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, 2021
☐
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 every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit 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 has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
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, 2021 was approximately
$2,270,381 based on the closing sale price of $0.59 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 March 31, 2022 was 6,332,736.
DOCUMENTS
INCORPORATED BY REFFERENCE
iSign
SOLUTIONS INC
TABLE
OF CONTENTS
Sign’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.
In
December 2019, an outbreak of a novel strain of coronavirus (COVID-19) originated in Wuhan, China and has since spread to a number of
other countries, including the U.S. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. Since March
11, 2020 states in the U.S., including California, where the Company is headquartered, have begun to open up as the result of the development
of vaccines to thwart the spread of the virus. New variants of COVID-19 have surfaced around the world, including the United States which
may cause additional closures of economies depending on how virulent the new strains are. New COVID-19 variant outbreaks may further
disrupted supply chains and affected production and sales across a wide range of industries. The extent of the impact of new COVID-19
outbreaks on our operational and financial performance will depend on certain developments, including the duration and further spread
of the outbreak, continued impact on our customers, employees and vendors all of which are uncertain and cannot be predicted.
For
the year ended December 31, 2021, total revenue was $1,078, an increase of $112, or 12%, compared to total revenue of $966 in the prior
year. For the year ended December 31, 2021, software product revenue was $373, an increase of $126, or 51%, compared to product revenue
of $247 in the prior year. Maintenance revenue for the year ended December 31, 2021 was $705, a decrease of $14, or -2%, compared to
maintenance revenue of $719 in the prior year. The increase in product revenue is due to enhancements to the products through engineering
services while the decrease in maintenance is due to the change by one customer to a maintenance contract on a time and material basis
rather than an annual basis.
For
the year ended December 31, 2021, the net loss was $486, a decrease of $42, or 8%, compared to a net loss of $528 in the prior year.
For the year ended December 31, 2021, non-cash charges, consisting of interest expense, warrant expense and the amortization of debt
discount were $349, an increase of $46, or 15%, compared to $309 in the prior year. For the year ended December 31, 2021, operating expenses
were $1,339, a decrease of $280, or 17%, compared to operating expenses of $1,619 for the prior year. The decrease in operating expenses
resulted from reductions in the amortization of stock based compensation and professional service expenses.
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 2020 include the following:
iSign Enterprise |
7.5.7 |
iSign Enterprise |
7.5.8 |
iSign Enterprise |
7.5.9 |
iSign Enterprise |
7.6.2 |
iSign Enterprise |
6.6.25 |
iSign Enterprise |
7.6.3 |
iSign Enterprise |
7.6.4 |
iSign Enterprise |
7.6.5 |
iSign Enterprise |
7.7 |
iSign Enterprise |
7.8 |
iSign Enterprise |
7.9 |
iSign Enterprise |
7.9.1 |
iSign Enterprise |
7.8.1 |
iSign Enterprise |
7. 10 |
iSign Enterprise |
6.6.26 |
iSign Enterprise |
7.8.2 |
Sign-it for Acrobat |
10.8 |
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’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 our research and development activities will remain
at the core of our operations, we intend, going forward, to continue to invest a portion of our resources in sales and marketing activities.
Our
research and development expense was $547 for the year ended December 31, 2021 and $578 for the year ended December 31, 2020.
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 19%,
25%, and 38%, respectively, of total revenue for the year ended December 31, 2021.
Seasonality
of Business
The
Company believes that the sale of its products is not subject to seasonal fluctuations.
Backlog
Backlog
was approximately $196 and $215 at December 31, 2021 and 2020, respectively, representing advanced payments on product and service maintenance
agreements. One customer decided to convert their December 2020 renewal of a $94 annual maintenance contract to a maintenance contract
on a time and materials basis in 2021.
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 OneSpan (f.k.a. 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, 2021, the Company employed five full-time employees, one part time employee and seven 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, 2021 and 2020, sales in the United States as a percentage of total sales was 62% and 75%, respectively.
At December 31, 2021 and 2020, long-lived assets located in the United States were $10 and $10, respectively. There were no long-lived
assets located elsewhere as of December 31, 2021 and 2020.
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 | |
| | |
| |
| | |
| |
| 2020 | | |
First Quarter | |
$ | 0.51 | | |
$ | 0.31 | |
| | | |
Second Quarter | |
$ | 0.40 | | |
$ | 0.29 | |
| | | |
Third Quarter | |
$ | 0.50 | | |
$ | 0.30 | |
| | | |
Fourth Quarter | |
$ | 0.44 | | |
$ | 0.20 | |
| 2021 | | |
First Quarter | |
$ | 0.51 | | |
$ | 0.32 | |
| | | |
Second Quarter | |
$ | 0.59 | | |
$ | 0.34 | |
| | | |
Third Quarter | |
$ | 2.49 | | |
$ | 0.43 | |
| | | |
Fourth Quarter | |
$ | 2.30 | | |
$ | 1.22 | |
Holders
As
of March 20, 2022, there were approximately 124 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. [Reserved]
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, 2021, the net loss aggregated approximately $1,014, and at December
31, 2021, the Company’s accumulated deficit was approximately $135,689.
In
December 2019, an outbreak of a novel strain of coronavirus (COVID-19) originated in Wuhan, China and has since spread to a number of
other countries, including the U.S. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. Since March
11, 2020 states in the U.S., including California, where the Company is headquartered, have begun to open up as the result of the development
of vaccines to thwart the spread of the virus. New variants of COVID-19 have surfaced around the world, including the United States which
may cause additional closures of economies depending on how virulent the new strains are. New COVID-19 variant outbreaks may further
disrupted supply chains and affected production and sales across a wide range of industries. The extent of the impact of new COVID-19
outbreaks on our operational and financial performance will depend on certain developments, including the duration and further spread
of the outbreak, continued impact on our customers, employees and vendors all of which are uncertain and cannot be predicted.
For
the year ended December 31, 2021, total revenue was $1,078, an increase of $112, or 12%, compared to total revenue of $966 in the prior
year. For the year ended December 31, 2020, software product revenue was $373, an increase of $126, or 51%, compared to product revenue
of $247 in the prior year. Maintenance revenue for the year ended December 31, 2021 was $705, a decrease of $14, or 2%, compared to maintenance
revenue of $719 in the prior year. The increase in product revenue is due to enhancements to the products through engineering services
while the decrease in maintenance is due to the change by one customer to a maintenance contract on a time and material basis rather
than an annual basis.
For
the year ended December 31, 2021, operating expenses were $1,339, a decrease of $280, or 17%, compared to operating expenses of $1,619
in the prior year. The decrease in operating expenses resulted from reductions in the amortization of stock based compensation and professional
service expenses. For the year ended December 31, 2021, the loss from operations was $261, a decrease of $392, or 60%, compared to a
loss from operations of $653 in the prior year.
On
May 6, 2020, the Company received loan proceeds in the amount of approximately $123 under the Paycheck Protection Program (“PPP”).
The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provided for loans,
with an interest rate of 1%, to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying
business. The loans and accrued interest would be forgiven after a period of either eight or twenty-four weeks, as long as the borrower
uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The
Company use of the loan proceeds met the conditions for forgiveness and the Company applied for full loan and interest forgiveness. In
September 2021 the Company received notification that the loan related to the Paycheck Protection Program had been forgiven in full and
the Company record $125 in other income on the Statement of Operations related to the forgiveness of the debt plus accrued interest.
On
February 28, 2021, the Company issued an aggregate of $75 in unsecured notes, $30 to related parties and $45 to other investors. The
Company received $15 in cash and $15 in exchange for an account receivable advance, received in the prior year, from related parties,
and $45 in cash from other investors. The unsecured notes are convertible by the holder into common stock at any time at a price per
share of $0.50. Upon closing a new financing of at least $1,000 in aggregate proceeds, the Company can force conversion at a price equal
to the lesser of $0.50 per share or the price per share of the new financing. The notes bear interest at the rate of 10% per annum and
are due December 31, 2021.
In
April 2021, the Company re-paid $49 of Accounts Receivable Advances and $6 in accrued but unpaid 5% advance fees to an affiliate. In
addition the Company repaid to another affiliate $64 of Accounts Receivable Advances and $4 in accrued but unpaid 5% advance fees.
In
June 2021, the Company paid the first installment in the amount of $40 plus accrued interest of $5 of a note entered into associated
with a settlement agreement dated July 1, 2020 with one of its vendors. The remaining $90 plus interest at the rate of 4% per annum is
due in two installments, June of 2022 and June of 2023.
On
September 30, 2021 the Company issued a note to one an affiliate investor and received $75 in cash. The note bears interest at the rate
of 20% per annum and is due upon demand.
In
November 2021, the Company received $100 in cash and issued notes aggregating $100 to a related and an unrelated party. The notes bear
interest at the rate of 20% per annum and are due upon demand following ten calendar days prior written notice starting on March 29,
2022.
In
December 2021, the Company received $50 in cash and issued a note aggregating $50 to a related party. The note bears interest at the
rate of 20% per annum and is due upon demand following ten calendar days prior written notice starting on March 29, 2022.
In
December the Company repaid $56 and $10 of accounts receivable advances to two related parties, respectively. In addition the Company
paid the 5% accounts receivable advance fees, to the related parties.
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’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, 2021, the Company recognized $215 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.
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, 2021 of approximately $14,498 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, 2021 and December 31, 2020
Revenue
For
the year ended December 31, 2021, total revenue was $1,078, an increase of $112, or 12%, compared to total revenue of $966 in the prior
year. For the year ended December 31, 2021, software product revenue was $373, an increase of $126, or 51%, compared to product revenue
of $247 in the prior year. Maintenance revenue for the year ended December 31, 2021, was $705, a decrease of $14, or 2%, compared to
maintenance revenue of $719 in the prior year. The increase in product revenue is primarily attributable to the increase in engineering
service revenue. The decrease in maintenance
revenue is primarily attributable to existing customers renewing maintenance contracts at higher price points.
Cost
of Sales
For
the year ended December 31, 2021, cost of sales was $134, a decrease of $12, or 8%, compared to cost of sales of $146 in the prior year.
The decrease was primarily due to a decrease in direct engineering costs associated with the mix of engineering service and software
product revenue during the year ended December 31, 2021 compared to the prior year.
Operating
Expenses
Research
and Development Expenses
For
the year ended December 31, 2021, research and development expenses were $547, a decrease of $31, or 5%, compared to research and development
expenses of $578 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 stock option compensation expense, a reduction in outside engineering expense and the reduction
in allocated facilities expenses. The reductions were enhanced by an increase in direct labor transfers to cost of sales due to the increase
in engineering service revenue. For the year ended December 31, 2021, total research and development expenses before IT and cost of sales
allocations were $692, a decrease of $31, or 4%, compared to $723 of total research and development expenses before allocations in the
prior year.
Sales
and Marketing Expenses
For
the year ended December 31, 2021, sales and marketing expenses were $96, a decrease of $13, or 16%, compared to sales and marketing expenses
of $83 in the prior year. The decrease was primarily attributable to a decrease in the sales of commissionable customer accounts.
General
and Administrative Expenses
For
the year ended December 31, 2021, administrative expenses were $562, a decrease of $250, or 31%, compared to administrative expenses
of $812 in the prior year. The decrease was due to a decrease in stock related compensation expense of $210 and accounting and auditing
fees of $57 compared to the prior year period. The decreases were offset by increases in other overhead
Other
Income (Expense), Net
Other
income (expense), net, for the year ended December 31, 2021, was $125, a decrease of $310, or 71%, compared to income of $435 in the
prior year. The decrease in other income and expense is due primarily to the forgiveness in the prior year of $435 of negotiated settlements
of accounts payable compared to the forgiveness of the paycheck protection program amount of $125.
