UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
☒
Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For
the fiscal year ended December 31, 2017
☐
Transition
Report Pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934
for
the transition period from
to
Commission
File No. 000-19301
iSign
Solutions Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
|
94-2790442
|
(State
or other jurisdiction of
incorporation or organization)
|
|
(I.R.S.
Employer
Identification No.)
|
2025
Gateway Place, Suite 485, San Jose, California
|
|
95110
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Registrant’s
telephone number, including area code:
650-802-7888
Securities
registered under Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
into Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer
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☐
|
Accelerated filer
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☐
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Non-accelerated filer
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☐
(Do not check if a smaller reporting company)
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Smaller reporting company
|
☒
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Emerging growth company
|
☐
|
If an emerging growth
company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No ☒
The aggregate market value of the voting
stock (Common Stock) held by non-affiliates of the registrant as of June 30, 2017 was approximately $2,012,144 based on the closing
sale price of $0.50 on such date, as reported by OTC Markets Group Inc. The number of shares of Common Stock outstanding as of
the close of business on April 2, 2018 was 5,761,980.
DOCUMENTS
INCORPORATED BY REFFERENCE
iSign
SOLUTIONS INC
TABLE
OF CONTENTS
iSign’s
logo, iSign
®
, InkTools
®
SIGVIEW
®
, Sign-it
®
, INKshrINK
®
,
SignatureOne
®
, Ceremony
®
, Signed, Sealed, Delivered
®
and The Power To Sign Online
®
are registered trademarks of the Company. The Company intends to register its trademarks generally in those jurisdictions
where significant marketing of its products will be undertaken in the foreseeable future.
Note
Regarding Forward Looking Statements
Certain
statements contained in this Annual Report on Form 10-K, including without limitation, statements containing the words “believes”,
“anticipates”, “hopes”, “intends”, “expects”, and other words of similar import,
constitute “forward looking” statements within the meaning of the Private Litigation Reform Act of 1995. Such statements
involve known and unknown risks, uncertainties and other factors that may cause actual events to differ materially from expectations.
Such factors include the following: (1) technological, engineering, quality control or other circumstances which could delay the
sale or shipment of products; (2) economic, business, market and competitive conditions in the software industry and technological
innovations which could affect the Company’s business; (3) the Company’s ability to protect its trade secrets or other
proprietary rights, operate without infringing upon the proprietary rights of others or prevent others from infringing on the
proprietary rights of the Company; and (4) general economic and business conditions and the availability of sufficient financing.
PART
I
Item 1.
Business
General
iSign
Solutions Inc. (the “Company” or “iSign”), was incorporated in Delaware in October 1986. iSign is a leading
supplier of digital transaction management (DTM) software enabling the paperless, secure and cost-effective management and authentication
of document-based transactions. iSign’s solutions encompass a wide array of functionality and services, including electronic
signatures, simple-to-complex workflow management and various options for biometric authentication. 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 platform can be deployed both on premise and as a cloud-based (“SaaS”) service,
with the ability to easily transition between deployment models. The Company is headquartered in San Jose, California.
For
the year ended December 31, 2017, total revenue was $1,013, a decrease of $52, or 5%, compared to total revenue of $1,065 in the
prior year. For the year ended December 31, 2017, software product revenue was $322, a decrease of $3, or 1%, compared to product
revenue of $325 in the prior year. Maintenance revenue for the year ended December 31, 2017, was $691, a decrease of $49, or 7%,
compared to maintenance revenue of $740 in the prior year. The decreases are primarily attributable to the Company’s efforts
to restructure its operations in favor of partner-generated recurring revenue.
For the year ended
December 31, 2017, the net loss attributable to common stockholders was $1,947, a decrease of $3,110, or 61%, compared to $5,057
in the prior year. For the year ended December 31, 2017, non-cash charges attributable to the write-off of the interest in the
Chinese joint venture, interest expense, financing and loan discount amortization and the accretion of the beneficial conversion
feature were $759, a decrease of $94, or 11%, compared to $853 in the prior year. There was no gain on derivative liability for
the year ended December 31, 2017, compared to a gain of $330 in the prior year. For the year ended December 31, 2017, operating
expenses were $2,571, a decrease of $1,703, or 40%, compared to operating expenses of $4,274 for the prior year. The decrease
in operating expense resulted from reductions in full time employees and expenses associated with the Company’s efforts
to restructure its operations in favor of a partner-generated recurring revenue model.
Core Technologies
The Company’s
core technologies can be referred to as “transaction-enabling” and “business process work flow” technologies.
These technologies include various forms of electronic signature methods, such as handwritten, biometric, click-to-sign and others,
as well as technologies related to signature verification, authentication, cryptography and the logging of audit trails to prove
signers’ intent. These technologies enable the appending of secure, legal and regulatory compliant electronic signatures
coupled with an enhanced user experience, all at a fraction of the time and cost required by traditional, paper-based processes
for signature capture.
Products
The
Company’s enterprise-class SignatureOne
®
and iSign
®
suite of electronic signature solutions
enable businesses to implement truly paperless, electronic signature-driven business processes. The aggregate of the software
functionality enabling the digitization of end-to-end work flow processes is sometimes referred to as “digital transaction
management” (DTM). Many applications provide electronic forms and allow users to fill-in information, but most of these
applications still require users to print out a paper copy for a handwritten, ink signature. Solutions powered by iSign products
allow legally binding electronic signatures to be added to digital documents, eliminating the need for paper to memorialize the
completion, approval or authentication of the transaction. This allows users to reduce transaction times and processing costs.
The
SignatureOne
®
and iSign
®
suite of products includes the following:
SignatureOne
®
Ceremony
®
Server
|
The SignatureOne
®
Ceremony
®
Server (“Ceremony Server”) provides a highly secure, scalable, patent-protected and streamlined electronic signature solution. Its flexible, easy-to-configure and agile workflow can be rapidly integrated via standard Web services to become an ultimate and cost efficient endpoint in true straight-through processing (the complete removal of paper from business processes) and to facilitate end-to-end management of multi-party approvals for PDF and XHTML documents. The Ceremony Server contains iSign’s core e-signature engine and signature ceremony management tools, and can be seamlessly integrated with numerous ancillary products. Its key features include:
|
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●
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Consent/disclosure management – integral part of audit record; easily reproducible in the event of a dispute;
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●
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Configurable document presentment – signatory receipt, access and viewing of document tracked in audit trail;
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●
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Multi-party ceremonies – complex processes, simplified; allows for dynamic, multi-channel workflow changes, including remote, face-to-face and mobile scenarios;
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Supports complex business rules and dynamic user behaviors;
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●
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Configurable branding and workflow;
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●
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Flexible tracking and reporting – includes event notification service
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●
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Extensive audit trail – embedded in individual document in a tamper evident digital seal; and
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●
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Support for multiple signature methods – click-to-sign; biometric; and others.
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|
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iSign
®
Console™
|
The iSign
®
Console™ (“Console”) leverages the Ceremony Server’s core signature engine and is ideal for organizations looking for a standalone electronic signature solution. Through its intuitive graphical interface, the Console allows users to upload documents for signature, select signers and signature methods, and manage and enforce document workflow for routing, reviewing, signing and notifications. The Console offers a secure and intuitive solution that requires no integration and is available on-premise or in the cloud.
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iSign® Enterprise
|
iSign® Enterprise incorporates the features and function of the Ceremony Server and the Console.
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iSign
®
Family
|
The growing suite of iSign
®
products and service includes iSign
®
Mobile (for signing on iOS and Android mobile devices), iSign
®
Forms (for integrated use of templates and forms), and iSign
®
Live (iSign’s patent-pending co-browsing solution for simultaneous browsing signature ceremonies).
|
|
|
Sign-it
®
|
Sign-it
®
is a family of desktop software products that enable the real-time capture of electronic and digital signatures, as well as their verification and binding within a standard set of applications, including Adobe Acrobat and Microsoft Word, web-based applications using HTML, XML and XHTML, and custom applications for .NET, C# and similar development environments for the enterprise market. The Sign-it
®
family of products combines the strengths of biometrics, and other forms of electronic signatures, with cryptography in a patented process that insures the creation of documents containing legally compliant electronic signatures. These signatures have the same legal standing as a traditional so-called wet signature on paper and are created pursuant to the Electronic Signature in National and Global Commerce Act, as well as other related legislation and regulations. With Sign-it
®
products, organizations wishing to process electronic forms, requiring varying levels of security, can reduce the cost and other inefficiencies inherent with paper documents by adding electronic signature technologies to their workflow solutions.
|
|
|
iSign
®
Toolkits
|
The iSign
®
suite of application development tools for electronic signature capture, encryption and verification in custom applications and web-based processes captures and analyzes the image, speed, stroke sequence and acceleration of a person’s handwritten electronic signature. This capability offers an effective and inexpensive solution for immediate authentication of handwritten signatures. iSign
®
toolkits also store certain forensic elements of an electronic signature for use in determining whether a person’s electronic signature is legally valid. They also include software libraries for industry standard encryption and hashing to protect a user’s signature, as well as the data captured in the Ceremony
®
process.
|
Products
and upgrades that were introduced and first deployed in 2017 include the following:
iSign Enterprise
|
|
v5.4.22
|
iSign Enterprise
|
|
v5.4.8.2
|
iSign Enterprise
|
|
v5.4.8.3
|
iSign Enterprise
|
|
v6.2.2
|
iSign Enterprise
|
|
v6.2.3
|
iSign Enterprise
|
|
v6.3
|
iSign Enterprise
|
|
v6.4
|
iSign Enterprise
|
|
v6.4.1
|
iSign Enterprise
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|
v6.4.2
|
iSign Enterprise
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Database Migration from v5.4 to v6.5
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iSign Enterprise
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v6.5
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iSign Enterprise
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v6.5.1
|
iSign Enterprise
|
|
v6.5.2
|
iSign Enterprise
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|
v6.6.3
|
iSign Enterprise
|
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v6.6.4
|
iSign Enterprise
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|
v6.6.5
|
iSign Enterprise
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v6.6
|
iSign Enterprise
|
|
v6.6.6
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iSign Enterprise
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|
v6.7
|
iSign Enterprise
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v6.6.7
|
iSign Enterprise
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v6.6.8
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Sign-it for Acrobat
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v9.3.4
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Sign-it for Acrobat
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v9.4
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Sign-it for Acrobat
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v10.1
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Sign-it for Acrobat
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v10.2
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Sign-it for Acrobat
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v10.2.1
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Sign-it for Acrobat
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v10.3
|
iSign SDK Sources
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iSign Windows SDK v4.8
|
iSign SDK Sources
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iSign Java SDK v2.1
|
Intellectual
Property
The
Company relies on a combination of patent applications, trademarks, trade secrets and contractual provisions to protect its software
offerings and technologies. The Company has a policy of requiring its employees and contractors to commit to the protection of
proprietary information through written agreements. The Company also has a policy of requiring prospective business partners to
enter into non-disclosure agreements before disclosure of any of its proprietary information.
Over
the years, the Company has developed and patented major elements of its software offerings and technologies. The Company currently
has the following applications pending:
Patent
App. No.
|
|
Filing
Date
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14/650,271
|
|
June 5, 2015
|
14/455,425
|
|
August 8, 2014
|
The
Company’s technologies go beyond simple electronic signature and include biometric signatures, verification solutions, authentication
and validation methods, that result in signed documents that are secure, legal and tamper-resistant.
The
Company has over 20 registered and unregistered trademarks in the United States and other countries. The Company intends to register
its trademarks in those jurisdictions where significant marketing of its products will be undertaken in the foreseeable future.
Research
and Development
Our
research and development effort is focused on the development, advancement and refinement of our core products and the development
of new products. In addition, our research and development team is responsible for the continuous quality measurement and assurance
of both existing and new products. We conduct research on software technology, related computer hardware, competitive offerings
and alternative solution approaches to develop appropriate product and service offerings for our target markets. Our research
and development efforts are often aimed at assisting clients and licensees in further streamlining new and existing workflow processes
that our software solutions support and at ensuring that we meet or exceed industry standards and competitive offerings. We provide
certain customization and integration services to our clients, including software integration partners and enterprise customers.
These efforts are conducted by our team in San Jose, California, supported by contracted staff, including offshore engineers.
We
believe that our software technologies, platforms and products are now competitive and, while research and development activities
will remain at the core of our operations, we intend, going forward, to invest an increasing amount of our resources in sales
and marketing activities.
Our research and development
expense was $1,135 for the year ended December 30, 2017 and $1,322 for the year ended December 31, 2016.
Material
Customers
Historically,
the Company’s revenue has been derived from hundreds of customers, but a significant percentage of the revenue has been
attributable to a limited number of customers. Three customers, as described in Note 2 to the Consolidated Financial statements,
accounted for 13%, 14% and 30%, respectively, of total revenue for the year ended December 31, 2017.
Seasonality
of Business
The
Company believes that the sale of its products is not subject to seasonal fluctuations.
Backlog
Backlog
was approximately $485 and $573 at December 31, 2017 and 2016, respectively, representing advanced payments on product and service
maintenance agreements. In 2014, the Company negotiated a long term maintenance agreement, the balance of which is $175 at December
31, 2017, which will be recognized over four years. The remaining backlog is expected to be recognized over the next twelve months.
Competition
We
believe that our primary competitive advantages include the following:
|
●
|
Customer options and platform flexibility
: Unlike most of our competitors, we offer many flexible configuration options for enterprise clients to address many variants of complex business work flows without the need for costly and time-consuming customization. These solution configurations can be rapidly and seamlessly integrated into a variety of enterprise technology environments.
|
|
●
|
Software deployment options
: Unlike most of our competitors, our software solutions are available as an on demand, private cloud-based software as a service, and on the customer’s premises, which is an important feature for most of our large enterprise clients for compliance, security and control reasons.
|
|
●
|
Lower cost structure
: Through our technology, sales and marketing partners, including Cegedim SA, we believe we offer a lower relative cost structure and higher operating margin than most of our larger competitors.
|
Currently,
our primary competition for basic click-to-sign electronic signatures includes Adobe EchoSign, DocuSign and VASCO Data Security
International Inc. We view the balance of the U.S. market as fragmented with a variety of smaller competitors focused on the consumer
and small business markets rather than enterprise organizations.
Employees
As
of December 31, 2017, the Company employed eight full-time employees and eight independent contractors. The Company has established
longstanding strategic relationships that allow it to rapidly access product development and deployment capabilities that could
be required to address most customer requirements. None of the Company’s employees are party to any collective bargaining
agreements. We believe our employee relations are good.
Geographic
Areas
For
the years ended December 31, 2017 and 2016, sales in the United States as a percentage of total sales was 88%, respectively. At
December 31, 2017 and 2016, long-lived assets located in the United States were $30 and $306, respectively. There were no long-lived
assets located elsewhere as of December 31, 2017 and 2016.
Segments
The
Company reports its financial results in one segment.
Available
Information
Our web site is located
at
www.isignnow.com
. The information on or accessible through our web site is not part of this Annual Report on Form 10-K.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to such reports are
available, free of charge, on our web site as soon as reasonably practicable after we electronically file with or furnish such
material to the Securities and Exchange Commission (“SEC”). Furthermore, a copy of this Annual Report on Form 10-K
and other reports filed by iSign with the SEC may be read and copied by the public at the SEC’s Public Reference Room at
100 F Street, NE, Washington, D.C. 20549 on official business days during the hours of 10 a.m. and 3 p.m. Information on the operation
of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains
reports, proxy and information statements and other information regarding issuers, including iSign, that file electronically with
the SEC at
www.sec.gov
.
Item
1A.
Risk Factors
Not
applicable.
Item
1B.
Unresolved Staff Comments
None.
Item
2.
Properties
The
Company leases its principal facilities, consisting of approximately 2,400 square feet, in San Jose California, pursuant to a
lease that expires in 2019.
Item
3.
Legal Proceedings
None.
Item
4.
Mine Safety Disclosures
None.
PART
II
Item
5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market
Information
The Company’s
common stock (“Common Stock”) is quoted on OTC Markets Group Inc.’s OTC Pink quotation system under the trading
symbol ISGN. Trading activity for the Company’s Common Stock can be viewed at
www.otcmarkets.com
. The following table
sets forth the high and low sale prices of the Common Stock for the periods noted.
|
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Sale
Price Per Share
|
|
Year
|
|
Period
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
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2016
|
|
First Quarter
|
|
$
|
15.00
|
|
|
$
|
2.81
|
|
|
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Second Quarter
|
|
$
|
3.55
|
|
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$
|
0.98
|
|
|
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Third Quarter
|
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$
|
2.00
|
|
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$
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1.01
|
|
|
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Fourth Quarter
|
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$
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1.25
|
|
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$
|
0.56
|
|
2017
|
|
First Quarter
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$
|
0.85
|
|
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$
|
0.21
|
|
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Second Quarter
|
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$
|
0.50
|
|
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$
|
0.35
|
|
|
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Third Quarter
|
|
$
|
0.50
|
|
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$
|
0.31
|
|
|
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Fourth Quarter
|
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$
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0.40
|
|
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$
|
0.20
|
|
Holders
As
of March 20, 2018, there were approximately 146 holders of record of our Common Stock.
Dividends
To date, the Company
has not paid any dividends on its Common Stock and does not anticipate paying any such dividends in the foreseeable future. The
declaration and payment of dividends on the Common Stock is at the discretion of the Board of Directors and will depend on, among
other things, the Company’s operating results, financial condition, capital requirements, contractual restrictions or such
other factors as the Board of Directors may deem relevant.
Recent
Sales of Unregistered Securities
None
Issuer
Purchases of Equity Securities
None.
Item 6.
Selected Financial Data
Not
applicable.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis should be read in conjunction with our financial statements and related notes appearing elsewhere
in this Form 10-K. The following discussion relating to projected growth and future results and events constitutes forward-looking
statements. Actual results in future periods may differ materially from the forward-looking statements due to a number of risks
and uncertainties. We cannot guarantee future results, levels of activity, performance or achievements. Except as otherwise required
under applicable law, we disclaim any obligation to revise or update forward-looking statements to reflect events or circumstances
after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
Unless
otherwise stated herein, all figures in this Item 7, other than price per share data, are stated in thousands (“000s”).
Overview
and Recent Developments
The
Company is a leading supplier of DTM software enabling the paperless, secure and cost-effective management and authentication
of document-based transactions. iSign’s solutions encompass a wide array of functionality and services, including electronic
signatures, simple-to-complex workflow management and various options for biometric authentication. 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. The Company’s products and services result in legally binding transactions that are compliant with
applicable laws and regulations and that can provide a higher level of security than paper-based processes. The Company has been
a leading supplier of enterprise software solutions within the financial services and insurance industries and has made available
to its customers significant expense reduction by enabling a completely electronic document and workflow process, as well as the
resulting reduction in mailing, scanning, filing and other costs related to the use of paper.
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, 2017, net losses attributable to common stockholders aggregated approximately
$7,004, and at December 31, 2017, the Company's accumulated deficit was approximately $132,562.
