UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
------ OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- ------- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-19301
COMMUNICATION INTELLIGENCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-2790442
---------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
275 Shoreline Drive, Suite 500,Redwood Shores, CA 94065-1413
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (650) 802-7888
------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --------
Number of shares outstanding of the issuer's Common
Stock, as of August 14, 2003: 100,101,428.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
-------------------- --------
Condensed Consolidated Balance Sheets at June 30, 2003
(unaudited) and December 31, 2002.......................................3
Condensed Consolidated Statements of Operations for the
Three and Six-Month Periods Ended June 30, 2003
and 2002 (unaudited)....................................................4
Condensed Consolidated Statements of Changes in
Stockholders' Equity for the Three and Six-Month Periods
Ended June 30, 2003 and 2002 (unaudited)................................5
Condensed Consolidated Statements of Cash Flows
for the Three and Six-Month Periods Ended June 30, 2003
and 2002 (unaudited)....................................................6
Notes to Unaudited Condensed Consolidated Financial Statements..........7
Item 2. Management's Discussion and Analysis of Financial
--------------------------------------------------
Condition and Results of Operations...........................12
------------------------------------
Item 3. Quantitative and Qualitative Disclosures About Market Risk....19
----------------------------------------------------------
Item 4. Controls and Procedures.......................................19
-----------------------
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................20
-----------------
Item 2. Change in Securities..........................................20
--------------------
Item 3. Defaults Upon Senior Securities...............................20
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders...........20
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Item 5. Other Information................................... .........21
-----------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits.............................................21
(b) Reports on Form 8-K..................................21
Signatures.............................................................22
-2-
Communication Intelligence Corporation
and Subsidiary
Condensed Consolidated Balance Sheets
(In thousands)
June 30, December 31,
2003 2002
----------- -----------
Unaudited
Assets
Current assets:
Cash and cash equivalents....................... $ 1,424 $ 711
Accounts receivable, net................... 551 477
Inventories................................ 81 113
Prepaid expenses and other current assets.. 167 244
----------- -----------
Total current assets................... 2,223 1,545
Property and equipment, net..................... 151 159
Capitalized software costs...................... 5 12
Patents and trademarks.......................... 5,231 5,421
Other assets.................................... 31 31
----------- -----------
Total assets............................... $ 7,641 $ 7,168
=========== ===========
Liabilities and Stockholders' equity
Current liabilities:
Short-term debt - Related party............ $ 3,000 $ -
Accounts payable........................... 187 160
Accrued compensation............................ 231 250
Other accrued liabilities.................. 454 489
Deferred revenue........................... 79 165
Capital Lease Obligations.................. 34 38
----------- -----------
Total current liabilities.............. 3,985 1,102
Notes payable - Related party................... - 3,000
Minority interest............................... 128 132
Commitments
Stockholders' equity:
Common stock............................... 1,001 915
Additional paid-in capital................. 83,529 82,025
Accumulated deficit........................ (80,819) (79,819)
Cumulative translation adjustment.......... (183) (187)
----------- -----------
Total stockholders' equity............. 3,528 2,934
----------- -----------
Total liabilities and stockholders' equity. $ 7,641 $ 7,168
=========== ===========
The accompanying notes form an integral part of these Financial Statements.
-3-
Communication Intelligence Corporation
and Subsidiary
Condensed Consolidated Statements of Operations
Unaudited
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
2003 2002 2003 2002
-------- -------- -------- ---------
Revenues:
Online............................. $ 92 $ 80 $ 206 $ 204
Corporate.......................... 288 708 955 1,406
China .......................... 192 323 519 658
-------- -------- -------- --------
Total revenues................. 572 1,111 1,680 2,268
Operating costs and expenses:
Cost of sales:
Online.......................... - 22 1 185
Corporate....................... 11 76 23 133
China .......................... 111 205 331 426
Research and development........... 303 366 643 778
Sales and marketing .............. 180 427 463 814
General and administrative ....... 619 639 1,131 1,179
-------- -------- -------- --------
Total operating costs and expenses 1,224 1,735 2,592 3,515
--------- -------- -------- --------
Loss from operations .................. (652) (624) (912) (1,247)
Interest and other income
(expense), net ...................... 6 4 5 (9)
Interest expense ...................... (48) (50) (97) (102)
Minority interest ..................... 4 (1) 4 (1)
-------- --------- -------- -------
Net loss ..................... (690) (671) (1,000) (1,359)
======== ========= ========= =======
Basic and diluted loss per common share $(0.01) $(0.01) $(0.01) $(0.01)
======== ========= ========= =======
Weighted average common
shares outstanding .............. 97,514 91,278 94,726 91,113
======== ========= ========= =======
The accompanying notes form an integral part of these Financial Statements.
-4-
Communication Intelligence Corporation
and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
Unaudited
(In thousands, except per share amounts)
Accumulated
Additional Other
Shares Common Paid-In Accum. Comprehensive
Outstanding Stock Capital Deficit Loss Total
----------- ------ ---------- ------- ------------- ----
Balances as of December
31, 2002............. 91,481 $ 915 $ 82,025 $(79,819) $ (187) $2,934
-------------------------------------------------------
Sale of shares of Common
Stock net of issuance
costs................ 2,041 20 93 113
Foreign currency
translation adjustment. 2 2
Net loss............... (310) (310)
--------------------------------------------------------
Balances as of March 31,
2003................. 93,522 $935 $ 82,118 $(80,129) $ (185) $2,739
--------------------------------------------------------
Sale of shares of Common
Stock net of issuance
costs................ 6,580 66 1,411 1,477
Foreign currency
translation adjustment. 2 2
Net loss............... (690) (690)
---------------------------------------------------------
Balances as of June 30,
2003................. 100,102 $1,001 $ 83,529 $(80,819) $(183) $3,528
=========================================================
The accompanying notes form an integral part of these Financial Statements.
