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, 20162017

☐Transition Report Pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934

for the transition period from_______from to _______

Commission File No. 000-19301

iSign Solutions Inc.

(Exact name of registrant as specified in its charter)

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☒Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant'sregistrant’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, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the act (check one):Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐  No☒

The aggregate market value of the voting stock (Common Stock) held by non-affiliates of the registrant as of June 30, 20162017 was approximately $5,004,624$2,012,144 based on the closing sale price of $1.31$0.50 on such date, as reported by OTC Markets Group Inc. The number of shares of Common Stock outstanding as of the close of business on March 31, 2017April 2, 2018 was 5,761,980.

DOCUMENTS INCORPORATED BY REFERENCEREFFERENCE

iSign SOLUTIONS INC

TABLE OF CONTENTS

iSign’s logo, iSign^®, InkTools^® SIGVIEW^®, Sign-it^®, INKshrINK^®, SignatureOne^®, Ceremony^®, Signed, Sealed, Delivered^® and The Power To Sign Online^®are registered trademarks of the Company. The Company intends to register its trademarks generally in those jurisdictions where significant marketing of its products will be undertaken in the foreseeable future.

Note Regarding Forward Looking Statements

Certain statements contained in this Annual Report on Form 10-K, including without limitation, statements containing the words “believes”, “anticipates”, “hopes”, “intends”, “expects”, and other words of similar import, constitute “forward looking” statements within the meaning of the Private Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual events to differ materially from expectations. Such factors include the following: (1) technological, engineering, quality control or other circumstances which could delay the sale or shipment of products; (2) economic, business, market and competitive conditions in the software industry and technological innovations which could affect the Company’s business; (3) the Company’s ability to protect its trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others or prevent others from infringing on the proprietary rights of the Company; and (4) general economic and business conditions and the availability of sufficient financing.

PART I

Item 1.Business

General

iSign Solutions Inc., f/k/a Communication Intelligence Corporation (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 Redwood Shores,San Jose, California.

For the year ended December 31, 2016,2017, total revenue was $1,065,$1,013, a decrease of $555,$52, or 34%5%, compared to total revenue of $1,620$1,065 in the prior year. For the year ended December 31, 2016,2017, software product revenue was $325,$322, a decrease of $413,$3, or 56%1%, compared to product revenue of $738$325 in the prior year. Maintenance revenue for the year ended December 31, 2016,2017, was $740,$691, a decrease of $142,$49, or 16%7%, compared to maintenance revenue of $882$740 in the prior year. The decreases are primarily attributable to the Company’s efforts to restructure its operations in favor of partner-generated recurring revenue.

For the year ended December 31, 2016,2017, the net loss attributable to common stockholders was $5,057,$1,947, a decrease of $2,562,$3,110, or 34%61%, compared to $7,619$5,057 in the prior year. For the year ended December 31, 2016,2017, non-cash charges attributable to the write-off of the interest in the Chinese joint venture, interest expense, financing and loan discount amortization and the accretion of the beneficial conversion feature were $797, an increase$759, a decrease of $176,$94, or 28%11%, compared to $621$853 in the prior year. There was ano gain of $330 on the derivative liability value for the year ended December 31, 2016,2017, compared to a gain of $18$330 in the prior year. For the year ended December 31, 2016,2017, operating expenses were $4,274,$2,571, a decrease of $1,171,$1,703, or 22%40%, compared to operating expenses of $5,445$4,274 for the prior year. The decrease in operating expense resulted from reductionreductions in full time employees and expenses associated with the Company’s efforts to restructure its operations in favor of a partner-generated recurring revenue.revenue model.

Core Technologies

The Company'sCompany’s core technologies can be referred to as "transaction-enabling”“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:

Products and upgrades that were introduced and first deployed in 20162017 include the following:

Intellectual Property

The Company relies on a combination of patent applications, trademarks, trade secrets and contractual provisions to protect its software offerings and technologies. The Company has a policy of requiring its employees and contractors to commit to the protection of proprietary information through written agreements. The Company also has a policy of requiring prospective business partners to enter into non-disclosure agreements before disclosure of any of its proprietary information.

Over the years, the Company has developed and patented major elements of its software offerings and technologies. The Company currently has the following applications pending:

The Company’s technologies go beyond simple electronic signature and include biometric signatures, verification solutions, authentication and validation methods, that result in signed documents that are secure, legal and tamper-resistant.

