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, 2021, net losses
aggregated approximately $1,014, and, at March 31, 2022, the Company's
accumulated deficit was approximately $135,920.
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.
The COVID-19 outbreak has disrupted supply chains and affected production and
sales across a wide range of industries. The extent of the impact of COVID-19 on
our operational and financial performance will depend on certain developments,
including the duration and any further spread of the outbreak, continued impact
on our customers, employees and vendors all of which are uncertain and cannot be
predicted. At this point, the extent to which COVID-19 may have a continued
impact on our financial condition or results of operations is uncertain.
For the three months ended March 31, 2022, total revenue was $255, a decrease of
$4, or 2%, compared to total revenue of $259 in the prior year period.
The net loss for the three months ended March 31, 2022 was $231, an increase of
$42, or 22%, compared to a net loss of $189 in the prior year period. The
increase in net loss is due to the decrease in revenue of $4, or 2%, the
increase in overhead expenses of $35 or 10%, offset by the decrease in cash and
non-cash expense of $16 or 66% compared to the prior year.
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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 Pronouncement,
Accounting Standards Updates issued in 2021 are not currently applicable to the
Company, therefore implementation would not be expected to have a material
impact on the Company's financial position, results of operations and cash
flows.
Results of Operations
Revenue
For the three months ended March 31, 2022, product revenue was $80, a decrease
of $2, or 2%, compared to product revenue of $82 in the prior year period. For
the three months ended March 31, 2022, maintenance revenue was $175, a decrease
of $2, or 1%, compared to maintenance revenue of $177 in the prior year period.
The decrease is primarily due to discontinued annual maintenance.
Cost of Sales
For the three months ended March 31, 2022, cost of sales was $20, a decrease of
$10, or 33%, compared to cost of sales of $30 in the prior year. The decrease
was primarily due to a decrease in direct engineering costs associated with
engineering service revenue, compared to the prior year.
Operating Expenses
Research and Development Expenses
For the three months ended March 31, 2022, research and development expense was
$161, an increase of $17, or 12%, compared to research and development expense
of $144 in the prior year period. Research and development expenses consist
primarily of salaries and related costs, outside engineering, maintenance items,
and allocated facilities expenses. The increase in research and development
expense was due to an increase in salaries and related expenses of $5, and a
decrease in the expense allocation to cost of sales of $10, or 33%.Gross
engineering expenses, before allocations to cost of sales, was $185 an increase
of $10, or 6%, compared to $175 in the prior year period, due primarily to the
increase in and other overhead expenses.
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Sales and Marketing Expenses
For the three months ended March 31, 2022, sales and marketing expense was $54,
an increase of $5, or 11%, compared to $49 in the prior year period. The
increase was primarily attributable to an increase in commissions.
General and Administrative Expenses
For the three months ended March 31, 2022, general and administrative expense
was $160, an increase of $13, or 9%, compared to general and administrative
expense of $147 in the prior year period. The increase was due primarily to
increase in professional service expenses of $21, offset by decreases of $8 in
other overhead expenses, compared to the prior year period.
Other income and expense
Other income, expense was $0 and $1 for the three months ended March 31, 2022
and 2021.
Interest expense for the three months ended March 31, 2021 was $91, an increase
of $12, or 15% compared to interest expense of $79 in the prior year period. The
increase is due to an increase in short-term debt and other unpaid
interest-bearing liabilities. Interest expense on short-term debt associated
with related parties was $39 and non-related party interest expense was $52 for
the three months ended March 31, 2022, compared to $24 associated with related
parties and non-related party interest expense of $55 in the prior year period.
Liquidity and Capital Resources
At March 31, 2022, cash and cash equivalents totaled $56, compared to cash and
cash equivalents of $40 at December 31, 2021. The increase in cash was due to
cash flows from operating activities of $99. The increased amounts were offset
by $80 used in financing activities and $3 used in investing activities. At
March 31, 2022, total current assets were $165 compared to total current assets
of $186 at December 31, 2021. At March 31, 2022, the Company's principal sources
of funds included its cash and cash equivalents aggregating $56.
At March 31, 2022, accounts receivable net, was $94, a decrease of $30, or 24%,
compared to accounts receivable, net of $124 at December 31, 2021. The decrease
is primarily due to timing of collections of accounts receivable.
At March 31, 2022, prepaid expenses and other current assets were $15, a
decrease of $7, or 32%, compared to prepaid expenses and other current assets of
$22 at December 31, 2021. The decrease is due primarily to normal amortization
of insurance premiums and other prepaid for the current year.
At March 31, 2022, accounts payable were $396, an increase of $18, or 5%, from
the December 31, 2021 balance of $378. The increase is due primarily to
professional fees for engineering services and accounting fees related to the
prior year audit.
At March 31, 2022, accrued compensation was $88, an increase of $19, or 28%,
compared to accrued compensation of $69 at December 31, 2021. The increase is
due primarily to the accrual of commissions during the quarter ended March 31,
2022.
Other accrued liabilities were $1,556 at March 31, 2022, an increase of $68, or
5%, compared to other accrued liabilities of $1,488 at December 31, 2021,
primarily due to the accrual of interest on the Company's debt and certain
franchise taxes.
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Deferred revenue was $339 at March 31, 2022, an increase of $143, or 73%,
compared to deferred revenue of $196 at December 31, 2021. The increase is
primarily due to the renewal of maintenance contracts offset by the recognition
of maintenance revenues during the quarter ended March 31, 2022.
At March 31, 2022, total current liabilities were $5,542, an increase of $168,
or 3%, compared to total current liabilities of $5,374 at December 31, 2021. The
increase is primarily due to the factors discussed above.
In January 2022, the Company received, from unrelated parties, demand notes
aggregating $50 in cash. The notes bear interest at the rate of 20% per annum.
Principal and interest due shall be paid in full on demand, following ten (10)
calendar day prior written notice starting on March 15, 2022. These note may be
prepaid in whole or in part at any time without penalty, premium or other
consideration by giving at least five (5) business day prior written notice to
the Holder. The notes were repaid in full plus $1 of accrued interest in
February 2022.
.
During the three months ended March 31, 2022, the Company accrued $91 of
interest expense, $67 associated with the outstanding secured and unsecured
convertible promissory notes, of which $30 was to related parties and $37 was to
other investors. For the three months ended March 31, 2021, the Company accrued
$79 of interest expense, $67 associated with its outstanding notes, of which $24
was to related parties and $43 was to other investors.
The Company had no material commitments as of March 31, 2022.
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. 
