||||
| Loss from operations | (192 | ) | (365 | ) | (631 | ) | (1,388 | ) | ||||||||
| Other income (expense), net | 90 | (5 | ) | 46 | 68 | |||||||||||
| Interest expense: | ||||||||||||||||
| Related party | (9 | ) | (6 | ) | (25 | ) | (18 | ) | ||||||||
| Other | (36 | ) | (23 | ) | (100 | ) | (53 | ) | ||||||||
| Amortization of debt discount: | ||||||||||||||||
| Related party | (14 | ) | (6 | ) | (28 | ) | (20 | ) | ||||||||
| Other | (34 | ) | (18 | ) | (72 | ) | (52 | ) | ||||||||
| Gain on sale of intangible assets | - | - | - | 239 | ||||||||||||
| Loss before income tax expense | (195 | ) | (423 | ) | (810 | ) | (1,224 | ) | ||||||||
| Income tax expense | - | - | (2 | ) | - | |||||||||||
| Net loss | $ | (195 | ) | $ | (423 | ) | $ | (812 | ) | $ | (1,224 | ) | ||||
| Basic and diluted net loss per common share | (0.03 | ) | $ | (0.07 | ) | $ | (0.14 | ) | $ | (0.21 | ) | |||||
| Weighted average common shares outstanding, basic and diluted | 5,762 | 5,762 | 5,762 | 5,762 | ||||||||||||
See accompanying notes to these Unaudited Condensed Consolidated Financial Statements
2
iSign Solutions Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited
(In thousands)
Nine Months Ended September 30, | ||||||||
| 2018 | 2017 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (812 | ) | $ | (1,224 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 3 | 252 | ||||||
| Debt discount amortization | 100 | 72 | ||||||
| Loss on disposal of fixed assets | 8 | - | ||||||
| Stock-based compensation | 143 | 99 | ||||||
| Gain on sale of intangible assets | - | (239 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (27 | ) | 54 | |||||
| Prepaid expenses and other current assets | (27 | ) | 26 | |||||
| Accounts payable | 11 | (73 | ) | |||||
| Accrued compensation | (61 | ) | (57 | ) | ||||
| Other accrued and long-term liabilities | 305 | 109 | ||||||
| Deferred revenue | (44 | ) | 14 | |||||
| Net cash used in operating activities | (401 | ) | (967 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Acquisition of property and equipment | - | (2 | ) | |||||
| Net cash used in investing activities | - | (2 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of short-term debt | 320 | - | ||||||
| Proceeds from issuance of long-term debt | - | 505 | ||||||
| Payment of short-term debt | (40 | ) | - | |||||
| Proceeds from the sale of intangible assets | - | 239 | ||||||
| Net cash provided by financing activities | 280 | 744 | ||||||
| Net decrease in cash and cash equivalents | (121 | ) | (225 | ) | ||||
| Cash and cash equivalents at beginning of period | 285 | 389 | ||||||
| Cash and cash equivalents at end of period | $ | 164 | $ | 164 | ||||
See accompanying notes to these Unaudited Condensed Consolidated Financial Statements
3
iSign Solutions Inc.
Condensed Consolidated Statements of Cash Flows (Continued)
Unaudited
(In thousands)
| Nine Months Ended September 30, | ||||||||
| 2018 | 2017 | |||||||
| Supplementary disclosure of cash flow information: | ||||||||
| Interest paid | $ | 2 | $ | 9 | ||||
| Income tax paid | $ | 2 | $ | - | ||||
| Non-cash financing and investing transactions: | ||||||||
| Exchange of long-term unsecured convertible promissory notes for long-term unsecured convertible promissory notes | $ | - | $ | 200 | ||||
| Exchange of long-term unsecured convertible promissory notes for long-term secured convertible promissory notes | $ | - | $ | 250 | ||||
| Original issue discount on secured convertible promissory notes | $ | 64 | $ | - | ||||
See accompanying notes to these Unaudited Condensed Consolidated Financial Statements
4
iSign Solutions Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
| 1. | Nature of business and summary of significant accounting policies |
Nature of Business
iSign Solutions Inc. and its subsidiary is a leading supplier of digital transaction management (DTM) software enabling the paperless, secure and cost-effective management and authentication of document-based transactions. iSign’s solutions encompass a wide array of functionality and services, including electronic signatures, simple-to-complex workflow management and various options for biometric authentication. These solutions are available across virtually all enterprise, desktop and mobile environments as a seamlessly integrated platform for both ad-hoc and fully automated transactions. iSign’s platform can be deployed both on premise and as a cloud-based (“SaaS”) service, with the ability to easily transition between deployment models. The Company is headquartered in San Jose, California. The Company’s products include SignatureOne® Ceremony® Server, the iSign® suite of products and services, including iSign® Enterprise, iSign® Console™, and Sign-it® programs.
Basis of Presentation
The financial information contained herein should be read in conjunction with the Company’s consolidated audited financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2017.