Interest
Expense
For
the year ended December 31, 2021, related party interest expense was $127, an increase of $23, or 22%, compared to related party interest
expense of $104 in the prior year. For the year ended December 31, 2021, other interest expense was $222, an increase of $20, or 10%,
compared to other interest expense of $202 in the prior year. The increase in interest expense is primarily due to the increase in borrowings
and interest associated with increases in foreign revenues compared to the prior year period.
For
the year ended December 31, 2021, the Company recorded $0 in debt discount amortization associated with its short-term borrowings. For
the year ended December 31, 2020, the Company recorded $3 in debt discount amortization associated with its short-term borrowings, $1
of which is attributable to related parties and $2 of which is attributable to other investors. As of December 31, 2020 the entire amount
of debt discount has been fully amortized.
The
due date of the notes was extended again in November 2021 to December 31, 2022.
Liquidity
and Capital Resources
At
December 31, 2021, cash and cash equivalents totaled $40, compared to cash and cash equivalents of $26 at December 31, 2020. Net cash
used by operating activities was $89. Cash of $107 was provided by financing activities, offset by $4 used in investing activities. At
December 31, 2021, total current assets were $186, compared to total current assets of $136 at December 31, 2020. At December 31, 2021,
the Company’s principal sources of funds included its aggregated cash and cash equivalents of $40.
Accounts
receivable were $124 at December 31, 2021, an increase of $24, or 24%, compared to accounts receivable of $100 at December 31, 2020.
The increase in accounts receivable is primarily attributable to an increase in orders billed in the fourth quarter ended December 31,
2021 compared to the prior year.
Prepaid
expenses and other current assets were $22 at December 31, 2021, an increase of $12, or 120%, compared to prepaid expenses and other
current assets of $10 at December 31, 2020. The increase was primarily due to the increase in prepaid insurance and a prepayment of future
credit card expense.
Short-term
debt was $3,024 at December 31, 2021, an increase of $29, or 1%, compared to $2,995 in the prior year. See financing transactions below.
Short term debt includes principal amount on notes for $2,724, accounts receivable advances of $255, and a vendor note of $45. The PPP
loan was of $123 was forgiven in September 2021. The Company negotiated an extension of the due date of the notes to December 31, 2022.
Accounts
payable were $378 at December 31, 2021, an increase of $25, or 7%, compared to $353 at December 31, 2020. The increase is due primarily
to an increases in professional services compared to the prior year.
Accrued
compensation was $69 at December 31, 2021, a decrease of $13 or 16%, compared to $82 at December 31, 2020. The decrease was due primarily
to reduction in accrued but unpaid vacation expense. There was no change in the amount of deferred compensation of $219 at December 31,
2021 compared to the prior year. The deferred compensation amount represents amounts owed to former employees.
Other
accrued liabilities including the long term portion were $2,096 at December 31, 2021, compared to $1,879 at December 31, 2020, an increase
of 217, or 12%. The increase is primarily attributable to the accrual of certain franchise taxes and professional service fees. The increase
was offset by $280 conversion of long-term professional service fees owed to SG Phoenix into 560 shares of common stock by an affiliate
of the company.
Deferred
revenue was $196 at December 31, 2021, a decrease of $19, or 9%, compared to deferred revenue, of $215 at December 31, 2020. The decrease
is primarily due to one customer renewing their maintenance contract on a time and material basis rather than an annual bases. The Company
records deferred maintenance when the billing is collected.
Financing
Transactions
Advances:
In
March 2021, the Company received, from related parties, advances aggregating $25 in cash against certain accounts receivable of the Company.
Upon collection of an invoice, the Company agreed to repay the advance to the lenders on a pro rata basis together with a 5% advance
fee. The Company accrued $1 in advance fees recorded as interest expense on the Statement of Operations.
In
April 2021, the Company re-paid $49 of Accounts Receivable Advances and $6 in accrued but unpaid 5% advance fees to an affiliate. In
addition the Company repaid to another affiliate $64 of Accounts Receivable Advances and $4 in accrued but unpaid 5% advance fees.
In
July 2021, the Company received $10,000 in cash from an affiliate as an advance against certain accounts receivable. The company accrued
a 5% advance fee and recorded $500 as interest expense during the three months ended September 30, 2021. Upon collection of the accounts
receivable the Company will repay the advance plus the 5% fee.
In
August and September 2021, the Company received $50,000 and $36,000, respectively in cash from an affiliate as advances against certain
accounts receivable. The company accrued a 5% advance fees in August and September 2021, and recorded $4 as interest expense during the
three months ended September 30, 2021. Upon collection of the accounts receivable the Company will repay the advances plus the 5% fee.
In
December 2021, the Company re-paid $66 in Accounts Receivable Advances and $3 in accrued but unpaid 5% advance fees to two related parties.
Debt:
On
February 28, 2021, the Company issued an aggregate of $75 in unsecured notes, $30 to related parties and $45 to other investors. The
Company received $15 in cash and $15 in exchange for an account receivable advance, received in the prior year, from related parties,
and $45 in cash from other investors. The unsecured notes are convertible by the holder into common stock at any time at a price per
share of $0.50. Upon closing a new financing of at least $1,000 in aggregate proceeds, the Company can force conversion at a price equal
to the lesser of $0.50 per share or the price per share of the new financing. The notes bear interest at the rate of 10% per annum and
are due December 31, 2022.
In
June 2021, the Company paid the first installment in the amount of $40 plus accrued interest of $5 of a note entered into associated
with a settlement agreement dated July 1, 2020 with one of its vendors. The remaining $90 plus interest at the rate of 4% per annum is
due in two installments, June of 2022 and June of 2023.
In
August 2021 the Company applied for full loan and interest forgiveness of its PPP loan. In September 2021 the Company received notification
that the PPP had been forgiven in full and the Company record $125 in other income on the Statement of Operations related to the forgiveness
of the debt plus accrued interest.
In
September 2021 the Company received notification that the loan related to the Paycheck Protection Program had been forgiven in full.
The Company record $125 of other income on the Statement of Operations related to the forgiveness of the debt plus accrued interest.
On
September 30, 2021 the Company issued a note to one an affiliate investor and received $75 in cash. The note bears interest at the rate
of 20% per annum and is due upon demand following ten calendar days prior written notice starting on January 1, 2022.
In
November 2021, the Company received $100 in cash and issued two notes in the amount of $50 each to a related and an unrelated party.
The notes bear interest at the rate of 20% per annum and are due upon demand following ten calendar days prior written notice starting
on March 29, 2022.
In
December 2021, the Company received $50 in cash and issued a note aggregating $50 to a related party. The note bears interest at the
rate of 20% per annum and is due upon demand following ten calendar days prior written notice starting on March 29, 2022.
Contractual
Obligations
The
Company had no material commitments as of December 31, 2021.
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.
Risks
and Uncertainties. In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) originated in Wuhan, China and has since
spread to a number of other countries, including the U.S. On March 11, 2020, the World Health Organization characterized COVID-19 as
a pandemic. In addition, several states in the U.S., including California, where the Company is headquartered, have declared a state
of emergency. The COVID-19 outbreak is disrupting supply chains and affecting production and sales across a wide range of industries.
The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the
duration and spread of the outbreak, impact on our customers, employees and vendors all of which are uncertain and cannot be predicted.
At this point, the extent to which COVID-19 may impact our financial condition or results of operations is uncertain.
Item
8. Financial Statements and Supplementary Data
The
Company’s audited consolidated financial statements for the years ended December 31, 2021 and 2020, and for each of the years in
the two-year period ended December 31, 2021, 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, 2021, our internal control over financial reporting was not effective.
Management believes that the identified weaknesses have not affected our ability to present GAAP-compliant financial statements in this
Form 10-K. During the year-end financial statement close the Company was able to adjust its financial records to properly present its
financial statements and we were therefore able to present GAAP-compliant financial statements. Management does not believe that its
weakness with respect to its procedures and controls have had a pervasive effect upon our financial reporting due to our ability to make
the necessary reconciling adjustments to our financial statements.
Management’s
Remediation Initiatives
Management
conducts a number of activities to address the material weaknesses noted above, including but not limited to the following:
| ● | Key
managers and accounting personnel work closely with our independent audit firm in evaluating
our progress in remediating our material weaknesses with oversight by the audit committee; |
| ● | Evaluate
control procedures on an ongoing basis, and, where possible, modify those control procedures
to improve oversight; |
| ● | Evaluate,
and, where possible, employ additional third party resources that can provide oversight support
within the Company’s budget constraints; and |
| ● | As
the Company grows its business and the cash flow necessary to hire additional accounting
personnel, management expects to pursue and implement such additional hires. |
Elements
of our remediation plan can only be accomplished over time and we can offer no assurances that those initiatives will ultimately have
the intended effects. Ultimately, revenue growth and performance improvements are the most likely avenue to greater resources that will
improve the Company’s internal controls.
Management
will continue the process of reviewing existing controls, procedures and responsibilities to more closely identify financial reporting
risks and the required controls to address them. Key control and compensating control procedures will be developed to ensure that material
weaknesses are properly addressed and related financial reporting risks are mitigated. Periodic control validation and testing will also
be implemented to ensure that controls continue to operate consistently and as designed.
Changes
in Internal Control over Financial Reporting
There
have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2021 that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Item
9B. Other Information
None.
Item
9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not
Applicable
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 |
|
82 |
|
Co-Chairman
and Chief Executive Officer |
Michael Engmann |
|
73 |
|
Co-Chairman
and Chief Operating & Financial Officer |
Andrea Goren |
|
54 |
|
Director
|
Francis J. Elenio |
|
55 |
|
Director |
Stanley Gilbert |
|
82 |
|
Director |
Jeffrey Holtmeier |
|
63 |
|
Director |
David E. Welch |
|
74 |
|
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 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 CFO since July 2021, 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
in2013. 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 held the office of the Company’s Chief Financial Officer from December
2010 to June of 2021. Mr. Goren is was named Chief Financial Officer of INVO Bioscience, Inc. (NASDAQ: INVO), a medical device company,
in June 2021 and is a Managing Director of SG Phoenix LLC, a private equity firm, 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 was a director of Xplore Technologies Corp. (NASDAQ: XPLR) from December 2004 to
July 2018, 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 over 20 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 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, Web Collage, Inc., an internet content integrator for manufacturers, Go America, 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 56 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. Jeff has more than 30 years of successful entrepreneurial track record and
was awarded the coveted USA Today/NASDAQ/Ernst & Young Entrepreneur of the Year honor and was a finalist for the International Business
Award. Jeff also has deep boardroom experience as a result of service on the Boards of Directors of several U.S. and Chinese companies,
both public and private. He is also a significant contributor in the non-profit world in his local community, with over thirty years
of board leadership and service for programs addressing homelessness and people with special needs.
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 Aspen Bio Pharma, Inc., from 2004 to 2017, Pepper Ball 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 individuals Section 16 filings of Form 4’s dated June
28, 2021 was not timely filed for the year ended December 31, 2020: Mr. Sassower.
