Cicero (CICN) 10-Q 14 Nov 18 2018 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Nov. 05, 2018
Document And Entity Information
Entity Registrant Name	CICERO INC
Entity Central Index Key	945,384
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Non-accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding		207,913,541
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2,018

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 56	$ 56
Trade accounts receivable	48	223
Prepaid expenses and other current assets	168	53
Total current assets	272	332
Property and equipment, net	6	7
Total assets	278	339
Liabilities:
Current portion of long term debt	3,297	1,220
Accounts payable	1,015	1,102
Accrued expenses:
Salaries, wages, and related items	1,412	1,680
Accrued interest	351	216
Other	569	589
Deferred revenue	575	454
Total current liabilities	7,219	5,261
Long-term debt (Note 3)	464	890
Total liabilities	7,683	6,151
Commitments and Contingencies (Note 6 and 7)
Stockholders' deficit:
Convertible preferred stock, $0.001 par value, 10,000,000 shares authorized 5,083 Series A shares issued and outstanding at September 30, 2018 and December 31, 2017. $500 per share liquidation preference	0	0
Common stock, $0.001 par value, 600,000,000 shares authorized 207,913,541 issued and outstanding at September 30, 2018 and December 31, 2017	208	208
Additional paid-in capital	253,693	253,691
Accumulated deficit	(261,306)	(259,711)
Total stockholders' deficit	(7,405)	(5,812)
Total liabilities and stockholders' deficit	$ 278	$ 339

CONDENSED CONSOLIDATED BALANC_2

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Sep. 30, 2018	Dec. 31, 2017
Stockholders deficit:
Convertible preferred stock, par value	$ 0.001	$ 0.001
Convertible preferred stock shares authorized	10,000,000	10,000,000
Convertible preferred stock issued	5,083	5,083
Convertible preferred stock outstanding	5,083	5,083
Common stock, par value	$ 0.001	$ 0.001
Common stock shares authorized	600,000,000	600,000,000
Common stock shares issued	207,913,541	207,913,541
Common stock shares outstanding	207,913,541	207,913,541

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Revenue:
Software	$ 12,000	$ 49,000	$ 34,000	$ 525,000
Maintenance	119,000	135,000	369,000	385,000
Services	69,000	48,000	205,000	156,000
Total operating revenue	200,000	232,000	608,000	1,066,000
Cost of revenue:
Software	0	4,000	0	4,000
Maintenance	37,000	34,000	118,000	114,000
Services	99,000	102,000	292,000	295,000
Total cost of revenue	136,000	140,000	410,000	413,000
Gross margin	64,000	92,000	198,000	653,000
Operating expenses:
Sales and marketing	61,000	95,000	278,000	303,000
Research and product development	250,000	261,000	743,000	816,000
General and administrative	169,000	226,000	546,000	774,000
Total operating expenses	480,000	582,000	1,567,000	1,893,000
Loss from operations	(416,000)	(490,000)	(1,369,000)	(1,240,000)
Other expense:
Interest expense	(89,000)	(77,000)	(226,000)	(317,000)
Total other expense	(89,000)	(77,000)	(226,000)	(317,000)
Net loss	$ (505,000)	$ (567,000)	$ (1,595,000)	$ (1,557,000)
Loss per share applicable to common stockholders:
Basic and Diluted	$ 0	$ 0	$ (0.01)	$ (0.01)
Weighted average shares outstanding:
Basic and Diluted	207,913,541	207,913,541	207,913,541	197,587,913

