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, 2018
☐
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.)
|
2033
Gateway Place, Suite 659, 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, a 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
|
☐
|
|
Accelerated
filer
|
☐
|
Non-accelerated
filer
|
☐
|
|
Smaller Reporting
Company
|
☒
|
|
|
|
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, 2018 was approximately
$1,574,093 based on the closing sale price of $0.39 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 1, 2019 was 5,761,980.
DOCUMENTS
INCORPORATED BY REFERENCE
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, 2018, total revenue was $917, a decrease of $96, or 9%, compared to total revenue of $1,013 in the prior year. For
the year ended December 31, 2018, software product revenue was $205, a decrease of $117, or 36%, compared to product revenue of
$322 in the prior year. Maintenance revenue for the year ended December 31, 2018 was $712, an increase of $21, or 3%, compared
to maintenance revenue of $691 in the prior year. The changes are primarily attributable to the Company’s efforts to restructure
its operations in favor of a partner-generated recurring revenue model.
For the year ended December 31, 2018, the net loss was
$1,027, a decrease of $920, or 47%, compared to $1,947 in the prior year. For the year ended December 31, 2018, non-cash charges,
consisting of interest expense and the amortization of debt discount were $299, a decrease of $460, or 61%, compared to $759 in
the prior year. The primary factor in the decrease is attributable to the $550 write-off of the interest in the Chinese joint
venture in the prior year. For the year ended December 31, 2018, operating expenses were $1,689, a decrease of $882, or 34%, compared
to operating expenses of $2,571 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:
● Consent/disclosure
management – integral part of audit record; easily reproducible in the event of a dispute;
● Configurable
document presentment – signatory receipt, access and viewing of document tracked in audit trail;
● Multi-party
ceremonies – complex processes, simplified; allows for dynamic, multi-channel workflow changes, including remote,
face-to-face and mobile scenarios;
● Supports
complex business rules and dynamic user behaviors;
● Configurable
branding and workflow;
● Flexible
tracking and reporting – includes event notification service
● Extensive
audit trail – embedded in individual document in a tamper evident digital seal; and
● Support
for multiple signature methods – click-to-sign; biometric; and others.
|
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.
|
iSign®
Enterprise
|
iSign®
Enterprise incorporates the features and function of the Ceremony Server and the Console.
|
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 2018 include the following:
iSign Enterprise
|
|
v6.8
|
iSign Enterprise
|
|
v6.6.9
|
iSign Enterprise
|
|
v6.6.10
|
iSign Enterprise
|
|
v6.6.11
|
iSign Enterprise
|
|
v6.6.12
|
iSign Enterprise
|
|
v6.6.13
|
iSign Enterprise
|
|
v6.6.14
|
iSign Enterprise
|
|
v6.6.15
|
iSign Enterprise
|
|
v6.6.16
|
iSign Enterprise
|
|
v6.6.17
|
iSign Enterprise
|
|
v6.6.18
|
iSign Enterprise
|
|
v6.6.19
|
iSign Enterprise
|
|
v6.6.20
|
iSign Enterprise
|
|
v6.11
|
iSign Enterprise
|
|
v6.6.21
|
iSign Enterprise
|
|
v6.11.1
|
iSign Enterprise
|
|
v6.11.2
|
iSign Enterprise
|
|
v6.11.3
|
Sign-it for Acrobat
|
|
v10.3
|
Sign-it for Acrobat
|
|
v10.3.1
|
Sign-it for Acrobat
|
|
v10.5
|
Sign-it for Acrobat
|
|
v10.5.1
|
Sign-it for Acrobat
|
|
v10.3.2
|
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
|
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 $754 for the year ended December 30, 2018 and $1,135 for the year ended December 31, 2017.
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 10%, 23% and 24%, respectively, of total revenue for the year ended December 31, 2018.
Seasonality
of Business
The
Company believes that the sale of its products is not subject to seasonal fluctuations.
Backlog
Backlog
was approximately $317 and $485 at December 31, 2018 and 2017, 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 $36 at December
31, 2018, which will be recognized over the next 15 month period. 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, 2018, the Company employed seven full-time employees and nine 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, 2018 and 2017, sales in the United States as a percentage of total sales was 90% and 88%, respectively.
At December 31, 2018 and 2017, long-lived assets located in the United States were $7 and $30, respectively. There were no long-lived
assets located elsewhere as of December 31, 2018 and 2017.
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 rents its principal facilities, consisting of approximately 144 square feet in San Jose, California, pursuant to a month
to month arrangement.
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.
|
|
|
|
Sale
Price Per Share
|
|
Year
|
|
Period
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
First Quarter
|
|
$
|
0.85
|
|
|
$
|
0.21
|
|
|
|
Second Quarter
|
|
$
|
0.50
|
|
|
$
|
0.35
|
|
|
|
Third Quarter
|
|
$
|
0.50
|
|
|
$
|
0.31
|
|
|
|
Fourth Quarter
|
|
$
|
0.40
|
|
|
$
|
0.20
|
|
2018
|
|
First Quarter
|
|
$
|
1.00
|
|
|
$
|
0.21
|
|
|
|
Second Quarter
|
|
$
|
0.39
|
|
|
$
|
0.20
|
|
|
|
Third Quarter
|
|
$
|
0.85
|
|
|
$
|
0.30
|
|
|
|
Fourth Quarter
|
|
$
|
0.90
|
|
|
$
|
0.26
|
|
Holders
As
of March 20, 2019, 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, 2018, the net loss aggregated approximately $2,974,
and at December 31, 2018, the Company's accumulated deficit was approximately $133,589.
For the year ended
December 31, 2018, total revenue was $917, a decrease of $96, or 9%, compared to total revenue of $1,013 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, 2018, operating expenses were $1,689, a decrease of $882, or 34%, compared to
operating expenses of $2,571 in the prior year. The decrease in operating expenses resulted from the reduction of 1 full time
employee and changes made in the prior year 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, 2018, the loss from operations was $772, a decrease of $786, or 50%, compared to a loss from operations of $1,558 in the prior
year.
In
April, May, and June 2018, the Company received, from investors, advances aggregating $115 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 $40 of the advances were repaid in May 2018, along with $2 in advance
fees per the agreement. The advance fees were recorded as interest expense in the quarter ended June 30, 2018. The remaining $75
advances were converted into secured convertible notes in August 2018.
In
August 2018, the Company issued secured convertible promissory notes to investors and affiliates of the Company aggregating $341,
of which $205 was paid in cash, $75 was exchanged for the remaining advances described above and $61 was in the form of an Original
Issue Discount (“OID”) on these amounts. 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, 2019 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 2018, the Company issued unsecured convertible promissory notes to investors and affiliates of the Company
aggregating $346 in cash. The unsecured 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 debt and/or equity financing of at least $1,000 in
aggregate proceeds. The secured notes bear interest at the rate of 10% per annum, and are due December 31, 2019.
The
Company used the funds received from the above financing for working capital and general corporate purposes.
The
Company recorded $125 in debt discount amortization for the twelve months ended December 31, 2018 related to the 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:
The
Company adopted the guidance of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic
606), on January 1, 2018.
The
Company’s principal sources of revenues are from the sale of software products, SOW (engineering services), annual software
product, and software maintenance contracts. The Company also derives revenue from customers based on the numbers of signatures
produced by the Company’s signature software solutions imbedded within the customer’s product.
Revenue
from contracts with customers is recognized using the following five steps:
a)
Identify the contract(s) with a customer;
b)
Identify the performance obligations (a good or service) in the contract;
c)
Determine the transaction price; for each performance obligation within the contract
d)
Allocate the transaction price to the performance obligations in the contract; and
e)
Recognize revenue when (or as) the Company satisfies a performance obligation.
Contracts
contain performance obligation(s) for the transfer goods or services to a customer. The performance obligations are a promise
(or a group of promises) that are distinct. The transaction price is the amount of consideration a Company expects to receive
from a customer in exchange for satisfying the performance obligations specified in the contract.
Contracts
may contain one or more performance obligations (a good or service). Performance obligations are accounted for separately if they
are distinct. A good or service is distinct if the customer can benefit from the good or service either on its own or together
with other resources readily available to the customer, and the good or service is distinct in the context of the contract. Otherwise
performance obligations will be combined with other promised goods or services until the Company identifies a bundle of goods
or services that is distinct.