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, | |
2021 | |
|
| – | (1) | |
| – | |
|
| – | |
|
$ | 25,926 | |
|
| – | |
|
| – | |
|
| – | |
|
$ | 25,926 | |
Co-Chairman and CEO | |
2020 | |
|
| – | (1) | |
| – | |
|
| – | |
|
| – | |
|
| – | |
|
| – | |
|
| – | |
|
| – | |
Michael Engmann, | |
2021 | |
|
| – | (2) | |
| – | |
|
| – | |
|
$ | 25,926 | |
|
| – | |
|
| – | |
|
| – | |
|
$ | 25,926 | |
President and COO | |
2020 | |
|
| – | (2) | |
| – | |
|
| – | |
|
| – | |
|
| – | |
|
| – | |
|
| – | |
|
| – | |
Andrea Goren, | |
2021 | |
|
| – | (3) | |
| – | |
|
| – | |
|
$ | 25,926 | |
|
| – | |
|
| – | |
|
| – | |
|
$ | 25,926 | |
CFO | |
2020 | |
|
| – | (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 salary compensation. |
| 2. | Mr.
Engmann was appointed Chief Financial Officer on June of 2021 and President and Chief Operating
Officer on May 15, 2017. Mr. Engmann receives no salary compensation from the Company. |
| 3. | Mr.
Goren resigned as Chief Financial Officer in June of 2021. Mr. Goren received 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.
Engmann is retained by the Company without an agreement. Mr. Engmann’s service as Chief Financial Officer and Co-Chairman and Chief
Operating Officer is month to month. Mr. Engmann is currently entitled to receive a cash sum payment of $6,500 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 and Mr. Sassower are 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 $6,500 (“SGP Fee”) per month. In addition, SGP is eligible for, but not entitled to receive, an annual cash performance
fee of up to thirty-five percent (35%) of the SGP Fee during a given year or prorated portion thereof. Such performance fee, if any,
would be awarded based upon the sole discretion of the Company’s Board of Directors. No performance fee was paid to SGP in 2020.
Under the SGP Agreement, SGP furnishes, at its own expense, all materials and equipment necessary to carry out the terms of the SGP Agreement.
The Company has agreed to pay SGP for reasonable and documented out of pocket expenses incurred for services rendered by SGP during the
term of the SGP Agreement, as long as SGP obtains written approval of the Company prior to incurring any significant expense.
Outstanding
Equity Awards at December 31, 2021
The
following table summarizes the outstanding equity award holdings held by our named executive officers. The amounts are not stated in
thousands.
Name
and Principal Position | |
Number
of Securities Underlying Unexercised Options (#) Exercisable | | |
Number
of Securities Underlying Unexercised Options (#) Unexercisable | | |
Option Exercise Price
($) | | |
Option Expiration Date
|
Philip S. Sassower,
Co-Chairman and CEO | |
| 108,000 | (1) | |
| 26,990 | | |
$ | 0.78 | | |
8/9/2025 |
| |
| 25,014 | (2) | |
| 34,986 | | |
$ | 0.50 | | |
8/10/2027 |
| |
| | | |
| | | |
| | | |
|
Michael Engmann, President
and COO | |
| 98,000 | (3) | |
| — | | |
$ | 0.78 | | |
8/9/2025 |
| |
| 25,014 | (4) | |
| 34,986 | | |
$ | 0.50 | | |
8/10/2027 |
| |
| | | |
| | | |
| | | |
|
Andrea Goren, Chief Financial
Officer | |
| 126,000 | (5) | |
| — | | |
$ | 0.78 | | |
8/9/2025 |
| |
| 25,014 | (6) | |
| 34,986 | | |
$ | 0.50 | | |
8/10/2027 |
| (1) | Mr.
Sassower’s 108,000 options were issued on August 9, 2018. The options have a seven
year life and vest quarterly over three years. |
| (2) | Mr.
Sassower’s 60,000 options were issued on August 11, 2020. The options have a seven
year life and vest quarterly over three years. |
| (3) | Mr.
Engmann’s 98,000 options were issued on August 9, 2018. The options have a seven year
life and vest quarterly over three years. |
| (4) | Mr.
Engmann’s 60,000 options were issued on August 11, 2020. The options have a seven year
life and vest quarterly over three years. |
| (5) | Mr.
Goren’s 126,000 options were issued on August 9, 2018. The options have a seven year
life and vest quarterly over three years. |
| (6) | Mr.
Goren’s 60,000 options were issued on August 11, 2020. The options 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, 2021 and 2020.
Director
Compensation
The
non-employee directors of the Company’s received no compensation for the year ended December 31, 2020:
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The
following table sets forth information as of March 21, 2021, 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) | |
| 1,908,974 | | |
| 29.4 | % |
Andrea Goren (3) | |
| 1,524,716 | | |
| 22.58 | % |
Stanley Gilbert (4) | |
| 159,725 | | |
| 2.50 | % |
Jeffrey Holtmeier (5) | |
| 51,131 | | |
| * | |
David E. Welch (6) | |
| 48,270 | | |
| * | |
Michael W. Engmann (7) | |
| 858,779 | | |
| 12.91 | % |
Francis Elenio (8) | |
| 46,670 | | |
| * | |
All directors and executive officers as a group
(7 persons) (9) | |
| 3,525,825 | | |
| 47.69 | |
5% Shareholders | |
| | | |
| | |
Phoenix Venture Fund LLC (10) | |
| 1,072,440 | | |
| 16.91 | % |
| 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 21, 2021. Shares issuable pursuant to the exercise
of stock options and warrants exercisable within 60 days of March 21, 2021 or securities
convertible into Common Stock within 60 days of March 21, 2021 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) 1,765,964 shares of Common Stock, (b) 143,010 shares of Common Stock issuable upon the
exercise of options exercisable within 60 days of March 20, 2021 (see table below for details),
including securities beneficially owned by SG Phoenix LLC, Phoenix Ventures LLC and Phoenix
Enterprises Family Fund LLC. 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, accordingly, Mr. Sassower may be deemed to
be the beneficial owner of the shares owned by Phoenix Mr. Goren and Mr. Sassower each disclaim
beneficial ownership of the shares owned by Phoenix, except to the extent of their respective
pecuniary interests therein. Mr. Sassower’s address is 70 East 55th Street,
10th Floor, New York, NY 10022. |
| |
Philip
Sassower | | |
SG
Phoenix LLC | | |
Phoenix
Ventures, LLC | | |
Phoenix
Enterprise Family Fund LLC | | |
Total | |
Common shares | |
| 687,541 | | |
| 230,789 | | |
| 841,651 | | |
| 5,983 | | |
| 1,765,964 | |
Stock Options | |
| 143,010 | | |
| — | | |
| — | | |
| — | | |
| 143,010 | |
Total | |
| 830,551 | | |
| 230,789 | | |
| 841,651 | | |
| 5,983 | | |
| 1,908,974 | |
| 3. | Represents
(a) 1,113,706 shares of Common Stock, (b) 161,010 shares of Common Stock issuable upon the
exercise of options exercisable within 60 days of March 20, 2021, and (b) 250,000 shares
of Common Stock issuable upon the exercise of warrants exercisable within 60 days of March
20, 2021 (see table below for details), including securities beneficially owned by Andax
LLC, SG Phoenix LLC, Phoenix Ventures 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 accordingly,
Mr. Goren may be deemed to be the beneficial owner of the shares owned by Phoenix. Mr. Goren
and Mr. Sassower each disclaim beneficial ownership of the shares owned by Phoenix except
to the extent of their respective pecuniary interests therein. Mr. Goren’s address
is 70 East 55th Street, 10th Floor, New York, NY 10022. |
| |
Andrea
Goren | | |
Andax,
LLC | | |
SG
Phoenix
LLC | | |
Phoenix
Ventures, LLC | | |
Total | |
Common shares | |
| 38 | | |
| 41,228 | | |
| 230,789 | | |
| 841,651 | | |
| 1,113,706 | |
Stock Options | |
| 161,010 | | |
| — | | |
| — | | |
| — | | |
| 161,010 | |
Warrants | |
| 250,000 | | |
| — | | |
| — | | |
| — | | |
| 250,000 | |
Total | |
| 411,048 | | |
| 41,228 | | |
| 230,789 | | |
| 841,651 | | |
| 1,524,716 | |
| 4. | Represents
(a) 112,255 shares of Common Stock, and (b) 47,470 shares of Common Stock issuable upon the
exercise of options exercisable within 60 days of March 20, 2021 (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 | | |
Galaxy
LLC | | |
Mrs.
Gilbert | | |
Total | |
Common shares | |
| 109,111 | | |
| 1,426 | | |
| 1,718 | | |
| 112,255 | |
Stock options | |
| 47,470 | | |
| — | | |
| — | | |
| 47,470 | |
Total | |
| 156,581 | | |
| 1,426 | | |
| 1,718 | | |
| 159,725 | |
| 5. | Represents
(a) 3,662 shares of Common Stock and (b) 47,470 shares of Common Stock issuable upon the
exercise of options exercisable within 60 days of March 20, 2021. As manager of Genext, Mr.
Holtmeier has the power to vote and dispose of the shares of Common Stock held by Genext,
and, accordingly, Mr. Holtmeier may be deemed to be the beneficial owner of the shares owned
by CUBD and Genext. |
| 6. | Represents
48,270 shares of Common Stock issuable upon the exercise of options exercisable within 60
days of March 20, 2021. |
| 7. | Represents
(a) 550,769 shares of Common Stock beneficially owned by Mr. Engmann, (b) 133,010 shares
of Common Stock issuable upon the exercise of options exercisable within 60 days of March
20, 2021 and (c) an aggregate of 175,000 shares of Common Stock issuable upon exercise of
warrants exercisable within 60 days of March 20, 2021 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 | | |
| 119,026 | | |
| 994 | | |
| 550,769 | |
Stock Options | |
| 133,010 | | |
| — | | |
| — | | |
| 133,010 | |
Warrants | |
| 175,000 | | |
| | | |
| — | | |
| 175,000 | |
Total | |
| 738,759 | | |
| 119,026 | | |
| 994 | | |
| 858,779 | |
| 8. | Represents
46,670 shares of Common Stock issuable upon the exercise of options exercisable within 60
days of March 20, 2020. |
| 9. | Includes
(a) 2,473,915 shares of Common Stock beneficially owned, (b) 626,910 shares of Common Stock
issuable upon the exercise of options exercisable within 60 days of March 20, 2021 and (c)
an aggregate of 425,000 shares of Common Stock issuable upon exercise of warrants exercisable
within 60 days of March 20, 2021. The aforementioned includes 1,072,440 shares of Common
Stock beneficially owned by Phoenix. Please see footnote 10 below for information concerning
shares of Common Stock beneficially owned by Phoenix. Mr. Sassower and Mr. Goren are the
co-managers of SG Phoenix Ventures LLC, which has the shared power to vote and dispose of
the shares of Common Stock held by Phoenix and, accordingly, Mr. Sassower and Mr. Goren may
be deemed to be the beneficial owner of the shares owned by Phoenix. SG Phoenix Ventures
LLC, Mr. Sassower and Mr. Goren each disclaim beneficial ownership of the shares owned by
Phoenix, except to the extent of their respective pecuniary interests therein. |
| 10. | SG
Phoenix Ventures LLC is the Managing Member of Phoenix, with the power to vote and dispose
of the shares of Common Stock held by Phoenix. Accordingly, SG Phoenix Ventures LLC may be
deemed to be the beneficial owner of such shares. Andrea Goren is the co-manager of SG Phoenix
Ventures LLC, has the shared power to vote and dispose of the shares of Common Stock held
by Phoenix and, as such, may be deemed to be the beneficial owner of the common shares owned
by Phoenix and by SG Phoenix LLC, of which he is a member. Philip Sassower is the co-manager
of SG Phoenix Ventures LLC, has the shared power to vote and dispose of the shares of Common
Stock held by Phoenix and, as such, may be deemed to be the beneficial owner of the common
shares owned by Phoenix and by SG Phoenix LLC, of which he is a member. SG Phoenix Ventures
LLC, Mr. Goren and Mr. Sassower each disclaim beneficial ownership of the shares owned by
Phoenix, and Mr. Goren and Mr. Sassower each disclaim beneficial ownership of the shares
owned by SG Phoenix LLC, except to the extent of their respective pecuniary interests therein.
