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 approximately $1,614, and, at March 31, 2021, the Company's
accumulated deficit was approximately $135,393.
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.
11
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
For the three months ended March 31, 2021, total revenue was $259, an increase
of $69, or 36%, compared to total revenue of $190 in the prior year period. The
increase in revenue is primarily attributable to an increase of $51, or 165% in
the Company's engineering service and transactional product revenues and an $18,
or 11% increase in maintenance revenue compared to the prior year period.
The net loss for the three months ended March 31, 2021 was $190, a decrease of
$149, or 44%, compared to a net loss of $339 in the prior year period. The
decrease in net loss is due to the increase in revenue of $69, or 36%, the
decrease in overhead expenses of $90 or 20%, offset by the increase in cash and
non-cash interest expense of $10 or 14% compared to the prior year.
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, 2021, product revenue was $82, an increase
of $51, or 165%, compared to product revenue of $31 in the prior year period.
The increase in product revenue is primarily due to an increase in transaction
volume and engineering service revenues compared to the prior year period. For
the three months ended March 31, 2021, maintenance revenue was $177, an increase
of $18, or 11%, compared to maintenance revenue of $159 in the prior year
period. The increase is primarily due to the conversion of discounted long-term
maintenance contracts to a non-discounted annual maintenance term.
Cost of Sales
For the three months ended March 31, 2021, cost of sales was $30, an increase of
$19, or 173%, compared to cost of sales of $11 in the prior year. The increase
was primarily due to an increase in direct engineering costs associated with
engineering service, software product and maintenance contracts and revenue
compared to the prior year.
Operating Expenses
Research and Development Expenses
For the three months ended March 31, 2021, research and development expense was
$144, a decrease of $32, or 18%, compared to research and development expense of
$176 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 decrease in research and development
expense was due to a decrease in salaries and related expenses of $3, a decrease
of $10 in professional services and other overhead expenses and a $19 increase
in direct engineering costs transferred to cost of sales. Gross engineering
expenses, before allocations to cost of sales, was $175 a decrease of $13, or
7%, compared to $187 in the prior year period, due primarily to the decrease in
professional services and other overhead expenses.
Sales and Marketing Expenses
For the three months ended March 31, 2021, sales and marketing expense was $49,
an increase of $22, or 81%, compared to $27 in the prior year period. The
increase was primarily attributable to an increase in commissions and
professional services.
12
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
General and Administrative Expenses
For the three months ended March 31, 2021, general and administrative expense
was $147, a decrease of $99, or 40%, compared to general and administrative
expense of $246 in the prior year period. The decrease was due primarily to
decreases in warrant and professional service expenses of $101, offset by
increases of $2 in other overhead expense, compared to the prior year period.
Other income and expense
Other income, expense was $1 and $1 for the three months ended March 31, 2020.
Interest expense for the three months ended March 31, 2020 was $79, an increase
of $10, or 14% compared to interest expense of $69 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 $24 and non-related party interest expense was $55 for
the three months ended March 31, 2021, compared to $24 associated with related
parties and non-related party interest expense of $45 in the prior year period.
Liquidity and Capital Resources
At March 31, 2021, cash and cash equivalents totaled $250, compared to cash and
cash equivalents of $26 at December 31, 2020. The increase in cash was due to
cash flows from operating activities of $222 and $5 from financing activities.
The increased amounts were offset by $3 used in investing activities. At March
31, 2021, total current assets were $331 compared to total current assets of
$136 at December 31, 2020. At March 31, 2021, the Company's principal sources of
funds included its cash and cash equivalents aggregating $250.
At March 31, 2021, accounts receivable net, was $69, a decrease of $31, or 31%,
compared to accounts receivable, net of $100 at December 31, 2020. The decrease
is due primarily due to faster collection times for accounts receivable.
At March 31, 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 prepayments of
insurance premiums for the current year.
At March 31, 2021, accounts payable were $380, an increase of $27, or 8%, from
the December 31, 2020 balance of $353. The increase is due primarily to
professional fees for engineering services and accounting fees related to the
prior year audit.
At March 31, 2021, accrued compensation was $116, an increase of $34, or 41%,
compared to accrued compensation of $82 at December 31, 2020. The increase is
due primarily to the accrual of commissions during the quarter ended March 31,
2021.
Other accrued liabilities were $1,222 at March 31, 2021, an increase of $81, or
7%, compared to other accrued liabilities of $1,141 at December 31, 2020,
primarily due to the accrual of interest on the Company's debt and certain
franchise taxes.
Deferred revenue was $394 at March 31, 2021, an increase of $179, or 83%,
compared to deferred revenue of $215 at December 31, 2020. The increase is
primarily due to the renewal of maintenance contracts offset by the recognition
of maintenance revenues during the quarter ended March 31, 2021.
At March 31, 2021, total current liabilities were $5,331, an increase of $326,
or 7%, compared to total current liabilities of $5,005 at December 31, 2020.
13
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
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.
During the three months ended March 31, 2021, the Company accrued $79 of
interest expense, $67 associated with the outstanding secured and unsecured
convertible promissory notes, of which $24 was to related parties and $43 was to
other investors. For the three months ended March 31, 2020, the Company accrued
$69 of interest expense, $60 associated with its outstanding notes, of which $24
was to related parties and $36 was to other investors.
The Company had no material commitments as of March 31, 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. 
