-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AuWIo2d1jkANqw3MMqmhO9Gl41ODJu0qohyV5AAppsI2CiH+PVuktBWY5PFM54gT BPCfT1eFNk0J2oBi+ZVFgA== 0000727634-96-000004.txt : 19960814 0000727634-96-000004.hdr.sgml : 19960814 ACCESSION NUMBER: 0000727634-96-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNICATION INTELLIGENCE CORP CENTRAL INDEX KEY: 0000727634 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 942790442 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19301 FILM NUMBER: 96609716 BUSINESS ADDRESS: STREET 1: 275 SHORELINE DR 6TH FL STREET 2: STE 520 CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 4158027888 MAIL ADDRESS: STREET 1: 275 SHORELINE DR STREET 2: STE 520 CITY: REDWOOD CITY STATE: CA ZIP: 94063 10-Q 1 QUARTERLY REPORT ON FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ----- EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 0-19301 COMMUNICATION INTELLIGENCE CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-2790442 - ------------------------------------- ------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 275 Shoreline Drive, Suite 520, Redwood Shores, CA 94065-1413 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (415) 802-7888 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------- -------- Number of shares outstanding of the issuer's Common Stock, as of August 12, 1996: 41,937,898. This Quarterly Report on Form 10-Q contains 12 pages of which this is page 1. COMMUNICATION INTELLIGENCE CORPORATION FORM 10-Q INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Page No. Condensed Consolidated Balance Sheets, at June 30, 1996 and December 31, 1995..........................................3 Condensed Consolidated Statements of Operations, for the three and six month periods ending June 30, 1996 and 1995............4 Condensed Consolidated Statements of Cash Flows, for the six-month periods ending June 30, 1996 and 1995............5 Notes to Condensed Consolidated Financial Statements................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................8 PART II. OTHER INFORMATION Item 4. Submission of Matters to a vote of Security Holders.......11 ------------------------------------------------------------ Item 6. Exhibits and Reports on Form 8-K (a) Exhibits.........................................11 (b) Reports on Form 8-K..............................11 Signatures.........................................................12 See accompanying notes. Communication Intelligence Corporation and Subsidiaries Condensed Consolidated Balance Sheets Unaudited (In Thousands)
June 30, Dec. 31, Assets 1996 1995 (A) -------- --------- Current assets: Cash and cash equivalents .......................... $ 3,873 $ 5,924 Short-term investments ............................. 2,099 1,535 Note receivable from officer ....................... -- 210 Accounts receivable, net ........................... 350 381 Inventories ........................................ 491 249 Other current assets ............................... 383 400 -------- -------- Total current assets ........................... 7,196 8,699 Note receivable from officer ............................ 210 -- Property and equipment, net ............................. 412 336 Capitalized software development costs, net ............. 49 88 Other assets ............................................ 638 653 -------- -------- Total assets ................................... $ 8,505 $ 9,776 ======== ======== Liabilities and stockholders' equity Current liabilities: Short-term debt .................................... $ 100 $ 30 Accounts payable ................................... 261 437 Pre-petition liabilities - current ................. 873 822 Accrued compensation ............................... 282 282 Other accrued liabilities .......................... 475 761 Deferred revenue ................................... 2,334 2,570 Obligations under capital leases - current ......... 16 34 -------- -------- Total current liabilities ...................... 4,341 4,936 Obligations under capital leases - noncurrent ........... 8 8 Pre-petition liabilities - noncurrent ................... -- 822 Commitments Stockholders' equity: Common stock ....................................... 419 400 Additional paid-in capital ......................... 54,875 51,687 Accumulated deficit ................................ (50,990) (47,991) Cumulative foreign currency translation adjustment . (148) (86) -------- -------- Total stockholders' equity ..................... 4,156 4,010 ======== ======== Total liabilities and stockholders' equity ..... $ 8,505 $ 9,776 ======== ========
A. The balance sheet at December 31, 1995 has been derived from the audited financial statements at that date (see Note 1). Communication Intelligence Corporation and Subsidiaries Condensed Consolidated Statements of Operations Unaudited (In Thousands, except per share amounts)
Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Revenues: Product ..................... $ 46 $ 120 $ 187 $ 296 License and royalty ......... 162 16 293 49 Development contract ........ 470 327 837 612 -------- -------- -------- -------- 678 463 1,317 957 Operating costs and expenses: Cost of sales: Product .................. 24 78 120 132 Development contract ..... 334 131 567 192 Other costs .............. 111 76 214 171 Research and development .... 479 493 927 1,018 Sales and marketing ......... 803 595 1,517 1,178 General and administrative .. 535 619 1,029 966 -------- -------- -------- -------- 2,286 1,992 4,374 3,657 -------- -------- -------- -------- Loss from operations ............. (1,608) (1,529) (3,057) (2,700) Interest and other income ........ 75 52 155 107 Interest expense ................. (18) (40) (97) (80) -------- -------- -------- -------- Net loss ................ $ (1,551) $ (1,517) $ (2,999) $ (2,673) ======== ======== ======== ======== Net loss per common share $ (0.04) $ (0.04) $ (0.07) $ (0.08) ======== ======== ======== ======== Weighted average common shares outstanding . 40,925 33,925 40,533 33,832 ======== ======== ======== ========
