Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2020 | Jun. 20, 2020 | |
Document And Entity Information | ||
Entity Registrant Name | IMAGEWARE SYSTEMS INC | |
Entity Central Index Key | 0000941685 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2020 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity Shell Company | false | |
Entity Interactive Data Current | Yes | |
Entity Incorporation, State or Country Code | DE | |
Entity File Number | 001-15757 | |
Entity Common Stock, Shares Outstanding | 129,035,167 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2020 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Mar. 31, 2020 | Dec. 31, 2019 |
Current Assets: | ||
Cash and cash equivalents | $ 53 | $ 1,030 |
Accounts receivable, net of allowance for doubtful accounts of $7 at March 31, 2020 and December 31, 2019. | 489 | 657 |
Inventory, net | 679 | 615 |
Stock subscription receivable | 765 | 0 |
Other current assets | 214 | 243 |
Total current assets | 2,200 | 2,545 |
Property and equipment, net | 198 | 216 |
Other assets | 256 | 257 |
Operating lease right-of-use assets | 1,822 | 1,906 |
Intangible assets, net of accumulated amortization | 67 | 70 |
Goodwill | 3,416 | 3,416 |
Total assets | 7,959 | 8,410 |
Current Liabilities: | ||
Accounts payable | 1,178 | 515 |
Deferred revenue | 1,865 | 1,629 |
Accrued expenses | 2,594 | 1,312 |
Notes payable to related parties | 350 | 0 |
Operating lease liabilities, current portion | 391 | 373 |
Derivative liabilities | 172 | 369 |
Total current liabilities | 6,550 | 4,198 |
Other long-term liabilities | 118 | 118 |
Lease liabilities, net of current portion | 1,611 | 1,716 |
Pension obligation | 2,265 | 2,256 |
Total liabilities | 10,544 | 8,288 |
Mezzanine Equity: | ||
Series C convertible redeemable preferred stock, $0.01 par value, designated 1,000 shares, 1,000 shares issued and outstanding at March 31, 2020 (unaudited) and December 31, 2019, respectively; liquidation preference $10,250 at March 31, 2020 (unaudited) and $10,000 at December 31, 2019. | 9,059 | 8,884 |
Shareholders' Deficit: | ||
Common stock, $0.01 par value, 175,000,000 shares authorized; 123,753,176 and 113,353,176 shares issued at March 31, 2020 (unaudited) and December 31, 2019, respectively, and 123,746,472 and 113,346,472 shares outstanding at March 31, 2020 (unaudited) and December 31, 2019, respectively. | 1,237 | 1,133 |
Additional paid in capital | 196,373 | 195,079 |
Treasury stock, at cost 6,704 shares | (64) | (64) |
Accumulated other comprehensive loss | (1,710) | (1,741) |
Accumulated deficit | (207,482) | (203,171) |
Total shareholders' deficit | (11,644) | (8,762) |
Total liabilities, mezzanine equity and shareholders' deficit | 7,959 | 8,410 |
Series A Preferred Stock | ||
Shareholders' Deficit: | ||
Preferred stock | 0 | 0 |
Series B Preferred Stock | ||
Shareholders' Deficit: | ||
Preferred stock | $ 2 | $ 2 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands | Mar. 31, 2020 | Dec. 31, 2019 |
Current Assets: | ||
Accounts receivable, net of allowance for doubtful accounts | $ 7 | $ 7 |
Shareholders' deficit: | ||
Preferred stock, shares authorized | 4,000,000 | 4,000,000 |
Common stock, par value | $ .01 | $ 0.01 |
Common stock, shares authorized | 175,000,000 | 175,000,000 |
Common stock, shares issued | 123,753,176 | 113,353,176 |
Common stock, shares outstanding | 123,746,472 | 113,346,472 |
Treasury stock, shares | 6,704 | 6,704 |
Mezzanine Preferred Stock | ||
Shareholders' deficit: | ||
Preferred stock, par value | $ .01 | $ .01 |
Preferred stock, shares authorized | 1,000 | 1,000 |
Preferred stock, shares issued | 1,000 | 1,000 |
Preferred stock, shares outstanding | 1,000 | 1,000 |
Preferred stock, liquidation preference | $ 10,250 | $ 10,000 |
Series A Preferred Stock | ||
Shareholders' deficit: | ||
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 38,000 | 38,000 |
Preferred stock, shares issued | 37,467 | 37,467 |
Preferred stock, shares outstanding | 37,467 | 37,467 |
Preferred stock, liquidation preference | $ 38,404 | $ 37,467 |
Series B Preferred Stock | ||
Shareholders' deficit: | ||
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 750,000 | 750,000 |
Preferred stock, shares issued | 389,400 | 389,400 |
Preferred stock, shares outstanding | 239,400 | 239,400 |
Preferred stock, liquidation preference | $ 620 | $ 607 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Revenues | $ 796 | $ 931 |
Gross profit | 677 | 727 |
Operating expense: | ||
General and administrative | 983 | 1,107 |
Sales and marketing | 1,058 | 1,005 |
Research and development | 1,868 | 1,774 |
Depreciation and amortization | 18 | 19 |
Total | 3,927 | 3,905 |
Loss from operations | (3,250) | (3,178) |
Interest (income) expense, net | 24 | (22) |
(Gain) loss on change in fair value of derivative liabilities | (197) | 424 |
Other components of net periodic pension expense | 47 | 32 |
Loss before income taxes | (3,124) | (3,612) |
Income tax expense | 0 | 0 |
Net loss | (3,124) | (3,612) |
Preferred dividends, deemed dividend accretion | (1,374) | (1,294) |
Net loss available to common shareholders | $ (4,498) | $ (4,906) |
Basic income and diluted loss per common share - see Note 3: | ||
Basic and diluted loss per share available to common shareholders | $ (0.04) | $ (0.05) |
Basic and diluted weighted-average shares outstanding | 116,196,197 | 98,398,239 |
Product | ||
Revenues | $ 150 | $ 278 |
Cost of revenue | 21 | 84 |
Maintenance | ||
Revenues | 646 | 653 |
Cost of revenue | $ 98 | $ 120 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Statement of Other Comprehensive Income [Abstract] | ||
Net loss | $ (3,124) | $ (3,612) |
Other comprehensive income (loss): | ||
Foreign currency translation adjustment | 31 | 15 |
Comprehensive loss | $ (3,093) | $ (3,597) |
CONSOLIDATED STATEMENTS OF SHAR
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT - USD ($) $ in Thousands | Series A Preferred Stock | Series B Preferred Stock | Common Stock | Treasury Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total |
Beginning balance, shares at Dec. 31, 2018 | 37,467 | 239,400 | 98,230,336 | (6,704) | ||||
Beginning balance, amount at Dec. 31, 2018 | $ 0 | $ 2 | $ 981 | $ (64) | $ 184,130 | $ (1,428) | $ (186,648) | $ (3,027) |
Accretion of preferred stock discount | (186) | (186) | ||||||
Issuance of common stock pursuant to option exercises, shares | 286,834 | |||||||
Issuance of common stock pursuant to option exercises, amount | $ 3 | 103 | 106 | |||||
Stock-based compensation expense | 166 | 166 | ||||||
Common stock issued in exchange for unexercised options, amount | 0 | |||||||
Foreign currency translation adjustment | 15 | 15 | ||||||
Dividends on Series A preferred stock, shares | 591,803 | |||||||
Dividends on Series A preferred stock, amount | $ 6 | 858 | (864) | 0 | ||||
Dividends on Series C preferred stock, shares | 157,945 | |||||||
Dividends on Series C preferred stock, amount | $ 2 | 229 | (231) | 0 | ||||
Net loss | (3,612) | (3,612) | ||||||
Ending balance, shares at Mar. 31, 2019 | 37,467 | 239,400 | 99,266,918 | (6,704) | ||||
Ending balance, amount at Mar. 31, 2019 | $ 0 | $ 2 | $ 992 | $ (64) | 185,300 | (1,413) | (191,355) | (6,538) |
Beginning balance, shares at Dec. 31, 2019 | 37,467 | 239,400 | 113,353,176 | (6,704) | ||||
Beginning balance, amount at Dec. 31, 2019 | $ 0 | $ 2 | $ 1,133 | $ (64) | 195,079 | (1,741) | (203,171) | (8,762) |
Accretion of preferred stock discount | (175) | (175) | ||||||
Issuance of common stock net of financing costs, shares | 10,000,000 | |||||||
Issuance of common stock net of financing costs, amount | $ 100 | 1,287 | 1,287 | |||||
Stock-based compensation expense | 124 | 124 | ||||||
Common stock issued in exchange for unexercised options, shares | 400,000 | |||||||
Common stock issued in exchange for unexercised options, amount | $ 4 | 58 | 62 | |||||
Foreign currency translation adjustment | 31 | 31 | ||||||
Dividends on Series A preferred stock, amount | (937) | (937) | ||||||
Dividends on Series C preferred stock, amount | (250) | (250) | ||||||
Net loss | (3,124) | (3,124) | ||||||
Ending balance, shares at Mar. 31, 2020 | 37,467 | 239,400 | 123,753,176 | (6,704) | ||||
Ending balance, amount at Mar. 31, 2020 | $ 0 | $ 2 | $ 1,237 | $ (64) | $ 196,373 | $ (1,710) | $ (207,482) | $ (11,644) |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Cash flows from operating activities | ||
Net loss | $ (3,124) | $ (3,612) |
Adjustments to reconcile net loss to net cash used by operating activities: | ||
Depreciation and amortization | 18 | 19 |
Stock-based compensation | 124 | 166 |
Issuance of common stock in exchange for unexercised options | 62 | 0 |
Change in fair value of derivative liabilities | (197) | 424 |
Change in assets and liabilities | ||
Accounts receivable | 168 | (151) |
Inventory | (64) | (75) |
Other assets | 30 | 71 |
Operating lease right-of-use assets | (3) | 46 |
Accounts payable | 662 | (230) |
Deferred revenue | 234 | 275 |
Accrued expense | 102 | 201 |
Contract costs | 0 | (29) |
Pension obligation | 8 | 13 |
Total adjustments | 1,144 | 730 |
Net cash used in operating activities | (1,980) | (2,882) |
Cash flows from investing activities | ||
Purchase of property and equipment | 0 | (8) |
Net cash used in investing activities | 0 | (8) |
Cash flows from financing activities | ||
Proceeds from issuance of common stock, net | 622 | 0 |
Proceeds from exercise of stock options | 0 | 106 |
Proceeds from issuance of related party notes payable | 350 | 0 |
Net cash provided by financing activities | 972 | 106 |
Effect of exchange rate changes on cash | 31 | 15 |
Net increase (decrease) in cash and cash equivalents | (977) | (2,769) |
Cash and cash equivalents at beginning of period | 1,030 | 5,694 |
Cash and cash equivalents at end of period | 53 | 2,925 |
Supplemental disclosure of cash flow information: | ||
Cash paid for interest | 0 | 0 |
Cash paid for income taxes | 0 | 0 |
Summary of non-cash investing and financing activities: | ||
Accrued stock dividends on Series A convertible preferred stock | 937 | 864 |
Accrued stock dividends on Series C convertible redeemable preferred stock | 250 | 231 |
Accretion of discount on Series C convertible redeemable preferred stock | 175 | 186 |
Recognition of operating lease right-of-use assets from adoption of ASC 842 | 0 | 2,265 |
Recognition of lease liabilities from adoption of ASC 842 | 0 | (2,280) |
Stock subscription receivable | $ 765 | $ 0 |
DESCRIPTION OF BUSINESS AND OPE
DESCRIPTION OF BUSINESS AND OPERATIONS | 3 Months Ended |
Mar. 31, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
