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, 2019.
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, 2019, net losses
aggregated $2,113, and, at September 30, 2020, the Company's accumulated deficit
was $134,975.
For the three months ended September 30, 2020, total revenue was $242, an
increase of $29, or 14%, compared to total revenue of $213 in the prior year
period. For the nine months ended September 30, 2020, total revenue was $659, an
increase of $21, or 3%, compared to total revenue of $638 in the prior year
period. The increases in revenue for the three and nine months ended September
30, 2020 are due primarily to increases in product and maintenance revenue
compared to the prior year periods.
For the three months ended September 30, 2020, the Company recorded a net loss
of $30, a decrease of $243, or 89%, compared to a net loss of $273 in the prior
year period. The $30 net loss was primarily due to warrant expense related to
long-term liabilities of $323 and an increase in interest expense on the
increase in debt. These increased expenses were partially offset by $373 in
forgiveness of debt resulting from settlement agreements with vendors for
outstanding accounts payable balances during the three months ended September
30, 2020. For the nine months ended September 30, 2020 the net loss was $550, a
decrease of $263, or 32%, compared to a net loss of $813 in the prior year
period.
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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 2019 Form 10-K.
Effect of Recent Accounting Pronouncements
Accounting Standards Updates issued in 2020 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, 2020, product revenue was $44, a
decrease of $1, or 2%, compared to product revenue of $45 in the prior year
period. The decrease was primarily due to the timing of new product orders
received in the quarter. For the three months ended September 30, 2020,
maintenance revenue was $198, an increase of $30, or 18%, compared to
maintenance revenue of $168 in the prior year period. The increase is primarily
due to an increases in the amount of certain maintenance contract renewals and
adjustments.
For the nine months ended September 30, 2020, product revenue was $134, an
increase of $8, or 6%, compared to product revenue of $126 in the prior year
period. The increase in product revenue is primarily attributable to an increase
in engineering project billings compared to the prior year period. For the nine
months ended September 30, 2020, maintenance revenue was $525, an increase of
$13, or 3%, compared to maintenance revenue of $512 in the prior year period.
The increase in maintenance revenue is primarily due to the factors discussed
for the three-month period above.
Cost of Sales
For the three months ended September 30, 2020, cost of sales was $29, a decrease
of $1, or 4%, compared to cost of sales of $28 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 partially offset by an increase in
labor related to maintenance contracts during the three months ended September
30, 2020, compared to the prior year period.
For the nine months ended September 30, 2020, cost of sales was $86, an increase
of $22, or 34%, compared to cost of sales of $64 in the prior year period. The
increase in cost of sales was due to an increase in direct labor related to
maintenance contracts and billable engineering revenue compared to the prior
year period.
Operating expenses
Research and Development Expenses
For the three months ended September 30, 2020, research and development expense
was $126, a decrease of $53, or 30%, compared to research and development
expense of $179 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 decreased primarily due a decrease in outside engineering costs and an
increase in the amount of engineering costs allocated to cost of sales. Total
expenses, before allocations for the three months ended September 30, 2020, were
$172, a decrease of $39, or 18%, compared to $211 in the prior year period. The
decrease was primarily due to the reduced outside engineering expense during the
current quarter.
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iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q
Research and Development Expenses (continued)
For the nine months ended September 30, 2020, research and development expense
was $446, a decrease of $85, or 16%, compared to research and development
expense of $531 in the prior year period. The most significant factors in the
decrease include a decrease in stock option expense and other overhead expense,
including outside engineering and allocated engineering expense to cost of
sales. Total expenses, before allocations to cost of sales, for the nine months
ended September 30, 2020, were $545, a decrease of $59, or 10%, compared to $605
in the prior year period. The decrease in total engineering expense is primarily
due to the factors discussed for the three month period above.
Sales and Marketing Expense
For the three months ended September 30, 2020, sales and marketing expense was
$10, compared to sales and marketing expense of $10 in the prior year period.
For the nine months ended September 30, 2020, sales and marketing expense was
$62, a decrease of $1, or 2%, compared to sales and marketing expense of $63 in
the prior year period. These decrease was primarily attributable to a decrease
in commissions compared to the prior year period.
General and Administrative Expense
For the three months ended September 30, 2020, general and administrative
expense was $397, an increase of $203 or 105%, compared to general and
administrative expense of $194 in the prior year period. The increase was
primarily due to $288 in stock based compensation expense partially offset by
decreases in other general overhead expenses compared to the prior year period.
For the nine months ended September 30, 2020, general and administrative expense
was $816, an increase of $228, or 39%, compared to general and administrative
expense of $588 in the prior year period. The increase 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, 2020, other income was $373
and $425, respectively, an increase of $373 and $411, respectively, compared to
other income of $0 and $14 for the three and nine months ended September 30,
2019. The increase in other income and expense is due primarily to the
forgiveness of $373 and $425, respectively, of accounts payable during the three
and nine months ended September 30, 2020. Such forgiveness was generated in
conjunction with cash payments of approximately $287. Other income for the three
and nine months ended June 30 2019 included the collection of $14 of accounts
receivable written off in the prior year.
For the three months ended September 30, 2020, interest expense was $82, an
increase of $17, or 24% compared to interest expense of $65 in the prior year
period. For the nine months ended September 30, 2020, interest expense was $221,
an increase of $33, or 18%, compared to interest expense of $188 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, 2020 compared to the prior year period.
Amortization of debt discount was $1 and $2 for the three and nine month periods
ended September 30, 2020 compared to $10 and $30 in the same periods of the
prior year, respectively. The decrease was due to the extension of the maturity
date of the Company's debt to December 31, 2020.