The Company has over 20 registered and unregistered trademarks in the United States and other countries. The Company intends to register its trademarks in those jurisdictions where significant marketing of its products will be undertaken in the foreseeable future.

Research and Development

Our research and development effort is focused on the development, advancement and refinement of our core products and the development of new products. In addition, our research and development team is responsible for the continuous quality measurement and assurance of both existing and new products. We conduct research on software technology, related computer hardware, competitive offerings and alternative solution approaches to develop appropriate product and service offerings for our target markets. Our research and development efforts are often aimed at assisting clients and licensees in further streamlining new and existing workflow processes that our software solutions support and at ensuring that we meet or exceed industry standards and competitive offerings. We provide certain customization and integration services to our clients, including software integration partners and enterprise customers. These efforts are conducted by our team in San Jose, California, supported by contracted staff, including offshore engineers.

We believe that our software technologies, platforms and products are now competitive and, while research and development activities will remain at the core of our operations, we intend, going forward, to invest an increasing amount of our resources in sales and marketing activities.

Our research and development expense was $1,135 for the year ended December 30, 2017 and $1,322 for the year ended December 30, 2016 and $1,771 for the year ended December 31, 2015.2016.

Material Customers

Historically, the Company’s revenue has been derived from hundreds of customers, but a significant percentage of the revenue has been attributable to a limited number of customers. Three customers, as described in Note 2 to the Consolidated Financial statements, accounted for 13%, 13%14% and 23%30%, respectively, of total revenue for the year ended December 31, 2016.2017.

Seasonality of Business

The Company believes that the sale of its products is not subject to seasonal fluctuations.

Backlog

Backlog was approximately $573$485 and $839$573 at December 31, 20162017 and 2015,2016, respectively, representing advanced payments on product and service maintenance agreements. In 2014, the Company negotiated a long term maintenance agreement, the balance of which is $315$175 at December 31, 2016,2017, which will be recognized over four years. The remaining backlog is expected to be recognized over the next twelve months.

Competition

We believe that our primary competitive advantages include the following:

Currently, our primary competition for basic click-to-sign electronic signatures includes Adobe EchoSign, DocuSign and Silanis (recently acquired by 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, 2016,2017, the Company employed teneight full-time employees and foureight 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, 20162017 and 2015,2016, sales in the United States as a percentage of total sales werewas 88% and 93%, respectively. At December 31, 20162017 and 2015,2016, long-lived assets located in the United States were $306$30 and $664,$306, respectively. There were no long-lived assets located elsewhere as of December 31, 20162017 and 2015.2016.

Segments

The Company reports its financial results in one segment.

Available Information

Our web site is located atwww.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 atwww.sec.gov.

Item 1A.Risk Factors

Not applicable.

Item 1B.Unresolved Staff Comments

None.

Item 2.Properties

The Company leases its principal facilities, consisting of approximately 2,400 square feet, in San Jose California, pursuant to a lease that expires in 2019.

Item 3.Legal Proceedings

None.

Item 4.Mine Safety Disclosures

None.

PART II

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

The Company’s common stock (“Common Stock”) is quoted on OTC Markets Group Inc.’s OTCQBOTC Pink quotation system under the trading symbol ISGN. Trading activity for the Company’s Common Stock can be viewed at www.otcmarkets.com.www.otcmarkets.com. The following table sets forth the high and low sale prices of the Common Stock for the periods noted.

Holders

As of March 20, 20172018, there were approximately 146 holders of record of our Common Stock.

Dividends

To date, the Company has not paid any dividends on its Common Stock and does not anticipate paying any such dividends in the foreseeable future. The declaration and payment of dividends on the Common Stock is at the discretion of the Board of Directors and will depend on, among other things, the Company'sCompany’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

All securities sold during 2016 by the Company were either previously reported on a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K filed with the SEC.None

Issuer Purchases of Equity Securities

None.

Item 6.Selected Financial Data

Not applicable.

Not applicable.

Item 7.Management'sManagement’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.

On November 30, 2015, the Company filed an Issuer Company-Related Action Notification Form with FINRA requesting that the name change and a change to the trading symbol of its Common Stock from “CICI” to “ISGN” be approved. On December 11, 2015, the Company filed a Certificate of Amendment to the Amended and Restated Certificate of Incorporation with the Delaware Secretary of State to change its name from Communication Intelligence Corporation to iSign Solutions Inc. Pursuant to FINRA rules, the change in the Company’s name and trading symbol became effective at the open of business on December 14, 2015.