-5-
Communication Intelligence Corporation
and Subsidiary
Condensed Consolidated Statements of Cash Flows
Unaudited
(In thousands)
Six Months Ended
June 30,
2003 2002
----------- ----------
Cash flows from operating activities:
Net loss.............................................. $ (1,000) $ (1,359)
Adjustments to reconcile net loss to net cash
(used) in operating activities:
Depreciation...................................... 47 50
Patent amortization............................... 190 189
Disposal of fixed assets.......................... 8 5
Changes in operating assets and liabilities:
Accounts receivable, net....................... (74) (116)
Inventories.................................... 32 (23)
Prepaid expenses and other current assets...... 77 4
Other assets................................... - 79
Accounts payable............................... 27 79
Accrued compensation........................... (19) 81
Other accrued liabilities...................... (39) 9
Deferred revenue............................... (86) 24
----------- ---------
Net cash (used in) operating activities.......... (837) (978)
----------- ---------
Cash flows from investing activity:
Acquisition of property and equipment................. (36) (12)
----------- ---------
Net cash used in investing activity............... (36) (12)
----------- ---------
Cash flows from financing activities:
Payments on short-term debt........................... - (181)
Proceeds from the exercise of stock options and
warrants.............................................. - 426
Proceeds from the issuance of common stock............ 2,000 -
Offering costs........................................ (410) -
Principal payments on capital lease obligations....... (4) (3)
------------ --------
Net cash provided by financing activities......... 1,586 242
------------ --------
Effect of exchange rate changes on cash................ - -
------------ --------
Net increase (decrease) in cash and cash equivalents... 713 (748)
Cash and cash equivalents at beginning of period....... 711 2,588
------------ --------
Cash and cash equivalents at end of period.............$ 1,424 $1,840
============ =========
The accompanying notes form an integral part of these Financial Statements.
-6-
Communication Intelligence Corporation
and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
1. Interim financial statements
The financial information contained herein should be read in conjunction with
the Company's audited financial statements and notes thereto included in its
Annual Report on Form 10-K for the year ended December 31, 2002.
The accompanying unaudited condensed consolidated financial statements of
Communication Intelligence Corporation and its subsidiary (the "Company" or
"CIC") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
("GAAP") for complete financial statements. In the opinion of management, the
financial statements included in this quarterly report reflect all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair presentation of its financial position at the dates
presented and the Company's results of operations and cash flows for the periods
presented. The Company's interim results are not necessarily indicative of the
results to be expected for the entire year.
The Company develops and markets software that can verify handwritten signatures
and electronic signature and handwritten data entry software solutions aimed at
emerging, large potential markets such as e-commerce, workflow automation,
corporate security, smart handheld devices such as handheld computers &
smartphones and the Palm OS aftermarket.
The Company's core software technologies include multilingual handwriting
recognition systems (Jot(R)) and the Handwriter(R) Recognition System, referred
to as HRS(TM), electronic signature, biometric signature verification,
cryptography, electronic ink recording tools (InkTools(R)), Sign-it(R),
iSign(TM) and Sign-On(TM), and operating systems extensions that enable pen
input (PenX(TM)).
Other consumer and original equipment manufacturer ("OEM") products include
electronic notetaking (QuickNotes(TM) and InkSnap(TM)) and predictive text
input, (WordComplete(R)). CIC's products are designed to increase the ease of
use, functionality and security of electronic devices with a primary focus on
smart handheld devices such as handheld computers and smartphones.
The Company offers a wide range of multi-platform software products that enable
or enhance pen-based computing. The Company's core technologies are classified
into two broad categories: "natural input technologies" and "transaction and
communication enabling technologies". Natural input technologies are designed to
allow users to interact with a desktop computer or handheld computer by using an
electronic pen or "stylus" as the primary input device or in conjunction with a
keyboard. CIC's natural input offerings include multilingual handwriting
recognition systems, software keyboards, predictive text entry, and electronic
ink capture technologies. Many small handheld devices such as PDA's (portable
digital assistants), converged devices (combine voice, PDA functionality and
internet access in a single device) and digitizer tablets do not have a
keyboard. For such devices, handwriting recognition and software keyboards offer
viable solutions for performing text entry and editing. CIC's predictive text
entry technology simplifies data entry even further by reducing the number of
actual letters required to be entered. The Company's ink capture technologies
facilitate the capture of electronic ink for notetaking, drawings or short
handwritten messages. The Company's transaction and communication enabling
technologies are designed to provide a cost-effective means for securing
electronic transactions, providing network and device access control, and
enabling workflow automation of traditional paper form processing. CIC believes
that these technologies offer more efficient methods for conducting electronic
transactions and provide more functional user authentication and heightened data
security. The Company's transaction and communication enabling technologies have
been fundamental in its development of software for signature verification, data
security, and data compression.
-7-
Communication Intelligence Corporation
and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
Going Concern
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations that raise a substantial doubt about its ability to
continue as a going concern. At June 30, 2003, the Company's accumulated deficit
was approximately $81 million. The Company filed a registration statement with
the Securities and Exchange Commission that was declared effective February
2003, pursuant to the line of credit agreement with Cornell Capital Partners, LP
("Cornell"). However, there can be no assurance that the Company will have
adequate capital resources to fund planned operations or that additional funds
will be available to the Company when needed, or if available, will be available
on favorable terms or in amounts required by the Company. If the Company is
unable to obtain adequate capital resources to fund operations, it may be
required to delay, scale back or eliminate some or all of its operations, which
may have a material adverse effect on the Company's business, results of
operations and ability to operate as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
2.Cash and cash equivalents
The Company considers all highly liquid investments with original maturities of
up to 90 days to be cash equivalents.
Cash and cash equivalents consist of the following:
June 30, December 31,
2003 2002
--------------------- -- -------------------
Cash in bank $ 191 $ 260
Money market 1,233 451
--------------------- -------------------
$ 1,424 $ 711
===================== ===================
3. Inventories
Inventories are stated at the lower of cost or market, cost being determined
using the first-in, first-out (FIFO) method. At June 30, 2003, inventories
consisted primarily of finished goods.
