Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2015 | Aug. 10, 2015 | |
Document And Entity Information | ||
Entity Registrant Name | CICERO INC | |
Entity Central Index Key | 945,384 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2015 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 180,353,377 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2,015 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands | Jun. 30, 2015 | Dec. 31, 2014 |
Current Assets | ||
Cash and cash equivalents | $ 57 | $ 20 |
Trade accounts receivable, net | 106 | 1,035 |
Prepaid expenses and other current assets | 231 | 237 |
Total current assets | 394 | 1,292 |
Property and equipment, net | 15 | 14 |
Goodwill (Note 2) | 1,658 | 1,658 |
Total assets | 2,067 | 2,964 |
Current liabilities: | ||
Short-term debt (Note 3) | 787 | 8,492 |
Accounts payable | 1,154 | 2,012 |
Accrued expenses: | ||
Salaries, wages, and related items | 1,545 | 1,400 |
Accrued interest | 1,953 | 1,674 |
Other | 662 | 573 |
Deferred revenue | 1,041 | 1,399 |
Total current liabilities | 7,142 | 15,550 |
Long-term debt (Note 3) | 2,157 | 0 |
Total liabilities | 9,299 | 15,550 |
Stockholders' deficit: | ||
Convertible preferred stock, $0.001 par value, 10,000,000 shares authorized Series A-1 - 1,499.6 shares issued and outstanding at June 30, 2015 and December 31, 2014 | 0 | 0 |
Series B - 10,400 shares issued and outstanding at June 30, 2015 and at December 31, 2014 | 0 | 0 |
Common stock, $0.001 par value, 215,000,000 shares authorized, 155,353,377 issued and outstanding at June 30, 2015 and 85,848,237 issued and outstanding at December 31, 2014 | 155 | 86 |
Additional paid-in capital | 244,088 | 237,206 |
Accumulated deficit | (251,475) | (249,878) |
Total stockholders' deficit | (7,232) | (12,586) |
Total liabilities and stockholders' deficit | $ 2,067 | $ 2,964 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Jun. 30, 2015 | Dec. 31, 2014 |
Stockholders deficit: | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock shares authorized | 10,000,000 | 10,000,000 |
Preferred stock shares series A issued | 1,499.6 | 1,499.6 |
Preferred stock shares series A outstanding | 1,499.6 | 1,499.6 |
Preferred stock shares series B issued | 10,400 | 10,400 |
Preferred stock shares series B outstanding | 10,400 | 10,400 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock shares authorized | 215,000,000 | 215,000,000 |
Common stock shares issued | 155,353,377 | 85,848,237 |
Common stock shares outstanding | 155,353,377 | 85,848,237 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2015 | Jun. 30, 2014 | Jun. 30, 2015 | Jun. 30, 2014 | |
Revenue: | ||||
Software | $ 119 | $ 180 | $ 205 | $ 296 |
Maintenance | 368 | 367 | 735 | 728 |
Services | 22 | 6 | 28 | 68 |
Total operating revenue | 509 | 553 | 968 | 1,092 |
Cost of revenue | ||||
Software | 0 | 0 | 0 | 0 |
Maintenance | 27 | 27 | 56 | 54 |
Services | 141 | 163 | 289 | 386 |
Total cost of revenue | 168 | 190 | 345 | 440 |
Gross margin | 341 | 363 | 623 | 652 |
Operating expenses: | ||||
Sales and marketing | 338 | 300 | 619 | 559 |
Research and product development | 408 | 305 | 749 | 577 |
General and administrative | 216 | 234 | 507 | 536 |
Total operating expenses | 962 | 839 | 1,875 | 1,672 |
Loss from operations | (621) | (476) | (1,252) | (1,020) |
Other income/(expense): | ||||
Interest expense | (49) | (176) | (283) | (355) |
Total other income/(expense) | (49) | (176) | (283) | (355) |
Net loss | (670) | (652) | (1,535) | (1,375) |
8% preferred stock Series B dividend | 31 | 31 | 62 | 62 |
Net loss applicable to common stockholders | $ (701) | $ (683) | $ (1,597) | $ (1,437) |
Loss per share applicable to common stockholders: | ||||
Basic and Diluted | $ 0 | $ (0.01) | $ (0.01) | $ (0.02) |
Weighted average shares outstanding: | ||||
Basic and Diluted | 150,007 | 85,806 | 118,105 | 85,806 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2015 | Jun. 30, 2014 | |
Cash flows from operating activities: | ||
Net loss | $ (1,535) | $ (1,375) |
Adjustments to reconcile net loss to net cash generated by operating activities: | ||
Depreciation and amortization | 7 | 11 |
Stock compensation expense | 0 | 44 |
Changes in assets and liabilities: | ||
Trade accounts receivable | 929 | 1,047 |
Prepaid expenses and other assets | 6 | 36 |
Accounts payable and accrued expenses | 436 | 295 |
Deferred revenue | (358) | (365) |
Net cash used by operating activities | (515) | (307) |
Cash flows from investing activities: | ||
Purchases of equipment | (8) | (5) |
Net cash used by investing activities | (8) | (5) |
Cash flows from financing activities: | ||
Borrowings under debt | 575 | 748 |
Repayments of debt | (15) | (391) |
