The following discussion and analysis should be read in conjunction with the
Company's unaudited condensed consolidated financial statements and notes
thereto included in Part 1, Item 1 of this quarterly report on Form 10-Q and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" set forth in the Company's Annual report on Form 10-K for the fiscal
year ended December 31, 2020.
Overview
The Company is a leading supplier of digital transaction management (DTM)
software enabling the paperless, secure and cost-effective management of
document-based transactions. iSign's solutions encompass a wide array of
functionality and services, including electronic signatures, biometric
authentication and simple-to-complex workflow management. These solutions are
available across virtually all enterprise, desktop and mobile environments as a
seamlessly integrated platform for both ad-hoc and fully automated transactions.
iSign's software platform can be deployed both on-premise and as a cloud-based
service, with the ability to easily transition between deployment models.
The Company was incorporated in Delaware in October 1986. Except for the year
ended December 31, 2004, in each year since its inception the Company has
incurred losses. For the two-year period ended December 31, 2020, net losses
aggregated $1,614, and, at September 30, 2021, the Company's accumulated deficit
was $135,564.
In December 2019, an outbreak of a novel strain of coronavirus (COVID-19)
originated in Wuhan, China and has since spread to a number of other countries,
including the U.S. On March 11, 2020, the World Health Organization
characterized COVID-19 as a pandemic. Since March 11, 2020 states in the U.S.,
including California, where the Company is headquartered, have begun to open up
as the result of the development of vaccines to thwart the spread of the virus.
New variants of COVID-19 have surfaced around the world, including the United
States which may cause additional closures of economies depending on how
virulent the new strains are. New COVID-19 variant outbreaks may further
disrupted supply chains and affected production and sales across a wide range of
industries. The extent of the impact of new COVID-19 outbreaks on our
operational and financial performance will depend on certain developments,
including the duration and further spread of the outbreak, continued impact on
our customers, employees and vendors all of which are uncertain and cannot be
predicted.
For the three months ended September 30, 2021, total revenue was $282, an
increase of $40, or 17%, compared to total revenue of $242 in the prior year
period. For the nine months ended September 30, 2021, total revenue was $810, an
increase of $151, or 23%, compared to total revenue of $659 in the prior year
period. The increases in revenue for the three and nine months ended September
30, 2021 are due primarily to increases in product revenue compared to the prior
year periods.
For the three and nine months ended September 30, 2021, the Company recorded a
net loss of $2 and $361, a decrease of $28 and $189, or 93% and 34%,
respectfully, compared to a net loss of $30 and $550, respectively, in the prior
year period. The reduction in the net loss was due to the increase in revenues,
the decrease in operating costs offset by reduction in other income compared to
the prior year periods.
-13-
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q
Critical Accounting Policies and Estimates
Refer to Item 7, "Management Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's 2020 Form 10-K.
Effect of Recent Accounting Pronouncements
Accounting Standards Updates issued in 2021 are being evaluated by the Company,
however, implementation is not expected to have a material impact on the
Company's financial position, results of operations and cash flows.
Results of Operations
Revenue
For the three months ended September 30, 2021, product revenue was $101, an
increase of $57, or 130%, compared to product revenue of $44 in the prior year
period. The increase was primarily due to the increase in engineering service
and transactional revenue received in the quarter. For the three months ended
September 30, 2021, maintenance revenue was $181, a decrease of $17, or 9%,
compared to maintenance revenue of $198 in the prior year period. The decrease
is due to the change in certain maintenance contract from an annual to a time
and material bases and the timing of certain contract renewals.
For the nine months ended September 30, 2021, product revenue was $282, an
increase of $148, or 110%, compared to product revenue of $134 in the prior year
period. The increase in product revenue is primarily attributable to the factors
discussed for the three-month period above. For the nine months ended September
30, 2021, maintenance revenue was $528, an increase of $3, or 1%, compared to
maintenance revenue of $525 in the prior year period. The increase in
maintenance revenue is primarily due to the timing of certain contract renewals.
Cost of Sales
For the three months ended September 30, 2021, cost of sales was $23, a decrease
of $6, or 21%, compared to cost of sales of $29 in the prior year period. The
decrease in cost of sales was primarily due to a decrease in direct labor costs
associated with billable engineering revenue and a decrease in labor related to
maintenance contracts during the three months ended September 30, 2021, compared
to the prior year period.