4. Short-term debt - Related Party Transactions
On June 19, 2001, the Company consummated a three-year $3 million financing (the
"Loan") with a charitable remainder annuity trust of which a former director and
officer of the Company is a trustee (the "Trust"). The proceeds of the Loan were
used to refinance $1.5 million of indebtedness outstanding to the Trust pursuant
to a loan made by the Trust to the Company in October 1999 and for working
capital purposes.
The Loan bears interest at the rate of 2% over the prime rate publicly announced
by Citibank N.A. from time to time, which was 6.00% per annum at June 30, 2003,
and is due June 18, 2004. The Loan may be pre-paid by the Company in whole or in
part at any time without penalty, subject to the right of the Trust to convert
the outstanding principal amount of the Loan into shares of common stock.
Pursuant to the terms of the Loan, the Trust has the option, at any time prior
to maturity, to convert all or any portion of the outstanding principal amount
of the Loan into shares of common stock of the Company at a conversion price of
$2.00 per share, subject to adjustment upon the occurrence of certain events.
If, prior to maturity of the Loan, the Company consummates one or more
financings providing $5 million or more in gross proceeds, the Company is
required to apply 50% of the proceeds in excess of $5 million to the then
outstanding principal amount of the Loan. The Loan is secured by a first
priority security interest in and lien on all of the Company's assets as now
owned or hereafter acquired by the Company.
-8-
Communication Intelligence Corporation
and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
4. Short-term debt Related Party Transactions (continued)
In the event the Company exceeds $5 million in financing from its equity line of
credit with Cornell Capital, LP, 50% of the proceeds in excess of $5 million
would be required to be used to reduce the amount of the loan.
In connection with the Loan, the Company entered into a registration rights
agreement with the Trust which obligates the Company to file a registration
statement with the Securities and Exchange Commission covering the sale of the
shares of the Company's common stock issuable upon conversion of the Loan if it
receives a demand by the holder of the Loan to do so, and to use its reasonable
best efforts to cause such registration statement to become effective. As of
June 30, 2003, no demand had been made upon the Company to file this
registration statement.
Interest paid during the three and six months ended June 30, 2003 was $47, and
$95, respectively, and for the three and six months ended June 30, 2002, $51 and
$106, respectively.
5. Net loss per share
The Company calculates earnings per share under the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
128 requires the disclosure of both basic earnings per share, which is based on
the weighted average number of shares outstanding, and diluted earnings per
share, which is based on the weighted average number of shares and dilutive
potential shares outstanding. For the three and six month periods ended June 30,
2003 and 2002, stock options of 5,674 and 7,056, respectively, were excluded
from the calculation of diluted earnings per share as the effect of these
options is not dilutive.
6. Common Stock Options
The Company has adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") as amended by Financial
Accounting Standards Board Statement No. 148. The Company has elected to
continue to use the intrinsic value based method of Accounting Principles Board
Opinion No. 25, as allowed under SFAS 123, to account for its employee
stock-based compensation plans. No stock based employee compensation expense is
reflected in the consolidated statement of operations as all options granted had
an exercise price equal to the market value of the Company's common stock on the
date of grant. The Company complies with the disclosure provisions of SFAS 123.
Had compensation cost for the Company's option plans been determined based on
the fair value of the options at the date of grant, as prescribed by SFAS 123,
the Company's net loss available to common stockholders and basic and diluted
net loss per share available to stockholders would have been as follows for the
six months ended June 30, 2003:
Six Months Ended
June 30, June 30,
2003 2002
---------- ----------
Net loss available to stockholders:
As reported.............................. $ (1,000) $ (1,359)
Total stock based employee compensation
expense determined under fair value
based method net of tax.................. (246) (569)
------------- -------------
Pro forma................................ $ (1,246) $ (1,928)
============= =============
-9-
Communication Intelligence Corporation
and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
6. Common Stock Options (continued)
Basic and diluted net loss per share available to stockholders:
As reported.............................. $ (0.01) $ (0.01)
Pro forma................................ $ (0.01) $ (0.02)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants during the applicable periods:
o risk-free interest rate of 2.11% and 3.12% for 2003 and 2002,
o an expectedlife of 6.4 years for 2003, 6.9 years and for 2002,
o expected volatility of 100% all periods, and
o dividend yield of 0% for all periods.
The Company expects to make additional option grants. The Company believes the
above pro forma disclosures are not representative of the pro forma effects on
reported results of operations to be expected in future periods.
7. Comprehensive income (loss)
Total comprehensive (loss) was as follows:
Six month Ended June 30,
------------- ----- ---------------
2003 2002
------------- ---------------
Net loss $ (1,000) $ (1,359)
Other comprehensive income:
Cumulative translation adjustment 4 2
-------------- ---------------
Total comprehensive loss $ (996) $ (1,357)
============== ===============
8. Segment Information
The Company identifies reportable segments by classifying revenues into two
categories: handwriting recognition and system integration. Handwriting
recognition software is an aggregate of three revenue categories. All
handwriting recognition software is developed around the Company's core
technology. System integration represents the sale and installation of third
party computer equipment and systems that utilize the Company's products. All
sales represent sales to external customers.
The accounting policies followed by the segments are the same as those described
in the "Critical Accounting Policies." Segment data includes revenues, as well
as allocated costs charged to each of the operating segments.
-10-
Communication Intelligence Corporation
and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
FORM 10-Q
8. Segment Information (continued)
The table below presents information about reporting segments for the
periods indicated:
Six months ended June 30,
2003 2002
------------------------------- -------------------------------
Handwriting Systems Handwriting Systems
Recognition Integration Total Recognition Integration Total
----------- ----------- ------- ----------- ----------- -------
Revenues $ 1,284 $ 396 $ 1,680 $ 1,711 $ 557 $ 2,268
Loss from
Operations $ (888) $ (24) $ (912) $ (1,201) $ (46) $ (1,247)
Significant change
in Total long
lived assets from
Year End $ (36) $ - $ (36) $ - $ (35) $ (35)
For the three months ended June 30, 2003, no one customer accounted for more
than 10% of total handwriting recognition segment revenue. For the three months
ended June 30 2002, two customers accounted for 14% each of total handwriting
recognition segment revenue. For the six months ended June 30, 2003 and 2002,
one customer accounted for 36% and 15% of total handwriting recognition segment
revenue, respectively.
