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.
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.
☐
PART
I–FINANCIAL INFORMATION
Item
1.
|
Financial Statements.
|
iSign
Solutions Inc.
Condensed
Consolidated Balance Sheets
(In
thousands)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Assets
|
|
Unaudited
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
125
|
|
|
$
|
389
|
|
Accounts receivable, net of allowance of $45 at March 31, 2017 and $63 at December 31, 2016, respectively
|
|
|
18
|
|
|
|
137
|
|
Prepaid expenses and other current assets
|
|
|
51
|
|
|
|
56
|
|
Total current assets
|
|
|
194
|
|
|
|
582
|
|
Property and equipment, net
|
|
|
16
|
|
|
|
20
|
|
Intangible assets, net
|
|
|
188
|
|
|
|
269
|
|
Other assets
|
|
|
17
|
|
|
|
17
|
|
Total assets
|
|
$
|
415
|
|
|
$
|
888
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Deficit
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,352
|
|
|
$
|
1,368
|
|
Accrued compensation
|
|
|
247
|
|
|
|
257
|
|
Other accrued liabilities
|
|
|
608
|
|
|
|
505
|
|
Deferred revenue
|
|
|
320
|
|
|
|
258
|
|
Short-term capital lease
|
|
|
4
|
|
|
|
4
|
|
Total current liabilities
|
|
|
2,531
|
|
|
|
2,392
|
|
Long-term debt, net
|
|
|
731
|
|
|
|
707
|
|
Deferred revenue long-term
|
|
|
280
|
|
|
|
315
|
|
Long-term capital lease
|
|
|
8
|
|
|
|
9
|
|
Other long-term liabilities
|
|
|
7
|
|
|
|
13
|
|
Total liabilities
|
|
|
3,557
|
|
|
|
3,436
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Equity (deficit):
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 2,000,000 shares authorized; 5,760 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively
|
|
|
58
|
|
|
|
58
|
|
Treasury shares, 5 at March 31, 2017 and December 31, 2016, respectively
|
|
|
(325
|
)
|
|
|
(325
|
)
|
Additional paid in capital
|
|
|
128,904
|
|
|
|
128,884
|
|
Accumulated deficit
|
|
|
(131,229
|
)
|
|
|
(130,615
|
)
|
Accumulated other comprehensive loss
|
|
|
(14
|
)
|
|
|
(14
|
)
|
Total iSign stockholders' deficit
|
|
|
(2,606
|
)
|
|
|
(2,012
|
)
|
Non-controlling interest
|
|
|
(536
|
)
|
|
|
(536
|
)
|
Total deficit
|
|
|
(3,142
|
)
|
|
|
(2,548
|
)
|
Total liabilities and deficit
|
|
$
|
415
|
|
|
$
|
888
|
|
See
accompanying notes to these Condensed Consolidated Financial Statements
iSign
Solutions Inc.
Condensed
Consolidated Statements of Operations
Unaudited
(In
thousands, except per share amounts)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
Product
|
|
$
|
48
|
|
|
$
|
59
|
|
Maintenance
|
|
|
163
|
|
|
|
217
|
|
Total revenue
|
|
|
211
|
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
Product
|
|
|
4
|
|
|
|
37
|
|
Maintenance
|
|
|
45
|
|
|
|
133
|
|
Research and development
|
|
|
284
|
|
|
|
318
|
|
Sales and marketing
|
|
|
58
|
|
|
|
202
|
|
General and administrative
|
|
|
389
|
|
|
|
730
|
|
Total operating costs and expenses
|
|
|
780
|
|
|
|
1,420
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(569
|
)
|
|
|
(1,144
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
─
|
|
|
|
4
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(6
|
)
|
|
|
(51
|
)
|
Other
|
|
|
(15
|
)
|
|
|
(60
|
)
|
Amortization of debt discount:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(7
|
)
|
|
|
(22
|
)
|
Other
|
|
|
(17
|
)
|
|
|
(84
|
)
|
Gain on derivative liability
|
|
|
─
|
|
|
|
25
|
|
Net loss
|
|
|
(614
|
)
|
|
|
(1,332
|
)
|
|
|
|
|
|
|
|
|
|
Accretion of beneficial conversion feature, preferred stock:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
─
|
|
|
|
(115
|
)
|
Other
|
|
|
─
|
|
|
|
(130
|
)
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
─
|
|
|
|
(420
|
)
|
Other
|
|
|
─
|
|
|
|
(434
|
)
|
Income tax expense
|
|
|
─
|
|
|
|
─
|
|
Net loss attributable to common stockholders
|
|
$
|
(614
|
)
|
|
$
|
(2,431
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.11
|
)
|
|
$
|
(13.00
|
)
|
Weighted average common shares outstanding, basic and diluted
|
|
|
5,762
|
|
|
|
187
|
|
See
accompanying notes to these Condensed Consolidated Financial Statements
iSign
Solutions Inc.