For the year ended
December 31, 2017, total revenue was $1,013, a decrease of $52, or 5%, compared to total revenue of $1,065 in the prior year. The
decrease in revenue is primarily attributable to the Company’s efforts to restructure its operations in favor of partner-generated
recurring revenue.
For the year ended
December 31, 2017, operating expenses were $2,571, a decrease of $1,703, or 40%, compared to operating expenses of $4,274 in the
prior year. The decrease in operating expenses resulted from the reduction of 3 full time employees and changes to its operating
expense structure, which changes were made in connection with the Company’s efforts to tailor its operations in favor of
partner-generated recurring revenue. For the year ended December 31, 2017, the loss from operations was $1,558, a decrease of $1,651,
or 51%, compared to a loss from operations of $3,209 in the prior year.
In
February 2017, the Company received, from investors and affiliates of the Company, advances aggregating $120 in cash against certain
accounts receivable of the Company. Upon collection of the receivable, the Company would repay the advance to the lenders on a
pro rata basis together with a 5% advance fee. The receivables were collected and the advances were repaid in March 2017, along
with $6 in advance fees per the agreement. The advance fees were recorded as interest expense in the quarter ended March 31, 2017.
In May 2017, the Company
issued secured convertible promissory notes to investors and affiliates of the Company aggregating $505 in cash. In addition, certain
investors and affiliates of the Company that had taken part in the November 2016 financing, and that also participated in the May
2017 financing, exchanged $450 of unsecured convertible promissory notes received in the November 2016 financing for $250 secured
notes with the same terms as the notes issued in the May 2017 financing and $200 in unsecured notes with the same terms as the
November 2016 financing. The secured notes are mandatorily convertible into Common Stock at a conversion rate of the lesser of
$0.50 per share or the price per share of Common Stock upon closing a new financing of at least $1,000 in aggregate proceeds. The
secured notes bear interest at the rate of 10% per annum, are due December 31, 2018 and are secured by an interest in all the Company’s
rights, title and interest in, to and under its intellectual property. Should the secured notes remain outstanding following the
maturity date an additional 30% of the note’s principal amount shall become due and payable.
In
December 2017, the Company issued additional secured convertible promissory notes to investors and affiliates of the Company aggregating
$150 in cash. The secured notes have substantially the same terms as the secured notes issued in the May 2017 financing.
The
Company used the funds received from the above financing for working capital and general corporate purposes.
The
Company recorded $97 in debt discount amortization for the twelve months ended December 31, 2017 related to the above debt financings.
New
Accounting Pronouncements
See
Note 1, Notes to Consolidated Financial Statements included under Part IV, Item 15 of this report on Form 10-K.
Critical
Accounting Policies
The
preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the
United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in
the Company’s consolidated financial statements and the accompanying notes. The amounts of assets and liabilities reported
in its balance sheets and the amounts of revenue and expenses reported for each period presented are affected by these estimates
and assumptions that are used for, but not limited to, revenue recognition, allowance for doubtful accounts, intangible asset
impairments, fair value of financial instruments, stock based compensation and valuation allowances on deferred tax assets. Actual
results may differ from these estimates. The following critical accounting policies are significantly affected by judgments, assumptions
and estimates used by the Company’s management in the preparation of the consolidated financial statements.
Stock
based Compensation:
Stock-based compensation expense is based on the estimated grant date fair value of the portion of stock-based
payment awards that are ultimately expected to vest during the period. The grant date fair value of stock-based awards to employees
and directors is calculated using the Black-Scholes-Merton option pricing model. Forfeitures of share-based payment awards are
estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Forfeitures are estimated and it is assumed no dividends will be declared. The estimated fair value of stock-based compensation
awards to employees is amortized on an accrual basis over the vesting period of the options.
Valuation
of equity warrants:
The Company values warrants issued using the Black-Scholes-Merton pricing model.
Derivatives:
The Company follows the relevant accounting guidance and records derivative instruments (including certain derivative instruments
embedded in other contracts) in the consolidated balance sheet as either an asset or a liability measured at their fair value,
with changes in the derivative’s fair value recognized currently in earnings. The Company values these derivative securities
under the fair value method at the end of each reporting period (quarter), and their value is marked-to-market at the end of each
reporting period with the gain or loss recorded in earnings. The Company continues to revalue these instruments each quarter to
reflect their current value in light of the current market price of our Common Stock. The Company used a simulated probability
valuation model to value warrants containing embedded derivative instruments. Determining the appropriate fair-value model and
calculating the fair value of such warrants requires considerable judgment. Any change in the estimates (specifically, probabilities)
used may cause the value to be higher or lower than that reported. The assumptions used in the model require significant judgment
by management and include the following: volatility, expected term, risk-free interest rate, dividends, and warrant holders’
expected rate of return, reset provisions based on expected future financings, projected stock prices, and probability of exercise.
The
conversion option included within the unsecured convertible promissory notes is accounted for as a derivative liability at its
estimated fair value. The derivative is subject to re-measurement at the end of each reporting period, with changes in fair value
recognized as a component of interest and other income, in the consolidated statements of operations. The Company will continue
to adjust the liability for changes in fair value until the earlier of the conversion or maturity of the unsecured convertible
promissory note purchase agreements.
Revenue:
Revenue
is recognized when earned in accordance with the applicable accounting guidance. The Company recognizes revenue from sales of software
products upon shipment, provided that persuasive evidence of an arrangement exists, collection is determined to be probable, all
non-recurring engineering work necessary to enable the Company’s product to function within the customer’s application
has been completed and the Company’s product has been delivered according to specifications. Revenue from service subscriptions
is recognized as costs are incurred or over the service period, whichever is longer.
Software
license agreements may contain multiple elements, including upgrades and enhancements, products deliverable on a when and if available
basis and post-contract support. Revenue from software license agreements is recognized upon delivery of the software, provided
that persuasive evidence of an arrangement exists, collection is determined to be probable, all nonrecurring engineering work
necessary to enable the Company’s products to function within the customer’s application has been completed and the
Company’s product has been delivered according to specifications.
For
arrangements with multiple deliverables, the Company allocates consideration at the inception of an arrangement to all of its
deliverables based on their relative selling prices, which are determined using vendor-specific objective evidence.
Maintenance
revenue is recorded for post-contract support and upgrades or enhancements, which is paid for in addition to license fees, and
is recognized as costs are incurred or over the support period, whichever is longer. For undelivered elements where vendor specific
objective evidence of fair value does not exist, revenue is deferred and subsequently recognized when delivery has occurred and
when vendor specific evidence has been determined.
Allowance
for Doubtful Accounts
: The allowance for doubtful accounts is based on the Company’s assessment of the collectability
of specific customer accounts and an assessment of international, political and economic risk as well as the aging of the accounts
receivable. If there is a change in actual defaults from the Company’s historical experience, the Company’s estimates
of recoverability of amounts due could be affected and the Company would adjust the allowance accordingly.
Long-lived
assets:
The Company evaluates the recoverability of its long-lived assets, including intangible assets at least annually or
whenever circumstances or events indicate such assets might be impaired. The Company would recognize an impairment charge in the
event the net book value of such assets exceeded the future undiscounted cash flows attributable to such assets. Estimation of
future cash flows from the products considers the following additional factors:
|
●
|
legal,
regulatory or contractual provisions known to the Company that limit the useful life
of any product technology to less than the assigned useful life;
|
|
●
|
whether
the Company needs to incur material costs or make modifications in order for it to continue
to be able to realize the benefits afforded by the product technologies;
|
|
●
|
effects
of obsolescence or significant competitive pressure on the Company’s current or
future products are expected to reduce the anticipated cash flow from the products;
|
|
●
|
demand
for products utilizing the technology will diminish, remain stable or increase; and
|
|
●
|
whether
the current markets for the products based on the technology will remain constant or
will change over the useful lives assigned to the technologies.
|
Customer
Base:
To date, the Company’s electronic signature revenue has been derived primarily from financial service industry
end-users and from resellers and channel partners serving the financial service industry primarily in North America, the ASEAN
Region and Europe. The Company performs periodic credit evaluations of its customers and does not require collateral. The Company
maintains reserves for potential credit losses. Historically, such losses have been within the range of management’s expectations.
Cost
of sales:
Cost of sales includes direct engineering labor and overhead for specific revenue based projects initiated by customers
and maintenance projects specific to customer needs, along with third party services related to the Company’s transactional
based revenues.
Research
and Development Costs
: Research and development costs are charged as expense as incurred.
Net Operating Loss
Carry-forwards:
Utilization of the Company's net
operating losses may be subject to an annual limitation due to the ownership change limitations under Section 382 of the Internal
Revenue Code and similar state provisions. As a result, a portion of the Company's net operating loss carry-forwards may not be
available to offset future taxable income. The Company has provided a full valuation allowance for deferred tax assets at December
31, 2017, of approximately $18,095 based upon the Company's history of losses.
Segments:
The Company reports its financial results in one segment.
Results
of Operations – Years Ended December 31, 2017 and December 31, 2016
Revenue
For
the year ended December 31, 2017, total revenue was $1,013, a decrease of $52, or 5%, compared to total revenue of $1,065 in the
prior year. For the year ended December 31, 2017, software product revenue was $322, a decrease of $3, or 1%, compared to product
revenue of $325 in the prior year. Maintenance revenue for the year ended December 31, 2017, was $691, a decrease of $49, or 7%,
compared to maintenance revenue of $740 in the prior year. The decrease in revenue is primarily attributable to the Company’s
efforts to restructure its operations in favor of partner-generated recurring revenue.
Cost
of Sales
For
the year ended December 31, 2017, cost of sales was $126, a decrease of $260, or 67%, compared to cost of sales of $386 in the
prior year. The decrease was primarily due to lower direct engineering costs associated with both software product and maintenance
revenue during the year ended December 31, 2017 compared to the prior year.
Operating
Expenses
Research
and Development Expenses
For the year ended
December 31, 2017, research and development expenses were $1,135, a decrease of $187, or 14%, compared to research and development
expenses of $1,322 in the prior year. Research and development expenses consist primarily of salaries and related costs, outside
contract engineering, maintenance items, and allocated facility expenses. The most significant factors contributing to the decrease
in research and development expenses was a decrease in the number of engineering personnel by 2, and the reduction in allocated
facilities expenses due to the move to smaller facilities. These reductions were partially offset by reduced direct labor transfers
to cost of sales due to the decreases in non-recurring engineering orders and maintenance. For the year ended December 31, 2017,
total research and development expenses before IT and cost of sales allocations were $1,312, a decrease of $444, or 25%, compared
to $1,756 of total research and development expenses before allocations in the prior year.
Sales
and Marketing Expenses
For
the year ended December 31, 2017, sales and marketing expenses were $188, a decrease of $218, or 54%, compared to sales and marketing
expenses of $406 in the prior year. The decrease was primarily attributable to a decrease in salaries and wages in connection
with the Company’s efforts to restructure its operations in favor of partner-generated recurring revenue.
General
and Administrative Expenses
For
the year ended December 31, 2017, general and administrative expenses were $1,122, a decrease of $1,038, or 48%, from general
and administrative expenses of $2,160 in the prior year. The decrease was attributable to across the board decreases in salary
and related expense, professional fees and services, investor relations, allocated facilities cots and other general overhead
expenses. The expense reductions were primarily the result of the cash constraints experienced by the Company over the current
period ended December 31, 2017.
Other
Income (Expense), Net
Other
income (expense), net, was income of $67, an increase of $79, or 658%, compared to an expense of $12 in the prior year. The increase
is due primarily to the abatement of an accrual for a late filing fee from the Internal Revenue Service of $30 and the collection
of accounts receivable reserved for in the prior year of $44.
For the year ended
December 31, 2017, the Company recorded a non-cash charge of $550 related to the deconsolidation of the Chinese joint venture due
to the lack of any operations over the last two years.
For
the year ended December 31, 2017, the Company recorded a gain on sale of the source code and rights to one of the Company’s
older toolkit software products, net of related costs, of $239. The purchaser granted the Company a fully-paid, royalty-free,
worldwide, irrevocable license to use the software to support current and existing customers and partners of the Company. The
Company did not retain the right to distribute the software either as a source code or as an object code. However, the Company
retained the right to create new non-toolkit software from the original source code and to market, sell and distribute the new
non-toolkit software in the ordinary course of business to its customers and partners. In addition, the Company sold one of is
retired domain names for $64 cash.
Interest
Expense
For
the year ended December 31, 2017, related party interest expense was $26, a decrease of $77, or 75%, compared to related party
interest expense of $103 in the prior year. For the year ended December 31, 2017, other interest expense was $86, a decrease of
$29, or 25%, compared to other interest expense of $115 in the prior year. The decrease in interest expense is primarily due to
a decrease in the amount of borrowings compared to the prior year.
For
the year ended December 31, 2017, the Company recorded $97 in debt discount amortization associated with its long-term and short-term
borrowings, $27 of which is attributable to related parties and $70 of which is attributable to other investors, compared to $390
in the prior year, $87 of which is attributable to related parties and $303 of which is attributable to other investors. The decrease
in debt discount amortization was primarily due to the conversion of the convertible notes in May of 2016 and the subsequent write
off of the remaining unamortized loan discount.
The
change in fair value of derivative liabilities resulted in a non-cash gain of $330 in the prior year. No such gain was recorded
for the twelve months ended December 31, 2017.
There
was no accretion of beneficial conversion feature on Preferred Stock for the year ended December 31, 2017 due to the conversion
of the outstanding Preferred Stock in May of 2016. For the year ended December 31, 2016, accretion of the beneficial conversion
feature on Preferred Stock with an exercise price less than the closing market price on May 19, 2016 (for the Series C Preferred
Stock and Series D-1 Preferred Stock) was $245.
Due
to the conversion of the Company’s Preferred Stock discussed above, no dividends were paid in kind in 2017. The Company
recorded $1,313 in dividends in kind on shares of its Convertible Preferred Stock for the year ended December 31, 2016, of which
$646 was to related parties and $667 was to other investors.
Liquidity
and Capital Resources
Cash
and cash equivalents totaled $285 at December 31, 2017, compared to $389 at December 31, 2016.
The cash used in operations
was primarily attributable to the net loss of $1,947. This amount was partially offset by the write-off of the interest in the
Chinese joint venture of $550, non-cash depreciation and amortization charges of $277, amortization of debt discount of $97 and
stock-based employee compensation of $143.
Cash out flows for
the acquisition of property and equipment was $3 offset by cash inflows of $303 related to the sale of intangible assets.
Proceeds from financing
activities was $655 from the issuance of debt.
Accounts
receivable were $45 at December 31, 2017, a decrease of $92, or 67%, compared to accounts receivable of $137 at December 31, 2016.
Accounts receivable at December 31, 2017 and 2016, are net of $1 and $63, respectively, of allowances provided for potentially
uncollectible accounts. The decrease is primarily attributable to higher collections in the quarter ended December 31, 2017.
Prepaid
expenses and other current assets were $28 at December 31, 2017, a decrease of $28, or 50%, compared to prepaid expenses and other
current assets of $56 at December 31, 2016. The decrease is primarily due to lower prepaid insurance premiums compared to the
prior year.
Short-term
debt was $1,458 net of $97 in discounts at December 31, 2017. The Company reclassified its existing long-term debt to short term
and issued new debt in the amount of $655 during the twelve months ended December 31, 2017.
Accounts payable
were $1,289 at December 31, 2017, a decrease of $79, or 6%, compared to $1,368 at December 31, 2016. The decrease is due cost
cutting efforts by the Company during the current period.
Other
current liabilities, which include accrued compensation were $941 at December 31, 2017, compared to $762 at December 31, 2016,
an increase of $179, or 23%. The increase is primarily attributable to the accrual of certain franchise taxes and professional
service fees partially offset by reductions in headcount during the current period.
Deferred
revenue, including the long-term portion, was $485 at December 31, 2017, a decrease of $88, or 15%, compared to deferred revenue
of $573 at December 31, 2016. The decrease is primarily due to the recognition of revenue from a five-year maintenance contract
with one of the Company’s customers that was renewed in December of 2015.
Financing
Transactions
Advances:
In
February 2017, the Company received, from investors and affiliates of the Company, advances aggregating $120 in cash against certain
accounts receivable of the Company. Upon collection of an invoice, the Company would repay the advance to the lenders on a pro
rata basis together with a 5% advance fee. The receivables were collected and the advances were repaid in March 2017, along with
$6 in advance fees per the agreement. The advance fees were recorded as interest expense in the quarter ended March 31, 2017.
Notes
payable
:
In
November 2016, the Company issued long-term unsecured convertible promissory notes to investors and affiliates of the Company
aggregating $700 in cash. The Company also issued the same long-term notes to affiliates in exchange for an aggregate of $200
in demand notes that had been issued earlier in September and October of 2016. The long-term notes are mandatorily convertible
into Common Stock at a conversion rate of the lesser of $0.50 per share (initially, $1.30 per share and subsequently reduced as
part of the May 2017 financing described below) or the price per share of Common Stock, upon closing a new debt and or equity
financing of at least $1,000 in aggregate proceeds. The notes bear interest at the rate of 6% per annum and are due December 31,
2018. The Company issued warrants to purchase 277 shares of Common Stock in connection with these long-term notes. The Company
ascribed a value of $204 to the 277 warrants and recorded a discount to the long-term notes and a corresponding amount to additional
paid-in capital. The discount is being amortized using the effective interest method over the term of the notes.
In
May 2017, the Company issued secured convertible promissory notes to investors and affiliates of the Company aggregating $505
in cash. In addition, certain investors and affiliates of the Company that had taken part in the November 2016 financing discussed
above, and that also participated in the May 2017 financing, exchanged $450 of unsecured convertible promissory notes received
in the November 2016 financing for $250 secured notes with the same terms as the notes issued in the May 2017 financing and $200
in unsecured notes with the same terms as the November 2016 financing discussed above. The secured notes are mandatorily convertible
into Common Stock at a conversion rate of the lesser of $0.50 per share or the price per share of Common Stock, upon closing a
new financing of at least $1,000 in aggregate proceeds. The secured notes bear interest at the rate of 10% per annum, are due
December 31, 2018 and are secured by an interest in all the Company’s rights, title and interest in, to and under its intellectual
property. Should the secured notes remain outstanding following the maturity date an additional 30% of the note’s principal
amount shall become due and payable.
In
December 2017, the Company issued additional secured convertible promissory notes to investors and affiliates of the Company aggregating
$150 in cash. The secured notes have substantially the same terms as the secured notes issued in the May 2017 financing.
The
Company used the funds received from the above financings for working capital and general corporate purposes.
The Company
sold for $303 in cash the source code and rights to one of its older toolkit software products and one of is retired domain names.
During
the twelve months ended December 31, 2017, the Company accrued $112 of interest expense, $100 associated with the notes, of which
$26 was to related parties and $74 was to other investors.
The
Company recorded $97 in debt discount amortization for the twelve months ended December 31, 2017 related to the above debt financings.