For the three and months ended June 30, 2003 and 2002, one customer accounted
for 55% and 24% of system integration revenues, respectively. For the six months
ended June 30, 2003 and 2002, one customer accounted for 27% and 32% of system
integration revenues, respectively.
-11-
Communication Intelligence Corporation
And Subsidiary
(In thousands, except share and per share amounts)
Form 10-Q
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-----------------------------------
The following discussion and analysis should be read in conjunction with
the Company's unaudited condensed consolidated financial statements and notes
thereto included in Part 1, Item 1 of this quarterly report on Form 10-Q and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" set fourth in the Company's Annual report on Form 10-K for the
fiscal year ended December 31, 2002.
Overview
History. The Company was incorporated in Delaware in October 1986. The
Company has incurred losses in each year since its inception. For the five-year
period ended December 31, 2002, operating losses aggregated approximately $13.9
million and at December 31, 2002, the Company's accumulated deficit was
approximately $80 million. At June 30, 2003, the Company's accumulative deficit
was approximately $81 million.
Critical Accounting Policies
The preparation of financial statements and related disclosures in
conformity with generally accepted accounting principles in the United States of
America requires management to make judgments, assumptions and estimates that
affect the amounts reported in our consolidated financial statements and the
accompanying notes. The amounts of assets and liabilities reported in our
balance sheets and the amounts of revenues and expenses reported for each period
presented are affected by these estimates and assumptions which are used for,
but not limited to, accounting for product returns, allowance for doubtful
accounts, intangible asset impairments, and inventory. Actual results may differ
from these estimates. The following critical accounting policies are
significantly affected by judgments, assumptions and estimates used by our
management in the preparation of the consolidated financial statements.
Revenue Recognition. Revenue is recognized when earned in accordance with
applicable accounting standards, including AICPA Statement of Position ("SOP")
No. 97-2, Software Revenue Recognition, as amended, Staff Accounting Bulletins
101 ("SAB 101") and the interpretive guidance issued by the Securities and
Exchange Commission and EITF issue 00-21 of the AICPA Emerging Issues Task
Force. We recognize revenues from sales of software products upon shipment,
provided that persuasive evidence of an arrangement exists, collection is
determined to be probable and no significant obligations remain. Revenue from
service subscriptions is recognized prorata over the service period.
Software license agreements may contain multiple elements including
upgrades and enhancements, products deliverable on a when and if available basis
and post contract support. Revenue from software license agreements is
recognized upon delivery of the software provided that persuasive evidence of an
arrangement exists, collection is determined to be probable and no significant
obligations remain. Deferred revenue is recorded for post contract support and
is recognized prorata over the support period. Vendor specific objective
evidence of the fair value for multiple element software license agreements is
determined by the price charged for the same element when sold separately or the
price determined by management having the relevant authority when the element is
not yet sold separately. The price established by management for the element not
yet sold separately will not change prior to separate introduction of that
element into the marketplace.
Revenue from system integration activities is recognized upon installation
provided that persuasive evidence of an arrangement exists, no significant
obligations remain and the collection of the resulting receivable is probable.
Allowance for Doubtful Accounts. The allowance for doubtful accounts is
based on our assessment of the collectibility of specific customer accounts and
an assessment of international, political and economic risk as well as the aging
of the accounts receivable. If there is a change in actual defaults from our
historical experience, our estimates of recoverability of amounts due us could
be affected and we will adjust the allowance and the related operating expense
accordingly.
Impairment of intangible assets. We perform intangible asset impairment
analysis on a quarterly basis in accordance with the guidance in Statement of
-12-
Communication Intelligence Corporation
And Subsidiary
(In thousands, except share and per share amounts)
Form 10-Q
Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets
("SFAS No. 142") and Financial Accounting Standard No. 144, Accounting for the
Impairment or Disposal of Long Lived Assets ("SFAS No. 144"). We use SFAS 144 in
response to changes in industry and market conditions that affect our patents,
we then determine if an impairment of our assets has occurred. For the three and
six months ended June 30, 2003 and 2002, no impairment of intangible assets was
determined to have occurred.
Software Development Costs. Software development costs are accounted for in
accordance with Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed"
("SFAS 86"). Under SFAS 86, capitalization of software development costs begins
upon the establishment of technological feasibility, subject to net realizable
value considerations. In the Company's case, capitalization commences upon the
completion of a working model and generally ends upon the release of the
product. The capitalized costs are amortized to cost of sales on a straight line
basis over the estimated life of the product, generally three years. As of June
30, 2003 and 2002, such costs were insignificant.
Research and Development. Research and development costs are charged to
expense as incurred.
Foreign Currency Translation. The Company currently owns 90% of CIC China,
(the "Joint Venture'), with the Jiangsu Hongtu Electronics Group, a provincial
agency of the People's Republic of China. The Joint Venture provides electronic
signature based applications and handheld receipt/delivery based systems, and
provides systems integration services that affords the Joint Venture the
opportunity to include the sale of its core software by integrating electronic
signature and Chinese handwriting recognition into its turn-key solutions. We
consider the functional currency of the Joint Venture to be the respective local
currency and, accordingly, gains and losses from the translation of the local
foreign currency financial statements are included as a component of
"accumulated other comprehensive loss" in our consolidated balance sheets.
Foreign currency assets and liabilities are translated into U.S. dollars at
exchange rates prevailing at the end of the period, except for non-monetary
assets and liabilities that are translated at historical exchange rates.
Revenues and expenses are translated at the average exchange rates in effect
during each period, except for those expenses included in balance sheet
accounts, which are translated at historical exchange rates.
Net foreign currency transaction gains and losses are included as
components of "interest income and other income (expense), net" in the Company's
consolidated statements of operations. Due to the stability of the currency in
China, net foreign currency transaction gains and losses were not material for
the three months ended June 30, 2003 and 2002, respectively.