The
transaction price is allocated to all separate performance obligations within the contract based on their relative standalone
selling prices (“SSP”). The best evidence for SSP is the price the Company would charge for that good or service when
sold separately in similar circumstances to similar customers. If goods or services are not always sold separately, the Company
would use the best estimate of SSP in the allocation of transaction price.
The
transaction price reflects the amount of consideration to which the Company expects to be entitled in exchange for transferring
goods or services, which may include an estimate of variable consideration to the extent that it is probable of not being subject
to significant reversals in the future based on the Company’s experience with similar arrangements. The transaction price
also reflects the impact of the time value of money if there is a significant financing component present in an arrangement. The
transaction price excludes amounts collected on behalf of third parties, such as sales taxes.
Revenue
is recognized when the Company satisfies each performance obligation identified within the contract by transferring control of
the promised goods or services to the customer. Goods or services can transfer at a point in time or over time depending on the
nature of the arrangement.
Deferred
revenue represents the Company’s obligation to transfer goods or services to a customer for which the Company has received
consideration from the customer. Our payment terms do not vary by the type of products or services offered. The term between invoicing
and when payment is due is not significant. During the year ended December 31, 2018, the Company recognized $ $411 of revenue
that was included in deferred revenue at the beginning of the period.
Contract
assets exist when the Company has satisfied a performance obligation but does not have an unconditional right to consideration
(e.g., because the entity first must satisfy another performance obligation in the contract before it is entitled to invoice the
customer).
The
Company transfers all of its goods and services electronically with the associated costs recorded in cost of sales in the Company’s
Condensed Consolidated Statements of Operations.
Software.
Revenue from the sale of software products is recognized when the control is transferred. For most of the Company’s software
product sales, the control is transferred at the time the product is electronically transferred because the customer has significant
risks and rewards of ownership of the asset and the Company has a present right to payment at that time.
Statement
of Work (SOW). Revenue from SOW (engineering services) is recognized upon completion, transfer and satisfaction of the performance
obligations identified with in the contract by the customer.
Transactional
revenue. For transactional type contracts, the Company’s performance obligations are met upon transfer of the software master
to the customer. Revenue from transactional customers is recognized as the customer reports the number of units (signatures) rendered
over the specified reporting period, generally three months.
Recurring
Product revenue. The company has revenue contracts that allow the customer to utilize the Company’s signature software on
an annual basis. Maintenance and support costs are included in the annual price to the customer. The customer has the right to
renew or cancel the contract on an annual basis. Recurring revenue is recognized on a straight line basis over the contract period,
generally one year.
Maintenance
and support. Maintenance and support services are satisfied ratably over time as the customer simultaneously receives and consumes
the benefits of the services. As a result, support and maintenance revenue is recognized on a straight line basis over the period
of the contract.
Arrangements
with Multiple Performance Obligations. The Company has, from time to time, revenue arrangements that include multiple performance
obligations. The Company allocates transaction price to all separate performance obligations based on their relative standalone
selling prices (“SSP”). The Company’s best evidence for SSP is the price the Company would charge for that good
or service when the Company sells it separately in similar circumstances to similar customers. If goods or services are not always
sold separately, the Company uses the best estimate of SSP in the allocation of transaction price. The Company’s process
for determining best estimate of SSP involves management’s judgment, and considers multiple factors including, but not limited
to, major product groupings, gross margin objectives and pricing practices. Pricing practices may vary over time, depending upon
the unique facts and circumstances related to each deliverable. If the facts and circumstances underlying the factors considered
change or should future facts and circumstances lead the Company to consider additional factors, the Company’s best estimate
of SSP may also change.
Contract
costs. The incremental costs of obtaining a contract are capitalized if the costs are expected to be recovered. Costs that are
recognized as assets are amortized straight-line over the period as the related goods or services transfer to the customer. Costs
incurred to fulfill a contract are capitalized if they are not covered by other relevant guidance, relate directly to a contract,
will be used to satisfy future performance obligations, and are expected to be recovered.
There
was no adjustment to the opening balance of accumulated deficit as of January 1, 2018 from adopting Topic 606.
Significant
Judgments. The Company may exercise significant judgment when determining whether products and services are considered distinct
performance obligations that should be accounted for separately versus together.
Practical
Expedients and Exemptions. Under Topic 606, incremental costs of obtaining a contract, such as sales commissions, are capitalized
if they are expected to be recovered. Expensing these costs as they are incurred is not permitted unless they qualify for the
practical expedient. The Company elected the practical expedient to expense the costs to obtain a contract as incurred when the
expected amortization period is one year or less.
The
Company elected the practical expedient under Topic 606 to not disclose the transaction price allocated to remaining performance
obligations, since the majority of the Company’s arrangements have original expected durations of one year or less, or the
invoicing corresponds to the value of the Company’s performance completed to date.
The
Company elected the practical expedient that allows the Company to not assess a contract for a significant financing component
if the period between the customer’s payment and the transfer of the goods or services is one year or less.
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, 2018, of approximately $17,547 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, 2018 and December 31, 2017
Revenue
For
the year ended December 31, 2018, total revenue was $917, a decrease of $96, or 9%, compared to total revenue of $1,013 in
the prior year. For the year ended December 31, 2018, software product revenue was $205, a decrease of $117, or 36%, compared
to product revenue of $322 in the prior year. Maintenance revenue for the year ended December 31, 2018, was $712, an increase
of $21, or 3%, compared to maintenance revenue of $691 in the prior year. The decrease in product revenue is primarily attributable
to the Company’s efforts to restructure its operations in favor of partner-generated recurring revenue, while existing customers
continue to renew ongoing maintenance on new and previously purchased products.
Cost
of Sales
For
the year ended December 31, 2018, cost of sales was $141, an increase of $15, or 12%, compared to cost of sales of $126 in the
prior year. The increase was primarily due to an increase in direct engineering costs associated with the mix of engineering Statement
of Work (“SOW”) and software product revenue during the year ended December 31, 2018 compared to the prior year.
Operating
Expenses
Research
and Development Expenses
For
the year ended December 31, 2018, research and development expenses were $754, a decrease of $381, or 34%, compared to research
and development expenses of $1,135 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 1, the reduction
in allocated facilities expenses due to the move to smaller facilities and increased direct labor transfers to cost of sales due
to the increases in engineering SOW orders. For the year ended December 31, 2018, total research and development expenses before
IT and cost of sales allocations were $929, a decrease of $383, or 29%, compared to $1,312 of total research and development expenses
before allocations in the prior year.
Sales
and Marketing Expenses
For
the year ended December 31, 2018, sales and marketing expenses were $99, a decrease of $89, or 47%, compared to sales and marketing
expenses of $188 in the prior year. The decrease was primarily attributable to a decrease in professional services and commissions
due to a reduction in the number of consultants in connection with the Company’s efforts to restructure its operations in
favor of partner-generated recurring revenue and lower sales.
General
and Administrative Expenses
For
the year ended December 31, 2018, general and administrative expenses were $695, a decrease of $427, or 38%, from general and
administrative expenses of $1,122 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, 2018.
Other
Income (Expense), Net
Other
income (expense), net, was income of $46, a decrease of $21, or 31%, compared to income of $67 in the prior year. The decrease
is due primarily to a $35 termination settlement fee on the Company’s prior office lease.
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 $239 gain on sale of the source code and rights to one of the Company’s
older toolkit software products, net of related costs. 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. There were no similar sales for the year ended December 31, 2018.
Interest
Expense
For
the year ended December 31, 2018, related party interest expense was $34, an increase of $8, or 31%, compared to related party
interest expense of $26 in the prior year. For the year ended December 31, 2018, other interest expense was $140, an increase
of $54, or 63%, compared to other interest expense of $86 in the prior year. The increase in interest expense is primarily due
to the increase in the amount of borrowings compared to the prior year.
For
the year ended December 31, 2018, the Company recorded $125 in debt discount amortization associated with its short-term borrowings,
$35 of which is attributable to related parties and $90 of which is attributable to other investors, compared to $97 in the prior
year, $27 of which is attributable to related parties and $70 of which is attributable to other investors. The increase in debt
discount amortization was primarily due to the increase in notes payable compared to the prior year.
Liquidity
and Capital Resources
Cash
and cash equivalents totaled $335 at December 31, 2018, compared to $285 at December 31, 2017.
The
cash used in operations was primarily attributable to the net loss of $1,027. This amount was partially offset by non-cash depreciation
and amortization charges of $4, amortization of debt discount of $125 and stock-based employee compensation of $225.