For the nine months ended September 30, 2021, cost of sales was $83, a decrease
of $3, or 3%, compared to cost of sales of $86 in the prior year period. The
decrease in cost of sales was due to a decrease in direct labor related to
maintenance contracts offset by an increase in direct labor associated with
billable engineering revenue compared to the prior year period.
Operating expenses
Research and Development Expenses
For the three months ended September 30, 2021, research and development expense
was $156, an increase of $30, or 24%, compared to research and development
expense of $126 in the prior year period. Research and development expenses
consist primarily of salaries and related costs, outside engineering,
maintenance items, and allocated facilities expenses. Research and development
expenses increase is primarily due to an bonus and dues & subscriptions increase
the current quarter. Total expenses, before allocations for the three months
ended September 30, 2021, were $183, an increase of $11, or 6%, compared to $172
in the prior year period. The increase was primarily due to the factors
discussed above.
For the nine months ended September 30, 2021, research and development expense
was $436, a decrease of $10, or 2%, compared to research and development expense
of $446 in the prior year period. The most significant factors in the decrease
include a decrease in professional services expense and other overhead expense,
including outside engineering offset by a reduction in allocated engineering
expense to cost of sales. Total expenses, before allocations to cost of sales,
for the nine months ended September 30, 2021, were $528, a decrease of $18, or
3%, compared to $545 in the prior year period. The decrease in total engineering
expense is primarily due to the factors discussed for the three month period
above.
-14-
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q
Sales and Marketing Expense
For the three months ended September 30, 2021, sales and marketing expense was
$15, an increase of $5, or 50%, compared to sales and marketing expense of $10
in the prior year period. For the nine months ended September 30, 2021, sales
and marketing expense was $86, an increase of $24, or 39%, compared to sales and
marketing expense of $62 in the prior year period. These increase was primarily
attributable to an increase in commissions due to the increase in revenue
compared to the prior year periods.
General and Administrative Expense
For the three months ended September 30, 2021, general and administrative
expense was $130, a decrease of $268 or 67%, compared to general and
administrative expense of $397 in the prior year period. The decrease was
primarily due to $288 in stock based compensation expense recorded in the prior
year partially offset by decreases in other general overhead expenses.
For the nine months ended September 30, 2021, general and administrative expense
was $446, a decrease of $370, or 45%, compared to general and administrative
expense of $816 in the prior year period. The decrease in total general and
administrative expense is primarily due to the factors discussed for the three
month period above.
Other Income and Expense, net
For the three and nine months ended September 30, 2021, other income was $125,
respectively, a decrease of $248 and $300, respectively, compared to other
income of $373 and $425 for the three and nine months ended September 30, 2020.
The decrease in other income and expense is due primarily to the forgiveness of
the $125 loan plus accrued interest in September 2021 related to the Paycheck
Protection Program, compared to $373 and $425, respectively, of accounts payable
forgiveness during the three and nine months ended September 30, 2020. Such
accounts payable forgiveness during the three and nine months ended September
30, 2020 was generated in conjunction with cash payments of approximately $287.
Other income for the three and nine months ended June 30 2019 also included the
collection of $14 of accounts receivable written off in the prior year.
For the three months ended September 30, 2021, interest expense was $85, an
increase of $3, or 4% compared to interest expense of $82 in the prior year
period. For the nine months ended September 30, 2021, interest expense was $244,
an increase of $23, or 10%, compared to interest expense of $221 in the prior
year period. The increase in interest expense is primarily due to the increase
in the amount of debt outstanding for the three and nine months ended September
30, 2021 compared to the prior year period.
Amortization of debt discount was $0 for the three and nine month periods ended
September 30, 2021 compared to $1 and $1 in the same periods of the prior year,
respectively. The debt discount was fully amortized by December 31, 2020.
-15-
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q
Liquidity and Capital Resources
At September 30, 2021, cash and cash equivalents totaled $108, compared to cash
and cash equivalents of $26 at December 31, 2020. Net cash provided by operating
activities was $62. Cash of $23 was provided by financing activities, offset by
$3 used in investing activities. At September 30, 2021, total current assets
were $248, compared to total current assets of $136 at December 31, 2020. At
September 30, 2021, the Company's principal sources of funds included its
aggregated cash and cash equivalents of $108.
At September 30, 2021, accounts receivable, net was $128, an increase of $28, or
28%, compared to accounts receivable, net of $100 at December 31, 2020. The
increase is due primarily to the timing of billings and collections during the
nine months ended September 30, 2021.