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements. In the opinion of management, the unaudited condensed consolidated financial statements included in this quarterly report reflect all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for a fair presentation of its financial position at the dates presented and the Company’s results of operations and cash flows for the periods presented. The Company’s interim results are not necessarily indicative of the results to be expected for the entire year.
Going Concern
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant cumulative losses since its inception and, at September 30, 2018, the Company’s accumulated deficit was $133,374. The Company has primarily met its working capital needs through the sale of debt and equity securities. As of September 30, 2018, the Company’s cash balance was $164. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
There can be no assurance that the Company will be successful in securing adequate capital resources to fund planned operations or that any additional funds will be available to the Company when needed, or if available, will be available on favorable terms or in amounts required by the Company. If the Company is unable to obtain adequate capital resources to fund operations, it may be required to delay, scale back or eliminate some or all of its operations, which may have a material adverse effect on the Company’s business, results of operations and ability to operate as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
On January 1, 2018, the Company adopted Accounting Standard Codification No. 606, Revenue from Contracts with Customers (“Topic 606”), using the modified retrospective method. There were no open contracts which were not completed as of January 1, 2018, except for maintenance and support contracts. Results for the reporting period beginning January 1, 2018 are presented under Topic 606, while prior period amounts are not restated, and continue to be reported in accordance with the Company’s historic accounting under ASC 605, Revenue Recognition (“Topic 605”).
5
iSign Solutions Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
| 1. | Nature of Business and Summary of Significant Accounting Policies (continued) |
Recently Adopted Accounting Pronouncements(continued)
ASC Topic 606, “Revenue from Contracts with Customers” (continued)
Under Topic 606, the Company will recognize a contract asset for satisfied performance obligations that do not provide the Company with an unconditional right to consideration, which was restricted under the previous standard.
Revenue Recognition
The Company’s principal sources of revenues are from the sale of software products, SOW (engineering services), annual software product, and software maintenance contracts. The Company also derives revenue from customers based on the numbers of signatures produced by the Company’s signature software solutions imbedded within the customer’s product.
Revenue from contracts with customers is recognized using the following five steps:
a) Identify the contract(s) with a customer;
b) Identify the performance obligations (a good or service) in the contract;
c) Determine the transaction price; for each performance obligation within the contract
d) Allocate the transaction price to the performance obligations in the contract; and
e) Recognize revenue when (or as) the Company satisfies a performance obligation.
Contracts contain performance obligation(s) for the transfer goods or services to a customer. The performance obligations are a promise (or a group of promises) that are distinct. The transaction price is the amount of consideration a Company expects to receive from a customer in exchange for satisfying the performance obligations specified in the contract.
Contracts may contain one or more performance obligations (a good or service). Performance obligations are accounted for separately if they are distinct. A good or service is distinct if the customer can benefit from the good or service either on its own or together with other resources readily available to the customer, and the good or service is distinct in the context of the contract. Otherwise performance obligations will be combined with other promised goods or services until the Company identifies a bundle of goods or services that is distinct.
The transaction price is allocated to all separate performance obligations within the contract based on their relative standalone selling prices (“SSP”). The best evidence for SSP is the price the Company would charge for that good or service when sold separately in similar circumstances to similar customers. If goods or services are not always sold separately, the Company would use the best estimate of SSP in the allocation of transaction price.
6
iSign Solutions Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
| 1. | Nature of Business and Summary of Significant Accounting Policies (continued) |
Recently Adopted Accounting Pronouncements (continued)
ASC Topic 606, “Revenue from Contracts with Customers” (continued)
The transaction price reflects the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services, which may include an estimate of variable consideration to the extent that it is probable of not being subject to significant reversals in the future based on the Company’s experience with similar arrangements. The transaction price also reflects the impact of the time value of money if there is a significant financing component present in an arrangement. The transaction price excludes amounts collected on behalf of third parties, such as sales taxes.
Revenue is recognized when the Company satisfies each performance obligation identified within the contract by transferring control of the promised goods or services to the customer. Goods or services can transfer at a point in time or over time depending on the nature of the arrangement.
Deferred revenue represents the Company’s obligation to transfer goods or services to a customer for which the Company has received consideration from the customer. Our payment terms do not vary by the type of products or services offered. The term between invoicing and when payment is due is not significant. During the three and nine-month periods ended September 30, 2018, the Company recognized $77 and $353 of revenue that was included in deferred revenue at the beginning of the period.
Contract assets exist when the Company has satisfied a performance obligation but does not have an unconditional right to consideration (e.g., because the entity first must satisfy another performance obligation in the contract before it is entitled to invoice the customer).
The Company transfers all of its goods and services electronically with the associated costs recorded in cost of sales in the Company’s Condensed Consolidated Statements of Operations.
Software. Revenue from the sale of software products is recognized when the control is transferred. For most of the Company’s software product sales, the control is transferred at the time the product is electronically transferred because the customer has significant risks and rewards of ownership of the asset and the Company has a present right to payment at that time.