Contractual
Obligations
The
Company had the following material commitments as of December 31, 2017:
Contractual
obligations
|
|
Total
|
|
|
2018
|
|
|
2019
|
|
|
Thereafter
|
|
Operating lease commitments
|
|
$
|
189
|
|
|
$
|
102
|
|
|
$
|
87
|
|
|
$
|
–
|
|
Capital lease
commitments
|
|
|
14
|
|
|
|
6
|
|
|
|
6
|
|
|
|
2
|
|
Total
|
|
$
|
203
|
|
|
$
|
108
|
|
|
$
|
93
|
|
|
$
|
2
|
|
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Interest
Rate Risk.
Any investments in fixed income securities are subject to interest rate risk and will fall in value if the market
interest rates increase. The Company attempts to limit this exposure by investing primarily in short-term securities.
Foreign
Currency Risk
. The Company operates a joint venture in China and from time-to-time could make certain capital equipment or
other purchases denominated in foreign currencies. As a result, the Company’s cash flows and earnings could be exposed to
fluctuations in interest rates and foreign currency exchange rates. The Company would attempt to limit any such exposure through
operational strategies and generally has not hedged currency exposure.
Future
Results and Stock Price Risk.
The Company’s stock price may be subject to significant volatility. The public stock markets
have experienced significant volatility in stock prices in recent years. The stock prices of technology companies have experienced
particularly high volatility, including, at times, severe price changes that are unrelated or disproportionate to the operating
performance of such companies. The trading price of the Company’s Common Stock could be subject to wide fluctuations in
response to, among other factors, quarter-to-quarter variations in operating results, announcements of technological innovations
or new products by the Company or its competitors, competitor consolidation in the industry, announcements of new strategic relationships
by the Company or its competitors, general conditions in the computer software industry or the global economy generally, or market
volatility unrelated to the Company’s business and operating results. The impact and severity of the above factors could
be exacerbated by the Company’s small size, public float and a lack of market liquidity for its Common Stock.
Item 8.
Financial Statements and Supplementary Data
The
Company’s audited consolidated financial statements for the years ended December 31, 2017 and 2016, and for each of the
years in the two-year period ended December 31, 2017, begin on page F-1 of this Annual Report on Form 10-K, and are incorporated
into this item by reference.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None
Item 9A.
Controls and Procedures
Disclosure
Controls and Procedures
The
Company carried out an evaluation as of the end of the period covered by this report, under the supervision and with the participation
of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure
controls and procedures pursuant to paragraph (b) of Rule 13a-15 and 15d-15 under the Exchange Act of 1934 (the “Exchange
Act”). Based on that evaluation the Chief Executive Officer and the Chief Financial Officer have concluded that as of the
end of the period covered by this report, our disclosure controls and procedures were effective to ensure that the information
required to be disclosed in reports we file or submit under the Exchange Act (1) is recorded, processed, summarized, and reported
within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosures.
The
Company does not expect that its disclosure controls and procedures will prevent all error and all fraud. A control procedure,
no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control
procedures are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people,
or by management override of the control. The Company considered these limitations during the development of its disclosure controls
and procedures, and will continually reevaluate them to ensure they provide reasonable assurance that such controls and procedures
are effective.
Internal
Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect transactions and dispositions of assets; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements.
Management
has assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria established
in “Internal Control, Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) in 2013.
A material weakness is a deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual
or interim financial statements will not be prevented or detected on a timely basis.
In performing this
assessment, management identified the following material weaknesses:
As a small company
with limited resources that are mainly focused on the development and sales of software products and services, iSign does not employ
a sufficient number of staff in its finance department to possess an optimal segregation of duties or to provide optimal levels
of oversight. This has resulted in certain audit adjustments and management believes that there may be a possibility for a material
misstatement to occur in future periods while it employs the current number of personnel in its finance department.
Based on its assessment,
our management concluded that, as of December 31, 2017, our internal control over financial reporting was not effective. Management
believes that the identified weaknesses have not affected our ability to present GAAP-compliant financial statements in this Form
10-K. During the year-end financial statement close the Company was able to adjust its financial records to properly present its
financial statements and we were therefore able to present GAAP-compliant financial statements. Management does not believe that
its weakness with respect to its procedures and controls have had a pervasive effect upon our financial reporting due to our ability
to make the necessary reconciling adjustments to our financial statements.
Management’s Remediation Initiatives
Management conducts
a number of activities to address the material weaknesses noted above, including but not limited to the following:
|
●
|
Key managers and accounting personnel work closely with our independent audit firm in evaluating our progress in remediating our
material weaknesses with oversight by the audit committee;
|
|
|
|
|
●
|
Evaluate control procedures on an ongoing basis, and, where possible, modify those control procedures to improve oversight;
|
|
|
|
|
●
|
Evaluate, and, where possible, employ additional third party resources that can provide oversight support within the Company’s
budget constraints; and
|
|
|
|
|
●
|
As the Company grows its business and the cash flow necessary to hire additional accounting personnel, management expects to pursue
and implement such additional hires.
|
Elements of our remediation
plan can only be accomplished over time and we can offer no assurances that those initiatives will ultimately have the intended
effects. Ultimately, revenue growth and performance improvements are the most likely avenue to greater resources that will improve
the Company’s internal controls.
Management will continue
the process of reviewing existing controls, procedures and responsibilities to more closely identify financial reporting risks
and the required controls to address them. Key control and compensating control procedures will be developed to ensure that material
weaknesses are properly addressed and related financial reporting risks are mitigated. Periodic control validation and testing
will also be implemented to ensure that controls continue to operate consistently and as designed.
Changes in Internal Control over Financial Reporting
There have not been
any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the quarter ended December 31, 2017 that materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Item
9B.
Other Information
None.
PART
III
Item
10.
Directors, Executive Officers and Corporate Governance
Directors
and Executive Officers
The
following table sets forth certain information concerning the Company’s directors and executive officers:
Name
|
|
Age
|
|
Positions
with the Company
|
Philip
S. Sassower
|
|
77
|
|
Co-Chairman
and Chief Executive Officer
|
Michael
Engmann
|
|
69
|
|
Co-Chairman
and Chief Operating Officer
|
Andrea
Goren
|
|
50
|
|
Director
and Chief Financial Officer
|
Francis
J. Elenio
|
|
51
|
|
Director
|
Stanley
Gilbert
|
|
78
|
|
Director
|
Jeffrey
Holtmeier
|
|
59
|
|
Director
|
David
E. Welch
|
|
70
|
|
Director
|
The
business experience of each of the directors and executive officers for at least the past five years includes the following:
Philip
S. Sassower
has served as the Company’s Chairman and Chief Executive Officer since August 2010, and Co-Chairman since
October 2015. Mr. Sassower is a Managing Director of SG Phoenix LLC, a private equity firm, and has served in that capacity since
May 2003. Mr. Sassower has also been Chief Executive Officer of Phoenix Enterprises LLC, a private equity firm, and has served
in that capacity since 1996. In addition and until his retirement in October 2017, Mr. Sassower served as Chief Executive Officer
of Xplore Technologies Corp. (NASDAQ:XPLR) from February 2006 and as a director of Xplore Technologies Corp. and served as Chairman
of its board of directors since December 2004. On May 13, 2008, Mr. Sassower was named Chairman of the Board of The Fairchild
Corporation (NYSE: FA), a motorcycle accessories and aerospace parts and services company. On March 18, 2009, The Fairchild Corporation
and 61 subsidiaries filed a petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court,
District of Delaware. On January 7, 2010, The Fairchild Corporation’s plan of liquidation was declared effective and the
company’s board of directors was relieved of its duties. Mr. Sassower also served as Chairman of the Board of the Company
from 1998 to 2002 and as Co-Chief Executive Officer of the Company from 1997 to 1998. Mr. Sassower is co-manager of the managing
member of Phoenix Venture Fund LLC. Mr. Sassower’s qualifications to serve on the Board of Directors include more than 40
years of business and investment experience. Mr. Sassower has developed extensive experience working with management teams and
boards of directors, and in acquiring, investing in and building companies and implementing changes.
Michael
Engmann
has served as the Company’s Co-Chairman since October 2015, and as the Company’s Chief Operating Officer
since May 2017. Mr. Engmann is Chairman of Engmann Options, a family trading and investment holding company and has served in
that capacity since 1978. Mr. Engmann has approximately 40 years of experience in building successful financial service companies.
He began his career as a trader and was one of the early market-makers in the Pacific Stock Exchange’s options program.
He (i) founded, in 1980, Sage Clearing Corporation, a stock and options clearing company for professional traders, which was sold
to ABN Amro Inc. in 1988, (ii) founded, in 1982, Preferred Trade, Inc., a broker-dealer providing research and trade execution
services, which was sold to Fimat in May 2005, and (iii) acquired in 2001 Revere Data LLC, a global financial and market data
company, which was sold to Factset in 2013. Mr. Engmann’s qualifications to serve on the Board of Directors include more
than 40 years of business and investment experience.
Andrea
Goren
has served as a director since August 2010. Mr. Goren was appointed the Company’s Chief Financial Officer in December
2010. Mr. Goren is a Managing Director of SG Phoenix LLC, a private equity firm, and has served in that capacity since May 2003.
Mr. Goren is co-manager of the managing member of Phoenix Venture Fund LLC, the Company’s largest shareholder. Prior to
that, Mr. Goren served as Vice President of Shamrock International, Ltd., a private equity firm. Mr. Goren has been a director
of Xplore Technologies Corp. (NASDAQ:XPLR) since December 2004, and a director of The Fairchild Corporation (NYSE: FA) from May
2008 to January 2010. Mr. Goren’s qualifications to serve on the Board of Directors include his experience and knowledge
acquired in approximately 18 years of private equity investing and his extensive experience working with management teams and
boards of directors.
Francis
J. Elenio
has served as a director since November 2015, after having served as a director of the Company from August 2010
to October 2011. Since November 2005, Mr. Elenio has served as Managing Director of Reeff Consulting LLC, a financial and business
advisory firm providing outsourced accounting and consulting services for start-up to midsized companies. Mr. Elenio also served
as Chief Financial Officer of Signal Point Communications Corp. from February 2011 to October 2013. Mr. Elenio has over 25 years
of experience working with corporations as a strategic, solution-driven professional focused on finance and accounting, operations
and turn-around management. Mr. Elenio has served at the CFO level at numerous public and private companies, including Wilshire
Enterprises, Inc., a real estate investment and management company, WebCollage, Inc., an internet content integrator for manufacturers,
GoAmerica, Inc., a wireless internet service provider and Roomlinx, Inc., a provider of wireless high speed internet access to
hotels and conference centers. Mr. Elenio is a CPA and received an MBA. Since September 2007, Mr. Elenio has also been an Adjunct
Professor of Finance at Seton Hall University. Mr. Elenio serves on the Company’s audit committee. Mr. Elenio’s qualifications
to serve on the Board of Directors and Audit Committee include his experience as a CFO working with technology companies like
iSign.
Stanley
L. Gilbert
has served as a director since October 2011. Mr. Gilbert has more than 45 years of experience as a lawyer with
primary specialties in wills, trusts, estate planning and administration, as well as tax planning. Mr. Gilbert is Founder, and,
has been President of Stanley L. Gilbert PC since 1982. Mr. Gilbert has also been a partner of a number of law firms, including
Nager Korobow, Bell Kallnick Klee and Green, and Migdal Pollack Rosenkrantz and Sherman. Mr. Gilbert has served as a Director
of Planned Giving at Columbia University Medical Center’s Nathaniel Wharton Fund, which supports a broad variety of projects
in basic research, clinical care and teaching since 2001. Mr. Gilbert was elected by a majority of iSign’s Series B Preferred
Stock and Series C Preferred stockholders voting together as a separate class on an as converted to Common Stock basis, and serves
on iSign’s audit and compensation committees. Mr. Gilbert’s qualifications to serve on the Board of Directors include
his significant tax and accounting expertise acquired through his years of practicing law.
Jeffrey
Holtmeier
has served as a director since August 2011. Mr. Holtmeier has more than 25 years of successful entrepreneurship
in the technology and communications fields. As CEO of GENext from 2001 to present, and through its subsidiary China US Business
Development, LLC, Mr. Holtmeier has assisted many US companies in establishing relationships in China, where he also co-founded
Koncept International, Inc., a Chinese-based VoIP and digital media technology company. Prior to his involvement in the Chinese
market, Mr. Holtmeier founded, built over seventeen years and successfully sold InfiNET in 2001 to Teligent, a NASDAQ listed company.
Mr. Holtmeier was a recipient of the prestigious Ernst & Young, NASDAQ/USA Today “Entrepreneur of the Year” award
in 1999, and has served on the boards of numerous corporations and non-profit organizations. He serves on iSign’s audit
and compensation committees. Mr. Holtmeier’s qualifications to serve on the Board of Directors include his experience as
a successful entrepreneur and his experience in establishing business relationships in China.
David E. Welch
has
served as a director since March 2004. From July 2002 to present Mr. Welch has been the principal of David E. Welch Consulting,
a financial consulting firm. Mr. Welch has also been Vice President of Operations at Vertex Innovations, Inc., from June 2015 to
April 2017. Mr. Welch was Vice President and Chief Financial Officer of American Millennium Corporation, Inc., a provider of satellite-based
asset tracking and reporting equipment, from April 2004 to September 2014. Mr. Welch was Vice President and Chief Financial Officer
of Active Link Communications, a manufacturer of telecommunications equipment, from 1999 to 2002. Mr. Welch has held positions
as Director of Management Information Systems and Chief Information Officer with Micromedex, Inc. and Language Management International
from 1995 through 1998. Mr. Welch other directorships have been with AspenBio Pharma, Inc., from 2004 to 2017, PepperBall Technologies,
Inc. from January 2007 to January 2009 and Advanced Nutraceuticals, Inc., from 2003 to 2006. Mr. Welch is a Certified Public Accountant
licensed in the state of Colorado. He serves on iSign’s audit and compensation committees. Mr. Welch’s qualifications
to serve on the Board of Directors include his significant accounting and financial expertise.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires the Company’s officers, directors and persons who own more than ten percent of a
registered class of the Company’s equity securities to file certain reports with the SEC regarding ownership of, and transactions
in, the Company’s securities. These officers, directors and stockholders are also required by SEC rules to furnish the Company
with copies of all Section 16(a) reports that are filed with the SEC. The following Section 16 filings were not timely filed
for the year ended December 31, 2017: the Form 4 for Andrea Goren, and Stanley Gilbert dated May 23, 2017 and the Form 4 for Andrea
Goren, and Philip Sassower dated December 15, 2017.
Code
of Business Conduct and Ethics
We have adopted a written
code of business conduct and ethics, referred to as our Code of Business Conduct and Ethics, which applies to all of our directors,
officers, and employees, including our principal executive officer, our principal financial and accounting officer, and our Chief
Technology officer. A copy of the Code of Business Conduct and Ethics is posted on the Company’s web site, at
www.isignnow.com
.
Audit
Committee Financial Expert
Mr.
Welch serves as the Audit Committee’s financial expert. Each member of the Audit Committee is independent as defined under
the applicable rules and regulations of the SEC and the director independence standards of the NASDAQ Stock Market, as currently
in effect.
Item
11.
Executive Compensation
Summary
Compensation Table (in dollars)
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
(4)
|
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
|
Change
in
Pension
Value
And
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
Philip
S Sassower,
|
|
2017
|
|
|
─
|
(1)
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
─
|
|
Co-Chairman
and CEO
|
|
2016
|
|
|
─
|
(1)
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
─
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Engmann,
President and COO
|
|
2017
|
|
|
─
|
(2)
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
─
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrea
Goren,
|
|
2017
|
|
|
─
|
(3)
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
─
|
|
|
CFO
|
|
2016
|
|
|
─
|
(3)
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
─
|
|
|
|
1.
|
Mr.
Sassower was appointed Chairman of the Board and Chief Executive Officer on August 5,
2010, and Co-Chairman since October 2015. Mr. Sassower receives no compensation.
|
|
2.
|
Mr.
Engmann was appointed President and Chief Operating Officer on May 15, 2017. Mr. Engmann
receives no salary compensation from the Company.
|
|
3.
|
Mr.
Goren was appointed Chief Financial Officer on December 7, 2010. Mr. Goren receives no
compensation from the Company.
|
|
4.
|
The
amounts, if any, provided in this column represent the aggregate grant date fair value
of option awards granted to our officers, as calculated in accordance with FASB ASC Topic
718, Stock Compensation. In accordance with applicable regulations, the value of such
options does not reflect an estimate for features related to service-based vesting used
by the Company for financial statement purposes. Mr. Sassower’s, Mr. Engmann’s
and Mr. Goren’ previously issued stock options were canceled on November 15, 2017.
See footnote 8 in the Notes to Consolidated Financial Statements included with this report
on Form 10-K.
|
Mr.
Engmann is retained by the Company without an agreement. Mr. Engmann’s service as Chief Operating Officer is month to month.
Mr. Engmann is currently entitled to receive a cash sum payment of $5,000 per month. The Company has agreed to pay Mr. Engmann
for reasonable and documented out of pocket expenses incurred for Services rendered by him, as long as he obtains written approval
of the Company prior to incurring any significant expense.
Mr.
Goren is retained by the Company through an Advisory Services Agreement (the “SGP Agreement”) with SG Phoenix LLC
(“SGP”). Mr. Goren and Mr. Sassower are managing members of SGP. The initial term of the SGP Agreement was two years
and it automatically renews for additional one year periods upon the same terms and conditions unless either party notifies the
other in writing of its intent to terminate at least 90 days prior to the then-current term. SGP currently is entitled to receive
a cash sum payment of $7,500 (“SGP Fee”) per month. In addition, SGP is eligible for, but not entitled to receive,
an annual cash performance fee of up to thirty-five percent (35%) of the SGP Fee during a given year or prorated portion thereof.
Such performance fee, if any, would be awarded based upon the sole discretion of the Company’s Board of Directors. No performance
fee was paid to SGP in 2017. Under the SGP Agreement, SGP furnishes, at its own expense, all materials and equipment necessary
to carry out the terms of the SGP Agreement. The Company has agreed to pay SGP for reasonable and documented out of pocket expenses
incurred for services rendered by SGP during the term of the SGP Agreement, as long as SGP obtains written approval of the Company
prior to incurring any significant expense.
Outstanding
Equity Awards at December 31, 2017
The
following table summarizes the outstanding equity award holdings held by our named executive officers. The amounts are not stated
in thousands.
Name
and Principal Position
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
Philip
S. Sassower,
Co-Chairman and CEO
|
|
(1)
|
|
─
|
|
─
|
|
─
|
Michael Engmann,
President
and COO
|
|
(2)
|
|
─
|
|
─
|
|
─
|
Andrea Goren,
Chief
Financial Officer
|
|
(3)
|
|
─
|
|
─
|
|
─
|
|
1.
|
Mr.
Sassower’s 73,399 options were canceled on November 15, 2017.
|
|
|
|
|
2.
|
Mr.
Engmann’s 65,800 options were canceled on November15, 2017.
|
|
|
|
|
3.
|
Mr.
Goren’s 88,079 options were canceled on November 15, 2017.
|
Option
Exercises and Stock Vested
There
were no stock options exercised during the twelve months ended December 31, 2017 and 2016.