The address of these stockholders is 70 East 55th Street, 10th Floor,
New York, NY 10022. |
| |
Phoenix
Venture
Fund LLC | | |
SG
Phoenix
LLC | | |
Total | |
Common shares | |
| 841,651 | | |
| 230,789 | | |
| 1,072,440 | |
Equity
Compensation Plan Information
The
following table provides information as of December 31, 2021, 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) | |
| 1,337,936 | | |
$ | 0.86 | | |
| 412,014 | |
1. | There
are 1,000 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 16.9% of the Common Stock of the Company when calculated in accordance with Rule 13d-3
In
March 2021, the Company received, from related parties, advances aggregating $25 in cash against certain accounts receivable of the Company.
Upon collection of an invoice, the Company agreed to repay the advance to the lenders on a pro rata basis together with a 5% advance
fee. The Company accrued $1 in advance fees recorded as interest expense on the Statement of Operations.
In
April 2021, the Company re-paid $49 of Accounts Receivable Advances and $6 in accrued but unpaid 5% advance fees to an affiliate. In
addition the Company repaid to another affiliate $64 of Accounts Receivable Advances and $4 in accrued but unpaid 5% advance fees.
In June 2021, the Company,
with approval of the Board of Directors, reallocated all of the $560,000 of accrued compensation owed to SG Phoenix in equal parts to
Mr. Sassower and Mr. Goren, according to their respective ownership in SG Phoenix. Mr. Sassower settled $280,000 of Accrued Long-term
deferred salary allocated to him into 560,000 shares of the Company’s Common Stock at a price of $0.50 per share, which was substantially
above the then current market price of the company’s common stock.
In
July 2021, the Company received $10,000 in cash from an affiliate as an advance against certain accounts receivable. The company accrued
a 5% advance fee and recorded $0.5 as interest expense during the three months ended September 30, 2021. Upon collection of the accounts
receivable the Company will repay the advance plus the 5% fee.
In
August and September 2021, the Company received $50,000 and $36,000, respectively in cash from an affiliate as advances against certain
accounts receivable. The company accrued a 5% advance fees in August and September 2021, and recorded $4 as interest expense during the
three months ended September 30, 2021. Upon collection of the accounts receivable the Company will repay the advances plus the 5% fee.
In
December 2021, the Company re-paid $66 in Accounts Receivable Advances and $3 in accrued but unpaid 5% advance fees to two related parties.
There
were no stock option grants to affiliates of the Company during the twelve months ended December 31, 2021.
Debt
discount amortization associated with the Company’s indebtedness for the years ended December 31, 2021 and 2020, was $0 and $3,
respectively, of which $1 and $10, respectively, was related party expense.
Interest
expense associated with the Company’s indebtedness for the years ended December 31, 2020 and 2019, was $306 and $268, respectively,
of which $104 and $74, respectively, was related party expense.
Item
14. Principal Accounting Fees and Services
Audit
and other Fees. M&K, PLLC has been the Company’s auditors since June 2020. Armanino LLP was the Company’s auditors since
from August 2014. During fiscal years 2021 and 2020, the fees for audit and other services performed by M&K PLLC and Armanino LLP
for the Company were as follows:
| |
M&K
PLLC | | |
Armanino
LLP | |
Nature of Service | |
2021 | | |
2020 | | |
2021 | | |
2020 | |
Audit Fees | |
$ | 9,000 | | |
$ | 6,000.00 | | |
| 38 | % | |
$ | — | | |
$ | 66,000.00 | | |
| 74 | % |
Audit-related Fees | |
$ | 15,000 | | |
$ | 10,000.00 | | |
| 62 | % | |
$ | 3,775.00 | | |
$ | 9,000.00 | | |
| 10 | % |
Tax Fees | |
$ | — | | |
$ | — | | |
| — | % | |
$ | 14,500.00 | | |
$ | 8,655.00 | | |
| 10 | % |
All Other Fees | |
$ | — | | |
$ | — | | |
| — | % | |
$ | 1,795.00 | | |
$ | 5,241.24 | | |
| 6 | % |
Total | |
$ | 24,000 | | |
$ | 16,000.00 | | |
| 100 | % | |
$ | 20,070.00 | | |
$ | 88,896.24 | | |
| 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 M&K PLLC and Armanino
LLP and has concluded that both M&K PLLC and Armanino LLP were independent under applicable SEC and NASDAQ rules and regulations.
PART
IV
Item
15. Exhibits, Financial Statement Schedules.
(a)
The following documents are filed as part of this Annual Report on Form 10-K:
(1)
Financial Statements
Index
to Financial Statements
(2) Financial
Statement Schedules
All
schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.
The
exhibits required by Item 601 of Regulation S-K are listed in paragraph (b) below.
(b)
Exhibits.
The
following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the SEC as indicated below:
Exhibit
Number |
|
Document |
3.1 |
|
Certificate
of Incorporation of the Company, as amended, incorporated herein by reference to Exhibits 3.1, 3.2, 3.3 and 3.4 to the Company’s
Registration Statement on Form 10 (File No. 000-19301). |
3.2 |
|
Certificate
of Amendment to the Company’s Certificate of Incorporation (authorizing the reclassification of the Class A Common Stock
and Class B Common Stock into one class of Common Stock) filed with the Delaware Secretary of State on November 1, 1991,
incorporated herein by reference to Exhibit 3 to Amendment 1 on Form 8 to the Company’s Form 8-A (File
No. 000-19301). |
3.3 |
|
Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State June 12, 1998, incorporated herein by reference to Exhibit 10.24 to the Company’s 1998 Form 10-K filed on April 6, 1999. |
3.4 |
|
By-laws
of the Company adopted on October 6, 1986, incorporated herein by reference to Exhibit 3.5 to the Company’s Registration
Statement on Form 10 (File No. 000-19301). |
3.5 |
|
Certificate
of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State
January 24, 2001, incorporated herein by reference to Exhibit 3.5 to the Company’s Registration Statement on Form S/1 filed
on December 28, 2007. |
3.6 |
|
Certificate
of Elimination of the Company’s Certificate of Designation of the Series A Preferred Stock filed with the Delaware Secretary
of State August 17, 2001, incorporated herein by reference to Exhibit 3.6 to the Company’s Registration Statement on Form S/1
filed on December 28, 2007. |
3.7 |
|
Certificate
of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State
August 17, 2007, incorporated herein by reference to Exhibit 3.7 to the Company’s Registration Statement on Form S/1 filed
on December 28, 2007. |
3.8 |
|
Amended
and Restated Certificate of Incorporation of the Company filed with the Delaware Secretary of State on May 18, 1995, incorporated
herein by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008. |
3.9 |
|
Certificate
of Designations, Powers, Preferences and Rights of the Series A Cumulative Convertible Preferred Stock filed with the Delaware Secretary
of State on June 4, 2008, incorporated herein by reference to Exhibit 4.23 to the Company’s Quarterly Report on Form 10-Q filed
on August 14, 2008. |
3.10 |
|
Certificate
of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State
on June 30, 2008, incorporated herein by reference to Exhibit 3.7 to the Company’s Quarterly Report on Form 10-Q filed on August
14, 2008. |
3.11 |
|
Certificate
of Designations, Powers, Preferences and Rights of the Series A-1 Cumulative Convertible Preferred Stock filed with the Delaware
Secretary of State on October 30, 2008, incorporated herein by reference to Exhibit 3.11 to the Company’s Annual Report on
Form 10-K filed on March 12, 2009. |
3.12 |
|
Certificate
of Elimination of the Company’s Series A Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State
on December 30, 2008, incorporated herein by reference to Exhibit 3.12 to the Company’s Annual Report on Form 10-K filed on
March 31, 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. |
Exhibit
Number |
|
Document |
3.21 |
|
Certificate
of Designation of Series C Participating Convertible Preferred Stock filed with the Delaware Secretary of State on December 31, 2010,
incorporated herein by reference to Exhibit 3.21 to the Company’s Annual Report on Form 10-K filed on March 30, 2011. |
3.22 |
|
Amendment
to the Amended And Restated Certificate of Designation of the Series B Participating Convertible Preferred Stock, incorporated herein
by reference to Exhibit 10.59 to the Company’s Current Report on Form 8-K filed March 31, 2011. |
3.23 |
|
Amendment
to the Amended And Restated Certificate of Designation of the Series C Participating Convertible Preferred Stock, incorporated herein
by reference to Exhibit 10.60 to the Company’s Current Report on Form 8-K filed March 31, 2011. |
3.24 |
|
Certificate
of Amendment to Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on November 13, 2012,
incorporated herein by reference to Appendix A to the Company’s Definitive Proxy Statement filed on Schedule 14A on October
22, 2012. |
3.25 |
|
Third
Amended and Restated Certificate of Designation of Series A-1 Cumulative Convertible Preferred Stock filed with the Delaware Secretary
of State on November 13, 2012, incorporated herein by reference to Exhibit 3.25 to the Company’s Form 10-K filed March 31,
2014. |
3.26 |
|
Second
Amended and Restated Certificate of Designation of Series B Participating Convertible Preferred Stock filed with the Delaware Secretary
of State on November 13, 2012, incorporated herein by reference to Exhibit 3.26 to the Company’s Form 10-K filed March 31,
2014. |
3.27 |
|
Amended
and Restated Certificate of Designation of Series C Participating Convertible Preferred Stock filed with the Delaware Secretary of
State on November 13, incorporated herein by reference to Exhibit 3.27 to the Company’s Form 10-K filed March 31, 2014. |
3.28 |
|
Certificate
of Designation of Series D Convertible Preferred Stock filed with the Delaware Secretary of State on November 13, 2012, incorporated
herein by reference to Exhibit 3.28 to the Company’s Form 10-K filed March 31, 2014. |
3.29 |
|
Certificate
of Amendment to Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on December 10, 2013,
incorporated herein by reference to Appendix A to the Company’s Definitive Proxy Statement filed on Schedule 14A on November
1, 2013. |
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. |
*4.28 |
|
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. |
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. |
Exhibit
Number |
|
Document |
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 15, 2007. |
10.40 |
|
Form
of Registration Rights Agreement dated June 15, 2007, by and among the Company and the parties identified therein, incorporated herein
by reference to Exhibit 10.35 to the Company’s Form 8-K filed on June 15, 2007. |
10.41 |
|
Form
of Securities Purchase and Registration Rights Agreement dated August 24, 2007, by and among the Company and Phoenix Venture Fund
LLC, incorporated herein by reference to Exhibit 10.36 to the Company’s Form 8-K filed on August 27, 2007. |
†10.42 |
|
Consulting Agreement dated January 9, 2008 between the Company and GS Meyer & Associates LLC - Incorporated by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K filed on March 31, 2007. |
10.43 |
|
Credit
Agreement dated June 5, 2008, by and among the Company and the Lenders Party Hereto and SG Phoenix as Collateral Agent, incorporated
herein by reference to Exhibit 10.41 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008. |
10.44 |
|
Pledge
and Security Agreement dated June 5, 2008, by and among the Company and the parties identified therein, incorporated herein by reference
to Exhibit 10.42 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008. |
10.45 |
|
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. |
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. |
Exhibit
Number |
|
Document |
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. |
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. |
| † | 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/
Michael Engmann
|
|
|
Michael Engmann |
|
|
(Principal Financial Officer
and Officer Duly Authorized to |
|
|
Sign on Behalf of the Registrant) |
|
|
|
|
|
Date: March 31, 2022 |
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 March 31, 2022.
