iSign Solutions Inc. - Quarter Report: 2015 June (Form 10-Q)
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, 2015
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: 000-19301
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)
(650) 802-7888
Registrant's telephone number, including area code
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
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X
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No
|
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
|
Yes
|
No
|
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
|
large accelerated filer
|
accelerated filer
|
non-accelerated filer
|
X
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Smaller reporting Company
|
Indicate by check mark whether the registrant is a shell company (as defined in Section 12b-2 of the exchange Act)
|
Yes
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No
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X
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Number of shares outstanding of the issuer's Common Stock, as of August 14, 2015: 234,307,542
INDEX
|
Page No.
|
|
|
PART I. FINANCIAL INFORMATION
|
|
|
Item 1. Financial Statements
|
|
|
Condensed Consolidated Balance Sheets at June 30, 2015 (unaudited) and
December 31, 2014
|
3
|
|
Condensed Consolidated Statements of Operations for the Three and Six-Month
Periods Ended June 30, 2015 and 2014 (unaudited)
|
4
|
|
Condensed Consolidated Statements of Cash Flows for the Six-Month Periods
Ended June 30, 2015 and 2014 (unaudited)
|
5
|
|
Notes to Unaudited Condensed Consolidated Financial Statements
|
7
|
|
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
|
13
|
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk
|
18
|
|
Item 4. Controls and Procedures
|
18
|
|
PART II. OTHER INFORMATION
|
|
|
Item 1. Legal Proceedings
|
19
|
|
Item 1A. Risk Factors
|
19
|
|
Item 2. Unregistered Sale of Securities and Use of Proceeds
|
19
|
|
Item 3. Defaults Upon Senior Securities
|
19
|
|
Item 4. Mine Safety Disclosures
|
19
|
|
Item 5. Other Information
|
19
|
|
Item 6. Exhibits
|
|
|
(a) Exhibits
|
19
|
|
Signatures
|
23
|
- 2 -
PART I–FINANCIAL INFORMATION
Item 1. Financial Statements
Communication Intelligence Corporation
Condensed Consolidated Balance Sheets
(In thousands)
|
June 30,
|
December 31,
|
|||||||
|
2015
|
2014
|
|||||||
|
Assets
|
(Unaudited)
|
|||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$
|
409
|
$
|
775
|
||||
|
Accounts receivable, net of allowance of $74 at June 30, 2015 and $22 at December 31, 2014
|
156
|
122
|
||||||
|
Prepaid expenses and other current assets
|
43
|
80
|
||||||
|
Total current assets
|
608
|
977
|
||||||
|
Property and equipment, net
|
16
|
11
|
||||||
|
Patents, net
|
760
|
933
|
||||||
|
Other assets
|
29
|
29
|
||||||
|
Total assets
|
$
|
1,413
|
$
|
1,950
|
||||
|
Liabilities and Equity (Deficit)
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$
|
323
|
$
|
328
|
||||
|
Accrued compensation
|
268
|
293
|
||||||
|
Other accrued liabilities
|
405
|
338
|
||||||
|
Deferred revenue
|
240
|
257
|
||||||
|
Total current liabilities
|
1,236
|
1,216
|
||||||
|
Deferred revenue long-term
|
653
|
700
|
||||||
|
Deferred rent
|
17
|
41
|
||||||
|
Derivative liability
|
-
|
18
|
||||||
|
Other long-term liabilities
|
21
|
28
|
||||||
|
Total liabilities
|
1,927
|
2,003
|
||||||
|
Commitments and contingencies
|
||||||||
|
Equity (deficit):
|
||||||||
|
Series A-1 Preferred Stock
|
$ |
910
|
$ |
875
|
||||
|
Series B Preferred Stock
|
10,996
|
10,381
|
||||||
|
Series C Preferred Stock
|
5,802
|
5,553
|
||||||
|
Series D-1 Preferred Stock
|
6,298
|
5,139
|
||||||
|
Series D-2 Preferred Stock
|
4,962
|
4,671
|
||||||
|
Common stock
|
2,407
|
2,407
|
||||||
|
Treasury stock
|
(325
|
)
|
(325
|
)
|
||||
|
Additional paid in capital
|
94,217
|
94,995
|
||||||
|
Accumulated deficit
|
(125,231
|
)
|
(123,199
|
)
|
||||
|
Accumulated other comprehensive loss
|
(14
|
)
|
(14
|
)
|
||||
|
Total CIC stockholders' equity
|
22
|
483
|
||||||
|
Non-controlling interest
|
(536
|
)
|
(536
|
)
|
||||
|
Total deficit
|
(514
|
)
|
(53
|
)
|
||||
|
Total liabilities and equity (deficit)
|
$
|
1,413
|
$
|
1,950
|
||||
See accompanying notes to these Condensed Consolidated Financial Statements
- 3 -
Communication Intelligence Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
|
June 30,
|
June 30,
|
|||||||||||||||
|
2015
|
2014
|
2015
|
2014
|
|||||||||||||
|
Revenue:
|
||||||||||||||||
|
Product
|
$
|
153
|
$
|
278
|
$
|
384
|
$
|
406
|
||||||||
|
Maintenance
|
214
|
195
|
430
|
368
|
||||||||||||
|
Total revenue
|
367
|
473
|
814
|
774
|
||||||||||||
|
Operating costs and expenses:
|
||||||||||||||||
|
Cost of sales:
|
||||||||||||||||
|
Product
|
34
|
39
|
145
|
43
|
||||||||||||
|
Maintenance
|
61
|
38
|
73
|
92
|
||||||||||||
|
Research and development
|
498
|
532
|
1,021
|
1,072
|
||||||||||||
|
Sales and marketing
|
242
|
331
|
540
|
639
|
||||||||||||
|
General and administrative
|
561
|
454
|
1,082
|
914
|
||||||||||||
|
Total operating costs and expenses
|
1,396
|
1,394
|
2,861
|
2,760
|
||||||||||||
|
Loss from operations
|
(1,029
|
)
|
(921
|
)
|
(2,047
|
)
|
(1,986
|
)
|
||||||||
|
Other income, net
|
−
|
−
|
−
|
2
|
||||||||||||
|
Interest expense:
|
||||||||||||||||
|
Other
|
(1
|
)
|
(245
|
)
|
(1
|
)
|
(245
|
)
|
||||||||
|
(Loss) gain on derivative liability
|
1
|
(1
|
)
|
17
|
3
|
|||||||||||
|
Net loss
|
(1,029
|
)
|
(1,167
|
)
|
(2,031
|
)
|
(2,226
|
)
|
||||||||
|
Accretion of beneficial conversion feature: Preferred stock:
|
||||||||||||||||
|
Related party
|
−
|
(13
|
)
|
(458
|
)
|
(86
|
)
|
|||||||||
|
Other
|
−
|
(12
|
)
|
(69
|
)
|
(313
|
)
|
|||||||||
|
Preferred stock dividends:
|
||||||||||||||||
|
Related party
|
(391
|
)
|
(340
|
)
|
(746
|
)
|
(669
|
)
|
||||||||
|
Other
|
(394
|
)
|
(319
|
)
|
(770
|
)
|
(612
|
)
|
||||||||
|
Net loss before controlling interest
|
(1,814
|
)
|
(1,851
|
)
|
(4,074
|
)
|
(3,906
|
)
|
||||||||
|
Net loss attributable to non-controlling interest
|
−
|
−
|
−
|
−
|
||||||||||||
|
Net loss attributable to common stockholders
|
$
|
(1,814
|
)
|
$
|
(1,851
|
)
|
$
|
(4,074
|
)
|
$
|
(3,906
|
)
|
||||
|
Basic and diluted loss per common share
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
||||
|
Weighted average common shares outstanding, basic and diluted
|
234,308
|
232,560
|
234,308
|
232,560
|
||||||||||||
See accompanying notes to these Condensed Consolidated Financial Statements
- 4 -
Communication Intelligence Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