Communication Intelligence Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows Unaudited (In Thousands)
Six Months Ended June 30, ------------------ ------- ------- 1996 1995 ------- ------- Cash flows from operating activities: Net loss ................................................. $(2,999) $(2,673) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization ....................... 144 199 Net (increase) decrease in operating assets and liabilities: Accounts receivable Inventories ..................................... 31 43 Prepaid expenses and other current assets ....... (242) (131) Accounts payable and accrued compensation ....... 17 66 Deferred revenues ............................... (176) 230 Pre-petition liabilities ........................ (236) (32) Other accrued liabilities ....................... (771) (1,117) (286) (254) ------- ------- Net cash used in operating activities ........... (4,518) (3,669) ------- ------- Cash flows from investing activities: Sale of short-term investments ...................... 6,065 -- Purchase of short-term investments .................. (6,629) -- Acquisition of property and equipment ............... (146) (74) Increase in capitalized software costs .............. -- (10) Increase in other assets ............................ (20) (3) ------- ------- Net cash used in investing activities ........... (730) (87) ------- ------- Cash flows from financing activities: Principal payments on short-term debt ............... (30) (118) Principal payments on capital lease obligations ..... (18) (34) Proceeds from issuance of note payable .............. 100 500 Proceeds from issuance of common stock .............. 3,207 87 ------- ------- Net cash provided by financing activities ....... 3,259 435 ------- ------- Effect of exchange rate changes on cash .................. (62) (13) ------- ------- Net decrease in cash and cash equivalents ................ (2,051) (3,334) Cash and cash equivalents at beginning of quarter ........ 5,924 4,088 ======= ======= Cash and cash equivalents at end of quarter (See note 2) . $ 3,873 $ 754 ======= =======
Communication Intelligence Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows Unaudited (In Thousands)
Six Months Ended June 30, ------------------ 1996 1995 ------- ------- Schedule of non-cash transactions: Issuance of common stock in exchange for pre-petition liabilities ............................. $ -- $188 ======= ======= Issuance of stock purchase warrants in conjunction with short term debt ..................................... $ -- $ 90 ======= ======= Reclassification of current note receivable from officer to non-current ................................... $ 210 $ -- ======= =======
COMMUNICATION INTELLIGENCE CORPORATION FORM 10-Q 1. Interim financial statements The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the financial statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) which Communication Intelligence Corporation (the "Company" or "CIC") considers necessary for a fair presentation of its financial position at the dates and its results of operations and cash flows for the periods presented. The interim results are not necessarily indicative of the results to be expected for the entire year. This financial information should be read in conjunction with the Company's audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 1995. Certain prior period amounts in the financial statements have been reclassified to conform with the current period presentation. 2. Cash and cash equivalents The Company considers all highly liquid investments with original maturities of up to 90 days to be cash equivalents. Short-term investments are classified as "available-for-sale" and are stated at fair value. Any unrealized gains or losses are reported as a separate component of stockholders' equity, but, to date, have not been significant. Cash and cash equivalents included certain highly liquid investments with original maturities of up to 90 days as follows:
June 30, Dec. 31, 1996 1995 ------ ------ (In thousands) Cash in bank ........................ $2,744 $ 441 U.S. Corporate Securities ........... -- 5,483 Other Debt Securities ............... 1,129 -- ====== ====== $3,873 $5,924 ====== ======
Short-term investments consisted of the following available-for-sale securities as follows:
June 30, Dec. 31, 1996 1995 ------ ------ (In thousands) U.S. Corporate Securities .................... $1,499 $ 998 Other Debt Securities ........................ 600 537 ------ ------ $2,099 $1,535 ====== ======
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Revenues for the quarter and six months ended June 30, 1996 increased by 46% and 38% to $678,000 and $1,317,000 respectively, from the comparable three and six month periods of the prior year. Revenues are comprised of product sales, license and royalty fees, and development contract revenues. The increases are principally due to higher license and royalty fees and development contract revenues as discussed below.
Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ (Dollars in Thousands) 1996 1995 1996 1995 ------ ------ ------ ------ Revenues: Product sales .................. $ 46 $ 120 $ 187 $ 296 License and royalty fees ....... 162 16 293 49 Development contract ........... 470 327 837 612 ====== ====== ====== ====== Total Revenues ........... $ 678 $ 463 $1,317 $ 957 ====== ====== ====== ======
Product sales for the three and six months ended June 30, 1996 decreased to $46,000 and $187,000 compared to $120,000 and $296,000 respectively in the prior year periods. The decline in Product sales for the three months ended June 30, 1996 was due to reduced unit orders from the Company's distributors. The reduction in unit sales to distributors was offset in part by an increase in unit sales to corporate and retail accounts and sales direct to end users. The decline in Product sales for the six months ended June 30, 1996, was also due to reductions in MacHandwriter II unit sales by the Company's Japanese subsidiary. Since the second quarter of 1994, the Company has concentrated its domestic sales effort on distributors and catalog resellers. In 1995, the Company began a limited entry into the retail and corporate markets with its domestic Handwriter products. The Company plans to expand its retail and corporate market sales efforts during 1996. There can be no assurance that the Company will be successful in its efforts to broaden its corporate and retail market distribution. Revenues from license and royalty fees for the three and six month periods ended June 30, 1996 increased to $162,000 and $293,000 from $16,000 and $49,000 respectively in the comparable prior year periods. This increase is primarily the result of higher shipment volumes by the Company's licensees. Development contract revenues for the three and six month period ended June 30, 1996 increased 44% and 37% to $470,000 and $837,000 compared to $327,000 and $612,000 respectively in the comparable prior year periods. The increase is due to increased operational and marketing activities by the Company's 79% owned joint venture in The Peoples Republic of China (the "Joint Venture"), compared to the same periods last year. The increases for the three and six month periods were offset in part by a decrease in revenues attributable to a grant from the US Government's National Institute of Standards and Technology ("NIST") which expired in April 1996. For the six months period ended June 30, 1996, revenue attributable to the NIST grant was $91,000 compared to $332,000 during the comparable prior year period. The NIST grant was awarded in December 1993 to supplement the Company's development of a recognition system for the Chinese language. Cost of sales includes the costs of materials, procurement, warehousing, and related personnel in connection with the sales of the Company's products as well as the amortization of capitalized software development costs. Costs incurred in connection with the NIST grant, included in development contract revenue, are expensed as incurred and are included in research and development expenses. Cost of sales for the three and six month periods increased to $469,000 and $901,000 as compared to $285,000 and $495,000 for the comparable periods of the prior year. The increases are attributable to a shift in the revenue mix to lower margin development contract revenues generated by the Joint Venture, and increases in the costs of procurement, warehousing, and related personnel. Amortization of software development costs declined to $17,000 and $39,000 respectively for the three and six month periods ended June 30, 1996 as compared to $32,000 and $81,000 respectively for the comparable periods of the prior year. Research and development expenses for the three and six month periods ended June 30, 1996 decreased by 3% and 9% to $479,000 and $927,000 respectively as compared to $493,000 and $1,018,000 respectively during the comparable periods of the prior year. The decreases are primarily attributable to decreases in the purchase of outside development services, and the reduction of other overhead costs. Sales and marketing expenses for the three and six month periods ended June 30, 1996 increased 35% and 29% to $803,000 and $1,517,000 as compared to $595,000 and $1,178,000 respectively in the comparable periods of the prior year. These increase are primarily due to additions in staffing and related costs in support of heightened sales activities in the U. S. and China. General and administrative expenses for the three month period ended June 30, 1996 decreased 14% to $535,000 as compared to $619,000 in the comparable period of the prior year. For the six months ended June 30, 1996, general and administrative expenses increased 7% to $1,029,000 as compared to $966,000 in the comparable period of the prior year The decrease during the three month period ended June 30, 1996 is due to non recurring recruiting expenses related to the search for a senior executive officer in the comparable period of the prior year. The increase over the six months ended June 30, 1996 reflects increased costs of professional services, insurance, and personnel and related costs. Liquidity and Capital Resources Cash, cash equivalents, and short-term investments totaled $5,972,000 at June 30, 1996, compared to cash, cash equivalents and short-term investments of $7,459,000 at December 31, 1995. This decrease was primarily the result of $4,518,000 used in operating activities offset by $3,259,000 provided by financing activities as discussed below. Total current assets were $7,196,000 at June 30, 1996 compared to $8,699,000 at December 31, 1995. Current liabilities, which include deferred revenue, were $4,341,000 at June 30, 1996. Deferred revenue, totaling $2,334,000 at June 30, 1996, primarily reflects nonrefundable advance royalty fees received from the Company's licensees which are generally recognized as revenue by the Company in the period in which licensees report that products