Date |
|
Signature |
|
Title |
|
|
|
|
|
March 31, 2022 |
|
/s/
Philip S. Sassower |
|
Co-Chairman and Chief Executive
Officer |
|
|
Philip
S. Sassower |
|
(Principal Executive Officer) |
|
|
|
|
|
March 31, 2022 |
|
/s/
Michael Engmann |
|
Co-Chairman, Chief Operating
Officer, and |
|
|
Michael
Engmann |
|
Chief Financial Officer (Principal Financial
and Accounting Officer) |
|
|
|
|
|
March 31, 2022 |
|
/s/
Andrea Goren |
|
Director |
|
|
Andrea
Goren |
|
|
|
|
|
|
|
March 31, 2022 |
|
/s/
Francis J. Elenio |
|
Director |
|
|
Francis
J. Elenio |
|
|
|
|
|
|
|
March 31, 2022 |
|
/s/
Stanly Gilbert |
|
Director |
|
|
Stanley
Gilbert |
|
|
|
|
|
|
|
March 31, 2022 |
|
/s/
Jeffrey Holtmeier |
|
Director |
|
|
Jeffrey
Holtmeier |
|
|
|
|
|
|
|
March 31, 2022 |
|
/s/
David Welch |
|
Director |
|
|
David
Welch |
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of iSign Solutions, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of iSign Solutions, Inc. (the Company) as of December 31, 2021, and 2020, the related consolidated statements of operations,
comprehensive loss, stockholders’ deficit, and cash flows for the year ended December 31, 2021 and 2020, and the related notes (collectively
referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the year ended December
31, 2021 and 2020, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has
suffered net losses from operations since inception and has an accumulated deficiency, which raises substantial doubt about its ability
to continue as a going concern. Management’s plans regarding those matters are discussed in Note 1. The 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
audit. 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 audit 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 audit, 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is
a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the
audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions
on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition
As discussed
in Note 1, the Company recognizes revenue upon transfer of control of promised services to customers in an amount that reflects the consideration
the Company expects to receive in exchange for those products or services.
Auditing management’s evaluation of agreements with customers
involves significant judgment, given the fact that some agreements require management’s evaluation and allocation of the standalone
transaction prices to the performance obligations.
To evaluate the appropriateness and accuracy of the assessment by management,
we evaluated management’s assessment in relationship to the relevant agreements.
/s/ M&K CPAS, PLLC
We have served as the Company’s auditor since 2020.
Houston, TX
March 31, 2022
Auditor Name: M&K CPAS, PLLC
Auditor Firm ID: 2738
Auditor Location: Houston, Texas
iSign
Solutions Inc.
Consolidated
Balance Sheets
(In
thousands, except par value amounts)
| |
December
31, | |
| |
2021 | | |
2020 | |
Assets | |
| | |
| |
Current assets: | |
| | |
| |
Cash and
cash equivalents | |
| 40 | | |
$ | 26 | |
Accounts receivable, net of allowance of $0 and $0 at December 31, 2021 and 2020, respectively | |
| 124 | | |
| 100 | |
Prepaid
expenses and other current assets | |
| 22 | | |
| 10 | |
Total current assets | |
| 186 | | |
| 136 | |
Property and equipment,
net | |
| 5 | | |
| 5 | |
Other assets | |
| 5 | | |
| 5 | |
| |
| | | |
| | |
Total assets | |
$ | 196 | | |
$ | 146 | |
| |
| | | |
| | |
Liabilities and Stockholders’
Deficit | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 378 | | |
$ | 353 | |
Short–term debt
- related party | |
| 1,002 | | |
| 1,065 | |
Short-term debt –
other | |
| 2,022 | | |
| 1,807 | |
Short-term debt –
Paycheck Protection Program | |
| — | | |
| 123 | |
Accrued compensation | |
| 69 | | |
| 82 | |
Deferred compensation | |
| 219 | | |
| 219 | |
Other accrued liabilities | |
| 1,488 | | |
| 1,141 | |
Deferred
revenue | |
| 196 | | |
| 215 | |
Total current liabilities | |
| 5,374 | | |
| 5,005 | |
| |
| | | |
| | |
Long-term debt – other | |
| 45 | | |
| 90 | |
Other long-term liabilities | |
| 608 | | |
| 738 | |
| |
| | | |
| | |
Total liabilities | |
| 6,027 | | |
| 5,833 | |
| |
| | | |
| | |
Commitments and contingencies (Note 8) | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’
deficit: | |
| | | |
| | |
Common stock, $0.01 par value; 2,000,000 shares authorized; 6,322 and 5,762 shares issued and outstanding at December 31, 2021 and 2020, respectively | |
| 63 | | |
| 58 | |
Treasury shares, 5 at December 31, 2021and December 31, 2020, respectively | |
| (325 | ) | |
| (325 | ) |
Additional paid-in-capital | |
| 130,120 | | |
| 129,783 | |
Accumulated
deficit | |
| (135,689 | ) | |
| (135,203 | ) |
Total
stockholders’ deficit | |
| (5,831 | ) | |
| (5,687 | ) |
Total liabilities and
stockholders’ deficit | |
$ | 196 | | |
$ | 146 | |
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, | |
| |
2021 | | |
2020 | |
Revenue: | |
| | |
| |
| |
| | |
| |
Product | |
$ | 373 | | |
$ | 247 | |
Maintenance | |
| 705 | | |
| 719 | |
Total
revenue | |
| 1,078 | | |
| 966 | |
Operating costs and expenses: | |
| | | |
| | |
Cost of sales: | |
| | | |
| | |
Product | |
| 59 | | |
| 74 | |
Maintenance | |
| 75 | | |
| 72 | |
Research and development | |
| 547 | | |
| 578 | |
Sales and marketing | |
| 96 | | |
| 83 | |
General
and administrative | |
| 562 | | |
| 812 | |
| |
| | | |
| | |
Total operating costs
and expenses | |
| 1,339 | | |
| 1,619 | |
| |
| | | |
| | |
Loss from operations | |
| (261 | ) | |
| (653 | ) |
| |
| | | |
| | |
Other income, net | |
| 125 | | |
| 435 | |
Interest expense: | |
| | | |
| | |
Related party | |
| (127 | ) | |
| (104 | ) |
Other | |
| (222 | ) | |
| (202 | ) |
Amortization of debt discount: | |
| | | |
| | |
Related party | |
| — | | |
| (1 | ) |
Other | |
| — | | |
| (2 | ) |
Loss before income tax | |
| (485 | ) | |
| (527 | ) |
Income tax expense | |
| (1 | ) | |
| (1 | ) |
Net loss | |
$ | (486 | ) | |
$ | (528 | ) |
Basic and diluted loss
per common share | |
$ | (0.08 | ) | |
$ | (0.09 | ) |
Weighted average common
shares outstanding, basic and diluted | |
| 6,048 | | |
| 5,762 | |
See
accompanying notes to these Consolidated Financial Statements
iSign
Solutions Inc.
Consolidated
Statements of Comprehensive Loss
(In
thousands)
| |
Years
Ended
December 31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Net loss: | |
$ | (486 | ) | |
$ | (528 | ) |
Other comprehensive income,
net of tax | |
| - | | |
| - | |
Foreign
currency translation adjustment, net | |
| - | | |
| - | |
| |
| | | |
| | |
Total
comprehensive loss | |
$ | (486 | ) | |
$ | (528 | ) |
See
accompanying notes to these Consolidated Financial Statements
iSign
Solutions Inc.
Consolidated Statement of Changes in Stockholders’ Deficit
(In thousands)
| |
Common
Shares Outstanding | | |
Common
Stock Amount | | |
Treasury
Shares Outstanding | | |
Treasury
Stock Amount | | |
Additional
Paid-In Capital | | |
Accumulated
Deficit | | |
Total
Stockholders’ Deficit | |
Balance
as of December 31, 2019 | |
| 5,762 | | |
| 58 | | |
| 5 | | |
$ | (325 | ) | |
$ | 129,504 | | |
$ | (134,675 | ) | |
$ | (5,438 | ) |
Stock-based
compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 103 | | |
| — | | |
| 103 | |
Warrants
issued associated with long-term liabilities | |
| — | | |
| — | | |
| — | | |
| — | | |
| 160 | | |
| — | | |
| 160 | |
Warrants
issued for services | |
| — | | |
| — | | |
| — | | |
| — | | |
| 16 | | |
| — | | |
| 16 | |
Net
loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (528 | ) | |
| (528 | ) |
Balance
as of December 31, 2020 | |
| 5,762 | | |
| 58 | | |
| 5 | | |
$ | (325 | ) | |
$ | 129,783 | | |
$ | (135,203 | ) | |
$ | (5,687 | ) |
Stock-based
compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 63 | | |
| — | | |
| 63 | |
Settlement
of deferred salary | |
| 560 | | |
| 5 | | |
| — | | |
| — | | |
| 274 | | |
| — | | |
| 279 | |
Net
loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (486 | ) | |
| (461 | ) |
Balance
as of December 31, 2021 | |
| 6,322 | | |
| 63 | | |
| 5 | | |
| (325 | ) | |
| 130,120 | | |
| (135,689 | ) | |
| (5,831 | ) |
See
accompanying notes to these Consolidated Financial Statements
iSign
Solutions Inc.