Net cash generated/(used by) financing activities | 560 | 357 |
Net increase in cash | 37 | 45 |
Cash: | ||
Beginning of period | 20 | 5 |
End of period | $ 57 | $ 50 |
CONDENSED CONSOLIDATED STATEME6
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (Unaudited) - 6 months ended Jun. 30, 2015 - USD ($) $ in Thousands | Common Stock | Preferred Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
Beginning Balance, Shares at Dec. 31, 2014 | 85,848,237 | 11,899 | |||
Beginning Balance, Amount at Dec. 31, 2014 | $ 86 | $ 0 | $ 237,206 | $ (249,878) | $ (12,586) |
Dividend for preferred B stock | (62) | (62) | |||
Issuance of stock for payment of debt, Shares | 69,505,140 | ||||
Issuance of stock for payment of debt, Amount | $ 69 | 6,882 | 6,951 | ||
Net loss | (1,535) | (1,535) | |||
Ending Balance, Shares (unaudited) at Jun. 30, 2015 | 155,353,377 | 11,899 | |||
Ending Balance, Amount (unaudited) at Jun. 30, 2015 | $ 155 | $ 0 | $ 244,088 | $ (251,475) | $ (7,232) |
1. INTERIM FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS | 6 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
1. INTERIM FINANCIAL STATEMENTS | The accompanying condensed consolidated financial statements for the three and six months ended 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. Liquidity 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 six months ended June 30, 2015, the Company incurred losses of $1,535,000 and had a working capital deficiency of $6,748,000 as of 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 $575,000 and $2,296,000 in 2015 and 2014, respectively. The Company has also repaid approximately $15,000 and $391,000 of debt in 2015 and 2014, respectively. Additionally, in April 2015, the Companys 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 Companys 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 Companys 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 Companys 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. Use of Accounting Estimates 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. Financial Instruments: The carrying amount of the Companys financial instruments, representing accounts receivable, accounts payable and short-term debt approximate their fair value due to their short term nature. The fair value and carrying amount of long-term debt were as follows: June 30, 2015 December 31, 2014 Fair Value 2,061,495 -- Carrying Value 2,157,000 -- Valuations for long-term debt are determined based on borrowing rates currently available to the Company for loans with similar terms and maturities. These loans have been determined to be Level 3 within the fair value hierarchy and use a discounted cash flow model to determine their valuation. There have been no changes to the valuation technique. Stock-Based Compensation 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 enterprises 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 issued 25,000 options at an exercise price of $0.05 in the first six months of 2015. The Company recognized stock-based compensation expense of $38 and $513 for the three and six months ended June 30, 2015 in connection with outstanding options. The following table sets forth certain information as of June 30, 2015 about shares of the Companys common stock, par value $.001 (the Common Stock), outstanding and available for issuance under the Companys existing equity compensation plans: the Cicero Inc. 2007 Employee Stock Option Plan and the Outside Director Stock Option Plan. The Companys stockholders approved all of the Companys stock-based compensation plans. Shares Outstanding on December 31, 2014 3,150,110 Granted 25,000 Exercised -- Forfeited (18,000 ) Outstanding on June 30, 2015 3,157,110 Weighted average exercise price of outstanding options $ 0.24 Aggregate Intrinsic Value $ 385 Shares available for future grants on June 30, 2015 1,344,090 Weighted average of remaining contractual life 4.23 Recent Accounting Pronouncements 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 entitys 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 entitys 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. In May 2014, the FASB issued a new accounting standard update on revenue recognition from contracts with customers. The new guidance will replace most current U.S. GAAP guidance on this topic and eliminate most industry-specific guidance. 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. This guidance will be effective for the Company beginning January 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company has not yet selected a transition method and is evaluating the impact of adopting this new accounting standard update on the consolidated financial statements and related disclosures. |