CONDENSED CONSOLIDATED STATEM_2

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash flows from operating activities:
Net loss	$ (1,595,000)	$ (1,557,000)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization	3,000	5,000
Stock compensation expense	2,000	3,000
Bad debt expense	2,000	0
Changes in assets and liabilities:
Trade accounts receivable	173,000	262,000
Prepaid expenses and other current assets	(115,000)	(60,000)
Accounts payable and accrued expenses	(240,000)	389,000
Deferred revenue	121,000	(418,000)
Net cash used by operating activities	(1,649,000)	(1,376,000)
Cash flows from investing activities:
Purchases of equipment	(2,000)	(2,000)
Net cash used by investing activities	(2,000)	(2,000)
Cash flows from financing activities:
Borrowings under debt	1,776,000	1,375,000
Repayments of debt	(125,000)	(20,000)
Net cash generated by financing activities	1,651,000	1,355,000
Net increase/(decrease) in cash	0	(23,000)
Cash: Beginning of period	56,000	91,000
Cash: End of period	$ 56,000	$ 68,000

CONDENSED CONSOLIDATED STATEM_3

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (Unaudited) - 9 months ended Sep. 30, 2018 - USD ($)	Common Stock	Preferred Stock	Additional Paid-in Capital	Accumulated (Deficit)	Total
Beginning Balance, Shares at Dec. 31, 2017	207,913,541	5,083
Beginning Balance, Amount at Dec. 31, 2017	$ 208,000	$ 0	$ 253,691,000	$ (259,711,000)	$ (5,812,000)
Restricted stock issued as compensation			2,000		2,000
Net loss				(1,595,000)	(1,595,000)
Ending Balance, Shares at Sep. 30, 2018	207,913,541	5,083
Ending Balance, Amount at Sep. 30, 2018	$ 208,000	$ 0	$ 253,693,000	$ (261,306,000)	$ (7,405,000)

1. INTERIM FINANCIAL STATEMENTS

1. INTERIM FINANCIAL STATEMENTS	9 Months Ended
	Sep. 30, 2018
Notes to Financial Statements
1. INTERIM FINANCIAL STATEMENTS	The accompanying condensed consolidated financial statements for the three and nine months ended September 30, 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, filed with the SEC on March 30, 2018. 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 Although the Company has incurred a net loss of approximately $1,595,000 for the nine months ended September 30, 2018, 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, the Company issued 5,083 shares of its Series A preferred stock and a Warrant to purchase up to 20,333,620 shares of the Company’s Common Stock at an exercise price of $0.07 per share to its Chairman, John Steffens, as part of a conversion of debt and interest totaling $5,083,405 reducing its working capital deficiency. The Company has borrowed approximately $1,776,000 and $1,873,000 in 2018 and 2017, 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, on our consolidated financial statements for the period ended December 31, 2017 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. 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, stock based compensation, deferred taxes, and related valuation allowances and valuation of equity instruments. 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 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, 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. The Company recognized approximately $300 and $2,000 in stock-based compensation in connection with the restricted stock grants for the three and nine months ended September 30, 2018, respectively, in connection with restricted stock grants issued in the first quarter of 2018 to certain employees, and did not recognize any stock-based compensation for the three and nine months ended September 30, 2017, respectively. The grants vest on the second anniversary of the grant date. The Company has approximately $1,100 of unrecognized stock-based compensation expense in connection with the restricted stock grants The following table sets forth certain information as of September 30, 2018 about shares of the Company’s common stock, par value $.001 (the “Common Stock”), outstanding and available for issuance under the Company’s existing equity compensation plans: the Cicero Inc. 2007 Employee Stock Option Plan and the Outside Director Stock Option Plan. The Company’s stockholders approved all of the Company’s stock-based compensation plans. Options Outstanding on December 31, 2017 1,577,750 Granted -- Exercised -- Forfeited (871,539 ) Outstanding on September 30, 2018 706,211 Weighted average exercise price of outstanding options $ 0.08 Aggregate Intrinsic Value $ 0 Shares available for future grants on September 30, 2018 -- Weighted average of remaining contractual life 2.5 Recent Accounting Pronouncements 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 new leases standard ASU 2016-02 Leases (Topic 842) was issued on February 25, 2016. ASU 2016-02 is intended to improve financial reporting about leasing transactions. The ASU affects all companies 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 recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures designed to enable users 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 recorded in the financial statements. Under the new guidance, a lessee will be required to recognize assets and liabilities 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 sheet the new ASU will require both types of leases (i.e. operating and capital) to be recognized 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 application to previously issued annual and interim financial statements for 2018. See Note 5 for the Company’s current lease commitments. The Company is currently in the process of evaluating the impact that this new leasing ASU will have on its financial statements.