On January 20, 2016, the Company held its Special Meeting of Stockholders (the “Special Meeting”). At the Special Meeting, the Company’s stockholders voted on (i) an amendment to our Amended and Restated Certificate of Incorporation to effect a reverse stock split of our outstanding shares of Common Stock in a range of not less than 1-for-750 and not more than 1-for-1,250, (ii) amendments to the certificates of designation for each series of the Company’s preferred stock (“Preferred Stock”) to, among other things, (a) automatically convert the respective series of our Preferred Stock into shares of Common Stock upon the closing of a firm-commitment underwritten public offering of shares of our Common Stock at a price per share of not less than $4.00 which provides at least $8 million in gross proceeds to the Company and (b) reduce the conversion price of the respective series of our Preferred Stock, and (iii) a Second Amended and Restated Certificate of Incorporation to integrate the then-in-effect provisions of our Amended and Restated Certificate of Incorporation and further amend those provisions by, among other things, decreasing our authorized Common Stock and Preferred Stock. The voting results of the Special meeting are incorporated herein by reference to the Company’s Form 8-K dated January 22, 2016 filed with the Securities and Exchange Commission on January 22, 2016.

On May 19, 2016, the Company closed an underwritten public offering of 690 shares of Common Stock at a public offering price of $1.74 per share. In addition, the Company sold 345 warrants, at a public offering price of $0.01 per warrant, to purchase shares of Common Stock. The warrants expire on May 18, 2021 and have an exercise price of $2.175 per share. The Company raised gross cash proceeds of $1,204 before deducting underwriting discounts and commissions and other offering expenses of $780. As a result of the consummation of the offering, each series of the Company’s outstanding Preferred Stock, including accrued and unpaid dividends through May 19, 2016, were converted into shares of Common Stock.

In conjunction with the sale of Common Stock, $1,188 of short-term debt, including accrued interest of $120, was converted into 683 shares of the Company’s Common Stock. The Company issued warrants to purchase 854 shares of Common Stock with the conversion of the short–term debt. The Company ascribed a relative fair value of $586 to the warrants using the Black-Scholes-Merton valuation model, which was charged to additional paid-in capital during the quarter ended June 30, 2016.

In addition to the conversion of the short-term debt, approximately $498 of deferred compensation, including accrued interest of $59, was converted into 286 shares of the Company’s Common Stock. The Company issued warrants to purchase 352 shares of Common Stock with the conversion of the deferred compensation. The Company ascribed a relative fair value of $244 to the warrants using the Black-Scholes-Merton valuation model, which was charged to additional paid-in capital during the quarter ended June 30, 2016.

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, 2016,2017, net losses attributable to common stockholders aggregated approximately $12,676,$7,004, and at December 31, 2016,2017, the Company's accumulated deficit was approximately $130,615.$132,562.

For the year ended December 31, 2016,2017, total revenue was $1,065,$1,013, a decrease of $555,$52, or 34%5%, compared to total revenue of $1,620$1,065 in the prior year. The decrease in revenue is primarily attributable to the Company’s efforts to restructure its operations in favor of partner-generated recurring revenue.

For the year ended December 31, 2016,2017, operating expenses were $4,274,$2,571, a decrease of $1,171,$1,703, or 22%40%, compared to operating expenses of $5,445$4,274 in the prior year. The decrease in operating expenses resulted from the reduction of 43 full time employees in sales and marketing,changes to its operating expense structure, which change waschanges were made in connection with the Company’s efforts to restructuretailor its operations in favor of partner-generated recurring revenue. For the year ended December 31, 2016,2017, the loss from operations was $3,209,$1,558, a decrease of $616,$1,651, or 16%51%, compared withto a loss from operations of $3,825$3,209 in the prior year.year.

In the fourth quarter of 2015,February 2017, the Company entered into unsecured convertible promissory note purchase agreements withreceived, from investors and affiliates of the Company, advances aggregating $1,018$120 in cash. Promissory notescash against certain accounts receivable of the Company. Upon collection of the receivable, the Company would repay the advance to the lenders on a pro rata basis together with a principal amount of $1,068 plus accrued5% advance fee. The receivables were collected and the advances were repaid in March 2017, along with $6 in advance fees per the agreement. The advance fees were recorded as interest converted into shares of our Common Stock on May 19, 2016. 