|
Six Months Ended
June 30,
|
||||||||
|
2015
|
2014
|
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Net loss
|
$
|
(2,031
|
)
|
$
|
(2,226
|
)
|
||
|
Adjustments to reconcile net loss to net cash
used for operating activities:
|
||||||||
|
Depreciation and amortization
|
178
|
185
|
||||||
|
Stock-based compensation
|
371
|
177
|
||||||
|
Gain on derivative liability
|
(17
|
)
|
(3
|
)
|
||||
|
Warrants cost issued as interest expense
|
-
|
245
|
||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable
|
(34
|
)
|
182
|
|||||
|
Prepaid expenses and other assets
|
37
|
29
|
||||||
|
Accounts payable
|
(5
|
)
|
(162
|
)
|
||||
|
Accrued compensation
|
(25
|
)
|
(15
|
)
|
||||
|
Other accrued and long-term liabilities
|
34
|
3
|
||||||
|
Deferred revenue
|
(64
|
)
|
(79
|
)
|
||||
|
Net cash used for operating activities
|
(1,556
|
)
|
(1,664
|
)
|
||||
|
Cash flows from investing activities:
Acquisition of property and equipment
|
(10
|
)
|
(4
|
)
|
||||
|
Net cash used for investing activities
|
(10
|
)
|
(4
|
)
|
||||
|
Cash flows from financing activities:
|
||||||||
|
Proceeds from issuance of Series D preferred stock, net of issuance costs of $33 and $51, respectively
|
1,200
|
1,138
|
||||||
|
Net cash provided by financing activities
|
1,200
|
1,138
|
||||||
|
Net decrease in cash and cash equivalents
|
(366
|
)
|
(530
|
)
|
||||
|
Cash and cash equivalents at beginning of period
|
775
|
945
|
||||||
|
Cash and cash equivalents at end of period
|
$
|
409
|
$
|
415
|
||||
See accompanying notes to these Condensed Consolidated Financial Statements
- 5 -
Communication Intelligence Corporation
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
(In thousands)
|
Six Months Ended
June 30,
|
||||||||
|
2015
|
2014
|
|||||||
|
Supplementary disclosure of cash flow information
|
||||||||
|
Interest paid
|
$
|
1
|
$
|
−
|
||||
|
Income taxes paid
|
$
|
−
|
$
|
−
|
||||
|
Non-cash financing and investing transactions:
|
||||||||
|
Dividends on Preferred Stock
|
$
|
1,516
|
$
|
1,281
|
||||
|
Accretion of beneficial conversion feature on issuance of convertible Preferred Stock
|
$
|
498
|
$
|
306
|
||||
|
Accretion of beneficial conversion feature on issuance of Preferred Stock dividends
|
$
|
29
|
$
|
93
|
||||
See accompanying notes to these Condensed Consolidated Financial Statements
- 6 -
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
|
1.
|
Nature of business and summary of significant accounting policies
|
Nature of Business
Communication Intelligence Corporation and its subsidiary (the "Company" or "CIC") is a leading provider of digital transaction management (DTM) software enabling fully digital (paperless) business processes. The Company's solutions encompass a wide array of functionality and services, including electronic signatures, biometric authentication and simple-to-complex workflow management. These solutions are available across virtually all enterprise, desktop and mobile environments as a seamlessly integrated platform for both ad-hoc and fully automated transactions. The Company's platform can be deployed both on-premise and as a cloud-based service, with the ability to easily transition between deployment models. To date, the Company primarily has delivered its solutions to channel partners and end-user customers in the financial services industry. The Company's products include SignatureOne® Ceremony™ Server, the iSign® suite of products and services, including iSign® Enterprise and iSign® Console™, and Sign-it® programs.
Basis of Presentation
The financial information contained herein should be read in conjunction with the Company's consolidated audited financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2014.
The accompanying unaudited condensed consolidated financial statements of the Company 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 accounting principles generally accepted in the United States of America ("GAAP") for complete consolidated financial statements. In the opinion of management, the unaudited condensed consolidated financial statements included in this quarterly report reflect all adjustments (consisting only of normal recurring adjustments) that 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.
Going Concern
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant cumulative losses since its inception and, at June 30, 2015, the Company's accumulated deficit was $125,231. The Company has primarily met its working capital needs through the sale of debt and equity securities. As of June 30, 2015, the Company's cash balance was $409. These factors raise substantial doubt about the Company's ability to continue as a going concern.
There can be no assurance that the Company will be successful in securing adequate capital resources to fund planned operations or that any 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 unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
- 7 -
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
|
1.
|
Nature of business and summary of significant accounting policies (continued)
|
Accounting Changes and Recent Accounting Pronouncements
Accounting Standards Issued But Not Yet Adopted
Accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company's financial position, results of operations and cash flows.
2. Concentrations
The following table summarizes accounts receivable and revenue concentrations:
|
Accounts Receivable
As of June 30,
|
Total Revenue
for the three months
ended June 30,
|
Total Revenue
for the six months
ended June 30,
|
||||
|
2015
|
2014
|
2015
|
2014
|
2015
|
2014
|
|
|
Customer #1
|
19%
|
−
|
−
|
−
|
−
|
−
|
|
Customer #2
|
32%
|
25%
|
11%
|
−
|
13%
|
−
|
|
Customer #3
|
−
|
−
|
10%
|
−
|
19%
|
−
|
|
Customer #4
|
31%
|
44%
|
28%
|
32%
|
16%
|
19%
|
|
Customer #5
|
−
|
−
|
−
|
−
|
−
|
11%
|
|
Total concentration
|
82%
|
69%
|
49%
|
32%
|
48%
|
30%
|
|
3.
|
Patents
|
The Company performs an intangible asset impairment analysis at least annually or whenever circumstances or events indicate such assets might be impaired. The Company would recognize an impairment charge in the event the net book value of such assets exceeded the future undiscounted cash flows attributable to such assets.
Management completed an analysis of the Company's patents as of December 31, 2014. Based on that analysis, the Company concluded that no impairment of the carrying value of the patents existed. The Company believes that no events or circumstances changed during the three and six months ended June 30, 2015 that would impact this conclusion.
