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 June 30, 2021, the Company's
accumulated deficit was approximately $135,562.
13
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
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 June 30, 2021, total revenue was $268, compared to
total revenue of $227 in the prior year period. For the six months ended June
30, 2021, total revenue was $527, an increase of $110, or 26%, compared to total
revenue of $417 in the prior year period. The change in revenue for the six
months ended June 30, 2021 is primarily due to an increase in product revenue of
$91 or 101%, compared to the prior year period The increase in product revenue
is the result of increases in engineering service and transactional. Maintenance
revenue for the six months was $346, an increase of $19, or 6% compared to $327
in the prior year.
The net loss for the three months ended June 30, 2021 was $169, a decrease of
$12, or 7%, compared to a net loss of $181 in the prior year period. The three
month loss from operations decreased $72, or 45%, to $89 compared to $161 in the
prior year period. The decrease was due to the increase in revenue and a net
decrease in overhead expenses. For the six months ended June 30, 2021 the net
loss was $359, a decrease of $161, or 31%, compared to a net loss of $520 in the
prior year period. The six month loss from operations decreased $231, or 54%, to
$200 compared to $431 in the prior year period. This decrease was due to the
same factors described for the three month period above.
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 June 30, 2021, product revenue was $99, an increase
of $40, or 68%, compared to product revenue of $59 in the prior year period. The
increase in revenue is primarily attributable to increases in engineering
service and transactional revenue compared to the prior year period. For the
three months ended June 30, 2021, maintenance revenue was $169, an increase of
$1, or 1%, compared to maintenance revenue of $168 in the prior year period.
For the six months ended June 30, 2021, product revenue was $181, an increase of
$91, or 101%, compared to product revenue of $90 in the prior year period. The
increase in product revenue is primarily due to the same factors for the
three-month period discussed above. For the six months ended June 30, 2020,
maintenance revenue was $346, an increase of $19, or 6%, compared to maintenance
revenue of $346 in the prior year period. The increase in maintenance revenue is
primarily due to the conversion from discounted long-term maintenance contracts
to non-discounted annual maintenance terms.
14
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
Cost of Sales
For the three months ended June 30, 2021, cost of sales was $30, a decrease of
$16, or 35%, compared to cost of sales of $46 in the prior year period. The
decrease in cost of sales was due to a decrease in direct labor related to
maintenance contracts during the three months ended June 30, 2021, compared to
the prior year period.
For the six months ended June 30, 2021, cost of sales was $60, an increase of
$3, or 5%, compared to cost of sales of $57 in the prior year period. The
increase in cost of sales was due to an increase in direct labor related to
revenue from SOW contracts, compared to the prior year period.
Operating expenses
Research and Development Expenses
For the three months ended June 30, 2021, research and development expense was
$135, a decrease of $9, or 6%, 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. Other general expenses decreased $17, or 6%,
due to reductions in professional services and facilities costs compared to the
prior year. The reductions in overhead expenses were offset by a decrease of $9
in allocated labor costs to cost of sales. Total expenses, before allocations
for the three months ended June 30, 2020, were $169, a decrease of $17, or 9%,
compared to $186 in the prior year period. The decrease in gross expenses is
primarily due to the factors discussed above and certain cost saving measures
put in place in the current year to safeguard against possible negative
repercussions of the COVID-19 pandemic.
For the six months ended June 30, 2021, research and development expense was
$279, a decrease of $41, or 13%, compared to research and development expense of
$320 in the prior year period. Total expenses, before allocations to cost of
sales, for the six months ended June 30, 2020, were $343, a decrease of $30, or
8%, compared to $320 in the prior year period. The reasons for these decreases
during the six-month period ended June 30, 2021 are the same as for the
three-month period discussed above. The decrease in total expenses was offset by
a reduction the amount of direct labor allocated to cost of sales during the six
month period.
Sales and Marketing Expense
For the three months ended June 30, 2021, sales and marketing expense was $22, a
decrease of $3, or 12%, compared to sales and marketing expense of $25 in the
prior year period. For the six months ended June 30, 2021, sales and marketing
expense was $71, an increase of $19, or 37%, compared to sales and marketing
expense of $52 in the prior year period. These increases are primarily
attributable to an increase in commission expense related to renewal of
maintenance contracts.
General and Administrative Expense
For the three months ended June 30, 2021, general and administrative expense was
$170, a decrease of $3, or 2%, compared to general and administrative expense of
$173 in the prior year period. The decrease was primarily due to a decrease in
overhead expense from period to period.
For the six months ended June 30, 2021, general and administrative expense was
$317, a decrease of $102, or 24%, compared to general and administrative expense
of $419 in the prior year period. The decrease was due to the reduction in
professional services, warrants expense and the provision for doubtful accounts.
15
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
Other Income and Expense
For the three and six months ended June 30, 2021, other income was $0 and $1,
respectively, a decrease of $51 and $51, respectively, compared to other income
of $51 and $52 for the three and six months ended June 30, 2020. The change in
other income and expense is due primarily to the forgiveness of $52 of accounts
payable during the three months ended June 30, 2020. Such forgiveness was
generated from related cash payments of approximately $88. Other income for the
three and six months ended June 30 2020 included the collection of $12 of
accounts receivable written off in the prior year.
For the three months ended June 30, 2021, interest expense was $80, an increase
of $10, or 14% compared to interest expense of $70 in the prior year period. For
the six months ended June 30, 2021, interest expense was $159, an increase of
$20, or 14%, compared to interest expense of $139 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 six months ended June 30, 2021 compared to
the prior year period.
Amortization of debt discount was $0 for the three and six month periods ended
June 30, 2021 compared to $1 in the same periods of the prior year,
respectively. Amortization of the debt discount was completed in the three
months ended June 30, 2020.
Income tax expensee for the three and six months ended June 30, 2021 and 2020
were $0 and $1, respectively.
Liquidity and Capital Resources
At June 30, 2021, cash and cash equivalents totaled $70, compared to cash and
cash equivalents of $26 at December 31, 2020. The increase in cash was due
primarily to $195 provided by operating activities offset by $3 in cash used in
investing activities and $148 used in financing for the six month period ended
June 30, 2021. At June 30, 2021, total current assets were $172, compared to
total current assets of $136 at December 31, 2020. At June 30, 2021, the
Company's principal sources of funds included its aggregated cash and cash
equivalents of $70.
At June 30, 2021, accounts receivable net, was $95, a decrease of $5, or 5%,
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 June 30, 2021, prepaid expenses and other current assets were $7, a decrease
of $3, or 30%. The Company has been working on minimizing the dollar amount of
new prepaid expenses incurred during the six-month period in light of the
financial uncertainty surrounding the current COVID-19 pandemic.
At June 30, 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.
At June 30, 2021, accounts payable was $385, an increase of $32, or 9%, compared
to accounts payable of $353 at December 31, 2020. The increase is due to an
increase in professional service expenses.
At June 30, 2021, accrued compensation was $70, a decrease of $12, or 15%,
compared to accrued compensation of $82 at December 31, 2020. The decrease is
due primarily to payment of accrued commissions on certain maintenance renewals
during the six month period. Other accrued liabilities were $1292, an increase
of $151, or 13%, from $1,141 at December 31, 2020 primarily due to the accrual
of additional interest expense on the Company's debt and certain franchise
taxes.
At June 30, 2021, deferred revenue was $473, an increase of $258, or 120%,
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.
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.
16
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
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.
The Company incurred $80 and $159, respectively, of interest expense for the
three and six months ended June 30, 2021, of which was $16 and $21,
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. 