Liquidity and Capital Resources
At September 30, 2020, cash and cash equivalents totaled $25, compared to cash
and cash equivalents of $25 at December 31, 2019. Net cash used in operating
activities was $606. The cash used in operations was offset by $606 in proceeds
provided by financing activities. At September 30, 2020, total current assets
were $119, compared to total current assets of $108 at December 31, 2019. At
September 30, 2020, the Company's principal sources of funds included its
aggregated cash and cash equivalents of $25.
- 15 -
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q
Liquidity and Capital Resources (continued)
At September 30, 2020, accounts receivable, net was $63, an increase of $2, or
3%, compared to accounts receivable, net of $61 at December 31, 2019. The
increase is due primarily to the timing of billings and collections during the
nine months ended September 30, 2020.
At September 30, 2020, prepaid expenses and other current assets were $31, an
increase of $9, or 41%, compared to prepaid expenses and other current assets of
$22 at December 31, 2019. The increase is due primarily to an increase of
prepaids associated with engineering activities during the period.
At September 30, 2020, accounts payable was $350, a decrease of $846, or 71%,
compared to accounts payable of $1,196 at December 31, 2019. The decrease is due
primarily to the forgiveness of $425 of accounts payable, related cash payments
of approximately $287 and the issuance of a note payable of $130 during the
three and nine months ended September 30, 2020. At September 30, 2020, accrued
compensation was $79, an increase of $8, or 11%, compared to accrued
compensation of $71 at December 31, 2019. The increase is due primarily to an
increase in accrued vacation expense. Other accrued liabilities were $1,049, an
increase of $235, or 29%, from $814 at December 31, 2019 due primarily to the
accrual of interest on the Company's short -term debt and deferred professional
services.
At September 30, 2020, deferred revenue was $344, a decrease of $2, or 1%,
compared to deferred revenue of $346 at December 31, 2019. 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, 2020, total current liabilities were $4,681, an increase of $8,
or 0.02%, compared to total current liabilities of $4,673 at December 31, 2019.
In January and March 2020, the Company received, from affiliates, advances
aggregating $75 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. On March 25, 2020, the
affiliates converted their advances into unsecured notes. The Company paid the
advance fees of $4 in cash, and recorded them as interest expense in the quarter
ended March 31, 2020.
In August and September 2020, the Company received, from two affiliates,
advances aggregating $83 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
has accrued the advance fees of $4 which is included in interest expense in the
quarter ended September 30, 2020.
On March 25, 2020, the Company issued an aggregate of $150 in unsecured notes to
affiliates and other investors. The Company received $75 in cash and $75 in
exchange for the advances discussed above. 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, 2020.
- 16 -
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q
Liquidity and Capital Resources (continued)
On May 6, 2020, the Company received loan proceeds in the amount of
approximately $123 under the Paycheck Protection Program ("PPP"). The PPP,
established as part of the Coronavirus Aid, Relief and Economic Security Act
("CARES Act"), provides for loans to qualifying businesses for amounts up to 2.5
times of the average monthly payroll expenses of the qualifying business. The
Company may apply for the loans and accrued interest forgiven after a period of
either eight or twenty-four weeks, as long as the borrower uses the loan
proceeds for eligible purposes, including payroll, benefits, rent and utilities,
and maintains its payroll levels. The amount of loan forgiveness will be reduced
if the borrower terminates employees or reduces salaries during the period in
question. Under the terms of the related promissory note, the unforgiven portion
of the PPP loan is payable over two years at an interest rate of 1%, with a
deferral of payments for the first six months. The Company used the proceeds for
purposes consistent with the PPP. While the Company currently believes that its
use of the loan proceeds, for the most part, meets the conditions for
forgiveness of the loan, we cannot assure you that we did not take actions that
caused the Company to be ineligible for forgiveness of the loan, in whole or in
part.
On June 19, 2020, the Company entered into a Note Purchase Agreement (the
"Purchase Agreement") with an investor. Under the terms of the Purchase
Agreement, the Company received a cash loan in the aggregate amount of $250,000
(the "Loan") from the investor in exchange for the Company's issuance of an
unsecured convertible promissory note equal to the amount of such investor's
loan contribution to the Company. The Note bears interest at the rate of 10% per
annum, and has a maturity date the earlier of December 31, 2021, or the date on
which the Company's other outstanding unsecured convertible promissory notes are
due. The Note may be converted by its terms at the option of the investor into
shares of the Company's common stock.
On July 1, 2020 the Company entered into a settlement agreement with one of its
vendors where by the Company paid $135 in cash and issued a promissory note in
the amount of $130 in settlement of approximately $537 in outstanding accounts
payable. The note bears interest at the rate of 4% per annum and is due in
installments of $40, $45 and $45 on or before the anniversary date of the note
over the next three years. The settlement agreement discussed above resulted in
gain of $272 recorded as other income in the statement of operations.
The Company accrued $83 and $221 of interest expense during the three and nine
months ended September 30, 2020, $73 and $194, respectively, associated with the
outstanding secured and unsecured convertible promissory notes, of which $28 and
$76, respectively, was to related parties and $45 and $118, respectively, was to
other investors. For the three and nine months ended September 30, 2019, the
Company accrued $65 and $188 of interest expense, $55 and $162, respectively,
associated with its outstanding notes, of which $19 and $47, respectively, was
to related parties and $36 and $115, respectively, was to other investors.
The Company recorded $1 and $2 in debt discount amortization for the three and
nine months ended September 30, 2020. For the three and nine months ended
September 30, 2019 the Company recorded $10 and $30 of debt discount
The Company had no material commitments as of September 30, 2020.
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.
- 17 -
iSign Solutions Inc.
(In thousands, except per share amounts)
FORM 10-Q© Edgar Online, source Glimpses
ISIGN SOLUTIONS INC. 