Amortization of patent costs was $86 and $173 for the three and six-month periods ended June 30, 2015 and $89 and $180 for the three and six-month periods ended June 30, 2014, respectively.
The following table summarizesthe patents:
|
June 30, 2015
|
December 31, 2014
|
|||||||||||||||||||||||
|
Carrying Amount
|
Accumulated Amortization
|
Net Value
|
Carrying Amount
|
Accumulated Amortization
|
Net Value
|
|||||||||||||||||||
|
Amortizable intangible assets:
|
||||||||||||||||||||||||
|
Patents
|
$
|
6,745
|
$
|
(5,985
|
)
|
$
|
760
|
$
|
6,745
|
$
|
(5,812
|
)
|
$
|
933
|
||||||||||
- 8 -
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
|
4.
|
Net loss per share
|
The Company calculates basic net loss per share based on the weighted average number of shares outstanding, and when applicable, diluted income per share, which is based on the weighted average number of shares and potential dilutive shares outstanding.
The following table lists shares and warrants that were excluded from the calculation of dilutive earnings per share as the exercise of such options and warrants and the conversion of such preferred shares would be anti-dilutive:
|
For the Six Months Ended
|
||||||||
|
June 30, 2015
|
June 30, 2014
|
|||||||
|
Stock options
|
107,600
|
71,987
|
||||||
|
Warrants
|
224,662
|
105,230
|
||||||
|
Preferred shares as if converted
|
||||||||
|
Series A-1 Preferred Stock
|
6,502
|
7,664
|
||||||
|
Series B Preferred Stock
|
296,945
|
269,105
|
||||||
|
Series C Preferred Stock
|
232,203
|
210,412
|
||||||
|
Series D-1 Preferred Stock
|
326,987
|
195,956
|
||||||
|
Series D-2 Preferred Stock
|
121,409
|
108,713
|
||||||
|
5.
|
Equity
|
Stock-based compensation expense is based on the estimated grant date fair value of the portion of stock-based payment awards that are ultimately expected to vest during the period. The grant date fair value of stock-based awards to employees and directors is calculated using the Black-Scholes-Merton valuation model.
Forfeitures of stock-based payment awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The estimated average forfeiture rate for the three months ended June 30, 2015 and 2014, was approximately 7.54% and 9.85%, respectively, based on historical data.
Valuation and Expense Information:
The weighted-average fair value of stock-based compensation is based on the Black-Scholes-Merton valuation model. Forfeitures are estimated and it is assumed no dividends will be declared. The estimated fair value of stock-based compensation awards to employees is amortized using the accrual method over the vesting period of the options. The fair value calculations are based on the following assumptions:
|
Six Months Ended
June 30, 2015
|
Six Months Ended
June 30, 2014
|
||
|
Risk free interest rate
|
0.04% - 3.73%
|
0.04% – 4.89%
|
|
|
Expected life (years)
|
3.26 – 6.88
|
3.26 – 7.00
|
|
|
Expected volatility
|
93.63% - 198.38%
|
91.99% –198.38%
|
|
|
Expected dividends
|
None
|
None
|
The Company granted 1,000 and 36,633 stock options during the three and six months ended June 30, 2015 at a weighted average exercise price of $0.0224 per share. There were no stock options exercised during the three and six months ended June 30, 2015.
- 9 -
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
5. Equity (continued)
The Company granted 2,500 stock options during the three and six months ended June 30, 2014 at a weighted average exercise price of $0.0273 per share. There were no stock options exercised during the three and six months ended June 30, 2014.
The following table summarizes the allocation of stock-based compensation expense related to stock option grants for the three and six months ended June 30:
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
|
2015
|
2014
|
2015
|
2014
|
|||||||||||||
|
Research and development
|
$
|
47
|
$
|
21
|
$
|
113
|
$
|
48
|
||||||||
|
Sales and marketing
|
$
|
34
|
$
|
24
|
$
|
86
|
$
|
37
|
||||||||
|
General and administrative
|
$
|
65
|
$
|
37
|
$
|
145
|
$
|
83
|
||||||||
|
Director options
|
$
|
12
|
$
|
4
|
$
|
27
|
$
|
9
|
||||||||
|
Total stock-based compensation expense
|
$
|
158
|
$
|
86
|
$
|
371
|
$
|
177
|
||||||||
A summary of option activity under the Company's plans as of June 30, 2015 and 2014 is as follows:
|
2015
|
2014
|
|||||||||||||||||||||||||||||||
|
Options
|
Shares
|
Weighted Average Exercise Price Per Share
|
Weighted Average Remaining Contractual Life (Years)
|
Aggregate Intrinsic Value
|
Shares
|
Weighted Average Exercise Price Per Share
|
Weighted Average Remaining Contractual Life (Years)
|
Aggregate Intrinsic Value
|
||||||||||||||||||||||||
|
Outstanding at January 1,
|
72,012
|
$
|
0.04
|
$
|
−
|
69,537
|
$
|
0.05
|
$
|
−
|
||||||||||||||||||||||
|
Granted
|
36,633
|
$
|
0.02
|
$
|
−
|
2,500
|
$
|
0.03
|
$
|
7
|
||||||||||||||||||||||
|
Exercised
|
−
|
−
|
$
|
−
|
−
|
$
|
−
|
$
|
−
|
|||||||||||||||||||||||
|
Forfeited or expired
|
(1,045
|
)
|
$
|
0.03
|
$
|
−
|
(50
|
)
|
$
|
0.22
|
$
|
−
|
||||||||||||||||||||
|
Outstanding at June 30
|
107,600
|
$
|
0.04
|
4.59
|
$
|
−
|
71,987
|
$
|
0.05
|
4.60
|
$
|
7
|
||||||||||||||||||||
|
Vested and expected to vest at June 30
|
104,525
|
$
|
0.03
|
3.24
|
$
|
−
|
46,864
|
$
|
0.05
|
4.24
|
$
|
−
|
||||||||||||||||||||
|
Exercisable at June 30
|
65,365
|
$
|
0.04
|
3.56
|
$
|
−
|
51,984
|
$
|
0.05
|
4.24
|
$
|
−
|
||||||||||||||||||||
The following table summarizes significant ranges of outstanding and exercisable options as of June 30, 2015:
|
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||||
|
Range of Exercise Prices
|
Number Outstanding
|
Weighted Average Remaining Contractual Life (in years)
|
Weighted Average Exercise Price Per Share
|
Number Outstanding
|
Weighted Average Exercise Price Per Share
|
|||||||||||||||||
|
$
|
0.0100 – $0.0200
|
3,000
|
6.48
|
$
|
0.019
|
334
|
$
|
0.020
|
||||||||||||||
|
$
|
0.0210 - $0.0300
|
54,009
|
5.38
|
$
|
0.023
|
20,850
|
$
|
0.025
|
||||||||||||||
|
$
|
0.0310 - $0.0600
|
31,556
|
4.29
|
$
|
0.046
|
25,147
|
$
|
0.046
|
||||||||||||||
|
$
|
0.0610 - $0.2000
|
19,035
|
2.55
|
$
|
0.066
|
19,034
|
$
|
0.066
|
||||||||||||||
|
107,600
|
4.59
|
$
|
0.037
|
65,365
|
$
|
0.048
|
||||||||||||||||
- 10 -
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
|
5.