Director
Compensation
The
following table provides information regarding the compensation of the Company’s non-employee directors for the year ended
December 31, 2017:
Name
|
|
Fees
Earned or Paid in Cash
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
Non-Equity
Incentive Plan Compensation
|
|
|
Non-qualified
Deferred Compensation Earnings
|
|
|
All
Other Compensation
|
|
|
Total
|
|
Current Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Francis J. Elenio
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
5,460
|
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
5,460
|
|
Stanley Gilbert
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
5,460
|
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
5,460
|
|
Jeffrey Holtmeier
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
5,460
|
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
5,460
|
|
David Welch
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
5,460
|
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
5,460
|
|
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The
following table sets forth information as of March 20, 2018, with respect to the beneficial ownership of (i) any person known
to be the beneficial owner of more than 5% of any class of voting securities of the Company, (ii) each director and director
nominee of the Company, (iii) each of the current executive officers of the Company named in the Summary Compensation Table
under the heading “Executive Compensation” and (iv) all directors and executive officers of the Company as a
group. Except as indicated in the footnotes to this table (i) each person has sole voting and investment power with respect to
all shares attributable to such person and (ii) each person’s address is c/o iSign Solutions, Inc., 2025 Gateway Place,
Suite 485, San Jose California 95110-1413. The amounts are not stated in thousands.
|
|
Common
Stock
|
|
Name
of Beneficial Owner
|
|
Number
of Shares (1)
|
|
|
Percent
Of Class (1)
|
|
Philip S. Sassower (2)
|
|
|
1,356,752
|
|
|
|
22.4
|
%
|
Andrea Goren (3)
|
|
|
1,406,496
|
|
|
|
23.2
|
%
|
Stanley Gilbert (4)
|
|
|
128,865
|
|
|
|
2.2
|
%
|
Jeffrey Holtmeier (5)
|
|
|
10,666
|
|
|
|
*
|
|
David E. Welch (6)
|
|
|
7,020
|
|
|
|
*
|
|
Michael W. Engmann (7)
|
|
|
838,000
|
|
|
|
13.8
|
%
|
Francis Elenio (8)
|
|
|
5,670
|
|
|
|
*
|
|
All directors and executive officers
as a group (8 persons) (9)
|
|
|
2,380,081
|
|
|
|
37.2
|
%
|
5% Shareholders
|
|
|
|
|
|
|
|
|
Phoenix Venture Fund LLC (10)
|
|
|
1,354,708
|
|
|
|
22.4
|
%
|
|
1.
|
Shares
of Common Stock beneficially owned and the respective percentages of beneficial ownership
of Common Stock assumes the exercise or conversion of all options, warrants and other
securities convertible into Common Stock, beneficially owned by such person or entity
currently exercisable or exercisable within 60 days of March 20, 2018. Shares issuable
pursuant to the exercise of stock options and warrants exercisable within 60 days of
March 20, 2018 or securities convertible into Common Stock within 60 days of March 20,
2018 are deemed outstanding and held by the holder of such shares of Common Stock, options
and warrants for purposes of computing the percentage of outstanding Common Stock beneficially
owned by such person, but are not deemed outstanding for computing the percentage of
outstanding Common Stock beneficially owned by any other person. The percentage of beneficial
ownership of Common Stock beneficially owned is based on shares of Common Stock. The
shares of Common Stock beneficially owned and the respective percentages of beneficial
ownership of Common Stock stated in these columns assume conversion of all outstanding
options and warrants into shares of Common Stock.
|
|
2.
|
Represents
(a) 1,071,057 shares of Common Stock, and (b) 285,695 shares of Common Stock issuable
upon the exercise of warrants (see table below for details), including securities beneficially
owned by Phoenix, SG Phoenix Ventures LLC, SG Phoenix LLC, Phoenix Banner Holdings LLC
and Phoenix Enterprises Family Fund. Please see footnote 11 below for information concerning
shares of Common Stock beneficially owned by Phoenix. Along with Mr. Goren, Mr. Sassower
is the co-manager of SG Phoenix Ventures LLC, which has the shared power to vote and
dispose of the shares of Common Stock held by Phoenix and Phoenix Banner Holdings LLC,
and, accordingly, Mr. Sassower may be deemed to be the beneficial owner of the shares
owned by Phoenix and Phoenix Banner Holdings LLC. SG Phoenix Ventures LLC, Mr. Goren
and Mr. Sassower each disclaim beneficial ownership of the shares owned by Phoenix and
Phoenix Banner Holdings LLC, except to the extent of their respective pecuniary interests
therein. Mr. Sassower’s address is 70 East 55
th
Street, 10
th
Floor, New York, NY 10022.
|
|
|
|
Philip
Sassower
|
|
|
SG
Phoenix Ventures LLC
|
|
|
SG
Phoenix LLC
|
|
|
Phoenix
Venture Fund
|
|
|
Total
|
|
|
Common shares
|
|
|
2,044
|
|
|
|
─
|
|
|
|
2,234
|
|
|
|
1,066,779
|
|
|
|
1,071,057
|
|
|
Warrants
|
|
|
─
|
|
|
|
285,695
|
|
|
|
─
|
|
|
|
─
|
|
|
|
285,695
|
|
|
Total
|
|
|
2,044
|
|
|
|
285,695
|
|
|
|
2,234
|
|
|
|
1,066,779
|
|
|
|
1,356,752
|
|
|
3.
|
Represents
(a) 1,098,853 shares of Common Stock, and (b) 307,643 shares of Common Stock issuable
upon the exercise of warrants exercisable within 60 days of March 20, 2018 (see table
below for details), including securities beneficially owned by Phoenix, SG Phoenix Ventures
LLC, SG Phoenix LLC, Phoenix Banner Holdings LLC, Andax LLC and Mr. Goren. Please see
footnote 11 below for information concerning Phoenix’s beneficial ownership. Mr.
Goren is managing member Andax LLC and disclaims beneficial ownership of the shares except
to the extent of his pecuniary interest therein. Along with Mr. Sassower, Mr. Goren is
the co-manager of SG Phoenix Ventures LLC, which has the power to vote and dispose of
the shares held by Phoenix and by Phoenix Banner Holdings LLC, and accordingly, Mr. Goren
may be deemed to be the beneficial owner of the shares owned by Phoenix and Phoenix Banner
Holdings LLC. SG Phoenix Ventures LLC, Mr. Goren and Mr. Sassower each disclaim beneficial
ownership of the shares owned by Phoenix and Phoenix Banner Holdings LLC, except to the
extent of their respective pecuniary interests therein. Mr. Goren’s address is
70 East 55
th
Street, 10
th
Floor, New York, NY 10022.
|
|
|
|
Andrea
Goren
|
|
|
Andax,
LLC
|
|
|
SG
Phoenix LLC
|
|
|
Phoenix
Venture Fund
|
|
|
Total
|
|
|
Common shares
|
|
|
15
|
|
|
|
29,825
|
|
|
|
2,234
|
|
|
|
1,066,779
|
|
|
|
1,098,853
|
|
|
Warrants
|
|
|
─
|
|
|
|
21,948
|
|
|
|
285,695
|
|
|
|
─
|
|
|
|
307,643
|
|
|
Total
|
|
|
15
|
|
|
|
51,773
|
|
|
|
287,929
|
|
|
|
1,066,779
|
|
|
|
1,406,496
|
|
|
4.
|
Represents
(a) 114,169 shares of Common Stock, (b) 7,004 shares of Common Stock issuable upon the
exercise of options exercisable within 60 days of March 20, 2018, and (c) 7,692 shares
of Common Stock issuable upon the exercise of warrants, exercisable within 60 days of
March 20, 2018 (see table below for details). As manager of Galaxy LLC, Mr. Gilbert has
the power to vote and dispose of the shares of Common Stock held by Galaxy LLC, and,
accordingly, Mr. Gilbert may be deemed to be the beneficial owner of the shares owned
by Galaxy LLC.
|
|
|
|
Stanley
Gilbert
|
|
|
Stanley
Gilbert PC
|
|
|
Galaxy
LLC
|
|
|
Mrs.
Gilbert
|
|
|
Total
|
|
|
Common shares
|
|
|
111,002
|
|
|
|
23
|
|
|
|
1,426
|
|
|
|
1,718
|
|
|
|
114,169
|
|
|
Stock options
|
|
|
7,004
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
7,004
|
|
|
Warrants
|
|
|
7,692
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
7,692
|
|
|
Total
|
|
|
125,698
|
|
|
|
23
|
|
|
|
1,426
|
|
|
|
1,718
|
|
|
|
128,865
|
|
|
5.
|
Represents
(a) 3,662 shares of Common Stock and (b) 7,004 shares of Common Stock issuable upon the
exercise of options exercisable within 60 days of March 20, 2018. As manager of Genext,
Mr. Holtmeier has the power to vote and dispose of the shares of Common Stock held by
Genext, and, accordingly, Mr. Holtmeier may be deemed to be the beneficial owner of the
shares owned by CUBD and Genext.
|
|
6.
|
Represents
7,020 shares of Common Stock issuable upon the exercise of options exercisable within
60 days of March 20, 2018.
|
|
7.
|
Represents
(a) 535,659 shares of Common Stock beneficially owned by Mr. Engmann and (b) an aggregate
of 302,341 shares of Common Stock issuable upon exercise of warrants exercisable within
60 days of March 20, 2018 beneficially owned by Mr. Engmann. See the following table
for more detail. Mr. Engmann’s address is 220 Bush Street, No. 660, San Francisco,
CA 94104.
|
|
|
|
Michael
Engmann
|
|
|
MDNH
Partners, LP
|
|
|
KENDU
Partners Company
|
|
|
Total
|
|
|
Common shares
|
|
|
430,749
|
|
|
|
103,915
|
|
|
|
995
|
|
|
|
535,659
|
|
|
Warrants
|
|
|
283,880
|
|
|
|
18,461
|
|
|
|
─
|
|
|
|
302,341
|
|
|
Total
|
|
|
714,629
|
|
|
|
122,376
|
|
|
|
995
|
|
|
|
838,000
|
|
|
8.
|
Represents
5,670 shares of Common Stock issuable upon the exercise of options exercisable within
60 days of March 20, 2018.
|
|
9.
|
Includes
1,069,013 shares of Common Stock beneficially owned by Phoenix. Please see footnote 10
below for information concerning shares of Common Stock beneficially owned by Phoenix.
Mr. Sassower and Mr. Goren are the co-managers of SG Phoenix Ventures LLC, which has
the shared power to vote and dispose of the shares of Common Stock held by Phoenix and,
accordingly, Mr. Sassower and Mr. Goren may be deemed to be the beneficial owner of the
shares owned by Phoenix. SG Phoenix Ventures LLC, Mr. Sassower and Mr. Goren each disclaim
beneficial ownership of the shares owned by Phoenix, except to the extent of their respective
pecuniary interests therein. The amount stated above includes an aggregate of 26,698
shares issuable upon the exercise of options within 60 days of March 20, 2018.
|
|
10.
|
SG
Phoenix Ventures LLC is the Managing Member of Phoenix, with the power to vote and dispose
of the shares of Common Stock held by Phoenix. Accordingly, SG Phoenix Ventures LLC may
be deemed to be the beneficial owner of such shares. Andrea Goren is the co-manager of
SG Phoenix Ventures LLC, has the shared power to vote and dispose of the shares of Common
Stock held by Phoenix and, as such, may be deemed to be the beneficial owner of the common
shares owned by Phoenix and by SG Phoenix LLC, of which he is a member. Philip Sassower
is the co-manager of SG Phoenix Ventures LLC, has the shared power to vote and dispose
of the shares of Common Stock held by Phoenix and, as such, may be deemed to be the beneficial
owner of the common shares owned by Phoenix and by SG Phoenix LLC, of which he is a member.
SG Phoenix Ventures LLC, Mr. Goren and Mr. Sassower each disclaim beneficial ownership
of the shares owned by Phoenix, and Mr. Goren and Mr. Sassower each disclaim beneficial
ownership of the shares owned by SG Phoenix LLC, except to the extent of their respective
pecuniary interests therein. The address of these stockholders is 70 East 55
th
Street, 10
th
Floor, New York, NY 10022.
|
|
|
|
Phoenix
Venture Fund LLC
|
|
|
SG
Phoenix Ventures LLC
|
|
|
Total
|
|
|
Common shares
|
|
|
1,066,779
|
|
|
|
2,234
|
|
|
|
1,069,013
|
|
|
Warrants
|
|
|
─
|
|
|
|
285,695
|
|
|
|
285,695
|
|
|
Total
|
|
|
1,066,779
|
|
|
|
287,929
|
|
|
|
1,354,708
|
|
Equity
Compensation Plan Information
The
following table provides information as of December 31, 2017, regarding our compensation plans (including individual compensation
arrangements) under which equity securities are authorized for issuance:
|
|
|
Number
of Securities To Be Issued Upon Exercise of Outstanding Options and Rights
|
|
|
Weighted-Average
Exercise Price Of Outstanding Options and Rights
|
|
|
Number
of Securities Remaining Available For Future Issuance Under Equity Compensation Plans
|
|
|
Equity Compensation Plans Approved
by Security Holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 Stock Compensation Plan
|
|
|
736
|
|
|
$
|
3.65
|
|
|
|
14
|
|
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Procedures
for Approval of Related Person Transactions
In
accordance with our Code of Business Conduct and Ethics, we submit all proposed transactions involving our officers and directors
and related parties, and other transactions involving conflicts of interest, to the Board of Directors or the Audit Committee
for approval. Each of the related party transactions listed below that were submitted to our board were approved by a disinterested
majority of our Board of Directors after full disclosure of the interest of the related party in the transaction.
Director
Independence
The
Board of Directors has determined that Messrs. Gilbert, Holtmeier, Elenio and Welch are “independent,” as defined
under the rules of the NASDAQ Stock Market relating to director independence, and Messrs. Sassower, Engmann and Goren are
not independent under such rules. Messrs. Welch, Gilbert, and Holtmeier serve on the Compensation Committee of the Board of Directors.
Each of the members of the Compensation Committee is independent under the rules of the NASDAQ Stock Market relating to director
independence. Messrs. Welch, Elenio and Holtmeier serve on the Audit Committee of the Board of Directors. Under the applicable
rules of the NASDAQ Stock Market and the SEC relating to independence of Audit Committee members, the Board of Directors has determined
that Messrs. Welch, Holtmeier and Elenio are independent.
Related
Party Transactions
Phoenix
is the beneficial owner of approximately 22.4% of the Common Stock of the Company when calculated in accordance with Rule 13d-3.
The
table below reflects the May 23, 2017 related party transactions in which the Company issued $100 in convertible secured promissory
notes to affiliates for cash, and replaced the unsecured convertible promissory notes issued in November 2016 with a combination
of secured and unsecured notes. The new notes are mandatorily convertible into Common Stock at a conversion rate of $0.50 per
share or the price per share of Common Stock upon closing of a new debt and or equity financing of at least $1,000 in aggregate
proceeds. The secured convertible promissory notes bear interest at the rate of 10% per annum and the unsecured notes bear interest
at the rate of 6% per annum. The notes are due December 31, 2018. Should the convertible secured promissory notes remain outstanding
following the maturity date an additional 30% of the note’s principal amount shall become due and payable.
Affiliate
|
|
Secured
Note 5/23/2017
|
|
|
Canceled
Unsecured Note 11/3/2016
|
|
|
Replacement
Note Secured
5/23/2017
|
|
|
Replacement
Note Unsecured 5/23/2017
|
|
Andax LLC
|
|
$
|
18
|
|
|
$
|
(25
|
)
|
|
$
|
17
|
|
|
$
|
8
|
|
Michael Engmann
|
|
|
36
|
|
|
|
(140
|
)
|
|
|
36
|
|
|
|
104
|
|
MDNH Partners LLP
|
|
|
34
|
|
|
|
(60
|
)
|
|
|
34
|
|
|
|
26
|
|
Stanley L.
Gilbert
|
|
|
12
|
|
|
|
(25
|
)
|
|
|
13
|
|
|
|
12
|
|
Total
|
|
$
|
100
|
|
|
$
|
(250
|
)
|
|
$
|
100
|
|
|
$
|
150
|
|
The
table below reflects the November 15, 2017 cancelation of outstanding stock options by the named affiliates of the Company. The
stock options were canceled to increase the pool of available stock options for grants to employees of the Company.
|
|
Stock
Options Canceled
|
Affiliate
|
|
Total
|
|
|
Vested
|
|
|
Unvested
|
|
|
Range
of Exercise Prices
|
Michael Engmann
|
|
|
66
|
|
|
|
11
|
|
|
|
55
|
|
|
$0.50 ─ $10.00
|
Andrea Goren
|
|
|
88
|
|
|
|
23
|
|
|
|
65
|
|
|
$0.50 ─ $81.13
|
Philip Sassower
|
|
|
73
|
|
|
|
19
|
|
|
|
54
|
|
|
$0.50 ─ $81.13
|
In
December 2017, the Company issued secured promissory notes in the amount of $25 to Michael Engmann and his affiliate, and $5 to
Andax LLC. The notes have substantially the same terms as the secured notes issued in the May 2017 financing.
Debt
discount amortization associated with the Company’s indebtedness for the years ended December 31, 2017 and 2016, was $97
and $390, respectively, of which $27 and $87, respectively, was related party expense.
Interest
expense associated with the Company’s indebtedness for the years ended December 31, 2017 and 2016, was $112 and $218, respectively,
of which $26 and $103, respectively, was related party expense.
Item
14.
Principal Accounting Fees and Services
Audit
and other Fees. Armanino LLP has been the Company’s auditors since August 2014. During fiscal years 2017 and 2016, the fees
for audit and other services performed by Armanino LLP for the Company were as follows:
Nature of Service
|
|
Armanino
|
|
|
|
2017
|
|
|
2016
|
|
Audit Fees
|
|
$
|
42,222.50
|
|
|
|
50
|
%
|
|
$
|
69,179.30
|
|
|
|
53
|
%
|
Audit-Related Fees
|
|
|
30,603.75
|
|
|
|
36
|
%
|
|
$
|
35,926.59
|
|
|
|
27
|
%
|
Tax Fees
|
|
|
6,837.50
|
|
|
|
8
|
%
|
|
$
|
11,263.37
|
|
|
|
9
|
%
|
All Other Fees
|
|
|
4,190.18
|
|
|
|
5
|
%
|
|
$
|
14,005.00
|
|
|
|
11
|
%
|
Total
|
|
$
|
83,853.93
|
|
|
|
100
|
%
|
|
$
|
130,374.26
|
|
|
|
100
|
%
|
Pre-Approval
Policies.
It
is the policy of the Company not to enter into any agreement with its auditors to provide any non-audit services unless (a) the
agreement is approved in advance by the Audit Committee or (b) (i) the aggregate amount of all such non-audit services constitutes
no more than 5% of the total amount the Company pays to the auditors during the fiscal year in which such services are rendered,
(ii) such services were not recognized by the Company as constituting non-audit services at the time of the engagement of the
non-audit services and (iii) such services are promptly brought to the attention of the Audit Committee and prior to the completion
of the audit are approved by the Audit Committee or by one or more members of the Audit Committee who are members of the board
of directors to whom authority to grant such approvals has been delegated by the Audit Committee. The Audit Committee will not
approve any agreement in advance for non-audit services unless (x) the procedures and policies are detailed in advance as to such
services, (y) the Audit Committee is informed of such services prior to commencement and (z) such policies and procedures do not
constitute delegation of the Audit Committee’s responsibilities to management under the Exchange Act.