Condensed
Consolidated Statements of Cash Flows
Unaudited
(In
thousands)
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(614
|
)
|
|
$
|
(1,332
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
86
|
|
|
|
91
|
|
Stock-based compensation
|
|
|
21
|
|
|
|
65
|
|
Amortization of debt discount
|
|
|
24
|
|
|
|
106
|
|
Gain on derivative liability
|
|
|
─
|
|
|
|
(25
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
119
|
|
|
|
33
|
|
Prepaid expenses and other assets
|
|
|
5
|
|
|
|
19
|
|
Accounts payable
|
|
|
(16
|
)
|
|
|
292
|
|
Accrued compensation
|
|
|
(10
|
)
|
|
|
6
|
|
Other accrued and long-term liabilities
|
|
|
96
|
|
|
|
212
|
|
Deferred revenue
|
|
|
27
|
|
|
|
─
|
|
Net cash used in operating activities
|
|
|
(262
|
)
|
|
|
(533
|
)
|
|
|
|
|
|
|
|
|
|
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
|
|
|
120
|
|
|
|
─
|
|
Payment on short term debt
|
|
|
(120
|
)
|
|
|
|
|
Net cash provided by financing activities
|
|
|
─
|
|
|
|
─
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(264
|
)
|
|
|
(533
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
389
|
|
|
|
846
|
|
Cash and cash equivalents at end of period
|
|
$
|
125
|
|
|
$
|
313
|
|
See
accompanying notes to these Condensed Consolidated Financial Statements
iSign
Solutions Inc.
Condensed
Consolidated Statements of Cash Flows (Continued)
Unaudited
(In
thousands)
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Supplementary disclosure of cash flow information
|
|
|
|
|
|
|
Interest paid
|
|
$
|
6
|
|
|
$
|
1
|
|
Income taxes paid
|
|
$
|
─
|
|
|
$
|
─
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing and investing transactions:
|
|
|
|
|
|
|
|
|
Dividends on Preferred Stock
|
|
$
|
─
|
|
|
$
|
854
|
|
Accretion of beneficial conversion feature on issuance of Preferred
Stock dividends
|
|
$
|
─
|
|
|
$
|
245
|
|
See
accompanying notes to these Condensed Consolidated Financial Statements
iSign Solutions Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
(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.
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, 2016.
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 March 31, 2017 the Company’s
accumulated deficit was $131,229. The Company has primarily met its working capital needs through the sale of debt and equity
securities. As of March 31, 2017, the Company’s cash balance was $125. 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.
iSign Solutions Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
(In thousands, except per share amounts)
|
1.
|
Nature
of Business and Summary of Significant Accounting Policies (continued)
|
Accounting
Changes and Recent Accounting Pronouncements
Accounting
Standards Updates issued in 2017 to date 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.
The
following table summarizes accounts receivable and revenue concentrations:
|
|
|
Accounts Receivable
As of March 31,
|
|
|
Total Revenue
As of March 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Customer #1
|
|
|
−
|
|
|
|
−
|
|
|
|
15
|
%
|
|
|
15
|
%
|
|
Customer #2
|
|
|
34
|
%
|
|
|
33
|
%
|
|
|
−
|
|
|
|
−
|
|
|
Customer #3
|
|
|
47
|
%
|
|
|
63
|
%
|
|
|
10
|
%
|
|
|
−
|
|
|
Customer #4
|
|
|
−
|
|
|
|
−
|
|
|
|
17
|
%
|
|
|
13
|
%
|
|
Customer #5
|
|
|
−
|
|
|
|
−
|
|
|
|
12
|
%
|
|
|
13
|
%
|
|
Customer #6
|
|
|
11
|
%
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
Total concentration
|
|
|
92
|
%
|
|
|
96
|
%
|
|
|
54
|
%
|
|
|
41
|
%
|
|
3.
|
Intangible
Assets, Net
|
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.