Net Operating Loss Carryforwards. The Internal Revenue Code of 1986 and
similar state provisions may limit utilization of the Company's net operating
losses on an annual basis due to ownership change limitations. As a result, a
portion of the Company's net operating loss carryforwards may not be available
to offset future taxable income. The Company has provided a full valuation
allowance for deferred tax assets at December 31, 2002, of $28 million based
upon the Company's history of losses.
Segments
We report in two segments: handwriting recognition and systems integration.
Handwriting recognition includes online/retail revenues and corporate sales,
including enterprise and original equipment manufacturers ("OEM") revenues. All
handwriting recognition software is developed around our core technology.
Handwriting recognition product revenues are generated through our web site and
a direct sales force to individual or enterprise end users. We also license a
version of our handwriting recognition software to OEM's. The handwriting
recognition software is included as part of the OEM's product offering. From
time to time, we are required to develop an interface (port) for our software to
run on a new customer's hardware platform or within the customer's software
operating system. The development contract revenues are included in the
handwriting recognition segment. System integration represents the sale and
installation of third party computer equipment and systems that utilize our
products. System integration sales are derived through a direct sales force
which then develops a system to utilize our software based on the customers
requirements. Systems integration sales are accomplished solely through our
Joint Venture.
-13-
Communication Intelligence Corporation
And Subsidiary
(In thousands, except share and per share amounts)
Form 10-Q
Results of Operations
The following table provides unaudited financial information for each of
our two segments.
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
------- ------- ------- --------
Segment revenues:
Handwriting recognition
Online $ 92 $ 80 $ 206 $ 204
Corporate 288 708 955 1,406
China 75 64 123 101
-------- -------- -------- ---------
Total handwriting recognition $ 455 $ 852 $ 1,284 $ 1,711
Systems integration 117 $ 259 $ 396 $ 557
-------- -------- -------- ---------
Total revenues $ 572 $ 1,111 $ 1,680 $ 2,268
-------- -------- -------- ---------
Cost of Sales
Handwriting recognition $ 23 $ 116 $ 37 $ 342
Systems integration 99 187 318 402
-------- -------- -------- ---------
Total cost of sales $ 122 $ 303 $ 355 $ 744
-------- -------- -------- ---------
Operating cost and expenses
Research and development $ 303 $ 366 $ 643 $ 778
Sales and Marketing 180 427 463 814
General and administrative 619 639 1,131 1,179
--------- -------- -------- ---------
Total operating costs
and expenses $ 1,102 $ 1,432 $ 2,237 $ 2,771
--------- -------- -------- ---------
Interest and other
income (expense) net $ (38) $ (47) $ (88) $ (112)
--------- -------- -------- ---------
Net loss $ (690) $ (671) $(1,000) $ (1,359)
========= ======== ======== =========
Amortization of intangible assets
Cost of sales $ 4 $ 4 $ 7 $ 7
General and administrative 94 91 189 190
--------- -------- -------- ---------
Total amortization of
intangible assets $ 98 $ 95 $ 196 $ 197
========= ======== ======== =========
Revenues
Handwriting recognition.
Handwriting recognition segment revenues declined 47% and 25%, or $397 and
$427 for the three and six month periods ended June 30, 2003 from $852 and
$1,711, respectively, in the comparable prior year periods as described below.
Online/retail sales increased 15%, or $12, for the three months ended June 30,
2003 compared to the prior year period. The increase for the six month period
ended June 30, 2003, was not material compared to the corresponding six month
period in the prior year. The three month increase in online/retail sales is due
primarily to the effect of the November 2002 PalmSource decision to replace
Graffiti(R) with CIC's Jot as the standard and only handwriting software on all
new Palm PoweredTM devices. The Company believes that the November 2002
-14-
Communication Intelligence Corporation
And Subsidiary
(In thousands, except share and per share amounts)
Form 10-Q
PalmSource decision and subsequent January 2003 announcement along with the
multi-channel marketing campaign launched in March 2003 has had a positive
effect on its online/retail product sales resulting, in a 43% increase in the
first half of 2003, compared to sales in the second half of 2002. The full
effect, if any, of the retail portion of the marketing campaign is not expected
to be realized until the third quarter. The Company cannot predict the duration
of any benefit provided by the PalmSource announcement or its multi-channel
marketing campaign.
Corporate revenues decreased 59% and 32%, or $420 and $451, over the three
and six month periods ended June 30, 2003 compared to the prior year periods.
OEM revenues included in corporate sales decreased 36% and 43%, or $90 and $152,
over the three and six month periods ended June 30, 2003 compared to the prior
year periods. This decrease was primarily due to two sales made in the second
quarter of 2002 to hand held device developers aggregating $220. The Company
believes Palm Source's replacement of Graffiti(R) with the Company's Jot product
as the standard and only handwriting software on all new Palm PoweredTM devices
will increase OEM revenues in 2003. However, the poor economy may limit or delay
the Company's anticipated increases in OEM revenues to later in 2003 or beyond.
Enterprise sales included in corporate sales decreased 72% and 28%, or $330 and
$297, during the three and six month periods ended June 30, 2003 compared to the
prior year period. The Company believes the decline in enterprise revenue in the
second quarter of 2003 is a result of the continued "wait and see" attitude
surrounding IT spending due to the current economy. The Company remains
optimistic and believes that IT spending will increase in the second half of
2003. The Company believes that IT spending and economic health will be the
limiting factors related to near term revenues.
Software sales in China increased 17% and 22%, or $11 and $22, over the
three and six month periods ended June 30, 2003 compared to the prior year
periods. The increase is due to the recent sales efforts focused on establishing
China-wide channel partners to accelerate sales growth.
Systems Integration.
System integration segment revenue declined 55% and 29%, or $142 and $161,
for the three and six month periods ended June 30, 2003 compared to the prior
year period. The decrease primarily reflects the need for the Joint Venture to
expand sales coverage from a traditional focus on the local Nanjing and Jiangsu
Province markets to other provinces with in China. The Company believes that the
SARS related health crises in China negatively impacted system integration
revenues and further hampered the implementation of its plans to expand its
system integration sales efforts into other provinces in China.