Statement of Work (SOW). Revenue from SOW (engineering services) is recognized upon completion, transfer and satisfaction of the performance obligations identified with in the contract by the customer.
Transactional revenue. For transactional type contracts, the Company’s performance obligations are met upon transfer of the software master to the customer. Revenue from transactional customers is recognized as the customer reports the number of units (signatures) rendered over the specified reporting period, generally three months.
Recurring Product revenue. The company has revenue contracts that allow the customer to utilize the Company’s signature software on an annual basis. Maintenance and support costs are included in the annual price to the customer. The customer has the right to renew or cancel the contract on an annual basis. Recurring revenue is recognized on a straight line basis over the contract period, generally one year.
7
iSign Solutions Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
| 1. | Nature of Business and Summary of Significant Accounting Policies (continued) |
Recently Adopted Accounting Pronouncements (continued)
ASC Topic 606, “Revenue from Contracts with Customers” (continued)
Maintenance and support. Maintenance and support services are satisfied ratably over time as the customer simultaneously receives and consumes the benefits of the services. As a result, support and maintenance revenue is recognized on a straight line basis over the period of the contract.
Arrangements with Multiple Performance Obligations. The Company has, from time to time, revenue arrangements that include multiple performance obligations. The Company allocates transaction price to all separate performance obligations based on their relative standalone selling prices (“SSP”). The Company’s best evidence for SSP is the price the Company would charge for that good or service when the Company sells it separately in similar circumstances to similar customers. If goods or services are not always sold separately, the Company uses the best estimate of SSP in the allocation of transaction price. The Company’s process for determining best estimate of SSP involves management’s judgment, and considers multiple factors including, but not limited to, major product groupings, gross margin objectives and pricing practices. Pricing practices may vary over time, depending upon the unique facts and circumstances related to each deliverable. If the facts and circumstances underlying the factors considered change or should future facts and circumstances lead the Company to consider additional factors, the Company’s best estimate of SSP may also change.
Contract costs. The incremental costs of obtaining a contract are capitalized if the costs are expected to be recovered. Costs that are recognized as assets are amortized straight-line over the period as the related goods or services transfer to the customer. Costs incurred to fulfill a contract are capitalized if they are not covered by other relevant guidance, relate directly to a contract, will be used to satisfy future performance obligations, and are expected to be recovered.
There was no adjustment to the opening balance of accumulated deficit as of January 1, 2018 from adopting Topic 606.
Significant Judgments. The Company may exercise significant judgment when determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together.
Practical Expedients and Exemptions. Under Topic 606, incremental costs of obtaining a contract, such as sales commissions, are capitalized if they are expected to be recovered. Expensing these costs as they are incurred is not permitted unless they qualify for the practical expedient. The Company elected the practical expedient to expense the costs to obtain a contract as incurred when the expected amortization period is one year or less.
The Company elected the practical expedient under Topic 606 to not disclose the transaction price allocated to remaining performance obligations, since the majority of the Company’s arrangements have original expected durations of one year or less, or the invoicing corresponds to the value of the Company’s performance completed to date.
The Company elected the practical expedient that allows the Company to not assess a contract for a significant financing component if the period between the customer’s payment and the transfer of the goods or services is one year or less.
8
iSign Solutions Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
| 1. | Nature of Business and Summary of Significant Accounting Policies (continued) |
Accounting Changes and Recent Accounting Pronouncements
Accounting Standards Update (“ASU”) No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in ASU 2018-2 allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. The Board decided that the amendments in this Update should be effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Due to the Company’s net operating losses, implementation of ASU 2018-2 would not be expected to have a material impact on the Company’s financial position, results of operations and cash flows.
Accounting Standards Update No. 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2018-03 retained the current framework for accounting for financial instruments in generally accepted accounting principles (GAAP) but makes targeted improvements to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. For public business entities the amendments in this Update are effective for fiscal years beginning after December 15, 2017. The Company is currently evaluating the impact of ASU 2018-3 on the Company’s financial position, results of operations and cash flows.
Accounting Standards Update No. 2018-05, Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. ASU 2018-05 covers income Tax accounting implications of the Tax Cuts and Jobs Act for instance, ASU 2018-05 introduces changes that impact U.S. corporate tax rates, business-related exclusions, and deductions and credits. The Act will also have international tax consequences for many companies that operate internationally. The Company is currently evaluating the impact of ASU 2018-05 on the Company’s financial position, results of operations and cash flows.