2. REVENUE

2. REVENUE	9 Months Ended
	Sep. 30, 2018
Revenue
2. REVENUE	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. Contract Balances Timing differences among revenue recognition may result in contract assets or liabilities. Contract liabilities (deferred revenue) totaled $454,000 and $575,000 as of January 1, 2018 and September 30, 2018, respectively. Revenue recognized from the contract liabilities for the nine months ended September 30, 2018 was $310,000. The contract liability balances reflect the unrecognized transaction price. Our net trade accounts receivables were $223,000 and $48,000 as of January 1, 2018 and September 30, 2018, 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. Performance Obligations 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. Revenue Recognition 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. Cicero established a standalone selling price for its lines of revenue based on price list and historical sales. Practical Expedients and Exemptions There are several practical expedients and exemptions allowed under ASC 606 that impact timing of revenue recognition and our disclosures. Below is a list of practical expedients we applied in the adoption and application of ASC 606: Application ● The Company is making the election not to disclose variable consideration allocated to performance obligations related to either: (1) sales- or usage-based royalties on licenses of intellectual property or (2) variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation when certain criteria are met. ● The Company is making an election to treat sales tax on a net basis, which would not include it in the transaction price to allocate across performance obligations. ● The Company elects to treat similar contracts among the business units as part of a portfolio of contracts, primarily software license and maintenance contracts. These contracts have the same provision terms, and management has the expectation the result will not be materially different from the consideration of each individual contract. ● The Company does not evaluate a contract for a significant financing component if payment is expected within one year or less from the transfer of the promised items to the customer. ● The Company generally expenses sales commissions when incurred when the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses.

3. DEBT

3. DEBT	9 Months Ended
	Sep. 30, 2018
Debt Disclosure [Abstract]
3. DEBT	Debt and notes payable to related party consist of the following (in thousands): September 30, 2018 December 31, 2017 Note payable – asset purchase agreement (a) $ 360 $ 421 Note payable – related party (b) 2,886 1,170 Notes payable (c) 515 519 Total debt 3,761 2,110 Less current portion (3,297 ) (1,220 ) Total long term debt $ 464 $ 890 (a) As part of a prior acquisition, the Company was subject to certain earn-out obligation 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. 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 due to a portion of earn-out obligations being met. 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 was December 31, 2015 with an annual interest rate of 10%. Through a series of amendments, the maturity date was extended to December 31, 2017 and two milestone payments of $62,500, to be applied to outstanding interest and then principal, payable on June 1, 2017 and December 1, 2017, respectively, were added. In April 2017, the maturity date was extended to January 1, 2019 and two milestone payments of $62,500, to be applied to outstanding interest and then principal, payable on June 1, 2018 and December 1, 2018, respectively, were added. As such, the Company has reclassed this debt to long term debt as of December 31, 2017. At December 31, 2017, the Company was indebted to SOAdesk for $421,303 in principal and approximately $43,000 in interest. At September 30, 2018, the Company was indebted to SOAdesk for $360,580 in principal and approximately $8,000 in interest and the principal has been reclassed to short term debt. (b) From time to time during 2017 through 2018, the Company entered into several short term notes payable with John Steffens, the Company’s Chairman of the Board, for various working capital needs. The notes bear an interest rate of 10% with a maturity date of June 30, 2018. In June 2018, all outstanding notes were amended to a new maturity date of December 31, 2018. The Company is obligated to repay the notes with the collection of any accounts receivable. At December 31, 2017, the Company was indebted to Mr. Steffens in the approximate amount of $1,170,000 of principal and $75,000 of interest. At September 30, 2018, the Company was indebted to Mr. Steffens in the approximate amount of $2,886,000 of principal and $220,000 of interest. (c) The Company has issued a series of short-term unsecured promissory notes with private lenders, which provide for short term borrowings. The notes, in the aggregate amount of $50,000 of principal and $76,000 of interest and $50,000 of principal and $85,000 of interest, as of December 31, 2017 and September 30, 2018, respectively, bear interest between 10% and 36% per annum. 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, the Company was indebted to this private lender in the amount of $468,500 in principal and $21,000 in interest and has been reclassified as long term debt due to its maturity date of January 31, 2021. At September 30, 2018, the Company was indebted to this private lender in the amount of $464,350 in principal and $37,000 in interest.