There
were no cash out flows for the acquisition of property and equipment for the year ended December 31, 2018.
Proceeds
from financing activities for the year ended December 31, 2018 were $626 from the issuance of $115 in short-term advances and
$551 in additional short-term debt. The proceeds were offset by the repayment of $40 of the advances.
Accounts
receivable were $84 at December 31, 2018, an increase of $39, or 87%, compared to accounts receivable of $45 at December 31, 2017.
Accounts receivable at December 31, 2018 and 2017, are net of $1 and $1 in allowances provided for potentially uncollectible accounts,
respectively. The increase is primarily attributable to orders billed late in the fourth quarter ended December 31, 2018.
Prepaid
expenses and other current assets were $46 at December 31, 2018, an increase of $18, or 64%, compared to prepaid expenses and
other current assets of $28 at December 31, 2017. The increase is primarily due to prepaid engineering expense compared to the
prior year.
Short-term
debt was $2,210 net of $39 in discounts at December 31, 2018. The Company issued new debt in the amount of $626, net of repayments,
during the twelve months ended December 31, 2018.
Accounts
payable were $1,280 at December 31, 2018, a decrease of $9, or 1%, compared to $1,289 at December 31, 2017. The decrease is due
to cost cutting efforts by the Company during the current period.
Accrued
compensation was $81 at December 31. 2018, a decrease of $120 or 60%, compared to $201 at December 31, 2017. The decrease was
due primarily to the reclassification of $46 of current deferred salaries to long term and the payout of accrued vacation resulting
from the termination of two employees.
Other accrued liabilities including the long term portion were $1,189 at December
31, 2018, compared to $747 at December 31, 2017, an increase of $442, or 59%. 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 $302 at December 31, 2018, a decrease of $183, or 38%, compared to deferred revenue
of $485 at December 31, 2017. 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
April, May, and June 2018, the Company received, from investors, advances aggregating $115 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 $40 of the advances were repaid in May 2018, along with $2 in advance
fees per the agreement. The advance fees were recorded as interest expense in the quarter ended June 30, 2018. The remaining $75
advances were converted into secured convertible notes in August 2018.
Notes
payable
:
In
August 2018, the Company issued secured convertible promissory notes to investors and affiliates of the Company aggregating $341,
of which $205 was paid in cash, $75 was exchanged for the remaining advances described above and $61 was in the form of an OID
on these amounts. 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, 2019 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 2018, the Company issued short-term unsecured convertible promissory notes to investors and affiliates of the Company
aggregating $346 in cash. The short-term 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 debt and or equity financing of at least $1,000
in aggregate proceeds. The notes bear interest at the rate of 10% per annum and are due December 31, 2019.
The
Company used the funds received from the above financings for working capital and general corporate purposes.
During
the twelve months ended December 31, 2018, the Company accrued $174 of interest expense, $146 associated with the notes, of which
$34 was to related parties and $112 was to other investors.
The
Company recorded $125 in debt discount amortization for the twelve months ended December 31, 2018 related to the above debt financings,
$35 was to related parties and $90 was to other investors.
Contractual
Obligations
The
Company had no material commitments as of December 31, 2018.
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, 2018 and 2017, and for each of the years
in the two-year period ended December 31, 2018, 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, 2018, 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:
|
●
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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
|
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●
|
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, 2018 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
|
|
78
|
|
|
Co-Chairman and Chief Executive Officer
|
Michael Engmann
|
|
70
|
|
|
Co-Chairman and Chief Operating Officer
|
Andrea Goren
|
|
51
|
|
|
Director and Chief Financial Officer
|
Francis J. Elenio
|
|
52
|
|
|
Director
|
Stanley Gilbert
|
|
79
|
|
|
Director
|
Jeffrey Holtmeier
|
|
60
|
|
|
Director
|
David E. Welch
|
|
71
|
|
|
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. Mr. Sassower also served as Chairman of the Board of The Fairchild Corporation (NYSE: FA), a motorcycle accessories
and aerospace parts and services company. 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, 2018: Messrs. Elenio, Engmann, Gilbert, Goren, Holtmeier, Sassower and Welch’s Form 4 dated August
9, 2018.
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,
|
|
2018
|
|
|
|
─
|
(1)
|
|
|
─
|
|
|
|
─
|
|
|
$
|
82,382
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
$
|
82,382
|
|
Co-Chairman
and CEO
|
|
2017
|
|
|
|
─
|
(1)
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Engmann,
|
|
2018
|
|
|
|
─
|
(2)
|
|
|
─
|
|
|
|
─
|
|
|
$
|
74,754
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
$
|
74,754
|
|
President
and COO
|
|
2017
|
|
|
|
─
|
(2)
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrea
Goren,
|
|
2018
|
|
|
|
─
|
(3)
|
|
|
─
|
|
|
|
─
|
|
|
$
|
96,113
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
$
|
96,113
|
|
CFO
|
|
2017
|
|
|
|
─
|
(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.
Engmanert 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 $7,500 (“SGP Fee”) per month. In addition, SGP is eligible for, but not entitled to
receive, an annual cash performance fee of up to thirty-five percent (35%) of the SGP Fee during a given year or prorated portion
thereof. Such performance fee, if any, would be awarded based upon the sole discretion of the Company’s Board of Directors.
No performance fee was paid to SGP in 2018. Under the SGP Agreement, SGP furnishes, at its own expense, all materials and equipment
necessary to carry out the terms of the SGP Agreement. The Company has agreed to pay SGP for reasonable and documented out of pocket
expenses incurred for services rendered by SGP during the term of the SGP Agreement, as long as SGP obtains written approval of
the Company prior to incurring any significant expense.
Outstanding
Equity Awards at December 31, 2018
The following table summarizes the outstanding equity award
holdings held by our named executive officers. The amounts are not stated in thousands.
Name
and Principal Position
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
|
Option
Exercise
Price ($)
|
|
|
Option
Expiration
Date
|
Philip S. Sassower,
Co-Chairman and CEO
|
|
|
8,996
|
|
|
|
99,004
|
|
|
$
|
0.78
|
|
|
8/9/2025
|
Michael Engmann,
President and COO
|
|
|
8,163
|
|
|
|
89,837
|
|
|
$
|
0.78
|
|
|
8/9/2025
|
Andrea Goren,
Chief Financial Officer
|
|
|
10,496
|
|
|
|
115,504
|
|
|
$
|
0.78
|
|
|
8/9/2025
|
|
1.
|
Mr.
Sassower’s 108,000 options were issued on August 9, 2018, have a seven year life
and vest quarterly over three years.
|
|
2.
|
Mr.
Engmann’s 98,000 options were issued on August 9, 2018, have a seven year life
and vest quarterly over three years.
|
|
3.
|
Mr.
Goren’s 126,000 options were issued on August 9, 2018, have a seven year life and
vest quarterly over three years
|
Option
Exercises and Stock Vested
There were no stock
options exercised during the twelve months ended December 31, 2018 and 2017.
Director
Compensation
The following table
provides information regarding the compensation of the Company’s non-employee directors for the year ended December 31,
2018:
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
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
7,018
|
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
7,018
|
|
Stanley
Gilbert
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
7,628
|
|
|
$
|
─
|
|
|
$
|
|
|
|
$
|
─
|
|
|
$
|
7,628
|
|
Jeffrey
Holtmeier
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
7,628
|
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
7,628
|
|
David
Welch
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
8,226
|
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
8,226
|
|
Item
12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table
sets forth information as of March 20, 2019, 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., 2033 Gateway Place, Suite 659, 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)
|
|
|
2,102,159
|
|
|
|
31.0
|
%
|
Andrea Goren (3)
|
|
|
2,156,407
|
|
|
|
31.7
|
%
|
Stanley Gilbert (4)
|
|
|
135,566
|
|
|
|
2.3
|
%
|
Jeffrey Holtmeier (5)
|
|
|
17,367
|
|
|
|
*
|
|
David E. Welch (6)
|
|
|
13,917
|
|
|
|
*
|
|
Michael W. Engmann (7)
|
|
|
1,056,129
|
|
|
|
16.8
|
%
|
Francis Elenio (8)
|
|
|
13,104
|
|
|
|
*
|
|
All directors and executive officers as a group (8 persons) (9)
|
|
|
3,459,729
|
|
|
|
46.69
|
%
|
5% Shareholders
|
|
|
|
|
|
|
|
|
Phoenix Venture Fund LLC (10)
|
|
|
1,334,920
|
|
|
|
22.1
|
%
|
|
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, 2019. Shares issuable pursuant to the exercise of stock
options and warrants exercisable within 60 days of March 20, 2019 or securities convertible into Common Stock within 60 days of
March 20, 2019 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) 1,089,432 shares of Common Stock, (b) 27,032 shares of Common Stock issuable upon
the exercise of options exercisable within 60 days of March 20, 2019, and (c) 985,695
shares of Common Stock issuable upon the exercise of warrants exercisable within 60 days
of March 20, 2019 (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
|
|
3.