Consolidated
Statements of Cash Flows
(In
thousands)
| |
December
31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Cash flows from operating activities: | |
| | |
| |
Net
loss | |
$ | (486 | ) | |
$ | (528 | ) |
Adjustments
to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation | |
| 4 | | |
| 3 | |
Amortization
of debt discount | |
| - | | |
| 3 | |
Stock
based compensation associated with long-term liabilities | |
| - | | |
| 160 | |
Warrants
issued for services | |
| - | | |
| 16 | |
Stock-based
compensation | |
| 63 | | |
| 103 | |
Forgiveness
of debt related to accounts payable | |
| - | | |
| (435 | ) |
Forgiveness
of debt related to Paycheck Protection Program plus accrued interest | |
| (125 | ) | |
| - | |
Changes
in operating assets and liabilities: | |
| | | |
| | |
Accounts
receivable, net | |
| (24 | ) | |
| (39 | ) |
Prepaid
expenses and other current assets | |
| (12 | ) | |
| 12 | |
Accounts
payable | |
| 25 | | |
| (278 | ) |
Accrued
compensation | |
| (13 | ) | |
| 11 | |
Other
accrued liabilities | |
| 498 | | |
| 468 | |
Deferred
revenue | |
| (19 | ) | |
| (201 | ) |
Net
cash used in operating activities | |
| (89 | ) | |
| (705 | ) |
| |
| | | |
| | |
Cash
flows from investing activities: Acquisition of property and equipment | |
| (4 | ) | |
| - | |
Net
cash used in investing activities | |
| (4 | ) | |
| - | |
| |
| | | |
| | |
Cash
flows from financing activities: | |
| | | |
| | |
Proceeds
from issuance of short term debt – related party | |
| 175 | | |
| 100 | |
Proceeds
from issuance of short term debt – other | |
| 95 | | |
| 300 | |
Proceeds
from Short-term-debt- Paycheck Protection Program | |
| - | | |
| 123 | |
Proceeds
from advances on accounts receivable – related party | |
| 136 | | |
| 123 | |
Proceeds
from advances on accounts receivable – other | |
| - | | |
| 80 | |
Payment
of advances on accounts receivable – related party | |
| (199 | ) | |
| — | |
Payment
of advances on accounts receivable – other | |
| (100 | ) | |
| (20 | ) |
Net
cash provided by financing activities | |
| 107 | | |
| 706 | |
| |
| | | |
| | |
Net
increase (decrease) in cash and cash equivalents | |
| 14 | | |
| 1 | |
Cash
and cash equivalents at beginning of period | |
| 26 | | |
| 25 | |
Cash
and cash equivalents at end of period | |
$ | 40 | | |
$ | 26 | |
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:
| |
2021 | | |
2020 | |
| |
| | |
| |
Supplementary disclosure of cash flow information | |
| | |
| |
Interest paid | |
$ | 26 | | |
$ | 6 | |
Income taxes paid | |
$ | 1 | | |
$ | 1 | |
Accounts receivable advance
converted to convertible note | |
$ | 15 | | |
$ | - | |
| |
| | | |
| | |
Non-cash financing and
investing transactions | |
| | | |
| | |
Value of warrants
issued | |
$ | - | | |
$ | 160 | |
Reclassification
of Long-term note to short-term | |
$ | 45 | | |
$ | - | |
Long-term
deferred compensation settled for Common Stock | |
$ | 279 | | |
$ | 130 | |
See
accompanying notes to these Consolidated Financial Statements
iSign
Solutions Inc.
Notes
to Consolidated Financial Statements
(In
thousands except per share amounts)
1.
Nature of Business, Basis of Presentation and Summary of Significant Accounting Policies:
The
Company:
The
Company is a leading supplier of digital transaction management (DTM) software enabling the paperless, secure and cost-effective management
of document-based transactions. iSign’s solutions encompass a wide array of functionality and services, including electronic signatures,
biometric authentication and simple-to-complex workflow management. These solutions are available across virtually all enterprise, desktop
and mobile environments as a seamlessly integrated platform for both ad-hoc and fully automated transactions. The Company’s products
and services result in legally binding transactions that are compliant with applicable laws and regulations and that can provide a higher
level of security than paper-based processes. The Company has been a leading supplier of enterprise software solutions within the financial
services and insurance industries and has delivered significant expense reduction by enabling complete document and workflow automation
and the resulting reduction in mailing, scanning, filing and other costs related to the use of paper.
The
Company’s research and development activities have given rise to numerous technologies and products. The Company’s core DTM
technologies include various forms of electronic signatures, such as handwritten biometric, click-to-sign and others, as well as signature
verification, cryptography and the logging of audit trails to show signers’ intent. These technologies can enable secure, legal
and regulatory compliant electronic transactions that can enhance customer experience at a fraction of the time and cost required by
traditional, paper-based processes. The Company’s products include SignatureOne® Ceremony™ Server,
Sign-it® and the iSign® family of products and services.
Going
concern and management plans:
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Except
for 2004, the Company has incurred significant losses since its inception and, at December 31, 2021, the Company’s accumulated
deficit was $135,689. The Company has primarily met its working capital needs through the sale of debt and equity securities. As of December
31, 2021, the Company’s cash balance was $40. 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.
In
December 2019, an outbreak of a novel strain of coronavirus (COVID-19) originated in Wuhan, China and has since spread to a number of
other countries, including the U.S. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. Since March
11, 2020 states in the U.S., including California, where the Company is headquartered, have begun to open up as the result of the development
of vaccines to thwart the spread of the virus. New variants of COVID-19 have surfaced around the world, including the United States which
may cause additional closures of economies depending on how virulent the new strains are. New COVID-19 variant outbreaks may further
disrupted supply chains and affected production and sales across a wide range of industries. The extent of the impact of new COVID-19
outbreaks on our operational and financial performance will depend on certain developments, including the duration and further spread
of the outbreak, continued impact on our customers, employees and vendors all of which are uncertain and cannot be predicted.
iSign
Solutions Inc.
Notes
to Consolidated Financial Statements
(In
thousands except per share amounts)
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.
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, 2021 and December
31, 2020, 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, 2021 and December 31, 2020, the carrying values of accounts receivable and accounts payable approximated
their fair values.
iSign
Solutions Inc.
Notes
to Consolidated Financial Statements
(In
thousands except per share amounts)
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).
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:
| |
2021 | | |
2020 | |
Cash in
bank | |
$ | 40 | | |
$ | 26 | |
Cash
and cash equivalents | |
$ | 40 | | |
$ | 26 | |
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.
iSign
Solutions Inc.
Notes
to Consolidated Financial Statements
(In
thousands except per share amounts)
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.
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 $3 for the years ended December 31, 2021 and 2020, respectively.
Long-lived
assets:
The
Company evaluates the recoverability of its long-lived 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, 2021
and 2020, 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’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.
iSign
Solutions Inc.
Notes
to Consolidated Financial Statements
(In
thousands except per share amounts)
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, 2021, the Company recognized $215 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.
iSign
Solutions Inc.
Notes
to Consolidated Financial Statements
(In
thousands except per share amounts)
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, 2021 and 2020, respectively.
iSign
Solutions Inc.
Notes
to Consolidated Financial Statements
(In
thousands except per share amounts)
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,
2021 | | |
December 31,
2020 | |
Common Stock subject to outstanding
options | |
| 1,338 | | |
| 1,338 | |
Common Stock subject to outstanding warrants | |
| 1,450 | | |
| 3,001 | |
Common stock subject to outstanding convertible
debt plus accrued interest | |
| 7,443 | | |
| 6,761 | |
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 2021 and 2020 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 2018, and state tax examinations for years before 2017.
The
Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.
iSign
Solutions Inc.
Notes
to Consolidated Financial Statements
(In
thousands except per share amounts)
Recently
issued accounting pronouncements:
Accounting Standards
Update No. 2021-10, Government Assistance (Topic 832). The amended guidance in this update was issued in November 2021 to increase
the transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity’s accounting
for the assistance, and (3) the effect of the assistance on an entity’s financial statements. The disclosures about government
assistance in the notes to financial statements will provide comparable and transparent information to investors and other financial
statement users to enable them to understand an entity’s financial results and prospects for future cash flows. The amendments
in update 2021-10 are effective for all entities within its scope for financial statements for annual periods issued beginning after
December 15, 2021. Early application of the amendments is permitted.
The
Company has evaluated the effects of ASU 2021-10 and do not anticipate it having a material impact to the Company’s financial statements.
Other
Accounting Standards Updates issued in 2021 are not currently applicable to the Company, therefore implementation would not be expected
to have a material impact on the Company’s financial position, results of operations and cash flows.
The
following table summarizes accounts receivable and revenue concentrations:
| |
Accounts
Receivable As of December 31, | | |
Total
Revenue for the
year ended
December 31, | |
| |
2021 | | |
2020 | | |
2021 | | |
2020 | |
Customer #1 | |
| - | | |
| - | | |
| − | % | |
| 10 | % |
Customer #2 | |
| - | | |
| - | | |
| 25 | % | |
| 23 | % |
Customer #3 | |
| - | % | |
| 23 | % | |
| 19 | % | |
| 23 | % |
Customer #4 | |
| 16 | % | |
| 20 | % | |
| − | % | |
| - | |
Customer #5 | |
| 83 | % | |
| 57 | % | |
| 38 | % | |
| 25 | % |
Total concentration | |
| 99 | % | |
| 100 | % | |
| 82 | % | |
| 81 | % |
The
following table summarizes sales concentrations:
| |
December 31,
2021 | | |
December 31,
2020 | |
Sales within the United States | |
| 38 | % | |
| 75 | % |
Sales outside of
the United States | |
| 62 | % | |
| 25 | % |
Total | |
| 100 | % | |
| 100 | % |
| 3. | Property
and equipment: |
Property
and equipment, net at December 31, consists of the following:
| |
2021 | | |
2020 | |
Computer equipment and software | |
$ | 29 | | |
$ | 24 | |
Less accumulated depreciation
and amortization | |
| (24 | ) | |
| (19 | ) |
| |
$ | 5 | | |
$ | 5 | |
iSign
Solutions Inc.
Notes
to Consolidated Financial Statements
(In
thousands except per share amounts)
| 4. | Accounts
Payable and Other accrued liabilities: |
During
the year ended December 31, 2020 the Company entered into settlement agreements with several of its vendors whereby the Company paid
$150 in cash in settlement of approximately $313 in outstanding accounts payable. The settlement agreements discussed above resulted
in gain of $163 recorded as other income in the statement of operations. There werer no such settlement agreement reached during the year ended December 31, 2021.
The
Company records other liabilities based on reasonable estimates for expenses, or payables that are known or estimated including deposits,
taxes, rents and services.
The
Company had the following other accrued liabilities at December 31:
| |
2021 | | |
2020 | |
Accrued interest | |
$ | 1,170 | | |
$ | 849 | |
Delaware Franchise tax | |
| 264 | | |
| 238 | |
Other | |
| 54 | | |
| 54 | |
Total | |
$ | 1,488 | | |
$ | 1,141 | |
The
Company had the following other long-term accrued liabilities at December 31:
| |
2021 | | |
2020 | |
Management fees | |
$ | 608 | | |
$ | 912 | |
Other long –term
liabilities | |
| 45 | | |
| 45 | |
Total | |
$ | 653 | | |
$ | 957 | |
The table below break down
the Company’s debt into its related components as of December 31:
| |
2021 | | |
2020 | |
| |
Advances | | |
Note
Payable | | |
Total | | |
Advances | | |
Note
Payable | | |
Total | |
Short-term debt related party | |
$ | 30 | | |
$ | 972 | | |
$ | 1,002 | | |
$ | 123 | | |
$ | 942 | | |
$ | 1,065 | |
Short-term debt other | |
$ | 225 | | |
$ | 1,797 | | |
$ | 2,022 | | |
$ | 60 | | |
$ | 1,747 | | |
$ | 1,807 | |
Short-term debt – Paycheck protection Program | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 123 | | |
$ | 123 | |
Advances:
In
January and March 2020, the Company received, from related parties and others, advances aggregating $150 in cash against certain accounts
receivable of the Company. Upon collection of an invoice, the Company agreed to repay the advance to the lenders on a pro rata basis
together with a 5% advance fee. On March 25, 2020, the related parties and others converted their advances into unsecured notes. The
Company paid the advance fees of $8 in cash, and recorded them as interest expense in the quarter ended March 31, 2020.
In
August and September 2020, the Company received, from two related parties, advances aggregating $83 in cash against certain accounts
receivable of the Company. Upon collection of an invoice, the Company agreed to repay the advance to the lenders on a pro rata basis
together with a 5% advance fee. The Company has accrued the advance fees of $4 which is included in interest expense in the quarter ended
September 30, 2020.
