Item 1. Financial Statements.
Communication Intelligence Corporation
Condensed Consolidated Balance Sheets
(In thousands)
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Assets
|
|
Unaudited
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,147
|
|
|
$
|
945
|
|
|
Accounts receivable, net of allowance of $17 at March 31, 2014 and $22 at December 31, 2013
|
|
|
278
|
|
|
|
410
|
|
|
Prepaid expenses and other current assets
|
|
|
58
|
|
|
|
57
|
|
|
Total current assets
|
|
|
1,483
|
|
|
|
1,412
|
|
|
Property and equipment, net
|
|
|
18
|
|
|
|
17
|
|
|
Patents, net
|
|
|
1,201
|
|
|
|
1,290
|
|
|
Other assets
|
|
|
29
|
|
|
|
29
|
|
|
Total assets
|
|
$
|
2,731
|
|
|
$
|
2,748
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
185
|
|
|
|
327
|
|
|
Accrued compensation
|
|
|
311
|
|
|
|
315
|
|
|
Other accrued liabilities
|
|
|
240
|
|
|
|
232
|
|
|
Deferred revenue
|
|
|
512
|
|
|
|
490
|
|
|
Total current liabilities
|
|
|
1,248
|
|
|
|
1,364
|
|
|
Deferred revenue long-term
|
|
|
19
|
|
|
|
74
|
|
|
Deferred rent
|
|
|
75
|
|
|
|
86
|
|
|
Derivative liability
|
|
|
20
|
|
|
|
25
|
|
|
Total liabilities
|
|
|
1,362
|
|
|
|
1,549
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
|
Series A-1 Preferred Stock, $.01 par value; 2,000 shares authorized; 1,052 and 1,031 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively, ($1,052 liquidation preference at March 31, 2014)
|
|
|
1,052
|
|
|
|
1,031
|
|
|
Series B Preferred Stock, $.01 par value; 14,000 shares authorized; 11,377 and 11,102 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively, ($17,066 liquidation preference at March 31, 2014)
|
|
|
9,506
|
|
|
|
9,232
|
|
|
Series C Preferred Stock, $.01 par value; 9,000 shares authorized; 4,619 and 4,508 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively, ($6,929 liquidation preference at March 31, 2014)
|
|
|
5,197
|
|
|
|
5,086
|
|
|
Series D-1 Preferred Stock, $.01 par value; 6,000 shares authorized; 4,302 and 3,415 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively, ($4,302 liquidation preference at March 31, 2014)
|
|
|
3,693
|
|
|
|
3,345
|
|
|
Series D-2 Preferred Stock, $.01 par value; 9,000 shares authorized; 5,303 and 4,783 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively, ($5,303 liquidation preference at March 31, 2014)
|
|
|
4,252
|
|
|
|
4,002
|
|
|
Common Stock, $.01 par value; 1,500,000 shares authorized; 232,560 issued, and outstanding at March 31, 2014 and December 31, 2013
|
|
|
2,390
|
|
|
|
2,390
|
|
|
Treasury shares, 6,500 shares at March 31, 2014 and December 31, 2013
|
|
|
(325
|
)
|
|
|
(325
|
)
|
|
Additional paid in capital
|
|
|
96,399
|
|
|
|
96,172
|
|
|
Accumulated deficit
|
|
|
(120,245
|
)
|
|
|
(119,184
|
)
|
|
Accumulated other comprehensive loss
|
|
|
(14
|
)
|
|
|
(14
|
)
|
|
Total CIC stockholders' equity
|
|
|
1,905
|
|
|
|
1,735
|
|
|
Non-Controlling interest
|
|
|
(536
|
)
|
|
|
(536
|
)
|
|
Total Stockholders’ equity
|
|
|
1,369
|
|
|
|
1,199
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
2,731
|
|
|
$
|
2,748
|
|
See accompanying notes to these Condensed Consolidated Financial Statements
Communication Intelligence Corporation
Condensed Consolidated Statements of Operations
Unaudited
(In thousands, except per share amounts)
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
Product
|
|
$
|
128
|
|
|
$
|
71
|
|
|
Maintenance
|
|
|
173
|
|
|
|
164
|
|
|
Total revenue
|
|
|
301
|
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
4
|
|
|
|
5
|
|
|
Maintenance
|
|
|
54
|
|
|
|
73
|
|
|
Research and development
|
|
|
540
|
|
|
|
512
|
|
|
Sales and marketing
|
|
|
308
|
|
|
|
309
|
|
|
General and administrative
|
|
|
463
|
|
|
|
596
|
|
|
Total operating costs and expenses
|
|
|
1,369
|
|
|
|
1,495
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,068
|
)
|
|
|
(1,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
2
|
|
|
|
(1
|
)
|
|
Gain on derivative liability
|
|
|
5
|
|
|
|
64
|
|
|
Net loss
|
|
|
(1,061
|
)
|
|
|
(1,197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of beneficial conversion feature, Preferred Stock:
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(73
|
)
|
|
|
(33
|
)
|
|
Other
|
|
|
(301
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends:
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(328
|
)
|
|
|
(262
|
)
|
|
Other
|
|
|
(293
|
)
|
|
|
(216
|
)
|
|
Income tax
|
|
|
-
|
|
|
|
-
|
|
|
Net loss before non-controlling interest
|
|
|
(2,056
|
)
|
|
|
(1,730
|
)
|
|
Net loss attributable to non-controlling interest
|
|
|
−
|
|
|
|
−
|
|
|
Net loss attributable to common stockholders’
|
|
$
|
(2,056
|
)
|
|
$
|
(1,730
|
)
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
232,560
|
|
|
|
225,875
|
|
See accompanying notes to these Condensed Consolidated Financial Statements
Communication Intelligence Corporation
Condensed Consolidated Statements of Comprehensive Loss
Unaudited
(In thousands, except per share amounts)
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,061
|
)
|
|
$
|
(1,197
|
)
|
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
─
|
|
|
|
14
|
|
|
Total comprehensive loss
|
|
$
|
(1,061
|
)
|
|
$
|
(1,183
|
)
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these Condensed Consolidated Financial Statements
Communication Intelligence Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited
(In thousands)
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,061
|
)
|
|
$
|
(1,197
|
)
|
|
Adjustments to reconcile net loss to net cash
used for operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
92
|
|
|
|
96
|
|
|
Stock-based employee compensation
|
|
|
92
|
|
|
|
254
|
|
|
Gain on derivative liability
|
|
|
(5
|
)
|
|
|
(64
|
)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
132
|
|
|
|
591
|
|
|
Prepaid expenses and other assets
|
|
|
(1
|
)
|
|
|
9
|
|
|
Accounts payable
|
|
|
(142
|
)
|
|
|
74
|
|
|
Accrued compensation
|
|
|
(4
|
)
|
|
|
(41
|
)
|
|
Other accrued liabilities
|
|
|
(3
|
)
|
|
|
−
|
|
|
Deferred revenue
|
|
|
(33
|
)
|
|
|
(38
|
)
|
|
Net cash used for operating activities
|
|
|
(933
|
)
|
|
|
(316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
Acquisition of property and equipment
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
Net cash used for investing activities
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants for cash
|
|
|
−
|
|
|
|
29
|
|
|
Proceeds from issuance of Series D preferred Stock, net of
issuance costs of $51
|
|
|
1,139
|
|
|
|
−
|
|
|
Net cash provided by financing activities
|
|
|
1,139
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
−
|
|
|
|
−
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
202
|
|
|
|
(289
|
)
|
|
Cash and cash equivalents at beginning of period
|
|
|
945
|
|
|
|
486
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
1,147
|
|
|
$
|
197
|
|
See accompanying notes to these Condensed Consolidated Financial Statements
Communication Intelligence Corporation
Condensed Consolidated Statements of Cash Flows (Continued)
Unaudited
(In thousands)
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Supplementary disclosure of cash flow information
|
|
|
|
|
|
|
|
Interest paid
|
|
$
─
|
|
|
$
|
−
|
|
|
Income taxes paid
|
|
$
─
|
|
|
$
|
−
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing and investing transactions:
|
|
|
|
|
|
|
|
|
Dividends on Preferred Stock
|
|
$
|
621
|
|
|
$
|
478
|
|
|
Accretion of beneficial conversion feature on issuance of
convertible Preferred Stock
|
|
$
|
306
|
|
|
$
|
−
|
|
|
Accretion of beneficial conversion feature on issuance of
Preferred Stock dividends
|
|
$
|
68
|
|
|
$
|
55
|
|
See accompanying notes to these Condensed Consolidated Financial Statements
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
|
1.
|
Nature of business and summary of significant accounting policies
|
Basis of Presentation
The financial information contained herein should be read in conjunction with the Company's consolidated audited financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2013.
The accompanying unaudited condensed consolidated financial statements of Communication Intelligence Corporation and its subsidiary (the “Company” or “CIC”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements. In the opinion of management, the unaudited condensed consolidated financial statements included in this quarterly report reflect all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for a fair presentation of its financial position at the dates presented and the Company’s results of operations and cash flows for the periods presented. The Company’s interim results are not necessarily indicative of the results to be expected for the entire year.
The Company 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 software-as-a-service (“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 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
®
Server, the iSign
®
suite of products and services, including iSign
®
Enterprise and iSign
®
Console™, Sign-it
®
and the iSign® toolkits.
Going Concern
The accompanying unaudited condensed 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 March 31, 2014, the Company’s accumulated deficit was approximately $120,245. The Company has primarily met its working capital needs through the sale of debt and equity securities. As of March 31, 2014, the Company’s cash balance was approximately $1,147. 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
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
|
1.
|
Nature of business and summary of significant accounting policies
|
eliminate some or all of its operations, which may have a material adverse effect on the Company's business, results of operations and ability to operate as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Reclassifications
Certain prior year amounts have been reclassified between Series C Preferred Stock, Series D-1 Preferred Stock, Series D-2 Preferred Stock and Additional paid in capital on the accompanying condensed consolidated balance sheet to properly reflect accretion of the beneficial conversion feature on certain issuances of the Company’s Preferred Stock. These reclassifications do not impact the condensed consolidated statement of operations or the condensed consolidated statement of cash flows.
Accounting Changes and Recent Accounting Pronouncements
Accounting Standards Issued But Not Yet Adopted
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 and cash flows.
2.
Concentrations
The following table summarizes accounts receivable and revenue concentrations:
|
|
|
Accounts Receivable
As of March 31,
|
|
|
Total Revenue
for the three months
ended March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
Customer #1
|
|
|
32
|
%
|
|
|
37
|
%
|
|
|
12
|
%
|
|
|
|
|
Customer #2
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer #3
|
|
|
18
|
%
|
|
|
|
|
|
|
22
|
%
|
|
|
|
|
Customer #4
|
|
|
|
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
Customer #5
|
|
|
|
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
Customer #6
|
|
|
|
|
|
|
|
|
|
|
12
|
%
|
|
|
15
|
%
|
|
Customer #7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
%
|
|
Total concentration
|
|
|
76
|
%
|
|
|
73
|
%
|
|
|
46
|
%
|
|
|
30
|
%
|
The Company performs intangible asset impairment analysis at least annually or whenever circumstances or events indicate such assets might be impaired. The Company would recognize an impairment charge in the event the net book value of such assets exceeded the future undiscounted cash flows attributable to such assets.
Management completed an analysis of the Company’s patents as of December 31, 2013. Based on that analysis, the Company concluded that no impairment of the carrying value of the patents existed. The Company believes that no events or circumstances changed during the three months ended March 31, 2014 that would impact this conclusion
.
Amortization of patent costs was $89 for the three months ended March 31, 2014 and $92 for the three months ended March 31, 2013, respectively
.
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
Intangible Assets
The following table summarizes intangible assets:
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
|
|
|
Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Carrying Amount
|
|
|
Accumulative Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
6,745
|
|
|
$
|
(5,544
|
)
|
|
$
|
6,745
|
|
|
$
|
(5,455
|
)
|
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 fair value of the outstanding derivative liabilities at March 31, 2014
,
and December 31, 2013
,
was $20 and $25, respectively.
Fair value measurements:
Assets and liabilities measured at fair value as of March 31, 2014, are as follows:
|
|
|
Value at
|
|
|
Quoted prices in active markets
|
|
|
Significant other observable inputs
|
|
|
Significant unobservable inputs
|
|
|
|
|
March 31, 2014
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Derivative liability
|
|
$
|
20
|
|
|
$
|
−
|
|
|
$
|
−
|
|
|
$
|
20
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
25
|
|
|
$
─
|
|
|
$
─
|
|
|
$
|
25
|
|
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
The fair value framework requires a categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets and liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
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 March 31, 2014, and December 31, 2013, and the fair value calculation input hierarchy level that we have determined applies to each asset and liability category.
Changes in the fair market value of the Level 3 derivative liability for the three month period ended March 31, 2014 are as follows:
|
|
|
Derivative Liability
|
|
|
Balance at January 1, 2014
|
|
$
|
25
|
|
|
Gain on derivative liability
|
|
|
(5
|
)
|
|
Balance at March 31, 2014
|
|
$
|
20
|
|
The Company calculates basic net loss per share, based on the weighted average number of shares outstanding, and when applicable, diluted income per share, which is based on the weighted average number of shares and potential dilutive shares outstanding.
The following table lists shares and warrants that were excluded from the calculation of dilutive earnings per share as the exercise of such options and warrants and the conversion of such preferred shares would be anti-dilutive:
|
|
|
For the three Months Ended
|
|
|
|
|
March 31, 2014
|
|
|
March 31, 2013
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
72,038
|
|
|
|
70,270
|
|
|
Warrants
|
|
|
94,240
|
|
|
|
149,022
|
|
|
Preferred shares as if converted
|
|
|
|
|
|
|
|
|
|
Series A-1Preferred Stock
|
|
|
7,513
|
|
|
|
6,941
|
|
|
Series B Preferred Stock
|
|
|
17,065
|
|
|
|
237,866
|
|
|
Series C Preferred Stock
|
|
|
205,294
|
|
|
|
190,146
|
|
|
Series D-1 Preferred Stock
|
|
|
191,189
|
|
|
|
51,193
|
|
|
Series D-2 Preferred Stock
|
|
|
106,069
|
|
|
|
67,682
|
|
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
The following table is a reconciliation of the numerator (net loss) and the denominator (number of shares) used in the basic and diluted EPS calculations and sets forth potential shares of Common Stock that are not included in the diluted net loss per share calculation as the effect is antidilutive:
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Numerator-basic and diluted net loss
|
|
$
|
(2,056
|
)
|
|
$
|
(1,730
|
)
|
|
Denominator-basic or diluted weighted average number of common shares outstanding
|
|
|
232,560
|
|
|
|
225,875
|
|
|
Net loss per share – basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
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. The estimated average forfeiture rate for the three months ended March 31, 2014 and 2013
,
was approximately 9.76% and 9.73%, respectively, based on historical data.
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:
|
|
|
Three Months Ended
March 31, 2014
|
Three Months Ended
March 31, 2013
|
|
Risk free interest rate
|
|
0.04% – 4.92%
|
0.62% – 5.11%
|
|
Expected term (years)
|
|
3.33 – 6.21
|
2.82 – 7.00
|
|
Expected volatility
|
|
91.99% – 198.38%
|
93.63% – 147.41%
|
|
Expected dividends
|
|
None
|
None
|
The Company granted 2,500 stock options during the three months ended March 31, 2014, at a weighted average exercise price of $0.027 per share. No stock options were exercised during the three month period ended March 31, 2014.
The Company granted 26,241 stock options during the three months ended March 31, 2013, at a weighted average exercise price of $0.04 per share. No stock options were exercised during the month period ended March 31, 2013.
The following table summarizes the allocation of stock-based compensation expense related to stock option grants for the three months ended March 31:
|
|
|
2014
|
|
|
2013
|
|
|
Research and development
|
|
$
|
27
|
|
|
$
|
68
|
|
|
Sales and marketing
|
|
|
12
|
|
|
|
25
|
|
|
General and administrative
|
|
|
48
|
|
|
|
146
|
|
|
Director
|
|
|
5
|
|
|
|
15
|
|
|
Total Stock-based compensation
|
|
$
|
92
|
|
|
$
|
254
|
|
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
A summary of option activity under the Company’s plans as of March 31, 2014 and 2013 is as follows:
|
|
|
2014
|
|
|
2013
|
|
|
Options
|
|
Shares
|
|
|
Weighted Average Exercise
Price
|
|
|
Weighted Average Remaining Contractual
Term
|
|
|
Aggregate Intrinsic
Value
|
|
|
Shares
|
|
|
Weighted Average Exercise
Price
|
|
|
Weighted Average Remaining Contractual
Term
|
|
|
Aggregate Intrinsic
Value
|
|
|
Outstanding at January 1,
|
|
|
69,537
|
|
|
$
|
0.05
|
|
|
|
|
|
$
|
−
|
|
|
|
44,529
|
|
|
$
|
0.05
|
|
|
|
|
|
$
|
2,230
|
|
|
Granted
|
|
|
2,500
|
|
|
$
|
0.03
|
|
|
|
|
|
$
|
7
|
|
|
|
26,241
|
|
|
$
|
0.04
|
|
|
|
|
|
$
|
1,179
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
$
|
−
|
|
|
─
|
|
|
$
|
−
|
|
|
|
|
|
$
|
−
|
|
|
Forfeited or expired
|
|
|
−
|
|
|
$
|
−
|
|
|
|
|
|
$
|
−
|
|
|
|
(500
|
)
|
|
$
|
0.09
|
|
|
|
|
|
$
|
43
|
|
|
Outstanding at March 31
|
|
|
72,037
|
|
|
$
|
0.05
|
|
|
|
4.85
|
|
|
$
|
7
|
|
|
|
70,270
|
|
|
$
|
0.05
|
|
|
|
5.75
|
|
|
$
|
3,367
|
|
|
Vested and expected to vest at March 31
|
|
|
65,007
|
|
|
$
|
0.05
|
|
|
|
4.41
|
|
|
$
|
7
|
|
|
|
70,270
|
|
|
$
|
0.05
|
|
|
|
5.05
|
|
|
$
|
3,367
|
|
|
Exercisable at March 31
|
|
|
48,445
|
|
|
$
|
0.05
|
|
|
|
5.05
|
|
|
$
|
−
|
|
|
|
27,036
|
|
|
$
|
0.05
|
|
|
|
5.05
|
|
|
$
|
1,043
|
|
The following tables summarize significant ranges of outstanding and exercisable options as of March 31, 2014:
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
Range of Exercise Prices
|
|
|
Number Outstanding
|
|
|
Weighted Average Remaining Contractual Term (in years)
|
|
|
Weighted Average Exercise Price
|
|
|
Number Outstanding
|
|
|
Weighted Average Exercise Price
|
|
|
$
|
0.02 – $0.50
|
|
|
|
72,037
|
|
|
|
4.85
|
|
|
$
|
0.05
|
|
|
|
48,445
|
|
|
$
|
0.05
|
|
A summary of the status of the Company’s non-vested shares as of March 31, 2014, is as follows:
|
Non-vested Shares
|
|
Shares
|
|
|
Weighted Average
Grant-Date
Fair Value
|
|
|
Non-vested at January 1, 2014
|
|
|
26,158
|
|
|
$
|
0.04
|
|
|
Granted
|
|
|
2,500
|
|
|
$
|
0.03
|
|
|
Exercised
|
|
─
|
|
|
$
─
|
|
|
Forfeited
|
|
─
|
|
|
$
─
|
|
|
Vested
|
|
|
(5,066
|
)
|
|
$
|
0.04
|
|
|
Non-vested at March 31, 2014
|
|
|
23,592
|
|
|
$
|
0.04
|
|
As of March 31, 2014, there was $292 of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the plans. The unrecognized compensation expense is expected to be realized over a weighted average period of 1.1 years.
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
Preferred Stock
Information with respect to the class of Preferred Stock as of March 31, 2014 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
|
|
|
|
1,052
|
|
|
|
7,514
|
|
|
Series B
|
August 2010
|
|
|
10
|
%
|
Quarterly in Arrears
|
|
$
|
1.50
|
|
|
$
|
0.0433
|
|
|
|
11,377
|
|
|
|
262,559
|
|
|
Series C
|
December/March 2011
|
|
|
10
|
%
|
Quarterly in Arrears
|
|
$
|
1.50
|
|
|
$
|
0.0225
|
|
|
|
4,619
|
|
|
|
205,294
|
|
|
Series D-1
|
November 2012/May and December 2013/February and March 2014
|
|
|
10
|
%
|
Quarterly in Arrears
|
|
$
|
1.00
|
|
|
$
|
0.0225
|
|
|
|
4,302
|
|
|
|
191,189
|
|
|
Series D-2
|
November 2012/ May and December 2013/February and March 2014
|
|
|
10
|
%
|
Quarterly in Arrears
|
|
$
|
1.00
|
|
|
$
|
0.0500
|
|
|
|
5,303
|
|
|
|
106,068
|
|
Information with respect to dividends issued on the Company’s Preferred stock for the period ended March 31, is as follows:
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
Dividends
|
|
|
Beneficial Conversion Feature Related to dividends
|
|
|
Series A-1
|
|
$
|
20
|
|
|
$
|
19
|
|
|
$
─
|
|
|
$
─
|
|
|
Series B
|
|
|
274
|
|
|
|
248
|
|
|
─
|
|
|
─
|
|
|
Series C
|
|
|
111
|
|
|
|
103
|
|
|
|
37
|
|
|
|
43
|
|
|
Series D-1
|
|
|
93
|
|
|
|
28
|
|
|
|
31
|
|
|
|
12
|
|
|
Series D-2
|
|
|
123
|
|
|
|
81
|
|
|
─
|
|
|
─
|
|
|
Total
|
|
$
|
621
|
|
|
$
|
478
|
|
|
$
|
68
|
|
|
$
|
55
|
|
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.
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 Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
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 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.
On February 7, 2014, the Company sold for $733 in cash, net of $47 administrative fee paid in cash to SG Phoenix and a nonrelated third party, 520 Shares of Series D-1 preferred Stock and 260 shares of Series D-2 Preferred Stock. The investors can receive up to one hundred percent (100%) warrant coverage. These warrants are immediately exercisable and expire December 31, 2016. See the warrant table below for more detail. The warrants are exercisable in whole or in part and contain a cashless exercise provision.
On March 6, 2014, the Company sold for $406 in cash, net of $4 in administrative fees paid in cash to an unrelated third party, 273 Shares of Series D-1 preferred Stock and 137 shares of Series D-2 Preferred Stock. The investors can receive up to one hundred percent (100%) warrant coverage. These warrants are immediately exercisable and expire December 31, 2016. See the warrant table below for more detail. The warrants are exercisable in whole or in part and contain a cashless exercise provision.
SG Phoenix received warrants to purchase 3,000 shares of Common stock, and two unrelated parties received warrants to purchase an aggregate of 1,600 shares of Common Stock in payment of administrative and finder’s fees associated with the financings, in addition to the cash payments discussed above. These warrants are immediately exercisable and expire three (3) years from the date of issuance. The warrants are exercisable in whole or in part and contain a cashless exercise provision.
Preferred Stock Voting and Other Rights
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.
Communication Intelligence Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
Warrants
A summary of the warrant activity is as follows:
|
|
|
March 31, 2014
|
|
|
March 31, 2013
|
|
|
|
Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period
|
|
|
77,155
|
|
|
$
|
0.0289
|
|
|
|
151,722
|
|
|
$
|
0.0269
|
|
Issued
|
|
|
21,418
|
|
|
|
0.0275
|
|
|
|
−
|
|
|
$
|
−
|
|
Exercised
|
|
|
−
|
|
|
$
|
−
|
|
|
|
(1,300
|
)
|
|
$
|
0.0280
|
|
Expired
|
|
|
(4,333
|
)
|
|
$
|
0.0225
|
|
|
|
(1,400
|
)
|
|
$
|
0.0225
|
|
Outstanding at end of period
|
|
|
94,240
|
|
|
$
|
0.0289
|
|
|
|
149,022
|
|
|
$
|
0.0257
|
|
Exercisable at end of period
|
|
|
94,240
|
|
|
$
|
0.0289
|
|
|
|
149,022
|
|
|
$
|
0.0257
|
A summary of the status of the warrants outstanding and exercisable as of March 31, 2014, is as follows:
|
Number of Warrants
|
|
|
Weighted Average Remaining Life
|
|
|
Weighted Average Exercise Price per share
|
|
|
|
|
|
|
|
|
|
|
13,069
|
|
|
|
0.71
|
|
|
$
|
0.0225
|
|
|
72,528
|
|
|
|
2.77
|
|
|
$
|
0.0275
|
|
|
8,643
|
|
|
|
1.31
|
|
|
$
|
0.0500
|
|
|
94,240
|
|
|
|
2.35
|
|
|
$
|
0.0289
|
Contingent warrants
Investors that received warrants in connection with the December 13, 2013 and February 7 and March 6, 2014, offerings may receive warrants to purchase up to 89,421 additional shares of Common Stock, if the Company does not achieve certain revenue targets in the first three quarters of 2014. The Company ascribed a value of $566 to the warrants issued at closing, including the contingent warrants, using a Black Sholes valuation model. The Company also recorded a beneficial conversion feature related to the shares of Series D Preferred Stock issued in the February 7 and March 6, 2014 financings, of $305 based on the accounting conversion price of the shares of Series D Preferred Stock issued. Since
the Company did not achieve the revenue target for the three month period ended March 31, 2014, the Company will issue warrants to purchase 29,952 shares of common stock promptly after filing of this Form 10-Q.
At March 31, 2014, 94,240 shares of common stock were reserved for issuance upon exercise of outstanding warrants.
On May 6, 2014, the Company entered into a Credit Agreement with Venture Champion Asia Limited, an affiliate of ICG Global Limited (the “Lender”). Under the terms of the Credit Agreement, for a period of 18 months, the Company is permitted to borrow up to $2 million in unsecured indebtedness from the Lender. Each draw is subject to a 15% original issue discount, so that borrowing the full $2 million would result in an aggregate of $2.352 million in debt with fifty percent (50%) warrant coverage and also may be converted at the Lender’s option into shares of the Company’s Common Stock at a conversion price of $0.0275 per share.
In connection with the Company’s entry into the Credit Agreement, the Company issued the Lender a warrant to purchase approximately 10,909 shares of Common Stock.
Communication Intelligence Corporation
FORM 10-Q
(In thousands, except per share amounts)
Forward Looking Statements
Certain statements contained in this quarterly report on Form 10-Q, including, without limitation, statements containing the words “believes”, “anticipates”, “hopes”, “intends”, “expects”, and other words of similar import, constitute “forward looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors which may cause actual events to differ materially from expectations. Such factors include those set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, including the following:
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·
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Technological, engineering, manufacturing, quality control or other circumstances that could delay the sale or shipment of products;
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|
·
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Economic, business, market and competitive conditions in the software industry and technological innovations that could affect the Company’s business;
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|
·
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The Company’s inability to protect its trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company; and
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·
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General economic and business conditions and the availability of sufficient financing.
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Except as otherwise required by applicable laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, as a result of new information, future events or otherwise.
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and notes thereto included in Part 1, Item 1 of this quarterly report on Form 10-Q and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in the Company’s Annual report on Form 10-K for the fiscal year ended December 31, 2013.
Overview
The Company 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 faster 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 was incorporated in Delaware in October 1986. Except for the year ended December 31, 2004, in each year since its inception the Company has incurred losses. For the two-year period ended December 31, 2013, net losses attributable to common stockholders aggregated approximately $14,845, and, at March 31, 2014, the Company's accumulated deficit was approximately $120,245.
For the three months ended March 31, 2014, total revenue was $301, an increase of $66, or 28%, compared to total revenue of $235 in the prior year period. The increase in revenue is primarily attributable to an increase in the Company’s product sales for the quarter.
For the three months ended March 31, 2014, the loss from operations was $1,068, a decrease of $192, or 15%, compared with a loss from operations of $1,260 in the prior year period. The decrease in the loss from operations is primarily attributable to the increase of $66, or 28% in revenue and a decrease of $126, or 8% in operating expenses including cost of sales, compared to the prior year period. The beneficial conversion feature on the Company’s Preferred Stock with an accounting conversion price less than the closing market price on the issuance date (Series C and Series D-1 Preferred Stock issuances and shares issued as dividends in kind), for the three months ended March 31, 2014, was $374, an increase of $319, or 580%, compared to a beneficial conversion feature of $55 in the
Communication Intelligence Corporation
FORM 10-Q
(In thousands, except per share amounts)
prior year period. The increase is due primarily to the closing of two Series D Preferred Stock financing rounds in February and March 2014.
Critical Accounting Policies and Estimates
Refer to Item 7, “Management Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2013 Form 10-K.
Effect of Recent Accounting Pronouncement
In the first quarter of 2014, the adoption of accounting standards had no material impact on our financial position, results of operations or cash flows.
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 our financial position, results of operations and cash flows.
Results of Operations
Revenue
For the three months ended March 31, 2014, product revenue was $128, an increase of $57, or 80%, compared to product revenue of $71 in the prior year period. The increase in product revenue is primarily due to the timing of the Company’s sales opportunities for the quarter. For the three months ended March 31, 2014, maintenance revenue was $173, an increase of $9, or 5%, compared to maintenance revenue of $164 in the prior year period. The increase in maintenance revenue is primarily due to new product revenue recognized in the fourth quarter of 2013.
Cost of Sales
For the three months ended March 31, 2014, cost of sales was $58, a decrease of $20, or 26%, compared to cost of sales of $78 in the prior year period. The decrease in cost of sales is primarily attributable to a decrease in direct engineering costs associated with maintenance activities compared to the prior year period.
Operating expenses
Research and Development Expenses
For the three months ended March 31, 2014, research and development expense was $540, an increase of $28 or 5%, compared to research and development expense of $512 in the prior year period. Research and development expenses consist primarily of salaries and related costs, outside engineering, maintenance items, and allocated facilities expenses. The increase is primarily due to an increase in outside engineering expenses of $58 or 185% compared to the prior year. Other engineering expenses including payroll and related expense travel, services and subscriptions and allocated facilities expense decreased $30, or 6% compared to the prior year period, due to reductions in expenses related to customer support and the increase in the use of outside engineering services.
Sales and Marketing Expenses
For the three months ended March 31, 2014 sales and marketing expense was $308, a decrease of $1, compared to $309 in the prior year period. The decrease in sales and marketing expenses was due to a decrease of $36 or 88% in allocated engineering sales support, offset by an increase in salaries and related cost, and by an increase in expenses related to trade show activities compared to the prior year period.
Communication Intelligence Corporation
FORM 10-Q
(In thousands, except per share amounts)
General and Administrative Expenses
For the three months ended March 31, 2014, general and administrative expenses was $463, an decrease of $133, or 22% compared to general and administrative expenses of $596 in the prior year period. The decrease was primarily due to a decrease of $108, or 68% in stock compensation expense related to options grants to employees and administrative consultants in January 2013, and to reductions in other general corporate expenses of $25, or 7%, primarily related to directors and officers insurance expense and annual administrative fees associated with the inactive joint venture, compared to the prior year period.
Other income, expense, net
Other income for the three months ended March 31, 2014 was $2 , an increase of $3, or 300% compared to an expense of $1 in the prior year. The increase was due to payments received for interest billed on past due accounts receivable during the period.
For the three months ended March 31, 2014, the gain on derivative liability was $5, a decrease of $59, or 92%, compared to the gain on derivative liability of $64 in the prior year period. The reduction in the gain on derivative liability is primarily due to the decrease in the number of outstanding derivatives and shorter remaining life of the outstanding derivatives at March 31, 2014 compared to the prior year period.
For the three months ended March 31, 2014, accretion of the beneficial conversion feature on the Company’s Preferred Stock, with an accounting conversion price less than the closing market price on the issuance date(Series C and Series D-1 Preferred Stock), that was issued in the Series D Financings in February and March 2014 (see Liquidity and Capital Resources), as well as dividends issued in kind was $374, an increase of $319, or 580%, compared to $55 in the prior year period. The increase is due to the Series D financings mentioned above. The accretion of the beneficial conversion feature on the Company’s Series C and Series D-1 Preferred Stock that were issued as dividends in kind and in the Series D Financing that were associated with related parties at March 31, 2014, was $73 and the non-related party expense was $301, compared to $33 and $22, in the prior year period.
Liquidity and Capital Resources
At March 31, 2014, cash and cash equivalents totaled $1,147 compared to cash and cash equivalents of $945 at December 31, 2013. The increase in cash was primarily due to cash provided by financing activities of $1,139, offset by cash used in operating activities of $933 and cash used in investing activities of $4. At March 31, 2014, total current assets were $1,483, compared to total current assets of $1,412 at December 31, 2013. At March 31, 2014, the Company's principal sources of funds included its cash and cash equivalents aggregating $1,147.
At March 31, 2014, accounts receivable net, was $278, a decrease of $132, or 32%, compared to accounts receivable net of $410 at December 31, 2013. The decrease is due primarily to the collection of accounts receivable from the fourth quarter 2013 billings and the decrease in deferred maintenance billings during the three months ended March 31, 2014.
At March 31, 2014, prepaid expenses and other current assets were $58, an increase of $1, or 2%, compared to prepaid expenses and other current assets of $57 at December 31, 2013. The increase is due primarily to the addition of new prepaid expense being approximately equal to the write off in prepaid insurance premiums for the current period.
At March 31, 2014, accounts payable were $185, a decrease of $142, or 43%, compared to accounts payable of $327 at December 31, 2013. The decrease is due primarily to the payment of professional service and engineering fees incurred in 2013. At March 31, 2014, accrued compensation was $311, a decrease of $4, or 1%, compared to accrued compensation of $315 at December 31, 2013. The decrease is due primarily to a decrease in the commission accrual on sales during the month of March 2014, compared to December 31, 2013.
At March 31, 2014, total current liabilities were $1,248, a decrease of $116, or 9%, compared to total current liabilities of $1,364 at December 31, 2013. At March 31, 2014, current deferred revenue was $512, an increase of
Communication Intelligence Corporation
FORM 10-Q
(In thousands, except per share amounts)
$22, or 4%, compared to current deferred revenue of $490 at December 31, 2013. Deferred revenue primarily reflects advance payments for maintenance fees from the Company's licensees that are generally recognized as revenue by the Company when all obligations are met or over the term of the maintenance agreement, whichever is longer. Deferred revenue is recorded when the Company receives advance payment from its customers.
For the three months ended March 31, 2014, the Company exercised its option to pay in kind the accrued dividends on Preferred Stock. For the three months ended March 31, 2014, the Company issued an aggregate of 20 shares of Series A-1 Preferred Stock, 274 shares of Series B Preferred Stock, 111 shares of Series C Preferred Stock, 93 shares of Series D-1 Preferred Stock and 123 shares of Series D-2 Preferred Stock in payment of dividends.
On February 7, 2014, the Company sold for $733 in cash, net of $47 administrative fee paid in cash to SG Phoenix and a nonrelated third party, 520 Shares of Series D-1 preferred Stock and 260 shares of Series D-2 Preferred Stock. The investors can receive up to one hundred percent (100%) warrant coverage. These warrants are immediately exercisable at $0.0275 per share and expire three (3) years from the date of issuance. The warrants are exercisable in whole or in part and contain a cashless exercise provision.
On March 6, 2014, the Company sold for $406 in cash, net of $4 in administrative fees paid in cash to an unrelated third party, 273 Shares of Series D-1 preferred Stock and 137 shares of Series D-2 Preferred Stock. The investors can receive up to one hundred percent (100%) warrant coverage. These warrants are immediately exercisable at $0.0275 per share and expire three (3) years from the date of issuance. The warrants are exercisable in whole or in part and contain a cashless exercise provision.
The Company is using the funds received from the above financings for working capital and general corporate purposes.
On May 6, 2014 the Company signed a Credit Agreement which will provide the Company access of up to $2,000 in unsecured indebtedness. See Note 7 to the Condensed Consolidated Financial Statements for more information.
The Company incurred no interest expense and no amortization of debt discount or deferred financing costs for the three months ended March 31, 2014 and 2013.
The Company had the following material commitments as of March 31, 2014:
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Contractual obligations
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|
Total
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
Thereafter
|
|
Operating lease commitments (1)
|
|
|
755
|
|
|
|
213
|
|
|
|
293
|
|
|
|
249
|
|
|
|
−
|
|
|
|
-
|
|
1.
|
The Company extended the lease on its offices in April 2010. The base rent decreased by approximately 6% in November 2011 and will increase by approximately 3% per annum over the term of the new lease, which expires on October 31, 2016.
|
The Company has experienced recurring losses from operations that raise a substantial doubt about its ability to continue as a going concern. There can be no assurance that the Company will have adequate capital resources to fund planned operations or that any additional funds will be available to it when needed, or if available, will be available on favorable terms or in amounts required by it.