DESCRIPTION OF BUSINESS AND OPERATIONS | Overview As used in this Report, “we”, “us”, “our”, “ImageWare”, “ImageWare Systems” or the “Company” refers to ImageWare Systems, Inc. and all of its subsidiaries. ImageWare Systems, Inc. is incorporated in the state of Delaware. The Company is a pioneer and leader in the emerging market for biometrically enabled software-based identity management solutions. Using those human characteristics that are unique to us all, the Company creates software that provides a highly reliable indication of a person’s identity. The Company’s “flagship” product is the patented IWS Biometric Engine®. The Company’s products are used to manage and issue secure credentials, including national IDs, passports, driver licenses and access control credentials. The Company’s products also provide law enforcement with integrated mug shot, fingerprint LiveScan and investigative capabilities. The Company also provides comprehensive authentication security software using biometrics to secure physical and logical access to facilities or computer networks or internet sites. Biometric technology is now an integral part of all markets the Company addresses, and all the products are integrated into the IWS Biometric Engine. Liquidity, Going Concern and Management’s Plan Historically, our principal sources of cash have included customer payments from the sale of our products, proceeds from the issuance of common and preferred stock and proceeds from the issuance of debt. Our principal uses of cash have included cash used in operations, product development, and payments relating to purchases of property and equipment. We expect that our principal uses of cash in the future will be for product development, including customization of identity management products for enterprise and consumer applications, further development of intellectual property, development of Software-as-a-Service (“ SaaS Related Party Financings On February 12, 2020, the Company entered into a factoring agreement with a member of the Company’s Board of Directors for $350,000. Such amount is to be repaid with the proceeds from certain of the Company’s trade accounts receivable approximating $500,000 and were due no later than 21 days after February 12, 2020. As of June 25, 2020, despite collection of the Company’s trade accounts receivable, $315,000 of such amounts have not been repaid and the Company is seeking an extension from the Board member. In April 2020, the Company received an aggregate amount of $550,000 from two members of the Company’s Board of Directors. Terms of repayment are currently being negotiated between the Company and Board Members, although it is currently anticipated that the Company will issue subordinated promissory notes that will convert into shares of the Company’s common stock, par value $0.01 per share (" Common Stock 2020 Common Stock Financings Triton Funds LP On February 20, 2020, the Company entered into a securities purchase agreement (the “ Triton Purchase Agreement Triton Investor Offering Purchase Notice Purchase Notice Amount Purchased Shares In February and March of 2020, the Company sold, and Triton purchased, an aggregate of 10,000,000 shares of the Company’s Common Stock for cash. In February, the Company sold 4,000,000 shares of Common Stock for $0.16 per share resulting in gross proceeds to the Company of $640,000. In March 2020, the Company sold 6,000,000 shares of Common Stock resulting in gross proceeds to the Company of $765,000, or a per share purchase price of $0.13 per share. Proceeds from the March 2020 sale were received on April 29, 2020. Aggregate net proceeds from this financing approximated $1,387,000 after recognition of direct offering costs. As prescribed by ASC topic 505, Equity Lincoln Park Capital Fund, LLC On April 28, 2020, we entered into a purchase agreement, as amended on June 11, 2020 (the “ Purchase Agreement Registration Rights Agreement Lincoln Park Under the terms and subject to the conditions of the Purchase Agreement, including stockholder approval of an amendment to the Company’s Certificate of Incorporation to increase the number of shares of the Company’s capital stock to 350 million shares, obtained from our shareholders effective June 9, 2020, we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to $10,250,000 of shares of our common stock. On April 28, 2020, we sold 1,000,000 shares of common stock to Lincoln Park under the Purchase Agreement for an aggregate purchase price of $100,000 (the “ Initial Purchase Shares) Commencement Purchase Shares SEC Commencement Date After the Commencement Date, on any business day over the term of the Purchase Agreement, the Company has the right, in its sole discretion, to direct Lincoln Park to purchase up to 125,000 shares on such business day (the “ Regular Purchase accelerated purchases and additional accelerated purchases as described in the Purchase Agreement Pursuant to the terms of the Purchase Agreement, in no event may the Company issue or sell to Lincoln Park under the shares of the Company’s common stock under the Purchase Agreement which, when aggregated with all other shares of Common Stock then beneficially owned by Lincoln Park and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder), would result in the beneficial ownership by the Investor and its affiliates of more than 4.99% of the then issued and outstanding shares of Common Stock (the “ Beneficial Ownership Limitation The Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, agreements and conditions and indemnification obligations of the parties. The Company has the right to terminate the Purchase Agreement at any time, at no cost or penalty. The Company issued to Lincoln Park 2,500,000 shares of common stock in consideration for entering into the Purchase Agreement. Due to the terms of the Purchase Agreement as described above, management is not currently expecting the related proceeds from this agreement to be sufficient to sustain operations for an extended period of time. CARES Act Financing On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief and Economic Security Act (“ CARES Act PPP Loan Comerica PPP SBA Going Concern At March 31, 2020, we had negative working capital of approximately $4,350,000. Our principal sources of liquidity at March 31, 2020 consisted of approximately $53,000 of cash and cash equivalents. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The COVID-19 pandemic is affecting the United States and global economies and may affect the Company's operations and those of third parties on which the Company relies. Additionally, as the duration of the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the financial markets may reduce our ability to access capital, which could negatively impact the Company's short-term and long-term liquidity. These effects could have a material impact on the Company's liquidity, capital resources, operations and business and those of the third parties on which the Company relies. Considering the financings consummated in 2020, as well as our projected cash requirements, and assuming we are unable to generate incremental revenue, our available cash will be insufficient to satisfy our cash requirements for the next twelve months from the date of this filing. At June 23, 2020, cash on hand approximated $945,000. Based on the Company’s rate of cash consumption in the first quarter of 2020 and the last quarter of 2019, the Company will need additional capital in the third quarter of 2020 and its prospects for obtaining that capital are uncertain. As a result of the Company’s historical losses and financial condition, there is substantial doubt about the Company’s ability to continue as a going concern. To address our working capital requirements, management has begun instituting several cost cutting measures and may utilize cash proceeds available under the Lincoln Park facility at such time as the Company’s registration statement filed with the SEC on June 15, 2020 is declared effective. Additionally, management may seek additional equity and/or debt financing through the issuance of additional debt and/or equity securities or may seek strategic or other transactions intended to provide necessary working capital and increase shareholder value. There are currently no financing arrangements to support our projected cash shortfall, including commitments to purchase additional debt and/or equity securities, or other agreements, and no assurances can be given that we will be successful in raising additional debt and/or equity securities, or entering into any other transaction that addresses our ability to continue as a going concern. In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying condensed consolidated balance sheet is dependent upon continued operations of the Company, which, in turn, is dependent upon the Company’s ability to continue to raise capital and generate positive cash flows from operations. However, the Company operates in markets that are emerging and highly competitive. There is no assurance that the Company will be able to obtain additional capital, operate at a profit or generate positive cash flows in the future. Therefore, management’s plans do not alleviate the substantial doubt regarding the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. |
SIGNIFICANT ACCOUNTING POLICIES
SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION | 3 Months Ended |
Mar. 31, 2020 | |
Accounting Policies [Abstract] | |
SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION | Basis of Presentation The accompanying condensed consolidated balance sheet as of December 31, 2019, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“ GAAP Operating results for the three months ending March 31, 2020 are not necessarily indicative of the results that may be expected for the year ended December 31, 2020, or any other future periods. Significant Accounting Policies Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s wholly-owned subsidiaries are: XImage Corporation, a California Corporation; ImageWare Systems ID Group, Inc., a Delaware corporation (formerly Imaging Technology Corporation); I.W. Systems Canada Company, a Nova Scotia unlimited liability company; ImageWare Digital Photography Systems, LLC, a Nevada limited liability company (formerly Castleworks LLC); Digital Imaging International GmbH, a company formed under German laws; and Image Ware Mexico S de RL de CV, a company formed under Mexican laws. All significant intercompany transactions and balances have been eliminated. Operating Cycle Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying condensed consolidated balance sheets, although they will be liquidated in the normal course of contract completion which may take more than one operating cycle. Use of Estimates The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expense during the reporting period. Significant estimates include the evaluation of our ability to continue as a going concern, the allowance for doubtful accounts receivable, deferred tax asset valuation allowances, recoverability of goodwill, assumptions used in the Black-Scholes model to calculate the fair value of share based payments, fair value of financial instruments issued with and affected by the Series C Preferred Financing, assumptions used in the application of revenue recognition policies, assumptions used in the derivation of the Company’s incremental borrowing rate used in the computation of the Company’s operating lease liabilities and assumptions used in the application of fair value methodologies to calculate the fair value of pension assets and obligations. Actual results could differ from estimates. Accounts Receivable In the normal course of business, the Company extends credit without collateral requirements to its customers that satisfy pre-defined credit criteria. Accounts receivable are recorded net of an allowance for doubtful accounts. Accounts receivable are considered delinquent when the due date on the invoice has passed. The Company records its allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions and other factors that may affect customers’ ability to pay to determine the level of allowance required. Accounts receivable are written off against the allowance for doubtful accounts when all collection efforts by the Company have been unsuccessful. Inventories Finished goods inventories are stated at the lower of cost, determined using the average cost method, or net realizable value. See Note 4. Property, Equipment and Leasehold Improvements Property and equipment, consisting of furniture and equipment, are stated at cost and are being depreciated on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged to expense as incurred. Major renewals or improvements are capitalized. When assets are sold or abandoned, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized. Expenditures for leasehold improvements are capitalized. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements. Fair Value of Financial Instruments For certain of the Company’s financial instruments, including accounts receivable, accounts payable, accrued expense, and deferred revenue, the carrying amounts approximate fair value due to their relatively short maturities. Lease Liabilities and Operating Lease Right-of-Use Assets The Company is a party to certain contractual arrangements for office space which meet the definition of leases under Accounting Standards Codification (“ ASC ASC 842 A package of practical expedients to not reassess: ● Whether a contract is or contains a lease ● Lease classification, and ● Initial direct costs Revenue Recognition Effective January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers (“ ASC 606 In accordance with ASC 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The core principle of the standard is that we should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To achieve that core principle, we apply the following five step model: 1. Identify the contract with the customer; 2. Identify the performance obligation in the contract; 3. Determine the transaction price; 4. Allocate the transaction price to the performance obligations in the contract; and 5. Recognize revenue when (or as) each performance obligation is satisfied. At contract inception, we assess the goods and services promised in a contract with a customer and identify as a performance obligation each promise to transfer to the customer either: (i) a good or service (or a bundle of goods or services) that is distinct, or (ii) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. We recognize revenue only when we satisfy a performance obligation by transferring a promised good or service to a customer. Determining the timing of the satisfaction of performance obligations as well as the transaction price and the amounts allocated to performance obligations requires judgement. We disclose disaggregation of our customer revenue by classes of similar products and services as follows: ● Software licensing and royalties; ● Sales of computer hardware and identification media; ● Services; and ● Post-contract customer support. Software Licensing and Royalties Software licenses consist of revenue from the sale of software for identity management applications. Our software licenses are functional intellectual property and typically provide customers with the right to use our software in perpetuity as it exists when made available to the customer. We recognize revenue from software licensing at a point in time upon delivery, provided all other revenue recognition criteria are met. Royalties consist of revenue from usage-based arrangements and guaranteed minimum-based arrangements. We recognize revenue for royalty arrangements at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied. Computer Hardware and Identification Media We generate revenue from the sale of computer hardware and identification media. Revenue for these items is recognized upon delivery of these products to the customer, provided all other revenue recognition criteria are met. Services Services revenue is comprised primarily of software customization services, software integration services, system installation services and customer training. Revenue is generally recognized upon completion of services and customer acceptance provided all other revenue recognition criteria are met. Post-Contract Customer Support (“PCS”) Post contract customer support consists of maintenance on software and hardware for our identity management solutions. Arrangements with Multiple Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. In addition to selling software licenses, hardware and identification media, services and post-contract customer support on a standalone basis, certain contracts include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on our best estimate of the relative standalone selling price. The standalone selling price for a performance obligation is the price at which we would sell a promised good or service separately to a customer. The primary methods used to estimate standalone selling price are as follows: (i) the expected cost-plus margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service, and (ii) the percent discount off of list price approach. Contract Costs We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We apply a practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period is one year or less. At March 31, 2020 and December 31, 2019, we had capitalized incremental costs of obtaining a contract with a customer of approximately $118,000. We recorded no additional contract costs during the three months ended March 31, 2020. Additionally, we recognized no revenue during the three months ended March 31, 2020 that was related to contract costs at the beginning of the period. Other Items We do not offer rights of return for our products and services in the normal course of business. Sales tax collected from customers is excluded from revenue. The following table sets forth our disaggregated revenue for the three months ended March 31, 2020 and 2019: Three Months Ended March 31, Net Revenue 2020 2019 (dollars in thousands) Software and royalties $ 125 $ 111 Hardware and consumables 14 11 Services 11 156 Maintenance 646 653 Total revenue $ 796 $ 931 Customer Concentration For the three months ended March 31, 2020, one customer accounted for approximately 27% or $216,000 of our total revenue and had trade receivables at March 31, 2020 of $0. For the three months ended March 31, 2019, two customers accounted for approximately 46% or $424,000 of our total revenue and had trade receivables at March 31, 2019 of $651,000. Recently Issued Accounting Standards From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“ FASB FASB Accounting Standards Update (‘ASU”) No. 2018-14 “Compensation —Retirement Benefits —Defined Benefit Plans —General (Subtopic 715-20) —Disclosure Framework —Changes to the Disclosure Requirements for Defined Benefit Plans” ASU 2018-14 FASB ASU No. 2019-12 Income Taxes (Topic 740) FASB ASU No. 2020-01 Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815”, |
NET LOSS PER COMMON SHARE
NET LOSS PER COMMON SHARE | 3 Months Ended |
Mar. 31, 2020 | |
Basic income and diluted loss per common share - see Note 3: | |
NET LOSS PER COMMON SHARE | Basic loss per common share is calculated by dividing net loss available to common shareholders for the period by the weighted-average number of common shares outstanding during the period. Diluted loss per common share is calculated by dividing net loss available to common shareholders for the period by the weighted-average number of common shares outstanding during the period, adjusted to include, if dilutive, potential dilutive shares consisting of convertible preferred stock, convertible related party lines of credit, stock options and warrants, calculated using the treasury stock and if-converted methods. For diluted loss per share calculation purposes, the net loss available to common shareholders is adjusted to add back any preferred stock dividends and any interest on convertible debt reflected in the condensed consolidated statement of operations for the respective periods. The table below presents the computation of basic and diluted loss per share: (Amounts in thousands except share and per share amounts) Three Months Ended March 31, 2020 2019 Numerator for basic and diluted loss per share: Net loss $ (3,124 ) $ (3,612 ) Preferred dividends, deemed dividends and accretion (1,374 ) (1,294 ) Net loss available to common shareholders $ (4,498 ) $ (4,906 ) Denominator for basic and dilutive loss per share — weighted-average shares outstanding 116,196,197 98,398,239 Basic and diluted loss per share available to common shareholders $ (0.04 ) $ (0.05 ) The following potential dilutive securities have been excluded from the computations of diluted weighted-average shares outstanding, as their effect would have been antidilutive: Potential Dilutive securities Three Months Ended March 31, 2020 2019 Convertible redeemable preferred stock 43,685,695 42,626,980 Stock options 5,927,332 7,225,421 Warrants 1,733,856 1,813,856 Total potential dilutive securities 51,346,883 51,666,257 |
SELECT BALANCE SHEET DETAILS
SELECT BALANCE SHEET DETAILS | 3 Months Ended |
Mar. 31, 2020 | |
Balance Sheet Related Disclosures [Abstract] | |
SELECT BALANCE SHEET DETAILS | Inventory Inventories of $679,000 as of March 31, 2020 were comprised of work in process of $666,000 representing direct labor costs on in-process projects and finished goods of $13,000 net of reserves for obsolete and slow-moving items of $3,000. Inventories of as of December 31, 2019 were comprised of work in process of representing direct labor costs on in-process projects and finished goods of net of reserves for obsolete and slow-moving items of . Intangible Assets The carrying amounts of the Company’s patent intangible assets were $67,000 and $70,000 as of March 31, 2020 and December 31, 2019, respectively, which includes accumulated amortization of $592,000 and $589,000 as of March 31, 2020 and December 31, 2019, respectively. Amortization expense for patent intangible assets was $3,000 for the three months ended March 31, 2020 and 2019. Patent intangible assets are being amortized on a straight-line basis over their remaining life of approximately 6.25 years. There was no impairment of the Company’s intangible assets during the three months ended March 31, 2020 and 2019. The estimated acquired intangible amortization expense for the next five fiscal years is as follows: Fiscal Year Ended December 31, Estimated Amortization Expense ($ in thousands) 2020 (nine months) $ 9 2021 12 2022 12 2023 12 2024 12 Thereafter 10 Totals $ 67 Goodwill The Company annually, or more frequently if events or circumstances indicate a need, tests the carrying amount of goodwill for impairment. The Company performs its annual impairment test in the fourth quarter of each year. In December 2018, the Company adopted the provisions of ASU 2017-04, " Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment |
LEASES
LEASES | 3 Months Ended |
Mar. 31, 2020 | |
Leases [Abstract] | |