4. INCOME TAXES

4. INCOME TAXES	9 Months Ended
	Sep. 30, 2018
Income Tax Disclosure [Abstract]
4. 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 three and nine months ended on September 30, 2018 and 2017. As a result of the Company's recurring losses, the deferred tax assets have been fully offset by a valuation allowance.

5. LOSS PER SHARE

5. LOSS PER SHARE	9 Months Ended
	Sep. 30, 2018
Earnings Per Share [Abstract]
5. 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, 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, 2018 and 2017.

6. COMMITMENTS

6. COMMITMENTS	9 Months Ended
	Sep. 30, 2018
Commitments and Contingencies Disclosure [Abstract]
6. COMMITMENTS	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 minimum lease commitments on operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of September 30, 2018 consisted of only one lease as follows (in thousands): Lease Commitments 2018 $ 5 $ 5

7. CONTINGENCIES

7. CONTINGENCIES	9 Months Ended
	Sep. 30, 2018
Commitments and Contingencies Disclosure [Abstract]
7. 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. There was no active litigation against the Company as of September 30, 2018. 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.

8. SUBSEQUENT EVENTS

8. SUBSEQUENT EVENTS	9 Months Ended
	Sep. 30, 2018
Subsequent Events [Abstract]
8. SUBSEQUENT EVENTS	In October 2018, the Company entered into notes payable totaling $200,000 with Mr. Steffens. The notes bear interest at 10% per annum. The notes are unsecured and mature on December 31, 2018. The Company is obligated to repay the notes with the collection of any accounts receivables.

1. INTERIM FINANCIAL STATEMEN_2

1. INTERIM FINANCIAL STATEMENTS (Policies)	9 Months Ended
	Sep. 30, 2018
Notes to Financial Statements
Liquidity	Although the Company has incurred a net loss of approximately $1,595,000 for the nine months ended September 30, 2018, 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, the Company issued 5,083 shares of its Series A preferred stock and a Warrant to purchase up to 20,333,620 shares of the Company’s Common Stock at an exercise price of $0.07 per share to its Chairman, John Steffens, as part of a conversion of debt and interest totaling $5,083,405 reducing its working capital deficiency. The Company has borrowed approximately $1,776,000 and $1,873,000 in 2018 and 2017, 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, on our consolidated financial statements for the period ended December 31, 2017 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.
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, stock based compensation, deferred taxes, and related valuation allowances and valuation of equity instruments.
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 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, 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. The Company recognized approximately $300 and $2,000 in stock-based compensation in connection with the restricted stock grants for the three and nine months ended September 30, 2018, respectively, in connection with restricted stock grants issued in the first quarter of 2018 to certain employees, and did not recognize any stock-based compensation for the three and nine months ended September 30, 2017, respectively. The grants vest on the second anniversary of the grant date. The Company has approximately $1,100 of unrecognized stock-based compensation expense in connection with the restricted stock grants The following table sets forth certain information as of September 30, 2018 about shares of the Company’s common stock, par value $.001 (the “Common Stock”), outstanding and available for issuance under the Company’s existing equity compensation plans: the Cicero Inc. 2007 Employee Stock Option Plan and the Outside Director Stock Option Plan. The Company’s stockholders approved all of the Company’s stock-based compensation plans. Options Outstanding on December 31, 2017 1,577,750 Granted -- Exercised -- Forfeited (871,539 ) Outstanding on September 30, 2018 706,211 Weighted average exercise price of outstanding options $ 0.08 Aggregate Intrinsic Value $ 0 Shares available for future grants on September 30, 2018 -- Weighted average of remaining contractual life 2.5
Recent Accounting Pronouncements	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 new leases standard ASU 2016-02 Leases (Topic 842) was issued on February 25, 2016. ASU 2016-02 is intended to improve financial reporting about leasing transactions. The ASU affects all companies 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 recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures designed to enable users 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 recorded in the financial statements. Under the new guidance, a lessee will be required to recognize assets and liabilities 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 sheet the new ASU will require both types of leases (i.e. operating and capital) to be recognized 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 application to previously issued annual and interim financial statements for 2018. See Note 5 for the Company’s current lease commitments. The Company is currently in the process of evaluating the impact that this new leasing ASU will have on its financial statements.