The Audit Committee
has considered whether the provision of non-audit services has impaired the independence of Armanino LLP and has concluded that
Armanino LLP is independent under applicable SEC and NASDAQ rules and regulations.
PART
IV
Item
15.
Exhibits, Financial Statement Schedules.
(a)
The following documents are filed as part of this Annual Report on Form 10-K:
(1)
Financial Statements
Index
to Financial Statements
(2)
Financial Statement Schedules
All
schedules are omitted because they are not applicable or the required information is shown in the financial statements or the
notes thereto.
(3)
Exhibits
The
exhibits required by Item 601 of Regulation S-K are listed in paragraph (b) below.
(b)
Exhibits.
The
following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the SEC as indicated
below:
Exhibit
Number
|
|
Document
|
3.1
|
|
Certificate
of Incorporation of the Company, as amended, incorporated herein by reference to Exhibits 3.1, 3.2, 3.3 and 3.4 to the Company’s
Registration Statement on Form 10 (File No. 000-19301).
|
3.2
|
|
Certificate
of Amendment to the Company’s Certificate of Incorporation (authorizing the reclassification of the Class A Common
Stock and Class B Common Stock into one class of Common Stock) filed with the Delaware Secretary of State on November 1,
1991, incorporated herein by reference to Exhibit 3 to Amendment 1 on Form 8 to the Company’s Form 8-A
(File No. 000-19301).
|
3.3
|
|
Certificate
of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of
State June 12, 1998, incorporated herein by reference to Exhibit 10.24 to the Company’s 1998 Form 10-K filed on April
6, 1999.
|
3.4
|
|
By-laws
of the Company adopted on October 6, 1986, incorporated herein by reference to Exhibit 3.5 to the Company’s
Registration Statement on Form 10 (File No. 000-19301).
|
3.5
|
|
Certificate
of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of
State January 24, 2001, incorporated herein by reference to Exhibit 3.5 to the Company’s Registration Statement on Form
S/1 filed on December 28, 2007.
|
3.6
|
|
Certificate
of Elimination of the Company’s Certificate of Designation of the Series A Preferred Stock filed with the Delaware Secretary
of State August 17, 2001, incorporated herein by reference to Exhibit 3.6 to the Company’s Registration Statement on
Form S/1 filed on December 28, 2007.
|
3.7
|
|
Certificate
of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of
State August 17, 2007, incorporated herein by reference to Exhibit 3.7 to the Company’s Registration Statement on Form
S/1 filed on December 28, 2007.
|
3.8
|
|
Amended
and Restated Certificate of Incorporation of the Company filed with the Delaware Secretary of State on May 18, 1995, incorporated
herein by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.
|
3.9
|
|
Certificate
of Designations, Powers, Preferences and Rights of the Series A Cumulative Convertible Preferred Stock filed with the Delaware
Secretary of State on June 4, 2008, incorporated herein by reference to Exhibit 4.23 to the Company’s Quarterly Report
on Form 10-Q filed on August 14, 2008.
|
3.10
|
|
Certificate
of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of
State on June 30, 2008, incorporated herein by reference to Exhibit 3.7 to the Company’s Quarterly Report on Form 10-Q
filed on August 14, 2008.
|
3.11
|
|
Certificate
of Designations, Powers, Preferences and Rights of the Series A-1 Cumulative Convertible Preferred Stock filed with the Delaware
Secretary of State on October 30, 2008, incorporated herein by reference to Exhibit 3.11 to the Company’s Annual Report
on Form 10-K filed on March 12, 2009.
|
3.12
|
|
Certificate
of Elimination of the Company’s Series A Cumulative Convertible Preferred Stock filed with the Delaware Secretary of
State on December 30, 2008, incorporated herein by reference to Exhibit 3.12 to the Company’s Annual Report on Form
10-K filed on March 12, 2009.
|
Exhibit
Number
|
|
Document
|
3.13
|
|
Certificate
of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of
State on June 30, 2009, incorporated herein by reference to Exhibit 3.13 to the Company’s Quarterly Report on Form 10-Q
filed on August 14, 2009.
|
3.14
|
|
Amendment
No. 1 to By-laws dated June 17, 2010, incorporated herein by reference to Exhibit 3.14 to the Company’s Quarterly Report
on Form 10-Q filed on August 16, 2010.
|
3.15
|
|
Certificate
of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of
State on August 4, 2010, incorporated herein by reference to Exhibit 3.15 to the Company’s Quarterly Report on Form
10-Q filed on November 12, 2010.
|
3.16
|
|
Amended
and Restated Certificate of Designation of Series A-1 Cumulative Convertible Preferred Stock filed with the Delaware Secretary
of State on August 4, 2010, incorporated herein by reference to Exhibit 3.16 to the Company’s Quarterly Report on Form
10-Q filed on November 12, 2010.
|
3.17
|
|
Certificate
of Designation of Series B Participating Convertible Preferred Stock filed with the Delaware Secretary of State on August
4, 2010, incorporated herein by reference to Exhibit 3.17 to the Company’s Quarterly Report on Form 10-Q filed on November
12, 2010.
|
3.18
|
|
Certificate
of Amendment to Amended And Restated Certificate of Incorporation filed with the Delaware Secretary of State on December 31,
2010, incorporated herein by reference to Exhibit 3.18 to the Company’s Annual Report on Form 10-K filed on March 30,
2011.
|
3.19
|
|
Second
Amended and Restated Certificate of Designation of Series A-1 Cumulative Convertible Preferred Stock filed with the Delaware
Secretary of State on December 31, 2010, incorporated herein by reference to Exhibit 3.19 to the Company’s Annual Report
on Form 10-K filed on March 30, 2011.
|
3.20
|
|
Amended
and Restated Certificate of Designation of Series B Participating Convertible Preferred Stock filed with the Delaware Secretary
of State on December 31, 2010, incorporated herein by reference to Exhibit 3.20 to the Company’s Annual Report on Form
10-K filed on March 30, 2011.
|
3.21
|
|
Certificate
of Designation of Series C Participating Convertible Preferred Stock filed with the Delaware Secretary of State on December
31, 2010, incorporated herein by reference to Exhibit 3.21 to the Company’s Annual Report on Form 10-K filed on March
30, 2011.
|
3.22
|
|
Amendment
to the Amended And Restated Certificate of Designation of the Series B Participating Convertible Preferred Stock, incorporated
herein by reference to Exhibit 10.59 to the Company’s Current Report on Form 8-K filed March 31, 2011.
|
3.23
|
|
Amendment
to the Amended And Restated Certificate of Designation of the Series C Participating Convertible Preferred Stock, incorporated
herein by reference to Exhibit 10.60 to the Company’s Current Report on Form 8-K filed March 31, 2011.
|
3.24
|
|
Certificate
of Amendment to Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on November 13,
2012, incorporated herein by reference to Appendix A to the Company’s Definitive Proxy Statement filed on Schedule 14A
on October 22, 2012.
|
3.25
|
|
Third
Amended and Restated Certificate of Designation of Series A-1 Cumulative Convertible Preferred Stock filed with the Delaware
Secretary of State on November 13, 2012, incorporated herein by reference to Exhibit 3.25 to the Company’s Form 10-K
filed March 31, 2014.
|
3.26
|
|
Second
Amended and Restated Certificate of Designation of Series B Participating Convertible Preferred Stock filed with the Delaware
Secretary of State on November 13, 2012, incorporated herein by reference to Exhibit 3.26 to the Company’s Form 10-K
filed March 31, 2014.
|
3.27
|
|
Amended
and Restated Certificate of Designation of Series C Participating Convertible Preferred Stock filed with the Delaware Secretary
of State on November 13, incorporated herein by reference to Exhibit 3.27 to the Company’s Form 10-K filed March 31,
2014.
|
3.28
|
|
Certificate
of Designation of Series D Convertible Preferred Stock filed with the Delaware Secretary of State on November 13, 2012, incorporated
herein by reference to Exhibit 3.28 to the Company’s Form 10-K filed March 31, 2014.
|
3.29
|
|
Certificate
of Amendment to Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on December 10,
2013, incorporated herein by reference to Appendix A to the Company’s Definitive Proxy Statement filed on Schedule 14A
on November 1, 2013.
|
Exhibit
Number
|
|
Document
|
3.30
|
|
Certificate
of Amendment to Certificate of Designation of Series D Convertible Preferred Stock filed with the Delaware Secretary of State
on December 31, 2013, incorporated herein by reference to Exhibit 3.30 to the Company’s Form 10-K filed March 31, 2014.
|
3.31
|
|
Certificate
of Amendment to Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on December 16,
2014, incorporated herein by reference to Appendix A to the Company’s Definitive Proxy Statement filed on Schedule 14A
on October 17, 2014.
|
3.32
|
|
Certificate
of Amendment to Certificate of Designation of Series D Convertible Preferred Stock filed with the Delaware Secretary of State
on March 24, 2015, incorporated herein by reference to Exhibit 3.32 to the Company’s Quarterly Report on Form 10-Q filed
May 15, 2015.
|
3.33
|
|
Certificate
of Amendment to the Company’s Third Amended and Restated Certificate of Designation of Series A-1 Cumulative Convertible
Preferred Stock filed with Secretary of State of the State of Delaware on May 18, 2016, incorporated herein by reference to
Exhibit 3.1 to the Company’s Current Report on Form 8-K filed May 16, 2016.
|
3.34
|
|
Certificate
of Amendment to the Company’s Second Amended and Restated Certificate of Designation of Series B Participating Convertible
Preferred Stock filed with Secretary of State of the State of Delaware on May 18, 2016, incorporated herein by reference to
Exhibit 3.2 to the Company’s Current Report on Form 8-K filed May 16, 2016.
|
3.35
|
|
Certificate
of Amendment to the Company’s Amended and Restated Certificate of Designation of Series C Participating Convertible
Preferred Stock filed with Secretary of State of the State of Delaware on May 18, 2016, incorporated herein by reference to
Exhibit 3.3 to the Company’s Current Report on Form 8-K filed May 16, 2016.
|
3.36
|
|
Certificate
of Amendment to the Company’s Certificate of Designation of Series D Convertible Preferred Stock filed with Secretary
of State of the State of Delaware on May 18, 2016, incorporated herein by reference to Exhibit 3.4 to the Company’s
Current Report on Form 8-K filed May 16, 2016.
|
3.37
|
|
Certificate
of Amendment to the Company’s Certificate of Designation of Series D Convertible Preferred Stock filed with Secretary
of State of the State of Delaware on May 18, 2016, incorporated herein by reference to Exhibit 3.5 to the Company’s
Current Report on Form 8-K filed May 16, 2016.
|
†4.10
|
|
1999
Stock Option Plan, as amended, incorporated herein by reference to Exhibit 4.2 to the Company’s Form S-8 filed on September
19, 2008.
|
4.11
|
|
Form
of Convertible Promissory Note issued by the Company, incorporated herein by reference to Exhibit 10.3 to the Company’s
Form 8-K filed on November 3, 2004.
|
4.12
|
|
Form
of Warrant issued by the Company, incorporated herein by reference to Exhibit 10.4 to the Company’s Form 8-K filed on
November 3, 2004.
|
4.13
|
|
Form
of Promissory Note issued by the Company, incorporated herein by reference to Exhibit 10.36 to the Company’s Form 8-K
filed on August 12, 2006.
|
4.14
|
|
Form
of Warrant issued by the Company, incorporated herein by reference to Exhibit 10.37 to the Company’s Form 8-K filed
on August 12, 2006.
|
4.15
|
|
Form
of Promissory Note issued by the Company, incorporated herein by reference to Exhibit 10.36 to the Company’s Form 8-K
filed on February 9, 2007.
|
4.16
|
|
Form
of Warrant issued by the Company, incorporated herein by reference to Exhibit 10.37 to the Company’s Form 8-K filed
on February 9, 2007.
|
4.17
|
|
Form
of Promissory Note issued by the Company, incorporated herein by reference to Exhibit 10.36 to the Company’s Form 8-K
filed on June 20, 2007.
|
4.18
|
|
Form
of Warrant issued the Company, incorporated herein by reference to Exhibit 10.37 to the Company’s Form 8-K filed on
June 20, 2007.
|
4.19
|
|
Form
of Common Stock Purchase Warrant issued by the Company, incorporated herein by reference to Exhibit 4.19 to the Company’s
Quarterly Report on Form 10-Q filed on August 14, 2008.
|
Exhibit
Number
|
|
Document
|
4.20
|
|
Form
of Additional Common Stock Purchase Warrant, incorporated herein by reference to Exhibit 4.20 to the Company’s Quarterly
Report on Form 10-Q filed on August 14, 2008.
|
4.21
|
|
Form
of Secured Promissory Note issued by the Company dated June 5, 2008, incorporated herein by reference to Exhibit 4.21 to the
Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.
|
4.22
|
|
Form
of Additional Secured Promissory Note, incorporated herein by reference to Exhibit 4.22 to the Company’s Quarterly Report
on Form 10-Q filed on August 14, 2008.
|
4.23
|
|
Certificate
of Designations, Powers, Preferences and Rights of the Series A-1 Cumulative Convertible Preferred Stock filed with the Delaware
Secretary of State on October 30, 2008, incorporated herein by reference to Exhibit 4.23 to the Company’s Annual Report
on Form 10-K filed on March 12, 2009.
|
4.24
|
|
Form
of Secured Promissory Note issued by the Company dated May 28, 2009, incorporated herein by reference to Exhibit 4.24 to the
Company’s Quarterly Report on Form 10-Q filed on August 14, 2009.
|
4.25
|
|
Form
of Additional Secured Promissory Note, incorporated herein by reference to Exhibit 4.25 to the Company’s Quarterly Report
on Form 10-Q filed on August 14, 2009.
|
4.26
|
|
Form
of Common Stock Purchase Warrant issued by the Company, incorporated herein by reference to Exhibit 4.26 to the Company’s
Quarterly Report on Form 10-Q filed on August 14, 2009.
|
4.27
|
|
Form
of Additional Common Stock Purchase Warrant, incorporated herein by reference to Exhibit 4.27 to the Company’s Quarterly
Report on Form 10-Q filed on August 14, 2009.
|
10.24
|
|
Form of Note and Warrant Purchase Agreement dated October 28, 2004, by and among the Company and the Purchasers identified therein, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on November 3, 2004.
|
10.25
|
|
Form of Registration Rights Agreement dated October 28, 2004, by and among the Company and the parties identified therein, incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K filed on November 3, 2004.
|
10.26
|
|
Form of Note and Warrant Purchase Agreement dated August 10, 2006, by and among the Company and the Purchasers identified therein, incorporated herein by reference to Exhibit 10.34 to the Company’s Form 8-K filed on August 12, 2006.
|
10.27
|
|
Form of Registration Rights Agreement dated August 10, 2006, by and among the Company and the parties identified therein, incorporated herein by reference to Exhibit 10.35 to the Company’s Form 8-K filed on August 12, 2006.
|
†††10.28
|
|
Amendment
dated May 31, 2005 to the License agreement dated December 22, 2000 between the Company and eCom Asia Pacific, Ltd., incorporated
by reference to Exhibit 10.26 of the Company’s Form 10-K/A filed on September 15, 2005.
|
Exhibit
Number
|
|
Document
|
10.36
|
|
Form
of Note and Warrant Purchase Agreement dated February 5, 2007, by and among the Company and the Purchasers identified therein,
incorporated herein by reference to Exhibit 10.34 to the Company’s Form 8-K filed on February 5, 2007.
|
10.37
|
|
Form
of Registration Rights Agreement dated February 5, 2007, by and among the Company and the parties identified therein, incorporated
herein by reference to Exhibit 10.35 to the Company’s Form 8-K filed on February 5, 2007.
|
10.38
|
|
Amendment
to the Note and Warrant Purchase Agreement dated February 5, 2007, by and among the Company and the parties identified therein,
incorporated herein by reference to Exhibit 99.1 to the Company’s Form 8-K filed on March 15, 2007.
|
10.39
|
|
Form
of Note and Warrant Purchase Agreement dated June 15, 2007, by and among the Company and the Purchasers identified therein,
incorporated herein by reference to Exhibit 10.34 to the Company’s Form 8-K filed on June 15, 2007.
|
10.40
|
|
Form
of Registration Rights Agreement dated June 15, 2007, by and among the Company and the parties identified therein, incorporated
herein by reference to Exhibit 10.35 to the Company’s Form 8-K filed on June 15, 2007.
|
10.41
|
|
Form
of Securities Purchase and Registration Rights Agreement dated August 24, 2007, by and among the Company and Phoenix Venture
Fund LLC, incorporated herein by reference to Exhibit 10.36 to the Company’s Form 8-K filed on August 27, 2007.
|
†10.42
|
|
Consulting
Agreement dated January 9, 2008 between the Company and GS Meyer & Associates LLC - Incorporated by reference to Exhibit
10.42 to the Company’s Annual Report on Form 10-K filed on March 12, 2007.
|
10.43
|
|
Credit
Agreement dated June 5, 2008, by and among the Company and the Lenders Party Hereto and SG Phoenix as Collateral Agent, incorporated
herein by reference to Exhibit 10.41 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.
|
10.44
|
|
Pledge
and Security Agreement dated June 5, 2008, by and among the Company and the parties identified therein, incorporated herein
by reference to Exhibit 10.42 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.
|
10.44
|
|
Securities
Purchase Agreement dated June 5, 2008, by and among the Company and the parties identified therein, incorporated herein by
reference to Exhibit 10.43 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.
|
10.45
|
|
Registration
Rights Agreement dated June 5, 2008, by and among the Company and the parties identified therein, incorporated herein by reference
to Exhibit 10.44 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.
|
10.46
|
|
Amendment
No. 1 to Credit Agreement dated May 28, 2009, by and among the Company, the Lenders and Additional Lenders Parties Hereto
and SG Phoenix as Collateral Agent, incorporated herein by reference to Exhibit 10.46 to the Company’s Quarterly Report
on Form 10-Q filed on August 14, 2009.
|
10.47
|
|
Amendment
No. 1 to Registration Rights Agreement dated May 28, 2009, by and among the Company and the parties identified therein, incorporated
herein by reference to Exhibit 10.47 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2009.
|
10.48
|
|
Salary
Reduction Plan for Executive Officers of Communication Intelligence Corporation under Amendment No. 1 to Credit Agreement
dated May 28, 2009, incorporated herein by reference to Exhibit 10.48 to the Company’s Quarterly Report on Form 10-Q
filed on August 14, 2009.
|
10.53
|
|
Amendment
No. 3 to Credit Agreement dated July 22, 2010, by and among the Company, the Lenders and Additional Lenders Parties Hereto
and SG Phoenix as Collateral Agent, incorporated herein by reference to Exhibit 10.53 to the Company’s Quarterly Report
on Form 10-Q filed on November 12, 2010.