|
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
|
|
|
40,207
|
|
|
|
─
|
|
|
|
2,234
|
|
|
|
1,046,991
|
|
|
|
1,089,432
|
|
Stock Options
|
|
|
27,032
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
27,032
|
|
Warrants
|
|
|
─
|
|
|
|
985,695
|
|
|
|
─
|
|
|
|
─
|
|
|
|
985,695
|
|
Total
|
|
|
67,239
|
|
|
|
985,695
|
|
|
|
2,234
|
|
|
|
1,046,991
|
|
|
|
2,102,159
|
|
|
4.
|
Represents
(a) 1,117,227 shares of Common Stock, (b) 31,537 shares of Common Stock issuable upon
the exercise of options exercisable within 60 days of March 20, 2019, and (b) 1,007,643
shares of Common Stock issuable upon the exercise of warrants exercisable within 60 days
of March 20, 2019 (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 Ventures LLC
|
|
|
SG
Phoenix LLC
|
|
|
Phoenix
Venture Fund
|
|
|
Total
|
|
Common shares
|
|
|
38,177
|
|
|
|
29,825
|
|
|
|
─
|
|
|
|
2,234
|
|
|
|
1,046,991
|
|
|
|
1,117,227
|
|
Stock Options
|
|
|
31,537
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
31,537
|
|
Warrants
|
|
|
─
|
|
|
|
21,948
|
|
|
|
985,695
|
|
|
|
─
|
|
|
|
─
|
|
|
|
1,007,643
|
|
Total
|
|
|
69,714
|
|
|
|
51,773
|
|
|
|
985,695
|
|
|
|
2,234
|
|
|
|
1,046,991
|
|
|
|
2,156,407
|
|
|
5.
|
Represents
(a) 114,169 shares of Common Stock, (b) 13,705 shares of Common Stock issuable upon the
exercise of options exercisable within 60 days of March 20, 2019, and (c) 7,692 shares
of Common Stock issuable upon the exercise of warrants, exercisable within 60 days of
March 20, 2019 (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
|
|
|
13,705
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
13,705
|
|
Warrants
|
|
|
7,692
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
7,692
|
|
Total
|
|
|
132,399
|
|
|
|
23
|
|
|
|
1,426
|
|
|
|
1,718
|
|
|
|
135,566
|
|
|
6.
|
Represents
(a) 3,662 shares of Common Stock and (b) 13,705 shares of Common Stock issuable upon
the exercise of options exercisable within 60 days of March 20, 2019. 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.
|
|
7.
|
Represents
13,917 shares of Common Stock issuable upon the exercise of options exercisable within
60 days of March 20, 2019.
|
|
8.
|
Represents
(a) 535,659 shares of Common Stock beneficially owned by Mr. Engmann, (b) 24,529 shares
of Common Stock issuable upon the exercise of options exercisable within 60 days of March
20, 2019 and (c) an aggregate of 495,941 shares of Common Stock issuable upon exercise
of warrants exercisable within 60 days of March 20, 2019 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
|
|
Stock Options
|
|
|
24,529
|
|
|
|
─
|
|
|
|
─
|
|
|
|
24,529
|
|
Warrants
|
|
|
477,480
|
|
|
|
18,461
|
|
|
|
─
|
|
|
|
495,941
|
|
Total
|
|
|
932,758
|
|
|
|
122,376
|
|
|
|
995
|
|
|
|
1,056,129
|
|
|
9.
|
Represents
13,104 shares of Common Stock issuable upon the exercise of options exercisable within
60 days of March 20, 2019.
|
|
10.
|
Includes
(a) 1,810,924 shares of Common Stock beneficially owned, (b) 137,529 shares of Common
Stock issuable upon the exercise of options exercisable within 60 days of March 20, 2019
and (c) an aggregate of 1,511,276 shares of Common Stock issuable upon exercise of warrants
exercisable within 60 days of March 20, 2019. The aforementioned includes 1,049,225 shares
of Common Stock and 985,695 shares of Common Stock issuable upon exercise of warrants
exercisable within 60 days of March 20, 2019 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.
|
|
11.
|
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
|
|
|
SG
Phoenix LLC
|
|
|
Total
|
|
Common shares
|
|
|
1,046,991
|
|
|
|
─
|
|
|
|
2,234
|
|
|
|
1,049,225
|
|
Warrants
|
|
|
─
|
|
|
|
285,695
|
|
|
|
700,000
|
|
|
|
985,695
|
|
Total
|
|
|
1,046,991
|
|
|
|
285,695
|
|
|
|
702,234
|
|
|
|
2,034,920
|
|
Equity
Compensation Plan Information
The
following table provides information as of December 31, 2018, 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 (1)
|
|
|
1,037
|
|
|
$
|
1.65
|
|
|
|
213
|
|
|
(1)
|
There are 500 shares held in the 2011 Stock Compensation
Plan not approved by the Security holders
|
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 22.1% of the Common Stock of the Company when calculated in accordance with Rule 13d-3.
The
table below reflects the August 1, 2018 and December 27, 2018 related party transactions in which the Company issued $36 and $196,
respectively, in convertible secured and unsecured promissory notes to affiliates for cash. The August and December 2018 notes
are mandatorily convertible into Common Stock at conversion rates of $0.50 and $0.50 per share, respectively, 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
and unsecured convertible promissory notes bear interest at the rate of 10% per annum. The notes are due December 31, 2019. 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 8/1/2018
|
|
|
Unsecured
Note 12/27/2018
|
|
Andax LLC
|
|
$
|
12
|
|
|
$
|
─
|
|
Stanley L. Gilbert
|
|
|
24
|
|
|
|
196
|
|
Total
|
|
$
|
36
|
|
|
$
|
196
|
|
The
table below reflects the August 8, 2018 stock option grants to the named affiliates of the Company. The options have a seven year
life and vest quarterly over three years.
Name
|
|
Number
of Options
|
|
|
Exercise
Price
|
|
Francis J. Elenio
|
|
|
9
|
|
|
$
|
0.78
|
|
Michael W. Engmann
|
|
|
98
|
|
|
$
|
0.78
|
|
Stanley Gilbert
|
|
|
10
|
|
|
$
|
0.78
|
|
Andrea Goren
|
|
|
126
|
|
|
$
|
0.78
|
|
Jeffrey Holtmeier
|
|
|
10
|
|
|
$
|
0.78
|
|
Philip Sassower
|
|
|
108
|
|
|
$
|
0.78
|
|
David E. Welch
|
|
|
11
|
|
|
$
|
0.78
|
|
Debt
discount amortization associated with the Company’s indebtedness for the years ended December 31, 2018 and 2017, was $125
and $97, respectively, of which $35 and $27, respectively, was related party expense.
Interest
expense associated with the Company’s indebtedness for the years ended December 31, 2018 and 2017, was $174 and $112, respectively,
of which $34 and $26, 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 2018 and 2017, the fees
for audit and other services performed by Armanino LLP for the Company were as follows:
Nature of Service
|
|
Armanino
|
|
|
|
2018
|
|
|
2017
|
|
Audit Fees
|
|
$
|
52,536.56
|
|
|
|
51
|
%
|
|
$
|
42,222.50
|
|
|
|
50
|
%
|
Audit-Related Fees
|
|
|
27,000.00
|
|
|
|
26
|
%
|
|
|
30,603.75
|
|
|
|
37
|
%
|
Tax Fees
|
|
|
18,299.69
|
|
|
|
18
|
%
|
|
|
6,837.50
|
|
|
|
8
|
%
|
All Other Fees
|
|
|
5,208.41
|
|
|
|
5
|
%
|
|
|
4,190.18
|
|
|
|
5
|
%
|
Total
|
|
$
|
103,044.66
|
|
|
|
100
|
%
|
|
$
|
83,853.93
|
|
|
|
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:
|
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.