2. GOODWILL AND OTHER INTANGIBL
2. GOODWILL AND OTHER INTANGIBLE ASSETS | 6 Months Ended |
Jun. 30, 2015 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
2. GOODWILL AND OTHER INTANGIBLE ASSETS | The Company accounts for goodwill in accordance with ASC Topic 350 Intangibles Goodwill and Other Intangible Assets which requires that goodwill and intangible assets with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. Goodwill includes the excess of the purchase price over the fair value of net assets acquired of $2,832,000 in connection with the SOAdesk LLC acquisition in fiscal 2010. The Codification requires that goodwill be tested for impairment at the reporting unit level. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Pursuant to recent authoritative accounting guidance, the Company elects to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The Company is not required to calculate the fair value of a reporting unit unless the Company determines that it is more likely than not that its fair value is less than its carrying amount. If the Company determines that it is more likely than not that its fair value is less than its carrying amount, then the two-step goodwill impairment test is performed. The first step, identifying a potential impairment, compares the fair value of the reporting unit with its carrying amount. If the carrying value exceeds its fair value, the second step would need to be conducted; otherwise, no further steps are necessary as no potential impairment exists. The second step is measuring the fair value of assets and liabilities of the reporting unit to determine the implied fair value of goodwill, which is compared with the carrying amount of that goodwill. Any excess of the goodwill carrying value over the respective implied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value. 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 June 30, 2015, no indicator of impairment of goodwill has been identified. Goodwill Balance at December 31, 2014 $ 1,658,000 Additions -- Impairment -- Balance at June 30, 2015 $ 1,658,000 |
3. DEBT
3. DEBT | 6 Months Ended |
Jun. 30, 2015 | |
Debt Disclosure [Abstract] | |
3. SHORT TERM DEBT | Debt and notes payable to related party consist of the following (in thousands): June 30, 2015 December 31, 2014 Notes payable asset purchase agreement (a) $ 1,543 $ 700 Notes payable related party (b) 315 6,706 Notes payable (c) 1,086 1,086 Total Debt 2,944 8,492 Less current portion (787 ) (8,492 ) Total long term debt $ 2,157 $ -- (a) In January 2010, the Company entered into an unsecured convertible promissory note with SOAdesk for $700,000 with an annual interest rate of 5% as per the Asset Purchase Agreement. The note was originally scheduled to mature on March 31, 2010 but was subsequently amended and through a series of amendments, the maturity date was extended to June 30, 2015. In June 2015, the note was amended and the maturity date was extended to June 30, 2017. At December 31, 2014, the Company was indebted to SOAdesk in the amount of $700,000 in principal and $175,000 in interest. At June 30, 2015, the Company was indebted to SOAdesk in the amount of $700,000 in principal and $192,000 in interest. In June 2015, the note was amended so that the note is convertible into shares of the Companys common stock at the rate of one share for every $0.15 of principal and interest due under the note from the original conversion to shares of Series B Convertible Preferred Stock at the rate of one share per every $150 of principal and interest due under the note. The note was further amended that should the Companys earnings before interest, taxes, depreciation and amortization (EBITDA) exceed $1,000,000 in either 12 month period beginning June 30, 2015 and June 30, 2016, respectively, then the Company shall repay, in cash, a portion of the outstanding principal of the note at the rate of $0.50 for each $1.00 that exceeds the EBITDA threshold. The note is convertible at the holders option at any time or at maturity. As part of the Asset Purchase Agreement, the Company was obligated to make additional payments of up to $2,410,000 over an 18 month period from January 15, 2010 through July 31, 2011, based upon the achievement of certain revenue performance targets. Per the Asset Purchase Agreement, the earn-out was payable fifty percent in cash and fifty percent in common stock of the Company at the rate of one share for every $0.15 earn-out payable. The Company had recorded $842,606 in its accounts payable as of December 31, 2014. In June 2015, the Company entered into a promissory note with SOAdesk for fifty percent of the earn-out payable ($421,303) to SOAdesk. The maturity date of the note is December 31, 2015 with