LEASES | The Company is a party to certain contractual arrangements for office space which meet the definition of leases under ASC 842 – Leases. In accordance with ASC 842, the Company has determined that such arrangements are operating leases and accordingly the Company has, as of January 1, 2019, recorded operating lease right-of-use assets and related lease liability for the present value of the lease payments over the lease terms using the Company’s estimated weighted-average incremental borrowing rate of approximately 14.5% as the discount rates implicit in the Company’s leases cannot be readily determined. Such assets and liabilities aggregated approximately $2,265,000 and $2,280,000 as of January 1, 2019, respectively and $1,906,000 and $2,089,000 as of December 31, 2019, respectively. At March 31, 2020, such assets and liabilities aggregated approximately $1,822,000 and $2,002,000, respectively. The Company determined that it had no arrangements representing finance leases. The Company’s operating leasing arrangements are summarized below: ● The Company’s corporate headquarters is located in San Diego, California, where it occupies 8,511 square feet of office space at an average cost of approximately $28,000 per month. This facility’s lease was entered into by the Company in July 2018. This lease commenced on November 1, 2018 and terminates on April 30, 2025; ● 1,508 square feet in Ottawa, Province of Ontario, Canada, at a cost of approximately $3,000 per month until the expiration of the lease on March 31, 2021; ● 9,720 square feet in Portland, Oregon, at a cost of approximately $23,000 per month until the expiration of the lease on February 28, 2023; and ● 183 square feet of office space in Mexico City, Mexico, at a cost of approximately $2,000 per month until September 30, 2020. The above leases contain no residual value guarantees provided by the Company and there are no options to either extend or terminate the leases. The Company is not a party to any subleasing arrangements. For the three months ended March 31, 2020 and 2019, the Company recorded approximately $154,000, in lease expense using the straight-line method. Under the provisions of ASC 842, lease expense is comprised of the total lease payments under the lease plus any initial direct costs incurred less any lease incentives received by the lessor amortized ratably using the straight-line method over the lease term. The weighted-average remaining lease term of the Company’s operating leases as of March 31, 2020 is 4.29 years. Cash payments under operating leases aggregated approximately $161,000 and $117,000 for the three months ended March 31, 2020 and 2019, respectively, and are included in operating cash flows. The Company’s lease liability was computed using the present value of future lease payments. The Company has utilized the practical expedient regarding lease and non-lease components and combined such components into a single combined component in the determination of the lease liability. The Company has excluded the lease of its office space in Mexico City, Mexico in the determination of the lease liability as of January 1, 2019 as its term is less than 12 months. At March 31, 2020, future minimum undiscounted lease payments are as follows: ($ in thousands) 2020 (nine months) $ 502 2021 642 2022 652 2023 425 2024 387 Thereafter 130 Total 2,738 Short-term leases not included in lease liability (14 ) Present Value effect on future minimum undiscounted lease payments at March 31, 2020 (722 ) Lease liability at March 31, 2020 $ 2,002 Less current portion (391 ) Non-current lease liability at March 31, 2020 $ 1,611 |
MEZZANINE EQUITY
MEZZANINE EQUITY | 3 Months Ended |
Mar. 31, 2020 | |
Equity [Abstract] | |
MEZZANINE EQUITY | Series C Convertible Redeemable Preferred Stock On September 10, 2018, the Company filed the Certificate of Designations, Preferences, and Rights of Series C Convertible Redeemable Preferred stock (the “ Series C COD Stated Value accrue dividends cumulatively and are payable quarterly at a rate of 8% per annum if paid in cash, or 10% per annum if paid by the issuance of shares of Common Stock. Each share of Series C Preferred has a liquidation preference Conversion Shares On September 10, 2018, the Company offered and sold a total of 890 shares of Series C Preferred at a purchase price of $10,000 per share, and on September 21, 2018, the Company offered and sold an additional 110 shares of Series C Preferred at a purchase price of $10,000 per share. The total gross proceeds to the Company from the Series C Financing were $10,000,000. Issuance costs incurred in conjunction with the Series C Financing were approximately $1,211,000. Such costs have been recorded as a discount on the Series C Preferred Stock and will be accreted to the point of earliest redemption which is the third anniversary of the Series C Financing or September 10, 2021 using the effective interest rate method. The accretion of these costs is recorded as a deemed dividend. There were no issuances or conversions of Series C Preferred during the three months ended March 31, 2020 or March 31, 2019. The Company issued the holders of Series C Preferred an aggregate of 157,945 shares of Common Stock on March 31, 2019 as dividends. At March 31, 2020 and December 31, 2019, the Company had cumulative dividends of approximately $250,000 and $0, respectively. At March 31, 2020, the unpaid Series C dividend of $250,000 is included as a current liability under the caption “Accrued expense” in the Company’s condensed consolidated balance sheet. Guidance for accounting for freestanding financial instruments that contain characteristics of both liabilities and equity are contained in ASC 480, Distinguishing Liabilities From Equity ASR 268 Redeemable Preferred Stocks. Liquidation Preference Amount The Company noted that the Series C Preferred Stock instrument was a hybrid instrument that contains several embedded features. In November 2014, the FASB issued ASU 2014-16 to amend ASC 815, “ Derivatives and Hedging ASC 815 The whole instrument approach requires an issuer or investor to consider the economic characteristics and risks of the entire hybrid instrument, including all of its stated and implied substantive terms and features. Under this approach, all stated and implied features, including the embedded feature being evaluated for bifurcation, must be considered. Each term and feature should be weighed based on the relevant facts and circumstances to determine the nature of the host contract. This approach results in a single, consistent determination of the nature of the host contract, which is then used to evaluate each embedded feature for bifurcation. That is, the host contract does not change as each feature is evaluated. The revised guidance further clarifies that the existence or omission of any single feature, including an investor-held, fixed-price, noncontingent redemption option, does not determine the economic characteristics and risks of the host contract. Instead, an entity must base that determination on an evaluation of the entire hybrid instrument, including all substantive terms and features. However, an individual term or feature may be weighed more heavily in the evaluation based on facts and circumstances. An evaluation of all relevant terms and features, including the circumstances surrounding the issuance or acquisition of the equity share, as well as the likelihood that an issuer or investor is expected to exercise any options within the host contract, to determine the nature of the host contract, requires judgement. Using the whole instrument approach, the Company concluded that the host instrument is more akin to debt than equity as the majority of identified features contain more characteristics of debt. The Company evaluated the identified embedded features of the Series C Preferred host instrument and determined that certain features meet the definition of and contained the characteristics of derivative financial instruments requiring bifurcation at fair value from the host instrument. Accordingly, the Company has bifurcated from the Series C Preferred host instrument the conversion options, redemption option and participating dividend feature in accordance with the guidance in ASC 815. These bifurcated features aggregated approximately $833,000 at issuance and have been recorded as a discount to the Series C Preferred. Such amount will be accreted to the point of earliest redemption which is the third anniversary of the Series C Financing or September 10, 2021 using the effective interest rate method. The accretion of these features is recorded as a deemed dividend. For the three months ended March 31, 2020, the Company recorded the accretion of debt issuance costs and derivative liabilities aggregating approximately $175,000 using the effective interest rate method. For the three months ended March 31, 2019, the Company recorded the accretion of debt issuance costs and derivative liabilities aggregating approximately $186,000 using the effective interest rate method. There were no conversions of Series C Preferred into Common Stock during the three months ended March 31, 2020 and 2019. The Company reflected the following in Mezzanine Equity for the Series C Preferred Stock as of December 31, 2019 and March 31, 2020: Series C Convertible, Redeemable Preferred (amounts in thousands, except share amounts) Shares Amount Total Series C Preferred Stock as of December 31, 2019 1,000 $ 8,884 Accretion of discount – deemed dividend for the three months ended March 31, 2020 — 175 Total Series C Preferred Stock as of March 31, 2020 1,000 $ 9,059 |
DERIVATIVE LIABILITIES
DERIVATIVE LIABILITIES | 3 Months Ended |
Mar. 31, 2020 | |
Derivative Liability [Abstract] | |
DERIVATIVE LIABILITIES | The Company accounts for its derivative instruments under the provisions of ASC 815, “ Derivatives and Hedging The Company determined that the conversion option, redemption option and participating dividend feature contained in the Series C Preferred host instrument required bifurcation. The Company valued the bifurcatable features at fair value. Such liabilities aggregated approximately $833,000 at inception and are classified as current liabilities on the Company’s condensed consolidated balance sheets under the caption “Derivative liabilities”. The Company will revalue these features at each balance sheet date and record any change in fair value in the determination of period net income or loss. Such amounts are recorded in the caption “(Gain) loss on change in fair value of derivative liabilities” in the Company’s condensed consolidated statements of operations. During the three months ended March 31, 2020, the Company recorded a decrease to these derivative liabilities using fair value methodologies of approximately $197,000. As a result of this decrease, such liabilities aggregated approximately $172,000 at March 31, 2020. During the three months ended March 31, 2019, the Company recorded an increase to these derivative liabilities using fair value methodologies of approximately $424,000. |
EQUITY
EQUITY | 3 Months Ended |
Mar. 31, 2020 | |
Equity [Abstract] | |