Management
completed an analysis of the Company’s technology as of December 31, 2016. Based on that analysis, the Company concluded
that no impairment of the carrying value of the intangible assets existed. The Company believes that no events or circumstances
changed during the three months ended March 31, 2017 that would impact this conclusion.
Amortization
of intangible asset costs was $81 for the three months ended March 31, 2017 and 2016.
The
following table summarizes the intangible assets balance:
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net Value
|
|
|
Carrying Amount
|
|
|
Accumulative Amortization
|
|
|
Net Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
$
|
6,745
|
|
|
$
|
(6,557
|
)
|
|
$
|
188
|
|
|
$
|
6,745
|
|
|
$
|
(6,476
|
)
|
|
$
|
269
|
|
iSign Solutions Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
(In thousands, except per share amounts)
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. All of
the Company’s preferred shares were converted to common stock on May 19, 2016.
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 and the conversion of such preferred shares would be anti-dilutive:
|
|
|
For the Three Months Ended
|
|
|
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
71
|
|
|
|
75
|
|
|
Warrants
|
|
|
1,878
|
|
|
|
206
|
|
|
Preferred shares as if converted
|
|
|
|
|
|
|
|
|
|
Series A-1 Preferred Stock
|
|
|
─
|
|
|
|
50
|
|
|
Series B Preferred Stock
|
|
|
─
|
|
|
|
1,069
|
|
|
Series C Preferred Stock
|
|
|
─
|
|
|
|
579
|
|
|
Series D-1 Preferred Stock
|
|
|
─
|
|
|
|
1,144
|
|
|
Series D-2 Preferred Stock
|
|
|
─
|
|
|
|
763
|
|
Advances:
In
February 2017, the Company received, from investors and affiliates of the Company, advances aggregating $120 in cash against certain
accounts receivable of the Company. Upon collection of an invoice, the Company would repay the advance to the lenders on a pro
rata basis together with a 5% advance fee. The Company used the funds received from the above advances for working capital and
general corporate purposes.
The
receivables were collected and the advances were repaid in March 2017, along with $6 in advance fees per the agreement. The advance
fees were recorded as interest expense in the quarter ended March 31, 2017.
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 $1.30 per share 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. The Company used the funds received from the above financings for working capital and general corporate purposes.
The
Company recorded $24 in debt discount amortization for the three months ended March 31, 2017 related to the above 2016 debt financings.
iSign Solutions Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
(In thousands, except per share amounts)
Stock-based
compensation expense is based on the estimated grant date fair value of the portion of stock-based payment awards that are ultimately
expected to vest during the period. The grant date fair value of stock-based awards to employees and directors is calculated using
the Black-Scholes-Merton valuation model.
Forfeitures
of stock-based payment awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. The estimated average forfeiture rate for the three months ended March 31, 2017 and 2016 was approximately
12.34% and 11.89%, 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 over the vesting period of the options.
There
were no stock options granted, and no stock options exercised during the three months ended March 31, 2017 and 2016, respectively.
The
following table summarizes the allocation of stock-based compensation expense for the three months ended March 31:
|
|
|
2017
|
|
|
2016
|
|
|
Research and development
|
|
$
|
8
|
|
|
$
|
19
|
|
|
Sales and marketing
|
|
|
─
|
|
|
|
14
|
|
|
General and administrative
|
|
|
10
|
|
|
|
24
|
|
|
Director
|
|
|
3
|
|
|
|
8
|
|
|
Total stock-based compensation
|
|
$
|
21
|
|
|
$
|
65
|
|
A
summary of option activity under the Company’s plans for the three months ended March 31, 2017 and 2016 is as follows:
|
|
|
2017
|
|
|
2016
|
|
|
Options
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term
|
|
|
Aggregate Intrinsic Value
|
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term
|
|
|
Aggregate Intrinsic Value
|
|
|
Outstanding at January 1
|
|
|
71
|
|
|
$
|
45.21
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
|
$
|
45.35
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
−
|
|
|
$
|
−
|
|
|
|
|
|
|
|
|
|
|
|
−
|
|
|
$
|
−
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
−
|
|
|
$
|
−
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
$
|
40.51
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31
|
|
|
71
|
|
|
$
|
45.21
|
|
|
|
2.91
|
|
|
$
|
−
|
|
|
|
75
|
|
|
$
|
45.84
|
|
|
|
3.86
|
|
|
$
|
−
|
|
|
Vested and expected to vest at March 31
|
|
|
70
|
|
|
$
|
45.53
|
|
|
|
2.88
|
|
|
$
|
−
|
|
|
|
72
|
|
|
$
|
46.42
|
|
|
|
3.80
|
|
|
$
|
−
|
|
|
Exercisable at March 31
|
|
|
62
|
|
|
$
|
48.02
|
|
|
|
2.63
|
|
|
$
|
−
|
|
|
|
59
|
|
|
$
|
52.16
|
|
|
|
3.21
|
|
|
$
|
−
|
|
iSign Solutions Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
(In thousands, except per share amounts)
|
6.