During
the three months from October to December 2020, the Company received from related parties and others advances aggregating $120 in cash
against certain accounts receivable. The Company agreed to repay the advance to the lenders on a pro rata basis together with a 5% advance
fee. The Company repaid $20 of the advances in December 2020. The Company has accrued the advance fees of $6 which is included in interest
expense in the quarter ended December 31, 2020.
iSign
Solutions Inc.
Notes
to Consolidated Financial Statements
(In
thousands except per share amounts)
In
March 2021, the Company received, from related parties, advances aggregating $25 in cash against certain accounts receivable of the Company.
Upon collection of an invoice, the Company agreed to repay the advance to the lenders on a pro rata basis together with a 5% advance
fee. The Company accrued $1 in advance fees recorded as interest expense on the Statement of Operations.
In
April 2021, the Company re-paid $49 of Accounts Receivable Advances and $6 in accrued but unpaid 5% advance fees to an affiliate. In
addition the Company repaid to another affiliate $64 of Accounts Receivable Advances and $4 in accrued but unpaid 5% advance fees.
In
July 2021, the Company received $10 in cash from an affiliate as an advance against certain accounts receivable. The company accrued
a 5% advance fee and recorded $1 as interest expense during the three months ended September 30, 2021. Upon collection of the accounts
receivable the Company will repay the advance plus the 5% fee.
In
August and September 2021, the Company received $50 and $36, respectively in cash from an affiliate as advances against certain
accounts receivable. The company accrued a 5% advance fees in August and September 2021, and recorded $4 as interest expense during the
three months ended September 30, 2021. Upon collection of the accounts receivable the Company will repay the advances plus the 5% fee.
In
December 2021, the Company re-paid $66 in Accounts Receivable Advances and $3 in accrued but unpaid 5% advance fees to two related parties.
Notes
payable
In
November 2016, the Company issued long-term unsecured convertible promissory notes to investors and affiliates of the Company aggregating
$760 in cash. The Company also issued the same long-term notes to affiliates in exchange for an aggregate of $200 in demand notes that
had been issued earlier in September and October of 2016. The long-term notes are mandatorily convertible into Common Stock at a conversion
rate of the lesser of $0.50 per share (initially, $1.30 per share and subsequently reduced in connection with the May 2017 described
below) or the price per share of Common Stock, upon closing a new debt and or equity financing of at least $1,000 in aggregate proceeds.
In December 2018, the Company increased the interest rate on its unsecured notes from 6% to 10% beginning January 1, 2019. In December
of 2020 the note holders agreed to extend the due date of the notes from December 31, 2020 to December 31, 2021. The Company issued warrants
to purchase 277 shares of Common Stock in connection with these long-term notes. The Company ascribed a value of $204 to the 277 warrants
and recorded a discount to the long-term notes and a corresponding amount to additional paid-in capital. The discount is being amortized
using the effective interest method over the term of the notes.
In
May 2017, the Company issued secured convertible promissory notes to investors and affiliates of the Company aggregating $325 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. 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 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 increased the interest
rate on its unsecured notes from 6% to 10% beginning January 1, 2019. In December of 2020, the note holders agreed to extend the due
date of the notes from December 31, 2020 to December 31, 2021.
In
December 2017, the Company issued additional secured convertible promissory notes to investors and affiliates of the Company aggregating
$150 in cash. The secured notes have substantially the same terms as the secured notes issued in the May 2017 financing.
iSign
Solutions Inc.
Notes
to Consolidated Financial Statements
(In
thousands except per share amounts)
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 shareof 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 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 of 2020, the note holders agreed to extend the due
date of the notes from December 31, 2020 to December 31, 2021.
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. In December of 2020, the note holders agreed to extend the due date of the notes from
December 31, 2020 to December 31, 2021.
On
March 25, 2020, the Company issued an aggregate of $150 in unsecured notes to related parties and other investors. The Company received
$75 in cash and $75 in exchange for advances on certain accounts receivable. The unsecured notes are convertible by the holder into common
stock at any time at a price per share of $0.50. Upon closing a new financing of at least $1,000 in aggregate proceeds, the Company can
force conversion at a price equal to the lesser of $0.50 per share or the price per share of the new financing. The notes bear interest
at the rate of 10%per annum and are due December 31, 2021.
On
May 6, 2020, the Company received loan proceeds in the amount of approximately $123 under the Paycheck Protection Program (“PPP”).
The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to
qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The Companies may
apply for the loans and accrued interest to be forgiven after a period of either eight or twenty-four weeks, as long as the borrower
uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The
amount of loan forgiveness may be reduced if the borrower terminates employees or reduces salaries during the period in question. Under
the terms of the related promissory note, the unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%,
with a deferral of payments for the first six months. The Company used the proceeds for purposes consistent with the PPP. While the Company
currently believes that its use of the loan proceeds meet the conditions for forgiveness of the loan, we cannot assure you that we did
not take actions that caused the Company to be ineligible for forgiveness of the loan, in whole or in part.
On
June 19, 2020, the Company issued an additional unsecured note for $250,000. The note has the same terms and maturity date as the Company’s
other unsecured notes.
On
July 1, 2020 the Company entered into a settlement agreement with one of its vendors whereby the Company paid $135 in cash and issued
a promissory note in the amount of $130 in settlement of approximately $537 in outstanding accounts payable. The note bears interest
at the rate of 4% per annum and is due in installments of $40, $45 and $45 on or before the anniversary date of the note over the next
three years. The settlement agreement discussed above resulted in gain of $272 recorded as other income in the statement of operations.
On
February 28, 2021, the Company issued an aggregate of $75 in unsecured notes, $30 to related parties and $45 to other investors. The
Company received $15 in cash and $15 in exchange for an account receivable advance, received in the prior year, from related parties,
and $45 in cash from other investors. The unsecured notes are convertible by the holder into common stock at any time at a price per
share of $0.50. Upon closing a new financing of at least $1,000 in aggregate proceeds, the Company can force conversion at a price equal
to the lesser of $0.50 per share or the price per share of the new financing. The notes bear interest at the rate of 10% per annum and
are due December 31, 2022.
iSign
Solutions Inc.
Notes
to Consolidated Financial Statements
(In
thousands except per share amounts)
In
June 2021, the Company paid the first installment in the amount of $40 plus accrued interest of $5 of a note entered into associated
with a settlement agreement dated July 1, 2020 with one of its vendors. The remaining $90 plus interest at the rate of 4% per annum is
due in two installments, June of 2022 and June of 2023.
In
August 2021 the Company applied for full loan and interest forgiveness of its PPP loan. In September 2021 the Company received notification
that the PPP had been forgiven in full and the Company record $125 in other income on the Statement of Operations related to the forgiveness
of the debt plus accrued interest.
In
September 2021 the Company received notification that the loan related to the Paycheck Protection Program had been forgiven in full.
The Company record $125 of other income on the Statement of Operations related to the forgiveness of the debt plus accrued interest.
On
September 30, 2021 the Company issued a note to one a related party investor and received $75 in cash. The note bears interest at
the rate of 20% per annum and is due upon demand following ten calendar days prior written notice starting on January 1,
2022.
In
November 2021, the Company received $100 in cash and issued two notes in the amount of $50 each to a related and an unrelated party.
The notes bear interest at the rate of 20% per annum and are due upon demand following ten calendar days prior written notice starting
on March 29, 2022.
In
December 2021, the Company received $50 in cash and issued a note aggregating $50 to a related party. The note bears interest at the
rate of 20% per annum and is due upon demand following ten calendar days prior written notice starting on March 29, 2022.
During
the twelve months ended December 31, 2021, the Company accrued $349 of interest expense, $305 associated with the notes, of which $126
was to related parties and $179 was to other investors.
The
Company recorded $0 in debt discount amortization for the twelve months ended December 31, 2021 related to the above debt financings.
iSign
Solutions Inc.
Notes
to Consolidated Financial Statements
(In
thousands except per share amounts)
Common
stock options
At
December 31, 2020, the Company has one stock-based employee compensation plan, the 2011 Stock Compensation Plan. The Company may also
grant options to employees, directors and consultants outside of the 2011 plan under individual plans.
Information
with respect to the Stock Compensation Plan at December 31, 2020 is as follows:
|
|
2011
Stock
Compensation Plan |
Shares authorized for issuance |
|
1,750 |
Option vesting period |
|
Immediate/Quarterly over 3 years |
Date adopted by shareholders |
|
November 2011 |
Option term |
|
7 Years |
Options outstanding |
|
1,338 |
Options exercisable |
|
1,166 |
Weighted average exercise price |
|
$0.87 |
Valuation
and Expense Information:
The
weighted-average fair value of stock-based compensation is based on the Black Scholes Merton valuation model. Forfeitures are estimated
and it is assumed no dividends will be declared. The estimated fair value of stock-based compensation awards to employees is amortized
over the vesting period of the options.
There
were no stock options granted by the Company during 2021. The Company granted 290 stock options during 2020 at a weighted average exercise
price of $0.50 per share. The fair value calculations for the stock options granted are based on the following assumptions:
|
|
Year
Ended
December 31,
2020 |
Risk free interest rate |
|
0.18% |
Expected life (years) |
|
6.4 |
Expected volatility |
|
164.00% |
Expected dividends |
|
None |
Estimated average forfeiture
rate |
|
2.15% |
The
following table summarizes the allocation of stock-based compensation expense for the years ended December 31, 2021 and 2020. There were
no stock options exercised during the years ended December 31, 2021 and 2020.
| |
December 31,
2021 | | |
December 31,
2020 | |
Research and development | |
$ | - | | |
$ | 7 | |
General and administrative | |
| 44 | | |
| 73 | |
Director options and
consultants | |
| 18 | | |
| 23 | |
Stock-based compensation
expense included in operating expenses | |
$ | 63 | | |
$ | 103 | |
As
of December 31, 2021, there was $24 of total unrecognized compensation cost related to non-vested share-based compensation arrangements.
The unrecognized compensation cost is expected to be recognized over a weighted average period of 1.0 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,
2021.
iSign
Solutions Inc.
Notes
to Consolidated Financial Statements
(In
thousands except per share amounts)
The
summary activity for the Company’s 2011 Stock Compensation Plans is as follows:
| |
December
31, 2021 | | |
December
31, 2020 | |
| |
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 | |
| 1,338 | | |
$ | 0.87 | | |
$ | 1,386 | | |
| | | |
| 1,077 | | |
$ | 1.59 | | |
$ | - | | |
| | |
Granted | |
| | | |
$ | - | | |
$ | - | | |
| | | |
| 290 | | |
$ | 0.50 | | |
$ | - | | |
| | |
Forfeited/
Cancelled | |
| | | |
$ | - | | |
$ | - | | |
| | | |
| (29 | ) | |
$ | 23.63 | | |
$ | - | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Outstanding
at period end | |
| 1,338 | | |
$ | 0.87 | | |
$ | 1,386 | | |
| 3.59 | | |
| 1,338 | | |
$ | 0.86 | | |
$ | - | | |
| 4.97 | |
Options
vested and exercisable at period end | |
| 1,165 | | |
$ | 0.93 | | |
$ | 1,143 | | |
| 3.30 | | |
| 957 | | |
$ | 0.97 | | |
$ | - | | |
| 4.75 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Weighted
average grant-date fair value of options granted during the period | |
$ | 0.78 | | |
| | | |
| | | |
| | | |
$ | 0.43 | | |
| | | |
| | | |
| | |
The
following table summarizes significant ranges of outstanding and exercisable options as of December 31, 2021:
| |
| 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 | |
| 1,323 | | |
| 3.62 | | |
$ | 0.58 | | |
| 1,050 | | |
$ | 0.63 | |
$25 – $625 | |
| 15 | | |
| 0.08 | | |
$ | 26.81 | | |
| 27 | | |
$ | 38.56 | |
| |
| 1,338 | | |
| 3.59 | | |
$ | 0.87 | | |
| 1,077 | | |
$ | 1.59 | |
A
summary of the status of the Company’s non-vested shares as of December 31, 2021 is as follows:
Non-vested
Shares | |
Shares | | |
Weighted
Average
Grant-Date Fair
Value
per share | |
Non-vested at January 1, 2020 | |
| 381 | | |
| 417 | |
Granted | |
| | | |
| 290 | |
Canceled/Forfeited | |
| - | | |
| - | |
Vested | |
| (208 | ) | |
| (326 | ) |
Non-vested at December
31, 2021 | |
| 172 | | |
| 381 | |
iSign
Solutions Inc.