incorporating the Company's software have been shipped. As such, the period over which such deferred revenue will be recognized as revenue is uncertain because the Company cannot presently determine either the timing or volume of future shipments by its licensees. Under the terms of the Company's agreement with IBM, the Company is obligated to share certain royalties from third parties with IBM when earned. In June 1996, the Company completed a private placement of 600,000 shares of the Company's common stock, at a price of $4.50 per share, subject to certain adjustments. The net proceeds to the Company was approximately $2,523,000. The Company has agreed to register, under the Securities Act, the shares issued in the private placement. In 1993, the Company formed the Joint Venture with The Ministry of Electronic Industries of Jiangsu Province (the "Government") of The People's Republic of China. The Joint Venture, Communication Intelligence Computer Corporation, Ltd. ("CICC"), is 79% owned by the Company. Under the provisions of the joint venture agreement, in exchange for 79% ownership, the Company is to contribute up to $5.4 million in cash, and the Company will provide non-exclusive licenses to technology and certain distribution rights. The Government will contribute certain land use rights and provide other services for the joint venture. As of June 30, 1996, the Company had contributed $900,000 in cash and had provided non-exclusive licenses to technology and certain distribution rights, while the Government had contributed certain land use rights. In February 1996, CICC repaid borrowings of approximately $30,000 denominated in Chinese currency to a local bank. In May 1996, the Joint Venture borrowed the approximate equivalent of $100,000 denominated in Chinese currency from a local bank. The note bears interest at 8% and is due in August 1996. As of June 30, 1996, the Company's principal source of liquidity was its cash, cash equivalents and short-term investments of $5,972,000. The Company believes that the above mentioned funds, together with anticipated revenues, are adequate to meet projected working capital and other cash requirements through the end of 1996. Future Results and Stock Price The Company's future earnings and stock price may be subject to significant volatility. The public stock markets have exhibited extreme volatility in stock prices in recent years. The stock prices of high technology companies have experienced particularly high volatility, including at times severe price changes that are unrelated or disproportional to the operating performance of these specific companies. The trading price of the Company's Common Stock could be subject to wide fluctuation in response to, among other factors, quarter-to-quarter variations in operating results, announcements of technological innovations or new products by the Company or its competitors, announcements of new strategic relationships by the Company or its competitors, general conditions in the computer industry or the global economy generally, or market volatility unrelated to the Company's business and operating results. Item 4. Submission of Matters to a Vote of Security Holders The Company held its Annual General Meeting of stockholders on May 20, 1996. The number of shares of Common Stock with voting rights as of the record date represented at the meeting either in person or by proxy was 35,906,473 shares or 89 percent of the eligible outstanding Common Stock of the Company. Three proposals were voted upon by the stockholders. The proposals and the voting results follow: Proposal 1 Each of the six persons listed below were re-elected as directors to serve until the next Annual General Meeting or until his successor is elected or appointed. The number of votes for and withheld for each individual is listed next to his name.
Name For Withheld - --------------------------- ------------------- ------------------ George P. Clayson III 35,869,970 36,503 James Dao 35,858,270 48,203 Michael McFarland 35,858,270 48,203 Philip Sassower 35,868,170 38,303 Dr. Donald R. Scheuch 35,851,520 54,953 C. B. Sung 35,869,620 36,853
Proposal 2 It was resolved to increase the number of Common Shares available for issuance under the Company's 1994 Stock option plan. The number of votes for, against and abstaining on this proposal follows:
For Against Abstain - ------------------- ------------------ ------------------ 34,540,916 1,231,645 133,912
Proposal 3 It was resolved that KPMG Peat Marwick LLP be appointed as auditors of the Company for the fiscal year ending December 31, 1996 and that the Board of Directors be authorized to fix the remuneration to be paid to the auditors. The number of votes for, against and abstaining on this proposal follows:
For Against Abstain - ------------------- ------------------ ------------------ 34,540,916 1,231,645 133,912
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None. (b) Reports on Form 8-K On June 27, 1996 the Company filed a Form 8K under ITEM 5, Other Events, regarding the private placement of 600,000 shares of the Company's Common Stock, and the approval of its common shares for quotation on the NASDAQ SmallCap market. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COMMUNICATION INTELLIGENCE CORPORATION --------------------------------------- Registrant August 12, 1996 /s/ Francis V. Dane - -------------- --------------------------------------- Date Francis V. Dane Vice President, Secretary and Treasurer EX-27 2 FDS --
5 The Schedule contains summary financial information extracted from June 30, 1996 Form 10-Q Financial Statements and is qualified in its entirety by reference to such financial statements. 0000727634 Communication Intelligence Corporation 1,000 U.S. Dollars 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 3,873 2,099 350 0 491 7,196 412 0 8,505 4,341 0 0 0 419 0 8,505 187 1,317 901 2,374 0 0 (97) (2,999) 0 (2,999) 0 0 0 (2,999) (.07) 0
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