|
Equity
(Deficit) (continued)
|
The
following table summarizes significant ranges of outstanding and exercisable options as of March 31, 2017:
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
Number Outstanding
|
|
Weighted Average Remaining Contractual Term (in years)
|
|
Weighted Average Exercise Price
|
|
|
Number Outstanding
|
|
Weighted Average Exercise Price
|
|
|
$25.00 – $625.00
|
|
71
|
|
2.91
|
|
$
|
45.21
|
|
|
62
|
|
$
|
48.02
|
|
A
summary of the status of the Company’s non-vested shares as of March 31, 2017 is as follows:
|
Non-vested Shares
|
|
Shares
|
|
|
Weighted Average
Grant-Date
Fair Value
|
|
|
Non-vested at January 1, 2017
|
|
|
11
|
|
|
$
|
23.01
|
|
|
Vested
|
|
|
(2
|
)
|
|
$
|
22.91
|
|
|
Non-vested at March 31, 2017
|
|
|
9
|
|
|
$
|
22.88
|
|
As
of March 31, 2017, there was $31 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 twelve
months.
Warrants
A
summary of the warrant activity for the three months ended March 31 is as follows:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Outstanding at beginning of period
|
|
|
1,882
|
|
|
$
|
2.52
|
|
|
|
206
|
|
|
$
|
28.70
|
|
|
Issued
|
|
|
─
|
|
|
|
$ ─
|
|
|
|
─
|
|
|
|
$ ─
|
|
|
Expired/Canceled
|
|
|
(4
|
)
|
|
$
|
34.38
|
|
|
|
─
|
|
|
|
$ ─
|
|
|
Outstanding at end of period
|
|
|
1,878
|
|
|
$
|
2.69
|
|
|
|
206
|
|
|
$
|
28.70
|
|
|
Exercisable at end of period
|
|
|
1,878
|
|
|
$
|
2.69
|
|
|
|
206
|
|
|
$
|
28.70
|
|
A
summary of the status of the warrants outstanding and exercisable as of March 31, 2017 is as follows:
|
Number of Warrants
|
|
|
Weighted Average
Remaining Life
|
|
|
Weighted Average
Exercise Price per share
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
0.03
|
|
|
$
|
15.63
|
|
|
|
1,551
|
|
|
|
3.45
|
|
|
$
|
2.18
|
|
|
|
277
|
|
|
|
0.42
|
|
|
$
|
1.63
|
|
|
|
1,878
|
|
|
|
2.92
|
|
|
$
|
2.69
|
|
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
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, 2016, including the following:
|
●
|
Technological,
engineering, manufacturing, quality control or other circumstances that could delay the
sale or shipment of products;
|
|
●
|
Economic,
business, market and competitive conditions in the software industry and technological
innovations that could affect the Company’s business;
|
|
●
|
The
Company’s inability to protect its trade secrets or other proprietary rights, operate
without infringing upon the proprietary rights of others and prevent others from infringing
on the proprietary rights of the Company; and
|
|
●
|
General
economic and business conditions and the availability of sufficient financing.
|
Except
as otherwise required by applicable laws, the Company undertakes no obligation to publicly update or revise any forward-looking
statements, as a result of new information, future events or otherwise.
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of Operations.
|
The
following discussion and analysis should be read in conjunction with the Company’s unaudited condensed consolidated financial
statements and notes thereto included in Part 1, Item 1 of this quarterly report on Form 10-Q and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” set forth in the Company’s Annual report on Form 10-K
for the fiscal year ended December 31, 2016.