The
exhibits required by Item 601 of Regulation S-K are listed in paragraph (b) below.
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.
|
Exhibit
Number
|
|
Document
|
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.
|
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.
|
Exhibit
Number
|
|
Document
|
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.
|
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.
|
Exhibit
Number
|
|
Document
|
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.
|
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.
|
Exhibit
Number
|
|
Document
|
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.
|
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 20, 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 20, 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, 2008.
|
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.
|
10.46
|
|
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.
|
Exhibit
Number
|
|
Document
|
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.
|
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.
|
Exhibit
Number
|
|
Document
|
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.
|
*21.1
|
|
Schedule of Subsidiaries.
|
*23.2
|
|
Consent of Armanino LLP, Independent Registered Public Accounting Firm.
|
*31.1
|
|
Certification of Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
*31.2
|
|
Certificate of Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
*32.1
|
|
Certification of Chief Executive Officer pursuant to 18 USC Section 1750, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
*32.2
|
|
Certification of Chief Financial Officer pursuant to 18 USC Section 1750, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
101.INS
|
|
XBRL Instance Document
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
†
|
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
|
|
|
(Princial
Financial Officer and Officer Duly Authorized to Sign on Behalf of the Registrant)
|
|
|
|
|
|
Date: April 1, 2019
|
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 1, 2019.
Date
|
|
Signature
|
|
Title
|
|
|
|
|
|
April 1, 2019
|
|
/s/ Philip S. Sassower
|
|
Co-Chairman and Chief Executive Officer
|
|
|
Philip S. Sassower
|
|
(Principal Executive Officer)
|
|
|
|
|
|
April 1, 2019
|
|
/s/ Michael Engmann
|
|
Co-Chairman and Chief Operating Officer
|
|
|
Michael Engmann
|
|
|
|
|
|
|
|
April 1, 2019
|
|
/s/ Andrea Goren
|
|
Director, Chief Financial Officer
|
|
|
Andrea Goren
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
April 1, 2019
|
|
/s/ Francis J. Elenio
|
|
Director
|
|
|
Francis J. Elenio
|
|
|
|
|
|
|
|
April 1, 2019
|
|
/s/ Stanly Gilbert
|
|
Director
|
|
|
Stanley Gilbert
|
|
|
|
|
|
|
|
April 1, 2019
|
|
/s/ Jeffrey Holtmeier
|
|
Director
|
|
|
Jeffrey Holtmeier
|
|
|
|
|
|
|
|
April 1, 2019
|
|
/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, 2018 and 2017,
and the related consolidated statements of operations, comprehensive loss, changes in stockholders’ deficit, and cash flows
for each of the two years in the period ended December 31, 2018, 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, 2018 and 2017, and the consolidated results of its operations and its cash
flows for each of the two years in the period ended December 31, 2018, 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
1, 2019
iSign
Solutions Inc.
Consolidated
Balance Sheets
(In
thousands, except par value amounts)
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Assets
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
335
|
|
|
$
|
285
|
|
Accounts receivable, net of allowance of $1 and $1 at December 31, 2018 and 2017,
respectively
|
|
|
84
|
|
|
|
45
|
|
Prepaid expenses and other current assets
|
|
|
46
|
|
|
|
28
|
|
Total current assets
|
|
|
465
|
|
|
|
358
|
|
Property and equipment, net
|
|
|
2
|
|
|
|
13
|
|
Other assets
|
|
|
5
|
|
|
|
17
|
|
Total assets
|
|
$
|
472
|
|
|
$
|
388
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Deficit
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
1,280
|
|
|
|
1,289
|
|
Short–term debt, net
|
|
|
2,210
|
|
|
|
1,458
|
|
Accrued compensation
|
|
|
81
|
|
|
|
201
|
|
Other accrued liabilities
|
|
|
524
|
|
|
|
740
|
|
Deferred revenue
|
|
|
281
|
|
|
|
310
|
|
Short-term capital lease
|
|
|
─
|
|
|
|
4
|
|
Total current liabilities
|
|
|
4,376
|
|
|
|
4,002
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue long-term
|
|
|
36
|
|
|
|
175
|
|
Long–term capital lease
|
|
|
─
|
|
|
|
6
|
|
Other long-term liabilities
|
|
|
665
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,077
|
|
|
|
4,190
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ 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, 2018 and 2017, respectively
|
|
|
58
|
|
|
|
58
|
|
Treasury shares, 5 at December 31, 2018 and December 31, 2017, respectively
|
|
|
(325
|
)
|
|
|
(325
|
)
|
Additional paid-in-capital
|
|
|
129,251
|
|
|
|
129,027
|
|
Accumulated deficit
|
|
|
(133,589
|
)
|
|
|
(132,562
|
)
|
Accumulated other comprehensive loss
|
|
|
─
|
|
|
|
─
|
|
Total stockholders’ deficit
|
|
|
(4,605
|
)
|
|
|
(3,802
|
)
|
Total liabilities and stockholders’ deficit
|
|
$
|
472
|
|
|
$
|
388
|
|
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,
|
|
|
|
2018
|
|
|
2017
|
|
Revenue:
|
|
|
|
|
|
|
Product
|
|
$
|
205
|
|
|
$
|
322
|
|
Maintenance
|
|
|
712
|
|
|
|
691
|
|
|
|
|
917
|
|
|
|
1,013
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
Product
|
|
|
37
|
|
|
|
13
|
|
Maintenance
|
|
|
104
|
|
|
|
113
|
|
Research and development
|
|
|
754
|
|
|
|
1,135
|
|
Sales and marketing
|
|
|
99
|
|
|
|
188
|
|
General and administrative
|
|
|
695
|
|
|
|
1,122
|
|
|
|
|
1,689
|
|
|
|
2,571
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(757
|
)
|
|
|
(1,558
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
46
|
|
|
|
67
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(34
|
)
|
|
|
(26
|
)
|
Other
|
|
|
(140
|
)
|
|
|
(86
|
)
|
Amortization of debt discount:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(35
|
)
|
|
|
(27
|
)
|
Other
|
|
|
(90
|
)
|
|
|
(70
|
)
|
Gain on sale of intangible assets
|
|
|
─
|
|
|
|
303
|
|
Write-off of interest in Chinese joint venture
|
|
|
─
|
|
|
|
(550
|
)
|
Loss before income tax
|
|
|
(1,025
|
)
|
|
|
(1,947
|
)
|
Income tax expense
|
|
|
(2
|
)
|
|
|
─
|
|
Net loss
|
|
$
|
(1,027
|
)
|
|
$
|
(1,947
|
)
|
Basic and diluted loss per common share
|
|
$
|
(0.18
|
)
|
|
$
|
(0.34
|
)
|
Weighted average common shares outstanding, basic and diluted
|
|
|
5,760
|
|
|
|
5,760
|
|
See
accompanying notes to these Consolidated Financial Statements
iSign
Solutions Inc.
Consolidated
Statements of Comprehensive Loss
(In
thousands)
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net loss:
|
|
$
|
(1,027
|
)
|
|
$
|
(1,947
|
)
|
Other comprehensive income, net of tax
|
|
|
─
|
|
|
|
─
|
|
Foreign currency translation adjustment, net
|
|
|
─
|
|
|
|
─
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$
|
(1,027
|
)
|
|
$
|
(1,947
|
)
|
See
accompanying notes to these Consolidated Financial Statements
iSign Solutions Inc.
Consolidated Statement of Changes in
Deficit
(In thousands)
|
|
Common
|
|
|
Common
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Non-
|
|
|
Accumulated
Other
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Treasury
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Controlling
|
|
|
Comprehensive
|
|
|
Deficit
|
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Interest
|
|
|
Income
(Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
Stock-based
employee compensation
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
224
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
224
|
|
Net
loss
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
(1,027
|
)
|
|
|
─
|
|
|
|
─
|
|
|
|
(1,027
|
)
|
Balance
as of December 31, 2018
|
|
|
5,760
|
|
|
$
|
58
|
|
|
$
|
(325
|
)
|
|
$
|
129,251
|
|
|
$
|
(133,589
|
)
|
|
$
|
─
|
|
|
$
|
─
|
|
|
$
|
(4,605
|
)
|
See
accompanying notes to these Consantatements
iSign
Solutions Inc.
