UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark one)

For the quarterly period ended September 30, 2018.March 31, 2019.

 

 

 

Commission File Number 0-26392

 

(Exact name of registrant as specified in its charter)

 

 

 

 

(Registrant's telephone number, including area code)

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

 

 

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. ☐  

 

 

 

207,913,541 shares of common stock, $.001 par value, were outstanding as of NovemberMay 5, 2018.2019.

 

Cicero Inc.

Index

 

 

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

CICERO INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

CICERO INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

Non-Cash Investing and Financing Activities:

 

During August 2017,March 2019, the Company converted $3,544$3,892 of debt and $1,539$356 of interest to a related party lender by issuing 5,0834,250 shares of its Series A preferred stock.

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

CICERO INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

NineThree Months Ended September 30, 2018March 31, 2019

(in thousands, except share amounts)

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

CICERO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (unaudited)

 

 

The accompanying condensed consolidated financial statements for the three and nine months ended September 30,March 31, 2019 and 2018 and 2017 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 consolidated financial statements and notes thereto contained in Cicero Inc.'s (the "Company") Annual Report on Form 10-K for the year ended December 31, 2017,2018, filed with the SEC on March 30, 2018.29, 2019. 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.

 

 

Although the Company has incurred a net loss of approximately $1,595,000$563,000 for the ninethree months ended September 30, 2018,March 31, 2019, and has a history of operating losses, management believes that the functionality of the Company’s products resonates in the marketplace as both “analytics” and “automation” are topics often discussed and written about. Further, the Company believes that its repositioned strategy of leading with a no cost, short, “proof of concept” evaluation of the software’s capabilities 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 and active “proof of concepts” with active partners, customers and prospects. In August 2017,March 2019, the Company issued 5,0834,250 shares of its Series A preferred stock and a Warrant to purchase up to 20,333,62017,000,787 shares of the Company’s Common Stock at an exercise price of $0.07$0.05 per share to its Chairman, John Steffens, as part of a conversion of debt and interest totaling $5,083,405$4,250,197 reducing its working capital deficiency. The Company has borrowed approximately $1,776,000$460,000 and $1,873,000$510,000 in 20182019 and 2017,2018, respectively. 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. As a result of these factors, the report of our independent auditors dated March 30, 2018,29, 2019, on our consolidated financial statements for the period ended December 31, 20172018 included an emphasis of matter paragraph indicating that there is a substantial doubt about the Company’s ability to continue as a going concern. The 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, stock based compensation, deferred taxes, and related valuation allowances and valuation of equity instruments.

 

 

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 plan expired in fiscal 2017 and as such no further options are available to grant. The Company did not recognize any stock-based compensation expense for the three and nine months ended September 30,March 31, 2019 and 2018, and $300 and $2,800 for the three and nine months ended September 30, 2017, respectively, in connection with outstanding options. The Company has no unrecognized stock-based compensation expense in connection with outstanding options as of September 30, 2018.March 31, 2019.

 

The Company recognized approximately $300$400 and $2,000$200 in stock-based compensation in connection with the restricted stock grants for the three and nine months ended September 30,March 31, 2019 and 2018, respectively, in connection with restricted stock grants issued in the first quarter offiscal 2018 to certain employees, and did not recognize any stock-based compensation for the three and nine months ended September 30, 2017, respectively.employees. The grants vest on the second anniversary of the grant date. The Company has approximately $1,100$2,100 of unrecognized stock-based compensation expense in connection with the restricted stock grants

 

 

 

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows where diversity in practice exists. The new standard was effective for us in our first quarter of fiscal 2018. This standard did not have a material impact on our consolidated financial statements and related disclosures.

 

The FASB's newIn February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases standard ASU 2016-02 Leases (Topic 842) was issued on February 25, 2016. ASU 2016-02 is intended to improve financial reportingon-balance sheet and disclose key information about leasing transactions.arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The ASU affects all companiesnew standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets, referred to as “Lessees”, to recognizeliability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the assetspattern and liabilitiesclassification of expense recognition in the income statement.