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, 2016, net losses attributable to common stockholders
aggregated approximately $12,676, and, at March 31, 2017, the Company's accumulated deficit was approximately $131,229.
For
the three months ended March 31, 2017, total revenue was $211, a decrease of $65, or 24%, compared to total revenue of $276 in
the prior year period. The decrease in revenue is primarily attributable to a decrease in the Company’s maintenance revenue
for the quarter.
The
net loss applicable to common stockholders for the three months ended March 31, 2017 was $614, a decrease of $1,817, or 75%, compared
to a net loss applicable to common stockholders of $2,431 in the prior year period. The decrease is due to the decrease in the
loss from operations of $575, decreases in other income, interest expense, amortization of the debt discount and gain on derivative
liability for a combined amount of $143, and a decrease in dividends and related beneficial conversion feature of $1,099.
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
Critical Accounting Policies
and Estimates
Refer
to Item 7, “Management Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s
2016 Form 10-K.
Effect
of Recent Accounting Pronouncement
Accounting
Standards Updates issued in 2017 to date are not applicable to the Company, therefore 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 March 31, 2017, product revenue was $48, a decrease of $11, or 19%, compared to product revenue of $59
in the prior year period. The decrease in product revenue is primarily due to lower transaction volume compared to the prior year
quarter. For the three months ended March 31, 2017, maintenance revenue was $163, a decrease of $54, or 25%, compared to maintenance
revenue of $217 in the prior year period. The decrease in maintenance revenue was due to the non-renewal of certain maintenance
contracts during 2016.
Cost
of Sales
For
the three months ended March 31, 2017, cost of sales was $49, a decrease of $121, or 71%, compared to cost of sales of $170 in
the prior year period. The decrease in cost of sales is primarily attributable to the decrease in direct engineering costs associated
with product sales and maintenance activities compared to the prior year period.
Operating
expenses
Research
and Development Expenses
For
the three months ended March 31, 2017, research and development expense was $284, a decrease of $34, or 11%, compared to research
and development expense of $318 in the prior year period. Research and development expenses consist primarily of salaries and
related costs, outside engineering, maintenance items, and allocated facilities expenses. The decrease in research and development
expense was due to a reduction in headcount of one engineer, reduced stock-based compensation expense and reductions in the utilization
of outside engineering services compared to the prior year. Gross engineering expenses, before allocations to sales, decreased
by $126, or 28%, compared to the prior year period, due primarily to the same factors discussed above.
Sales
and Marketing Expenses
For
the three months ended March 31, 2017, sales and marketing expense was $58, a decrease of $144, or 71%, compared to $202 in the
prior year period. The decrease was primarily attributable to a decrease in salaries and wages in connection with the Company’s
efforts to restructure its operations in favor of partner-generated recurring revenue.
General
and Administrative Expenses
For
the three months ended March 31, 2017, general and administrative expense was $389, a decrease of $341, or 47%, compared to general
and administrative expense of $730 in the prior year period. The decrease was primarily due to decreases in professional service
expenses of $248, or 55%, related to legal, accounting and other offering expenses that were incurred in the prior year in connection
with an attempted public offering. Salaries and related expense was $67, a decrease of $39, or 37%. The decrease in salaries and
related expense resulted from a reduction in headcount of one accountant, as well as lower stock-based compensation expense, compared
to the prior year period. Other general overhead costs decreased $54, or 32%, compared to the prior year period.
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
Other
income and expense
Other
income for the three months ended March 31, 2017 was $0, a decrease of $4, or 100%, compared to other income of $4 in the prior
year period. The decrease was due to payments received on past due accounts receivable expensed during the prior year period.
For
the three months ended March 31, 2017, the gain on derivative liability was $0, a decrease of $25, or 100%, compared to the gain
on derivative liability of $25 in the prior year period. The decrease in the gain on derivative liability is due to the conversion
of certain notes containing such derivatives in August 2016.