an annual interest rate of 10%. The Company also entered into a convertible promissory note with SOAdesk for fifty percent of the earn-out payable ($421,303) with a maturity date of June 30, 2017 that was non-interest bearing. The note is only convertible into shares of the Companys common stock at the rate of one share for every $0.15 of principal due under the note. The note is convertible at the holders option at any time or at maturity. (b) During 2013, the Company entered into a short-term note 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, are unsecured and mature on June 30, 2015. On April 8, 2015, the Company entered into an Exchange Agreement with Mr. Steffens to convert an aggregate of $6,950,514 of principal amount of debt into 69,505,140 shares of the Companys common stock at a conversion rate of $0.10 per share. Subsequent to the exchange agreement, the Company entered into several short term notes payable with Mr. Steffens for various working capital needs. The notes are non-interest bearing with a maturity date of December 31, 2015. The Company is obligated to repay the notes with the collection of any accounts receivables. At December 31, 2014, the Company was indebted to Mr. Steffens in the approximate amount of $6,691,000 of principal and $1,139,000 in interest. At June 30, 2015, the Company was indebted to Mr. Steffens in the approximate amount of $315,000 of principal and $1,361,000 of interest. (c) The Company has issued a series of short-term promissory notes with private lenders, which provide for short term borrowings, both secured by accounts receivable and unsecured. The notes in the aggregate principal amount of $50,000 of principal and $41,000 of interest and $50,000 of principal and $47,000 of interest, respectively, as of December 31, 2014 and June 30, 2015, bear interest between 10% and 36% per annum. In March 2014, the Company reclassified to short-term debt its unsecured convertible promissory note with SOAdesk that was entered into as part of the Asset Purchase Agreement with SOAdesk for $1,000,000 with an annual interest rate of 5% and a maturity date of January 14, 2015. In March 2012, SOAdesk elected to convert $300,000 of the outstanding note balance into 2,000,000 shares of the Companys Common Stock. Through a series of amendments, the note was amended to extend the maturity date until June 30, 2015. In June 2015, the note was amended to extend the maturity date until June 30, 2017. The note was further amended that should the Companys earnings before interest, taxes, depreciation and amortization (EBITDA) exceed $1,000,000 in either 12 month period beginning June 30, 2015 and June 30, 2016, respectively, then the Company shall repay, in cash, a portion of the outstanding principal of the note at the rate of $0.50 for each $1.00 that exceeds the EBITDA threshold. At December 31, 2014, the Company was indebted to SOAdesk in the amount of $700,000 in principal and $207,000 in interest. At June 30, 2015, the Company was indebted to SOAdesk in the amount of $700,000 in principal and $224,000 in interest. The note is only convertible into shares of the Companys common stock at the rate of one share for every $0.15 of principal and interest due under the note. In June 2014, the Company reclassified to short-term debt its unsecured promissory note with a private lender that was originally entered into in March 2012 for $336,000 at an interest rate of 12% and a maturity date of March 31, 2013. In March 2013, the maturity date of the note was extended to June 30, 2015. In June 2015, the maturity date of the note was extended to June 30, 2017, a repayment schedule of quarterly principal and interest payments of $12,000 beginning on September 30, 2015 and two milestone payments of $125,000 on February 28, 2016 and 2017, respectively were added. At December 31, 2014, the Company was indebted to this private lender in the amount of $336,000 in principal and $112,000 in interest. At June 30, 2015, the Company was indebted to this private lender in the amount of $336,000 in principal and $129,000 in interest. |
4. CONVERSION OF DEBT TO EQUITY
4. CONVERSION OF DEBT TO EQUITY | 6 Months Ended |
Jun. 30, 2015 | |
Conversion Of Debt To Equity | |
4. CONVERSION OF DEBT TO EQUITY | On April 8, 2015, the Company entered into agreement with John L. Steffens, the Chairman of the Board of Directors, to convert $6,950,514 of principal amount of debt into 69,505,140 common share of the Companys stock. (See Note 3) The Company accounted for the transaction pursuant to Topic ASC 470-50, Modification and Extinguishment of Debt. Due to the fact that the transaction was with Mr. Steffens, the Companys Chairman of the Board, the Company determined that this was not an arms length agreement and as such has recorded the entire transaction through additional paid in capital. |