Other Accounting Standards Updates issued in 2018 are not applicable to the Company, therefore implementation would not be expected to have a material impact on the Company’s financial position, results of operations and cash flows.
| 2. | Concentrations |
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, | |||||||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||
| Customer #1 | 68 | % | 53 | % | 11 | % | 10 | % | 11 | % | 10 | % | |||||||||||||
| Customer #2 | 17 | % | 18 | % | - | - | - | - | |||||||||||||||||
| Customer #3 | - | - | 12 | % | 14 | % | 12 | % | 14 | % | |||||||||||||||
| Customer #4 | - | - | 28 | % | 15 | % | 24 | % | 16 | % | |||||||||||||||
| Customer #5 | 9 | % | - | 18 | % | 15 | % | 16 | % | 16 | % | ||||||||||||||
| Customer #6 | - | - | - | - | 10 | % | - | ||||||||||||||||||
| Customer #7 | - | 25 | % | - | - | - | - | ||||||||||||||||||
| Total concentration | 94 | % | 96 | % | 69 | % | 54 | % | 73 | % | 56 | % | |||||||||||||
9
iSign Solutions Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
| 3. | Intangible Assets |
The Company performs an intangible asset impairment analysis at least annually or whenever circumstances or events indicate such assets might be impaired. The Company would recognize an impairment charge in the event the net book value of such assets exceeded the future undiscounted cash flows attributable to such assets.
There was no amortization of intangible asset costs for the three and nine months ended September 30, 2018. Amortization of intangible assets costs was $81 and $242 for the three and nine-month periods ended September 30, 2017.
| 4. | 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 exercise of such options and warrants would be antidilutive:
| For the Three and Nine Months Ended | |||||||||
| September 30, 2018 | September 30, 2017 | ||||||||
| Stock options | 1,056 | 566 | |||||||
| Warrants | 1,828 | 1,878 | |||||||
| 5. | Debt |
Advances:
During the nine-months ended September 30, 2018, the Company received from investors advances aggregating $115 in cash against certain accounts receivable of the Company. Upon collection of an invoice, the Company committed to repay the advance to the lenders on a pro rata basis together with a 5% advance fee. Upon collecting certain receivables, $40 of the advances were repaid in May 2018, along with $2 in advance fees. The advance fees were recorded as interest expense in the nine-months ended September 30, 2018.
Notes payable:
In November 2016, the Company issued long-term unsecured convertible promissory notes to investors and affiliates of the Company aggregating $700 in cash. The Company also issued the same long-term notes to affiliates in exchange for an aggregate of $200 in demand notes that had been issued earlier in September and October of 2016. The long-term notes are mandatorily convertible into Common Stock at a conversion rate of the lesser of $0.50 per share (initially, $1.30 per share and subsequently reduced in connection with the May 2017 financing described below) or the price per share of Common Stock, upon closing a new debt and or equity financing of at least $1,000 in aggregate proceeds. The notes bear interest at the rate of 6% per annum and are due December 31, 2018. The Company issued warrants to purchase 277 shares of Common Stock in connection with these long-term notes. The Company ascribed a value of $204 to the 277 warrants and recorded a discount to the long-term notes and a corresponding amount to additional paid-in capital. The discount is being amortized using the effective interest method over the term of the notes.
10
iSign Solutions Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
| 5. | Debt (continued) |
In May 2017, the Company issued secured convertible promissory notes to investors and affiliates of the Company aggregating $505 in cash. In addition, certain investors and affiliates of the Company that had taken part in the November 2016 financing discussed above, and that also participated in the May 2017 financing, exchanged $450 of unsecured convertible promissory notes received in the November 2016 financing for $250 in secured notes with the same terms as the secured notes issued in the May 2017 financing and $200 in Debt unsecured notes with the same terms as the November 2016 financing discussed above. The secured notes are mandatorily convertible into Common Stock at a conversion rate of the lesser of $0.50 per share or the price per share of Common Stock, upon closing a new financing of at least $1,000 in aggregate proceeds. The secured notes bear interest at the rate of 10% per annum, are due December 31, 2018 and are secured by an interest in all the Company’s rights, title and interest in, to and under its intellectual property. Should the secured notes remain outstanding following the maturity date an additional 30% of the note’s principal amount shall become due and payable.
In December 2017, the Company issued additional secured convertible promissory notes to investors and affiliates of the Company aggregating $150 in cash. The secured notes have substantially the same terms as the secured notes issued in the May 2017 financing. The Company issued $7 in the form of an original issue discount (“OID”) on these amounts in June of 2018. The OID is being amortized over the life of the notes.
In August 2018, the Company issued additional secured convertible promissory notes to investors and affiliates of the Company aggregating $341, of which $205 was paid in cash, $79 was exchanged for the remaining advances described above and $57 was in the form of an OID on these amounts. These secured notes have substantially the same terms as the secured notes issued in the May and December 2017 financings. The OID is being amortized over the life of the notes.
The Company used the funds received from the above financing for working capital and general corporate purposes.
During the three and nine months ended September 30, 2018, the Company accrued $45 and $125 of interest expense, of which $9 and $25 was to related parties and $36 and $100 was to other investors. During the three and nine months ended September 30, 2017, the Company accrued $29 and $71 of interest expense, of which $6 and $18 was to related parties and $23 and $53 was to other investors.