The notes and accrued interest converted at a price of $1.74 per share into 683 shares of our Common Stock. The holders of the notes also received 854 warrants to purchase 854 shares of Common Stock. Such warrants have a 5-year term and are exercisable at a price of $2.175 per share. The Company ascribed a relative fair value to the warrants using the Black-Scholes-Merton valuation model of $586, which was charged to additional paid-in capital duringexpense in the quarter ended June 30, 2016.March 31, 2017.

In August 2016,May 2017, the Company issued long-term unsecuredsecured convertible promissory notes to investors and affiliates of the Company aggregating $240$505 in cash. As the promissory notes were convertible into Common Stock at a conversion rate lower than the fair market value of the Common Stock at the time of issuance, the Company recorded $103 as a beneficial conversion feature, which was recorded as a debt discount in the balance sheet. The discount was amortized using the effective interest method over the term of the notes. The proceeds from the notes were used to pay off the $200 promissory note outstanding plus accrued interest that was due on August 24, 2016. The August 2016 notes converted into 264 shares of Common Stock in November 2016 at which time the remaining debt discount was amortized. Post-conversion, the holders are entitled to receive, on a pro rata basis, cash payments payable from 3% of the revenue collected by the Company from its European customer, not to exceed one and one-half (1.5) times the aggregate principal amount of the notes.

In November 2016, the Company issued long-term unsecured convertible promissory notes toaddition, certain investors and affiliates of the Company aggregating $700that had taken part in cash. The Companythe November 2016 financing, and that also issued long-termparticipated in the May 2017 financing, exchanged $450 of unsecured convertible promissory notes to affiliatesreceived in exchangethe November 2016 financing for an aggregate of $200 in demand$250 secured notes with the same terms as the notes issued in Septemberthe May 2017 financing and October of 2016.$200 in unsecured notes with the same terms as the November 2016 financing. The secured notes are mandatorily convertible into Common Stock at a conversion rate of the lesser of $1.30$0.50 per share or the price per share of Common Stock upon closing a new debt and or equity financing of at least $1,000 in aggregate proceeds. The secured notes bear interest at the rate of 6%10% per annum, and are due December 31, 2018. The2018 and are secured by an interest in all the Company’s rights, title and interest in, to and under its intellectual property. Should the secured notes remain outstanding following the maturity date an additional 30% of the note’s principal amount shall become due and payable.

In December 2017, the Company issued warrantsadditional secured convertible promissory notes to purchase 277 shares of Common Stock in connection with these convertible notes. The Company ascribed a value of $204 to the warrantsinvestors and recorded a discount to the long-term notes payable and a corresponding amount to additional paid-in capital. The discount is being amortized using the effective interest method over the termaffiliates of the notes.Company aggregating $150 in cash. The secured notes have substantially the same terms as the secured notes issued in the May 2017 financing.

The Company is usingused the funds received from the above financingsfinancing for working capital and general corporate purposes.

The Company recorded $390$97 in debt discount amortization for the twelve months ended December 31, 20162017 related to the above debt financings.

New Accounting Pronouncements

See Note 1, Notes to Consolidated Financial Statements included under Part IV, Item 15 of this report on Form 10-K.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the Company’s consolidated financial statements and the accompanying notes. The amounts of assets and liabilities reported in its balance sheets and the amounts of revenue and expenses reported for each period presented are affected by these estimates and assumptions that are used for, but not limited to, revenue recognition, allowance for doubtful accounts, intangible asset impairments, fair value of financial instruments, stock based compensation and valuation allowances on deferred tax assets. Actual results may differ from these estimates. The following critical accounting policies are significantly affected by judgments, assumptions and estimates used by the Company’s management in the preparation of the consolidated financial statements.

Stock based Compensation:Stock-based compensation expense is based on the estimated grant date fair value of the portion of stock-based payment awards that are ultimately expected to vest during the period. The grant date fair value of stock-based awards to employees and directors is calculated using the Black-Scholes-Merton option pricing model. Forfeitures of share-based payment awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated and it is assumed no dividends will be declared. The estimated fair value of stock-based compensation awards to employees is amortized on an accrual basis over the vesting period of the options.

Valuation of equity warrants:The Company values warrants issued using the Black-Scholes-Merton pricing model.