5. INCOME TAXES
5. INCOME TAXES | 6 Months Ended |
Jun. 30, 2015 | |
Income Tax Disclosure [Abstract] | |
5. INCOME TAXES | 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 first six months of fiscal year 2015 or 2014. As a result of the Company's recurring losses, the deferred tax assets have been fully offset by a valuation allowance. |
6. LOSS PER SHARE
6. LOSS PER SHARE | 6 Months Ended |
Jun. 30, 2015 | |
Earnings Per Share [Abstract] | |
6. LOSS PER SHARE | 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, 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 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 were included for the three and six months ended June 30, 2015 and 2014. |
7. COMMITMENTS
7. COMMITMENTS | 6 Months Ended |
Jun. 30, 2015 | |
Commitments and Contingencies Disclosure [Abstract] | |
7. COMMITMENTS | In June 2014, the Company entered into an amendment with its landlord and renewed its lease through 2018. Future minimum lease commitments on operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of June 30, 2015 consisted of only one lease as follows (in thousands): Lease Commitments 2015 $ 51 2016 103 2017 106 2018 89 $ 349 |
8. CONTINGENCIES
8. CONTINGENCIES | 6 Months Ended |
Jun. 30, 2015 | |
Commitments and Contingencies Disclosure [Abstract] | |
8. CONTINGENCIES | 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. Under the indemnification clause of the Companys standard reseller agreements and software license agreements, the Company agrees to defend the reseller/licensee against third party claims asserting infringement by the Companys 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 June 30, 2015. |
9. SUBSEQUENT EVENTS
9. SUBSEQUENT EVENTS | 6 Months Ended |
Jun. 30, 2015 | |
Subsequent Events [Abstract] | |
9. SUBSEQUENT EVENTS | On July 15, 2015, the Company entered into a Stock and Warrant Purchase Agreement (the Purchase Agreement) with investors named therein, including Privet Fund LP (Privet), five directors of the Company, including John L. Steffens, Donald Peppers, Bruce D. Miller, Mark Landis, and Thomas Avery, and three other persons (collectively the nine investors are referred to as the Purchasers), pursuant to which the Purchasers severally purchased, in the aggregate, 25,000,000 shares of the Companys common stock and warrants to purchase up to an aggregate of 205,277,778 shares of the Companys common stock (Warrants) for an aggregate consideration of $1,000,000. The Warrants are exercisable for a period of three years beginning at any time after 60 days of issuance. The exercise prices of the Warrants are as follows: (i) Warrants to purchase up to 87,500,000 shares of the Companys common stock are exercisable at a price of $0.04 per share (Tranche I); (ii) Warrants to purchase up to 77,777,778 shares of the Companys common stock are exercisable at a price of $0.045 per share (Tranche II); and (iii) Warrants to purchase up to 40,000,000 shares of the Companys common stock are exercisable at a price of $0.05 per share (Tranche III). The Warrants are exercisable only for cash, as the exercise price paid is intended to increase the funding of the Company. All the exercise prices and numbers of shares are subject to customary anti-dilution provisions. The Warrants contain an exercise limitation provision that prohibits exercise of the Warrants to the extent that the exercise would result in the issuance of shares of the Companys common stock that would cause either (a) the Company to be deemed an investment company under the Investment Company Act of 1940, as amended, or (b) an ownership change within the meaning of Internal Revenue Code Section 382 (and applicable U.S. Treasury regulations pursuant to such section) limiting the use of the Companys net operating losses, carryforwards and other tax attributes. Because the Company does not have a sufficient number of authorized shares at this time to permit it to issue the shares upon exercise of the Warrants, the exercise of the Warrants is also subject to the Company obtaining authorization of the stockholders and filing an amendment to the certificate of incorporation to increase the number of authorized shares of the Companys common stock within 60 days after the closing of the transaction. Once that increase in the capitalization has been completed, the Company is obligated to reserve a sufficient number of shares of the Companys common stock to enable the exercise of the Warrants. The use of proceeds from this transaction are for general corporate purposes, as approved from time to time by the Board of Directors (the