Cost of Sales
Handwriting recognition segment.
Handwriting recognition segment cost of sales includes royalty and import
tax payments, third party hardware costs, direct mail costs, engineering direct
costs and amortization of intangible assets excluding patents. Cost of sales for
the handwriting recognition segment decreased 80% and 89%, or $93 and $305,
during the three and six month periods ended June 30, 2003, compared to the
prior year periods.
Online/retail cost of sales decreases 100% and 99%, or $22 and $184, during
the three and six month periods ended June 30, 2003 compared to the prior year
periods. The decrease was due primarily to the elimination of the direct mail
campaign and related costs as a result of reductions in the number of names
available and a poor sales close rate. The Company does not anticipate a
material increase in costs associated with the multi-channel JotComplete
campaign discussed in the online/retail revenue paragraph above.
Enterprise and OEM cost of sales decreased 86% and 83%, or $65 and $110,
during the three and six month periods ended June 30, 2003, compared to the
prior year periods. The decrease was due primarily to the lower volume of third
party hardware sales and engineering development costs.
Handwriting recognition segment cost of sales for software sold in China
increased 33% and 46%, or $6 and $11, during the three and six month periods
ended June 30, 2003 compared to the prior year period. The increase is due
primarily to third party hardware costs.
-15-
Communication Intelligence Corporation
And Subsidiary
(In thousands, except share and per share amounts)
Form 10-Q
Systems Integration.
Systems integration segment cost of sales decreased 47% and 54%, or $88 and
$219, over the three and six month periods ended June 30, 2003 as compared to
the prior year periods. The decrease in costs was due primarily to the reduction
in sales. See revenue discussion above.
Operating expenses
Research and development expenses. Research and development expenses
decreased $63 and $135, respectively, or 17% and 17% to $303 and $643 for the
three and six month periods ended June 30, 2003, as compared to $366 and $778,
respectively, in the prior year periods. Engineering expenses consist primarily
of salaries and related costs, outside engineering, maintenance items, and
allocated facilities expenses. Salaries and related expenses decreased 24% and
17%, or $60 and $87, compared to the three and six month periods ended June 30,
2002 due primarily to the reduction in head count of three engineers.
Professional services declined 100%, or $30 and $60, over the three and six
month periods ended June 30, 2003, due to the elimination of outside engineering
support. Other engineering administrative costs including allocated facilities
expenses increased 5%, or $5, during the three months ended June 30, 2003 and
declined 10%, or $25, during the six months ended June 30, 2003 compared to the
prior year period. During the three and six month periods ended June 30, 2003,
the Company did not transferred any project development costs to cost of sales,
compared to $22 and $37,respectively, during the corresponding periods in the
prior year. The Company believes that the reductions in engineering head count
and expenses will not have an adverse effect on its ability to cope with the
current requirements. The Company maintains its relationship with an outside
engineering group familiar with its products and, if required, can engage the
group on an as needed basis to fill future engineering requirements. In addition
the Company draws on the engineering capabilities of the Joint Venture as
required.
Sales and marketing expenses. Sales and marketing expenses declined 58% and
43%,respectively, or $247 and $351, to $180 and $463 for the three and six month
periods ended June 30, 2003, compared to $427 and $814, respectively, for the
comparable three and six month periods in 2002. Sales and marketing expenses
consist of salaries, commissions and related expenses, professional services,
advertising and promotion, general office and allocated facilities expenses.
Salaries and related expenses declined 66% and 40%, or $128 and $128, for the
three and six month periods ended June 30, 2003, compared to the prior year
period. The decline in salaries and related expense is due primarily to the
reduction of three sales persons. The Company is currently implementing a
channel strategy for its handwriting recognition segment that will increase the
amount of market coverage by utilizing the sales force of the channel partners.
The Company has continued to sign new partner agreements in both the US and
China. The Company believes these channel partners will produce increasing
revenues in the near term. Professional services declined 100%, or $51 and $54,
during the three and six month periods ended June 30, 2003, compared to the
prior year periods. The decline is primarily due to $37 in outside commission
expense and $14 in salaries expense paid to an outside sales consultant during
the six months ended June 30, 2002. Advertising expense decreased 100%, or $42
and $53, for the three and six month periods ended June 30, 2003, compared to
the prior year periods. This decrease is due to the discontinuance of in-the-box
advertising during the three and six month periods ended June 30, 2003, as
compared to the prior year periods. Commission expense decreased 42% and 56% to
$13 and $44, respectively, for the three and six months ended June 30, 2003,
compared to $23 and $99 in the comparable periods in the prior year. The
decrease is primarily due to the decrease in sales over current the three and
six month periods compared to the prior year.
General and Administrative Expenses. General and administrative expenses
decreased 3% and 4%, respectively, or $20 and $48, to $619 and $1,131 for the
three and six month periods ended June 30, 2003, compared to $639 and $1,179,
respectively, in the prior year periods. General and administrative expense
consists of salaries, professional fees, investor relations expenses, patent
amortization and office and allocated facilities costs. Salaries and wages
increased 3% and 5%, respectively, or $6 and $16, for the three and six month
periods ended June 30, 2003, compared to the three and six month periods last
year, due primarily to salary increases. Professional service expenses which
-16-
Communication Intelligence Corporation
And Subsidiary
(In thousands, except share and per share amounts)
Form 10-Q
include consulting, legal and outside accounting fees, decreased 20% and 1%,
respectively, or $26 and $3, compared to the three and six month periods in the
prior year. The increase was due primarily to increases in the service fees
associated with new legal and accounting issues. The Company reduced its
provision for uncollectable accounts by 67% and 67%, or $6 and $12,
respectively, for the three and six month periods ended June 30, 2003 as
compared to the prior year periods due primarily to collection of certain
accounts fully reserved for in prior periods. The Company believes its
uncollectible accounts provision is adequate at the present time. Other
administrative expenses declined 14% and 10%, respectively, or $46 and $55, over
the three and six month periods ended June 30, 2003, compared to the prior year
periods. The decreases were due primarily to the reduction in expense brought on
by the recent health crises in China and investor relation expenses due to
reductions in the costs associated with the dissemination of shareholder
information. The Company believes that the lifting of the travel advisories will
not have a material unfavorable impact on travel expenses. Investor relations
expenses are expected to remain less than those incurred in the prior year for
the foreseeable future.