The new standard was effective for us on January 1, 2019. A modified retrospective transition approach is required, applying the rights and obligations created by those leases.new standard to all leases existing at the date of initial application. An organization isentity may choose to provide disclosures designed to enable usersuse either (1) its effective date or (2) the beginning of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recordedearliest comparative period presented in the financial statements. Understatements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new guidance, a lessee will be required to recognize assets and liabilitiesstandard for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP which requires only capital leases to be recognized on the balance sheetcomparative periods. We adopted the new ASU will require both types of leases (i.e. operating and capital) to be recognizedstandard on the balance sheet. The FASB lessee accounting model will continue to account for both types of leases. The capital lease will be accounted for in substantially the same manner as capital leases are accounted for under existing GAAP. The operating lease will be accounted for in a manner similar to operating leases under existing GAAP, except that lessees will recognize a lease liability and a lease asset for all of those leases. Public companies will be required to adopt the new leasing standard for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all companies and organizations. For calendar year-end public companies, this means an adoption date of January 1, 2019 and retrospective applicationuse the effective date as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

The new standard provides a number of optional practical expedients in transition. We elected the ‘package of practical expedients’, which permits us not to previously issued annualreassess under the new standard our prior conclusions about lease identification, lease classification and interiminitial direct costs. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. We elected all of the new standard’s available transition practical expedients.

This standard did not have a material effect on our financial statementsstatements. We believe the most significant future effects relate to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for 2018. See Note 5our real estate operating lease and (2) providing significant new disclosures about our leasing activities. We do not expect a significant change in our leasing activities.

The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the Company’s currentshort-term lease commitments. The Companyrecognition exemption for our real estate lease that is currently on a month to month lease. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. As our real estate lease is a short term lease, the adoption of this standard did not result in the processCompany recognizing any right of evaluating the impact that this new leasing ASU will have on its financial statements.use asset or liability.

 

 

On January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers and all the related amendments (“the new revenue standard”) and applied it to all contracts using the modified retrospective method. We completed our review of contracts with our customers and did not need to record a cumulative effect adjustment to accumulated deficit upon adoption of the new revenue standard as of January 1, 2018. Under ASC 606, revenue is recognized when a company transfers the promised goods or services to a customer in an amount that reflects consideration that is expected to be received for those goods and services. Adoption of the standard did not have a material impact on the Company’s financial position, results of operations, cash flow, accounting policies, business processes, internal controls or disclosures.

 

 

Timing differences among revenue recognition may result in contract assets or liabilities. Contract liabilities (deferred revenue) totaled $454,000$460,000 and $575,000$574,000 as of January 1,December 31, 2018 and September 30, 2018,March 31, 2019, respectively. Revenue recognized from the contract liabilities for the ninethree months ended September 30, 2018March 31, 2019 was $310,000.$140,000. The contract liability balances reflect the unrecognized transaction price.

 

Our net trade accounts receivables were $223,000$11,000 and $48,000$84,000 as of January 1,December 31, 2018 and September 30, 2018,March 31, 2019, respectively. Trade accounts receivable are stated in the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to the allowance of doubtful accounts based on its assessment of the current status of individual accounts. Balances still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance of doubtful accounts and a credit to trade accounts receivable. Changes in the allowance for doubtful accounts have not been material to the consolidated financial statements.

 

 

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under the new revenue recognition standard. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Most of our contracts have multiple performance obligations, which include software, maintenance and professional services.

 

 

Cicero utilizes point in time method for revenue recognition for its software license revenue. Our software licenses are distinct and have standalone functionality as it is fully functional without any services purchased. Cicero utilizes the output method over time for revenue recognition as maintenance contracts are invoiced annually prior to the start of the maintenance period and then recognized monthly over the length of the maintenance contract. Cicero utilizes the output method over time for revenue recognition for its services revenue as service hours/days are logged and billed subsequently. Cicero has no upfront fees that are billable to customers.

 

 

 

Debt and notes payable to related party consist of the following (in thousands):

 

 

 

 

 

 In March 2012 the Company entered into an unsecured promissory note with a private lender for $336,000 at an interest rate of 12% and a maturity date of March 31, 2013. Through a series of amendments, the note was amended to extend the maturity date to January 31, 2021 and a new principal balance of $498,500. Simultaneously a $30,000 principal payment was made to the lender. A new repayment schedule of quarterly principal and interest payments was added beginning in January 31, 2018 with a payment of $30,000. $25,000 quarterly principal and interest payments are required to be made beginning on April 30, 2018 through January 31, 2019. $40,000 principal and interest payments are required to be made on beginning on April 30, 2019 through October 31, 2020. Final payment of remaining principal and interest is due on January 31, 2021. The lender agreed to waive certain quarterly payments in fiscal 2018 as business conditions so warrant without triggering any default and that any deferred payments would be added to the next quarterly payment. At December 31, 2017,2018, the Company was indebted to this private lender in the amount of $468,500$464,350 in principal and $21,000$51,000 in interest and has been reclassified as long term debt due to its maturity date of January 31, 2021. At September 30, 2018,March 31, 2019, the Company was indebted to this private lender in the amount of $464,350 in principal and $37,000$55,000 in interest.