The Company recorded $48 and $100 in debt discount amortization for the three and nine months ended September 30, 2018. The Company recorded $24 and $72 in debt discount amortization for the three and nine months ended September 30, 2017.
| 6. | Stockholders’ Equity (Deficit) |
Stock-based compensation expense is based on the estimated grant date fair value of the portion of stock-based payment awards that are ultimately expected to vest during the period. The grant date fair value of stock-based awards to employees and directors is calculated using the Black-Scholes-Merton valuation model.
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.
The Company granted 393 stock options during the nine months ended September 30, 2018 at a weighted average exercise price of $0.78 per share. The Company granted 502 stock options during the nine months ended September 30, 2017 at a weighted average exercise price of $0.50 per share. There were no stock options exercised during the three and nine months ended September 30, 2018 and 2017, respectively.
11
iSign Solutions Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
| 6. | Stockholders’ Equity (Deficit) (continued) |
The fair value calculations for the stock options granted are based on the following assumptions:
| Nine Months Ended September 30, 2018 | Nine Months Ended September 30, 2017 | ||||||||
| Risk free interest rate | 1.91 | % | 1.56 | % | |||||
| Expected life (years) | 6.3 | 5.3 | |||||||
| Expected volatility | 180.51 | % | 212.15 | % | |||||
| Expected dividends | None | None | |||||||
The following table summarizes the allocation of stock-based compensation expense related to stock option grants for the three and nine-month periods ended September 30, 2018 and 2017.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||||
| Research and development | $ | 18 | $ | 15 | $ | 72 | $ | 35 | |||||||||
| General and administrative | 43 | 19 | 56 | 39 | |||||||||||||
| Director options | 8 | 10 | 15 | 25 | |||||||||||||
| Stock-based compensation expense | $ | 69 | $ | 44 | $ | 143 | $ | 99 | |||||||||
A summary of option activity under the Company’s plans as of September 30, 2018 and 2017 is as follows:
| 2018 | 2017 | ||||||||||||||||||||||||||||||||
| Options | Shares | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | Shares | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||||||||||||||
| Outstanding at January 1, | 736 | $ | 3.65 | $ | - | 71 | $ | 45.21 | $ | - | |||||||||||||||||||||||
| Granted | 393 | $ | 0.78 | $ | - | 502 | $ | 0.50 | $ | - | |||||||||||||||||||||||
| Forfeited or expired | (73 | ) | $ | 14.86 | $ | - | (7 | ) | $ | 7.21 | $ | - | |||||||||||||||||||||
| Outstanding at September 30 | 1,056 | $ | 1.81 | 6.07 | $ | - | 566 | $ | 6.02 | 6.09 | $ | - | |||||||||||||||||||||
| Vested and expected to vest at September 30 | 1,039 | $ | 1.78 | 6.06 | $ | - | 520 | $ | 6.04 | 6.04 | $ | - | |||||||||||||||||||||
| Exercisable at September 30 | 256 | $ | 5.46 | 5.03 | $ | - | 106 | $ | 29.05 | 3.92 | $ | - | |||||||||||||||||||||
The following table summarizes significant ranges of outstanding and exercisable options as of September 30, 2018:
| Options Outstanding | Options Exercisable | ||||||||||||||||||||
| Range of Exercise Prices | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise Price Per Share | Number Outstanding | Weighted Average Exercise Price Per Share | ||||||||||||||||
| $0.01 – $25.00 | 1,024 | 6.19 | $ | 0.63 | 224 | $ | 0.61 | ||||||||||||||
| $25.01 - $625.00 | 32 | 2.18 | $ | 39.30 | 32 | $ | 39.30 | ||||||||||||||
| Total | 1,056 | 6.07 | $ | 1.81 | 256 | $ | 5.46 | ||||||||||||||
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iSign Solutions Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
| 6. | Stockholders’ Equity (Deficit) (continued) |
The following table summarizes the Company’s non-vested option shares as of September 30, 2018:
| Non-vested Option Shares | Shares | Weighted Average Grant-Date Fair Value | |||||||
| Non-vested at January 1, 2018 | 641 | $ | 0.57 | ||||||
| Granted | 393 | $ | 0.78 | ||||||
| Forfeited | (55 | ) | $ | 0.50 | |||||
| Vested | (179 | ) | $ | 0.65 | |||||
| Non-vested at September 30, 2018 | 800 | $ | 0.64 | ||||||
As of September 30, 2018, there was $294 of total unrecognized compensation expense related to non-vested stock-based compensation arrangements granted under the plans. The unrecognized compensation expense is expected to be realized over a weighted average period of 1.8 years.
