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 approximately $2,113, and, at June 30, 2020, the Company's
accumulated deficit was approximately $135,195.
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. In addition, several states in the U.S.,
including California, where the Company is headquartered, have experienced an
increase in new cases of COVID-19. The COVID-19 outbreak is disrupting supply
chains and affecting 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 spread of the
outbreak, 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 impact our financial condition or results of operations is uncertain.
- 12 -
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
In May 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").
In June 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.
For the three months ended June 30, 2020, total revenue was $227, compared to
total revenue of $227 in the prior year period. For the six months ended June
30, 2020, total revenue was $417, a decrease of $8, or 2%, compared to total
revenue of $425 in the prior year period. The change in revenue for the six
months ended June 30, 2020 is due primarily to a decrease in maintenance revenue
of $17 or 5%, compared to the prior year period offset by an increase in product
revenue of $9, or 11%, compared to the prior year. The increase in product
revenue is the result of timing issues related to new orders while the decrease
in maintenance is due to the loss of two customers.
The net loss for the three months ended June 30, 2020 was $181, a decrease of
$67, or 27%, compared to a net loss of $248 in the prior year period. The three
month loss from operations decreased $27, or 14%, to $162 compared to $189 in
the prior year period. The decrease was due to a net decrease in overhead
expenses. For the six months ended June 30, 2020 the net loss was $520, a
decrease of $20, or 4%, compared to a net loss of $540 in the prior year period.
The six month loss from operations increased $21, or 5%, to $431 compared to
$410 in the prior year period. This increase was due to an increase in warrant
expense issued for services and other overhead costs 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 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 June 30, 2020, product revenue was $59, an increase
of $18, or 44%, compared to product revenue of $41 in the prior year period. The
increase in revenue is primarily attributable to increases in one time revenue
transactions compared to the prior year period. For the three months ended June
30, 2020, maintenance revenue was $168, a decrease of $18, or 10%, compared to
maintenance revenue of $186 in the prior year period. The decrease is primarily
due to a decrease in net maintenance fee renewals in the first calendar quarter
of 2020.
For the six months ended June 30, 2020, product revenue was $90, an increase of
$9, or 11%, compared to product revenue of $81 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 $327, a decrease of $17, or 5%, compared to maintenance
revenue of $344 in the prior year period. The decrease in maintenance revenue is
primarily due to the factors discussed for the three-month period above.
Cost of Sales
For the three months ended June 30, 2020, cost of sales was $46, an increase of
$28, or 156%, compared to cost of sales of $18 in the prior year period. The
increase in cost of sales was due to an increase in direct labor related to
revenue from non-recurring engineering ("SOW") and maintenance contracts during
the three months ended June 30, 2020, compared to the prior year period.
- 13 -
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
For the six months ended June 30, 2020, cost of sales was $57, an increase of
$22, or 63%, compared to cost of sales of $35 in the prior year period. The
increase in cost of sales was due to an increase in direct labor related to
revenue from SOW and maintenance contracts, compared to the prior year period.
Operating expenses
Research and Development Expenses
For the three months ended June 30, 2020, research and development expense was
$144, a decrease of $37, or 20%, compared to research and development expense of
$181 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 $16, or 8%,
due to reductions in professional services and facilities costs compared to the
prior year. The reductions in overhead expenses were supplemented by an increase
of $20 in allocated labor costs to cost of sales. Total expenses, before
allocations for the three months ended June 30, 2020, were $186, a decrease of
$16, or 8%, compared to $202 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, 2020, research and development expense was
$320, a decrease of $32, or 9%, compared to research and development expense of
$352 in the prior year period. Total expenses, before allocations to cost of
sales, for the six months ended June 30, 2020, were $373, a decrease of $20, or
5%, compared to $394 in the prior year period. The reasons for these decreases
during the six-month period ended June 30, 2020 are the same as for the
three-month period discussed above.
Sales and Marketing Expense
For the three months ended June 30, 2020, sales and marketing expense was $25, a
decrease of $2, or 7%, compared to sales and marketing expense of $27 in the
prior year period. For the six months ended June 30, 2020, sales and marketing
expense was $52, a decrease of $1, or 2%, compared to sales and marketing
expense of $53 in the prior year period. These decreases were primarily
attributable to reductions in allocated expenses.