Notes
to Consolidated Financial Statements
(In
thousands except per share amounts)
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.
Common Stock
In June 2021, the Company,
with approval of the Board of Directors, reallocated all of the $560,000 of accrued compensation owed to SG Phoenix in equal parts to
Mr. Sassower and Mr. Goren, according to their respective ownership in SG Phoenix. Mr. Sassower settled $280,000 of Accrued Long-term
deferred salary allocated to him into 560,000 shares of the Company’s Common Stock at a price of $0.50 per share, which was substantially
above the then current market price of the company’s common stock.
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
On
February 6, 2019, the Company issued warrants to purchase 985 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 Company ascribed a value of $64 to the warrants using
Black Scholes Merton pricing model. The warrant value is recorded in general and administrative expense in the Statement of Operations.
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. There
were no warrant exercises in 2020 and 2019.
On
January 28, 2020, the Company issued 30 warrants to a consultant for services. The warrants are exercisable for three years with an exercise
price of $0.50 per share. The Company ascribed a value of $13 to the warrants which is based on the Black-Scholes-Merton valuation model.
The warrant cost was charged to general and administrative expense during the period.
On
July 9, 2020, the Company entered into a settlement agreement with a vendor. In addition to a cash payment the Company issued 10 warrants
to purchase 10 shares of common stock in settlement of the outstanding accounts payable balance. The warrants are exercisable for five
years with an exercise price of $0.50 per share. The Company ascribed a value of $3 to the warrants based on the Black-Scholes-Merton
valuation model. The warrant cost was charged to general and administrative expense during the period.
On
August 11, 2020, the Company issued warrants to purchase 425 shares of common stock to 2 consultants in connection with the accrued compensation
owed by the Company to the consultants. The Company ascribed a value of $160 to the warrants using Black Scholes Merton pricing model.
The warrant value are recorded in general and administrative expense in the Statement of Operations. The warrants are exercisable for
three years from the date of grant with an exercise price of $0.50 per share. The above 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
June 2021, the Company transferred from SGP to Andrea Goren the Common Stock Purchase Warrant numbers 19-01 and 20-2, respectively dated
February 6, 2019 and August 11, 2020 (the “SGP Warrants”) to purchase Seven Hundred Thousand (700,000) and Two hundred Fifty
Thousand (250,000) shares of Company common stock, respectively.
There
were no warrants issued by the Company and there were no warrant exercised during the twelve month ended December 31, 2021
iSign
Solutions Inc.
Notes
to Consolidated Financial Statements
(In
thousands except per share amounts)
A
summary of the warrant activity is as follows:
| |
December
31, 2021 | | |
December
31, 2020 | |
| |
Shares | | |
Weighted
Average Exercise Price per share | | |
Shares | | |
Weighted
Average Exercise Price
per share | |
Outstanding at beginning of period | |
| 3,000 | | |
$ | 1.52 | | |
| 2,536 | | |
$ | 1.52 | |
Issued | |
| | | |
| | | |
$ | 465 | | |
$ | 0.50 | |
Expired | |
| 1,550 | | |
| | | |
$ | - | | |
$ | - | |
Outstanding at end of period | |
| 1,450 | | |
$ | 0.50 | | |
| 3,001 | | |
$ | 1.37 | |
Exercisable at end of period | |
| 1,450 | | |
$ | 0.50 | | |
| 3,001 | | |
$ | 1.37 | |
A
summary of the status of the warrants outstanding as of December 31, 2021 is as follows:
Number
of Shares Outstanding and Exercisable | |
Weighted
Average Remaining
Life
(in years) | | |
Weighted
Average Exercise Price per share | |
985 | |
| 0.10 | | |
$ | 0.50 | |
465 | |
| 1.64 | | |
$ | 0.50 | |
1,450 | |
| 0.59 | | |
$ | 0.50 | |
As
of December 31, 2021, 1,450 shares of Common Stock were reserved for issuance upon exercise of outstanding options and warrants.
Phoenix is the beneficial
owner of approximately 16.9% of the Common Stock of the Company when calculated in accordance with Rule 13d-3
In March 2021, the Company
received, from related parties, advances aggregating $25 in cash against certain accounts receivable of the Company. Upon collection of
an invoice, the Company agreed to repay the advance to the lenders on a pro rata basis together with a 5% advance fee. The Company accrued
$1 in advance fees recorded as interest expense on the Statement of Operations.
In April 2021, the Company
re-paid $49 of Accounts Receivable Advances and $6 in accrued but unpaid 5% advance fees to an affiliate. In addition the Company repaid
to another affiliate $64 of Accounts Receivable Advances and $4 in accrued but unpaid 5% advance fees.
In June 2021, the Company,
with approval of the Board of Directors, reallocated all of the $560 of accrued compensation owed to SG Phoenix in equal parts to
Mr. Sassower and Mr. Goren, according to their respective ownership in SG Phoenix. Mr. Sassower settled $280 of Accrued Long-term
deferred salary allocated to him into 560,000 shares of the Company’s Common Stock at a price of $0.50 per share, which was substantially
above the then current market price of the company’s common stock.
In July 2021, the Company
received $10 in cash from an affiliate as an advance against certain accounts receivable. The company accrued a 5% advance fee and
recorded $0.5 as interest expense during the three months ended September 30, 2021. Upon collection of the accounts receivable the Company
will repay the advance plus the 5% fee.
In August and September 2021,
the Company received $50 and $36, respectively in cash from an affiliate as advances against certain accounts receivable. The
company accrued a 5% advance fees in August and September 2021, and recorded $4 as interest expense during the three months ended September
30, 2021. Upon collection of the accounts receivable the Company will repay the advances plus the 5% fee.
iSign
Solutions Inc.
Notes
to Consolidated Financial Statements
(In
thousands except per share amounts)
In December 2021, the Company
re-paid $66 in Accounts Receivable Advances and $3 in accrued but unpaid 5% advance fees to two related parties.
There were no
stock option grants to affiliates of the Company during the twelve months ended December 31, 2021.
| 8. | Commitments
and Contingencies: |
Lease
commitments
The
Company maintains no leases. The Company rents approximately 160 square feet of office space in
San Jose California. The office space is on a month to month rental basis and can be surrendered at any time without penalty.
Office rent expense was approximately $36 and $36 in 2021 and 2020, respectively.
Legal
Contingencies
There
are no material pending legal proceedings to which we are a party or to which any of our property is subject, nor are there any such
proceedings known to be contemplated by governmental authorities. None of our directors, officers or affiliates is involved in a proceeding
adverse to our business or has a material interest adverse to our business.
Management
regularly assesses the ability to realize deferred tax assets recorded based upon the weight of available evidence, including such factors
as recent earnings history and expected future taxable income on a jurisdiction by jurisdiction basis. In the event that the Company
changes its determination as to the amount of realizable deferred tax assets, the Company will adjust its valuation allowance with a
corresponding impact to the provision for income taxes in the period in which such determination is made. The Company’s management
believes that, based on a number of factors, it is more likely than not, that all or some portion of the deferred tax assets will not
be realized; and accordingly, for the year ended December 31, 2021, the Company has provided a valuation allowance against the Company’s
U.S. net deferred tax assets.
At
December 31, 2021, the Company had net operating loss carryforwards of $53,031 for federal income tax purposes which will begin to expire
in 2022 if unused. The Company had net operating loss carryforwards for state income tax purposes of approximately $37,850. These state
net operating losses carryforwards will begin to expire in the year 2028 if unused.
iSign
Solutions Inc.
Notes
to Consolidated Financial Statements
(In
thousands except per share amounts)
Deferred
tax assets and liabilities at December 31 consist of the following:
| |
2021 | | |
2020 | |
Deferred tax assets: | |
| | |
| |
Net operating
loss carry-forwards | |
$ | 13,780 | | |
$ | 16,281 | |
Accruals and reserves | |
| 333 | | |
| 366 | |
Deferred revenue | |
| 57 | | |
| 60 | |
Intangibles | |
| 130 | | |
| 188 | |
Other, net | |
| 198 | | |
| 228 | |
Fixed
assets | |
| - | | |
| - | |
Gross tax assets | |
| 14,498 | | |
| 17,123 | |
Valuation
allowance | |
| (14,498 | ) | |
| (17,123 | ) |
Realizable
deferred tax asset | |
| - | | |
| - | |
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, 2021 and December 31, 2020:
The
components of the net deferred tax assets and liabilities are as follows:
| |
2021 | | |
2020 | |
Income tax benefit at the federal
statutory rate | |
$ | (102 | ) | |
$ | (142 | ) |
State income tax benefit | |
| (33 | ) | |
| (47 | ) |
NOL expiration | |
| 2,703 | | |
| - | |
Prior year true-ups | |
| 49 | | |
| (79 | ) |
Permanent items and other | |
| - | | |
| 4 | |
Tax cuts and Jobs Act Rate Change | |
| 9 | | |
| - | |
Change in valuation
allowance | |
| (2,625 | ) | |
| 265 | |
Income
tax expense | |
$ | 1 | | |
$ | 1 | |
A
full valuation allowance has been established for the Company’s net deferred tax assets since the realization of such assets through
the generation of future taxable income is uncertain.
Current
tax laws impose substantial restrictions on the utilization of net operating losses and credit carryforwards in the event of an “ownership
change”, as defined by the Internal Revenue Code (IRC). If there should be an ownership change, the Company’s ability to
utilize its carryforwards could be limited.
On
March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was passed into law. The CARES Act includes
several significant business tax provisions including modification to the taxable income limitation for utilization of net operating
losses (“NOLs”) incurred in 2019 and 2020 and the ability to carry back NOLs from those years for a period of up to five
years, an increase to the limitation on deductibility of certain business interest expense, bonus depreciation for purchases of qualified
improvement property and special deductions on certain corporate charitable contributions. We analyzed the provisions of the CARES Act
and determined there was no net effect on our provision for the year ended December 31, 2021.
On
January 11, 2022 the Company received an aggregate of $50 in two demand notes from other investors. The note bear interest at the rate
of 20% per annum and is due upon demand following ten calendar days prior written notice starting on March 15, 2022. In addition the
Company re-paid a total of $135 in demand notes, $30 to a related party and $100 to other investors plus accrued interest of $5.
On February 1, 2022, a related party exercised
15 warrants on a cashless basis and having an exercise price of $0.50 per share. The Company issued 11 freely tradeable shares of the
Company’s common stock as settlement of the exercise.
false
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