EQUITY | The Company’s Certificate of Incorporation, as amended, authorizes the issuance of two classes of stock to be designated “Common Stock” and “Preferred Stock”. The Preferred Stock may be divided into such number of series and with the rights, preferences, privileges and restrictions as the Board of Directors may determine. Series A Convertible Preferred Stock The Company had 37,467 shares of Series A Preferred outstanding as of March 31, 2020 and December 31, 2019. At March 31, 2020 and December 31, 2019, the Company had cumulative dividends of approximately $937,000 and $0, respectively. There were no conversions of Series A Preferred into Common Stock during the three months ended March 31, 2020 and 2019. At March 31, 2020, the unpaid Series A dividend of approximately $937,000 is included as a current liability under the caption “Accrued expense” in the Company’s condensed consolidated balance sheet. Series B Convertible Preferred Stock The Company had 239,400 shares of Series B Convertible Preferred stock, par value $0.01 per share (“ Series B Preferred Common Stock The following table summarizes Common Stock activity for the three months ended March 31, 2020: Common Stock Shares outstanding at December 31, 2019 113,346,472 Shares issued pursuant to option exchange 400,000 Shares issued for cash and stock subscription receivable 10,000,000 Shares outstanding at March 31, 2020 123,746,472 During the three months ended March 31, 2020, the Company issued 10,000,000 shares of its Common Stock for cash and a stock subscription receivable pursuant a registered direct offering. The Offering was made pursuant to an effective registration statement on Form S-3, as previously filed with the SEC on July 10, 2018, and a related prospectus supplement filed on February 21, 2020. On April 29, 2020, the Company closed on the offer and sale to Triton Funds LP (“ Triton As prescribed by ASC topic 505, Equity During the three months ended March 31, 2020, the Company issued 400,000 shares of its common stock pursuant to an exchange agreement with certain terminated employees whereby such employees exchanged 800,000 common stock purchase options for 400,000 shares of common stock as a component of their severance agreement. The Company recorded the grant date fair value of this common stock issuance as severance expense in the amount of approximately $62,000. Warrants The following table summarizes warrant activity for the following periods: Warrants Weighted- Average Exercise Price Balance at December 31, 2019 1,733,856 $ 0.14 Granted — — Expired/Canceled — — Exercised — — Balance at March 31, 2020 1,733,856 $ 0.14 As of March 31, 2020, warrants to purchase 1,733,856 Stock-Based Compensation The Company’s 1999 Stock Award Plan (the “ 1999 Plan On June 9, 2020, pursuant to authorization obtained from the Company’s stockholders, the Company adopted the 2020 Omnibus Stock Incentive Plan (the ” 2020 Plan Code Pursuant to the adoption of the 2020 Plan, such plan will supersede and replace the Company’s 1999 Stock Option Plan (the “ 1999 Plan” A more detailed description of the 2020 Plan is set forth in Note 12. The Company estimates the fair value of its stock options using a Black-Scholes option-pricing model, consistent with the provisions of ASC 718, “ Compensation – Stock Compensation ASC 718 requires the use of a valuation model to calculate the fair value of stock-based awards. The Company has elected to use the Black-Scholes option-pricing model, which incorporates various assumptions including volatility, expected life, and interest rates. The Company is required to make various assumptions in the application of the Black-Scholes option-pricing model. The Company has determined that the best measure of expected volatility is based on the historical weekly volatility of the Company’s Common Stock. There were no options granted during the three months ended March 31, 2020. Historical volatility factors utilized in the Company’s Black-Scholes computations for options granted during the three months March 31, 2019 ranged from 57% to 59%. The Company has elected to estimate the expected life of an award based upon the SEC approved “simplified method” noted under the provisions of Staff Accounting Bulletin Topic 14. The expected term used by the Company during the three months ended March 31, 2019 was 5.17 years. The difference between the actual historical expected life and the simplified method was immaterial. The interest rate used is the risk-free interest rate and is based upon U.S. Treasury rates appropriate for the expected term. Interest rates used in the Company’s Black-Scholes calculations for the three months ended March 31, 2019 averaged 2.58%. Dividend yield is zero as the Company does not expect to declare any dividends on the Company’s common shares in the foreseeable future. In addition to the key assumptions used in the Black-Scholes model, the estimated forfeiture rate at the time of valuation is a critical assumption. The Company has adopted the provisions of ASU 2016-09 and will continue to use an estimated annualized forfeiture rate of approximately 0% for corporate officers, 4.1% for members of the Board of Directors and 6.0% for all other employees. The Company is currently in the process of reviewing the expected forfeiture rate to determine if that percent is still reasonable based on recent historical experience. A summary of the activity under the Company’s stock option plans is as follows: Options Weighted-Average Exercise Price Balance at December 31, 2019 7,204,672 $ 1.32 Granted — $ — Expired/Cancelled (1,277,340 ) $ 1.31 Exercised — $ — Balance at March 31, 2020 5,927,332 $ 1.32 During the three months ended March 31, 2020, the Company issued 400,000 shares of its common stock pursuant to an exchange agreement with certain terminated employees whereby such employees exchanged 800,000 common stock purchase options for 400,000 shares of common stock as a component of their severance agreement. The Company recorded the grant date fair value of this common stock issuance as severance expense in the amount of approximately $62,000. In addition to these 800,000 options, an additional 477,340 options expired unexercised during the three months ended March 31, 2020. The intrinsic value of options exercisable and outstanding at March 31, 2020 was $0. T he aggregate intrinsic value for all options outstanding as of March 31, 2020 was $0. Stock-based compensation related to equity options, including options granted to certain members of the Company’s Board of Directors, has been classified as follows in the accompanying condensed consolidated statements of operations (in thousands): Three Months Ended March 31, 2020 2019 Cost of revenue $ 2 $ 3 General and administrative 67 93 Sales and marketing 29 39 Research and development 26 31 Total $ 124 $ 166 |
FAIR VALUE ACCOUNTING
FAIR VALUE ACCOUNTING | 3 Months Ended |
Mar. 31, 2020 | |
Fair Value Disclosures [Abstract] | |
FAIR VALUE ACCOUNTING | The Company accounts for fair value measurements in accordance with ASC 820, “ Fair Value Measurements and Disclosures ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below: Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 Applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required by ASC 820, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Fair Value at March 31, 2020 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,675 $ — $ — $ 1,675 Totals $ 1,675 $ — $ — $ 1,675 Liabilities: Derivative liabilities $ 172 $ — $ — $ 172 Totals $ 172 $ — $ — $ 172 Fair Value at December 31, 2019 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,713 $ — $ — $ 1,713 Totals $ 1,713 $ — $ — $ 1,713 Liabilities: Derivative liabilities $ 369 $ — $ — $ 369 Totals $ 369 $ — $ — $ 369 The Company’s German pension plan is funded by insurance contract policies whereby the insurance company guarantees a fixed minimum return. The Company has determined that the pension assets are appropriately classified within Level 3 of the fair value hierarchy because they are valued using actuarial valuation methodologies which approximate cash surrender value that cannot be corroborated with observable market data. All plan assets are managed in a policyholder pool in Germany by outside investment managers. The investment manager is responsible for the investment strategy of the insurance premiums that Company submits and does not hold individual assets per participating employer. The German Federal Financial Supervisory oversees and supervises the insurance contracts. As of March 31, 2020, the Company had embedded features contained in the Series C Preferred host instrument (issued in September 2018) that qualified for derivative liability treatment. The recorded fair market value of these features was approximately $172,000 and $369,000 at March 31, 2020 and December 31, 2019, respectively, and are classified as a current liability in the condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019. The fair value of the Company’s derivative liabilities is classified within Level 3 of the fair value hierarchy because they are valued using pricing models that incorporate management assumptions that cannot be corroborated with observable market data. The Company uses the lattice framework, Monte-Carlo simulations and other fair value methodologies in the determination of the fair value of derivative liabilities. Some of the aforementioned fair value methodologies are affected by the Company’s stock price as well as assumptions regarding the expected stock price volatility over the term of the derivative liabilities in addition to the probability of future events. Significant assumptions used in the fair value methodologies during the three months ended March 31, 2020 and 2019 are a risk-free rate of 0.20% to 2.45% equity volatility of 63% to 109%, effective life of 1.44 years to 4.45 years, and a preferred stock dividend rate of 10.0%. Additionally, management has made certain estimates regarding the timing of potential change of control events. The Company monitors the activity within each level and any changes with the underlying valuation techniques or inputs utilized to recognize if any transfers between levels are necessary. That determination is made, in part, by working with outside valuation experts for Level 3 instruments and monitoring market related data and other valuation inputs for Level 1 and Level 2 instruments. The reconciliations of Level 3 pension assets measured at fair value during the three months ended March 31, 2020 and 2019 are presented below: ($ in thousands) Three months ended March 31, 2020 Three months ended March 31, 2019 Pension assets: Fair value at beginning of period $ 1,713 $ 1,733 Return on plan assets 14 15 Company contributions and benefits paid, net (10 ) (11 ) Effect of rate changes (42 ) (38 ) Fair value at end of period $ 1,675 $ 1,699 The reconciliations of Level 3 derivative liabilities measured at fair value during the three months ended March 31, 2020 and 2019 are presented below: ($ in thousands) Three months ended March 31, 2020 Three months ended March 31, 2019 Derivative liabilities Fair value at beginning of period $ 369 $ 1,065 Change in fair value included in earnings (197 ) 424 Fair value at end of period $ 172 $ 1,489 |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 3 Months Ended |
Mar. 31, 2020 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | Notes Payable On February 12, 2020, the Company entered into a factoring agreement with a member of the Company’s Board of Directors for $350,000. Such amount is to be repaid with the proceeds from certain of the Company’s trade accounts receivable approximating $500,000 and are due no later than 21 days after February 12, 2020. As of June 25, 2020, despite collection of the Company’s trade accounts receivable, $315,000 of such amounts have not been repaid and the Company is seeking an extension from the Board member. Under the terms of the factoring agreement, factored money will bear interest at the rate of 1% of the factoring money for the first seven days, and 1% for each additional seven days until the factoring money is paid in full. In April 2020, the Company received an aggregate amount of $550,000 from two members of the Company’s Board of Directors. Terms of repayment are currently being negotiated between the Company and Board Members, although it is currently anticipated that the Company will issue subordinated promissory notes that will convert into shares of the Company’s common stock, par value $0.01 per share (" Common Stock |