Warrants
A summary of the warrant activity for the nine months ended September 30 is as follows:
| September 30, 2018 | September 30, 2017 | ||||||||||||||||
| Shares | Weighted Average Exercise Price Per Share | Shares | Weighted Average Exercise Price Per Share | ||||||||||||||
| Outstanding at beginning of period | 1,878 | $ | 2.46 | 1,882 | $ | 2.52 | |||||||||||
| Expired | (50 | ) | $ | 15.63 | (4 | ) | $ | 34.38 | |||||||||
| Outstanding at end of period | 1,828 | $ | 1.59 | 1,878 | $ | 1.53 | |||||||||||
| Exercisable at end of period | 1,828 | $ | 1.59 | 1,878 | $ | 1.53 | |||||||||||
A summary of the status of the warrants outstanding and exercisable as of September 30, 2018 is as follows:
| Number of shares exercisable under Warrants | Weighted Average Remaining Life (years) | Weighted Average Exercise Price per share | |||||||||
| 277 | 1.02 | $ | 0.25 | ||||||||
| 1,551 | 2.67 | $ | 1.85 | ||||||||
| 1,828 | 2.42 | $ | 1.59 | ||||||||
| 7. | Subsequent event |
In letter agreements dated October 26, 2018, the secured note holders, representing a majority of the outstanding secured notes, agreed to extend the maturity date of all secured notes, issued under their respective note purchase agreements, from December 31, 2018 to December 31, 2019.
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Forward Looking Statements
Certain statements contained in this quarterly report on Form 10-Q, including, without limitation, statements containing the words “believes”, “anticipates”, “hopes”, “intends”, “expects”, and other words of similar import, constitute “forward looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors which may cause actual events to differ materially from expectations. Such factors include those set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, including the following:
| ● | Technological, engineering, manufacturing, quality control or other circumstances that could delay the sale or shipment of products; |
| ● | Economic, business, market and competitive conditions in the software industry and technological innovations that could affect the Company’s business; |
| ● | The Company’s inability to protect its trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company; and |
| ● | General economic and business conditions and the availability of sufficient financing. |
Except as otherwise required by applicable laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, as a result of new information, future events or otherwise.
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion and analysis should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and notes thereto included in Part 1, Item 1 of this quarterly report on Form 10-Q and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in the Company’s Annual report on Form 10-K for the fiscal year ended December 31, 2017.
Overview
The Company is a leading supplier of digital transaction management (DTM) software enabling the paperless, secure and cost-effective management of document-based transactions. iSign’s solutions encompass a wide array of functionality and services, including electronic signatures, biometric authentication and simple-to-complex workflow management. These solutions are available across virtually all enterprise, desktop and mobile environments as a seamlessly integrated platform for both ad-hoc and fully automated transactions. iSign’s platform can be deployed both on-premise and as a cloud-based service, with the ability to easily transition between deployment models.
The Company was incorporated in Delaware in October 1986. Except for the year ended December 31, 2004, in each year since its inception the Company has incurred losses. For the two-year period ended December 31, 2017, net losses aggregated approximately $7,004, and, at September 30, 2018, the Company’s accumulated deficit was approximately $133,374.
For the three months ended September 30, 2018, total revenue was $197, a decrease of $33, or 14%, compared to total revenue of $230 in the prior year period. For the nine months ended September 30, 2018, total revenue was $636, a decrease of $19, or 3%, compared to total revenue of $655 in the prior year period. The decreases in revenue for the three and nine months ended September 30, 2018 is due primarily to a decrease in product revenue compared to the prior year periods.
The net loss for the three months ended September 30, 2018 was $195, a decrease of $228, or 54%, compared to a net loss of $423 in the prior year period. The $228 decrease in the net loss was primarily due to a decrease in operating costs and expenses of $206 compared to the prior year period. For the nine months ended September 30, 2018 the net loss was $812, a decrease of $412, or 34%, compared to a net loss of $1,224 in the prior year period. The decrease in the net loss of $412 for the nine months ended September 30, 2018 was due to the factors discussed for the three month period above, partially offset by the decrease in gain on sale of intangible assets compared to the prior year period.
During the nine months ended September 30, 2018, the Company received from investors advances aggregating $115 in cash against certain accounts receivable of the Company. Upon collection of an invoice, the Company committed to repay the advance to the lenders on a pro rata basis together with a 5% advance fee. Upon collecting certain receivables, $40 of the advances were repaid in May 2018, along with $2 in advance fees. The advance fees were recorded as interest expense. In addition, the Company issued additional secured convertible promissory notes to investors and affiliates of the Company aggregating $341, of which $205 was in cash, $79 was exchanged for the remaining advances described above and $57 was in the form of an original issue discount (“OID”) on these amounts. The Company issued an additional $7 in OID’s during the nine months ended September 30, 2018 related to the secured convertible promissory notes issued in December 2017. The notes are due December 31, 2018. The OIDs are being amortized over the life of the notes.
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Critical Accounting Policies and Estimates
Refer to Item 7, “Management Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2017 Form 10-K.
Effect of Recent Accounting Pronouncement
Accounting Standards Updates issued in 2018 are being evaluated by the Company, however, implementation is not expected to have a material impact on the Company’s financial position, results of operations and cash flows.