|
10.54
|
|
Amendment
No. 3 to Registration Rights Agreement dated July 22, 2010, by and among the Company and the parties identified therein, incorporated
herein by reference to Exhibit 10.54 to the Company’s Quarterly Report on Form 10-Q filed on November 12, 2010.
|
Exhibit
Number
|
|
Document
|
10.55
|
|
Registration
Rights Agreement dated August 5, 2010, by and among the Company and the Persons Executing the Agreement as Investors, incorporated
herein by reference to Exhibit 10.55 to the Company’s Quarterly Report on Form 10-Q filed on November 12, 2010.
|
10.56
|
|
Investor
Rights Agreement dated August 5, 2010, by and among the Company and Phoenix Venture Fund LLC, SG Phoenix LLC, Michael Engmann,
Ronald Goodman, Kendu Partners Company and MDNH Partners L.P., incorporated herein by reference to Exhibit 10.56 to the Company’s
Quarterly Report on Form 10-Q filed on November 12, 2010.
|
10.57
|
|
Securities
Purchase Agreement dated December 9, 2010, by and among the Company, Phoenix Venture Fund LLC, and the Investors signatory
thereto, incorporated herein by reference to Exhibit 10.57 to the Company’s Current Report on Form 8-K filed on December
9, 2010.
|
10.58
|
|
Registration
Rights Agreement dated December 31, 2010, by and among the Company and the Persons Executing the Agreement as Investors, incorporated
herein by reference to Exhibit 10.58 to the Company’s Current Report on Form 8-K filed on January 6, 2011.
|
10.59
|
|
Form
of Subscription Agreement dated March 31, 2011, by and among the Company and the Person Executing the Agreement as Subscribers,
incorporated herein by reference to Exhibit 10.61 to the Company’s Current Report on Form 8-K filed on April 4, 2011.
|
10.60
|
|
Amendment
No. 1 to Registration Rights Agreement dated March 31, 2011, by and among the Company and the Persons Executing the Agreement
as Required Holders, incorporated herein by reference to Exhibit 10.62 to the Company’s Current Report on Form 8-K filed
on April 4, 2011.
|
10.61
|
|
Note
and Warrant Purchase Agreement dated September 20, 2011, incorporated herein by reference to Exhibit 10.61 to the Company’s
Quarterly Report on Form 10-Q filed on November 14, 2011.
|
10.62
|
|
Note
and Warrant Purchase Agreement dated December 2, 2011, incorporated herein by reference to Exhibit 10.62 to the Company’s
Annual Report on Form 10-K filed on March 30, 2012.
|
10.63
|
|
Note
and Warrant Purchase Agreement dated April 23, 2012, incorporated herein by reference to Exhibit 10.63 to the Company’s
Quarterly Report on Form 10-Q filed on August 14, 2012.
|
10.64
|
|
Form
of Subscription Agreement dated September 14, 2012, incorporated herein by reference to Exhibit 10.64 to the Company’s
Quarterly Report on Form 10-Q filed on November 14, 2012.
|
10.65
|
|
Form
of Unsecured Convertible Promissory Note dated September 14, 2012, incorporated herein by reference to Exhibit 10.65 to the
Company’s Quarterly Report on Form 10-Q filed on November 14, 2012.
|
10.66
|
|
Form
of Subscription Agreement dated May 17, 2013, incorporated herein by reference to Exhibit 10.66 to the Company’s Quarterly
Report on Form 10-Q filed on August 14, 2013.
|
10.67
|
|
Form
of Subscription Agreement dated December 31, 2013, incorporated herein by reference to Exhibit 10.67 to the Company’s
Form 10-K filed March 31, 2014.
|
10.68
|
|
Credit
Agreement with Venture Champion Asia Limited dated May 6, 2014, incorporated herein by reference to Exhibit 10.68 to the Company’s
Form 10-Q filed August 15, 2014.
|
10.69
|
|
Form
of Subscription Agreement dated August 5, 2014, incorporated herein by reference to Exhibit 10.69 to the Company’s Form
10-K filed March 31, 2015.
|
10.70
|
|
Form
of Subscription Agreement dated March 24, 2015, incorporated herein by reference to Exhibit 10.70 to the Company’s Quarterly
Report on Form 10-Q filed May 15, 2015.
|
10.71
|
|
Form
of Subscription Agreement dated July 23, 2015, incorporated herein by reference to Exhibit 10.71 to the Company’s Quarterly
Report on Form 10-Q filed November 16, 2015.
|
10.72
|
|
Note
and Warrant Purchase Agreement dated November 3, 2016, incorporated herein by reference to Exhibit 10.72 to the Company’s
Quarterly Report on Form 10-Q filed August 14, 2017.
|
10.73
|
|
Form
of Unsecured Convertible Promissory Note dated November 3, 2016, incorporated herein by reference to Exhibit 10.73 to the
Company’s Quarterly Report on Form 10-Q filed August 14, 2017.
|
10.74
|
|
Note
Purchase Agreement dated May 23, 2017, incorporated herein by reference to Exhibit 10.74 to the Company’s Quarterly
Report on Form 10-Q filed August 14, 2017.
|
10.75
|
|
Form
of Secured Convertible Promissory Note dated May 23, 2017, incorporated herein by reference to Exhibit 10.75 to the Company’s
Quarterly Report on Form 10-Q filed August 14, 2017.
|
14.1
|
|
Code
of Ethics, incorporated by reference to Exhibit 14 to the Company’s Annual Report on Form 10-K filed on March 30, 2004.
|
†
|
Indicates
management contract or compensatory plan, contract or arrangement.
|
††
|
Confidential
treatment of certain portions of this exhibit have been requested from the SEC pursuant
to a request for confidentiality dated March 30, 1999, filed pursuant to the Exchange
Act.
|
†††
|
Confidential
treatment of certain portions of this exhibit have been
requested from the SEC pursuant to a request for confidentiality dated March 30, 2006
filed pursuant to the Exchange Act.
|
|
|
|
The
exhibits listed above are filed as part of this Form 10-K other than Exhibits 32.1 and
32.2, which shall be deemed furnished.
|
(c)
Financial Statement Schedules
All
financial statement schedules are omitted because the information is inapplicable or presented in the notes to the financial statements.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned; thereunto duly authorized, in the City of Redwood Shores, State of California.
|
iSign
Solutions Inc.
|
|
|
|
|
By:
|
/s/
Andrea Goren
|
|
|
Andrea
Goren
|
|
|
(Principal
Financial Officer and
Officer Duly Authorized to Sign on
Behalf
of the Registrant)
|
|
|
|
|
|
Date:
April 2, 2018
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of Registrant and in the capacities indicated on April 2, 2018.
Date
|
|
Signature
|
|
Title
|
|
|
|
|
|
April
2, 2018
|
|
/s/
Philip S. Sassower
|
|
Co-Chairman
and Chief Executive Officer
|
|
|
Philip
S. Sassower
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
April
2, 2018
|
|
/s/
Michael Engmann
|
|
Co-Chairman
and Chief Operating Officer
|
|
|
Michael
Engmann
|
|
|
|
|
|
|
|
April
2, 2018
|
|
/s/
Andrea Goren
|
|
Director,
Chief Financial Officer
|
|
|
Andrea
Goren
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
April
2, 2018
|
|
/s/
Francis J. Elenio
|
|
Director
|
|
|
Francis
J. Elenio
|
|
|
|
|
|
|
|
April
2, 2018
|
|
/s/
Stanly Gilbert
|
|
Director
|
|
|
Stanley
Gilbert
|
|
|
|
|
|
|
|
April
2, 2018
|
|
/s/
Jeffrey Holtmeier
|
|
Director
|
|
|
Jeffrey
Holtmeier
|
|
|
|
|
|
|
|
April
2, 2018
|
|
/s/
David Welch
|
|
Director
|
|
|
David
Welch
|
|
|
Report
of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
of
iSign Solutions Inc.
San Jose, California
Opinion on the Financial Statements
We have audited the
accompanying consolidated balance sheets of iSign Solutions Inc. and subsidiary (the “Company”) as of December 31, 2017
and 2016, and the related consolidated statements of operations, comprehensive loss, changes in deficit, and cash flows for each
of the two years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial
statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of the Company as of December 31, 2017 and 2016, and the consolidated results of its operations and its cash
flows for each of the two years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
The Company’s Ability to Continue as
a Going Concern
The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company’s significant recurring losses and accumulated deficit raise substantial doubt about
its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or
fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly,
we express no such opinion.
Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
ArmaninoLLP
We have served as the Company’s auditor
since 2014.
San Ramon, California
April 2, 2018
iSign Solutions Inc.
Consolidated Balance Sheets
(In thousands, except par value amounts)
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Assets
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
285
|
|
|
$
|
389
|
|
Accounts receivable, net of allowance of $1 and $63 at December 31, 2017 and 2016, respectively
|
|
|
45
|
|
|
|
137
|
|
Prepaid expenses and other current assets
|
|
|
28
|
|
|
|
56
|
|
Total current assets
|
|
|
358
|
|
|
|
582
|
|
Property and equipment, net
|
|
|
13
|
|
|
|
20
|
|
Intangible assets, net
|
|
|
–
|
|
|
|
269
|
|
Other assets
|
|
|
17
|
|
|
|
17
|
|
Total assets
|
|
$
|
388
|
|
|
$
|
888
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Deficit
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
1,289
|
|
|
|
1,368
|
|
Short–term debt, net
|
|
|
1,458
|
|
|
|
─
|
|
Accrued compensation
|
|
|
201
|
|
|
|
257
|
|
Other accrued liabilities
|
|
|
740
|
|
|
|
505
|
|
Deferred revenue
|
|
|
310
|
|
|
|
258
|
|
Short-term capital lease
|
|
|
4
|
|
|
|
4
|
|
Total current liabilities
|
|
|
4,002
|
|
|
|
2,392
|
|
Long–term debt, net
|
|
|
–
|
|
|
|
707
|
|
Deferred revenue long-term
|
|
|
175
|
|
|
|
315
|
|
Long–term capital lease
|
|
|
6
|
|
|
|
9
|
|
Other long-term liabilities
|
|
|
7
|
|
|
|
13
|
|
Total liabilities
|
|
|
4,190
|
|
|
|
3,436
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Equity (deficit):
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 2,000,000 shares authorized; 5,760 and 5,760 shares issued and outstanding at December 31, 2017 and 2016, respectively
|
|
|
58
|
|
|
|
58
|
|
Treasury shares, 5 at December 31, 2017 and December 31, 2016, respectively
|
|
|
(325
|
)
|
|
|
(325
|
)
|
Additional paid-in-capital
|
|
|
129,027
|
|
|
|
128,884
|
|
Accumulated deficit
|
|
|
(132,562
|
)
|
|
|
(130,615
|
)
|
Accumulated other comprehensive loss
|
|
|
–
|
|
|
|
(14
|
)
|
Total iSign stockholders’ deficit
|
|
|
3,802
|
|
|
|
(2,012
|
)
|
Non-controlling interest
|
|
|
–
|
|
|
|
(536
|
)
|
Total deficit
|
|
|
(3,802
|
)
|
|
|
(2,548
|
)
|
Total liabilities and deficit
|
|
$
|
388
|
|
|
$
|
888
|
|
See accompanying notes to these Consolidated
Financial Statements
iSign Solutions Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
|
|
Years Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
Product
|
|
$
|
322
|
|
|
$
|
325
|
|
Maintenance
|
|
|
691
|
|
|
|
740
|
|
|
|
|
1,013
|
|
|
|
1,065
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
Product
|
|
|
13
|
|
|
|
78
|
|
Maintenance
|
|
|
113
|
|
|
|
308
|
|
Research and development
|
|
|
1,135
|
|
|
|
1,322
|
|
Sales and marketing
|
|
|
188
|
|
|
|
406
|
|
General and administrative
|
|
|
1,122
|
|
|
|
2,160
|
|
|
|
|
2,571
|
|
|
|
4,274
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,558
|
)
|
|
|
(3,209
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
67
|
|
|
|
(12
|
)
|
Gain on sale of intangible assets
|
|
|
303
|
|
|
|
–
|
|
Write-off of interest in Chinese joint venture
|
|
|
(550
|
)
|
|
|
–
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(26
|
)
|
|
|
(103
|
)
|
Other
|
|
|
(86
|
)
|
|
|
(115
|
)
|
Amortization of debt discount:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(27
|
)
|
|
|
(87
|
)
|
Other
|
|
|
(70
|
)
|
|
|
(303
|
)
|
Gain on derivative liability
|
|
|
–
|
|
|
|
330
|
|
Net loss
|
|
|
(1,947
|
)
|
|
|
(3,499
|
)
|
Preferred stock:
|
|
|
|
|
|
|
|
|
Accretion of beneficial conversion feature:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
–
|
|
|
|
(115
|
)
|
Other
|
|
|
–
|
|
|
|
(130
|
)
|
Preferred stock dividends:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
–
|
|
|
|
(646
|
)
|
Other
|
|
|
–
|
|
|
|
(667
|
)
|
Income tax expense
|
|
|
–
|
|
|
|
–
|
|
Net loss before non-controlling interest
|
|
|
(1,947
|
)
|
|
|
(5,057
|
)
|
Net loss attributable to non-controlling interest
|
|
|
–
|
|
|
|
–
|
|
Net loss attributable to common stockholders
|
|
$
|
(1,947
|
)
|
|
$
|
(5,057
|
)
|
Basic and diluted loss per common share
|
|
$
|
(0.34
|
)
|
|
$
|
(1.91
|
)
|
Weighted average common shares outstanding, basic and diluted
|
|
|
5,760
|
|
|
|
2,644
|
|
See accompanying notes to these Consolidated
Financial Statements
iSign Solutions Inc.
Consolidated Statements of Comprehensive
Loss
(In thousands)
|
|
Years Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net loss:
|
|
$
|
(1,947
|
)
|
|
$
|
(3,499
|
)
|
Other comprehensive income, net of tax
|
|
|
–
|
|
|
|
–
|
|
Foreign currency translation adjustment, net
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$
|
(1,947
|
)
|
|
$
|
(3,499
|
)
|
See accompanying notes to these Consolidated
Financial Statements
iSign Solutions Inc.
Consolidated Statement of Changes in
Deficit
Year Ended December 31, 2017
(In thousands)
|
|
Series A-1 Preferred
|
|
|
Series A-1
Preferred
|
|
|
Series B
Preferred
|
|
|
Series B
Preferred
|
|
|
Series C
Preferred
|
|
|
Series C
Preferred
|
|
|
Series D-1
Preferred
|
|
|
Series D-1
Preferred
|
|
|
Series D-2
Preferred
|
|
|
Series D-2
Preferred
|
|
|
Common
|
|
|
Common
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Non-
|
|
|
Accumulated
Other
|
|
|
|
|
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
Stock
|
|
|
Treasury
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Controlling
|
|
|
Comprehensive
|
|
|
|
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Interest
|
|
|
Income
(Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2015
|
|
|
947
|
|
|
$
|
947
|
|
|
|
13,523
|
|
|
$
|
11,653
|
|
|
|
5,491
|
|
|
$
|
6,069
|
|
|
|
8,077
|
|
|
$
|
6,866
|
|
|
|
6,321
|
|
|
$
|
5,272
|
|
|
|
187
|
|
|
$
|
2
|
|
|
$
|
(325
|
)
|
|
$
|
95,312
|
|
|
$
|
(127,116
|
)
|
|
$
|
(536
|
)
|
|
$
|
(14
|
)
|
|
$
|
(1,870
|
)
|
Stock-based employee compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164
|
|
Preferred share dividends,
paid in kind
|
|
|
29
|
|
|
|
29
|
|
|
|
519
|
|
|
|
519
|
|
|
|
211
|
|
|
|
211
|
|
|
|
309
|
|
|
|
309
|
|
|
|
245
|
|
|
|
245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
Beneficial conversion feature
on preferred shares dividends issued in kind
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(73
|
)
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
(78
|
)
|
|
|
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
Accretion of beneficial conversion
feature on preferred shares dividends issued in kind
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
Common shares and warrants
issued in a private placement, net of $780 offering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
690
|
|
|
|
7
|
|
|
|
|
|
|
|
417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
424
|
|
Common shares issued on exchange
of unsecured debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
683
|
|
|
|
7
|
|
|
|
|
|
|
|
1,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,188
|
|
Common shares issued on exchange
of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
286
|
|
|
|
3
|
|
|
|
|
|
|
|
495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
498
|
|
Conversion of Preferred Shares
into Common Stock
|
|
|
(976
|
)
|
|
|
(976
|
)
|
|
|
(14,042
|
)
|
|
|
(12,172
|
)
|
|
|
(5,702
|
)
|
|
|
(6,280
|
)
|
|
|
(8,386
|
)
|
|
|
(7,175
|
)
|
|
|
(6,566
|
)
|
|
|
(5,517
|
)
|
|
|
3,650
|
|
|
|
36
|
|
|
|
|
|
|
|
32,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
Conversion of convertible
notes into Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
264
|
|
|
|
3
|
|
|
|
|
|
|
|
237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240
|
|
Proceeds allocated to warrants
issued in connection with convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204
|
|
Beneficial Conversion Feature
on convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,499
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,499
|
)
|
Balance
as of December 31, 2016
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
5,760
|
|
|
|
58
|
|
|
|
(325
|
)
|
|
|
128,884
|
|
|
|
(130,615
|
)
|
|
|
(536
|
)
|
|
|
(14
|
)
|
|
|
(2,548
|
)
|
Stock-based employee compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143
|
|
Write-off of interest in Chinese
joint venture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
536
|
|
|
|
14
|
|
|
|
550
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,947
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,947
|
)
|
Balance
as of December 31, 2017
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
5,760
|
|
|
$
|
58
|
|
|
$
|
(325
|
)
|
|
$
|
129,027
|
|
|
$
|
(132,562
|
)
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
(3,802
|
)
|
See accompanying notes to these Consolidated Financial Statements
iSign Solutions Inc.