 

 

The Company accounts for income taxes in accordance with Financial Accounting Standards Board (“FASB”) guidance ASC 740 “Income Taxes”. The Company's effective tax rate differs from the statutory rate primarily due to the fact that no income tax benefit or expense was recorded for the three and nine months ended on September 30, 2018March 31, 2019 and 2017.2018. As a result of the Company's recurring losses, the deferred tax assets have been fully offset by a valuation allowance.

 

 

Basic loss per share is computed based upon the weighted average number of common shares outstanding. Diluted loss per share is computed based upon the weighted average number of common shares outstanding and any potentially dilutive securities. Potentially dilutive securities outstanding during the periods presented include stock options, warrants, restricted stock, convertible preferred stock and convertible debt.

 

The weighted average number of common shares is increased by the number of dilutive potential common shares issuable on the exercise of options less the number of common shares assumed to have been purchased with the proceeds from the exercise of the options pursuant to the treasury stock method; those purchases are assumed to have been made at the average price of the common stock during the respective period. Options, warrants or convertible preferred stock to purchase shares of common stock are excluded from the calculation of diluted earnings per share when their inclusion would have an anti-dilutive effect on the calculation. No options, warrants or convertible preferred stock were included in the calculation of loss per share for the three and nine months ended September 30, 2018March 31, 2019 and 2017.2018.

 

 

In June 2014, the Company entered into an amendment with its landlord and renewed its lease through 2018. In October 2016, the Company entered into an amendment reducing the square footage being leased for the remaining term of the lease. Future minimumThe lease commitmentsexpired in October 2018 and the Company is currently on operating leases that have initial or remaining non-cancelable lease termsa month to month lease. The Company is exploring relocation options in excessthe remainder of one year as of September 30, 2018 consisted of only one lease as follows (in thousands):

 

 

The Company, from time to time, is involved in legal matters arising in the ordinary course of its business including matters involving proprietary technology. While management believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is or could become involved in litigation, will not have a material adverse effect on its business, financial condition or results of operations. There was no active litigation against the Company as of September 30, 2018.March 31, 2019.

 

Under the indemnification clause of the Company’s standard reseller agreements and software license agreements, the Company agrees to defend the reseller/licensee against third party claims asserting infringement by the Company’s products of certain intellectual property rights, which may include patents, copyrights, trademarks or trade secrets, and to pay any judgments entered on such claims against the reseller/licensee. There were no claims against the Company as of September 30, 2018.March 31, 2019.

 

 

In October 2018,May 2019, the Company entered into notes payable totaling $200,000$215,000 with Mr. Steffens. The notes bear interest at 10% per annum. The notes are unsecured and mature on December 31, 2018.June 30, 2020. The Company is obligated to repay the notes with the collection of any accounts receivables.

 

 

 

Cicero, Inc. (the “Company”) provides desktop activity intelligence and automation software that helps organizations isolate issues and automates employee tasks in the contact center and back office. The Company provides an innovative and unique combination of application and process integration, automation, and desktop analytics capabilities, all without changing the underlying applications or requiring costly application development. The Company’s software collects desktop activity and application performance data and tracks business objects across time and multiple users, as well as measures against defined expected business process flows, for either analysis or to feed a third-party application. In addition to software solutions, the Company also provides technical support, training and consulting services as part of its commitment to providing customers with industry-leading solutions. The Company’s consulting team has in-depth experience in developing successful enterprise-class solutions as well as valuable insight into the business information needs of customers in the largest Fortune 500 corporations worldwide.

 

The Company focuses on the activity intelligence and customer experience management market with emphasis on desktop analytics and automation with its Cicero Discovery™, Cicero Insight™ and Cicero Automation™ products.

 

Cicero Discovery collects desktop activity leveraging a suite of sensors. Cicero Discovery is a lightweight and configurable tool to collect activity and application performance data and track business objects across time and across multiple users as well as measure against a defined "expected" business process flow, either for analysis or to feed a third-party application.

 

Cicero Insight is a measurement and analytics solution that collects and presents high value information about quality, productivity, compliance, and revenue from frontline activity to target areas for improvement. Powered by Cicero Discovery sensors, Cicero Insight collects activity data about the applications, when and how they are used and makes it readily available for analysis and action to the business community.

 

Cicero Automation delivers all the features of the Cicero Discovery product as well as desktop automation for enterprise contact center and back office employees.  Leveraging existing IT investments Cicero Automation integrates applications, automates workflow, and provides control and adaptability at the end user desktop.

 

Cicero Automation also provides Single Sign-On (SSO) and stay signed on capability. The software maintains a secure credential store that facilitates single sign-on. Passwords can be reset but are non-retrievable. Stored interactions can be selectively encrypted based on the needs of the enterprise. All network communications are compressed and encrypted for transmission.