Derivatives:The Company follows the relevant accounting guidance and records derivative instruments (including certain derivative instruments embedded in other contracts) in the consolidated balance sheet as either an asset or a liability measured at their fair value, with changes in the derivative’s fair value recognized currently in earnings. The Company values these derivative securities under the fair value method at the end of each reporting period (quarter), and their value is marked-to-market at the end of each reporting period with the gain or loss recorded in earnings. The Company continues to revalue these instruments each quarter to reflect their current value in light of the current market price of our Common Stock. The Company used a simulated probability valuation model to value warrants containing embedded derivative instruments. Determining the appropriate fair-value model and calculating the fair value of such warrants requires considerable judgment. Any change in the estimates (specifically, probabilities) used may cause the value to be higher or lower than that reported. The assumptions used in the model require significant judgment by management and include the following: volatility, expected term, risk-free interest rate, dividends, and warrant holders’ expected rate of return, reset provisions based on expected future financings, projected stock prices, and probability of exercise.

The conversion option included within the unsecured convertible promissory notes is accounted for as a derivative liability at its estimated fair value. The derivative is subject to re-measurement at the end of each reporting period, with changes in fair value recognized as a component of interest and other income, in the consolidated statements of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the conversion or maturity of the unsecured convertible promissory note purchase agreements.

Revenue:Revenue is recognized when earned in accordance with the applicable accounting guidance. The Company recognizes revenue from sales of software products upon shipment, provided that persuasive evidence of an arrangement exists, collection is determined to be probable, all non-recurring engineering work necessary to enable the Company'sCompany’s product to function within the customer'scustomer’s application has been completed and the Company'sCompany’s product has been delivered according to specifications. Revenue from service subscriptions is recognized as costs are incurred or over the service period, whichever is longer.

Software license agreements may contain multiple elements, including upgrades and enhancements, products deliverable on a when and if available basis and post-contract support. Revenue from software license agreements is recognized upon delivery of the software, provided that persuasive evidence of an arrangement exists, collection is determined to be probable, all nonrecurring engineering work necessary to enable the Company'sCompany’s products to function within the customer'scustomer’s application has been completed and the Company'sCompany’s product has been delivered according to specifications.

For arrangements with multiple deliverables, the Company allocates consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices, which are determined using vendor-specific objective evidence.

Maintenance revenue is recorded for post-contract support and upgrades or enhancements, which is paid for in addition to license fees, and is recognized as costs are incurred or over the support period, whichever is longer. For undelivered elements where vendor specific objective evidence of fair value does not exist, revenue is deferred and subsequently recognized when delivery has occurred and when vendor specific evidence has been determined.

Allowance for Doubtful Accounts: The allowance for doubtful accounts is based on the Company’s assessment of the collectability of specific customer accounts and an assessment of international, political and economic risk as well as the aging of the accounts receivable. If there is a change in actual defaults from the Company’s historical experience, the Company’s estimates of recoverability of amounts due could be affected and the Company would adjust the allowance accordingly.

Long-lived assets: The Company evaluates the recoverability of its long-lived assets, including intangible assets at least annually or whenever circumstances or events indicate such assets might be impaired. The Company would recognize an impairment charge in the event the net book value of such assets exceeded the future undiscounted cash flows attributable to such assets. Estimation of future cash flows from the products considers the following additional factors:

Customer Base: To date, the Company'sCompany’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'smanagement’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, 2016,2017, of approximately $26,995$18,095 based upon the Company's history of losses.

Segments:The Company reports its financial results in one segment.

Results of Operations – Years Ended December 31, 20162017 and December 31, 20152016

Revenue

For the year ended December 31, 2016,2017, total revenue was $1,065,$1,013, a decrease of $555,$52, or 34%5%, compared to total revenue of $1,620$1,065 in the prior year. For the year ended December 31, 2016,2017, software product revenue was $325,$322, a decrease of $413,$3, or 56%1%, compared to product revenue of $738$325 in the prior year. Maintenance revenue for the year ended December 31, 2016,2017, was $740,$691, a decrease of $142,$49, or 16%7%, compared to maintenance revenue of $882$740 in the prior year. The decrease in software product revenue and maintenance revenue is primarily attributable to the Company’s efforts to restructure its operations in favor of partner-generated recurring revenue.

Cost of Sales

For the year ended December 31, 2016,2017, cost of sales was $386,$126, a decrease of $133,$260, or 26%67%, compared to cost of sales of $519$386 in the prior year. The decrease was primarily due to lower revenue indirect engineering costs associated with both software product and maintenance revenue during the year ended December 31, 20162017 compared to the prior year.