1. INTERIM FINANCIAL STATEMEN_3

1. INTERIM FINANCIAL STATEMENTS (Tables)	9 Months Ended
	Sep. 30, 2018
Interim Financial Statements
Stock-Based Compensation	Options Outstanding on December 31, 2017 1,577,750 Granted -- Exercised -- Forfeited (871,539 ) Outstanding on September 30, 2018 706,211 Weighted average exercise price of outstanding options $ 0.08 Aggregate Intrinsic Value $ 0 Shares available for future grants on September 30, 2018 -- Weighted average of remaining contractual life 2.5

3. DEBT (Tables)

3. DEBT (Tables)	9 Months Ended
	Sep. 30, 2018
Debt Disclosure [Abstract]
Debt, and notes payable to related party	September 30, 2018 December 31, 2017 Note payable – asset purchase agreement (a) $ 360 $ 421 Note payable – related party (b) 2,886 1,170 Notes payable (c) 515 519 Total debt 3,761 2,110 Less current portion (3,297 ) (1,220 ) Total long term debt $ 464 $ 890

6. COMMITMENTS (Tables)

6. COMMITMENTS (Tables)	9 Months Ended
	Sep. 30, 2018
Commitments
Schedule of lease commitments	Lease Commitments 2018 $ 5 $ 5

1. INTERIM FINANCIAL STATEMEN_4

1. INTERIM FINANCIAL STATEMENTS (Details) $ / shares in Units, $ in Thousands	9 Months Ended
	Sep. 30, 2018USD ($)$ / sharesshares
Interim Financial Statements Details Abstract
Outstanding on December 31, 2017	1,577,750
Granted	0
Exercised	0
Forfeited	(871,539)
Outstanding on September 30, 2018	706,211
Weighted average exercise price of outstanding options | $ / shares	$ 0.08
Aggregate Intrinsic Value | $	$ 0
Shares available for future grants on September 30, 2018	0
Weighted average of remaining contractual life	2 years 6 months

1. INTERIM FINANCIAL STATEMEN_5

1. INTERIM FINANCIAL STATEMENTS (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Interim Financial Statements Details Narrative Abstract
Net loss	$ (505,000)	$ (567,000)	$ (1,595,000)	$ (1,557,000)
Working capital deficiency	5,083,405		5,083,405
Stock compensation expense	0	300	2,000	3,000
Recognized stock-based compensation expenses	300	$ 0	2,000	$ 0
Unrecognized stock-based compensation	$ 1,100		$ 1,100

2. REVENUE (Details Narrative)

2. REVENUE (Details Narrative) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Revenue Details Abstract
Contract liabilities	$ 575	$ 454
Trade accounts receivables	$ 48	$ 223

3. DEBT (Details)

3. DEBT (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Debt
Note payable - asset purchase agreement (a)	$ 360	$ 421
Note payable - related parties (b)	2,886	1,170
Notes payable (c)	515	519
Total debt	3,761	2,110
Less current portion	(3,297)	(1,220)
Total long term debt	$ 464	$ 890

6. COMMITMENTS (Details)

6. COMMITMENTS (Details) $ in Thousands	Sep. 30, 2018USD ($)
Commitments
2,018	$ 5
Total	$ 5