Board), which approval must include approval by a majority of the directors that have been designated by Privet. As a condition to closing, Mr. Steffens gave an option to the Company for it to require the conversion of outstanding interest due on previously converted notes in favor of Mr. Steffens at a conversion rate of $0.10 per share, which as of July 8, 2015, would have resulted in the issuance of 13,608,700 shares of the Companys common stock if the Company option were exercised. In connection with the execution of the Purchase Agreement, the Company entered into an Investor Rights Agreement with Privet and Mr. Steffens (the Investors), granting the Investors the right to require the Company to file with the Securities and Exchange Commission up to four requested registration statements to register for resale the Investors shares of common stock purchased under the Purchase Agreement and purchased upon exercise of any of the Warrants (the Registrable Securities). The Investors also are granted unlimited piggy-back registration rights with respect to the Registrable Securities. The obligation to register the Registrable Securities continues until those securities have been sold or transferred by the holders of the registration rights or may be sold without limitation under Rule 144 or otherwise may be sold without restriction. As a result of the transaction, (i) Privet became the record holder of approximately 10.1% of the outstanding and issued shares of common stock, and has the right to purchase under the Warrants an additional 149,852,778 shares of common stock which would correspondingly increase its percentage of ownership and it has the right to appoint directors, and (ii) Mr. Steffens will decreased his current 65.5% ownership of the common stock of the Company to 59.3%, while retaining his current control position in the common stock. Together Privet and Mr. Steffens, excluding the exercise of the Warrants, have a majority of the voting control of the Company. In July 2015, the Company entered into various notes payable totaling $290,000 with Mr. Steffens. The notes bear interest between 0% and 12%. They are unsecured and mature on December 31, 2015. The Company is obligated to repay the notes with the collection of any accounts receivables. |
1. INTERIM FINANCIAL STATEMEN16
1. INTERIM FINANCIAL STATEMENTS (Policies) | 6 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
Liquidity | 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 six months ended June 30, 2015, the Company incurred losses of $1,535,000 and had a working capital deficiency of $6,748,000 as of 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 $575,000 and $2,296,000 in 2015 and 2014, respectively. The Company has also repaid approximately $15,000 and $391,000 of debt in 2015 and 2014, respectively. Additionally, in April 2015, the Companys 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 Companys 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 Companys 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 Companys 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. |
Use of Accounting Estimates | 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. |
Financial Instruments | The carrying amount of the Companys financial instruments, representing accounts receivable, accounts payable and short-term debt approximate their fair value due to their short term nature. The fair value and carrying amount of long-term debt were as follows: June 30, 2015 December 31, 2014 Fair Value 2,061,495 -- Carrying Value 2,157,000 -- Valuations for long-term debt are determined based on borrowing rates currently available to the Company for loans with similar terms and maturities. These loans have been determined to be Level 3 within the fair value hierarchy and use a discounted cash flow model to determine their valuation. There have been no changes to the valuation technique. |
Stock-Based Compensation | 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 enterprises 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 issued 25,000 options at an exercise price of $0.05 in the first six months of 2015. The Company recognized stock-based compensation expense of $38 and $513 for the three and six months ended June 30, 2015 in connection with outstanding options. The following table sets forth certain information as of June 30, 2015 about shares of the Companys common stock, par value $.001 (the Common Stock), outstanding and available for issuance under the Companys existing equity compensation plans: the Cicero Inc. 2007 Employee Stock Option Plan and the Outside Director Stock Option Plan. The Companys stockholders approved all of the Companys stock-based compensation plans. Shares Outstanding on December 31, 2014 3,150,110 Granted 25,000 Exercised -- Forfeited (18,000 ) Outstanding on June 30, 2015 3,157,110 Weighted average exercise price of outstanding options $ 0.24 Aggregate Intrinsic Value $ 385 Shares available for future grants on June 30, 2015 1,344,090 Weighted average of remaining contractual life 4.23 |