At September 30, 2021, prepaid expenses and other current assets were $12, an
increase of $2, or 20%, compared to prepaid expenses and other current assets of
$10 at December 31, 2020. The increase is due primarily to an increase of
prepaids associated with engineering activities during the period.
At September 30, 2021, accounts payable was $402, an increase of $49, or 14%,
compared to accounts payable of $353 at December 31, 2020. The increase is due
primarily to an increase in outstating trade payables for professional services.
At September 30, 2021, accrued compensation was $77, a decrease of $5, or 6%,
compared to accrued compensation of $82 at December 31, 2020. The decrease is
due primarily to a decrease in accrued vacation expense. Other accrued
liabilities were $1,381, an increase of $240, or 21%, from $1,141 at December
31, 2020 due primarily to the accrual of interest on the Company's short -term
debt and deferred professional services.
At September 30, 2021, deferred revenue was $339, an increase of $124, or 58%,
compared to deferred revenue of $215 at December 31, 2020. Deferred revenue
primarily reflects advance payments for maintenance fees from the Company's
licensees that are generally recognized as revenue by the Company when all
obligations are met or over the term of the maintenance agreement, whichever is
longer. Deferred revenue is recorded when the Company receives advance payment
from its customers.
At September 30, 2021, total current liabilities were $5,358, an increase of
$353, or 7%, compared to total current liabilities of $5,005 at December 31,
2020.
On February 28, 2021, the Company issued an aggregate of $75 in unsecured notes
to affiliates and other investors. The Company received $60 in cash and $15 in
exchange for advances received in the prior year. The unsecured notes are
convertible by the holder into common stock at any time at a price per share of
$0.50. Upon closing a new financing of at least $1,000 in aggregate proceeds,
the Company can force conversion at a price equal to the lesser of $0.50 per
share or the price per share of the new financing. The notes bear interest at
the rate of 10% per annum and are due December 31, 2021.
In March 2021, the Company received, from related parties, advances aggregating
$25 in cash against certain accounts receivable of the Company. Upon collection
of an invoice, the Company agreed to repay the advance to the lenders on a pro
rata basis together with a 5% advance fee. The Company accrued $1 in advance
fees recorded as interest expense on the Statement of Operations.
In April 2021, the Company re-paid $49 of Accounts Receivable Advances and $6 in
accrued but unpaid 5% advance fees to an affiliate. In addition the Company
repaid to another affiliate $64 of Accounts Receivable Advances and $4 in
accrued but unpaid 5% advance fees.
In June 2021, the Company paid the first installment in the amount of $40 plus
accrued interest of $5 of a note entered into associated with a settlement
agreement dated July 1, 2020 with one of its vendors. The reaming $90 plus
interest at the rate of 4% per annum is due in two installments, June of 2022
and June of 2023.
-16-
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q
Liquidity and Capital Resources (continued)
In July 2021, the Company received $10,000 in cash from an affiliate as an
advance against certain accounts receivable. The company accrued a 5% advance
fee and recorded $500 as interest expense during the three months ended
September 30, 2021. Upon collection of the accounts receivable the Company will
repay the advance plus the 5% fee.
In August and September 2021, the Company received $50,000 and $36,000,
respectively in cash from an affiliate as advances against certain accounts
receivable. The company accrued a 5% advance fees in August and September 2021,
and recorded $4 as interest expense during the three months ended September 30,
2021. Upon collection of the accounts receivable the Company will repay the
advances plus the 5% fee.
In September 2021 the Company received notification that the loan related to the
Paycheck Protection Program had been forgiven in full. The Company record $125
of other income on the Statement of Operations related to the forgiveness of the
debt plus accrued interest.
On September 30, 2021 the Company issued a note to an affiliate investor and
received $75 in cash. The note bears interest at the rate of 20% per annum and
is due upon demand.
The Company incurred $85 and $244, respectively, of interest expense for the
three and nine months ended September 30, 2021, of which was $1 and $17,
respectively, was paid in cash.
The Company had no material commitments as of June 30, 2021.
The Company has experienced recurring losses from operations that raise a
substantial doubt about its ability to continue as a going concern. There can be
no assurance that the Company will have adequate capital resources to fund
planned operations or that any additional funds will be available to it when
needed, or if available, will be available on favorable terms or in amounts
required by it. If the Company is unable to obtain adequate capital resources to
fund operations, it may be required to delay, scale back or eliminate some or
all of its operations, which may have a material adverse effect on the Company's
business, results of operations and ability to operate as a going concern.
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ISIGN SOLUTIONS INC. 
