The accompanying condensed consolidated financial statements for the three and six months ended March 31,June 30, 2015 and 2014 are unaudited, and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC").  Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to those rules and regulations.  Accordingly, these interim financial statements should be read in conjunction with the audited condensed financial statements and notes thereto contained in Cicero Inc.'s (the "Company") Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 31, 2015.  The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for other interim periods or for the full fiscal year.  In the opinion of management, the information contained herein reflects all adjustments necessary for a fair presentation of the interim results of operations.  All such adjustments are of a normal, recurring nature.

The year-end condensed balance sheet data was derived from audited consolidated financial statements in accordance with the rules and regulations of the SEC, but does not include all disclosures required for financial statements prepared in accordance with accounting principles generally accepted in the United States of America.

The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiaries.  All of the Company's subsidiaries are wholly owned for the periods presented.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The Company has incurred an operating loss of approximately $3,927,000 for the year ended December 31, 2014, and has a history of operating losses. For the threesix months ended March 31,June 30, 2015, the Company incurred losses of $865,000$1,535,000 and had a working capital deficiency of $15,156,000$6,748,000 as of March 31,June 30, 2015.  Management believes that its repositioned strategy of leading with its Discovery product to use analytics to measure and then manage how work happens will shorten the sales cycle and allow for value based selling to our customers and prospects.  The Company anticipates success in this regard based upon current discussions with active customers and prospects.  The Company has borrowed $260,000$575,000 and $2,296,000 in 2015 and 2014, respectively.  The Company has also repaid approximately $15,000 and $394,000$391,000 of debt in 2015 and 2014, respectively. Additionally, in April 2015, the Company’s Chairman, Mr. Launny Steffens, converted $6,950,514 of debt into 69,505,140 shares of common stock of the Company.  In July 2015, the Company completed a sale of 25 million shares of its common stock to a group of nine investors, led by the Company’s Chairman of the Board, John (Launny) Steffens and the Privet group, LLC, for $1,000,000.  Additionally, the investors can exercise warrants for an additional 205,277,778 of the Company’s common shares for an additional $9,000,000.  The warrants expire in three years.  Should the Company be unable to secure customer contracts that will drive sufficient cash flow to sustain operations, the Company will be forced to seek additional capital in the form of debt or equity financing; however, there can be no assurance that such debt or equity financing will be available on terms acceptable to the Company or at all. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual amounts could differ from these estimates.  Significant estimates include the recoverability of long-lived assets, valuation and recoverability of goodwill, stock based compensation, deferred taxes and related valuation allowances and valuation of equity instruments.

The carrying amount of the Company’s financial instruments, representing accounts receivable, accounts payable and short-term debt approximate their fair value due to their short term nature.

The Company accounts for stock-based compensation in accordance with Accounting Standards Codification (“ASC”) 718 “Compensation – Stock Compensation” which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments.  The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards under ASC 718.  The Company did not issue any optionissued 25,000 options at an exercise price of $0.05 in the first threesix months of 2015.  The Company recognized stock-based compensation expense of $38 and $513 for the three and six months ended March 31,June 30, 2015 in connection with outstanding options.

In August 2014, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard update which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued.  An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.  The guidance applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted.  The Company is evaluating the impact of adopting this new accounting standard update on the consolidated financial statements and related disclosures.

Upon completion of the fiscal year 2014 test, the goodwill of our SOAdesk LLC acquisition was determined to be impaired. The impairment was the result of slower than projected growth in revenue. This goodwill impairment charge of $1,174,000 also represented our accumulated goodwill impairment as of December 31, 2014.  Through March 31,June 30, 2015, no indicator of impairment of goodwill has been identified.

Reference should be made to such factors and all forward-looking statements are qualified in their entirety by the above cautionary statements.  Although we believe that these forward-looking statements are based upon reasonable assumptions, we can give no assurance that our goals will be achieved.  Given these uncertainties, readers of this Quarterly Report on Form 10-Q are cautioned not to place undue reliance on these forward-looking statements.  These forward-looking statements are made as of the date of this quarterly report.  We assume no obligation to update or revise them or provide reasons why actual results may differ.

The table below presents information for the three and six months ended March 31,June 30, 2015 and 2014 (in thousands):

Cash and cash equivalents increased to $670,000$57,000 at March 31,June 30, 2015 from $20,000 at December 31, 2014, an increase of $650,000.$37,000.  The increase is primarily attributable to the collections of accounts receivable from year end, and revenue generated in the first quartersix months of 2015.2015 and short term borrowings.

The Company funded its cash needs during the threesix months ended March 31,June 30, 2015 with cash on hand from December 31, 2014, the revenue generated in the first threesix months of 2015, and short term borrowings.

From time to time during 2012 through 2015, the Company entered into several short term notes payable with John L. (Launny) Steffens, the Chairman of the Board of Directors, for various working capital needs. The notes bear interest at 12% per year and are unsecured. In March 2013, Mr. Steffens agreed to extend the maturity date of all outstanding short term notes until April 1, 2014.  In March 2014, Mr. Steffens agreed to extend the maturity date of all outstanding short term notes until June 30, 2015. At December 31, 2014, the Company was indebted to Mr. Steffens in the approximate amount of $6,690,000 of principal and $1,139,000 in interest. At March 31, 2015, the Company was indebted to Mr. Steffens in the approximate amount of $6,950,514 of principal and $1,343,000 in interest.

Not applicable.

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31,June 30, 2015.

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended March 31,June 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.