Results of Operations
Revenue
For the three months ended September 30, 2018, product revenue was $24, a decrease of $41, or 63%, compared to product revenue of $65 in the prior year period. The decrease in product revenue is primarily due to a decrease in product licensing revenue. For the three months ended September 30, 2018, maintenance revenue was $173, an increase of $8, or 5%, compared to maintenance revenue of $165 in the prior year period. This increase is primarily due to the renewal of certain maintenance contracts.
For the nine months ended September 30, 2018, product revenue was $97, a decrease of $60, or 38%, compared to product revenue of $157 in the prior year period. The decrease in product revenue is primarily attributable to a reduction in product licensing sales compared to the prior year. For the nine months ended September 30, 2018, maintenance revenue was $539, an increase of $41, or 8%, compared to maintenance revenue of $498 in the prior year period. The increase in maintenance revenue is primarily due to the factors discussed for the three-month period above.
Cost of Sales
For the three months ended September 30, 2018, cost of sales was $30, an increase of $3, or 11%, compared to cost of sales of $27 in the prior year period. The increase in cost of sales was primarily due to an increase in direct labor related to maintenance contracts during the three months ended September 30, 2018 compared to the prior year period.
For the nine months ended September 30,
2018, cost of sales was $53, a decrease of $50, or 49%, compared to cost of sales of $103 in the prior year period. The decrease
in cost of sales was due to a decrease in direct labor related to product and transactional contracts compared to the prior year
period.
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Operating expenses
Research and Development Expenses
For the three months ended September 30, 2018, research and development expense was $166, a decrease of $133, or 44%, compared to research and development expense of $299 in the prior year period. Research and development expenses consist primarily of salaries and related costs, outside engineering, maintenance items, and allocated facilities expenses. Research and development expenses decreased primarily due a decrease in total salaries and benefits due to the reduction of one engineer in the prior year and reduction in the time commitment of two engineers working part time. Total expenses, before allocations for the three months ended September 30, 2018, were $227, a decrease of $113, or 33%, compared to $340 in the prior year period.
For the nine months ended September 30, 2018, research and development expense was $632, a decrease of $252, or 29%, compared to research and development expense of $884 in the prior year period. The most significant factors in the decrease include a decrease in total salaries and benefits due to the reduction of one engineer in the prior year and reduction in the time commitment of two engineers working part time. Total expenses, before allocations to cost of sales, for the nine months ended September 30, 2018, were $729, a decrease of $299, or 29%, compared to $1,028 in the prior year period.
Sales and Marketing Expense
For the three months ended September 30, 2018, sales and marketing expense was $14, a decrease of $14, or 50%, compared to sales and marketing expense of $28 in the prior year period. For the nine months ended September 30, 2018, sales and marketing expense was $75, a decrease of $61, or 45%, compared to sales and marketing expense of $136 in the prior year period. These decreases were primarily attributable to cost savings implemented in 2018 as part of the Company’s transition to a go to market strategy principally focused on partner integrations.
General and Administrative Expense
For the three months ended September 30, 2018, general and administrative expense was $179, a decrease of $62, or 26%, compared to general and administrative expense of $241 in the prior year period. The decrease was primarily due to reductions in patent amortization expense offset by an increase in other general operating expenses compared to the prior year period.
For the nine months ended September 30, 2018, general and administrative expense was $507, a decrease of $413, or 45%, compared to general and administrative expense of $920 in the prior year period. The decrease was primarily due to the same factors discussed for the three month period above.
Other Income and Expense, net
For the three months ended September 30, 2018, the company recorded an $86 refund from the insurance carrier of its Directors and Officers insurance as the result of an audit by the State of California. For the nine-months ended September 30, 2018 the insurance refund was partially offset by a termination settlement fee on the Company’s prior office lease.
For the three months ended September 30, 2018, interest expense was $45, an increase of $16, or 55%, compared to interest expense of $29 in the prior year period. The increase is due to an increase in short-term debt compared to the prior year period.
For the nine months ended September 30, 2018, interest expense was $125, an increase of $54, or 76%, compared to interest expense of $71 in the prior year period. The increase was due to the increase in short-term debt compared to the prior year period.
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For the three months ended September 30, 2018, amortization of debt discount was $48, an increase of $24, or 100%, compared to $24 in the prior year period. The increase was due to the amortization of additional discounts associated with the increase in short-term debt.
For the nine months ended September 30, 2018, amortization of debt discount was $100, an increase of $28, or 39%, compared to $72 in the prior year period. The increase was due to the same factors discussed for the three month period above.
For the nine-months ended September 30, 2017, the Company recorded a gain on sale of the source code and rights to one of the Company’s older toolkit software products, net of related costs, of $239. The purchaser granted the Company a fully-paid, royalty-free, worldwide, irrevocable license to use the software to support current and existing customers and partners of the Company. The Company did not retain the right to distribute the software either as a source code or as an object code. However, the Company retained the right to create new non- toolkit software from the original source code and to market, sell and distribute the new non- toolkit software in the ordinary course of business to its customers and partners.