Consolidated
Statements of Cash Flows
(In
thousands)
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,027
|
)
|
|
$
|
(1,947
|
)
|
Adjustments to reconcile net loss
to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
4
|
|
|
|
277
|
|
Amortization
of debt discount
|
|
|
125
|
|
|
|
97
|
|
Stock-based employee
compensation
|
|
|
225
|
|
|
|
143
|
|
Loss on disposal
of fixed assets
|
|
|
7
|
|
|
|
─
|
|
Write off of
deposit on cancelled lease
|
|
|
12
|
|
|
|
─
|
|
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
|
|
|
(39
|
)
|
|
|
92
|
|
Prepaid expenses
and other current assets
|
|
|
(18
|
)
|
|
|
28
|
|
Accounts payable
|
|
|
(9
|
)
|
|
|
(79
|
)
|
Accrued compensation
|
|
|
(120
|
)
|
|
|
(56
|
)
|
Other accrued
liabilities
|
|
|
432
|
|
|
|
227
|
|
Deferred
revenue
|
|
|
(168
|
)
|
|
|
(88
|
)
|
Net cash used
in operating activities
|
|
|
(576
|
)
|
|
|
(1,059
|
)
|
|
|
|
|
|
|
|
|
|
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
|
|
|
115
|
|
|
|
120
|
|
Proceeds from
issuance of short-term debt
|
|
|
551
|
|
|
|
─
|
|
Proceeds from
issuance of long-term debt
|
|
|
─
|
|
|
|
655
|
|
Payment
of advances on accounts receivable
|
|
|
(40
|
)
|
|
|
(120
|
)
|
Net cash provided
by financing activities
|
|
|
626
|
|
|
|
655
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents
|
|
|
50
|
|
|
|
(104
|
)
|
Cash and cash
equivalents at beginning of period
|
|
|
285
|
|
|
|
389
|
|
Cash and cash equivalents
at end of period
|
|
$
|
335
|
|
|
$
|
285
|
|
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,
|
|
|
|
2018
|
|
|
2017
|
|
Supplementary disclosure of cash flow information
|
|
|
|
|
|
|
Interest paid
|
|
$
|
2
|
|
|
$
|
9
|
|
Income taxes paid
|
|
$
|
2
|
|
|
$
|
─
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing and investing transactions
|
|
|
|
|
|
|
|
|
Exchange of accounts receivable advances into secured promissory notes
|
|
$
|
75
|
|
|
$
|
─
|
|
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
|
|
Original issue discount on secured convertible promissory notes
|
|
$
|
61
|
|
|
$
|
─
|
|
See
accompanying notes to these Consolidated Financial Statements
|
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, 2018, the Company’s
accumulated deficit was $133,589. The Company has primarily met its working capital needs through the sale of debt and equity
securities. As of December 31, 2018, the Company’s cash balance was $335. 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. All amounts shown in the accompanying consolidated financial statements are in thousands of dollars
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, 2018 and December
31, 2017, 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, 2018 and December 31, 2017, 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).
|
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:
|
|
2018
|
|
|
2017
|
|
Cash in bank
|
|
$
|
335
|
|
|
$
|
285
|
|
Cash and cash equivalents
|
|
$
|
335
|
|
|
$
|
285
|
|
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 of 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.
|
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 $4 and $8 for the years ended December 31, 2018 and 2017, 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 for the year ended December 31,
2017. The intangible assets were 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, 2018 and 2017, 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
from Contracts with Customers:
The
Company adopted the guidance of Accounting Standards Update No 2014-09, Revenue from Contracts with Customers (Topic 606), on January
1, 2018.
The
Company’s principal sources of revenues are from the sale of software products, SOW (engineering services), annual software
product, and software maintenance contracts. The Company also derives revenue from customers based on the numbers of signatures
produced by the Company’s signature software solutions imbedded within the customer’s product.
Revenue
from contracts with customers is recognized using the following five steps:
a)
Identify the contract(s) with a customer;
b)
Identify the performance obligations (a good or service) in the contract;
c)
Determine the transaction price; for each performance obligation within the contract
d)
Allocate the transaction price to the performance obligations in the contract; and
e)
Recognize revenue when (or as) the Company satisfies a performance obligation.
Contracts
contain performance obligation(s) for the transfer goods or services to a customer. The performance obligations are a promise
(or a group of promises) that are distinct. The transaction price is the amount of consideration a Company expects to receive
from a customer in exchange for satisfying the performance obligations specified in the contract.
|
1.
|
Nature
of Business, Basis of Presentation and Summary of Significant Accounting Policies (continued):
|
Contracts
may contain one or more performance obligations (a good or service). Performance obligations are accounted for separately if they
are distinct. A good or service is distinct if the customer can benefit from the good or service either on its own or together
with other resources readily available to the customer, and the good or service is distinct in the context of the contract. Otherwise
performance obligations will be combined with other promised goods or services until the Company identifies a bundle of goods
or services that is distinct.
The
transaction price is allocated to all separate performance obligations within the contract based on their relative standalone
selling prices (“SSP”). The best evidence for SSP is the price the Company would charge for that good or service when
sold separately in similar circumstances to similar customers. If goods or services are not always sold separately, the Company
would use the best estimate of SSP in the allocation of transaction price.
The
transaction price reflects the amount of consideration to which the Company expects to be entitled in exchange for transferring
goods or services, which may include an estimate of variable consideration to the extent that it is probable of not being subject
to significant reversals in the future based on the Company’s experience with similar arrangements. The transaction price
also reflects the impact of the time value of money if there is a significant financing component present in an arrangement. The
transaction price excludes amounts collected on behalf of third parties, such as sales taxes.
Revenue
is recognized when the Company satisfies each performance obligation identified within the contract by transferring control of
the promised goods or services to the customer. Goods or services can transfer at a point in time or over time depending on the
nature of the arrangement.
Deferred
revenue represents the Company’s obligation to transfer goods or services to a customer for which the Company has received
consideration from the customer. Our payment terms do not vary by the type of products or services offered. The term between invoicing
and when payment is due is not significant. During the year ended December 31, 2018, the Company recognized $411 of revenue that
was included in deferred revenue at the beginning of the period.
Contract
assets exist when the Company has satisfied a performance obligation but does not have an unconditional right to consideration
(e.g., because the entity first must satisfy another performance obligation in the contract before it is entitled to invoice the
customer).
The
Company transfers all of its goods and services electronically with the associated costs recorded in cost of sales in the Company’s
Condensed Consolidated Statements of Operations.
Software.
Revenue from the sale of software products is recognized when the control is transferred. For most of the Company’s software
product sales, the control is transferred at the time the product is electronically transferred because the customer has significant
risks and rewards of ownership of the asset and the Company has a present right to payment at that time.
Statement
of Work (SOW). Revenue from SOW (engineering services) is recognized upon completion, transfer and satisfaction of the performance
obligations identified with in the contract by the customer.
Transactional
revenue. For transactional type contracts, the Company’s performance obligations are met upon transfer of the software master
to the customer. Revenue from transactional customers is recognized as the customer reports the number of units (signatures) rendered
over the specified reporting period, generally three months.
Recurring
Product revenue. The company has revenue contracts that allow the customer to utilize the Company’s signature software on
an annual basis. Maintenance and support costs are included in the annual price to the customer. The customer has the right to
renew or cancel the contract on an annual basis. Recurring revenue is recognized on a straight line basis over the contract period,
generally one year.
|
1.
|
Nature
of Business, Basis of Presentation and Summary of Significant Accounting Policies (continued):
|
Maintenance
and support. Maintenance and support services are satisfied ratably over time as the customer simultaneously receives and
consumes the benefits of the services. As a result, support and maintenance revenue is recognized on a straight line basis
over the period of the contract.
Arrangements
with Multiple Performance Obligations. The Company has, from time to time, revenue arrangements that include multiple performance
obligations. The Company allocates transaction price to all separate performance obligations based on their relative standalone
selling prices (“SSP”). The Company’s best evidence for SSP is the price the Company would charge for that good
or service when the Company sells it separately in similar circumstances to similar customers. If goods or services are not always
sold separately, the Company uses the best estimate of SSP in the allocation of transaction price. The Company’s process
for determining best estimate of SSP involves management’s judgment, and considers multiple factors including, but not limited
to, major product groupings, gross margin objectives and pricing practices. Pricing practices may vary over time, depending upon
the unique facts and circumstances related to each deliverable. If the facts and circumstances underlying the factors considered
change or should future facts and circumstances lead the Company to consider additional factors, the Company’s best estimate
of SSP may also change.