Operating Expenses

Research and Development Expenses

For the year ended December 31, 2016,2017, research and development expenses were $1,322,$1,135, a decrease of $449,$187, or 25%14%, compared to research and development expenses of $1,771$1,322 in the prior year. Research and development expenses consist primarily of salaries and related costs, outside contract engineering, maintenance items, and allocated facility expenses. The most significant factorfactors contributing to the decrease in research and development expenses was a decrease in the number of outside engineering personnel. In addition,personnel by 2, and the reduction in allocated facilities expenses due to the move to smaller facilities. These reductions were partially offset by reduced direct labor transfers to cost of sales increased due to the increasedecreases in non-recurring engineering orders and maintenance. For the year ended December 31, 2016,2017, total research and development expenses before IT and cost of sales allocations were $1,756,$1,312, a decrease of $593,$444, or 25%, compared to $2,349$1,756 of total research and development expenses before allocations in the prior year.

Sales and Marketing Expenses

For the year ended December 31, 2016,2017, sales and marketing expenses were $406,$188, a decrease of $574,$218, or 59%54%, compared to sales and marketing expenses of $980$406 in the prior year. The decrease was primarily attributable to a decrease in salaries and wages in connection with the Company’s efforts to restructure its operations in favor of partner-generated recurring revenue.

General and Administrative Expenses

For the year ended December 31, 2016,2017, general and administrative expenses were $2,160,$1,122, a decrease of $15,$1,038, or 1%48%, from general and administrative expenses of $2,175$2,160 in the prior year. The decrease was primarily attributable to a decreaseacross the board decreases in salary for one full time position starting inand related expense, professional fees and services, investor relations, allocated facilities cots and other general overhead expenses. The expense reductions were primarily the third quarterresult of 2016 partially offsetthe cash constraints experienced by an increase in franchise taxes.the Company over the current period ended December 31, 2017.

Other Income (Expense), Net

Other income (expense), net, was an expenseincome of $12,$67, an increase of $9,$79, or 300%658%, compared to an expense of $3$12 in the prior year. The increase wasis due primarily to the abatement of an accrual for a late filing fee from the Internal Revenue Service of $30 and the collection of accounts receivable reserved for in the prior year of $44.

For the year ended December 31, 2017, the Company recorded a non-cash charge of $550 related to the deconsolidation of the Chinese joint venture due to the accruallack of any operations over the last two years.

For the year ended December 31, 2017, the Company recorded a penaltygain on sale of the source code and rights to one of the Company’s older toolkit software products, net of related costs, of $239. The purchaser granted the Company a fully-paid, royalty-free, worldwide, irrevocable license to use the software to support current and existing customers and partners of the Company. The Company did not retain the right to distribute the software either as a source code or as an object code. However, the Company retained the right to create new non-toolkit software from the original source code and to market, sell and distribute the new non-toolkit software in the ordinary course of business to its customers and partners. In addition, the Company sold one of is retired domain names for the late filing of certain tax forms for 2015.$64 cash.

Interest Expense

For the year ended December 31, 2016,2017, related party interest expense was $103, an increase$26, a decrease of $72,$77, or 232%75%, compared to related party interest expense of $31$103 in the prior year. For the year ended December 31, 2016,2017, other party interest expense was $115, an increase$86, a decrease of $92,$29, or 400%25%, compared to other party interest expense of $23$115 in the prior year. The decrease in interest expense is primarily due to a decrease in the amount of borrowings compared to the prior year.

For the year ended December 31, 2016,2017, the Company recorded $390$97 in debt discount amortization associated with its long-term and short-term borrowings, $27 of which is attributable to related parties and $70 of which is attributable to other investors, compared to $390 in the prior year, $87 of which is attributable to related parties and $303 of which is attributable to other investors, comparedinvestors. The decrease in debt discount amortization was primarily due to $53the conversion of the convertible notes in May of 2016 and the prior year, $11subsequent write off of which is attributable to related parties and $42 of which is attributable to other investors.the remaining unamortized loan discount.

The change in fair value of derivative liabilities resulted in a non-cash gain of $330 an increase of $312, or 1733%, compared to a gain of $18 in the prior year. No such gain was recorded for the twelve months ended December 31, 2017.