CONTINGENT LIABILITIES
CONTINGENT LIABILITIES | 3 Months Ended |
Mar. 31, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
CONTINGENT LIABILITIES | Employment Agreements The Company has employment agreements with its Chief Executive Officer and its Chief Technical Officer. The Company may terminate the agreements with or without cause. Subject to the conditions and other limitations set forth in each respective employment agreement, each executive will be entitled to the following severance benefits if the Company terminates the executive’s employment without cause or in the event of an involuntary termination (as defined in the employment agreements) by the Company or by the executive: Under the terms of the employment agreement with our Chief Executive Officer, executed April 10, 2020, the Chief Executive Officer will be entitled to the following severance benefits if we terminate her employment without cause or in the event of an involuntary termination: (i) severance payments equal to the lesser of twelve (12) months of salary or the remaining period prior to the expiration of the employment period; (ii) continuation of medical insurance for a period of twelve months. Under the terms of the employment agreement with our Chief Technical Officer, this executive will be entitled to the following severance benefits if we terminate his employment without cause or in the event of an involuntary termination: (i) a lump sum cash payment equal to six months of base salary; and (ii) continuation of their fringe benefits and medical insurance for a period of six months. In the event that his employment is terminated within six months prior to or thirteen months following a change of control (as defined in the employment agreements), he is entitled to the severance benefits described above, except that 100% of his outstanding stock options and restricted stock awards will immediately vest. On February 28, 2020, the employment agreement for the Company’s Chief Technical Officer was amended to extend the term of the employment agreement until December 31, 2020. Litigation There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of our subsidiaries, threatened against or affecting the Company, our Common Stock, any of our subsidiaries or of the Company’s or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 3 Months Ended |
Mar. 31, 2020 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | Financing and Liquidity Developments In April 2020, the Company received an aggregate amount of $550,000 from two members of the Company’s Board of Directors. Terms of repayment are currently being negotiated between the Company and Board Members, although it is currently anticipated that the Company will issue subordinated promissory notes that will convert into shares of the Company’s common stock, par value $0.01 per share (" Common Stock On April 28, 2020, we entered into a purchase agreement, as amended on June 11, 2020 (the “ Purchase Agreement Registration Rights Agreement Lincoln Park Under the terms and subject to the conditions of the Purchase Agreement, including stockholder approval of an amendment to the Company’s Certificate of Incorporation to increase the number of shares of the Company’s capital stock to 350 million shares, obtained from our shareholders effective June 9, 2020, we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to $10,250,000 of shares of our common stock. On April 28, 2020, we sold 1,000,000 shares of common stock to Lincoln Park under the Purchase Agreement for an aggregate purchase price of $100,000 (the“ Initial Purchase Shares) Commencement Purchase Shares SEC Commencement Date Under the Purchase Agreement, on any business day over the term of the Purchase Agreement, the Company has the right, in its sole discretion, to present Lincoln Park with a purchase notice (each, a " Purchase Notice Regular Purchase Purchase Price ● the lowest sale price of the Company's Common Stock on the purchase date; and ● the average of the three lowest closing sale prices for the Company's Common Stock during the fifteen consecutive business days ending on the business day immediately preceding the purchase date of such shares. In addition, on any date on which the Company submits a Purchase Notice to Lincoln Park, the Company also has the right, in its sole discretion, to present Lincoln Park with an accelerated purchase notice (each, an " Accelerated Purchase Notice Accelerated Purchase Accelerated Purchase Measurement Period ● 95% of the volume weighted average price of the Company's Common Stock during the applicable Accelerated Purchase Measurement Period on the applicable Accelerated Purchase Date; and ● the closing sale price of the Company's Common Stock on the applicable Accelerated Purchase Date. The Company may also direct Lincoln Park on any business day on which an Accelerated Purchase has been completed and all of the shares to be purchased thereunder have been properly delivered to Lincoln Park in accordance with the Purchase Agreement, to purchase an amount of stock (the " Additional Accelerated Purchase Additional Accelerated Purchase Measurement Period ● 95% of the volume weighted average price of the Company's Common Stock during the applicable Additional Accelerated Purchase Measurement Period on the applicable Additional Accelerated Purchase date; and ● the closing sale price of the Company's Common Stock on the applicable Additional Accelerated Purchase date. Lincoln Park has no right to require the Company to sell any shares of Common Stock to Lincoln Park, but Lincoln Park is obligated to make purchases as the Company directs, subject to certain conditions. There are no upper limits on the price per share that Lincoln Park must pay for shares of Common Stock. Pursuant to the terms of the Purchase Agreement, in no event may we issue or sell to Lincoln Park under the shares of our common stock under the Purchase Agreement which, when aggregated with all other shares of Common Stock then beneficially owned by the Lincoln Park and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder), would result in the beneficial ownership by the Investor and its affiliates of more than 4.99% of the then issued and outstanding shares of Common Stock (the “ Beneficial Ownership Limitation The Company has agreed with Lincoln Park that it will not enter into any "variable rate" transactions with any third party for a period defined in the Purchase Agreement. The Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, agreements and conditions and indemnification obligations of the parties. We have the right to terminate the Purchase Agreement at any time, at no cost or penalty. We issued to Lincoln Park 2,500,000 shares of common stock in consideration for entering into the Purchase Agreement. Actual sales of shares of Common Stock to Lincoln Park under the Purchase Agreement will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the Common Stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. On May 4, 2020, the Company entered into a loan agreement (“ PPP Loan Comerica PPP SBA Organizational Developments The Company and Ms. Kristin Taylor entered into an employment agreement effective April 10, 2020 resulting from her appointment as President and Chief Executive Office effective March 2, 2020. A copy of the employment contract that sets forth Ms. Taylor’s base compensation, equity compensation and termination provisions was filed with the SEC on April 15, 2020 on the Company’s Current Report on Form 8-K. On May 27, 2020, the Company announced the appointment Ms. Taylor to serve as a director on the Board of Directors (the " Board On April 1, 2020, John Cronin resigned from his position as a member of the Board of Directors of the Company. Mr. Cronin will continue his work with the Company on intellectual property matters, including intellectual property monetization. The Company announced the appointment of Jonathan D. Morris as Senior Vice President and Chief Financial Officer effective May 1, 2020. Subsequent to March 31, 2020, the Company issued 200,000 shares of its Common Stock to certain terminated employees as part of such employees’ severance in exchange for 400,000 outstanding options held by such employees. Such shares of stock vested immediately. Additionally, on May 8, 2020 the Company granted 708,916 restricted stock units to certain active employees in exchange for 1,417,832 outstanding options held by such employees. On May 8, 2020, 88,695 shares of these restricted stock units vested with the remainder of such shares of stock vesting quarterly over a period of 2 years. On June 9, 2020, the Company amended its Certificate of Incorporation, as amended (the “ Charter On June 9, 2020, pursuant to authorization obtained from the Company’s stockholders, the Company adopted the 2020 Omnibus Stock Incentive Plan (the “ 2020 Plan Code Key provisions of the 2020 Plan are: Eligibility Awards may be granted under the 2020 Plan to officers, employees and consultants of our Company and our subsidiaries and to our non-employee directors. Incentive stock options may be granted only to employees of our Company or one of our subsidiaries. Administration The 2020 Plan will be administered by the Compensation Committee of the Board. The Compensation Committee, in its discretion, selects the individuals to whom awards may be granted, the time or times at which such awards are granted, and the terms of such awards. The Compensation Committee may delegate its authority to the extent permitted by applicable law. Number of Authorized Shares A total of 25.0 million shares of Common Stock are authorized for issuance under the 2020 Limits on Immediate Vesting No more than 25% of any equity-based awards granted under the 2020 Plan will vest on the grant date of such award. This requirement does not apply to (i) substitute awards resulting from acquisitions or (ii) shares delivered in lieu of fully vested cash awards. In addition, the minimum vesting requirement does not apply to the Compensation Committee’s discretion to provide for accelerated exercisability or vesting of any award, including in cases of retirement, death, disability or a change in control, in the terms of the award or otherwise. Term, Termination and Amendment of the 2020 Plan Unless earlier terminated by the Board, the 2020 Plan will terminate, and no further awards may be granted, ten years after the date on which it is approved by stockholders. The board may amend, suspend or terminate the 2020 Plan at any time, except that, if required by applicable law, regulation or stock exchange rule, stockholder approval will be required for any amendment. The amendment, suspension or termination of the 2020 Plan or the amendment of an outstanding award generally may not, without a participant’s consent, materially impair the participant’s rights under an outstanding award. |
SIGNIFICANT ACCOUNTING POLICI_2
SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Policies) | 3 Months Ended |
Mar. 31, 2020 | |
Accounting Policies [Abstract] | |