Interest and other income (expense), net
Interest and other income (expense), net increased 50% and 266%, or $2 and
$24, during the three and six month periods ended June 30, 2003, compared to the
prior year periods. The increase in income was due to a refund of value added
tax from 2002 received by the Joint Venture, and the elimination of credit card
fees as a result of outsourcing the Company's web store at the end of the first
quarter of 2003.
Interest expense
Interest expense decreased 4% and 5% or $2 and $5 over the three and six
month periods ended June 30, 2003 compared to the prior year periods. The
decrease was due primarily to the decrease in the bank floating interest rate
paid on the Company's $3,000 debt.
Liquidity and Capital Resources
At June 30, 2003, cash and cash equivalents totaled $1,424 compared to cash
and cash equivalents of $711 at December 31, 2002. The increase in cash was due
primarily to financing activities through Cornell Capital Partners, LP. During
the six months ended June 30, 2003 the Company received $1,590 from the sale of
8,620,651 shares of stock, net of issuance costs associated with the preparation
and filing and maintenance of the S-1 in February 2003. This increase was offset
by $837 used in operating activities, and by equipment purchases of $36 and
payments of capital lease obligations of $4. Total current assets were $2,223 at
June 30, 2003, compared to $1,545 at December 31, 2002. As of June 30, 2003, the
Company's principal sources of funds included its cash and cash equivalents
aggregating $1,424 and the Equity Line of Credit through Cornell Capital
Partners LP.
Accounts receivable increased $74 for the six months ended June 30, 2003
compared to December 31, 2002, due primarily to the increase in sales during the
three months ended June 30, 2003 compared the three months ended December 31,
2002. Revenue from the Joint Venture in July exceeded it's total second quarter
revenue and, based on planned deployments both domestically and in China,
together with the increasing level of proposal and quotation activity, the
Company anticipates that revenue will increase in the last half of 2003.
Prepaid expenses declined $77 for the six months ended June 30, 2003,
compared to December 31, 2002, due to expensing the appropriate quarterly
prepaid amounts through operations. Generally annual insurance premiums and
maintenance fees are prepaid in December and June of each year.
Accounts payable increased $27 for the six months ended June 30, 2003,
compared to December 31, 2002, due primarily to the fees associated with both
the annual audit and the preparation and filing of the Registration Statement on
Form S-1. Accrued compensation decreased $19 between December 31, 2002 and June
30, 2003 due primarily to the elimination of four positions and related personal
late in March 2003. The Company believes that the elimination of the positions
will not have an negative impact on its ability to conduct business on a going
forward basis.
The Company has suffered recurring losses from operations that raise a
substantial doubt about its ability to continue as a going concern. At June 30,
2003, the Company's accumulated deficit was approximately $81 million. There can
-17-
Communication Intelligence Corporation
And Subsidiary
(In thousands, except share and per share amounts)
Form 10-Q
be no assurance that the Company will have adequate capital resources to fund
planned operations or that any additional funds will be available to it when
needed, or if available, will be available on favorable terms or in amounts
required by it. If the Company is unable to obtain adequate capital resources to
fund operations, it may be required to delay, scale back or eliminate some or
all of its operations, which may have a material adverse effect on its business,
results of operations and ability to operate as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
The Company intends to use the net proceeds from the issuance of the shares
of its common stock under the Equity Line of Credit to repay short term debt and
for working capital purposes. Fifty percent of any such funds in excess of $5
million must be applied to the outstanding principal of the Company's short-term
debt. The Company believes that the proceeds from the Equity Line of Credit,
when combined with cash provided from operations, will be sufficient to meet its
capital requirements for the foreseeable future. If the Company is unable to
secure at least $5 million in funds under the Equity Line of Credit or is unable
to increase substantially funds generated from operations, the Company may not
be able to continue its operations in their current form and may not be a viable
company on a going forward basis without significant changes in its operations.
The Company believes it will be able to raise the necessary funds under the
Equity Line of Credit and from operations. The Company has not formulated
specific plans to change its operations. Possible changes could include reduced
personnel expenses to better match its revenue stream.
Current liabilities, which include deferred revenue, were $4,015 at June
30, 2003, compared to $1,102 at December 31, 2002. The increase is due to the
inclusion in current liabilities of the $3,000 related party note which had been
classified as long-term as of December 31, 2002(see material commitments below).
Deferred revenue, totaling $79 at June 30, 2003, compared to $165 at December
31, 2002, primarily reflects the balance of advance payments for products and
maintenance fees from the Company's licensees which are generally recognized as
revenue by the Company when all obligations are met or over the term of the
maintenance agreement.
We have the following material commitments as of June 30, 2003:
Payments Due by Period
Less than One to three Four to After
Total one year years five years five years
------- --------- ------------ ---------- ----------
Contractual Obligations
Short-term debt (1) $ 3,000 $ 3,000 $ - $ - -
Capital lease
obligations 34 6 25 3 -
Operating
lease commitments (2) 1,495 407 1,088 - -
--------- --------- -------- --------- -------
Total contractual
cash obligations $ 4,529 $ 3,413 $ 1,113 $ 3 $ -
========= ========= ======== ========= =======
1. The Short-term debt may be pre-paid by the Company in whole or in part at
any time without penalty, subject to the right to convert the outstanding
principal amount into shares of common stock at a conversion price of $2.00
per share, subject to adjustment upon the occurrence of certain events.
2. The operating lease commenced on November 1, 2001. The cost of the lease
will increase approximately 3% per annum over the term of the lease, which
expires on October 31, 2006.