Consolidated Statements of Cash Flows
(In thousands)
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,947
|
)
|
|
$
|
(3,499
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
277
|
|
|
|
362
|
|
Amortization of debt discount
|
|
|
97
|
|
|
|
390
|
|
Stock-based employee compensation
|
|
|
143
|
|
|
|
164
|
|
Gain on derivative liability
|
|
|
–
|
|
|
|
(330
|
)
|
Gain on sale of intangible assets
|
|
|
(303
|
)
|
|
|
–
|
|
Write-off of interest in Chinese joint venture
|
|
|
550
|
|
|
|
–
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
92
|
|
|
|
(43
|
)
|
Prepaid expenses and other current assets
|
|
|
28
|
|
|
|
316
|
|
Accounts payable
|
|
|
(79
|
)
|
|
|
581
|
|
Accrued compensation
|
|
|
(56
|
)
|
|
|
(6
|
)
|
Other accrued liabilities
|
|
|
227
|
|
|
|
510
|
|
Deferred revenue
|
|
|
(88
|
)
|
|
|
(266
|
)
|
Net cash used in operating activities
|
|
|
(1,059
|
)
|
|
|
(1,821
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment
|
|
|
(3
|
)
|
|
|
─
|
|
Proceeds from the sale of intangible assets
|
|
|
303
|
|
|
|
─
|
|
Net cash provided by investing activities
|
|
|
300
|
|
|
|
─
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from advances on accounts receivable
|
|
|
120
|
|
|
|
–
|
|
Proceeds from issuance of short-term debt
|
|
|
–
|
|
|
|
440
|
|
Proceeds from issuance of long-term debt
|
|
|
655
|
|
|
|
700
|
|
Proceeds from issuance of common stock and warrants, net of issuance costs of $780
|
|
|
–
|
|
|
|
424
|
|
Payment of short-term debt
|
|
|
–
|
|
|
|
(200
|
)
|
Payment of advances from accounts receivable
|
|
|
(120
|
)
|
|
|
–
|
|
Net cash provided by financing activities
|
|
|
655
|
|
|
|
1,364
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(104
|
)
|
|
|
(457
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
389
|
|
|
|
846
|
|
Cash and cash equivalents at end of period
|
|
$
|
285
|
|
|
$
|
389
|
|
See accompanying notes to these Consolidated
Financial Statements
iSign Solutions Inc.
Consolidated Statements of Cash Flows
(continued)
(In thousands)
Supplemental disclosure of cash flow
information:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Supplementary disclosure of cash flow information
|
|
|
|
|
|
|
Interest paid
|
|
$
|
9
|
|
|
$
|
62
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing and investing transactions
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment through capital lease
|
|
$
|
–
|
|
|
$
|
15
|
|
Conversion of convertible notes plus accrued interest into 947 shares of Common Stock
|
|
$
|
–
|
|
|
$
|
1,428
|
|
Conversion of deferred compensation plus accrued interest into 286 shares of Common Stock
|
|
$
|
–
|
|
|
$
|
498
|
|
Exchange of long-term unsecured convertible promissory notes for long-term unsecured promissory notes
|
|
|
200
|
|
|
|
–
|
|
Exchange of long-term unsecured convertible promissory notes for long-term secured promissory notes
|
|
|
250
|
|
|
|
–
|
|
Dividends on preferred shares
|
|
$
|
–
|
|
|
$
|
1,313
|
|
Conversion of preferred stock into Common Stock
|
|
$
|
–
|
|
|
$
|
32,119
|
|
Accretion of beneficial conversion feature on preferred share dividends
|
|
$
|
–
|
|
|
$
|
245
|
|
Beneficial conversion feature on convertible notes
|
|
$
|
–
|
|
|
$
|
103
|
|
Exchange of $200 of demand notes for long-term unsecured convertible notes
|
|
$
|
–
|
|
|
$
|
200
|
|
Warrants issued in connection with convertible notes
|
|
$
|
–
|
|
|
$
|
204
|
|
See
accompanying notes to these Consolidated Financial Statements
iSign Solutions Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
|
1.
|
Nature of Business, Basis of Presentation and Summary
of Significant Accounting Policies:
|
The Company:
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. The Company’s
products and services result in legally binding transactions that are compliant with applicable laws and regulations and that can
provide a higher level of security than paper-based processes. The Company has been a leading supplier of enterprise software solutions
within the financial services and insurance industries and has delivered significant expense reduction by enabling complete document
and workflow automation and the resulting reduction in mailing, scanning, filing and other costs related to the use of paper.
The Company’s research
and development activities have given rise to numerous technologies and products. The Company’s core DTM technologies include various
forms of electronic signatures, such as handwritten biometric, click-to-sign and others, as well as signature verification, cryptography
and the logging of audit trails to show signers’ intent. These technologies can enable secure, legal and regulatory compliant
electronic transactions that can enhance customer experience at a fraction of the time and cost required by traditional, paper-based
processes. The Company’s products include SignatureOne
®
Ceremony
™
Server, Sign-it
®
and the iSign
®
family of products and services.
Going concern and management plans:
The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern. Except for 2004, the Company
has incurred significant losses since its inception and, at December 31, 2017, the Company’s accumulated deficit was $132,562.
The Company has primarily met its working capital needs through the sale of debt and equity securities. As of December 31, 2017,
the Company’s cash balance was $285. These factors raise substantial doubt about the Company’s ability to continue
as a going concern.
There can be no assurance
that the Company will be successful in securing adequate capital resources to fund planned operations or that any additional funds
will be available to the Company when needed, or if available, will be available on favorable terms or in amounts required by the
Company. 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. The consolidated financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Basis of consolidation:
The accompanying consolidated
financial statements are prepared in accordance with generally accepted accounting principles in the United States of America,
and include the accounts of iSign Solutions Inc. and its 90%-owned Joint Venture in the People’s Republic of China. All inter-company
accounts and transactions have been eliminated. All amounts shown in the accompanying consolidated financial statements are in
thousands of dollars except per share amounts.
iSign Solutions Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
|
1.
|
Nature of Business, Basis of Presentation and Summary of Significant Accounting Policies (continued):
|
Use of estimates:
The preparation of
consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities,
at the date of the consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from these estimates.
Fair value measures:
Fair value is the
price that would be received to sell an asset, or paid to transfer a liability, in the principal or most advantageous market for
the asset or liability in an ordinary transaction between market participants on the measurement date. Our policy on fair value
measures requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The policy establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used
to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level
of input that is significant to the fair value measurement. The policy prioritizes the inputs into three levels that may be used
to measure fair value:
Level 1: Applies to assets or liabilities
for which there are quoted prices in active markets for identical assets or liabilities.
Level 2: Applies to assets or liabilities
for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar
assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume
or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can
be derived principally from, or corroborated by, observable market data.
Level 3: Applies to assets or liabilities
for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value
of the assets or liabilities.
The Company’s
assets and liabilities measured at fair value, whether recurring or non-recurring, at December 31, 2017 and December 31, 2016,
and the fair value calculation input hierarchy level that we have determined applies to each asset and liability category.
Fair Value of Financial Instruments:
The Company carries
financial instruments on the consolidated balance sheet at the fair value of the instruments as of the consolidated balance sheet
date. At the end of each period, management assesses the fair value of each instrument and adjusts the carrying value to reflect
its assessment. At December 31, 2017 and December 31, 2016, the carrying values of accounts receivable and accounts payable approximated
their fair values.
Treasury Stock:
Shares of Common Stock
returned to, or repurchased by, the Company are recorded at cost and are included as a separate component of stockholders’
equity (deficit).
Under the cost method,
the gross cost of the shares reacquired is charged to a contra equity account titled treasury stock. The equity accounts that were
credited for the original share issuance (Common Stock, additional paid-in capital, etc.) remain intact. When the treasury shares
are reissued, proceeds in excess of cost are credited to additional paid-in capital. Any deficiency is charged to accumulated deficit
(unless additional paid-in capital from previous treasury share transactions exists, in which case the deficiency is charged to
that account, with any excess charged to accumulated deficit).
iSign Solutions Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
|
1.
|
Nature of Business, Basis of Presentation and Summary
of Significant Accounting Policies (continued):
|
Derivatives:
The Company, from
time to time, enters into transactions which contain conversion privileges, the settlement of which may entitle the holder or the
Company to settle the obligation(s) by issuance of Company securities. The Company applies a two-step model in determining whether
a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the scope
exception. The fair value of each derivative is estimated each reporting period.
The conversion option
included within the unsecured convertible promissory notes is accounted for as a derivative liability at its estimated fair value.
The derivative is subject to re-measurement at the end of each reporting period, with changes in fair value recognized as a component
of interest and other income, in the consolidated statements of operations. The Company will continue to adjust the liability for
changes in fair value until the earlier of the conversion or maturity of the unsecured convertible promissory note purchase agreements.
Cash and cash equivalents:
The Company considers
all highly liquid investments with maturities at the date of purchase of three months or less to be cash equivalents.
The Company’s cash
and cash equivalents, at December 31, consisted of the following:
|
|
2017
|
|
|
2016
|
|
Cash in bank
|
|
$
|
285
|
|
|
$
|
389
|
|
Cash and cash equivalents
|
|
$
|
285
|
|
|
$
|
389
|
|
Concentrations of credit risk:
Financial instruments
that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents,
and accounts receivable. The Company maintains its cash and cash equivalents with various financial institutions. This diversification
of risk is consistent with Company policy to maintain liquidity, and mitigate risk of loss as to principal.
To date, accounts
receivable have been derived principally from revenue earned from end users, manufacturers, and distributors of computer products
in North America. The Company performs periodic credit evaluations of its customers, and does not require collateral. The Company
maintains reserves for potential credit losses; historically, such losses have been within management’s expectations.
The allowance for
doubtful accounts is based on the Company’s assessment of the collectability of specific customer accounts and an assessment
of international, political and economic risk as well as the aging of the accounts receivable. If there is a change in actual defaults
from the Company’s historical experience, the Company’s estimates of recoverability of amounts due could be affected
and the Company will adjust the allowance accordingly.
Deferred financing costs:
Deferred financing
costs include costs paid in cash, such as professional fees and commissions. The costs associated with equity financings, such
as in the sale Common or Preferred Stock, are netted against the proceeds of the offering. In the case of note financings, costs
are amortized to interest expense over the life of the notes or upon early payment using the effective interest method. There were
no financing costs amortized to interest expense for the years ended December 31, 2017 and 2016, respectively.
iSign Solutions Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
|
1.
|
Nature of Business, Basis of Presentation and Summary
of Significant Accounting Policies (continued):
|
Property and equipment, net:
Property and equipment
are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets,
ranging from three to five years. Leasehold improvements are amortized over their estimated useful lives, not to exceed the term
of the related lease. The cost of additions and improvements is capitalized while maintenance and repairs are charged to expense
as incurred. Depreciation expense was $8 and $40 for the years ended December 31, 2017 and 2016, respectively.
Intangible Assets:
Intangible assets
are stated at cost less accumulated amortization. Amortization is computed using the straight-line method over the estimated lives
of the related assets, ranging from five to seventeen years. Amortization expense was $269 and $322 for the years ended December
31, 2017 and 2016, respectively. The intangible assets have been fully amortized as of December 31, 2017.
Long-lived assets:
The Company evaluates
the recoverability of its long-lived assets, including intangible assets at least annually or whenever circumstances or events
indicate such assets might be impaired. The Company would recognize an impairment charge in the event the net book value of such
assets exceeded the future undiscounted cash flows attributable to such assets. No such impairment charge was recorded during the
years ended December 31, 2017 and 2016, respectively.
Share-based payment:
Share-based
compensation expense is based on the estimated grant date fair value of the portion of share-based payment awards that
is
ultimately expected to vest during the period. The
grant date
fair
value of share-based awards to employees and directors is calculated using the Black-Scholes-Merton valuation model
.
Forfeitures
of
share-based payment awards are estimated at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ from those estimates and it is assumed no dividends will be declared.
The estimated fair value of share-based compensation awards to employees is amortized over the vesting period of the options.
Revenue recognition:
The Company recognizes
revenue from sales of software products upon shipment, provided that persuasive evidence of an arrangement exists, the fee is fixed
and determinable, collection is determined to be probable, all non-recurring engineering work necessary to enable the Company’s
product to function within the customer’s application has been completed and the Company’s product has been delivered according
to specifications. Revenue from service subscriptions is recognized as costs are incurred or over the service period, whichever
is longer. Software license agreements may contain multiple elements, including upgrades and enhancements, products deliverable
on a when and if available basis and post- contract support. Revenue from software license agreements is recognized upon delivery
of the software, provided that persuasive evidence of an arrangement exists, collection is determined to be probable, all nonrecurring
engineering work necessary to enable the Company’s products to function within the customer’s application has been completed, and
the Company has delivered its product according to specifications.
For arrangements with
multiple deliverables, the Company allocates consideration at the inception of an arrangement to all of its deliverables based
on their relative selling prices which is determined using vendor specific objective evidence.
iSign Solutions Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
|
1.
|
Nature of Business, Basis of Presentation and Summary of Significant Accounting Policies (continued):
|
Revenue recognition (continued):
Maintenance revenue
is recorded for post-contract support and upgrades or enhancements, which is paid for in addition to license fees, and is recognized
as costs are incurred or over the support period whichever is longer. For undelivered elements where vendor specific objective
evidence does not exist, revenue is deferred and subsequently recognized when delivery has occurred and when vendor specific evidence
has been determined.
Research and development:
Research and development
costs are charged to expense as incurred.
Marketing:
The Company expenses
advertising (marketing) costs as incurred. These expenses are outbound marketing expenses associated with participation in industry
events, related sales collateral and email campaigns aimed at generating customer participation in webinars. The expense for the
years ended December 31, 2017 and 2016 was $0 and $1, respectively.
Net loss per share:
The Company calculates
net loss per share under the provisions of the relevant accounting guidance. That guidance requires the disclosure of both basic
net loss per share, which is based on the weighted average number of shares outstanding, and diluted loss per share, which is based
on the weighted average number of shares and dilutive potential shares outstanding.
The number of shares
of Common Stock subject to outstanding options and shares issuable upon exercise of warrants excluded from the calculation of loss
per share as their inclusion would be anti-dilutive are as follows:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Common Stock subject to outstanding options
|
|
|
736
|
|
|
|
71
|
|
Common Stock subject to outstanding warrants
|
|
|
1,878
|
|
|
|
1,882
|
|
The Company considers
the functional currency of the Joint Venture, CICC, to be the local currency of China, which is the Renminbi (“RMB”)
and, accordingly, gains and losses from the translation of the local foreign currency financial statements are included as a component
of accumulated other comprehensive loss in the accompanying consolidated balance sheets. Foreign currency assets and liabilities
are translated into U.S. dollars at the end-of-period exchange rates except for long-term assets and liabilities, which are translated
at historical exchange rates. Revenue and expenses are translated at the average exchange rates in effect during each period except
for those expenses related to consolidated balance sheet amounts which are translated at historical exchange rates.
Net foreign currency
transaction gains and losses are included in interest and other income, net in the accompanying consolidated statements of operations.
Foreign currency transaction gains and losses in 2017 and 2016 were insignificant.
Income taxes:
Deferred tax assets
and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities
and their financial statement reported amounts and for tax loss and credit carry-forwards. A valuation allowance is provided against
deferred tax assets when it is determined to be more likely than not that the deferred tax asset will not be realized.
iSign Solutions Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
|
1.
|
Nature of Business, Basis of Presentation and Summary of Significant Accounting Policies (continued):
|
Foreign currency translation:
There have been no
unrecognized tax benefits and, accordingly, there has been no effect on the Company’s financial condition or results of operations.
The Company files
income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is no longer subject
to U.S. federal tax examinations for years before 2008, and state tax examinations for years before 2007. Management is in the
process of reviewing the effects on the Company’s unrecognized tax positions in response to the changes the federal tax rates
adopted in December of 2017.
The Company’s policy
is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.
Recently issued accounting pronouncement:
In January 2016, the
FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): “Recognition and Measurement of Financial
Assets and Financial Liabilities.” The new guidance enhances the reporting model for financial instruments, which includes
amendments to address aspects of recognition, measurement, presentation and disclosure. The update to the standard is effective
for the Company in the first quarter of fiscal 2018, with early adoption permitted under limited circumstances. The adoption
of this guidance will not have a material impact on our consolidated financial statements.
In February 2016,
the FASB issued ASU No. 2016-02. “Leases.” ASU 2016-02 requires that lease arrangements longer than 12 months
result in an entity recognizing an asset and liability. The updated guidance is effective for interim and annual periods beginning
after December 15, 2018, and early adoption is permitted. The Company is currently evaluating the effect the Standard will have
on its consolidated financial statements.
In February 2016,
the FASB issued ASU No. 2016-02, Leases. ASU 2016-02 requires that lease arrangements longer than 12 months result in an entity
recognizing an asset and liability. The updated guidance is effective for interim and annual periods beginning after December 15,
2018, and early adoption is permitted. The Company is currently evaluating the effect the Standard will have on its consolidated
financial statements.
In March 2016, the
FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which makes a number of changes
meant to simplify and improve accounting for share-based payments. The company has adopted ASU 2016-09 as of January 1, 2017. The
adoption had no impact on the Company’s consolidated financial statements.
In May 2014, the Financial
Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), “Revenue from Contracts with
Customers.” ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition” (Topic 605),
and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled to in exchange for those goods or services. As currently issued, the
standard is effective beginning in the first quarter of fiscal year 2018. We adopted the new standard effective January 1, 2018
utilizing the modified retrospective method. We finalized our analysis and the adoption of this guidance will not have a material
impact on our consolidated financial statements and our internal controls over financial reporting.
iSign Solutions Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
The following table summarizes accounts receivable
and revenue concentrations:
|
|
Accounts Receivable
As of December 31,
|
|
|
Total Revenue for the
year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Customer #1
|
|
|
–
|
|
|
|
–
|
|
|
|
13
|
%
|
|
|
13
|
%
|
Customer #2
|
|
|
–
|
|
|
|
–
|
|
|
|
14
|
%
|
|
|
13
|
%
|
Customer #3
|
|
|
–
|
|
|
|
55
|
%
|
|
|
30
|
%
|
|
|
23
|
%
|
Customer #4
|
|
|
44
|
%
|
|
|
11
|
%
|
|
|
–
|
|
|
|
–
|
|
Customer #5
|
|
|
54
|
%
|
|
|
25
|
%
|
|
|
–
|
|
|
|
–
|
|
Total concentration
|
|
|
98
|
%
|
|
|
91
|
%
|
|
|
57
|
%
|
|
|
49
|
%
|
The following table summarizes sales concentrations:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Sales within the United States
|
|
|
88
|
%
|
|
|
88
|
%
|
Sales outside of the United States
|
|
|
12
|
%
|
|
|
12
|
%
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
3.
|
Property and equipment:
|
Property and equipment,
net at December 31, consists of the following:
|
|
2017
|
|
|
2016
|
|
Machinery and equipment
|
|
$
|
59
|
|
|
$
|
1,235
|
|
Office furniture and fixtures
|
|
|
25
|
|
|
|
435
|
|
Leasehold improvements
|
|
|
–
|
|
|
|
35
|
|
Purchased software
|
|
|
1
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
2,028
|
|
Less accumulated depreciation and amortization
|
|
|
(72
|
)
|
|
|
(2,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13
|
|
|
$
|
20
|
|
Intangible assets,
net consists of the following at December 31:
|
|
Weighted
Average
Amortization
Period
(Years)
|
|
|
2017
|
|
|
2016
|
|
Technology
|
|
|
–
|
|
|
$
|
6,745
|
|
|
$
|
6,745
|
|
Less accumulated amortization
|
|
|
|
|
|
|
(6,745
|
)
|
|
|
(6,476
|
)
|
|
|
|
|
|
|
$
|
–
|
|
|
$
|
269
|
|
iSign Solutions Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
|
4.
|
Intangible assets (continued):
|
The
nature of the underlying technology of our intangible assets can be referred to as
’‘transaction-enabling,’’ ’‘digital authentication’’ and
’‘business process work flow.’’ This technology includes various forms of electronic signature
methods, such as handwritten, biometric, click-to-sign and others, as well as technologies related to signature verification,
authentication, cryptography and the logging of audit trails to prove signers’ intent. Our technologies enable the
appending of secure, legal and regulatory compliant electronic signatures coupled with an enhanced user experience at a
fraction of the time and cost required by traditional, paper-based processes for signature capture. The Company does not
foresee any effects of obsolescence or significant competitive pressure on its current or future products,
anticipates increasing demand for products utilizing its technology, and believes that the current markets for its products
based on technology will remain constant or will grow over the remaining useful lives assigned to its intangible assets
because of business environments encouraging the use of electronic signatures.
|
5.
|
Chinese Joint Venture (Non-Controlling Interest):
|
The Company currently
owns 90% of a joint venture (the “Joint Venture”) with the Jiangsu Hongtu Electronics Group, a provincial agency of
the People’s Republic of China. The Joint Venture’s business license expires October 18, 2043. There were no operations in 2017
or 2016. The Joint Venture had no revenue for the years ended December 31, 2017 and 2016, respectively. It had no long-lived assets
as of December 31, 2017 and 2016. The Company recorded a non-cash charge to income of $550 related to the write-off of the interest
in the joint venture.
|
6.
|
Other accrued liabilities:
|
The Company records
liabilities based on reasonable estimates for expenses, or payables that are known or estimated including deposits, taxes, rents
and services. The estimates are for current liabilities that should be extinguished within one year.
