Description of the Company and Basis of Presentation

3 Months Ended

Mar. 31, 2021

Description of the Company and Basis of Presentation

Description of the Company and Basis of Presentation

Note 1 – Description of the Company and Basis of Presentation

Description of the Company

OneSpan Inc. and its wholly owned subsidiaries design, develop, market and support hardware and software security systems that manage and secure access to information assets. OneSpan has operations in Austria, Australia, Belgium, Brazil, Canada, China, France, Japan, The Netherlands, Singapore, Switzerland, the United Arab Emirates, the United Kingdom (U.K), and the United States (U.S.).

In accordance with ASC 280, Segment Reporting, our operations are reported as a single operating segment. The chief operating decision maker is the Chief Executive Officer who reviews the statement of operations of the Company on a consolidated basis, makes decisions and manages the operations of the Company as a single operating segment.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of OneSpan and its subsidiaries and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the results of the interim periods presented. All intercompany accounts and transactions have been eliminated. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ended December 31, 2021, particularly in light of the novel coronavirus (COVID-19) pandemic and its effects on domestic and global economies.

We continue to actively address the effects of the COVID-19 pandemic and its impact globally. Beginning in the Summer of 2020 and continuing through the remainder of 2020, we experienced lengthened sales cycles and reduced demand for some of our security solutions due to economic uncertainty connected to the COVID-19 pandemic. While we hope that the negative consequences on our business associated with the COVID-19 pandemic will subside in 2021, we cannot predict the impact with certainty.

Revision of Previously Issued Financial Statements

We have revised amounts reported in previously issued financial statements for the periods presented in this Quarterly Report on Form 10-Q related to immaterial errors. The errors relate to certain contracts with customers involving term-based software licenses and related maintenance and support services. The net contract assets that originated from a portion of these contracts in prior periods were not properly accounted for in subsequent periods, which caused overstatements of revenue in prior periods.

We evaluated the aggregate effects of the errors to our previously issued financial statements in accordance with SEC Staff Accounting Bulletins No. 99 and No. 108 and, based upon quantitative and qualitative factors, determined that the errors were not material to the previously issued financial statements and disclosures included in our

Annual Reports on Form 10-K for the years ended December 31, 2019 and 2018, or for any quarterly periods included therein or through our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020.

The following tables present the effects of the aforementioned revisions on our unaudited condensed consolidated statement of operations for the three months ended March 31, 2020, our unaudited condensed consolidated statement of comprehensive loss for the three months ended March 31, 2020, our unaudited condensed consolidated statement of stockholders’ equity for the three months ended March 31, 2020, and our unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2020 (in thousands).

Condensed Consolidated Statement of Operations (Unaudited)

	Three Months Ended March 31, 2020
in thousands	As Previously Reported		Adjustments		As Revised
Revenue
Product and license	$	38,260	$	—	$	38,260
Services and other		18,232		(122)		18,110
Total revenue		56,492		(122)		56,370
Gross Profit		40,422		(122)		40,300
Operating income		947		(122)		825
Income before income taxes		816		(122)		694
Provision for income taxes		718		(28)		690
Net Income		98		(94)		4

Condensed Consolidated Statement of Comprehensive Loss (Unaudited)

	Three Months Ended March 31, 2020
in thousands	As Previously Reported		Adjustments		As Revised
Net income	$	98	$	(94)	$	4
Comprehensive loss		(4,186)		(94)		(4,280)

Condensed Consolidated Statement of Stockholders’ Equity (Unaudited)

	Total Stockholders' Equity
in thousands		As Previously Reported		Adjustments		As Revised
Balance at December 31, 2019		$	264,021	$	(1,727)	$	262,294
Net income			98		(94)		4
Balance at March 31, 2020		$	260,639	$	(1,822)	$	258,817

Condensed Consolidated Statement of Cash Flows (Unaudited)

	Three months ended March 31, 2020
in thousands	As Previously Reported		Adjustments		As Revised
Cash flows from operating activities:
Net income	$	98	$	(94)	$	4
Changes in operating assets and liabilities:
Contract assets		(564)		122		(442)
Income taxes payable		(4,707)		(28)		(4,735)
Net cash used in operating activities		(2,352)		—		(2,352)

Principles of Consolidation

The consolidated financial statements include the accounts of OneSpan Inc. and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. 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 financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Foreign Currency Translation and Transactions

The financial position and results of the operations of the majority of the Company’s foreign subsidiaries are measured using the local currency as the functional currency. Accordingly, assets and liabilities are translated into U.S. Dollars using current exchange rates as of the balance sheet date. Revenue and expenses are translated at average exchange rates prevailing during the year. Translation adjustments arising from differences in exchange rates are charged or credited to other comprehensive income (loss). Gains and losses resulting from foreign currency transactions are included in the condensed consolidated statements of operations in other income (expense), net. Foreign exchange transaction losses aggregated $0.7 million for the three months ended March 31, 2021 and $0.5 million for the three months ended March 31, 2020.

The financial position and results of our operations in Singapore, Switzerland, and Canada are measured in U.S. Dollars. For these subsidiaries, gains and losses that result from foreign currency transactions are included in the consolidated statements of operations in other income (expense), net.