Contract
costs. The incremental costs of obtaining a contract are capitalized if the costs are expected to be recovered. Costs that are
recognized as assets are amortized straight-line over the period as the related goods or services transfer to the customer. Costs
incurred to fulfill a contract are capitalized if they are not covered by other relevant guidance, relate directly to a contract,
will be used to satisfy future performance obligations, and are expected to be recovered.
Significant
Judgments. The Company may exercise significant judgment when determining whether products and services are considered distinct
performance obligations that should be accounted for separately versus together.
Practical
Expedients and Exemptions. Under Topic 606, incremental costs of obtaining a contract, such as sales commissions, are capitalized
if they are expected to be recovered. Expensing these costs as they are incurred is not permitted unless they qualify for the
practical expedient. The Company elected the practical expedient to expense the costs to obtain a contract as incurred when the
expected amortization period is one year or less.
The
Company elected the practical expedient under Topic 606 to not disclose the transaction price allocated to remaining performance
obligations, since the majority of the Company’s arrangements have original expected durations of one year or less, or the
invoicing corresponds to the value of the Company’s performance completed to date.
The
Company elected the practical expedient that allows the Company to not assess a contract for a significant financing component
if the period between the customer’s payment and the transfer of the goods or services is one year or less.
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. There
were no advertising expenses for the years ended December 31, 2018 and 2017, respectively.
|
1.
|
Nature
of Business, Basis of Presentation and Summary of Significant Accounting Policies (continued):
|
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,
2018
|
|
|
December 31,
2017
|
|
Common Stock subject to outstanding options
|
|
|
1,037
|
|
|
|
736
|
|
Common Stock subject to outstanding warrants
|
|
|
1,828
|
|
|
|
1,878
|
|
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 2018 and 2017 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.
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 2009, and state tax examinations for years before 2008. 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 2018.
The
Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax
expense.
|
1.
|
Nature
of Business, Basis of Presentation and Summary of Significant Accounting Policies (continued):
|
Recently
issued accounting pronouncements:
Accounting
Standards Update (“ASU”) No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220), Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in ASU 2018-02 allow a reclassification from
accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act
(See Footnote 9). Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and
will improve the usefulness of information reported to financial statement users. The Financial Accounting Standards Board decided
that the amendments in this Update should be effective for all entities for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2018. Due to the Company’s net operating losses, implementation of ASU 2018-2 would
not be expected to have a material impact on the Company’s financial position, results of operations and cash flows.
Accounting Standards Update
No. 2018-05, Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. ASU 2018-05
covers income tax accounting implications of the Tax Cuts and Jobs Act, for instance, ASU 2018-05 introduces changes that impact
U.S. corporate tax rates, business-related exclusions, and deductions and credits. The Act will also have international tax consequences
for many companies that operate internationally. The Financial Accounting Standards Board decided that the amendments in this Update
should be effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after March 13,
2018. The Company is currently evaluating the impact of ASU 2018-05 on the Company’s financial position, results of operations
and cash flows.
Other
Accounting Standards Updates issued in 2018 are not applicable to the Company, therefore implementation would not be expected
to have a material impact on the Company’s financial position, results of operations and cash flows.
The
following table summarizes accounts receivable and revenue concentrations:
|
|
Accounts Receivable
As of December 31,
|
|
|
Total Revenue for the year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Customer #1
|
|
|
─
|
|
|
|
─
|
|
|
|
10
|
%
|
|
|
13
|
%
|
Customer #2
|
|
|
48
|
%
|
|
|
─
|
|
|
|
24
|
%
|
|
|
14
|
%
|
Customer #3
|
|
|
─
|
|
|
|
─
|
|
|
|
24
|
%
|
|
|
30
|
%
|
Customer #4
|
|
|
24
|
%
|
|
|
44
|
%
|
|
|
23
|
%
|
|
|
─
|
|
Customer #5
|
|
|
26
|
%
|
|
|
54
|
%
|
|
|
─
|
|
|
|
─
|
|
Total concentration
|
|
|
98
|
%
|
|
|
98
|
%
|
|
|
57
|
%
|
|
|
57
|
%
|
The
following table summarizes sales concentrations:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Sales within the United States
|
|
|
90
|
%
|
|
|
88
|
%
|
Sales outside of the United States
|
|
|
10
|
%
|
|
|
12
|
%
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
3.
|
Property
and equipment:
|
Property
and equipment, net at December 31, consists of the following:
|
|
2018
|
|
|
2017
|
|
Machinery and equipment
|
|
$
|
|
|
|
$
|
59
|
|
Office furniture and fixtures
|
|
|
15
|
|
|
|
25
|
|
Leasehold improvements
|
|
|
─
|
|
|
|
─
|
|
Purchased software
|
|
|
─
|
|
|
|
1
|
|
|
|
|
15
|
|
|
|
85
|
|
Less accumulated depreciation and amortization
|
|
|
(13
|
)
|
|
|
(72
|
)
|
|
|
$
|
2
|
|
|
$
|
13
|
|
|
4.
|
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 2018 or 2017. The Joint Venture had no revenue and no long-lived assets as of December 31, 2018 and 2017. During
the year ended December 31, 2017, the Company recorded a non-cash charge to income of $550 related to the write-off of the interest
in the joint venture.
|
5.
|
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 reclassified certain accrued liabilities to long-term at December 31, 2018.
The
Company had the following other accrued liabilities at December 31:
|
|
2018
|
|
|
2017
|
|
Accrued professional services
|
|
$
|
─
|
|
|
$
|
15
|
|
Rents
|
|
|
─
|
|
|
|
3
|
|
Management fees
|
|
|
─
|
|
|
|
440
|
|
Accrued interest
|
|
|
288
|
|
|
|
129
|
|
Delaware Franchise tax
|
|
|
194
|
|
|
|
129
|
|
Other
|
|
|
42
|
|
|
|
24
|
|
Total
|
|
$
|
524
|
|
|
$
|
740
|
|
The Company had the following
other long term accrued liabilities at December 31:
|
|
2018
|
|
|
2017
|
|
Management fees
|
|
|
606
|
|
|
|
─
|
|
Accrued interest
|
|
|
18
|
|
|
|
─
|
|
Commissions and deferred compensation
|
|
|
41
|
|
|
|
7
|
|
Total
|
|
$
|
665
|
|
|
$
|
7
|
|
Advances:
In
April, May, and June 2018, the Company received, from investors, advances aggregating $115 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 $40 of the advances were repaid in May 2018, along with $2 in advance
fees per the agreement. The advance fees were recorded as interest expense in the quarter ended June 30, 2018. The remaining $75
advances were converted into secured convertible notes in August 2018.
Notes
payable:
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 in secured notes with the same terms as the secured notes issued in the May 2017 financing
and $200 in unsecured notes with the same terms as the November 2016 financing. The unsecured 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 unsecured notes bear interest at the rate of 6%
per annum, and are due December 31, 2019. 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, 2019 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
August 2018, the Company issued secured convertible promissory notes to investors and affiliates of the Company aggregating $341,
of which $205 was paid in cash, $75 was exchanged for the remaining advances described above and $61 was in the form of an Original
Issue Discount (“OID”) on these amounts. 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, 2019 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 2018, the Company issued short-term unsecured convertible promissory notes to investors and affiliates of the Company
aggregating $346 in cash. The short-term 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 debt and/or equity financing of at least $1,000
in aggregate proceeds. The notes bear interest at the rate of 10% per annum and are due December 31, 2019.
|
7.
|
Stockholders’ equity (deficit):
|
Common
stock options:
At
December 31, 2018, 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, 2018 is as follows:
|
|
2009 Stock Compensation Plan
|
|
|
2011 Stock Compensation Plan
|
|
Shares authorized for issuance
|
|
|
7,000
|
|
|
|
1,250,000
|
|
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
|
|
|
7.
|
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. The fair value calculations are based on the following assumptions:
|
|
Year Ended
December 31,
2018
|
|
|
Year Ended
December 31,
2017
|
|
Risk free interest rate
|
|
1.91%
|
|
|
1.56% - 1.79
%
|
|
Expected life (years)
|
|
6.3
|
|
|
5.30 – 6.80
|
|
Expected volatility
|
|
180.51%
|
|
|
184.14% - 212.15%
|
|
Expected dividends
|
|
None
|
|
|
None
|
|
Estimated average forfeiture rate
|
|
1.91%
|
|
|
5.87%
|
|
The
following table summarizes the allocation of stock-based compensation expense for the years ended December 31, 2018 and 2017.