The Company had the
following other accrued liabilities at December 31:
|
|
2017
|
|
|
2016
|
|
Accrued professional services
|
|
$
|
15
|
|
|
$
|
38
|
|
Rents
|
|
|
3
|
|
|
|
–
|
|
Management fees
|
|
|
440
|
|
|
|
316
|
|
Accrued interest
|
|
|
129
|
|
|
|
27
|
|
Delaware Franchise tax
|
|
|
129
|
|
|
|
77
|
|
Other
|
|
|
24
|
|
|
|
47
|
|
Total
|
|
$
|
740
|
|
|
$
|
505
|
|
Advances:
In February 2017,
the Company received, from investors and affiliates of the Company, advances aggregating $120 in cash against certain accounts
receivable of the Company. Upon collection of an invoice, the Company would repay the advance to the lenders on a pro rata basis
together with a 5% advance fee. The receivables were collected and the advances were repaid in March 2017, along with $6 in advance
fees per the agreement. The advance fees were recorded as interest expense in the quarter ended March 31, 2017.
Notes payable
:
In November 2016,
the Company issued long-term unsecured convertible promissory notes to investors and affiliates of the Company aggregating $700
in cash. The Company also issued the same long-term notes to affiliates in exchange for an aggregate of $200 in demand notes that
had been issued earlier in September and October of 2016. The long-term notes are mandatorily convertible into Common Stock at
a conversion rate of the lesser of $0.50 per share (initially, $1.30 per share and subsequently reduced in connection with the
May 2017 described below) or the price per share of Common Stock, upon closing a new debt and or equity financing of at least $1,000
in aggregate proceeds. The notes bear interest at the rate of 6% per annum and are due December 31, 2018. The Company issued warrants
to purchase 277 shares of Common Stock in connection with these long-term notes. The Company ascribed a value of $204 to the 277
warrants and recorded a discount
to the long-term notes and a corresponding amount to additional paid-in capital. The discount is being amortized using the effective
interest method over the term of the notes.
iSign Solutions Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
Notes payable (continued):
In May 2017, the Company
issued secured convertible promissory notes to investors and affiliates of the Company aggregating $505 in cash. In addition, certain
investors and affiliates of the Company that had taken part in the November 2016 financing discussed above, and that also participated
in the May 2017 financing, exchanged $450 of unsecured convertible promissory notes received in the November 2016 financing for
$250 secured notes with the same terms as the notes issued in the May 2017 financing and $200 in unsecured notes with the same
terms as the November 2016 financing discussed above. The secured notes are mandatorily convertible into Common Stock at a conversion
rate of the lesser of $0.50 per share or the price per share of Common Stock, upon closing a new financing of at least $1,000 in
aggregate proceeds. The secured notes bear interest at the rate of 10% per annum, are due December 31, 2018 and are secured by
an interest in all the Company’s rights, title and interest in, to and under its intellectual property. Should the secured notes
remain outstanding following the maturity date an additional 30% of the note’s principal amount shall become due and payable.
In December 2017,
the Company issued additional secured convertible promissory notes to investors and affiliates of the Company aggregating $150
in cash. The secured notes have substantially the same terms as the secured notes issued in the May 2017 financing.
The Company used the
funds received from the above financing for working capital and general corporate purposes.
During
the twelve months ended December 31, 2017, the Company accrued $112 of interest expense, $100 associated with the notes, of which
$26 was to related parties and $74 was to other investors.
The Company recorded $97 and $390 in debt
discount amortization for the twelve months ended December 31, 2017 and 2016, respectively.
|
8.
|
Stockholders’ equity (deficit):
|
Common stock options:
At December 31, 2017,
the Company has two stock-based employee compensation plans, the 2009 Stock Compensation Plan, and the 2011 Stock Compensation
Plan. The Company may also grant options to employees, directors and consultants outside of the 2009 and 2011 plans under individual
plans.
Information with respect
to the Stock Compensation Plans at December 31, 2017 is as follows:
|
|
2009 Stock Compensation Plan
|
|
2011 Stock Compensation Plan
|
Shares authorized for issuance
|
|
7,000
|
|
750,000
|
Option vesting period
|
|
Quarterly over 3 years
|
|
Immediate/Quarterly over 3 years
|
Date adopted by shareholders
|
|
−
|
|
November 2011
|
Option term
|
|
7 Years
|
|
7 Years
|
Options outstanding
|
|
−
|
|
736
|
Options exercisable
|
|
−
|
|
95
|
Weighted average exercise price
|
|
$
−
|
|
$3.65
|
iSign Solutions Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
|
8.
|
Stockholders’ equity (deficit) (continued):
|
Common stock options (continued):
Valuation and Expense Information:
The weighted-average
fair value of stock-based compensation is based on the Black Scholes Merton valuation model.
Forfeitures are estimated
and it is assumed no dividends will be declared. The estimated fair value of stock-based compensation awards to employees is amortized
over the vesting period of the options. There were no stock options granted during 2016. The fair value calculations are based
on the following assumptions:
|
|
Year Ended
December 31, 2017
|
|
Year Ended
December 31, 2016
|
Risk free interest rate
|
|
1.56% – 1.79%
|
|
N/A
|
Expected life (years)
|
|
5.30 – 6.80
|
|
N/A
|
Expected volatility
|
|
184.14% – 212.15%
|
|
N/A
|
Expected dividends
|
|
None
|
|
N/A
|
Estimated average forfeiture rate
|
|
5.87%
|
|
N/A
|
The following table
summarizes the allocation of stock-based compensation expense for the years ended December 31, 2017 and 2016. There were no stock
options exercised during the years ended December 31, 2017 and 2016.
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Research and development
|
|
$
|
60
|
|
|
$
|
56
|
|
Sales and marketing
|
|
|
–
|
|
|
|
15
|
|
General and administrative
|
|
|
51
|
|
|
|
71
|
|
Director options and consultants
|
|
|
32
|
|
|
|
22
|
|
Stock-based compensation expense included in operating expenses
|
|
$
|
143
|
|
|
$
|
164
|
|
As of December 31,
2017, there was $142 of total unrecognized compensation cost related to non-vested share-based compensation arrangements. The unrecognized
compensation cost is expected to be recognized over a weighted average period of 1.4 years.
The cash flows from
tax benefits for deductions in excess of the compensation costs recognized for share-based payment awards would be classified as
financing cash flows. Due to the Company’s loss position, there were no such tax benefits during the year ended December
31, 2017.
iSign Solutions Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
|
8.
|
Stockholders’ equity (deficit) (continued):
|
Common stock options
(continued):
The summary activity for the Company’s
2011 Stock Compensation Plans is as follows:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price per
share
|
|
|
Aggregate Intrinsic
Value
|
|
|
Weighted Average
Remaining
Contractual
Life (in
years)
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price per
share
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Weighted
Average
Remaining
Contractual
Life (in
years)
|
|
Outstanding at beginning of period
|
|
|
71
|
|
|
$
|
45.21
|
|
|
$
|
–
|
|
|
|
|
|
|
|
82
|
|
|
$
|
45.35
|
|
|
$
|
–
|
|
|
|
|
|
Granted
|
|
|
899
|
|
|
$
|
0.50
|
|
|
$
|
–
|
|
|
|
|
|
|
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
Forfeited/ Cancelled
|
|
|
(234
|
)
|
|
$
|
4.24
|
|
|
$
|
–
|
|
|
|
|
|
|
|
(11
|
)
|
|
$
|
46.23
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at period end
|
|
|
736
|
|
|
$
|
3.65
|
|
|
$
|
–
|
|
|
|
6.34
|
|
|
|
71
|
|
|
$
|
45.21
|
|
|
$
|
–
|
|
|
|
3.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable at period end
|
|
|
95
|
|
|
$
|
24.41
|
|
|
$
|
–
|
|
|
|
4.12
|
|
|
|
60
|
|
|
$
|
48.78
|
|
|
$
|
–
|
|
|
|
2.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant-date fair value of options granted during the period
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes significant
ranges of outstanding and exercisable options as of December 31, 2017:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
Options
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual Life
(in years)
|
|
|
Weighted
Average
Exercise
Price per
share
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Exercise
Price per
share
|
|
$0.01 -$25.00
|
|
|
687
|
|
|
|
6.66
|
|
|
$
|
0.67
|
|
|
|
47
|
|
|
$
|
0.90
|
|
$25 – $625
|
|
|
49
|
|
|
|
2.01
|
|
|
$
|
46.62
|
|
|
|
48
|
|
|
$
|
47.19
|
|
|
|
|
736
|
|
|
|
6.34
|
|
|
$
|
3.65
|
|
|
|
95
|
|
|
$
|
24.41
|
|
A summary of the status of the Company’s non-vested
shares as of December 31, 2017 is as follows:
Non-vested Shares
|
|
Shares
|
|
|
Weighted Average
Grant-Date
Fair Value per share
|
|
Non-vested at January 1, 2017
|
|
|
11
|
|
|
$
|
23.01
|
|
Granted
|
|
|
899
|
|
|
$
|
0.50
|
|
Canceled/Forfeited
|
|
|
(234
|
)
|
|
$
|
4.24
|
|
Vested
|
|
|
(35
|
)
|
|
$
|
24.65
|
|
Non-vested at December 31, 2017
|
|
|
641
|
|
|
$
|
0.57
|
|
iSign Solutions Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
8.
|
Stockholders’ equity (deficit) (continued):
|
Common stock options (continued):
An employee or consultant
desiring to exercise or convert his or her stock options must provide a signed notice of exercise to the Chief Financial Officer.
Once the exercise is approved an issue order is sent to the Company’s transfer agent and by certificate or through other
means of conveyance, the shares are delivered to the employee or consultant, generally within three business days.
The Company expects to make additional
option grants in future years. The options issued to employees and directors will be subject to the same provisions outlined above,
which may have a material impact on the Company’s financial statements.
Preferred Stock:
All of
the Company’s Preferred Stock was converted into shares of common stock on May 19, 2016. Information with respect to dividends
issued on the Company’s Preferred stock for the year ended December 31, 2016 is as follows:
|
|
Dividends
Issued
|
|
|
Beneficial
Conversion
Feature
|
|
|
|
2016
|
|
|
2016
|
|
Series A-1
|
|
$
|
29
|
|
|
$
|
3
|
|
Series B
|
|
|
519
|
|
|
|
73
|
|
Series C
|
|
|
211
|
|
|
|
39
|
|
Series D-1
|
|
|
309
|
|
|
|
78
|
|
Series D-2
|
|
|
245
|
|
|
|
52
|
|
Total
|
|
$
|
1,313
|
|
|
$
|
245
|
|
Treasury Stock:
In January 2012, the
Company received 5 shares of Common Stock from Phoenix in settlement of a 16b claim brought by a Company stockholder against Phoenix,
certain affiliates and the Company, as a nominal defendant. The Common Stock was valued at $325. In settlement of an indemnification
claim brought by Phoenix in March 2012, resulting from the settlement of the 16b claim in January 2012, the Company issued to Phoenix
278 shares of Series C Preferred Stock valued at $417. The Company booked a $417 accretion amount for the beneficial conversion
feature on the 278 shares of Series C Preferred Stock.
Warrants:
There were no warrants
issued in 2017. There were no warrant exercises in 2017 and 2016. The summary of warrants issued in 2016 is as follows:
|
|
December 31, 2016
|
|
|
|
Related Party
|
|
|
Other
|
|
|
Total
|
|
Shares issuable under warrants issued in connection with the sale of Common Stock
|
|
|
─
|
|
|
|
345
|
|
|
|
345
|
|
Shares issuable under warrants issued upon conversion of convertible notes and deferred compensation
|
|
|
586
|
|
|
|
619
|
|
|
|
1,205
|
|
Shares issuable under warrants issued with unsecured convertible notes
|
|
|
77
|
|
|
|
200
|
|
|
|
277
|
|
Total
|
|
|
663
|
|
|
|
1,164
|
|
|
|
1,827
|
|
A summary of the outstanding
warrants is as follows:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
per share
|
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
per share
|
|
Outstanding at beginning of period
|
|
|
1,882
|
|
|
$
|
2.52
|
|
|
|
206
|
|
|
$
|
33.00
|
|
Issued
|
|
|
–
|
|
|
$
|
–
|
|
|
|
1,827
|
|
|
$
|
2.18
|
|
Expired
|
|
|
(4
|
)
|
|
$
|
34.38
|
|
|
|
(151
|
)
|
|
$
|
33.31
|
|
Outstanding at end of period
|
|
|
1,878
|
|
|
$
|
2.46
|
|
|
|
1,882
|
|
|
$
|
2.52
|
|
Exercisable at end of period
|
|
|
1,878
|
|
|
$
|
2.46
|
|
|
|
1,882
|
|
|
$
|
2.52
|
|
iSign Solutions Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
|
8.
|
Stockholders’ equity (deficit) (continued):
|
Warrants
(continued)
A summary of the status
of the warrants outstanding as of December 31, 2017 is as follows:
Number of Shares Outstanding and Exercisable
|
|
Weighted Average
Remaining Life (in
years)
|
|
|
Weighted Average Exercise
Price per share
|
|
50
|
|
|
0.01
|
|
|
$
|
15.63
|
|
1,551
|
|
|
2.18
|
|
|
$
|
2.18
|
|
277
|
|
|
0.42
|
|
|
$
|
1.63
|
|
1,878
|
|
|
1.86
|
|
|
$
|
2.46
|
|
As of December 31,
2017, 2,614 shares of Common Stock were reserved for issuance upon exercise of outstanding options and warrants.
|
9.
|
Commitments and Contingencies:
|
Lease commitments:
In November 2016,
the Company moved its principal facilities to San Jose, California, pursuant to a lease that expires in 2019. In addition to monthly
rent, the facilities are subject to additional rental payments for utilities and other costs above the base amount. Facilities
rent expense was approximately $109 and $202 in 2017 and 2016, respectively.
Contractual obligations
|
|
Total
|
|
|
2018
|
|
|
2019
|
|
|
Thereafter
|
|
Operating lease commitments
|
|
$
|
189
|
|
|
$
|
102
|
|
|
$
|
87
|
|
|
$
|
–
|
|
Capital lease commitments
|
|
|
14
|
|
|
|
6
|
|
|
|
6
|
|
|
|
2
|
|
Total
|
|
$
|
203
|
|
|
$
|
108
|
|
|
$
|
93
|
|
|
$
|
2
|
|
At December 31, 2017,
the Company had net operating loss carryforwards of $70,731 for federal income tax purposes which will begin to expire in 2018
if unused. The Company had net operating loss carryforwards for state income tax purposes of approximately $35,982. These state
net operating losses carryforwards will begin to expire in the year 2017 if unused.
Deferred tax assets
and liabilities at December 31 consist of the following:
|
|
2017
|
|
|
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carry-forwards
|
|
$
|
17,359
|
|
|
$
|
25,730
|
|
Accruals and reserves
|
|
|
51
|
|
|
|
141
|
|
Deferred revenue
|
|
|
143
|
|
|
|
228
|
|
Intangibles
|
|
|
490
|
|
|
|
821
|
|
Other, net
|
|
|
39
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
13
|
|
|
|
22
|
|
Gross tax assets
|
|
|
18,095
|
|
|
|
26,995
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(18,095
|
)
|
|
|
(26,995
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
–
|
|
|
$
|
–
|
|
iSign Solutions Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
|
10.
|
Income taxes (continued):
|
The Company’s
provision for income taxes differs from the amount computed by applying the statutory U.S. federal income tax rate to loss before
taxes as follows for the years ended December 31, 2017 and December 31, 2016:
|
|
2017
|
|
|
2016
|
|
Income tax benefit at the federal statutory rate
|
|
$
|
(661
|
)
|
|
$
|
(1,183
|
)
|
State income tax benefit
|
|
|
(135
|
)
|
|
|
(203
|
)
|
NOL expiration
|
|
|
118
|
|
|
|
426
|
|
Prior year true-ups
|
|
|
15
|
|
|
|
–
|
|
Permanent items and other
|
|
|
354
|
|
|
|
(27
|
)
|
Tax cuts and Jobs Act Rate Changes
|
|
|
9,090
|
|
|
|
–
|
|
Change in valuation allowance
|
|
|
(8,781
|
)
|
|
|
987
|
|
Income tax expense
|
|
$
|
─
|
|
|
$
|
─
|
|
A full valuation allowance
has been established for the Company’s net deferred tax assets since the realization of such assets through the generation of future
taxable income is uncertain.
Current tax laws impose
substantial restrictions on the utilization of net operating losses and credit carryforwards in the event of an “ownership
change”, as defined by the Internal Revenue Code (IRC). If there should be an ownership change, the Company’s ability to utilize
its carryforwards could be limited
On November 20, 2015,
the FASB issued Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes. The ASU is part of the Board’s
simplification initiative aimed at reducing complexity in accounting standards and requires companies to classify all deferred
tax assets and liabilities, along with any related valuation allowance, as noncurrent on the balance sheet. The adoption of this
guidance did not have a material impact on our consolidated financial statements.
In December 2017,
the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted. The 2017 Tax Act includes a number of changes to existing
U.S. tax laws that impact the company, most notably a reduction of the U.S. corporate income tax rate from 34 percent to 21 percent
for tax years beginning after December 31, 2017. The company measures deferred tax assets and liabilities using enacted tax rates
that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the company’s
deferred tax assets and liabilities were remeasured to reflect the reduction in the U.S. corporate income tax rate from 34
percent to 21 percent, resulting in a $9.1 million decrease in net deferred tax assets for the year ended December
31, 2017 and a corresponding $9.1 million decrease in valuation allowance as of December 31, 2017.
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