|
Equity (continued)
|
A summary of the status of the Company's non-vested shares as of June 30, 2015, is as follows:
|
Non-vested Shares
|
Shares
|
Weighted Average
Grant-Date
Fair Value Per Share
|
||||||
|
Non-vested at January 1, 2015
|
14,954
|
$
|
0.0374
|
|||||
|
Granted
|
36,633
|
$
|
0.0196
|
|||||
|
Forfeited
|
(1,020
|
)
|
$
|
0.0207
|
||||
|
Vested
|
(8,332
|
)
|
$
|
0.0297
|
||||
|
Non-vested at June 30, 2015
|
42,235
|
$
|
0.0233
|
|||||
As of June 30, 2015, there was a total of $443 of unrecognized compensation expense related to non-vested stock-based compensation arrangements granted under the plans. The unrecognized compensation expense is expected to be realized over a weighted average period of 3.2 years.
Preferred Stock
Information with respect to the class of Preferred Stock at June 30, 2015 is as follows:
|
Class of Preferred Stock
|
Annual Dividend
|
Annual Dividend Payable, in Cash or In Kind
|
Per Share Liquidation Preference
|
Per Share Conversion Price
|
YTD Dividend Shares in Kind
|
Total Preferred Shares Outstanding
|
Common Shares to be issued if Fully Converted
|
||||||||||||||||||
|
Series A-1
|
8
|
%
|
Quarterly in Arrears
|
$
|
1.00
|
$
|
0.1400
|
35
|
910
|
6,502
|
|||||||||||||||
|
Series B
|
10
|
%
|
Quarterly in Arrears
|
$
|
1.50
|
$
|
0.0433
|
615
|
12,867
|
296,945
|
|||||||||||||||
|
Series C
|
10
|
%
|
Quarterly in Arrears
|
$
|
1.50
|
$
|
0.0225
|
250
|
5,225
|
232,203
|
|||||||||||||||
|
Series D-1
|
10
|
%
|
Quarterly in Arrears
|
$
|
1.00
|
$
|
0.0225
|
324
|
7,357
|
326,987
|
|||||||||||||||
|
Series D-2
|
10
|
%
|
Quarterly in Arrears
|
$
|
1.00
|
$
|
0.0500
|
292
|
6,070
|
121,409
|
|||||||||||||||
Information with respect to in-kind dividends issued on the Company's Preferred stock for the three and six-month periods ended June 30, 2015 and June 30, 2014 is as follows:
|
Dividends
|
Beneficial Conversion Feature Related to dividends
|
||||||||||||||||||||||||||||
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||||||||||||||
|
2015
|
2014
|
2015
|
2014
|
2015
|
2014
|
2015
|
2014
|
||||||||||||||||||||||
|
Series A-1
|
$
|
17
|
$
|
21
|
$
|
35
|
$
|
41
|
$ ─
|
$ ─
|
$ ─
|
$
|
−
|
||||||||||||||||
|
Series B
|
313
|
284
|
615
|
558
|
─
|
─
|
─
|
−
|
|||||||||||||||||||||
|
Series C
|
127
|
115
|
250
|
226
|
─
|
13
|
13
|
50
|
|||||||||||||||||||||
|
Series D-1
|
179
|
107
|
324
|
201
|
─
|
12
|
16
|
43
|
|||||||||||||||||||||
|
Series D-2
|
149
|
132
|
292
|
255
|
─
|
─
|
─
|
─
|
|||||||||||||||||||||
|
Total
|
$
|
785
|
$
|
659
|
$
|
1,516
|
$
|
1,281
|
$ ─
|
$
|
25
|
$
|
29
|
$
|
93
|
||||||||||||||
Series D Preferred Stock
On February 7, 2014, the Company sold for $733 in cash, net of a $47 administrative fee paid in cash to SG Phoenix and a nonrelated third party, 520 Shares of Series D-1 preferred stock and 260 shares of Series D-2 Preferred Stock. The investors received one hundred percent (100%) warrant coverage. These warrants are immediately exercisable and expire December 31, 2016. The warrants are exercisable in whole or in part and contain a cashless exercise provision.
- 11 -
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
|
5.
|
Equity (continued)
|
On March 6, 2014, the Company sold for $406 in cash, net of $4 in administrative fees paid in cash to an unrelated third party, 273 Shares of Series D-1 preferred stock and 137 shares of Series D-2 Preferred Stock. The investors received one hundred percent (100%) warrant coverage. These warrants are immediately exercisable and expire December 31, 2016. The warrants are exercisable in whole or in part and contain a cashless exercise provision.
SG Phoenix received warrants to purchase 3,000 shares of common stock, and two unrelated parties received warrants to purchase an aggregate of 1,600 shares of common stock in payment of administrative and finder's fees associated with the financings, in addition to the cash payments discussed above. These warrants are immediately exercisable and expire three (3) years from the date of issuance. The warrants are exercisable in whole or in part and contain a cashless exercise provision.
On March 24, 2015, the Company sold for $1,200 in cash, net of $33 in administrative fees paid in cash to SG Phoenix, 1,233 Shares of Series D-1 preferred stock. The investors received 27,400 warrants, immediately exercisable into common stock of the Company at $0.0225 per share. The warrants expire March 23, 2018. The Company ascribed a value of $366 to the warrants using the Black-Scholes-Merton pricing model. See the warrant table below for more detail. The warrants are exercisable in whole or in part and contain a cashless exercise provision.
Warrants
On February 23, 2015, the Company and Venture Champion Asia Limited, an affiliate of IGC Global Limited, mutually agreed to terminate the $2,000 Credit Agreement signed in May 2014. At the time of the termination of the Credit Agreement, no amount was owed by the Company under the Credit Agreement, and contemporaneously with the termination of the Credit Agreement, the 10,909 warrants were likewise terminated.