There were no stock options exercised during the years ended December 31, 2018 and 2017.
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Research and development
|
|
$
|
86
|
|
|
$
|
60
|
|
General and administrative
|
|
|
115
|
|
|
|
51
|
|
Director options and consultants
|
|
|
24
|
|
|
|
32
|
|
Stock-based compensation expense included in operating expenses
|
|
$
|
225
|
|
|
$
|
143
|
|
As
of December 31, 2018, there was $212 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 2.2 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, 2018.
|
7.
|
Stockholders’ equity (deficit) (continued):
|
Common
stock options (continued):
The
summary activity for the Company’s 2011 Stock Compensation Plans is as follows:
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
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
|
|
|
736
|
|
|
$
|
3.65
|
|
|
$
|
─
|
|
|
|
|
|
|
|
71
|
|
|
$
|
45.21
|
|
|
$
|
─
|
|
|
|
|
|
Granted
|
|
|
393
|
|
|
$
|
0.78
|
|
|
$
|
─
|
|
|
|
|
|
|
|
899
|
|
|
$
|
0.50
|
|
|
$
|
─
|
|
|
|
|
|
Forfeited/ Cancelled
|
|
|
(92
|
)
|
|
$
|
13.91
|
|
|
$
|
─
|
|
|
|
|
|
|
|
(234
|
)
|
|
$
|
4.24
|
|
|
$
|
─
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at period end
|
|
|
1,037
|
|
|
$
|
1.65
|
|
|
$
|
─
|
|
|
|
5.92
|
|
|
|
736
|
|
|
$
|
3.65
|
|
|
$
|
─
|
|
|
|
6.34
|
|
Options vested and exercisable at period end
|
|
|
320
|
|
|
$
|
3.92
|
|
|
$
|
─
|
|
|
|
5.40
|
|
|
|
95
|
|
|
$
|
24.41
|
|
|
$
|
─
|
|
|
|
4.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant-date fair value of options granted during the period
|
|
$
|
0.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes significant
ranges of outstanding and exercisable options as of December 31, 2018:
|
|
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
|
|
|
1,010
|
|
|
|
6.02
|
|
|
$
|
0.63
|
|
|
|
292
|
|
|
$
|
0.62
|
|
$25 ─ $625
|
|
|
27
|
|
|
|
2.25
|
|
|
$
|
38.81
|
|
|
|
28
|
|
|
$
|
38.81
|
|
|
|
|
1,037
|
|
|
|
5.92
|
|
|
$
|
1.65
|
|
|
|
320
|
|
|
$
|
3.92
|
|
A
summary of the status of the Company’s non-vested shares as of December 31, 2018 is as follows:
Non-vested Shares
|
|
Shares
|
|
|
Weighted Average
Grant-Date
Fair Value
per share
|
|
Non-vested at January 1, 2018
|
|
|
641
|
|
|
$
|
0.39
|
|
Granted
|
|
|
393
|
|
|
$
|
0.76
|
|
Canceled/Forfeited
|
|
|
(55
|
)
|
|
$
|
0.31
|
|
Vested
|
|
|
(262
|
)
|
|
$
|
0.65
|
|
Non-vested at December 31, 2018
|
|
|
717
|
|
|
$
|
0.54
|
|
|
7.
|
Stockholders’ equity (deficit) (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.
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 2018 and 2017. There were no warrant exercises in 2018 and 2017.
A
summary of the warrant activity is as follows:
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
Shares
|
|
|
Weighted Average Exercise Price per share
|
|
|
Shares
|
|
|
Weighted Average Exercise Price per share
|
|
Outstanding at beginning of period
|
|
|
1,878
|
|
|
$
|
2.52
|
|
|
|
1,882
|
|
|
$
|
2.52
|
|
Expired
|
|
|
(50
|
)
|
|
$
|
15.63
|
|
|
|
(4
|
)
|
|
$
|
34.38
|
|
Outstanding at end of period
|
|
|
1,828
|
|
|
$
|
2.16
|
|
|
|
1,878
|
|
|
$
|
2.52
|
|
Exercisable at end of period
|
|
|
1,828
|
|
|
$
|
2.16
|
|
|
|
1,878
|
|
|
$
|
2.52
|
|
A
summary of the status of the warrants outstanding as of December 31, 2018 is as follows:
Number of Shares Outstanding and Exercisable
|
|
|
Weighted Average Remaining Life (in years)
|
|
|
Weighted Average Exercise Price per share
|
|
|
1,551
|
|
|
|
2.0
|
|
|
$
|
1.85
|
|
|
277
|
|
|
|
0.12
|
|
|
$
|
0.25
|
|
|
1,828
|
|
|
|
1.86
|
|
|
$
|
2.16
|
|
As
of December 31, 2018, 2,865 shares of Common Stock were reserved for issuance upon exercise of outstanding options and warrants.
|
8.
|
Commitments
and Contingencies:
|
Lease
commitments:
In
June 2018, the Company negotiated a cancellation agreement with its landlord to cancel its office lease and move to facilities
which better suit its needs, saving the Company $112 net, over the remaining 16 months of the old lease term. Facilities rent
expense was approximately $66 and $109 in 2018 and 2017, respectively.
The
office space secured in June 2018 is on a month to month rental basis and can be surrendered at any time without penalty.
At
December 31, 2018, the Company had net operating loss carryforwards of $67,374 for federal income tax purposes which will begin
to expire in 2019 if unused. The Company had net operating loss carryforwards for state income tax purposes of approximately $36,127.
These state net operating losses carryforwards will begin to expire in the year 2018 if unused.
Deferred
tax assets and liabilities at December 31 consist of the following:
|
|
2018
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry-forwards
|
|
$
|
16,672
|
|
|
$
|
17,359
|
|
Accruals and reserves
|
|
|
263
|
|
|
|
51
|
|
Deferred revenue
|
|
|
84
|
|
|
|
143
|
|
Intangibles
|
|
|
486
|
|
|
|
490
|
|
Other, net
|
|
|
42
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
─
|
|
|
|
13
|
|
Gross tax assets
|
|
|
17,547
|
|
|
|
18,095
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(17,547
|
)
|
|
|
(18,095
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
─
|
|
|
$
|
─
|
|
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, 2018 and December 31, 2017:
|
|
2018
|
|
|
2017
|
|
Income tax benefit at the federal statutory rate
|
|
$
|
(209
|
)
|
|
$
|
(661
|
)
|
State income tax benefit
|
|
|
(69
|
)
|
|
|
(135
|
)
|
NOL expiration
|
|
|
938
|
|
|
|
118
|
|
Prior year true-ups
|
|
|
(195
|
)
|
|
|
15
|
|
Permanent items and other
|
|
|
81
|
|
|
|
354
|
|
Tax cuts and Jobs Act Rate Changes
|
|
|
─
|
|
|
|
9,090
|
|
Change in valuation allowance
|
|
|
(548
|
)
|
|
|
(8,781
|
)
|
Income tax expense
|
|
$
|
(2
|
)
|
|
|
$ ─
|
|
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.
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.
|
9.
|
Income
taxes (continued):
|
In January 2018, the FASB
released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the Tax
Cuts and Jobs Act (the "Act"). The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible
assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions
or to treat any taxes on GILTI inclusions as period cost are both acceptable methods subject to an accounting policy election.
Effective the first quarter of 2018, the Company elected to treat any potential GILTI inclusions as a period cost as we are not
projecting any material impact from GILTI inclusions and any deferred taxes related to any inclusion would be immaterial
On February 6, 2019, the
Company issued warrants to purchase 985,000 shares of common stock to 4 consultants and an employee in connection with the accrued
compensation owed by the Company to the employee and consultants. The warrants are exercisable for three years with an exercise
price of $0.50 per share. The warrants may not be exercised for cash or on a cashless basis, and may solely be exercised using
the holder’s outstanding accrued compensation on the date of exercise.
In addition, the Company
issued stock options to purchase 10,000 shares of common stock to each of the Company’s four independent directors. The options
vest quarterly over three years and have an exercise price of $0.50 per share.
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