Forward Looking Statements
Certain statements contained in this quarterly report on Form 10-Q,
including without limitation, statements containing the words "believes",
"anticipates", "hopes", "intends", "expects", and other words of similar import,
constitute "forward looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements involve known and
unknown risks, uncertainties and other factors which may cause actual events to
differ materially from expectations. Such factors include the following:
-18-
Communication Intelligence Corporation
And Subsidiary
(In thousands, except share and per share amounts)
Form 10-Q
o Technological, engineering, manufacturing, quality control or other
circumstances which could delay the sale or shipment of products;
o Economic, business, market and competitive conditions in the software
industry and technological innovations which could affect the Company's
business;
o The Company's inability to protect its trade secrets or other proprietary
rights, operate without infringing upon the proprietary rights of others
and prevent others from infringing on the proprietary rights of the
Company; and
o General economic and business conditions and the availability of sufficient
financing.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, as a result of new information, future events or
otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The Company has an investment portfolio of fixed income securities that are
classified as cash equivalents. These securities, like all fixed income
instruments, are subject to interest rate risk and will fall in value if the
market interest rates increase. The Company attempts to limit this exposure by
investing primarily in short term securities. The Company did not enter into any
short-term security investments during the three months ended June 30, 2003.
Foreign Currency Risk
The Company currently owns 90% of CIC China, (the "Joint Venture'), with
the Jiangsu Hongtu Electronics Group, a provincial agency of the People's
Republic of China. As a result, the Company's cash flows and earnings are
exposed to fluctuations in interest rates and foreign currency exchange rates.
The Company attempts to limit these exposures through operational strategies and
generally has not hedged currency exposures.
Future Results and Stock Price Risk
Over the last six months the Company's stock price has ranged from a high
of $0.65 to a low of $0.19. The Company's stock price may be subject to
significant volatility in the future as well. The public stock markets have
experienced significant volatility in stock prices in recent years. The stock
prices of technology companies have experienced particularly high volatility,
including, at times, severe price changes that are unrelated or disproportionate
to the operating performance of such companies. The trading price of the
Company's common stock could be subject to wide fluctuations in response to,
among other factors, quarter-to-quarter variations in operating results,
announcements of technological innovations or new products by the Company or its
competitors, announcements of new strategic relationships by the Company or its
competitors, general conditions in the computer industry or the global economy
generally, or market volatility unrelated to the Company's business and
operating results.
Item 4. Controls and Procedures
Under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, the Company has evaluated the effectiveness of the design and operation
of its disclosure controls and procedures pursuant to Exchange Act Rule
13a-14(c) within 90 days of the filing date of this quarterly report. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that these disclosure controls and procedures are effective. There
were no significant changes in the Company's internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of their evaluation.
-19-
Communication Intelligence Corporation
And Subsidiary
(In thousands, except share and per share amounts)
Form 10-Q
Part II-Other Information
Item 1. Legal Proceedings
The Company was named as a defendant in a suit brought in U.S. District
Court for the Southern District of New York, filed on August 5, 2002, case
number 02-CV-6197 (the "Complaint"). The plaintiffs, Richard M. Ross and Jane
Spaulder Ross, brought claims for breach of contract, conversion, negligence and
statutory violations, alleging that the Company provided incorrect or false
information to plaintiffs' stockbroker, thereby delaying the sale of their
shares in the Company and causing a loss in excess of $500,000. In a separate
arbitration proceeding the plaintiffs have brought similar claims for relief
against Charles Schwab & Co., Inc., their broker during the period in question,
based upon other legal theories.
The Company filed a motion to dismiss or to stay the proceedings pending
the outcome of the arbitration between the plaintiffs and Charles Schwab. The
court determined that the plaintiffs had not met the burden of establishing that
the amount in controversy, excluding interest and costs, exceeded $75,000.
Therefore the Court dismissed the Complaint for lack of subject matter
jurisdiction.
Item 2. Change in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held its Annual Meeting of Stockholders on June 23, 2003. The
number of shares of common stock with voting rights as of the record date
represented at the meeting either in person or by proxy was 92,678 shares or
95.8% of the eligible outstanding Common Stock of the Company. Three proposals
were voted upon by the stockholders. The proposals and the voting results
follow:
Proposal 1
Each of the four persons listed below were elected as directors to serve
until the next Annual Meeting or until his successor is elected or appointed.
The number of votes for and withheld for each individual is listed next to his
name.
Broker
------------------------------
Name For Withheld Non-votes Abstain
------------------ ---------- -------------- --------------- -------------
Guido DiGregorio 91,369 1,309 None None
Michael Farese 92,200 478 None None
Louis Panetta 92,209 469 None None
C. B. Sung 92,185 493 None None
-20-
Communication Intelligence Corporation
And Subsidiary
(In thousands, except share and per share amounts)
Form 10-Q
Item 4. Submission of Matters to a Vote of Security Holders (continued)
---------------------------------------------------------------
Proposal 2
To ratify the appointment of Stonefield Josephson, Inc. as independent
accountants of the Company for the fiscal year ending December 31, 2002. The
number of votes for, against and abstaining on this proposal was as follows:
Broker
------------------------
For Against Abstain Non-votes Abstain
--------- --------- ----------- ------------ -----------
All Classes 92,327 276 75 None None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Page
Exhibit 31.1 Certification 302 of Chief Financial Officer 23
Exhibit 31.2 Certification 302 of Chief Executive Officer 24
Exhibit 32.1 Certification 906 of Chief Financial Officer 25
Exhibit 32.1 Certification 906 of Chief Executive Officer 26
(b) Reports on Form 8-K
Current Report on Form 8-K, incorporated by reference, dated April 28,
2003, with respect to:
1. The Company's financial results for the quarter ended March 31, 2003.
-21-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNICATION INTELLIGENCE CORPORATION
-----------------------------------------
Registrant
August 14 , 2003 /s/ Francis V. Dane
- ----------------------- -----------------------------------------
Date Francis V. Dane
(Principal Financial Officer and Officer Duly
uthorized to Sign on Behalf of the Registrant)
-22-