A summary of the warrant activity is as follows:
|
June 30, 2015
|
June 30, 2014
|
|||||||||||||||
|
Shares
|
Weighted Average Exercise Price Per Share
|
Shares
|
Weighted Average Exercise Price Per Share
|
|||||||||||||
|
Outstanding at beginning of period
|
213,521
|
$
|
0.0289
|
77,155
|
$
|
0.0289
|
||||||||||
|
Issued
|
27,399
|
$
|
0.0275
|
72,589
|
$
|
0.0275
|
||||||||||
|
Expired
|
(16,258
|
)
|
$
|
0.0500
|
(4,333
|
)
|
$
|
0.0225
|
||||||||
|
Outstanding at end of period
|
224,662
|
$
|
0.0272
|
145,411
|
$
|
0.0289
|
||||||||||
|
Exercisable at end of period
|
224,662
|
$
|
0.0272
|
145,411
|
$
|
0.0289
|
||||||||||
A summary of the status of the warrants outstanding and exercisable as of June 30, 2015, is as follows:
|
Number of Shares
|
Weighted Average Remaining Life (Years)
|
Weighted Average Exercise Price Per Share
|
||||||||
|
27,400
|
2.77
|
$
|
0.0225
|
|||||||
|
193,968
|
1.52
|
$
|
0.0275
|
|||||||
|
3,294
|
0.38
|
$
|
0.0500
|
|||||||
|
224,662
|
1.65
|
$
|
0.0272
|
|||||||
- 12 -
Communication Intelligence Corporation
FORM 10-Q
(In thousands, except per share amounts)
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 those set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2014, including the following:
|
·
|
Technological, engineering, manufacturing, quality control or other circumstances that could delay the sale or shipment of products;
|
|
·
|
Economic, business, market and competitive conditions in the software industry and technological innovations that could affect the Company's business;
|
|
·
|
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
|
|
·
|
General economic and business conditions and the availability of sufficient financing.
|
Except as otherwise required by applicable laws, 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 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 forth in the Company's Annual report on Form 10-K for the fiscal year ended December 31, 2014.
Overview
The Company is a leading supplier of digital transaction management (DTM) software enabling the paperless, secure and cost-effective management of document-based transactions. CIC's solutions encompass a wide array of functionality and services, including electronic signatures, biometric authentication and simple-to-complex workflow management. These solutions are available across virtually all enterprise, desktop and mobile environments as a seamlessly integrated platform for both ad-hoc and fully automated transactions. CIC's platform can be deployed both on-premise and as a cloud-based service, with the ability to easily transition between deployment models.
The Company was incorporated in Delaware in October 1986. Except for the year ended December 31, 2004, in each year since its inception the Company has incurred losses. For the two-year period ended December 31, 2014, net losses attributable to common stockholders aggregated approximately $15,478, and, at June 30, 2015, the Company's accumulated deficit was approximately $125,231.
For the three months ended June 30, 2015, total revenue was $367, a decrease of $106, or 22%, compared to total revenue of $473 in the prior year period. For the six months ended June 30, 2015, total revenue was $814, an increase of $40, or 5%, compared to total revenue of $774 in the prior year period. The decreases in revenue for the three months ended June 30, 2015 is due primarily to lower product license revenue. The increase in revenue for the six months ended June 30, 2015 is due primarily to an increase in maintenance revenue associated with new product license revenue over the prior year period.
- 13 -
Communication Intelligence Corporation
FORM 10-Q
(In thousands, except per share amounts)
For the three months ended June 30, 2015, the loss from operations was $1,029, an increase of $108, or 12%, compared with a loss from operations of $921 in the prior year period. The increase in the loss for the three months ended June 30, 2015 was due primarily to the aforementioned lower revenue coupled with an increase in general and administrative expense of $107, or 24%, compared to the prior year period, related to the hiring of an Accounting Manager and higher stock-based compensation. For the six months ended June 30, 2015, the loss from operations was $2,047, an increase of $61, or 3%, compared with a loss from operations of $1,986 in the prior year period. The increase in the loss from operations for the six months ended June 30, 2015 is primarily attributable to the increase in general and administrative expense described above together with an increase in cost of sales of $83, or 61%, compared to the prior year period, partially offset by the aforementioned increase in revenue.
Other expense for the three months ended June 30, 2015, was $0, a decrease of $246, or 100%, compared to other expense of $246 in the prior year period. The decrease in other expense for the three-months ended June 30, 2015 was primarily due to a valuation of warrants issued to a third party in May 2014 related to a $2 million line of credit. For the six months ended June 30, 2015, other income was $16, a decrease of $256, or 107%, compared to other expense of $240 in the prior year. The decrease in other expense for the six-months ended June 30, 2015 was primarily due to the factors discussed above for the three-month period.
Critical Accounting Policies and Estimates
Refer to Item 7, "Management Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2014 Form 10-K.
Results of Operations
Revenue
For the three months ended June 30, 2015, product revenue was $153, a decrease of $125, or 45%, compared to product revenue of $278 in the prior year period. The decrease in revenue is primarily attributable to lower product licensing in the quarter. For the three months ended June 30, 2015, maintenance revenue was $214, an increase of $19, or 10%, compared to maintenance revenue of $195 in the prior year period. This increase is primarily due to new maintenance contracts entered into during the last twelve months.
For the six months ended June 30, 2015, product revenue was $384, a decrease of $22, or 5%, compared to product revenue of $406 in the prior year period. The decrease in product revenue is primarily due to the same factor discussed for the three month period. For the six months ended June 30, 2015, maintenance revenue was $430, an increase of $62, or 17%, compared to maintenance revenue of $368 in the prior year period. The increase in maintenance revenue is primarily due to new maintenance contracts entered into during the last twelve months.
Cost of Sales
For the three months ended June 30, 2015, cost of sales was $95, an increase of $18, or 23%, compared to cost of sales of $77 in the prior year period. The increase in cost of sales was due to an increase in direct labor related to maintenance and revenue generating contracts recognized during the three months ended June 30, 2015, compared to the prior year period.
For the six months ended June 30, 2015, cost of sales was $218, an increase of $83, or 61%, compared to cost of sales of $135 in the prior year period. The increase in cost of sales was due to an increase in direct labor related to maintenance and revenue generating contracts recognized during the six months ended June 30, 2015, compared to the prior year period.
- 14 -
Communication Intelligence Corporation
FORM 10-Q
(In thousands, except per share amounts)
Operating expenses
Research and Development Expenses
For the three months ended June 30, 2015, research and development expense was $498, a decrease of $34, or 6%, compared to research and development expense of $532 in the prior year period. Research and development expenses consist primarily of salaries and related costs, outside engineering, maintenance items, and allocated facilities expenses. The most significant factors in the $34 decrease was a $48, or 14%, decrease in total salaries and benefits due to the reduction of one engineer in the third quarter of the prior year together with a $15, or 15%, decrease in professional service expenses associated with product development. These expense reductions were partially offset by increases in stock-based compensation and in allocated facilities expense due to the off site location of sales personnel compared to the prior year period. Total expenses, before allocations for the three months ended June 30, 2015, were $595, a decrease of $22, or 4%, compared to $617 in the prior year period. The decrease in gross expenses is primarily due to the factors discussed above.
For the six months ended June 30, 2015, research and development expense was $1,021, a decrease of $51, or 5%, compared to research and development expense of $1,072 in the prior year period. Total expenses, before allocations to cost of sales, for the six months ended June 30, 2015, were $1,255, an increase of $35, or 3%, compared to $1,220 in the prior year period. The increase in research and development expense for the six months ended June 30, 2015, in comparison to the prior year period, resulted from an increase in general overhead expenses and certain third party services.
Sales and Marketing Expense
For the three months ended June 30, 2015, sales and marketing expense was $242, a decrease of $89, or 27%, compared to sales and marketing expense of $331 in the prior year period. For the six months ended June 30, 2015, sales and marketing expense was $540, a decrease of $99, or 15%, compared to sales and marketing expense of $639 in the prior year period. The decrease was primarily attributable to decreases in salaries and benefits resulting from the departure of our Vice President, Sales in the third quarter of 2014 together with a decrease in commission expense in comparison to the prior year period. The decrease in sales and marketing expense for the six months ended June 30, 2015 in comparison to the prior year period resulted from the same factors discussed above for the three-month period.
General and Administrative Expense
For the three months ended June 30, 2015, general and administrative expense was $561, an increase of $107, or 24%, compared to general and administrative expense of $454 in the prior year period. The increase was primarily due to increases in salaries and certain related costs, including a fee paid to a recruiter, of $46, or 85%, in stock-based compensation of $36, or 88%, and in certain other general administrative expenses compared to the prior year period. The increase in salaries and related expense was due to the hiring of an Accounting Manager and the certain other general administrative expenses referenced above primarily were comprised of professional services and a provision for doubtful accounts.
For the six months ended June 30, 2015, general and administrative expense was $1,082, an increase of $168, or 18%, compared to general and administrative expense of $914 in the prior year period. The increase was primarily due to the same factors discussed for the three-month period above.
Other Income and Expense
For the three months ended June 30, 2015, interest expense was $1, a decrease of $244, or 100%, compared to interest expense of $245 in the prior year period. For the six months ended June 30, 2015, interest expense was $1, a decrease of $244, or 100%, compared to interest expense of $245 in the prior year period. The decreases resulted from expensing the valuation of the warrants issued to third parties in May 2014 related to a $2 million line of credit.
- 15 -
Communication Intelligence Corporation
FORM 10-Q
(In thousands, except per share amounts)
For the three months ended June 30, 2015, the gain on derivative liability was $1, an increase of $2, or 200%, compared to the loss on derivative liability of $1 in the prior year period. For the six months ended June 30, 2015, the gain on derivative liability was $17, an increase of $14, or 467%, compared to a gain on derivative liability of $3 in the prior year period. The increases in the gains on derivative liability were primarily due to the expiration of warrants and a minimal change in the closing price of the Company's Common Stock at June 30, 2015.
For the three months ended June 30, 2015, accretion of the beneficial conversion feature on the Company's Preferred Stock with a conversion price less than the closing market price of the Company's Common Stock on June 30, 2015 was $0, a decrease of $25, or 100%, compared to $25 in the prior year period. The decrease is primarily due to the closing price of the Company's common stock on June 30, 2015 being less than the conversion price of the preferred share dividends issued. There was no sale of preferred stock during the three months ended June 30, 2015 and 2014.
For the six months ended June 30, 2015, accretion of the beneficial conversion feature on the Company's Preferred Stock with a conversion price less than the closing market price of the Company's common stock on the issuance date for new issuances of Preferred Stock and on June 30, 2015 for Preferred Share dividends was $527, an increase of $128, or 32%, compared to $399 in the prior year period. The increase is primarily due to the increase in the accretion of the beneficial conversion feature for the Preferred Stock issued in March 2015 as compared to the accretion of the beneficial conversion feature for the Preferred Stock issued in February 2014 and March 2014 (see Liquidity and Capital Resources).
The Company recorded dividends in kind on shares of its Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock. For the three months ended June 30, 2015, dividends on shares of Preferred Stock were $785, an increase of $126, or 19% compared to $659 in the prior year period. The increase was primarily due to the sale of shares of Series D Preferred Stock in March 2015.
For the six months ended June 30, 2015, dividends in kind on shares of Preferred Stock were $1,516, an increase of $235, or 18%, compared to $1,281 in the prior year period. The increase was primarily due to the above mentioned sale of shares of Series D Preferred Stock.
Liquidity and Capital Resources
At June 30, 2015, cash and cash equivalents totaled $409, compared to cash and cash equivalents of $775 at December 31, 2014. The decrease in cash was primarily due to net cash used in operating activities of $1,557 and investing activities of $10. These uses of cash were partially offset by cash provided by financing activities of $1,200. At June 30, 2015, total current assets were $608, compared to total current assets of $977 at December 31, 2014. At June 30, 2015, the Company's principal sources of funds included its aggregated cash and cash equivalents of $409.
At June 30, 2015, accounts receivable net, was $156, an increase of $34, or 28%, compared to accounts receivable net of $122 at December 31, 2014. The increase is due primarily to the timing of billings during the three months ended June 30, 2015.
At June 30, 2015, prepaid expenses and other current assets were $43, a decrease of $37, or 46%, compared to prepaid expenses and other current assets of $80 at December 31, 2014. The decrease is due primarily to expensing the prepaid annual insurance premiums.
At June 30, 2015, total current liabilities were $1,236, an increase of $20, or 2%, compared to total current liabilities of $1,216 at December 31, 2014. At June 30, 2015, current deferred revenue was $240, a decrease of $17, or 7%, compared to current deferred revenue of $257 at December 31, 2014. Deferred revenue is recorded when the Company receives advance payment from its customers and primarily reflects advance payments for maintenance fees from the Company's licensees that are generally recognized as revenue by the Company when all obligations are met or over the term of the maintenance agreement, whichever is longer.
At June 30, 2015, accounts payable were $323, a decrease of $5, or 2%, compared to accounts payable of $328 at December 31, 2014. The decrease is due primarily to payment of outstanding accounts payable. At June 30, 2015,
- 16 -
Communication Intelligence Corporation
FORM 10-Q
(In thousands, except per share amounts)
accrued compensation was $268, a decrease of $25, or 9%, compared to accrued compensation of $293 at December 31, 2014. The decrease is due primarily to the payment of accrued sales commissions from the receipt of outstanding accounts receivable, and the payment of accrued vacation to a departed employee.
For the three and six months ended June 30, 2015, the Company exercised its option to pay in kind the accrued dividends on Preferred Stock as follows:
|
|
Three Months
|
Six Months
|
||||||
|
2015
|
2015
|
|||||||
|
Series A-1
|
17
|
35
|
||||||
|
Series B
|
313
|
615
|
||||||
|
Series C
|
127
|
250
|
||||||
|
Series D-1
|
179
|
324
|
||||||
|
Series D-2
|
149
|
292
|
||||||
|
Total
|
785
|
1,516
|
||||||
On February 23, 2015, the Company and Venture Champion Asia Limited, an affiliate of IGC Global Limited, mutually agreed to terminate the $2,000 Credit Agreement signed in May 2014. At the time of the termination of the Credit Agreement, no amount was owed by the Company under the Credit Agreement, and contemporaneously with the termination of the Credit Agreement, the warrants to purchase 10,909 shares of Common Stock were likewise terminated.
On March 24, 2015, the Company sold for $1,200 in cash, net of $33 in administrative fees paid in cash to SG Phoenix, 1,233 Shares of Series D-1 preferred Stock. The investors received warrants to purchase 27,400 shares of Common Stock, immediately exercisable at $0.0225 per share. The warrants expire March 23, 2018. The Company ascribed a value of $366 to the warrants using the Black Scholes Merton pricing model. The warrants are exercisable in whole or in part and contain a cashless exercise provision.
The Company is using the funds received from the above financing for working capital and general corporate purposes.
The Company incurred $1 of interest expense for the three and six months ended June 30, 2015. For the three and six months ended June 30, 2014, interest expense was $245 and was related to the valuation of warrants issued in conjunction with the Credit agreement mentioned above.
The Company had the following material commitments as of June 30, 2015:
|
Contractual obligations
|
Total
|
2015
|
2016
|
Thereafter
|
||||||||||||
|
Operating lease commitments (2)
|
$
|
397
|
$
|
147
|
$
|
250
|
$
|
−
|
||||||||
|
1.
|
The Company extended the lease on its offices in April 2010. The base rent decreased by approximately 6% in November 2011 and will increase by approximately 3% per annum over the term of the new lease, which expires on October 31, 2016.
|
The Company has experienced recurring losses from operations that raise a substantial doubt about its ability to continue as a going concern. There can 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 the Company's business, results of operations and ability to operate as a going concern.
- 17 -
Communication Intelligence Corporation
FORM 10-Q
(In thousands, except per share amounts)
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
The Company did not enter into any short-term security investments during the three and six months ended June 30, 2015.
Foreign Currency Risk
From time to time, the Company makes certain capital equipment or other purchases denominated in foreign currencies. 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. During the three and six months ended June 30, 2015 and 2014, foreign currency translation gains and losses were insignificant.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Company carried out an evaluation as of the end of the period covered by this report, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to paragraph (b) of Rule 13a-15 and 15d-15 under the Exchange Act of 1934 (the "Exchange Act"). Based on that evaluation and because of the material weaknesses in our internal control over financial reporting described below, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act (1) is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and (2) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Management identified the following control deficiencies that constitute material weaknesses that are not fully remediated as of the filing date of this report:
As a small company with limited resources that are mainly focused on the development and sales of software products and services, CIC does not employ a sufficient number of staff in its finance department to possess an optimal segregation of duties or to provide optimal levels of oversight. This has resulted in certain audit adjustments and management believes that there may be a possibility for a material misstatement to occur in future periods while it employs the current number of personnel in its finance department.
The Company does not expect that its disclosure controls and procedures will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedures are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The Company considered these limitations during the development of its disclosure controls and procedures, and will continually reevaluate them to ensure they provide reasonable assurance that such controls and procedures are effective.
- 18 -
Communication Intelligence Corporation
FORM 10-Q
(In thousands, except per share amounts)
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II-Other Information
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sale of Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information.
None.
Item 6. Exhibits.
|
(a)
|
Exhibits.
|
|
Exhibit Number
|
Document
|
|
3.1
|
Certificate of Incorporation of the Company, as amended, incorporated herein by reference to Exhibits 3.1, 3.2, 3.3 and 3.4 to the Company's Registration Statement on Form 10 (File No. 0‑19301).
|
|
3.2
|
Certificate of Amendment to the Company's Certificate of Incorporation (authorizing the reclassification of the Class A Common Stock and Class B Common Stock into one class of Common Stock) as filed with the Delaware Secretary of State's office on November 1, 1991, incorporated herein by reference to Exhibit 3 to Amendment 1 on Form 8 to the Company's Form 8‑A (File No. 0‑19301).
|
|
3.3
|
By‑laws of the Company adopted on October 6, 1986, incorporated herein by reference to Exhibit 3.5 to the Company's Registration Statement on Form 10 (File No. 0‑19301).
|
|
3.4
|
By‑laws of the Company adopted on October 6, 1986, incorporated herein by reference to Exhibit 3.5 to the Company's Registration Statement on Form 10 (File No. 0‑19301).
|
|
3.5
|
Certificate of Amendment to the Company's Amended and Restated Certificate of Incorporation dated January 24, 2001, incorporated herein by reference to Exhibit 3.5 to the Company's Registration Statement on Form S/1, filed December 28, 2007.
|
- 19 -
Communication Intelligence Corporation
FORM 10-Q
(In thousands, except per share amounts)
|
Exhibit Number
|
Document
|
|
3.6
|
Certificate of Elimination of the Company's Certificate of Designation of the Series A Preferred Stock dated August 17, 2001, incorporated herein by reference to Exhibit 3.6 to the Company's Registration Statement on Form S/1, filed December 28, 2007.
|
|
3.7
|
Certificate of Amendment to the Company's Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State August 17, 2007, incorporated herein by reference to Exhibit 3.7 to the Company's Registration Statement on Form S/1 filed on December 28, 2007.
|
|
3.8
|
Amended and Restated Certificate of Incorporation of the Company filed with the Delaware Secretary of State on May 18, 1995, incorporated herein by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed on August 14, 2008.
|
|
3.9
|
Certificate of Designations, Powers, Preferences and Rights of the Series A Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on June 4, 2008, incorporated herein by reference to Exhibit 4.23 to the Company's Quarterly Report on Form 10-Q filed on August 14, 2008.
|
|
3.10
|
Certificate of Amendment to the Company's Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on June 30, 2008, incorporated herein by reference to Exhibit 3.7 to the Company's Quarterly Report on Form 10-Q filed on August 14, 2008.
|
|
3.11
|
Certificate of Designations, Powers, Preferences and Rights of the Series A-1 Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on October 30, 2008, incorporated herein by reference to Exhibit 3.11 to the Company's Annual Report on Form 10-K filed on March 12, 2009.
|
|
3.12
|
Certificate of Elimination of the Company's Series A Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on December 30, 2008, incorporated herein by reference to Exhibit 3.12 to the Company's Annual Report on Form 10-K filed on March 12, 2009.
|
|
3.13
|
Certificate of Amendment to the Company's Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on June 30, 2009, incorporated herein by reference to Exhibit 3.13 to the Company's Quarterly Report on Form 10-Q filed on August 14, 2009.
|
|
3.14
|
Amendment No. 1 to By-laws dated June 17, 2010, incorporated herein by reference to Exhibit 3.14 to the Company's Quarterly Report on Form 10-Q filed on August 16, 2010.
|
|
3.15
|
Certificate of Amendment to the Company's Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on August 4, 2010, incorporated herein by reference to Exhibit 3.15 to the Company's Quarterly Report on Form 10-Q filed on November 12, 2010.
|
|
3.16
|
Amended and Restated Certificate of Designation of Series A-1 Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on August 4, 2010, incorporated herein by reference to Exhibit 3.16 to the Company's Quarterly Report on Form 10-Q filed on November 12, 2010.
|
|
3.17
|
Certificate of Designation of Series B Participating Convertible Preferred Stock filed with the Delaware Secretary of State on August 4, 2010, incorporated herein by reference to Exhibit 3.17 to the Company's Quarterly Report on Form 10-Q filed on November 12, 2010.
|
|
3.18
|
Certificate of Amendment to Amended And Restated Certificate of Incorporation filed with the Delaware Secretary of State on December 31, 2010, incorporated herein by reference to Exhibit 3.18 to the Company's Annual Report on Form 10-K filed on March 30, 2011.
|
|
3.19
|
Second Amended and Restated Certificate of Designation of Series A-1 Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on December 31, 2010, incorporated herein by reference to Exhibit 3.19 to the Company's Annual Report on Form 10-K filed on March 30, 2011.
|
|
3.20
|
Second Amended and Restated Certificate of Designation of Series B Participating Convertible Preferred Stock filed with the Delaware Secretary of State on December 31, 2010, incorporated herein by reference to Exhibit 3.20 to the Company's Annual Report on Form 10-K filed on March 30, 2011.
|
|
3.21
|
Certificate of Designation of Series C Participating Convertible Preferred Stock filed with the Delaware Secretary of State on December 31, 2010, incorporated herein by reference to Exhibit 3.21 to the Company's Annual Report on Form 10-K filed on March 30, 2011.
|
- 20 -
Communication Intelligence Corporation
FORM 10-Q
(In thousands, except per share amounts)
|
Exhibit Number
|
Document
|
|
3.22
|
Amendment to the Amended And Restated Certificate of Designation of the Series B Participating Convertible Preferred Stock, incorporated herein by reference to Exhibit 10.59 to the Company's Current Report on Form 8-K filed March 31, 2011.
|
|
3.23
|
Amendment to the Amended And Restated Certificate of Designation of the Series C Participating Convertible Preferred Stock, incorporated herein by reference to Exhibit 10.60 to the Company's Current Report on Form 8-K filed March 31, 2011.
|
|
3.24
|
Certificate of Amendment to Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on November 13, 2012, incorporated herein by reference to Appendix A to the Company's Definitive Proxy Statement filed on Schedule 14A on October 22, 2012.
|
|
3.25
|
Third Amended and Restated Certificate of Designation of Series A-1 Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on November 13, 2012, incorporated herein by reference to Exhibit 3.25 to the Company's Form 10-K filed March 31, 2014.
|
|
3.26
|
Second Amended and Restated Certificate of Designation of Series B Participating Convertible Preferred Stock filed with the Delaware Secretary of State on November 13, 2012, incorporated herein by reference to Exhibit 3.26 to the Company's Form 10-K filed March 31, 2014.
|
|
3.27
|
Amended and Restated Certificate of Designation of Series C Participating Convertible Preferred Stock filed with the Delaware Secretary of State on November 13, incorporated herein by reference to Exhibit 3.27 to the Company's Form 10-K filed March 31, 2014.
|
|
3.28
|
Certificate of Designation of Series D Convertible Preferred Stock filed with the Delaware Secretary of State on November 13, 2012, incorporated herein by reference to Exhibit 3.28 to the Company's Form 10-K filed March 31, 2014.
|
|
3.29
|
Certificate of Amendment to Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on December 10, 2013, incorporated herein by reference to Appendix A to the Company's Definitive Proxy Statement filed on Schedule 14A on November 1, 2013.
|
|
3.30
|
Certificate of Amendment to Certificate of Designation of Series D Convertible Preferred Stock filed with the Delaware Secretary of State on December 31, 2013, incorporated herein by reference to Exhibit 3.30 to the Company's Form 10-K filed March 31, 2014.
|
|
3.31
|
Certificate of Amendment to Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on December 16, 2014, incorporate herein by reference to Appendix A to the Company's Definitive Proxy Statement filed on Schedule 14A on October 17, 2014.
|
|
3.32
|
Certificate of Amendment to Certificate of Designation of Series D Convertible Preferred Stock filed with the Delaware Secretary of State on March 24, 2015, incorporated herein by reference to Exhibit 3.32 to the Company's Quarterly Report on Form 10-Q filed May 15, 2015.
|
|
10.59
|
Amendment to the Amended And Restated Certificate of Designation of the Series B Participating Convertible Preferred Stock, incorporated herein by reference to Exhibit 10.59 to the Company's Current Report on Form 8-K filed March 31, 2011.
|
|
10.60
|
Amendment to the Amended And Restated Certificate of Designation of the Series C Participating Convertible Preferred Stock, incorporated herein by reference to Exhibit 10.60 to the Company's Current Report on Form 8-K filed March 31, 2011.
|
|
10.61
|
Form Of Subscription Agreement, incorporated herein by reference to Exhibit 10.61 to the Company's Current Report on Form 8-K filed on April 4, 2011.
|
|
10.62
|
Amendment No. 1 to the Registration Rights Agreement dated March 31, 2011, incorporated herein by reference to Exhibit 10.62 to the Company's Current Report on Form 8-K filed on April 4, 2011
|
|
10.63
|
Note and Warrant Purchase Agreement dated April 23, 2012, incorporated herein by reference to Exhibit 10.63 to the Company's Quarterly Report on Form 10-Q filed on August 14, 2012.
|
|
10.64
|
Form of Subscription Agreement dated September 14, 2012, incorporated herein by reference to Exhibit 10.64 to the Company's Quarterly Report on Form 10-Q filed on November 14, 2012.
|
|
10.65
|
Form of Unsecured Convertible Promissory Note dated September 14, 2012, incorporated herein by reference to Exhibit 10.65 to the Company's Quarterly Report on Form 10-Q filed on November 14, 2012.
|
|
10.66
|
Form of Subscription Agreement dated May 17, 2013, incorporated herein by reference to Exhibit 10.66 to the Company's Quarterly Report on Form 10-Q filed on August 14, 2013.
|
- 21 -
Communication Intelligence Corporation
FORM 10-Q
(In thousands, except per share amounts)
|
Exhibit Number
|
Document
|
|
10.67
|
Form of Subscription Agreement dated December 31, 2013, incorporated herein by reference to Exhibit 10.67 to the Company's Form 10-K filed March 31, 2014.
|
|
10.68
|
Credit Agreement with Venture Champion Asia Limited dated May 6, 2014, incorporated herein by reference to Exhibit 10.68 to the Company's Form 10-Q filed August 15, 2014.
|
|
10.69
|
Form of Subscription Agreement dated August 5, 2014, incorporated herein by reference to Exhibit 10.69 to the Company's Form 10-K filed March 31, 2015.
|
|
*10.70
|
Form of Subscription Agreement dated March 24, 2015, incorporated herein by reference to Exhibit 10.70 to the Company's Quarterly Report on Form 10-Q filed May 15, 2015.
|
|
*31.1
|
Certification of Company's Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
*31.2
|
Certificate of Company's Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
*32.1
|
Certification of Chief Executive Officer pursuant to 18 USC Section 1750, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
*32.2
|
Certification of Chief Financial Officer pursuant to 18 USC Section 1750, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
| * | Filed herewith. |
- 22 -
Communication Intelligence Corporation
FORM 10-Q
(In thousands, except per share amounts)
| * | Filed herewith. |
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, 2015
|
/s/ Andrea Goren
|
|
|
Date
|
Andrea Goren
|
|
|
(Principal Financial Officer and Officer Duly Authorized to Sign on Behalf of the Registrant)
|
- 23 -