Liquidity and Capital Resources
At September 30, 2018, cash and cash equivalents totaled $164, compared to cash and cash equivalents of $285 at December 31, 2017. The decrease in cash was primarily due to net cash used in operating activities of $401. The use of cash was partially offset by $320 in cash proceeds from the issuance of short-term debt during the nine-month period offset by the payment of $40 in advances during the nine months ended September 30, 2018. At September 30, 2018, total current assets were $291, compared to total current assets of $358 at December 31, 2017. At September 30, 2018, the Company’s principal sources of funds included its aggregated cash and cash equivalents of $164.
At September 30, 2018, accounts receivable net, was $72, an increase of $27, or 60%, compared to accounts receivable net of $45 at December 31, 2017. The increase is due primarily to the timing of billings during the three months ended September 30, 2018.
At September 30, 2018, prepaid expenses and other current assets were $55, an increase of $27, or 96%, compared to prepaid expenses and other current assets of $28 at December 31, 2017. The increase is due primarily to the short-term capitalization of engineering costs associated with nonrecurring engineering work expected to be completed in the fourth quarter of 2018.
At September 30, 2018, accounts payable was $1,300, an increase of $11, or 1%, compared to accounts payable of $1,289 at December 31, 2017. At September 30, 2018, accrued compensation was $140, a decrease of $61, or 30%, compared to accrued compensation of $201 at December 31, 2017. The decreases are due primarily to cost saving measures put in place by the Company. Other accrued liabilities were $1,050, an increase of $310, or 42%, from $740 at December 31, 2017 due primarily to accrued interest expense on the Company’s short –term debt and deferred professional services.
At September 30, 2018, current deferred revenue was $371, an increase of $61, or 20%, compared to current deferred revenue of $310 at December 31, 2017. Deferred revenue primarily reflects advance payments for maintenance fees from the Company’s licensees that are generally recognized as revenue by the Company when all obligations are met or over the term of the maintenance agreement, whichever is longer. Deferred revenue is recorded when the Company receives advance payment from its customers.
At September 30, 2018, total current liabilities were $4,699, an increase of $697, or 17%, compared to total current liabilities of $4,002 at December 31, 2017.
In June 2018, the Company negotiated a cancellation agreement with its landlord to cancel its office lease and move to facilities which better suit its needs, saving the Company $112 net, over the remaining 16 months of the old lease term.
The Company received from investors advances aggregating $115 in cash against certain accounts receivable of the Company. Upon collection of an invoice, the Company committed to repay the advance to the lenders on a pro rata basis together with a 5% advance fee. Upon collecting certain receivables, $40 of the advances were repaid in May 2018, along with $2 in advance fees. The advance fees were recorded as interest expense in the three and six-months ended June 30, 2018.
The Company issued an additional $7 in OIDs during the nine months ended September 30, 2018 related to the secured convertible promissory notes issued in December 2017.
In August 2018, the Company issued additional secured convertible promissory notes to investors and affiliates of the Company aggregating $341, of which $205 was in cash, $79 was exchanged for the remaining advances described above and $57 was in the form of an OID on these amounts. The secured notes have substantially the same terms as the secured notes issued in the May and December 2017 financings.
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The Company is using the funds received from the above financing for working capital and general corporate purposes.
The Company recorded $48 and $100 in debt discount amortization for the three and nine months ended September 30, 2018, respectively, related to the debt financings.
The Company incurred $45 and $125, respectively, of interest expense for the three and nine months ended September 30, 2018, of which $0 and $2, respectively were paid in cash.
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 nine months ended September 30, 2018.
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, 2018 and 2017, foreign currency translation gains and losses were insignificant.
| Item 4. | Controls and Procedures. |
Disclosure Controls and Procedures
The Company carried out an evaluation as of the end of the period covered by this report, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to paragraph (b) of Rule 13a-15 and 15d-15 under the Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation and because of the material weaknesses in our internal control over financial reporting described below, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act (1) is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Management identified the following control deficiencies that constitute material weaknesses that are not fully remediated as of the filing date of this report:
As a small company with limited resources that are mainly focused on the development and sales of software products and services, iSign does not employ a sufficient number of staff in its finance department to possess an optimal segregation of duties or to provide optimal levels of oversight. This has resulted in certain audit adjustments and management believes that there may be a possibility for a material misstatement to occur in future periods while it employs the current number of personnel in its finance department.
The Company does not expect that its disclosure controls and procedures will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedures are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The Company considered these limitations during the development of its disclosure controls and procedures, and will continually reevaluate them to ensure they provide reasonable assurance that such controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended September 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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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.
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| Item 6. | Exhibits. |
(a) Exhibits.
21
22
| * | Filed herewith. |
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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 |
| November 14, 2018 | /s/ Andrea Goren | |
| Date | Andrea Goren | |
| (Principal Financial Officer and Officer Duly Authorized to Sign on Behalf of the Registrant) |
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