 

The Company provides an intuitive configuration toolkit for each product, which simplifies the process of deploying and managing the solutions in the enterprise. The Company provides a unique way of capturing untapped desktop activity data using sensors, combining it with other data sources, and making it readily available for analysis and action to the business community. The Company also provides a unique approach that allows companies to organize functionality of their existing applications to better align them with tasks and operational processes. In addition, the Company’s software solutions can streamline end-user tasks and enable automatic information sharing among line-of-business siloed applications and tools. It is ideal for deployment in organizations that need to provide access to enterprise applications on desktops to iteratively improve business performance, the user experience, and customer satisfaction. By leveraging desktop activity data, integrating disparate applications, automating business processes and delivering a better user experience, the Company’s products are ideal for the financial services, insurance, healthcare, governmental and other industries requiring a cost-effective, proven business performance and user experience management solution for enterprise desktops.

 

In addition to software products, the Company also provides technical support, training and consulting services as part of its commitment to providing its customers industry-leading integration solutions. The Company’s consulting team has in-depth experience in developing successful enterprise-class solutions as well as valuable insight into the business information needs of customers in the Global 5000. We offer services around our integration software products.

 

This Quarterly Report on Form 10-Q contains forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities, liquidity and capital resources and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause its actual results to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. These risk and uncertainties include, among others, the following:

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

RESULTS OF OPERATIONS

 

The table below presents information for the three and nine months ended September 30,March 31, 2019 and 2018 and 2017 (in thousands):

 

 

 

The Company's revenues vary from quarter to quarter, due to market conditions, the budgeting and purchasing cycles of customers and the effectiveness of the Company’s sales force. The Company typically does not have any material backlog of unfilled software orders and product revenue in any quarter is substantially dependent upon orders received in that quarter. Because the Company's operating expenses are relatively fixed over the short term, variations in the timing of the recognition of revenue can cause significant variations in operating results from quarter to quarter.

 

On January 1, 2018, we adopted the new accounting standard Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers and all the related amendments (“the new revenue standard”) and applied it to all contracts using the modified retrospective method. According to the new guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration for which the Company expects to be entitled in exchange for those goods or services. We completed our review of contracts with our customers and did not need to record a cumulative effect adjustment to accumulated deficit upon adoption of the new revenue standard as of January 1, 2018. Based on the evaluation the Company performed on its customer contracts, the adoption has not and will not have a material impact on the Company’s financial position, results of operations, cash flow, accounting policies, business processes, internal controls or disclosures.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

 

Cash and cash equivalents remained constantdecreased $56,000 to $41,000 at $56,000March 31, 2019 from $97,000 at September 30, 2018 and December 31, 2017, respectively.2018. The collectionsdecrease is primarily attributable to the expenses in the first three months of accounts receivable from year end,2019 partially offset by the revenue generated in the first ninethree months of 20182019 and short term borrowings were offset by expenses in the first nine months of 2018.borrowings.

 

 

 

 

 

The Company funded its cash needs during the ninethree months ended September 30, 2018March 31, 2019 with cash on hand from December 31, 2017,2018, the revenue generated in the first ninethree months of 2018,2019, and short term borrowings.

 

 

Although the Company has incurred a net loss of approximately $1,595,000$563,000 for the ninethree months ended September 30, 2018,March 31, 2019, and has a history of operating losses, management believes that the functionality of the Company’s products resonates in the marketplace as both “analytics” and “automation” are topics often discussed and written about. Further, the Company believes that its repositioned strategy of leading with a no cost, short, “proof of concept” evaluation of the software’s capabilities 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 and active “proof of concepts” with active partners, customers and prospects. In August 2017,March 2019, the Company issued 5,0834,250 shares of its Series A preferred stock and a Warrant to purchase up to 20,333,62017,000,787 shares of the Company’s Common Stock, at an exercise price of $0.07$0.05 per share, to its Chairman, John Steffens as part of a conversion of debt and interest totaling $5,083,405$4,250,197 reducing its then working capital deficiency. The Company has borrowed approximately $1,776,000$460,000 and $1,873,000$510,000 in 20182019 and 2017,2018, respectively. 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.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

The Company does not have any off-balance sheet arrangements. We have no unconsolidated subsidiaries or other unconsolidated limited purpose entities, and we have not guaranteed or otherwise supported the obligations of any other entity.

 

 

 

Not applicable.

 

 

a) Evaluation of Disclosure Controls and Procedures.

 

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 September 30, 2018.March 31, 2019.

 

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer has concluded that as of September 30, 2018,March 31, 2019, our disclosure controls and procedures were effective.

 

 

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2018March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 

Not Applicable.

 

 

None.

 

 

None.

 

 

 

 

 

None