There was no accretion of beneficial conversion feature on Preferred Stock for the year ended December 31, 2017 due to the conversion of the outstanding Preferred Stock in May of 2016. For the year ended December 31, 2016, accretion of the beneficial conversion feature on Preferred Stock with an exercise price less than the closing market price on May 19, 2016 (for the Series C Preferred Stock and Series D-1 Preferred Stock, as defined below)Stock) was $245, a decrease of $281, or 53%, compared to $526 in the prior year period. The decrease is due$245.

Due to the decrease in the closing priceconversion of the Company’s CommonPreferred Stock on the date of issue compared to the prior year.

discussed above, no dividends were paid in kind in 2017. The Company recorded $1,313 in dividends in kind on shares of its Series A-1 Cumulative Convertible Preferred Stock (“Series A-1 Preferred Stock”), Series B Participating Convertible Preferred Stock (“Series B Preferred Stock”), Series C Participating Convertible Preferred Stock (“Series C Preferred Stock”) and Series D Convertible Preferred Stock (“Series D Preferred Stock”). Forfor the year ended December 31, 2016, dividends on shares of Preferred Stock were $1,313, a decrease of $1,863, or 59%, comparedwhich $646 was to $3,176 in the prior year period. The decrease is attributablerelated parties and $667 was to the conversion of all Preferred Stock to Common Stock on May 19, 2016.other investors.

Liquidity and Capital Resources

Cash and cash equivalents totaled $285 at December 31, 2017, compared to $389 at December 31, 2016, compared to $846 at December 31, 2015.2016.

The cash used in operations was primarily attributable to the net loss of $3,499, including a $330 gain on derivative liability. These amounts were$1,947. This amount was partially offset by the write-off of the interest in the Chinese joint venture of $550, non-cash depreciation and amortization charges of $362,$277, amortization of debt discount of $390$97 and stock-based employee compensation of $164.$143.

Cash out flows for the acquisition of property and equipment was $3 offset by cash inflows of $303 related to the sale of intangible assets.

Proceeds from financing activities consisted of $440was $655 from the issuance of short-term debt, $700 from the issuance of long-term debt and $424 from the sale of Common Stock and warrants. Payments on short-term debt were $200.debt.

Accounts receivable were $137$45 at December 31, 2016, an increase2017, a decrease of $43,$92, or 46%67%, compared to accounts receivable of $94$137 at December 31, 2015.2016. Accounts receivable at December 31, 20162017 and 2015,2016, are net of $63$1 and $22,$63, respectively, of allowances provided for potentially uncollectible accounts. The increasedecrease is primarily attributable to slowerhigher collections in the quarter ended December 31, 2016.2017.

Prepaid expenses and other current assets were $56$28 at December 31, 2016,2017, a decrease of $316,$28, or 85%50%, compared to prepaid expenses and other current assets of $372$56 at December 31, 2015.2016. The decrease is primarily due to lower prepaid insurance premiums compared to the prior year.

Short-term debt was $0$1,458 net of $97 in discounts at December 31, 2016 compared2017. The Company reclassified its existing long-term debt to $991 atshort term and issued new debt in the amount of $655 during the twelve months ended December 31, 2015.2017.

Accounts payable were $1,289 at December 31, 2017, a decrease of $79, or 6%, compared to $1,368 at December 31, 2016, an increase of $581, or 74%, compared to $787 at December 31, 2015.2016. The increasedecrease is due to liabilities incurred associated withcost cutting efforts by the proposed public offering.Company during the current period.

Other current liabilities, which include accrued compensation were $941 at December 31, 2017, compared to $762 at December 31, 2016, compared to $878 at December 31, 2015, a decreasean increase of $116,$179, or 13%23%. The decreaseincrease is primarilyattributable to the conversionaccrual of certain accrued liabilities to Common Stock on May 19, 2016.franchise taxes and professional service fees partially offset by reductions in headcount during the current period.

Deferred revenue, including the long-term portion, was $573$485 at December 31, 2016,2017, a decrease of $266,$88, or 32%15%, compared to deferred revenue of $839$573 at December 31, 2015.2016. The decrease is primarily due to the recognition of revenue from the renewal of a five-year maintenance contract with one of the Company’s customers that was renewed in December of 2015.

Financing Transactions

For the year ended December 31, 2016, the Company exercised its option to pay in kind the accrued dividends on Preferred Stock as follows:Advances: