Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this Annual Report on Form 10-K:
(1) Financial Statements
Index to Financial Statements
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Page
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(a)(1)
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Financial Statements
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Report of Independent Registered Public Accounting Firm
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F-1
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Consolidated Balance Sheets at December 31, 2013 and 2012
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F-2
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Consolidated Statements of Operations for the years ended December 31, 2013 and 2012
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F-3
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Consolidated Statements of Comprehensive Loss for the years ended December 31, 2013 and 2012
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F-4
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Consolidated Statements of Changes in Stockholders' ( Deficit) Equity for the years ended December 31, 2013 and 2012
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F-5
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Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012
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F-7
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Notes to Consolidated Financial Statements
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F-9
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(2) Financial Statement Schedules
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All schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.
(3) Exhibits
The exhibits required by Item 601 of Regulation S-K are listed in paragraph (b) below.
(b) Exhibits.
The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the SEC as indicated below:
Exhibit
Number
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Document
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3.1
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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. 000-19301).
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3.2
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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) filed with the Delaware Secretary of State 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. 000-19301).
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3.3
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Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State June 12, 1998, incorporated herein by reference to Exhibit 10.24 to the Company’s 1998 Form 10-K filed on April 6, 1999.
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3.4
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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. 000-19301).
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3.5
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Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State January 24, 2001, incorporated herein by reference to Exhibit 3.5 to the Company’s Registration Statement on Form S/1 filed on December 28, 2007.
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3.6
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Certificate of Elimination of the Company’s Certificate of Designation of the Series A Preferred Stock filed with the Delaware Secretary of State August 17, 2001, incorporated herein by reference to Exhibit 3.6 to the Company’s Registration Statement on Form S/1 filed on December 28, 2007.
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3.7
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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.
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3.8
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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.
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3.9
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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.
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3.10
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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.
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3.11
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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.
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3.12
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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.
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3.13
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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.
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3.14
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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.
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Exhibit
Number
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Document
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3.15
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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.
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3.16
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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.
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3.17
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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 3.17to the Company’s Quarterly Report on Form 10-Q filed on November 12, 2010.
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3.18
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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.
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3.19
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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.
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3.20
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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.
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3.21
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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.
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3.22
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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.
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3.23
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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.
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3.24
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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.
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*3.25
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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.
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*3.26
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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.
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*3.27
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Amended and Restated Certificate of Designation of Series C Participating Convertible Preferred Stock filed with the Delaware Secretary of State on November 13, 2012.
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*3.28
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Certificate of Designation of Series D Convertible Preferred Stock filed with the Delaware Secretary of State on November 13, 2012.
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3.29
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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.
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*3.30
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Certificate of Amendment to Certificate of Designation of Series D Convertible Preferred Stock filed with the Delaware Secretary of State on December 31, 2013
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†4.10
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1999 Stock Option Plan, as amended, incorporated herein by reference to Exhibit 4.2 to the Company's Form S-8 filed on September 19, 2008.
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4.11
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Form of Convertible Promissory Note issued by the Company, incorporated herein by reference to Exhibit 10.3 to the Company's Form 8-K filed on November 3, 2004.
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4.12
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Form of Warrant issued by the Company, incorporated herein by reference to Exhibit 10.4 to the Company's Form 8-K filed on November 3, 2004.
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4.13
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Form of Promissory Note issued by the Company, incorporated herein by reference to Exhibit 10.36 to the Company's Form 8-K filed on August 12, 2006.
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Exhibit
Number
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Document
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4.14
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Form of Warrant issued by the Company, incorporated herein by reference to Exhibit 10.37 to the Company's Form 8-K filed on August 12, 2006.
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4.15
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Form of Promissory Note issued by the Company, incorporated herein by reference to Exhibit 10.36 to the Company’s Form 8-K filed on February 9, 2007.
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4.16
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Form of Warrant issued by the Company, incorporated herein by reference to Exhibit 10.37 to the Company’s Form 8-K filed on February 9, 2007.
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4.17
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Form of Promissory Note issued by the Company, incorporated herein by reference to Exhibit 10.36 to the Company’s Form 8-K filed on June 20, 2007.
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4.18
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Form of Warrant issued the Company, incorporated herein by reference to Exhibit 10.37 to the Company’s Form 8-K filed on June 20, 2007.
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4.19
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Form of Common Stock Purchase Warrant issued by the Company, incorporated herein by reference to Exhibit 4.19 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.
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4.20
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Form of Additional Common Stock Purchase Warrant, incorporated herein by reference to Exhibit 4.20 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.
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4.21
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Form of Secured Promissory Note issued by the Company dated June 5, 2008, incorporated herein by reference to Exhibit 4.21 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.
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4.22
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Form of Additional Secured Promissory Note, incorporated herein by reference to Exhibit 4.22 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.
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4.23
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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 4.23 to the Company’s Annual Report on Form 10-K filed on March 12, 2009.
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4.24
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Form of Secured Promissory Note issued by the Company dated May 28, 2009, incorporated herein by reference to Exhibit 4.24 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2009.
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4.25
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Form of Additional Secured Promissory Note, incorporated herein by reference to Exhibit 4.25 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2009.
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4.26
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Form of Common Stock Purchase Warrant issued by the Company, incorporated herein by reference to Exhibit 4.26 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2009.
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4.27
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Form of Additional Common Stock Purchase Warrant, incorporated herein by reference to Exhibit 4.27 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2009.
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††10.19
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Software Development and License Agreement dated December 4, 1998 between Ericsson Mobile Communications AB and the Company incorporated herein by reference to Exhibit 10.26 of the Company's 1998 Form 10-K (File No. 0-19301).
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10.24
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Form of Note and Warrant Purchase Agreement dated October 28, 2004, by and among the Company and the Purchasers identified therein, incorporated herein by reference to Exhibit 10.1 to the Company's Form 8-K filed on November 3, 2004.
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10.25
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Form of Registration Rights Agreement dated October 28, 2004, by and among the Company and the parties identified therein, incorporated herein by reference to Exhibit 10.2 to the Company's Form 8-K filed on November 3, 2004.
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10.26
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Form of Note and Warrant Purchase Agreement dated August 10, 2006, by and among the Company and the Purchasers identified therein, incorporated herein by reference to Exhibit 10.34 to the Company's Form 8-K filed on August 12, 2006.
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10.26
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Form of Note and Warrant Purchase Agreement dated August 10, 2006, by and among the Company and the Purchasers identified therein, incorporated herein by reference to Exhibit 10.34 to the Company's Form 8-K filed on August 12, 2006.
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10.27
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Form of Registration Rights Agreement dated August 10, 2006, by and among the Company and the parties identified therein, incorporated herein by reference to Exhibit 10.35 to the Company's Form 8-K filed on August 12, 2006.
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Exhibit
Number
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Document
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†††10.28
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Amendment dated May 31, 2005 to the License agreement dated December 22, 2000 between the Company and eCom Asia Pacific, Ltd., incorporated by reference to Exhibit 10.26 of the Company’s Form 10-K/A filed on September 15, 2005.
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†††10.29
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License agreement dated June 2, 2005 between the Company and SnapOn Credit LLC, incorporated herein by reference to Exhibit 10.27 of the Company’s Form 10-K/A filed on September 15, 2005.
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†10.30
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Amendment to employment agreement with Guido DiGregorio, incorporated herein by reference to the Company's Form 8-K filed on September 21, 2005.
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†10.31
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Amendment to employment agreement with Francis V. Dane, incorporated herein by reference to the Company's Form 8-K filed on September 21, 2005.
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†10.32
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Form of stock option agreement dated August 31, 2005 with Russell L. Davis, incorporated by reference to Exhibit 10.30 of the Company’s Form 10-K/A filed on September 15, 2006.
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†10.33
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Form of stock option agreement dated December 19, 2005 with Guido DiGregorio, incorporated by reference to Exhibit 10.30 of the Company’s Form 10-K/A filed on September 15, 2006.
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†10.34
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Form of stock option agreement dated August 31, 2005 with Francis V. Dane, incorporated by reference to Exhibit 10.30 of the Company’s Form 10-K/A filed on September 15, 2006.
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†10.35
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Form of stock option agreement dated August 31, 2005 with C. B. Sung, incorporated by reference to Exhibit 10.30 of the Company’s Form 10-K/A filed on September 15, 2006.
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10.36
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Form of Note and Warrant Purchase Agreement dated February 5, 2007, by and among the Company and the Purchasers identified therein, incorporated herein by reference to Exhibit 10.34 to the Company's Form 8-K filed on February 5, 2007.
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10.37
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Form of Registration Rights Agreement dated February 5, 2007, by and among the Company and the parties identified therein, incorporated herein by reference to Exhibit 10.35 to the Company's Form 8-K filed on February 5, 2007.
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10.38
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Amendment to the Note and Warrant Purchase Agreement dated February 5, 2007, by and among the Company and the parties identified therein, incorporated herein by reference to Exhibit 99.1 to the Company's Form 8-K filed on March 15, 2007.
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10.39
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Form of Note and Warrant Purchase Agreement dated June 15, 2007, by and among the Company and the Purchasers identified therein, incorporated herein by reference to Exhibit 10.34 to the Company's Form 8-K filed on June 15, 2007.
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10.40
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Form of Registration Rights Agreement dated June 15, 2007, by and among the Company and the parties identified therein, incorporated herein by reference to Exhibit 10.35 to the Company's Form 8-K filed on June 15, 2007.
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10.41
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Form of Securities Purchase and Registration Rights Agreement dated August 24, 2007, by and among the Company and Phoenix Venture Fund LLC, incorporated herein by reference to Exhibit 10.36 to the Company's Form 8-K filed on August 27, 2007.
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†10.42
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Consulting Agreement dated January 9, 2008 between the Company and GS Meyer & Associates LLC - Incorporated by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K filed on March 12, 2007.
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10.43
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Credit Agreement dated June 5, 2008, by and among the Company and the Lenders Party Hereto and SG Phoenix as Collateral Agent, incorporated herein by reference to Exhibit 10.41 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.
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10.44
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Pledge and Security Agreement dated June 5, 2008, by and among the Company and the parties identified therein, incorporated herein by reference to Exhibit 10.42 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.
|
10.44
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Securities Purchase Agreement dated June 5, 2008, by and among the Company and the parties identified therein, incorporated herein by reference to Exhibit 10.43 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.
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10.45
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Registration Rights Agreement dated June 5, 2008, by and among the Company and the parties identified therein, incorporated herein by reference to Exhibit 10.44 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.
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Exhibit
Number
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Document
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10.46
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Amendment No. 1 to Credit Agreement dated May 28, 2009, by and among the Company, the Lenders and Additional Lenders Parties Hereto and SG Phoenix as Collateral Agent, incorporated herein by reference to Exhibit 10.46 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2009.
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10.47
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Amendment No. 1 to Registration Rights Agreement dated May 28, 2009, by and among the Company and the parties identified therein, incorporated herein by reference to Exhibit 10.47 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2009.
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10.48
|
Salary Reduction Plan for Executive Officers of Communication Intelligence Corporation under Amendment No. 1 to Credit Agreement dated May 28, 2009, incorporated herein by reference to Exhibit 10.48 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2009.
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10.53
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Amendment No. 3 to Credit Agreement dated July 22, 2010, by and among the Company, the Lenders and Additional Lenders Parties Hereto and SG Phoenix as Collateral Agent, incorporated herein by reference to Exhibit 10.53 to the Company’s Quarterly Report on Form 10-Q filed on November 12, 2010.
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10.54
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Amendment No. 3 to Registration Rights Agreement dated July 22, 2010, by and among the Company and the parties identified therein, incorporated herein by reference to Exhibit 10.54 to the Company’s Quarterly Report on Form 10-Q filed on November 12, 2010.
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10.55
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Registration Rights Agreement dated August 5, 2010, by and among the Company and the Persons Executing the Agreement as Investors, incorporated herein by reference to Exhibit 10.55 to the Company’s Quarterly Report on Form 10-Q filed on November 12, 2010.
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10.56
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Investor Rights Agreement dated August 5, 2010, by and among the Company and Phoenix Venture Fund LLC, SG Phoenix LLC, Michael Engmann, Ronald Goodman, Kendu Partners Company and MDNH Partners L.P., incorporated herein by reference to Exhibit 10.56 to the Company’s Quarterly Report on Form 10-Q filed on November 12, 2010.
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10.57
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Securities Purchase Agreement dated December 9, 2010, by and among the Company, Phoenix Venture Fund LLC, and the Investors signatory thereto, incorporated herein by reference to Exhibit 10.57 to the Company’s Current Report on Form 8-K filed on December 9, 2010.
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10.58
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Registration Rights Agreement dated December 31, 2010, by and among the Company and the Persons Executing the Agreement as Investors, incorporated herein by reference to Exhibit 10.58 to the Company’s Current Report on Form 8-K filed on January 6, 2011.
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10.59
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Form of Subscription Agreement dated March 31, 2011, by and among the Company and the Person Executing the Agreement as Subscribers, incorporated herein by reference to Exhibit 10.61 to the Company’s Current Report on Form 8-K filed on April 4, 2011.
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10.60
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Amendment No. 1 to Registration Rights Agreement dated March 31, 2011, by and among the Company and the Persons Executing the Agreement as Required Holders, incorporated herein by reference to Exhibit 10.62 to the Company’s Current Report on Form 8-K filed on April 4, 2011.
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10.61
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Note and Warrant Purchase Agreement dated September 20, 2011,
incorporated herein by reference to Exhibit 10.61 to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2011.
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10.62
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Note and Warrant Purchase Agreement dated December 2, 2011, incorporated herein by reference to Exhibit 10.62 to the Company’s Annual Report on Form 10-K filed on March 30, 2012.
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10.63
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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.
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10.64
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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..
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10.65
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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.
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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.
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*10.67
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Form of Subscription Agreement dated December 31, 2013.
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14.1
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Code of Ethics, incorporated by reference to Exhibit 14 to the Company’s Annual Report on Form 10-K filed on March 30, 2004.
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Exhibit
Number
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Document
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*21.1
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Schedule of Subsidiaries.
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*23.1
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Consent of PMB Helin Donovan, LLP, Independent Registered Public Accounting Firm.
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*31.1
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Certification of Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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*31.2
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Certificate of Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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*32.1
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Certification of Chief Executive Officer pursuant to 18 USC Section 1750, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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*32.2
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Certification of Chief Financial Officer pursuant to 18 USC Section 1750, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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†
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Indicates management contract or compensatory plan, contract or arrangement
.
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††
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Confidential treatment of certain portions of this exhibit have been requested from the SEC pursuant to a request for confidentiality dated March 30, 1999, filed pursuant to the Exchange Act.
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†††
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Confidential treatment of certain portions of this exhibit have been requested from the SEC pursuant to a request for confidentiality dated March 30, 2006 filed pursuant to the Exchange Act.
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The exhibits listed above are filed as part of this Form 10-K other than Exhibits 32.1 and 32.2, which shall be deemed furnished.
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(c) Financial Statement Schedules
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All financial statement schedules are omitted because the information is inapplicable or presented in the notes to the financial statements.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Redwood Shores, State of California.
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Communication Intelligence Corporation
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By:
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/s/ Andrea Goren
Andrea Goren
(Principal Financial Officer and Officer Duly Authorized to Sign on Behalf of the Registrant)
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Date: March 31, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacities indicated on March 31, 2014.
Date
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Signature
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Title
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|
March 31, 2014
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/s/ Philip S. Sassower
Philip S. Sassower
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Chairman and Chief Executive Officer
(Principal Executive Officer)
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March 31, 2014
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/s/ Andrea Goren
Andrea Goren
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Director, Chief Financial Officer
(Principal Financial and Accounting Officer)
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March 31, 2014
|
/s/ Stanly Gilbert
Stanley Gilbert
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Director
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March 31, 2014
|
/s/ Jeffrey Holtmeier
Jeffrey Holtmeier
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Director
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March 31, 2014
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/s/ David Welch
David Welch
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Director
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Communication Intelligence Corporation and Subsidiary:
We have audited the accompanying consolidated balance sheets of Communication Intelligence Corporation and Subsidiary (collectively the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive loss, stockholders’ (deficit) equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and 2012, including the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as going concern. As discussed in Note 1 to the consolidated financial statements, the Company’s significant recurring losses and accumulated deficit raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
PMB Helin Donovan, LLP
San Francisco, CA
March 31, 2014
Communication Intelligence Corporation
Consolidated Balance Sheets
(In thousands, except par value amounts)
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Assets
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
945
|
|
|
$
|
486
|
|
Accounts receivable, net of allowance of $22 and $27 at December 31, 2013 and 2012
|
|
|
410
|
|
|
|
701
|
|
Prepaid expenses and other current assets
|
|
|
57
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,412
|
|
|
|
1,260
|
|
Property and equipment, net
|
|
|
17
|
|
|
|
28
|
|
Patents, net
|
|
|
1,290
|
|
|
|
1,655
|
|
Other assets
|
|
|
29
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,748
|
|
|
$
|
2,972
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
327
|
|
|
|
75
|
|
Accrued compensation
|
|
|
315
|
|
|
|
289
|
|
Other accrued liabilities
|
|
|
232
|
|
|
|
150
|
|
Deferred revenue
|
|
|
490
|
|
|
|
569
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,364
|
|
|
|
1,083
|
|
Deferred revenue long-term
|
|
|
74
|
|
|
|
249
|
|
Deferred rent
|
|
|
86
|
|
|
|
125
|
|
Derivative liability
|
|
|
25
|
|
|
|
128
|
|
Total liabilities
|
|
|
1,549
|
|
|
|
1,585
|
|
Commitments and contingencies
|
|
|
−
|
|
|
|
−
|
|
Stockholders' equity (deficit):
|
|
|
|
|
|
|
|
|
Series A-1 Preferred Stock, $.01 par value; 2,000 shares authorized; 1,031 and 953 shares issued and outstanding at December 31, 2013 and 2012, respectively ($1,031 liquidation preference at December 31, 2013)
|
|
|
1,031
|
|
|
|
953
|
|
Series B Preferred Stock, $.01 par value; 14,000 shares authorized; 11,102 and 10,058 shares issued and outstanding at December 31, 2013 and 2012 ($16,653 liquidation preference at December 31, 2013)
|
|
|
9,232
|
|
|
|
8,188
|
|
Series C Preferred Stock, $.01 par value; 9,000 shares authorized; 4,508 and 4,175 shares issued and outstanding at December 31, 2013 and 2012 ($6,762 liquidation preference at December 31, 2013)
|
|
|
4,895
|
|
|
|
4,754
|
|
Series D-1 Preferred Stock, $.01 par value; 6,000 shares authorized; 3,415 and 1,124 shares issued and outstanding at December 31, 2013 and 2012 ($3,415 liquidation preference at December 31, 2013)
|
|
|
2,357
|
|
|
|
2,158
|
|
Series D-2 Preferred Stock, $.01 par value; 9,000 shares authorized; 4,783 and 3,302 shares issued and outstanding at December 31, 2013 and 2012 ($4,783 liquidation preference at December 31, 2013)
|
|
|
3,934
|
|
|
|
3,073
|
|
Common stock, $.01 par value; 1,500,000 shares authorized; 232,558 and 224,523 shares issued and outstanding at December 31, 2013 and 2012, respectively
|
|
|
2,390
|
|
|
|
2,309
|
|
Treasury shares, 6,500 at December 31, 2013 and December 31, 2012 respectively
|
|
|
(325
|
)
|
|
|
(325
|
)
|
Additional paid-in-capital
|
|
|
97,419
|
|
|
|
95,262
|
|
Accumulated deficit
|
|
|
(119,184
|
)
|
|
|
(114,420
|
)
|
Accumulated other comprehensive loss
|
|
|
(14
|
)
|
|
|
(29
|
)
|
Total CIC stockholder’ equity
|
|
|
1,735
|
|
|
|
1,923
|
|
Non-Controlling interest
|
|
|
(536
|
)
|
|
|
(536
|
)
|
Total stockholders' equity (deficit)
|
|
|
1,199
|
|
|
|
1,387
|
|
Total liabilities and stockholders' equity
|
|
$
|
2,748
|
|
|
$
|
2,972
|
|
See accompanying notes to these Consolidated Financial Statements
Communication Intelligence Corporation
Consolidated Statements of Operations
(In thousands, except per share amounts)
|
|
Years Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Revenue:
|
|
|
|
|
|
|
Product
|
|
$
|
728
|
|
|
$
|
1,729
|
|
Maintenance
|
|
|
690
|
|
|
|
649
|
|
|
|
|
1,418
|
|
|
|
2,378
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
Product
|
|
|
64
|
|
|
|
323
|
|
Maintenance
|
|
|
280
|
|
|
|
52
|
|
Research and development
|
|
|
2,073
|
|
|
|
1,802
|
|
Sales and marketing
|
|
|
1,272
|
|
|
|
1,392
|
|
General and administrative
|
|
|
2,026
|
|
|
|
1,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,715
|
|
|
|
5,432
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(4,297
|
)
|
|
|
(3,054
|
)
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
|
(23
|
)
|
|
|
(19
|
)
|
Interest expense:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(436
|
)
|
|
|
(100
|
)
|
Other
|
|
|
−
|
|
|
|
(89
|
)
|
Amortization of debt discount and deferred financing cost:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(44
|
)
|
|
|
(14
|
)
|
Other
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt, related party
|
|
|
(67
|
)
|
|
─
|
|
|
|
|
|
|
|
|
|
|
Gain on derivative liability
|
|
|
103
|
|
|
|
211
|
|
Net loss
|
|
|
(4,764
|
)
|
|
|
(3,115
|
)
|
Preferred stock:
|
|
|
|
|
|
|
|
|
Accretion of beneficial conversion feature:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(599
|
)
|
|
|
(1,859
|
)
|
Other
|
|
|
(648
|
)
|
|
|
(334
|
)
|
Preferred stock dividends:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(1,140
|
)
|
|
|
(982
|
)
|
Other
|
|
|
(948
|
)
|
|
|
(484
|
)
|
Income tax tax expense
|
|
|
−
|
|
|
|
−
|
|
Net loss before non-controlling interest
Net loss
|
|
$
|
(8,099
|
)
|
|
$
|
(6,744
|
)
|
Net loss attributable to non-controlling interest
|
|
|
−
|
|
|
|
(2
|
)
|
Net loss attributable to common stockholders
|
|
|
(8,099
|
)
|
|
|
(6,746
|
)
|
Basic and diluted loss per common share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
Weighted average common shares outstanding, basic and diluted
|
|
|
226,225
|
|
|
|
223,390
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these Consolidated Financial Statements
Communication Intelligence Corporation
Consolidated Statements of Comprehensive Loss
(In thousands, except per share amounts)
|
|
Years Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Net loss:
|
|
$
|
(4,764
|
)
|
|
$
|
(3,115
|
)
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
15
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$
|
(4,749
|
)
|
|
|
(3,101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these Consolidated Financial Statements
|
|
Series A-1Preferred
Shares
Outstanding
|
|
|
Series A-1Preferred
Shares
Amount
|
|
|
Series B Preferred
Shares
Outstanding
|
|
|
Series B Preferred
Shares
Amount
|
|
|
Series C Preferred
Shares
Outstanding
|
|
|
Series C Preferred
Shares
Amount
|
|
|
Series D-1 Preferred
Shares
Outstanding
|
|
|
Series D-1 Preferred
Shares
Amount
|
|
|
Series D-2 Preferred
Shares
Outstanding
|
|
|
Series D-2 Preferred
Shares
Amount
|
|
|
Common
Shares
Outstanding
|
|
|
Common
Stock
Amount
|
|
|
Treasury
Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Accumulated
Deficit
|
|
|
Non-Controlling Interest
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Total
|
|
Balances as of December 31, 2011
|
|
|
880
|
|
|
$
|
880
|
|
|
|
9,250
|
|
|
$
|
7,380
|
|
|
|
3,547
|
|
|
$
|
3,569
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
198,188
|
|
|
$
|
1,981
|
|
|
|
−
|
|
|
$
|
97,715
|
|
|
$
|
(111,305
|
)
|
|
$
|
(534
|
)
|
|
$
|
(43
|
)
|
|
$
|
(357
|
)
|
Receipt of 6.5M common shares in settlement of the 16b action
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,500
|
)
|
|
|
|
|
|
|
(325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(325
|
)
|
Series C preferred shares issued in settlement of an indemnification claim related to the 16b settlement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
278
|
|
|
|
417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
417
|
|
Stock-based employee compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
461
|
|
Common shares issued in connection with the cashless exercise of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,186
|
|
|
|
202
|
|
|
|
|
|
|
|
(202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
─-
|
|
Common shares issued in connection with the exercise of warrants for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,439
|
|
|
|
74
|
|
|
|
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212
|
|
Common shares issued in connection with the exercise of stock options option for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203
|
|
|
|
2
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Common stock issued as restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Common shares issued in connection with the conversion of Series B preferred shares
|
|
|
|
|
|
|
|
|
|
|
(140
|
)
|
|
|
(140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,232
|
|
|
|
33
|
|
|
|
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
─
|
|
Common shares issued in connection with the conversion of Series C preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,729
|
|
|
|
17
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
─
|
|
Accretion of beneficial conversion feature on Series C preferred shares issued in settlement of the indemnification claim
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
─
|
|
Series D-1 preferred shares issued in a private placement upon the conversion of short-term debt net of offering expenses of $76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,110
|
|
|
|
1,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,034
|
|
Series D-2 preferred shares issued in a private placement upon the conversion of short-term debt, net of offering expenses of $114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,179
|
|
|
|
2,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,065
|
|
Series D-2 preferred shares issued in a private placement for cash, net of offering expenses of $115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,082
|
|
|
|
967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
967
|
|
Accretion of beneficial conversion feature on Series D-1 preferred shares issued in a private placement upon the conversion of short term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
─
|
|
Accretion of beneficial conversion feature on preferred shares dividends issued in kind
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
268
|
|
|
|
|
|
|
|
385
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
─-
|
|
Preferred share dividends, paid in kind
|
|
|
73
|
|
|
|
73
|
|
|
|
948
|
|
|
|
680
|
|
|
|
389
|
|
|
|
4
|
|
|
|
14
|
|
|
|
1
|
|
|
|
41
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
─
|
|
Net loss attributable to non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,115
|
)
|
|
|
|
|
|
|
|
|
|
|
(3115
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
14
|
|
Balance as of December 31, 2012
|
|
|
953
|
|
|
$
|
953
|
|
|
|
10,058
|
|
|
$
|
8,188
|
|
|
|
4,175
|
|
|
$
|
4,754
|
|
|
|
1,124
|
|
|
$
|
2,158
|
|
|
|
3,302
|
|
|
$
|
3,073
|
|
|
|
224,523
|
|
|
$
|
2,309
|
|
|
$
|
(325
|
)
|
|
$
|
95,262
|
|
|
$
|
(114,420
|
)
|
|
$
|
(536
|
)
|
|
$
|
(29
|
)
|
|
$
|
1,387
|
|
Stock-based employee compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
819
|
|
Common shares issued in connection with the cashless exercise of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,283
|
|
|
|
23
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
−
|
|
Common shares issued in connection with the exercise of warrants for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,300
|
|
|
|
13
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
Common shares issued in connection with the conversion of Series C preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,452
|
|
|
|
45
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
−
|
|
Series D-1 preferred shares issued in a private placement upon the conversion of short-term debt plus accrued interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
786
|
|
|
|
786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
786
|
|
Cost of warrants issued with Series D-1 preferred shares upon the conversion of short-term debt plus accrued interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
−
|
|
Accretion of beneficial conversion feature on Series D-1 preferred shares upon the conversion of short term debt plus accrued interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
−
|
|
Series D-2 preferred shares upon the conversion of short-term debt plus accrued interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393
|
|
Cost of warrants issued with Series D-2 preferred shares upon the conversion of short-term debt plus accrued interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
−
|
|
Accretion of beneficial conversion feature on Series D-1 preferred shares upon the conversion of short term debt plus accrued interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A-1Preferred
Shares
Outstanding
|
|
|
Series A-1Preferred
Shares
Amount
|
|
|
Series B Preferred
Shares
Outstanding
|
|
|
Series B Preferred
Shares
Amount
|
|
|
Series C Preferred
Shares
Outstanding
|
|
|
Series C Preferred
Shares
Amount
|
|
|
Series D-1 Preferred
Shares
Outstanding
|
|
|
Series D-1 Preferred
Shares
Amount
|
|
|
Series D-2 Preferred
Shares
Outstanding
|
|
|
Series D-2 Preferred
Shares
Amount
|
|
Common
Shares
Outstanding
|
Common
Stock
Amount
|
Treasury
Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
Non-Controlling Interest
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D-1 preferred shares issued in a private placement for cash, net of offering expenses of $26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
837
|
|
|
|
810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
810
|
|
Cost of warrants issued with Series D-1 preferred shares issued in a private placement for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
302
|
|
|
|
|
|
|
|
|
−
|
|
Accretion of beneficial conversion feature on Series D-1 preferred shares issued in a private placement for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(381
|
)
|
|
|
|
|
|
|
|
|
|
|
|
381
|
|
|
|
|
|
|
|
|
−
|
|
Series D-2 preferred shares issued in a private placement for cash, net of offering expenses of $13
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,223
|
|
|
|
1,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,211
|
|
Cost of warrants issued with Series D-2 preferred shares issued in a private placement for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(151
|
)
|
|
|
|
|
|
151
|
|
|
|
|
|
|
|
|
−
|
|
Accretion of beneficial conversion feature on Series D-1 preferred shares issued in a private placement for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Exchange of Series D-2 Preferred Stock for shares of Series D-1 Preferred Stock issued in May 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
537
|
|
|
|
537
|
|
|
|
(537
|
)
|
|
|
(537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
−
|
|
Cost of warrants issued on exchange of Series D Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(385
|
)
|
|
|
|
|
|
|
(192
|
)
|
|
|
|
|
|
577
|
|
|
|
|
|
|
|
|
−
|
|
Accretion of beneficial conversion feature on exchange of Series D Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(152
|
)
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
152
|
|
|
|
|
|
|
|
|
−
|
|
Preferred share dividends, paid in kind
|
|
|
78
|
|
|
|
78
|
|
|
|
1,044
|
|
|
|
1,044
|
|
|
|
433
|
|
|
|
433
|
|
|
|
131
|
|
|
|
131
|
|
|
|
402
|
|
|
|
402
|
|
|
|
|
|
|
(2,088
|
)
|
|
|
|
|
|
|
|
−
|
|
Accretion of beneficial conversion feature on preferred shares dividends issued in kind
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(191
|
)
|
|
|
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
|
|
|
|
|
|
|
−
|
|
Warrants issued with short term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
403
|
|
|
|
|
|
|
|
|
403
|
|
Loan discount on demand notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
111
|
|
Net loss attributable to non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
−
|
|
|
|
|
−
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,764)
|
|
|
|
|
|
|
|
(4,764
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
15
|
|
Balance as of December 31, 2013
|
|
|
1,031
|
|
|
$
|
1,031
|
|
|
|
11,102
|
|
|
$
|
9,232
|
|
|
|
4,508
|
|
|
$
|
4,895
|
|
|
|
3,415
|
|
|
$
|
2,357
|
|
|
|
4,783
|
|
|
$
|
3,934
|
|
232,558
|
$2,390
|
$(325)
|
|
$
|
97,419
|
|
$(119,184)
|
|
$
|
(536
|
)
|
$(14)
|
|
$
|
1,199
|
|
See accompanying notes to these Consolidated Financial Statements
Communication Intelligence Corporation
Consolidated Statements of Cash Flows
(In thousands)
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,764
|
)
|
|
$
|
(3,115
|
)
|
Adjustments to reconcile net loss to net cash used for operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
380
|
|
|
|
459
|
|
Amortization of debt discount and deferred financing costs
|
|
|
44
|
|
|
|
64
|
|
Loss on extinguishment of debt
|
|
|
67
|
|
|
─
|
|
Stock-based employee compensation
|
|
|
819
|
|
|
|
461
|
|
Warrants issued with demand notes
|
|
|
436
|
|
|
|
−
|
|
Restricted stock expense
|
|
|
−
|
|
|
|
2
|
|
Series C preferred shares issued in settlement of indemnity claim
|
|
|
−
|
|
|
|
417
|
|
Common Stock received as settlement of 16b claim
|
|
|
−
|
|
|
|
(325
|
)
|
Gain on derivative liability
|
|
|
(103
|
)
|
|
|
(211
|
)
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
291
|
|
|
|
(403
|
)
|
Prepaid expenses and other current assets
|
|
|
16
|
|
|
|
(44
|
)
|
Accounts payable
|
|
|
252
|
|
|
|
(188
|
)
|
Accrued compensation
|
|
|
26
|
|
|
|
68
|
|
Other accrued liabilities
|
|
|
54
|
|
|
|
(93
|
)
|
Deferred revenue
|
|
|
(254
|
)
|
|
|
(96
|
)
|
Net cash (used for) operating activities
|
|
|
(2,736
|
)
|
|
|
(3,004
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
Acquisition of property and equipment
|
|
|
(5
|
)
|
|
|
(12
|
)
|
Net cash used for investing activities
|
|
|
(5
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of short-term debt
|
|
|
1,460
|
|
|
|
2,328
|
|
Net proceeds from issuance of Series D-1 preferred shares
|
|
|
810
|
|
|
|
−
|
|
Net proceeds from issuance of Series D-2 preferred shares
|
|
|
1,210
|
|
|
|
967
|
|
Proceeds from exercise of warrants for cash
|
|
|
29
|
|
|
|
212
|
|
Proceeds from exercise of stock options
|
|
|
−
|
|
|
|
13
|
|
Principal payments on short term notes payable
|
|
|
(310
|
)
|
|
|
(325
|
)
|
Net cash provided by financing activities
|
|
|
3,199
|
|
|
|
3,195
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
−
|
|
|
|
−
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
459
|
|
|
|
179
|
|
Cash and cash equivalents at beginning of period
|
|
|
486
|
|
|
|
307
|
|
Cash and cash equivalents at end of period
|
|
$
|
945
|
|
|
$
|
486
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these Consolidated Financial Statements
Communication Intelligence Corporation
Consolidated Statements of Cash Flows
(In thousands)
Supplemental disclosure of cash flow information:
|
|
December 31
|
|
|
|
2013
|
|
|
2012
|
|
Supplementary disclosure of cash flow information
|
|
|
|
|
|
|
Interest paid
|
|
$
|
1
|
|
|
$
|
21
|
|
Income taxes paid
|
|
$
|
−
|
|
|
$
|
−
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing and investing transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless exercise of warrants
|
|
$
|
23
|
|
|
$
|
202
|
|
Dividends on preferred shares
|
|
$
|
2,088
|
|
|
$
|
1,466
|
|
Conversion of Series B Preferred shares into Common
Stock
|
|
$
|
−
|
|
|
$
|
140
|
|
Conversion of Series C Preferred Stock into Common
Stock
|
|
$
|
56
|
|
|
$
|
39
|
|
Debt discount recorded in connection
with short-term debt
|
|
$
|
111
|
|
|
$
|
64
|
|
Conversion of short term notes plus accrued interest into Series D-1 preferred shares
|
|
$
|
786
|
|
|
$
|
1,034
|
|
Conversion of short term notes plus accrued interest into Series D-2 preferred shares
|
|
$
|
391
|
|
|
$
|
2,065
|
|
Accretion of beneficial conversion feature on Preferred
Shares
|
|
|
|
|
|
|
|
|
Series B Preferred Stock
|
|
$
─
|
|
|
$
|
268
|
|
Series C Preferred Stock
|
|
$
|
191
|
|
|
$
|
385
|
|
Series D-1 Preferred Stock
|
|
$
|
59
|
|
|
$
|
13
|
|
Series D-2 Preferred Stock
|
|
$
─
|
|
|
$
─
|
|
Accretion of beneficial conversion feature on Preferred
Shares issued
|
|
|
|
|
|
|
|
|
Series C Preferred Stock
|
|
$
─
|
|
|
$
|
417
|
|
Series D-1 Preferred Stock
|
|
$
|
929
|
|
|
$
|
1,110
|
|
Series D-2 Preferred Stock
|
|
$
|
68
|
|
|
$
─
|
|
Warrants issued in connection with the Series D financing
|
|
|
|
|
|
|
|
|
Subscription agreements
|
|
$
|
453
|
|
|
$
─
|
|
Debt conversion
|
|
$
|
587
|
|
|
$
─
|
|
Exchange of May Series D financing
|
|
$
|
575
|
|
|
$
─
|
|
See accompanying notes to these Consolidated Financial Statements
Communication Intelligence Corporation
Notes to Consolidated Financial Statements
(In thousands except per share amounts)
1. Nature of Business, Basis of Presentation and Summary of Significant Accounting Policies:
The Company:
Communication Intelligence Corporation (the "Company" or "CIC") is a leading supplier of electronic signature products and the recognized leader in biometric signature verification. CIC enables companies to achieve truly paperless workflow in their electronic business processes by providing multiple signature technologies across virtually all applications. CIC’s solutions are available both in SaaS and on-premise delivery models and afford “straight-through-processing,” which can increase customer revenue by enhancing user experience and can also reduce costs through paperless and virtually error-free electronic transactions that can be completed significantly quicker than paper-based procedures. To date, the Company primarily has delivered biometric and electronic signature solutions to channel partners and end-user customers in the financial services industry.
The Company's research and development activities have given rise to numerous technologies and products. The Company's core technologies can be referred to as "transaction-enabling” technologies. These technologies include various forms of electronic signatures, such as handwritten biometric, click-to-sign and others, as well as signature verification, cryptography and the logging of audit trails to show signers’ intent. These technologies can enable secure, legal and regulatory compliant electronic transactions that can enhance customer experience at a fraction of the time and cost required by traditional, paper-based processes. The Company’s products include SignatureOne
®
, Ceremony
®
Serve, Sign-it
®
iSign
®
Console™ and the iSign
®
toolkits.
Going concern and management plans:
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Except for 2004, the Company has incurred significant losses since its inception and, at December 31, 2013, the Company’s accumulated deficit was approximately $119,184. The Company has primarily met its working capital needs through the sale of debt and equity securities. As of December 31, 2013, the Company’s cash balance was approximately $945. 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 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis of consolidation:
The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America, and include the accounts of Communication Intelligence Corporation and its 90%-owned Joint Venture in the People's Republic of China. All inter-company accounts and transactions have been eliminated. All amounts shown in the accompanying consolidated financial statements are in thousands of dollars except per share amounts.
Reclassification:
Certain amounts in the consolidated financial statements for 2012 have been reclassified to conform to the 2013 presentation. These reclassifications have no effect on net income, earnings per share, or cash flows as previously reported.
Communication Intelligence Corporation
Notes to Consolidated Financial Statements
(In thousands except per share amounts)
1. Nature of Business, Basis of Presentation and Summary of Significant Accounting Policies:
Use of estimates:
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, at the date of the consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.
Fair value measures:
Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an ordinary transaction between market participants on the measurement date. Our policy on fair value measures requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The policy establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The policy prioritizes the inputs into three levels that may be used to measure fair value:
Level 1: Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2: Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3: Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s assets and liabilities measured at fair value, whether recurring or non-recurring, at December 31, 2013 and December 31, 2012, and the fair value calculation input hierarchy level that we have determined applies to each asset and liability category.
Fair Value of Financial Instruments:
The Company carries financial instruments on the consolidated balance sheet at the fair value of the instruments as of the consolidated balance sheet date. At the end of each period, management assesses the fair value of each instrument and adjusts the carrying value to reflect its assessment. At December 31, 2013 and December 31, 2012, the carrying values of accounts receivable and accounts payable approximated their fair values.
Treasury Stock:
Shares of common stock returned to, or repurchased by, the Company are recorded at cost and are included as a separate component of stockholders’ equity.
Under the cost method, the gross cost of the shares reacquired is charged to a contra equity account entitled treasury stock. The equity accounts that were credited for the original share issuance (common stock, paid-in capital in excess of par, etc.) remain intact. When the treasury shares are reissued, proceeds in excess of cost are credited to a paid-in capital account. Any deficiency is charged to retained earnings (unless paid-in capital from previous treasury share transactions exists, in which case the deficiency is charged to that account, with any excess charged to retained earnings).
Communication Intelligence Corporation
Notes to Consolidated Financial Statements
(In thousands except per share amounts)
1. Nature of Business, Basis of Presentation and Summary of Significant Accounting Policies:
Derivatives:
The Company, from time to time, enters into transactions which contain conversion privileges, the settlement of which may entitle the holder or the Company to settle the obligation(s) by issuance of Company securities.
The Company applies a two-step model in determining whether a financial instrument or an embedded feature is indexed to an
issuer’s own stock and thus able to qualify for the scope exception. The fair value of each derivative is estimated each reporting period.
Cash and cash equivalents:
The Company considers all highly liquid investments with maturities at the date of purchase of three months or less to be cash equivalents.
The Company's cash and cash equivalents, at December 31, consisted of the following:
|
|
2013
|
|
|
2012
|
|
Cash in bank
|
|
$
|
945
|
|
|
$
|
486
|
|
Money market funds
|
|
|
–
|
|
|
|
−
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
945
|
|
|
$
|
486
|
|
Concentrations of credit risk:
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable. The Company maintains its cash and cash equivalents with various financial institutions. This diversification of risk is consistent with Company policy to maintain liquidity, and mitigate risk of loss as to principal.
To date, accounts receivable have been derived principally from revenue earned from end users, manufacturers, and distributors of computer products in North America. The Company performs periodic credit evaluations of its customers, and does not require collateral. The Company maintains reserves for potential credit losses; historically, such losses have been within management's expectations.
The allowance for doubtful accounts is based on the Company’s assessment of the collectability 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 the Company’s historical experience, the Company’s estimates of recoverability of amounts due could be affected and the Company will adjust the allowance accordingly.
Deferred financing costs:
Deferred financing costs include costs paid in cash, such as professional fees and commissions. The costs are amortized to interest expense over the life of the notes or upon early payment using the effective interest method. There were $0 and $64 in cost amortized to interest expense for the years ended December 31, 2013 and 2012.
Property and equipment, net:
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, ranging from three to five years. Leasehold improvements are amortized over their estimated useful lives, not to exceed the term of the related lease. The cost of additions and improvements is capitalized, while maintenance and repairs are charged to expense as incurred. Depreciation expense was $15 and $12 for the years ended December 31, 2013 and 2012, respectively.
Communication Intelligence Corporation
Notes to Consolidated Financial Statements
(In thousands except per share amounts)
1. Nature of Business, Basis of Presentation and Summary of Significant Accounting Policies:
Patents:
Patents are stated at cost less accumulated amortization that, in management’s opinion, does not exceed fair value. Amortization is computed using the straight-line method over the estimated lives of the related assets, ranging from five to seventeen years. Amortization expense was $365 and $365 for the years ended December 31, 2013 and 2012, respectively. The estimated remaining weighted average useful lives of the patents are 4 years.
Future patent amortization is as follows:
Year Ended December 31,
|
|
|
|
2014
|
|
$
|
357
|
|
2015
|
|
|
342
|
|
2016
|
|
|
322
|
|
2017
|
|
|
269
|
|
Total
|
|
$
|
1,290
|
|
Long-lived assets:
The Company evaluates the recoverability of its long-lived assets, including intangible assets such as patents, 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. No such impairment charges have been recorded during the two years ended December 31, 2013 and 2012, respectively.
Share-based payment:
Share-based compensation expense is based on the
estimated grant date fair
value of the portion of share-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 valuation model
.
Forfeitures
of
share-based payment awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates and it is assumed no dividends will be declared. The estimated fair value of stock-based compensation awards to employees is amortized over the vesting period of the options.
Revenue recognition:
The Company recognizes revenue from sales of software products upon shipment, provided that persuasive evidence of an arrangement exists, collection is determined to be probable, all non-recurring engineering work necessary to enable the Company's product to function within the customer's application has been completed and the Company's product has been delivered according to specifications. Revenue from service subscriptions is recognized as costs are incurred or over the service period, whichever is longer. 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, all nonrecurring engineering work necessary to enable the Company's products to function within the customer's application has been completed, and the Company has delivered its product according to specifications.
For arrangements with multiple deliverables, the Company allocates consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices which is determined using vendor specific objective evidence.
Communication Intelligence Corporation
Notes to Consolidated Financial Statements
(In thousands except per share amounts)
1. Nature of Business, Basis of Presentation and Summary of Significant Accounting Policies:
Maintenance revenue is recorded for post-contract support and upgrades or enhancements, which is paid for in addition to license fees, and is recognized as costs are incurred or over the support period whichever is longer. For undelivered elements where vendor specific objective evidence does not exist, revenue is deferred and subsequently recognized when delivery has occurred and when vendor specific evidence has been determined.
Research and development:
Research and development costs are charged to expense as incurred.
Marketing:
The Company expenses advertising (marketing) costs as incurred. These expenses are outbound marketing expenses associated with participation in industry events, related sales collateral and email campaigns aimed at generating customer participation in webinars. The expense for the years ended December 31, 2013 and 2012 was $15 and $15, respectively.
Net loss per share:
The Company calculates net loss per share under the provisions of the relevant accounting guidance. That guidance requires the disclosure of both basic net loss per share, which is based on the weighted average number of shares outstanding, and diluted loss per share, which is based on the weighted average number of shares and dilutive potential shares outstanding.
The number of shares of common stock subject to outstanding options, preferred shares on an as converted basis and shares issuable upon exercise of warrants excluded from the calculation of loss per share as their inclusion would be anti-dilutive are as follows:
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
Common Stock subject to outstanding options
|
|
|
69,537
|
|
|
|
44,529
|
|
Series A-1 Preferred Stock
|
|
|
1,031
|
|
|
|
6,806
|
|
Series B Preferred Stock
|
|
|
11,103
|
|
|
|
232,142
|
|
Series C Preferred Stock
|
|
|
4,508
|
|
|
|
185,572
|
|
Series D-1 Preferred Stock
|
|
|
3,415
|
|
|
|
49,961
|
|
Series D-2 Preferred Stock
|
|
|
4,784
|
|
|
|
66,052
|
|
Warrants outstanding
|
|
|
77,155
|
|
|
|
151,722
|
|
Foreign currency translation:
The Company considers the functional currency of the Joint Venture, CICC to be the local currency of China, which is the Renminbi (“RMB”) 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 the accompanying consolidated balance sheets. Foreign currency assets and liabilities are translated into U.S. dollars at the end-of-period exchange rates except for long-term assets and liabilities, which are translated at historical exchange rates. Revenue and expenses are translated at
the average exchange rates in effect during each period except for those expenses related to consolidated balance sheet amounts which are translated at historical exchange rates.
Net foreign currency transaction gains and losses are included in interest and other income, net in the accompanying consolidated statements of operations. Foreign currency transaction gains and losses in 2013 and 2012 were insignificant.
Communication Intelligence Corporation
Notes to Consolidated Financial Statements
(In thousands except per share amounts)
1. Nature of Business, Basis of Presentation and Summary of Significant Accounting Policies:
Income taxes:
Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their financial statement reported amounts and for tax loss and credit carry-forwards. A valuation allowance is provided against deferred tax assets when it is determined to be more likely than not that the deferred tax asset will not be realized.
There have been no unrecognized tax benefits and, accordingly, there has been no effect on the Company's financial condition or results of operations.
The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years before 2006, and state tax examinations for years before 2005. Management does not believe there will be any material changes in the Company’s unrecognized tax positions over the next 12 months.
The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.
Recently issued accounting pronouncement:
Other 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 or cash flows.
The following table summarizes accounts receivable and revenue concentrations:
|
|
Accounts Receivable
As of December 31,
|
|
|
Total Revenue
for the year
ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Customer #1
|
|
|
47
|
%
|
|
|
67
|
%
|
|
|
15
|
%
|
|
|
29
|
%
|
Customer #2
|
|
|
15
|
%
|
|
|
−
|
|
|
|
10
|
%
|
|
|
−
|
|
Customer #3
|
|
|
19
|
%
|
|
|
16
|
%
|
|
|
16
|
%
|
|
|
−
|
|
Customer #4
|
|
|
−
|
|
|
|
−
|
|
|
|
10
|
%
|
|
|
−
|
|
Customer #5
|
|
|
−
|
|
|
|
−
|
|
|
|
12
|
%
|
|
|
19
|
%
|
Total concentration
|
|
|
81
|
%
|
|
|
83
|
%
|
|
|
63
|
%
|
|
|
48
|
%
|
The following table summarizes sales concentrations:
|
|
December 31,2013
|
|
|
December 31, 2012
|
|
Sales within the United States
|
|
|
98
|
%
|
|
|
100
|
%
|
Sales outside of the United States
|
|
|
2
|
%
|
|
|
−
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
Communication Intelligence Corporation
Notes to Consolidated Financial Statements
(In thousands except per share amounts)
3.
|
Property plant and equipment:
|
Property and equipment, net at December 31, consists of the following:
|
|
2013
|
|
|
2012
|
|
Machinery and equipment
|
|
$
|
1,231
|
|
|
$
|
1,227
|
|
Office furniture and fixtures
|
|
|
435
|
|
|
|
435
|
|
Leasehold improvements
|
|
|
90
|
|
|
|
90
|
|
Purchased software
|
|
|
323
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,079
|
|
|
|
2,075
|
|
Less accumulated depreciation and amortization
|
|
|
(2,062
|
)
|
|
|
(2,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
Patents, net consists of the following at December 31:
|
|
|
Expiration
|
|
|
Estimated Original
Life
|
|
|
2013
|
|
|
2012
|
|
Patent (Various)
|
|
|
Various
|
|
|
|
5
|
|
|
$
|
9
|
|
|
$
|
9
|
|
Patent (Various)
|
|
|
Various
|
|
|
|
7
|
|
|
|
476
|
|
|
|
476
|
|
|
5544255
|
|
|
|
2013
|
|
|
|
13
|
|
|
|
93
|
|
|
|
93
|
|
|
5647017
|
|
|
|
2014
|
|
|
|
14
|
|
|
|
187
|
|
|
|
187
|
|
|
5818955
|
|
|
|
2015
|
|
|
|
15
|
|
|
|
373
|
|
|
|
373
|
|
|
6064751
|
|
|
|
2017
|
|
|
|
17
|
|
|
|
1,213
|
|
|
|
1,213
|
|
|
6091835
|
|
|
|
2017
|
|
|
|
17
|
|
|
|
4,394
|
|
|
|
4,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,745
|
|
|
|
6,745
|
|
Less accumulated amortization
|
|
|
|
|
|
|
|
|
|
|
|
(5,455
|
)
|
|
|
(5,090
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,290
|
|
|
$
|
1,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The nature of the underlying technology of each material patent is as follows:
• Patent numbers 5544255, 5647017, 5818955 and 6064751 involve (a) the electronic capture of a handwritten signature utilizing an electronic tablet device on a standard computer system within an electronic document, (b) the verification of the identity of the person providing the electronic signature through comparison of stored signature measurements, and (c) a system to determine whether an electronic document has been modified after signature.
• Patent number 6091835 involves all of the foregoing and the recording of the electronic execution of a document regardless of whether execution occurs through a handwritten signature, voice pattern, fingerprint or other identifiable means.
• Patent numbers 5933514, 6212295, 6381344, and 6487310 involve methods and processes related to handwriting recognition developed by the Company over the years. Legal fees associated with these patents were immaterial and expensed as the fees were incurred.
The Company does not foresee any effects of obsolescence or significant competitive pressure on its current or future products, anticipates increasing demand for products utilizing the patented technology, and believes that the current markets for its products based on the patented technology will remain constant or will grow over the remaining useful lives assigned to the patents because of a legal, regulatory and business environment encouraging the use of electronic signatures.
Communication Intelligence Corporation
Notes to Consolidated Financial Statements
(In thousands except per share amounts)
5.
|
Chinese Joint Venture (Non-Controlling Interest):
|
The Company currently owns 90% of a joint venture (the “Joint Venture”) with the Jiangsu Hongtu Electronics Group, a provincial agency of the People's Republic of China. The Joint Venture's business license expires October 18, 2043. There were no significant operations in 2013 or 2012.
The Joint Venture had no revenue for the years ended December 31, 2013 and 2012, respectively. It had no long-lived assets as of December 31, 2013 and 2012.
6.
|
Other accrued liabilities:
|
The Company records liabilities based on reasonable estimates for expenses, or payables that are known or estimated including deposits, taxes, rents and services. The estimates are for current liabilities that should be extinguished within one year.
The Company had the following other accrued liabilities at December 31:
|
|
2013
|
|
|
2012
|
|
Accrued professional services
|
|
$
|
8
|
|
|
$
|
12
|
|
Rents
|
|
|
35
|
|
|
|
23
|
|
Management fees
|
|
|
180
|
|
|
|
−
|
|
Other
|
|
|
9
|
|
|
|
115
|
|
Total
|
|
$
|
232
|
|
|
$
|
150
|
|
7.
|
Short-term notes payable:
|
In April 2013, the Company borrowed $250 in the form of a demand note from Phoenix Banner Holdings LLC, with an interest rate of 10% per annum. The demand note plus accrued $2 in accrued interest was paid in May 2013.
From August 2013 through December 2013 the Company secured $1,150 in 10% demand notes from related parties and others that was used for working capital and general corporate purposes. In November, the Board of Directors approved the issuance of warrants in addition to the interest on these demand notes. The Company issued 21,667 warrants, 14,583 of which were issued for the notes secured prior to November 6, 2013, and a total of 7,084 warrants were issued for demand notes secured on November 26, and December 13, 2013. The Company ascribed a value of $406, recorded as interest expense, to the warrants issued prior to November 6, 2013, and ascribed a value of $111, recorded as a debt discount to the warrants issued with notes secured after November 6, 2013. The Company recorded $44 in debt discount amortization expense and $67 in loss on extinguishment upon conversion of the notes. The warrants have a three year life from the date of grant and an exercise price of $0.03. Detail on these demand notes and warrants is as follows:
|
|
Phoenix Banner Holdings LLC
|
|
|
Michael W. Engmann
|
|
|
Kendu Partners Company
|
|
|
JAG Multi Investments
|
|
|
Philip Sassower
|
|
Date
|
|
Note Amount
|
|
|
Warrants
|
|
|
Note Amount
|
|
|
Warrants
|
|
|
Note Amount
|
|
|
Warrants
|
|
|
Note Amount
|
|
|
Warrants
|
|
|
Note Amount
|
|
|
Warrants
|
|
8/2/2013
|
|
$
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/3/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/27/2013
|
|
|
|
|
|
|
|
|
$
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/1/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
125
|
|
|
|
2,083
|
|
|
|
|
|
|
|
11/6/2013
|
|
|
|
|
|
|
4,167
|
|
|
|
|
|
|
|
4,167
|
|
|
|
|
|
|
|
4,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/13/2013
|
|
|
|
|
|
|
|
|
|
$
|
150
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/17/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
125
|
|
|
|
2,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
250
|
|
|
|
4,167
|
|
|
$
|
400
|
|
|
|
9,167
|
|
|
$
|
250
|
|
|
|
4,167
|
|
|
$
|
125
|
|
|
|
2,083
|
|
|
$
|
125
|
|
|
|
2,083
|
|
Communication Intelligence Corporation
Notes to Consolidated Financial Statements
(In thousands except per share amounts)
7.
|
Short-term notes payable:
|
The warrants were valued using the Black Sholes pricing model with the following assumptions:
Date
|
Expected Term
|
|
Volatility
|
|
|
Risk free interest rate
|
|
|
Dividend yield
|
|
11/6/2013
|
Three years
|
|
|
202.9
|
%
|
|
|
0.58
|
%
|
|
$
|
0.00
|
|
11/26/2013
|
Three years
|
|
|
200.8
|
%
|
|
|
0.55
|
%
|
|
$
|
0.00
|
|
12/3/2013
|
Three years
|
|
|
198.8
|
%
|
|
|
0.68
|
%
|
|
$
|
0.00
|
|
12/17/2013
|
Three years
|
|
|
198.0
|
%
|
|
|
0.68
|
%
|
|
$
|
0.00
|
|
On December 31, 2013, the Company’s note holders converted the notes discussed above into 786 shares of Series D-1 Preferred Stock and 393 shares of Series D-2 preferred Stock.
In November 2013, in addition to the above, the Company borrowed, in the form of demand notes, $60 from an employee of the Company. The notes plus accrued interest of $1 were repaid at December 31, 2013, from the proceeds of the financing.
In February and March 2012, the Company borrowed $25 and $100 from Phoenix, respectively, at 10% per annum in the form of demand notes. All principal and accrued interest was repaid in cash in the amount of $132 in September 2012.
In April 2012, the Company entered into the April 2012 Purchase Agreement with the April 2012 Investors, and issued the April 2012 Notes for $1,000, receiving $982 in cash, net of expenses of $17. In connection with the issuance of the April 2012 Notes, the Company recorded a discount on notes for $64, and, as the result of the conversion of the April 2012 Notes in November 2012, the discount was fully amortized to interest expense. The April 2012 Notes had an interest at the rate of 10% per annum and a maturity date of April 22, 2013. In connection with the issuance of the April 2012 Notes, the Company also issued to the April 2012 Investors warrants to purchase 5,000 shares of Common Stock at an exercise price of $0.05 per share. The April 2012 Warrants are exercisable for a period of three years from the date of issue. The Company ascribed a value of $47 to the April 2012 Warrants, which was recorded as a discount to notes payable and as a derivative liability. In connection with the April 2012 Purchase Agreement, the Company paid $17 in consulting fees and issued an aggregate of 349 warrants at an exercise price of $0.05 per share to two consultants. These warrants are exercisable for three years from the date of issue, and the Company ascribed to them a value of $3, using a modified Black Scholes pricing model. The related warrant value was recorded as a professional service fee expense and as a derivative liability. The April 2012 Notes and accrued interest were automatically converted into shares of Series D-2 Preferred Stock at a price of $1.00 per share at a closing that occurred on November 15, 2012 (the “Final Closing”), for $1,057.
In August and September 2012, the Company borrowed $50 and $50 from Phoenix Banner Holdings LLC, respectively, at 10% per annum in the form of demand notes. All principal and accrued interest was repaid in cash in the amount of $102 from the proceeds of the November 2012 closing.
In September 2012, the Company entered into the September 2012 Subscription Agreements with the September 2012 Investors. Under the terms of the September 2012 Subscription Agreements, the September 2012 Investors purchased approximately $1,103 of September 2012 Notes, and, subject to the satisfaction of certain closing conditions, agreed to purchase at the Final Closing approximately 1,103 shares of Series D-2 Preferred Stock at a purchase price of $1.00 per share. The Company received $778 net of expenses in cash for the September 2012 Notes, and
proceeds of $967 net of offering costs of $115 for 1,082 of Series D-2 Preferred Stock at the Final Closing
. The September 2012 Notes had an interest at the rate of 10% per annum, and a maturity date of December 31, 2012. The September 2012 Notes and accrued unpaid interest were converted into 1,121 shares of Series D-2 Preferred Stock at a price of $1.00 per share upon the consummation of the Final Closing. The Series D-2 Preferred Stock is convertible into shares of the Company’s Common Stock at a conversion price of $0.05 per share (subject to adjustment). The Final Closing was subject to stockholder approvals and the satisfaction of customary closing conditions. A portion of the proceeds from the September 2012 Notes was used to repay approximately $225 in demand notes to a related party and an employee of the Company, and for working capital and general corporate
Communication Intelligence Corporation
Notes to Consolidated Financial Statements
(In thousands except per share amounts)
7.
|
Short-term notes payable:
|
purposes in the ordinary course of business. In connection with the September 2012 Subscription Agreements, the Company, after the Final Closing, issued an aggregate of 294 warrants to four consultants as a finder’s fee and 3,000 warrants to SG Phoenix LLC as and administrative fee. These fee warrants have an exercise price of $0.05 per share and the Company recorded a derivative liability in the amount of $1 and $7, respectively.
In November 2012, shareholders approved an increase in the Company’s authorized capital and the issuance of Series D Preferred Stock. In November 2012 the Company converted approximately $3,099 of short-term debt and accrued interest into shares of Series D Preferred Stock net of offering costs of $190. The Company sold, for cash in a private placement, 1,082 of additional shares of Series D Preferred Stock at a purchase price of $1.00 per share and received $967 net of offering costs of $115.
8.
|
Derivative liabilities:
|
The Company has determined that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. The Company applies a two-step model in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the scope exception.
The Company issued certain warrants in connection with financing transactions from 2010 through 2012 that require liability classification because of certain provisions that may have resulted in an adjustment to the number of shares issued upon settlement and an adjustment to their exercise price. The Company classifies these warrants on its balance sheet as a derivative liability which is fair valued at each reporting period subsequent to the initial issuance. The Company used a simulated probability valuation model to value these warrants. Determining the appropriate fair-value model and calculating the fair value of warrants requires considerable judgment. Any change in the estimates (specifically, probabilities) used may cause the value to be higher or lower than that reported. The assumptions used in the model required significant judgment by management and include the following: volatility, expected term, risk-free interest rate, dividends, warrant holders’ expected rate of return, reset provisions based on expected future financings, projected stock prices, and probability of exercise. The estimated volatility of the Company’s common stock at the date of issuance, and at each subsequent reporting period, is based on historical volatility. The risk-free interest rate is based on rates published by the government for bonds with a maturity similar to the expected remaining life of the warrants at the valuation date. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. Dividends are estimated at 0% based on the Company’s history of no common stock dividends.
The Company issued the following warrants related to the bridge financings in April and November 2012. Included in the April 2012 warrants were warrants issued as finder’s fees. The November warrants issued included warrants issued to related parties as administrative fees and warrants issued as finder’s fees. The warrants have a three year life from the date of issue with a zero dividend yield and were valued using a simulated probability valuation model. Additional information with respect to these warrants is presented in the table below.
Issue
Date
|
Reason for issuance
|
|
Number of warrants issued
|
|
|
Exercise price
|
|
|
Risk free interest rate
|
|
|
Expected volatility
|
|
|
Derivative liability value on date of issue
|
|
4/23/2012
|
Bridge financing warrants
|
|
|
5,000
|
|
|
$
|
0.050
|
|
|
|
1.78
|
%
|
|
|
205.3
|
%
|
|
$
|
50
|
|
4/23/2012
|
Finder’s fee warrants
|
|
|
349
|
|
|
$
|
0.050
|
|
|
|
1.78
|
%
|
|
|
205.3
|
%
|
|
|
|
|
11/15/2012
|
Administrative fee warrants
|
|
|
3,000
|
|
|
$
|
0.050
|
|
|
|
1.58
|
%
|
|
|
202.2
|
%
|
|
$
|
8
|
|
11/15/2012
|
Finder’s fee warrants
|
|
|
294
|
|
|
$
|
0.050
|
|
|
|
1.58
|
%
|
|
|
202.2
|
%
|
|
|
|
|
The fair value of the outstanding derivative liabilities at December 31, 2013, and December 31, 2012, was $25 and $128, respectively.
Communication Intelligence Corporation
Notes to Consolidated Financial Statements
(In thousands except per share amounts)
8.
|
Derivative liabilities:
|
Changes in the fair value of the level 3 derivative liability for the year ended December 31, 2013, are as follows:
|
|
Derivative Liability
|
|
Balance at January 1, 2012
|
|
$
|
128
|
|
Gain on derivative liability
|
|
|
103
|
|
Balance at December 31, 2013
|
|
$
|
25
|
|
Assets and liabilities measured at fair value as of December 31, 2013, are as follows:
|
Value at
December 31, 2013
|
|
Quoted prices in active markets
|
|
Significant other observable inputs
|
|
Significant unobservable inputs
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Derivative liability
|
$25
|
|
$ −
|
|
$ −
|
|
$ 25
|
9.
Common stock options:
At December 31, 2013, the Company has three stock-based employee compensation plans, the 1999 Option Plan, the 2009 Stock Compensation Plan, and the 2011 Stock Compensation Plan. The 1999 Option Plan expired in April 2009 (options outstanding under that plan are not affected by its expiration). The Company may also grant options to employees, directors and consultants outside of the active 2009 and 2011 under individual plans.
Information with respect to the Stock Compensation Plans at December 31, 2013 is as follows:
|
1999 Option Plan
|
2009 Stock Compensation Plan
|
2011 Stock Compensation Plan
|
Individual Plans
|
Shares authorized for issuance
|
4,000
|
7,000
|
100,000
|
−
|
Option vesting period
|
Quarterly over 3 years
|
Quarterly over 3 years
|
Immediate/Quarterly over 3 years
|
Quarterly over 3 years
|
Date adopted by shareholders
|
June 2009
|
−
|
November 2011
|
−
|
Option term
|
7 Years
|
3 to 7 Years
|
7 Years
|
7 Years
|
Options outstanding
|
175
|
425
|
68,812
|
125
|
Options exercisable
|
175
|
425
|
42,654
|
125
|
Weighted average exercise price
|
$0. 21
|
$0.11
|
$0.047
|
$0.15
|
Valuation and Expense Information:
The weighted-average fair value of stock-based compensation is based on the Black Scholes 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 over the vesting period of the options. The fair value calculations are based on the following assumptions:
|
|
Year Ended
December 31, 2013
|
Year Ended
December 31, 2012
|
Risk free interest rate
|
|
0.40% - 4.92%
|
0.62% - 5.11%
|
Expected life (years)
|
|
2.82 – 7.00
|
2.82 – 7.00
|
Expected volatility
|
|
91.99% - 198.38%
|
91.99% - 180.36%
|
Expected dividends
|
|
None
|
None
|
Estimated average forfeiture rate
|
|
10%
|
10%
|
Communication Intelligence Corporation
Notes to Consolidated Financial Statements
(In thousands except per share amounts)
9. Stockholders’ equity:
The following table summarizes the allocation of stock-based compensation expense for the years ended December 31, 2013 and 2012. The Company granted 26,553 options at a weighted average grant date fair value of $0.047 per share. There were no stock options exercised during the year ended December 31, 2013. There were 203 stock options exercised for cash proceeds of $13 during the year ended December 31, 2012.
|
|
Year Ended
December 31, 2013
|
|
|
Year Ended
December 31, 2012
|
|
Research and development
|
|
$
|
262
|
|
|
$
|
206
|
|
Sales and marketing
|
|
|
100
|
|
|
|
91
|
|
General and administrative
|
|
|
410
|
|
|
|
137
|
|
Director options
|
|
|
47
|
|
|
|
27
|
|
Stock-based compensation expense included in operating expenses
|
|
$
|
819
|
|
|
$
|
461
|
|
As of December 31, 2013, there was $270 of total unrecognized compensation cost related to non-vested share-based compensation arrangements. The unrecognized compensation cost is expected to be recognized over a weighted average period of 1.1 years.
The cash flows from tax benefits for deductions in excess of the compensation costs recognized for share-based payment awards would be classified as financing cash flows. Due to the Company’s loss position, there were no such tax benefits during the year ended December 31, 2013.
The summary activity for the Company’s 2009 and 2011 Stock Compensation Plans, the 1999 Option Plan and Individual Plans is as follows:
|
|
December 31, 2013
|
|
December 31, 2012
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
Aggregate Intrinsic Value
|
|
Weighted Average Remaining Contractual Life
|
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Aggregate Intrinsic Value
|
|
|
Weighted Average Remaining Contractual Life
|
|
Outstanding at beginning of period
|
|
|
44,529
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
51,353
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
Granted
|
|
|
26,553
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
2,500
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
Exercised
|
|
|
−
|
|
|
$
|
−
|
|
─
|
|
|
|
|
|
(203
|
)
|
|
$
|
0.07
|
|
|
$
|
2
|
|
|
|
|
Forfeited/ Cancelled
|
|
|
(1,545
|
)
|
|
$
|
0.11
|
|
|
|
|
|
|
|
(9,121
|
)
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at period end
|
|
|
69,537
|
|
|
$
|
0.05
|
|
─
|
|
|
5.02
|
|
|
|
44,529
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable at period end
|
|
|
43,379
|
|
|
$
|
0.05
|
|
─
|
|
|
4.61
|
|
|
|
23,319
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant-date fair value of options granted during the period
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes significant ranges of outstanding and exercisable options as of December 31, 2013:
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
|
Options
Outstanding
|
|
|
Weighted Average Remaining Contractual Life(in years)
|
|
|
Weighted Average Exercise Price
|
|
|
Number Outstanding
|
|
|
Weighted Average Exercise Price
|
|
$
|
0.00 – $0.50
|
|
|
|
69,537
|
|
|
|
5.02
|
|
|
$
|
0.05
|
|
|
|
43,379
|
|
|
$
|
0.05
|
|
Communication Intelligence Corporation
Notes to Consolidated Financial Statements
(In thousands except per share amounts)
A summary of the status of the Company’s non-vested shares as of December 31, 2013 is as follows:
Non-vested Shares
|
|
Shares
|
|
|
Weighted Average
Grant-Date
Fair Value
|
|
Non-vested at January 1, 2013
|
|
|
21,210
|
|
|
$
|
0.04
|
|
Granted
|
|
|
26,553
|
|
|
$
|
0.04
|
|
Forfeited
|
|
|
(682
|
)
|
|
$
|
0.03
|
|
Vested
|
|
|
(20,923
|
)
|
|
$
|
0.04
|
|
Non-vested at December 31, 2013
|
|
|
26,158
|
|
|
$
|
0.05
|
|
An employee or consultant desiring to exercise or convert his or her stock options must provide a signed notice of exercise to the Chief Financial Officer. Once the exercise is approved an issue order is sent to the Company’s transfer agent and by certificate or through other means of conveyance, the shares are delivered to the employee or consultant, generally within three business days. The Company has no plans to repurchase shares of Common Stock in the future.
The Company expects to make additional option grants in future years. The options issued to employees and directors will be subject to the same provisions outlined above, which may have a material impact on the Company’s financial statements.
As of December 31, 2013, 69,537 shares of common stock were reserved for issuance upon exercise of outstanding options.
Treasury Stock:
The Company received 6,500 shares of its Common Stock having a fair value under the cost method of $325 in January 2012, in settlement of a 16b suit brought by a shareholder against Phoenix Venture Fund, LLC (“Phoenix”). At December 31, 2013, the total value of treasury stock was $325.
Preferred Shares:
The Company has five series of Preferred Stock; Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock Series D-1 Preferred Stock and Series D-2 Preferred Stock. Generally, the Company’s Preferred Stock votes together on an as converted basis with the holders of Common Stock. In addition, the Company’s Preferred Stock enjoys certain protective provisions, a liquidation preference and anti-dilution protection that are similar to one another.
The Company has amended its Amended and Restated Certificate of Incorporation to increase the number of authorized shares of its Series D-1 and Series D-2 Preferred Stock. The Company solicited its stockholders and its stockholders approved an amendment of the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of Series D-1 Preferred Stock from 3,000 to 6,000, and of Series D-2 Preferred Stock from 8,000 to 9,000 (the “Charter Amendment”). The Charter Amendment allows the Company to have additional shares of stock available for possible future capital raising activities as approved by the Board of Directors.
The Company has amended and restated the Certificates of Designation for the Series A-1 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock to, among other things, subordinate the Series A-1 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, in terms of dividend rights, liquidation preferences and other rights, to the Series D Preferred Stock. Holders of at least a majority of the shares of the Company’s Series A-1 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock have approved the amendment and restatement of the Certificate of Designation applicable to such holders.
Communication Intelligence Corporation
Notes to Consolidated Financial Statements
(In thousands except per share amounts)
Information with respect to the classes of Preferred Stock at December 31, 2013 is as follows:
Class of Preferred Stock
|
Issue Date
|
|
Annual Dividend
|
|
Annual Dividend Payable, in Cash or In Kind
|
|
Liquidation Preference
|
|
|
Conversion Price
|
|
|
Total Preferred Shares Outstanding
|
|
|
Common Shares to be issued if Fully Converted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A-1
|
May 2008
|
|
|
8
|
%
|
Quarterly in Arrears
|
|
$
|
1.00
|
|
|
$
|
0.1400
|
|
|
|
1,031
|
|
|
|
7,368
|
|
Series B
|
August 2010
|
|
|
10
|
%
|
Quarterly in Arrears
|
|
$
|
1.50
|
|
|
$
|
0.0433
|
|
|
|
11,012
|
|
|
|
256,241
|
|
Series C
|
December/March 2011
|
|
|
10
|
%
|
Quarterly in Arrears
|
|
$
|
1.50
|
|
|
$
|
0.0225
|
|
|
|
4,508
|
|
|
|
200,354
|
|
Series D-1
|
November 2012/May and December 2013
|
|
|
10
|
%
|
Quarterly in Arrears
|
|
$
|
1.00
|
|
|
$
|
0.0225
|
|
|
|
3,415
|
|
|
|
151,766
|
|
Series D-2
|
November 2012/May and December 2013
|
|
|
10
|
%
|
Quarterly in Arrears
|
|
$
|
1.00
|
|
|
$
|
0.0500
|
|
|
|
4,783
|
|
|
|
95,682
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
711,411
|
|
Information with respect to dividends issued on the Company’s Preferred stock for the years ended December 31, 2013 and 2012 is as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
Dividends
|
|
|
Beneficial Conversion Feature Related to dividends
|
|
Series A-1
|
|
$
|
78
|
|
|
$
|
73
|
|
|
$ ─
|
|
|
$ ─
|
|
Series B
|
|
|
1,044
|
|
|
|
948
|
|
|
─
|
|
|
|
268
|
|
Series C
|
|
|
433
|
|
|
|
389
|
|
|
|
191
|
|
|
|
385
|
|
Series D-1
|
|
|
131
|
|
|
|
14
|
|
|
|
59
|
|
|
|
13
|
|
Series D-2
|
|
|
402
|
|
|
|
41
|
|
|
─
|
|
|
─
|
|
Total
|
|
$
|
2,088
|
|
|
$
|
1,465
|
|
|
$
|
250
|
|
|
$
|
666
|
|
Series A-1 Preferred Stock
The shares of Series A-1 Preferred Stock are convertible any time and are subordinate to the Series B, Series C and Series D Preferred Stock.
Series B Preferred Stock
The shares of Series B Preferred Stock are convertible at any time and are subordinate to the Series C and Series D Preferred Stock.
In January and March 2012, a total of 140 shares of Series B Preferred Stock were converted and the Company issued 3,232 shares of Common Stock.
Series C Preferred Stock
The shares of Series C Preferred Stock are convertible into Common Stock at any time and are subordinate to the Series D Preferred Stock.
Communication Intelligence Corporation
Notes to Consolidated Financial Statements
(In thousands except per share amounts)
In January 2012, the Company received 6,500 shares of Common Stock from Phoenix in settlement of a 16b claim brought by a Company stockholder against Phoenix, certain affiliates and the Company, as a nominal defendant. The Common Stock was valued at $325. In settlement of an indemnification claim brought by Phoenix in March 2012, resulting from the settlement of the 16b claim in January 2012, the Company issued to Phoenix 278 shares of Series C Preferred Stock valued at $417. The Company booked a $417 accretion amount for the beneficial conversion feature on the 278 shares of Series C Preferred Stock.
In September 2012, an investor converted 39 shares of Series C Preferred Stock into 1,729 shares of the Company’s Common Stock.
In November 2013, a shareholder converted 100 shares of Series C Preferred Stock, and the Company issued 4,452 share of common stock.
Series D Preferred Stock
The material terms of the Series D-1 and Series D-2 Preferred Stock, other than the initial conversion price, are essentially the same. The shares of Series D Preferred Stock are convertible at any time and rank senior to the Company’s outstanding shares of Series A-1, Series B and Series C Preferred Stock, and of Common Stock with respect to dividend rights and liquidation preferences.
In November 2012, the Company converted approximately $3,099 of short-term debt and accrued interest into shares of Series D Preferred Stock net of offering costs of $190. The Company sold, for cash in a private placement, 1,082 of additional shares of Series D-2 Preferred Stock at a purchase price of $1.00 per share and received $967 net of offering costs of $115.
In May 2013, the Company completed a private placement of 230 units of Series D Preferred Stock consisting of one (1) share of Series D-1 Preferred Stock and four (4) shares of Series D-2 Preferred Stock. The private placement provided $1,150 in proceeds to the Company.
On December 31, 2013, the Company converted approximately $1,179 of short-term debt plus accrued interest into 786 shares of Series D-1 Preferred Stock and 393 shares of Series D-2 Preferred Stock The investors can receive up to one hundred percent (100%) warrant coverage. These warrants are immediately exercisable and expire three (3) years from the date of issuance. See the warrant table below for more detail. The warrants are exercisable in whole or in part and contain a cashless exercise provision.
On December 31, 2013, the Company sold for $870 in cash, net of $40 administrative fee paid to SG Phoenix, 607 Shares of Series D-1 preferred Stock and 303 shares of Series D-2 Preferred Stock. The investors can receive up to one hundred percent (100%) warrant coverage. These warrants are immediately exercisable and expire three (3) years from the date of issuance. See the warrant table below for more detail. The warrants are exercisable in whole or in part and contain a cashless exercise provision.
In connection with the December 31, 2013, offering, the Company adjusted the number of shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock issued to investors in the May 2013 offering described above, in order to give such investors shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock in the same ratio as offered to Investors in the December 31, 2013, offering. This resulted in an exchange of 537 shares of Series D-2 Preferred into Series D-1 Preferred. The Company also issued warrants to purchase Common Stock in the same manner as offered to investors in the December 31, 2013, offering.
Communication Intelligence Corporation
Notes to Consolidated Financial Statements
(In thousands except per share amounts)
Warrants:
Summary of Warrant exercises as of:
|
|
December 31,2013
|
|
|
December 31, 2012
|
|
|
|
|
Warrants
|
|
|
Common Shares Issued
|
|
|
Cash received
|
|
|
Warrants
|
|
|
Common Shares Issued
|
|
|
Cash received
|
|
|
|
1,300
|
|
|
|
1,300
|
|
|
$
|
29
|
|
|
|
28,511
|
|
|
|
20,186
|
|
|
$
|
-
|
|
|
|
|
11,111
|
|
|
|
2,283
|
|
|
$
|
−
|
|
|
|
6,651
|
|
|
|
7,439
|
|
|
$
|
212
|
|
Total
|
|
|
12,411
|
|
|
|
3,583
|
|
|
$
|
29
|
|
|
|
35,162
|
|
|
|
27,625
|
|
|
$
|
212
|
|
Summary of warrants issued in 2013 and 2012:
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
Related Party
|
|
|
Other
|
|
|
Total
|
|
|
Related Party
|
|
|
Other
|
|
|
Total
|
|
Warrants issued in connection with Notes
|
|
|
19,584
|
|
|
|
2,083
|
|
|
|
21,667
|
|
|
|
−
|
|
|
|
8,643
|
|
|
|
8,643
|
|
Warrants issued with purchase of Series D Preferred
|
|
|
9,561
|
|
|
|
9,428
|
|
|
|
18,989
|
|
|
|
−
|
|
|
|
−
|
|
|
─
|
|
Warrants issued in the December Series D Preferred exchange
|
|
|
2,827
|
|
|
|
7,627
|
|
|
|
10,454
|
|
|
|
−
|
|
|
|
−
|
|
|
─
|
|
Total
|
|
|
31,972
|
|
|
|
19,138
|
|
|
|
51,110
|
|
|
─
|
|
|
|
8,643
|
|
|
|
8,643
|
|
A summary of the outstanding warrants is as follows:
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Warrants
|
|
|
Weighted Average Exercise Price
|
|
Outstanding at beginning of period
|
|
|
151,722
|
|
|
$
|
0.0269
|
|
|
|
182,644
|
|
|
$
|
0.0261
|
|
Issued
|
|
|
51,110
|
|
|
$
|
0.0283
|
|
|
|
8,643
|
|
|
$
|
0.0500
|
|
Exercised
|
|
|
(12,411
|
)
|
|
$
|
0.0225
|
|
|
|
(35,162
|
)
|
|
$
|
0.0264
|
|
Expired
|
|
|
(113,266
|
)
|
|
$
|
0.0230
|
|
|
|
(4,403
|
)
|
|
$
|
−
|
|
Outstanding at end of period
|
|
|
77,155
|
|
|
$
|
0.0289
|
|
|
|
151,722
|
|
|
$
|
0.0269
|
|
Exercisable at end of period
|
|
|
77,155
|
|
|
$
|
0.0289
|
|
|
|
151,722
|
|
|
$
|
0.0269
|
|
A summary of the status of the warrants outstanding as of December 31, 2013 is as follows:
Number of Warrants Outstanding and Exercisable
|
|
Weighted Average Remaining Life
|
|
Weighted Average Exercise Price per share
|
|
|
|
|
|
|
|
|
17,401
|
|
|
0.60
|
|
$
|
0.0225
|
|
|
8,643
|
|
|
1.56
|
|
$
|
0.0500
|
|
|
51,110
|
|
|
2.97
|
|
$
|
0.0283
|
|
|
77,155
|
|
|
2.28
|
|
$
|
0.0289
|
|
At December 31, 2013, 77,155 shares of common stock were reserved for issuance upon the exercise of outstanding warrants.
Communication Intelligence Corporation
Notes to Consolidated Financial Statements
(In thousands except per share amounts)
Contingent warrants
Investors that received warrants in connection with the December 31, 2013, offering may receive up to 87,352 additional warrants, if the Company does not achieve certain revenue targets in the first three quarters of 2014 The Company ascribed a value of $1,618 to the contingent warrants issued at closing, including the contingent warrants, using a Black Sholes pricing model. The Company also recorded a beneficial conversion feature related to the shares of Series D Preferred Stock issued in the December 31, 2013, of $919 based on the accounting conversion price of the shares of Series D Preferred Stock issued.
At December 31, 2013, 77,155 shares of common stock were reserved for issuance upon exercise of outstanding warrants.
10.
|
Commitments & Contingencies:
|
Lease commitments:
The Company currently leases its principal facilities in Redwood Shores, California, pursuant to a sublease that expires in 2016. In addition to monthly rent, the facilities are subject to additional rental payments for utilities and other costs above the base amount. Facilities rent expense was approximately $275, and $275, in 2013 and 2012, respectively.
|
|
|
|
|
|
|
Contractual obligations
|
|
Total
|
2014
|
2015
|
2016
|
Thereafter
|
Operating lease commitments
|
|
825
|
284
|
292
|
249
|
-
|
As of December 31, 2013, the Company had federal net operating loss carry-forwards available to reduce taxable income of approximately $68,449. The net operating loss carry-forwards expire between 2017 and 2033. The Company also had federal research and investment tax credit carry-forwards of approximately $137 that expire at various dates through 2017. The Company also has state net operating loss carry-forwards available to reduce taxable income of approximately $33,048. The net state operating loss carry-forwards expire between 2015 through 2033.
Deferred tax assets and liabilities at December 31, consist of the following:
|
|
2013
|
|
|
2012
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carry-forwards
|
|
$
|
27,266
|
|
|
$
|
28,243
|
|
Credit carry-forwards
|
|
|
137
|
|
|
|
165
|
|
Deferred income
|
|
|
224
|
|
|
|
399
|
|
Intangibles
|
|
|
1,046
|
|
|
|
484
|
|
Other, net
|
|
|
373
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
29,046
|
|
|
|
29,365
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
$
|
(29,046
|
)
|
|
$
|
(29,365
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
-
|
|
|
|
-
|
|
Communication Intelligence Corporation
Notes to Consolidated Financial Statements
(In thousands except per share amounts)
Income tax benefit differs from the expected statutory rate as follows:
|
|
2013
|
|
|
2012
|
|
Expected federal income tax benefit
|
|
$
|
(2,668
|
)
|
|
$
|
(1,534
|
)
|
State income tax benefit
|
|
|
(458
|
)
|
|
|
(195
|
)
|
Prior year true up to return
|
|
|
1,416
|
|
|
─
|
|
Non-deductible tax expense
|
|
|
1,711
|
|
|
─
|
|
Other
|
|
|
(320
|
)
|
|
|
(239
|
)
|
Change in valuation allowance
|
|
|
319
|
|
|
|
1,968
|
|
Income tax benefit
|
|
$
|
–
|
|
|
$
|
–
|
|
A full valuation allowance has been established for the Company's net deferred tax assets since the realization of such assets through the generation of future taxable income is uncertain.
Under the Tax Reform Act of 1986, the amounts of, and the benefit from, net operating losses and tax credit carry-forwards may be impaired or limited in certain circumstances. These circumstances include, but are not limited to, a cumulative stock ownership change of greater than 50%, as defined, over a three-year period. During 1997, the Company experienced stock ownership changes which could limit the utilization of its net operating loss and research and investment tax credit carry-forwards in future periods. In addition, a study of recent transactions has not been performed to determine whether any further limitations might apply.
On February 7, 2014, the Company entered into subscription agreements (the “Subscription Agreements”) with certain investors (each, an “Investor,” and, collectively, the “Investors”). Under the terms of the Subscription Agreements, the Investors purchased an aggregate of 260 Units (each a “Unit,” and, collectively, the “Units”) at a purchase price of $3.00 per Unit for an aggregate purchase price of approximately $780. Each Unit consists of two (2) shares of the Company’s Series D-1 Preferred Stock and one (1) share of Series D-2 Preferred Stock. The Series D-1 Preferred Stock and Series D-2 Preferred Stock are identical in rights, preferences, and privileges, except for their conversion price to Common Stock. Shares of Series D-1 Preferred Stock are convertible into shares of Common Stock at an initial conversion price of $0.0225 per share (subject to certain anti-dilution adjustment). Shares of Series D-2 Preferred Stock are convertible into shares of Common Stock at an initial conversion price of $0.05 per share (subject to certain anti-dilution adjustment).
The Investors were also issued warrants to purchase approximately 7.091 million shares of Common Stock at the time of the funding of their investment. These warrants are exercisable for a period of three years and have an exercise price of $0.0275 per share. In addition to the warrants issued at closing, the Subscription Agreements entitle Investors to receive warrants to purchase up to an additional 21.273 million shares of Common Stock based on whether the Company attains certain revenue targets in 2014., as discussed in Note 9. Any such additional warrants will be exercisable until December 31, 2016 and will have an exercise price of $0.0275 per share.
F-26
iSign Solutions (CE) (USOTC:ISGN)
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