iSign Solutions Inc. - Quarter Report: 2008 March (Form 10-Q)

X	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	Delaware		94-2790442
	(State or other jurisdiction of		(I.R.S. Employer
	incorporation or organization)		Identification No.)

 

Yes

X

No

large accelerated filer

accelerated filer

non-accelerated filer

X

Smaller reporting Company

Yes

No

X

	Page No.
PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
Condensed Consolidated Balance Sheets at March 31, 2008 (unaudited) and December 31, 2007	3
Condensed Consolidated Statements of Operations for the Three-Month Periods Ended March 31, 2008 and 2007 (unaudited)	4
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three-Month Period Ended March 31, 2008 (unaudited)	5
Condensed Consolidated Statements of Cash Flows for the Three-Month Periods Ended March 31, 2008 and 2007 (unaudited)	6
Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.  Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.  Controls and Procedures	18
PART II.  OTHER INFORMATION
Item 1.    Legal Proceedings	18
Item 1A. Risk Factors	18
Item 2.    Unregistered Sale of Securities and Use of proceeds	18
Item 3.    Defaults Upon Senior Securities	18
Item 4.    Submission of Matters to a Vote of Security Holders	18
Item 5.    Other Information	19
Item 6.    Exhibits
(a) Exhibits	19
Signatures	20

		March 31				December 31
		2008				2007
Assets		Unaudited
Current assets:
Cash and cash equivalents		$	355			$	1,144
Accounts receivable, net of allowances of $120 and $117 at March 31, 2008 and December 31, 2007 respectively			316				452
Prepaid expenses and other current assets			115				135
Total current assets			786				1,731
Property and equipment, net			60				77
Patents			3,433				3,528
Capitalized software development costs			1,278				1,109
Other assets			30				30
Total assets		$	5,587			$	6,475
Liabilities and Stockholders' Equity
Current liabilities:
Short-term debt – net of unamortized fair value assigned to warrants of $217 and $350 at March 31, 2008 and December 31, 2007, including related party debt of $1,170, net of unamortized fair value assigned to warrants		$	1,503			$	1,370
Accounts payable			192				135
Accrued compensation			387				364
Other accrued liabilities			240				298
Deferred revenue			223				431
Total current liabilities			2,545				2,598
Long-term debt – other, net of unamortized fair value assigned to warrants of $18 and $21 at March 31, 2008 and December 31, 2007, respectively			99				96
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 10,000 shares authorized; 0 outstanding at March 31, 2008 and December 31, 2007, respectively			–				–
Common stock, $.01 par value; 155,000 shares authorized; 129,057 shares issued and outstanding at March 31, 2008 and December 31, 2007, respectively			1,291				1,291
Additional paid-in capital			93,799				93,785
Accumulated deficit			(92,110	)			(91,260	)
Accumulated other comprehensive loss			(37	)			(35	)
Total stockholders' equity			2,943				3,781
Total liabilities and stockholders' equity		$	5,587			$	6,475

		Three Months Ended March 31,
		2008				2007
Revenues:
Product		$	242			$	158
Maintenance			188				176
Total revenues			430				334
Operating costs and expenses:
Cost of sales:
Product			170				30
Maintenance			30				28
Research and development			53				129
Sales and marketing			360				260
General and administrative			467				475
Total operating costs and expenses			1,080				922
Loss from operations			(650	)			(588	)
Interest and other income (expense), net			3				–
Interest expense:
Related party (Note 4)			(44	)			(23	)
Other (Note 3)			(23	)			(24	)
Amortization of loan discount and deferred financing cost:
Related party (Note 4)			(91	)			(84	)
Other (Note 3)			(45	)			(91	)
Minority interest							3
Net loss		$	(850	)		$	(807	)
Basic and diluted loss per share		$	(0.01	)		$	(0.01	)
Weighted average common shares outstanding basic and diluted			129,057				107,557

		Shares Outstanding				Common Stock				Additional Paid-In Capital				Accumulated Deficit				Accumulated Other Comprehensive Loss				Total
Balances as of December 31, 2007			129,057			$	1,291			$	93,785			$	(91,260	)		$	(35	)		$	3,781
Stock based employee compensation											14												14
Comprehensive loss:
Net loss															(850	)							(850	)
Foreign currency translation adjustment																			(2	)			(2	)
Total comprehensive loss																							(852	)
Balances as of March 31, 2008			129,057			$	1,291			$	93,799			$	(92,110	)		$	(37	)		$	2,943

		Three Months Ended March 31,
		2008				2007
Cash flows from operating activities:
Net loss		$	(850	)		$	(807	)
Adjustments to reconcile net loss to net cash provided by used for operating activities:
Depreciation and amortization			208				182
Amortization of discount on convertible notes			–				68
Amortization of discount on Short-term debt related party			134				84
Amortization of discount on long-term debt			3				–
Amortization of deferred financing costs			–				23
Stock-based  employee compensation			14				24
Minority interest			–				(3	)
Changes in operating assets and liabilities:
Accounts receivable, net			136				252
Prepaid expenses and other current assets			20				(33	)
Accounts payable			57				43
Accrued compensation			23				(9	)
Other accrued liabilities			(58	)			(3	)
Deferred revenue			(208	)			(164	)
Net cash used for operating  activities			(521	)			(343	)
Cash flows from investing activities: Acquisition of property and equipment			(1	)			(1	)
Capitalized software development costs			(264	)			(209	)
Net cash used for investing activities			(265	)			(210	)
Cash flows from financing activities:
Proceeds from issuance of short-term debt			–				670
Principal payments on capital lease obligations			–				(2	)
Net cash provided by financing activities			–				668
Effect of exchange rate changes on cash			(3	)			–
Net increase (decrease)  in cash and cash equivalents			(789	)			115
Cash and cash equivalents at beginning of period			1,144				727
Cash and cash equivalents at end of period		$	355			$	842

Supplementary disclosure of cash flow information
Interest paid		$	66			$	11

Item1.

Interim financial statements and basis of presentation

1.	Nature of business

 

 

Item1.

Interim financial statements and basis of presentation

1.	Nature of business

       

3.

Patents

Item1.

Interim financial statements and basis of presentation (continued)

4.	Short-term debt

Item1.

Interim financial statements and basis of presentation (continued)

5.	Long-term debt

6.	Net (loss) per share

7.	Common stock options

Item1.

Interim financial statements and basis of presentation (continued)

7.	Common Stock Options (continued)

		Three Months Ended
		March 31, 2008	March 31, 2007
Risk free interest rate		3.32% – 5.11%	4.60% – 5.11%
Expected life (years)		3.21 – 6.83	3.46 –5.02
Expected volatility		80.96% – 104.57%	80.92% – 104.57%
Expected dividends		None	None

		Three Months Ended
		March 31, 2008				March 31, 2007
Research and development		$	1			$	3
Sales and marketing			12				18
General and administrative			1				3
Stock-based compensation expense included in operating expenses		$	14			$	24

	Three Months Ended
	March 31, 2008					March 31, 2007
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,	6,036	$0.58				5,893	$0.69
Granted	−					−
Exercised	−					−
Forfeited or expired	(134)	$0.35				(78)	$0.33
Outstanding at March 31	5,902	$0.59	4.35	$−		5,815	$0.69	4.79	$−
Vested and expected to vest at March 31	5,902	$0.59	4.35	$−		5,650	$0.73	4.79	$−
Exercisable at March 31	5,381	$0.62	4.20	$−		5,199	$0.73	4.62	$−

Item1.

Interim financial statements and basis of presentation (continued)

7.	Common Stock Options (continued)

				March 31, 2008
				Options Outstanding												Options Exercisable
Range of Exercise Prices				Number Outstanding				Weighted Average Remaining Contractual Life(in years)				Weighted Average Exercise Price				Number Outstanding				Weighted Average Exercise Price
$	0.12 – $0.50				2,379				4.9			$	0.32				1,859			$	0.34
	0.51 – 1.00				3,341				4.1			$	0.73				3,341			$	0.73
	1.01 – 2.00				167				1.8			$	1.32				167			$	1.32
	2.01 – 3.00				−				−			$	−				−			$	−
	3.01 – 7.50				15				2.2			$	3.56				15			$	3.56
					5,902				4.4			$	0.59				5,382			$	0.62

				March 31, 2007
				Options Outstanding												Options Exercisable
Range of Exercise Prices				Number Outstanding				Weighted Average Remaining Contractual Life(in years)				Weighted Average Exercise Price				Number Outstanding				Weighted Average Exercise Price
$	0.12 – $0.50				1,937				5.3			$	0.36				1,390			$	0.38
	0.51 – 1.00				3,455				4.9			$	0.73				3,386			$	0.74
	1.01 – 2.00				333				1.5			$	1.51				333			$	1.51
	2.01 – 3.00				50				0.6			$	3.00				50			$	3.00
	3.01 – 7.50				40				1.3			$	3.43				40			$	3.43
					5,815				4.8			$	0.69				5,199			$	0.73

Nonvested Shares		Shares				Weighted Average Grant-Date Fair Value
Nonvested at January 1, 2008			672			$	0.22
Granted			−			$	0.00
Forfeited			(134	)		$	0.25
Vested			(17	)		$	0.25
Nonvested			521			$	0.25

·	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.

signature solutions enhance the customer experience and significantly reduces the time required for account openings and applications creating more time available for up-cross selling while delivering significant reductions in the life cycle cost of managing mission critical documents thereby enhancing the need and demand  for its product solutions.

 

 

 

Accounts receivable net decreased $136 for the three months ended March 31, 2008, compared to the December 31, 2007 balance, due primarily to the decrease in sales and billed but unpaid maintenance contracts that are off set against deferred revenue compared to the fourth quarter of 2007. The billed but unpaid maintenance amounts off set against the deferred revenue amount to $208.  This amount was collected in April 2008.  The Company expects the development of the eSignature market will ultimately result in more consistent revenue on a quarter to quarter basis and, therefore, less fluctuation in accounts receivable from quarter to quarter.

		Payments due by period
Contractual obligations		Total				2008				2009				2010				2011				2012				Thereafter
Short-term debt related party (1)		$	1,720			$	1,720			$	–			$	–			$	–			$	–			$	–
Long-term debt (2)			117				–				117				–				–				–				–
Operating lease commitments (3)			990				198				272				280				240				–				–
Total contractual cash obligations		$	2,827			$	1,918			$	389			$	280			$	240			$	–			$	–

1.	Short-term debt reported on the balance sheet is net of approximately $217 in discounts representing the fair value of warrants issued in connection with the Company’s debt financings. Short-term debt includes $1,170 due to  the Affiliated Stockholder.

2.	Long-term debt reported on the balance sheet is net of approximately $18 in discounts representing the fair value of warrants issued to the investors.

3.	The operating lease commenced on November 1, 2002. The lease was renegotiated in December 2005 and extended for an additional 60 months. The base rent will increase approximately 3% per annum over the term of the lease, which expires on October 31, 2011.

 

Exhibit Number	Document
2.0	Second Amended Plan of Reorganization of the Company, incorporated herein by reference to the Company's Form 8-K filed October 24, 1994.
2.1	Orderly Liquidation Valuation, Exhibit F to the Second Amended Plan of Reorganization, incorporated herein by reference to the Company's Form 8-K filed October 19, 1994.
2.2	Order Confirming Plan of Reorganization, incorporated herein by reference to the Company's Form 8-K filed November 14, 1994.
3.1	Certificate of Incorporation of the Company, as amended, incorporated herein by reference to Exhibits 3.1, 3.2, 3.3 and 3.4 to the Company's Registration Statement on Form 10 (File No. 0-19301).
3.2	Certificate of Amendment to the Company's Certificate of Incorporation (authorizing the reclassification of the Class A Common Stock and Class B Common Stock into one class of Common Stock) as filed with the Delaware Secretary of State's office on November 1, 1991, incorporated herein by reference to Exhibit 3 to Amendment 1 on Form 8 to the Company's Form 8-A (File No. 0-19301).
3.3	By-laws of the Company adopted on October 6, 1986, incorporated herein by reference to Exhibit 3.5 to the Company's Registration Statement on Form 10 (File No. 0-19301).
3.4	By-laws of the Company adopted on October 6, 1986, incorporated herein by reference to Exhibit 3.5 to the Company's Registration Statement on Form 10 (File No. 0-19301).

 

3.5	Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation dated January 24, 2001, incorporated herein by reference to Exhibit 3.5 to the Company’s Registration Statement on Form S/1, filed December 28, 2007.
3.6	Certificate of Elimination of the Company’s Certificate of Designation of the Series A Preferred Stock dated August 17, 2001, incorporated herein by reference to Exhibit 3.6 to the Company’s Registration Statement on Form S/1, filed December 28, 2007.
*31.1	Certification of Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31.2	Certificate of Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*32.1	Certification of Chief Executive Officer pursuant to 18 USC Section 1750, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32.2	Certification of Chief Financial Officer pursuant to 18 USC Section 1750, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Filed herewith.

		COMMUNICATION INTELLIGENCE CORPORATION
		Registrant

May 14, 2008		/s/ Francis V. Dane
Date		Francis V. Dane
		(Principal Financial Officer and Officer Duly Authorized to Sign on Behalf of the Registrant)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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