Basis of Presentation | The accompanying condensed consolidated balance sheet as of December 31, 2019, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“ GAAP Operating results for the three months ending March 31, 2020 are not necessarily indicative of the results that may be expected for the year ended December 31, 2020, or any other future periods. |
Principles of Consolidation | The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s wholly-owned subsidiaries are: XImage Corporation, a California Corporation; ImageWare Systems ID Group, Inc., a Delaware corporation (formerly Imaging Technology Corporation); I.W. Systems Canada Company, a Nova Scotia unlimited liability company; ImageWare Digital Photography Systems, LLC, a Nevada limited liability company (formerly Castleworks LLC); Digital Imaging International GmbH, a company formed under German laws; and Image Ware Mexico S de RL de CV, a company formed under Mexican laws. All significant intercompany transactions and balances have been eliminated. |
Operating Cycle | Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying condensed consolidated balance sheets, although they will be liquidated in the normal course of contract completion which may take more than one operating cycle. |
Use of Estimates | The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expense during the reporting period. Significant estimates include the evaluation of our ability to continue as a going concern, the allowance for doubtful accounts receivable, deferred tax asset valuation allowances, recoverability of goodwill, assumptions used in the Black-Scholes model to calculate the fair value of share based payments, fair value of financial instruments issued with and affected by the Series C Preferred Financing, assumptions used in the application of revenue recognition policies, assumptions used in the derivation of the Company’s incremental borrowing rate used in the computation of the Company’s operating lease liabilities and assumptions used in the application of fair value methodologies to calculate the fair value of pension assets and obligations. Actual results could differ from estimates. |
Accounts Receivable | In the normal course of business, the Company extends credit without collateral requirements to its customers that satisfy pre-defined credit criteria. Accounts receivable are recorded net of an allowance for doubtful accounts. Accounts receivable are considered delinquent when the due date on the invoice has passed. The Company records its allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions and other factors that may affect customers’ ability to pay to determine the level of allowance required. Accounts receivable are written off against the allowance for doubtful accounts when all collection efforts by the Company have been unsuccessful. |
Inventories | Finished goods inventories are stated at the lower of cost, determined using the average cost method, or net realizable value. See Note 4. |
Property, Equipment and Leasehold Improvements | Property and equipment, consisting of furniture and equipment, are stated at cost and are being depreciated on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged to expense as incurred. Major renewals or improvements are capitalized. When assets are sold or abandoned, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized. Expenditures for leasehold improvements are capitalized. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements. |
Fair Value of Financial Instruments | For certain of the Company’s financial instruments, including accounts receivable, accounts payable, accrued expense, and deferred revenue, the carrying amounts approximate fair value due to their relatively short maturities. |
Lease Liabilities and Operating Lease Right-of-Use Assets | The Company is a party to certain contractual arrangements for office space which meet the definition of leases under Accounting Standards Codification (“ ASC ASC 842 A package of practical expedients to not reassess: ● Whether a contract is or contains a lease ● Lease classification, and ● Initial direct costs |
Revenue Recognition | Effective January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers (“ ASC 606 In accordance with ASC 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The core principle of the standard is that we should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To achieve that core principle, we apply the following five step model: 1. Identify the contract with the customer; 2. Identify the performance obligation in the contract; 3. Determine the transaction price; 4. Allocate the transaction price to the performance obligations in the contract; and 5. Recognize revenue when (or as) each performance obligation is satisfied. At contract inception, we assess the goods and services promised in a contract with a customer and identify as a performance obligation each promise to transfer to the customer either: (i) a good or service (or a bundle of goods or services) that is distinct, or (ii) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. We recognize revenue only when we satisfy a performance obligation by transferring a promised good or service to a customer. Determining the timing of the satisfaction of performance obligations as well as the transaction price and the amounts allocated to performance obligations requires judgement. We disclose disaggregation of our customer revenue by classes of similar products and services as follows: ● Software licensing and royalties; ● Sales of computer hardware and identification media; ● Services; and ● Post-contract customer support. Software Licensing and Royalties Software licenses consist of revenue from the sale of software for identity management applications. Our software licenses are functional intellectual property and typically provide customers with the right to use our software in perpetuity as it exists when made available to the customer. We recognize revenue from software licensing at a point in time upon delivery, provided all other revenue recognition criteria are met. Royalties consist of revenue from usage-based arrangements and guaranteed minimum-based arrangements. We recognize revenue for royalty arrangements at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied. Computer Hardware and Identification Media We generate revenue from the sale of computer hardware and identification media. Revenue for these items is recognized upon delivery of these products to the customer, provided all other revenue recognition criteria are met. Services Services revenue is comprised primarily of software customization services, software integration services, system installation services and customer training. Revenue is generally recognized upon completion of services and customer acceptance provided all other revenue recognition criteria are met. Post-Contract Customer Support (“PCS”) Post contract customer support consists of maintenance on software and hardware for our identity management solutions. Arrangements with Multiple Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. In addition to selling software licenses, hardware and identification media, services and post-contract customer support on a standalone basis, certain contracts include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on our best estimate of the relative standalone selling price. The standalone selling price for a performance obligation is the price at which we would sell a promised good or service separately to a customer. The primary methods used to estimate standalone selling price are as follows: (i) the expected cost-plus margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service, and (ii) the percent discount off of list price approach. Contract Costs We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We apply a practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period is one year or less. At March 31, 2020 and December 31, 2019, we had capitalized incremental costs of obtaining a contract with a customer of approximately $118,000. We recorded no additional contract costs during the three months ended March 31, 2020. Additionally, we recognized no revenue during the three months ended March 31, 2020 that was related to contract costs at the beginning of the period. Other Items We do not offer rights of return for our products and services in the normal course of business. Sales tax collected from customers is excluded from revenue. The following table sets forth our disaggregated revenue for the three months ended March 31, 2020 and 2019: Three Months Ended March 31, Net Revenue 2020 2019 (dollars in thousands) Software and royalties $ 125 $ 111 Hardware and consumables 14 11 Services 11 156 Maintenance 646 653 Total revenue $ 796 $ 931 |
Customer Concentration | For the three months ended March 31, 2020, one customer accounted for approximately 27% or $216,000 of our total revenue and had trade receivables at March 31, 2020 of $0. For the three months ended March 31, 2019, two customers accounted for approximately 46% or $424,000 of our total revenue and had trade receivables at March 31, 2019 of $651,000. |
Recently Issued Accounting Standards | From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“ FASB FASB Accounting Standards Update (‘ASU”) No. 2018-14 “Compensation —Retirement Benefits —Defined Benefit Plans —General (Subtopic 715-20) —Disclosure Framework —Changes to the Disclosure Requirements for Defined Benefit Plans” ASU 2018-14 FASB ASU No. 2019-12 Income Taxes (Topic 740) FASB ASU No. 2020-01 Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815”, |
SIGNIFICANT ACCOUNTING POLICI_3
SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Accounting Policies [Abstract] | |
Disaggregation of revenue | Three Months Ended March 31, Net Revenue 2020 2019 (dollars in thousands) Software and royalties $ 125 $ 111 Hardware and consumables 14 11 Services 11 156 Maintenance 646 653 Total revenue $ 796 $ 931 |
NET LOSS PER COMMON SHARE (Tabl
NET LOSS PER COMMON SHARE (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Basic income and diluted loss per common share - see Note 3: | |
Computation of basic and diluted loss per share | (Amounts in thousands except share and per share amounts) Three Months Ended March 31, 2020 2019 Numerator for basic and diluted loss per share: Net loss $ (3,124 ) $ (3,612 ) Preferred dividends, deemed dividends and accretion (1,374 ) (1,294 ) Net loss available to common shareholders $ (4,498 ) $ (4,906 ) Denominator for basic and dilutive loss per share — weighted-average shares outstanding 116,196,197 98,398,239 Basic and diluted loss per share available to common shareholders $ (0.04 ) $ (0.05 ) |
Antidilutive securities excluded from earnings per share | Potential Dilutive securities Three Months Ended March 31, 2020 2019 Convertible redeemable preferred stock 43,685,695 42,626,980 Stock options 5,927,332 7,225,421 Warrants 1,733,856 1,813,856 Total potential dilutive securities 51,346,883 51,666,257 |
SELECT BALANCE SHEET DETAILS (T
SELECT BALANCE SHEET DETAILS (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Balance Sheet Related Disclosures [Abstract] | |
Estimated acquired intangible amortization expense | Fiscal Year Ended December 31, Estimated Amortization Expense ($ in thousands) 2020 (nine months) $ 9 2021 12 2022 12 2023 12 2024 12 Thereafter 10 Totals $ 67 |
LEASES (Tables)
LEASES (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Leases [Abstract] | |