General and Administrative Expense
For the three months ended June 30, 2020, general and administrative expense was
$173, a decrease of $17, or 9%, compared to general and administrative expense
of $190 in the prior year period. The decrease was primarily due to a decrease
in stock option compensation of $20 or 62%. Other general administrative
expenses decreased $28, or 22%, compared to the prior year period. The decreases
were offset by the issuance of 30,000 warrants to a consultant for services. The
company ascribed a value of $13 to the warrants based on the
Black-Scholes-Merton valuation model and warrant expense related to deferred
compensation issued in the prior year.
For the six months ended June 30, 2020, general and administrative expense was
$370, a decrease of $25, or 6%, compared to general and administrative expense
of $395 in the prior year period. The decrease was primarily due to the same
factors discussed for the three-month period ended June 30, 2020, partially
offset by an increase in the allowance for doubtful accounts.
Other Income and Expense
For the three and six months ended June 30, 2020, other income was $51 and $52,
respectively, an increase of $36 and $38, respectively, compared to other income
of $15 and $14 for the three and six months ended June 30, 2019. 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 2019 included the collection of $12 of
accounts receivable written off in the prior year.
- 14 -
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
For the three months ended June 30, 2020, interest expense was $70, an increase
of $7, or 11% compared to interest expense of $63 in the prior year period. For
the six months ended June 30, 2020, interest expense was $139, an increase of
$16, or 13%, compared to interest expense of $123 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, 2020 compared to
the prior year period.
Amortization of debt discount was $1 and $1 for the three and six month periods
ended June 30, 2020 compared to $10 and $20 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 June 30, 2020, cash and cash equivalents totaled $320, compared to cash and
cash equivalents of $25 at December 31, 2019. The increase in cash was due
primarily to $523 provided by financing activities offset by net cash used in
operating activities of $228 for the six month period ended June 30, 2020. At
June 30, 2020, total current assets were $406, compared to total current assets
of $108 at December 31, 2019. At June 30, 2020, the Company's principal sources
of funds included its aggregated cash and cash equivalents of $320.
At June 30, 2020, accounts receivable net, was $73, an increase of $12, or 20%,
compared to accounts receivable net of $61 at December 31, 2019. The increase is
due primarily to the timing of billings during the six months ended June 30,
2020.
At June 30, 2020, and December 31, 2019, prepaid expenses and other current
assets were $13. 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, 2020, total current liabilities were $5,406, an increase of $733, or
16%, compared to total current liabilities of $4,673 at December 31, 2019. At
June 30, 2020, accounts payable was $1,056, a decrease of $140, or 12%, compared
to accounts payable of $1,196 at December 31, 2019. The decrease is due to the
forgiveness of $51 of accounts payable during the three months ended June 30,
2020, in connection with cash payments of approximately $89.
At June 30, 2020, accrued compensation was $90, an increase of $19, or 27%,
compared to accrued compensation of $71 at December 31, 2019. The increase is
due primarily to accrued commissions on certain maintenance renewals during the
six month period. Other accrued liabilities were $961, an increase of $147, or
18%, from $814 at December 31, 2019 primarily due to the accrual of additional
interest expense on the Company's debt and certain franchise taxes.
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, holders of
such notes can elect to convert 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.
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 to be 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 intends
to use the proceeds for purposes consistent with the PPP. While the Company
currently believes that its use of the loan proceeds, for the most part, will
meet the conditions for forgiveness of the loan, we cannot assure you that we
will not take actions that could cause the Company to be ineligible for
forgiveness of the loan, in whole or in part.
On June 19, 2020, iSign Solutions Inc. (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. Principal and interest due under the Note may be
converted by the investor into shares of the Company's common stock at a price
of $0.50 per share, or, in the event the Company consummates a financing of at
least $1,000, at the price per share of such financing, if lower than $0.50 per
share.
At June 30, 2020, current deferred revenue was $529, an increase of $113, or
27%, compared to current deferred revenue of $416 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.
The Company recorded $1 and $1 in debt discount amortization for the three and
six months ended June 30, 2020, respectively, related to the 2016 debt
financings.
- 15 -
iSign Solutions Inc.
FORM 10-Q
(In thousands, except per share amounts)
The Company incurred $69 and $139, respectively, of interest expense for the
three and six months ended June 30, 2020, of which was $5 was paid in cash.
The Company had no material commitments as of June 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.
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ISIGN SOLUTIONS INC. 