Recent Accounting Pronouncements | 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 entitys 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 entitys 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. In May 2014, the FASB issued a new accounting standard update on revenue recognition from contracts with customers. The new guidance will replace most current U.S. GAAP guidance on this topic and eliminate most industry-specific guidance. 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. This guidance will be effective for the Company beginning January 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company has not yet selected a transition method and is evaluating the impact of adopting this new accounting standard update on the consolidated financial statements and related disclosures. |
1. INTERIM FINANCIAL STATEMEN17
1. INTERIM FINANCIAL STATEMENTS (Tables) | 6 Months Ended |
Jun. 30, 2015 | |
Interim Financial Statements Tables | |
Fair value and carrying amount of long-term debt | June 30, 2015 December 31, 2014 Fair Value 2,061,495 -- Carrying Value 2,157,000 -- |
Stock-Based Compensation | Shares Outstanding on December 31, 2014 3,150,110 Granted 25,000 Exercised -- Forfeited (18,000 ) Outstanding on June 30, 2015 3,157,110 Weighted average exercise price of outstanding options $ 0.24 Aggregate Intrinsic Value $ 385 Shares available for future grants on June 30, 2015 1,344,090 Weighted average of remaining contractual life 4.23 |
2. GOODWILL AND OTHER INTANGI18
2. GOODWILL AND OTHER INTANGIBLE ASSETS (Tables) | 6 Months Ended |
Jun. 30, 2015 | |
Goodwill And Other Intangible Assets Tables | |
Schedule of goodwill and impairment | Goodwill Balance at December 31, 2014 $ 1,658,000 Additions -- Impairment -- Balance at June 30, 2015 $ 1,658,000 |
3. DEBT (Tables)
3. DEBT (Tables) | 6 Months Ended |
Jun. 30, 2015 | |
Debt Disclosure [Abstract] | |
Short-term debt, and notes payable to related party | June 30, 2015 December 31, 2014 Notes payable asset purchase agreement (a) $ 1,543 $ 700 Notes payable related party (b) 315 6,706 Notes payable (c) 1,086 1,086 Total Debt 2,944 8,492 Less current portion (787 ) (8,492 ) Total long term debt $ 2,157 $ -- |
7. COMMITMENTS (Tables)
7. COMMITMENTS (Tables) | 6 Months Ended |
Jun. 30, 2015 | |
Commitments Tables | |
Schedule of lease commitments | Lease Commitments 2015 $ 51 2016 103 2017 106 2018 89 $ 349 |
1. INTERIM FINANCIAL STATEMEN21
1. INTERIM FINANCIAL STATEMENTS (Details) - USD ($) $ in Thousands | Jun. 30, 2015 | Dec. 31, 2014 |
Interim Financial Statements Details | ||
Fair Value | $ 2,061 | $ 0 |
Carrying Value | $ 2,157 | $ 0 |
1. INTERIM FINANCIAL STATEMEN22
1. INTERIM FINANCIAL STATEMENTS (Details1) - Jun. 30, 2015 - USD ($) $ / shares in Units, $ in Thousands | Total |
Interim Financial Statements Details | |
Outstanding on December 31, 2014 | 3,150,110 |
Granted | 25,000 |
Exercised | 0 |
Forfeited | (18,000) |
Outstanding on June 30, 2015 | 3,157,110 |
Weighted average exercise price of outstanding options | $ .24 |
Aggregate Intrinsic Value | $ 385 |
Shares available for future grants on June 30, 2015 | 1,344,090 |
Weighted average of remaining contractual life | 4 years 2 months 23 days |
1. INTERIM FINANCIAL STATEMEN23
1. INTERIM FINANCIAL STATEMENTS (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2015 | Jun. 30, 2014 | Jun. 30, 2015 | Jun. 30, 2014 | |
Interim Financial Statements Details Narrative | ||||
Net loss | $ 670 | $ 652 | $ 1,535 | $ 1,375 |
Working capital deficiency | $ 6,748 | $ 6,748 |
2. GOODWILL AND OTHER INTANGI24
2. GOODWILL AND OTHER INTANGIBLE ASSETS (Details) $ in Thousands | 6 Months Ended |
Jun. 30, 2015USD ($) | |
Goodwill And Other Intangible Assets Details | |
Balance at December 31, 2014 | $ 1,658 |
Additions | 0 |
Impairment | 0 |
Balance at June 30, 2015 | $ 1,658 |
3. DEBT (Details)
3. DEBT (Details) - USD ($) $ in Thousands | Jun. 30, 2015 | Dec. 31, 2014 |
Debt Details | ||
Note payable asset purchase agreement (a) | $ 1,543 | $ 700 |
Note payable - related party (b) | 315 | 6,706 |
Note payable (c) | 1,086 | 1,086 |
Total debt | 787 | 8,492 |
Less: Current Portion | (787) | (8,492) |
Total long term debt | $ 2,157 | $ 0 |
7. COMMITMENTS (Details)
7. COMMITMENTS (Details) $ in Thousands | Jun. 30, 2015USD ($) |
Commitments Tables | |
2,015 | $ 51 |
2,016 | 103 |
2,017 | 106 |
2,018 | 89 |
Total | $ 349 |