Future minimum undiscounted lease payments | ($ in thousands) 2020 (nine months) $ 502 2021 642 2022 652 2023 425 2024 387 Thereafter 130 Total 2,738 Short-term leases not included in lease liability (14 ) Present Value effect on future minimum undiscounted lease payments at March 31, 2020 (722 ) Lease liability at March 31, 2020 $ 2,002 Less current portion (391 ) Non-current lease liability at March 31, 2020 $ 1,611 |
MEZZANINE EQUITY (Tables)
MEZZANINE EQUITY (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Equity [Abstract] | |
Mezzanine equity | Series C Convertible, Redeemable Preferred (amounts in thousands, except share amounts) Shares Amount Total Series C Preferred Stock as of December 31, 2019 1,000 $ 8,884 Accretion of discount – deemed dividend for the three months ended March 31, 2020 — 175 Total Series C Preferred Stock as of March 31, 2020 1,000 $ 9,059 |
EQUITY (Tables)
EQUITY (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Equity [Abstract] | |
Summary of common stock activity | Common Stock Shares outstanding at December 31, 2019 113,346,472 Shares issued pursuant to option exchange 400,000 Shares issued for cash and stock subscription receivable 10,000,000 Shares outstanding at March 31, 2020 123,746,472 |
Summary of warrant activity | Warrants Weighted- Average Exercise Price Balance at December 31, 2019 1,733,856 $ 0.14 Granted — — Expired/Canceled — — Exercised — — Balance at March 31, 2020 1,733,856 $ 0.14 |
Summary of stock option plans activity | Options Weighted-Average Exercise Price Balance at December 31, 2019 7,204,672 $ 1.32 Granted — $ — Expired/Cancelled (1,277,340 ) $ 1.31 Exercised — $ — Balance at March 31, 2020 5,927,332 $ 1.32 |
Stock based compensation expense allocation | Three Months Ended March 31, 2020 2019 Cost of revenue $ 2 $ 3 General and administrative 67 93 Sales and marketing 29 39 Research and development 26 31 Total $ 124 $ 166 |
FAIR VALUE ACCOUNTING (Tables)
FAIR VALUE ACCOUNTING (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Fair Value Disclosures [Abstract] | |
Fair value measurement of assets and liabilities | Fair Value at March 31, 2020 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,675 $ — $ — $ 1,675 Totals $ 1,675 $ — $ — $ 1,675 Liabilities: Derivative liabilities $ 172 $ — $ — $ 172 Totals $ 172 $ — $ — $ 172 Fair Value at December 31, 2019 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,713 $ — $ — $ 1,713 Totals $ 1,713 $ — $ — $ 1,713 Liabilities: Derivative liabilities $ 369 $ — $ — $ 369 Totals $ 369 $ — $ — $ 369 |
Pension assets measured at fair value on a recurring basis | ($ in thousands) Three months ended March 31, 2020 Three months ended March 31, 2019 Pension assets: Fair value at beginning of period $ 1,713 $ 1,733 Return on plan assets 14 15 Company contributions and benefits paid, net (10 ) (11 ) Effect of rate changes (42 ) (38 ) Fair value at end of period $ 1,675 $ 1,699 |
Schedule of derivative liabilities | ($ in thousands) Three months ended March 31, 2020 Three months ended March 31, 2019 Derivative liabilities Fair value at beginning of period $ 369 $ 1,065 Change in fair value included in earnings (197 ) 424 Fair value at end of period $ 172 $ 1,489 |
DESCRIPTION OF BUSINESS AND O_2
DESCRIPTION OF BUSINESS AND OPERATIONS (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | |||
Mar. 31, 2020 | Dec. 31, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||
State of incorporation | DE | |||
Working capital deficit | $ (4,350) | |||
Cash | $ 53 | $ 1,030 | $ 2,925 | $ 5,694 |
SIGNIFICANT ACCOUNTING POLICI_4
SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Revenue | $ 796 | $ 931 |
Software and Royalties | ||
Revenue | 125 | 111 |
Hardware and Consumables | ||
Revenue | 14 | 11 |
Services | ||
Revenue | 11 | 156 |
Maintenance | ||
Revenue | $ 646 | $ 653 |
SIGNIFICANT ACCOUNTING POLICI_5
SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Revenue | $ 796 | $ 931 |
One Customer | ||
Percentage of revenue | 27.00% | |
Revenue | $ 216 | |
Trade receivables | 0 | |
Two Customers | ||
Percentage of revenue | 46.00% | |
Revenue | $ 424 | |
Trade receivables | $ 651 |
NET LOSS PER COMMON SHARE (Deta
NET LOSS PER COMMON SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Basic income and diluted loss per common share - see Note 3: | ||
Net loss | $ (3,124) | $ (3,612) |
Preferred dividends, deemed dividend accretion | (1,374) | (1,294) |
Net loss available to common shareholders | $ (4,498) | $ (4,906) |
Denominator for basic and dilutive loss per share - weighted-average shares outstanding | 116,196,197 | 98,398,239 |
Basic and diluted loss per share available to common shareholders | $ (0.04) | $ (0.05) |
NET LOSS PER COMMON SHARE (De_2
NET LOSS PER COMMON SHARE (Details 1) - shares | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Total potential dilutive securities | 51,346,883 | 51,666,257 |
Convertible Redeemable Preferred Stock | ||
Total potential dilutive securities | 43,685,695 | 42,626,980 |
Stock Options | ||
Total potential dilutive securities | 5,927,332 | 7,225,421 |
Warrants | ||
Total potential dilutive securities | 1,733,856 | 1,813,856 |
SELECT BALANCE SHEET DETAILS (D
SELECT BALANCE SHEET DETAILS (Details) - USD ($) $ in Thousands | Mar. 31, 2020 | Dec. 31, 2019 |
Balance Sheet Related Disclosures [Abstract] | ||
2020 (nine months) | $ 9 | |
2021 | 12 | |
2022 | 12 | |
2023 | 12 | |
2024 | 12 | |
Thereafter | 10 | |
Totals | $ 67 | $ 70 |
SELECT BALANCE SHEET DETAILS _2
SELECT BALANCE SHEET DETAILS (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | |
Balance Sheet Related Disclosures [Abstract] | |||
Inventory | $ 679 | $ 615 | |
Work in process | 666 | 608 | |
Finished goods | 13 | 7 | |
Reserves for obsolete and slow-moving items | 3 | 3 | |
Carrying amounts of patent assets | 67 | 70 | |
Accumulated amortization | 592 | $ 589 | |
Patent amortization expense | $ 3 | $ 3 | |
Weighted-average remaining life of intangible assets | 6 years 3 months | ||
Impairment of intangible assets | $ 0 | $ 0 |
LEASES (Details)
LEASES (Details) - USD ($) $ in Thousands | Mar. 31, 2020 | Dec. 31, 2019 |
Leases [Abstract] | ||
2020 (nine months) | $ 502 | |
2021 | 642 | |
2022 | 652 | |
2023 | 425 | |
2024 | 387 | |
Thereafter | 130 | |
Total | 2,738 | |
Short-term leases not included in lease liability | (14) | |
Present value effect on future minimum undiscounted lease payments | (722) | |
Lease liability | 2,002 | |
Less current portion | (391) | $ (373) |
Non-current lease liability | $ 1,611 | $ 1,716 |
MEZZANINE EQUITY (Details)
MEZZANINE EQUITY (Details) - Series C Preferred Stock $ in Thousands | 3 Months Ended |
Mar. 31, 2020USD ($)shares | |
Issuance of Series C preferred stock, shares | shares | 1,000 |
Accretion of discount - deemed dividend, shares | shares | 0 |
Total Series C preferred stock, shares | shares | 1,000 |
Issuance of Series C preferred stock, amount | $ | $ 8,884 |
Accretion of discount - deemed dividend, amount | $ | 175 |
Total Series C preferred stock, amount | $ | $ 9,059 |
DERIVATIVE LIABILITIES (Details
DERIVATIVE LIABILITIES (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Derivative Liability [Abstract] | ||
(Gain) loss on change in fair value of derivative liabilities | $ (197) | $ 424 |
EQUITY (Details)
EQUITY (Details) - Common Stock | 3 Months Ended |
Mar. 31, 2020shares | |
Beginning balance, shares | 113,353,176 |
Shares issued pursuant to option exchange | 400,000 |
Shares issued for cash and stock subscription receivable | 10,000,000 |
Ending balance, shares | 123,753,176 |
EQUITY (Details 1)
EQUITY (Details 1) - Warrants | 3 Months Ended |
Mar. 31, 2020$ / sharesshares | |
Number of warrants, begining balance | shares | 1,733,856 |
Number of warrants, granted | shares | 0 |
Number of warrants, expired/cancelled | shares | 0 |
Number of warrants, exercised | shares | 0 |
Number of warrants, ending balance | shares | 1,733,856 |
Weighted-average exercise price, begining balance | $ / shares | $ .14 |
Weighted-average exercise price, granted | $ / shares | .00 |
Weighted-average exercise price, expired/cancelled | $ / shares | .00 |
Weighted-average exercise price, exercised | $ / shares | .00 |
Weighted-average exercise price, ending balance | $ / shares | $ .14 |
EQUITY (Details 2)
EQUITY (Details 2) - Stock Options | 3 Months Ended |
Mar. 31, 2020$ / sharesshares | |
Number of options, begining balance | shares | 7,204,672 |
Number of options, granted | shares | 0 |
Number of options, expired/cancelled | shares | (1,277,340) |
Number of options, exercised | shares | 0 |
Number of options, ending balance | shares | 5,927,332 |
Weighted-average exercise price, begining balance | $ / shares | $ 1.32 |
Weighted-average exercise price, granted | $ / shares | .00 |
Weighted-average exercise price, expired/cancelled | $ / shares | 1.31 |
Weighted-average exercise price, exercised | $ / shares | .00 |
Weighted-average exercise price, ending balance | $ / shares | $ 1.32 |
EQUITY (Details 3)
EQUITY (Details 3) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Stock based compensation | $ 124 | $ 166 |
Cost of Revenue | ||
Stock based compensation | 2 | 3 |
General and Administrative | ||
Stock based compensation | 67 | 93 |
Sales and Marketing | ||
Stock based compensation | 29 | 39 |
Research and Development | ||
Stock based compensation | $ 26 | $ 31 |
EQUITY (Details Narrative)
EQUITY (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2020 | Dec. 31, 2019 | |
Shares available for issuance under the 1999 Plan | 1,679,259 | |
Intrinsic value of options exercisable | $ 0 | |
Intrinsic value of options outstanding | 0 | |
Unrecognized compensation cost | $ 558 | |
Unrecognized compensation cost, recognition period | 1 year 6 months | |
Series A Preferred Stock | ||
Preferred stock, shares outstanding | 37,467 | 37,467 |
Series B Preferred Stock | ||
Preferred stock, shares outstanding | 239,400 | 239,400 |
FAIR VALUE ACCOUNTING (Details)
FAIR VALUE ACCOUNTING (Details) - USD ($) $ in Thousands | Mar. 31, 2020 | Dec. 31, 2019 | Mar. 31, 2019 | Dec. 31, 2018 |
Assets: | ||||
Pension assets | $ 1,675 | $ 1,713 | ||
Totals | 1,675 | 1,713 | ||
Liabilities: | ||||
Derivative liabilities | 172 | 369 | $ 1,489 | $ 1,065 |
Totals | 172 | 369 | ||
Fair Value, Inputs, Level 1 | ||||
Assets: | ||||
Pension assets | 0 | 0 | ||
Totals | 0 | 0 | ||
Liabilities: | ||||
Derivative liabilities | 0 | 0 | ||
Totals | 0 | 0 | ||
Fair Value, Inputs, Level 2 | ||||
Assets: | ||||
Pension assets | 0 | 0 | ||
Totals | 0 | 0 | ||
Liabilities: | ||||
Derivative liabilities | 0 | 0 | ||
Totals | 0 | 0 | ||
Fair Value, Inputs, Level 3 | ||||
Assets: | ||||
Pension assets | 1,675 | 1,713 | ||
Totals | 1,675 | 1,713 | ||
Liabilities: | ||||
Derivative liabilities | 172 | 369 | ||
Totals | $ 172 | $ 369 |
FAIR VALUE ACCOUNTING (Details
FAIR VALUE ACCOUNTING (Details 1) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Fair Value Disclosures [Abstract] | ||
Fair value of plan assets, beginning | $ 1,713 | $ 1,733 |
Return on plan assets | 14 | 15 |
Company contributions and benefits paid, net | (10) | (11) |
Effect of rate changes | (42) | (38) |
Fair value of plan assets, ending | $ 1,675 | $ 1,699 |
FAIR VALUE ACCOUNTING (Detail_2
FAIR VALUE ACCOUNTING (Details 2) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Fair Value Disclosures [Abstract] | ||
Derivative liabilities, beginning | $ 369 | $ 1,065 |
(Gain) loss on change in fair value of derivative liabilities | (197) | 424 |
Derivative liabilities, ending | $ 172 | $ 1,489 |