For
the three months ended March 31, 2017, there was no accretion of a beneficial conversion feature on the Company’s Preferred
Stock, due to the conversion of all outstanding Preferred Stock into Common Stock on May 19, 2016. For the three months ended
March 31, 2016, the accretion of beneficial conversion feature on the Company’s then outstanding Preferred Stock, with a
conversion price less than the closing market price on the issuance date (Series A-1, B, C and D Preferred Stock), that was issued
as dividends in kind was $245. The accretion of the beneficial conversion feature on the Company’s dividends issued in kind
that was associated with related parties at March 31, 2016 was $115, and the non-related party expense was $130.
Liquidity
and Capital Resources
At
March 31, 2017, cash and cash equivalents totaled $125, compared to cash and cash equivalents of $389 at December 31, 2016. The
decrease in cash was primarily due to cash used in operating activities of $262 and cash used in investing activities of $2. At
March 31, 2017, total current assets were $194 compared to total current assets of $582 at December 31, 2016. At March 31, 2017,
the Company's principal sources of funds included its cash and cash equivalents aggregating $125.
At
March 31, 2017, accounts receivable net, was $18, a decrease of $119, or 87%, compared to accounts receivable net of $137 at December
31, 2016. The decrease is due primarily to faster collection times for accounts receivable.
At
March 31, 2017, prepaid expenses and other current assets were $51, a decrease of $5, or 9%, compared to prepaid expenses and
other current assets of $56 at December 31, 2016. The decrease is due primarily to a lower amount of prepaid assets acquired during
the quarter relative to the amount of prepaid assets expensed.
At
March 31, 2017, total current liabilities were $2,531, an increase of $139, or 6%, compared to total current liabilities of $2,392
at December 31, 2016. At March 31, 2017, accounts payable were $1,352, a decrease of $16, or 1%, from the December 31, 2016 balance
of $1,368. At March 31, 2017, accrued compensation was $247, a decrease of $10, or 4%, compared to accrued compensation of $257
at December 31, 2016, due primarily to a reduction in accrued but unpaid vacation expense. Other accrued liabilities were $608,
an increase of $103, or 20%, from December 31, 2016, due to the accrual of certain professional service fees.
Current
deferred revenue was $320, an increase of $62, or 24%, compared to current deferred revenue of $258 at December 31, 2016. Deferred
revenue primarily reflects advance payments for maintenance fees from the Company's licensees that are generally recognized as
revenue by the Company when all obligations are met or over the term of the maintenance agreement, whichever is longer. Deferred
revenue is recorded when the Company receives advance payment from its customers.
In
February 2017, the Company received, from investors and affiliates of the Company, advances aggregating $120 in cash against certain
accounts receivable of the Company. Upon collection of an invoice, the Company would repay the advance to the lenders on a pro
rata basis together with a 5% advance fee. The Company used the funds received from the above advances for working capital and
general corporate purposes. The receivables were collected and the advances were repaid in March 2017, along with $6 in advance
fees per the agreement.
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
For
the three months ended March 31, 2017, the Company incurred $21 of interest expense and $24 in amortization of debt discount.
For the three months ended March 31, 2016, the Company incurred $111 of interest expense and $106 in amortization of debt discount.
The
Company had the following material commitments as of March 31, 2017:
Contractual obligations
|
|
Total
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
Thereafter
|
|
Operating lease commitments (1)
|
|
$
|
262
|
|
|
$
|
74
|
|
|
$
|
101
|
|
|
$
|
87
|
|
|
$
|
─
|
|
Capital lease commitments
|
|
|
18
|
|
|
|
4
|
|
|
|
6
|
|
|
|
6
|
|
|
|
2
|
|
|
|
$
|
280
|
|
|
$
|
78
|
|
|
$
|
107
|
|
|
$
|
93
|
|
|
$
|
2
|
|
1.
|
In
November 2016, the Company moved its principal facilities to San Jose, California, pursuant
to a lease that expires in 2019. In addition to monthly rent, the facilities are subject
to additional rental payments for utilities and other costs above the base amount.
|
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 months ended March 31, 2017.
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 months ended March 31, 2017 and 2016, foreign currency translation gains and losses were insignificant.
Item
4.
|
Controls and Procedures
.
|
Disclosure
Controls and Procedures
As
of the end of the period covered by this report, we conducted an evaluation 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 our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of
the period covered by this report, our disclosure controls and procedures were effective to ensure that the information required
to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the
time periods specified in the SEC’s rules and forms, and 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.
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
Our
management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and
procedures will prevent all errors or 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 March 31, 2017 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.